The opinion of the court was delivered by: KIRKPATRICK
The bankrupt, which will be referred to as the Consistory, is an unincorporated association. Membership in it was attained by becoming successively a member of each of three subordinate bodies, which may be referred to (in ascending order) as the Lodge, the Council, and the Chapter, each successive elevation being upon petition and conditioned on payment of an additional membership fee. Thus, each member of the Consistory is also a member of all three subordinate bodies, and it happens that most, though not quite all, the members of all the three subordinate bodies are members of the Consistory.
None of the subordinate bodies owns any property or assets of any kind, and none of them have ever carried a bank account. The title to the property owned by the Consistory is vested in three trustees. The Consistory also has a treasurer, the same person being also treasurer of the three subordinate bodies. Initiation fees and dues were customarily paid by members of the subordinate bodies to this person, and by him turned over to the trustees. The relation of the Consistory to the subordinate bodies is described in the by-laws of the three organizations as that of their "fiscal agent." Some of the confusion existing in the minds of the claimants has evidently arisen from the use of this term. The Referee has found that, to whatever extent the Consistory may have been an agent in the technical sense, it took the funds turned over to it as owner, unimpressed by the obligations which would normally arise on a principal-agent relationship. This is an important point, and I specifically affirm the finding.
The Consistory and the three subordinate bodies all exist subject to and, among themselves, are bound by the by-laws and regulations ("Articles") of a fifth body -- the Supreme Council. Among these governing provisions is one which provides that the Supreme Council may revoke the charter of any subordinate body and that, upon such revocation, all the property of such subordinate body shall become the property of the Supreme Council. At some date subsequent to the Consistory's insolvency the Supreme Council revoked its charter, and it has ceased to exist as a unit in the Masonic hierarchy.
This fund is a bank account of $7,528.80, being the balance of the general checking account of the trustees of the Consistory. It is claimed by the three subordinate bodies each of which claims 18/84 by virtue of a provision of the articles of the Supreme Council, which provide that, "Should no plan for the allocation of any assets (in the hands of the Consistory) have been adopted and approved, such allocation shall be based upon the ratio of the minimum fees established by Art. 307." This ratio is the basis for the fraction (18/84) claimed by each body. The fund came from dues and initiation fees, plus income from the operation of the Temple owned by the Consistory. There have been withdrawals from time to time for expenses of operation and other purposes, and it is conceded that there is no possibility of any of the subordinate bodies tracing the payments of its particular members.
There is no question that the article of the Supreme Council quoted above is binding as between the four bodies involved and that, if rights of creditors had not intervened, it would have given the fund to the three subordinate bodies in the proportion claimed. However, this provision cannot affect rights of creditors asserted by trustee in bankruptcy, nor, as a matter of fact, does it appear that such was its purpose. Although, as I have found, no trust relationship arose as to it or any other fund in the hands of the Consistory, that circumstance is not the only one which would eliminate these claimants. Concededly the fund consists of more than merely dues and fees of members. It might not be necessary for each particular subordinate body to trace the payments by its members as distinguished from those of the others, but it is necessary that the whole fund claimed be identifiable. I rule that the claimants, the subordinate bodies, have failed to establish any right to this fund.
This fund was held by the trustees of the Consistory, separate from its general funds, and came into existence by virtue of provisions of an article of the Supreme Council which provided that life membership in a subordinate body might be granted upon payment of a sum of fifteen times the amount of the annual dues, and that the "amounts realized from issuance of such life memberships shall constitute a permanent fund, which shall be maintained as such, and the income only from which shall be available for such purposes as the body may designate." It consists of cash, securities, mortgages, and real estate, and amounts to something less than $75,000. The by-laws of the Consistory required the trustees to invest the moneys applicable to this fund and accumulate the income from it until the total amounted to $75,000. Thereafter the income was to be paid over by the Consistory's trustees to its treasurer to be used for the current general purposes "of the Consistorial bodies." The fund never quite reached $75,000, and the annual income was paid over by the trustees to the treasurer who thereupon repaid it to the trustees for further investment. Another by-law provided that the trustees should have no power to alter, change or dispose of any investment of the fund without the sanction of the Consistory. This fund is claimed (a) by the Supreme Council and (b) by Harris et al, individual members of the subordinate bodies. There are, therefore, two certificates for review relating to this fund.
(a) Claim of the Supreme Council. This is based upon the article which was quoted above in connection with the general fund. This article applies only to "the property of said body." Hence the Supreme Council is not even a party in interest if the fund was not owned by the Consistory but was merely held by it in trust for the individual life members of the various subordinate bodies. If it is the property of the Consistory, then the article under which the Supreme Council claims it, while no doubt binding between it and the Consistory, is plainly in contravention of the provisions of the Bankruptcy Law. See In re McCown, D.C., 31 F.2d 334, affirmed, Middleton v. Fidelity-Philadelphia Trust Company, 3 Cir., 35 F.2d 851. In the case cited, a rule of the Philadelphia Stock Exchange which provided for distribution of the equity of an insolvent member in securities pledged by him with another member, to other members of the Exchange ahead of the insolvent's general creditors, was held ineffective under the Bankruptcy Law. In the present case the article did not expressly provide that the rights of the Supreme Council should become vested in the event of insolvency, but if the Supreme Council revoked the charter of a subordinate body after the latter's insolvency the effect would be precisely the same as though the article had so provided. The claim of the Supreme Council in its own right, therefore, cannot be sustained.
(b) Claim of Harris, et al. Here the proposition is that the life membership fund was taken by the Consistory in trust for such members as chose to adopt this method of paying their dues in full, that it never was the property of the Consistory and that the article of the Supreme Council in question merely had the effect of constituting the Supreme Council the nominee of the life members, authorized by them to take the fund away from the Consistory and turn it over to a new trustee under some arrangement by which, if and when a new Masonic body to which they were eligible should be organized, they would obtain the benefits and privileges of membership in it, free for life of dues and assessments.
The entire argument is based on the fact that the life membership fees were kept in a separate fund, and, other than this, there is no evidence of any kind that a trust was intended. This certainly is not enough to raise a trust. The maintenance of the separate fund was obviously merely a sound method of making the life membership fees accomplish their purpose. Their payment relieved the payers from further payments of dues, and, by the same token, reduced the Consistory's expectancy of regular future income in the form of dues from these members. Unless they were somehow recognized as capital and segregated from the income arising from ordinary dues the Consistory's bookkeeping would be on an incorrect basis. The life members had no right to prevent amendments to the articles of the Supreme Council or the by-laws of the Consistory which would permit the fund to be applied to some other purpose, any ...