Sondheim v. Gilbert

• Decision Date: 27 November 1888
• Citation: 117 Ind. 71,18 N.E. 687
• Parties: Sondheim et al. v. Gilbert.
• Court: Indiana Supreme Court

117 Ind. 71

18 N.E. 687

Sondheim et al.

v.Gilbert.¹

Supreme Court of Indiana.

November 27, 1888.

Appeal from circuit court, Vanderburgh county.

Denby & Kumler, for appellants. Gilchrist & De Bruler, W. C. Wilson, and Harris & Calkins, for appellee.

Mitchell, J.

This was a suit by Samuel and Henry P. Sondheim, partners doing business under the firm name of Sondheim Bros., against John Gilbert, assignee of Miller Bros., insolvents, to establish a claim against the partnership estate of the latter, in the hands of the assignee. It is averred in the complaint that Conrad and Jacob Miller had theretofore been partners doing a general mercantile business in the city of Evansville, under the firm name of Miller Bros., and that on the 11th day of December, 1885, they executed their promissory note, payable to themselves in six months after date, in the city of New York, for $7,264.11. It is averred that Miller Bros. afterwards negotiated the note by indorsement in blank, and that, after it passed through the hands of divers persons, the plaintiffs became the owners of the note, before its maturity, having paid therefor the full face value, without any notice whatever of the consideration for which it was given. The law of the state of New York, the note having been executed and made payable in that state, is set out in the complaint, and it appears therefrom that notes drawn in the form of that sued on are negotiable according to the custom and law of merchants. The case was disposed of in the court below by a ruling on a separate demurrer to certain answers, which set up, substantially, the following facts, viz.: That at the date of the execution of the note the Miller Bros. were engaged in the dry-goods business in the city of Evansville, and that Conrad Miller, one of the members of the firm, made an agreement with Morris Ranger, without the knowledge or consent of Jacob Miller, the other member of the firm, that they (Ranger and Conrad Miller) should engage on joint account in speculating in cotton futures upon the New York Cotton Exchange; that they agreed to buy, on joint account, 50,000 bales of cotton, to be nominally delivered during some months in the future; and that it was understood and agreed between them that no cotton was to be actually bought, sold, received, or delivered, but that after making pretended purchases, if the price should advance or decline on the New York Stock Exchange, there was to be a settlement of the differences accordingly, as the current price might be higher or lower than that nominally agreed upon at the time of the pretended purchase. It is averred that, in pursuance of the foregoing arrangement, Conrad Miller executed the note sued on, together with a large number of other notes, without the knowledge or consent of his partner, and that the notes so executed were indorsed in blank by Conrad Miller, in the name of Miller Bros., and placed in the hands of Ranger, to be used by him solely for the purpose of paying or securing losses or margins which were required to be put up in the contemplated transactions, which, it is alleged, were to be merely gambling or wagering speculations in cotton futures, and that the note sued on was made and indorsed for no other consideration whatever. In some of the paragraphs of answer, which set up substantially the foregoing facts, certain sections of a statute against gaming, and affecting certain contracts and securities, alleged to be in force in the state of New York, are set out. The court overruled the demurrer to the answers, and, the plaintiffs declining to reply, judgment was rendered disallowing the claim. The plaintiffs prosecute this appeal, and assign for error the ruling of the court in overruling the demurrer to the defendant's answers. Upon a determination of the propriety of this ruling, the judgment of the court below must be either affirmed or reversed.

Whether or not contracts, notes, bills, and other securities, growing out of transactions similar to those contemplated by Ranger and Miller, as disclosed by the facts admitted by the demurrer to the answers, are valid and collectible, has been the subject of much consideration in the courts. As related to legitimate commercial transactions, and the recognized methods of conducting the mercantile businesses of the day, the importance of the question cannot readily be overestimated. Formerly the rule was that articles which had no actual or potential existence at the time of the contract were not the subjects of sale; but this was found to be such an impediment to commerce that some relaxation in the rule was deemed necessary. It is now established upon indisputable authority that a contract for the sale and future delivery of a commodity of a designated kind or class, which the seller does not own, and which has at the time no actual existence, but which may be supplied by purchase in the market at the proper time, is a valid contract, provided it is the intention of the parties, or of one of them, at the time the contract is made, that the commodity shall actually be procured by the seller and supplied to the purchaser at or before the maturity of the agreement. Cobb v. Prell, 15 Fed. Rep. 774, 22 Amer. Law Reg. 609, and note. Crawford v. Spencer, 92 Mo. 498, 4 S. W. Rep. 713, 1 Amer. St. Rep. 745, and note. In such a case, it does not invalidate the transaction that the parties, or either of them, may have deposited money as a margin to secure the performance of the contract, or as indemnity against loss in case one or the other fails to consummate his agreement. As has been said, “present ownership is of less consequence than the intention of the contracting parties.” Cockrell v. Thompson, 85 Mo. 510;Wall v. Schneider, 59 Wis. 352, 18 N. W. Rep. 443;Whitesides v. Hunt, 97 Ind. 191;Gregory v. Wendell, 39 Mich. 337, 33 Amer. Rep. 390. While contracts for the sale of property to be delivered in the future are valid, where the parties, or either one of them, actually contemplate a delivery of the subject-matter of the contract, yet if, under the guise of a contract which has the appearance of validity upon its face, the real intention is merely to speculate on the rise or fall of the market, without any purpose that any property shall be delivered or received, but with the understanding that at the appointed time the account is to be adjusted by paying or receiving the difference between the contract and the current price, then the whole transaction is illegal, as against public policy, and falls under the condemnation of the law. Whitesides v. Hunt, supra, and cases cited; Irwin v. Williar, 110 U. S. 499, 4 Sup. Ct. Rep. 160. The facts stated in the answer make it clear that the transactions contemplated by Morris Ranger and Conrad Miller were not the actual purchase and acceptance of cotton, but were speculative wagers upon the price of that commodity, from time to time, as it might be quoted on the New York Stock Exchange. This was an agreement to engage in mere wild speculation, in the nature of gambling or wagering upon the fluctuations in the price of cotton. Such transactions demoralize and embarrass legitimate trade, and are subversive of all correct business principles, destructive of commercialintegrity and morality, and result, directly or indirectly, in most of the bankruptcies, defalcations, and forgeries which startle and distract business circles. Between the parties to such a transaction, and all others who participate in the specific illegal design, with the intention of aiding in its execution, so as to become principals or accessories thereto, any contract or other security resulting therefrom will be wholly invalid. But in the absence of a statute in direct terms prohibiting transactions of the character of that in question, and declaring them unlawful, or expressly declaring promissory notes growing out of such a transaction invalid, while the courts will, on general common-law principles, declare such notes invalid between the parties and those who were accessory to the illegal act, yet, in order to invalidate a note or other security in the hands of one who advanced money which the borrower intended to and did employ in carrying on an illegal enterprise, it has been held that it was not enough to defeat a recovery that the lender knew the borrower's purpose. He must have been in some way implicated as a confederate in the specific illegal design under contemplation. It must have been a part of the contract, or there must have been in some way such a combination of intention between the lender and borrower that the money furnished should be used in aid of and to promote the unlawful enterprise that they became particeps criminis. Tyler v. Carlisle, 79 Me. 210, 9 Atl. Rep. 356;Waugh v. Beck, 114 Pa. St 422, 6 Atl. Rep. 923;Tracy v. Talmage, 14 N. Y. 162;Arnot v. Coal Co., 68 N. Y. 558. Thus it was held in Bickel v. Sheets, 24 Ind. 1, that a contract for the sale of property which the purchaser intended to use for gaming purposes, in violation of a statute, was not void, although the seller was informed at the time of the sale of the purpose for which the property was to be applied. Cummings v. Henry, 10 Ind. 109;Feineman v. Sachs, 33 Kan. 621, 7 Pac. Rep. 222;Distilling Co. v. Nutt, 34 Kan. 724, 10 Pac. Rep. 163;Fisher v. Lord, 63 N. H. 514, 3 Atl. Rep. 927;Oil Co. v. Boyett, 44 Ark. 230. There must be knowledge of and participation in the illegal or immoral purpose.

It is not necessary, however, that we pursue this feature of the case further, as it is conceded upon the record that the note in suit came to the hands of the plaintiffs in the due course of trade, before maturity, for value, and without notice of the purpose for which it was executed or...