New York Trust Co. v. United States (In re Gruner)

• Decision Date: 23 July 1946
• Citation: 295 N.Y. 510,68 N.E.2d 514
• Parties: In re GRUNER. NEW YORK TRUST CO. v. UNITED STATES et al.
• Court: New York Court of Appeals Court of Appeals

295 N.Y. 510

68 N.E.2d 514

In re GRUNER.NEW YORK TRUST CO.

v.UNITED STATES et al.

Court of Appeals of New York.

July 23, 1946.

Appeal from Supreme Court, Appellate Division, First Department.

Proceeding in the matter of the accounting of Katharine D. Gruner, as administratrix with the will annexed of Otto H. Gruner, deceased. From an order of the Appellate Division of the Supreme Court in the first judicial department, 269 App.Div. 973, 59 N.Y.S.2d 286, which unanimously affirmed, so far as appealed from, a decree of the New York County Surrogate's Court, Foley, S., 186 Misc. 438, 54 N.Y.S.2d 330, settling the account of Katharine D. Gruner, as administratrix with the will annexed of Otto H. Gruner, deceased, the New York Trust Company appeals. The United States of America and the State of New York filed claims for taxes and are respondents.

Judgment in accordance with opinion.

DESMOND, J., dissenting in part. J. Adam Murphy and Robert Nelson Shiverts, both of New York City, for appellant.

Charles B. Clancy, of Albany, and Morrison T. Hankins, of New York City, for respondent Katharine D. Gruner, as administratrix.

John F. X. McGohey, U. S. Atty., of New York City (Thomas G. Donlan, of New York City, of counsel), for the United States.

Nathaniel L. Goldstein, Atty. Gen. (Mortimer M. Kassell and Francis Kelliher, both of Albany, of counsel), for State of New York.

CONWAY, Judge.

There is presented to us the question, among others, of the extent to which an equitable lien may be imposed upon a New York Stock Exchange seat and the remedy available for its enforcement by the assignee.

One Otto Harry Gruner on May 6, 1929, made an assignment to the New York Trust Company (hereinafter referred to as trust company) as security for a loan of $212,000, of all his right, title and interest in and to his membership and seat upon the New York Stock Exchange (hereinafter referred to as the exchange) in words which were in part as follows: ‘Said Otto H. Gruner hereby transfers, assigns and sets over to The New York Trust Company free and clear of any claims, liens or encumbrances whatsoever all his right, title and interest, legal and equitable, in and to a full membership and seat upon the New York Stock Exchange. This assignment, though absolute, is nevertheless an assignment as collateral and security for the demand note of said Otto H. Gruner in the amount of Two hundred and twelve thousand Dollars made simultaneously herewith.

‘The intent hereof is to transfer to The New York Trust Company said membership and seat and to confer upon the New York Trust Company full right and power in its absolute discretion to dispose of said seat at any time without any notice to me and without advertisement by sale, public or private, or at auction, to be credited upon said note and any surplus over the amount due on said note and the expenses of sale to be paid to me. * * *’

Later, on April 21, 1933, but as of May 6, 1929, Gruner assigned the proceeds of the sale of the seat in words which were in part as follows: ‘Said Otto H. Gruner hereby transfers, assigns and sets over to The New York Trust Company, free and clear of any claims, liens or encumbrances whatsoever, all his right, title and interest in and to the proceeds of a membership in and seat upon the New York Stock Exchange. This assignment, though absolute, is nevertheless an assignment as collateral and security for the demand note of said Otto H. Gruner in the amount of $212,000 made simultaneously with the date hereof.

‘The intent hereof is to assign and transfer to The New York Trust Company the full proceeds of said membership and seat to be credited upon said note and any surplus over the amount due on said note and the expenses of sale to be paid to the undersigned.’

In each of those assignments there were the following clauses: ‘I agree to pay all dues and charges of every kind and character and to do everything necessary to keep said membership one in good standing and to suffer no obligations of any kind in favor of other members of the Stock Exchange, or any firm of which any member of the Stock Exchange may be a member, ever to take precedence over the rights of The New York Trust Company hereunder.

‘I agree to maintain said membership and seat free of claim and liability for the payment of any obligation to any other member of the New York Stock Exchange or any firm to which any member of the New York Stock Exchange belongs or to anyone else.’

On May 17, 1933, the trust company advised the exchange of the assignment and the exchange acknowledged receipt of its letter. Nothing turns upon the difference in the wording of the two assignments.

At the time of the death of Gruner in December, 1942, there was due the trust company $59,201.93 and on that day the seat had a value of $29,000. There were no charges against it in favor of the exchange, the members of the exchange, or customers of the decedent. The exchange sold the seat in March, 1944, for $49,000 and that sum was turned over to Gruner's administratrix c. t. a. under a stipulation that such action should be without prejudice to the rights of the trust company. The questions involved herein are presented upon the final accounting of the administratrix rather than in an action which had originally been brought by the trust company against the exchange and Katharine D. Gruner, individually and as administratrix, and which has been discontinued.

A seat on the exchange carries with it certain attributes of property it is the subject of ownership, of use, and of sale. As was said in Powell v. Waldron, 89 N.Y. 328, 331, 332, 42 Am.Rep. 301: ‘We think the right of the judgment debtor to a seat in the Cotton Exchange was property. That it had value was proved and is conceded; and that it could be transferred to a certain class of purchasers, under prescribed rules and conditions, is also established. The defendants took it as collateral to the note of Robbins and held it as security for that debt, and thereby plainly treated it as valuable property. Although of a character somewhat peculiar, its use restricted, its range of purchasers narrow, and its ownership clogged with conditions, it was nevertheless a valuable right, capable of transfer and correctly decided to be property.’ See, also, Matter of Hellman's Estate, 174 N.Y. 254, 66 N.E. 809,95 Am.St.Rep. 582. Under the provisions of the constitution of the exchange, a member may not transfer ownership of the seat to another without the consent of the committee on admissions, which elects new members. A member may not transfer the use of the seat to nonmember since the privilege of trading at the exchange is a personal privilege which may be exercised only by the owner. See Platt v. Jones, 96 N.Y. 24.

We come then to the question of sale. The constitution of the exchange provides that upon a transfer of membership, the proceeds of the sale of the seat shall be applied by the exchange to payments of the following: (1) sums due the exchange (2) sums due the Stock Clearing Corporation (3) sums due other members or member firms arising from losses upon the closing out of member contracts (4) sums, in the discretion of the board of governors, which represent any unusual expenses incurred by the exchange in connection with litigation over the disposition of the proceeds of the seat. Provision is then made that the surplus of the proceeds shall be paid directly to the person whose membership is transferred or to his legal representative. The constitution of the exchange as it existed in 1929 is the applicable one here and it is therefore unnecessary to consider changes made by the constitution adopted in 1941. There is no provision in that constitution, which has been called to our attention, providing for the sale of a member's seat by a nonmember creditor. Nor has any rule or practice of the exchange been called to our attention under which the exchange may institute involuntary transfer proceedings against a member because of his indebtedness to a nonmember. If such a proceeding be instituted by the committee on admissions on its own initiative against a member because of his indebtedness to other members, payments of the surplus of the proceeds of the sale must be made to the member, or his legal representative. It thus appears that, although the assignment purported to give the trust company power to sell the seat with or without notice to the assignor, that power could not be exercised except by the interposition of a court of equity by decree in personam compelling the co-operation of the assignor by directing him to take each and every step necessary to bring about the sale of his seat, since there is no provision in the constitution or rules of the exchange which makes co-operation of the committee on admissions available as to a nonmember. Matter of Ulmann v. Thomas, 255 N.Y. 506, 512, 175 N.E. 192, 194 (Lehman, J.), and cases there cited; Clute v. Loveland, 68 Cal. 254, 9 P. 133 (where the rules of the San Francisco Stock and Exchange Board were more liberal); Nashua Savings Bank v. Abbott, 181 Mass. 531, 63 N.E. 1058,92 Am.St.Rep. 430; Meyer on the Law of Stock Brokers and Stock Exchanges, pp. 119, 120. In Matter of Ulmann v. Thomas, supra 255 N.Y. at page 512, 175 N.E. at page 194 we said: ‘Membership in an exchange is property which may be reached by appropriate proceedings supplementary to execution or creditors' bills, but only where the court obtains jurisdiction by which it can compel an involuntary transfer. See Freeman on Executions (3d Ed.) s 110. In O'Dell v. Boyden, 6 Cir., 150 F. 731, 737, 10 Ann.Cas. 239, Judge Lurton stated: ‘Only by decree in personam compelling the bankrupt member can such a transfer of membership be effectuated as will put the buyer in the place of Henrotin as a member.’ Cited with approval in Board of Trade of City of Chicago v. Johnson, supra (264 U.S. 1, 44 S.Ct. 232, 68 L.Ed. 533). No such...