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 in 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 bankrupt, 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]]