Lehman v. Feld

• Decision Date: 15 January 1889
• Parties: LEHMAN et al. v. FELD.
• Court: U.S. District Court — Southern District of Mississippi

37 F. 852

LEHMAN et al. v. FELD.

United States Circuit Court, S.D. Mississippi.

January 15, 1889

Syllabus by the Court

Contracts for the future delivery of cotton, made by a commission merchant in New Orleans, to be performed there, for his principal, residing in the state of Mississippi, are governed by the laws of the state of Louisiana, and, if valid in that state, will be enforced by the circuit court of the United States in the state of Mississippi.

A contract for the future delivery of cotton is valid and binding unless shown by those challenging its validity that it was mutually agreed and understood by the parties to the contract when it was made that there was to be no delivery of the property, but that only the differences in the price were to be paid at the time the contract by its terms required delivery should be made.

The rules and regulations adopted by the New Orleans Cotton Exchange in the settlement and substitution of contracts for the future delivery of cotton, when not used to promote a gambling transaction, are valid and legal, and are binding upon all persons familiar with such rules and regulations, or chargeable with knowledge thereof, when they employ members of said exchange to buy or sell on the floor of said exchange cotton for future delivery, and who in good faith so buy and sell in accordance with the said rules and regulations.

A commission merchant, who in good faith buys and sells cotton for future delivery under the directions of his principal without knowledge or reason to believe that said principal had no intention to deliver or receive said cotton, but only expected to pay the differences in the price at the maturity of the contracts of purchase or sale, may recover from said principal compensation for services performed, and money advanced at his request, notwithstanding the existence of such illegal intent on the part of the principal.

When under the rules and regulations of the New Orleans Cotton Exchange, a commission merchant becomes the guarantor for the performance of the contract entered into by him for his principal, he has the right to demand margins from said principal to secure him against loss on account of said contract, and to close out said contract in the event the principal fails to remit said margins on demand, and said commission merchant may, upon the default of his principal in the remittance of said margin when so demanded, close out said contract, and recover the losses sustained by him although the party with whom the commission merchant dealt for his said principal has made no demand for any margin.

Where the agent, at the time of making a contract, discloses the name of his principal, he is not personally liable or bound to those who are thus notified that he acts as agent, for the default of the principal.

Miller Smith & Hirsh, for plaintiffs.

McCabe & Anderson, for defendants.

HILL J.

The questions for decision are presented by a motion for a peremptory instruction to the jury to find for the plaintiffs, and a motion for a similar instruction to find for defendant. This action is brought by the plaintiffs to recover from the defendant the indebtedness stated in the declaration, alleged to be due them for commissions in making the purchase of contracts for cotton to be delivered at a future time, and for money expended by them on their guaranty that defendant would comply with the contracts. To the charges made in the declaration the defendant has pleaded the general issue, and given notice in writing of special defenses. The correspondence between the parties and the other written and uncontradicted evidence adduced establish the following facts:

The plaintiffs are, and have been for a number of years past cotton factors and commission merchants doing business in the city of New Orleans, and are members of the New Orleans Cotton Exchange, and are engaged, as such cotton factors and commission merchants, in making purchases and sales of cotton to be delivered at a future time, on behalf of and for the interest of their principals or customers, under the rules and regulations prescribed by that institution, to be compensated by the commissions thereby allowed. These rules and regulations do not require the members purchasing or selling on the floor of the exchange to disclose the names of those for whom they sell or purchase, but each member or firm making such sales of purchases must guaranty, and become personally bound for, the performance of all contracts so made, as though each was a principal, instead of an agent. The members of the exchange may at stated times, or whenever it is agreed upon between themselves, 'ring out' or 'close out' the said contracts of purchases or sales, by striking a balance, or setting off one contract against another, so as to substitute one for the other; the seller being still prepared and liable to deliver, and the purchaser to receive and pay for the same quantity of cotton, of the grade and at the price stipulated in the original contracts at the time stated for delivery; each being bound to the other upon the guaranty assumed, but on behalf of the unknown principals. These rules and regulations further provide that, to secure the performance of the contracts by each individual or firm so contracting a margin of one dollar per bale shall be deposited at the time of the contract, and shall be renewed from time to time, as the rise or fall in price may require, according to the conditions prescribed in these rules and regulations, by which all the members are governed. The defendant had for some years previous to the dealings with the plaintiffs stated in the pleadings made contracts for the purchase and sale of cotton for future delivery through other cotton factors and commission merchants belonging to and doing business in the Cotton Exchange of New Orleans, and was required by them to put up the necessary margins, or furnish the money for said purchases or sales, and that, when sales were made at a loss, he was required to pay said loss. He was a member of the Vicksburg Cotton Exchange, had visited the New Orleans Cotton Exchange several times, and was well informed as to all the technical terms and phrases used by the members of the said New Orleans Cotton Exchange in making these contracts, and in transacting business under the rules and regulations thereof, by which...