Orvis Bros. & Co. v. Oliver

• Decision Date: 12 December 1938
• Docket Number: 4-5301
• Citation: 123 S.W.2d 1065,197 Ark. 307
• Parties: ORVIS BROS. & CO. v. OLIVER
• Court: Arkansas Supreme Court

123 S.W.2d 1065

197 Ark. 307

ORVIS BROS. & CO. v. OLIVER

4-5301

Supreme Court of Arkansas

December 12, 1938

Appeal from Clay Circuit Court, Western District: G. E. Keck, Judge reversed.

Judgment reversed. Petion for rehearing overruled.

Dene H. Coleman, for appellant.

J L. Taylor, DeWitt M. Hines and Bryan J McCallen, for appellee.

SMITH J. HUMPHREYS and MEHAFFY, JJ., dissent. SMITH, J., on rehearing.

OPINION

SMITH, J.

Appellants, who are brokers, have their principal office in the city of New York, with branch offices in a number of other cities. The transactions out of which this litigation arose were had with appellee through the Memphis branch. Appellants sued P. L. Oliver, of Corning, Arkansas, who operates a cotton gin and deals in cotton as P. L. Oliver & Company, to recover certain sums of money which they advanced for the account of Oliver in three futures transactions.

The transactions, which were evidenced by numerous telegrams, were as follows:

On March 8, 1937, Oliver, hereinafter referred to as appellee, placed with appellants a contract for July cotton at 13.35. This cotton was later sold, on instructions from appellee, at 13.96, which resulted in a profit to appellee, less commissions and taxes, of $ 272.91.

On April 2, 1937, appellee bought another contract for 100 bales of cotton at 14.25, and on April 19th sold the contract at 13.51, involving a loss, including commissions and taxes, of $ 397.04.

These transactions are admitted, and appellee concedes his liability for the difference between his profits on one transaction and the loss on the other if the contracts may be enforced. He says the contracts were gambling transactions and unenforceable for that reason in the courts of this state. There was a verdict and judgment in his favor, from which is this appeal.

There was a third transaction involving a similar purchase of cotton seed oil, which appellee testified was made without his authority, and the question whether this last-mentioned contract was unauthorized was not submitted to the jury as a separate issue of fact. The jury found that the admitted contracts were unenforceable, as being gambling contracts. It was, therefore, unnecessary for the jury to determine whether the oil contract had been made, as it would not have been enforced by the jury had it been admitted. It cannot, therefore, be said that the jury has found that the contract relating to the cotton seed oil was unauthorized. In view of what we shall hereinafter say, the validity of the cotton seed oil contract must be submitted to and be determined by the jury upon the remand of the cause for that purpose.

Testimony was offered by the brokers, hereinafter referred to as appellants, to the following effect. They are members of the New York Cotton Exchange, the New York Produce Exchange, and many other exchanges. They act as brokers for people who are not members of these exchanges, but do not buy anything for themselves. They solicit and receive business from ginners, cotton shippers, operators on the spot market who use cotton futures in their business, and from others. Appellee opened an account with appellants, and was extended a line of credit amounting to $ 1,000. No one can transact business in these exchanges who is not a member thereof.

The transactions in regard to the cotton above-mentioned were had and conducted in accordance with the rules and regulations of the Cotton Exchange, and when appellee was called upon to make good the net loss he had sustained he declined to do so, hence this suit.

Witness N. P. Boulet, the manager of appellants' Memphis branch, who conducted the transactions, testified that he was familiar with the rules and regulations of the Exchange, as well as with those of the United States Cotton Futures Act, and he knew that the contracts had been executed in accordance with the provisions of these rules and regulations and of that act. They could not otherwise have been executed in the Exchange. The writings offered as exhibits by the witnesses for appellants evidencing the transactions show that they were regularly executed. The testimony of Harry A. Levine is to the effect that he was a partner of appellants, in charge of the Commodities Department, and that appellants were members in good standing of the Exchange through which the transactions were had. He was per-sonally familiar with the transactions, and knew that they were executed in accordance with the rules and regulations of the New York Cotton Exchange, and subject to the provisions of the United States Cotton Futures Act of August 11, 1916, and the transactions were actually executed on the floor of the New York Cotton Exchange.

Signed contracts, executed by appellants as agent for appellee, were offered in evidence, and these recite that the purchases of the cotton were "subject to the United States Cotton Futures Act." The correspondence between appellants and the parties with whom they dealt as agent for appellee makes certain the fact that the transactions were conducted in accordance with the rules of the New York Cotton Exchange, and all the writings evidencing the transactions stated, as above quoted, that they were subject to the United States Cotton Futures Act. The testimony is convincing and undisputed that the transactions were entered and cleared through the New York Cotton Exchange. A certificate issued under the seal of the Cotton Exchange details the transactions and leaves no doubt upon the subject.

It is insisted, however, that the purchase of the cotton and the sale thereof for the account of appellee was a gambling transaction, in that, appellee did not expect to receive and his vendor did not expect to deliver the cotton contracted for, and that this fact is conclusively evidenced by the sale of the contract before its July maturity, at a profit in one instance and at a loss in the other, and that the transactions were a mere wager as to whether the price of cotton would go up or go down.

It may be true, as appellee contends, that he did not expect the actual delivery of the cotton which he purchased; but it is also true that he had a contract which entitled him to its delivery. He had the option to sell or "close out" his contract before the date on which delivery of the cotton was due, and he exercised that option. But the United States Cotton Futures Act, referred to in act 208 of the Acts of 1929 (Vol. II, Acts of 1929 of the General Assembly of the State of Arkansas, p. 1024), to which further reference will later be made, provides that he might demand actual delivery. This act appears in full in United States Statutes at Large, Vol. 39, Part I, beginning at page 476. This act is annotated in Vol. 6-A Federal Code, Annotated, pages 86 et seq., and in United States Code, Annotated, Title 26, pages 584 et seq.

This act provides that actual delivery may be demanded, and that middling shall be deemed the grade of cotton contracted for if no other grade is specified. However, the writings evidencing the purchase of the cotton here in question specified that it was "for middling." This act provides that the grades which may be sold shall be within the grades for which standards are established by the Secretary of Agriculture. Certain inferior grades are declared not to be tenderable in satisfaction of the contract. Provision is made for variations in weight of the bales so that the total weight of a number of bales may aggregate the quantity or total weight contracted for. Delivery allowance is made for the difference above or below the contract price which the receiver of the cotton shall pay for cotton above or below the grade contracted for. There are other provisions 'which make certain that the appellee might have demanded delivery of the cotton, had he elected to do so, when his contract matured. The act provides that the relevant portions here involved "shall be deemed fully incorporated into any such contract if there be written or printed thereon, or on the document or memorandum evidencing the same, at or prior to the time the same is entered into, the words, 'subject to the United States Cotton Futures Act, § 1094'." The writings evidencing the contracts here involved contained this indorsement.

It is no doubt true that in most cases arising under this act, as in the instant case, actual delivery was not intended, although no testimony was offered to that effect in the trial of this case, the contract required delivery, if demanded. In other words, the transaction is one generally called dealing on margins. But such contracts were held not to be gambling contracts in the case of Johnston v. Miller, 67 Ark. 172, 53 S.W. 1052, that opinion having been delivered November 18, 1899.

Subsequent to the rendition of that opinion the General Assembly of this state, at its 1907 session (act 162, Acts 1907, p. 388), passed "An act to prohibit contracts and agreements for the sale and future delivery of cotton, grain, provisions, and other commodities, stocks, bonds, and other securities upon margins, commonly known as dealing in futures; to declare such transaction unlawful and to constitute a misdemeanor on the part of any person, association of persons, or corporation participating therein, whether directly or indirectly; to prohibit the establishment, maintenance, or operation of any office or other place where such contracts are made or offered," and for other purposes. This act appears as §§ 2652 et seq., C. & M. Digest.

It may be said, in passing, that, while this act was in full force and effect the case of Mullinix v. Hubbard arose in this state and was decided by the Circuit Court of Appeals of this circuit on May 27, 1925. 6 F.2d 109. In that case the 6th head note...