Board of Trade of City of Chicago v. L.A. Kinsey Co.

• Decision Date: 14 July 1903
• Docket Number: 10,071.
• Citation: 125 F. 72
• Parties: BOARD OF TRADE OF CITY OF CHICAGO v. L. A. KINSEY CO. et al.
• Court: United States Circuit Court, District of Indiana

125 F. 72

BOARD OF TRADE OF CITY OF CHICAGO v. L. A. KINSEY CO. et al.

No. 10,071.

United States Circuit Court, D. Indiana.

July 14, 1903

Henry S. Robbins and D. P. Williams, for complainant.

Smith &amp Korbly, Charles D. Fullen, and S. N. Chambers, for defendants.

ANDERSON District Judge.

On March 25, 1902, the complainant filed its bill for an injunction to restrain the defendants from receiving obtaining, using, selling, or distributing the quotations of prices of grain and other commodities dealt in on the floor of the complainant's exchange in the city of Chicago. A temporary restraining order was denied by the court, and on motion of the complainant for a temporary injunction the cause was referred to a master to take the evidence. On July 8, 1902, the motion for a temporary injunction was denied and the cause was by the court, on its own motion, referred to Hon. Edward Daniels, master in chancery, to consider the evidence already taken, and to take such further evidence as the master should deem proper and pertinent to the issues with direction to report the facts, with his conclusions of law thereon. On October 10, 1902, the master filed his report. Both parties have filed exceptions to the finding of facts contained in the master's report, and the defendants have filed exceptions to his conclusions of law. The exceptions to the finding of facts will be overruled, except in so far as inconsistent with this opinion.

I think the master's finding of facts is sustained by the evidence, and substantially covers the case. But in some particulars the master does not go as far as the evidence warrants, and I cannot agree with his conclusions.

The master states as his conclusions of law:

'(1) The continuous quotations of a trade exchange, as defined in the foregoing findings of fact, are a species of property.

'(2) The complainant has the common rights of property in the continuous quotations of the Board of Trade of Chicago as described in the foregoing findings of fact, unless the affirmative of either one of these four propositions can be established.'

No. 3 of these propositions is as follows:

'(3) That said continuous quotations are made up either entirely, or at least of such a large proportion, of fictitious prices illegitimately created in feigned trading transactions conducted with the connivance of the complainant, contrary to the inhibitions of the law against gambling, so that all of said continuous quotations must be placed in the category of nuisances per se, in which no property can exist.'

The master then holds that neither of these propositions is, in law, maintainable as regards complainant's continuous quotations, and recommends a decree in favor of complainant. In discussing the above proposition 3, the master says:

'The argument which alleges vice in these continuous quotations in effect comes to this: In the time contracts made in the pits, delivery of the property is not intended, and the proof of this fact lies in the complainant's rule, under which such time contracts are entered into, which permits the closing out of such contracts by the direct method or the ring method of settlement. If such methods of settlement do not bespeak a gambler's intent, then they are valid, and upon this phase of this suit the only question is this: Do the direct method of settlement and the ring method of settlement necessarily imply an intent on the part of the parties to time contracts not to make or recieve delivery of the property sold and bought? In my opinion, that question is answered in the negative by the case of Clews v. Jamieson, 182 U.S. 461, 21 Sup.Ct. 845, 45 L.Ed. 1183. Even if there be a few gambling transactions in the pits of the complainant (and that such is probably the fact is a matter of legitimate inference from the foregoing finding of facts), still that fact would not place all the prices made in the pits in the category of nuisances per se. The entire volume of such prices cannot be so condemned.'

In my judgment, proof of the fact that delivery is not intended in these contracts does not, so far as this case is concerned, lie 'in the complainant's rule under which such contracts by the direct method or the ring method of settlement. ' The question whether delivery is really intended is not to be determined by the form of the contracts, nor by the method by which they may be settled. To determine this, the real nature and character of the transaction must be looked into. It may quite properly be said that a rule which permits of the adjustment of transactions by settlement upon differences instead of by actual delivery does not, of itself, prove that no delivery was intended; but other evidence may clearly show what the real nature of the transaction is.

The master, in his findings, states:

'Among the daily transactions in complainant's 'pits' there are 'hedging' contracts, 'spreads' and 'scalping contracts'; and all of these forms of time contracts are adjusted by both the 'direct' method and the 'ring' method of settlement. Upon the question what part of all the transactions in the pits are adjusted by the 'direct' method and the 'ring' method of settlement the evidence is not very satisfactory. It tends to show, however, and I accordingly so find, that at least three-fourths of the total transactions in the pits are adjusted by the 'direct' and 'ring' method of settlement.'

And again the master states, 'Most time contracts made in the pits' are settled by these methods. I think the evidence discloses that a much larger proportion than three-fourths of the total transactions in the pits is settled by the 'direct' and 'ring' methods; that the proportion is nearer 95 per cent. than 75 per cent. In other words, the evidence in this case shows that almost the entire bulk of the transactions in the pits (the reports of which make up the 'continuous quotations') are transactions in which no delivery is made, and which are closed by the direct or ring method of settlement. The mere fact that in a given case or in a number of cases no delivery is made is not decisive. A man may buy or sell for future delivery, and actually intend at the time of making the purchase or sale to receive or deliver the property, and then, prior to the time of the maturity of the contracts, change his mind, and offset the contracts, and settle upon differences. In such case the transaction is legal, if he in fact intended to receive or deliver the property at the time the contracts were entered into. The determining factor is the intention of the parties at the time of making the contracts. 'The generally accepted doctrine in this country is, as stated by Mr. Benjamin, that a contract for the sale of goods to be delivered at a future day is valid, even though the seller has not the goods, nor any other means of getting them than to go into the market and buy them. But such a contract is only valid when the parties really intend and agree that the goods are to be delivered by the seller and the price to be paid by the buyer; and, if under the guise of such a contract, the real intent be merely to speculate in the rise or fall of prices, and the goods are not to be delivered, but one party is to pay the other the difference between the contract price and the market price at the date fixed for executing the contract, then the whole transaction constitutes nothing more than a wager, and is null and void.' Clews v. Jamieson, 182 U.S. 461, 489, 21 Sup.Ct. 845, 45 L.Ed. 1183; Irwin v. Williar, 110 U.S. 499, 508, 4 Sup.Ct. 160, 28 L.Ed. 225; Pearce v. Rice, 142 U.S. 28, 40, 12 Sup.Ct. 130, 35 L.Ed. 925. It is perfectly plain that in almost all of the transactions, the reports of which make up the 'continuous quotations,' no delivery is in fact...