Mohr v. Miesen

• Decision Date: 02 October 1891
• Citation: 49 N.W. 862,47 Minn. 228
• Parties: MOHR ET AL. v MIESEN.
• Court: Minnesota Supreme Court

47 Minn. 228

49 N.W. 862

MOHR ET AL.vMIESEN.

Supreme Court of Minnesota.

Oct. 2, 1891.

(Syllabus by the Court.)

1. Contracts for the sale and delivery of grain or other commodities, to be delivered at a future day, are not per se unlawful where the parties in good faith intend to perform them according to their terms. But contracts in form for future delivery, not intended to represent actual transactions, but merely to pay and receive the difference between the agreed price and the market price at a future day, are in the nature of wagers on the future price of the commodity, and void.

2. The burden of establishing the illegality of such transactions rests upon the party who asserts it.

3. The form or language of the contract is not material, but inquiry may be made into the facts and circumstances attending or connected with it, in order to determine its real character.

4. The law will not enforce a contract in favor of a party who has entered into it for an unlawful purpose. A broker or commission merchant who makes advances for his principal and aids him in “operating in futures,” with notice of the unlawful intent of the latter and of the real character of the transactions, cannot recover his commissions and advances; and, in order to show that he is cognizant of the illegality, evidence may be received on the trial, and considered by the jury, showing the nature of the transactions, the relations of the parties, the course of dealing between them, the occupation and financial ability of the principal, and other material facts tending to prove notice.

5. In the absence of proof of the statutes of a sister state, the common-law rule will be applied in determining the legality of contracts made in that state.

Appeal from district court, Ramsey county; OTIS, Judge.

Action by Oscar Mohr and another against Anton Miesen to recover money paid in the purchase of grain. Judgment (for plaintiffs. Defendant appeals. Reversed.

John H. Ives, for appellant.

Morris & Williams, (C. H. Hamilton, of counsel,) for respondents.

VANDERBURGH, J.

The plaintiffs sue defendant for money paid and expended for his use in the purchase and sale of grain. The answer sets up that the purchases and sales referred to were not actual or veritable purchases and sales of grain, but were merely colorable, and “were gambling transactions, whereby the plaintiffs in form undertook to buy and sell on the Chicago or Milwaukee boards of trade, ostensibly for future deliveries, but without any intention or expectation on the part of the plaintiffs or defendants that the same would be actually delivered, large quantities of wheat and barley, with the expectation and intention on the part of both plaintiffs and defendant of wagering on the market prices, and that the amounts which defendant would win or lose would be governed by and determined upon the fluctuations in the quotations of the boards of trade.” The record shows that the plaintiffs were members of the Milwaukee chamber of commerce, and were brokers negotiating purchases and sales of grain, and accustomed to buy upon margins under the rules of the chamber, and to make advances for customers, and to charge commissions for their services. The defendant during the time of the transactions in controversy was a dealer in wines and liquors in the city of St Paul. These transactions opened by the receipt by plaintiffs of a telegraphic dispatch from the defendant on November 11, 1886, directing them “to sell ten thousand bushels May wheat.” On the following day they accordingly executed the order. February 10th defendant directed the plaintiffs to buy 10,000 bushels May wheat, which order was in like manner executed the same day. This closed the transaction, so far as the defendant was concerned. The two contracts were adjusted on the basis of the difference in prices at the dates specified, and a statement showing the difference sent to defendant; that is to say, the two contracts were adjusted on the basis of such difference in prices, without waiting for their literal fulfillment, and without any actual delivery of wheat. A large number of other similar purchases and sales of wheat and barley, amounting to hundreds of thousands of bushels, were made by plaintiffs for defendant, and disposed of in like manner, during the year 1887. Some of the “deals” were closed with a profit, others with a loss, to defendant, which was charged up to him by the plaintiffs. During this time the defendant paid out no money for grain whatever, but at plaintiffs' instance, to cover margins for which advances had been made by them on a falling market, he had paid them between the 10th day of November, 1886, and the 1st day of January, 1888, the sum of $2,462.50, leaving due them, as they claim, the amount demanded in this action. The last transactions, as per statement sent to defendant by plaintiffs, were the reported sale of 10,000 bushels February barley, December 30, 1887, and purchase of 10,000 bushels February barley, January 3, 1888, difference (loss) reported January 4, 1888, at $275.

Contracts for the purchase or sale of grain or other commodities to be delivered at a future time are not per se unlawful if the parties intend in good faith to perform them by the actual delivery of the property according to their terms. Nor are bona fide contracts for the future delivery of goods invalid because at the time of the sale the vendor has not the actual or potential possession of the goods which he has agreed to sell. He may afterwards go into the market and procure the goods which he has agreed to furnish his vendee. Business may be successfully and lawfully conducted in that way; and, where such contracts are intended in good faith to represent actual transactions, they are not unlawful. The law places no unreasonable limitations upon commercial dealings; and it is no legal ground of objection that bona fide contracts for future delivery are entered into for the purpose of making a speculation through an anticipated rise in the price of commodities. But contracts in form for the future delivery of goods not intended to represent actual transactions,-that is, the actual delivery and receipt of the goods,-but merely to pay and receive the difference between the agreed price and the market price at a future day and upon the risk of the rise or fall in prices, are generally held to be in the nature of wagers on the future price of the commodity, and void by statute or as against public policy. The party dealing in futures in substance bets that the price of a commodity at a future day will be a certain sum more or less than the market prices, which involve elements of risk and uncertainty; and the “stake” is the amount of the “margin” required to cover differences in values, and according to the price of the commodity on a future day the parties to the contract must respectively gain or lose. 22 Amer. Law Reg. 613, note. In Rumsey v. Berry, 65 Me. 570, the accepted doctrine is stated as follows: “A contract for the sale and purchase of wheat to be delivered in good faith at a future time is one thing, and is not inconsistent with the law; but such a contract, entered into without an intention of having any wheat pass from one party to the other, but with an understanding that at the appointed time the purchaser is merely to receive or pay the difference between the contract and market price, is another thing, and such as the law will not sustain. This is what is called ‘settling the differences,’ and as such is clearly and only a betting upon the price of wheat, and against public policy, and not only void, but deserving of the severest censure. The bargain represents, not a transfer of property, but a mere stake or wager upon future prices.” “The difference requires the ownership of only a few hundred dollars, while the capital to complete the actual purchase or sale may be hundreds of thousands of dollars. Hence ventures upon prices invite men of small means to enter into transactions far beyond their capital, which they do not intend to fulfill, and thus the apparent business in the particular trade is inflated and unreal, and, like a bubble, needs only to be pricked to...