In re Leavitt & Grant

HAND, District Judge. In this case the brokers wrongfully pledged securities belonging to their customers as collateral for a loan in their bank. It so happened on the day of the failure that their deposit in the bank amounted to some $12,000. Upon the failure, the bank, in accordance with a collateral note to that effect, as well as with their right at law, applied the deposit upon the note and sold the securities. The question is whether in marshaling the balance the trustee may withdraw the amount of the deposit or not. It seems to us that the case is only another illustration of the familiar doctrine of subrogation. Here the customers’ goods became security, involuntarily, for a loan of the bankrupts. Their goods were sold, and the proceeds paid the loan; being by this subrogated, they may insist upon the position of the original creditor, with all his rights either to securities (Guild v. Butler, 127 Mass. 386) or to set-off (St. Croix Timber Co. v. Joseph, 142 Wis. 55, 124 N. W. 1049; Bechervaise v. Lewis, L. R. 7 C. P. 372). When. Leavitt & Grant made the deposit, they subjected it to the right of set-off under the terms of the note. This was an express pledge, though [902] it need not have been express, for the law creates it independently of the words of the parties,, As to the claim of Masters, it cannot be allowed. The rule in Gorman v. Littlefield, 229 U. S. 19, 33 Sup. Ct. 690, 57 L. Ed. 1047, depends upon the fact that a broker bought back stock of similar character and kept it in his vaults. It is not to be supposed that the mere fact of replenishing a bank account was done with the intent of making up the deficiency. The difference between buying specific stock and getting cash is obvious. The order is reversed, and fund will be distributed to the claimants, who can all be paid in full. Costs to the claimants in this court only.