In re Toole

270 F. 195, 1920 U.S. App. LEXIS 1962

• Court: Court of Appeals for the Second Circuit
• Decided: November 10, 1920
• Docket: No. 37
• Status: Published

Opinion

WARD, Circuit Judge.

Logan & Bryan and Stout & Co., both members /of the New York Stock Exchange, each claim a fund of $7,701.08, proceeds of a check of Stout & Co. to the order of Toole, Henry & Co., now in the hands- of the trustee in bankruptcy of Toole, Henry & Co., also members of the New York Stock Exchange, as a separate fund awaiting the decision of the controversy between the rival claimants.

[1] Judge A. N. Hand dismissed the petition of Logan & Bryan, and directed the trustee to pay over the fund to Stout & Co. Logan & Bryan have taken both a petition to revise and an appeal from this order. The claim, being a reclamation by a third party of his own property in the hands of the trustee, is a controversy arising in bankruptcy proceedings, and the proper remedy is appeal under section 24a, and not a petition to revise under section 24b of the Bankruptcy Act (Comp. St. § 9608).

[2] April 2, 1919, Logan & Bryan delivered to Toole, Henry & Co. certificate No. C40667 for 100 shares of Central Leather stock, indorsed in blank, together with a bill for the purchase price $7,537.50. This was a cash transaction, and the messenger, in accordance with the usual practice of stockbrokers, left the certificate and bill with Toole, Henry & Co., and subsequently returned for their check, which was refused, because in the meantime a- receiver in bankruptcy of that firm had been appointed.

April 1, 1919, Stout & Co. had loaned Toole, Henry & Co. certificate No. 40436 for 100 shares of Central Leather stock, with interest at 4 per cent., to be returned the next day, and to be secured in the meantime by deposit of collateral in the amount of $7,702, which was the agreed value of the stock plus the price of the stock transfer stamps. After banking hours on that da}*- Toole, Henry & Co. sent as collateral to Stout & Co. their check for $7,702, which Stout & Co. deposited in their bank; it then being too late for certification.

April 2, Toole, Henry & Co. delivered the certificate No. C40667 to Stout & Co. in return for the certificate they had borrowed the day before, and Stout & Co., supposing that the collateral check of Toole, Henry & Co. for m>7,702 had been paid, and not knowing of their insolvency, nor of the appointment of a receiver, sent them their check, dated April 2, for $7,701.08, the amount of the collateral with interest at 4 per cent. In point of fact, the check of Toole, Henry & Co. was returned, “Payment stopped by receiver.” The receiver collected the' check of Stout & Co. for $7,701.08.

As between Logan & Bryan, on the one hand, and Toole, Henry & Co. and their receiver, on the other, certificate No. C40667 was Logan & Bryan’s. Toole, Henry & Co. never had any title to it, and fraudulently delivered it to Stout & Co. In re T. A. McIntyre & Co., Appeal of Pippey, 181 Fed. 955, 104 C. C. A. 419; In re Perpall, 256 Fed. 758, 168 C. C. A. 104.

On the other hand, Stout & Co. were purchasers of the certificate for value in good faith without notice, and between them and Toole, Henry ,& Co. and their receiver they were the owners of it, subject only to the duty of returning Toole, Henry & Co.’s collateral. Personal Property Law of the State of New York, §§ 167, 168 (chapter 600, Laws 1913).

If Stout S: Co. had not sent their check for $7,701.08, all Toole, Henry & Co. or their receiver would have been entitled to would have been the unpaid check for $7,702. The fact that Stout & Co. sent their check to Toole, Henry & Co., supposing that they had received the collateral from Toole, Henry & Co., does not impair their rights. They are entitled to a return of their money in the hands of the trustee as paid without consideration.

Logan & Bryan are not connected with the collateral of the loan at all. If it had been paid to Stout & Co., and by them returned to Toole, Henry & Co., Logan & Bryan would have had no right to it as being their property in the hands of the trustee.

The order is affirmed.