Allen v. Denman

• Decision Date: 28 October 1925
• Docket Number: (No. 2537.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 278 S.W. 899
• Parties: ALLEN v. DENMAN.
• Court: Texas Court of Appeals

278 S.W. 899

ALLEN v. DENMAN.

(No. 2537.)^*

Court of Civil Appeals of Texas. Amarillo.

October 28, 1925.

Rehearing Denied November 25, 1925.

Appeal from District Court, Lubbock County; Parke N. Dalton, Special Judge.

Action by Sam S. Denman against G. C. Allen. Judgment for plaintiff, and defendant appeals. Reversed and rendered.

Robt. H. Bean and Bean & Klett, all of Lubbock, for appellant.

Wilson & Douglas, of Lubbock, for appellee.

HALL, C. J.

Sam S. Denman, appellee, sued G. C. Allen, appellant, to recover the amount of a check for $1,500, which the appellant alleges was given in settlement of his losses in a cotton futures transaction. Denman alleged, in substance, that during the months of February, March, and April, and prior thereto and since said time, he was a member of the New Orleans Cotton Exchange, and engaged in the business of a cotton broker at Lubbock; that Alex Hyman & Co. of New Orleans were also members of said Exchange, and that he, acting as broker and agent for Allen, bought for said Allen contracts for cotton on said Exchange through Alex Hyman & Co, and that Allen, acting through him as his agent and broker, bought and sold contracts for cotton through said Alex Hyman & Co. on the New Orleans Cotton Exchange on various dates during said three months, aggregating in all 2,800 bales; that all the cotton and contracts bought by said Allen are subject to the bylaws, rules, and conditions of the New Orleans Cotton Exchange, and subject to the United States Cotton Futures Act, § 5, as amended by Act March 4, 1919 (U. S. Comp. St. Supp. 1919, § 6309e), and were made with the distinct understanding and agreement that all orders for the purchase and sale of cotton were received and executed with the distinct understanding that actual delivery was contemplated in accordance with the requirements of section 5 of the United States Cotton Futures Act as amended; that the $1,500 check dated April 8, 1924, was given by Allen to pay the balance due by him to Alex Hyman & Co. and was indorsed by the plaintiff and deposited to the credit of Hyman & Co. in the Security State Bank & Trust Company, and after Allen refused payment of said check, plaintiff was required to and did pay said $1,500 to Hyman & Co.; that it was further understood that on all marginal business the right was reserved by Alex Hyman & Co. to close transactions when margins were running out, without further notice, and to settle contracts; that upon instruction and orders from Allen plaintiff would wire such orders to Hyman & Co. at New Orleans, who would immediately carry out the orders of the defendant, Allen, and purchase said contracts for the cotton as directed by Allen, and mail to Allen confirmation of each order; that under his instructions Hyman & Co. sold out said contracts, and after crediting Allen's account, there was a balance of approximately $1,500 due from Allen which plaintiff was bound to pay and did pay Hyman & Co.; that all contracts and orders for the purchase and sale of the cotton were wholly Louisiana contracts, and were carried out in the state of Louisiana.

Allen pleaded a failure of consideration for the check, and also failure of consideration for the confirmation contracts, in that plaintiff did not pay or promise anything of value therefor, nor did the defendant receive any benefit or value for said check; that he did not know that plaintiff was acting as his agent, but understood that he was acting as the representative for some one else connected with said cotton exchange; that plaintiff was not the agent or representative for defendant, and had no authority to act for him in the execution and delivery of contracts; that said contracts were not bona fide, but were illegal, void, and contrary to the statutes, laws, and decisions of the United States, Louisiana, and Texas, and wholly against good morals and public policy; that it was understood and contemplated by all parties connected with said transaction that there would be no actual delivery of cotton, and that the transactions were merely gambling ventures and deals in futures on said Exchange; that there was no intention of making actual delivery of cotton or of carrying out the transactions; that margins were deposited merely to take care of losses which might result by reason of advances or declines in the market according as the dealer would sell or buy on the board; that none of the parties had the money or intended to get the money to pay for the cotton bought or sold; that they had no facilities for handling the cotton, such as cotton yards, warehouses, etc., and that said check was merely a continuation of said illegal transaction, and was part of the gambling scheme given to cover margins in wagering on the future cotton market, and not as a payment for cotton actually delivered or intended to be delivered.

Two issues were submitted to the jury, and answered as follows:

"First. Did any of the parties to the transactions for the purchase and sale orders contemplate an actual delivery of the cotton called for? Answer: Yes.

"Second. Did the plaintiff, Denman, or any of the persons from whom defendant's cotton contracts were purchased, contemplate a delivery of said cotton? Answer: Yes."

Based upon the verdict, judgment was entered for plaintiff for the full amount of the check.

The appellant's first contention is that the evidence conclusively shows that, in these transactions with the firm of Denman & Harding, he was simply buying futures, with no intention whatever that any cotton should ever be delivered by any one; that it was a gambling transaction, and that the parties to the contract so understood it. It is true that the plaintiff, Denman, in whose name the suit was filed, alleged that he bought contracts on the New Orleans Cotton Exchange through Alex Hyman & Co., and that it was further understood that on all marginal business Hyman & Co. reserved the right to close the transactions when the margins ran out, and to settle the contracts without further notice; but this pleading was not introduced in evidence.

It is clear that Allen never intended to accept or deliver any cotton whatever when he told either Denman or Harding to buy or sell for him. He states that several times in his evidence, and it is uncontradicted that, when he "bucked the board," he was simply gambling upon the rise and fall of the cotton market, and that both Denman and Harding knew that such was his intention. Their acceptance of his proposal must have been identical with its terms, and the result of any subsequent attempt upon their part to qualify it, or ingraft conditions upon it, is that the minds of the parties did not meet and no contract was ever made. This is elementary. If, in complying with his orders to buy or sell, they or the New Orleans brokers, Hyman & Co., for whom they acted in the transactions, endeavored to make the rule of the New Orleans Exchange, implying and requiring delivery, a part of the contract. Allen would not be bound by it. It would be an acceptance variant from his offer. Allen was not a member of the New Orleans Cotton Exchange, and said he knew nothing of its rules and regulations. Hyman & Co. could not alter the terms of the contract which their representatives Denman & Harding had made with Allen by sending what they termed a written confirmation after the contract was closed, and after they had Allen's margin in their possession.

After Allen refused to pay the check for $1,500 which he had given Denman in settlement of his losses, this suit was filed; and the appellee contends that, as a broker and agent of Allen, he is entitled to recover the amount advanced by him upon the faith of the check to Hyman & Co. upon the ground that he acted as the agent of Allen, and under the rule of law that a broker is entitled to be reimbursed for advances and expenditures made for his principal, even upon a wagering contract. We cannot assent to this proposition. There is no such thing as agency in the doing of an unlawful act. The parties are all principals, and neither is entitled to contribution. This rule is a part of the fundamental law of agency and contracts, and is so ably and fully discussed in volume 1, Mechem on Agency (2d Ed.) §§ 81, et seq., that we deem further discussion unnecessary here. The same eminent author further shows that the law is equally well settled that a broker cannot claim reimbursement while knowingly acting for his principal in an illegal transaction. Id. §§ 111 and 2481. Chapter 3 of the Penal Code of Texas 1911, art. 539, defines futures or dealing in futures, in part, as follows:

"1. A sale or purchase, or contract to sell, or any offer to sell or purchase, any cotton, grain, meat, lard, or any stocks or bonds of any corporation, to be delivered in the future, when it was not the bona fide intention of the party being prosecuted under this chapter, at the time that such sale, contract, purchase, or offer to sell or purchase, was made, that the thing mentioned in such transaction should be delivered and paid for as specified in such transaction.

"2. Any such sale, purchase, offer or contract, where it was the intention of the party being prosecuted hereunder at the time of making such contract or offer, that the same should, or, at the option of either party, might be settled by paying or receiving a margin or profit on such contract.

"3. Any purchase, sale or offer of sale or purchase, or contract for future delivery or any of the things mentioned in this article on, by or through any exchange or board of trade, the rules, by-laws, customs or regulations of which permit such contract or transaction to be settled or closed by delivery or tender of any grade or grades of the thing mentioned in such contract or transaction, other than the grade upon which the price is based in said transaction, at any price other than the actual price for spot delivery of such other grade or grades,...