Harvey v. Merrill

• Decision Date: 05 September 1889
• Citation: 150 Mass. 1,22 N.E. 49
• Parties: HARVEY et al. v. MERRILL et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

150 Mass. 1

22 N.E. 49

HARVEY et al. v. MERRILL et al.

Supreme Judicial Court of Massachusetts, Suffolk.

September 5, 1889

COUNSEL

Hutchins & Wheeler, for plaintiffs.

R.M Morse, Jr., and W.S. Knox, for defendants.

OPINION

FIELD J.

The rights of the parties are to be determined by the law of Illinois, but there is no evidence that the common law of Illinois differs from that of Massachusetts. We cannot take notice of the statutes of Illinois except so far as they are set out in the auditor's report, and the auditor has set out but one statutory provision of that state, and has found that the parties have not acted in violation of that. We are therefore to determine whether the contract between the parties, as the auditor has found it to be, is illegal and void by the common law of Massachusetts.

It is not denied that if, in a formal contract for the purchase and sale of merchandise to be delivered in the future at a fixed price, it is actually the agreement of the parties that the merchandise shall not be delivered and the price paid, but that, when the stipulated time for performance arrives, a settlement shall be made by a payment in money of the difference between the contract price and the market price of the merchandise at that time, this agreement makes the contract a wagering contract. If, however, it is agreed by the parties that the contract shall be performed according to its terms if either party requires it, and that either party shall have the right to require it, the contract does not become a wagering contract because one or both of the parties intend, when the time for performance arrives, not to require performance, but to substitute therefor a settlement by the payment of the difference between the contract price and the market price at that time. Such an intention is immaterial except so far as it is made a part of the contract, although it need not be made expressly a part of the contract. To constitute a wagering contract, it is sufficient, whatever may be the form of the contract, that both parties understand and intend that one party shall not be bound to deliver the merchandise, and the other to receive it and to pay the price, but that a settlement shall be made by the payment of the difference in prices.

The construction which we think should be given to the auditor's report is that he finds that the contracts, which plaintiffs made on the board of trade with other members of that board, were not shown to be wagering contracts, and that the contract which the defendants made with the plaintiffs was that the defendants should give orders, from time to time, to the plaintiffs for the purchase and sale, on account of the defendants, of equal amounts of pork, to be delivered in the future; that the plaintiffs should, in their own names, make these purchases and sales on the board of trade; that the plaintiffs should, at or before the time of delivery, procure these contracts to be set off against each other, according to the usages of that board; that the defendants should not be required to receive any pork and pay for it, or to deliver any pork and receive the pay for it, but should only be required to pay to the plaintiffs, and should only be entitled to receive from them, the differences between the amounts of money which the pork was bought for and was sold for, and that the defendants should furnish a certain margin, and should pay the plaintiffs their commissions. The defendants gave orders in pursuance of this contract. The plaintiffs made the purchases and sales on the board of trade, set them off against each other, and now sue the defendants for the differences which they have paid, and for their commissions. The auditor has found that "in a vast majority of the transactions of the board of trade settlement was made by the set-off of opposite contracts." In his supplemental report he says: "My conclusion is unchanged that the parties to this suit entered into the dealings with each other which are the subject thereof with a clear understanding that actual deliveries were not contemplated, and were not to be enforced; and it appears to me that the question whether the members of this board with whom the defendants dealt had such an understanding with each other is not material to the issue of this case." The peculiarity of this case, according to the finding of the auditor, is that, while the contracts which the plaintiffs made on the board of trade must be taken to be legal, the plaintiffs have undertaken to agree with the defendants that these contracts should not be enforced by or against them, except by settlements according to differences in prices. If such an agreement seems improbable, it is enough to say that the auditor has found that it was made. The usages of the board of trade were such that the plaintiffs might well think that they risked little or nothing in making such an agreement. Indeed, the distinction in practice between the majority of contracts which by the auditor's report appear to be made and settled on the board of trade, and wagering contracts, is not very plain; and brokers, for the purpose of encouraging speculation and of earning commissions, might be willing to guaranty to their customers that the contracts made for them on the board of trade should not be enforced, except by a settlement according to differences in prices.

We do not see why the agreement between the plaintiffs and defendants that the defendants should not be required to receive or deliver merchandise, or to pay for or receive pay for merchandise, but should be required to pay to and to receive from the plaintiffs only the differences in prices is not, as between the parties, open to all the objections which lie against wagering contracts. On the construction we have given to the auditor's report, the plaintiffs, in their dealings with the defendants, in some respects acted as principals. In making the contracts on the board of trade with other brokers, they may have been agents of the defendants. In agreeing with the defendants that they should not be compelled to perform or accept performance of the contracts so made, the plaintiffs acted for themselves, as principals. If the defendants had made a contract with the plaintiffs to pay and receive the differences in the prices of pork ordered to be bought and sold for future delivery, with the understanding that no pork was to be bought or sold, this would be a wagering contract. On such a contract the defendants would win what the plaintiffs lose, and the plaintiffs would win what the defendants lose. But, so far as the defendants are concerned, the contracts which the auditor has found they made with the plaintiffs are contracts on which they win or lose according to the rise or fall in prices, in the same manner as on wagering contracts. If the plaintiffs, by virtue of the contracts they made with other members of the board of trade, were bound to receive or deliver merchandise, and to pay or receive the price therefor, on the auditor's finding they must be held, as against the defendants, to have agreed to do these things on their own account, and that the defendants should only be bound to pay to them and to receive from them the differences in prices. If the defendants, as undisclosed principals, should be held bound to other members of the board of trade on the contracts made by the plaintiffs, the plaintiffs, by the terms of their employment, would be bound to...