Jacobs v. Hyman

• Decision Date: 17 January 1923
• Docket Number: 3869.
• Citation: 286 F. 346
• Parties: JACOBS et al. v. HYMAN et al.
• Court: U.S. Court of Appeals — Fifth Circuit

286 F. 346

JACOBS et al. v. HYMAN et al.

No. 3869.

United States Court of Appeals, Fifth Circuit.

January 17, 1923

James H. Hart, of Austin, Tex. (Edward B. Coopwood, of Lockhart Tex., and Victor L. Brooks and Dudley K. Woodward, Jr., both of Austin, Tex., on the brief), for plaintiffs in error.

L Clyde Going, of Memphis, Tenn., and R. P. Ingrum, of San Antonio, Tex., for defendants in error.

Before WALKER, BRYAN, and KING, Circuit Judges.

KING Circuit Judge.

Alex Hyman and others, composing the partnership of Alex Hyman &amp Co., citizens of Louisiana (hereinafter styled plaintiffs) brought suit in the United States District Court for the Western District of Texas against Leon Jacobs and others, composing the partnership of R. Jacobs Sons Company, citizens of Texas (hereinafter styled defendants), to recover the sum of $3,960.40, with interest, a balance due for moneys advanced and paid out by plaintiffs for defendants on the purchase of 500 bales of cotton in December, 1918, for delivery in the following May.

On December 21st, 1918, defendants telegraphed plaintiffs to New Orleans, La., to buy for them, for delivery in May, 1919, 500 bales of cotton. Plaintiffs carried out such order and bought contracts for said cotton on the New Orleans Cotton Exchange. Defendants placed to the credit of plaintiffs in New Orleans $5,000 as a margin on said contracts. Cotton declining, on January 13, 1918, defendants wired plaintiffs: 'Take care of us on our contracts and advise how much margin is necessary. ' Plaintiffs replied on the same date: 'All right. Please deposit five thousand in bank and have bank confirm and remit. ' This was done by defendants.

On January 23, 1919, the market having further declined, plaintiffs wired defendants for an additional $5,000. Defendants replied, stating that when their margin was exhausted they understood that plaintiffs would sell out their account. Plaintiffs replied, calling attention to the telegram of January 13th, asking plaintiffs to take care of defendants and advise margin needed, and asked immediate reply. No reply was sent. Later in the same day, plaintiffs wired defendants that, unless an additional deposit of $5,000 was made before the close of the market, plaintiff would sell out defendants' contracts. No additional deposits were made and plaintiffs sold out said contracts. After crediting defendants' account with all credits, it showed a balance of $3,960.40.

The contracts for said cotton were purchased by said plaintiffs in their own name from several persons for delivery on the New Orleans Cotton Exchange, and provided for the delivery of such cotton subject to the by-laws, rules, and conditions of the New Orleans Cotton Exchange, and subject to United States Futures Act, Sec. 5 (Comp. St. Sec. 6309e). Said rules and conditions, among other things, stipulated that all orders for the purchase and sale of cotton were received and executed with the distinct understanding that actual delivery is contemplated in accordance with the requirements of the United States Cotton Futures Act (section 5), and that the party giving the orders so understands and agrees. A contract where such delivery was not contemplated was prohibited by another rule. On all marginal contracts the right was reserved to close transactions when margins were running out without further notice, and to settle contracts in accordance with the requirements of United States Cotton Futures Act, Sec. 5, and the rules and customs of said Exchange.

In defense to said action, defendants pleaded that plaintiffs, who were members of the New Orleans Cotton Exchange, acting for defendants as brokers in said transaction, knew and had reasonable cause to know that said purchase of said future contracts was a mere speculation by defendants, in which they did not buy or intend to buy any bales of actual cotton, or to receive delivery thereof, and that the said transaction was merely a wager on the rise and fall of the cotton market.

They further pleaded that said contract to purchase said 500 bales of cotton, by and through the New Orleans Cotton Exchange, permitted such contract to be closed by delivery or tender of delivery of any grade of cotton other than the grade upon which the price was based in said contract, and at a price other than the actual price of spot deliveries of such grades at the time and place of such delivery or tender, which rendered said contract of purchase and sale in violation of articles 537 and 539 of the Penal Code of the state of Texas, making the same a wagering contract, the enforcement of which was contrary to the public policy of the state of Texas, and invalid and unenforceable in the courts sitting in Texas.

For a further defense, defendants pleaded that they made no further requests, after that of January 13, 1919, to the plaintiffs to take care of said contracts, and that under the rules, practice, and custom of the New Orleans Cotton Exchange, when the margins deposited against said contracts for purchase of said 500 bales had been exhausted, it was the duty of plaintiffs to sell out said contracts; that defendants relied upon the observance by plaintiffs of this duty, and that any further sums, advanced or paid by plaintiffs, were done voluntarily, without request from the defendants, or consideration to them, and plaintiffs cannot recover therefor.

No sufficient evidence was offered to show any intention on the part of plaintiffs, or of any person from whom they purchased said contracts, not to make a delivery of said cotton as called for by said contracts. At the conclusion of the testimony, the court directed a verdict in favor of the plaintiffs for the sum sued for.

1. The agreement for the purchase of this cotton and the purchase of said contracts was wholly a Louisiana contract. While the defendants resided in the state of Texas, the entire transaction was carried out in the state of Louisiana. Defendants employed the plaintiffs as their agents in New Orleans to purchase said contracts for May cotton. The contracts for such purchase were made there with persons in New Orleans. The deliveries called for by said contracts were to be made in New Orleans. The sums of money placed by defendants to the credit of plaintiffs were deposited, through a local bank in Texas, in a bank in New Orleans. The legality of the contract is therefore to be judged by the law of the state of Louisiana, of which this court takes judicial cognizance. Lamar v. Micou, 114 U.S. 223, 5 Sup.Ct. 857, 29 L.Ed. 94.

The law of Louisiana in regard to transactions of this sort has been clearly stated by the Supreme Court of that state, and while if under the guise of a contract for future delivery of an article, the real intention of both parties thereto is merely to speculate in the rise and fall of prices, and the delivery of the goods is not contemplated, but merely an adjustment upon the difference between the contract price and the market price of the goods at the date fixed for...