An independent sovereignty will not lend the aid of its courts
to enforce a foreign contract where such action would be repugnant
to good morals, lead to disturbance or disorganization of its
municipal laws, or otherwise violate its public policy.
The courts of one sovereignty, however, will not refuse effect
to the principle of comity by declining to enforce contracts which
are valid under the laws of another sovereignty unless constrained
thereto by clear conviction of the existence of the conditions
justifying that course.
Since the definition of public policy lies peculiarly with the
lawmaking power, the policy indicated by its enactments must
control comity in the enforcement of foreign contracts.
The foregoing principles apply to the several states, under the
common obligations of the Constitution, more strongly than to
sovereignties which are independent of one another.
Contracts between citizens of New York and a citizen of Texas,
executed in New York, for the purchase and sale of cotton for
future delivery upon the New York Cotton Exchange, pursuant to its
rules, etc.,
held valid under the New York law and under
the common law.
Contracts with brokers for the purchase and sale of cotton for
future delivery, under and subject to the rules of a cotton
exchange, which rules permit the substitution in delivery of grades
other than that upon which the contract price is based and provide
that, in such case, the price shall be readjusted according to the
rates of the exchange "existing on the day previous to the date of
the transferable notice of delivery," are not necessarily to be
regarded as violating the policy evinced by the Texas "Bucket Shop
Law," Rev.Crim.Stats. 1911, c. 3, Arts. 538, 539, when it is
alleged and admitted that actual delivery of the goods was
bona
fide intended by the parties;
Nor are they repugnant to the public policy of Texas as
manifested by other statutes of the state or by decisions of its
courts.
Page 243 U. S. 16
The general provisions contained in Arts. 545 and 546 of the
Texas statute,
supra, and which shift the burden of proof
in particular criminal prosecutions under it, afford no ground, in
a civil case brought to enforce a contract, for holding that the
averments of the petition must be taken to be untrue.
Whether the mere existence of a state statute punishing those
who contract for the sale or purchase of goods or securities to be
delivered in the future, not intending in good faith that delivery
shall be made, could constitutionally justify the courts of that
state, or, in any event, the courts of the United States exercising
jurisdiction therein, in declining to enforce like contracts when
made under like circumstances in another state and valid where
made, are questions upon which the court expresses no opinion.
"This action was instituted in the United States Circuit Court
for the Western District of Texas at Austin, on the 23rd day of
February, 1910, by Allen Bond and William J. Buttfield, plaintiffs,
against J. L. Hume, defendant, to recover the balance due upon an
open account for money advanced to defendant, and paid, laid out,
and expended for his account, and for services rendered and
performed for defendant at his special instance and request at
divers times between the first day of July, 1907, and the first day
of June, 1908, at the City, County, and State of New York in
connection with the purchase and sale for defendant's account of
cotton for future delivery upon the New York Cotton Exchange,
pursuant to the rules, regulations, customs and usages of said
Exchange, and for the amount due upon a certain promissory note
executed by defendant payable to the order of J. W. Buttfield, and
by the latter assigned to the firm of Bond and Buttfield."
"The plaintiff's first amended original petition contains the
following allegations:"
" The plaintiffs, at the special instance and request of the
defendant at the City, County, and State of New York, advanced to
the defendant and paid, laid out, and expended for his account
divers sums of money, and did and performed for said defendant at
the City, County and
Page 243 U. S. 17
State of New York divers services in and about the purchase and
sale of the defendant account cotton upon the New York Cotton
Exchange, and, in pursuance of the rules, regulations, customs, and
usage of the said New York Cotton Exchange, a copy of the rules and
bylaws and regulations being hereto attached and marked Exhibit A,
and asked to be made, etc."
" That the said services were rendered and said money paid out
by them to said defendant for and at his request in buying and
selling for his said account as his agent cotton for future
delivery according to the rules and regulations of the New York
Cotton Exchange in the City of New York, a copy of said rules and
regulations being hereto attached and marked Exhibit, etc."
" Said orders for the purchase and sale of cotton for future
delivery were received by plaintiffs and executed with the
understanding and agreement between the parties that actual
delivery for this account was contemplated, subject to the rules
and bylaws of the said New York Cotton Exchange, as hereto attached
and marked said Exhibit A."
" Plaintiffs allege further that they made said purchase and
sales of the cotton for and at the request of the said defendant at
the prices respectively authorized by him, and at his instance and
request entered into binding contracts of purchase and sale for
future delivery in accordance with the said rules and bylaws of the
said New York Cotton Exchange, a copy of said rules and bylaws
being hereto attached and marked Exhibit A, and made a part of this
petition."
" Plaintiffs further allege that, at the several times they made
said purchases and sales for the defendant, he well knew that
actual delivery was contemplated, and well knew that plaintiffs
were to make and did make said purchases and sales under and
subject to the rules and bylaws of the New York Cotton Exchange,
and were held
Page 243 U. S. 18
personally bound for carrying out said contract, as will more
fully appear by reference to said rules and bylaws hereto attached
and marked Exhibit A, and plaintiffs allege that they promptly
advised the defendant of the said several purchases and sales, and
that said purchases and sales were made in accordance and with his
instruction, subject to the rules and bylaws of the New York Cotton
Exchange, and that said orders for the purchase and sale of cotton
for future delivery were received and executed with the distinct
understanding that actual delivery was contemplated, as provided by
the bylaws and rules of said Exchange, as will more fully appear by
reference to said Exhibit A."
"The bylaws of the New York Cotton Exchange pleaded by the
plaintiffs contain the following provision:"
" The cotton to be of any grade from Good Ordinary to Fair,
inclusive, and if tinged or stained not below Low Middling Stained
(New York Cotton Exchange inspection and classification) at the
price of ___ cents per pound for middling, with additions or
deductions for other grades according to the rates of the New York
Cotton Exchange existing on the day previous to the date of the
transferable notice of delivery."
"To this pleading the defendant, in the lower court, interposed
the following exceptions:"
" I. Now comes the defendant in the above-entitled cause by his
attorney, and excepts to plaintiffs' petition herein and says that
the same is not sufficient in law to require him to answer, and
should be dismissed."
" II. And for special cause of exception, defendant shows the
following:"
" 1. It is apparent from the face of plaintiffs' petition that
the balance due upon the alleged account sued on arose out of a
gaming transaction in cotton futures on the New York Cotton
Exchange, that none of the cotton
Page 243 U. S. 19
alleged to have been bought and sold was delivered, but the
account sued on simply represents the difference in the rise and
fall of the market on said Cotton Exchange, and were alleged to
have been settled by plaintiffs by paying or receiving a margin or
profit on each contract, as shown in said account, and that the
alleged balance claimed by plaintiff to be due from defendant
consists of said alleged margin or profit."
" 2. It appears from plaintiffs' petition that said alleged
account sued on arose out of transactions on the New York Cotton
Exchange, and pursuant to the rules, regulations, customs, and
usages of said Exchange, and does not show or set forth that in the
settlement or closing out of said transaction sued on by delivery
or tender of any grade or grades of cotton other than the grade
upon which the prices were based in the transaction sued on, that
the same were settled or closed out at the actual price for spot
delivery of such other grade or grades at the time and place of
delivery or tender."
"Upon this record, the court below entered the following
order:"
" Thereupon came on to be heard the demurrers and exceptions of
defendant to plaintiffs' amended petition, and the same having been
heard and duly considered, it is the opinion of the court that said
demurrers and exceptions should be sustained, and it is accordingly
so ordered, and, the plaintiffs declining to amend, it is further
ordered that said cause be and the same is hereby dismissed at the
cost of plaintiffs, to which order of the court sustaining said
demurrers and exceptions, and dismissing said cause, the plaintiffs
in open court excepted. "
Page 243 U. S. 20
MR. CHIEF JUSTICE WHITE, after stating the contents of the
certificate of the court below as above reproduced, delivered the
opinion of the Court.
The question as to which the court below desires to be
instructed upon the case as stated in the foregoing certificate is
this:
"Where a contract between a citizen of the State of New York and
a citizen of the State of Texas is entered into, made, and executed
in the State of New York for the sale of cotton for future delivery
upon the New York Cotton Exchange, pursuant to the rules,
regulations, customs, and usages of said Exchange, and the same is
a valid exigible contract in the State of New York, does the
statute of the State of Texas (known as the 'Bucket Shop Law')
passed by the 30th Legislature of the State of Texas, in 1907, the
same being incorporated in the Revised Criminal Statutes of Texas
(1911) as Chapter 3, pages 141, 142, or any public policy therein
declared, prevent a district court of the United States, sitting in
Texas, wherein a suit is brought to recover for breach of said
contract, from granting such relief as otherwise but for such
statute the parties would be entitled to have and receive?"
We construe the question as simply asking whether, under the
pleadings as stated in the certificate, a cause of action was
disclosed which there was jurisdiction to hear, taking into
consideration the local law, including the provisions of the Texas
statute referred to in the question.
It is obvious on the face of the pleadings, as stated in the
certificate, that the contract the enforcement of which was sought
was valid under the laws of the State of New York, the place where
it was entered into and where it was executed, and this validity
was not and could not be affected by the laws of the State of
Texas, as, in the nature of things, such laws could have no
extraterritorial operation.
Page 243 U. S. 21
This conclusion is, however, negligible, as the question is not
whether the contract was valid, but whether, being valid under the
law of New York, it was susceptible, consistently with the laws of
Texas, of enforcement in the courts of the United States sitting in
that state. And this question involves the inquiry, was there any
local public policy in the State of Texas which, consistently with
the duty of the courts of that state under the Constitution to give
effect to a contract validly made in another state, was sufficient
to warrant a refusal by the courts of that state to discharge such
duty?
A statement of a few elementary doctrines is essential to a
consideration of this issue. Treating the two states as sovereign
and foreign to each other -- New York, under whose laws the
contract was made and where it was valid, and Texas, in whose
courts we are assuming it was sought to be enforced -- it is
elementary that the right to enforce a foreign contract in another
foreign country could alone rest upon the general principles of
comity. But, elementary as is the rule of comity, it is equally
rudimentary that an independent state under that principle will not
lend the aid of its courts to enforce a contract founded upon a
foreign law where to do so would be repugnant to good morals, would
lead to disturbance and disorganization of the local municipal law,
or, in other words, violate the public policy of the state where
the enforcement of the foreign contract is sought. It is, moreover,
axiomatic that the existence of the described conditions preventing
the enforcement in a given case does not exclusively depend upon
legislation, but may result from a judicial consideration of the
subject, although it is also true that courts of one sovereignty
will not refuse to give effect to the principle of comity by
declining to enforce contracts which are valid under the laws of
another sovereignty unless constrained to do so by clear
convictions of the existence of the conditions justifying that
course. And
Page 243 U. S. 22
finally, it is certain that, as it is peculiarly within the
province of the lawmaking power to define the public policy of the
state, where that power has been exerted in such a way as to
manifest that a violation of public policy would result from the
enforcement of a foreign contract validly entered into under a
foreign law, comity will yield to the manifestation of the
legislative will and enforcement will not be permitted. It is
certain that these principles which govern as between countries
foreign to each other apply with greater force to the relation of
the several states to each other, since the obligations of the
Constitution which bind them all in a common orbit of national
unity, impose of necessity restrictions which otherwise would not
obtain, and exact a greater degree of respect for each other than
otherwise by the principles of comity would be expected. It is
unnecessary to cite authority for these several doctrines, since,
as we have said, they are indisputable, but they nowhere find a
more lucid exposition than that long ago made by Mr Chief Justice
Taney in
Bank of Augusta v.
Earle, 13 Pet. 519,
38 U. S.
589-590.
Coming to apply these principles from general considerations, as
it is undoubted that the New York contract as declared on was not
only valid under the law of New York, but was not repugnant to the
common or general law, as long since settled by this Court
(
Irwin v. Williar, 110 U. S. 499;
Bibb v. Allen, 149 U. S. 481;
Clews v. Jamieson, 182 U. S. 461),
and as we have been referred to and have been able to discover no
decision of the courts of Texas or statute of that state causing
its enforcement to be repugnant to the public policy of Texas, it
must result that the question would have to be answered in the
negative unless a different conclusion is required by the
provisions of the particular state statute referred to in the
question.
The statute is criminal, and provides a punishment for the
offenses which it defines, and the argument is that,
Page 243 U. S. 23
this being true, it necessarily forbids, as a matter of public
policy, the enforcement in Texas of contracts, although lawful by
the laws of another state, which, if entered into in Texas, would
be criminal, since it must be that the public policy of Texas
exacts that the results of a contract which, if made in Texas,
would be punished as a crime, shall not be susceptible of
enforcement in its civil courts because made in another state. But,
without stopping to analyze the authorities relied upon to sustain
the proposition in order to determine whether they support the
doctrine as broadly stated, we observe that, although the
proposition were to be conceded for the sake of the argument only,
that concession is immaterial for this reason: the statute relied
upon (the pertinent sections are in the margin
*) does not make
criminal all sales for future delivery
Page 243 U. S. 24
of the property described, but only forbids and punishes the
making of contracts of that nature where certain prescribed
conditions are not exacted or do not exist. It looks, therefore,
not to prohibit all such contracts, but to secure in all, when made
in Texas, the presence of conditions deemed to be essential.
Indeed, it goes further, since, even although the contract on the
subject may have been made with the express stipulation as to
delivery exacted by the statute, nevertheless, crime and punishment
may result as against a particular party to the contract who, in
bad faith, has assented to the express stipulation, which otherwise
would be valid. These conclusions we think plainly result from the
definitions which the statute makes in the first class as to
delivery, in the second class as to option, and in the third as to
ultimate performance, none of which conditions, we think, can be
said to necessarily embrace the contract sued upon, taking the
facts alleged in the petition to be established. It is true the
statute contains general provisions in articles 545 and 546 (which
we do not reproduce) that, wherever a criminal prosecution is
commenced against a person who may have made a particular future
contract containing provisions in violation of the statute, the
presumption shall be
prima facie that the illegal
conditions existed, and therefore that there was guilt until the
contrary was shown. But we are of opinion that this affords no
ground in a civil case brought to enforce a contract, for holding
that the averments of the petition must be taken to be untrue in
order to defeat a right to be heard, simply because, under a
criminal statute as to particular offenses, the burden of proof is
shifted.
Concluding, as we do, that, accepting the averments of the
petition as true, the cause of action was susceptible
Page 243 U. S. 25
of being heard in the courts of Texas, and therefore was also
susceptible of being brought in the courts of the United States in
that state, we are of opinion that the question asked should be
replied to in the negative. And, of course, we must not be
understood as deciding whether the mere existence of a state
statute punishing one who, in bad faith, and because of such bad
faith, had made an agreement to deliver in a contract of sale which
would be otherwise valid, could become the basis of a public policy
preventing the enforcement in Texas of contracts for sale and
delivery made in another state which were there valid, although one
of the parties might have made the agreement to deliver in bad
faith. In other words, we must not be understood as expressing any
opinion on the subject of whether, consistently with the very
nature of the relations between the several states resulting from
the constitutional obligations resting upon them, the courts of
Texas, under the guise of a public policy resting merely on the
conditions stated, could rightfully refuse to enforce a contract
validly made in another state, or, at all events, whether, under
such circumstances, such a contract would not, in the nature of
things, be enforceable in the appropriate courts of the United
States.
A negative answer is therefore made to the question asked,
and it is ordered that it be so certified.
* Texas Revised Criminal Statutes 1911, title 11, c. 3, p.
141.
"Art. 538. A bucket shop defined. A bucket shop, within the
meaning of this law, is any place wherein dealing in futures is
carried on contrary to any of the provisions hereof."
"Art. 539. Futures or dealing in futures defined. By each of the
expressions, 'futures,' 'dealing in futures,' and 'future
contracts,' as these terms are used in this law is meant: 1. A sale
or purchase, or contract to sell, or any offer to sell or purchase,
any cotton, grain, meat, lard, or any stocks or bonds of any
corporation, to be delivered in the future, when it was not the
bona fide intention of the party being prosecuted under
this chapter at the time that such sale, contract, purchase, or
offer to sell or purchase, was made that the thing mentioned in
such transaction should be delivered and paid for as specified in
such transaction. 2. Any such sale, purchase, offer or contract
where it was the intention of the party being prosecuted hereunder
at the time of making such contract or offer, that the same should,
or at the option of either party, might be settled by paying or
receiving a margin or profit on such contract. 3. Any purchase,
sale or offer of sale or purchase, or contract for future delivery
of any of the things mentioned in this article on, by or through
any exchange or board of trade, the rules, bylaws, customs or
regulations of which permit such contract or transaction to be
settled or closed by delivery or tender of any grade or grades of
the thing mentioned in such contract or transaction, other than the
grade upon which the price is based in said transaction at any
price other than the actual price for spot delivery of such other
grade or grades at the time and place of delivery or tender."
