A contract for the purchase of "future delivery" cotton, neither
the purchase nor delivery of actual cotton being contemplated by
the parties, but the settlement in respect to which is to be upon
the basis of the mere "difference" between the contract price and
the market price of said cotton futures according to the
fluctuations in the market, is a wagering contract and illegal and
void as well under the statutes of New York and Virginia as
generally in this country.
The original payee cannot maintain an action upon a note the
consideration of which is money advanced by him upon or in
execution of a contract of wager, he being a party to such contract
or having directly participated in the making of it in the name or
on behalf of one of the parties.
The statute of Virginia, Code of 1873, c. 146, § 20, provided
that when a right of action accrues
"against a person who had before resided in this state, if such
person shall, by departing without the same, or by absconding or
concealing himself, or by any other indirect ways or means,
obstruct the prosecution of such right, the time that such
obstruction may have continued shall not be computed as any part of
the time within which the said right might or ought to have been
prosecuted."
Held that this was inapplicable when the defendant,
although once a resident of that state, removed therefrom before
any right of action accrued against him, and before the
transactions occurred out of which the plaintiff's cause of action
arose.
Page 131 U. S. 337
This is an action of debt to recover from the plaintiff in
error, who was the defendant below, the amount of four negotiable
notes executed by him January 21, 1878, and payable at the office
of E. S. Jemison & Co., in the City of New York, to the order
of Moody & Jemison, by whom they were endorsed, before
maturity, to the plaintiff, Jemison. Each note was for the sum of
$7,594.15, two of them payable six months and the remaining two
twelve months after date. There was a trial before a jury resulting
in a verdict and judgment in favor of the plaintiff for the amount
demanded in the declaration. The case has been brought here for
review, the defendant contending that the court committed such
errors of law as entitles him to a reversal of the judgment and to
a new trial.
In addition to a plea of
nil debet, the defendant filed
a special plea of wager, in which it was averred, in substance,
that on the last of February, or the 1st of March in the year 1877,
he contracted with the firm of Moody & Jemison, brokers and
commission merchants of the City of New York, and members of the
cotton exchange, to purchase for him, through the plaintiff, one of
that firm, "on a margin," in said cotton exchange, not actual
cotton but 4,000 bales of "future delivery" cotton, for May
delivery, commonly called "futures," which he did; that at the time
of the purchase, the defendant had in the hands of Moody &
Jemison about $8,000 as a margin to protect said purchase against
fluctuations in the market; that in the first few days of the month
of March, the plaintiff, as a member of the firm of Moody &
Jemison, reported that the margin was about exhausted by a decline
in the market, and called for more margin, which defendant informed
him he was unable to put up; that no agreement or contract was at
that time, or afterwards, made with the firm of Moody & Jemison
to have the said "cotton futures" carried for his account; that no
report was afterwards made to him of any sale of such futures; that
on the 21st day of January, 1878, in the City of New York, the
plaintiff called on him for his four notes for losses which he
alleged the firm of Moody & Jemison had sustained by carrying
said "cotton
Page 131 U. S. 338
futures," which notes the defendant executed, and which are the
identical notes described in the declaration;
"that the purchase or delivery of actual cotton was never
contemplated either by the defendant or the said Moody &
Jemison, and it was understood between them that the settlement was
to be made between said parties by one party paying to the other
the difference between the contract price and the market price of
said cotton futures, according to the fluctuations in the market,
and therefore the defendant says that the said contract was a
wagering contract, and that it and the said four notes for the
consideration aforesaid are void and of no force in law."
A demurrer to this plea was sustained, the defendant taking his
exception in proper form.
On the trial of the case on the plea of
nil debet, the
plaintiff, to maintain the issue upon his part, gave in evidence
the four notes described in the declaration, and the defendant
testified to the facts set forth in the above special plea of
wager, and this was all the evidence before the jury. Thereupon the
defendant asked the court to instruct the jury as follows:
"If the jury shall believe from the evidence that it was not the
intention of either party that a contract should be made by the
plaintiff to buy and hold the bales of cotton for delivery to the
defendant, but that it was the real intention and understanding of
the parties that a contract should be made which should be closed
at a future day not by delivery of the cotton and payment of
purchase price, but by payment of money to the one party or the
other, the party to receive the same, and the amount to be paid to
be determined upon a basis of the difference between the agreed
purchase price on the ___ day of ____, 18 __, and the actual market
value of the cotton on the day when the contract was to be closed,
then the jury are instructed that such a contract is invalid in law
and void, and that they must find for the defendant."
The court refused to give this instruction, and the defendant
duly excepted.
Although the notes in suit are dated at the City of New York,
and were payable at the office of E. S. Jemison & Co. in that
city, it does not clearly appear whether the original
Page 131 U. S. 339
contract between Embrey and the firm of Moody & Jemison,
referred to in the special plea of wager and in the above
instruction, was made in Virginia or in New York. There was
consequently some discussion as to whether the statute of Virginia
or that of New York should control the determination of the
question as to the illegality of that contract. The statute of
Virginia provides that
"Every contract, conveyance, or assurance of which the
consideration, or any part thereof, is money, property, or other
thing won or bet at any game, sport, pastime, or wager, or money
lent or advanced at the time of any gaming, betting, or wagering,
to be used in being so bet or wagered, when the person lending or
advancing it knows that it is to be so used, shall be void."
Code of Va. 1873, 984, § 2. By the statute of New York, it is
provided that
"All wagers, bets, or stakes made to depend upon any race, or
upon any gaming by lot or chance, or upon any lot, chance,
casualty, or unknown or contingent event whatever, shall be
unlawful. All contracts for or on account of any money or property,
or thing in action so wagered, bet, or staked shall be void."
The defendant also pleaded the statute of limitations to the
amended declaration, that the cause of action did not "accrue to
the said plaintiff at any time within five years next before the
commencement of this suit." To this the plaintiff replied, setting
up the Code of 1873, c. 146, § 20,
"that he ought not to be barred by reason of anything by the
said defendant in his said plea of the statute of limitations
alleged, because he says that at the time when the said several
causes of action in the declaration mentioned, and each and every
of them did accrue to the said plaintiff, the said defendant had
before resided in the State of Virginia, and did by departing
without the same obstruct the said plaintiff in the prosecution of
his said several causes of action, and of each and every of them
for several, to-wit, two and more years next after the same accrued
as aforesaid, and the said plaintiff says that the time that such
obstruction continued is not to be computed as any part of the time
within which the said several causes of action
Page 131 U. S. 340
and each and every of them ought to have been prosecuted, and
that, excluding the said time that such obstruction continued, the
plaintiff brought this said action within five years next after the
accruing of the said several causes of action and of each and every
of them."
The defendant rejoined
"that the plaintiff ought not by reason of anything in his
replication alleged to have and maintain his action against him,
because he says that by his removal from the State of Virginia and
departing without the same, as in his said replication is alleged,
he did not obstruct the said plaintiff in the prosecution of his
suit upon the alleged causes of action in the declaration
mentioned, because he says that his removal from the State of
Virginia and departing without the same was in the year 1859, a
long time before any of the alleged causes of action existed or
accrued to the plaintiff against this defendant, and that when said
causes of action accrued to the plaintiff, he was, and still
considers himself, a citizen of the State of Louisiana."
Other issues were made by the pleadings which the opinion of the
Court makes unimportant.
Page 131 U. S. 343
MR. JUSTICE HARLAN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
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
Page 131 U. S. 344
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's 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. Mr. Benjamin, in his
Treatise on Sales, vol. 2, 717, 6th Amer. ed., by Corbin, § 828,
after stating that at common law, wagers that did not violate any
rule of public decency or morality, or any recognized principle of
public policy, were not prohibited, says:
"It has already been shown that a contract for the sale of goods
to be delivered at a future day is valid even though the seller has
not the goods nor any other means of getting them than to go into
the market and buy them. . . . But such a contract,"
he proceeds to say,
"is only valid where the parties really intend and agree that
the goods are to be delivered by the seller, and the price to be
paid by the buyer. If, under guise of such a contract, the real
intent be merely 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,
then the whole transaction constitutes nothing more than a wager,
and is null and void under the statute."
The statute referred to by the author is that of 8 & 9 Vict.
c. 109, § 18, which provides
"That all contracts or agreements, whether by parol or in
writing, by way of gaming or wagering, shall be null and void, and
that no suit shall be brought or maintained in any court of law or
equity for recovering any sum of money or valuable thing alleged to
be won upon any wager, or which shall have been deposited in the
hands of any person, to abide the event on which any wager shall
have been made. "
Page 131 U. S. 345
In
Irwin v. Williar, 110 U. S. 499,
110 U. S.
508-510, 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 bet or wager is made to assume
the form of a contract. Gambling is nonetheless such because it is
carried on in the form or guise of legitimate trade."
Referring to the decision in
Roundtree v. Smith,
108 U. S. 269, 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 criminis, 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, without having
himself any direct connection with the making or execution of the
contract of wager itself. He was in every sense
particeps
criminis.
In
Bigelow v. Benedict, 70 N.Y. 202, 206, the Court of
Appeals of New York said that
"where an optional contract for the sale of property is made,
and there is no intention on the one side to sell or deliver the
property or on the other to buy or take it, but merely that the
difference should be paid
Page 131 U. S. 346
according to the fluctuation in market values, the contract
would be a wager within the statute."
In
Story v. Salomon, 71 N.Y. 420, 422, which was an
action upon a written contract for an option to buy or sell certain
shares of stock, and the defense was that it was illegal and void
under the statute of New York against gaming, the court said:
"If it had been shown that neither party intended to deliver or
accept the shares, but merely to pay differences according to the
rise or fall of the market, the contract would have been
illegal."
The same principle was announced in
Kingsbury v.
Kirwan, 77 N.Y. 612. There are many other authorities to the
same effect, but in view of our decision in
Irwin v.
Williar, with which we are entirely satisfied, it is not
necessary to cite them.
The plaintiff relies upon
Brown v. Speyers, 20 Grattan
29, as expressing a different view of this question. But we do not
so understand that case. The Supreme Court of Appeals of Virginia
did not there indicate its opinion as to the validity of a contract
for the purchase of "futures," the settlement in respect to which
was to be upon the basis of paying simply the difference, according
to the fluctuations in the market, between the contract price and
the market price.
It is contended that this is not an action upon the original
contract, but upon the notes executed by Embrey after the business
transacted for him by Moody & Jemison was closed, and with full
knowledge upon his part of all the facts. In such a case, it is
argued, the principles announced in
Irwin v. Williar
cannot be applied. This argument concedes, at least for the
purposes of the present case, that as the law, for the protection
of the public and in the interest of good morals, declares a
wagering contract to be void, the plaintiff could not maintain an
action for the moneys advanced in execution of the original
contract to carry these "futures." And yet it is insisted that he
ought to have judgment on the notes in suit although it appears
they have no other consideration than the moneys so advanced. A
judgment upon the notes would in effect be one for the amount
claimed by the plaintiff under the original contract at the time he
demanded their execution
Page 131 U. S. 347
by the defendant. Indeed, it has been held that a note could not
of itself discharge the original cause of action unless, by express
or special agreement, it was received as payment.
Sheehy v.
Mandeville, 6 Cranch 253,
10 U. S. 264;
Peter v.
Beverly, 10 Pet. 532,
35 U. S. 568;
The Kimball, 3
Wall. 37,
70 U. S. 45.
While there are authorities that seem to support the position
taken by the defendant in error, we are of opinion that upon
principle, the original payee cannot maintain an action on a note
the consideration of which is money advanced by him upon or in
execution of a contract of wager, he being a party to that contract
or having directly participated in the marking of it in the name of
or on behalf of the of the parties.
In
Steers v. Lashley, 6 T.R. 61, it appeared that the
defendant was engaged in stock-jobbing transactions with different
persons, in which one Wilson was employed as his broker and had
paid the "differences" for him. A dispute having arisen as to their
amount, the matter was referred to the plaintiff and others, who
awarded a certain sum as due from the defendant. For a part of that
sum, the broker drew a bill on the defendant, and, after it had
been accepted, endorsed it to the plaintiff. Lord Kenyon said:
"If the plaintiff had lent this money to the defendant to pay
the differences, and had afterwards received the bill in question
for that sum, then, according to the principle established in
Petrie v. Hannay, 3 T.R. 418, he might have recovered. But
here, the bill on which the action is brought was given for these
very differences, and therefore Wilson himself could not have
enforced payment of it. Then the security was endorsed over to the
plaintiff, he knowing of the illegality of the contract between
Wilson and the defendant, for he was the arbitrator to settle their
accounts, and under such circumstances he cannot be permitted to
recover on the bill in a court of law."
In
Amory v. Meryweather, 2 B. & C. 573, 578, which
was an action of debt on bond, conditioned for the payment of money
by installments, the plea, in substance, was that the bond was
given in place of a promissory note previously executed in payment
for moneys advanced by an agent of the obligor in discharge of
differences arising upon contracts for
Page 131 U. S. 348
buying and selling shares in the public stocks, against the form
of the statute, the plaintiff having knowledge, when he received
the bond, that the note had been made by the defendant on the
occasion and for the purpose stated. Abbott, C.J., after observing
that there was no period of time when the plaintiff could have
maintained an action upon the note, said:
"We are all of opinion that as it appears upon the plea that the
bond was given as a substitute for a note which was taken by the
plaintiffs subject to an infirmity of title of which they had full
notice before the bond was taken, the latter instrument is
void."
In
Fisher v. Bridges, 3 El. & Bl. 642, 649, which
was an action upon a covenant in a deed to pay a certain sum, and
which covenant was given as security for payment of a part of the
purchase money of real estate sold by the plaintiff to the
defendant, to be by the latter disposed of by lottery, as the
plaintiff knew, the court said:
"It is clear that the covenant was given for payment of the
purchase money. It springs from and is a creature of the illegal
agreement, and, as the law would not enforce the original illegal
contract, so neither will it allow the parties to enforce a
security for the purchase money, which, by the original bargain,
was tainted with illegality."
See also Fareira v. Gabell, 89 Penn.St. 89;
Griffiths v. Sears, 112 Penn.St. 523;
Flagg v.
Baldwin, 38 N.J.Eq. 219, 227;
Cunningham v. Bank of
Augusta, 71 Ga. 400;
Tenney v. Foote, 95 Ill. 100;
Rudolf v. Winters, 7 Neb. 126;
Lowry v. Dillman,
59 Wis. 197, 18 N.W. Rep. 4.
Assuming the averments of the plea of wager to be true, it is
clear that the plaintiff could not recover upon the original
agreement without disclosing the fact that it was one that could
not be enforced or made the basis of a judgment. He cannot be
permitted to withdraw attention from this feature of the
transaction by the device of obtaining notes for the amount claimed
under that illegal agreement, for they are not founded on any new
or independent consideration, but are only written promises to pay
that which the obligor had verbally agreed to pay. They do not in
any just sense constitute a distinct or collateral contract based
upon a valid consideration.
Page 131 U. S. 349
Nor do they represent anything of value in the hands of the
defendant which in good conscience belongs to the plaintiff or to
his firm. Although the burden of proof is on the obligor to show
the real consideration, the execution of the notes could not
obliterate the substantive fact that they grew immediately out of,
and are directly connected with, a wagering contract. They must
therefore be regarded as tainted with the illegality of that
contract, the benefits of which the plaintiff seeks to obtain by
this suit. That the defendant executed the notes with full
knowledge of all the facts is of no moment. The defense he makes is
not allowed for his sake, but to maintain the policy of the law,
Coppell v.
Hall, 7 Wall. 542,
74 U. S.
558.
We are of opinion that the special plea of wager presented a
good defense to the action, and ought not to have been rejected;
also, that the instruction asked by the defendant should have been
given.
The case presents another question which it is necessary to
consider. The defendant, in one of his pleas, alleged that the
plaintiff's cause of action did not accrue within five years next
before the commencement of suit. That is the time within which, by
the general statute of limitations of Virginia, actions like the
present one must be brought. Virginia Code, 1873, p. 999, §§ 8, 14.
To this plea the plaintiff replied specially that he ought not to
be bound by anything therein alleged because, when the several
causes of action in the declaration mentioned, and each of them,
accrued to him, the defendant "had before resided in the State of
Virginia," and by departing without the same obstructed him in the
prosecution of his several causes of action for several, to-wit,
two or more years next after the same accrued as aforesaid; that
the time such obstruction continued is not to be computed as any
part of the period within which his causes of action, and each of
them, ought to have been prosecuted, and that, excluding such time,
the plaintiff brought this action within five years next after the
accruing of his several causes of action. This replication was
based upon the following provision in the Virginia statute of
limitations:
"Where any such
Page 131 U. S. 350
right as is mentioned in this chapter shall accrue against a
person who had before resided in this state, if such person shall,
by departing without the same or by absconding or concealing
himself or by any other indirect ways or means obstruct the
prosecution of such right, the time that such obstruction may have
continued shall not be computed as any part of the time within
which the said right might or ought to have been prosecuted. But
this section shall not avail against any other person than him so
obstructed, notwithstanding another might have been jointly sued
with him if there had been no such obstruction. And upon a contract
which was made and was to be performed in another state or country
by a person who then resided therein, no action shall be maintained
after the right of action thereon is barred by the laws of such
state or country."
Code of Virginia, 1873, p. 1002, c. 146, § 20. The defendant
rejoined that the plaintiff ought not, by reason of anything in the
replication alleged, to have and maintain his action, because by
his removal from the State of Virginia and departing without the
same, as alleged, he did not obstruct the plaintiff in the
prosecution of his suit upon the alleged causes of action in the
declaration mentioned, because such removal occurred in the year
1859, a long time before any of the alleged causes of action
existed or accrued, and that when said causes of action accrued to
the plaintiff, the defendant was, and still considers himself, a
citizen of the State of Louisiana.
Upon plaintiff's motion, the rejoinder of the defendant was
rejected upon the ground that the above section excepted from the
general act of limitation a case in which the cause of action
accrued against a person previously, no matter how long before,
residing in Virginia, although he may have left the state before
the contract sued upon was made, and therefore before any cause of
action thereon accrued. This construction of the statute was
supposed to be required by the decision in
Ficklin's Executor
v. Carrington, 31 Grattan 219. We are satisfied upon a careful
examination of that case that it was misinterpreted by the learned
district judge who presided at the trial below. That was an action
of assumpsit to recover the amount of a note dated April 1, 1865.
The defendant Carrington
Page 131 U. S. 351
pleaded the statute of limitations. The plaintiff replied that
he ought not to be bound by reason of anything in that plea
alleged, because
"on the 1st day of April, 1865,
when the said several
promises and undertakings in the plaintiff's declaration mentioned
were made and entered into, and previous thereto, the
defendant was and had been a resident of the State of Virginia, and
that
afterwards, to-wit, on or before the 15th day of
November, 1866, the said defendant departed without the state, and
thereafter resided in the State of Maryland, and thereby the said
defendant obstructed the said B. F. Ficklin, deceased, in his
lifetime, and the plaintiff since his death, in the prosecution of
his suit upon the said several promises and undertakings, until the
13th day of June, 1874, when this suit was instituted."
The defendant replied specially that by his removal he had not
obstructed, etc. The court held that the removal of the defendant,
as stated in the replication, did, within the meaning of
the statute, obstruct the bringing of the suit, and consequently
the time subsequent to such removal was not to be counted in his
favor. It also held that the above statute, although somewhat
different in its phraseology and structure from previous
enactments, made no substantial change in the previous statutes,
one of which, that of 1819, 1 Rev.Code of Virginia 491, § 14,
provided that
"If any defendant shall abscond or conceal himself, or by
removal out of the country or the county where he resides
when
the cause of action accrued, or by any other indirect ways or
means, defeat or obstruct the plaintiff,
then the
defendant shall not be admitted to plead the statute of
limitations."
We are of opinion that the defendant's rejoinder to the
plaintiff's replication to the plea of limitations was improperly
rejected. It shows upon its face that the defendant's removal from
Virginia occurred nearly twenty years
before the contract in
question was made, and that when the plaintiff's causes of
action accrued, he was not a citizen or resident of Virginia, but
of Louisiana. The statutory provision upon which the plaintiff
based his replication has no application to this case if, as shown
by the rejoinder, the defendant removed from Virginia before he
made any contract with the plaintiff. We
Page 131 U. S. 352
cannot suppose that his removal from that state nineteen years
before that contract was made, can be regarded, under the statute
of Virginia, as an
obstruction to the plaintiff's
prosecution of his action. The statute, so far as it relates to
obstructions caused by a defendant's having departed from the
state, means that, being a resident of Virginia when the cause of
action accrues against him and being then suable in that state, the
defendant shall not, in computing the time in which he must be
sued, have the benefit of any absence caused by his departure after
such right of action accrued, and before the expiration of the
period limited for the bringing of suit. The plaintiff was at
liberty to sue the defendant wherever he could find him. Having
elected to sue him in Virginia, the courts sitting there must give
effect to the limitation prescribed by her law, without any saving
in favor of the plaintiff on account of the defendant's removal
prior to the making of any contract whatever with the
plaintiff.
The judgment is
Reversed with directions to grant a new trial and for
further proceedings in conformity with this opinion.