UNITED STATES SUPREME COURT DECISIONS ON-LINE

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 clubjuris

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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 clubjuris

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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 clubjuris

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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.7d 9.

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, clubjuris

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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 clubjuris

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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. clubjuris

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