This appeal is from the judgment of the court below ratifying and affirming an order of the Referee awarding to ap-pellee the sum of $3,550.00 in the hands of the Trustee in Bankruptcy of John Raymond Lucas.
John R. Lucas filed a petition in bankruptcy April 25, 1956, and Frank S. Blackford was appointed trustee. Appellants Dr. George R. Gordon, Albert E. Levenson and Dr. Hurley J. Knight were named as members of a creditors committee in connection with the special fund here involved. Appellee Versal Spalding, Jr. was the owner by assignment of the claim of Charlie Thompson and Otis Brown who, for themselves and others, had paid the bankrupt $3,550.00 as the purchase price of one hundred shares of the capital stock of Vulcan Life & Accident Insurance Company a short time before the petition in bankruptcy was filed. Appellee filed, and the Referee allowed over the objection of the trustee and of the Creditors Committee, a Claim for Reclamation1 of this $3,550.00 ana, as stated, the court below denied appellants’ petition for review.
The facts as found by the Referee are these: The bankrupt was engaged in the *329general business of a stockbroker. On Aug. 30, 1956, he confirmed the sale of 100 shares of common stock of Vulcan at a price of $3,550.00 to Charlie Thompson and Otis R. Brown,2 noting on the purchase order that it had been sold to Thompson. The bankrupt had purchased the stock in his own name from a dealer in Montgomery, Alabama. Upon the arrival of the stock in Birmingham, with sight draft attached, the bankrupt sold it to another for $100.00 less than he had purchased it for.
The stock arrived in Birmingham Sept. 7th and, the next day, the bankrupt called Thompson and Brown on the telephone asking them to mail him the purchase money. They mailed him, Sept. 11th, a certified check on Hamilton National Bank of Chattanooga, Tenn. When the bankrupt received the certified check on the Chattanooga bank he deposited it in his account at the Bank for Savings & Trusts, Birmingham, Ala., and it was cleared through regular channels and he was given credit for this amount on Sept. 12th.
Sept. 13th, the Birmingham bank closed out the account by issuing its cashier’s check to the bankrupt in the sum of $7,735.32. But, at the request of the vice president of said bank, the bankrupt returned the cashier’s check and the bank deducted $4,000.00 to cover an item in the bankrupt’s account upon which payment had been stopped; and the bank issued to the bankrupt another cashier’s check dated September 19, 1956 for $3,-639.44, closing out the account. Upon the filing of the petition in bankruptcy on Sept. 25, 1956, the bankrupt turned this check over to his attorney, who in turn delivered it to the trustee in bankruptcy, and it was deposited by him in a separate account.
Upon these facts the Referee found that “The Bankrupt committed a conversion and fraud on said purchasers, and acquired no title to the funds so received and deposited and under the Doctrine of Constructive Trusts the title and beneficial ownership of the said funds remained in Thompson and Brown, who received nothing therefor and are entitled to rescind.” He held further that “such a short time elapsed between the time of the deposit of the cashier’s check on Sept. 12th and the bankruptcy on Sept. 25th that no question of the right of bona fide purchasers or creditors extending credit on the strength of the bankruptcy’s ownership of said funds is presented.” 3
This holding of the Referee is in accord with established principles governing such matters. A good illustration of their application is found in the recent case of Jaffke, Petitioner v. Dunham, Trustee of Knetzer, 7 Cir., 1956, 229 F.2d 232, reversed by the Supreme Court 1957, 352 U.S. 280, 77 S.Ct. 307, 1 L.Ed.2d 314. Jaffke, along with a number of others, was induced by Knetzer s fraud to advance him a large amount of money subsequent to his bankruptcy. Upon a reclamation proceeding under Illinois law the trustee in bankruptcy was ordered by the referee to pay to Jaffke the sum of $27,400.00. The district court affirmed upon its finding that this amount had come into the possession of the trustee. *330The Court of Appeals, while recognizing the propriety of the reclamation proceeding, reversed, holding that there was no competent proof that this money had come into the hands of the trustee in bankruptcy. The Supreme Court disagreed and sent the case back for a determination under the law of Illinois of the question whether the trustee in bankruptcy had received from Jaffke the money obtained by the fraud of the bankrupt.4
Under slightly different facts the Circuit Court of Appeals for the Second Circuit5 approved the recovery in a reclamation proceeding under New York law of the value of merchandise obtained by the bankrupt holding that recovery could be had of the goods in specie or of their value or proceeds.6
The Referee in the case before us held that the Doctrine of Constructive Trust is firmly embedded in the law of Alabama,7 and that appellee was entitled to reclaim under that doctrine. Appellants do not take issue with this portion of the Referee’s findings. On the other hand, appellants base their entire argument upon the assertion that the bankrupt was a “stockbroker” within the purview of § 60, sub. e(l) of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. e(l); and that, since under subsection (4) the money cannot be specifically identified, it should be held in a separate fund by the trustee and should be disbursed ratably under the provisions of subsection (2) of § 60, sub. e of the said Act. We are not able to agree with appellants’ contentions because, in our opinion, the bankrupt, in the handling of the transaction before us, was not a stockbroker within the contemplation of said § 60, sub. e(l).
A stockbroker is defined 8 as “a person who acts as an agent in buying and selling stocks and bonds.” Lucas was not, in purchasing this stock, acting as an agent. He purchased the stock outright in his own name, and he had confirmed a sale of it to appellee’s assignors. Instead, he made an outright sale to another. It is clear, therefore, that he was acting throughout as principal in a transaction of purchase and sale. This concept not only inheres in the nature of the deal, but the bankrupt stated categorically when being questioned that, in this entire transaction, he acted as principal.
The history as well as the text9 of said § 60, sub. e(l) indicates clearly that it was intended to apply only to *331those who hold securities on margin and otherwise, not as owners, but as agents for their customers.
Both parties rely on the decision of the Circuit Court of Appeals of the Third Circuit, 1941, In re McMillan, Rapp & Co., 123 F.2d 428, 138 A.L.R. 765, affirming the action of a district court of Pennsylvania in a series of cases10 in awarding reclamation of securities to the customers of a bankrupt. In McMillan the bankrupt was engaged in the business of a merchant, buying and selling securities. But in some instances it acted as stockbroker.11 This extended quotation from McMillan points out clearly these two things: (1) every transaction is judged by its own character and ingredients and acquires its legal status from these alone; (2) whether the bankrupt is a merchant of securities or a stockbroker in the usual sense is to be determined, not from the name he applies to his business, but to the nature of his transaction which is brought under judicial scrutiny. , ^ -
Here, the situation is the converse of that which faced the court in McMillan. The bankrupt here conducted his business regularly and usually as a stockbroker. But he purchased and sold some securities as principal. The transaction *332involved here was, as stated, one where he bought and contracted to sell the stock as principal, and § 60, sub. e(l) does not apply to it. This being true and it appearing that the Referee was amply justified in finding that the bankrupt had defrauded appellee’s assignors and that the money paid by them to the bankrupt had gone into the hands of the trustee, it was recoverable under the Alabama law governing constructive trusts.
It results that the district court was correct in denying the petition to review the order of the Referee, and its judgment so doing is affirmed.
Affirmed.
. Appellee first filed a Preferred Claim and, before hearing, substituted a Reclamation Petition for enforcement of a constructive trust. The Referee consolidated the two and considered the claim as one for reclamation.
. Thompson and Brown made the purchase on behalf of a larger group residing in Chattanooga, Tennessee. Upon being advised of the fraud perpetrated upon them by the bankrupt, appellee Versal Spalding, Jr., an officer of Vulcan, made good the purchase of the stock by delivering at his own expense 100 shares of Vulcan stock to Thompson and Brown, taking an assignment and transfer of their claim against the bankrupt estate.
. Citing 4 Collier on Bankruptcy, 14th Edition, Par. 70.41, pp. 1207-1208: “The law of contracts in most states permits rescission by a party who was induced to enter into a contract by a fraudulent or innocent misrepresentation. * * * The intervention of bankruptcy between bargain and rescission lias not been allowed to interfere with the right to rescind and reclaim; the trustee in bankruptcy takes title to the bankrupt’s property subject to the retroactive divestment effected by such a rescission * * Most of the issues in bankruptcy cases involving the right to rescission are variations on a single theme: does the act complained of give rise to a right to rescission under the local law? * * * ”
. The case was heard again by the Court of Appeals for the Seventh Circuit, which reaffirmed that the proffered evidence was inadmissible under Illinois law, and that there was, therefore, no proof available to show that money ever went to the trustee (see 243 F.2d 460), and the Supreme Court denied certiorari, 355 U.S. 835, 78 S.Ct. 55, 2 L.Ed,2d 46. But the principle of law here considered was not questioned in any of the opinions. In its second decision the Court oí the Seventh Circuit stated (243 F.2d at page 461): “There is, and could be, no real dispute between the parties that the pe-tioner, under the facts of this case, was entitled to reclaim from the funds in the hands of the trustee in bankruptcy such amount, if any, as the bankrupt obtained from the petitioner by fraud and then traced into the hands of the trustee. * * *»
. In re Liebig, Petition of Holley, 1918, 255 F. 458.
. And see also Donaldson, Assignee v. Farwell, 1876, 93 U.S. 631, 23 L.Ed. 993; Mulhern v. Albin, 8 Cir., 1947, 163 F.2d 41; Elbro Knitting Mills v. Schwartz, 6 Cir., 1929, 30 F.2d 10; In re Sherman, 2 Cir., 1926, 13 F.2d 121; In the Matter of Bentzel, Bankrupt, U.S.D.C. Md.1958, 161 F.Supp. 219; and In the Matter of Van Meter, Bankrupt, D.C.W.D.Ark.1955, 135 F.Supp. 781.
. Citing Kent v. Dean, 128 Ala. 600, 609, 30 So. 543; Manning v. Pippen, 86 Ala. 357, 5 So. 572; Moore v. Crawford, 130 U.S. 122, 9 S.Ct. 447, 32 L.Ed. 878 and 2 Pomeroy, Equity, pp. 1053 and 1955, from which an extensive quotation is made.
. Webster’s New World Dictionary, College Edition, p. 1436.
. “Where the bankrupt is a stockbroker, the following definitions and provisions of this subdivision shall apply: ‘Property’ shall include cash, securities, wheth*331er or not negotiable, and all other property of similar character; ‘customers’ of a stockbroker shall include persons who have claims on account of securities received, acquired, or held by the stockbroker from or for the account of such persons (a) for safekeeping, or (b) with a view to sale, or (e) to cover consummated sales, or (d) pursuant to purchases, or (e) as collateral security, or (f) by way of loans of securities by such persons to the stockbroker, and shall include persons who have claims against the stockbroker arising out of sales or conversions of such securities; ‘cash customers’ shall mean customers entitled to immediate possession of such securities without the payment of any sum to the stockbroker; * * * the ‘net equity’ of a customer’s account shall be determined by excluding any specifically identifiable securities reclaimable by the customer and by subtracting the indebtedness of. tiie customer to the stockbroker from the sum which would have been owing by the stockbroker to the cnstomer had the stockbroker liquidated, by sale or purchase on the date of the bankrutcy, the remaining securities or security commitments of the customer.”
. 38 F.Supp. 40, 41, 43, 45.
. Said the Court of the Third Circuit, (123 F.2d at page 429, et seq.) :
“Notwithstanding the bankrupt had generally conducted an investment business and, consequently, had ordinarily acted as principal and not as agent, it is plain that, in respect of the stock purchases involved in the present appeals, the bankrupt acted as broker or agent for these claimants. It follows, as a matter of law, that the instant claims are subject to the provisions of Section 60, sub. e. * * *
“Section 60, sub. e is new, having been introduced into the bankruptcy law by the Chandler Act. So far as we arc advised, paragraph (4) has not heretofore been judicially construed except by the District Court in the instant cases. Clearly, the purpose of the provision was to correct a very definite and well-recognized situation. Prior to the enactment of Section 60, sub. e, inequalities had developed in the distribution of a stockbroker’s estate in bankruptcy due to the fact that some purchasers of stock on margin or depositors of stock or other property were able to lift their stocks or property from the possession of the bankrupt’s estate upon paying any debit balances due by them, while others were left with nothing more than claims as general creditors of the bankrupt because there was insufficient stock of a particular kind in the estate or none at all to allocate to their accounts. So that, although two customers stood in the same relation to the stockbroker as the owners of stock acquired or held for them subject to debit balances, one was able, upon the stockbroker’s bankruptcy, to obtain preferential treatment over the other depending upon the mere accident of circumstances.
“ * * * The effect of Section 60, snb. e was to place all margin customers of a stockbroker in a single and separate class whose participation in the distribution of the stockbroker’s estate in bankruptcy is limited to the single and separate fund composed of the proceeds of such customer’s property, rightfully transferred or unlawfully converted by the stockbroker, and in which fund such customers share ratably according to their respective net equities as of the date of bankruptcy. * * * ”