In December, 1871, Y., who was a member of the stock exchanges
in New York and in Philadelphia, was declared to be a bankrupt. At
that time, his seat in the New York Exchange was worth about
$4,000, and the other about $2,000. By the rules of each,
membership, in case of failure, was suspended until settlement with
its members who were creditors, and the seat in each was liable to
be sold and the proceeds applied to the payment of the debts of
such of its members. At the time of his failure, the indebtedness
of Y. to members of the New York Exchange amounted to about $8,500,
and to members of the Philadelphia Exchange to nearly $22,000. The
assignees notified each exchange of their appointment, but took no
steps to adjust the debts or to acquire the seats, which were
appraised as of no value. Within two years, Y. notified them that
assessments on the seats were overdue. They told him he was the
proper party to pay them, and that what he might pay would be
recognized as properly to be refunded in case the seats should be
sold by them. Y. was discharged in bankruptcy in 1873. From his
private means he paid all assessments overdue and from time to time
maturing, and eventually settled with all the creditor members.
Such members had proved their
Page 142 U. S. 2
debts against his estate in bankruptcy, and in the several
settlements he had the benefit of the dividends (28 percent) paid
by the assignees. Having thus settled all such debts, he was, in
June, 1883, reinstated in his membership in the Philadelphia board,
and in December, 1883, in his membership in the New York board. At
that time, the value of the Philadelphia seat was about $6,000, and
of the New York seat about $20,000. In November, 1885, the
assignees filed bills against Y. and each board to have these
memberships decreed to be assets of the bankrupt's estate.
Held:
(1) That the assignees must be deemed to have elected not to
accept these rights as property of the estate.
(2) That Y. was not their trustee in expending his own money to
give value to a property which was worthless and abandoned.
(3) That the assignees could not be permitted to avail
themselves of the result of his action, or to take the property to
work out a return of the dividends paid to these particular
creditors.
The Court stated the case as follows:
Charles T. Yerkes, Jr., made a voluntary assignment for the
benefit of creditors to Joseph M. Pile, October 21, 1871. On
December 13, 1871, he was adjudicated a bankrupt in the District
Court of the United States for the Eastern District of Pennsylvania
on a creditors' petition, filed November 10, 1871, and appellants
were appointed his assignees January 12th, and the assignment of
the bankrupt estate was duly made to them January 24, 1872. In
February, 1872, the bankruptcy court directed a transfer by Pile of
the estate unadministered by him to the bankrupt's assignees, and
this was subsequently executed and delivered. Ninety-nine creditors
proved debts in the aggregate sum of $829,198.45, upon which
dividends were declared and paid as follows: July 19, 1872, ten
percent, May 12, 1873, nine percent; April 5, 1878, eight percent,
and January 30, 1880, one percent. At the time of the adjudication,
Yerkes was a member of the New York and Philadelphia Stock
Exchanges, which, it is conceded, were unincorporated associations.
These memberships were included in the schedules filed in the
bankruptcy proceedings, and therein stated to be "of no specific
value," and in the inventory and appraisement of the estate
subsequently made they were appraised as of no value. The
Page 142 U. S. 3
Philadelphia membership was then worth not over $2,000, and the
New York membership about $4,000, but the bankrupt was indebted to
members of the Philadelphia Stock Exchange in the sum of
$21,842.11, and to members of the New York Stock Exchange in the
sum of $8,522.99, and under the rules of both associations,
membership was suspended until settlement with creditors, and,
unless settlements were made as provided, the seats were to be sold
and the proceeds divided among the creditor members. The assignees
sent to the associations notice of their appointment in January,
1872, and an additional notice to the New York exchange in May,
1873, stating that it was their duty to realize the value of the
seat, and asking the president to indicate what form, if any, was
prescribed by the rules for transfer or sale. They also addressed a
communication to the Philadelphia board, and perhaps to both, in
November, 1883.
At some time within two years after the assignment, Yerkes
brought to the assignees a notice of an assessment or charge due to
one of the associations on account of the membership, and asked
them what they were going to do about its payment. They answered
that as the claim had been made upon him, they thought he was the
proper party to pay it, and that anything he paid would be
recognized as properly to be refunded out of anything the assignees
might realize for the seats. On October 3, 1873, the bankrupt was
discharged. In 1876,
Hyde v. Woods, 94 U. S.
523, was decided, sustaining the validity of rules of
stock exchanges providing for the application of the proceeds of
sales of memberships to the debts due by members, which the
assignees in these cases had previously been advised by counsel was
the law. As testified by one of the assignees, they had not the
slightest expectation of paying dividends aggregating over
thirty-five percent, and did not suppose that they could realize
anything from the Philadelphia seat, because the indebtedness of
the bankrupt to its members was largely in excess of its value, and
of any dividend they expected his estate would pay, which was also
true of the New York seat. They supposed
Hyde v. Woods
ruled the New York as well as the Philadelphia case, and
Page 142 U. S. 4
were instructed by counsel that the seats could not be made
available so long as they were encumbered with an indebtedness to
members of the guilds to which Mr. Yerkes belonged, and they did
not propose to take any steps until they learned, in the fall of
1883, of Judge McKennan's decision, announced the 28th of the
preceding March, in
In re Werder, 15 F. 789.
Yerkes testified to several conversations, in which it was
generally conceded by the assignees that they had no rights in the
memberships, and that he had no idea that they ever expected to
make such claim, while one of the assignees said that after the
decision in
Hyde v. Woods, there was a conversation
between Yerkes and them in which it was admitted that for the time
being, their proceedings were suspended as to further action, but
that they never withdrew the claim.
From 1871 to 1876, the assignees took no steps to compel a
conveyance or sale of the seats and assumed no liability or
responsibility for the assessments and charges, nor did they for
eight years thereafter. In the meantime, Yerkes, by personal
solicitation, persuaded the members of the associations to withhold
for his personal benefit any demand for a sale. He paid from year
to year the periodical assessments, and also, either in money out
of his own earnings or in services, the debts due the members,
which debts had been reduced by the dividends paid by the estate.
On June 18, 1883, the bankrupt was reelected to membership in the
Philadelphia exchange, and on December 27, 1883, to membership in
the New York exchange, having made his settlements some time
before. The value of the seats in both exchanges increased
considerably in the lapse of time. In the New York board, the value
increased to some $20,000 in 1883, and in the Philadelphia board to
about $6,000 in the same year. Subsequently the New York seats rose
in value to between thirty and thirty-four thousand dollars and the
Philadelphia seats to between five and eight thousand dollars. As
has been stated, by the rules of the exchanges, insolvency of a
member, or a failure to fulfill his contracts (bankruptcy being
also specifically named in the Philadelphia rules) in effect worked
suspension of membership,
Page 142 U. S. 5
and there was a provision for the sale of seats after one year,
on failure of the suspended member to settle with his creditors. In
the rules of the New York board, there was a provision for an
extension of the time for settlement. Under both sets of rules, a
suspended member might be reinstated if the governing committee
reported favorably upon his application. On April 28, 1884, the
assignees presented a petition in the bankruptcy court for the sale
of the memberships, which was dismissed, and on November 14, 1885,
filed two bills in equity to accomplish the same purpose against
the bankrupt and members of the New York and Philadelphia boards.
The bills prayed that it might be decreed that the memberships were
assets of the bankrupt's estate, and vested in the complainants as
his assignees; that they be sold, and complainants' vendees
admitted to membership in place of Yerkes; that, if the court
should determine that Yerkes was entitled to be reimbursed for any
moneys paid by him for or on account of the memberships, such
reimbursement should be decreed out of the proceeds of the sale, or
if it should be determined that Yerkes was entitled to retain the
memberships, he be ordered to account for the market value of the
same and to pay complainants such amounts as they had paid as
dividends upon the debts owed by Yerkes to his fellow-members of
the association at the time of his insolvency and bankruptcy. The
cases were brought to issue, evidence taken, and a master's report
made, to which exceptions were filed, and hearing had thereon. The
master (Mason) held that by virtue of the assignment in bankruptcy,
the assignees' rights in this peculiar property in these
memberships were to settle and arrange the bankrupt's affairs to
the satisfaction of his creditors, members of the associations,
and, having made satisfactory proof of settlement, to apply for
readmission, which could be obtained with the consent of two-thirds
of the governing committee in New York, and of at least fourteen
out of eighteen in Philadelphia, or, if they failed to effect a
settlement in one year, then to have the memberships sold and the
proceeds paid
pro rata to the bankrupt's creditors in the
exchanges; that the assignees exercised neither of these rights,
and the memberships
Page 142 U. S. 6
to which, ten years after his discharge, the bankrupt was again
admitted, constituted in effect after-acquired property; that there
was no assumption of original rights
de jure, and that the
lapse of time was fatal to the assignees' claim, particularly in
view of the section of the bankrupt law as to the limitation of
actions. The exceptions to the master's report were overruled, and
the circuit court dismissed the bills upon the ground of laches.
From these decrees appeals were prosecuted to this Court.
Page 142 U. S. 12
MR. CHIEF JUSTICE FULLER, after stating the facts as above,
delivered the opinion of the Court.
In
Hyde v. Woods, 94 U. S. 523, it
was ruled that the ownership of a seat in a stock and exchange
board is property, not absolute and unqualified, but limited and
restricted by the rules of the association; that such rules, in
imposing the condition upon the disposition of memberships that the
proceeds should be first applied to the benefit of creditor
members, are not open to objection on the ground of public policy
or because in violation of the Bankrupt Act, and that, in the case
of the bankruptcy of a member, his right to a seat would pass to
his assignees, and the balance of the proceeds upon sale could be
recovered for the benefit of the estate. While the property is
peculiar, and in its nature a personal privilege, yet such value as
it may possess, notwithstanding the restrictions to which it is
subject, is susceptible of being realized by creditors.
Ager v.
Murray, 105 U. S. 126;
Stephens v.
Cady, 14 How. 528;
Powell v. Waldron, 89
N.Y. 328;
Belton v. Hatch, 109 N.Y. 593;
Habenicht v.
Lissak, 78 Cal. 351;
Weaver v. Fisher, 110 Ill. 146.
Under the rules of the exchanges in question, suspension of
membership followed upon insolvency, and if the debts due
Page 142 U. S. 13
members were not settled, the seats were to be sold, and the
proceeds, after the charges due the associations were deducted,
were to be distributed
pro rata among those creditors.
Reinstatement in or readmission to membership was provided for upon
a settlement in full by the suspended member and the action of the
governing board in his favor. By the assignment in bankruptcy, all
the bankrupt's rights of action for property or estate and of
redemption, together with his right and authority to sell, manage,
dispose of, and sue for the same, as they existed at the time the
petition was filed, passed to the assignees. Rev.Stat. § 5046.
They might therefore, as the master pointed out, have settled and
arranged the bankrupt's affairs with the creditor members, and
applied for readmission and a transfer in such manner, with the
assent of the exchanges, as would have enabled them to avail
themselves of the seats. They could have properly required the
bankrupt to assist them in taking the necessary steps as between
him and them and the associations, and, in case of necessity, might
have resorted to the courts. They were not bound, however, to
accept property of an onerous and unprofitable nature which would
burden instead of benefiting the estate, and they could elect
whether they would accept or not after due consideration and within
a reasonable time, while if their judgment was unwisely exercised,
the bankruptcy court was open to the creditors to compel a
different conclusion.
Glenny v. Langdon, 98 U. S.
20;
American File Co. v. Garrett, 110 U.
S. 288.
At the time of the filing of the petition in bankruptcy,
November 10, 1871, and of the bankrupt's discharge, October 3,
1873, these suspended memberships were confessedly of no value to
the estate, and were so appraised, because no possible dividend
could be paid equal to the excess of the debts due members over the
then value of the memberships. It may be assumed that the assignees
regarded the expenditure of money in the payment of annual dues and
charges and in settlement with creditor members as not justifiable
under the circumstances. At all events, for twelve years after
their appointment and ten years after the bankrupt's discharge,
Page 142 U. S. 14
they took no steps to obtain possession, and asked no assistance
in that regard from either the bankrupt or the courts, made no
payments to the associations, and attempted no settlements with the
creditor members; considered the realization of anything as
substantially impracticable in view of the situation and of
judicial decision, and contented themselves with the hope that
masterly inactivity might enable them to assert a claim if, by the
efforts of the bankrupt, the load of debt which weighed down the
right to the seats was lifted, and in the progress or years the
value of such seats happened to increase instead of diminish. Nor
did they seek a sale, nor to compel the creditor members to realize
upon or agree to a valuation of the seats and prove only for the
balance of their claims, under Rev.Stat. § 5075, if
applicable, or otherwise to gain the benefit of such reduction as
might thus be obtained; but, on the contrary, allowed these
creditors to prove their debts in full, and paid dividends thereon,
without objection. Except that they notified the exchanges of their
appointment, they did nothing in the way of taking possession or of
the preservation of the property, and for several years prior to
the reinstatement they communicated neither with the bankrupt nor
the exchanges in regard to the matter. Their conduct can be viewed
in no other light than that of an election not to accept these
rights as property of the estate.
The policy of the bankrupt law was, after taking from the
bankrupt all his property not exempt by law, to discharge him from
his debts and liabilities and enable him to take a fresh start.
Henceforward his earnings were his own, and, after his adjudication
and the surrendering of his property to be administered, he was as
much at liberty to purchase any of the property so surrendered as
any other person.
Traer v. Clews, 115 U.
S. 528.
In order to reacquire his seats, Yerkes paid the annual dues to
the exchanges and the assessments for their gratuity or trust funds
-- a scheme of life insurance for the benefit of members, which
added to the value of the memberships when payments were kept up,
and which funds were established after
Page 142 U. S. 15
the bankruptcy. He induced his creditor fellow-members, out of
personal consideration for him and for his personal benefit, to
withhold a demand for a sale under the rules, and finally paid them
all in full. Those payments were made in cash or personal services
out of his earnings subsequent to his bankruptcy, and, as appears
from his sworn answer as well as his testimony, under the belief
that the assignees never expected to set up any claim to the seats.
The assignees admit in substance that they knew that Yerkes wished
to retain his seats; that he was of opinion that they could do
nothing with them; that he was preventing by his own exertions any
sale by the board creditors, and that he was paying off their
claims. Thus, by the devotion of his own time and earnings, this
worthless and abandoned property became valuable, and the assignees
acquiesced in the transmutation, as it was accomplished, without
action and without objection. It is to be observed that Yerkes was
in no sense the agent or trustee for the assignees or for the
creditors in thus expending his money and labor for the
preservation of the seats. Whatever information he could impart or
assistance he could render in facilitating the action of the
assignees in the line of their duties was to be expected of him,
and up to the time of his discharge he could have been compelled by
summary order to assist in perfecting possession in the assignees
of property which had passed to them and which they had accepted;
but he was not bound to contribute his own time and money to the
removal of burdens which they declined to assume and whose
existence put the rights to readmission out of the category of
available assets and justified the election of the assignees not to
accept them.
We hold that the assignees, after sedulously avoiding for years
any responsibility in the premises, the assumption of any relations
to the exchanges, the taking of any steps to free the rights from
encumbrance or to realize upon them as encumbered, and allowing the
bankrupt, by the use of after-acquisitions, to create a value not
theretofore possessed, cannot be allowed to come into a court of
equity, and, in spite of
Page 142 U. S. 16
laches and acquiescence of the most pronounced character, invoke
its aid to wrest from him the fruit of his independent and lawful
exertions and reap where they had not sown. Under such
circumstances, they do not come with clean hands. Clearly the sale
of the present memberships to a nominee of the assignees and the
admission of such nominee upon the ouster of Yerkes cannot now be
coerced, and if Yerkes' title is not open to attack, he cannot be
decreed to account for the market value thereof to the extent, in
whole or in part, of the dividends which the creditor members
received. In order to obtain the seats, their claims had to be
settled in full, and such settlement was not waived by their being
proved in the bankruptcy proceedings without objection then or for
thirteen years thereafter. The dividends were not paid in order to
protect the rights of the assignees or to save the memberships, and
while, by reason of the extinguishment of the debts
pro
tanto, Yerkes may be said to have paid less than he otherwise
would, yet he paid much more than the value of the seats at the
time of the bankruptcy in addition to the amount of the dividends.
The parties well understood that the dividends could not, at best,
reach more than a certain percentage, and that the debts due the
members of the association, after that percentage was deducted, far
exceeded the value of the seats. The assignees deemed it unwise and
impracticable to attempt to speculate upon a future rise in that
value, and, declining to settle with the creditor members, to pay
the periodical charges, and to enter into relations with the
exchanges and those creditors, proceeded to close up the estate
without regard to these remote expectancies, apparently with
commendable promptitude. As we have said, they cannot now be
permitted to avail themselves of the results of what Yerkes did and
they did not do, nor can they lay hold of his property to work out
a return of what the estate paid to these particular creditors in
common with the others.
Decrees affirmed.
MR. JUSTICE BRADLEY and MR. JUSTICE GRAY did not hear the
argument, and took no part in the decision of these cases.
MR. JUSTICE BREWER, with whom concurred MR. JUSTICE HARLAN,
dissenting.
MR. JUSTICE HARLAN and myself dissent from the foregoing opinion
and judgment.
Page 142 U. S. 17
By the assignment in 1871, the memberships in the two exchanges
were transferred to the assignees. They were then worth $6,000. By
the rules of the exchanges, debts to members were a prior lien.
Those debts then amounted to $30,365.10. In other words, the
assignees took title to property worth $6,000, subject to a lien of
$30,365.10. If then sold, the debts of the bankrupt would have been
reduced by the amount of $6,000. By making the sale, the assignees
would have assumed no special obligation for the balance of the
debts having a lien upon these memberships. They should have sold
at once, or waited to see if there was a rise in value. They chose
the latter. They never, in terms, relinquished their claim upon the
property. The
ad interim payments made by the bankrupt
only kept alive certain insurance, which on his death would have
inured to the heirs, and not gone to the assignees. Such payments
therefore were wholly for his benefit, and not for the assigned
estate or for the creditors.
The assignees have paid dividends aggregating 28 percent, or, to
the creditors holding such liens, $8,502.22. The bankrupt (the
assignor) availing himself of this payment, by services and money
pays off the balance of these lien claims, and appropriates to
himself the seats in the exchanges, now worth $35,000 to $42,000.
The result is that the delay of the assignees, wise as it would
seem from the increased value of the property, is adjudged an
abandonment. Property then worth $6,000 is not appropriated to the
reduction of the debts against the estate. On the contrary, the
bankrupt gets the benefit of $8,500 paid out of the estate assigned
for the benefit of creditors, uses that payment to reduce the
claims against this property, and, paying off the balance,
repossesses himself of the property, now worth over $35,000.
We see neither equity nor law in this conclusion, and therefore
dissent.
MR. JUSTICE BRADLEY and MR. JUSTICE GRAY did not hear the
argument, and took no part in the decision of these cases.
