Embrey v. Jemison/Opinion of the Court

by by John Marshall Harlan

United States Supreme Court

131 U.S. 336

Embrey  v.  Jemison

Whether the validity of the original contract for the purchase of future delivery cotton must depend upon the New York statute or upon the Virginia statute it is not important to determine; for, if such contract, as alleged, is a wagering contract, it is void under the law of either state. The plea makes a case of money advanced by the plaintiff's firm solely for the purpose of carrying 'cotton futures,' for which he or they contracted, when, according to the averments of the rejected plea, neither party contemplated the purchase or delivery in fact of cotton, and when it was understood that any settlement in respect to such purchases should be exclusively upon the basis of one party paying to to the other only 'the difference between the contract price and the market price of said cotton futures, according to the fluctuations in the market.' If this be not a wagering contract, under the guise of a contract of sale, it would be difficult to imagine one that would be of that character. The mere form of the transaction is of little consequence. If it were, the statute against wagers could easily be evaded. The essential inquiry in every case is as to the necessary effect of the contract, and the real intention of the parties. Mr. Benjamin, in his Treatise on Sales, (volume 2, 6th Amer. Ed., by Corbin, p. 716, § 828,) after stating that at common law wagers that did not violate any rule of public decency or morality, or any recognized principle of public policy, were not prohibited, says. 'It has already been shown that a contract for the sale of goods to be delivered at a future day is valid, even though the seller has not the goods, nor any other means of getting them than to go into the market and buy them.' 'But such a contract,' he proceeds to say, 'is only valid where the parties really intend and agree that the goods are to be delivered by the seller, and the price to be paid by the buyer. If, under guise of such a contract, the real intent be merely to speculate i the rise or fall of prices, and the goods are not to be delivered, but one party is to pay to the other the difference between the contract price and the market price of the goods at the date fixed for executing the contract, then the whole transaction constitutes nothing more than a wager, and is null and void under the statute.' The statute referred to by the author is that of 8 & 9 Vict. c. 109, § 18, which provides 'that all contracts or agreements, whether by parol or in writing, by way of gaming or wagering, shall be null and void; and that no suit shall be brought or maintained in any court of law or equity for recovering any sum of money or valuable thing alleged to be won upon any wager, or which shall have been deposited in the hands of any person, to abide the event on which any wager shall have been made.' In Irwin v. Williar, 110 U.S. 499, 508, 510, 4 Sup. Ct. Rep. 160, the general subject of wagering contracts was carefully considered, and in the opinion, delivered by Mr. Justice MATTHEWS, we expressed approval of the doctrine as announced by Mr. Benjamin, observing that generally, in this country, all such contracts are held to be illegal and void as against public policy. It was there said: 'It makes no difference that a bet or wager is made to assume the form of a contract. Gambling is none the less such because it is carried on in the form or guise of legitimate trade.' Referring to the decision in Roundtree v. Smith, 108 U.S. 269, 2 Sup. Ct. Rep. 630, it was further said: 'It is certainly true that a broker might negotiate such a contract without being privy to the illegal intent of the principal parties to it which renders it void, and in such a case, being innocent of any violation of law, and not suing to enforce an unlawful contract, has a meritorious ground for the recovery of compensation for services and advances. But we are also of the opinion that when the broker is privy to the unlawful design of the parties, and brings them together for the very purpose of entering into an illegal agreement, he is particeps criminis, and cannot recover for services rendered or losses incurred by himself on behalf of either in forwarding the transaction.' In the present case, according to the averments in the plea of wager, the plaintiff was the broker who effected the purchases of future delivery cotton. He was privy to the unlawful design of the parties; represented one of them in all the transactions; and advanced the money necessary to carry, and for the express purpose of carrying, these cotton 'futures' on account of the defendant. His position, therefore, was not that of a person merely advancing money to or for one of the parties to a wager, without having himself any direct connection with the making or execution of the contract of wager itself. He was, in every sense, particeps criminis.

In Bigelow v. Benedict, 70 N. Y. 202, 206, the court of appeals of New York said that 'where an optional contract for the sale of property is made, and there is no intention on the one side to sell or deliver the property, or on the other to buy or take it, but merely that the difference should be paid according to the fluctuation in market values, the contract would be a wager within the statute.' In Story v. Salomon, 71 N. Y. 420, 422, which was an action upon a written contract for an option to buy or sell certain shares of stock, and the defense was that it was illegal and void under the statute of New York against gaming, the court said: 'If it had been shown that neither party intended to deliver or accept the shares, but merely to pay differences according to the rise or fall of the market, the contract would have been illegal.' The same principle was announced in Kingsbury v. Kirwan, 77 N. Y. 612. There are many other authorities to the same effect, but in view of our decision in Irwin v. Williar, with which we are entirely satisfied, it is not necessary to cite them. The plaintiff relies upon Brown v. Speyers, 20 Grat. 29, as expressing a different view of this question. But we do not so understand that case. The supreme court of appeals of Virginia did not there indicate its opinion as to the validity of a contract for the purchase of 'futures,' the settlement in respect to which was to be upon the basis of paying simply the difference, according to the fluctuations in the market, between the contract price and the market price.

It is contended that this is not an action upon the original contract, but upon the notes executed by Embrey after the business transacted for him by Moody & Jemison was closed, and with full knowledge, upon his part, of all the facts. In such a case, it is argued, the principles announced in Irwin v. Williar cannot be applied. This argument concedes, at least for the purposes of the present case, that, as the law, for the protection of the public, and in the interest of good morals, declares a wagering contract to be void, the plaintiff could not maintain an action for the moneys advanced in execution of the original contract to carry these 'futures.' And yet it is insisted that he ought to have judgment on the notes in suit, although it appears they have no other consideration than the moneys so advanced. A judgment upon the notes would, in effect, be one for the amount claimed by the plaintiff under the the original contract, at the time he demanded their execution by the defendant. Indeed, it has been held that a note could not of itself discharge the original cause of action, unless, by express or special agreement, it was received as payment. Sheehy v. Mandeville, 6 Cranch, 253, 264; Peter v. Beverly, 10 Pet. 532, 568; The Kimball, 3 Wall. 37, 45. While there are authorities that seem to support the position taken by the defendant in error, we are of opinion that, upon principle, the original payee cannot maintain an action on a note the consideration of which is money advanced by him upon or in execution of a contract of wager, he being a party to that contract, or having directly participated in the marking of it in the name of or on behalf of the of the parties.

In Steers v. Lashley, 6 Term R. 61, it appeared that the defendant was engaged in stock-jobbing transactions with different persons, in which one Wilson was employed as his broker, and had paid the 'differences' for him. A dispute having arisen as to their amount, the matter was referred to the plaintiff and others, who awarded a certain sum as due from the defendant. For a part of that sum the broker drew a bill on the defendant, and, after it had been accepted, indorsed it to the plaintiff. Lord KENYON said: 'If the plaintiff had lent this money to the defendant to to pay the differences, and had afterwards received the bill in question for that sum, then, according to the principle established in Petrie v. Hannay, 3 Term R. 418, he might have recovered. But here the bill on which the action is brought was given for these very differences; and therefore Wilson himself could not have enforced payment of it. Then the security was indorsed over to the plaintiff, he knowing of the illegality of the contract between Wilson and the defendant, for he was the arbitrator to settle their accounts; and under such circumstances he cannot be permitted to recover on the bill in a court of law.'

In Amory v. Meryweather, 2 Barn. & C. 573, 578, which was an action of debt on bond, conditioned for the payment of money by installments, the plea, in substance, was that the bond was given in place of a promissory note previously executed in payment for moneys advanced by an agent of the obligor in discharge of differences arising upon contracts for buying and selling shares in the public stocks, against the form of the statute; the plaintiff having knowledge, when he received the bond, that the note had been made by the defendant on the occasion and for the purpose stated. ABBOTT, C. J., after observing that there was no period of time when the plaintiff could have maintained an action upon the note, said: 'e are all of opinion that as it appears upon the plea that the bond was given as a substitute for a note which was taken by the plaintiffs subject to an infirmity of title of which they had full notice before the bond was taken, the latter instrument is void.'

In Fisher v. Bridges, 3 El. & Bl. 642, 649, which was an action upon a covenant in a deed to pay a certain sum, and which covenant was given as security for payment of a part of the purchase money of real estate sold by the plaintiff to the defendant, to be by the latter disposed of by lottery, as the plaintiff knew, the court said: 'It is clear that the covenant was given for payment of the purchase money. It springs from and is a creature of the illegal agreement, and, as the law would not enforce the original illegal contract, so neither will it allow the parties to enforce a security for the purchase money, which, by the original bargain, was tainted with illegality.' See, also, Fareira v. Gabell, 89 Pa. St. 89; Griffiths v. Sears, 112 Pa. St. 523, 4 Atl. Rep. 492; Flagg v. Baldwin, 38 N. J. Eq. 219, 227; Cunningham v. Bank, 71 Ga. 400; Tenney v. Foote, 95 Ill. 100; Rudolf v. Winters, 7 Neb. 126; Lowry v. Dillman, 59 Wis. 197, 18 N. W. Rep. 4.

Assuming the averments of the plea of wager to be true, it is clear that the plaintiff could not recover upon the original agreement without disclosing the fact that it was one that could not be enforced or made the basis of a judgment. He cannot be permitted to withdraw attention from this feature of the transaction by the device of obtaining notes for the amount claimed under that illegal agreement; for they are not founded on any new or independent consideration, but are only written promises to pay that which the obligor had verbally agreed to pay. They do not, in any just sense, constitute a distinct or collateral contract based upon a valid consideration. Nor do they represent anything of value, in the hands of the defendant, which, in good conscience, belongs to the plaintiff or to his firm. Although the burden of proof is on the obligor to show the real consideration, the execution of the notes could not obliterate the substantive fact that they grew immediately out of, and are directly connected with, a wagering contract. They must, therefore, be regarded as tainted with the illegality of that contract, the benefits of which the plaintiff seeks to obtain by this suit. That the defendant executed the notes with full knowledge of all the facts is of no moment. The defense he makes is not allowed for his sake, but to maintain the policy of the law, Coppell v. Hall, 7 Wall. 542, 558. We are of opinion that the special plea of wager presented a good defense to the action, and ought not to have been rejected; also, that the instruction asked by the defendant should have been given.

The case presents another question, which it is necessary to consider. The defendant, in one of his pleas, alleged that the plaintiff's cause of action did not accrue within five years next before the commencement of suit. That is the time within which, by the general statute of limitations of Virginia, actions like the present one must be brought. Code Va. 1873, p. 999, §§ 8, 14. To this plea the plaintiff replied, specially, that he ought not to be bound by anything therein alleged, because, when the several causes of action in the declaration mentioned, and each of them, accrued to him, the defendant 'had before resided in the state of Virginia,' and by departing without the same obstructed him in the prosecution of his several causes of action, for several, to-wit, two or more years next after the same accrued as aforesaid; that the time such obstruction continued is not to be computed as any part of the period within which his causes of action, and each of them, ought to have been prosecuted; and that, excluding such time, the plaintiff brought this action within five years next after the accruing of his several causes of action. This replication was based upon the following proviso n in the Virginia statute of limitations: 'Where any such right as is mentioned in this chapter shall accrue against a person who had before resided in this state, if such person shall, by departing without the same, or by absconding or concealing himself, or by any other indirect ways or means, obstruct the prosecution of such right, the time that such obstruction may have continued shall not be computed as any part of the time within which the said right might or ought to have been prosecuted. But this section shall not avail against any other person than him so obstructed, notwithstanding another might have been jointly sued with him if there had been no such obstruction. And upon a contract which was made and was to be performed in another state or country, by a person who then resided therein, no action shall be maintained after the right of action thereon is barred by the laws of such state or country.' Code Va. 1873, p. 1002, c. 146, § 20. The defendant rejoined that the plaintiff ought not, by reason of anything in the replication alleged, to have and maintain his action, because by his removal from the state of Virginia and departing without the same, as alleged, he did not obstruct the plaintiff in the prosecution of his suit upon the alleged causes of action in the declaration mentioned, because such removal occurred in the year 1859, a long time before any of the alleged causes of action existed or accrued, and that, when said causes of action accrued to the plaintiff, the defendant was, and still considers himself, a citizen of the state of Louisiana. Upon plaintiff's motion the rejoinder of the defendant was rejected upon the ground that the above section excepted from the general act of limitation a case in which the casue of action accrued against a person previously, no matter how long before, residing in Virginia, although he may have left the state before the contract sued upon was made, and therefore, before any cause of action thereon accrued. This construction of the statute was supposed to be required by the decision in Ficklin's Ex'r v. Carrington, 31 Grat. 219. We are satisfied, upon a careful examination of that case, that it was misinterpreted by the learned district judge who presided at the trial below. That was an action of assumpsit to recover the amount of a note dated April 1, 1865. The defendant Carrington pleaded the statute of limitations. The plaintiff replied that he ought not to be bound by reason of anything in that plea alleged, because 'on the 1st day of April, 1865, when the said several promises and undertakings in the plaintiff's declaration mentioned were made and entered into, and previous thereto, the defendant was and had been a resident of the state of Virginia, and that afterwards, to-wit, on or before the 15th day of November, 1866, the said defendant departed without the state, and thereafter resided in the state of Maryland, and thereby the said defendant obstructed the said B. F. Ficklin, deceased, in his life-time, and the plaintiff since his death, in the prosecution of his suit upon the said several promises and undertakings, until the 13th day of June, 1874, when this suit was instituted.' The defendant replied, specially, that by his removal he had not obstructed, etc. The court held that the removal of the defendant, as stated in the replication, did, within the meaning of the statute, obstruct the bringing of the suit, and, consequently, the time subsequent to such removal was not to be counted in his favor. It also held that the above statute, although somewhat different in its phraseology and structure from previous enactments, made no substantial change in the previous statutes, one of which (that of 1819, 1 Rev. Code Va. p. 491, § 14) provided that if any defendant shall abscond or conceal himself, or by removal out of the country or the county where he resides when the cause of action accrued, or by any other indirect ways or means, defeat or obstruct the plaintiff, then the defendn t shall not be admitted to plead the statute of limitations. We are of opinion that the defendant's rejoinder to the plaintiff's replication to the plea of limitations was improperly rejected. It shows upon its face that the defendant's removal from Virginia occurred nearly 20 years before the contract in question was made, and that when the plaintiff's causes of action accrued he was not a citizen or resident of Virginia, but of Louisiana. The statutory provision upon which the plaintiff based his replication has no application to this case, if, as shown by the rejoinder, the defendant removed from Virginia before he made any contract with the plaintiff. We cannot suppose that his removal from that state 19 years before that contract was made, can be regarded, under the statute of Virginia, as an obstruction to the plaintiff's prosecution of his action. The statute, so far as it relates to obstructions caused by a defendant having departed from the state, means that, being a resident of Virginia when the cause of action accrues against him, and being then suable in that state, the defendand shall not, in computing the time in which he must be sued, have the benefit of any absence caused by his departure after such right of action accrued, and before the expiration of the period limited for the bringing of suit. The plaintiff was at liberty to sue the defendant wherever he could find him. Having elected to sue him in Virginia, the courts sitting there must give effect to the limitation prescribed by her law, without any saving in favor of the plaintiff on account of the defendant's removal prior to the making of any contract whatever with the plaintiff. The judgment is reversed, with directions to grant a new trial, and for further proceedings in conformity with this opinion.

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