Case ID: ny-st-rep_19/html/0742-01.html
Source: Caselaw Access Project
Author: {"author": "Daniels, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Samuel W. Lewis, App’lt, v. Charles G. Wilson, President of the Consolidated Stock and Petroleum Exchange, etc., Resp’t.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed November 24, 1888.)
    
    1. Corporations—Suspension oe members—Eeeect oe constitutional PROVISIONS UPON RIGHTS OE—CONTRACTS EOR EUTURE SALE AND DELIVERY—PRESUMPTION VALID.
    The plaintiff, while a member of the association of the Consolidated Stock and Petroleum Exchange of New York, entered into contracts with another member for the delivery to him by the latter of certain shares of stock at an agreed price at any time within a year. The plaintiff failed to perform the agreements entered into by him, and a loss was occasioned thereby, which was audited and fixed by a party empowered thereto by the plaintiff. The constitution of the association by article 6, section 9, provides that any member of the association who shall be accused of a breach of contract shall, upon complaint, be summoned before the complaint committee, who shall hear and investigate the case, and that if the committee shall render a decision establishing a money difference between the parties, it shall, upon notice to the party, or parties, against whom the decision is rendered, stand as a claim against him, and shall he paid in forty-eight hours, or taken on appeal to the arbitration committee, and that a failure to pay, or appeal, within the time specified, shall subject the party in default to suspension. The plaintiff failed to pay the sum 'adjusted as a claim against him, and the matter was duly brought before the complaint committee, which hody, after trial, made their decision against him for the adjusted differences, and gave him notice thereof, and of the penalties for non-payment. The plaintiff failed to appeal or make payment, and was suspended from his privileges as a member of the association. This action was brought by him to restrain the enforcement of his suspension under these proceedings. Beld, that unless it was affirmatively made to appear that contracts for the future sale and delivery of the stock not at the time of the agreement owned by the seller, was entered into as a gaming contract, and not as real transactions for the purchase and sale of property, it would be considered a valid agreement.
    2. Same—Tribunals existing by virtue oe constitution oe—Jurisdiction oe.
    
      Held, the complaint committee was competent to try the question of the legality of the agreements, and that matters tending to vitiate them should have been argued before that committee.
    3. Same—Remedies provided by constitution must be resorted to PREVIOUS TO HAVING RECOURSE TO THE COURTS.
    
      Held, that provision having been made by the constitution of the association for an appeal to the arbitration committee from the decision of the complaint committee, the plaintiff could not have recourse to the courts to restrain the action of the association, without having previously availed himself of the remedies provided for by the constitution.
    Appeal from a judgment recovered at the special term.
    
      Albert A. Abbott, for app’lt; Sullivan & Cromwell, for resp’t.
   Daniels, J.

The defendant was sued as the president of the Consolidated Stock and Petroleum Exchange of New York, an association unincorporated, consisting of more than seven members. Its business was limited to furnishing-facilities to its members for the purchase and sale of petroleum, stocks, bonds and other securities, agricultural and. commercial products, ores, metals and other minerals. The plaintiff became a member of the association at or about the time when it was formed, and he entered into contracts with William M. Banks, for the sale to him of stock of the Delaware and Hudson Canal Company, the Union Pacific-Railroad Company, Western Union Telegraph Company, and Delaware, Lackawanna and Western Railroad Company. The form of the agreements made by the plaintiff, was the same in each instance, and the following is one of these agreements:

New York, December 10, 1886.
For value received, the bearer may deliver me one hundred (100) shares of the stock Delaware and Hudson Canal Company, afc one hundred and three (103) per cent, any time this year.
All dividends for which Transfer Books close during said time, go with the stock, one days notice required except last day.
SAMUEL W. LEWIS.
Expires December 31, 1886, 2:15 p. M.
Endorsed, 100 7-8 S. W. L. O’C., Dec. 16.

The plaintiff failed to perform the agreements entered into by him, and a loss was thereby occasioned, which was audited and fixed by a broker, at the sum of $937.50. The evidence of the broker was to the effect that the plaintiff empowered him to adjust this loss. And the testimony given by W. M. Banks, as to what took place between himself and the plaintiff when he called upon the latter for payment, tended further to establish the authority of the broker to make the adjustment. This, however, was denied by the plaintiff, but in this state of the evidence, no more than an ordinary question of fact was presented, the decision of which, by the court in favor of the defendant, has become conclusive against the plaintiff.

The constitution of the association to which the plaintiff became a party provided for the existence of a complaint committee consisting of five members, and that committee was empowered to take cognizance of complaints made by one member against another, for failing to fulfill contracts entered into between them, orto pay and adjust the amount which by virtue of the contract, should become due from one of the members to the other. By these provisions, it was declared that: “ Section 9. Any member of this association who shall be accused of * * * a breach of .contract, shall upon complaint be summoned before the complaint committee who shall hear and investigate the case.

In the matter of a breach of contract, if the committee shall render a decision establishing a money difference between the parties, it shall upon notice to the party or parties against whom the decision is rendered, stand as a claim against him, and shall be paid within forty-eight hours, or taken on appeal to the arbitration committee. A failure to pay or appeal within the time specified shall subject the party in default, to suspension.”

The plaintiff did fail to discharge the amount adjusted against him by reason of his default in the performance of the agreements made by him, and a complaint was thereupon made by W. M. Banks, the other party to the agreements, setting forth this default. And notice was thereupon given to the plaintiff that if the amount remained unpaid for twenty-four hours, he would be reported for sus: pension. He failed to make this payment, and he was thereupon summoned to appear before the complaint committee on the 28th -of January, 1887, at 3 :45 p. M., and a copy of the complaint previously filed, was served upon him with this summons. He was, also, afterwards summoned to appear and attend before the committee to be examined as a witness in the proceeding. He did appear before the committee and objected to their proceeding upon the complaint which had been made. Questions were asked him on what ground he refused to answer, and whether he had authorized Mr. O’Connor to settle the claims, and whether he denied the authority of O’Connor, or admitted it. These questions he declined to answer, neither admitting nor denying the authority of O’Connor. The commitee after hearing the case made their decision against the plaintiff for the adjusted difference in the contracts, and notice was given to him of this decision, directing his attention to section 9 of article 6 of the constitution, that the amount must be paid within forty-eight hours or an appeal taken to the arbitration committee on penalty of suspension. The plaintiff failed to take the appeal, or make the payment and he was suspended from his privileges as a member of the association.

The action was brought by him to restrain the enforcement of his suspension under these proceedings. And in support of it, the position has been taken, that the association was without authority to proceed against him, or to suspend him, as it did, for the reason that the contracts entered into between himself and W. M. Banks were illegal and void under the provisions of the statute of the state prohibiting betting and gaming. And if they were of that description, then the conclusion would follow that these contracts entered into by the plaintiff were inoperative and void. But to render agreements of this description illegal and void it must appear affirmatively that they were entered into as gaming contracts, and not as real transactions for the purchase and sale of property. Story v. Salomon, 71 N. Y., 420; Yerkes v. Salomon, 11 Hun, 471; Kingsbury v. Kerwan, 77 N. Y., 612.

And the other authorities relied upon in support of the appeal concede the correctness of this principle. Kiley v. Western U. Tel. Co., 39 Hun, 158; Irwin v. Williar, 110 U. S., 499; Gregory v. Wendell, 39 Mich., 337.

And when that intent is not made to appear, a contract for the future sale or delivery of stocks, or other property not owned by the seller at the time, is a valid agreement, capable of being enforced between the parties making it. Bigelow v. Benedict, 70 N. Y., 202.

But if these agreements, or either of them, were speculative, or fictitious, which article 19 of the constitution of the association forbade the members to enter into, that should have been shown to the committee before whom the plaintiff was summoned to appear and answer the complaint filed against him. For by the constitution of the association the committee was empowered to trv that complaint, and as incidental to that authority to hear and consider any matter which should be alleged, or proved, forming an answer to the complaint, either legally or by proving the facts complained of to be unfounded. This authority was clearly provided and stipulated for in the constitution of this association. And that it might legally be so provided has the sanction of the authorities considering the powers in this manner delegated to a committee of an unincorporated association. Dawkins v. Antrobus, L. R., 17 Chan. Div., 615; White v. Brownell, 2 Daly, 329; Olery v. Brown, 51 How., 92.

And so much at least was assumed to be the authority of such an association in Loubat v. Leroy (40 Hun, 546). This legal and equitable principle is obnoxious to nothing that was held in Austin v. Searing (16 N. Y., 112), which was an action brought to enforce a title to property through the forfeiture of a subordinate lodge for alleged misconduct on its part. The proceeding before the committee of this association was invested with no such power, neither has any such consequence been insisted upon as resulting from what has taken place. No proceeding has been, or can be, under the constitution of the association, taken against the plaintiff to enforce the collection of the money he lias failed to pay, by seizure or sale of his property. All that it is claimed may be done is the forfeiture of his privileges as a member of the association, while he shall fail, or refuse, to comply with the decision which has been made against him. And the fact that the forfeiture might possibly hereafter be followed by expulsion will not change the nature of the proceeding.

So far as it has been extended, that has been done under the clear authority of the constitution of the association. It has resulted in no more than the suspension of the plaintiff from the privileges of the association. And if he was not subject to the imposition of this disability he should not only have appeared, but have shown the fact to be so before the committee, and in that manner protected himself against the exercise of even this power of suspension. And if he had made that fact to appear, and the committee had improperly decided against his evidence, the constitution supplied him with means of redress by way of an appeal to the arbitration committee, which was empowered to re-examine and rehear the case. And when authority of this description is provided for the security and protection of the rights o£ a member, he is required to avail himself of it before he can appeal to the courts to restrain the-action of the committee or the association. Loubat v. Leroy, supra. In Lafond v. Deems, 81 N. Y., 507, it was said that the “Courts should.not, as a general rule, interfere with the contentions and quarrrels of voluntary associations so long as the government is fairly and honestly administered, and those who have grievances should be required in the first instance to resort to the remedies for redress provided by their rules and regulations.” Id. 514.

It has been urged under the authority of Heath v. President Gold Exchange, etc (7 Abb. N. S., 251), that the plaintiff had the power to disaffirm the authority of the committee, and to refuse to be bound by the proceedings. And that was held to be the right of the party in that case on the principle that a person agreeing to submit a dispute to arbitration might revoke the authority of the arbitrators. But this was not such a case. It was not an arbitration, nor within this principle applicable to those proceedings, but it was a hearing over which the committee had jurisdiction as long as the plaintiff remained a member of the association, and he could only disaffirm or disregard that authority by terminating his membership in the association itself. Beyond that the objection which is now in this manner urged in behalf of the plaintiff was not taken by himself when he appeared before the committee, neither was it by the letter of his counsel written to the secretary of the committee in answer to the proceedings taken against him.

And still further than that, the court, in its discretion of the action, has assumed that the contracts were valid obligations which the plaintiff entered into for the sale of these shares, and there is no such preponderance of evidence against that conclusion as would justify its disaffirmance on appeal. The case was rightly disposed of at the trial, and it should be affirmed, with costs.

Van Brunt, Ch. J., and Brady, J.. concur.