Appleman v. Fisher

Alvey, J., delivered the opinion of the Court. Appleman, a banker and broker in Hagerstown, and Fisher & Sons, bankers and brokers in Baltimore, had dealt together in their business as bankers and brokers, and between whom there existed an open account of their transactions, when, on the 31st of March, 1869, the former, by telegraphic correspondence, conducted mostly in cipher, con-ti’acted to sell to the latter §100,000 gold, short, at $1.31. This amount of gold, at the price agreed on in currency, was credited by Fisher & Sons in account, and carried by them for Appleman, until the 24th of September, 1869, when they, availing themselves of what is claimed to have been their right under the contract, purchased the gold in New York at $1.35, currency, for Appleman’s account to fill his contract, and charged it up to him at that price, and thus closed the transaction; which, of course, resulted in a loss to Apple-man. He now repudiates this latter act of Fisher & Sons, and insists that the gold was unjustifiably and without authority purchased at the price it was; and, treating the contract as still open and executory, he, by letter of the 4th of October, 1869, directed Fisher & Sons to purchase the gold for his account at its then rates, which were from $1.29 to $1.30, and upon their declining to do so, he again, on the 10th of January, 1870, made actual, tender of the gold in Baltimore, and demanded.to be paid the contract price of ⁵⁴⁹ $1.31, in currency.

Gold, at this latter date, was quoted in Baltimore at §1.22 to $1.22£, and it is for the differenee between the market price of gold on the day of the tender and the price at which the $100,000 gold was sold to Fisher & Sons, that this action is brought. Without explanation, the contract, as embodied in the telegrams, is wholly unintelligible. To enable the plaintiff to recover on it, according to his own theory of his rights under it, it became necessary that the terms employed should be elucidated, and the intent and purpose of the parties explained. To do this the plaintiff himself offered and gave evidence of the meaning of the cipher telegrams, and also to explain the meaning of a sale of gold short, as understood among those dealing in that article.

From the very terms employed in the contract, it is manifest that it was made with reference to some usage or custom that was then in the contemplation of the parties; and from the plaintiff’s own evidence and correspondence, it is quite plain as to what usage was supposed to apply to and control the contract. By the evidence offered on the part of the plaintiff, it was shown, that a sale of gold short, according to established usage, means a sale of that which the seller has not, but what he expects to bay in at a lower price than that for which he sells. The seller can order the gold to be bought in at any time, and the buyer can call for the delivery of it when he pleases. That the buyer or seller is entitled to a margin for his security as the gold may rise or fall in the market.

This margin must be in money, or its equivalent in securities, and equal to from five to ten per cent, on the price at which the gold is sold, over and above its market price at any time; and such margin must be kept up as the value of gold fluctuates in the market, so that the buyer shall have in hand, .on a rise in price, an amount in money, or its equivalent, sufficient to cover the loss to the seller caused by such rise in gold above the price at which it was sold short, with from five to ten per cent, on the contract price, added to the ⁵⁵⁰ amount of such loss. If this margin be not kept up as gold advances, the buyer has the right to buy in the gold for account of the seller, and charge him with the loss. The proof, on the part of the defendants, established the existence of the same usage, and the same meaning and interpretation of the contract as that proven on the part of the plaintiff. By the evidence, as offered by them, it is shown that, by the usage, the broker is entitled to demand from the seller a margin of from five to. ten per cent, on the price at which the gold was sold short, in addition to a sufficient amount to cover any loss occasioned by a rise in gold; and that the seller has the right at' any time to deliver the gold sold by him, by ordering the buyer to purchase in the amount for his account; and that the buyer has the right to buy it in on default of margin.

That such usage is the same, whether the sale is made by a broker for his principal, or by the principal directly to the broker; and that the delivery is to be made at the place where the gold is purchased. That such usage prevails in Baltimore and New York, but -was not known to prevail in Hagerstown, where the plaintiff resided. It appears that, on the 22d of September, 1869, demand was made, by Fisher & Sons, of the plaintiff, for margin to the extent of $5,000; gold at that time being sold at $1.42-| in New York, and from $1.37J to $1.40£ in Baltimore; and on the 24th of September, it ran up in New York from $1.50 to $1.62J, but fell again in the latter part of that day to $1.33, while in Baltimore sales were made at the Gold Board at $1.50. It was because of the alleged default of the plaintiff in not furnishing the required margin, that the gold was purchased at $1.35 in New York on the 24th of September; and the main question presented on this appeal is, to what extent was the usage admissible for the purpose of explaining and amplifying the contract as embodied in the telegrams, and determining the rights and duties of the parties under it. ⁵⁵¹ This contract is not of a nature to be favorably considered, belonging as it does to a class of wagering contracts that have always been disfavored by the Courts.

Indeed, if this action had been brought in an English Court a half century ago, it/' is more than probable that the plaintiff would have been non-suited upon the ground of the illegality of the contract. In Bryan vs. Lewis, R. & Mood., 386, Lord Tebideedesí said, that he had always thought, and should continue to think, until he was told by the House of Lords that he was ^ wrong, that if a man sells goods, to be delivered on a future day, and neither has the goods at the time, nor has entered into any prior contract to buy them, nor has any reasonable expectation of receiving them by consignment, but means to go into the market and to buy the goods which he has contracted to deliver, he cannot maintain an action upon such contract. Such a contract amounts, on the part of the ven-v dor, to a wager on the price of the commodity, and is attended with the most mischievous consequences. And upon a subsequent occasion, according to the report as given in Chitty on Contr., 2d Ed., 332, the same learned Judge ruled, that “if two persons enter into a contract under the semblance of a sale of goods, not intending really to buy or sell the commodity, but merely as a gambling speculation, and to pay the difference of the market price on a particular day, like a lime bargain in the stocks, such a contract is illegal and void at common law, and no action will lie to enforce if.” But this ~ salutary doctrine, however much its absence may be regretted , in view of what is daily occurring, no longer obtains in the : Courts either of England or this country.

In the case of H ibblewhite vs. McMorine, 5 M. & Weis., 462, the case of Bryan vs. Lewis, was expressly overruled, and it was there held, that a contract for the sale of stock, to be delivered at a future day, was not invalidated by the fact that at the time of the contract, the vendor neither had the stock in his possession, nor had entered into any contract to buy it, nor had any reasonable expectation of becoming possessed of it by the time ⁵⁵² designated for its delivery, otherwise than by going into the market after the contract and purchasing the stock. And the principle of that case has become the established law, both in England and this country. It is said, and has been so expressly decided, that a contract for the sale of stock or marketable securities, in which the property passes by delivery, differs from a contract for the sale of a specific chattel, inasmuch as a contract for the sale of stocks or securities, such as are in the market for sale, would be satisfied by the delivery of any stock or securities of the description bargained for, and, consequently, the contract for sale cannot mean an actual sale, but only a contract to deliver. Heseltine vs. Siggers, 1 Exch., 856.

And if such a distinction be sound, of course the same may be said of the contract to sell any given amount of gold, deliverable at a future day. *^There being no question as to the legality of the contract, it is insisted by the plaintiff that the contract for the sale of the gold by telegram is not affected by the usage proven to exist in Baltimore, and not in Hagerstown, where the seller resided, and that it should be construed without reference to usage, and, therefore, all evidence in regard to usage, existing only in Baltimore, should be excluded. ^ To maintain this proposition would, as we have said, leave the contract in an unintelligible form, and neither Court nor jury would be able to understand the meaning of the parties. To give the contract effect at all, resort must be had to what the parties had in view at the time, as the means of ascertaining their rights and liabilities. Whether the usage prevailed in Hagerstown, is wholly immaterial, the question being, whether the parties contracted with reference to the usage existing in Baltimore, and intended that their contract should be governed by it. It would certainly have been competent to them, by express reference, to have adopted the usage in Baltimore as' determining the nature of the contract, and we think it equally clear that if it be done by implied or tacit understanding, it is as much obligatory upon the parties as if ⁵⁵³ incorporated into the contract itself.

The principle upon which usage or custom is applied to the interpretation of contracts, is very familiar, and of constant occurrence. It may be resorted to in the absence of express stipulations, or where the meaning of the parties is uncertain or doubtful upon the language used, or where the usage of the trade or business to whicli the contract relates, or with reference to which it was made, may afford explanation and supply deficiencies in the instrument. Technical, local or doubtful words may be thus explained. So, where stipulations in the contract refer to matters outside of the instrument, parol proof of extraneous facts may be necessary to ¿iterpret their meaning.

Oelrichs, et al. vs. Ford, 23 How., 49; Williams vs. Woods, Bridges & Co.,