
    J. Quintus Cohen, as Trustee, Plaintiff, v. Ogden D. Budd, as President of Consolidated Stock and Petroleum Exchange, Defendant.
    (Supreme Court, New York Trial Term,
    December, 1906.)
    Exchanges: Power to enact rules and regulations; Disposition of proceeds of sale of membership; Collection of claims of defaulting member and liquidation of liabilities.
    Bankruptcy — Validity of transfers and preferences by bankrupt, and proceedings to annul such transfers.
    Stock exchanges may enact such rules and regulations for the government of their affairs, not contrary to the law of the land, as may be necessary to carry out their purposes.
    A rule making the proceeds of "a sale of a defaulting member’s seat subject first to the payment of his debts to his fellow members is valid; but a rule providing that claims due from members to a defaulting member may be collected by the exchange and applied to debts due other members would practically take his estate out of the Bankruptcy Daw and is, therefore, invalid; and, to the extent that such claims due to him result in part from transactions upon other exchanges, the rule is clearly opposed to public policy.
    Where within the four months’ period a stock exchange of which a bankrupt was a suspended member collected from various of its members the balance due from them to the bankrupt, who had committed an act of bankruptcy by making a general assignment# on stock transactions on the said exchange and other exchanges, which amount, less expenses and a small amount retained, it distributed among the creditors of the bankrupt who were members of such exchange, and it appears that no rule of the exchange in force at the making of the general assignment conferred authority to collect and distribute the fund although such a rule was subsequently adopted; and where no claim was made to the fund by the trustee in bankruptcy until after it had passed into the hands of the creditors with the approval of the bankrupt and his assignee, only the creditors who received the fund and thereby ac quired a preference are liable to the trustee, but he is entitled to recover from the exchange the amount still in its hands as part of the bankrupt’s estate.
    Action by a trustee in bankruptcy. The opinion states the case.
    Michel Kirtland, for plaintiff.
    Sullivan & Cromwell, for defendant.
   O’Gorman, J.

The bankrupt, Lee, was a broker on the Consolidated Stock and Petroleum Exchange of ISTew York. On May 9, 1901, he committed an act of bankruptcy by making a general assignment for the benefit of his creditors and, within four months thereafter, to wit, on August 27, 1901, a petition in bankruptcy was duly filed. Soon after the making of the general assignment and before the institution of the bankruptcy proceeding, the defendant exchange, claiming to act under its rules and regulations, collected from various members thereof certain sums of money, aggregating $13,287.09, being the balance due by them to Lee on stock transactions on the defendant’s and other exchanges, which moneys, except $258.01 used for expenses and $164.42 still retained, the defendant distributed among the creditors of Lee who were members of the exchange. The trustee in bankruptcy now sues the exchange to recover the moneys so collected. The doctrine has been well established in this country since the case of Hyde v. Woods, 94 U. S. 523, that a rule providing that the proceeds of a defaulting member’s seat are subject first to the payment of his debts to his fellow-members is valid, and Hot in violation of the Bankruptcy Act. In that case the 'court held that the seat of a member is a species of property over which the member cannot exercise an unqualified property right, because his membership is subject to the terms and conditions prescribed in the rules and regulations of the exchange which became an incident of the property right in the seat when created. The defendant claims that the principle of the case cited would sanction a rule providing that claims due from members to a defaulting member may be. collected by the exchange and applied to debts due other members, upon the theory that the rights of general creditors must be deemed subordinate to the restrictions imposed upon a member as a condition of acquiring membership. I do not think the contention is sound. Such a rule would practically take the estate of an exchange member out of the Bankruptcy Law. Even if such a rule were enforceable, its application could in no event be extended to transactions arising upon other exchanges. Goncededly, a portion of the fund in dispute resulted from transactions upon other exchanges, and to that extent at least the rule is clearly opposed to public policy. Stock exchanges have the power to enact such rules and regulations concerning the government of their affairs as may be necessary to carry out their purposes, but such rules and regulations must not be contrary to the law of the land. Apart, however, from the invalidity of the rule itself, it is not effectual for any purpose in this case. It was not adopted until June 6, 1901. Lee failed on Hay 9, 1901, and was suspended as a member on Hay 10, 1901. The rights of all the parties became fixed at that time, and could not be modified by subsequent amendment. Weston v. Ives, 97 N. Y. 222. A careful examination of the rules in force on Hay 10, 1901, discloses none that confers authority to collect and distribute this fund. This, however, does not necessarily expose the defendant to liability for the moneys distributed. As to these moneys rlie defendant was but a mere conduit. ISTo claim was made on behalf of the plaintiff until after the money had passed into the hands of the creditors. Notwithstanding the absence of an appropriate or binding rule, it appears that Lee and the general assignee approved, if not expressly authorized, the collection and distribution, and, in such a case, the creditors who received it and thereby acquired a preference alone are liable to the trustee in bankruptcy. Nicholson v. Gooch, 5 El. & Bl. 999; Hyde v. Woods, supra. As to the money still in the hands of the defendant, this is property belonging to the bankrupt’s estate, and the plaintiff is entitled to judgment therefor.

Judgment accordingly.  