Hatch v. Douglas , 48 Conn. 116 ( 1880 )

Carpenter, J.

The authorities are clear that a contract relating to stocks or other commodities, to be performed at a future day, by which the parties contemplate only the payment of the difference in the market value by one or the other as the case may be, is a mere gaming contract and void. So if parties in form contract to sell goods to be delivered in the future, the seller in fact having no goods, and the parties not intending an actual delivery, but contemplating merely a payment of the difference between the market value on that day and the agreed price, it is a gaming contract and cannot be-enforced.

Contracts of this nature however are distinguishable from speculating contracts. A man may legitimately buy goods or stocks intending to sell in a short time and take advantage of an advance in the price if there is one. In such a case he takes the risk of a decline, but that does not make it a gambling contract. And he may purchase goods at a fixed price to be delivered at a future day, if the parties intend an actual delivery and acceptance. The actual intention may be difficult to prove or disprove; but when once the fact is established one way or the other, there is no difficulty in applying the law.

Now there are in the transactions between these parties some of the elements which are usually found in a gaming contract. For instance, it is pretty evident that the parties did not contemplate that the stock should be actually transferred to the defendant; but he would have been satisfied with the receipt of the difference between the price paid and the price received, less interest and commissions, if the price advanced, and expected to pay that difference if the price declined. To that extent it was a contract for the payment of differences. But it was more than that. The defendant through his agents, the plaintiffs, actually purchased the stock, and there was an actual delivery—not to the principal, but to the agents for the principal. The plaintiffs advanced the money and held the stocks in their hands as security. The plaintiffs were ready at any time to transfer the stock to the defendant on payment of the purchase money. The import of the finding is, and we must so regard it, that it was an actual and bona, fide employment of the plaintiffs to purchase stocks, and not a mere formal employment designed to cover a betting operation. It does not appear that the plaintiffs assumed any risk. They were entitled to their commissions and interest on their advancements whether the stocks went up or down. The most that can be said of them is, that they knew that the defendant was speculating, and that they advanced him money for that purpose. But that was neither illegal nor immoral.

The circumstances relied on to prove the illegality of this contract are consistent with the claim that it was a legitimate business transaction. It is probably true that dealing in stocks “on margin,” as it is called, is fraught with much evil. It encourages speculation, and induces many to engage in it who would not otherwise have the requisite means. In that way many people and business generally suffer more or less. But it is an evil that existing laws do not reach. No case has been cited which declares such a contract illegal. If we should so hold it would be difficult if not impossible to draw the line between legal and illegal transactions.

We are of the opinion that there are not in the case before us sufficient reasons for declaring the contract illegal.

The defendant raises a question of evidence. In his letter of June 23d he writes:—“I want to buy say one hundred shares Union Pacific stock on margin.” What does that mean? Those unacquainted with the business would not understand its meaning from the language. It is not to be presumed that the court understood it. The plaintiffs produced witnesses, who were familiar with the business, and who knew from experience and observation the meaning attached to the words,to prove their meaning. The defendant objected, but the court admitted the evidence, and we think properly. Nelson v. Sun Mutual Ins. Co., 71 N. York, 453. It was in the nature of a technical phrase, the meaning of which must be understood before the court could know what the contract between the parties really was.

But it is said that the parties did not understand the phrase alike, the defendant supposing that he risked nothing but the margin, while the plaintiffs understood that he assumed a personal liability as well. The language is that of the defendant. He used a phrase peculiar to the plaintiffs’ business, knowing that they would understand its meaning as used in that business. In such cases if the parties did not understand it alike it must be interpreted in the sense in which the plaintiffs understood it. If the defendant chooses to use a technical term which has a clearly defined and well understood meaning in the business to which it relates, and the plaintiffs giving it that meaning act upon it, he cannot be permitted, to the prejudice of the plaintiffs, to say that he used it in a different sense. He left it to be interpreted by usage, and by that interpretation he is concluded. For that purpose usage was properly shown.

But it is said that it is the custom of brokers in their business to debit and credit interest monthly, computing interest on balances. This, the defendant says, being compound interest, infects the contract with usury. The contract in its terms is silent on the subject of interest. It is only because the contract was to be performed in conformity with the uniform and established usage of brokers in New York that this claim has any foundation. It will be observed that the usage does not necessarily call for compound interest. If dealings do not extend beyond the period of one month, or if the monthly balances are paid, there is no compound interest. It is only when dealings continue from month to month that it is called for. The question then is this:—Is a contract usurious which is legal on its face, but which is to be performed according to a local custom, when that custom in one contingency calls for compound interest? We think not. The vice of usury is not certain; it is only possible. In contracts of this nature the question of interest pertains rather to the remedy than to the contract. It is incidental, and not of the substance of the contract. It is allowed not strictly as interest, but in the nature of damages, although it is commonly' called interest, and the amount is determined by the rate of interest where the contract is to be performed.

Viewed in this light the question is whether that part of a custom which contravenes the policy of the law will be enforced. But that question is out of the case, as the plaintiffs waived their claim for compound interest, and judgment was rendered for simple interest only.

There is no error in the judgment.

In this opinion the other judges concurred; except Granger, J., who having tried the case in the court below, did not sit.