or both of two reasons: That the quotations are contraband, and may be seized by anyone with impunity; that appellant, even if the quotations themselves are not contraband, comes into court with unclean hands, in this: That it seeks to exclude all others from using property (the quotations) which might be put to good uses, in order that it may aid its members in maintaining the gambling in grains and provisions which it permits to be carried on in its exchange hall. will by the time of delivery have so declined that he can purchase the commodity for less than his selling price, and thus make a profit, and which, on the other hand, the buyer has in his personal opinion that the price of the commodity bought will so advance by the time of delivery that the commodity bought will be worth more at the time of delivery than it was at the time of purchase, and that he will thus have a profit. It is possible, under the rules, usages, and practice of the complainant association, for Respecting the facts of this defense, the the seller and the buyer, respectively, if master found as follows: "The transactions conducted in the 'pits' of the complainant association, while they are of the same general character, are divisible into two classes, which are described by the members of the Board of Trade as 'hedging' transactions and 'speculating' transactions, respectively. Of the members of the complainant association who are engaged in business in the exchange hall, the number conducting speculative transactions is between one third and one half of the total, and practically all of such members conduct a hedging business. And "The principals who are engaged in hedging transactions are, generally speaking, either grain merchants, millers, or manufacturers of grain products. The method of such principals is this: When they have bought grain in the country, or in city warehouses, which they propose to hold for future sales to domestic or foreign purchasers, they at once sell in the pits of the complainant association an equal amount of grain; or, on the other hand, if they have sold to domestic or foreign purchasers grain or grain products for future delivery, they at once buy in the pits of the complainant association an equal amount of grain for future delivery at times corresponding with the times of their selling contracts. thus, when they have contracts of purchase, they have contracts of sale, for future delivery in the pits, practically even with their purchases; and, if they have contracts of sale with domestic or foreign purchasers, they have contracts of purchase, for future delivery in the pits, practically even with such contracts of sale. The object of such hedging is to insure against loss by fluctuation in the market in the commodity which the principal is carrying, or which he has sold in advance of purchase and manufacture upon a time contract. A hedge must always be against a cash commodity. "A speculative transaction is not based upon a cash commodity primarily. In effect, it is based upon the confidence which, on the one hand, the seller of the commodity for future delivery has in his personal opinion that the price of the commodity sold either changes his opinion, to buy or sell in the 'pits' the commodity which he has previously sold or bought, as the case may be, for the same time of delivery. While this procedure is in form the same as hedging, it is not designated as 'hedging,' but is styled 'spreading.' It is also possible, under the rules, usages, and practices of the complainant association, for a member of the complainant association to make such counter contract of purchase or sale during the same day that he has made an original contract of sale or purchase, and thus, within the day or within a few days, to have his advantage of profit or to adjust his disadvantage of loss. Such a course of business is designated 'scalping.' "The evidence does not contain sufficient data upon which to predicate an estimate of the aggregate volume of business con ducted in said pits daily, monthly, or yearly. It does appear, however, that the volume of such business is enormous; one firm conducted transactions in wheat daily aggregating 1,500,000 to 2,000,000 bushels, and in corn 1,000,000 bushels daily; another firm's transactions in wheat daily amounted to 6,000,000 bushels; a third firm's transactions in wheat daily amounted to 4,000,000 bushels; а fourth firm's transactions amounted to 1,000,000 bushels daily; a fifth firm's transactions in all grain amounted to 1,800,000 bushels daily; and a sixth firm's transactions in all grain amounted to 2,000,000 bushels daily. While it is true that the business of these six firms in the pits is much larger than the business of any other six firms conducting transactions in the pits, and that it would not be proper to say that the average business is a proper average of each of the persons conducting transactions in the pits, it is nevertheless true that it is fairly deducible from the evidence that the aggregate business transaction in grain was largely in excess of the total wheat and corn production of the entire United States during either of the years 1900 and 1901, and was many times over the entire receipts in Chicago of grain during each of said two years of 1900 and 1901, and, of such receipts in Chicago, less than 20 per cent inspected up to grades of grain which could be delivered upon time contracts made by said sales and purchases in the pits. It is also true that a decrease in the total grain productions of the United States does not cause a proportionate decrease in the volume of business done in the 'pits' of the complainant association, but, on the contrary, such business is larger during a year in which there is a shortage in the grain crop. "Under the rules, usages, and practice of the complainant association, all time contracts made in the 'pits' are carried until it is possible to close them as between members of the complainant association by either one of three methods of settlement, namely, the method called 'direct settlement,' the method called 'rings' or 'ringing out,' and the method of delivery by delivering warehouse receipts physically or 'by notice.' plainant association furnishes a room wherein all of such settlement clerks meet at stated hours each day and compare their respective books, called 'settlement books,' which are required by the complainant association to be kept by each broker. Upon comparing their respective books, said settlement clerks ascertain what, if any, outstanding time contracts may be offset by some other corresponding time contract made by the parties with other members of the association, and which of such contracts are, by consent of the parties thereto, permitted to be offset, and thereupon, under the rules of the complainant association, are deemed to have been settled, provided the requirements of §§ 6, 7, 8, and 9 of rule 22 of the complainant association are met, as therein provided, with reference to the clearing-house sheet and other details of settlement therein specified. "Most time contracts made in the 'pits' "Theoretically, and in bare outline, an ilare adjusted as between members of the lustration of the 'ringing out' method is as complainant association, before the speci- follows: Broker A sells to broker B 5,000 fied time of delivery arrives, by either the bushels May wheat; broker B sells to broker first or the second of the above-named meth- C the same amount; broker C sells to broker ods. Direct settlements are effected by off- D the same amount; and broker D sells to setting similar contracts at the close of the broker A the same amount; by consent of business hours of each day in the following brokers A, B, C, and D, all of these time manner: As soon as is practicable after contracts are deemed discharged, and by nothe close of business in the 'pits,' each brok-vation there is substituted a contract whereer (individual, firm, or corporation) con- in broker A, the initial seller in the series ducting business in the 'pits' takes from the of discharged contracts, sells to broker D, day's transactions on his books the contracts the last buyer in the series of discharged similar as to amount and time of delivery to contracts. The clearing-house sheets of the counter contracts made with other members complainant association in evidence in this of the complainant association, and ascer- suit show that the actual process of 'ringing tains therefrom the difference of the aggre- out' time contracts by elimination and subgate prices of such similar contracts, and, stitution is much more complicated than if the difference be in his favor, the amount the outline illustration, but that illustraof such difference is charged to the other tion exhibits the principle of the process. party in such counter contracts, and, if the Among the daily transactions in complaindifference is against him, such difference is ant's 'pits' there are 'hedging' contracts, credited to the other party to such counter 'spreads,' and 'scalping' contracts, and all contract. The following is a simple illus- of these forms of time contracts are adjusttration: If, during the day, broker A. has ed by both the 'direct' method and the 'ring' sold to broker B 5,000 bushels of December method of settlement. Upon the question wheat at 75 cents per bushel, and broker B what part of all the transactions in the pits has sold to broker A 5,000 bushels of Decem- are adjusted by the 'direct' method and the ber wheat at 76 cents per bushel, after off- 'ring' method of settlement, the evidence is setting the contracts at 75 cents per bushel, not very satisfactory. It tends to show, there is a difference in B's favor of 1 cent however, and I accordingly so find, that at on each bushel, or $50. This offsetting dif- least three fourths of the total transactions ference in cash is placed as a debit or credit, in the pits are adjusted by the 'direct' and as the case may be, upon the clearing-house 'ring' method of settlement. sheet, hereinafter described, of the respective brokers, parties to said counter or offsetting contracts. "In the event that said time contracts cannot be settled by either the 'direct' method or the 'ring' method, they are and must be closed by a third method, namely, delivery under the rules and usages of the complainant association. Said rules are as follows: "The 'ring' method of settlement is as follow: Each broker (person, firm, or corporation) conducting business in the 'pits' has an employee who is called a 'settlement clerk,' who keeps a record of all his em- "Rule 21-Section 1. All deliveries upon ployer's transactions in the 'pits.' The com-contracts for grain or flaxseed unless other wise expressly provided, shall be made by tender of regular warehouse receipts.' . . . "The rules of the complainant association do not permit any persons other than members of said association to make 'time' contracts upon the floor of the exchange hall, and all 'time' contracts made in the pits are contracts between the members of the complainant association, who are in said transactions respectively sellers and buyers. The rules of the complainant association permit members of said association, as between themselves and nonmembers, to act as brokers in 'time' contracts made in the pits. In case a member of the complainant association, in making a 'time' contract in the pits, acts as a broker for an undisclosed principal, if such contract is settled by either the 'direct' method or the 'ring' method, such settlement does not discharge it, so far as such undisclosed principal is concerned, as between him and his broker, but the latter is required under complainant's rules to substitute a duplicate 'time' contract with the two elements of identity, namely, like amount of grain or other commodity, and like date of delivery, but not like price. If such substituted contract is not a duplicate, but differs from the original in price, the broker becomes principal as to difference in the prices between the original and the substituted contract, and, if it is impossible for such broker to substitute either a duplicate or a similar time contract, the broker becomes principal as to the entire time contract, instead of the original principal with whom he as broker, in behalf of his own undisclosed principal, entered into said original contract. "Section 8 of rule 4 of the complainant association is as follows: "Sec. S. Any member of the association who shall be interested or associated in business with, or who shall act as the representative of, or who shall knowingly execute any order or orders for the account of, any organization, firm, or individual engaged in the business of dealing in differences on the fluctuations in the market price of any commodity,-without a bona fide purchase and sale of property for an actual delivery,— shall be deemed guilty of unmercantile conduct, which renders him unworthy to be a member of the association; and upon complaint to and conviction thereof by the board of directors, he shall be expelled from membership in the association.' "The complainant association has prescribed no method or means which shall be employed by members of said association for the purpose of ascertaining the intent of their respective customers with respect to the delivery or nondelivery of the commodity covered by any time contract. "Every member of the complainant association acting in the pits as a broker for a nonmember customer requires from such customer a deposit as security in each transaction conducted by him, and this fact is within the knowledge of the directors and executive officers of the complainant association. The rules of the complainant association authorize the members of said association who act as brokers to charge broker's commissions in amounts fixed by such rules. One of such commission charges is expressed in part as follows: "For the purchase or sale and for the "The system of 'hedging' in the pits has purchase and sale of property for future dea commercial influence which is favorable livery, whether the contract for purchase or both to the interest of the producer and the for sale be first made as follows: . . .' consumer, in that the large cash grain "Using a member of the complainant ashouses, which conduct transactions in com-sociation as his broker, a nonmember thereplainant's enchange hall, by reason of of may become a party to a time contract the risk to them from market fluctuations as buyer or seller, and at any time before being decreased through 'hedges,' are able the date of required delivery he may become to take, and do take, a smaller margin of a party to another contract in which he profit, and thus they pay to the producer takes the opposite side to that held by him a higher price and sell to the consumer at in the first-mentioned contract. Such couna lower price. The person taking the side ter or reverse time contract may be authorof such hedging contract opposite of that ized in the same order which authorizes the to such grain house is the person who as- first contract, by including in said order a sumes the risk. so-called 'stop-loss' order. When such contracts are made they may be settled, and are often so settled, as between the member of the complainant association who acted as broker and his nonmember customer, by the payment of the difference between the contract prices. The fact that such is the custom is a fact well known to the directors and executive officers of the complainant association. "The 'direct' method of settlement and the 'ring' method of settlement is not only an advantage to the members of the complainant association, in that it relieves them from the responsibility of carrying their contracts with other members of the complainant association, but they have, added to this advantage, the benefit of the margins deposited with them by the undisclosed principals for whom they act as brokers. "The rules of the complainant association provide for settlements of time contracts made in the pits when the seller does not deliver the property on the last day of the month of the stipulated delivery-the rules and usages of the complainant association fix such last day of the month as final day of delivery-by allowing the purchasers the privilege of electing: First, to consider the contract forfeited; second, to purchase the property on the market for account of the seller at 1:15 o'clock of the next business day; or, third, by requiring a settlement with the seller at the average market price of the property sold on the last day of the month of delivery." The master drew conclusions favorable to appellant, and recommended a decree in accordance with the prayer of the bill. The court, reviewing the matter on exceptions, sustained the master's findings of fact, except that the percentage of transactions in which no actual deliveries were made was nearer 95 than 75; but disagreed with the master's conclusions (125 Fed. 72), and dismissed the bill for want of equity. The Board of Trade has no property interest in the quotations made up of transactions in its pits when said transactions are not based upon actual bona fide contracts of purchase and sale of the commodity dealt in. Counselman v. Reichart, 103 Iowa, 430, 72 N. W. 490; First Nat. Bank v. Oskaloosa Packing Co. 66 Iowa, 41, 23 N. W. 255. After the trades are rung out or settled upon the Board of Trade, the customer of the member has no particular person to whom he can look for fulfilment of his contract, even if he has actually made a genuine, bona fide contract. Higgins v. McCrea, 116 U. S. 671, 29 L. ed. 764, 6 Sup. Ct. Rep. 557. 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 legiti mate trade. Irwin v. Williar, 110 U. S. 499, 28 L. ed. 225, 4 Sup. Ct. Rep. 160; Melchert v. American U. Teleg. Co. 3 McCrary, 521, 11 Fed. 193; Barnard v. Backhaus, 52 Wis. 593, 6 N. W. 252, 9 N. W. 595; Dows v. Glas Argued before Jenkins, Grosscup, and pel, 4 N. D. 251, 60 N. W. 60; Whitesides Baker, Circuit Judges. v. Hunt, 97 Ind. 191, 49 Am. Rep. 441; EdMr. D. P. Williams, with Mr. Henry wards v. Hoeffinghoff, 38 Fed. 639; Embrey S. Robbins, for appellant: v. Jemison, 131 U. S. 336, 33 L. ed. 172, 9 The doctrine of clean hands is not appli- Sup. Ct. Rep. 776; Mohr v. Miesem, 47 cable. Fuller v. Berger, 65 L. R. A. 381, 56 C. C. A. 588, 120 Fed. 274; Chicago v. Union Stock Yards & Transit Co. 164 Ill. 224, 35 L. R. A. 281, 45 N. E. 430; Bateman v. Fargason, 2 Flipp. 660, 4 Fed. 32; Ansley v. Wilson, 50 Ga. 421; Langdon v. Templeton, 66 Vt. 173, 28 Atl. 866; 1 Pom. Eq. Jur. § 399. A court of equity cannot justify its refusal to protect appellant's property in its quotations upon the ground merely that it is violating a criminal statute by permitting illegal transactions to be made within its exchange hall. The stock quotations were property. National Teleg. News Co. v. Western U. Teleg. Co. 60 L. R. A. 805, 56 C. C. A. 198, 119 Fed. 294; New York & C. Grain & Stock Exchange v. Board of Trade, 127 Ill. 153, 2 L. R. A. 411, 11 Am. St. Rep. 107, 19 N. E. 855. Messrs. Jacob J. Kern, John A. Brown, E. D. Crumpacker, Peter Crumpacker, A. G. Smith, Bernard Korbly, and Smiley N. Chambers, with Mr. Charles D. Fullen, for appellees: The quotations in controversy immediately cease to be the property of the Board of Trade upon the publication thereof in the manner and form in which the same is shown to have been done. Minn. 228, 49 N. W. 862; Pickering v. Cease, 79 Ill. 328; Counselman v. Reichart, 103 Iowa, 430, 72 N. W. 490. The Board of Trade in itself, in connection with its quotations, does not present such a party, or such a subject-matter, to the court as can appeal to the conscience of the chancellor. Soby v. People, 134 Ill. 68, 25 N. E. 109: Liverpool & L. & G. Ins. Co. v. Clunie, 88 Fed. 160; Woodward v. Woodward, 41 N. J. Eq. 224, 4 Atl. 424; 1 Pom. Eq. Jur. 399. It is the evil practice and wrong conduct of the appellant in permitting and promoting transactions which go to make up its quotations, which is involved in this case. Delaware, L. & W. R. Co. v. Frank, 110 Fed. 689; Manhattan Medicine Co. v. Wood, 108 U. S. 18, 27 L. ed. 706, 2 Sup. Ct. Rep. 436; Lawrence Mfg Co. v. Tennessee Mfg. Co. 31 Fed. 776; Krauss v. Jos. R. Peebles' Sons Co. 58 Fed. 585; Symonds v. Jones, 82 Me. 302, 8 L. R. A. 570, 17 Am. St. Rep. 485, 19 Atl. 820; Joseph v. Macowsky, 96 Cal. 518, 19 L. R. A. 53, 31 Pac. 914. Ex turpi causa non oritur actio. Holman v. Johnson, 1 Cowp. 341; Fetridge v. Wells, 4 Abb. Pr. 144; Coppell v. Hall, 7 Wall. 542, 19 L. ed. 244. The contentions of the appellees have been sustained in Board of Trade v. O'Dell Commission Co. 115 Fed. 574; Board of Trade v. Donovan not force the seller to deliver. In every Commission Co. 121 Fed. 1012; Board of such case there would be no delivery, but Trade v. Ellis, 122 Fed. 319; Board of the buyer would have a valid cause of Trade v. Consolidated Stock Exchange, 121 action. Undoubtedly gambling was going on Fed. 433; Board of Trade v. L. A. Kinsey in the exchange hall, but it was contrary to Co. 125 Fed. 72; Christie Grain & Stock appellant's by-laws. Appellant was charCo. v. Board of Trade, 61 C. C. A. 11, 125 tered by Illinois for a lawful and useful purFed. 161. pose, and the association adopted and promulgated suitable by-laws and rules. Baker, Circuit Judge, delivered the We think the record fails to show that the opinion of the court: 1. We deem it unnecessary to determine from the evidence whether the percentage of trades in which actual deliveries were made was 5 or 25. The finding of the one figure or the other would not prove what proportion of the remaining no-delivery transactions were gambling. Of these, an indeterminate number were "hedging contracts." If we felt called upon by the necessities of this decision to give a definite opinion of hedging, the record might well lead us to find that hedging is a manufacturer's or merchant's insurance against price fluctuation of materials, and no more damnatory than insurances of property and life, which in one sense are wagers that the property will not be destroyed during the term, and that the life will not fail in less than the expectancy in the actuaries' tables. The remainder of the no-delivery transactions were "speculative." But speculation is not unlawful. One may buy any sort of property to hold for a rise, one may contract to buy or sell property not in possession or in existence at the time, and lawful contracts may lawfully be canceled and settled in advance of the time of performance. If a contract, lawful in form, is entered into, it is lawful in fact, even though one of the parties never intended to perform his part of it; that is, the intent that the lawful form shall cover a sham must be mutual to make it a sham. We think the court's conclusion that, because in 95 per cent of the trades no deliveries were in fact made, it was intended that in those cases deliveries should not be made, and that the parties in nineteen instances out of twenty were using the forms of lawful contracts to cover mere wagers on the future prices of commodities, is not warranted by the facts in the record. The "direct" and "ring" methods of settlement between members might cancel out nine tenths of the bids back and forth between the members as agents, and yet every contract may have been perfectly legal and enforceable between the principals, and every principal satisfied by receiving a "substitute" contract. If a seller intended not to deliver, but to settle on differences if prices rose, the buyer who entered into the contract in good faith, and who desired to receive the property, could dominant feature of the members' dealings was unlawful, much less that appellant, as a creature of the state, was violating its charter, or was particeps criminis in what gambling the members carried on. We do not, however, attach very much importance to the preponderating character of the transactions in the exchange hall, because, in our opinion: 2. The real subject-matter of the suit is the property right in the news, in the reports of prices. Even if it were true that 95 per cent of the dealings in the exchange hall were wagers, the prices are the same for the transactions that are not wagers, and the quotations sent out show the figures at which honest dealers may secure contracts. Millers, grain buyers, elevator companies, govern their dealings by the market prices made in appellant's exchange hall. The news therefore serves, or, at least, is capable of serving, a useful purpose. So it seems to us immaterial what proportion of the transactions are wagers, since the prices made in the transactions are the prices that farmers and shippers can get, and since the news of the prices and the dissemination thereof are valuable to the community. News may be an object of lawful ownership though nine tenths of the things reported be unlawful. 3. Nor should the property in this case (the news, the continuous quotation of prices) be adjudged contraband because it is susceptible of bad uses as well as good. Gamblers in Indiana may settle their bets on prices according to appellant's quotations and this quite irrespective of the fact, if it were the fact, that 95 per cent of the transactions in appellant's exchange hall were lawful; just as Indiana grain dealers may make and settle their honest contracts on the basis of appellant's quotations, regardless of the fact, if it were the fact, that 95 per cent of transactions reported were gambling. It seems to us, therefore, that the news, as news, is not without the pale of protection, and that the moral quality is chargeable solely to the user. 4. The property concerned in this suit not being contraband, should appellant be denied the writ of injunction, even if it were true that appellant permits gambling in its exchange hall? We think not. Suppose this |