Fenner & Beane v. Calhoun

Guerry, J.,

Dissenting. Fenner & Beane brought an action against B. R. Calhoun for recovery of $444.94 on a margin account for 200 bales of cotton. The court directed a verdict for the plaintiff. The court granted the defendant a new trial, and on this judgment the plaintiff assigns error. This' being the first grant of a new trial, the judgment should be affirmed, unless the evidence demanded a verdict for the plaintiff. The defendant contends that the alleged debt arose out of a cotton-futures contract between the plantiff and the defendant upon proper margins, that there was no intention that the cotton should actually be delivered, but that settlement was to be'made according to the market price of the cotton, and that such a contract is a gaming contract, unlawful, and unenforceable. Defendant contends further that there was some evidence to show that there was no intention that the cotton *831should be delivered, and for this reason the court erred in directing the verdict, and therefore, properly granted the new trial.

The Code, § 20-603, declares: “Any contract of sale for future delivery of cotton, grain, stocks, or other commodities, where it is not the bona fide intention of parties that the things mentioned therein are to be delivered, but which is to be settled according to or upon the basis of the public market quotations or prices made on any board of trade, exchange, or other similar institution, without any actual bona fide execution and the carrying out of such contract upon the floor of such exchange, board of trade, or similar institution, in accordance with the rules thereof, shall be null and void and unenforceable in any court, and no action shall be maintainable thereon at the suit of any party.” See also § 20-602. The quoted section is a codification of part of the act of 1929; and under that act, as well as preceding acts, if the contracting parties intend that there shall be no delivery, the contract is unlawful and unenforceable.

The record shows that the cotton in question was bought on margin for future July delivery, 1935; and that the cotton was sold, or contract closed out by the plaintiff, on March 11, 1935, without the knowledge of the defendant, and without calling on the defendant for more margin. The defendant testified, in part: “I did not at any time have any cotton delivered on current contracts. . . I have been engaged with Fenner & Beane in the futures market since 1933. I have never settled any contract except on margin. . . These contracts were made with Fenner & Beane through Mr. Greene. Lots of time they were made on the telephone. I would call him up, or he would call me up and tell me that he thought cotton would be a good buy. . . I do not operate a cotton mill, and have no use for a hundred bales of cotton. I just put the contracts up to win or lose. Each contract that I bought I had to put up $500, and on numerous occasions they closed out the contracts and left me in the hole. There was never any occasion when I purchased a contract that they did not require me to put up a margin. . . The July cotton they bought —it was sold without any direction from me. . . With respect to the contracts — they would never reach maturity — they would always call me up and tell me they had closed it out at a certain time, at a certain date. In fact that’s why I didn’t bother about *832this one. The only way it was done was by margin — the contracts never reached maturity. . . Not the slightest expression of intention was made between Mr. Greene and myself at the time we entered into this account for cotton futures, . . and as to receiving the cotton, I did not have any use for it at all.” J. M. Greene, a witness for the plaintiff, and the representative of the plaintiff with whom, the defendant dealt, when asked if delivery was contemplated, did not say that he or his firm intended for delivery to be made, but merely stated, “That subject was never discussed.” The evidence also shows that when the cotton was bought, the deal was made with Anderson, Clayton & Fleming, futures commission brolcers.

The issue presented to this court for decision is not whether the evidence would authorize a verdict for the plaintiff, or who had the burden of proving the contract illegal. Conceding that there was some evidence that would authorize a verdict for the plaintiff, that the defendant had the burden of proving that the contract was illegal, and that to render this contract illegal it must be shown that both parties intended that there should be no delivery of the cotton, the sole question for decision of this court is, was there any evidence, regardless of who adduced it, to show that the parties did not intend actual delivery of the cotton? If the parties intended that the cotton should not be delivered, then the contract is unlawful and unenforceable; and if there is any evidence to show that the parties did not intend for delivery to be made, then the case should go to the jury for the determination of this issue of fact. I think there is some evidence to show that both parties understood and intended that this was a mere wagering or gambling contract. The evidence shows that the cotton was bought on margin for future delivery, and was sold without calling on the defendant for more margin. This, though not conclusive, is at least a matter to be considered by the jury. The evidence also shows that the defendant had been engaged in the futures market with the plaintiff since 1933, during which time he had bought numerous contracts, and that during all this time no delivery had ever been made, which tends to show an established custom between the parties which they both understood. The evidence also shows that Mr. Greene, the representative of the plaintiff, would call the defendant on the telephone and tell him “that he thought cotton *833would be a good buy,” and this would at least indicate that the parties understood that their dealings were of a gambling nature. The fact that the defendant did not operate a cotton mill, had no use for a hundred bales of cotton, and “just put the contracts up to win or lose,” certainly indicated a gambling contract.

In Anderson v. Holbrook, 128 Ga. 233, 236 (57 S. E. 500, 11 L. R. A. (N. S.) 575), where the petition of the brokers was being tested as against a demurrer, the court held that the petition was subject to demurrer, and that “If a broker was privy to wagering contracts for fictitious or option futures, and brought the parties together for the very purpose of entering into such illegal agreements, he .could not recover for advances made by him on account of his principal in forwarding such illegal contracts.” In the opinion in that case the court said: “Pleadings are to be taken most strongly against the pleader. But it is scarcely necessary to invoke this rule in order to see from the terms of the petition that the transactions here involved belonged to that class of gambling contracts commonly known as dealings in futures. .We think the plaintiff’s own pleading is sufficient to make this apparent even to those who claim no intimacy with the ‘ bull ’ rings and bear ’ pits of finance. A man residing in a small country town in Hart county gave orders to brokers in the City of Atlanta, covering a somewhat widely diversified list of objects, such as Jan. cotton,’ Dec. oats,’ ‘ Jan. ribs,’ Ma. wht.,’ ‘ 10 C. E. I.,’ f 10 H. P.,’ and 190 shares of stock. The brokers dealt with a corporation in a distant city as to a part of the transaction, and as to the balance it does not appear with whom they dealt. The allegations do not disclose that these were purchases for actual delivery (save a general reference in the rejected amendment as to delivery of cotton), or the amount of purchase-money paid or to be paid. It seems quite, clear that the whole matter was simply a speculation in futures, a putting up of margins ' to keep the trades afoot,’ a requirement of more margins when the market declined, and a failure to put up such margins, by reason of which fthe transactions were necessarily closed out.’” In Luke v. Livingston, 9 Ga. App. 116, 120 (70 S. E. 596), it was said: “It is true, . . an unlawful intent'must be present in the minds of both parties; but the intent can be shown by circumstances. It will be for the jury to say, when they have heard all the circumstances, what was the *834spirit which moved the making of this contract. Did the parties when they made it really understand, contemplate, and believe that actual cotton would be bought by one person, and not merely tendered, but actually delivered to the other, irrespective of whether the market was above or below the price fixed in the contract? Or did they have in mind that if the price named in the .contract happened to be the market price, the cotton might be delivered, while, if the market price were different, the parties would probably not go through the form of delivering the cotton, but would settle their differences in money, without any transfer of the cotton taking place ? If the seller is a farmer raising cotton, and the buyer is one who has use for cotton, such as a spinner or an exporter, the inference that the actual delivery of the cotton was contemplated would be much more readily indulged than it would be if the parties occupied no such relationship.” (Italics mine.) In the instant case the buyer was not a spinner or exporter, and testified that he had no use for the cotton. The case of James v. Clement, 223 Fed. 385, decided by Judge Pardee, is to my mind controlling, and is not varied by the act of 1929. Judge Pardee said: “We do not understand that the contention is made that the New York Cotton Exchange does not afford convenient facilities for carrying on gambling operations in cotton futures. The evidence in this case shows conclusively that a very small percentage of the immense number of contracts made on that exchange for the future delivery of cotton result in an actual delivery of any cotton. If such a venture is entered upon and prosecuted between the principal and his broker, by whose agency the transaction is carried on, that no delivery or receipt as the case may be, is expected to occur, but the dealing is to be concluded by the payment or receipt of the differences between the contract price and the market price at the time of settlement, the transaction is a wagering or gambling one, and is rendered none the less such a one by the circumstance that it is carried on by means of contracts which on their face call for actual deli/vary or receipt of cotton. Bibb v. Allen, 149 U. S. 481, 13 Sup. Ct. 950, 37 L. ed. 819.” (Italics mine.)

If the contract in this case was a gambling contract, it is an illegal contract under the act of 1929, p. 245 (Code, §§ 20-601 to 20-606, inclusive). Sections 4257 through 4264 of the Code of 1910 were expressly repealed. Sections 4253 and 4256 of the *835Code of 1910 (Code of 1933, §§ 20-504, 20-505) were not repealed, and under such sections a contract for the future delivery of cotton, made merely to speculate in differences and the rise and fall of prices, without any intention to deliver or receive cotton, is void as a gaming contract not only under the unrepealed sections quoted above, but under the general law as announced by the United States Supreme Court. See Waldron v. Johnson, 86 Fed. 757. The Code, § 20-602, which is a codification of the act of 1929, declares that all contracts “where it is not contemplated by the parties thereto that there shall be an actual delivery of the commodities bought or sold shall be unlawful.” In Cunningham v. National Bank of Augusta, 71 Ga. 400 (51 Am. R. 266), this language was used: “But what is the transaction termed ‘ futures ’ P It is this: one person says that I will sell you cotton at a certain time in the future for a certain price; you agree to pay that price, knowing that the person you deal with has no cotton to deliver at that time, but with the understanding that when the time arrives for delivery you are to pay him the difference between the market value of that cotton and the price you agreed to pay, if cotton declines; and if cotton advances, he is to pay you the difference between what you promised to give and the advanced market price.” In Hutchinson v. Brown, 47 Ga. App. 82 (169 S. E. 848), this language was quoted approvingly from the cases there cited: “Where a broker is privy to such a wagering contract, and brings the parties together for the very purpose of entering into the illegal agreement, he is particeps criminis, and can not recover for services or losses incurred by himself in forwarding the transaction.” The evidence for the plaintiff in the instant case shows that Anderson-Clayton Company are spot dealers in cotton, and that Anderson, Clayton & Fleming, the parties with whom. Fenner & Beane dealt in handling the transaction, were “futures commission brokers.” Under the act of 1929, which was passed by the legislature after the Supreme Court had decided the case of Layton v. State, 165 Ga. 265 (140 S. E. 847), Fenner & Beane, by complying with the provisions of that act, would absolve themselves from criminal prosecution in handling transactions of this character; but the obligation, so far as civil actions are concerned, remains the same. What is the intention of the parties may be shown by the circumstances as well as by the sayings. “Acts speak *836louder than words” is sometimes applied by the courts, as will be noted in the opinion of Judge Pardee above quoted. I think there were enough evidence and circumstances to make an issue for the jury on the question of fact as to whether delivery of the cotton was intended by the contracting parties; and that the court, after directing a verdict for the plaintiff, properly granted a new trial. In my opinion, the verdict was not demanded; and since the learned trial'judge was dissatisfied with his direction of a verdict, and granted a new trial for the first time, this court, under numerous decisions of both our appellate courts, should not interfere.