Williamson v. Majors
Opinion of the Court
The original bill in this cause was exhibited by the appellant, H. C. Williamson, in the chancery court of Bolivar county, Miss., in January, 1905, and the cause was removed by the defendant to the Circuit Court of the United States, in which court the defendant answered the bill and also filed a cross-bill for a foreclosure of the deed of trust. On final hearing, the court dismissed the original bill, and granted the relief prayed for by the cross-bill.
The complainant in his original bill averred that the defendant, Bettis Majors, was in the city of Memphis engaged in keeping a house for dealing in futures, as the professional representative of Hayward, Vick & Co., and afterwards of T. J. Majors & Co.; that the complainant
The defendant Bettis Majors by his answer denies that the firm of Hayward, Vick & Co. were keepers of a bucket shop, but conducting a
The defendants also filed a cross-bill by which, in effect, they aver that complainant owed Majors $30,295 on the 6th day of Eebruary,
By the cross-bill the cross-complainant avers the validity of said deed of trust, and that it secured not only the $30,295 note, but also the $40,991.75, and cross-complainants pray the foreclosure of the said deed of trust for the payment of said note.
As to salient facts, the record shows:
In December, 1903, and in the early months of 1904, Bettis Majors, the appellee, managed and conducted in the city of Memphis a broker’s establishment for the buying and selling of cotton futures in the New Orleans and New York Cotton Exchanges. In December, 1903, the establishment was operated for Hayward, Vick & Co., but afterwards in January it was operated for T. J. Majors & Co. as the successors of Hayward, Vick & Co. T. J. Majors, as the father of Bettis Majors, was interested in the firm of Hayward, Vick & Co., and was the senior member of the firm of T. J. Majors & Co., composed of T. J. Majors and the appellee, Bettis Majors.
The appellant, H. C. Williamson, was a real estate agent in the city of Memphis, and was not engaged in buying or selling cotton, but in December of 1903 commenced to speculate in cotton futures, dealing with the establishment operated by the appellee, and thus ostensibly through the firms of Hayward, Vick & Co. and T. J. Majors & Co. At first his speculations were successful, but after, his losses were large. He testifies that, after he had paid $5,700 in, he desired to retire with the loss he had sustained, but that the appellee advised and insisted that he should continue in the speculations and put up cash for margins to protect the future contracts he had made. He further shows that negotiations resulted in Williamson’s agreeing to give a note to protect his future contracts, and a deed of trust on his plantation in Mississippi to secure the same, and accordingly on the 6th of February, 1904, he executed a deed of trust on his plantation situated in Bolivar county, Miss., to secure a promissory note of $30,295, due and payable January 1, 1905, to Bettis Majors, at his office in Memphis, Tenn., the consideration alleged being money loaned, but the real consideration was indebtedness on the future contracts for the purchase of cotton then claimed to be standing in Williamson’s name.
The deed of trust contains the following stipulation:
“The real subject-matter of this contract, namely, security, being wholly located in the state of Mississippi, this deed of trust and the notes thereby secured shall, without regard to the place of contract or payment, be construed and enforced in accordance with the laws of the state of Mississippi, where the money loaned is to be used, and with reference to the laws of which state the parties to this instrument are now contracting, and this instrument and all notes secured hereby are to be construed as if it and the notes which it secures had been signed in the state of Mississippi, and said notes had been made payable there, it being the intention of all the parties that such construction should be had.”
“In the early part of December, 1903, Mr. Williamson gave me some orders to buy or purchase some cotton on the New Orleans and New York Cotton Exchanges. Of course, the order was given to me as manager for Hayward, Vick & Co., or to one of my employes, and we did buy the cotton for him on the exchanges, and he made considerable money on his purchases, and then after the firm changed to T. J. Majors & Co. he continued to purchase cotton, and he owed the firm of T. J. Majors Company about twelve thousand dollars, I think it was on a Friday—I don’t remember the date, but I called him for it, and he said to me, T cannot put up that money this afternoon, but I will have it by Monday, about seven thousand dollars, and I will bring that around.’ I said to him, ‘Mr. Williamson, I cannot carry your cotton as a firm ; I cannot use the firm’s money for that purpose, but I will, individually, carry your cotton for you until Monday; then you bring the money in.’ He said he had other collateral which he thought he could take to the bank or some one, I don’t know who, and get more money on it on Monday. He did deposit some money with me—I think it was Monday—I don’t remember the exact amount; I think it will be shown by those receipts you have on exhibit .there. I carried the cotton. The market continued to decline, and I carried his loss till he owed me thirty thousand two hundred and ninety-five dollars. He offered to give me a trust deed for this money on his plantation down in Mississippi. * * *
“Well, Mr. Williamson got from Mr. Caldwell one of his trust deeds or mortgages, and he came down to my office and copied from the one that Mr. Caldwell had originally made, the one which we have here on exhibit. He gave the note for thirty thousand two hundred and ninety-five dollars; drew that himself; and a few days afterwards, I sent it out to his house to get it acknowledged. I wanted it acknowledged before a notary. I sent it out to him, and he acknowledged it at his home. During that conversation with Mr. Caldwell, Mr. Williamson asked me if I would carry his cotton for him, ten thousand dollars more, or I would let him have ten thousand dollars more. I agreed to let him have ten thousand dollars if he needed it. He said that he wanted to carry the cotton until the census report came out. I said, ‘Mr. Williamson, I will give you ten thousand dollars more to carry that cotton on, whether it will carry you to the census report or not. I cannot tell, because I don’t know what the market is going to do.’ Well, I did let him have the ten thousand dollars additional. I think the day before the census report came out the market had declined enough to wipe out this ten thousand dollars and more. Mr. Williamson came into my office and I told him that I could not carry this cotton any further for him, so he said, ‘Well, in order to protect yourself, close it out.’ I said to Mr. Bomer: ‘You close this cotton
out.’ Mr. Bomer did close the cotton out for Mr. Williamson.
“Q. Was Mr. Williamson present at the time the cotton was closed out? A. He was.
“Q. Was it done according to his transactions? A. It was.
“Q. Now, Mr. Majors, is this the trust deed? A. Yes.
“Q. Given you at the time by H. O. Williamson to which you refer in your testimony? A. Yes, sir.
“Q. In whose handwriting is that trust deed? A. In Mr. Williamson’s.
“Q. I will ask you to file that deed of trust as Exhibit “A” to your depositions? A. Yes, sir.
“Q. I see the note, Mr. Majors, is for forty thousand nine hundred and ninety-one dollars and seventy-five cents, instead of for thirty thousand two hundred and ninety-five dollars; will you please state whether or not the note was ever executed for the thirty thousand two hundred and ninety-five dollars, and, if so, what became of that note? A. Yes, there was a note given for thirty thousand two hundred and ninety-five dollars; that note was destroyed by Mr. Williamson when he gave the one for forty thousand nine hundred and ninety-one dollars, covering the full amount of his indebtedness to me.
“Q. That was done, the second note of forty thousand nine hundred and ninety-one dollars and seventy-five cents was made, after you had closed out his trades on the exchange, as per his instructions? A. Yes, sir.
*760 “Q. I think this note which X handed you is dated February 6th, and is for forty thousand nine hundred and ninety-one dollars and seventy-five cents. Will you please state how that happened to be dated as of that date? A. Well, it was dated back on the same date that the thirty thousand two hundred and ninety-five dollar note was given.”
The following partial list of purchases and sales of cotton for alleged future delivery, taken seriatim from one of the undisputed exhibits, shows the character and somewhat of the scope of Williamson’s dealings with the establishment operated by Bettis Majors for Hayward, Vick & Co. and T. J. Majors & Co.:
All orders for the purchase or sale of any article are received and executed with the distinct understanding that actual delivery is contemplated, and that the party giving the orders so understands and agrees. It is further understood that on all marginal business the right is reserved to close transactions when margins are running out without further notice, and to settle contracts in accordance with, rules and customs of exchange where order is executed.
The evidence shows that nearly all of Williamson’s purchases and sales were made through and on the Cotton Exchanges of New Orleans and New York, and in accordance with the rules of said exchanges, under which actual delivery is said to be contemplated, and may, by a member of the exchange, be exacted (whether by an outsider is not clear); but, as a matter of fact, under the said rules, delivery is rare, the general practice being to take profits or pay losses as the prices vary. And under the said rules a ringing-out process is provided, which is a sort of clearing house for the day’s transactions, wherein and whereby purchases and sales are transferred and eliminated, with the possible, if not probable, result that an outside dealer’s contract is with his own broker, and thus the same person be the buyer and seller, as was practically the case when Bettis Majors, as he testifies, closed out Williamson’s holdings.
There was much evidence bearing on the question as to whether the Memphis establishment managed by Bettis Majors was or not a bucket shop; and on the allegation that each and every order of Williamson to buy or sell cotton futures was executed on the exchange and strictly according to rule, and as to the impeccability of the rules of the New Orleans Cotton Exchange in the matter of actual delivery of all products sold therein and thereon—as to all of which, and under our view of the other issues, no finding need be given here.
In Embrey v. Jemison, 131 U. S. 343, 9 Sup. Ct. 778, 33 L. Ed. 172, Mr. Justice Harlan, for the court, says:
“Whether the validity of the original contract for the purchase of future-delivery cotton must depend upon the New York statute or upon the Virginia statute, it is not important to determine; for, if such contract, as alleged, is a wagering contract, it is void under the law of either state. The plea makes a case of money advanced by the plaintiff's firm solely for the purpose of carrying ‘cotton futures,’ for which he or they contracted, when, according to the averments of the rejected plea, neither party contemplated the purchase or delivery in fact of cotton, and when it was understood that any settlement in respect to such purchases should be exclusively upon the basis of one party paying to the other only the difference between the contract price and the market price of said cotton futures, according to the fluctuations in the market. If this be not a wagering contract, under the guise of a contract of sale, it would be difficult to imagine one that would be of that character. The mere form of the transaction is of little consequence. If it were, the statute against wagers could easily be evaded. The essential inquiry in every case is as to the necessary effect of the contract and the real intention of the parties. * * *
“In Irwin v. Williar, 110 U. S. 499, 508, 510, 4 Sup. Ct. 160, 28 L. Ed. 225, the general subject of wagering contracts was carefully considered, and, in the opinion delivered by Mr. Justice Matthews, we expressed approval of the doctrine as announced by Mr. Benjamin, observing that generally, in this country, all such contracts are held to be illegal and void as against public policy. It was there said: ‘It makes no difference that a debt or wager is made to assume the form of a contract. Gambling is none the less such because it is carried on in the form or guise of legitimate trade.’ Referring to the decision in Rountree v. Smith, 108 U. S. 269, 2 Sup. Ct. 630, 27 L. Ed. 722, it was further said: ‘It is certainly true that a broker might negotiate such a contract without being privy to the illegal intent of the principal parties to it which renders it void, and in such a case, being innocent of any violation of law, and not suing to enforce an unlawful contract, has a meritorious ground for the recovery of compensation for services and advances. But we are also of the opinion .that when the broker is privy to the unlawful design of the parties, and brings them together for the very purpose of entering into an illegal agreement, he is particeps eriminis, and cannot recover for services rendered or losses incurred by himself on behalf of either in forwarding the transaction.’ In the present case, according to the averments in the plea of wager, the plaintiff was the broker who effected the purchases of future-delivery cotton. He was privy to the unlawful design of the parties; represented one of them in all the transactions; and advanced the money necessary to carry, and for the express purpose of carrying, these cotton ‘futures’ on account of the defendant. His position, therefore, was not that of a person merely advancing money to or for one of the parties to a wager,*763 without having himself any direct connection with the making or execution of the contract of wager itself. He was, in every sense, particéps criminis.”
We find nothing in Bibb v. Allen, 149 U. S. 481, 13 Sup. Ct. 950, 37 L. Ed. 819, or in Board of Trade of the City of Chicago v. Christie Grain & Stock Co., 198 U. S. 236, 25 Sup. Ct. 637, 49 L. Ed. 1031, cited by appellee, nor in any other Supreme Court decision brought to our attention, in conflict with or even modifying Embrey v. Jemison, supra, and that case must influence the decision of the main issues in this case; but in view of the pleadings, and considering that the transactions complained of were in Tennessee, that the present case is now pending in the Circuit Court of the United States in Mississippi, and relief is asked under the laws of the last-named state, it is proper, if not necessary, to further consider the questions involved under Tennessee and Mississippi laws.
“Section 3159, Shannon’s Code of Tennessee, declares void all contracts founded in whole or in part on a gambling or wagering consideration; and section 3166 of the same Code provides that:
“Any sale, contract or agreement of sale of bonds, stock, cotton, grain or other produce, property or commodity, article or thing for future delivery, where either of the contracting parties, buyer or seller, is simply dealing for the margin or on the prospective rise or fall in price of the article or thing sold, or where either of the contracting parties have had no intention or purpose of making actual delivery or receiving the property or thing in specie, shall be deemed and it is hereby declared gaming.”
These statutes have been construed by the Supreme Court of the state of Tennessee in McGrew v. City Produce Exchange, 85 Tenn. 573, 4 S. W. 38, 4 Am. St. Rep. 771, Dunn v. Bell et al., 85 Tenn. 582, 4 S. W. 41, and Allen v. Dunham, 92 Tenn. 258, 264, 21 S. W. 898.
In these cases, among other things, it was held that money lost on future contracts may be recovered by the loser; that it makes no difference if the wagering contract be made in reference to prices in a foreign market over which the parties have no control, or that parties acting as agents advance money in aid of wagering contracts on future prices of commodities knowing them to be such; that stockbrokers are responsible as principals, and the statute of 1883 which makes future contracts void if either party intends them as wagers is fully recognized.
The parties to the present transaction lived and contracted in Tennessee, and it would seem that under the Tennessee statutes the transactions were clearly gaming transactions, and therefore that the note given by Williamson-to Majors, the consideration of which was for losses that Williamson had made speculating in cotton, should be held void.
This present suit is one in the state of Mississippi for the foreclosure of a deed of trust on a plantation in that state to secure the above-mentioned note, wherein the parties have stipulated, as hereinbefore recited, that the same should be construed and enforced in accordance with the laws of the state of Mississippi. As to the force and effect of this agreement, see Pritchard v. Norton, 106 U. S. 124, 1 Sup. Ct. 102, 27 L. Ed. 104; Liverpool & Great Western Steam Co. v. Phenix
Irrespective of this agreement, we are of opinion, as the real property to'be affected lies in the state of Mississippi and the suit is one pending in the courts of that state, the deed of trust must ex necessitate be construed and effect given to it in accordance with'the laws of the state of Mississippi. De Vaughn v. Hutchinson, 165 U. S. 566, 17 Sup. Ct. 461, 41 L. Ed. 827, citing United States v. Crosby, 7 Cranch, 115, 3 L. Ed. 287, Brine v. Insurance Co., 96 U. S. 627, 24 L. Ed. 858.
The Mississippi Annotated Code of 1892 provides as follows:
“1120. If any person shall deal in contracts commonly called ‘Futures,’ or shall, by himself or his agent, directly or indirectly buy or sell any ‘future’ contract, he shall be guilty of a misdemeanor, and, on conviction, shall be fined not less than fifty dollars nor more than five hundred dollars, and be imprisoned in the county jail not more than three months. •
“1121. If any person shall buy or sell commodities of any kind, to be delivered at a future day, without agreeing and intending that the commodities are to be actually delivered in kind, and the price paid, he shall be guilty of a misdemeanor, and, on conviction, shall be punished as prescribed in the last section.”
“2117. A contract for the purchase or sale of a commodity of any kind to be delivered at a future day, the parties not intending that the commodity is to be actually delivered in kind and the price paid, shall not be enforced by any court; nor shall any contract of the kind commonly called ‘futures’ be enforced, nor shall a contract in this section mentioned be a valid consideration, in whole or in part, for any promise or undertaking.”
These statutes indicate beyond question that dealing in future contracts, not intending that the commodity in question is to be actually delivered in kind or the price paid, is deemed gambling and contrary to the public policy of the state of Mississippi, and that has been the construction given to them by the Supreme Court of the state.
The original act on the subject passed on March 7, 1882, was entitled “An act to prohibit the sale and purchase of futures in the state of Mississippi.” The first section of this said act provided that “it would be unlawful to deal in contracts commonly called ‘Futures/ ” etc.; and the second provided that:
“No money advanced for the purchase of futures nor any agreement for the payment of any sum for such purchases could be enforced in any court of the state.
Under this statute the case of Lemonius v. Mayer, 71 Misc. 514, 14 South. 33, was decided, in which it was held that the statute applied not only to contracts for futures made within the state but also to contracts for futures made without the state, sought to be enforced'' therein.
The language of the act of 1882 having been slightly changed by the codification of 18-92, the future contract question was again before the Supreme Court in Violett et al. v. Mangold (Miss.; decided May 14, 1900) 27 South. 875, in which the Supreme Court of the state, in affirming judgment holding the note sued on to be void as based on losses in dealing in futures, said:
“Calhoon, J. Wilkins v. Riley, 47 Miss. 306, and Clay v. Allen, 63 Miss. 426, have no similarity to the case in hand. Looking through the gossamer*765 disguise here, It is glaringly apparent that the promissory note sued on is based on an account for losses in dealings in futures. We uphold the public policy of the state. Ann. Code 1892, §§ 1120, 1121, 2117; Lemonius v. Mayer, 71 Miss. 514, 14 South. 33.”
It thus appears that the note and deed of trust given by Williamson to Bettis Majors are void on general principles (Embrey v. Jemison, supra), void in Tennessee where executed, and void in Mississippi, where the property involved is situated, as against the laws and public policy of that state; and it follows that the decree appealed from must be reversed.
As to the relief to be granted, we are clear that the appellee is entitled to none, and his cross-bill should be dismissed.
As to the relief asked by complainant below, to wit, the cancellation of the deed of trust given by him to secure the note based on losses in dealing in “futures,” there is more difficulty. He is in pari delicto, and courts of equity are loth to relieve parties in such cases; the general rule being to apply the maxim, “He who comes into equity must come with clean hands,” and “In pari delicto potior est conditio defendentis.”
We find, however, that section 2116, Code Miss., provides that money lost on wagers can be recovered by suit, and that there is a line of authority, English and American, to the effect that courts of equity will grant relief in gaming contracts on the ground of public policy. We have not the English cases at hand, but in Rucker v. Wynne et al., 2 Head (Tenn.) 617, and Johnson v. Cooper, 2 Yerg. (Tenn.) 524, 24 Am. Dec. 502, both well considered, the English authorities are reviewed and shown to support the doctrine.
And we find the following in Story’s Eq. Jur. § 302:
“In regard to gaming contracts it would follow, a fortiori, that courts equity ought not to interfere in their favor, but ought to afford aid to suppress them, since they, are not only prohibited by statute, but may justly be pronounced to be immoral, as the practice tends to idleness, dissipation, and the ruin of families. No one has doubted that under such circumstances a bill in equity might be maintained to have any gaming security delivered up and canceled!”
See, also, 20 Cyc. p. 954, and cases there cited.
These authorities satisfy us that the complainant below should have the relief he prays for.
The decree of the Circuit Court is reversed, and the cause is remanded with instructions to enter a decree in accordance with the views herein expressed.
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