225 U.S. 90 (1912), 92, Sexton v. Kessler & Company, Limited

Docket Nº:No. 92
Citation:225 U.S. 90, 32 S.Ct. 657, 56 L.Ed. 995
Party Name:Sexton v. Kessler & Company, Limited
Case Date:May 27, 1912
Court:United States Supreme Court

Page 90

225 U.S. 90 (1912)

32 S.Ct. 657, 56 L.Ed. 995



Kessler & Company, Limited

No. 92

United States Supreme Court

May 27, 1912

Argued December 12, 13, 1911




The conduct of businessmen, acting without lawyers and in good faith, attempting to create a personal security for an actual debt should be fairly construed as actually effecting what the parties meant, and so held in this case that an escrow of securities made by a banking firm in New York to secure its drafts upon a foreign bank amounted to a lien on the securities to be preferred to the claim of the trustee in bankruptcy, notwithstanding that the New York firm retained physical power over the securities, as agent for the foreign house, and had the right to substitute other securities for those withdrawn and sold.

Under the decisions of this Court and the courts of New York, a customer has such an interest in securities carried for him by a broker that a delivery to him after the insolvency of the broker is not necessarily a preference under the bankruptcy law. Richardson v. Shaw, 209 U.S. 365.

172 F. 535 affirmed

The facts, which involve the question of whether, under the Bankruptcy Act of 1898, certain transfers of securities b the bankrupt constituted a fraudulent preference, are stated in the opinion.

Page 95

HOLMES, J., lead opinion

MR. JUSTICE HOLMES delivered the opinion of the Court.

This is a bill brought by a trustee in bankruptcy to set aside an alleged fraudulent preference. The circuit court of appeals reversed a decree of the district court for the plaintiffs, and dismissed the bill. 172 F. 535. It will be enough for our decision to state the following facts: the appellee was an English company and the bankrupts a New York firm, intimately connected with it, which for many years had drawn upon it. In February, 1903, the English house requested the New York firm to set aside securities for their drawing credit. The New York firm wrote on June 30 that they had that day placed in a separate package in their safe deposit vaults certain securities named, the package being marked, "Escrow for account of Kessler & Co., Limited, Manchester," adding, "This escrow is intended as a protection against our long drawings against your good selves." This letter was acknowledged, and it was added,

If at any time you have the opportunity to realizing these securities or any part of them, you are at liberty to take them and to replace them by others of equal value, though in that case we should, of course, like to see rather better quality.


Page 96

December of the same year, the English house suggested a form of certificate as follows:

We certify that we have specially set aside and hold for your account, on this, the 31st day of December, '03, as security for the drawing credit which you accord us, the following securities. Name secs. and market value.

This was conformed to, and the New York house also entered the securities and all substitutions on their loan book. Substitutions were made from time to time, and the English house notified. The securities always were either negotiable by delivery or indorsed in blank. They were marked and kept as stated in the letter upon a separate shelf of the New York firm's vault, and they never were removed except in 1905 and 1906, when they were taken to the office to be examined and checked off by representatives of the English company. Business went on in this way until the panic of 1907. On October 25 of that year, the stability of the New York firm being in doubt, it handed over the escrow securities to an agent of the English company then in New York, and he deposited them in a safe deposit vault in the name of the company. On...

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