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HIGGINS V. MCCREA, 116 U. S. 671 (1886)

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U.S. Supreme Court

Higgins v. McCrea, 116 U.S. 671 (1886)

Higgins v. McCrea

Submitted January 8, 1886

Decided March 1, 1886

116 U.S. 671


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.

Acting under this rule plaintiff released the seller from his contract, and, having many similar transactions in his business, proposed to himself to substitute in the place of the contract with the seller the agreement of such other contractor as might be available for the purpose at the time of settlement, but designated no particular contractor or contract:


(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.

In Ohio, the validity in law of a counterclaim by defendant depends upon the allegations respecting it, without regard to allegations and admissions of the chanroblesvirtualawlibrary

Page 116 U. S. 672

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.

The petition averred that the plaintiffs were commission merchants and members of said Board of Trade; that the transactions out of which the suit arose were governed by the rules of the board, and that the defendant had knowledge of said rules. The petition then averred, as a first cause of action, that on May 19, 1883, the plaintiffs purchased, on the order of defendant, and as his brokers and agents, and for his account, 1,000 barrels of pork and 1,000 tierces of lard, to be delivered in August next, on such day as the vendor might elect; that on August 1, 1883, the property was tendered, and payment demanded of the plaintiffs, and, in accordance with the defendant's instructions, and the terms and conditions of their agency, the plaintiffs received the pork and lard, and paid therefor $58,553.34, the price thereof, and $56 for inspection charges thereon, all which the plaintiffs were bound and compelled to do by the terms of the contract and the rules and regulations of the Board of Trade, which constituted a part of the contract of agency between the parties, and of the contract of purchase; that on the same day, notice was given to the defendant that the pork and lard had been received and paid for; that he failed to give directions for the disposition of the property and failed to pay therefor, and plaintiffs thereupon sold the same in the exchange of the Board of Trade and according to its rules, and received therefor, and credited to the account of the defendant, $42,615.97; that they had previously received from the defendant on that account the sum of $6,631.66, and that the balance due from him, and unpaid on account of that chanroblesvirtualawlibrary

Page 116 U. S. 673

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.

The defendant, in an amended answer, averred that the plaintiffs were engaged in carrying on for themselves and others gambling transactions in pork, lard, and other commodities on the Chicago Board of Trade; that, being solicited by the plaintiffs, and being desirous himself to gamble and speculate on the prices of pork and lard, he engaged with the plaintiffs in such gambling transactions; that on May 19, 1883, he directed the plaintiffs to deal for him in pork and lard options to the amounts specified in the plaintiffs' petition; that the plaintiffs did, on or about the 19th of May, 1883, enter into contracts in their own name, but, as they now claim, upon account of this defendant, with certain named persons and firms, to-wit, G. C. Eldridge & Co. and others; that they did not contract for the actual delivery of any pork or lard whatever, but the pretended purchases were mere options, and that it was the understanding of all parties to said transactions that no pork or lard should be delivered on the contracts and that the same should be settled upon the differences between the contract and the market price. The answer further averred that soon after the making of the contracts, the plaintiffs disposed of the same for their own benefit, converted the proceeds to their own use, and released the parties with whom they had made said contracts, and that at no time after June 16, 1883, did the plaintiffs hold any contracts whatever for the account of defendant, but falsely reported chanroblesvirtualawlibrary

Page 116 U. S. 674

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.

The issues made by the pleadings were tried by a jury. The bill of exceptions states that thunterclaim of the defendant.

The issues made by the pleadings were tried by a jury. The bill of exceptions states that thunterclaim of the defendant.

The issues made by the pleadings were tried by a jury. The bill of exceptions states that the plaintiffs first offered in evidence section 6 of Rule 26 of the Chicago Board of Trade, which was as follows:

"In case any member of the association, acting as a commission merchant, shall have made purchases or sales by order and for account of another, whether the party for whom any such purchase or sale was made shall be a member of the Board of Trade or otherwise, and it shall subsequently appear that such trades may be offset and settled by other trades made by said commission merchant, he shall be deemed 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, provided that in case of such substitution, the member or firm making the same shall be held

Page 116 U. S. 675

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."

Frederick F. Gilbert, one of the plaintiffs, was put on the stand as a witness in their behalf, and testified in substance as follows:

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 having rested, the deposition of the said Frederick F. Gilbert, taken by the defendant, was offered by him in evidence, in which the witness testified in substance as follows:

Neither Eldridge & Co. nor any other parties with whom the plaintiffs made contracts for the defendant delivered any pork or lard for him on August 1 or at any time. During the latter part of the month of May and the month of June, the plaintiffs cancelled all the contracts they had made for the defendant with Eldridge & Co. and others for pork and lard, and released them from the performance thereof, but gave the defendant no notice of these facts. The contracts were cancelled by offsetting them with contracts they had made with other parties for the sale of pork and lard, and this was done for the advantage of the plaintiffs and to facilitate their business transaction. When the contracts for the defendant were made with Eldridge & Co. and others, they were entered upon the books of chanroblesvirtualawlibrary

Page 116 U. S. 676

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. chanroblesvirtualawlibrary

Page 116 U. S. 677

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.

The defendant, as a witness in his own behalf, testified in regard to his transactions with the plaintiffs as follows:

"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.

The bill of exceptions then proceeded to state that the court, having explained to the jury what would and what would not constitute a gambling contract, said, among other things, not excepted to:

"It is legitimate for the parties to make a contract for the delivery of property at some future period, provided they mean a real and bona fide contract, and the law recognizes the obligation and will enforce it. If the contract is void for the reason heretofore stated, the plaintiffs cannot recover anything, nor could the defendant recover on his cross-action. The law, in that contingency, would leave the parties in the situation that they have placed themselves in, and no recovery could be had by either plaintiffs or defendant. But if you should be of

Page 116 U. S. 678

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. "

Page 116 U. S. 679

"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.

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