Vol. I.]

IN RE SOLOMON.

[No. 8.

the property thereby exempted, and might, in its discretion, determine in what manner and on what conditions he might thereafter hold for the benefit of himself and family such personal property as he might have, and coming within the exemption thereby made, but that said section should not be construed as authorizing the General Assembly to defeat or impair the benefits intended to be conferred by the provisions of this article. By section 7 it was provided that the provisions of the article should be construed liberally, to the end that all the interests thereof might be fully and properly carried out.

In June, 1870, the General Assembly passed an act such as was required by section 5, and in its third section provided that in all cases where a debtor or contractor shall declare in the body of the bond, note, or other evidence of the debt or contract that he waives as to such debt or contract, the exemption from liability of the property which he may be entitled to hold under the provisions of said act, the property, whether previously set apart or not, should then be liable to be subjected for such debt or contract under legal process in like manner and to the same extent as other estate of the said debtor or contractor; provided, that when such debtor or contractor is possessed of other estate than that which he may be entitled to hold exempt in the county in which suit is brought against him, or the property set apart under the provisions of this act may be, then such other estate shall be subjected and exhausted before that which is exempt could be sold. The words employed in the note held by Gibson & Crilly are declared by the act to be sufficient to operate as such waiver.

If this provision of the act is constitutional, the waiver can be enforced. Every statute is presumed to be constitutional. It cannot be declared by the courts to be otherwise, unless it is made clearly so to appear. If the case is doubtful, the express will of the Legislature should be sus

tained.

Keeping these familiar principles in mind, we proceed to consider the constitutionality of the act in question.

The Constitution grants the exemption as a privilege to the householder. It declares that he shall be entitled to hold property to be selected by him. No specific property is set apart, but he can select such as he desires to have, and when selected it is to be set apart. If he fails to select, the process of the law can be executed, and the sale made. The right of selection must be exercised before the sale. If the householder fails in this, his right of exemption in the property sold is gone.

The privilege, so far as it is given by the Constitution, is personal to the householder. The language is, "to be selected by him." If he neglects to act, no one is authorized by the Constitution to act in his place. The case is entirely different from what it would have been if it had been declared that certain specific property should not be sold under execution, &c.

In that case, the Constitution, or a law containing similar provisions, would execute itself; and as it would be a part of the public policy of the government to exempt that particular property absolutely from forced sale, its provisions could not be waived. It would be beyond the legal power of an officer to levy upon and sell such property.

Here, however, the policy is not to exempt absolutely, but the householder has a right to claim an exemption. Whether he will make his

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IN RE SOLOMON.

[No. 8.

claim or not is optional with him. If he does not claim, he cannot have; and it is difficult to see why, if he may waive at the time of the sale by refusing to select, he may not before. If he can waive at all, it seems to us it follows necessarily that for a good consideration he may make a contract to waive such as the courts will enforce.

But it is further provided that nothing in the article of the constitution referred to should be construed to interfere with the sale of the property or any portion of it by virtue of any mortgage, deed of trust, pledge, or other security thereon. Thus it is made expressly to appear that it was not the intention of the framers of the constitution to prevent the householder from contracting for the sale or incumbrance of the property. He was not required to hold it absolutely for himself and family. It was to remain entirely under his personal control, to be dealt with in such manner as he saw fit. His right to sell and incumber is as distinctly given as his right to select. If he sells or incumbers before he selects, his power of selection, as against such sale or incumbrance, is gone. No particular form of incumbrance is specified; that is left to the discretion of the legislature. Now a waiver of the right to select is, in effect, an incumbrance on the property which might be seleeted. True, in the absence of a statutory provision to that effect, one cannot ordinarily mortgage or otherwise incumber his future-to-be-acquired property, but it is no doubt within the power of the legislature to authorize him to do so. If it does, his incumbrance upon such property is binding, the same as upon any

other.

The Legislature of Virginia has in this case attempted in effect to authorize a householder to incumber in a particular manner his preemption interest in his property, as well that which he has acquired as that which he may acquire. It seems to us that in so doing it has not in any manner impaired the benefits which it was the object of the constitution to confer. The object was to give the householder full power and control over his property; to permit him to use it in such manner as in his judgment would best promote the interest of himself and his family; and if he had not by some voluntary act of his own deprived himself of the right, to allow him to select and hold a certain specified amount, not description, of property free from the process of the law to enforce the payment of his debts. The amount thus exempted was large, in many instances no doubt more than the value of all the property the debtor owned. Unless he could in some form make this property available for the purposes of security, he and his family might not unfrequently be reduced to want. A mortgage, or pledge, or deed of trust, might not always furnish the security required. Take the facts of this very case as an example. The bankrupt appears to have been a merchant, and purchased his goods on credit. One of the classes of property which he wishes set off to him consists of his stock of goods remaining on hand. So far as appears from the papers submitted to us, his whole unincumbered property will not be sufficient to give him the full amount which the constitution would permit him to hold. The note of these creditors was given for goods purchased on credit to keep up his stock. Unless, therefore, he could in some manner give security upon his exempted property, it is fair to presume he could not have obtained his credit. A mortgage upon property held for

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HYDE v. WOODS.

[No. 8.

sale would be precarious security, if valid at all as against creditors, and a pledge would be inconsistent with the retention of the possession by the owner for the purpose of sale. The only real security that could be given in such a case would be by a waiver of the right of exemption in favor of that particular debt. This the legislature has authorized the debtor to make, and we think in so doing it acted within the scope of its constitutional powers. Whether such a waiver could be enforced without legislative authority for making it, we are not called upon now to consider. It is sufficient for this case that this authority has been given.

The judgment of the district court, that the provisions of the act allowing a waiver of the exemption are unconstitutional, is reversed, and the court is directed to proceed to hear and determine the cause upon the other issues made by the pleadings.

CIRCUIT COURT OF THE UNITED STATES. — DISTRICT OF CALIFORNIA.

[June, 1874.]

PROPERTY IN MEMBERSHIP OF BOARD OF STOCK BROKERS.

HYDE v. WOODS.

Where under the articles of association of a Board of Stock Brokers, a member cannot transfer his seat to a party not elected and approved by the board; and where, upon the insolvency of a member, his rights as such are forfeited, and the board is authorized to dispose of his seat, and apply the proceeds to the payment of his indebtedness to other members of the board to the exclusion of all others, only the residue of the proceeds of the sale after paying all the liabilities provided for in said articles of association, is assets of such insolvent member. Under such articles, F., a member, failed to meet his engagements in the board, August 24, 1872, and being indebted in a large amount to sundry members, on that day assigned his seat in the board to W., with authority to sell and pay the proceeds to his various creditors in the board. With the assent of the board, W. sold the seat to T., who was elected by the board, for ten thousand dollars, and, with the approval of the board, paid the entire proceeds pro-ratably to F.'s creditors, who were co-members. October 1st, 1872, F. was adjudged a bankrupt on petition of a general creditor filed September 18th, 1872. After said sale and payment, an assignee having been appointed, he brought suit against W. to recover said sum of ten thousand dollars. Held, That the assignee was only entitled to the residue after payment of F's liabilities to the co-members provided for in the articles of association, and there being no surplus, he was not entitled to recover.

THE facts are set forth in the opinion.

SAWYER, C. J. This is an action by the assignee in bankruptcy of Thomas W. Fenn, to recover the proceeds of the sale of the seat of Fenn in the "San Francisco Stock and Exchange Board," which were received by defendants within four months before the filing of the petition in bankruptcy. The petition in bankruptcy against Fenn was filed by a creditor

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HYDE v. WOODS.

[No. 8.

September 20, 1872, and he was adjudged a bankrupt thereon October 1, 1872. The facts are as follows:

66

In 1862 The San Francisco Stock and Exchange Board" was organized, and a constitution and by-laws adopted for the government of all who should become members. Under said constitution and by-laws, the number of members was limited, and no person could be admitted except upon an election by ballot upon a proposal, made at least five days preceding the election, and five negative votes excluded the applicant. Every party so elected subscribed to the constitution and by-laws, and agreed to be bound by their provisions. There was at no time any ownership or property in the privilege of membership in said board, or right to do business therein as a member, except as provided in, and limited by, said articles, constitution and by-laws; and the privileges granted to any one becoming a member were not assignable, descendible, or transferable, except as provided in said constitution and by-laws.

Article IX. of said constitution provided as follows:

"Any member who fails or has failed to comply with his contracts, or becomes insolvent, shall be suspended until he has settled with his creditors. That on his application for re-admission, a committee of three members shall be appointed by the president to investigate his conduct and the cause of his failure. The applicant shall then be admitted to his seat in the board, upon the assent of two thirds of the members there present." Article XIV. provided as follows, to wit:

In case of retirement of any member in good standing from this Board, he shall have the right to sell his seat to the best advantage and to nominate his assignee to fill the vacancy. Provided, that said nominee shall thereby acquire no right or privilege, until proposed and elected in the manner and form prescribed by the constitution of this board, it being distinctly understood that this board reserves to itself the right to reject any, or all nominees at its pleasure. Any member assigning his seat, shall be entitled to the initiation fee at the time, in case his nominee shall be elected by the board. In case of the death of a member, this board pledges itself to dispose of the vacant seat to the best advantage, for the benefit of the widow and children of the deceased; and in case there be neither widow nor children, then for the benefit of such parties as the deceased may indicate in his last will and testament. In case of the suspension of any member by failure to fulfil his contracts, or by insolvency, the board will exercise a generous discretion, guided by the circumstances of each case, in disposing of the seat for the benefit of the party suspended. Provided, that a party who accepts the proceeds of the sale of his seat under this restriction shall not be re-admitted except in the manner and form prescribed by the constitution and by-laws, for the admission of new members. All members of this board who may have been suspended for six months and upwards, and who have not made a satisfactory settlement of their contracts during that time, shall be deprived of all privileges of membership of this board; and their seats become the property of their creditors in the board."

Article XV. provided as follows:

"In sales of seats for account of delinquent members, the proceeds shall be applied to the benefit of the members of the board, exclusive of outside

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HYDE v. WOODS.

[No. 8.

creditors, unless there shall be a balance after payment of the claims of members in full."

Thomas W. Fenn became a member of said board, October 21, 1871, subject to said articles, and thereby his privilege of doing business therein and his seat became security to said board, and the members thereof, for his obligations and indebtedness incurred in said board to the members thereof. On the 24th of August, 1872, he became delinquent in said board by failure to fulfil his contracts therein made with divers members thereof. On the same day, and for the purpose of securing to his said creditors in said board all benefit and advantage, which the security of said seat afforded them under said constitution and by-laws, and his agreement theretofore made on October 21, 1871, he, on said day, executed and delivered to the defendants a certain instrument in writing, in the words and figures following:

"SAN FRANCISCO, August 24, 1872.

"I hereby assign my seat in the San Francisco Stock and Exchange Board, to Messrs. Woods & Freeborn, and hereby authorize them to sell the same to the best advantage, and apply the proceeds of sale to the payment of all debts due from me to the members of said Board.

Witness, J. W. FREEBORN.

"T. W. FENN."

Thereafter, one W. B. Thornburgh applied for admission to said San Francisco Stock and Exchange Board, and was duly elected thereto as a member, and the defendants then and there, to wit, on the sixteenth of September, 1873, by permission of said San Francisco Stock and Exchange Board, transferred the said membership or seat to said Thornburgh, and received from him therefor the sum of ten thousand dollars, gold coin of the United States.

At the time of the execution of said instrument, the admission of said Thornburgh and receipt of said money, said Fenn was insolvent, and said defendants then had reasonable cause to believe him to be insolvent, and at said times the said defendants were members of said Stock Board, and said Fenn, as a member of said board, was indebted to said defendants, as such members, upon transactions had in said board, within the intent and meaning of said provisions of the constitution and by-laws hereinbefore set out, for which the seat and privileges of said Fenn as such member were security, in the sum of more than $2,973.30, and said Fenn was at said time in like manner, indebted to divers other members of said Board, arising upon like transactions, and for which his said seat and privileges were in like manner security, in amounts exceeding the sum of ten thousand dollars in gold coin.

Upon the receipt of said sum of ten thousand dollars, as aforesaid, and prior to the commencement of the proceedings in bankruptcy, set forth in the complaint herein, the defendants applied to the payment, and paid over to the several creditors of said Fenn in, and as members of, said Stock Board, upon the said several amounts of indebtedness, the whole of said sum of ten thousand dollars so received, dividing the same pro-ratably between said several creditors, the sum received and retained by said defendants,