Summary
In People ex rel. Johnson v. N.Y. Produce Exchange, 149 N.Y. 401, 44 N.E. 84, the court upheld a by-law, authorized by New York statute, which provided for expulsion for "any proceeding inconsistent with just and equitable principles of trade.
Summary of this case from Gottlieb v. Economy StoresOpinion
Argued April 20, 1896
Decided May 26, 1896
Abel E. Blackmar for appellant.
Ben L. Fairchild for respondent.
The relator, by the action of the board of managers, has been deprived of a valuable right appertaining to membership in the exchange, and if the board, in suspending him, transcended its jurisdiction, the relator is entitled to invoke the aid of the court to undo the wrong which he has suffered. The visitatorial supervision inherent in the courts (when not regulated by statute) over the affairs of public or private corporations, extends to the investigation of their proceedings for the purpose of keeping them within their chartered powers and protecting the rights of members against usurpation of the governing body to their prejudice. (1 Bl. Com. 381; High on Extraordinary Rem. § 293.)
But the serious character of the action of the board of managers in this case, as affecting the relator, furnishes no ground for judicial interference, provided the board proceeded under the authority of the charter of the exchange and of by-laws legally enacted. He could not be expelled for any cause without notice and an opportunity to be heard before the sentence was passed, because this is required by a fundamental principle of justice. But the relator had full notice of the proceedings against him and was fully heard, and the only questions open to him are the jurisdiction of the tribunal before which he was summoned, to entertain the proceeding, and upon the evidence presented before it, to adjudge his disfranchisement, and the question of the regularity of the proceedings. We do not refer to the jurisdiction of courts to interfere in cases of collusive or fraudulent judgments, because no fraud is, or could, upon this record, be asserted. The general rule in respect to the conclusiveness of proceedings of private corporations disfranchising a member is stated with remarkable force and clearness by Chief Justice GIBSON in Black and White Smiths' Society v. Vandyke (2 Whart. 309), in the case of an action brought for weekly dues against a benefit society by the plaintiff, who had been expelled from membership under the rules and by-laws. The learned chief justice said: "Into the regularity of these proceedings it is not permitted us to look. The sentence of the society, acting in a judicial capacity and with undoubted jurisdiction of the subject-matter, is not to be questioned collaterally while it remains unreversed by superior authority. If the plaintiff has been expelled irregularly, he has a remedy by mandamus to restore him; but neither by mandamus nor action can the merits of the expulsion be re-examined." (See Lewis v. Wilson, 121 N.Y. 284; also Angell Ames on Corp. § 418.) We venture to suggest that if the language from the opinion quoted needs qualification, it is in the inference that under no circumstances can the merits of an expulsion be re-examined. It would seem, in view of the generally summary character of the proceedings, and that they are not subject to review by the ordinary process of appeal, that a total absence of evidence to support the sentence of expulsion should have the same force in a mandamus proceeding as an absence of jurisdiction to make any inquiry at all. The court in determining the present case is, therefore, restricted to the question of jurisdiction of the board of managers to expel or suspend the relator from the privileges of membership. It proceeded under the by-law No. 32, and to justify its action the by-law must have been authorized by its charter, and in addition a by-law must state the causes of expulsion with such reasonable degree of certainty that a member may know the transgressions which will subject him to the penalty. The simple fact of non-performance by a member of a contract is not, we think, within the by-law. In some exchanges the mere fact that a member is unable to perform his contracts is a ground for suspension or expulsion under the by-laws, irrespective of the reasons for such disability, whether from business misfortunes or other innocent cause. The interests of associations where such a rule obtains are deemed to require that persons unable to perform their pecuniary engagements, shall not be entitled to the privileges of membership, and a by-law giving effect to this policy, if authorized by the charter, is valid. But the by-laws of the Produce Exchange do not make the mere breach of contract, unaccompanied by any moral delinquency, a cause of expulsion. The language is inconsistent with such a construction. The accusation which gives the board of managers the right upon investigation and hearing to expel a member must be of "willful violation of the charter or by-laws, or of fraudulent breach of contract, or of any proceedings inconsistent with just and equitable principles of trade, or of other misconduct." If the simple breach of contract was intended to be sufficient cause, irrespective of the circumstances or motive of the party by whom the breach was committed, the language of the by-law was not only unnecessary but misleading. But we are of the opinion that the by-law extends to conduct in respect to a contract either in its inception or execution, or the failure to execute it, which is inconsistent with just and fair dealing, although it may fall short of actionable fraud, and although it is not of that specific and definite character of which the law in an action between the parties will take notice. The law does not undertake to enforce mere moral obligations. Their observance, however, by parties to contracts is required by the principles of commercial honor and integrity, and it would seem to be the policy as well as duty of an association organized to inculcate just and equitable principles of trade, to discourage by disciplinary sanction any disregard of business recitude on the part of its members in their business transactions.
It is manifest that a contract valid in form and enforceable by action may nevertheless have been induced by unfair dealing and that its performance may be evaded upon unjust or frivolous pretenses. To such or similar conditions, the by-law, by the fair construction of its language, applies, and this construction is strengthened by the fact that in 1864 the by-law, which before that time was in other respects substantially similar in language to the present one, was amended by inserting the phrase "or any proceeding inconsistent with just and equitable principles of trade." Neither does the fact that a contract is enforceable at law withdraw it from the jurisdiction of the board of managers under the by-law in question. The decision of the board on the question of expulsion, although the inquiry may necessarily involve a determination of the fact whether a contract has been entered into, and its breach, is not res adjudicata in an action subsequently brought on the contract in a court of justice. The inquiry is for a special and limited purpose, and the decision is effective only for the purpose for which it was instituted, namely, to ascertain the liability of the party against whom the complaint is made to expulsion from the association under the by-law, a decision reviewable by the courts only on the question of jurisdiction.
We are also of the opinion that the by-law was authorized by the charter of the exchange, and was sufficiently definite and specific. Whatever rule of the association was calculated "to inculcate just and equitable principles of trade" (one of the purposes specified in the charter), was authorized under the power granted to make "all proper and needful by-laws." A by-law requiring the members in their dealings to maintain just and equitable principles, under penalty of expulsion for a disregard of those principles, has an obvious and direct influence in inculcating those principles. It did not, it is true, enumerate the specific acts which constitute a violation of the by-law. This was plainly impracticable, and, if an enumeration had been attempted, it would have left a wide field within which, and outside of the acts enumerated, practices inconsistent with just dealing might be indulged. There is no difficulty ordinarily in a man knowing when he transgresses the limits of fairness and justice in his transactions. The conscience is a monitor which seldom is so obscured that a man does not know right from wrong. The generality of the by-law is, therefore, no objection to its validity. It results from the nature of the subject with which the corporation was dealing.
Objection is made that the complaint made against the relator was insufficient to confer jurisdiction, in that, as is insisted, it makes a simple breach of contract the gravamen of the offense. This was the point of difference between the two opinions in this court in the case of Hurst against the present appellant ( 100 N.Y. 605; S.C., 1 Cent. Rep. 264), where a complaint was framed in substantially the same language as the complaint in this case, and the point was left undecided. But the best reflection which we can bring to bear, brings us to the conclusion that the complaint, although somewhat indefinite, was sufficient in form to fairly inform the relator that he was charged with proceedings inconsistent with just and equitable principles of trade. It is admitted in the learned brief of his counsel that if the complaint had accused the relator of inequitable conduct "in matters relating to the contract of Nov. 16, 1892," then no lack of jurisdiction would have been disclosed on the face of the complaint. We think the complaint, although informal, was intended to and did in substance make this accusation. To require technical precision in complaints of this character, drawn by merchants or business men, and to apply to them the strict rule of pleading in an action in a court of law would greatly embarrass and many times defeat the disciplinary regulations of such associations. Members are entitled to fair dealing and to have their substantial rights protected. But the proceedings in such cases are necessarily somewhat summary, and mere informality, when substantial rights are preserved, ought not to render them void. We think the complaint was sufficient in form and substance to give jurisdiction to the board of managers under the by-law to make the inquiry.
The final question relates also, we think, to a question of jurisdiction, namely, whether there was evidence tending to support the decision of the board of managers. If the evidence simply established a breach of contract, without more, the decision could not, we think, be sustained. But if it justified the conclusion or gave reasonable basis for an inference that the failure of the relator to perform the contract for the sale of the oil was because of the large advance in the market price, and that his assertion that he made the contract as agent, and not as principal, was put forward in order to cover his escape from personal liability and rested upon no substantial ground, then we think we are bound under the settled doctrine to maintain the action of the board of managers. Conduct such as has been stated would be inconsistent with just and equitable principles of trade. The question for the court is not whether, passing upon the evidence as res nova, it would have reached the same conclusion as that of the board of managers, or whether the conclusion was reasonable or unreasonable, but simply and wholly whether the case was so bare of evidence to sustain the decision that no honest mind could reach the conclusion that the relator's conduct was "inconsistent with just and equitable principles of trade." (See Dawkins v. Antrobus, L.R. [17 Ch. Div.] 615.)
We cannot say this, and the judgment and order below should, therefore, be reversed, and the order of the Special Term denying the peremptory writ should be affirmed.
All concur.
Ordered accordingly.