Part 3 — CHAPTER II. TRANSACTIONS ON THE STOCK EXCHANGE.

It has been deemed advisable to treat of transactions on the Stock Exchange under a separate heading: not that they are, in the main, subject to different statutory provisions; but as the facts in these cases are of a very special character, and to a great extent stand on common ground, it will probably facilitate reference if they are all grouped together instead of being scattered over the rest of the work. This Chapter is not intended to give an exposition of Stock Exchange transactions generally, but only so far as it has been sought to apply the gambling statutes thereto.^[230]

It will be remembered that wagering transactions of this description were not touched by the earlier statutes of Charles II. and Anne, which applied solely to games and pastimes. So that until the passing of the statute we are about to mention, time-bargains, as they have been called, were not only lawful but were enforceable by action.

The chief statute on this subject was 7 George II., c. 8, commonly called Barnard’s Act, which provided—“That |7 Geo. II., c. 8.| all contracts or agreements upon which any premium should be paid for liberty to put upon, or to deliver, receive, accept, or refuse any public or joint-stock or public securities whatsoever ... and all wagers and contracts in the nature of wagers, and all contracts in the nature of puts and refusals relating to the then present or future value of any such stock or securities as aforesaid, shall be null and void.” The statute also inflicted penalties both for entering into such contracts and for making payments in respect thereof.

Section 8 made invalid all sales of stock not in the vendor’s possession.

Statute only applied to public English stocks.

88The statute only applied to English public stocks, and not to foreign stocks nor to shares in companies.^[231]

It also made the contracts and compounding for differences not merely void but illegal. Thus in Cannan v. Bryce^[232] it was held that money lent for the purpose of compounding such differences could not be recovered. But in Faikney v. Reynous,^[233] where a bond was given to repay money advanced by plaintiff to settle for differences, it was held that the bond was good.

Nicholson v. Gooch, 5 E. & B., 999.

The case of Nicholson v. Gooch^[234] was an important case under this statute, and also seems to have some bearing on Stock Exchange transactions at the present day.

The bankrupt Lodge was a member of the Stock Exchange and the defendant was the official assignee of that body. By the rules of the Stock Exchange every member unable to fulfil his engagements was declared a defaulter, and all members indebted to him in respect of Stock Exchange transactions were to pay their debts to official assignees appointed by the Stock Exchange, whose duty it was to distribute the money received rateably among his Stock Exchange creditors. On 11th November, Lodge wrote to the secretary to say he could not meet his engagements, and large sums were paid to defendant by members who were his debtors. On 23rd November a petition in bankruptcy was presented against Lodge; on the 31st, Lodge was adjudicated bankrupt. The plaintiffs were Lodge’s assignees in bankruptcy. It seemed from the evidence that according to the customary way of dealing, speculative transactions and genuine sales were so mixed up, that it was impossible to separate the two; but the jury found that the majority of the transactions were speculative and the parties merely intended to settle differences. It seemed that the method of settling these differences was for the members on the account day to set off the amount of stock which they had respectively agreed to buy and sell, 89and by a fictitious bargain for the sale at the price of the day of as much stock as would cover the balance, and then settle by paying the difference in the price. The plaintiff sued defendant for the moneys they had received from Lodge’s debtors. The Court drew an inference of fact that they were all contract for differences only. Held, that the settling of differences without actual delivery of stock was, so far as the public stock was concerned, illegal by section 5 of Barnard’s Act. That money paid to defendant in pursuance of this illegal arrangement, and forming the fund sought to be recovered, could not be recovered, as it could not form part of Lodge’s estate.^[235] Therefore the assignees had no title to it.

It had been attempted on the plaintiff’s behalf to apply the doctrine of Tennant v. Elliott, and so prevent the defendant from setting up the illegality against them.^[236] But the Court held that this did not apply because defendant received the money, not as agent for Lodge or for his use, |Position of Official Assignee of Stock Exchange.| but on an implied mandate to distribute it according to the rules of the Stock Exchange.

Crampton, J., distinguished the receipt of money for differences on public stock which was illegal, and on ordinary shares which were not within the statute. In the latter case the doctrine of Tennant v. Elliott might have applied if defendant had received the money as Lodge’s agent, and subject to his disposal. But the receipt seems to have been under an adverse claim by virtue of the stock Exchange rules rather than as agent of the bankrupt.

Of course to a great extent the importance of this case was diminished by the Statute 23 & 24 Vict., c. 28 by which Barnard’s Act was repealed. |Repeal of Barnard’s Act.| At the same time it seems still of importance as showing the position of the official assignee of the Stock Exchange, i.e., the agent of the Stock Exchange, to distribute the money according to their rules; the defaulter, as a member of that body, binding himself to authorise the money in the 90event of his default to be paid to the Stock Exchange or their agent.

Ex parte Grant. 15 Ch. D.

A late case bearing on this topic, and to a great extent confirming the views of Crampton, J., in Nicholson v. Gooch, is that of ex parte Grant re Plumbly.^[237] Plumbly declared himself a defaulter and on the same day presented his petition in bankruptcy. By virtue of his being a defaulter the official assignee, as stated above, became entitled to receive money due to him for differences. An injunction was obtained in bankruptcy against the official assignee against receiving and collecting such debts, and an order to pay all sums that he had received to the trustee in bankruptcy. Against this order the official assignee appealed.

The evidence chiefly consisted of affidavits filed by leading members of the Stock Exchange. Some points in these affidavits call for special notice.

(1.) That contracts on the Stock Exchange are never for payment of differences, but are real transactions for cash ... contemplating transfer or delivery of the stocks, &c. The transfer and payment can only be rendered unnecessary by a new and equally real bargain, on the one part to accept and pay for on the same day, and on the other part to transfer or deliver, an equivalent amount of the same stocks, &c.

(2.) Members having bargains open in stocks and shares which the defaulter has contracted either to take or deliver, but which contracts he breaks by his default, pay to the official assignee the difference in value of stocks, &c., as determined by the prices fixed by the official assignee, at the time of such default, when the change in price is against such members; and on the other hand become entitled to claim against the fund so created in the hands of the official assignee for any such differences when in their favour.

(3.) The defaulter cannot claim differences on damages in respect of contracts which he has broken by his default, nor can he claim the moneys payable as differences under the rules to the official assignee.

91(4.) Had Plumbly not become a defaulter nor a liquidating debtor, and had all the contracts been duly performed by him, none of the differences received by the official assignee would have found their way into Plumbly’s possession. In payment of differences, bank notes and cash do not pass and cannot be demanded. All payments on account of differences must be by crossed cheques on a clearing house banker, and the whole of the differences which a member is entitled to pay or liable to receive on each account day must all pass through the Clearing House together. If the balance is in his favour, he receives only the difference; otherwise, the general balance of all his dealings goes to his debit through the operation of the bankers’ clearing. The credit differences of each member are thus directly hypothecated for the payment of his debit differences.

The reader is referred generally to the affidavits in the case, which are set out in extenso in the report; but the above will be sufficient to render the judgment intelligible. Held (1) that the official assignee received the moneys by a title adverse to the trustee, who on that account could not claim them as received to his use. (2) The fund claimed was an entirely artificial fund, created by the rules of the Stock Exchange: if the contracts were winning ones, the trustee could not have enforced them at law, as the defaulter had shown his incapacity to perform the contracts himself: so that the differences could never have been payable to the trustee who was now claiming them. (3) That the trustee could not take advantage of those rules, to which alone the fund owed its existence, and claim the moneys, without also complying with them with respect to the distribution; i.e., he could not claim for distribution among the general body of creditors. James, L.J., put the case on a more general ground. If A owes money which is claimed by B and C, and he pays B, C cannot sue B; but payment does not discharge A, if wrongful.

The case shortly seems to come to this:—“Differences” are payable simply by the rules of the Stock Exchange, and not as a matter of contract between two parties; being payable 92to the official assignee by virtue of those rules, the fund thereby created in his hands must be subject to the same rules. That the official assignee receives these differences in his own right and not to the use of the defaulter’s trustee in bankruptcy.

It seems, then, that even if bargains for “differences” were known on the Stock Exchange (which it appears they are not), the rights of the official assignee with respect to them as against the trustee in bankruptcy would be governed by the above case, as he could only receive them under the rules, and not as a legal debt. |Nicholson v. Gooch and ex parte Grant compared.| The two cases seem to a great extent to stand on a common ground, though the former was not cited in argument in the latter. In both it was held that the title of the official assignee was adverse to that of the trustee in bankruptcy, so that the former could in no sense be considered his agent. In both the ratio of the decision was that the fund was entirely artificial and owed its existence to the Stock Exchange rules, as the moneys which formed the funds were irrecoverable at law. They were irrecoverable in Nicholson v. Gooch on the ground that the payments were in pursuance of illegal or void contracts; and in Plumbly’s case there was the additional reason pointed out that as he by his default was incapable of performing his part of the contract, he could not enforce it himself.

8 & 9 Vict., c. 109.

The next statutory provision concerning this class of cases is contained in the statute we have discussed above, declaring all wager-contracts to be void. The question of the application of this statute to Stock Exchange transactions, depends upon how far such transactions are in the nature of wagers.

Contracts for payment of differences.

The Courts have more than once been called upon to adjudicate upon what have been supposed to be contracts for the payment of “differences,” that is the difference between the present and the future price of stock. Contracts of this sort have been called “time-bargains”; a phrase we shall avoid, as it seems to be used in more senses than one. An instance of such a contract, or rather of a contract which the jury found to be of this nature, is to be found in Grizewood v. 93Blane.^[238] It will be seen that the bargain as the jury found the facts took the form of two collateral bargains, the result of which was that differences only passed between the parties.

Grizewood v. Blane, 11 C. B., 526.

The bargain was that plaintiff should purchase of defendant, and defendant should sell to plaintiff a certain number of shares in certain companies at a specified price. The said shares rose in price. The parties then entered into a second agreement to rescind the former one, and that defendant should buy of plaintiff the same number of similar shares at such increased prices, and that defendant should merely pay the plaintiff the difference between the two prices.

Defendant pleaded generally that the contracts were void under the statute, which plea was held bad, for not stating the facts which brought the case within the statute.

The case went to trial on issues of facts raised in the pleadings—that the contract was by way of wagering on the price of the shares, and was merely colourable; that it never was intended that the said shares should be bought and sold, but was a mere wager.

The plaintiff was a stock jobber; and the defendant had dealt with plaintiff through his broker. Evidence was given to show the former course of dealing between parties, that no shares ever passed, but the parties merely settled differences.

Test of a gaming transaction.

Jervis, C.J., directed the jury that if at the time of making the first contract the intention of the parties, as understood by both of them, was neither to purchase nor sell the shares, but only to settle differences, then the transaction was void under the statute.

The Court held that this ruling was right. The jury found that it was a mere gambling transaction—i.e., that it was the intention of the parties at the time that there should be no actual acceptance or delivery of the shares.

This finding of the jury upon the facts of this case have been questioned in later cases, probably through the Courts being in possession of more complete information as to the 94true nature of transactions on the Stock Exchange. Thus Bramwell, L.J., in Marten v. Gibbons,^[239] and Brett, L.J., in Thacker v. Hardy,^[240] both express their doubts as to the correctness of the view the jury took of the facts. The case had one peculiar feature, viz., that it was an action by a jobber against the principal on transactions affected through a broker, and as evidence was given of a long course of dealing between the parties, there may have been special circumstances in the case. It is remarkable that in Cooper v. Niel^[241] the jury there found that the contract was simply for the payment of differences; but again Brett, L.J., in Thacker v. Hardy,^[242] says he could see no evidence of it.

In the former case the broker became insolvent, and his trustee sued the defendant for indemnity in respect of the claims of the jobbers. But as the jury found that the contracts were mere wagers, the jobbers could not claim in respect thereof against the estate of the broker, and, being insolvent, payment could not be enforced against him by the rules of the Stock Exchange.

Suggested test of a difference bargain.

It seems that the test adopted in some of the cases, viz:—the intention of the parties to deliver or not is unless properly qualified and understood likely to be misleading. A sells to B. A may be a “bear” or speculative seller of what he does not possess; and B may be a “bull” or speculative buyer. Both parties may hope or intend to secure a difference in their favour, the one by re-purchasing, the other by a resale. Each party may suppose that the other may be willing at any time to close the bargain and settle by payment of differences, yet the bargain as stated in this simple way is in no sense a wager. The real test seems to be, what is the primary bargain between the two parties, to ascertain whether each of the parties could be called upon by the other in any contingency, under the terms of the contract, to deliver, or to take delivery and make payment. The subsequent arrangements which the parties may make, i.e., to close or 95settle by payment of differences even if carried out through a long series of transactions and even though in contemplation of the parties at the time of the contract, do not affect the question if it was not part of the original agreement that the bargain should be settled in this way, and if not the contract could not be a wager. The expectation of the parties might be upset by such a contingency as the winding up of the Company; and it is the strict rights of the parties to the bargain that must be regarded. This view of the matter is confirmed by a passage in the judgment of Lindley, L.J., in Thacker v. Hardy, 4 Q.B.D., at p. 689.

“What are called time bargains are in effect the result of two distinct and perfectly legal bargains, viz: (1) a bargain to buy or sell; (2) a subsequent bargain that the 1st shall not be carried through, and it is only when the first is entered into upon the understanding that it is not to be carried out, that you get a time bargain in the sense of an unenforceable bargain.” In a more recent case in the Court of Sessions, Scotland, Shaw v. The Caledonian Railway Company, a passage in Lord Shand’s^[243] judgment requires attention. “If it appears clearly that the contracts and the dealings between the parties were for differences only and were not intended in any sense to be real transactions, and were not in effect real transactions, then they must be regarded as gambling transactions. If it appears that any writings which passed between the parties in the form of sale notes or otherwise were a mere form intended by both parties, to give form to the transaction, and to have no legal effect of any kind, then I do not think that writings under such circumstances would take the case out of the rule I have mentioned. But if contracts for the sale of shares or goods are entered into so as to create mutual obligations upon the parties, on the one hand to give and the other to take delivery, if the obligation is such as can be enforced if either of the parties think fit to do so, then I think we get out of the region of arrangements of mere differences of the nature of betting or gambling.

“If either one or both of the parties may, as and when he 96thinks fit demand or give delivery of stock and ask payment of the price under the contract, if that be so as to one of the parties, then I think the transaction has the mark or stamp of a real transaction and is inconsistent with the notion of transaction for mere differences.”

The passage in the judgment down to “betting or gambling” seems entirely to confirm the view above expressed, that a real transaction of purchase and sale must create “mutual obligations” to deliver and accept. A can call on B to complete and B can call on A. But the passage which follows seems to contain a somewhat different proposition: “If either one or both the parties may demand,” etc. This would cover a case where A can demand delivery from B, but B cannot from A. We shall have occasion again to allude to this seeming discrepancy when we come to deal with the case of Shaw v. Caledonian Railway again.

From the cases to which we are about to refer it would appear that in point of fact transactions on the Stock Exchange never do take the form of contracts for the mere payment of differences. |Contracts for differences not really known on Stock Exchange. Thacker v. Hardy, 4 Q. B. D.| Thus in Thacker v. Hardy,^[244] from a remark in Lindley, J.’s judgment at (p. 689), it seems to have been stated by witnesses that time-bargains are unknown on the Stock Exchange. The real nature of the agreement in that case was found by Lindley, J., to have been as follows:—(1) That defendant was a speculator and employed plaintiff, a stock broker, to speculate for him on the Stock Exchange. (2) Defendant knew that in order to do so plaintiff would have to enter into contracts to buy or sell stocks, &c., and, to protect himself, to make other contracts to sell or buy respectively. (3) Plaintiff knew, as was the fact, that defendant never intended to accept or make actual delivery of the stocks, &c., bought or sold for him. (4) That defendant took the risk of having to accept or deliver, &c., hoping that plaintiff would be able so to arrange matters that nothing but differences would be payable to or by defendant. (5) That otherwise defendant would be unable to pay for what was bought or deliver what was sold.

97Plaintiff brought an action for indemnity for what he had been called upon to pay in respect of these transactions.

A case between broker and principal.

This was a case it will be noticed turning on dealings between a broker and a member of the outside public, and so differed from Grizewood v. Blane. The judgment of Lindley, J., decided the following points:—

(1.) That agreements between buyers and sellers of stock to pay differences are gaming contracts within 8 & 9 Vict., c. 109, s. 18.

(2.) That that section of the statute only affects the contract which constitutes the wager. In this case plaintiff was bound to enter into the contract himself as principal. The contract between himself and the real principal was not a wager-contract, but an implied contract of indemnity.

(3.) That an agent is entitled to be indemnified against all liabilities incurred on behalf of his principal, unless such were illegal.

(4.) That the statute made gaming transactions void, and not illegal.

(5.) It had been argued that such gambling transactions were illegal at Common Law on the ground of public policy, relying on Lord Tenterden’s opinion in Bryan v. Lewis. But this was overruled in Hibblethwaite v. M‘Morrine.^[245] Besides, it had required a special Act of Parliament to make gambling in the funds illegal, and that Act was repealed by 23 & 24 Vict., c. 28.

(6.) He did not infer as a fact that this contract was a contract for differences. The real nature of the transaction is stated above.

It will be seen, therefore, that the judgment treats of the case from two points of view: first, granted the main contract were in the nature of a wager. Held, in this case, that according to previous authorities, the right of an agent to be indemnified, was not affected. Second, that as a matter of fact, there was no wagering in the transaction at all, so that 8 & 9 Vict., c. 109, did not affect the question.

The case was taken up to the Court of Appeal, where the 98view taken by Lindley, J., as to the facts was confirmed; consequently it became unnecessary to consider the application of the statute to the case.

Bramwell, L.J., said he would assume that the broker might by the terms of the bargain be called upon to resell the stock, so that the principal would only have had to pay differences. That would not infringe the statute as a gaming contract, for the principal might at any time elect to take the stock and hold it as an investment ... also the broker might be unable to sell, if, for instance he had bought shares in an insolvent bank. There is no wagering in a transaction of that kind—the broker has no interest in the stock—it does not matter to him whether the market rises or falls; but when a transaction comes within the statute against gambling and wagering, the result of it does affect both parties.

Ex parte Rogers.

In ex parte Rogers^[246] the facts seem to have been substantially the same. A stockbroker named Evans issued a debtor’s summons against Rogers in respect of money due to Evans on the purchase and sale of stocks and shares on Rogers’ behalf, and for commission, and for money paid by Evans for carrying over^[247] a portion of the said stocks and shares. The contracts were made by Evans, subject to the rules of the Stock Exchange, according to which Evans had to deal as principal between himself and the jobbers. It was understood between Evans and Rogers that the latter was only buying for the rise and never intended to accept delivery, but meant to sell them again before the next account day and receive or pay differences. Evans admitted that sometimes in buying the same kind of stock for two clients he bought the whole amount in one from the jobber, and then resold to the clients, but he could not say whether that had been done in respect of any transactions for Rogers. There was also evidence to show that Rogers had met Evans in his office, and authorised him to borrow money and pay the jobbers. It was sought on behalf of the debtor to distinguish the case from Thacker v. Hardy, on the ground 99that the broker had acted as a principal and not as an agent, having purchased for himself and resold to his clients, and that the transaction being in the nature of a wager was illegal (? void). But the Court held that there was sufficient evidence that the broker had paid money at the debtor’s request, therefore the case was within Thacker v. Hardy.

Ex parte Grant, 13 Ch. Div. Dealings between members of the House.

The case of ex parte Grant,^[248] to which we have alluded above, is important on the present subject, chiefly from the evidence given in the case as to the course of dealing on the Stock Exchange, which seems to confirm the finding of Lindley, J., and the Court of Appeal, as to the facts of the case in Thacker v. Hardy. At p. 671 it is stated: “Contracts on the Stock Exchange are never for payment or receipt of differences. All contracts, &c., are real transactions for cash or for a day named, contemplating the actual transfer or delivery ... and which transfer or delivery can only be rendered unnecessary by a new and equally real bargain on the one part to accept and pay for on the same day, and on the other part to transfer or deliver an equivalent amount of the same stock.” It is then further stated that if a member having, say, bought stock which he was unable or unwilling to take up, he balances the transaction by selling a similar amount of (but not the identical) stock for the same settling day for which the bargain was originally made, so as to enable that particular transaction to be written off and balanced. “The whole amount of stock or shares to be taken and delivered balances itself at all times, |Differences, how adjusted.| but the amount of stock to be accepted from or delivered to the several persons with whom any member has dealings, is liable to vary with every new transaction entered into.” “When the settling day arrives each member only transfers or delivers and accepts and pays for the then balance of each particular description of stocks or shares contracted for with each person with whom he has dealt.”

The affidavits in this case should be carefully perused, as they afford a great deal of information as to the method of 100doing business on the Stock Exchange. It seems clear that the transactions there described can in no sense be in the nature of wagers—they consist of an original purchase or sale and a sub-sale or sub-purchase, the latter being probably to a person who was not a party to the original contract. Possibly if the sub-sale or sub-purchase were made between the original parties and were contemporaneous with the first contract, this might, according to the case of Grizewood v. Blane, amount to a wager, but this method of dealing seems to be unknown on the Stock Exchange.

No doubt the transactions which go on may be made a means of reckless gambling; but it is necessary to bear in mind Lindley, J.’s warning in Thacker v. Hardy against being misled by an epithet.

Qy. Byers v. Beattie.

There is, however, an Irish case,^[249] which certainly seems open to question, in which the agreement was that the plaintiffs, as stockbrokers, should buy and sell for the defendant such stocks, &c., as the defendant might require on the terms that if a profit should result from the sale the plaintiffs should account to the defendant for such profit, deducting commission; if a loss, then the defendant was to pay the amount of such loss to the plaintiff, plus commission. Held that this was a wagering contract, as involving an agreement for the payment in receipt of losses or profits, and that the result would have been the same even if the plaintiffs had shown themselves liable to third parties and had sued on an implied contract of indemnity. The answer to this decision seems to be that even if there were a wager at all it was not a wager between plaintiffs and defendant.

It seems probable, therefore, in view of the facts laid before the Court as to the customary course of dealing on the Stock Exchange, and particularly having regard to the decision in Thacker v. Hardy, that the statute will have but little application to Stock Exchange transactions. |Effect of 8 & 9 Vict., c. 109, likely to be very small on the Stock Exchange.| Bargains may no doubt in many cases be mere speculations on the part of one party, but it is clearly stated by many witnesses before the Stock Exchange Commissioners in 1878, 101that a man’s intentions as to holding or reselling his purchases is not known to the other party, so that it cannot be a wager as between the two.

That this is the real state of the case is shown by the evidence given by Mr. Pyemont before the Stock Exchange Committee in 1878 (see p. 315). “With regard to wagering and gaming, I may say that it was in consequence of the remarks of the Lord Chief Justice which appeared in the Times the other day, that I was led to tender my evidence; I was sorry to see, in so high a quarter, such a total misapprehension of the action of the Stock Exchange. We have no such transaction on the Stock Exchange as wagering and gaming. The only possible approach to anything of the kind was dealing in dividends, which was always reprobated by the Committee. The accounts were never recognised if there were failures; and finding that not recognising them did not stop the practice, the Committee then made it penal to do so, but with that exception I have never known such a thing as a wager. Every £1,000 of stock which is sold on the Stock Exchange must be delivered per se or per alium. It must be delivered (whether demanded or not) and for this reason: If the buyer does not pass me a name on the name day, I sell it out through the secretary of the Stock Exchange for a name to complete the bargain. There is no such thing as a bargain left uncompleted. What I mean by per se or per alium is that if I have sold £1,000 stock to B, if I am not prepared to deliver it, I get D to deliver it to B on my account, and pay him for doing so. If B does not want it, he must find somebody who does. There is no such thing as fiction in regard to any part of a Stock Exchange bargain.”

Time-bargains.

It does not seem that a Time-bargain in the proper sense of the term, i.e., a contract for the future delivery of something the amount or value of which cannot be ascertained, is in the nature of a wager. Thus, as put by Bramwell and Cotton, L.JJ.,^[250] the sale of next year’s apple crop would be a good contract.

102So when a person enters into a speculative sale of stock on behalf of himself and another not having the stock in possession, it was held in the Court of Session that it was not a wagering transaction either as between the joint adventurers, or as between the buyer and seller. Mollison v. Noltie.^[251]

A contract for “differences” on the Stock Exchanges though sometimes called a time bargain, is not such according to Bramwell, L.J., in the ordinary sense of the word. |Sale of prospective dividends.| So in Marten v. Gibbon^[252] a question arose as to the validity of the sale of a prospective dividend. Defendant employed plaintiffs, who were stockbrokers, to sell for him the next dividend on £50,000 of South Eastern Railway A Deferred Stock, and plaintiffs sold it to a firm of dealers on the Stock Exchange. The dividends declared were in excess of the price at which the plaintiffs had sold them; so plaintiffs requested defendant to authorise them to pay the difference to the dealer. On defendant’s refusal plaintiffs paid the amount and sued defendant for indemnity.

It appeared that by Rule 61 of the Stock Exchange, the Committee did not recognise bargains in prospective dividends. There was no evidence as to whether the defendant was at the time of the contract in possession of the £50,000 of Stock.

It was argued for the defendant (1) That this was a transaction within 8 & 9 Vict., c. 109. (2) That as this was not a contract which the Stock Exchange would enforce, no authority to pay the difference could be implied, and there was no evidence of an express authority. (3) Defendant had revoked the plaintiff’s authority to pay.

But the Court held (1) That it must be assumed, in the absence of evidence to the contrary, that the defendant had the £50,000 of Stock in his possession at the time of the contract. Therefore, although an agreement of this kind would have been within Barnard’s Act, it was not within 8 & 9 Vict., c. 109, any more (as was put by Blackburn, J.) than the purchase from a fisherman for the next haul of his net at a fixed sum. Even if it were a wager as between the 103principal and the broker, it could not be assumed that the jobber knew that it was. (2) That the meaning of Rule 61 was, only that the Committee would not enforce such a contract by expulsion, but the contract was otherwise left good between the parties. The broker therefore, having at defendant’s request entered into a contract on which he was personally liable, the defendant could not revoke plaintiff’s authority.

New rule.

Since this case was decided, the rule of the Stock Exchange (No. 61) on this subject has been changed into one of a prohibitive character, it being there provided “That no member shall enter into bargains in prospective dividends in shares or stock of railway or other companies.” So that while this rule continues in force, no question is likely to arise as to the rights or liabilities of members of the Stock Exchange in bargains of this description.

Sale of dividends of stock not in possession.

The case, it will be seen, leaves quite unsettled what the result of a bargain for the sale of dividends of Stock not in vendor’s possession. It is submitted that the result of such a bargain would be that the jury would, on the facts, find that such were only in the nature of a wager, and that the question would be left to them as one of fact.^[253]

So much for differences on the Stock Exchange. It must not, however, be assumed that transactions in stocks and shares or indeed any kind of goods are never bargains for differences only, and so equal to wagers. Those dealings in outside Stock Exchange places, |Bucket shops.| commonly known as “bucket shops,” sometimes take that form, see, for instance, Reggio v. Steven,^[254] where the terms of defendant’s prospectus, on the footing of which dealings had taken place, stipulated that all bargains should be settled by payment of differences. These bargains were held to be wager contracts. In Shaw v. Caledonian Railway Company^[255] to which allusion has already been made, the real issues in the action were between the plaintiff Shaw and “R,” a customer. Plaintiff carried on business as a stock and share dealer, not a member of the 104Stock Exchange. The terms on which the dealings were conducted were as follows: the parties dealt as principals not as principal and agent. “R” bought or sold of Shaw, but in the main he bought. He deposited cover with Shaw to the extent of 1 per cent. on the stocks he had opened. If the price of the stock dealt in went against “R” to the extent of 1 per cent., it was Shaw’s duty to close the transaction. Prices were regulated by the tape. If “R” bought of Shaw at 100 and the stock fell to 99 (middle figure) it would be Shaw’s duty to close that stock by re-purchasing from “R” at the lower price, so that “R’s” loss was to be limited to the extent of 1 per cent., unless before the closing “R” should deposit more cover.

It appears from the judgment of Lord Shand, at p. 477, though it does not appear from the report of the evidence given in the case, that all these dealings were for the next Stock Exchange account day, but that subject to Shaw’s duty to close, “R” had the right of carrying over to the subsequent account, (see post as to this transaction, p. 108) but so long as the stock did not go against “R” to the extent of the cover, “R” had the right of (1) keeping the bargain open, of (2) closing by resale or repurchase from Shaw, (3) calling on Shaw to deliver the stocks and paying for them. On some occasions “R” was on the account day credited with dividends on the stocks he had opened, and with a premium on new stocks issued in right of old, also on one occasion he was credited with a contango. (N.B.—This must have been on a “bear” transaction, see post as to this, p. 113.) All the transactions between the two were completed by payment of differences, but it was otherwise with some of the customers of Shaw. It appears that if “R” sold, Shaw had a right to call for delivery (see the evidence of Willis and Lord Shand’s judgment, at p. 477),^[256] but this seems to be the only option that Shaw had, and the transactions out of which these proceedings arose were nearly 105all purchases by “R.” The Court held that these were real transactions of purchase and sale, and not difference bargains. (1) The crediting him with the dividends, &c. showed him to be absolutely the owner of the stocks, (2) because “R” could at any time have gone and demanded delivery.

It is, however, submitted that this decision is untenable. In the first place “R” had an option in all cases where he purchased of either completing by taking delivery or of settling by the payment of differences; Shaw being the seller, was not by the contract entitled to call on “R” to take delivery and pay. It seems that when “R” elected (as he was entitled to do by the contract) to treat it as a difference bargain, the exercising of this option related back to the time of the contract and gave the transaction the character of a difference bargain from the first. The facts do not fulfil the requirements suggested by Lord Shand for making a real bargain, the “mutual obligations” to take and deliver, see ante p. 95, seeing that Shaw had no option in the matter at all events until the cover was run off, and then the contract was that the settlement was to take place by payment of differences. The fact of the dividends, the premium, and the contango, being credited to “R” seems to give very little weight one way or the other, and are quite consistent with a special arrangement in connection with a difference bargain. See per Turner, L.J., in ex parte Marnham.^[257]

It has above, at p. 96, been suggested that the judgment of Lord Shand seems to contain two conflicting tests of a “real bargain;” on the one hand he suggests “mutual obligations,” on the other, it is said to be sufficient if either party can compel completion. No doubt “R” had the right of calling for completion, and had he done so then the transaction would have been a genuine purchase. But where one of the parties has the option of electing which form the bargain shall ultimately take, purchase or difference bargain, it is submitted that the legal attributes of the transaction must be determined by the form which it ultimately assumes in fact.

106A later Scotch case, The Liquidator of the Universal Stock Exchange v. Howat, is open to the same criticism. The terms on which the plaintiff company dealt with the defendant were of a somewhat similar character to those proved in Shaw v. The Caledonian Railway. The conditions endorsed in the bought and sold note stated that the Company acted as principal in all sales and purchases and not as broker, being in all cases prepared to deliver or take up. Clients might, if it suited their convenience, repurchase or resell from or to the Company any stocks which they might have sold or bought to or from the Company, but the Company could not compel them to do so. Some of the defendant’s instructions to the Company to sell to him contained instructions to repurchase from him (or close) at a certain profit. The action was brought to recover differences on stocks which defendant had purchased and which had been closed by plaintiffs on defendant’s instructions. The Court held that these were real transactions of purchase and sale.

Per the Lord President, at p. 135: “It is much more likely that the arrangement was, that the transactions should be as was expressed in the writings, that the legal rights of both parties should stand as so expressed; but that the attention of both parties should be directed towards escaping from the unpleasant consequences ... if contrary to the interests of both, delivery were demanded and given.”

It is, however, submitted that the effect of the conditions quoted above, gave the customer an absolute right or option to close his stocks and pay or receive differences; and that when he exercised this option it gave the transaction the character of a difference bargain. These being the rights of the defendant, it is difficult to see how the rights of the Company were in respect of real transactions.^[258]

There is another kind of transaction on the Stock Exchange, as to which there may some day be a question how far it is a gaming contract within the statute. These are 107called “Options.” |Options.| Options are described by a witness giving evidence before the Stock Exchange Commission of 1878,^[259] as the purchase of the right to buy or sell particular stock on a particular day at a fixed price, e.g., the price of Russian Stock is 83 to-day, and a person wishes to acquire the right to buy that stock on some future day, |Calls.| believing that the price will then be higher, and is desirous of not risking more than a certain sum of money in a transaction, say 2 per cent. He would probably be obliged to give 85 for the stock for the end of March, upon the condition, that if he did not wish to take up the stock, he must pay 2 per cent., the difference between the day’s price and the price at which he bought: that is in effect paying 2 per cent. for the right of saying at the end of March whether he will or will not buy the stock at 83. If he does not buy he loses 2 per cent., and the stock must rise 3 per cent. by the time before he can make 1 per cent. profit. |Puts.| Then there is the converse case of a put, which is payment of a premium for the right to sell, or call upon a man to take delivery of, so much stock at a fixed price. This is akin to a Bear transaction, and of course the option will only be exercised in the event of a fall in the price. The person who would accept this obligation would be an intending purchaser, who is willing to give a price equal to the price of the day, minus the premium. Suppose the price of stock be at 90, A is desirous of purchasing, but does not wish to give more than 88. B, believing they are about to fall, wishes to “bear” them without incurring the risk of heavy loss. So B gives A 2 per cent. for the right on a future day of calling on A to take delivery of so much, at the price of the day—90. If they fall to 87, B will exercise the option and make 1 per cent. profit, while A has got the stock virtually for 88, which he was willing to give. If B does not exercise the option, A secures his 2 per cent.

Double options.

There are also double options, which give the right of either buying or selling at a fixed time, that is to call it if it goes up, to put it if it goes down, for which a double premium is charged.

Are options in the nature of wagers.

108It has been suggested that these transactions would be held void at law, as being in the nature of wagers. It was remarked by the Chairman of the Stock Exchange Commission, that they were very much in the nature of a “bet.”^[260] It will be remembered, moreover, that Barnard’s Act places all agreements for “puts and refusals” in the same category as wager-contracts, which are all made illegal thereby. It is, however, submitted that in all bargains for opinions the great element of a wager is wanting. It does not seem to be the essence of the bargain, to use the words of Cotton, L.J., in Thacker v. Hardy, “that one party should win and the other should lose.”

Suppose A gives B £2 for the option to buy of him so much stock at a future date, at, say £80, the market price of the day. The result to be must be the same in all cases. He secures his £2. So far as this transaction goes, it is immaterial to him whether the stock rises or falls in price; he will in neither case be a loser as between himself and A. Of course if the price rises 3 per cent., in which event A will exercise the option, B may be called a loser in the sense that he might have sold his stock at the increased price instead of the price stipulated for, or that he may have to give increased price for it in the market; but this seems to be only an indirect loss, not a loss on the actual agreement with A. He is in no event called on to make a payment to A. He is only a loser in the sense as suggested by Cotton, L.J., in Thacker v. Hardy,^[261] that any party to an ordinary contract of sale may be so described according as the bargain turns out in his favour or the reverse. No doubt, as stated by the witnesses before the Stock Exchange Commission, in many cases these options are purchased without the slightest intention on the purchaser’s part of holding the stock; but still, as in the case of an ordinary sale of stock, it is impossible for the vendor to know what the purchaser’s ultimate intentions are, which, according to cases cited above, takes the case out of the category of a wager.

Continuations.

109There is a class of transaction very common upon the Stock Exchange called in general “Continuations,” which, it seems, may be made a mere cover for wagering. But here the operation of the buyer and the seller must again be distinguished. Suppose a buyer has purchased, for the next account day, more stock than he can take up, he has to arrange for the bargain being continued or carried over to the next account day. If he be an outsider and not a member of the Stock Exchange, he must of course get it arranged through his broker. Application is then made to a dealer who has money to lend, and perhaps, wants the stock. This dealer may be the same person as the original vendor, or he may not. In either case, the form of the transaction is a purchase of the stock (in the former case it will of course be a repurchase by the dealer); the price of this purchase or repurchase is fixed by the clerk of the house, by the instructions of the committee, as the price at which the continuation is to be effected, and is called “the making-up price.” The stock is then, by a collateral agreement, repurchased from the dealer at the same price, only with an addition as premium for the accommodation. |Contango.| This premium is called a “Contango;” and in cases where the bargain is arranged with the original vendor of the stock, it is simply the consideration for the vendor’s agreeing to postpone delivery of the stock until the next account day; but where it is done with another dealer, it is in substance an advance of money on the security of the stock, and is called “taking in” by way of continuation. It may be, however, that this “bull” or speculative purchaser, may be in a position to demand a “backwardation” (see post) instead of having to pay a “contango,” that is, if the market is largely oversold and the demand for the particular stock is greater than the demand for money.

Where the price has fallen so that the making-up price is less than the original price, the purchaser in effect pays the difference. Suppose A has bought £1,000 Railway Stock at par for the current account, when the settling day arrives he does not want to take it; he then agrees with his vendor to 110carry it over to the next account. Say the price has fallen to 98, and that is the making-up price. The jobber repurchases of him at 98 for the current account, thus leaving a difference of 2 per cent. payable by the original purchaser to the vendor, and this difference is payable on the current account day. By a collateral agreement, the jobber resells to him for the ensuing account at 98, plus the contango; so that in the result he pays the original price, viz., par, plus the contango as the price of the continuation. It comes to the same thing if the purchaser gets another jobber to “take in” the stock for him. He pays £100 to his vendor, receiving £98, the “making-up price,” from the other jobber, which is in effect an immediate payment out of his pocket of 2 per cent. If, on the other hand, the price has risen 2 per cent., so that the making-up price is £102, he would receive £2 from his Vendor on the current account day, but on the ensuing account he would have to pay £102, the making-up price, plus contango. Sometimes these continuations are effected over several accounts, the purchaser paying or receiving differences according as the price falls or rises. Such a transaction seems something like a loan of money on the security of stock, the amount of the loan being by the payment of the differences from time to time kept just equal to the market price of the security.

“Taking in” distinguished from loans.

The “taking in” of stock by way of continuation must be distinguished from a mere loan or deposit of stock. In the former case it is, pro tempore, an absolute sale of the stock to the jobber—the property passes to him—he can deal with it as his own. He is, no doubt, obliged to deliver the same amount of stock on the ensuing account day, but not the identical stock. But in the case of a loan, he is not allowed to sell it or place it beyond his own control, but may be called upon to restore the identical securities. (See Rule 70.)^[262]

It seems that continuations are effected in the case of loans where the stock is merely lent or deposited as security, and not “taken in,” as in the transaction described above 111in which case, as has just been said, the stock is merely pledged, and the lender cannot part with the control of it. |? Whether continuations ever in nature of a wager.| It would, of course, be quite possible that parties might enter into gaming transactions, or bargains for the payment of differences, under guise of an agreement for the continuation of a loan, the parties on either side paying or receiving a difference according to the rise or fall in price, as before described. The following cases will show by what test real and fictitious bargains are to be distinguished.

Case of loan fluctuating according to value of security.

In ex parte Phillips,^[263] it appeared that it was an ordinary dealing for one member of the Stock Exchange to make advances of money on the security of shares, &c., belonging to the borrower, or on the deposit of certificates or other evidence of title, and that such deposits often amounted to the full value of the security; and that the lender was entitled, if the advance were not repaid on the day agreed upon, either to dispose of such security, or to retain it at the market price of the day, and either to claim the deficiency or repay the surplus. If the borrower were declared a defaulter and the securities were not realised within three days of such declaration, the lender must take them at a price to be named by the official assignee. In November, 1858, Phillips lent the bankrupt £775 at 6 per cent., on deposit of some securities, till the next settling day. The loan was renewed on several successive settling days upon the same terms, except that when the value of the securities fell part of the loan was paid off: but as the value rose the lender made further advances, thus equalising from time to time the amount of the loan and the value of the security. On 30th April, 1859, a sum of £625 was in this way due to Phillips, but the bankrupt had two days previously been declared a defaulter, and the petitioner had retained the shares at the market price of the day, they having fallen in value. According to the custom of the Stock Exchange, it was optional on each settling day for either party to renew the loan, the amount being increased or diminished according to the then value of the security. In July the debtor was adjudicated 112bankrupt, and the petitioner tendered a proof for the amount due, as above. The commissioner rejected the proof, on the ground that the debt was due on a gambling transaction.

Difference between real and fictitious loan.

On appeal, this decision was reversed. Turner, L.J., pointed out that it was not as though there was no real advance of money, and a payment by one side or the other according to the rise or fall of the stocks. Here there was a bonâ fide advance, and the creditor was, in any event, to receive the amount with interest, no more and no less.

Ex parte Marnham.

So in the contemporaneous case of ex parte Marnham,^[264] there was an alleged sale of shares to the bankrupt at a certain price. The differences were paid on each settling day by the bankrupt to the petitioner, and by the petitioner to the bankrupt, as in Phillips’ case, and the account was finally settled by the petitioner taking the shares at their value, leaving a balance in favour of the petitioner, for which he claimed to prove. There was no real delivery of the shares.

Turner, L.J., said that if the case had rested there, it would have been necessary to have the case further investigated before a jury; but it appeared that the dividends on the shares were accounted for to the bankrupt, and, further, the petitioner repurchased some of the shares from the bankrupt and accounted to him for the value. The former fact, perhaps, would not have been inconsistent with a mere cover for the payment of differences; but the repurchase of the shares and payment for them, stamped the transaction with the character of reality.

Such are the criteria for testing the legality of such transactions; as cases have been before the Courts it is necessary to mention them. At the same time, we must not forget the positive statement of the witnesses before the Stock Exchange Commissioners, that, in point of actual practice, there is no such thing as wagering or fiction in dealings on the Stock Exchange.^[265]

The seller.

But, now, to take the converse case of the seller, who has sold more stock than he can deliver. He has to apply to a 113dealer who will advance him the stock. The operation here effected is, the purchase of the stock for the current account at the “making-up price,” and its resale for the ensuing account. This resale may be at a lower price than the purchase, and the difference between the two prices being the premium paid to the dealer for the loan of the stock. It may, on the other hand, be effected at the same price, if the state of the market is such that the payment of the money is of itself an accommodation to the dealer sufficient to induce him to make arrangements, or if there is a large “bull” account open, he may be entitled to receive a “contango.” The premium, if any, received by the lender of the stock is called a “Backwardation.” But, as explained by a witness before the Stock Exchange Commissioners,^[266] the payment of contango or backwardation depends upon whether the particular stock is overbought or oversold. If an enormous amount of stock is thrown upon the market more than it can take, there is a heavy contango; if, on the contrary, an enormous amount of stock is taken off the market, there is no contango, but a backwardation.

It is submitted that the following conclusions result from the foregoing cases:—

Results of the foregoing cases.

(1.) Bargains for mere differences are wagers within 8 & 9 Vict., c. 109, though contracts on the Stock Exchange never take that form.

(2.) That mere bargains for the future delivery of things not in possession and the value of which is uncertain at the time of the contract are not wagers.

(3.) That in determining whether a bargain be in the nature of a wager or not the substance of the agreement as understood by both parties at the time must be looked at.

(4.) That the question as to what were the real elements of the agreement is a question of fact for the jury, but that it is for the Court to decide on the nature of the agreement on the facts so found. Both these positions seem clear from the case of Grizewood v. Blane and the remarks of Turner, L.J., in ex parte Marnham.

114(5.) That the absence, in fact, of a material element of the professed transaction is material as showing that the bargain was a mere cover for a wager, e.g., non-delivery of stocks or shares, as in Grizewood v. Blane ex parte Marnham.

(6.) That, as between the jobber and the broker’s principal, it is quite immaterial that the arrangement between broker and principal is for a wagering contract, unless the jobber is aware of it and so knowingly engages in a wagering transaction. This clearly appears from the remarks of the judges in Thacker v. Hardy^[267] and Marten v. Gibbons.^[268]

(7.) That where as between principal and jobber the contract be a wager, the contract between principal and broker to carry out the main contract is not one of wagering, but gives rise to an implied contract right of indemnity. This appears from Thacker v. Hardy and ex parte Godefroi.^[269]

It is only necessary to mention very shortly a subsequent statutory provision with respect to gaming and wagering contracts.

12 & 13 Vict.

By the Bankruptcy Act of 1849, section 201, it is enacted that no bankrupt should be entitled to his certificate of discharge who should have lost by any sort of gaming or wagering £20 in one day or £200 within twelve months previously; nor who should have lost within the preceding twelve months £200 by the purchase or sale of any stock where such stock should not be actually transferred or delivered in pursuance of the contract, or where the stock was not to be transferred within one week after the contract.

It will be observed that this enactment attaches penal consequences to two classes of transaction: wagering contracts and “speculations” on the Stock Exchange, using the term in its wider sense, and not merely as equivalent to bargains for differences. The principal points decided on this section were:^[270]—

(1.) That speculations on the Stock Exchange (to which the phrase “time-bargains” was more than once applied by 115the judges) were not wagers within the first part of the section, as they were expressly dealt with in the latter part. It seems, however, to have been admitted that they were or might be wagers within 8 & 9 Vict., c. 109.

(2.) That stock (and? shares) in railway companies was within the Act, which did not, like Barnard’s Act, apply only to public stock. In ex parte Wade a question was raised as to whether Turkish scrip were within the Act, but the point was not decided. However, it appeared from the evidence of a stockbroker that scrip was not considered as equivalent to stock.

(3.) It would seem from the above cases that where the purchase was for an account day more than a week distant, or where delivery was postponed on a “continuation,” this would bring the bankrupt within the Act.^[271]

(4.) The practice of the Court was, where any question of doubt arose, not to decide it, but to grant the certificate subject to its being avoided for the reasons given in the statute.

These provisions with respect to the discharge of bankrupts have not been repeated in subsequent Bankruptcy Acts; though under the new Act it is still discretionary with the Court whether the bankrupt shall have his discharge, regard being had to his conduct in all cases of rash speculation.^[272]

It would seem, from the foregoing history of the legislation in respect of betting contracts, that the tendency of the Legislature has been to abstain from active interference with the subject’s liberty, and to give negative discouragement to the practice, by observing a neutral attitude as between the parties, rather than to endeavour to stamp it out by penal enactments. Thus within the last half century three penal statutes on the subject have been repealed. The Act of 1845 repealed the penal provisions of the Statute of Anne. The penal provisions of the Bankruptcy Act of 1849 have not been renewed. Barnard’s Act, which it seems, had for a long time been a dead letter, was repealed in 1860. There is, however, one statute in a contrary direction, 11630 & 31 Vict., c. 29, known as Leeman’s Act, |Leeman’s Act, 30 & 31 Vict., c. 29. History of legislation.| which enacts that all contracts for the sale or transfer of any shares, stock or joint interest in any joint stock banking company in the United Kingdom of Great Britain and Ireland constituted or regulated by the provisions of any Act of Parliament, Royal Charter or letters patent, issuing shares or stock transferable by any deed or written instrument, shall be null and void to all intents and purposes whatsoever unless such contract, &c., shall set forth and designate in writing such shares, stock or interest by the respective numbers by which they are distinguished at the making of such contract, &c., on the register or books of such banking company as aforesaid, or, where there is no such register of stock, by distinguishing numbers, then unless such contract, &c., shall set forth the person or persons in whose name or names such shares, stock or interest shall at the time of such contract stand as the registered proprietor in the books of such banking company. It is further made a misdemeanour to insert in any contract a false entry of any such number or names.

Effect of Leeman’s Act.

The purport and effect of this statute is obvious; it is intended to prevent speculative sales and purchases of bank shares, and to annul such transactions in cases where the vendor has not the shares in his possession at the time of the contract: in the same way as Barnard’s Act prohibited the sale of public stocks not in the possession of the vendor. Leeman’s Act, however, only makes the contract void, whereas Barnard’s Act made it illegal.

The circumstances which gave rise to the passing of the Act are well known. From 1864 to 1866 there was a large amount of speculation in bank shares, which caused great fluctuation in their prices, and led to serious consequences. From the evidence given by some of the witnesses before the Stock Exchange Committee of 1878, it would seem that the real origin of the panic is to be looked for, not in the “bear” or selling movement, but in the previous rush to buy, which was in some cases started by combinations of persons who were supplied with means by the directors of the banks. 117This “bull” movement produced the desired result of raising the prices of the shares above their real value. The shares then having reached a price which neither the dividends nor the internal condition of the banks justified, speculators took the opposite course; the “bear” operations which followed caused a rapid fall in prices. Not only shareholders, but depositors became alarmed, the sudden rush to withdraw deposits was more than some banks could meet; but those that did stop payment had long been hastening their own ruin by unsound internal management and investment in rotten securities. Others, whose condition was more stable, suffered a temporary depreciation in the value of their shares, but ultimately survived the panic. There were many reasons why banks and bank shares should be protected in future from such onslaughts and the disastrous results consequent thereon, so Leeman’s Act was passed avoiding all contracts for the sale of shares which at the time of the contract could not be specifically identified: contracts which the vendor could only perform by going and purchasing in the market himself.

Act not observed on the Stock Exchange.

In practice, however, the Act has on the Stock Exchange been a dead letter, owing to the impossibility of transacting business in the ordinary way if its provisions were observed. But a recent case shows that although as between members of the Stock Exchange it may be the practice to disregard the Act, yet such practice does not bind the outside public, and that if a broker, through not complying with the Act, fails to carry out his client’s instructions, he may become liable in damages.

Liability of broker.

In Neilson v. James^[273] the plaintiff employed the defendant to sell for him some shares in the West of England Bank in the Bristol Stock Exchange. The shares were not numbered, but registered in the name of their owner. Defendant sold them on the 4th of December to a firm of jobbers on the Bristol Stock Exchange, but the bought and sold notes which passed between the defendant and the jobbers on that date did not disclose the name of the owner of the shares. The 11813th December was the “name day” (i.e. the day on which the jobbers were bound either to accept delivery of the shares themselves or furnish the name of a sub-purchaser to stand in their place,^[274]) and the jobbers then furnished the name of one J. R. Gould as the purchaser to take delivery, who thereupon became liable (under ordinary circumstances) to accept and pay for the shares. But previously to this date, on the 7th of December, the bank had stopped payment and soon after was wound up, and Gould repudiated his purchase on the ground that the name of the owner of the shares did not appear on the Contract, which was therefore void under Leeman’s Act. The consequence was that the plaintiff remained owner of the shares and lost the price he would have obtained if the sale had been validly carried out. Plaintiff sued to recover the price of the shares as stated in the sold note.

For the defendant it was argued—(1) That the agreement of the 4th December was only inchoate and not the completed contract, consequently there was no breach of duty on the defendant’s part on that day. (2) That the real contract was not completed till the 13th, and then performance was impossible as the bank had then stopped payment and was in the course of winding up; at any rate the damages should be only nominal according to the value of the shares on the 13th. (3) That the defendant was employed by the plaintiff to effect the sale subject to the customs of the Bristol Stock Exchange; that one of those customs was to disregard the provisions of Leeman’s Act in the sale of bank shares.

The Court decided—(1) That according to Coles v. Bristowe^[274] the contract was complete on the 4th, subject only to the right of the jobbers to furnish the name of a sub-purchaser as a substitute for themselves on the “name day.” (2) There is no undertaking on the part of the vendor of shares that the company shall be a going concern on the day of transfer; consequently, as plaintiff would have been entitled to the full price, that price must be the measure of damages. “It is 119said,” remarked Brett, L. J., “on the part of the defendant, that the plaintiff can only recover nominal damages, because if the contract had been in due form, the jobbers would not have been bound to have taken the shares, as the plaintiff could not on the account day, when the bank was being wound up, have given a valid transfer which the bank could have registered. But it seems to me that all the seller was required to do was to deliver shares on the account day, which, if the bank had remained solvent would have entitled the purchaser to have had them transferred into his name, and that the seller does not undertake that banking company shall be a going concern up to the account day. The plaintiff was therefore ready to do all that he was bound to do, and if the jobbers had accepted the shares on that day, they would have been bound to have paid the agreed price; and as the defendant failed to do that which would have compelled them to have taken the shares, the plaintiff lost such price by reason of such failure.” (3) That the custom was bad as being unreasonable and illegal. Per Brett, L. J.: “He does not say the plaintiff knew of the custom, but he says that because plaintiff employed him to sell the shares on that Stock Exchange and according to its rules, he is bound by that custom. I think, however, that the plaintiff is only bound by such a custom as is both reasonable and legal, for to that extent only can a person who is ignorant of a custom be assumed to acquiesce in and be bound by it.”

N.B.—These remarks seem to assume that if plaintiff had known and acquiesced in the custom he could not have been heard to say the custom was unreasonable. This would probably have been the case if the defendant had previously done similar transactions for plaintiff without his taking any objection.

So the broker was held liable to his client for negligence, in not conforming to the requirements of the statute, and thereby depriving his client of the benefit of the sale of his shares.

It will be seen that the law as it stands is somewhat in favour of an unscrupulous purchaser. The Act having 120made the contracts void, and not illegal or punishable, there is nothing to prevent members of the Stock Exchange from disregarding it, except a possible liability to a client; while on the other hand, the inconvenience entailed by complying with the Act is sufficient to induce dealers and brokers to incur whatever risk there may be, so as to facilitate business. It is probably only a member of the outside public that would over take advantage of the Act, and repudiate a bargain on the ground of non-compliance with it provisions. Besides, there can be no doubt it affords a safeguard to banks against undue fluctuation in the price of their shares.

From a late case before the Court of Appeal, it seems that in the case of the purchase of bank shares through a broker, if the principal have notice (e.g. by the receipt of the bought note) that the contract effected by the broker does not comply with Leeman’s Act, and if he does not repudiate it, the broker will be justified in paying the purchase-money on his principal’s behalf. |Barclay v. Pearce.| At least this seems to be the effect of the case of Barclay v. Pearce.^[275] Defendant instructed plaintiff, who was a stockbroker, to purchase shares in the Oriental Bank. The usual bought note was sent to the defendant, but neither this nor the contract with the jobber contained the numbers of the shares purchased, nor the name of the registered owner, as required by the Act. The “name day” was the 29th, on which day the name of the defendant as the purchaser was handed to the jobber. The transfer was duly executed.

By the rules of the Stock Exchange the plaintiff was personally responsible to the jobber for the payment of the purchase-money. It is customary in dealings in bank shares to disregard Leeman’s Act. The plaintiff paid the purchase-money and sued to recover from defendant. There was no proof that defendant had revoked the plaintiff’s authority to pay. The Court held that the plaintiff having at defendant’s request entered into a contract on which he was personally responsible, though it was void at law, was entitled to recover for money paid to defendant’s use. It was also 121intimated that until Read v. Anderson was reversed by the House of Lords, it would be immaterial whether the authority to pay had been revoked or not.

It is, however, submitted that it would have been competent for the defendant to have repudiated the transaction before the transfer was executed when he discovered that the statute had not been complied with, and that in that case the plaintiff’s authority would have been revoked. According to Neilson v. James, the usage of the Stock Exchange to disregard the Act would not bind the principal, at any rate unless he acquiesced in it. The distinction between this case and Read v. Anderson seems to be that in the latter case the agent was employed to carry out a contract necessarily void as being a wager. In this case the contract might have been carried out so as to be legally binding, and there would probably be no presumption that the instructions were to make other than a legal agreement.

This view of the matter has lately been confirmed by the Court of Appeal in Perry v. Barnett.^[276] The facts of this case arose out of the Oriental Bank. The plaintiffs, stockbrokers, had at defendant’s request bought for him 100 shares in that Bank on the London Stock Exchange. The bought note did not comply with Leeman’s Act, and next day the bank closed its doors and defendant refused to complete the purchase. The plaintiffs were really Bristol stockbrokers, but as the shares could not be obtained in the Bristol market, they, with defendant’s knowledge, instructed their London agent to purchase them in London. Grove, J., decided in favour of the defendant on the ground that he was not shown to have known or acquiesced in the custom to disregard Leeman’s Act. On appeal it was thought to distinguish the case from Neilson v. James on the ground that in that case the broker was instructed to sell shares which the plaintiff had in his possession, and so he might without inconvenience have complied with the Act. By Rule 68 of the London Stock Exchange no bargain on the Stock Exchange will be annulled by the committee except on the 122ground of fraud. The Court affirmed the decision of Grove, J., in favour of the defendant. (1) Adopting the principles on which Neilson v. James was decided, the custom or practice to disregard the Act was unreasonable, and so could not bind persons who were ignorant of it. Per Bowen, J., “It is as regards outsiders only who are ignorant of the custom that such an usage can be called unreasonable.” (2) Rule 68 is unreasonable, so not binding to persons who have not consented to be bound by it.

Seymour v. Bridge.

This case must not be taken as overruling another of the same kind decided by Mr. Justice Mathew about the same time, Seymour v. Bridge.^[277] His lordship decided in favour of the plaintiff, on the ground that the defendant knew of the customary course of dealing in bank shares, though he was ignorant of Leeman’s Act.

However, in a late case before the Court of Appeal, Coates v. Pacey^[278] which was another action by a broker against a client for indemnity in respect of a purchase of bank shares, the Court threw out serious doubts whether the same right of indemnity which had been established in favour of an agent employed to make bets for his principal existed in the case of a broker even when authorised to deal in bank shares in contravention of Leeman’s Act.

Actual transfer not affected.

It seems clear that the Act only avoids the contract for purchase and sale, it does not affect a transfer executed in pursuance of such contract. In Mortimer v. MacCallan^[279] the action was brought for the price of government stocks, sold and actually transferred to defendant in pursuance of a contract void under s. 8 of Barnard’s Act, 7 Geo. II., c. 8, the plaintiff not having the stocks in his possession at the time of the contract. It was held that the action was maintainable, as it was based on the transfer and not on the contract: at p. 640 “it was not a contract to sell, but a sale; not a contract to transfer, but a transfer:” at page 643, “Although the original contract of sale should be illegal on the part of the seller, yet the transfer is a legal act for a legal purpose ... a promise to pay in consideration 123of a transfer actually made, is neither prohibited by the words nor within the intent of the statute.” As suggested above, this is probably the real explanation of Barclay v. Pearce, p. 120.

Indemnity for calls.

In Loring v. Davis^[280] a question arose as to the right of the plaintiff, as vendor of bank shares, to indemnity against calls. It was found by Chitty, J., as a fact, that the defendant, while knowing of his right to repudiate the transaction under Leeman’s Act, authorised his brokers to complete it on settling day; that the brokers in accepting the transfers from the plaintiff’s brokers thereby made the defendant equitable owner of the shares, and therefore liable to indemnify the plaintiff.

REVIEW OF THE LAW RELATING TO WAGER-CONTRACTS.

The present seems a favourable opportunity for a short review of the state of our law on the subject of wagering.

There are several ways in which the matter may be treated by the Legislature. It may declare the practice illegal in the sense of punishable, and endeavour to stamp it out by the machinery of the criminal law. This was the course adopted by the Statute of Anne, which made it penal to win more than £10 at one time or sitting by betting or gaming. Again, Barnard’s Act made it a criminal act to gamble in the funds, or even to settle differences on transactions of that nature. This species of legislation seems open to objection. Such a law must be uncertain in operation, as the offence is difficult to prove; and what is, perhaps, worse, it is still more difficult to disprove, and so capable of being turned into an instrument of extortion or revenge. But there are alternatives of a less violent character. It is possible to make wagering transactions illegal, not in the sense of criminal, but as contrary to public policy; the result of which would be, as it has been endeavoured to explain in an earlier part of this work, not only that the contracts themselves would be 124unenforceable, but that they would vitiate, at any rate as between the parties to the wager, every instrument or security, whether under seal or not; they would taint every contract or transaction arising out of or connected with the original wager. Thus the turf commission agent would not be able to recover what he had paid on his principal’s behalf if he allowed himself to be employed in a transaction contrary to the policy or the law.

In the Statute of Anne, and in Barnard’s Act, another means was resorted to of restricting the practice, viz., they gave the person who had lost and paid over a certain sum, a right of action to recover it within a given period. This might be a more efficacious method of repression than any other, as it is difficult to see how bookmakers could conduct a successful business, if in addition to the chances of never being paid, they could not call the money they had in their pockets their own. But the wisdom of such a species of legislation seems very questionable; as being in favour of dishonest persons it eventually operates to the disadvantage of persons who are ready to discharge their debts of honour. Besides, it hits the practice of betting in its least objectionable point. The payment of a bet implies that a man has not “plunged” beyond his means, particularly where the contract cannot be enforced against him. The object of the law is to discourage excessive gaming on credit, whereby persons might incur liabilities which their means can never enable them to meet.

There is yet another alternative course, which is summed up in the attitude which our law, in its present condition, assumes towards betting. In technical language, it declares wager-contracts void without making them illegal; it regards them as things not to be encouraged, but not absolutely forbidden, maintaining a neutral position as between the parties without being positively hostile. It will probably have become evident from the foregoing pages that the English law on the subject is in a somewhat peculiar state. In the first place its condition is decidedly piecemeal. To know the law in full it is necessary to refer to four different statutes, the dates of 125which, from first to last, extend over a period of about two hundred years. The Statutes of Charles II. and Anne must be studied before the effect and meaning of the Statute of William IV. can be made intelligible. But the latter statute, at any rate in its present application, deals only with cheques and securities given for betting debts, and that, too, only where the bet is made on a horse race, or some other game or pastime. Such securities it declares to be given for an illegal consideration. The contracts themselves are the subject matter of another statute passed a few years afterwards, which by a broad and sweeping enactment, very little in the style of English statute law, makes all wagers, of any sort whatever, not illegal, but void and unenforceable. It seems an anomaly that while all bets of themselves are simply void, yet when once a cheque is given in discharge or payment thereof, we are compelled to distinguish between bets on games and bets not on games; the former, directly the cheque is signed, becomes illegal, while a similar transformation is not effected in the case of the latter. The law at any rate seems capable of greater uniformity in this respect.

Another peculiarity of the law lies in this—that while wagers themselves cannot be made the subject of an action, yet in many cases they can be practically enforced by the joint exercise of legal and non-legal sanctions. This is specially the case with regard to betting on the turf, a large quantity of which is carried on, not directly between principals, but through the medium of betting agents. The agent makes the bet in his own name, and, so far as the other party is concerned, is the principal. If the bet is lost, the agent is, of course, under no legal obligation to pay. But these turf agents are members of what may be called a profession, and the dealings between the members are regulated by the strictest etiquette, a breach of which might entail serious consequences. It is well known that where an agent makes a bet, it is he who, by the rules of the turf, is responsible for payment. Some of the consequences of default were dwelt upon in the case of Read v. Anderson; but suffice it to say that a defaulter is practically turned out 126of his profession. So that payment is enforced against the agent just as effectually as it could be made the ground of an action at law. He must, if he can, obtain indemnity from his principal.

It is at this stage that the law steps in. When an agent has paid money on behalf of his principal the law gives the agent a right of indemnity. If the agent has been employed in a betting transaction, this right, says the law, arises not out of a wager but out of an implied promise by the principal to save the agent harmless from all the consequences of his performing his instructions. The principal knows that if the bet is lost the agent must pay; consequently the doctrine of an implied promise of indemnity applies equally where the transaction effected by the agent was void as being in the nature of a wager.^[281] So eventually a transaction which, as between principals, the law would not recognise, is practically enforced by a circuitous process when effected through the medium of an agent.

But the inconsistency is seeming rather than real. The contract between the principal and the agent is not in the nature of a wager. It is more in the nature of a contract of loan. A promise by A that he will make B a present of £5 gives B no ground of action against A; it is simply void. But A employs C to go and pay the money on his behalf. C can, of course, recover what he has paid, from A. So a wager is nothing more than void, like the promise of a gift; it is not illegal. And this is the real explanation of the matter. The law does not forbid people to bet, so that in compelling the principal to indemnify his agent it is not enforcing any transaction contrary to its own policy.

Further, be it remembered, the law in its present state is not open to the charge of one-sidedness: the rights of the principal and the agent are reciprocal. The agent has the same hold over the bookmaker that the latter has over him; he could visit him with the ordinary penalties of default. 127But the agent who has received “winnings” on a bet, can no more refuse to account to his principal, than can a principal refuse to reimburse the agent who has paid losses. So eventually, in cases where the commission agent intervenes, fair dealing is enforced as between all parties. It is also worthy of consideration that actions in which betting transactions are involved, but which come before the Courts on a question as between principal and agent, are not open to the same objection as the actions which were allowed to be brought directly on the wager itself, and which necessitated the trial of absurd and frivolous issues. The interposition of an agent occurs, of course, almost exclusively in betting on the turf; and it may be taken that actions between principal and agent with respect to wagers will in all cases be concerned with wagers on horse-races. But in all such races there is a regularly established process for deciding as to the winner, and it is not likely that a man who was sued by a turf commission agent for reimbursements would be allowed to raise any question as to the correctness of the decision of the judge or the stewards of the race. In these cases, therefore, the time of the Courts is never taken up with disputes as to the event on which the bet was made—an inconvenience which in former times drove the judges to the extreme measure of putting all wager actions at the bottom of the cause list.

Of course it must not be forgotten that the law as settled in Read v. Anderson is yet subject to reversal by the House of Lords, a contingency which would materially affect the interests of turf commission agents; but so long as the decision of the Court of Appeal remains undisturbed, the law is that the agent who has made a bet in his own name has an irrevocable authority to pay the bet, if lost, on his principal’s behalf; and can recover the amount from him.

N.B.—Since these observations were written the Gaming Amendment Act, 1892, has, as has been pointed out above,^[282] made some modifications in the law. The agent can no longer sue, though he can be sued.

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