1. A seat or membership in the Philadelphia Stock Exchange
belonging to a person adjudicated a bankrupt is property which the
bankrupt could have transferred within the meaning of subdivision 6
of section 70 of the Bankruptcy Act of 1898, and it therefore
passes to the trustee in bankruptcy of the owner.
2. There is nothing in the Bankruptcy Act or the statutes of
Pennsylvania, as the latter have been construed by the highest
courts of that state, exempting such seat from sale by the trustee
in bankruptcy.
The appellant is a resident of Philadelphia, Pennsylvania, and
has been a member of the Philadelphia Stock Exchange in good
standing since the year 1880. On the 16th of November, 1899, he was
adjudged a voluntary bankrupt in the District Court for the Eastern
District of Pennsylvania, and the cause was referred to Alfred
Driver, Esq., referee in bankruptcy. In the schedules attached to
his petition, the appellant did not include as an asset of his
estate his membership in the stock exchange. His trusted in
bankruptcy caused the membership to be appraised, and petitioned
the referee for an order to sell the same. The petition was heard
before the referee, who, after hearing, filed his report containing
a summary as follows:
"The said Page was adjudicated a bankrupt upon his own petition
on November 16, 1899. Upon his examination, he stated that he is a
member of the Philadelphia Stock Exchange; that he bought his seat
in 1880, paying for it at that time about $5,500 that, when a
member wishes to dispose of
Page 187 U. S. 597
his seat, he hunts up somebody who wants to buy and sells it to
him; that seats are always salable; that the last price paid of
which he heard was $8,500; that he could sell his seat at any time
to anyone who wanted to buy it; that the buyer takes it with the
understanding that he will be elected a member -- otherwise it is
no sale; that he could sell his seat without the approval and
concurrence of the other members; that he did not include the seat
as an asset in his schedules because, from his understanding of the
matter, he did not consider it an asset; that, in the event of his
death, there would be paid to his wife $5,000 out of the gratuity
fund, and that she would get said sum and the seat; that if he
should sell the seat, the gratuity or insurance would go with the
seat."
"The trustee, upon this evidence of the bankrupt, caused the
seat in the stock exchange to be appraised, and the appraisers have
reported its value to be $8,000."
"The secretary of the stock exchange testified that the bankrupt
had no unsettled contracts with or claims against him by any member
of the exchange. The Philadelphia Stock Exchange is an
unincorporated association. The constitution and bylaws were
offered in evidence. The articles of the constitution which relate
to membership and the transfer of membership are as follows:"
"
Article 5"
"SEC. 4. A committee on admissions, consisting of five members,
to which all applications for membership, transfer of membership,
and readmissions of suspended members shall be referred. It shall
be its duty to inquire into the general standing of the applicant,
and make a report thereon to the governing committee within one
month of the presentation of the application. Until the committee
makes a report favorable to the admission of the applicant, he
shall not be voted for as a member, unless upon the written
application of seven (7) members of the governing committee to the
president, made within five (5) days after the committee's report
has been presented, in which case the governing committee may, by a
two-thirds vote, reverse the report of the committee, and such
reversal
Page 187 U. S. 598
shall have the same effect as if the committee's report had
originally been favorable. If a report be favorable, the name of
the candidate shall be posted in the stock exchange, and notice
given that a ballot will be taken at the next stated meeting of the
governing committee in order that every member of the exchange may
have an opportunity of objecting to the candidate's election; such
objection shall be in writing to the president of the governing
committee."
"The election of candidates for membership shall be held by the
governing committee, but no election shall be valid unless at least
eighteen (18) ballots be cast, and, if five (5) ballots be cast
against a candidate, he shall be declared not elected."
"
Article 11"
"SEC. 1. The number of members shall be limited to two hundred
and thirty (230)."
"SEC. 4. Any member wishing to sell his membership shall have
the right to do so, provided he has no unsettled contracts with or
claim against him by any member of the stock exchange for
transactions arising in, or relating to, the business of banker or
a stock or exchange broker; but where the arbitration committee
shall determine that any claims or contracts exist, the governing
committee may, except in cases of insolvency, refuse to permit the
membership to he sold until such claims or contracts are, in its
opinion, satisfactorily settled."
"The proceeds of the membership, if sold, shall, after deducting
all charges due to the exchange, to be determined in cases of
controversy by the arbitration committee, belong to its owner's
creditors in the exchange, in proportion to the amount of their
respective claims, determined by the arbitration committee, as
hereinbefore provided in Section 5, Article V, and be paid
accordingly, and the remainder, if any, shall be paid to the
owner."
"SEC. 5. When a member dies, his membership shall, within one
year thereafter, be sold or transferred; if, however, he be
indebted to any member of the stock exchange, then, on the written
request of two-thirds of the creditors in interest, said membership
shall be sold at the discretion of the committee
Page 187 U. S. 599
on admissions, and the proceeds thereof, after deducting all
charges due to the exchange, to be determined in case of
controversy by the arbitration committee, shall be paid to its
owner's creditors who are members of the exchange, in proportion to
the amount of their respective claims, determined as hereinbefore
provided in section 5, article 5, as to disputes between living
members, and the remainder, if any, shall be paid to the legal
representatives of the deceased."
"The membership of a deceased member shall be liable for all
dues and assessments which may be made by the exchanged from the
day of his death until such time as his membership is
transferred."
"SEC. 8. Membership in the exchange shall,
ipso facto,
terminate in either of the following cases:"
"1. Fraud in any transaction arising out of the member's
business as a banker or broker."
"2. Conviction, by a jury, of any infamous offense or felony.
And the commission of the offense shall be ascertained in each case
after notice and opportunity for hearing by a vote of two thirds
present (being a majority of the whole number) of the governing
committee."
"3. Suspension from the stock exchange for any cause, and
inability for one year thereafter to comply with the constitution,
bylaws, and rules as to eligibility for reinstatement."
"SEC. 9. Upon such termination of membership, the said
membership shall be sold at the discretion of the governing
committee, and the proceeds, after deducting all charges due the
exchange and all debts due to creditors in the exchange -- which
amounts shall be determined by the arbitration committee -- shall
be paid to the expelled member, his heirs or assigns."
"
Article 12."
"SEC. 6. Any member who shall be declared a bankrupt shall,
ipso facto, be suspended from the stock exchange; but a
suspended member, presenting a certificate of discharge under the
United States Bankrupt Law, becomes eligible under the rules for
reinstating suspended members. "
Page 187 U. S. 600
"SEC. 7. If any suspended member fails to settle with all his
creditors within six months from the time of his suspension, his
membership may be disposed of by the committee on admissions, and
must be sold at the end of twelve months, and the proceeds, after
deducting all charges due to the exchange, to be determined, in
cases of controversy, by the arbitration committee, shall belong
and be paid to his creditors in the exchange in accordance with
section 3."
"SEC. 11. The proceeds arising from the sale of the membership
of an insolvent shall be divided
pro rata by the
arbitration committee among the creditors recorded, as in section
3, and if any balance remain, it shall be paid over to the
insolvent."
"The bylaws do not contain any provision relating to membership
or its transfer."
As a conclusion from these facts and from the Bankrupt Law, the
referee, on March 7, 1900,
"ordered that the trustee sell at public auction the seat or
membership of Edward D. Page, the bankrupt, and all his right and
interest therein, subject to the constitution and bylaws of the
Philadelphia Stock Exchange regulating membership therein."
The appellant petitioned for a review of the referee's order by
the district court, averring error in the order in that the
petitioner was advised and believed that his membership in the
Philadelphia Stock Exchange was not property within the meaning of
the Bankrupt Act of July 1, 1898, nor was it an asset of his estate
which could be sold by his trustee in bankruptcy.
On June 19, 1900, the district court approved the order of sale
made by the referee, and directed it to be executed. The matter was
then taken for review to the circuit court of appeals, which court
confirmed the order of the district court. This appeal was
thereupon taken.
Page 187 U. S. 601
MR. JUSTICE McKENNA delivered the opinion of the Court.
The case presented by the record is a simple one, and does not
call for elaborate discussion. Indeed, it has been virtually ruled
by this Court.
Hyde v. Woods, 94 U.
S. 525;
Sparhawk v. Yerkes, 142 U. S.
1.
Section 70 of the Bankrupt Act of 1898 provides that the trustee
shall be vested with:
"The title of the bankrupt as of the date he was adjudged a
bankrupt, except insofar as it is property which is exempt, to all.
. . ."
"(3) Powers which he might have exercised for his own benefit. .
. ."
"(5) Property which, prior to the filing of the petition, he
could by any means have transferred, or which might have been
levied upon and sold under judicial process."
This section, with that which provides for exemptions of
property, constitute the elements to be considered.
Section 6 of the Bankrupt Act provides as follows:
"This act shall not affect the allowance to bankrupts of the
exemptions which are prescribed by the state laws in force at the
time of the filing of the petition in the state wherein they have
had their domicil for the six months, or the greater portion
thereof, immediately preceding the filing of the petition."
1. Was the seat in the stock exchange property which could have
been by any means transferred, or which might have been levied upon
and sold under judicial process? If the seat was subject to either
manner of disposition, it passed to the trustee of the appellant's
estate.
We think it could have been transferred within the meaning of
the statute. The appellant could have sold his membership, the
purchaser taking it subject to election by the exchange and some
other conditions. It had decided value. The appellant paid for it
in 1880, $5,500, and he testified that the last price he had heard
paid for a seat was $8,500. One or the other of these sums, or at
any rate, some sum, was the value of the seat. It was property and
substantial property to the extent of some
Page 187 U. S. 602
amount, notwithstanding the contingencies to which it was
subject. In other words, the buyer took the risk of the
contingencies. And they seem to be capable of estimation. The
appellant once estimated them and paid $5,500 for the seat in
controversy; another buyer estimated them and paid $8,500 for a
seat. A thing having such vendible value must be regarded as
property, and as it could have been transferred by some means by
appellant (one of the conditions expressed in section 70), it
passed to and vested in his trustee. Whether it was subject to levy
and sale by judicial process we need not consider except
incidentally in discussing the next contention.
2. To sustain the claim of exemption under the state law, and
therefore under the Bankrupt Act, appellant relies upon the
decisions of the Supreme Court of the State of Pennsylvania. If
those decisions are interpretations of the state statute, we must
yield to their authority. If they are declarations of general law
-- mere definitions of property -- we may dispute their conclusions
if their reasoning does not persuade.
Two cases are cited by appellant:
Thompson v. Adams, 93
Pa. 55, and
Pancoast v. Gowen, 93 Pa. 66.
In
Thompson v. Adams, the following facts were
presented (we quote from appellant's brief):
"Thompson furnished to Richards the money with which to purchase
a membership seat in the Philadelphia Stock Exchange. Richards
subsequently died indebted to sundry members of the exchange, and
his seat was sold by it under its rules, to satisfy these claims,
which were in excess of, and exhausted, the proceeds realized.
Thompson sued Adams
et al., trading as the Philadelphia
Stock Exchange, to recover the proceeds of the seat in the
treasurer's hands, claiming to be the equitable owner of the seat,
as against the creditors of Richards in the exchange."
The entire opinion of the court was as follows:
"The constitution and articles of a voluntary association such
as the Philadelphia board of brokers are law as to the members. The
plaintiff below was not a member, but had furnished the money by
which Richards obtained a seat. His contention is that he is the
equitable owner of the seat and
Page 187 U. S. 603
had title to what was received for it, and that the defendant
had no right to apply the proceeds to the debts due by Richards to
other members in pursuance of the terms of the constitution of the
club. But why not? Richards was the member of the board, the legal
owner of the seat, and the plaintiff an entire stranger, unknown to
the association. The members give credit to each other in part, no
doubt, upon the faith of the liability of a member's seat to them
for his debts. There is nothing unlawful or unreasonable in this
regulation. The seat is not property in the eye of the law; it
could not be seized in execution for debts of the members. It is
the mere creation of the board, and, of course, was to be held and
enjoyed with all the limitations and restrictions which the
constitution of the board chose to put upon it."
It is manifest that the court did not rest its decision upon the
exemption of the property under a statute of the state. It asserted
simply the rights of the members of the club, under its
constitution, to be preferred in the payments of their claims. It
is true, the court said, "the seat is not property, in the eye of
the law; it could not be seized in execution for debts of the
members." This language is not very clear. It is not certain
whether the learned court intended to say that the seat was not
property at all, or not property because it could not be seized in
execution for debts. If the former, we cannot concur. The facts of
this case demonstrate the contrary. If the latter, it does not
affect the pending controversy. The power of the appellant to
transfer it was sufficient to vest it in his trustee.
The case of
Pancoast v. Gowen (we quote again from
appellant's brief) involved
"an attachment against the Philadelphia Stock Exchange, sought
by a creditor of a member in good standing, to compel the sale of
his seat in satisfaction of a judgment debt, which was refused on
appeal to the supreme court, after an exhaustive examination by the
court of the exchange rules."
The opinion was as follows:
"A seat in the board of brokers is not property subject to
execution in any form. It is a mere personal privilege, perhaps
more accurately a license to buy and sell at the meetings of the
board. It certainly could not be levied on and sold under
Page 187 U. S. 604
a
fi. fa. The sheriff's vendee would acquire no title
which he could enforce; nor is it within either the words or the
spirit of the Act of June 16, 1836, sec. 35, Pamph. L. 767,
providing for attachment on judgment. Whether the proceeds of the
sale of the seat in the hands of the treasurer of the board and
payable to the defendant, according to the regulations and bylaws
of the board, could be thus reached is an entirely different
question. This and no more is what we understand to have been
decided by the Supreme Court of the United States in
Hyde v.
Woods, 94 U. S. 525, where Mr.
Justice Miller says:"
"If there had been left in the hands of the defendants any
balance after paying the debts due to the members of the board,
that balance might have been recovered by the assignee in
bankruptcy."
There is an absence in the latter case, as there was in the
other, of any purpose to construe a statute, and the test of
property is the same as in the other case -- liability to be levied
upon and sold under a
fi. fa. An attempt to enforce such a
levy and sale was made in both actions to the exclusion of the
rights of other members of the association. The attempt was
properly defeated. Undoubtedly the seat in the board "was to be
held and enjoyed with all the limitations and restrictions which
the constitution of the board chooses to put upon it."
We expressed that limitation in
Hyde v. Woods,
94 U. S. 525,
but we decided nevertheless that a seat was property, and that, if
upon its sale any balance was left after paying the debts due to
the members of the board, that balance could be recovered by the
assignee in bankruptcy. This was not denied by the Supreme Court of
Pennsylvania, and it may be that the court only intended to declare
the priority of board creditors over general creditors. If so, the
decision expresses no rule with which we need take issue, or which
is relevant to the pending controversy. Nor, indeed, if the case
may be construed more broadly. The Bankrupt Act of 1898 has made
its own rule. For the same reason, it is not necessary to review
the cases cited from other jurisdictions. Whatever is in them
favorable to appellant's contention was based upon the inability
that the respective courts found in the law to transfer a title
which could be insisted upon and enjoyed against the consent of
the
Page 187 U. S. 605
association. But that consequence, in our judgment, affects the
value of a seat in a stock board, not its existence as property.
The contingencies which may defeat or affect its title, or its
enjoyment, will be reflected in its price, and if, notwithstanding
them, a seat has a vendible value of from $5,000 to $8,000, it
would seem that the law should have some process to reach it for
the benefit of creditors. And the Bankrupt Act supplies the
process. The trustee of a bankrupt's estate is the bankrupt's
assignee, and we only repeat the statute when we say that the
trustee is vested with whatever the bankrupt can convey. And the
statute is something more than another mode of transferring
property in invitum. It is a gift of privileges, and expresses the
conditions upon which they are conferred.
To establish the exemption of the seat under the state law,
counsel quotes the previsions of the local insolvent law of June
16, 1836 (P.L. 729), as follows:
"That every insolvent shall be entitled to retain all such
articles as may by law be exempted from levy and sale upon
execution. [Sec. 35, par. 5.]"
"Every such debtor shall be entitled, notwithstanding his
assignment, in conformity with this act, to retain for the use of
himself and his family all such articles as are or may be by law
exempted from levy or sale on any execution, or from distress for
rent, and the property in such articles shall not pass to his
trustees. [Sec. 38.]"
It is argued that the supreme court of the state, having decided
that a seat in the stock board is not subject to levy and sale
under execution, it becomes under those provisions property exempt
from debts under the state law, and exempt therefore under section
6 of the national Bankrupt Act.
But there is nothing in the opinion of the court which intimates
an intention to construe the statute of 1836 or that the decision
would give to the statute the effect asserted. If such had been the
intention, no question would have been reserved or mentioned of the
right of general creditors to resort to the proceeds of the sale of
a seat after board creditors should be paid. Not only the seat, but
the proceeds of its sale, would be exempt.
Page 187 U. S. 606
Another answer is urged to the contention. By the Act of April
9, 1849, P.L. 533, sec. 1, it is enacted:
"In lieu of the property now exempt by law from levy and sale on
execution issued upon any judgment obtained upon contract and
distress for rent property to the value of $300, exclusive of all
wearing apparel of the defendant and his family and all bibles and
school books in use in the family (which shall remain exempted as
heretofore) and no more owned by or in possession of any debtor,
shall be exempt from levy and sale on execution or by distress for
rent."
Judgment affirmed.
