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.
It 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.
There 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 carry 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.
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.
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.
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.
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]
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 dealer 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:—
(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.
(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.
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 the 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, 30 & 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.
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. This “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.
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.
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 13th 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 said,” 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 made 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 intimated 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 ground 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.
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.
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 of 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.
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.
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 unenforceable, 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 which, 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 of 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. But 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.