In re Hurlbutt, Hatch & Co.

• Decision Date: 09 January 1905
• Citation: 135 F. 504
• Parties: In re HURLBUTT, HATCH & CO.
• Court: U.S. Court of Appeals — Second Circuit

135 F. 504

In re HURLBUTT, HATCH & CO.

United States Court of Appeals, Second Circuit.

January 9, 1905

John C F. Gardiner, for petitioner.

Benj. N. Cardozo, for respondent.

Before WALLACE, LACOMBE, and TOWNSEND, Circuit Judges.

TOWNSEND Circuit Judge.

The petitioner was a member of the firm of Hurlbutt, Hatch & Co. bankrupts. Henry B. Ketcham, trustee in bankruptcy of said firm, claimed that a seat in the New York Stock Exchange standing in the name of said Hatch, was copartnership property, worth $68,000, which passed to the trustee and could be sold by him, yet that, owing to the custom and rules of the stock exchange, it could not be advantageously sold so as to be available for the satisfaction of the claims of the firm's creditors, unless its sale should be requested by Hatch, but that, if he would execute and deliver to the stock exchange a paper directing it to sell his seat and to pay the proceeds to the trustee in bankruptcy, the exchange would obey his direction. It appeared that Hatch had refused to apply the said seat to the payment of the partnership debts or to transfer it to the trustee, or to consent to its sale. The debts of the copartnership amount to about $175,000; its assets, exclusive of said seat, are about $34,000.

The trustee applied to the District Court for an order that Hatch be required to sign and deliver to the stock exchange such request and direction as would authorize an advantageous sale and make the proceeds thereof available for the payment of partnership debts.

Thereupon the court made the following order, namely:

'Ordered, that the said Edward Sanford Hatch forthwith sign and deliver to the said trustee in bankruptcy an instrument in the following form:

"To the Chairman of the Committee on Admissions of the New York Stock Exchange-- Sir: I hereby request you to sell all my right, title and interest in and to my membership in the New York Stock Exchange, subject to the approval of the Committee on Admissions and the constitution of said Exchange; and I hereby authorize and direct you to pay over the proceeds realized from such sale to Henry B. Ketcham, as Trustee in Bankruptcy of the firm of Hurlbutt, Hatch & Company, after deducting therefrom any moneys due to creditors who are members of the Exchange, or firms registered thereon, upon claims arising from contracts subject to the rules of the Exchange, and after deducting any and all other charges or payments required by the constitution and by-laws of the Exchange to be deducted upon a transfer of membership therein; and it is further

'Ordered, that the said Edward Sanford Hatch be and he hereby is directed, upon demand by the said trustee, to execute any and all other papers that may be required by the said New York Stock Exchange, or that may be necessary or proper for the purpose of signifying his consent to the transfer of the said seat to the person buying the same, pursuant to the direction aforesaid, and any and all other papers that may be necessary or proper for the purpose of vesting in such purchaser the full title to such seat, and of securing to the said trustee in bankruptcy the payment of the purchase price thereof; and it is further

'Ordered, that the said Edward Sanford Hatch be and he hereby is enjoined and restrained from the commission of any act intended to defeat or nullify his consent to the sale aforesaid, and from inducing the officers of the said Exchange to refuse to carry out the said directions, and from otherwise hindering or impeding the sale of his right of membership aforesaid and the transfer of the proceeds thereof to the said petitioner.' This petition seeks to review said order on the following grounds: (1) That the membership in the stock exchange was not the property of said firm, but was the individual property of the petitioner. (2) That it was a personal privilege of said Hatch, and not property which he could have transferred to the trustee. (3) That, in so far as it was property and transferable within the meaning of the bankrupt law, it had become the property of the trustee by the adjudication. (4) That the court had no authority or jurisdiction to compel the petitioner to execute such request, which was equivalent to a resignation of personal membership in said exchange. (5) That it was against public policy to thus exclude the petitioner from said means of livelihood.

That said membership was firm property was shown by the provision in the articles of partnership that there should be 'contributed to the capital stock of said partnership for the uses and purposes thereof and for carrying on the same, * * * by the said party hereto of the third part (Edward S. Hatch), the said seat upon the New York Stock Exchange, now owned by him, free and clear of all encumbrance whatsoever, which seat, for the purpose of this agreement, is estimated at an agreed valuation of Fifty thousand dollars ($50,000)'; from the further provision for the payment of interest at 6 per cent. to Hatch 'upon the capital so invested' by him, and estimated at $50,000; by the provisions for division of losses and profits; and by the subsequent course of dealing between the partners, whereby the partnership paid all the dues and assessments chargeable against said seat, and said payments were charged in the firm's books as a firm expense.

'The fifth ground for review, founded on public policy, need not be discussed.

'The second, third, and fourth grounds may be considered together. That property in a stock exchange seat vests in a trustee in bankruptcy is expressly decided in Page v. Edmunds, 187 U.S. 596, 23 Sup.Ct. 200, 47 L.Ed. 318. The facts in said case are strikingly like those herein. There the bankrupt was a member of the Philadelphia Stock Exchange. There, as in this case, when a seat in said exchange is transferred, the transfer is subject to the approval of a committee of the exchange, and in the event of the death of a member a sum would be paid to his family out of the gratuity fund; but if the seat is sold, such sum would go with the seat. The articles of the constitution provided for a committee on admissions, which should inquire into the standing of the applicant for membership and report to the governing...