Phelps v. Holderness

Cockrill, C. J. Phelps, a broker, sued Holderness for money advanced and expended by the former at the latter’s request. The court found especially that the transaction out of which the suit grew was a wager on the rise and fall of the price of cotton. If that conclusion is sustained by the evidence, there could be no recovery, and the judgment is right. The testimony of Holderness and the correspondence between him and Phelps justify the conclusion that Holderness desired to try his fortune in the cotton market with no intention of selling or buying, receiving or delivering, a bale of cotton, and that Phelps viewed the transaction in that light. But there is no direct testimony of the terms of the contract of purchase which Phelps claims to have made for Holderness, and it is argued that, in the absence of proof that Holderness’ vendor participated in his illegal design, the contract must be held to be valid. But the assumption that there is no proof of the vendor’s participation in Holderness’ illegal design, and the conclusions deduced therefrom, are foreign to the controversy. The controversy does not arise between the supposed vendor and Holderness, but between the latter and Phelps. 'According to the ruling in some of the States, Phelps, upon the evidence adduced, might be said to be Holderness’ vendor. Flagg v. Baldwin, 38 N. J. Eq. 229. But treating him as agent, as his counsel does, and Holderness as his principal, the cause stands thus, or at least the court might have found that it was thus: The principal instructs his broker to make a wager for him on the price of cotton. The broker replies that he has followed instructions. A controversy arises between the two. In that case there is no presumption in favor of the broker to the effect that he in fact deviated from his instructions and entered into a contract for the actual delivery of cotton. Until he has proved the contrary, the fair inference from the facts is that he made a wagering contract for his principal. We have assumed that the transaction between Phelps and Holderness was a mere cover for a gambling operation. Whether it was so depends upon their intention at the inception of the contract, and that was a question of fact. That the court was warranted in its deduction that it was a gambling device may be seen from Holderness’ testimony and the correspondence between him and Phelps. Holderness testifies that it was never his intention to receive or deliver any cotton. The correspondence shows that Phelps was willing to buy or sell at his own risk an unlimited quantity of cotton for Holderness, without any inquiry as to his financial ability to meet the obligations he might enter into, provided only Holderness would put up the necessary “margins.” That is a circumstance tending to show that he did not understand Holderness’ offer to deal through him in “futures” upon “margins,” as a bona fide proffer to buy cotton for actual delivery. Cobb v. Prell, 5 McCrary, 80 and note. The subsequent steps taken by him in order to protect himself from liability, in pursuance of the contract which he made, tend to sustain that theory. When Holderness’ margin was absorbed, demands for additional margins were made by Phelps, and when at. last Holderness declined to furnish any more funds, nothing was said about delivering the supposed cotton and demanding the price, as in a contract to deliver the commodity sold, but he was promptly “ closed out ” and a demand for the difference between the contract and market prices was made upon him. It is that difference that is the subject of this suit. These facts and circumstances afford evidence of a contract for the payment of the difference between the rise and fall in the price of cotton. A venture upon the turn of prices of any commodity is simply gambling — gambling of the same sort as a venture upon the turn of a card. The radical difference between the two is the method of the deal only. Phelps was privy to the gambling contract — a j?articefis criminis — and can recover no losses incurred in forwarding the transaction. Fortenbury v. State, 47 Ark. 188 ; Irwin v. Williar, 110 U. S. 499. Affirm.