on page 254. The court, speaking by Mr. Justice Moody, said: "The principle governing these decisions, so plain that it needs no reasoning to support it, is that those who seek and obtain the benefit of a charter of incorporation must take the benefit under the conditions and with the burdens prescribed by the law then in force, whether written in the Constitution, in general laws or in the charter itself." The formation of the consolidated company was not imposed upon the complainant; it had the privilege of standing upon such rights as it had by contract or otherwise under the former legislation in force before the adoption of the new constitution. When it saw fit to enter into the consolidation and form a new corporation in 1892 the constitution then in force in the State became the law of its corporate being, and the requirement that corporate property should not be exempt from taxation then became binding upon it, as upon all other corporations formed under the new organic law. We find no error in the judgment of the Circuit Court for the Southern District of Mississippi, and the same is Affirmed. RICHARDSON, TRUSTEE IN BANKRUPTCY, v. SHAW. CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT. No. 122. Argued January 17, 20, 1908.-Decided April 6, 1908. While a broker who carries stocks for a customer on margin may not be strictly a pledgee at common law, he is essentially a pledgee and not the owner of the stock. Markham v. Jaudon, 41 N. Y. 235, approved. Neither the right of the broker to repledge stock carried on margin for a customer, nor his right to sell such stock for his protection when the margin is exhausted, alters the relation of the parties, is inconsistent with the customer's ownership, or converts the broker into the owner of the stock. Argument for Petitioner. 209 U.S. A certificate of stock is not the property itself but the evidence of the property in the shares, and, as one share of stock is not different in kind or quality from every other share of the same issue and company, the return of a different certificate, or the right to substitute one certificate for another of the same number of shares, is not a material change in the property right held by the broker for his customer. A broker who turns over to a customer, upon demand and payment of advances, stock which he is carrying on margin for that customer, or certificates for an equal number of shares, does not make the customer a preferred creditor within the meaning of § 60a of the bankrupt law; in the absence of fraud or preferential transfer the broker has the right to continue to use his estate for the redemption of pledged stocks in order to comply with the valid demand of a customer for stocks carried for him on margin. A payment by the broker to a customer on account of excess margins to which the customer is entitled and which is taken into consideration when the account is finally closed, held, under the circumstances of this case, not to be a preferential payment within the meaning of § 60a of the bankrupt law. 147 Fed. Rep. 659, affirmed. THE facts are stated in the opinion. Mr. John Brooks Leavitt, with whom Mr. Henry Arnold Richardson was on the brief, for petitioner: In the eye of the bankrupt law, the respondents were creditors of the insolvent, and his transfer to them of assets of his own, whereby they were enabled to redeem without loss to themselves the stocks which in carrying on their accounts he had pledged on general loans, constituted a preference over other customers as creditors in the same class. Plainly so, if the lex loci is to govern. The contract was made and performed in Massachusetts, under whose law broker and customer are parties to an executory contract, whereby the broker is obligated to deliver to his customer on demand specified stocks at a price certain. Wood v. Hayes, 15 Gray, 375; Covell v. Loud, 135 Massachusetts, 41; Chase v. Boston, 180 Massachusetts, 458. If the broker does not comply, the customer has a claim provable in insolvency. Lothrop v. Reed, 13 Allen, 294. 209 U. S. Argument for Petitioner. And if an insolvent broker uses his own assets to carry out such a contract, it is a preference under the insolvent law. Weston v. Jordan, 168 Massachusetts, 401. But, even under the law of New York, the respondents should be considered as creditors of the insolvent broker. In that State broker and customer are parties to an executed contract, whereby the latter becomes the owner of specified stocks, and if he has availed himself of the broker's credit to aid in their purchase, he is deemed to have pledged the certificates to the broker for the amount of the latter's advances. Markham v. Jaudon, 41 N. Y. 235; Stewart v. Drake, 46 N. Y. 449; Baker v. Drake, 53 N. Y. 211; Stenton v. Jerome, 54 N. Y. 480; Baker v. Drake, 66 N. Y. 518; Gruman v. Smith, 81 N. Y. 25; Capron v. Thompson, 86 N. Y. 418; Cassell v. Putnam, 120 N. Y. 154; Gillet v. Whiting, 120 N. Y. 402; S. C., 141 N. Y. 71; Minor v. Beveridge, 141 N. Y. 399; Hurd v. Taylor, 181 N. Y. 231; Content v. Banner, 184 N. Y. 121; Leo v. McCormack, 186 N. Y. 330. And even though the broker is not bound to keep on hand the identical certificates, Taussig v. Hart, 58 N. Y. 425, yet if he puts it out of his power, by sale or rehypothecation on general loan, to deliver the identical or similar certificates, he is guilty of conversion. Lawrence v. Maxwell, 53 N. Y. 19. If, however, the pledge on general loan by agreement is not a controlling factor in bringing this broker and his customer within § 60, and an inquiry must be made as to the true theory of their relation in respect of this speculative stock account, the New York theory should not be adopted, as it is based on an assumption which has no foundation in express agreement and is directly contrary to custom. The following cases reviewed: Clews v. Jamieson, 182 U. S. 461; Galigher v. Jones, 129 U. S. 193; Gillet v. Whiting, 141 N. Y. 71; Chase v. Boston, 180 Massachusetts, 458; Leo v. McCormack, 186 N. Y. 330; Kennedy v. Budd, 5 App. Div. 140; Bibb v. Allen, 149 U. S. 481; Hurd v. Taylor, 181 N. Y. 231. Argument for Respondents. 209 U.S. Mr. Louis Marshall, with whom Mr. E. S. Theall, Mr. Francis Fitch and Mr. John A. L. Campbell were on the brief, for respondents: The relation between Shaw & Company and the bankrupt with regard to the shares of stock purchased by the latter for the former, was that of pledgor and pledgee, the bankrupt being the creditor of Shaw & Company, to the extent of any advances made in connection with the purchase of the stock, in excess of the margins deposited with him; hence a violation of § 60 of the bankrupt act cannot be predicated upon the payment by Shaw & Company of their indebtedness to the bankrupt, and the receipt of the securities for which such indebtedness had been incurred. Bankrupt Law, § 60a; New York County National Bank v. Massey, 192 U. S. 138. Although the transaction under consideration occurred in Massachusetts, the questions involved are to be determined not by the local law of Massachusetts, but on principles of general jurisprudence, there being no question as to the validity of the contracts between the bankrupt and Shaw & Company under the local law. Swift v. Tyson, 16 Pet. 1; Chicago v. Robbins, 2 Black 418; Gelpke v. City of Dubuque, 1 Wall. 175; Railroad Co. v. Lockwood, 17 Wall. 357; Boyce v. Tabb, 18 Wall. 548; Oates v. National Bank, 100 U. S. 246; Railroad Co. v. National Bank, 102 U. S. 29, 30; Burgess v. Seligman, 107 U. S. 34; Myrick v. Michigan Central R. R. Co., 107 U. S. 102; Pana v. Bowler, 107 U. S. 541; Smith v. Alabama, 124 U. S. 365, 378; Liverpool Steam Co. v. Phenix Insurance Co., 129 U. S. 443; Baltimore & Ohio R. R. Co. v. Baugh, 149 U. S. 371; Washburn & Moen Mfg. Co. v. Reliance Insurance Co., 179 U. S. 1, 15. When a broker purchases for a customer stock upon margin, the legal title to the stock vests in the customer. The relation of debtor and creditor exists between the customer and broker, as to the unpaid balance of the purchase money, and the stock, being in the possession of the broker, it is deemed pledged to him as security for such unpaid balance. The rela 209 U.S. Argument for Respondents. tion of pledgor and pledgee therefore arises, with this qualification to the usual rule applicable to such relation, that it is not necessary for the broker to retain in his possession the identical stock purchased by him on his customer's order, but it is sufficient if he has in his possession, or under his control, a quantity of the stock in question equal to that purchased, which he can deliver to the customer when the account is closed.. Markham v. Jaudon, 41 N. Y. 235; Skiff v. Stoddard, 63 Connecticut, 198; S. C., 21 L. R. A. 102, 113. This is the uniform rule in New York. Stewart v. Drake, 46 N. Y. 449; Stenton v. Jerome, 54 N. Y. 480; Baker v. Drake, 53 N. Y. 211; S. C., 66 N. Y. 518; Taussig v. Hart, 58 N. Y. 425; Gruman v. Smith, 81 N. Y. 25; Capron v. Thompson, 86 N. Y. 418; Caswell v. Putnam, 120 N. Y. 154; Gillet v. Whiting, 120 N. Y. 402; S. C., 141 N. Y. 73; Minor v. Beveridge, 141 N. Y. 399; LeMarchant v. Moore, 150 N. Y. 209; Rothschild v. Allen, 90 App. Div. 233, aff'd 180 N. Y. 561; Hurd v. Taylor, 181 N. Y. 231; Tompkins v. Morton Trust Co., 91 App. Div. 279, aff'd 181 N. Y. 578; Content v. Banner, 184 N. Y. 121; Kennedy v. Budd, 5 App. Div. 140; Douglass v. Carpenter, 17 App. Div. 329; Strickland v. Magoun, 119 App. Div. 113; Andrews v. Clerke, 3 Bosw. 585; Taylor v. Ketcham, 5 Rob. 507; Chamberlain v. Greenleaf, 4 Abb. N. C. 478; Willard v. White, 56 Hun, 581. The same rule has been adopted in other States. Child v. Hugg, 41 California, 519; Thompson v. Toland, 48 California, 99; Cashman v. Root, 89 California, 373; Skiff v. Stoddard, 63 Connecticut, 198; Gilpin v. Howell, 5 Pa. St. 41; Wynkoop v. Seal, 64 Pa. St. 361; Esser v. Linderman, 71 Pa. St. 76; Hopkins v. O'Kane, 169 Pa. St. 478; Maryland Life Ins. Co. v. Dalrymple, 25 Maryland, 242; Baltimore Ins. Co. v. Dalrymple, 25 Maryland, 269; Brewster v. Van Liew, 119 Illinois, 554. It has been likewise impliedly recognized in Galigher v. Jones, 129 U. S. 193; Crawford v. Burke, 195 U. S. 176, 194; Re Bolling, 147 Fed. Rep. 786. Also by the text-writers. VOL. CCIX-24 |