Revocation by the surety. If the guarantee is a continuing guarantee and the consideration is divisible it may, as regards future transactions, be revoked by due notice. But where the consideration has been given once for all it cannot be so revoked.

Partnerships. Under the provisions of the Partnership Act, 1890, in the absence of a contrary agreement, a continuing guarantee given to a firm or for a firm is revoked as to future transactions by any change in the constitution of the firm.

Representation concerning the Credit of another.

As has already been stated, guarantees are required by the Statute of Frauds to be in writing. But apart from this, where a person makes a false representation in order to enable another person to procure credit, and as a result of such fraudulent representation a third party does give credit, such person is liable to an action for fraud provided that, in accordance with Lord Tenterden's Act, such representation is in writing and signed by the person making it. (e)

Prior to the passing of Lord Tenterden's Act, the Statute of Frauds was often evaded by suing in an action for deceit on an alleged oral representation where no guarantee had been given in writing. For instance, A wishes to obtain goods on credit and he arranges with B to act as a reference and gives his name as such to the shopkeeper. B on enquiry by the shopkeeper, knowing otherwise, states that A is solvent and a safe man to deal with. B is not bound as a surety, and unless his representation is in writing he cannot be amenable in an action for fraud, owing to Lord Tenterden's Act. If he replied to the enquiry by letter he is liable.

(e) See ante, p. 20.

CHAPTER 11

STOCK EXCHANGE LAW AND PRACTICE

An exchange is a market. In Liverpool and Manchester there are important Cotton Exchanges, where business is done in raw cotton; in these places also there are Stock Exchanges, where business in connection with the buying and selling of securities, stocks, shares, etc., is carried on. But in speaking of the "Stock Exchange," the London institution bearing that name is invariably referred to.

The management of the London Stock Exchange is in the hands of a committee, and members must abide by the rules made by the committee. The membership is restricted and is only from year to year, a fresh election being necessary every year, and a member has no right to re-election.

Members of the Stock Exchange are either jobbers or brokers. Brokers are those who, either instead of, or in addition to, buying and selling on their own account, act as agents for clients, who are members of the public. The practice of the Stock Exchange is of a complex nature and is of little practical interest to persons who are not members. But there are certain matters that ought to be borne in mind by commercial people who are likely to have any dealings in securities.

The legal aspect of the rules of the Stock Exchange does not affect the members as between themselves, for one of the rules is that the members are forbidden to take legal proceedings, and all disputes between themselves must be referred either to arbitration or to the committee. As regards the outside public, the ordinary rules of contract apply. It is assumed that the client of the broker knows of the printed rules of the Stock Exchange; and he is bound by them, even if not aware thereof, if they are legal and reasonable. If he knows of them he is bound even if they are illegal and unreasonable. On the other hand, he is not bound by a custom of the Exchange unless he is aware of it, and the fact that a particular custom is illegal or unreasonable, e.g., the custom to disregard Leeman's Act,

will be primâ facie a supposition that he has not agreed to be bound thereby. (f)

Whether he was or was not aware of the custom is a matter of fact to be proved in the ordinary way. In Benjamin v. Barnett (1903) it was held that a client cannot refuse to accept a part only of the securities which he has authorized the broker to purchase on his behalf, whereas in ordinary contracts the purchaser need not accept part only of what he has agreed to purchase. So that a client is still bound by a custom of the exchange, even though it is opposed to the ordinary law of contract.

Gambling and Speculation.

The term "Gambling on the Stock Exchange" is often used popularly. It takes place where there is no intention on the part of the seller to deliver, or of the purchaser to take up, the securities which are the subject matter of the agreement. The matter is settled by the payment or receipt, as the case may be, of the difference between the price at the time of the transaction and the price at the settling day. There are, of course, many instances where "differences" are paid and where the transactions are not gambling ones. Naturally, if the purchaser is able to sell his purchase at a profit before the need arises for taking up the securities he will do so-though his intention may have been to pay for them and take them up if the price had not risen sufficiently to be worth his while to sell during that account. Speculation, as distinct from "gambling," is the purchase of stocks or shares with the intention of holding them until such time as the price has risen to a figure sufficient to warrant a profit on a re-sale. In this case the purchaser intends, if the price has not risen to such a figure before settling day, that he will pay for them.

Bulls and Bears.

Where securities are bought with a view to a rise, the purchaser is termed a "Bull," the intention being to induce a fictitious rise in values. Similarly, where they are sold with a view of buying back later at a lower price, the seller is termed a "Bear," his sales being intended to depress the market price in order to allow of re-purchase at a price sufficient to give him a substantial profit on the transaction. The "Bull" buys stock for forward delivery in the hope that he can sell out at a profit

(f) See ante, pp. 44 and 80,

without taking up and paying for the stock. Similarly, the "Bear" sells for forward delivery stock that he does not possess, hoping that he will be able to buy back at a lower price without having to deliver the stock.

When the sales of the Bears amount to more than the sales of the Bulls, there is said to be a "Bear account." This condition is a strengthening influence, for it is known that the Bears must eventually buy back in order to close their commitments. When there is a Bear account the market is said to be " oversold " or "short of stock." A" Bull Account " is, of course, the reverse of the above conditions.

Agency of Stockbroker.

As above mentioned, a stockbroker is one who buys and sells on behalf of a principal, and he is therefore an agent and, generally speaking, the ordinary rules of agency apply, except in so far as they may be altered by rules and customs of the Exchange, referred to above. When the broker has made a purchase on behalf of his principal he makes out a Contract Note, i.e., sends a Bought Note to him and a Sold Note to the person on whose behalf he has sold. These notes are the evidence of the contract; but securities are "choses in action" and not goods, as defined by the Sale of Goods Act, 1893, therefore there is no necessity for the contract to be in writing in order to be valid, but the broker is obliged to make out a Contract Note in order to pay the stamp duty. By the custom of the Exchange the broker is bound to take up and pay for any securities he purchases, whether or not he has received the purchase money from his principal; but the principal is bound to indemnify him. Subject to the cases of non-payment by the principal, there is no risk in the profession of stockbroking, providing the broker keeps to his proper vocation of buying and selling for clients. The risk which often does arise is when the broker becomes in effect a jobber, by buying and selling on his own

account.

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If a person has purchased securities he must pay the price at the next "pay day"; but if he should not wish to do so he can usually arrange a continuation" or carry over to the next account for a charge called contango," the amount varying according to the state of the market and the value of money. If the market is in such a condition that securities can be purchased more cheaply for the account than for money, that is, if the market is a "bear" market, the purchaser carrying over pays a rate termed " backwardation." Such continuation is regarded as a fresh contract.

Stock Jobber.

The jobber is not an agent. The broker who has been instructed by a client to purchase securities buys them usually from a jobber, who buys and sells on his own account as a rule, but sometimes he finds some one else who sells to the broker. The broker is obliged to pay the jobber, even if his principal should default. Jobbers as a rule, and brokers often, specialize in the different markets, e.g., Rubber, Oil, etc. The profession of a jobber is precarious and attended with risk, for he is not buying on a commission for a principal, and has no principal behind him to indemnify him for moneys he is bound to pay. If a jobber is left with a number of securities on his hands and the price has fallen, he often decides to hold them in the hope of better times. In this case it may happen that he needs money to enable him to carry on; he therefore deposits the securities with a banker. The banker lends on the securities a proportion of the value varying with the nature of the security and the state of the money market generally. The market on occasions fluctuates so violently, especially during times of political upheaval or industrial disturbance, that the difference in price within a few hours is often sufficient to make the jobber a fortune or to reduce him to insolvency.

Defaulting Members.

Where a member of the Exchange is unable to meet his engagements he is "hammered," that is, he is publicly declared to be a defaulter, and he automatically ceases to be a member of the Stock Exchange. The Exchange has internal rules for dealing with his assets, which are rather complicated and of no practical interest to a non-member.

Settlement.

All contracts on the Stock Exchange are made for settlement on a particular day, varying to a slight extent with the nature of the security in question. In the case of consols there are twelve settling days or "account days" in the year, and in the case of other securities twenty-four. When a purchase is made the intention is to pay and take delivery at the end of the current account. Two days before the account day is the day called "contango day," when the transaction of carrying over, already referred to, is effected (in the case of mining shares the contango day is three days before the account day). The next day is termed "ticket day," when the jobbers and brokers clear their transactions by a complicated procedure now much simplified