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 true 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 settle 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 thinks 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.