Irwin v. Williar - 110 U.S. 499 (1884)
U.S. Supreme Court
Irwin v. Williar, 110 U.S. 499 (1884)
Irwin v. Williar
Argued October 17-18, 1883
Decided March 3, 1884
110 U.S. 499
A contract of partnership for the buying of grain, both wheat and corn, and its manufacture into flour and meal, and the sale of such grain as might accumulate in excess of that required for manufacturing, and the use, with the knowledge of all the partners in the partnership business, of cards and letterheads describing the firm as millers and dealers in grain, do not necessarily imply as matter of law authority to deal in the partnership name in futures by means of contracts of sale or purchase for purposes of speculating upon the course of the market, and to bind the partnership thereby. Dealing in futures by means of contracts of sale or purchase for purposes of speculating upon the course of the market is not as matter of law an essential characteristic of every business to which the name of dealing in grain may properly be assigned.
If, under guise of a contract to deliver goods at a future day, the real intent be to speculate in the rise or fall of prices, and the goods are not to be delivered, but one party is to pay to the other the difference between the contract price and the market price of the goods at the date fixed for executing the contract, the whole transaction is nothing more than a wager, and is null and void.
When a broker is privy to such a wagering contract, and brings the parties together for the very purpose of entering into the illegal agreement, he is particeps criminis, and cannot recover for services rendered or losses incurred by himself in forwarding the transaction.
Generally, in this country, wagering contracts are held to be illegal and void as against public policy.
A custom among brokers in the settlement of differences which works a substantial and material change in the principal's rights or obligations is not binding upon the principal without his assent, and that assent can be implied only from knowledge of the custom which it is claimed authorizes it.
The defendants in error were plaintiffs below, and brought this action against the plaintiff in error, as surviving partner of the firm of Irwin & Davis, to recover a balance alleged to be due, growing out of certain sales of wheat for future delivery, claimed to have been made by the defendants in error for the firm of Irwin & Davis upon their order. The liability of the plaintiff in error was denied on two grounds:
1. That the transactions
were made by Davis, the deceased partner, without the knowledge, assent, or authority of the plaintiff in error, and were not within the scope of the partnership business, and
2. That the sales were wagering contracts and void.
It appears from the bill of exceptions that there was evidence on the trial tending to prove the following state of fact:
Irwin, the plaintiff in error, and Davis, who died in October, 1877, became partners in 1872 in the ownership and operation of a flouring mill and appurtenances at Brazil, Clay County, Indiana. Their contract of partnership contemplated the buying of grain -- both wheat and corn -- and its manufacture into flour and meal, and the sale of such grain as might accumulate in excess of that required for manufacturing, and did not contemplate, as between themselves, the buying and selling of grain in large quantities for speculation. The capacity of the mill did not exceed sixty barrels of flour per day; its average manufacture was thirty. The working capital of the firm varied from $2,000 to $4,000. Irwin resided at Butler, in Pennsylvania, and visited Brazil rarely. Appurtenant to the mill was a warehouse for the storage of grain, equipped with appliances for loading and unloading grain, in bulk, into and from railroad cars. Soon after the formation of the partnership, and as part of its business, Davis, in its name, began and continued to ship corn and oats to Indianapolis, and corn and flour to Baltimore, for sale and immediate delivery, in consignments not exceeding $1,000 each in value, and in the year 1875, several such consignments had been made to the defendants in error at Baltimore for sale on account of the firm by Davis. In all their business correspondence, including that with the defendants in error, who were commission merchants and grain brokers in Baltimore, the cards and letterheads were as follows: "Brazil Flouring-Mills; Irwin & Davis, millers and dealers in grain, Brazil, Ind." This letterhead was used with the knowledge of Irwin, who, however, had no knowledge of any transaction by Davis, on account of the firm, in the purchase or sale of grain for future delivery. Prior to 1877, in point of fact, Davis had given no orders for the purchase of grain in Baltimore, or any eastern market, and during that year, in the
months of July, August, and September, he shipped to defendants in error thirty-one carloads of wheat, of about three hundred eighty bushels each, for sale, which was accounted for.
The transactions which form the subject of this suit were as follows:
On July 12, 1877, Davis, by cipher telegrams and letters, gave an order to defendants in error to sell 20,000 bushels of wheat for delivery in August, and followed that up with similar orders until the last, on September 3, a period of fifty-three days, making an aggregate of 30,000 bushels for delivery in August, 105,000 bushels in September, and 30,000 bushels in October -- in all, 165,000 bushels. These orders were reported by the defendants in error as executed at the prices named, amounting in gross to $251,794.84. At or before maturity, these contracts of sale were settled by defendants in error on account of Davis & Irwin according to the custom of the corn and flour exchange in Baltimore, of which the former were members at and through the members of which substantially all the business of buying and selling grain at that city was done. In these settlements the differences between the prices at which the wheat had been sold and those which the brokers would have been compelled to pay, or did pay, as the market prices at the time of settlement, for wheat to deliver, or in fact delivered, in execution of the sales, amounted to $17,217.95, which was the balance sued for and recovered in this action. Davis did not consign or deliver to defendants in error any of the wheat so contracted to be sold on their account, although he had during the same period consigned other wheat to defendants in error, as above stated, but which, pursuant to orders given at the time, had been sold on arrival, but not applied on contracts of sale for future delivery. The defendants in error actually delivered on account of Davis & Irwin about 40,000 bushels of wheat on their contracts, which they purchased in open market for that purpose, but as to the rest, settled by paying the differences between the contract and market prices.
There was evidence tending to show that among the general usages and customs obtaining at Baltimore among grain commission merchants were the following, which were well known,
and which had long existed and been uniformly observed among the members of said corn and flour exchange and others engaged in the buying and selling of grain on commission at said city, viz.,
1st. That a commission merchant buying or selling grain upon the order of a customer for future delivery entered into such contract in his own name, thereby becoming personally responsible to the party with whom he contracted for the performance of the contract, the name of his principal being never, or but rarely, disclosed.
"2d. That such commission merchant held himself and stood responsible to his principal or customer for the performance by the other party with whom he entered into such contract of purchase or sale of such contract, and for making good the contract to his principal in case of the insolvency or default from any cause of such other party."
"3d. That purchases or sales to fill orders of customers are usually made on the floor of the corn and flour exchange, by open public offer to the members of the board there assembled. That when it so occurs as that a commission merchant, who upon the order of one customer has sold to (or vice versa purchased from) another commission merchant grain for a certain future delivery, and afterwards, upon the order of another customer, buys (or vice versa sells) a like amount of like grain for the same future delivery, from (or to) the same commission merchant, the two commission merchants, as between themselves, set off one contract against the other and mutually surrender or cancel them, settling between them the difference in price, each substituting on his books in the place and stead of the other the new or second customer, upon whose order he made the second purchase or sale. Thus, if commission merchant A, upon the order of his customer X, has sold grain for a designated future delivery to commission merchant B, and afterwards, upon the order of customer Y, buys like grain for like delivery from B, A and B adjust the difference, cancel their contracts, and surrender any margins that may have been put up by them, and in such case A substitutes his second customer, Y, in place of B, so that the grain he had sold on the
order of X would be delivered to Y instead of to B, A standing as guarantor to Y that X will deliver the grain, and to X that Y will receive and pay for it, and that X shall receive the full price at which the grain had been contracted to B."
"4th. That where such second transaction is not with the same commission merchant with whom the first had occurred, but a different one, and it is found that a circuit of like contracts exists, by which commission merchant A has sold grain to merchant B, who has sold like grain to C, who has made like sale to A the commission merchants settle as among themselves by what is called a 'ring.' The parties in such case do not make successive deliveries until the grain comes round again to the commission merchant from whom it started, nor does each buyer pay the full amount of his purchase money to his immediate seller, but receives or pays, as the case may be, the amount of the net profit he would have received or of net loss he would have sustained if the settlement has not been made by a 'ring.'"
In such case, all margins put up by the commission merchants are restored, the contracts surrendered, and the contracts or orders of their undisclosed principals, upon whose instructions they had entered into those contracts, are held in lieu of the contracts so surrendered, each commission merchant being responsible to each of his customers for performance by the other.
The settlements of differences, made by defendants in error on account of Davis & Irwin, were made in pursuance of these customs, but there was no evidence that Davis & Irwin had any actual knowledge of them.
There was evidence also tending to prove that Irwin had no knowledge of the transactions between Davis and the defendants in error until after they had been completed.
On the trial, it was claimed on behalf of the defendant below that the transactions in question were not authorized by the partnership agreement; that they were not in the regular course of the partnership business, and were not within its apparent scope.
On that point, among other things, the circuit court charged the jury as follows:
"4. If Irwin permitted Davis to hold himself and Irwin out to the world as partners in the business of dealing in grain, he became liable with Davis on contracts for the sale and purchase of grain for future delivery, and in that case it is not material that Irwin should have actual knowledge of particular sales or purchases in the firm name, and if Irwin knew that Davis was holding the firm out as dealers in grain, and did not protest or give public notice to the contrary, he is responsible as partner for all contracts made by Davis in the firm name, within the apparent scope of the business of dealing in grain. If Davis, as partner, did in fact buy and sell grain, and if in his correspondence with customers and others, including the plaintiffs, he employed printed letterheads or cards representing the firm of Irwin & Davis as grain dealers, this was a holding out of that firm as a partnership engaged in that business, and if before and at the time of the dealings with the plaintiffs Irwin knew that the firm was thus held out as grain dealers, he is liable as a partner. If, therefore, you believe from the evidence that Irwin & Davis held themselves out as dealers in grain as well as in flour, and that plaintiffs dealt with Davis, supposing they were dealing with the firm, and in so doing advanced their own money in fulfilling such contracts, you should find for the plaintiffs in whatever sum the evidence may show them to be entitled to on account of such advancements, unless you think the defendant has shown that the transactions between the plaintiffs and Irwin & Davis were gambling transactions."
This was excepted to, and it is now assigned for error.