Fraser v. Farmers Co-Operative Company
| Decision Date | 28 May 1926 |
| Docket Number | 25,215 |
| Citation | 209 N.W. 33,167 Minn. 369 |
| Parties | J. FRANK FRASER AND ANOTHER v. FARMERS CO-OPERATIVE COMPANY AND OTHERS |
| Court | Minnesota Supreme Court |
Action in the district court for Nobles county. There was a verdict for the plaintiffs against the defendant elevator company only. The other defendants were the elevator company's guarantors. The plaintiffs appealed from an order, Gislason J., denying their motion for judgment notwithstanding or a new trial. Affirmed.
Guaranty of country elevator's debts -- Hedging and gambling transactions.
Action brought by a grain commission merchant against a corporation operating a country elevator and its guarantors to recover an alleged indebtedness arising out of transactions between plaintiff and the corporation. Defendants claimed illegal transactions in futures. Upon an examination of the record held:
(1) Contract of guaranty construed as relating to future indebtedness only.
(2) Evidence of prior transactions was properly received only as bearing upon the legality of the later ones.
(3) That the evidence was such as to present a question for the jury to decide whether certain particular trades were hedges or gambling transactions.
(4) Failure of a grain commission merchant to furnish the statutory confirmation required by G.S. 1923, § 10491, makes a prima facie case of an illegal transaction. Banner Grain Co. v. Burr F.E. & S. Co. 162 Minn. 334, 202 N.W. 740, followed.
(5) The word "option" in ordinary parlance has no application to a hedge, but is understood to mean a speculative contract.
(6) Hedging is a legitimate transaction but no recovery can be had upon illegal transactions in futures.
(7) Misconduct of counsel as disclosed in the opinion is not sufficient to justify granting a new trial.
Appeal and Error, 4 C.J. p. 919 n. 34; p. 957 n. 67.
Evidence, 22 C.J. p. 751 n. 81.
Gaming, 27 C.J. p. 993 n. 37; p. 994 n. 42, 49; p. 1055 n. 44; p. 1060 n. 58 New; p. 1061 n. 64, 65 New; p. 1065 n. 96; p. 1104 n. 1 New; p. 1105 n. 11 New.
E. A. Nicholas and E. J. Jones, for appellants.
Wilson Borst and John F. Flynn, for respondent.
Appeal from an order denying an alternative motion for judgment non obstante or a new trial.
Plaintiff, a copartnership, is a grain commission merchant. Defendant corporation owned and operated two small country grain elevators. Plaintiff had the usual business relation with it for several years. The individual defendants became its guarantors to plaintiff as of February 25, 1921.
Accounts were settled between plaintiff and the corporation up to July 1, 1920. The business relation terminated on August 31, 1921. Plaintiff sued for $6,882.12 on account, and of this amount $3,799.49 was incurred prior to February 25, 1921, and $3,082.63 accrued thereafter.
We construe the guaranty contract as relating to future indebtedness and not to existing obligations. The charge of the court submitting this element to the jury was too favorable to plaintiff. The matter with which we are mostly concerned is the counterclaim of defendant corporation arising out of alleged illegal transactions in connection with future trades. This is also pleaded as a defense by the individual defendants.
It does not seem to have been the theory of the defendant that the manager of the elevator used their credit or money to transact and carry on gambling transactions in the name of defendant corporation, with knowledge of plaintiff, but for his own individual speculation. Such was pleaded but the theory of the trial court did not follow the pleading which found little support in the evidence. The court submitted to the jury the question whether any of the indebtedness represented losses sustained in gambling transactions, disregarding the theory that the manager without the knowledge of defendants handled the trades as his own speculation. Defendants took no exceptions to the charge. So we are confronted with a situation wherein defendants assert the transactions between the corporation and plaintiff were illegal.
Evidence was received relative to a trade in corn had on April 10, 1920, and June 25, 1920. This was prior to a settlement had between plaintiff and the corporation on June 30, 1920. The parties thereto are concluded by the settlement but this evidence was admissible as bearing upon the inquiry as to whether the later transactions hereinafter mentioned were tainted with illegality. Jamieson v. Wallace, 167 Ill. 388, 47 N.E. 762, 59 Am. St. 302. Defendant corporation on April 10, 1920, sold 20,000 bushels July corn when it had but 1,482 bushels of corn. The transaction had no actual relation to any corn owned. This trade was closed on June 25, 1920. A loss of $3,136.40 resulted. On June 25, 1920, defendant sold 20,000 bushels September corn under circumstances justifying the conclusion that it was not a hedge. This trade was closed on July 12, 1920, by a purchase of 20,000 bushels September corn. On that date defendant corporation had 112 bushels of corn. The plaintiff failed to furnish the statutory confirmation hereinafter mentioned. The facts would support a finding of illegality but it is unavailing to defendant corporation because of the settlement. Plaintiff must prevail against it alone for the $3,799.49 and interest and to this extent the defendant corporation has no defense. This was the prior and existing indebtedness for which the guarantors are not liable under their contract.
The real controversy with which we are concerned is whether a certain trade in 20,000 bushels July oats was a hedge or a gambling transaction. If the former all the defendants would be liable to the plaintiff for the additional sum of $3,082.63. If the latter there is no additional liability. On October 8, 1920, negotiations were had resulting in the plaintiff buying for defendant corporation 20,000 bushels May oats. This trade was closed on April 15, 1921, after some profits made and more losses suffered, resulting in a net loss of $5,299.95. On the same date the corporation through plaintiff bought 12,000 bushels July oats. On October 8, 1920, plaintiff wired the corporation of this purchase and confirmed by letter saying: The confirmation was not produced on the trial but the testimony identifies it as the same in character and form as other confirmations in the record. Mr. Smith, one of the plaintiffs, testified that the order was given him over the phone by the manager of the corporation who stated that he "had shipped out stored oats" to the amount of 20,000 bushels and that they needed 20,000 bushels May oats as a hedge against the stored oats that they had shipped out. There seems to be no other evidence in the case to support the claim that the corporation on October 8, 1920, had any grain against which they could carry a hedge.
The record as to the situation on April 15, 1921, when this trade was reduced to 12,000 bushels is not satisfactory. There were about that time 1,365 bushels of oats in the elevator. There were storage tickets outstanding for 19,981 bu. 10 lbs. of oats. Of this amount 9,406 bu. 18 lbs. which was in transit was apparently the only grain against which a hedge could have been made and to which the trade of 12,000 bushels might relate. No explanation is made as to why the future trade should involve an excess of 3,500 bushels. One Schlimme who was in charge of the elevator on April 22, 1921, says that he let this particular trade stand and closed out another one that the manager pretended was a hedge. On April 15, 1921, the manager wrote plaintiff that he had no future trades except the 20,000 bushels May oats. The particular trade was closed in June. As bearing upon the legality of the transaction the record discloses that the manager of the corporation was not carrying all of the transactions in reference thereto on its books. This included the item of $5,299.95 loss and some other items. The fact that the journal and ledger in the account books were incomplete may be important as indicating a desire to conceal the existence or character of the transaction. Relative to another feature concerning which the books were incomplete and the last answer of which may have some bearing on the plaintiff's books, the witness Schlimme testified:
This witness had charge of the business for some time. He audited the books of the corporation but did not find any statements of monthly accounts from the plaintiff. He did find...
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