Falk v. J. N. Alexander Mercantile Co.

Decision Date16 February 1925
Docket Number24592
Citation138 Miss. 21,102 So. 843
CourtMississippi Supreme Court
PartiesFALK v. J. N. ALEXANDER MERCANTILE CO. [*]

Division A

Suggestion of Error Overruled March 16, 1925.

APPEAL from circuit court of Attala county, HON. T. L. LAMB, Judge.

Action by A. B. Falk against the J. N. Alexander Mercantile Company. From judgment for defendant, plaintiff appeals. Affirmed.

Affirmed.

J. D. Guyton and J. A. Teat, for appellant.

The defense made was under statute, section 2303, Code of 1906; section 1913, Hemingway's Code. Our supreme court has clearly and concisely stated the law of this case in Clay, Extr., v. Allen & Co., 63 Miss. 426. We have examined other decisions of our supreme court, all of which are consistent with, reaffirm and support the doctrine as stated in the Clay case. Telephone Company v Littlejohn, 72 Miss. 1025, 18 So. 418; Lemonius v Mayor & Co., 71 Miss. 514, 14 So. 33; Weld & Co. v. Austin, 107 Miss. 279, 65 So. 247; Asher v. Baxter, etc., 101 Miss. 36; Long v. Eaves, 99 Miss. 888, 56 So. 178; Cohn et al. v. Brinson, 112 Miss. 348; Gray v. Robinson, 95 Miss. 1. We call attention, also, to the text of 6 R. C. L. under "Contracts," sec. 185, and 20 A. L. R. 1422; Bolfing v. Schoener (1920), 144 Minn. 425, 175 N.W. 901; John Miller Co. v. Klovstad (1905), 14 N.D. 435, 105 N.W. 164.

The question involved in this case is simply hedging. The cotton market at the time that this transaction was made, was erratic, fluctuating and uncertain. The warehouse at Kosciusko was congested and delivery could not possibly be made. There was an embargo in effect and cotton could not be shipped to New Orleans until consent could be had. The question of delivering spot cotton was, therefore, a most difficult and serious problem.

The defendant, the J. N. Alexander Mercantile Company, desired to sell four hundred bales of cotton at the highest price, and instead an exceedingly high price, thirty-nine and five-tenths cents per pound and in order to make this sale of said cotton to Falk & Company, cotton brokers, desired to and did enter into an agreement to protect and assure Falk that he would not take a loss by reason of the purchase of the spot cotton under the circumstances at the price proposed to be agreed upon. The record defines the agreement entered into by and between the parties.

Falk, the cotton broker, plaintiff, proposed to and did buy the four hundred bales of cotton at thirty-nine and five tenths cents on the condition that January futures were to be sold by J. N. Alexander Mercantile Company on the New Orleans Cotton Exchange to protect Falk, cotton broker, plaintiff, against the fluctuation of the market. This was agreed to by the parties. It was a contract, legal and valid, one entered into by the parties for mutual benefit; binding upon both and intended to be a legitimate transaction and an arrangement by which the business could best be attended to.

It is shown that appellee had the spot cotton on hand; that he is a merchant who buys and sells cotton; that he had his cotton for no other purpose than to sell; that he, in fact, did sell it; that he sold the futures against the spot cotton had on hand at the time the futures were sold; that it was then contemplated by Falk and by the New Orleans brokers that this spot cotton would be delivered on these contracts; that as a matter of fact this cotton was shipped to New Orleans and delivered by Falk on futures he had sold which included the futures he sold for Alexander Mercantile Company; that the January futures with Lehman Stern & Company were transferred to March, and before March arrived the cotton was delivered, the actual spot cotton, among which was the four hundred bales of appellee; that appellee, after selling his January futures, sold the spot cotton to Falk, the same four hundred bales he had contracted to deliver on the January futures, promising Falk at the time that he would pay any losses on the futures and still protect him.

Of course it made no difference, so far as the validity of the contract was concerned, whether the appellee, after selling futures against his spots, sold his spot cotton or not.

If the contract was valid when it was made, it was valid always, and could not become illegal by an act in violation of it. If this contract is illegal it was illegal in its inception. If it was valid in its inception, it is valid now. No act of the parties, after the contract is once made, can change its legal effect from legal to illegal, or from illegal to legal. All that took place after the contract was made is admissible for the purpose of showing what the intention of the parties were at the time the sale was made for future delivery.

The whole transaction was what is known as "hedging" and is a legitimate business. Not only was it legitimate but it was a business arrangement of the greatest importance. There is nothing to show gambling, there is no evidence to support the theory of trading upon margins.

We respectfully submit that the lower court was in error in granting the motion to exclude the evidence of the plaintiff and directing the jury to return a verdict for the defendant.

D. E. Crawley and J. G. Smythe, for appellee.

Taken as a whole the plaintiff's testimony shows that the transactions complained of were his own and purely gambling transactions. Section 2303, Code of 1906; Section 1913, Hemingway's Code, prohibits dealing in cotton futures. This statute has been upheld many times by our supreme court. We call the court's attention to a few cases. Lemonius v. Mayer, 71 Miss. 514; Isaacs v. Silverburg, 87 Miss. 185; Wells v. Austin, 107 Miss. 279.

Contracts not enforcible under the law cannot be made so by any such flimsy subterfuge as is undertaken in this case. This was in no sense a hedging contract but was a future contract plain and simple. Hedging is a gambler's term.

The proof in this case, we contend, shows that the Alexander Mercantile Co. at the time of this alleged transaction sold and parted with to N. M. Falk, all of the cotton which it had on hand, to-wit, four hundred bales, two hundred on the 17th of December, 1919, and two hundred on the 19th of December, 1919. Having parted with its product, the Alexander Mercantile Company could not hedge against a rise in price, having nothing against which to hedge.

The plaintiff in this case throughout his own testimony recognizes the transaction complained of as his own, though trying to characterize them as transactions of the Alexander Mercantile Company. The testimony and the exhibits show...

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