Uhlmann Grain Co. v. Dickson

• Decision Date: 21 March 1932
• Docket Number: No. 9119.,9119.
• Parties: UHLMANN GRAIN CO. v. DICKSON et al.
• Court: U.S. Court of Appeals — Eighth Circuit

56 F.2d 525 (1932)

UHLMANN GRAIN CO. v. DICKSON et al.

No. 9119.

Circuit Court of Appeals, Eighth Circuit.

February 18, 1932.

Rehearing Denied March 21, 1932.

Alfred M. Seddon, of Kansas City, Mo. (I. P. Ryland, Arthur Mag, Roy B. Thomson, Paul R. Stinson, and Ryland, Stinson, Mag & Thomson, all of Kansas City, Mo., on the brief), for appellant.

S. J. Jones, of Carrollton, Mo. (R. S. Righter, of Kansas City, Mo., G. C. Jones, of Carrollton, Mo., and Lathrop, Crane, Reynolds, Sawyer & Mersereau, of Kansas City, Mo. on the brief), for appellees.

Before KENYON, VAN VALKENBURGH, and GARDNER, Circuit Judges.

GARDNER, Circuit Judge.

Appellant, a grain broker and an Illinois corporation, brought these five actions at law against appellees to recover moneys advanced by appellant to the appellees and earned broker's commission on the purchase and sale of grain for future delivery. By stipulation of the parties, the five actions were consolidated and tried as one, trial by jury being waived. The trial of the consolidated cases resulted in a judgment against appellant and in favor of the appellees.

The parties will be referred to as they appeared in the lower court.

The petition of plaintiff in each of the cases was in conventional form, alleging that at all times therein mentioned plaintiff was engaged in the grain business, acting as a grain broker. That, on the various dates referred to, the defendants employed plaintiff to purchase and sell wheat and other grains for them on certain named markets, the defendants agreeing to pay plaintiff a commission on all such purchases and sales; that pursuant to such employment plaintiff purchased and sold grain for defendants, plaintiff sometimes advancing all or a part of the purchase price of such grain, for which services and advancements defendants agreed to pay plaintiff, and that during said time an account arose between plaintiff and the defendants of mutual credits and debits in the purchase and sale of grain, the account being attached and made a part of the petition in each case.

The defendants filed answer in each case, denying generally that they were indebted to plaintiff on account of the allegations in the petition, or any item thereof, and affirmatively alleging that each and all of the transactions involved were fictitious. That the buying and selling of the grain, as alleged by plaintiff, was a mere form and pretense; that the various transactions in question were gambling transactions between plaintiff and defendants, were illegal, and in violation of the laws of the state of Missouri. That the defendants at the time of the transactions did not intend to accept delivery when they purchased grain, or make delivery when they sold it, and that their gains and losses were to be ascertained by the fluctuations in the market prices of the grain; that is to say, by taking the difference between the price at which it was pretended to be purchased, and the price at which it was sold, such difference to determine the amount of their gain, or the amount of their loss.

The reply of plaintiff put in issue the affirmative allegations of the answer.

The evidence discloses that plaintiff was engaged in the grain, grain elevator, and grain brokerage business, and was a member in good standing of the grain exchanges or boards of trade of Kansas City, Mo., Chicago, Ill., Minneapolis, Minn., and Winnipeg, Canada. Its business consisted in buying and selling cash grain for itself and for its customers, the operation of grain elevators, and acting as agent or broker for its customers in the purchase and sale of grain for future delivery. In the year 1924, when all the transactions here in question were had, plaintiff maintained a principal office at Chicago, Ill., and a branch office at Kansas City, Mo. It also maintained a local office at Carrollton, Mo., which was in charge of one E. S. McDonough.

The transactions here involved were initiated in the local office of plaintiff at Carrollton, by the giving of an order by one of the defendants to plaintiff's agent or employee, for the purchase or sale of grain for future delivery, to be executed on the boards of trade or grain exchanges at Kansas City, Chicago, Minneapolis, or Winnipeg. Plaintiff maintained a private leased telegraph wire from its Carrollton office to its Kansas City office. Verbal orders of purchase or sale were given by defendants to plaintiff's agent at Carrollton, which were by him transmitted by telegraph to plaintiff's Kansas City office for acceptance or rejection. Plaintiff's agent at Carrollton had no authority to accept or reject any order for the purchase or sale of grain for future delivery, but transmitted such order to plaintiff's Kansas City office for acceptance or rejection. If the order was accepted by plaintiff, its Kansas City office immediately telegraphed an order for execution to its Chicago office, except where the order was for the purchase or sale of Kansas City wheat. If the order was for the purchase or sale of Chicago wheat, it was executed on the trading floor of the Chicago board of trade; if for the purchase or sale of Minneapolis or Winnipeg wheat, it was executed on the trading floor of that respective board of trade or grain exchange. Immediately upon the execution of such an order, plaintiff made out and mailed from its Kansas City office to the customer a written confirmation of the order and of its execution. Such written confirmation recited the date of the contract, the quantity and kind of grain bought or sold, the contract price (per bushel) of the commodity, the delivery month, and the place where the contract of purchase or sale was executed, as required by the Federal Grain Futures Act (7 USCA §§ 1-17). Such written confirmation recited that: "All transactions made by us for your account contemplate the actual receipt and delivery of the property and payment therefor. We reserve the right to close these transactions when deposits are running out, without giving further notice. We also reserve the privilege of clearing all transactions through Clearing Associations, if there be any, from day to day in accordance with the usage, rules or regulations of the Exchange where the trade is made, prevailing at the time. All purchases and sales made by us for you are made in accordance with and subject to the rules, regulations and customs of the Chamber of Commerce or Board of Trade where the trades are made, and the rules, regulations and requirements of its Board of Directors, and all amendments that may be made thereto. This contract is made under authority of the Act of Congress known as `The Future Trading Act.'"

Each contract of purchase or sale of grain for future delivery, here involved, was made and executed on the respective boards of trade or exchange in the name of the plaintiff as a clearing member of such board of trade or exchange, and was made with a grain broker who was also a clearing member of such board of trade or exchange, in the name of said broker acting either for himself or for an undisclosed principal; in fact, the rules of the respective exchanges, and also section 4 (b) of the Federal Grain Futures Act, 7 USCA § 6 (b) require that all contracts for the purchase and sale of grain for future delivery shall be made by or through a clearing member of the board of trade or exchange which has been designated as a "contract market." Clearing members are the parties to these transactions on the exchange, and they look for settlements to one another. Plaintiff was a member in good standing of the federal department. The Chicago Board of Trade, the Minneapolis Board of Trade, and the Kansas City Board of Trade, were all officially designated as "contract markets" by the Secretary of Agriculture, in accordance with the provisions of the Federal Grain Futures Act. Every contract of purchase or sale executed by plaintiff for defendants obligated it to full performance by sale or purchase, and such performance was protected by the margin or deposit maintained by it with the clearing house, or exchange, or board on which the transaction was made.

On most of the transactions here involved, defendants put up a margin or deposit with plaintiff. Plaintiff's only remuneration or compensation was for acting as broker for defendants in these transactions. Every sale or purchase made by plaintiff for defendants had an offsetting purchase or sale, so that the net result was that no grain was delivered in any of these transactions. The testimony of the defendants was that they did not intend to make delivery in any case of the grain sold, or to accept delivery of any grain purchased, but that each sale or purchase was intended to be fulfilled by an offsetting sale or purchase of grain before the expiration of the time required for delivery.

The lower court found that all the purchases or sales were offset by sales or purchases executed in the same manner as the initiating purported purchase or sale, and that "every pretended purchase or sale was closed out by a purported offsetting transaction before the delivery time arrived and was purported to have been executed by plaintiff on the orders and at the instruction of defendants, save and except as to some of the last transactions, which were closed out by plaintiff without instruction from such defendant at a time when defendant had no cash margin to protect his transactions." The court concluded that the transactions were gambling transactions and void under Revised Statutes of Missouri, 1929, §§ 4316 to 4326 inclusive.

On this appeal it is contended: (1) That there was no substantial evidence to support the finding of the court that the transactions were fictitious or gambling transactions; (2) that the Federal Grain Futures Act superseded all state laws relating to the subject of dealings in futures on contract markets, and that the contracts in question were valid under the Federal Grain Futures Act; ...