O'Brien v. South Omaha Live Stock Exchange

Dean, J. James O’Brien was expelled from membership in the South Omaha Live Stock Exchange for bad faith and dishonest conduct, in violation of certain of its rules and — 730 — by-laws. The exchange is an unincorporated voluntary association of persons organized for the purpose of establishing and maintaining a commercial exchange, but not for pecuniary gain or profit. Among its professed objects are these: “To inculcate and enforce correct and high moral principles in the transaction of business; to inspire confidence in. the methods and integrity of its members; * * * and, generally, to promote the welfare of the South Omaha market.” An initiation fee of $1,000 was paid by Mr. O’Brien for a certificate of membership entitling him to the benefits and privileges of the exchange, the certificate by its recitals subjecting him to an observance of the rules and by-laws of the association. On August 17, 1914, after a hearing, he pleaded guilty before the board of directors to charges filed against him by the prosecuting committee of the association, wherein he was charged with “bad faith and dishonesty” in business transactions with several live stock shippers who were patrons of the exchange. In pursuance of his plea of guilty he was expelled from membership and his certificate of membership was canceled. He commenced this action against the exchange to recover $3,000, the alleged value of the certificate. The case was tried to the court without a jury. A judgment for $1,414 was recovered by him, from which the defendant exchange appealed. Plaintiff contends that defendant unlawfully canceled his certificate of membership and thereby “forfeited and converted” his property to its own use. The state of the record demands an examination of the rules of the exchange. Section 7 of rule 11 provides that if any member shall “be guilty of any act of bad faith, or dishonest conduct, he shall be censured, fined, suspended, or expelled by the board of directors as they may determine from the nature and gravity of the offense committed.” Section 10 of rule 11 provides: “An expelled member shall not be readmitted to membership except upon payment of the regular initiation fee and annual assess — 731 — meut, and upon satisfactory evidence that he is a fit person for membership in the association.” In view of the- professed objects of the exchange and of its rules and by-laws, it seems that the expulsion of plaintiff, based as it is on his admission of guilt of bad faith and dishonesty, automatically voided and annulled his certificate. It follows that all of the rights and privileges that were inherent in the certificate before expulsion then instantly ceased. The certificate from that moment was valueless in the hands of any person for any purpose. The cancelation of the certificate by the board, of which plaintiff complains, was therefore a formality both gratuitous and unnecessary. Can human expression be more clearly and explicitly direct in meaning than the language cited from sections 7 and 10 of rule 11 of the by-laws? Can any reasonable inference be drawn therefrom other than that expulsion of a member for- bad faith and dishonest conduct means the utter annulment of the certificate and every privilege that pertained thereto before expulsion? If the act of expulsion on that ground does not cancel the certificate for every purpose for which it was originally intended, no significance can then attach to this language that we find in rule 11: “An expelled member shall not be readmitted to membership except upon payment of the regular initiation fee and annual assessment.” If the rules can be held to contemplate that such certificate, after expulsion for bad faith, and dishonest conduct, is of any value in the hands of any person, surely such person would be its former owner, the expelled member, who has repented and who seeks to return. But that is not the language of the rule nor its intent. In order to again become a member after expulsion he must again pay the required initiation fee and annual assessment. Plaintiff assented to this by-law upon assuming membership, and' it then became an essential part of the contract between him and the exchange. And it was not an implied, but an express, agreement that lawful expulsion would cancel his certificate and every vestige of priv — 732 — ilege in the exchange theretofore conferred by that instrument. White v. Brownell, 3 Abb. Pr. n. s. (N. Y.) 318. In answer to the suggestion that the punishment of plaintiff for his confessed acts of dishonesty is excessive, it may be pointed out that sections 5 and 6 of rule 9 provide that the mere failure to pay certain assessments for 3 months works a cancelation of the membership certificate, and that “all rights incident thereto shall be taken to have been surrendered and shall thereupon revert to the exchange.” It therefore appears that the rights and privileges pertaining to such certificate do not contemplate absolute ownership in the member, but a qualified ownership conditioned upon compliance with rules to which he assented when becoming a member. A certificate of membership in an exchange is a species of property, but it cannot be bought outright, nor can it be separated from the conditions that the rules impose upon it. And it is those conditions that impart to it value. The rules of the exchange and the conditions of purchase of a certificate are inseparably incident to such certificate in the hands of whomsoever it may come. Hyde v. Woods, 94 U. S. 523; Missouri Bottlers Ass’n v. Fennerty, 81 Mo. App. 525. The rules that apply to membership in associations that are organized for profit do not ordinarily apply to membership in voluntary unincorporated associations, organized not for pecuniary gain or profit. In the latter the association will be left free to enforce its rules and by-laws by such reasonable means as it may adopt for its government. This is because the association that is organized for profit deals as an organized entity with the public generally, while in the voluntary association organized not for pecuniary gain or profit the individual members deal with the public and one another. Hence it is imperative that in the business transactions of its membership the highest standards of commercial conduct be maintained. Failing in this the prime object of the exchange would be destroyed, and from this arises the — 733 — necessity for the adoption and enforcement of disciplinary rules. A transcript of the proceedings before the board of directors, wherein plaintiff pleaded guilty to the charges against him, all duly certified by the notary public before whom they were taken, was offered in evidence by defendant, but excluded by the court upon plaintiff’s objection. We believe the trial court should have admitted this record in evidence for the reason, among others, that one of plaintiff’s contentions is that the proceedings before the board of directors were in some respects unlawful, and that his expulsion was therefore not justified. While the disciplinary proceedings in a voluntary association are quasi-judicial in character, courts do not ordinarily interfere except to discover whether such proceedings have been conducted in good faith and in pursuance of rules and by-laws that are not obnoxious to public policy nor to the law of the land. In a hearing before a voluntary association or exchange for violation of its.rules by a member, it is not required that the procedure be tested by the rigid rules of criminal pleading and practice. We discover no substantial irregularities in the proceedings complained of. The tribunal was of plaintiff’s own choosing. The hearing appears to have been fairly conducted. Plaintiff was given opportunity to controvert instead of entering a plea of guilty to the charges preferred against him. Board of Trade v. Nelson, 162 Ill. 431; Lewis v. Wilson, 121 N. Y. 284; Ihnen v. South Omaha Line Stock Exchange, ante, p. 195; Otto v. Journeymen Tailors, 75 Cal. 308, 7 Am. St. Rep. 156; Belton v. Hatch, 109 N. Y. 593. Plaintiff contends that he was both fined and expelled for the same offense. An examination of the record shows some confusion on this point, but he was not fined. This contention arose from the fact that he with three other partners composed the “Big Pour Commission Company,” a concern doing business on the exchange, and against this partnership and its members a complaint was filed under another section of the by-laws by the prosecuting — 734 — committee for dishonest conduct in rendering separately to 11 shippers “account of sales, showing different prices, different docks, and different weights than those shown by original settlements made with purchasers.” After a hearing the company was fined $100 and expelled. Both cases were heard the same day, but there were practically two hearings. The company, a separate entity, is not a party to this suit, and any grievance it may have cannot properly be considered here. In view of the record and of the law applicable thereto, . the judgment of the trial court is Reversed.