White v. Brownell

2 Daly 329 | New York Court of Common Pleas | 1868

By the Court. — Daly, F. J.

The organization known as the Open Board of Stock Brokers, which the plaintiff asks this court to restrain from depriving him of liis rights and privileges as a member of it, is not a partnership, and the plaintiff is not entitled, as has been argued, to the equitable remedies which courts afford for the protection of the rights of a copartner. It is not a union of persons joining together property, labor or skill for their common benefit, in any pursuit or business having a communion of profit or loss, and distinguishable by the feature that, if earned, there is to be division of gains. It may be described as an association of persons engaged in the same kind of business, who have organized together for the purpose of establishing certain rules, by which each agrees to be governed in the conduct and management of Ms separate transactions or business— wMch is not a partnersMp.

The objects of the organization are set forth in the articles of association, which declare that greater facilities are requisite for the exchange and negotiation of commercial securities, a business which can be successfully transacted only where there is the utmost confidence ; that as such confidence is begotten only by public, open, fair and upright transactions, so that each party interested can know, not only where but how such business is done, the spirit of the age demands for such transactions a great public mart open to all; and that for the purpose of supplying these requirements the persons signing their names associate themselves together and adopt a constitution for an association, to be known as The Open Board of Stock Brokers, each pledging himself to abide by the constitution, and by all by-laws, rules, and resolutions which may be passed by the board. To carry out this object the constitution provides that there shall be a room where the members of the board shall have seats and desks, conveniently enclosed within a railing, and that outside the railing, and in a gallery, seats shall be provided for the public. Certain officers are designated who are to call stocks at the board; and a standing committee to arrange the order in which such securities are called. A record is to be kept by the secretary of all sales and purchases made at the board. He is required to prepare an account of the same for the newspapers, and no fictitious sales are to be allowed. It is, in fact, the creation of a public mart for the sale of stocks or other commercial securities, each purchase or sale of which is not for the joint benefit of the body, but is, as it would be in any other place, an individual transaction between the parties making it. It is analogous to what, in other branches of commerce, has long been familiarly known by the word “Change,”-—a fixed place where merchants meet, at certain hours, for the transaction of business with each other ; subject to such general rules or understanding as they think proper to be governed by. There may be property belonging to this body, derived from the payment of tines or fines, or consisting of the furniture of the room where the "board meets'; "but the possesion of it is a mere incident, and not the main purpose or object of the association. A member has no severable proprietary interest in it, or a right to any proportionable part of it upon withdrawing. He has merely the enjoyment and use of it while he is a member, but the property remains with and belongs to the body while it continues to exist, like a pew, the ultimate and dominant property in which is in the congregation and not in the pew-holder ; and when the body ceases to exist, those who may then be members become entitled to their proportionate share of its assets (St. James Club, 13 Eng. L. & Eq., 592 ; Fassett v. First Parish in Boyleston, 19 Pick., 361). This board of stock brokers is in fact analogous to the organization which came under consideration in Caldicott v. Griffith (8 Exch., 898,) called Midland Counties Guardian Society for the Protection of Trade, which was decided not to be a partnership. So far, therefore, as the plaintiff claims the equitable interference of this court upon the assumption that this association is a copartnership, or upon the ground that the rules which regulate the action of courts of equity in cases of partnership are to be applied to it, the claim cannot be supported.

It is not an incorporated body, and as a number of cases have been cited upon the argument in which courts of equity have interfered and restored a member of- a corporation who had been expelled or obstructed in the exercise of his franchise by the acts of the corporation, which are relied upon by the plaintiff as authorities applicable to the present case, it will be necessary to inquire into the reasons why corporations cannot expel members except in certain extreme cases, and to show that these reasons do not apply to a voluntary unincorporated body, which comes into existence by the mutual agreement of the persons forming it, and is thereafter carried on under rules which the body adopts for its government. A member of a corporation, whether it be municipal, eleemosynary or private, is in the enjoyment of a franchise, the right to which is not derived from the "body, but is created by statute or exists -by prescription, and therefore cannot be taken away by the act of the corporation, except, as I have said, in certain extreme cases. As it is a right conferred by statute, or derived from immemorial custom which implies the existence of a grant, it can neither be taken away by the act of the corporation, or withheld by the act of the corporation, from any one eligible to the enjoyment of it. Thus, in The People v. The Medical Society of the County of Erie (33 N. Y, 187), an incorporated medical society was compelled by mandamus to admit a licensed physician to membership, who was excluded under a by-law which had been adopted by the corporation.

In a corporation there is a distinction between what is called amotion, or the right to remove an officer, winch is a power inherent in every corporation, and disfranchisement. The former may be exercised without interfering with the franchise, as the officer, when removed, still continues a member; but disfranchisement is an actual expulsion of the member from the body and the taking away of his franchise, which cannot be done unless the power is given by the charter creating the corporation, or the member has been guilty of crime, a conviction of which would work a forfeiture of all civil rights, including the corporate franchise, or has committed acts which tend to the destruction of the corporation, such as the defacing of its charter, the obliteration pr alteration of its records, or other acts tending to impair or destroy its title to its rights or privileges ; in which case, the expulsion of the member is but the exercise of a power incident to the right of self-preservation (Evans v. Philadelphia Club, 50 Pa.,107; Bagg’s Case, 11 Coke, 93 ; Earle’s Case, Carth., 173 ; Commonwealth v. St. Patrick Benevolent Society, 2 Binn., 441; Fuller v. Trustees of Plainfield Academy, 6 Conn., 533; People v. Medical Society of Erie, 24 Barb., 570; Willc. Mun. Corp., 270 ; Grant Corp., 263-266.

But in an unincorporated, voluntary association, like the one now under consideration, the privilege of membership is not given "by statute, or derived through prescription, as in a corporation, but is created by and conferred by the organization itself. It is not a franchise—a franchise being a particular privilege vested in individuals, which is conferred by a grant from a sovereign or government (Finch Law, 164 ; 3 Kent Com., 458), while, on the contrary, the privilege of membership in a voluntary association is derived exclusively from the body that bestows it, and may be conferred or withheld at its pleasure. The law cannot compel such an organization to admit an individual to membership, as may be done in the case of a corporation, nor can it interfere to restore a member who has been deprived of the privilege for not complying with the conditions upon which the enjoyment of it was made to depend. A member of a body of this description has, as such, undoubtedly rights which the law will protect, but they do not rest upon the same ground, and ¡are by no means coextensive with the franchise enjoyed by a member of a corporation. They depend upon the nature of the organization, upon the object for which it ,was formed, and upon- the rules, -regulations, constitution or by-laws which are explanatory of its purpose, and which the body has adopted for its government.

Individuals who form themselves together into a voluntary association for a common object may agree to be governed by such rules as they think proper to adopt, if there is nothing in them in conflict with the law of the land; and those who become members of the body are presumed to know them—-to have assented to them—and they are bound by them (Innes v. Wylie, 1 Carr & K, 262; Brancker v. Roberts, 7 Jur. N. S., 1185; Hopkinson v. Marquis of Exeter, Lond. Times, Dec. 31, 1867; 5 Law R. Eq. Ca., 63).

Such an organization may prescribe the conditions upon which persons will be admitted to membership, as well as the conditions upon which the continuation of membership will depend ; and where they have no regulation upon the subject they may expel a member by a vote of the majority, if he has been notified of the charge against him, and afforded an opportunity of being beard in his defense (Innes v. Wylie, supra). Voluntary bodies of this kind will be held to the fair and honest administration of the rules which are in force when any proceeding is instituted against a member ; but where a member is expelled in conformity with the rules, and the proceedings are regular and in good faith, it is final, and no judicial tribunal can interfere (Commonwealth v. Pike Beneficial Society, 8 Watts & S., 250). The only question, therefore, that can arise in the present case, is whether the plaintiff was suspended from the privileges of a member of this Open Board of Stock Brokers in accordance with the constitution and by-laws which that body have adopted for its government; for if he was, he has no ground of complaint.

The by-laws of the board provide that whenever a member is in default in any contract, and the fact becomes known to the committee on membership, they shall, after due investigation, report the same, without delay, through their chairman, to the president of the board, who shall at once declare the member so reported suspended from all the privileges and immunities of the organization; and that the member may, within sixty days, appeal, and demand a hearing before the executive committee, who are required to give notice at the board at least five business days before the hearing of the appeal, to enable any person interested to present objections. 'The executive committee are required by the by law to report the result of their investigations, and if it appears that the complaint is just, the declaration of suspension is to be confirmed, otherwise annulled. It is provided, in addition to this, by the constitution, that there shall be an arbitration committee, to take cognizance of and to exercise jurisdiction over all claims and all matters of difference between the members of the board, whose decision shall be binding. And the constitution further provides, that an appeal may be taken from the judgment of the arbitration committee to a board of appeals—-which board it is declared, shall take cognizance of all cases of appeal from the judgment of the arbitration committee.

The plaintiff had a contract with the firm of Currie, Martin & Co., who are also members of the board, for the purchase by them from the plaintiff of 1,000 shares of the Hudson River Railroad stock, to be delivered at the plaintiff’s option, at any time during the year 1867. After the making of this contract the Hudson River Railroad Company adopted resolutions increasing the capital stock of the company—in which they provided that the persons in whose names stock should be standing on the 10th of April, 1867, might, before the 15th of the month, subscribe for an equal amount of the additional stock, at one-half its par value. Currie, Martin & Co. claimed that, under the contract, the plaintiff was bound to subscribe for 1,000 shares of the additional stock for them, insisting that they were rightfully entitled, under the contract, to the benefit of the increase ; but this claim the plaintiff refused to admit. By the conditions of the contract, either party were entitled to call for additional deposits, from time to time," to meet the fluctuations in the market; and by a by-law of the board,' either party, upon'all time contracts, may call, at any time during the continuance of the contract, for a united deposit of ten per cent. ; and if either party fail to comply, the other may elect to close the contract.

Currie, Martin & Co. made a call upon the plaintiff for an additional deposit of ten per cent., making an additional deposit of the amount themselves; but the plaintiff refused to make any additional deposit—whereupon Currie, Martin & Co. elected to close the contract-, and notified the plaintiff that they would purchase 2,000 shares of the stock for his account and at his risk, under another by-law of the board, which provides that if any member neglect to fullfil his contract after being duly notified, the other party may employ any one of certain designated officers of the board to buy or sell the stock, as the case may be, either in open market or at the board, accounting to the member in default for any surplus, and charging him with any deficiency. Upon receiving this notice from Currie, Martin & Co., the plaintiff sent a notice to the president of the board protesting against the purchasing of any stock upon his account, under the contract, claiming he was not in default; but the president complied with the request of Currie, Martin & Co., and purchased 9,000 shares, and Currie, Martin & Co. notified the plaintiff of the purchase as a purchase under the rule, upon his account and at his risk ; which purchase was made at a rate creating a difference in their favor, and, as they insisted, against the plaintiff, of $69,633.34.

This sum, Currie, Martin & Co. claimed of the plaintiff, and he refused to pay it, whereupon they brought the claim, as a claim and matter of difference under the provision in the constitution heretofore referred to, before the arbitration committee, demanding that they should inquire into and decide it; and the committee appointed a day for the hearing, and notified the plaintiff to appear before them and interpose whatever objection or defense he might have ; to which the plaintiff replied by a written communication, declining to appear before the committee, protesting against their jurisdiction in the matter, and declaring that no matters of difference had arisen between Mm and Currie, Martin & Co.; that that firm had no claim of any kind against him; that the contract made with them was in full force and effect; and that nothing had arisen under it calling for any action of the arbitration committee.

Upon the day appointed, Currie, Martin & Co. appeared before the committee, and the plaintiff did not. The former presented their claim, and gave evidence of the facts upon which it was based, and the committee, by a report or award in writing, decided that Currie, Martin & Co. were entitled, under the contract, to 1,000 additional shares of the stock, having notified the plaintiff that they elected to subscribe for the same ; that the plaintiff was in default, having failed to respond to Currie, Martin & Co.’s call for an additional deposit; that by the by-laws it was, after such default, at the option of Currie, Martin & Co. to elect to close the contract, and that they did elect to close it; and the arbitration committee rendered, as they expressed it, judgment in favor of Currie, Martin & Co., and against the plaintiff, for the sum of $69,633.34.

Currie, Martin & Co. then made known to the committee on membership the decision of the committee on arbitration, and the committee on membership, upon due investigation, as it is averred in the answer, reported to the president that the plaintiff was in default upon his contract with Currie, Martin & Co., upon which the president declared him suspended from his privileges as a member of the board. The plaintiff appealed from the act of the president to the executive committee—but before any decision was had upon this appeal, he brought this action to restrain the president and the members of the board, by injunction, from interfering with him in “the full and free exercise and enjoyment of all his rights, privileges and franchises ” as a member of the body. He avers in the complaint that he has daily and repeatedly urged upon the president the calling of the executive committee together, and the granting to him of a hearing, but has been unable to procure it from the failure of a quorum to attend ; and alleges, upon information and belief, that the' failure and delay were at the" instigation of Currie, Martin & Co., and were a part of a general plot on their part, and other members of the board, to deny him justice, and prevent him enjoying his privileges as a member; while the president avers in his answer that he took measures to call the committee together, but that the plaintiff brought this action before a meeting could be had—before it was possible to give any kind of reasonable notice to the members, and before the committee could give the notice required by the bylaws ; so that this averment on the part of the plaintiff of an intentional delay, which he makes upon information and belief, must be regarded as substantially denied ; in addition to which, the president avers that after the service of the preliminary injunction, a meeting of the committee was had, and that the plaintiff was notified that they were willing and desirous that he should appear before them and have a hearing, and that he appeared before them, after consulting with his counsel, and refused to prosecute his appeal, protesting against and forbidding the committee to take any action in the matter.

The effect of this award made by the arbitration committee has been elaborately discussed upon the argument ; but many of the points raised do not and cannot come under consideration here. Currie, Martin & Co. are not defendants in this action, nor is this a proceeding to confirm the award and for judgment in accordance with it. We are not called upon, therefore, to say whether it did or could have any effect upon the legal rights of the parties to the contract for the purchase of the stock; nor whether the by-law of the board, under which the committee acted, had the same effect as an ordinary submission in writing of a matter in difference to arbitration, so as to be conclusive upon the parties upon the award being made; nor whether the protest of the plaintiff was a revocation of the submission which, in an ordinary arbitration, is a right which either party may exercise at any time before the- matter is finally submitted, upon a hearing, for a decision of the arbitrators. The action of this ."committee comes under consideration here merely as a part of the proceedings by which it was determined that the plaintiff should be suspended from the privileges of a member of the board, and it is only in that light that I shall consider it.

The constitution declares that the by-laws shall provide for the expulsion, suspension and readmission of members for cause, and the by-laws declare that a member’s being in default in any contract shall be a cause for suspension. The committee on membership, when it is made known to them that a member is in default, are, upon due investigation, to report the fact to the president, who must thereupon declare the member suspended, leaving him his rights of appeal to the executive committee ; and, as I understand the law, the further benefit of the judgment of the whole body, when the executive committee report the result of their investigation.

The by-law having provided a mode for reviewing and correcting any error or injustice on the part of the committee on membership in reporting to the president that the plaintiff was in default, he was bound to avail himself of the remedy provided by the constitution and bylaws of the body of which he had become a member, before he can ask a court of equity to investigate a proceeding not necessarily final in the body itself, but which was there subject to review, and might be annulled by the action of a committee expressly clothed with authority to investigate it (Carlen v. Drury, 1 Ves. & B., 154).

He must, in consonance with the rule upon which Lord Eldon acted in the case above cited, resort to the remedy which is provided by the constitution and by-laws of the association itself, before he asks a court of equity to interfere—unless by evasion, intentional delays, or other unjust procedure, he is practically deprived of the benefit of that remedy—which in this case is substantially denied by the answer.

It is averred in the answer that the committee on membership reported the plaintiff to be in default, upon due investigation—and this is all that is required under the by-laws to authorize the suspension of a member by the president. The by-law does not provide how this investigation shall be made, but the law will intend that it means an investigation on the part of the body, in which the member to be affected shall be afforded an opportunity of being heard. What shall or shall not constitute a default upon a contract, so far as it affects the continuance of membership, is a matter which a body like this has the right, in my judgment, to determine for itself; and when it acts in good faith, and the investigation is conducted in the mode prescribed by the constitution and by-laws, no judicial tribunal would assume the right to reverse and set at naught its decision. As the constitution and by-laws have provided for a standing committee, who are to take cognizance of and exercise jurisdiction over all claims and matters in difference "between members, and whose decision is to "be binding upon them, that would seem to be the appropriate tribunal in this body to investigate and decide whether a member is or is not in default—the more especially as provision is made for reviewing; and correcting the decision, if erroneous, by an appeal to another tribunal of the board, called the board of appeals. When a claim, therefore, is made by one member upon another, and he brings the matter in difference before this arbitration committee, and they, after having notified the other, and afforded him the opportunity of being heard, investigate the claim, and decide that the other party is in default, that is, in my judgment, a “ due investigation” within the meaning of the law. It never could have been the design of the bylaw that the committee on membership are also to sit in deliberation upon the matter, and investigate it over again, before they are authorized to report to the president that the member is in default. It is due investigation on their part when they inquire and ascertain that the arbitration committee, whose decision is binding and subject to review, have decided, in a matter legitimately before them, that a member is in default. A second investigation would be superfluous, and was not, in my judgment, contemplated by the by-law.

The plaintiff avers, upon information and belief, that some of the members of the . arbitration committee were already prejudiced against him, having repeatedly expressed an opinion favorable to Currie, Martin & Co. ; to which ground of complaint there are several answers. In the first place, this allegation is too general and indefinite. The names of the members referred to are not given. It is not known whether they are or not defend ants in this suit; so that this allegation is incapable of a specific denial by answer on the part of those who could alone make it; in addition to which, the president, in his answer, denies, so far as he has any knowledge or information, that any member or officer of the board has at any time taken any side or combined, or in any manner acted with or at the instigation of Currie, Martin & Co. against or to the prejudice of plaintiff, or interfered in any way or manner, except so far as the constitution and by-laws required . them to.

In the second place, the plaintiff did not, when notified to appear before the committee, place his objection upon any such ground, but Ms written protest against the action of the committee was put upon the ground that no matter of difference had arisen between Currie, Martin & Co. and himself; that that firm had no claim against him of any kind, and that nothing has arisen under the contract calling for the action of the committee; in which he was mistaken; for a matter in difference had arisen between Mm and Currie, Martin & Co., and he and they differed in their understanding of the contract. They acted upon their construction of it, and the result was a claim by them against him, under it, for a large sum of money, which claim they brought before the committee— the committee having, under the constitution, cognizance over all claims between members, so that something had arisen calling for the action of the committee.

And, in the third place, if some of the committee were, as the plaintiff supposes, prejudiced against Mm, and had, before taking any action in the matter, expressed opinions favorable to Currie, Martin & Co., the action of the committee was not final. The plaintiff could have appealed from their decision, if it were erroneous or unjust, to the board of appeals, and he should have resorted to the remedy provided for him within the board, before he could ask a court of equity to interfere upon the ground that the arbitration committee were prejudiced against him.

For these reasons I am of the opinion that the proceedings upon the plaintiff’s suspension were regular ; that they were in accordance with the constitution and by-laws; that nothing has been shown that would authorize this court to interfere : and that Judge Van Vorst was right in dissolving the injunction at special term.

Brady, J., concurred.

Barrett, J., having Been of counsel in the cause, while at the Bar, took no part in the decision.

Case Details

Case Name: White v. Brownell

Court Name: New York Court of Common Pleas

Date Published: Jun 15, 1868

Citation: 2 Daly 329