Source: https://supreme.justia.com/cases/federal/us/288/188/
Timestamp: 2019-04-21 20:20:31+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 288 › Dickson v. Uhlmann Grain Co.
Dickson v. Uhlmann Grain Co.
1. Contracts between broker and customer for pretended purchases and sales of grain for future delivery which do not contemplate that any grain shall be actually bought, sold, or delivered on behalf of the customer violate the Missouri Bucket Shop Law when made and executed in that State. Pp. 288 U. S. 192, 288 U. S. 194.
2. To an action by the broker for commissions and advances, it is a bar that the contracts are thus invalid. P. 288 U. S. 196.
3. Such contracts do not lose their local character merely because, with the knowledge of the customer, the broker makes actual corresponding purchases and offsetting sales on exchange in other states, and the illegality of the contracts with the customer is not affected by the fact that the exchange transactions are executed on federal "contract markets," are conducted in form as if based on genuine orders from the customer, are in conformity with the federal regulations, and may be valid as between the broker on the exchanges. P. 288 U. S. 193.
4. The Federal Grain Futures Act forbids "future" trading not carried on in compliance with its regulations, but evinces no intention to authorize all such trading if there is compliance, and it does not supersede state laws that make gambling in grain futures illegal. P. 288 U. S. 198.
5. The Missouri Bucket Shop Law, as here involved, is not in conflict with the Grain Futures Act. P. 288 U. S. 200.
Certiorari, 287 U.S. 581, to review the reversal of a judgment for the present petitioners in an action by the Grain Company to recover amounts claimed to be due to it from them for its services and advances as broker in purchases and sales of grain for future delivery. The trial was to the District Court without a jury.
Uhlmann Grain Company, an Illinois corporation, brought this action of contract in the federal court for western Missouri against A. P. Dickson, a citizen and resident of Carrollton in that state. Four other cases of like character were, by agreement, consolidated with this one, and the five cases were tried below and are brought here as a consolidated suit. The pleadings, facts, and proceedings stated in respect to the Dickson suit are applicable to all. The petition alleged that Dickson employed the company as a broker to purchase and sell for him grain on the Chicago, Minneapolis, and Winnipeg Exchanges; that he agreed to pay it commissions for such service, and to reimburse it for any advances made, and that, upon an account stated, there is due a balance of $3,714.06, after crediting amounts received from the proceeds of purchases and sales and as margins.
laws; that no purchase or sale of grain was made for him, and that none for him was contemplated by either party; that the intention of both was merely that the defendant should settle for differences in the market prices; that the transactions were not actual dealings by him in grain futures, but dealings which as to him were wholly fictitious or pretended, and in fact merely gambling on the rise and fall of the market prices of grain.
The company replied that the obligation sued on arose from transactions in the purchase and sale of grain for future delivery as commonly conducted on boards of trade; that these transactions were carried out on the Boards of Trade of Chicago and Minneapolis, which had been designated by the Secretary of Agriculture under the (Federal) Grain Futures Act, September 21, 1922, c. 369, 42 Stat. 998, as "contract markets;" that the company was a member of each of said boards, and that each of the transactions of purchase and sale made by the company on behalf of Dickson was made by it with another member of the board, and in compliance with the provisions of that act.
law," and that the company's transactions with or for the customers occurred wholly in Missouri. He declined to make any of the findings requested by the company, denied recovery, and entered judgment for the defendant. A motion for a new trial was overruled.
The company appealed to the Circuit Court of Appeals, and contended, among other things: (1) that there was no substantial evidence to support the finding that the transactions were fictitious or gambling transactions, and hence invalid under the law of Missouri, and (2) that the Grain Futures Act superseded all relevant state laws relating to the subject of dealings in futures on "contract markets," and that the transactions in question, being valid under the federal act, were necessarily valid under the laws of Missouri. The Circuit Court of Appeals, one judge dissenting, reversed the judgment of the District Court and remanded the cause for further proceedings. 56 F.2d 525. This Court granted a writ of certiorari. 287 U.S. 581.
of each of the boards. Each contract was made in the name of the company as principal with another member of the board as principal. Each contract was evidenced by a record in writing, as prescribed by the Grain Futures Act. And after each such contract was entered into by the company, it mailed, from its office in Kansas City to its customer at Carrollton, a written confirmation of his alleged order and of its execution, which recited the date of the contract, the quantity and kind of grain bought and sold, the contract price per bushel of the commodity, the delivery month, and the place where the contract of purchase or sale was executed. [Footnote 1] The requirements of the federal act appear to have been complied with. There is no suggestion that these contracts violated the law of the place where the exchange was situated. It may be assumed that they were valid as between the Uhlmann Grain Company and its fellow members of the exchanges.
valid, those entered into by the company at Carrollton with Dickson and its other customers were valid also. Compare Board of Trade v. Christie Grain & Stock Co., 198 U. S. 236, 198 U. S. 249-250. See also Harvey v. Merrill, 150 Mass. 1, 22 N.E. 49; Riordon v. McCabe, 341 Ill. 506, 512-515, 173 N.E. 660. Whether the customer, in his agreement with the company, ordered that contracts be entered into in his behalf on the exchange is the serious issue of fact in the case at bar. If the customer did so order by his agreement, we should have to determine by the law of which state the defense of illegality is governed. If, as Dickson contends and the trial court found, Dickson's agreement did not contemplate the execution of transactions on the exchange in his behalf, clearly the defense of illegality is governed by the law of Missouri, unless that law has been superseded by the Grain Futures Act.
a typewriter, blackboard, and telegraph instrument. The branch manager testified, as did the defendants, that he was active in soliciting business among the townspeople. Between 40 and 50 local residents from widely divergent walks of life in no way connected with purchasing or selling grain became customers of the branch. Of the five defendants in the cases consolidated for trial who were the plaintiff's largest customers at Carrollton, two were farmers, two were clothing merchants, and one was an ice dealer. These defendants, who were not in the grain business, who had never traded on a grain exchange, and who had no facilities for handling grain, purported to buy and sell in amounts up to 50,000 bushels in a single transaction. In a period of nine months, the total number of bushels involved in the transactions of four of the defendants, according to one of the plaintiff's witnesses, was 2,360,000. The defendants undoubtedly knew that the company regularly entered into contracts on the exchanges corresponding to the transactions at Carrollton. But the evidence warrants the conclusion that the contracts on the exchange were entered into by the company to enable it to secure the data for the defendants' wagers and to provide the means for determining the defendants' gains and losses, and that both the plaintiff and the defendants so regarded the contracts on the exchanges. So far as concerned the obligations which they undertook, the customers were in the same position as if they had simply wagered against the company on the fluctuations in the prices of grain. Thus, the evidence supports the conclusion that the transactions between the defendants and the company were executed and performed wholly in Missouri, and the law of Missouri accordingly governs unless prevented by the federal act.
"at prices fixed or pretended to be fixed by trades or transactions made or offered to be made in same on boards of exchange or otherwise, but wherein there is in fact no actual purchase and sale, or sale and purchase, of such commodity for or on account of the party or parties thereto."
"wherein there is, in fact no actual purchase and sale or sale and purchase of such commodities for or on account of the party or parties thereto are hereby declared gambling and criminal acts, whether the order or contract for the pretended purchase or sale of such property purports to be offered, accepted, executed or consummated in this state or in any other state or country: Provided, the offer to make such pretended purchase or sale of said property is placed or given or communicated from this state, and any person violating the provisions of this section shall be guilty of a felony. [Footnote 2] "
with its customers, and hence it cannot recover for commissions or for advances. The trial court accordingly was right in entering judgment for the defendants, unless the Missouri law has been superseded by the federal act.
"(b) Where such contract is made by or through a member of a board of trade which has been designated by the Secretary of Agriculture as a 'contract market,' . . . and if such contract is evidenced by a record in writing which shows the date, the parties to such contract and their addresses, the property covered and its price, and the terms of delivery."
"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 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 usages, rules, and 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. The contract is made under the authority of the Act of Congress known as 'The Future Trading Act.'"
The defense rests solely on Mo.Rev.Stat. (1929), §§ 4316 to 4323, not on §§ 4324-4326, 4329. The former sections derive from Mo.Laws 1887, p. 171, the latter from Mo.Rev.Stat. (1889) §§ 3931-3936. See state v. Long, 261 Mo. 314, 316, 169 S.W. 11. The latter sections prohibit the purchase or sale of grain on margin where there is an intention not to make or receive delivery, and declare contracts made in violation of this prohibition void even if only one of the parties to the contract has an intention not to deliver. Under the latter sections, it has been held that such an intention on the part of a customer for whom a broker has executed future contracts is sufficient to defeat the broker's claim for commissions even though he was unaware of that intention, Price v. Barnes, 300 Mo. 216, 229, 231, 254 S.W. 33, but that the provisions do not apply where the execution of the contracts occurred in another state pursuant to orders given to the broker in Missouri. Edwards Brokerage Co. v. Stevenson, 160 Mo. 516, 527-528, 61 S.W. 617. See Connor v. Black, 119 Mo. 126, 141, 24 S.W. 184; Price v. Barnes, supra, 300 Mo. at 232, 254 S.W. 33; also, Elmore-Schultz Grain Co. v. Stonebraker, 202 Mo.App. 81, 214 S.W. 216; Claiborne Commission Co. v. Stirlen, 262 S.W. 387. These cases have no application in the case at bar.
Compare the statutes enacted in recent years in several states, declaring that contracts for future delivery of grain and other commodities are valid and enforceable if made according to the rules of an exchange, actually executed on the exchange, and performed or discharged according to its rules, and made with or through a member in good standing. Ark.Acts 1929, No. 208, p. 1024, Ark.Dig.Stat. (1931 Supp.) §§ 2661a-2661k; Ga.Acts 1929, p. 245, Ga.Code (1930 Supp.) §§ 4264(1)-4264(8); Miss.Acts 1928, c. 304, Miss.Code (1930) §§ 1827-1835; Okl.Laws 1917, c. 97, Okl.Stat. (1931), c. 15, Art. 24, § 1917 et seq.; S.Car. .acts 1928, No. 711 (35 St. at Large p. 1321), S.Car.Code (1932), §§ 6313-6321; Tex.Acts 1925, c. 15, Tex.Pen.Code (1925), Arts. 656-664. The South Carolina and Texas statutes contain a proviso declaring that such contracts shall be unlawful where it is not "contemplated" by the parties that there be actual delivery, and the Georgia statute contains a proviso declaring such contracts unlawful where it is not "stipulated" by the parties thereto that there shall be actual delivery. For an analysis of the state statutes concerning dealings in futures, see 45 Harv.L.Rev. 912-925. Compare E. W. Patterson, Hedging and Wagering on Produce Exchanges, 40 Yale L.J. 843.
"An Act for the prevention and removal of obstructions and burdens upon interstate commerce in grain by regulating transactions on grain future exchanges, and for other purposes."
A cardinal argument for the passage of the Grain Futures Act was the severe decline in prices on the Chicago Board of Trade subsequent to the decision in Hill v. Wallace, 259 U. S. 44, holding sections of the Future Trading Act unconstitutional. See H.R. No. 1095, 67th Cong., 2d Sess., p. 2; Sen. No. 871, 67th Cong., 2d Sess., p. 7; 62 Cong.Rec. p. 12733. Compare id., p. 9429.
See also the statements of the purpose of the Future Trading Act, H.R. No. 44, 67th Cong., 1st Sess., p. 2; Sen. No. 212, 67th Cong., 1st Sess., p. 4, and the disavowal of an intention to "legalize" gambling, 61 Cong.Rec. 67th Cong., 1st Sess., pp. 1313, 1339, 1340, 1370, 1374.
See id., p. 9428. For a summary of prior bills introduced in Congress for the control of future trading, some of them providing for its prohibition, see G. W. Hoffman, Future Trading Upon Organized Commodity Markets, pp. 364-367.
Compare also Sligh v. Kirkwood, 237 U. S. 52, 237 U. S. 62; Asbell v. Kansas, 209 U. S. 251, 209 U. S. 257; Crossman v. Lurman, 192 U. S. 189, 192 U. S. 199; Reid v. Colorado, 187 U. S. 137, 187 U. S. 149; Missouri, Kansas & Texas Ry. Co. v. Haber, 169 U. S. 613, 169 U. S. 623; Sherlock v. Alling, 93 U. S. 99.
I am unable to join in the decision just announced. My understanding of the evidence constrains me to dissent.
Sections 4316-4323, Mo. R.S.1929, prohibit bucket shop transactions in Missouri. Section 4318 denounces as gambling pretended purchases and sales "wherein there is, in fact no actual purchase and sale or sale and purchase of such commodities for or on account of the party or parties thereto." This Court rests its decision solely on that provision.
Claiborne Commission Co. v. Stirlen, 262 S.W. 387, 388. Cf. State v. Gritzner, 134 Mo. 512. 526, 527, 36 S.W. 39; State v. Christopher, 318 Mo. 225, 237, 2 S.W.2d 621.
The evidence shows affirmatively and without contradiction that plaintiff and defendants did not intend to, and did not, violate § 4318.
Plaintiff is not a bucket shop proprietor. It has been engaged for many years in operating grain elevators, including a terminal one of great capacity, and in dealing on its own account in cash grain. It long has been a member of the Chicago, Minneapolis, Kansas City, and Winnipeg Exchanges, and a broker executing customers' orders for the purchase and sale of grain for future, as well as for immediate, delivery.
In 1924, from April to late November, it had a branch at Carrollton, Missouri, in charge of one McDonough. This branch was connected by private telegraph wire with its Kansas City office, and regularly posted prices at which purchases and sales of grain were being contemporaneously made on the exchanges. McDonough solicited from defendants and others in and about Carrollton orders for the purchase and sale of grain for future delivery to be executed by plaintiff upon the exchanges, and, upon information obtained from plaintiff, gave advice to those desiring to speculate in contracts for the buying and selling of grain on the exchanges.
given to his account. Unless the customer stipulated otherwise, it had to be executed on the day it was given.
In making the purchases and sales on the exchanges, members dealt with each other as principals; but each was required separately to execute each order and, when called on, to furnish the name of his customer to the broker with whom he dealt. The rules of such exchanges required a member to furnish to his customer desiring the information the name of the other broker. And plaintiff made available to defendants' counsel its records disclosing the names of the other parties to the purchases and sales in question.
Upon the execution of an order, plaintiff promptly wired McDonough the result, and, on the same day, sent by mail directly to the customer a confirmation showing the kind and quantity of grain, the time specified for delivery, and the price at which it was bought or sold. Each confirmation contained the statement that "all transactions made by us for your account contemplate the actual receipt and delivery of the property and payment therefor." The customer was bound within the specified future month to receive or deliver the grain he had contracted to buy or sell unless, prior to that time he had sold or otherwise closed his contract.
All the contracts here involved were, when made, intended by the parties to be, and in fact were, closed by such countertransactions prior to the time fixed for delivery. In accordance with usage prevailing on all contract market exchanges, defendants' contracts of purchase were closed by corresponding sales, and vice versa. And, in each instance, plaintiff sent a statement to the defendant showing the respective dates of purchase and sale, the quantity and kind of grain, the specified time for delivery, the amounts of plaintiff's commission and of federal taxes, together with the net gain or loss.
and that the accounts are correct. The advances sued on were made, and the commissions claimed were earned. Plaintiff did not sell what defendants bought or buy what they sold. It did not gain when they sustained losses on their contracts to purchase or sell, or lose when they made gains thereon. There was no betting between plaintiff and defendants.
mere assertions in the nature of conclusions of law. The effect or weight to be given them necessarily depends upon the details and circumstances shown by the evidence. Made as they were through a mistaken view of the applicable law, these declarations may not reasonably be adopted here as findings that no such contracts were made, and that plaintiff and defendants indulged in the make-believe denounced by § 4318.
There is no evidence of any violation of the bucket shop laws, nor is there any suggestion that the transactions shown can be held illegal, except by force of the Missouri statute. I do not disagree with the majority that the Federal Grain Futures Act has not superseded the statutes of Missouri applicable to these transactions.
I am of opinion that the judgment of the District Court should stand reversed, and that the judgment of the Circuit Court of Appeals should be affirmed.
MR. JUSTICE STONE and MR. JUSTICE CARDOZO join in this dissent.
* The findings followed the form of plaintiff's requests, and employed the same language, except as indicated below. The words italicized were added by the court; those within brackets were deleted from plaintiff's requests.
"1. In all of the transactions involved in these suits the plaintiff purported to act [acted] as broker for defendants in the purchase and sale of grain for future delivery, and in no case did plaintiff pretend to enter into any other than a brokerage contract with any defendant."
"2. Every pretended purchase and pretended sale was executed by plaintiff for defendant on the Grain Exchange in Chicago, Illinois, Minneapolis, Minnesota, or Winnipeg, Manitoba. None of the contracts of purchase or sale involved in these suits purported to have been [was] executed in Missouri."
"3. Every transaction was a pretended contract of purchase or sale of grain for future delivery, purported to have been executed on grain exchanges by plaintiff in behalf of defendants on the one side, in which the plaintiff was a clearing member of the exchange where executed and in which the purported other party to the transaction, either acting for himself or a pretended undisclosed principal, was also a clearing member."
"4. Every pretended contract of purchase or sale executed by plaintiff for defendants was purported to have been carried out in conformity with and in compliance with the rules of the particular grain exchange on which it was pretended to have been closed."
"5. Every contract purported to have been executed by plaintiff on behalf of defendants pretended to call [actually called] for the purchase or sale of grain for future delivery, and was evidenced by a memorandum in writing under which, and under the customs and rules of the exchanges were executed, the parties were obligated in form and pretense to take or make delivery, or to respond in damages for failure to do so. That under the custom and practice existing and under the rules of the exchanges, offsetting or ringing purchases or sales under proper circumstances, in good faith were permitted in lieu of the actual delivery of grain contracted for."
"6. Every transaction involved in these suits initiated by a purported purchase or sale was offset by a pretended sale or pretended purchase executed in the same manner as the initiating purported purchase or sale. 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 an 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."
"8. None of the pretended purchases or sales were purported to have been executed at Carrollton, Missouri. Orders were pretended to have been given by defendants from time to time at Carrollton to plaintiff's local office for purported execution on the grain exchanges at Chicago, Minneapolis, and Winnipeg, but none of these orders was purported to have been accepted by plaintiff at Carrollton. All of them were telegraphed to Kansas City for acceptance or rejection, and, if accepted, were purported to have been carried out by plaintiff by telegraphic instructions emanating from Kansas City and by pretended written confirmation of the execution of the order, which pretended written confirmations would be mailed from Kansas City to the customer."
"9. That no records of the accounts of plaintiff with the defendants were kept at Carrollton; that no moneys were paid out to customers in Carrollton, but remittances were mailed direct by check from Kansas City. All statements, all pretended 'P. & S's,' all pretended confirmations of the purported execution of purchases and sales, were mailed to defendants from Kansas City. The Carrollton office merely pretended to receive[d] and transmit[ted] purported orders to its customers to Kansas City for pretended execution on the Grain Exchange designated in the customer's pretended order."
"10. All [none] of the transactions of purchase and sale executed by plaintiff for defendant were fictitious transactions. None [all] of them were actually executed between clearing members of the exchange where pretended to have been consummated. [One of whom would be plaintiff, acting for defendant.]"
"11. In all [none] of the transactions [did] plaintiff bet with its customers and took [or take] the other side of the deal."
"[In no transaction did plaintiff and defendant settle the gain or loss of defendant other than by ascertaining the actual difference between the price at which the commodity was bought and that at which it was sold. In no transaction of purchase or sale did plaintiff and defendant fix a fictitious profit or loss to defendant by an ascertainment of the difference between the contract price and the market price on the day fixed for delivery.]"
"12. In each transaction, after a pretended order to sell or purchase was purported to have been executed by plaintiff in behalf of defendant, written confirmation thereof was immediately mailed by plaintiff to defendant. Every written confirmation recited that: 'All transactions made by us for your account contemplate the actual receipt and delivery of the property and payment therefor.'"
The court's findings did not cover other matters included in plaintiff's requests: the scope of its local agent's authority, whether the orders were made and recorded in accordance with the rules and regulations of the contract markets in which they were executed, and the intent of the parties as to receipt and delivery of wheat bought.

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