Dickson v. Uhlmann Grain Co

• Decision Date: 06 February 1933
• Docket Number: No. 63,63
• Citation: 53 S.Ct. 362,77 L.Ed. 691,83 A.L.R. 492,288 U.S. 188
• Parties: DICKSON et al. v. UHLMANN GRAIN CO
• Court: U.S. Supreme Court

288 U.S. 188

53 S.Ct. 362

77 L.Ed. 691

DICKSON et al.

v UHLMANN GRAIN CO.

No. 63.

Argued Nov. 16, 17, 1932.

Decided Feb. 6, 1933.

Mr. S. J. Jones, of Carrollton, Mo., for petitioners.

Mr. Paul R. Stinson, of Kansas City, Mo., for respondent.

[Argument of Counsel from page 189 intentionally omitted] Mr. Justice BRANDEIS delivered the opinion of the Court.

Uhlmann Grain Company, an Illinois corporation, brought this action of contract in the federal court for western Missouri against A. P. Dickson, a citizen and resident of Carrollton in that state. Four other cases of like character were, by agreement, consolidated with this one; and the five cases were tried below and are brought here as a consolidated suit. The pleadings, facts, and proceedings stated in respect to the Dickson suit are applicable to all. The petition alleged that Dickson employed the company as a broker to purchase and sell for him grain on the Chicago, Minneapolis, and Winnepeg Exchanges; that he agreed to pay it commissions for such service, and to reimburse it for any advances made; and that upon an account stated there is due a balance of $3,714.06, after crediting amounts received from the proceeds of purchases and sales and as margins.

Dickson denied the indebtedness, and pleaded further in bar that the transactions out of which the indebtedness is alleged to have arisen were conducted wholly within the state of Missouri and were gambling, illegal under its laws; that no purchase or sale of grain was made for him, and that none for him was contemplated by either party; that the intention of both was merely that the defendant should settle for differences in the market prices; that the transactions were not actual dealings by him in grain futures, but dealings which as to him were wholly fictitious or pretended, and in fact merely gambling on the rise and fall of the market prices of grain.

The company replied that the obligation sued on arose from transactions in the purchase and sale of grain for future delivery as commonly conducted on boards of trade; that these transactions were carried out on the Boards of Trade of Chicago and Minneapolis, which had been designated by the Secretary of Agriculture under the (Federal) Grain Futures Act, September 21, 1922, c. 369, 42 Stat. 998 (7 USCA §§ 1—17), as 'contract markets'; that the company was a member of each of said boards; and that each of the transactions of purchase and sale made by the company on behalf of Dickson was made by it with another member of the board, and in compliance with the provisions of that act.

The case was tried by the District Judge without a jury. Dickson contended that none of the alleged contracts made on the boards of trade was entered into on his behalf; that they were devices employed by the company on its own behalf in conducting at Carrollton what was actually a bucket shop in which to gamble in violation of the laws of the state; that he did not employ the company to make any contract for future delivery; that it was understood by him and the plaintiff, in each transaction, that receipt and delivery of the grain would not be required. On evidence which in abbreviated form occupies, besides the exhibits, 125 pages of the printed record, the judge found the facts as alleged in the plea in bar. He found specifically, among other things, that the transactions were wagering contracts 'cloaked in the forms of law'; and that the company's transactions with or for the customers occurred wholly in Missouri. He declined to make any of the findings requested by the company, denied recovery, and entered judgment for the defendant. A motion for a new trial was overruled.

The company appealed to the Circuit Court of Appeals and contended, among other things: (1) That there was no substantial evidence to support the finding that the transactions were fictitious or gambling transactions, and hence invalid under the law of Missouri; and (2) that the Grain Futures Act superseded all relevant state laws relating to the subject of dealings in futures on 'contract markets,' and that the transactions in question, being valid under the federal act, were necessarily valid under the laws of Missouri. The Circuit Court of Appeals, one judge dissenting, reversed the judgment of the District Court, and remanded the cause for further proceedings. 56 F.(2d) 525. This Court granted a writ of certiorari. 287 U.S. 581, 53 S.Ct. 8, 77 L.Ed. —-.

First. The defense of illegality is predicated not on things done, or to be done, in Chicago or Minneapolis or Winnepeg, but wholly upon things done in Missouri. Uhlmann Grain Company, a member of the Boards of Trade of Chicago, Minneapolis, Kansas City, Missouri, and Winnepeg, Canada, was engaged in the grain brokerage business. In 1924 it established a branch office at Carrollton, then a town of about 3,200 inhabitants. It is not disputed that, upon receiving at Carrollton a purported order from Dickson, the Carrollton branch of the grain company communicated with its Kansas City office, and that the company thereupon entered into contracts on some other board of trade for future purchase or sale of grain. The contracts, so far as made within the United States, were entered into on either the Chicago or the Minneapolis Board. Each of these boards had been designated by the Secretary of Agriculture a 'contract market.' The company was a member in good standing of each of the boards. Each contract was made in the name of the company as principal with another member of the board as principal. Each contract was evidenced by a record in writing as prescribed by the Grain Futures Act. And after each such contract was entered into by the company, it mailed, from its office in Kansas City to its customer at Carrollton, a written confirmation of his alleged order and of its execution, which recited the date of the contract, the quantity and kind of grain bought and sold, the contract price per bushel of the commodity, the delivery month, and the place where the contract of purchase or sale was executed.¹ The requirements of the federal act appear to have been complied with. There is no suggestion that these contracts violated the law of the place where the exchange was situated. It may be assumed that they were valid as between the Uhlmann Grain Company and its fellow members of the exchanges.

But there were two distinct agreements: That between customer and company, in which both parties acted as principals; and that between the company and brokers on the exchange, in which both of the parties there likewise acted as principals. It does not follow that because the contracts between the members of the exchanges were valid, those entered into by the company at Carrollton with Dickson and its other customers were valid also. Compare Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 249, 250, 25 S.Ct. 637, 49 L.Ed. 1031. See, also, Harvey v. Merrill, 150 Mass. 1, 22 N.E. 49, 5 L.R.A. 200, 15 Am.St.Rep. 159; Riordon v. McCabe, 341 Ill. 506, 512—515, 173 N.E. 660. Whether the customer, in his agreement with the company, ordered that contracts be entered into in his behalf on the exchange, is the serious issue of fact in the case at bar. If the customer did so order by his agreement, we should have to determine by the law of which state the defense of illegality is governed. If, as Dickson contends, and the trial court found, Dickson's agreement did not contemplate the execution of transactions on the exchange in his behalf, clearly the defense of illegality is governed by the law of Missouri, unless that law has been superseded by the Grain Futures Act.

Second. There was evidence that the transactions out of which the indebtedness is alleged to have arisen were not in fact orders to enter into contracts on behalf of the defendants to purchase or sell for future delivery, but were devices knowingly employed by the company solely to enable them to gamble. They testified that they were assured by the local manager that they would never have to receive or deliver any grain as a result of their speculations. And there is no lack of evidence to support a finding that in doing so the manager acted within the scope of his authority. It is admitted that no grain was actually delivered by or to the plaintiff's customers. The accounts of the defendants were carried on margin; and the extent of their purported obligations exceeded their financial capacity. It is clear that their purpose was solely to make a profit by reason of the fiuctuations in the market price of grain; and that the plaintiff knew this. The Carrollton office was equipped in a manner common to bucket shops; its furnishings consisted of a desk, chairs a typewriter, blackboard, and telegraph instrument. The branch manager testified, as did the defendants, that he was active in solicition business among the townspeople. Between 40 and 50 local residents from widely divergent walks of life in no way connected with purchasing or selling grain became customers of the branch. Of the five defendants in the cases consolidated for trial, who were the plaintiff's largest customers at Carrollton, two were farmers, two were clothing merchants, and one was an ice dealer. These defendants, who were not in the grain business, who had never traded on a grain exchange, and who had no facilities for handling grain, purported to buy and sell in amounts up to 50,000 bushels in a single transaction. In a period of nine months the total number of bushels involved in the transactions of four of the defendants, according to one of the plaintiff's witnesses, was 2,360,000. The defendants undoubtedly knew that the company regularly entered into contracts on the exchanges corresponding to the transactions at Carrollton. But the evidence warrants and conclusion that the contracts on the exchange were entered into by the company to enable it to secure the data for the defendants' wagers and to provide...