Melchert v. American Union Telegraph Co.

• Decision Date: 01 January 1882
• Parties: MELCHERT v. AMERICAN UNION TELEGRAPH CO.
• Court: United States Circuit Court, District of Iowa

11 F. 193

MELCHERT v. AMERICAN UNION TELEGRAPH CO.

United States Circuit Court, D. Iowa.

January Term, 1882

Contracts for the sale of property to be delivered at a future time at plaintiff's option, said contracts to be adjusted and settled by the payment of differences, are void.

This case was submitted by counsel to the court for trial without a jury. It is an action in which the plaintiff claims damages resulting from the alleged negligence of the defendant in transmitting a telegram from Davenport, in the state of Iowa to the plaintiff's factor in Chicago. It appears that the plaintiff had, in the months of July and August, 1880, made through his factor in Chicago, certain contracts for the sale of some 15,000 bushels of rye at 65 1/2 and 68 1/2 cents, to be delivered at the plaintiff's option during the month of September in the same year. On the eighth day of September, 1880, the plaintiff delivered to the operator of the defendant's line, at Davenport, at 10 o'clock A.M., a dispatch directed to his factor operating on the board of trade, Chicago, a message directing him to 'cover rye as best he could,' suggesting 'that if he could buy cash he could save more;' adding, 'if possible, cover immediately.' It does not appear that the plaintiff gave any explanation to the operator of the object importance, or meaning of the telegram, and it is evident that the operator was wholly uninformed as to the contracts of July and August. The defendant's direct line to Chicago being in trouble, the operator sent the message over its line indirectly by way of Omaha and St. Louis. The message, in the regular course, would have reached Chicago in 10 or 15 minutes from the time of its transmission at Davenport; but it did not, in fact, reach its destination till 2 o'clock and 45 minutes in the afternoon. It was delayed in the office at St. Louis in consequence of some trouble in the defendant's line between that city and Chicago. The operator at Davenport received the message without notifying the plaintiff that the direct line was in trouble, and it does not appear that the office at St. Louis informed the office at Davenport of the delay occurring there. The plaintiff was in the defendant's office at Davenport in the course of the day, manifesting anxiety about the message, but received no information from the defendant's employes about the delay or the cause of it. The office of another telegraph line, over which the message could have been sent, was near at hand, but the plaintiff, not knowing of the delay, did not, of course, resort to that line. It appears that when the message reached the plaintiff's factor in Chicago the board of trade had adjourned for that day, and that it was then too late to do what the message directed to be done. The factor understood the message to direct him to purchase rye on the board of trade to cover the contracts of July and August. The price of rye required for that purpose was, on the board of trade, 80 to 83 cents per bushel up to the time of the adjournment, on the eighth of September. Of course, no rye was purchased in pursuance of the telegraphic message on the eighth of September. Rye advanced on the ninth of September to 85 cents per bushel, and on the 9th and 10th the plaintiff's factor settled the contracts of July and August by 'paying the differences in money value. ' The result was that the plaintiff lost the differences between 80 cents per bushel and 85 cents upon 15,000 bushels of rye, amounting to $750; which sum he claims as damages in this action.

Stewart & White, for plaintiff.

S. E. Brown, for defendant.

LOVE D.J.

Several questions were argued at the bar, which, with my view of the case, I consider it unnecessary to decide. There is one view which is, in my judgment, entirely conclusive of the controversy. Assuming that the alleged negligence has been satisfactorily established, it is evident that we must proceed to inquire whether or not the contracts of July and August, 1880, were valid and binding agreements, which the plaintiff was required by law to fulfil. The telegram of September 8, 1880, instructed the plaintiff's agent to 'cover rye,' and it now clearly appears that these words referred to the two contracts for the sale of rye, to be delivered in September, at the plaintiff's option. The purpose of the telegram was to provide for the fulfilment of these contracts. If they were illegal contracts, the plaintiff was not bound to fulfil them, and he could have suffered no loss from the failure to fulfil them. Nay, if these contracts were illegal gambling contracts, within the statute laws of Illinois, it was the plaintiff's plain duty not to fulfil them, and he cannot complain of the defendant's telegraph company that they were not sufficiently diligent in aiding him to perform his unlawful agreements. The contracts in question were for the delivery of rye in the month of September, at the seller's option. A contract for delivery at the seller's option may be valid or invalid. It depends upon the nature of the option as shown in the intention and purpose of the parties. The option may refer to the fact of delivery, or merely to the time of delivery. If it be the intention of the parties that the property shall be in fact delivered, giving the seller's option as to the time of delivery within a certain period, I see no valid objection to such a contract. It is but a contract for sale of property to be delivered in the future, within a given time. But if it be not the bona fide intention of the parties that the property shall be in fact delivered in fulfilment of the contract of sale, but that the seller may, at his election, deliver or not deliver, and pay 'differences,' then the contract is void. Such a dealing amounts to a mere speculation upon the rise and fall of prices. It required no capital, except the small sums demanded to put up margins and pay differences. It promotes no legitimate trade. Any impecunious gambler can engage in it, with infinite detriment to the bona fide dealer. It enables mere adventurers, at small risk, to agitate the markets, stimulate and depress prices, and bring down financial ruin upon the heads of the unwary. It enables the unscrupulous speculator, with little or no capital, to oppress and ruin the honest and legitimate trader. Corners and black Fridays and sudden fluctuations in values are its illegitimate progeny.

The supreme court of Illinois, in Pickering v. Chase, held that contracts where the seller has the privilege of delivering or not delivering, and the buyer the privilege of calling or not calling for, the grain, just as they choose, are optional contracts in the most objectionable sense. 79 Ill. 328. The question is, what was the intention of the parties in the inception of the contract? For if, in its inception, the contract was bona fide-- if it was the true intent of the parties that the property should be in fact delivered-- it could be no valid objection that they afterwards, at the time for delivery, arranged the controversy between them by the payment of the difference between the contract and market prices. Nevertheless, the subsequent conduct of the parties in dealing with the contract-- in adjusting, settling, or fulfilling it-- may often, as evidence, cast strong reflected light upon their original intentions in making it.

The contract now in question was made in Chicago, and, being an Illinois contract, its validity must be determined by the law of that state. In the Criminal Code of that state we find the following: 'Whoever contracts to have or give to himself or another the option to sell or buy at a future time any grain or other commodity, stock of any railroad or other company, shall be fined not less than $10 nor more than $1,000, or confined in the county jail not exceeding one year, or both; and all contracts made in violation of this section shall be considered gambling contracts, and shall be void. ' Rev. St. 1874, pp. 372, 373, Sec. 138.

In the case of Tenny v. Foot, Legal News, November 16, 1878, p. 71, Judge McAllister, speaking of the statute, says:

'The statute was passed from motives of public policy, and to repress an evil; hence it follows, from established rules of law and their analogies in such cases, that, no matter what form the transaction bears as to the terms of the contract, still, if such form be colorable only, and the real intention of the parties be that there is to be no sale of the article-- no delivery or acceptance of it-- but the transaction is to be adjusted only upon differences, it is a gambling transaction within the statute.'

What, then, was the intention of the parties to the contract in question as to the delivery of the rye? Was it their purpose in making the contract that there should be delivery of the grain, either by consignment, or by purchase in store and transfer of warehouse receipts? Or was it their intention that the contract should be fulfilled by putting up margins and paying differences, without any delivery whatever?

In seeking to ascertain the intentions of parties to such transactions as the one under consideration, it is evident that it will not do to place any great stress upon the mere terms of their contract, or upon their own declarations, whether under oath or not. Parties to such contracts will always seek to give them the form and semblance of legality, and all our experience admonishes us to receive with extreme caution, if not absolute distrust, what parties charged with transactions apparently illegal say respecting the innocency of their own intentions.

In this connection it will not be amiss to advert to the just and pertinent observations of Chief Justice Cole, of the supreme court of Wisconsin, in Barnard v....