82 F. 833 | U.S. Circuit Court for the District of South Carolina | 1897
This case comes up on an original and a cross bill. The original bill is filed to foreclose a mortgage given by the Oamperdown Mills to secure past and future advances. Pending this main cause, Julius C. Smith and other stockholders filed their petition for leave to intervene in the cause, and to be made parties hereto. Leave having been granted, they came in, and, filing their answers, filed also their cross bill. The cross blil charges that certain items of indebtedness to the complainants, as shown in their account, were incurred by the officers of the corporation without lawful authority, in fact and in law, and are not binding on the corporation; certainly not on those stockholders who did not authorize or participate in the unauthorized and illegal acts.
The main facts are these: The Camperdown Mills is a corporation of the state of South Carolina, engaged in the manufacture and sale o-f
The first question to be discussed in reaching a conclusion of this most difficult and interesting case is, what was the character of these transactions? Were they entered into as speculations on the rise and fall of cotton, or were they made in the ordinary and legitimate business of the mill, — purchases of cotion for the use of the mill? The answer to this question involves an inquiry into,the motive which induced the purchases in the first instance. What was the purpose of Mr. Hammett and of Mr. Beattie in making the purchases of cotton on the New York Exchange, and why did Mr. O. H. Sampson advise and approve them? It is a difficult thing, generally, to get at the motive for an act. Usually we try to ascertain the motive by the declarations and conduct of the parties, and by the circumstances which surround them. In deducing the motive in this way, much depends upon the personal integrity and character of the parties. In the present case we are dealing with men of the highest business character for integrity and honesty. No fraud or bad motive is charged against any of them. No room exists for such a charge. Personally none of them liad any private interest to subserve. Except as the transactions affected the interests of the corporation of which they were officers and stockholders, none of them had a dollar’s interest in the matter. As far as the firm of O. II. Bampsou & Co. was concerned, they made' none of the contracts, had no interest in any one of iliem, and furnished the money needed in carrying the contracts precisely in the same way as they made any other advance to the corporation. There is a letter in the record which gives a clue to the intent with which Col. Hammett went into these operations in futures. He inaugurated the practice, and we can safely presume that it was continued by his successors and colleagues for the same reasons which actuated him. The letter is as follows:
“Greenville, S. C., November 26, 1887.
“Messrs. O. H. Sampson & Co., Boston, Mass. — Gentlemen: In a recent letter from yon In reply to one of mine, in which I had reported that we had purchased all the cotton we should need at Piedmont, you expressed a regret that we could not say the same thing for Camperdown. There ar<v several reasons why I did not do the same thing for Camperdown. One was that we had no place to store it until our new warehouse was completed, which has now' been done; but the principal reason was that we'did not have the money to pay for it. and had to run along as best we could from hand to mouth. On the 25th of October I became uneasy, and thought it very probable that the price would advance materially, and before we could buy a supply; and, in order to protect; ourselves against: such, • I bought some contracts in New York. I bought 300 bales for each of the nine months beginning with January and ending with September, as follows: [Bales set out in detail, the aggregate being 2,700 bales.] The same afternoon of the day I bought these contracts they ad-*836 Traced 8 points, and in less than three weeks they had advanced one cent per pound, which is $5 per hale, and upon these contracts $13,500 profit, less the expenses, which will he about' $700. It declined somewhat after that, but yesterday it was advanced to nearly the same price, and we could sell to-day, I presume, at. $12,000 profit. This was, of course, a great temptation to realize the profit, but I did not buy for that purpose. My plan is this: As we buy the spot cotton to sell the months against these contracts,' so as to reduce the cost to us. If cotton advances 'here, and we have to pay a high price 'for spot cotton, when we sell the contract we get a higher price in New York, so that the advantage to us is that the price is fixed, and will not cost us here more than 9 to 93/4 cents for the average through the season for the 300 bales per month. Our consumption'is about 375 bales per month, and I now regret that I did not buy 400 instead of 300 per month. I think I have talked to you about this plan of running a mill before, and that you heartily approved of my suggestion. It means this, and nothing more: That we fix the price for our cotton before we pay for it, and know just what we are doing. Our goods are usually sold largely ahead, and, if we make the sales without the cotton to produce them, it is the worst kind of dealing in futures; but when we protect ourselves by buying futures of cotton, we fix the price for it to make tlie goods already sold, which is perfectly legitimate and proper. At any time when futures are low, it is the best way to run a mill, because it saves you a large amount of interest and insurance and loss in weight, which necessarily attaches to the purchase of spot cotton. I thought you would be gratified to know this, and I- really feel very glad to be able to make such a report. So far as the 300 bales per month is concerned, it does not matter to us whether the price goes to 15 cents or to 5 cents. It is fixed to us at 9 to 9^4 cents.
“H. P. Hammett.
“President Camperdown Cotton Mills.”
It clearly appears from this letter that the purpose of purchasing cotton deliverable in the future was to advance the business of the Camperdown Mills in the course of that business, and it was deemed a wise — perhaps necessary- — precaution in the business; that they were not entered into as a speculation, or for the purposes of speculation. The question is not whether the course suggested was wise or unwise, prudent or rash. Was it business, or was it speculation? Is it a part of the method of conducting a manufacturing enterprise and the disposing of its product? If it is, then the bare fact that contracts were made for the future delivery of cotton does not show that the' contracts were ultra vires and void. If the origin of these contracts was not illegal, then the carrying of them, and paying from time to time the margins on them, were not invalid, if their purpose was to save the corporation from loss.
It is said, however, that such contracts are illegal per se. The contracts in the case at bar were made according to the rules of the New York Exchange, and afterwards according to the rules of the Liverpool Cotton Exchange. The general law does not forbid contracts for the future delivery of any kind of personal property. Nor is the contract made illegal if one or the other settles the contract by the payment or receipt of money. . The true test of the validity of the contract is whether it could be settled only in money, and in no other -way; or whether the party selling could tender, and compel the acceptance of, the particular commodity sold; or whether the party buying could compel the delivery of the commodity purchased. Bibb v. Allen, 149 U. S. 481, 13 Sup. Ct. 950. Tinder the rules of the New York Cotton Exchange, all sales or purchases for the future delivery of cotton contain an express provision that there must be an actual delivery of cot
There is yet another view to take of this case. The contracts in question were made by tbe Oamperdown Mills, through its own brokers in Yew York. O. IT. Sampson & Co. were connected with them, only in lending to the Oamperdown Mills the money used for margins. This money was advanced in the performance of their duties as commercial agents of the corporation. It inured for the benefit of the corporation alone. Sampson & Co. had no interest in the contracts at: all. During the whole currency of the contracts the corporation had the opportunity of profit, and by advances made by Sampson & Co. the corporation had all the chances of protection from loss. They enjoyed all the opportunities for profit. When the loss was realized, the controlling officer of the corporation, with the approval of a meeting of stockholders, executed this mortgage. Suppose that the contracts made through Woodward & Stillman, the Yew York brokers, and Weld & Go., the other brokers, were tainted with illegality; this
“It is to be observed that the plaintiffs in this case are not suing on these contracts, but for services performed and money advanced for defendant at his request. And, though it is possible they might, under some circumstances, bo so connected with the immorality of the contract as to be affected by it, if proved, they are certainly not in the same position as a party sued for the enforcement of the original agreement.”
There is still another view to be taken of this case. It is pressed by counsel for complainants, and, although its presentation is not necessary to the decision of the case, it may prove conclusive. Mr. Hammett’s purchase of 1,500 bales of cotton in 1890 was made upon his own judgment, .and not under the advice of O. H. Sampson & Co. Mr. Hammett, as president of the Camperdown Mills, himself, sent on to the Mew York brokers, Woodward & Stillman, the money necessary to inaugurate the transaction, and from time to time he sent on the money necessary to keep up his margins. After a time he began to draw on O. H. Sampson & Co. to furnish the money, and thenceforward they carried the cotton. The record does not disclose any knowledge on their part of the inception of, and the early payments upon, this transaction. It is to be presumed that when they began paying the drafts they had notice, or were put on notice. It would require an extreme view of this matter to hold them particeps criminis in this act of Mr. Hammett, and so work a forfeiture of all the sums paid out by them upon his order. The purchase had been made by Mr. Hammett in accordance with his views of the best interests of the manufacturing business of the mills. It may have been an error, may have been unbusinesslike, may have set a dangerous precedent; yet he was selected as president because of his business character and experience, and among the powers belonging to him was that of purchasing material for manufacture. It would not be equitable or in accordance with law to hold them responsible for the supposed error or blunder or conduct of Mr. Hammett. When they began to pay out money on the contract, the whole risk had been incurred, and what they did was done to save loss, if possible. This being so, the account may be stated so as to take out all items of money advanced upon contracts entered into with the full knowledge and approval of O. H. Sampson & Co.:
*839 Aggregate of account of O. II. Sampson with Oamperdown Mills secured l>y mortgage. ¥92,021 25
Total loss in futures. ¥87,551 41.
Deduct loss on the transaction of 1890. 34,470 21
- 53,081 21
Balance . $58,940 04
'Credit proceeds of yarn on hand, sold hy O. II. Sampson & Co. 20,101 88
$12,828 16 Balance due on mortgage debt..
9,050 00 Proceeds of sale had on foreclosure made in this case
Balance unpaid .. $ 3,778.10
So, charging off’ losses on futures with which O. II. Sampson & Co. were participants, their debt is not yet paid out of the proceeds of the mortgage sale.
The account by complainants in the original bill is made up with monthly rests. This is not correct. Simple interest alone can be allowed, and, on both sides of the account, charges and credits. The, cause will be recommitted to the special master to restate the account in accordance with this opinion. Let the cross bill be dismissed.