Clews v. Jamieson - 182 U.S. 461 (1901)


U.S. Supreme Court

Clews v. Jamieson, 182 U.S. 461 (1901)

Clews v. Jamieson

No. 146

Argued April 17-18, 1901

Decided May 27, 1901

182 U.S. 461

Syllabus

As the governing committee of the stock exchange had no personal interest in the fund in question in this suit, which was placed in its possession in the trust and confidence that it would see that the purposes of the deposit were fulfilled, and that the moneys were paid out only in accordance with the terms of the trust under which it was deposited, there can be no question that the fund became thereby a trust fund in the possession of the governing committee, and the disposition of which, in accordance with the trust, they were called upon to secure. The committee occupied, from the time of the deposit of the funds, a fiduciary relation towards the parties depositing it, and became a trustee of the fund, charged with the duty of seeing that it was applied in conformity with the provisions creating it.

The jurisdiction of the court below was plainly established because, under the circumstances, the complainant had no adequate and full remedy at law.

Page 182 U. S. 462

It plainly appears in this case from the pleadings that the sales and purchases of stock were in fact made subject to the rules of the stock exchange, and all the transactions regarding the sales and purchases must be regarded as having taken place with direct reference and subject to those rules.

A principal can adopt and ratify an unauthorized act of his agent, who in fact is assuming to act in his behalf, although not disclosing his agency to others, and when it is so ratified, it is as if the principal had given an original authority to that effect, and the ratification relates back to the time of the act which is ratified.

A contract which is on its face one of sale with a provision for future delivery is valid, and the burden of proving that it is invalid as being a cover for the settlement of differences rests with the party making the assertion.

There is nothing in these contracts which shows that they were gaming contracts and in violation of the statutes of Illinois, and there is no evidence that they were entered into pursuant to any understanding whatever that they should be fulfilled by payments of the difference between the contract and the market price at the time set for delivery.

The sales were made subject to the rules of the exchange, but those rules do not assume to exclude the jurisdiction of the courts or to provide an exclusive remedy which the parties must follow.

The complainants were justified in the course which they pursued, and the price at which the stock sold was a fair basis upon which to determine the amount of damages.

The petitioners and complainants, being residents of the state and City of New York, commenced this suit in equity in the United States Circuit Court for the Northern District of Illinois against certain of the defendants, composing the governing committee of the Chicago Stock Exchange, to recover funds deposited with them in trust and also to recover damages against other defendants composing the firm of Jamieson & Company, brokers belonging to the exchange, alleged to have been sustained by the complainants by a violation by those defendants of their contract to purchase and pay for certain stock sold them by the complainants. Still other defendants composed the firm of Schwartz & Company, the brokers who effected the sales of the stock for the complainants, no recovery being sought against them. All of the defendants were residents of the State of Illinois. The circuit court, after a hearing, gave judgment for a dismissal of the bill for want of any privity of contract between complainants and defendants, Jamieson &

Page 182 U. S. 463

Company, against whom a money recovery was sought. On appeal, the Circuit Court of Appeals for the Seventh Circuit affirmed the judgment of dismissal, and in the opinion discussed only the question whether or not the contract sued on was a gaming one and in violation of the statute of Illinois on that subject, sections 130 and 131 of the Criminal Code, hereinafter set forth. It held that the contract violated those sections and that the bill was properly dismissed for want of equity, and it therefore affirmed the decree of dismissal. The complainants thereupon petitioned this Court for a writ of certiorari, which was granted, and the case brought here.

No important question arises upon the pleadings, with the exception that it was set up by way of defense that the complainants had an adequate remedy at law, and the facts upon which the defense is rested are sufficiently adverted to in the opinion. The pleadings admit the sales and purchases of stock which were all made subject to the rules of the exchange. The case was referred to a master to take testimony and to report the same to the court with his conclusions thereon, and it was subsequently brought to a hearing upon the master's report and the testimony taken before him and upon a stipulation as to facts, entered into between the parties. The facts reported by the master are, among others, the following:

There has existed in the City of Chicago since the year 1882 a voluntary association known as the Chicago Stock Exchange, composed of brokers having places of business in the vicinity of the exchange, and who are elected to membership therein in accordance with the provisions of the constitution and bylaws; the association is governed by a governing committee composed of the president of the exchange ex officio, and twenty-four members, and every member is required to sign the constitution and bylaws, or assent thereto in writing, and obligate himself to abide thereby and by the rules theretofore or thereafter to be adopted.

Article 17 of the constitution provides as follows:

"SEC. 1. No fictitious sales shall be made. Any member contravening this section shall, upon conviction, be suspended by the governing committee. "

Page 182 U. S. 464

"SEC. 2. Any member who shall make fictitious or trifling bids or offers, or who shall offer to buy or sell any stock or security other than government bonds at a less variation than one-eighth of one percent shall, upon conviction, be subject to suspension, or such other penalty as the governing committee shall impose."

Article 29 is as follows:

"Any member of this exchange who is interested in or associated with, or whose office is connected directly or indirectly by wire or other method of contrivance with, any organization, firm, or individual engaged in the business of dealing in differences or quotations on the fluctuations in the market price of any commodity or security without a bona fide purchase or sale of said commodity or security in a regular market or exchange, shall, on conviction thereof, be deemed to have committed an act or acts detrimental to the interest and welfare of the exchange."

Articles 16 and 17 of the bylaws read as follows:

"Article XVI"

"SEC. 1. In any contract, either party may call at any time during the continuance of the same for a deposit of ten dollars per share upon the par value of the securities bought and sold, and whenever the market price of the securities shall change so as to reduce the margin of said deposit, either way below the ten dollars, either party may call for a deposit sufficient to restore the margin to ten dollars, and this may be repeated as often as the margin may be so reduced. In all cases where deposits are called, they shall be made within one banking hour from the time of such call."

"SEC. 2. In case either party shall fail to comply with the demand for a deposit in accordance with the provisions of this article, the party calling, after having given due notice, may report the default to an officer of the exchange, who shall repurchase or resell the security forthwith in the exchange, and any difference that may accrue shall be paid over to the party entitled thereto. The notice above referred to shall be either personal or shall be left in writing at the office of the party to

Page 182 U. S. 465

be notified, or in case he has no office, then by public announcement whenever the exchange may be in session."

"* * * *"

"Article XVII"

"Should any member neglect to fulfill his contract on the day it becomes due, the party or parties contracting with him shall, after giving notice as required by section 2 of the preceding article, employ an officer of the board to close the same forthwith in the exchange by purchase or sale as the case may require, unless the price of settlement has been agreed upon by the contracting parties. In case of a failure of a creditor to close the contract as above, the price shall be fixed by the price current at the time such contract ought to have been closed under the rule. In all cases where an officer may be directed to buy or sell securities under this rule, the name of the member defaulting, as well as that of the member giving the order, shall be announced. No order for the purchase or sale of securities under this rule shall be executed unless made out in writing over the signature of the party giving the order, who shall state the reason therefor, and it shall be the duty of the officer who executes the order to indorse thereon the name of the purchaser or seller, the price and the hour at which the contract is closed, and hand the same to the secretary of the board, who shall within twenty-four hours ascertain whether the party for whose account the order was given has paid the difference, if any, arising from the transaction; if not, the secretary shall report the default to the president. The duty devolved upon the officers of the exchange under this rule shall be performed without charge. No party shall be permitted to supply offers to buy or sell securities closed for his account under the rule, and when a contract is closed under this rule, any action of the defaulter, direct or indirect, by which the prompt fulfillment of such contract is delayed, hindered, or evaded, to the detriment of the other contracting party, shall subject the offending party to suspension for not less than thirty days in the discretion of the governing committee, by a vote of two-thirds of the members present at the meeting.

Page 182 U. S. 466

When contracts are closed out under the rule, any member supplying the bid or offer, and not duly receiving or delivering the stock, as the case may be, renders himself liable to prosecution under this article. Should any stock thus sold not be delivered until the next day, the contract shall continue, but the defaulting party shall not be liable to pay such damage as may be assessed by the arbitration committee. The same rules as to notice, time, and places that govern defaults in other contracts shall apply to borrowed securities, which, on nondelivery or receipt, must be borrowed or loaned in open market, except in case of actual default in receiving or delivering after notice to close the loan; then the same are to be bought or sold, as the case may be, for account of the defaulter in the manner provided in this article."

The rules of the clearinghouse in regard to buying or selling for "the account" (under which these transactions were had) read as follows:

"Clearing House Rules"

"SEC. 1. Under the following regulations, transactions may be made for 'the account' in any securities listed for that purpose dealt in at the exchange."

"SEC. 2. Deliveries of cash, stock, or transactions for 'the account' shall be made on the last day of each month. Provided, however, should the last day of any month occur on a holiday or on a day when the exchange is closed for business, then in that case deliveries shall be made on the first business day preceding."

"SEC. 3. All purchases and sales 'for the account' shall be entered upon the blanks furnished by the manager sealed for that purpose, and said blanks properly filled out, balanced, accompanied by a proof-sheet, and signed, must be delivered to said manager before 9:45 A.M. It shall be the duty of the manager to compare and examine the statements rendered, and to report, should any errors be found, to the parties making such errors before 12 M., by written notice, which must be called for at the manager's office. Parties in error must at once proceed to adjust the same and correct their statements. All balances

Page 182 U. S. 467

due from members as shown by the statements shall be paid by certified check drawn to the order of the bank designated for that purpose, and delivered to the manager before 10:15 A.M. the same day, except on Saturdays, when the balance must be paid before 9:45 A.M."

"SEC. 4. On balances due to members, as shown by the statements, a draft for the amount, payable to their own order, shall be drawn upon the bank designated for that purpose, and delivered to the manager before 10:20 A.M. (except on Saturday). The manager shall cause said draft, if correct, to be accepted by said bank and returned to the parties entitled thereto at the manager's office."

"SEC. 5. At or before 9:45 A.M. parties who have not borrowed or loaned their stock balances for 'the account' shall extend said balances on their statements at the closing bid price, designated as short or long, and shall request the manager, in writing, to borrow or loan said stock balances for their account and risk at the closing bid price. Notice that such loans have been made and the names of the parties thereto will be delivered at the manager's office on or before 2 P.M. Loans made by the manager are for one day only, unless renewed between members."

"SEC. 6. Stock balances as shown by the statements rendered for cash settling days must be delivered and paid for at the closing bid price of the previous day, as per manager's notices, before 1:30 P.M. Provided however, if satisfactory evidence is shown the clearinghouse committee that the cash stock is on hand in New York or in transit for Chicago, three days' grace will be given the seller to make the delivery with interest, failing in which the clearinghouse committee shall cause to be purchased for account of delinquent said stock in whichever market in their judgment seems best, and the party so failing to deliver shall be held responsible for all loss or damage arising therefrom, but when a failure to receive or deliver occurs, nothing in these notifications shall be construed to relieve the last contracting parties to the transaction from the liabilities to each other."

"SEC. 7. Whenever a member fails to pay the balance due on his statement by 10:15 A.M. (except on Saturday), the manager

Page 182 U. S. 468

shall notify the presiding officer of the exchange, whose duty it shall be to forthwith cause the stock balance, as shown by the statement of the delinquent, to be bought in or sold out under the rules, as the case may be, and assess the party in interest on the statement pro rata. In case any member owes an additional amount caused by errors, disputes, or assessments, said amount shall be paid within one hour from the time of notification of the same, otherwise the party will be considered as having failed, and be treated accordingly."

"SEC. 8. Whenever a member is unable to meet his contracts or transactions made for 'the account,' he shall make a statement of his transactions, to be audited that day, and deliver it to the manager or presiding officer of the exchange."

"SEC. 9. The manager or any assistants employed by him in the manager's office are positively prohibited from receiving any securities or currency or any other evidences of value, except the checks and drafts hereinbefore mentioned in these rules."

"SEC. 10. The same rules as to notice, time, and place that govern defaults in other contracts shall apply to transactions for 'the account.'"

"SEC. 11. Neither the exchange nor any of its members (except those making the errors), the manager or any assistants employed by him, shall be responsible for any errors made in the statements to the manager, but the errors must be settled and adjusted at once between the members making said errors when notified by the manager to do so. The manager shall report any neglect or refusal to comply with these rules to the presiding officer of the exchange."

"SEC. 12. The margin to be deposited on stocks trading in clearinghouse, selling at one hundred dollars or over per share, shall be ten dollars per share, and on all stocks selling under one hundred dollars per share the margin shall be five dollars per share."

"SEC. 13. Margins deposited on trades in the clearinghouse shall be considered as a margin or as a part of same under section 1 of article XVI of the bylaws of the stock exchange. All such margins to be deposited in the clearinghouse."

"SEC. 14. The clearing of trades and money is not completed

Page 182 U. S. 469

until the trades and substitutions are all made and notice posted to that effect by the manager of the clearinghouse."

"SEC. 15. The brokers have the party they may trade with or party received from the clearinghouse on the substitution of the day before, in case of any failures between the hours the sheets are put in the clearinghouse, 9:45 A.M., and the time the notice is posted that the substitutions are ready for that day."

"SEC. 16. In the event of the announcement of the failure of any member to meet his contract, all stock bought in on or sold out for him as 'account' stock shall be settled outside of the clearinghouse, and only such stocks as appear on the substitution sheet of the day of the failure shall be allowed to clear on the clearinghouse sheet of the following morning."

"SEC. 17. When any member fails to execute any contracts required of him by the clearinghouse, the margin checks deposited by such member for the protection of other members contracting with him through the clearinghouse shall be held first for that special purpose, and after satisfying the claims of such members to the extent of the margin rule of the clearinghouse, the balance, if any, shall be held for a period not exceeding ten days, as a trust fund for a pro rata distribution among other creditors, who are members of the Chicago Stock Exchange."

The master further reported the facts relating to the sales in dispute as follows:

"That such rules and bylaws being in force, complainants, on the 16th day of July, 1896, wired their brokers, Schwartz, Dupee & Company, as follows:"

"'Sell 500 Diamond Match at 220 1/2 for account;' which was done; that later on the same day, said brokers wired complainants as follows:"

"'Sold 500 Diamond Match at 221 1/8 for the account.'"

"That on the 20th day of July, 1896, said brokers received telegram from complainants as follows:"

"'Sell 200 Diamond Match at 221 for the account at opening of market.'"

"That later on the same day said brokers wired complainants as follows: "

Page 182 U. S. 470

"'Sold 200 Diamond Match 221 1/2 for the account.'"

"That on the 25th day of July, 1896, complainants wired said brokers as follows:"

"'Change the Diamond Match over to August account at 2 1/2 percent. If you cannot do it let us know at once.'"

"That, shortly after on the same day, complainants wired said brokers as follows:"

"'You sent us the difference this morning at 2 1/2; at what difference can you do it now?'"

"That later on the same day, complainants wired said brokers as follows:"

"'Change the 500 at 2 cents or better.'"

"That afterwards, and about 12 o'clock on the same day, said brokers wired complainants as follows:"

"'Bought Diamond Match 227 for the account; sold 500, 229 account 2d.'"

"That on July 27th, complainants wired said brokers as follows:"

"'Change 200 more Diamond Match 2 percent or better.'"

"Later on the same day said brokers wired complainants as follows:"

"'We changed the 200 Match at 2 1/4 difference. Will give you price later.'"

"And shortly afterwards on the same day, said brokers wired complainants as follows:"

"'Bought 200 Match 226 3/4, account; sold 200 second account 229.'"

"That these purchases on July account balanced the sales on July account and left the brokers with sales made for complainants of 700 shares of the stock of the Diamond Match Company for the August account; that, on the 3d day of August the clearing department of said stock exchange sent to Schwartz, Dupee & Company, and Jamieson & Company, clearinghouse sheets as follows:"

Here follow copies of the sheets; that of Schwartz & Company showed that all trades on their sheet had been settled, with the exceptions therein stated, among which were 1,150 shares of Diamond Match Company's stock at $222, for which

Page 182 U. S. 471

Jamieson & Company had had been substituted as buyers; the notice to Jamieson & Company from the clearing department contained a like statement, showing that Jamieson & Company had bought 1,150 shares of Diamond Match stock at $222, Schwartz & Company being substituted as sellers.

The 1,150 shares of Diamond Match stock at $222 were made up in part in 700 shares sold by Schwartz & Company upon August account for the complainants, and the substitution of Jamieson & Company for the parties to whom such 700 shares had been originally sold was made by the clearing department of said stock exchange according to its uniform custom.

The master also found that Jamieson & Company had settled with Schwartz & Company for 450 shares of the 1,150 shares referred to between those parties on the clearinghouse sheet of August 3, 1896, but that such settlement did not include the 700 shares in question in this case.

The master further found as to the manner of making sales "for the account:"

"That the method of doing business on said exchange is as follows: At 10 o'clock, there is an official call at which the secretary and manager call all the stocks, bonds, and securities on the official printed list, and as this call progresses, any member wishing to buy or sell bids thereon, and the record is made of the transaction, after which there is an irregular call, which closes at 1:30, when the manager of the clearinghouse announces the clearinghouse or settlement price for the day, which are the closing prices on the exchange for the respective stocks and securities; that the manager then substitutes trades and sends out cards to all buying or selling on account for the current month, or for the next month; that, on the 25th of the month and thereafter until the second day before the end of the month, two calls are made, one for the current month and one for the next ensuing month, and this is done to allow those who wish to do so to change their accounts over to the next month. That this substitution was made by the clearing department by a system somewhat similar to that employed by the clearinghouse for banks, that is that, where a broker has

Page 182 U. S. 472

purchased and sold during the day the same amount of the same kind of stocks or bonds, his account is balanced by the clearing department, and all margins deposited by such broker may be withdrawn; that, when sales and purchases are made by different brokers, one buying and the other selling the same kind of stocks or bonds, a substitution is made by the manager of the clearing department by which it appears that the broker selling has sold such stock not to the person to whom it was originally sold, but to a person or persons other than those to whom such sales were originally made, and who originally bought of someone else, and that a broker purchasing stock has purchased from some broker other than the broker from whom he originally purchased the same; for instance, if A had sold 100 shares of stock to X, and B has bought the same amount of the same stock from Y, and X and Y's accounts are balanced by other transactions, the substitution would make it appear that A had sold 100 shares to B, and B had bought 100 shares from A, and the names of the parties with whom the original transactions had actually been made by A and B would not appear on the clearinghouse sheet; that, in the transactions on said exchange, it is then customary for the parties thus substituted and brought into the relation of buyer and seller with each other by the manager to assent to the new relations thus formed, and to confirm the transactions as thus adjusted by the manager, and to put up the margins required by the rules, unless margins are already on deposit in the exchange, in which case they are transferred by the manager to the new account."

"IV. That being advised of the substitution on account, as aforesaid, said Schwartz, Dupee & Company, and said Jamieson & Company on said 3d day of August, 1896, exchanged trading cards with each other, on which appears the following:"

"Chicago, Aug. 3, 1896"

" M. Jamieson & Co.:"

" We hereby confirm sales made by us for the account today under the rules of the Chicago Stock Exchange, also substitution trades. "

Page 182 U. S. 473

Am't Kind of property Price

Substitution trades -- Sold

1,150 D. Match 222

(Collect ------

Difference (

(Pay 287.50

(Signed) Schwartz, B. & Co.

"Chicago, Aug. 3, 1896"

"M. Schwartz:"

" We hereby confirm purchases made by us for the account today, under the rules of the Chicago Stock Exchange, also substitution trades."

Am't Kind of property Price

Substitution trades -- Bought

1,150 D. Match 222

(Collect ------

Difference (

(Pay 287.50

(Signed) Jamieson & Co.

"That these cards were handed by the parties receiving them to the clearinghouse department, so that it appeared at the close of business on said 3d day of August, by the clearing sheet, that Schwartz, Dupee & Company had sold to Jamieson & Company on account, for August, 1,150 shares of the stock of the Diamond Match Company, 700 shares of which are the stock in controversy in this case, delivery of which under rule 2 of the clearinghouse was to be made on the last day of August, 1896; that Schwartz, Dupee & Company and Jamieson & Company each deposited with the said clearinghouse $7,000 as margins on said 700 shares of stock, which amount is still held by the said stock exchange in trust."

"V. That on the 3d day of August, 1896, the governing committee, of which defendant Jamieson was then ex officio president, by virtue of his being then president of said exchange, held a meeting at which the following resolution was adopted, the said defendant Jamieson voting in favor of its adoption:"

" Resolved, That the exchange adjourn on Tuesday morning, the 4th instant, and remain closed pending further action by this committee."

"That, pursuant to said action, said exchange did not open

Page 182 U. S. 474

on said August 4, or thereafter, until the 5th day of November, 1896."

"VI. That on the 31st day of August, 1896, Schwartz, Dupee & Company tendered to Jamieson & Company ten certificates of the stock of the Diamond Match Company for one hundred shares each, and three like certificates for fifty shares each, making 1,150 shares of said stock, which said Jamieson & Company examined and refused to receive."

On September 9, 1896, Schwartz & Company wrote the following letter to Jamieson & Company:

"Chicago, September 9, 1896"

"Messrs. Jamieson & Co., No 187 Dearborn Street, Chicago, Illinois."

"Dear Sirs: On August 31, 1896, we tendered you seven hundred (700) shares of Diamond Match stock in settlement of sales made by us. The sales made were 500 shares July 25th, and 200 shares July 27th, 1896, you being substituted through the clearinghouse of the Chicago Stock Exchange August 3, 1896, as the purchaser of said stock."

"This is to notify you that said sales were made by us as agent for Henry Clews & Co. of New York, who may rightfully take any proceedings to enforce the contracts for said sales and who are authorized to make settlement therefor."

"Very truly yours,"

"Schwartz, Dupee & Co."

(This tender of the 700 shares was part of the total tender made to Jamieson & Company on the 1,150 shares sold them.)

The complainants on the next day (the 10th of September) gave Jamieson & Company notice in writing of their intention to sell 700 shares of Diamond Match Company stock at public sale, to the highest bidder, and named the place and time, and that they would hold Jamieson & Company responsible for any loss on the sale on account of the contracts.

It was further admitted

"that Schwartz, Dupee & Company have no claim whatever of any kind or character against the $14,000, $7,000 of which was respectively contributed by Schwartz, Dupee & Company and

Page 182 U. S. 475

Jamieson & Company to the clearinghouse of the Chicago Stock Exchange."

And it was testified that the $7,000 deposited by Schwartz & Company were for the account of complainants, in whom is the real interest in such fund.

The stipulation as to facts signed by the parties for the purpose of the trial contained long and detailed statements of the actions of Jamieson & Company and Schwartz & Company in relation to all purchases and sales by them of Diamond Match Company's stock, for both July and August accounts, whether between themselves directly or not, and the stipulation ended with this statement:

"That the transactions heretofore set out in this stipulation of purchase and sale of Schwartz, Dupee & Company, Jamieson & Company, and the other brokers whose names are stated, with the exception of those transactions which are marked as substitutions, were had by the brokers on behalf of different clients or principals whom they represented, and those transactions, so far as the different principals are concerned, were not settled or cancelled by any of the substitutions, nor by any of the settlements between the brokers, except so far as where one client or principal of a broker was, through such broker, both a purchaser and a seller."

"In other words, the settlements by substitutions or otherwise through the clearinghouse were merely settlements between the members of the stock exchange, and were not settlements or cancellations of the contracts between the principals whom the brokers represented and the brokers themselves except where the same broker had both purchased and sold for the same client."

It was also admitted that when complainants gave their orders to sell and at the time that they were executed by Schwartz & Company, the latter did not have in their hands any stock of the Diamond Match Company belonging to the complainants, nor did Schwartz & Company at any time thereafter have in their hands any of the stock of that company, which was the property of the complainants; that the 1,150 shares of capital stock of the Diamond Match Company tendered to Jamieson & Company by Schwartz & Company in behalf of complainants,

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on August 31, 1896, were not the property of the complainants, nor any part thereof; that the 700 shares of stock alleged to have been sold in the bill of complaint, on September 22, 1896, were not delivered to the alleged purchaser after the sale, but were delivered to J. W. Conley, a member of the firm of Schwartz & Company by the individual who conducted the sale on behalf of the complainants, for safekeeping by Conley. The stock tendered belonged to Schwartz & Company, who tendered it on behalf and for the benefit of complainants.

The various facts set forth in the stipulation form a somewhat complicated mass of detail and, when taken in connection with the oral evidence and the findings of the master, it is not clear that they are all perfectly consistent.

Upon the hearing before the master, Mr. Joseph R. Wilkins, the secretary and chairman of the Chicago Stock Exchange and manager of the clearinghouse, was called as a witness in behalf of the complainants. After giving a statement of the manner in which business was done on the exchange in relation to sales for "the account," he testified that the expressions in the telegrams from the complainants to the brokers, in which the word "difference" occurred, did not mean the difference between the then market price of the stock and the contract price, but meant the charges made for carrying the stock for the customer until the next delivery day. The price for this service differs from day to day, and is matter of agreement for each transaction; it is in effect the interest charged by the individual who carries the stock, on the amount necessary to carry it until the next delivery day. The rate of interest differs, of course, according to the demand, and is matter of agreement between the parties. The charge bears no relation whatever to the difference between the market price and the contract price of the stock. He also testified that a sale for "the account" on any day up to the 25th of the month means a sale of the stock which has to be delivered and paid for and taken at the end of the month. In other words, an actual delivery of the stock is contemplated by such a contract, and if a change from that delivery day to the next delivery day, thirty days thereafter, is asked for, it will depend upon the agreement of the parties upon what

Page 182 U. S. 477

terms it shall be made. He also said that a sale for "the account" under the rules of the exchange assumed that there might be changes or substitutions of names during the period between the sale and the delivery day, and this happened by reason of the clearinghouse custom, under which all the sheets showing the transactions of the brokers in the sales and purchases in a given stock during the day were examined in the clearinghouse and the sheets balanced, so that, at the end, it appears there are a certain number of shares sold and the same number bought, and if the sheets do not balance, the work stops and does not go on until a balance is made. After the balance is arrived at, the substitution of names takes place, and the tickets or cards are sent to the brokers who are "long" and "short" of the stock respectively, and they then send to each other cards confirming the sale each day, and the cash deposit with the committee is added to by the one side and taken from by the other, according to the fluctuation of the stock, so that the full amount of deposit is kept at all times with the committee until the transaction is closed.

In regard to the fluctuations of price from day to day and the manner in which a party selling or buying at a certain price finally obtains or pays it on delivery day, although the original purchaser may have substituted another name at a different price, the witness explained that such original price was realized by means of the margin in the hands of the committee, which was added to daily by the party against whom the price of the stock turned, and drawn from by the party in whose favor it turned, so that, taking such payments and adding the price the stock actually sold for on the delivery day, the party selling or purchasing obtains his original selling or purchase price, which results in a loss or a gain, as the price of the stock on delivery day is higher or lower than the original contract price.

Page 182 U. S. 478



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