Smith v. Bailey
| Decision Date | 26 January 1919 |
| Citation | 209 S.W. 945,200 Mo.App. 627 |
| Parties | ROBERT Y. SMITH and ARTHUR J. MANN, copartners, doing business under the style and firm name of SMITH-MANN GRAIN COMPANY, Appellants, v. C. H. BAILEY, Respondent |
| Court | Kansas Court of Appeals |
Appeal from Jackson Circuit Court.--Hon. Edw. E. Porterfield, Judge.
REVERSED AND REMANDED.
Judgment reversed and cause remanded.
W. H H. Piatt and Thomas R. Marks for appellants.
H. H McCluer and Omar E. Robinson for respondent.
This suit is one to recover the balance of commissions and money paid out by plaintiffs, who were co-partners, as agents and brokers for the defendant in purchasing and selling grain on the Kansas City Board of Trade, defendant having paid plaintiffs one hundred dollars on the account. There was a verdict and judgment for the defendant and plaintiffs have appealed. The defendant set up in his answer that the contracts out of which plaintiffs' demands grew were wagering or gambling transactions made unlawful by section 4780, Revised Statutes 1909.
Plaintiffs were brokers buying and selling grain for commission on the Kansas City Board of Trade. Defendant, a farmer and stock trader residing in Bates County, Missouri, was one of their customers. Defendant had been dealing through plaintiffs for two or three months prior to plaintiffs' failure in business, which occurred on the 30th day of July, 1914. Defendant was dealing in wheat and corn for future delivery. The first purchase involved in this suit was on July 2, 1914. On that day plaintiffs bought for defendant's account five thousand bushels of September wheat, and on the same day sold for defendant ten thousand bushels of September wheat. Plaintiffs continued to buy and sell wheat and corn for defendant in the month of July, 1914, until and including the 30th of that month, so that during that month defendant had bought and sold forty-five thousand bushels of wheat and five thousand bushels of corn for future delivery.
Defendant testified that at the time he bought and sold the grain mentioned he did not intend to receive any part of it or to deliver any part and had not received or offered to receive, or delivered or offered to deliver, any part of it at any time; that it was his intention to speculate on futures, that is, on the fluctuations of the market, and that he was so speculating but did not tell plaintiffs of this. Prior to the second day of July, 1914, defendant had been speculating in futures through plaintiffs and had a balance in plaintiffs' hands of $ 863.25. On that day he withdrew $ 663.25 of this amount and left $ 200 with plaintiffs for the purpose for himself and another party to thereafter trade in margins. One of the plaintiffs testified that none of the trades made during the month of July was carried to maturity; that all of the same were closed out by buying and selling an equal amount of the commodity traded in, and defendant was charged, or credited as the case might be, on plaintiffs' books with the difference in the price when bought or sold of the grain traded in. When plaintiffs bought grain for defendant's account and the former sold the same amount and kind of grain for defendant's account and the grain had advanced in price, defendant was paid the profits thus made. If the grain went down defendant was charged with the loss. Plaintiffs did not pay for the grain bought for defendant's account nor did they collect for that sold on his account, except as they claimed they did through the grain Clearing Company, an institution hereinafter described.
On July 30th, 1914, defendant was short (meaning that he had sold) ten thousand bushels of September wheat and five thousand bushels of December wheat, and on that day, on account of rumors of a war in Europe, the market was excited and prices fluctuated violently. Defendant testified that he told Mr. Smith, one of the plaintiffs, about 9:30 o'clock on that day, about the time the Exchange opened, that he had seen his father and could get the money from him to margin his September wheat, on which he had sold short, and that plaintiff, Smith, agreed to advance the money to margin said wheat. Defendant instructed Smith to sell his December wheat. Smith disappeared from the trading pit about eleven o'clock of that day and in the afternoon, after the closing of the Exchange, he told defendant that plaintiffs had failed in business and had closed all of defendant's deals. Defendant complained of plaintiffs having closed his September deals.
When plaintiffs were directed to buy grain they went into the pit on the trading floor of the Kansas City Board of Trade, of which they were members, and bought the same from a fellow broker, likewise a member of the Board of Trade. Each broker had a card called a "pit card;" one side of this card was the "bought" side and the other the "sold" side. The broker buying would make a record of the sale on the bought side of his pit card, showing the quantity, the delivery month, kind of grain, the price, the trading party and the account of his client. He furnished, as required by section 4783, Revised Statute 1909, a written confirmation statement to his clients signed by him showing these facts. The selling broker made a record identical in form on the sold side of his pit card and also gave a written report to the grain Clearing Company of the sale, having thereon a revenue stamp required by the laws and regulations of the State. The grain Clearing Company collected from each of said brokers the money necessary to carry out and perform said contracts on the delivery date and to protect it in its obligation to so carry out and perform the contracts on that day. (That is to say, it collected margins.) The company checked these records against each other and entered upon its bought and sold sheets respectively the full record of each side of the entire transaction reported to them by the brokers, from thence on the contracts were carried by the grain Clearing Company to the last day of the delivery month. None of the wheat was manually delivered on the delivery day but the brokers' demands against each other were off-set and the balance settled in warehouse receipts covering the grain. One member of the grain Clearing Company stated that it operated practically the same as a bank clearing house and that it was organized for the purpose of facilitating the handling of trades for future deliveries, "by concentrating a good deal of bookkeeping into the hands of one company so that the buyer for the wheat could look to that company for the delivery of it, and the seller of the wheat could make his deliveries to the Clearing Company on all their contracts instead of scattering them around with the different individual traders." Without going into the merits of the matter we will assume for the purpose of this case that this process constitutes an actual delivery of the grain by the grain clearing company.
The actual amount of money carried by the transactions was not placed with the grain Clearing Company but only enough to secure it against a decline in the market. Plaintiffs were not members of the grain Clearing Company, an association carried on by some members of the Board of Trade, so it was necessary for them to clear their trades for future delivery through one Hinsen, who was a member of said company. Plaintiffs, at the close of the day's market, would make through Hinsen written reports of their transactions to the grain Clearing Company, showing the facts as above. The rules of the Board of Trade and the grain Clearing Company prohibited all gambling. Defendant testified that he knew his contracts were being executed on the Board of Trade and he knew that the Board of Trade had rules but "I didn't know much about the rules of the Board of Trade."
It is apparent from the testimony that there were facts from which the jury could say that defendant intended to speculate on the fluctuations of the market and did not intend a bona-fide transaction in buying and selling the grain out of which plaintiffs' demand arose. However, it is insisted upon by the plaintiffs that as defendant knew that his contracts were being executed upon the Kansas City Board of Trade, that he must have known that they were executed in accordance with the rules and regulations of such Board and the grain Clearing Company, and that as these rules and regulations require actual delivery of the grain, defendant cannot now be heard to say that he was speculating, and for this reason, among others, plaintiffs say their demurrer to defendant's evidence should have been sustained. Assuming that the rules and regulations of the Kansas City Board of Trade and the grain Clearing Company provided for actual delivery and that as defendant knew where his contracts were being executed it must be regarded that he knew of the regulations of these two organizations. [See Bibb v. Allen, 149 U.S. 481.] We think that he could, nevertheless, speculate under such rules but the rules were admissible in evidence as throwing light on the defendant's intention. [James v. Haven & Clement, 185 F. 692.]
Section 4780, Revised Statutes 1909, provides:
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