38 N.J. Eq. 219 | N.J. | 1884
The opinion of the court was delivered by .
The bill in this case was filed for the foreclosure of a mortgage made by Jennie M. Flagg and William L. Flagg, her husband, (who are the appellants) to Abram F. Baldwin (who is the respondent), upon lands in this state, to secure the payment of appellants’ bond. The bond and mortgage were dated August 26th, 1880. The bond was in the ordinary form of a money obligation and was conditioned for the payment to respondent of $11,563.44, with interest, on demand. The mortgage recited that it was intended to secure the money which appellants had so bound themselves to pay, and that the amount of $11,563.44 was made up of $7,563.44, which was therein declared to be then due from appellants to respondent, and of $4,000 to be security for future advances.
From the proofs it appears that the sum of $7,563.44, so admitted to be due from appellants to respondent, was made up of different sums. One sum represented the loss which had been incurred by Mr. Flagg in a stock speculation which had been carried on by him and one Ripley with respondent, a stockbroker in New York. Another sum represented losses incurred by Mr. Flagg in a like speculation carried on by him and respondent in joint account. Another sum represented losses incurred in a like speculation originally carried on by Mr. Flagg with respondent and afterwards transferred to and carried on by Mrs. Flagg (under the control and management of her husband)
The $4,000 of future advances were designed and intended as a margin for a continuance of the stock speculation of Mrs. Flagg to be carried on in her name under the management of her husband with respondent, and the advances contemplated by both parties were such as would cover and make good her losses therein, if any.
Respondent’s books show that the bond and mortgage were credited to Mrs Elagg’s account for the sum of $11,563.44, and that account had been charged with the previous losses. It appears further that the speculative stocks carried in that account have all been closed out with the result of leaving a balance in Mrs. Elagg’s favor of $653.93. Since the mortgage entered into-the account, the effect is that there is due thereon the sum of $10,909.51, with interest, and its foreclosure and the sale of the mortgaged premises must be conceded unless some of thedefences are sustained.
The main defence goes to the validity of the bond and mortgage, and contests them on the ground that the contracts out of which they arose were wagering contracts and illegal and void, and that the bond and mortgage securing an indebtedness arising solely from such cause are tainted with the same illegality and cannot be enforced.
In coming to the consideration of the question thus raised, it is obvious that it is important to determine at what place the-contracts contested were made. For if they are New Jersey contracts and subject to our law, the sole question is whether they are such contracts as are declared unlawful by the “ act to prevent gaming.” Rev. p. 458. While if they are contracts of another place, it must be preliminarily determined whether they are objectionable by the law of the place of contract; or if not, whether they will still be enforced by our courts.
The evidence seems to leave no room for doubt that the contracts in question are contracts made,and to be performed in the
Where contracts of a particular kind are forbidden by the law of the state in which they are sought to be enforced, and the party seeking to enforce them relies on the fact that they were made in a foreign state and are valid contracts by the lex looi contractus, it 'has been held elsewhere that he is bound to aver and prove those facts. Thatcher v. Morris, 11 N. Y. 437.
But the rule which seems to have been established in this state requires one who defends against a foreign contract, if he relies on its being invalid by force of the lex loci contractus, to both set up and prove the foreign law. Campion v. Kile, ubi supra; Dolman v. Cook, ubi supra; Uhler v. Semple, 5 C. E. Gr. 288.
We have, then, to deal with transactions which took place within the state of New York and must be presumed to be governed by the laws of that state. Whatever may be the rule respecting the burden of setting up and proving the law of the foreign state under such circumstances, neither appellants nor respondent have furnished in their pleadings or proofs any information on the subject. In the absence of proof of the law of another state, the better opinion is that, at least with respect to states comprised in the territory severed from England by the revolution, the presumption is that the common law prevails. White v. Knapp, 47 Barb. 549; Stokes v. Macken, 62 Barb. 145; Holmes v. Broughton, 10 Wend. 75; Thurston v. Percival, 1 Pick. 415; Shepherd v. Nabors, 6 Ala. 631; Walker v.
By the common law, contracts of wager and similar contracts were not objectionable per se. They were, in fact, enforced by the courts without any objection on the score of being dependent on a chance or casualty. Courts did, in some instances, refuse to enforce such contracts, but only when the subject of the wager was objectionable, as tending to encourage acts contrary to sound morals (Gilbert v. Sykes, 16 East 150); or being injurious to the feelings or interests of third persons (De Costa v. Jones, Cowp. 729); or against public policy or public duty (Atherfold v. Beard, 2 T. R. 610; Tappenden v. Randall, 2 B. & P. 467; Shirley v. Sankey, 2 B. & P. 130; Hartley v. Rice, 10 East 22).
It has not been urged, nor does there seem to be ground for contending, that the transactions in question were such as by the common law would not be enforced.
We are therefore required to determine whether these contracts, made in the state of New Y ork, and presumed to be governed, as to their validity, by the doctrines of the common law and not objectionable thereunder, are to be enforced in this state.
The common law under which such contracts were enforceable has been here altered hy the passage of the act against gaming above referred to. By the first section, all wagers, bets or stakes made to depend on any lot, chance, casualty or unknown or contingent event are declared to be unlawful. By the third section, all bonds, mortgages or other securities made or given, where the whole or any part of the consideration shall be for money laid or betted in violation of the first section, or for repaying money knowingly advanced to help or facilitate such violation, aré declared to be utterly void.
If the contracts now sought to be enforced would be obnoxious to these provisions of our statute, if made in this state, are we to enforce them because made in New York, where we are bound to presume the common law exists unaltered?
The enforcement of a foreign law and contracts dependent
Since the courts of each state must, at least in the absence of positive law, determine how far comity requires the enforcement of foreign contracts, it results that there is contrariety of view, and the proposition above stated is not universally admitted. Thus, in New York, a contract made in Kentucky, under a law of that state, establishing a lottery for the benefit of a college, was upheld, notwithstanding the law of New York prohibiting lotteries. Com. of Ky. v. Bassford, 6 Hill 526. Chief-Justice Nelson limited the cases of contracts not enforceable, though valid where made, to such as are plainly contrary to morality. He gave no consideration to the doctrine elsewhere settled, that excludes from enforcement, contracts opposed to the public policy
So, in Massachusetts, a contract arising out of a completed sale of lottery tickets, in a state where such sale was lawful, was enforced by the courts, although such sale was there prohibited by statute. McIntyre v. Parks, 3 Metc. 207. But there was no discussion of principles by the court.
The courts of this state have expressed and enforced different views. Thus, in Varnum v. Camp, 1 Gr. 326, the question of the validity of a foreign assignment for the benefit of creditors, came before the supreme court. The assignment was made in New York, and was assumed to be valid by the law of that state. It created preferences, and by the law of this state, was fraudulent and void. The assignment was held unenforceable here. Chief-Justice Ewing, whose opinion was adopted by the court, puts the decision distinctly' upon the ground that the assignment was one in violation of the policy of our laws, in hostility with their provisions, and which, they declared to be fraudulent and void. In Bentley v. Whittemore, 4 C. E. Gr. 462, a similar question arose in this court, and the doctrine of Varnum v. Camp was restated and affirmed. The application of the doctrine was, however, limited to the protection of the residents a-nd citizens of this state, for whose benefit its public policy was held to be adopted. With respect to non-residents, or citizens of other states, it was held that comity would require the recognition of foreign assignments, if valid where made. Watson v. Murray, ubi sup., was the case of a bill filed for an account of a partnership transaction in a lottery in another state, where such a transaction was claimed to be lawful. The bill was dismissed on the advice of Vice-Chancellor Dodd. His conclusion was that such a transaction, though valid where made, should not be enforced here, because it was in violation of a public law of this state, and within the exceptions to the rule of comity requiring the enforcement of foreign contracts. He further argued that lotteries are not only illegal, but are to be judicially considered to be immoral. It is unnecessary to determine how far that
The limitations on the rule laid down in Bentley v. Whittemore do not come in question in this' case. It appears that Mrs; Flagg was, in fact, a resident of this state at the time these contracts were made, and there is nothing to show a change of residence.
We are brought, then, to the question whether our law against gaming is such a public law and establishes such a public policy as to require us to refuse to enforce foreign contracts in conflict with it, in a case l'ike That under consideration. I think this question must be answered in the affirmative.
It is true that, in Dolman v. Cook and Campion v. Kille, ubi sup., foreign contracts, valid by the law of the state where made, were enforced here, although, by our law, they were usurious and declared to be void. No consideration seems to have been given to the question whether our usury law was such a law and evinced such a public policy as required us to refrain from enforcing foreign contracts in conflict with it. As we have seen, that consideration led our courts to reject foreign assignments violative of our laws, where the interests of our own citizens were concerned. But a plain distinction at once presents itself between a usury law and a law regulating assignments for the benefit of creditors, or a law against gaming. One affects only the parties to the contract, and is framed for the protection of the borrower. The others relate to the public or classes of the public who are interested therein and affected thereby.
But our law against gaming goes further than to merely prohibit the vice or avoid contracts tainted with it. It declares it unlawful, and so puts the contracts beyond the protection of the laws or the right of appeal to the courts. The reason and object of the law are obvious. The vice aimed at is not_only jiflurious
In my judgment, our law against gaming is of such a character, and is designed for the prevention of a vice, producing injury so widespread in its effect, the policy evinced thereby is of such public interest that comity does not require us to here enforce a contract which, by that law, is stigmatized as unlawful, and so prohibited.
It remains to determine whether the enforcement of these contracts will conflict with the provisions of this statute and the public policy thereby established. If so, it must be for the reason that the mortgage secures an indebtedness arising out of transactions that are wagers.
In considering this question, care should be taken not to trench upon legitimate and proper enterprises. The act is not intended to interfere with the right of buying and selling for speculation.
The line is to' be drawn between what is legitimate speculation and what is .unlawful wager. When property is actually bought, whether with money or with credit, the purchaser and owner may lawfully hold it for a future rise and risk a future fall. With such transactions, the law does not pretend to interfere. They are within the line of lawful speculation.
But when, either without any disguise or under a guise which simulates such legitimate enterprises, the real transaction is a •mere dealing in the differences between prices, i. e., in the payments of future profits or future losses, as the event may be, then, in my judgment, the line which separates lawful speculation from illegal wagering is crossed, and the contract, under our law, becomes unlawful, and the securities for it void.
This proposition is sustained by all the cases, without an exception, that I can discover. The only disagreement relates to the application of the doctrine.
Thus, in New York, the court of appeals, in Kingsbury v.
It is true that the same court has determined, though against the protest of able and distinguished judges, that between the broker purchasing on a margin and his customer, the relation of principal and agent and of pledgor and pledgee, exists. Markham v. Jaudon, 44 N. Y. 235; Baker v. Drake, 66 N. Y. 518; Gruman v. Smith, 81 N. Y. 25. It has been there held that a broker can recover from his customer deficiencies arising from •sales of stocks bought on a margin, and that where, upon a margin, a broker made “ short sales ” of stock, which he borrowed for that purpose, he might recover of his customer what was expended in replacing the borrowed stock. Wicks v. Hatch, 62 N. Y. 535; Knowlton v. Fitch, 52 N. Y. 288. But in these cases, it does not seem to have been contended that the contract was a mere cover for wager. Such contention was made in Kingbury v. Kirwan and Bigelow v. Benedict, but it was held that there was no sufficient evidence that the transactions were not real. Upon a review of all the cases in New York, they establish, in my judgment, the correct doctrine that a contract relating to differences only would be a wager contract. But they also hold that dealings on margin are not to be considered as dealings in mere differences. If, in any case, evidence sufficient to show that the margin dealings were mere covers for dealings in differences was produced, then, upon the principles-there laid down, the contracts would be wagers.
In the courts of Pennsylvania, the same principles have been often enunciated. Thus, in Smith v. Bouvier, 70 Pa. St. 325, the court approved a charge to a jury which left to them to say
The same doctrine has been announced by the supreme court of the District of Columbia (Justh v. Holliday, 11 Wash. L. Rep. 418), and by the United States circuit court in the district of Kansas. Cobb v. Prell, 22 Am. Law Reg. (N. S.) 609. To the latter case a note is appended, discussing the subject and collecting many cases.
In Grizewood v. Blane, 11 C. B. 526, it was held that a color-able contract for the sale and purchase of railway shares, when neither party intends to deliver or accept the shares, but merely
It will be observed that our statute declares such contracts not only void, but unlawful, and, further, that the relation of agency between the customer and broker, in such transactions on which
My conclusion is that these transactions, so far as affected by our law against gaming, are to be examined, to discover their real nature, and if, however unobjectionable their form may be, the real contract is merely in respect to differences, the contract is a wager, both void and unlawful.
On examining the transactions in question in this cause, with a view to discover their real character, I am compelled to the conclusion that, however they may have been made to imitate real transactions, they were in fact mere wagers. It never was contemplated, intended or agreed, by either party, that the stocks purchased or sold were to become or to be treated as the stocks of appellants. The real contract disclosed by the evidence was to receive and to pay differences.
All the transactions were upon margins. They commenced by Flagg’s depositing $1,000 with respondent, when he agreed to open the account, which was wholly a speculative account. Afterwards Flagg deposited $300 more. Then the wife’s note for $4,500 was put in, and the account transferred to her name. Finally the bond and mortgage were given.
Upon these advances the purchases were very large. Respondent testifies that upon the margin of $1,300, stocks of a cash value of about $450,000 were purchased for the account between January 28th and June 16th, 1880. After the account was transferred to Mrs. Flagg’s name, stocks to an amount between $600,000 and $700,000, were purchased between June 16th, 1880 and March 17th, 1881. Thus, in less than fourteen months, purchases aggregating over $1,000,000 were made. According to Flagg’s statement, the account once held one thousand three hundred shares, of a par value of $1,300,000.
The certificates of the stocks were never transferred or delivered to appellants.
These enormous transactions were far beyond the ability of
Under such circumstances, it is idle to pretend that there was or could be any hope or expectation that appellants were to take or could be required to take these vast amounts of stock. For respondent to have tendered them, and demanded payment for them, would have been absurd in the extreme. The whole circumstances show that no such right to tender entered into the transaction. On the contrary, the contract plaiuly was that if the stocks bought advanced, the profit was to be realized by a sale. If they declined, the remedy of respondent to save himself was by a sale. The settlement was to be of the profits and losses thus ascertained.
If, in the absence of express stipulation, the reciprocal rights of tendering and demanding this stock would be presumed to enter into such a -contract, the whole circumstances corroborate the testimony of Flagg, who swears that it was expressly understood that there was not to be any actual delivery of stocks, and that he should not be required to pay for them.
In the able opinion below, much stress is laid on the fact that the purchases and. sales for this account were actually made by respondent. He so testifies, and produces vouchers in corroboration of his statement. That the transactions were very large, and upon a petty advance, is not sufficient, probably, to permit us to reject this positive statement. But assuming it to be true that respondent actually purchased or sold every share of stock in this account, I am unable to perceive how the circumstance affects the conclusion in this case. If respondent was the mere agent of the appellants in transactions with third parties, there might be some significance attached to it. But such is not, as we have seen, the real nature of the relation between the parties. They were dealing, as to this transaction, as principals, and it was
Nor is the result altered by the fact that the broker has or attempts to retain perfect indemnity againstToss on his part. As I interpret the transactions, respondent, in consideration of commissions and interest on advances, agreed to buy and hold stock in anticipation of a rise; or to sell stock of his own, or borrowed for that purpose, in anticipation of a fall. The agreement required him to pay the profits of the transaction, which would otherwise be his, to appellants. On the other hand, appellants, in consideration of his thus carrying the stock bought, or providing the stock sold, agreed that in case of a rise or fall to a certain amount, the stock should be closed out, and the loss, which otherwise would fall on respondent, should be paid by them to him. This bargain contained all the elements of a wager. It is not less a wager because one of the parties obtained a guaranty for the performance of the bargain by the other party.
For these reasons my conclusion is that the transactions in question were wagers within the meaning of our law; that the securities given for them would be absolutely void if the contracts were made in this state; that although made in a foreign state, and not objectionable by the law which must be presumed (in the absence of proof) to govern them, they will not be, and ought not to be, enforced in this state, between these parties, because to enforce them would be opposed to a public policy on this subject of the vice of gaming, perspicuously shown by our law on that subject.
■The decree below must be reversed, and a decree entered dismissing the bill. Appellants are entitled to their costs.
For affirmance — Depue, Parker, Reed, Clement, Whitaker — 5.