Phelps v. Holderness

• Decision Date: 11 June 1892
• Citation: 19 S.W. 921,56 Ark. 300
• Parties: PHELPS v. HOLDERNESS
• Court: Arkansas Supreme Court

19 S.W. 921

56 Ark. 300

PHELPS v. HOLDERNESS

Supreme Court of Arkansas

June 11, 1892

APPEAL from Dallas Circuit Court, CARROLL D. WOOD, Judge.

William A. and Ashton Phelps, as surviving partners of the firm of John Phelps & Co., sued A. S. Holderness upon an open account for money paid out and advanced for defendant at his instance and request. Defendant denied the indebtedness, alleged that the advances were made without authority from him and that the advances were "for a simple speculation in cotton market results, and never contemplated any delivery of said cotton, but was simply a wager, contrary to law, and cannot be enforced because against a criminal prohibitory statute and against public policy."

William A. Phelps, one of the plaintiffs, testified as follows "On December 14, 1885, our firm bought, through Messrs Emmett & Purch, brokers, for account of A. S. Holderness three hundred bales of cotton for delivery in April, 1886, at 9 27-100 cents. This purchase was made by the order of A. S Holderness, contained in a letter addressed to our firm dated December 12, 1885. This letter contained a check for $ 600 for original margin. * * * On February 6, 1886, the market having declined to such an extent as to exhaust the original margin of $ 600, our firm sent a telegram to A. S. Holderness, asking for an additional margin of $ 400, to which he responded February 8, 1886, by remitting a check for that amount. On February 18, 1886, a further decline having occurred, our firm again telegraphed him, quoting the market and calling on him for a further margin of $ 300. Our firm did not get a reply to this dispatch until the following day when we received a telegram reading as follows: "I have decided to advance no more margins on futures." Upon receipt of said telegram our firm immediately instructed our brokers, Messrs. Emmett & Purch, to close out the April contract, which they did at once at 8 42-100 cents. From the time my firm telegraphed him on February 18, 1886, to the time our firm received his reply, on the afternoon of February 19, 1886, there was a further decline of twelve-hundredths of a cent. Our firm closed out the contract under rule 29 of the Cotton Exchange, governing transactions in cotton for future delivery. Our firm were responsible to Emmett & Purch for whatever loss might have resulted and which did result in a loss of $ 1212.05. The amount of our claim against A. S. Holderness consists of $ 1212.05, less margin furnished by him $ 999.50, leaving balance due of $ 212.55."

The correspondence between the parties was made a part of the plaintiffs' evidence and is as follows:

"FORDYCE, ARK., Dec. 4th, 1885.

"MESSRS. JOHN PHELPS & CO., NEW ORLEANS.

"I have an idea of investing in futures to the amount of two or three hundred bales of cotton; and as I have never thought of engaging in the business before, I am not posted in it. If I decide to deal in futures, I wish to operate through your house, and would be glad to have you answer the following questions:

"First--What amount of money per bale will I have to advance on April or May futures?

"Second--Has the buyer the right to close out any time during the month the futures are bought for? If not, at what time during the month?

"Third--Is the commission the same it would be for handling spots.

"Fourth--Will St. Louis exchange pass with you at par? If not, at what discount?

"Fifth--What is your opinion about the future of cotton?

Any other information about the business will be appreciated by one of your former patrons.

Yours very truly,

A. S. HOLDERNESS."

On December 7th Phelps & Co. answered as follows:

"We have your favor of the 4th instant. We answer your questions relative to futures in their order.

"First--We require an original margin of two dollars per bale at the time of making the purchase; in case the market declines, additional margins to keep it good.

"Second--You can close out at any time you wish.

"Third--We charge $ 25 per 100 bales for buying or selling, covering both transactions.

"Fourth--Exchange on St. Louis will be at a small discount at this season.

"Fifth--The course of the market is uncertain at present; it looks as if it would go still lower.

"We do not advise any one to buy or sell futures, as it is not a good thing for any one engaged in a regular business."

Holderness replied as follows:

"FORDYCE, ARK., Dec. 12, 1885.

"MESSRS. JOHN PHELPS & CO, New Orleans, La.

"GENTLEMEN--Enclosed please find sight draft on Allen, West & Co., St. Louis, Mo. for six hundred ($ 600) dollars, which you will please invest in cotton futures for the month of April.

Yours very truly,

A. S. HOLDERNESS."

On December 14th Phelps &Co. telegraphed in answer. "A. S. HOLDERNESS, Fordyce, Ark.

"Bought three hundred Aprils, nine twenty-seven hundredths.

JOHN PHELPS & CO."

And wrote as follows:

"DEAR SIR--We have your favor of 12th inst., with draft of J. E. Hampton on Allen, West & Co., St. Louis, $ 600, remitted as margin, and now buy for your account 300 B. cotton for April delivery, 9 27-100. We understand that you want to buy as many April contracts as $ 600 will serve as the original margin for. If our action is not approved, telegraph on receipt of this. When you want to close out, you had better use the wires. The mails are too slow for that kind of business."

To which, on December 17th, Holderness replied:

"Yours of the 14th to hand. In reply, you acted as we intended for you to with the $ 600 remitted as margins. Would be glad for you to keep us posted by sending us weekly the New Orleans Cotton Exchange market report."

On February 6th, Phelps & Co. telegraphed Holderness:

"Remit four hundred dollars additional margin. Advise by wire."

On the 7th Holderness telegraphed in answer: "I will send four hundred dollars additional margin tomorrow." And on February 8th wrote as follows: "In accordance with your instructions of the 6th by wire, which reached me on Sunday, I enclose to you sight draft on Geo. Taylor & Co., St. Louis, Mo. for four hundred dollars as additional margins."

On February 18th Phelps & Co. telegraphed to Holderness:

"Aprils, eight fifty four. Remit three hundred dollars margin. Answer."

And on February 19th Holderness answered:

"I have decided to advance no more margins on futures."

Plaintiffs also read in evidence the deposition of Thos. J. Semmes, a practicing lawyer in the City of New Orleans, to prove the law of Louisiana in regard to contract, for future delivery, who testified as follows:

"That the laws of Louisiana as to contracts for future delivery is settled by the Supreme Court of Louisiana in the case of Conner & Hall v. Robertson, reported in the 37 Annual, pp. 818 and 819; that in that case the court says: 'The law is now perfectly settled, that an executory contract for the sale of goods for future delivery is not infected with the quality of a wager by reason of the fact that, at its date, the vendor had not the goods, and had not entered into any arrangement to provide them, and had no expectation of receiving them unless by subsequently going into the market and buying them.' They also say that wagering contracts are void, but the illegal intent to wager under the guise of a contract, 'in order to affect the contract, the alleged illegal intent must have been mutual, and the intent of one party, not communicated to or concurred in by the other, will not avail.'"

In testifying in his own behalf, Holderness admits the genuineness of the letters and telegrams attached to Phelps' deposition, recites the facts in regard to the purchase substantially as stated by Phelps, denies their authority to make advances for him, and alleges that the transaction was a wager on the price of cotton. On this point he says:

"When...