Fenner & Beane v. Calhoun

Broyles, C. J. Eenner & Beane, cotton brokers, sued B. E. Calhoun on an open account for the principal sum of $444.94, besides interest at the rate of seven per cent, per annum from March 11, 1935. A sworn itemized statement of the account was attached to the petition. The defendant pleaded that the suit was based on a “cotton-future” contract entered into by him and the plaintiff, upon margins, and that there was no bona fide intention of either of the parties that such cotton should actually be delivered, but the intention was that, at the time of settlement of such contract, settlement was to be made according to the market price of the — 824 — cotton in question; and that such contract was a gaming contract, unlawful under the laws of Georgia, and that the plaintiff is not entitled to recover the amount sued for. Defendant further pleaded “that on two previous occasions, to wit: July 19, 1934, and September 20, 1934, contracts of this defendant, the former contract of 100 bales, having been bought at 13.22 ‡ per pound, was sold August 8, 1934, for 13.75 ‡, leaving this defendant a credit of $232.93; and, on the latter occasion above-mentioned, the contract was bought for 10.28 ‡ and sold for 10.07 ‡} a net loss for this defendant of $137.55, and there never was any delivery of cotton actually made or intended to be made.” After the introduction of evidence by both parties the court, on motion of the plaintiff, directed a verdict in favor of the plaintiff for the sum of $381.58 as principal, and $46.70 as interest. Subsequently, the defendant’s motion for new trial was granted, and the plaintiff excepted. There is no issue as to the amount of the directed verdict, the sole question (except as to the admissibility of certain evidence introduced by the plaintiff) being: was a verdict for the plaintiff demanded by the evidence ? This case involves a marginal contract for the future delivery of cotton. Under the act of 1929 (now embodied in the Code, §§ 20-602, 20-603), such a contract is valid and enforceable, if made in accordance with the rules of any board of trade, exchange, or similar institution, and actually executed on the floor of such institution according to its rules, and where the contract is placed with or through a regular member in good standing of a cotton exchange, or similar. institution organized under the laws of this State or any other State; provided, that a contract of sale for future delivery of cotton must also be made subject to the provisions of the United States cotton-futures act approved August 11, 1916, and any amendments thereto. Under the act, such a contract becomes unlawful only where the parties thereto do not contemplate an actual delivery of the cotton sold or bought, but intend to settle upon the basis of the public market quotations made on any exchange, without having any actual bona flde delivery, and without the carrying out of such contract on the floor of such exchange. Before the passage of the act of 1929, the statute (act of 1906) merely declared that any contract for the purchase or sale of any commodity on margin, when in fact it was — 825 — not in good faith intended that an actual delivery be made, was unlawful. As before stated, the statute now in force was passed in 1929, and we have been unable to find any decision of the Supreme Court or of this court construing it. However, the statute in force before that act has been interpreted by both of our appellate ' courts, and the two statutes are sufficiently similar to make the hereinafter-stated interpretations of the prior statute applicable to the construction of the latter one. Both of our appellate courts have held, that, under the provisions, of the act of 1906, the party-pleading the invalidity of the contract has the burden of proving its invalidity, and must show that it was the intention of both parties to the contract that the goods were not to be actually delivered. Forsyth Mfg. Co. v. Castlen, 112 Ga. 199 (2) (37 S. E. 485, 81 Am. St. R. 28); Robson v. Weil, 142 Ga. 429 (2); Anderson v. Cavanaugh, 16 Ga. App. 446 (7) (85 S. E. 606). The foregoing rulings as to the burden of proof being cast upon the party pleading the invalidity of the contract, and that he must show that it was the intention of both parties not to have any actual delivery of the goods, are applicable to the act of 1929, and are controlling in the instant case. There are also decisions to the same effect from other States, and from the Federal courts, construing substantially similar statutes and contracts. “A transaction which on its face is legitimate can not be held void as a wagering contract by showing that one party only so understood and meant it to be. The proof must go further, and show that this understanding was mutual and that both parties so understood the transaction.” Bibb v. Allen, 149 U. S. 481, 492 (13 Sup. Ct. 950, 37 L. ed. 819); Irwin v. Williar, 110 U. S. 499 (4 Sup. Ct. 160, 28 L. ed. 225); Gettys v. Newberger, 272 Fed. 209 (7, 8); Jacobs v. Hyman, 286 Fed. 346 (2). The case of James v. Clement, 223 Fed. 385, cited by counsel for Calhoun, while a Georgia ease, was decided before the passage of the act of 1929. Furthermore, the.customer in that case testified that he did not intend to accept delivery of the cotton, and so told the broker. The broker denied that he had been so told. That conflict in the evidence raised an issue of fact, and the question was properly submitted to the jury. In the instant ease there was no such conflict in the evidence and no issue of fact for the jury to determine. Also, in that case, the evidence showed that — 826 — the cotton was not sold for the customer’s account by an actual sale lo a thwd person on the floor of an orgamized exchange. The case of Arthur v. State, 146 Ga. 827 (92 S. E. 637), cited by Calhoun’s counsel, was a criminal action against a broker for a violation of section 403 of the Penal Code (1910), which made it unlawful, under the act of 1906, for any one to engage in the business commonly called “dealing in futures on margins.” Under the act of 1929 such dealing is not unlawful. In Fenner & Beane v. Holt, 2 Fed. (2d) 253, also cited by counsel for Calhoun, the customer testified, in effect, that he had no intention of accepting a delivery of the cotton, and that the broker knew of that intention. In addition, there was other evidence of an understanding by both parties that the contract was to be settled before the delivery date on the difference in the market price; and moreover, the case originated in Georgia and was decided 'before the passage of the act of 1929. In the instant case the undisputed evidence showed the following facts: On November 24, 1934, Calhoun had a pending contract with Fenner & Beane for the purchase of 100 bales of cotton for December delivery. On the same day Calhoun orally notified the Macon, Georgia, office of Fenner & Beane to sell the cotton and buy for him 200 bales of cotton for July delivery. Nothing was said at the time by either of the parties as to whether actual delivery of the cotton was contemplated. On the same date Fenner & Beane, through its New York agent, a member in good standing of the New York Cotton Exchange, sold the 100 bales which Calhoun had bought for December delivery, and purchased 200 bales for July delivery from Anderson, Clayton & Fleming, the cotton being bought on the floor of the New York Cotton Exchange, and subject to the by-laws, rules, and conditions of said exchange, and to the United States cotton-futures act. On the same day Fenner & Beane, through its New Orleans office, mailed a statement of said purchase to Calhoun at Macon, Georgia, which was received and kept by him. The statement informed Calhoun of the purchase of the 200 bales of cotton for July delivery, subject to the rules, etc., as ftbove stated. The statement also contained the following provision: “All orders for the purchase and sale of cotton are received and executed with the distinct understanding that actual delivery is contemplated in accordance with the requirements of the United States cotton-futures act (§ 5), and that the — 827 — party giving the order so understands and agrees.” Calhoun was also notified in the statement that on all marginal trades Fenner & Beane reserved the right to sell, without notice, contracts when the margins were exhausted. Calhoun did not protest any of the provisions in the statement received by him, and was silent as to any contrary intention on his part. On March 11, 1935, before the delivery date, Calhoun’s margin was exhausted, and Fenner & Beane sold the cotton at a loss to Calhoun of $444.94, the sale being made by the New York agent of Fenner & Beane on the floor of the New York Cotton Exchange and subject to the by-laws, rules, and conditions of said exchange and of the United States cotton-futures act. The rule of the New York Cotton Exchange which governed the purchase and sale of this cotton is as follows: “Rule 8. All contracts for the future delivery of cotton shall be binding upon members, and of full force and effect until the qualities and quantity of cotton specified in said contracts shall have been delivered, and the price specified in such contracts shall have been paid. No contract shall be entered into with any stipulation or understanding between the parties, at the time of making such contract, that the terms of such contract as specified in § 33 of the bylaws are not to be fulfilled, or that the cotton is not to be delivered and received in accordance with said section(Italics ours.) Calhoun failed to pay Fenner & Beane for the loss on the cotton transaction, and this suit was brought. It is true that Calhoun testified that he had no intention of having an actual delivery of the cotton made to him; but there is no evidence in the transcript of the record authorizing-a finding that Fenner & Beane did not intend to make such delivery, or that Fenner & Beane knew that Calhoun did not contemplate an actual delivery of the cotton; and the burden was on Calhoun to show that no delivery was contemplated by both parties, since the undisputed evidence shows that Fenner & Beane had complied with all of the provisions of the act of 1929; and such compliance raises a prima facie presumption of an intent to deliver. The fact that Greene (Fenner & Beane’s agent), when asked whether any contract was ever had with Calhoun where he told Calhoun that no delivery was contemplated, testified that “that subject was never discussed” is insufficient to overcome the prima facie presumption of an intent to deliver, since nothing was said by the parties about not deliver — 828 — ing tlie cotton. Calhoun contends that the prior dealings between the parties, as shown by two contracts introduced, established a custom between them, and showed that actual delivery was not intended. One contract was dated November 21, 1933; the other, August 8, 1934. These “ contracts,” however, are merely sales slips, showing that certain numbers of bales of .cotton were bought by Calhoun on certain dates at certain prices, and sold on certain other dates at certain prices. The fact that these documents show that the cotton was sold before the delivery date thereof does not establish that the actual delivery of the cotton was not intended by the parties, since there is'nothing in the two documents dealing with the question of delivery or with the intent of the parties to do an unlawful act. In Gettys v. Newberger, supra, where the facts were quite similar to those of this case, a verdict in favor of the broker was directed by the judge, and the decision was affirmed by the Circuit Court of Appeals. In that case headnote 14 holds: “To defeat a cotton broker’s action against a customer for a balance due on account, on the ground that the contracts made through the broker were wagering contracts, there must be competent evidence that the parties on both sides had the pernicious intention which constitutes the contracts mere wagers, and that the brokers either participated therein or were of that intention.” (Italics ours.) In Mullinix v. Hubbard, 6 Fed. (2d) 109, where the facts were almost identical with those of the case at bar, the court held: “That no deliveries were made under contracts calling for future deliveries, but contracts were closed out by lawful and customary methods permitted by rules of New York Cotton Exchange and United States cotton-futures act, and that customer intended to close them out in such manner when he made contracts, did not make contracts illegal as wagering contracts.” The court said (p. 114) : “As already stated, there was no delivery on any of these contracts, but before delivery dates were due they were all closed out by the lawful, customary, and generally prevailing methods permitted by the rules and regulations of the exchange and its clearing house, -and Bryant’s intention when he made his contracts that they should be closed out in.that way did not render them wagering contracts.” (Italics ours.) In headnotes 2 and 3 of the same case it was held as follows:' “2. To be illegal as gaming transaction, customer and broker must both intend, when purchase — 829 — and sale is made, that there shall be no delivery, nor lawful settlement before delivery, but merely settlement of price differences when delivery becomes due. 3. Transactions on boards of trade, where cotton, grain, and other commodities are bought and sold, are presumptively lawful and binding, and burden is on those challenging them as unlawful, as wagers, to establish such fact.” The instant case is essentially different from the cases cited by the defendant in error. The question here is whether Calhoun, the customer, carried the burden of showing that not only he had no intention of accepting a delivery of the cotton, but also that Fenner .& Beane understood that a delivery was not to be made. The mere facts that Calhoun bought the cotton on margin for future delivery, that it was sold by the broker before the date of delivery, that in two -previous transactions cotton was so sold, that Calhoun did not intend to accept delivery (it not being shown that the broker had no such intention or that it knew of Calhoun’s intention not to accept delivery), are wholly insufficient to overcome the presumption of the validity of the contract, since the undisputed evidence discloses that Fenner & Beane had complied with all the provisions of the act of 1929. Under that act the transaction was legal, unless Calhoun showed by competent evidence that both parties had a mutual ’ox common understanding that no delivery of the cotton was to be made, and this he failed to do. It follows that the general grounds of the motion for new trial showed no cause for another hearing of the case. A special ground of the motion complains of the admission of the following documentary evidence: “Statement from Fenner & Beane, New Orleans, La., dated Nov..24, 1934, addressed to Mr. B. B. Calhoun, Tifton, Ga., as follows: Dear Sir: In accordance with your order and our telegraphic advice we have this day made the following transactions for your account, for future delivery of cotton, subject in all respects to the by-laws, rules, and conditions of the New York Cotton Exchange, and subject to United States cotton-futures act, section five: “Bought Sold Bales Delivery Price . Bales • Delivery Price 100 July 12.38 100 Dec. 12.28 100 July 12.39 “All orders for the purchase and sale of cotton are received and — 830 — executed with the distinct understanding that actual delivery is contemplated in accordance with the requirements of the "United States cotton-futures act (section 5), and that the party giving the order so understands and agrees.” The evidence was not inadmissible for any reason assigned. In Bibb v. Allen, supra, where the facts were substantially similar to those of the instant case, and where the same question as to the admissibility of somewhat similar documentary evidence was raised, the court said: “It is settled by the weight of authority that where a principal sends an order to a broker engaged in an established market or trade, for a deal in that trade, he confers authority upon the broker to deal according to any well-established usage in such market or trade, especially when such usage is known to the principal, and is fair in itself, and does not change in any essential particular the contract between the principal and agent, or involves no departure from the instructions of the principal; provided, the transaction for which the broker is employed is legal in its character, and does not violate any rule of law, good morals, or public policy. We are of the opinion, therefore, that the assignment of error based upon the admission of this testimony is not well taken.” The remaining grounds of the motion were without merit. The verdict in favor of the plaintiff being demanded by the undisputed evidence; and no error of law having been committed on the trial, the grant of a new trial, although the first grant thereof, was error. Judgment reversed. MacIntyre, J., concurs. Guerry, J., dissents.