Page v. Edmunds
187 U.S. 596 (1903)

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U.S. Supreme Court

Page v. Edmunds, 187 U.S. 596 (1903)

Page v. Edmunds

No. 100

Argued November 13, 1902

Decided January 6, 1903

187 U.S. 596

Syllabus

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

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