FEDERAL
fendant. Having provoked a conflict with defendant, and lulled him into the belief that he was willing to test his claim by way of set·off to his own demand, he should not be allowed, after a virtual defeat, to reap the fruits of a viotory. The examination before the referee is a substantial trial of the action. Edw. Ref. c. 1, § 3. His report is equivalent to the verdict of a jury, (ohapter 4, §§ 18-28,) and has the same effeot by way of estoppel upon the parties. Chapter 27. § 10; Bigelow, Estop. c. 18. Now, the right to disoontinue terminates with a verdiot, and we think. by analogy, with the filing of the referee's report. The motion is therefore granted.
HIGGINS and another
t1.
MOCRlIA. 1885.)
(Circutt Court, N. D. Ohio, E. D. OmCAGO BOARD OF TRADE-RULE 26,
The. cancellation by a broker of origlDal contracts, without the substitution of others, as provided for by rule 26 of the Chicago board of trade, and with. out the previous knowledge or consent, or subsequent ratification, of the party for whom he is acting, will not be binding on such party,and hewill be entitled to recover the .. margin" advanced by him to the broker on the original contracts in a cross-action, in an action by the broker for the amount expended bv him on such contracts.
t 6-CRoss-AcTION-CONTItACTS.
At Law. . This oase was tried to a jury at the April term, 1885, of abovenamed oourt, Hon. JOHN BAXTER, cirouit judge, and Hon. MARTIN WELKER, distriot judge, presiding. The plaintiffs olaimed that they had expended, for and at defendant's request, $31,644.31, for which they demanded a judgment. The evidenoe adduoed in support of this olaim showed that the plaintiffs were oommission merohants and brokers, residing and doing business in the oity of Chioago, and members of the Ohicago board of trade; that the defendant authorized and requested them, in May, 1883, to buy large quantities of pork and lard for his account, to be delivered during the month of August; 1883. Pursuant to said order of defendant, the plaintiffs entered into several contraots in their firm nlllme with other brokers, and members of said board of trade, for, and on defendant's acoount and risk, for August delivery, 3,000 barrels of pork and 2,000 tieroes of lard, and duly notified him thereof. These contraots were made under the rules presoribed by the said board of trade. The evidenoe tended to show that the defendant was familiar with these rules, and. taoitly consented to be bound by them. The plaintiffs appeared as witnesses on the trial of the case and produoed their books and exhibits, and it appeared. by their admis-
BIGGINS t1. lII'CREA.
783
sions as such witnesses, that soon after the consummation of said contracts--to-wit, in the latter part of May and early in June following-the plaintiffs, in adjusting profits l'ealized and losses sustained in other transactions in which they were personally liable, canceled said original contracts of purchase, made for defendant, and released the contracting parties from all further liability thereunder. They did this by what they termed "set-off" contracts. They claimed the right to do this under the sixth section of rule 26 of said Chicago board of trade, which rule is as follows: "RULE XXVI.
"Sec. 6. In case any mem1Jer of the association; acting as a commission merchant, shall have made purchases or sales by order and for account of an- . other, whether the party for whom any such purchase or sale was made shall be a member of the board of trade or otherwise, and it shall sUbsequentlyappear that such trades may be offset and settled by other trades made by said commission merchant, he shall be deemed authorized to make such offset and settlement, and to substitute some other person or persons for the one from or to whom he may have purchased or sold the property originally: provided, that in case of such substitution the member or firm making the same shall be held to guaranty to his or their principal the ultimate fulfillment of all contracts made for account of such principal which have been so transferred, and shall be held liable to said principal for all damages or loss resulting from such substitution. "
On cross-examination the plaintiffs conceded that at the time of canceling said contracts they did not then, or at any time thereafter, 8pecijtcallysubstitute any other party or parties in place of the original parties with whom they had contracted for defendant's account; nor did they notify the defendant of said cancellation and alleged. substitution of other parties. And, on being asked who they considered bound to the defendant after such cancellations, for the deliveries contracted to be made, answered that they (the plaintiffs) only were so bound. They claimed, in explanation, that they had contracts for August delivery of pork and lard in quantities sufficient to enable them to make good the amounts agreed to be delivered to the defendant, and that they had in fact received from other parties the amount of pork and lard bought for defendant's account, and tendered the same to him pursuant to the terms of the original contracts, which he declined to receive and pay for. The plaintiffs further conceded that their books did not show what contracts took the plfl,ce of those originally made for defenda.nt, and which they afterwards canceled. The defendant had, at plaintiffs' repeated requests, advanced them on these contracts $19,897 to indemnify them against loss. These advances were called "margins." When the defendant declined on August 1st to accept and pay for· the pork and lard tendered by plaintiffs, they sold the same in the usual wayan defendant's account at a loss, in excess of the "margins" advanced, of $31,644.31, the Bum claimed in their petition. The defendant pleaded that said contracts were gambling trans·
784:
actions,-bets on the future prices of pork and lard,-that no actual delivery of those articles was contemplated; and that said transactions were contrary to public policy and illegal under the laws of Illinois; and again, for a second defense, that plaintiffs canceled said original contracts, without specifically sUbstituting others, and, without his knowledge or consent, sold and disposed of the property for their own use and benefit; and that at no time after June 16, 1883, did the plaintiffs hold any contracts whatever for defendant's account. Defendant filed a counter-claim, and asked a judgment for the sums advanced by him as margins, viz., $19,897, with interest, etc. G. G. Bonney and F.J; Wing, for plaintiffs. S. Burke and W. B. Sanders, for defendant. . The court, through Judge BAXTER, after disposing of the defense that said transactions were of a gambling character, in directions as to the law, to which no exceptions were taken by either party, proceeded to further instruct the jury as to the other defense, substantially as follows, to-wit: "If you shall, under the instructions heretofore given, find that the contracts in question were made for legitimate purposes, and were therefore valid, you may, for the purposes of this case, assume that the the sixth section of the twenty-sixth rule of the Chicago board of trade, read in evidence in this case, authorized the plaintiffs to cancelthe contracts first made for defendant's account, and substitute other and like contracts with other parties in lieu thereof, and that the defendant understood its force and effect, and consented to be governed'thereby in his transactions with plaintiffs; and still the plaintiffs will not be entitled to recover in this action, because they did not, in fact, substitute other contracts with other parties, as required by the said rule, in such manner as that the defendant could enforce them, or proceed against the vendors therein for damages in a case of a failure to comply therewith. "The cancellation of the original contracts in the manner conceded in the testimony, that is to say, without the specific substitution of other contracts, and w:ithout the previous knowledge or consent of the defendant, or his subsequent ratification, absolves him from all liability thereunder, and entitles him to recover back from the plaintiffs the amounts advanced as 'margins,' with interest thereon from the respective payments."
Under these instructions, the jury found in favor of the defendant upon the causes of action set forth in plaintiffs' petition, and against the plaintiffs upon the counter-claim set up in the answer, in the sum of $22,062,42. A motion for a new trial has been filed, but has not yet been disposed of.
U'KINNE"i V. BOSENBAND.
785
McKINNEY V. ROSENBAND
and another.
(Oircuit Oourt, S. D. New York. May 19,1885.) FRAUD ON CREDITORS-DIVEHSTON OF PARTNEHSHIP FUNDS.
Mercantile partners, though knowing that they are in some difficulty, so long 8S they have a reasonable expectation of extricating themselves, cannot be charged with a fraudulent diversion of their property from firm creditors, for simply drawing money upon private account, within small and reasonable limits, whether for the payment of their individual expenses, or the payment of their honest individual obligations.
Motion to Vacate Attachment. S. F. Kneeland, for plaintiff. Angel eX Ward, for defendants. . BROWN, J. The defendants, being in business ae copartners under the name of J. & B. Rosenband, on the third of January, 1885, made a general assignment for the benefit of their creditors. In this action, brought upon partnership claims, the plaintiff, on the twelfth of February, 1885, obtained an attachment in the state court against the property of both defendants, on the ground that they had "assigned, secreted, and disposed of property with intent to defraud their creditors." The suit having been removed into this court, a motion is now made to dissolve the attachment. The only act proved, alleged to be fraudulent as to creditors, is the appropriation by Jacob Rosenband. one of the defendants, of the sum of $748.50 from the funds of the firm during the month of December, 1884, to pay an individual debt of $355, owed by him to one Bluhmberg; $300 to pay a just debt of his to his sister Jennie; and $93.50, a part of her wedding expenses. The entire drafts of the defendant Jacob Rosenband from the firm during the year, including the three items last mentioned, amount to $2,252.94. The other defendant during the year drew on individual account $2,321.03, and these drafts were not unreasonable, considering their business. It is urged that the use of firm moneys for the payment of individual obligations is a violation of the rights of copartnership creditors in the distribution of the joint and separate estates,-a right which exists upon the equitable marshaling of assets; and that such an appropriation of the firm moneys is, therefore, legally fraudulent as to them. I have much doubt whether section 636 of the New York Code, by the words "with intent to defraud his creditors," is designed to include any such injury to the mere equitable rights of the firm creditors prior to a condition of known and acknowledged insolvency, or prior to some act, such as an assignment of their property, which in itself calls for an equitable marshaling of assets as between the joint and individual creditors. Until actual insolvency arises, no such right practically exists. In the present case, it is not so clearly established that the insolvency of the firm, and its inability to continue v.23F,no.15-500