Stephen Otis Joseph Gassman v. Parker

• Citation: 187 U.S. 606,23 S.Ct. 168,47 L.Ed. 323
• Decision Date: 24 April 1902
• Docket Number: No. 41,41
• Parties: STEPHEN OTIS & JOSEPH F. GASSMAN, Copartners, etc., Plffs. in Err. , v. E. A. PARKER
• Court: United States Supreme Court

187 U.S. 606

23 S.Ct. 168

47 L.Ed. 323

STEPHEN OTIS & JOSEPH F. GASSMAN, Copartners, etc., Plffs. in Err.,

v E. A. PARKER.

No. 41.

Argued and Submitted April 24, 1902.

Ordered for reargument May 5, 1902.

Reargued December 11, 12, 1902.

Decided January 5, 1903.

Mr. John G. Johnson for plaintiffs in error on original argument.

Mr. Edmund Tauszky for plaintiffs in error on motion to dismiss or affirm.

Mr. John H. Miller for defendant in error.

Mr. John G. Johnson for plaintiffs in error on reargument.

Mr. Joseph Hutchinson for defendant in error.

Mr. Justice Holmes delivered the opinion of the court:

This is an action in three counts, for money had and received for money paid and promised to be repaid, and for margins paid to the defendants as stock brokers on contracts to buy and sell mining stocks, respectively. The answers to the first two counts are general denials and other matters now immaterial. The answer to the third count, beside a general denial, sets up that the count is based upon a provision in article 4, § 26, the Constitution of California, and that that provision is contrary to the 1st section of the 14th Amendment of the Constitution of the United States. It appears by the record that the only cause of action was that stated specifically in the third count, and that the defendants interposed the constitutional objection at the trial, and that it was overruled. The plaintiff had a general verdict on all three counts. The case was taken from the superior to the supreme court of California on appeal, and the judgment of the superior court was affirmed, with an immaterial modification. It now is brought here by a writ of error to the supreme court of the state.

We must take it as established that the plaintiff did enter into transactions prohibited by the Constitution of California, and that he had a right to his judgment under that Constitution if the clause relied upon is not contrary to the Constitution of the United States. There is no question that the parties were subject to the provisions of the latter Constitution, and no doubt that the question whether it invalidated the state Constitution necessarily was passed upon, and was answered in the negative by the state court. 130 Cal. 322, 62 Pac. 571, 927.

The provision of the state Constitution is as follows: 'All contracts for the sales of shares of the capital stock of any corporation or association, on margin, or to be delivered at a future day, shall be void, and any money paid on such contracts may be recovered by the party paying it by suit in any court of competent jurisdiction.' There was some suggestion that these words might be narrowed by construction to contracts not contemplating a bona fide acquisition of the stock, but intended to cover only a wager or contemplated settlement of differences. Of course, if they were construed in that sense there would be no doubt of their validity. Booth v. Illinois, 184 U. S. 425, 46 L. ed. 623, 22 Sup. Ct. Rep. 425. But while the supreme court of California says in this case that it 'will always see that legitimate business transactions are not brought under the ban,' in the same sentence it leaves open the hypothesis that the provision 'fails to distinguish between bona fide contracts and gambling contracts,' and sustains it as a proper police regulation, even if it does fail as supposed. Therefore it may be held hereafter that ordinary contracts for the sale of stocks on margin are not legitimate transactions, and it would not be safe for us to take the words in any other than their literal meaning, or to assume in advance of a decision that they will be taken in a narrow sense. In this case the jury were instructed broadly to find for the plaintiff if he had paid any money to the defendants as a margin for the purchase of stock of a corporation, and this instruction was sustained.

The objection urged against the provision in its literal sense is that this prohibition of all sales on margin bears no reasonable relation to the evil sought to be cured, and therefore falls within the 1st section of the 14th Amendment. It is said that it unduly limits the liberty of adult persons in making contracts which concern only themselves, and cuts down the value of a class of property that often must be disposed of under contracts of the prohibited kind if it is to be disposed of to advantage, thus depriving persons of liberty and property without due process of law, and that it unjustifiably discriminates against property of that class, while other familiar objects of speculation, such as cotton or grain, are not touched, thus depriving persons of the equal protection of the laws.

It is true, no doubt, that neither a state legislature nor a state Constitution can interfere arbitrarily with private business or transactions, and that the mere fact that an enactment purports to be for the protection of public safety, health, or morals, is not conclusive upon the courts. Mugler v. Kansas, 123 U. S. 623, 661, 31 L. ed. 205, 210, 8 Sup. Ct. Rep. 273; Lawton v. Steele, 152 U. S. 133, 137, 38 L. ed. 385, 388, 14 Sup. Ct. Rep. 499. But general propositions do not carry us far. While the courts must exercise a judgment of their own, it by no means is true that every law is void which may seem to the...