W.R. Craig & Co. v. Johnson

• Court: Kentucky Court of Appeals
• Writing for the Court: WILLIS, J.
• Citation: W.R. Craig & Co. v. Johnson, 225 Ky. 440, 9 S.W.2d 110 (Ky. Ct. App. 1928)
• Decision Date: 27 June 1928
• Parties: W. R. CRAIG & CO. v. JOHNSON.

9 S.W.2d 110

225 Ky. 440

W. R. CRAIG & CO. v. JOHNSON.

Court of Appeals of Kentucky

June 27, 1928

Rehearing Denied Oct. 2, 1928.

Appeal from Circuit Court; McCracken County.

Action by W. R. Craig & Co. against Goalder Johnson. From a judgment for defendant, plaintiff appeals. Reversed.

J. D Mocquot, of Paducah, for appellant.

R. O Hester, of Mayfield, and E. J. Stahr, of Hickman, for appellee.

WILLIS J.

Goalder Johnson is a farmer of Fulton county, and W. R. Craig & Co. are cotton brokers of New York, and members of the New York Cotton Exchange. They operated a branch office at Memphis which was in charge of an employee named L. W. Magruder. Beginning in December, 1923, and continuing to February 1, 1924, Johnson had purchased and sold through Craig & Co. considerable quantities of cotton for future delivery. On the latter date instructions were given by Johnson through Magruder to close out his existing contracts and make settlement with him. Pursuant to the instructions, the account was closed, and a balance of $3,668.70 due Johnson was remitted to him. Johnson now claims that he lost $12,782 on that series of transactions.

On February 4, 1924, Johnson caused to be sent to Craig & Co. three telegrams by which he requested them to buy for him 200 bales of cotton for May, and 300 bales for July, delivery. In compliance with the request, Craig & Co. made the purchases on the floor of the New York Cotton Exchange for the account of Johnson, and confirmed the contracts in writings delivered to Johnson. The confirmations were on the regular forms for transactions of that character, and contained the explicit statement that the orders for future delivery of cotton were received and executed with the understanding that actual delivery was intended and that the party giving the orders so agreed and contemplated. It was further stipulated in the confirmations that transactions might be closed without notice when the margins deposited were nearly exhausted, and settling contracts were to be controlled by the customs and rules of the New York Cotton Exchange. The customs and rules of that Exchange permitted the brokers to require a reasonable margin of security on the amount of the cotton contracted for, and the brokers requested by telegraph that Johnson make a deposit for that purpose. The cotton contracted for on behalf of Johnson was sold on February 14th for failure to comply with their margin requirements. This action was instituted by W. R. Craig & Co. against Goalder Johnson to recover a balance of $2,630.82 alleged to be due them on the account. Johnson did not deny the accuracy of the account, but sought by counterclaim to recover the sum of $12,782, which he had lost in speculation in cotton futures, alleging that the deals were without any purpose of buying or selling cotton for delivery, but were mere gambling contracts, to be settled for on the adjustment and payment of differences on the fluctuations of the market. He charged that it was the understanding and agreement between the parties that no actual purchases or deliveries were ever intended or ever made. He further alleged that there was an agreement with appellants' agent to extend him a credit of not more than $3,500, and his purchases were not to be closed out until his losses exceeded that sum, which agreement was violated by closing him out on February 14, 1924, before his credit margin was exhausted. These defenses were denied by proper pleadings, and the case was tried by a jury, resulting in dismissal of plaintiff's petition and a judgment for Johnson on his counterclaim for $12,782. A motion for a new trial was overruled, and W. R. Craig & Co. have prosecuted this appeal.

It is settled by the authorities, both here and elsewhere, that contracts for the sale of property to be delivered at a future date are valid and binding. It is equally true that gambling contracts are invalid and unenforceable. Contracts ostensibly valid and in the form of genuine transactions are nevertheless invalid, if in reality there was an understanding, tacit or express, that no deliveries were intended by the parties, and it was a mere wager on the fluctuations of the market. Sawyer, Wallace & Co. v. Taggart, 14 Bush, 727; John L. Dunlap & Co. v. Perry, 191 Ky. 290, 230 S.W. 291; Beadles, Wood & Co. v. McElrath, 85 Ky. 230, 3 S.W. 152, 8 Ky. Law Rep. 848; Bibb v. Allen, 149 U.S. 481, 13 S.Ct. 950, 37 L.Ed. 819; Clews v. Jamieson, 182 U.S. 461, 21 S.Ct. 845, 45 L.Ed. 1183; Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 25 S.Ct. 637, 49 L.Ed. 1031.

Written contracts confirming actual transactions on the established exchanges, appearing prima facie to be lawful and legitimate deals are presumed to be what they purport, but the presumption may be rebutted by proof of facts and circumstances showing the contrary. The burden, however, is upon the party who asserts that the contracts apparently lawful are in fact mere subterfuges for the concealment of an unlawful enterprise. Lamson Bros. & Co. v. Turner (C. C. A.) 277 F. 680; Irwin v. Williar, 110 U.S. 499, 4 S.Ct. 160, 28 L.Ed. 225; Sawyer, Wallace & Co. v. Taggart, 14 Bush, 727.

If there is a conflict in the evidence on the question of whether the contract involved is genuine or a gambling transaction, it is for the jury, under proper instructions to determine the issue. John L. Dunlap & Co. v. Perry, 191 Ky. 290, 230 S.W. 291; Irwin v. Williar, 110 U.S. 499, 4 S.Ct. 160, 28 L.Ed. 225...