Bomeisler v. M. Jacobson & Sons Trust, 3627

• Decision Date: 17 March 1941
• Docket Number: No. 3627,3628.,3627
• Citation: 118 F.2d 261
• Parties: BOMEISLER et al. v. M. JACOBSON & SONS TRUST. M. JACOBSON & SONS TRUST v. BOMEISLER et al.
• Court: U.S. Court of Appeals — First Circuit

118 F.2d 261 (1941)

BOMEISLER et al. v. M. JACOBSON & SONS TRUST. M. JACOBSON & SONS TRUST v. BOMEISLER et al.

Nos. 3627, 3628.

Circuit Court of Appeals, First Circuit.

March 17, 1941.

Marcien Jenckes, of Boston, Mass. (Wm. A. Dupee, Jr., and John B. Reigeluth, both of Boston, Mass., on the brief), for plaintiffs.

Frank P. Ryan, of Worcester, Mass. (Samuel Perman and Berge C. Tashjian, both of Worcester, Mass., on the brief), for defendant.

Before MAGRUDER and MAHONEY, Circuit Judges, and PETERS, District Judge.

MAGRUDER, Circuit Judge.

This suit was brought to recover $5,458.34 advanced by a brokerage firm in executing purchases and sales of contracts for the future delivery of hides on the New York Commodity Exchange, allegedly for the defendant's account. By counterclaim the defendant sought to recover $7,933.39, representing the amount by which the defendant's payments exceeded its receipts from the account. Jurisdiction is founded on diversity of citizenship.¹

At the trial below, the case was allowed to go to the jury despite the defendant's motion for a directed verdict at the close of the evidence. Verdicts for the plaintiffs were returned in both the original suit and the counterclaim, and judgment was entered accordingly. On the same day, the defendant moved that this judgment be set aside and "that judgment be entered for the defendant in accordance with its motion for a directed verdict"; no motion in the alternative for a new trial was made. Four days later, acting under Rule 50(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, the District Judge entered an order reopening the judgment, setting aside the verdict and giving judgment for the defendant on the original suit, but leaving undisturbed the verdict and judgment in the counterclaim. From this order and judgment both parties appeal.

The questions presented for our consideration involve the legality of certain contracts and the authority of one of the defendant's trustees, Eli Jacobson, to enter into them for defendant's account. The evidence below consisted of documentary exhibits, testimony of an employee and a member of the plaintiff partnership and of a single trustee and the bookkeeper of the defendant. Two of the defendant's trustees did not testify. Regarded in a light most favorable to the plaintiffs, this evidence tended to show the following facts:

The defendant is organized as a Massachusetts business trust, pursuant to Mass. Gen.Laws (Ter.Ed.), c. 182, § 1 et seq. Its deed of trust declares its purpose to be "to buy, sell, import and export live stock of al kinds and to deal in meats and meat products in all its branches * * * to slaughter live stock of all kinds, and deal generally in hides and all other animal products; particularly to carry on the business * * * known as the Chicago Dressed Beef Co. * * *." The actual business of the defendant conforms closely to these declared purposes, and the sale of hides from slaughtered animals constitutes a substantial if minor item in the business. "Chicago Dressed Beef Company" remains the principal trade name.

The entire beneficial interest, evidenced by shares, is held by five brothers and their mother. The shares are transferable except that before any share can be sold the trustees are given a 30-day option to buy it in at book value. The shareholders retain the right to call meetings, and by majority vote to elect successor trustees, fix the trustees' compensation, authorize the issuance of additional certificates of beneficial interest, and terminate the trust.

Three of the brothers are also trustees with general powers of management, Nathan Jacobson as president, Eli as treasurer and Robert as secretary and assistant treasurer. There is apparently no precise allocation of duties among the trustees; Eli stated at the trial that "We all individually acted from time to time as we saw fit in our capacities as three managers of the business. In connection with buying cattle, Nathan Jacobson did not consult me before he bought cattle unless it was perhaps a big deal. Then we would talk it over. In the usual run of business he would buy the cattle and he would pay for them on checks that he drew and Robert Jacobson, without consulting me, made sales of the products as they came through. I did most anything, sell and buy, talk things over with them with reference to any purchase that was greater than they thought they would be responsible for, things of that sort. As treasurer, I handdled the borrowing. The assistant treasurer, that is Robert, also had authority but I had authority to borrow money for the trust on my single signature."

The two remaining brothers also take a part in the business and have attended some if not all of the trustees' meetings where they have voted to authorize various transactions. Why their presence or vote should have been thought requisite does not appear.

The plaintiffs are partners conducting a brokerage business on the New York Commodity Exchange.

In 1936 Eli Jacobson opened an account with the plaintiffs, in the name of the Chicago Dressed Beef Company, for the purchase of contracts on margin for the future delivery of hides. Because the account was carried in the name of a firm with established credit, the plaintiffs dispensed with certain margin requirements regularly imposed upon individuals. Over the course of some two years and a half, Eli ordered the purchase of approximately 50 futures contracts for the defendant's account. Each contract, as is customary in hides futures, involved approximately 40,000 pounds of hides with an average value of $4,000. Immediately after each order a purchase of a contract was actually made by the plaintiffs on the exchange, and the contract was held for the defendant. In accordance with the rules of the exchange, the plaintiffs traded as principals in relation to the broker selling the contract. The contracts were always sold on Eli's order before the time of delivery of the hides. From time to time balances were struck and either the plaintiffs would send a check to the Chicago Dressed Beef Company representing net profits, or (as more often happened) Eli would mail the plaintiffs a check of the Jacobson Trust to make up losses. In all, seven checks were mailed from the plaintiffs to the defendant and 16 from the defendant to the plaintiffs. Of the latter 16, 14 were signed by Eli and two by Robert Jacobson, the assistant treasurer.

Each purchase and sale was followed by one or more letters addressed to the Chicago Dressed Beef Company confirming the completion of the transaction. In addition, occasional statements of account were transmitted to the defendant for approval. The volume of this correspondence cannot be estimated precisely, but it appears that well over 120 letters were mailed from the plaintiffs to the defendant in connection with these dealings. The correspondence was handled almost exclusively by Eli.

Except for the first transaction, which resulted in a small profit pocketed by Eli, all checks to or from the plaintiffs appear on the books of the Jacobson Trust, and the losses were reflected in the final reports of the trust's financial position which were considered by the trustees and approved at annual meetings.

The jury below was instructed that in order to bring in a verdict for the plaintiffs, they must find that the purchases of futures contracts were within the authority of the trustees, who must have unanimously approved the transactions. This approval, the jury was informed, might be achieved by delegation of authority or by knowledge of and acquiescence in a course of dealing. To this charge the defendant apparently made no objection. See Rule 51, Federal Rules Civil Procedure. While the District Judge did not state his reason for overturning the verdict, three possible grounds for his action are suggested. If any one of these is sufficient to defeat the plaintiffs' right of recovery, we must affirm the judgment appealed from.

First, it is urged that the contracts between the plaintiffs and defendant were gaming contracts, illegal and therefore unenforceable. It is pointed out as significant that during the entire course of dealing the defendant never took delivery of a single consignment of hides; that the contracts were all bought on margin; and that the transactions took place on one of the most highly speculative of all markets.

Aside, however, from the fact that deliveries were not made, there is no compelling evidence that the plaintiffs contemplated the striking of occasional balances as the inevitable conclusion of each set of transactions. Moreover, and more important, purchases were intended and took place on every transaction; not purchases of actual hides, it is true, but purchases of contracts subjecting the plaintiffs to legal liability for the full purchase price thereof. In this connection it is significant that the Massachusetts statute, making voidable certain types of wagering contracts in securities, expressly excepts situations in which the "other party to the contract or the person so employed makes, in accordance with the terms of the contract or employment, personally or by agent, an actual purchase or sale of said securities or commodities, or a valid contract therefor." Mass.Gen.Laws (Ter.Ed.) c. 137, § 4. The Massachusetts Supreme Judicial Court has from time to time considered cases in which long courses of margin trading on the stock exchange have been unaccompanied by any delivery of securities but have terminated in the striking of balances. In practically every case judgment has gone for the stockbroker as against the purchaser's contention of illegality, sometimes by way of directed verdict. Ryan v. Whitney, 257 Mass. 218, 153 N.E. 449; Harris v. Friedman, 245 Mass. 479, 139 N.E. 788; Bazirgan v. Arnold & Sears, Inc., 275 Mass. 207, 175 N.E. 483; cf. Savoy Finance Co. v. De Biase, 281 Mass. 425, 183...