J. L. McEntire & Sons, Inc. v. Hart Cotton Co., Inc., 73--297

• Decision Date: 08 July 1974
• Docket Number: No. 73--297,73--297
• Citation: 256 Ark. 937,511 S.W.2d 179
• Court: Arkansas Supreme Court
• Parties: , 14 UCC Rep.Serv. 1303 J. L. McENTIRE & SONS, INC., et al., Appellants, v. HART COTTON COMPANY, INC., et al., Appellees.

Page 179

511 S.W.2d 179

256 Ark. 937, 14 UCC Rep.Serv. 1303

J. L. McENTIRE & SONS, INC., et al., Appellants, v. HART COTTON COMPANY, INC., et al., Appellees.

No. 73--297.

Supreme Court of Arkansas.

July 8, 1974.

Rehearing Denied Sept. 16, 1974.

Jones, Mathews & Tolson, Pine Bluff, for appellants.

James H. Wilson, Jr., Bennett L. Kight, C. Christopher Hagy and John W. Bonds, Jr., Atlanta, Ga., filed brief Amicus Curiae of American Textile Mfgs. Institute; Sutherland, Asbill & Brennan, Atlanta, Ga., of counsel.

Coleman, Gantt, Ramsay & Cox, Pine Bluff for appellees Hart Cotton and Harlow Sanders & Co., Inc. Bridges, Young, Matthews & Davis, Pine Bluff, for appellees W. H. Kennedy & Son, Inc., Barnwell & Hays, Inc., Cook Industries, Inc., and Staple Cotton Cooperative Association.

Fried, Frank, Harris, Shriver & Jacobson, New York City, for appellee Cook Industries, Inc.

WILLIAM H. SUTTON, Special Justice.

Appellants are twelve cotton growers. Between January 25, 1973 and March 22, 1973, each of them by separate contract agreed to sell his 1973 cotton crop to one of the appellees who are cotton merchants. While all of the contracts are not identical, the differences are not critical to the issues on appeal.

The contracts provided that appellants would plant certain cotton acreage and, using good farming methods, deliver the quantity grown to a designated location for a price stipulated in the contract.

After the contracts were made but before the cotton was to be delivered, the cotton market began an unprecedented rise which reached levels in some cases more than double the price at which appellants had agreed to sell. Appellants filed actions for declaratory judgments seeking a determination that the contracts were void because prohibited by Act 208, Acts of Arkansas, 1929. They also contended that the contracts lacked mutuality and were unconscionable. The Chancellor, holding that the contracts were valid, granted summary judgment for each of the appellees. We feel that he was correct.

Section 2 of Act 208 which is the primary provision relied upon by appellants provides:

'All contracts of sale for future delivery of cotton, grain, stocks, or other commodities (1) made in accordance with the rules of any Board of Trade, exchange or similar institution where such contracts of sale are executed and (2) actually executed on the floor of such Board of Trade, exchange or similar institution and performed or discharged according to the rules thereof; and (3) when such contracts of sale are made with or through a regular member is good standing of a cotton exchange, grain exchange or similar institution organized under the laws of the State of Arkansas or any other State shall be, and they are hereby declared to be valid and enforceable in the courts of this State according to their terms, provided, that contracts of sale for future delivery of cotton in order to be valid and enforceable as provided herein must not only conform to the requirements of clauses (1), (2), and (3), but must also be made subject to the provisions of the United States Cotton Futures Act, approved August 11th, 1916; provided, further, that if this clause should for any reason be held inoperative then contracts for the future delivery of cotton shall be valid and enforceable if they conform to the requirement clauses one, two and three of this section.'

The cotton merchants admit that no attempt was made to comply with the procedures outlined by the above statute. They argue that it has no mandatory application to the kinds of contracts made by them.

Appellants argue with some logic that while Section 2 of the Act has no direct prohibitionary language against any kind of contract, the Legislature specified requirements which must exist in order for a contract for future delivery of cotton to be enforceable. It follows, say appellants, that those contracts not made in accordance with the statute are void.

Section 2 of Act 208 is not free of ambiguity. Stripped of its legislative history and without the enlightenment of judicial pronouncements prior to its passage in 1929, it is, perhaps, arguable that the purpose of the act was to severely restrict agreements to buy cotton for future delivery. But we believe a careful review of the act in its proper setting reveals an intent on the part of the legislature to (1) enlarge the permissible scope of trading in commodities futures and (2) to carefully regulate the newly enlarged activities. We do not believe that the regulations apply to contracts like those now under review.

The parties to this appeal agree that prior law is most important in arriving at a correct interpretation of Act 208. They concur that the General Assembly, in enacting legislation, is presumed to be familiar with the holdings of the Arkansas Supreme Court. Lumbermens' Mutual Casualty Company v. Moses, 224 Ark. 67, 271 S.W.2d 780 (October 1954).

Act 118, Acts of Arkansas, 1883 characterized dealing in futures as gambling and flatly prohibited the practice as a criminal act. However, in Fortenbury v. State, 47 Ark. 188, 1 S.W. 58 (1886) the Court distinguished between dealing in futures and contracts for future delivery of actual commodities. It was there said:

'Certainly the Legislature did not intend to impose any restrictions upon legitimate commerce, but only to destroy the parasite that infests it. Contracts for future delivery, if entered into in good faith, and with an actual intention of fulfillment, are valid as any other species of contract. A farmer may sell and agree to deliver his wheat or his cotton for a stipulated price before it is harvested.'

Under the definitions of the Fortenbury Case, the contracts made by the parties to this appeal would be deemed legal contracts for future delivery and not illegal dealings in futures.

Act 162, Acts of Arkansas, 1907, continued the prohibition against dealing in futures 'when the intention or understanding of the parties or either of them is to receive or pay the difference between the agreed price and the market price at the time of settlement . . .'

Construing the 1907 Act, the Court reaffirmed in Huff v. State, 164 Ark. 211, 261 S.W. 654 (1924) and in Southwestern Bell Telephone Company v. Bagley & Company, 178 Ark. 876, 12 S.W.2d 782 (1929)...