CHAPTER VI. THE CREATING OF A CORNER. $ 89. Introductory. 90. The Corner Defined. 91. The Nature of an "Option." 92. Modification of the Common Law Doctrine. 93. The Creation of a Corner in Necessaries. § 89. $94. The Creating of a Corner in Stocks. 95. Where Contracts for Future Delivery are Sustained. 96. Rights and Liabilities of Third Parties. 97. Statutory Prohibitions. Introductory.—The modern idea of cornering the market is closely allied to the early common law offense of engrossing or forestalling. The difference is such as has grown out of the changed industrial conditions of the nineteenth century. Engrossing or forestalling was the buying up or otherwise obtaining possession of a large quantity of grain or of other commodities on its way to market, with a view to selling again, and of increasing the price; or of pursuading any person who held such commodities from offering them in the market, or of inducing any one to increase the price. At common law the complete engrossing of any commodity with the intention of selling it at an unreasonable price was an indictable offense. This rule was abolished by a statute of the 7th & 8th Victoria. As business was conducted at the time that the common law rule was established, a few persons, or even a single individual, might be able to create a monopoly and control the market. The act was dangerous to the public because in many instances the supply was only adequate to the demand, and, in consequence, the creating of a monopoly a comparatively simple matter. On this account the offense was treated by the courts with great severity, and it was only after a great change in business conditions that the law was abrogated by statute. The creating of a "corner" in the produce or stock market is an act similar to that of the early engrossing or forestalling, but in some important respects differing from it. It differs from the earlier methods in that the business is conducted on a larger scale; a large amount of capital is employed and the means employed are adapted to the industrial conditions of the present time.' 1In Kirkpatrick v. Bonsall, 72 Pa. St. 158, Agnew uses the following pertinent language: "We cannot pronounce this agreement a gambling contract on the face of the writing. A bargain for an option such as it presents may be legitimate and for a proper business object. We can imagine such cases. But it is evident such agreements can be readily prostituted to the worst kind of gambling ventures, and, therefore, its character may be weighed by a jury in connection with other facts in considering whether the bargain was a mere scheme to gamble upon the chances of prices. The form of the venture when aided by evidence may clearly indicate a purpose to wager upon a rise or fall in the price of oil at a future day, and not to deal in the article as men usually do in that business. We must not confound gambling, whether it be in corporation stocks or merchandise, with what is commonly termed speculation. Merchants speculate upon the future prices of that in which they deal, and buy and sell accordingly. In other words, they think of and weigh, that is, speculate upon the coming market, and act upon this lookout into the future in their business transactions; and in this they often exhibit high mental grasp, and great knowledge of business, and of the affairs of the world. Their speculations display talent and forecast, but they act upon their conclusions and buy or sell in a bona fide way. Such speculation cannot be denounced. But when ventures are made upon the turn of prices alone, with no bona fide intent to deal in the article, but merely to risk the difference between the rise and fall of the price at a given time, the case is changed. The purpose then, is, not to deal in the article, but to stake upon the rise or fall of its price. No money or capital is invested in the purchase, but so much only is required as will cover the difference, a margin, as it is figuratively termed. Then the buyer represents not a transfer of property, but a mere stake or wager upon its future price. The difference requires the ownership of only a few hundreds or thousands of dollars, while the capital to complete an actual purchase or sale may be hundreds of thousands or millions. Hence, ventures upon prices invite men of small means to enter into transactions far beyond their capital which they do not intend to fulfill, and thus the apparent business in the particular trade is inflated and unreal, and like a bubble only needs to be pricked to § 90. The Corner Defined.—In general the creating of a corner is such a manipulation of any commodity, and, especially, of any article of produce, or of stocks, as to enable the parties conducting the business to control the price. The schemes devised and worked for the accomplishment of this end are too numerous and too intricate to admit of explanation in this work, but the object of each and all of them is an arrangement to force a ficticious rise in the market, for the purpose of obtaining an advantage of dealers who are compelled to buy and of the public to which the commodity cornered is an article of necessity. In a recent case in Missouri, it was held that a sale of goods to be delivered in the future is valid, notwithstanding there is an option as to the time of delivery, and the seller has no other means of getting them than to go into the market and buy them. But if, under the guise of such a contract, valid on its face, the real purpose and intention of the parties is merely to speculate in the rise, or fall, of prices, and the goods are not to be delivered, but the difference between the contract and market price only paid, then the transaction is a wager and the contract void. In a leading case in Illinois, the rule disappear; often carrying down to accomplish his ends. If it be the bona fide dealer in its collapse. merchandise, e. 9., grain, the Worse even than this, it tempts poor are robbed and misery enmen of large capital to make bar- gendered.“ gains of stupendous proportions, and then to manipulate the market to produce the desired price. This, in the language of gambling speculation, is making a corner, that is to say, the article is so engrossed or manipulated as to make it scarce or plenty in the market at the will of the gamblers, and then to place its price within their power. Such transactions are destructive of good morals and fair dealing, and of the best interests of the community. If the article be stocks, corporations are crushed and innocent stockholders ruined to enable the gambler in its price 1 Crawford v. Spencer, 92 Mo. 498. See also Lyon v. Culbertson, 83 Ill. 33; Beveridge v. Hewitt. 8 Ill. App. 467: Pickering v. Case, 79 III. 328; Whitesides v. Hunt. 97 Ind. 191; s. c., 49 Am. Rep. 441; First Nat. Bank v. Oskaloosa P. Co.. 66 Iowa, 41; Gregory v. Wendell, 40 Mich. 432; Clay v. Allen, 63 Miss. 426: Cockrell v. Thompson, 85 Mo. 510: Tatum v. Arnold, 42 N. J. Eq. 60; Flagg v. Baldwin. 38 N. J. Eq. 219; Kingsbury v. Kirwan, 77 N. Y. 612; Williams v. Tiedeman, 6 Mo. App. 269; Johnson v. Kaune, 21 Mo. App. 22; Waugh v. Beck. 114 Pa. St. 452: in the case of contracts relating to corners, is stated, as follows: "Although the statutes being considered are highly penal, there is no warrant for construing them with any unreasonable strictness. They ought rather to have a just, if North v. Phillips, 89 Pa. St. 250; McGrew v. City Produce Exchange, 85 Tenn. 572; Seeligsohn v. Lewis, 65 Tex. 215; Lowry v. Dillman. 59 Wis. 197; Barnard v. Backhaus, 52 Wis. 593: Irwin v. Williar, 110 U. S. 499; Cobb v. Prell. 15 Fed. Rep. 774; Bartlett v. Smith, 13 Fed. Rep. 263; s. C.. 4 McCrary, 388; Bigelow v. Benedict. 9 Hun. 429; Cassard v. Hinman, 1 Bosw. 207. "But what is the transaction termed futures?' It is this: One person says I will sell you cotton at a certain time in the future for a certain price. You agree to pay that price, knowing that the person you deal with has no cotton to deliver at the time, but with the understanding that, when, the time arrives for delivery, you are to pay him the difference between the market value of that cotton and the price you agreed to pay if cotton declines. and if cotton advances he is to pay you the difference between what you promised to give and the advanced market price, if this is not a speculation on chances-a wagering and betting between the parties -then we are unable to understand the transaction. A betting on a game of faro, brag or poker, cannot be more hazardous or uncertain. Indeed, it may be said that these animals are tame, gentle and submissive, compared to this monster. The law has caged them and driven them to their dens. They have been outlawed, while this ferocious beast has been allowed to stalk about in open mid day, with gilded signs and flaming advertisements. to lure the unhappy victim to its embrace of death and destruction. What are the consequences of these speculations on futures? The faithful chroniclers of the day have informed us, as growing directly out of these nefarious practices, that there have been bankruptcies, defalcations of public officers, embezzlements, forgeries, larcenies and death. Certainly no one will contend for one moment that a transaction fraught with such evil consequences is not immoral, illegal and contrary to public policy." Cunningham v. National Bank of Augusta, 71 Ga. 400. "Certainly the legislature did not intend to impose any restraints upon legitimate commerce, but only to destroy the parasite that infests it. Contracts for future delivery, if entered into in good faith, and with an actual intention of fulfillment, are as valid as any other species of contract. A farmer may sell and agree to deliver his wheat or his cotton for a stipulated price before it is harvested. Nay, one may sell goods to be delivered at a future day, which he has not in actual or potential possession. but which he intends to go into the market and buy. But this is not what is commonly known as dealing in futures. This phrase has acquired the signification of a mere speculation upon chances, where the grain. cotton or stocks dealt in exist only in the imagination, and where no delivery is con not liberal construction, to the end the legislative intention may be accomplished, to prohibit all dealings in options in grains or other commodities. Nothing is productive of more mischievous results. Considerable fortunes secured by a life of honest industry have been lost in a single venture in 'options. The evil is all the more dangerous from the fact it seemingly has the sanction of honorable commercial usage in its support. It is a vice that has in recent years grown to enormous proportions. Legitimate transactions on the board of trade are of the utmost importance in commerce. Such contracts, whether for immediate or future delivery, are valid in law, and recieve its sanction and all templated. but the parties expect to settle upon the difference in the market. When so limited by judicial interpretation, the statute is not inconsistent with public policy. It forbids and punishes wagering contracts; that is, contracts in which they stipulate that they shall gain or lose upon the happening of an uncertain event, in which they have no interest except that arising from the possibility of such gain or loss. Fariera v. Campbell, 89 Pa. St. 89; Thompson v. Cummings, 68 Ga. 124; Flagg v. Baldwin, 38 N. J. Eq. 219. Fortenbury v. State, 47 Ark. 188. The evidence fully proves that the appellant, Pearce, was operating what is commonly denominated a bucket shop,'-in fact, this is established by his own admission on his cross-examination. He was engaged in conducting the illegal business of selling futures' or options. The products which he pretended to sell to his customers he did not have at the time, and it was mutually understood and intended by both parties. that the wheat or corn which was claimed to be sold and purchased was not to be delivered, but when the time fixed for its delivery arrived, the market value at Chicago of such cereals should constitute the basis upon which the settlements would be made. As the market would rise or fall there would be a loss or gain to the purchaser. The deals or transactions were understood to be a speculation solely on chances, and were in contravention of, and hostile to, public policy, and therefore illegal. Such transactions are of a like character and akin to bets made on a game of poker or faro, and are equally as uncertain and hazardous. The business or operations of the bucket shop' have been the source of much evil. Embezzlements and other crimes on the part of public officers, and bank officials, having the custody of money belonging to others, have been in the past some of the evil fruits directly traceable to dealings in futures in these institutions, and the question of prohibiting such transactions or business as it is generally conducted merits the consideration of the legislation." Jordan. J.. in Pearce v. Dill (Ind.). decided Dec. 14. 1897. |