214 F. 161 | N.D. Ga. | 1914
The matter now before the court is brought here on a petition to review by Springs & Co., who sought to prove a claim in bankruptcy against the bankrupt estate. The referee declined to allow proof of claim on the ground: First that it was purely a gambling transaction, and that the amount of the claim sought to be proven could not be proven as a claim against the bankrupt estate, for that reason. He also put his refusal to allow proof of this claim upon a;dditional grounds, that is to say, that the transactions were ultra vires of the corporation.
The referee quotes a number of authorities as to the validity of. transactions of this kind. At the-time, however, the last decision of the Circuit Court of Appeals for the Fifth Circuit, in the case of D. W. James v. Haven & Clement, had not been handed down. That case, decided on March 10, 1914, 211 Fed. 972, 128 C. C. A. -, was the second decision made by this Circuit .Court of Appeals in that case, and after two trials and two verdicts by the juries in favor of the plaintiff.
“The defendant, as I understand it, contends, in the first place, that this was a wagering contract purely; that there was no intention on his part to deliver any cotton, or to have any delivered to him; that he was simply gambling on futures. This is the-substance of his claim and of his counsel’s, as I understand it.
“He also states that what is called ‘ringing out’ in the cotton contracts on the New York Cotton Exchange is of such a character that it should defeat the plaintiff’s right to recover against him, even if he is otherwise entitled to recover. As to this matter of ‘ringing out’ or ‘ringing up,’ as it seems to be sometimes called, it has been before the Supreme Court of the United States, and the highest court of the state of New York, and is fully sustained as a legal method of transacting this business. The Supreme Court of the United States says this: ‘The ring settlement is reached by a comparison of books among the clerks of the members buying and selling in the pit, and picking out a series of transactions which begins and ends with dealings which can be set against each other by eliminating those between — as, if A. has sold to B. 5,000 bushels of May wheat, and B. has sold the same amount to C., and C. to D. and D. to A. Substituting D. for B. by novation, A.’s sale can be set against his purchase, on simply paying the difference in price.’ That is to say, I understand this method of doing business to be treated by the courts, both the Supreme Court of the United States and the Supreme Court of New York, *,as an entirely legitimate method of transacting this part of the business. ' Unless you find something in what has been shown here in the evidence as to this ringing out or ringing up, it appears to me that it should have nothing to do with this transaction, and should not interfere with the plaintiff’s right to recover, provided he is otherwise entitled to recover.
“Now, the claim has been made, if I understand the claim by the defendant in this case, that, although, as I have just instructed you, this method of transacting the business has been sustained by'the courts, and this court • should recognize it as legitimate, it is claimed by the defendant that what is called ‘ringing out’ extinguished these contracts that were made by Haven & Clement for Mr. James; that when the ringing out was made and the matter carried through, all these contracts that they had made for Mr. James were thereby extinguished. You have heard the testimony about that, and what was said about it by counsel on both sides. It is claimed on the part of the plaintiff that this is not 'true; that the contracts provided that, they shall remain in force until they are finally executed, notwithstanding this arrangement ; that a contract to deliver on the part of a particular broker who sold to Haven & Clement, or their contract if they sold, existed, and could be enforced under the rules of the Exchange notwithstanding these contracts had, as they call it, been rung out. . That is a matter for you to determine under the evidence. I instruct you, under the law as I understand it to be fully established by the courts of the United States and of the state where this occurred, that it is a legitimate way of doing business, whether or not it was followed legitimately in this particular case, or whether or not, as contended to you by counsel for the defendant, it was done in such a way as to extinguish any claim Mr. James might have had, or his brokers on his part, for what was due him. Of course, that is not legitimate. It has been assumed that the matter is so arranged; for example, one of the bourts in referring to it likens it somewhat to a clearing house of the banks in cities where the banks have a clearing house arrangement by which they settle their, differences without having to give each one a separate check to square things up.”
The Circuit Court of Appeals said in their opinion that “no reversible error is shown by the record.”
In view of this last decision and the decisions which have preceded, by the Supreme Court of the United States and other courts, and aláo recently by the Appellate Division of the Supreme Court of New York in the opinion in the case of Springs et al. v. James, 137 App. Div.
Counsel for Springs & Co. places his claim of authority on the part of Mr. Hamilton to carry on this business with his clients largely upon the language of the charter which authorizes them to go into a mercantile business. The record in this cáse shows that the purpose of this amendment to the charter, authorizing the corporation to engage in a general mercantile business, must have been that they might carry on, in connection with their factory, stores for the sale of general merchandise to their efhployés and others, which they did to a very large extent. They had power, also, to buy and sell cotton, as stated, but that cannot be held certainly to authorize speculation in cotton futures.
It is further claimed that a corporation has a right to “hedge,” as it is called. The finding of the referee as to the facts in this case, which seems to me to be supported by the evidence, would not make any of the items of this claim an effort to protect the corporation against the rise and fall of cotton, but to be speculation pure and simple on the part of Hamilton.
The last finding of the referee is this:
“The trustee sets up that Springs & Co. had paid to A. S. Hamilton for his personal use certain sums, and charged the same to the Trion Manufacturing Company. Under the evidence I do not think any of those items have been proven, except the item of $1,244.67 oh August 6, 1906, which amount I find was transferred from the'account of the Trion Manufacturing Company to the individual account of A. S. Hamilton. Inasmuch as the evidence shows that Springs & Co. received from Trion Manufacturing Company large sums of money on transactions which are herein found to have been illegal, I find that the trustee of the Trion Manufacturing Company would have the right to set off the sum of $1,244.67 against the amount found due to the claimants by Trion Manufacturing Company. As'this amount is largely in excess of the sum of $67.37 found to be due claimants as above, I therefore disallow the claim of Springs & Co. entirely.” "
It is therefore ordered that the action of the referee in this matter be, and the same is hereby, approved and confirmed.