Beadles, Wood & Co. v. McElrath & Co.

• Decision Date: 19 February 1887
• Citation: 85 Ky. 230
• Court: Kentucky Court of Appeals
• Parties: Beadles, Wood & Co. v. McElrath & Co. Same v. Leet & Meadows.

85 Ky. 230

Beadles, Wood & Co. v. McElrath & Co.

Same v. Leet & Meadows.

Court of Appeals of Kentucky.

February 19, 1887.

APPEAL FROM GRAVES CIRCUIT COURT.

APPEAL FROM CALDWELL CIRCUIT COURT.

WM. LINDSAY FOR APPELLANTS.

W. W. TICE ON SAME SIDE.

ROBERTSON AND ROBBINS FOR APPELLEES.

C. L. RANDLE FOR LEET & MEADOWS, APPELLEES.

HARGIS & EASTIN ON SAME SIDE.

CHIEF JUSTICE PRYOR DELIVERED THE OPINION OF THE COURT.

These two cases were argued and will be considered as one case.

The appellants, Beadles, Wood & Co., were cotton-brokers, engaged in buying and selling cotton on commission, as they allege, in the city of New Orleans. They instituted these actions in the court below against the appellees for large sums of money said to have been advanced by them for the appellees in the purchase and sale of cotton on the Cotton Exchange in the city of New Orleans.

The appellees, by way of defense, allege, in substance, that the claim set up by the appellants originated by reason of certain transactions between them and appellants in the purchase and sale of cotton on speculation, and under contracts that were not to be performed for the delivery of the cotton and the payment therefor at the maturity of the contracts. That they were dealing in futures, by which they were to pay in money the differences, by reason of wagering bargains, by which no cotton was sold or delivered, and none intended to be delivered when the contracts were executed. They also allege that Beadles, Wood & Co. were dealing largely in cotton on their own account or for others, and that having made contracts in which the appellees had no interest, similar to those made with the appellees, they were unable to meet their obligations with members of the Cotton Exchange with whom they contracted, and under the rules of the Exchange those contracts were declared forfeited, including the contracts said to have been made for the appellees. That the forfeiture took place before these contracts matured, and in that manner they were deprived of any right to recover, without fault on their part of either the appellants or from those with whom they contracted for their benefit.

A jury by special findings determined the issue in the case of McElrath & Co., and the judge, on a submission of the law and facts to him, determined the case of Leet & Meadows.

The one case, that against McElrath & Co., was decided for the defendants, because of its vicious consideration, it being a gambling transaction, and the other, that of Leet & Meadows, on the ground that the forfeiture of the contracts was caused by the insolvency of the appellants, who were unable to comply with their contracts, and caused the loss to the defendants; the judge further holding that the contract was not a wagering contract or against public policy. The cases were determined in different jurisdictions, but were heard together in this court. The judgment in each case was rendered for the appellees.

The appellants having denied that the contracts were invalid, relied on certain rules of the Cotton Exchange, from which it appears that such contracts can be enforced for the delivery of the cotton, and further established by the testimony that the contracts were made subject to the rules of the Cotton Exchange, and should not, therefore, be regarded as wagering contracts. The contracts being in writing, it is further maintained that parol proof is inadmissible to vary its terms.

From the rules of the Cotton Exchange, the delivery of the cotton may be exacted, and the testimony conduces to show that the appellees entered into the contracts with the knowledge that by its terms those rules were to determine its legal effect; in fact, the jury trying this case, in response to special interrogatories, have so said by their verdict.

In this case it then plainly appears that contracts legitimate on their face, containing stipulations plain and easily understood, by which the cotton purchased is required to be delivered, have been declared vicious in the one case at least upon parol testimony, showing that such was not the real purpose and intention of either party to the contract, the real purpose being in fact to speculate only in the rise and fall of prices, as has been determined by the special finding of the jury in the particular case.

If the written contract and the rules of the Cotton Exchange are to control the decision of this case, then the facts and circumstances, by which the real nature of the various transactions were brought to light, should have been excluded from the jury, and a judgment rendered for the appellants, the plaintiffs below. The question simply is: Whether a contract, legal and proper in form, can be assailed by a proper pleading, and shown to be in fact a contract vicious in its character, and contrary to public policy — a contract legal on its face, but when explained by the facts and circumstances connected with its performance, is only a gambling transaction. The rule is well-established that parol evidence is not admissible to restrict, enlarge or contradict the terms of a written contract where there is no ambiguity in its meaning; but when facts are alleged showing the existence of fraud, or that the contract was entered into as a device to avoid what would otherwise be a vicious consideration, as is in substance alleged in this case, this rule has no application.

The rule, says Mr. Greenleaf, "is not infringed by the admission of parol evidence, showing that the instrument is altogether void, or that it never had any legal existence, either by reason of fraud or for want of due execution and delivery, or for the illegality of the subject-matter." Again: "Parol evidence may be offered to show that the contract was made for the furtherance of objects forbidden by law, whether it be by statute or by an express rule of the common law, or by the general policy of the law," etc. (Greenleaf on Evidence, vol. 1, pages 360-361, 14th ed.)

So in this case, although by the rules of the Cotton Exchange the cotton was to be delivered, and the contract made with the appellees expressly stipulated the delivery at a particular day in the future, still if this was a mere device to avoid the effect of a contract that the parties really made, and if expressed in terms would have been vicious and without consideration, we perceive no reason why such facts may not be pleaded and proven, and the recovery on that account denied.

That a contract of sale may be made for the future delivery of produce or any article of personal property will not be controverted, and such a contract by the agreement of parties, or by the regulations connected with the boards of trade in the country, may be transferable from one to the other, will be conceded; but when entered into for the sole purpose of speculating in futures, and with no intention to deliver the cotton purchased, but to pay the difference between the contract price of the cotton and its market price on the day the cotton was to be delivered, then the contract becomes a mere wager, and neither party to it can recover.

If a contract in good faith, it is binding, but when assailed as having been entered...