Contracts for sale of cotton for future delivery which do not
oblige interstate shipment are not subject of interstate commerce,
nor does the fact that a delivery may be made by mean of interstate
carriage make them so, and a state tax on person engaged in buying
and selling cotton for future delivery held in this case not to be
a regulation of interstate commerce, and, as such, beyond the power
of the state.
Paul v.
Virginia (insurance policy case), 8 Wall. 168,
followed;
Lottery Case, 188 U. S. 321;
Rearick v. Pennsylvania, 203 U. S. 507,
distinguished.
146 Ala. 163 affirmed.
The facts are stated in the opinion.
Page 209 U. S. 406
MR. JUSTICE DAY delivered the opinion of the Court.
These cases were submitted together, and are in all respects
similar, and involve the constitutional validity of subdivision 40
of an act of the legislature of Alabama imposing license taxes, "to
better provide for the revenue of the state," General Acts 1903, p.
207, which reads as follows:
"For each person engaged in the business of buying and selling
futures for speculation or on commission, either for themselves or
for other persons, and each place of business commonly known as
cotton exchanges, or stock exchanges, and sometimes called 'bucket
shops,' in towns and cities of 20,000 inhabitants or more, $500; in
all other towns and cities, $250; but this shall not be held to
legalize any contract which would otherwise be invalid."
In case No. 173, the action was brought by Mobile County for the
recovery of the defendants' license tax for the year 1903, for
engaging in the business of buying and selling futures on
commission for other persons in the City of Mobile. The other case
(No. 174) was an action by the state. Plaintiffs recovered in the
circuit court, and both judgments were affirmed by the supreme
court. 146 Ala. 163.
The cases were submitted upon an agreed statement of the facts
as follows:
During the whole of the year 1903, defendants had an office in
the City of Mobile, in the County of Mobile and State
Page 209 U. S. 407
of Alabama; they also had offices in the City of New York in the
State of New York, and in the City of New Orleans in the State of
Louisiana, and in the City of Chicago in the State of Illinois,
each of which offices was connected by private telegraph wires with
said Mobile office. Said Mobile, Alabama, office was in the charge
of their agent, one Robbins, and was engaged in the business of
buying and selling cotton for future delivery, on commission, for
the public generally and for special customers, said business being
conducted in the following way and in no other way: they would
undertake, through their agent, to buy or sell a cotton future
contract for a customer in the cotton exchange in New York or in
New Orleans, as he might select, he making at the time a deposit of
money with them as a margin to protect them against loss in making
such transaction for him. When the customer gave the order to Ware
& Leland either for a sale or a purchase of a future contract,
it was not usual for anything to be said between them about an
actual delivery of the cotton, but when the transaction was
commenced by a purchase or sale of the cotton, Ware & Leland
would immediately furnish to the customer a memorandum thereof,
partly written and partly printed, upon which the following
stipulations were printed:
"On all marginal business, we reserve the right to close
transactions without further notice when margins are about
exhausted, and to settle contracts in accordance with the rules and
customs of the exchange on which the order is placed, it being
understood and agreed in all trades that actual delivery is
contemplated,"
"and"
"All purchases and sales made by us for you are made in
accordance with and subject to the rules, regulations, and customs
of the exchange on which the order is placed and the rules,
regulations, and requirements of the board of managers of said
exchange and all amendments that may be made thereto."
"Such agent would thereupon transmit such order by their private
telegraph line to the defendants' office in the city without the
State of Alabama selected for such transaction; that such order
would be thereupon
Page 209 U. S. 408
executed by defendants by the purchase or sale, as directed, of
a future cotton contract for such customer in the cotton exchange
of the city to which such order was sent, and subject to the rules
and regulations of such cotton exchange, which rules and
regulations may be introduced in evidence by defendants in this
cause; that said contract would be held by defendants for such
customer until he ordered the same closed out, when they would sell
or buy another cotton contract against it as might be necessary to
cover the same or close it out, or receive or deliver the cotton on
said contract. If a profit was made on the transaction, defendants
remitted the same to its agent in Mobile, who paid it over to the
customer; if a loss was made, it was taken by the agent out of the
customer's margin, or if that was insufficient therefor, the
customer was called on for the balance. Said business was done on a
commission paid defendants by the customers."
"No actual delivery of cotton or grain was ever made on any such
contracts, except in a few instances, when such deliveries were
made where the contracts were executed, to-wit: in New York, New
York, or in New Orleans, Louisiana, or Chicago, Illinois. When any
such delivery of cotton was made to defendants for the customer on
a purchase by him, it was held by the defendants for account of the
customer at the place of delivery, either New York, New York, or in
New Orleans, Louisiana, until ordered sold by the customer, and was
then sold by them there for the account of the customer, and the
proceeds accounted for by them to such customer. When they made
delivery of cotton on a sale of futures made by them for a
customer, the cotton was shipped by the customer for whom such sale
was made from Alabama to the place of sale and there delivered
through defendants to the buyer."
"A similar future grain business was done by defendants at their
said office in Mobile, Alabama, for customers through their office
in Chicago, in the State of Illinois, said orders being executed on
the Chicago, Illinois, Board of Trade, and subject to its rules and
regulations, which contemplated and
Page 209 U. S. 409
provided for the actual receipt or delivery of grain bought or
sold therein, such delivery to be made in Chicago, Illinois."
"During the whole of the year 1903, said City of Mobile,
Alabama, was a city of more than 20,000 inhabitants."
"Defendants paid to plaintiff a license tax of $100 for doing
such business in said city for the year 1903, which payment was
made prior to the fourth day of March, 1903; they have not paid any
further license tax to plaintiff for doing such business in said
year."
Upon the trial of the action, in addition to the foregoing
agreed facts, the counsel for the plaintiff admitted that the rules
and regulations of the New York Cotton Exchange, New Orleans Cotton
Exchange, and Chicago Board of Trade, respectively, provided
"that contracts executed therein should be in writing, and also
provided that in every cotton or grain contract for future
delivery, executed and entered into in said exchange or board of
trade, it should be stipulated, agreed, and understood that an
actual receipt and delivery of the cotton or grain was to be had,
and that said contracts were transferable and assignable."
The sole question here presented is whether the statute in
question is an attempt to regulate interstate commerce, for if the
plaintiffs in error are shown by the foregoing agreed facts to be
engaged in interstate commerce, then the statute is void as an
attempt by a state to regulate the commerce which the Constitution
of the United States places within the exclusive control of federal
authority.
Interstate commerce must be such as takes place between states,
as differentiated from commerce wholly within a state. It must have
reference to interstate trade or dealing, and if the regulation is
not such, and comprehends only commerce which is internal, the
state may legislate concerning it. In each case, the recurring
question is on which side of the line does the commerce under
investigation fall?
It is unnecessary to review the former decisions of this
Court,
Page 209 U. S. 410
as that has been done in very recent cases, such as the
Lottery Case, 188 U. S. 321,
where it was held that the transportation of lottery tickets was
interstate commerce, and, as such, subject to regulation by act of
Congress. In that case, the federal act prohibiting the
transmission of lottery tickets was sustained because of the actual
carriage in interstate traffic of the tickets themselves; and, in
concluding the opinion of the majority of the court, MR. JUSTICE
HARLAN said:
"The whole subject is too important, and the questions suggested
by its consideration are too difficult of solution, to justify any
attempt to lay down a rule for determining in advance the validity
of every statute that may be enacted under the commerce clause. We
decide nothing more in the present case than that lottery tickets
are subjects of traffic among those who choose to sell or buy them;
that the carriage of such tickets by independent carriers from one
state to another is therefore interstate commerce; that, under its
power to regulate commerce among the several states, Congress,
subject to the limitations imposed by the Constitution upon the
exercise of the powers granted, has plenary authority over such
commerce, and may prohibit the carriage of such tickets from state
to state, and that legislation to that end, and of the character,
is not inconsistent with any limitation or restriction imposed upon
the exercise of the powers granted to Congress."
And in
Leloup v. Mobile, 127 U.
S. 640, it was held that a telegraph company whose
business is the transmission of messages from one state to another,
invested with the powers and privileges conferred by Congress,
could not be compelled to pay a license tax by the state. And in
Pensacola Telegraph Co. v. Western Union Telegraph Co.,
96 U. S. 1, it was
held that interstate telegraphic communications, conducted by
companies organized for that purpose, was commerce within the
regulating power of Congress. The
Pensacola case was
affirmed in
Western Telegraph Co. v. Texas, 105 U.
S. 460, in which case Mr. Chief Justice Waite, speaking
for the Court, said, p.
105 U. S.
464:
"A telegraph company occupies the same relation to commerce,
as
Page 209 U. S. 411
a carrier of messages, that a railroad company does as a carrier
of goods."
While the general principles applied in these cases are not be
denied, there is a class of cases which hold that contracts between
citizens of different states are not the subjects of interstate
commerce simply because they are negotiated between citizens of
different states, or by the agent of a company in another state,
where the contract itself is to be completed and carried out wholly
within the borders of a state, although such contracts incidentally
affect interstate trade.
As in the cases involving insurance policies, it has been held
that issuing them in one state and sending them to another, to be
there delivered to the insured upon payment of premium, is not a
transaction of interstate commerce.
Paul v.
Virginia, 8 Wall. 168;
Hooper v.
California, 155 U. S. 648;
New York Life Insurance Co. v. Cravens, 178 U.
S. 389.
In
Paul v. Virginia, Mr. Justice Field, delivering the
opinion of the Court, said:
"Issuing a policy of insurance is not a transaction of commerce.
The policies are simple contracts of indemnity against loss by
fire, entered into between the corporations and the assured, for a
consideration paid by the latter. These contracts are not articles
of commerce in any proper meaning of the word. They are not
subjects of trade and barter, offered in the market as something
having an existence and value independent to the parties to them.
They are not commodities to be shipped or forwarded from one state
to another, and then put up for sale. They are like other personal
contracts between parties which are completed by their signature
and the transfer of the consideration. Such contracts are not
interstate transactions, though the parties may be domiciled in
different states. The policies do not take effect -- are not
executed contracts -- until delivered by the agent in Virginia.
They are, then, local transactions, and are governed by the local
law. They do not constitute a part of the commerce between the
states any more than a contract for the purchase
Page 209 U. S. 412
and sale of goods in Virginia, by a citizen of New York whilst
in Virginia, would constitute a portion of such commerce."
In
Hooper v. California, supra, it was said:
"If the power to regulate interstate commerce applied to all the
incidents to which said commerce might give rise and to all
contracts which might be made in the course of its transaction,
that power would embrace the entire sphere of mercantile activity
in any way connected with trade between the states, and would
exclude state control over many contracts purely domestic in their
nature. The business of insurance is not commerce. The contract of
insurance is not an instrumentality of commerce. The making of such
a contract is a mere incident of commercial intercourse, and in
this respect there is no difference whatever between insurance
against fire and insurance against 'the perils of the sea.'"
These cases are not in conflict with those in which it is held
that the negotiation of sales of goods in a state by a person
employed to solicit for them in another state, the goods to be
shipped from the one state to the other, is interstate commerce.
Robbins v. Shelby County Taxing District, 120 U.
S. 489; similar cases are
Rearick v.
Pennsylvania, 203 U. S. 507, and
Caldwell v. North Carolina, 187 U.
S. 622. In these cases, goods in a foreign state are
sold upon orders for the purpose of bringing them to the state
which undertakes to tax them, and the transactions are held to be
interstate commerce because the subject matter of the dealing is
goods to be shipped in interstate commerce, to be carried between
states and delivered from vendor to purchaser by means of
interstate carriage.
But how stands the present case upon the facts stipulated? The
plaintiffs in error are brokers who take orders and transmit them
to other states for the purchase and sale of grain or cotton upon
speculation. They are in no just sense common carriers of messages,
as are the telegraph companies. For that part of the transactions,
merely speculative and followed by no actual delivery, it cannot be
fairly contended that such contracts are
Page 209 U. S. 413
the subject of interstate commerce, and concerning such of the
contracts for purchases for future delivery as result in actual
delivery of the grain or cotton, the stipulated facts show that,
when the orders transmitted are received in the foreign state, the
property is bought in that state and there held for the purchaser.
The transaction was thus closed by a contract completed and
executed in the foreign state, although the orders were received
from another state. When the delivery was upon a contract of sale
made by the broker, the seller was at liberty to acquire the cotton
in the market where the delivery was required or elsewhere. He did
not contract to ship it from one state to the place of delivery in
another state. And though it is stipulated that shipments were made
from Alabama to the foreign state in some instances, that was not
because of any contractual obligation so to do. In neither class of
contracts, for sale or purchase, was there necessarily any movement
of commodities in interstate traffic because of the contracts made
by the brokers.
These contracts are not, therefore, the subjects of interstate
commerce any more than in the insurance cases, where the policies
are ordered and delivered in another state than that of the
residence and office of the company. The delivery, when one was
made, was not because of any contract obliging an interstate
shipment, and the fact that the purchaser might thereafter transmit
the subject matter of purchase by means of interstate carriage did
not make the contracts as made and executed the subjects of
interstate commerce.
We are of the opinion that the Supreme Court of Alabama
correctly held that the transactions of the plaintiffs in error
were not interstate commerce, and the judgments in both cases
are
Affirmed.