Case Name: John C. Botts, Appellant, v. Mercantile Bank of Memphis, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1915-12-30
Citations: 170 A.D. 879
Docket Number: 
Parties: John C. Botts, Appellant, v. Mercantile Bank of Memphis, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 170
Pages: 879–886

Head Matter:
John C. Botts, Appellant, v. Mercantile Bank of Memphis, Respondent.
First Department,
December 30, 1915.
Contract — gaming contract — purchase and sale of merchandise for future delivery — statute of State of Tennessee will not be enforced by our courts —mutual intention of parties necessary to illegality of contract—pleading—counterclaim not stating alleged violation of State law against gaming contracts — counterclaim based on knowledge of conversion of bank funds.
Under the law of this State a contract for the buying and selling of merchandise for future delivery is not invalid because it is the intention of one party not to deliver or receive according to the terms of the con tract. To invalidate the contract such intention must be mutual, or be communicated to the other .party, so that it becomes part of the understanding between them at the time the contract is entered into.
As the statute of the State of Tennessee makes such contract unlawful if either party intends not to carry it out by an actual receipt or delivery of the goods even though the intention be not shared by, or communicated to, the other party, said statute is hostile to our law and will not be enforced by the courts of this State.
Hence, where a bank is sued for the recovery of a deposit it cannot assert a counterclaim founded upon the aforesaid statute of the State of Tennessee.
Moreover, a counterclaim does not state a cause of action under our own law relating to contracts for future delivery of goods where it merely alleges that the plaintiff’s assignor had certain transactions with the president of the defendant bank “with reference to the purchase and sale of alleged contracts for the future delivery of cotton ” and that said president, having sustained large financial losses, appropriated funds of the defendant for the purpose of his transactions with the plaintiff and further alleges that said persons dealt simply in the prospective rise and fall in the price of cotton with no intention of making or receiving actual delivery, etc. Said allegations do not set out any agreement to buy or sell for future delivery, but merely allege transactions “ with reference to ” such sales and do not necessarily involve the relation of purchaser and seller.
But .a second counterclaim which alleges the knowledge of the plaintiff’s assignor of the diversion of the defendant’s money by its president sets forth a cause of action.
Smith and McLaughlin, JJ., dissented in part, with opinion.
Appeal by the plaintiff, John C. Botts, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 6th day of October, 1914, as resettled by an order entered in said clerk’s office on the 15th day of October, 1914, denying plaintiff’s motion for a judgment on the pleadings and overruling his demurrer to two counterclaims.
David H. Miller, for the appellant.
Archibald R. Watson, for the respondent.

Opinion:
Scott, J.:
The action is brought by the assignee of one Madison Foster to recover certain sums deposited in defendant bank by said Foster.
The answer, in addition to denying the assignment of the cause of action to plaintiff, sets up two counterclaims to which plaintiff demurs. By the order appealed from both counterclaims are sustained.
The first counterclaim attempts to set up a cause of action in favor of defendant and against plaintiff's assignor, based upon a statute of Tennessee. This statute is thus alleged in the answer:
"Sec. 3166. 'Gaming contracts.— Any sale, contract or agreement for the sale of bonds, stocks, grain, cotton, or other produce, property, commodity, article or thing, for future delivery, where either of the contracting parties, buyer or seller, in [is] dealing simply for the margin, or on the prospective rise or fall in the price of the article or thing sold, and where either of the said contracting parties have had no intention or purpose of making actual delivery or receiving the property or thing in specie, shall be deemed, and is hereby declared, gaming ' (1883, ch. 251, sec. 1).
"Sec. 3161. 'Any person who has paid any money, or delivered anything of value, lost upon any game or wager, may recover such money, thing or its value, by action commenced within ninety days from the time of such payment or delivery.'
"Sec. 3162. ' Any other person may after the expiration of the ninety days, and within twelve months thereafter recover the amount of such money, thing or value (sic), by action for the use of the wife; or if no wife the child or children, and if no child or children, the next of kin of the loser.'
" Sec. 3163. ' And after the expiration of the time prescribed in the last section and within twelve months, thereafter, any creditor of such losing party may, by garnishment or action recover the amount of such money, thing or its value in satisfaction of so much of his credit.'" (See Shannon's Code of Tennessee, 1896, pp. 727, 730, 731.)
This statute is distinctly opposed to the public policy of this State on the question of buying and selling merchandise for future delivery. The rule in this State as at common law is that such a contract is not invalid because it is the intention of one party not to deliver or receive according to the terms of the contract unless such intention was shared in or communicated to the other party so that it became a part of the understanding between the parties at the time the contract was entered into. (Bibb v. Allen, 149 U. S. 481; Springs v. James, 137 App. Div. 110; affd., 202 N. Y. 603.) Under the Tennessee statute, relied upon by defendant, such a contract is unlawful if either party to it entertained an intention not to carry it out by an actual receipt or delivery of merchandise, even though that intention was not shared by or communicated to the other party to the contract. (McGrew v. City Produce Exchange, 85 Term. 572.) The Tennessee statute is penal, or at least quasi penal, in its character, and since we have no corresponding statute in this State our courts will not enforce it. (Marshall v. Sherman, 148 N. Y. 9; Hutchinson v. Ward, 192 id. 375; Knickerbocker Trust Co. v. Iselin, 185 id. 54.) In so far, therefore, as the first counterclaim rests upon the Tennessee statute we are of opinion that it cannot be sustained. It is claimed, however, that irrespective of the statute the counterclaim sufficiently states a cause of action in favor of defendant. Briefly summarized, its allegations are as follows: That the president of defendant bank was one Baine, and that he and plaintiff's assignee (Foster) engaged in certain transactions "with reference to the purchase and sale of alleged contracts for the future delivery of cotton, otherwise known as cotton futures;" that as the result of said transactions with said Foster the said Baine sustained large financial losses, which were paid at various times during the years 1912, 1913 and 1914 by said Baine to said Foster " out of funds belonging to the defendant and unlawfully appropriated by the said Baine for the purposes aforesaid." It is further alleged "that in all of said transactions, both the said Foster and the said Baine dealt simply in the prospective rise or fall in the price of the said cotton, and with no intention or purpose of making actual delivery of or receiving the said cotton, and that no actual delivery of the said cotton was ever made by the said Foster or received by the said Baine at any time."
If these allegations can be fairly construed as stating that Baine agreed to sell to or buy from Foster cotton to be deliv ered in the future, or vice versa, and that neither party at any time ever intended to make actual delivery or receipt, I should agree with my brother Smith that the counterclaim set forth an invalid gambling contract which would fall within the purview of our own statute, and would justify a recovery or offset by defendant. (See Penal Law, § 994, 995; Causidiere v. Beers, 1 Abb. Ct. App. Dec. 333.)
I do not, however, so read the counterclaim. The pleader either by inadvertence or by intention (it is difficult to say which) has avoided alleging in plain language that Raine and Foster were engaged' in buying and selling cotton futures to each other as opposing parties in contracts for sale and purchase. The allegation is that they were "engaged in certain transactions with reference to the purchase and sale of alleged contracts for the future delivery of cotton." This may mean many things besides the relation of purchaser and seller. The pleader should plainly and without indirection allege just what the relation was between Raine and Foster with reference to the dealing in cotton futures. As the pleading is drawn Foster may or may not be liable to repay the money said to have been lost by Raine, at common law or even under the Tennessee statute.
The second counterclaim alleges knowledge on Foster's part of the diversion of the defendant's money by Raine, and is for that-reason sufficient.
The order appealed from is, therefore, so modified as to sustain the demurrer to the first counterclaim and to overrule the demurrer to the second counterclaim, without costs to either party in this court, and with leave to the defendant to amend its answer within twenty days.
Ingraham, P. J., and Clarke, J., concurred; Smith and McLaughlin, JJ., dissented in part.