Source: https://supreme.justia.com/cases/federal/us/116/671/
Timestamp: 2019-04-25 04:04:18+00:00

Document:
The rules of a Board of Trade were part of the contract sued on, and authorized plaintiff, who was a member of the board and, as a commission merchant, had bought produce for future delivery on account of defendant, to offset and settle such trade by other trades made by plaintiff, and to substitute some other person for the one from whom be purchased the property.
(1) That it was a question of law for the court whether this was a substitution within the meaning of the rule.
(2) That an instruction to the jury upon these facts that there had been no valid substitution of other contracts for those which were cancelled and plaintiff could not recover was correct.
pleadings on the other side in regard to plaintiff's cause of action, and if defendant avers that the counterclaim is founded upon a transaction which the law forbids and makes a crime, it cannot be maintained even if plaintiff, in setting forth his cause of action founded on the same thing, avers the transaction to be legal.
The plaintiffs in error were the plaintiffs in the circuit court. They brought this action to recover $31,644.31, and interest, for moneys paid by them, as they alleged, in executing the orders of the defendant for the purchase, in May, 1883, of certain lots of pork and lard in the exchange of the Chicago Board of Trade, to be delivered in the following August.
transaction, was $9,361.71, with interest from the date of sale.
For a second cause of action, the plaintiffs set up transactions in all respects similar to those alleged in the first -- namely their purchase, on May 22, 1883, for defendant, on his order, of 2,000 barrels of pork and 2,000 tierces of lard, deliverable in August following; the delivery of the produce on August 1, and the payment therefor by the plaintiffs; its subsequent sale by them at a loss of $21,832.60. By a third count, the plaintiffs claimed $450 for commissions in said transactions. The petition then averred that there was due to the plaintiffs from the defendant, by reason of the premises, the sum already stated, for which they demanded judgment.
to him that they were carrying said contracts for his benefit, and required him, from time to time, to pay, and he did pay, into their hands, large sums of money, amounting in the aggregate, with a balance already in their hands due to the defendant, to $19,895, and that in the latter part of June, 1883, the defendant gave the plaintiffs notice that he would no longer participate in said gambling transactions, and that he repudiated the same. The answer also denied that any pork or lard was actually delivered to the plaintiffs on said contracts, or that they paid any money thereon for account of defendant, and pleaded in bar the statute of the State of Illinois which declares option contracts to be illegal and void.
By way of counterclaim, the defendant, in his answer, demanded judgment against the plaintiffs for his said advances, amounting in all to $19,895, and averred that this money was paid by him to the plaintiffs to promote and carry on said gambling transactions; that said transactions, belong the purchase of option contracts, were forbidden by the statute of Illinois, and were illegal and void; that the said sum was so lost by the defendant to the plaintiffs in the said gambling transactions and option contracts as set forth. The reply of the plaintiffs put in issue the new matter set up in the answer and counterclaim of the defendant.
to guarantee to his or their principal the ultimate fulfillment of all the contracts made for account of such principal which have been so transferred, and shall be held liable to such principal for all damages or loss resulting from such substitution."
The plaintiffs actually bought the property mentioned in the petition, in pursuance of orders received from the defendant. None of the transactions were made with an understanding that the property was not to be delivered, and the property was delivered to the plaintiffs on the first of August, and was received and paid for by them. They notified the defendant of such receipt, and that unless he took the property and reimbursed the plaintiffs for their advances, the same would be sold for his account. The defendant gave no orders, and consequently the property was sold by the plaintiffs on the Board of Trade, and the proceeds of sale credited to his account. The witness produced the checks given to George W. Higgins and others, of whom the property was bought, and stated that these checks were given in payment for defendant's account; that the difference between the purchase and selling price, and the consequent loss to the plaintiffs, was the sum mentioned in their petition.
the plaintiffs, and the books showed that the contracts were made for account of the defendant; but after the contracts made for the defendant were cancelled by the process of offsetting them against other contracts, no contracts were substituted for them by any mark or sign upon the books of the plaintiffs. The substituted contracts were afterwards cancelled by the process of offsetting them against other contracts, and this process was continued as the convenience of the plaintiffs required, but none of the substituted contracts were at any time specially assigned to the defendant on the books of the plaintiffs. The plaintiffs, however, took care to have on hand contracts for the sale of pork and lard equal in quantity to their contracts for the purchase of the same commodities, and it was their purpose and practice to apply the first produce delivered on contracts of sale to the oldest contract of purchase, but the plaintiffs could not tell what produce would be applied to a contract of purchase until it was delivered. There was no special lot in reserve for any one customer. The plaintiffs had the produce coming in. "They aggregated their books and balanced every few days to see whether they had stuff enough coming to fill their contracts." When the produce was delivered to them, it was common property, like wheat put in an elevator. Out of 7,000 barrels of pork delivered to the plaintiffs on August 1 they applied a sufficient quantity to satisfy the defendant's contracts of purchase. "It did not matter who it came from first, whatever came there first it was reserved for" the defendant. The plaintiffs received and paid for no lard on defendant's account on August 1, or at any other time.
After the cancellation of the contracts made for the defendant by the plaintiffs, the latter were the only persons to whom the defendant could look for the pork and lard mentioned in the cancelled contracts. He could hold no one else liable to him for the delivery of the produce.
The pork delivered to plaintiffs on August 1 was delivered not on contracts made in behalf of defendant, but made for other persons, and all the checks for money paid by the plaintiffs on August 1 were on contracts of purchases made in behalf of other persons, and not for the defendant.
The witness further testified that on May 19, 1883, there was standing to the credit of defendant on the books of plaintiffs $1,895, and that after that date, the defendant paid them on the transactions set out in the petition the additional sum of $18,000.
The deposition of Edward M. Higgins, the other plaintiff, taken in behalf of the defendant, was also introduced in evidence by the latter. So far as it went, it was in substance the same as the deposition of Gilbert.
There was conflicting evidence upon the question whether the defendant at the time of the transactions out of which the suit arose, knew what were the rules and customs of the Board of Trade.
"I always knew it was gambling. I never bought any property for future delivery and received it, or expected to. I never bought any property, or any pork or lard, or an option, for future delivery and received it. I never intended to receive it. I never intended to receive this or any portion of it. I had no use for it. All I wanted was the difference, if it went my way."
The foregoing is the substance of the evidence necessary to be stated to show the bearing of the charge of the court to the jury.
opinion that although the defendant entertained the opinion that it was a gambling transaction, the plaintiffs did not participate in that view of the question, but contemplated and intended an actual purchase and an actual sale, the contract would be binding between the parties, it will become your duty to go further and make an additional finding."
"Assuming that this contract was valid and enforceable, the defendant says that he is not bound for the reason that, after the purchases were made by these plaintiffs as his agents and for his account, they cancelled the contracts and released the vendors therefrom, and that they did that without authority from him and without his knowledge or his subsequent ratification. Upon that state of facts, if found to be true, the plaintiffs could not recover anything. That cancellation of the contracts and release of the vendors would have absolved the defendant from any obligation to pay the plaintiffs for the property so purchased by them for his account. But the plaintiffs, in reply, say that the Board of Trade has certain rules and regulations, which the court has permitted to be offered in evidence to you, and that under and in accordance with these rules, they had a right to cancel these contracts and substitute others in place of them; that these rules were known to and understood by the defendant, and that he, with that knowledge, acquiesced in the cancellation of the contracts and the alleged substitution of others in the place of those cancelled."
"For present purposes, and without expressing any opinion upon this proposition, the court instructs you that you may, for the purposes of this case, assume that the defendant did know and did consent that these plaintiffs might act under the 6th section of the 26th rule, and that such knowledge and acquiescence of his authorized the plaintiffs to cancel the first contracts and substitute others in their place. But the court instructs you that, assuming plaintiffs' contention in this regard to be true, and assuming that the plaintiffs themselves have told the truth in this case, there has been no valid substitution of other contracts for those that were cancelled, and that the plaintiffs cannot, therefore, for that reason, upon their own testimony, recover anything in this action. "
"If you find, upon that question, the original contract to have been valid, and that the defendant is excused or absolved from liability because of this attempted substitution, which the court instructs you was not made in accordance with said rule, then and in that case the defendant will be entitled to recover upon his cross-action against the plaintiffs for all the money which he advanced in pursuance of these contracts."
To the last two paragraphs of the charge the plaintiffs excepted.
The jury returned a verdict in favor of the defendant and against the plaintiffs upon the cause of action set forth in their petition, and in favor of the defendant and against the plaintiffs upon the counterclaim set forth in defendant's answer, for the sum of $22,662.42. In accordance with the verdict the court rendered judgment. To reverse that judgment the plaintiffs have brought this writ of error.
"Whoever contracts to have or give to himself or another the option to sell or buy at a future time, any grain or other commodity, . . . shall be fined not less than $10 nor more than $1,000, or confined in the county jail not exceeding one year, or both, and all contracts made in violation of this section shall be considered gambling contracts and shall be void. "
The errors assigned by the plaintiffs relate exclusively to the charge of the court and the rendering of judgment in accordance with the verdict of the jury.
"authorized to make such offset and settlement, and to substitute some person or persons for the one from or to whom he may have purchased or sold the property originally."
The meaning of this rule is plain -- namely that when a commission merchant, having made a contract for his principal with a third person, assumes to offset or cancel the contract, he shall substitute therefor another equivalent contract with some other person, who shall be bound to his principal for its performance.
It is well settled as a general rule that a written contract made by a factor in his own name for the purchase or sale of goods for his principal will bind the principal, and he may sue and be sued thereon exactly as if he were named in it, for it is treated as the contract of the principal as well as of the agent. Higgins v. Senior, 8 M. & W. 834; Huntington v. Knox, 7 Cush. 371; Taintor v. Prendergast, 3 Hill 72; Ford v. Williams, 21 How. 287.
that where the commission merchant has substituted one contract for another, he shall guarantee to his principal the performance of the substituted contract.
It follows that upon the original contracts made by the plaintiffs for the defendant, the latter, upon their breach, had a right of action against the parties with whom the contracts were made. The purpose of the rule was therefore plain -- namely to provide that when contracts were cancelled and others substituted, the commission merchant, as well as the party bound in the substituted contract to sell or buy, should be liable to the other party for its performance. The rule therefore does not authorize the commission merchant to release the party to the original contract unless he provided someone else to assume the obligation or, as the rule states it, "substitute some person or persons for the one from or to whom he may have purchased or sold the property originally."
the defendant could have maintained an action. It is plain, therefore, that upon their own showing, the plaintiffs did not make the substitution required by sec. 6 of rule 26 of the Board of Trade.
The facts of the case being shown and not disputed, the question whether there had been a valid substitution of contracts under the rule referred to was a question of law. It depended on the construction of the rule, which it was the duty of the court to interpret. Levy v. Gadsby, 3 Cranch 180; Walker v. Bank of Washington, 3 How. 62; Goddard v. Foster, 17 Wall. 123.
the jury that, upon the plaintiffs' own testimony, they were not entitled to a verdict against the defendant upon the cause of action set out in their petition. Pleasants v. Fant, 22 Wall. 116; Griggs v. Houston, 104 U. S. 553; Randall v. Baltimore & Ohio Railroad Co., 109 U. S. 478. We are of opinion therefore that the charge of the circuit court, so far as it related to the right of the plaintiffs to recover, was not open to any of the objections urged against it by the plaintiffs.
"If you find the original contract to have been valid, and that the defendant is excused or absolved from liability because of the attempted substitution, which the court instructs you were not made in accordance with said rule, then and in that case the defendant will be entitled to recover, upon the cross-action against the plaintiffs, for all the money which he advanced in pursuance of these contracts."
"must be one . . . arising out of the contract or transaction set forth in the petition as the foundation of the plaintiff's claim, or connected with the subject of the action."
or fail to appear, that will not prevent the defendant from prosecuting the counterclaim set up in the suit to final judgment against the plaintiff. Code of Procedure, § 373. Rev.Stat. 1880, § 5315.
The court may at any time before the final submission of the cause allow a counterclaim set up in the answer to be withdrawn, and on motion of either party, an action on the same shall be docketed and proceeded in as in like cases after process served. Code of Procedure § 119.
The defendant's counterclaim is therefore to be tested by the same rule as if it had been the basis of an independent action, and the question is whether, under any circumstances, the defendant should have been allowed, upon the pleadings and evidence, to recover a judgment thereon. The instruction of the court now under review directed the jury, if they found the original contract to have been valid, but the defendant not liable thereon, because the substitution was not made as required by the rules of the Board of Trade, that the defendant was entitled to recover the money advanced by him to the plaintiffs. The verdict of the jury for the defendant on his counterclaim must have been based on a finding that the original contracts were valid and not gambling contracts, and the question is therefore whether the instruction was right, and, if not, whether the error was cured by the verdict of the jury.
therefore, of the defendant, stated in his pleading and supported by his own deposition, was not one on which any recovery could be had. Armstrong v. Toler, 11 Wheat. 258; Brown v. Tarkington, 3 Wall. 377; Davidson v. Lanier, 4 Wall. 447; Hanauer v. Doane, 12 Wall. 342. The court was bound to take judicial notice of the fact that the dealings recited in the counterclaim were forbidden by law, and of its own motion should have directed a verdict against the defendant thereon. Oscanyan v. Arms Company, 103 U. S. 251. If the defendant had withdrawn his counterclaim and docketed it as a separate suit against the plaintiffs, as permitted to do by the Code, it needs no discussion to show that his action must have failed. His rights are not changed by the fact that the two causes go on pari passu and are tried at the same time. We do not see on what ground a party who says in his pleading that the money which he seeks to recover was paid out for the accomplishment of a purpose made an offense by the law, and who testifies and insists to the end of his suit that the contract on which he advanced his money was illegal, criminal, and void, can recover it back in a court whose duty it is to give effect to the law which the party admits he intended to violate.
In the present case, the plaintiffs alleged and insisted that their transactions with the defendant were carried on with no unlawful purpose. On the other hand, the defendant alleged and insisted that in the same transactions, he intended to violate the law. We see no reason why, in such a case, the plaintiffs might not, if they had not cancelled the contracts, recover the money paid by them for the defendant, while at the same time the defendant could not recover the money advanced to the plaintiffs for what he intended to be an unlawful purpose.
plaintiff, by accident, if I may say so. The principle of public policy is this: ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appear to rise ex turpi causa or the transgression of a positive law of the country, then the court says he has no right to be assisted. It is upon that ground the court goes, not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So, if the defendant and the plaintiff were to change sides, and the defendant were to bring his action against the plaintiff, the latter would then have the advantage of it, for when both are equally in fault, potior est conditio defendantis."
If, therefore, the defendant intended to embark his money in an illegal and criminal venture, we do not see how his case is helped by the fact that the purpose of the plaintiffs was to invest the money so advanced in what they understood to be a lawful and innocent transaction.
The paragraphs of the charge of the court excepted to amounted in substance to this: that if the plaintiffs, in making the contracts for the defendant, contemplated and intended an actual purchase and an actual sale, but the defendant did not, but, on the contrary, meant to engage in a gambling venture, the contract would nevertheless be binding on both parties, and if the plaintiffs cancelled the contracts, the defendant, notwithstanding his intention to violate the laws, could recover from the plaintiffs the money advanced by him to carry out his unlawful purpose. We think this charge was erroneous.
Upon the case made by his counterclaim, the defendant was not entitled to recover, and the fact that the plaintiffs were innocent of any unlawful purpose did not inure to the benefit of the defendant, who confessed that the money which he sought to recover had been paid by him to promote an illegal and criminal venture.
has been found against such party."
It is clear that upon the defendant's counterclaim, which showed that he had no valid cause of action against the plaintiffs, no valid judgment could be rendered against them. Notwithstanding the verdict, the judgment should have been against the defendant, and for the plaintiffs, upon the counterclaim of the former.
The judgment in favor of the defendant on the cause of action alleged in the plaintiff's petition should be affirmed, and the judgment in favor of the defendant on the cause of action set up in his answer by way of counterclaim should be reversed, and the cause remanded with directions to enter a judgment for the plaintiffs and against the defendant on the counterclaim of the latter.

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 § 373
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