Richter v. Poe

Burke, J., delivered the opinion of the Court. This case comes before us on appeal from a decree of the Circuit Court No. 2 of Baltimore City dismissing the appellants’ bill of complaint filed in that Court. Bruno Richter, who is engaged in the chattel loan business in Baltimore City, had certain stock transactions during the months of August and September, 1907, with the appellees, who are stock brokers, and also the agents in Baltimore City of the New York brokerage firm of T. A. McIntyre & Co. The suit involves an inquiry into the nature of certain transactions concerning five hundred shares of stock of the Amalgamated Copper Company, upon which Bruno Richter had ²² paid to the appellees the sum of forty-two hundred dollars, and had given a mortgage on certain property in Baltimore County for ten thousand dollars as additional security in part payment of the purchase price of the stock. The specific relief prayed for in the bill is: a.

That the appellees may be decreed to repay to Richter said sum of forty-two hundred dollars with interest; b. That they may be decreed to surrender to him the mortgage note of ten thousand dollars to be cancelled; c. That they may be decreed to release the mortgage and be enjoined from attempting or proceeding to sell the mortgaged property under the powers contained in the mortgage. The two grounds upon which this relief is prayed for are: First, that the transactions respecting the purchase and sale of the stock were mere gambling, or wagering, contracts; secondly, that the appellees had agreed with Richter to carry the stock until it declined to forty-five dollars per share, and that in violation of their agreement they sold the stock at fifty-six dollars per share, and it is contended that because of this violation of the agreement Richter had a right to rescind the contract,, and demand the release of the mortgage and recover the money paid by him to the appellees. ■ The bill alleged that while the transaction between him and the appellees was in the form of a purchase of said stock, it was in truth and in fact a mere gambling wager, there being no intention or belief on the part of himself or the appellees that the stock for the purchase of which orders had been given should ever actually be delivered to him, but that the sole purpose, as was well known to the appellees, was that there should be an accounting and settling of the differences as the stock rose or fell in market price, or as the appellant won or lost on his wagers; that the only expectation of all parties to the transaction was that when the wagering transactions were completed the settlement and adjustment should be made on the differences between the market prices of the stock at the time the orders to buy the same were given.

That because of the breach of the contract by the appellees ²³ to carry the stock to forty-five dollars per share, the reasonable expectation of benefit which Richter had when he delivered the money and the promissory note to the defendants had been disappointed by their wrongful conduct in selling the stock before it declined to that figure, and that he had served a written demand upon the defendants to return the money and note to him and to release the mortgage, which they had declined to do. These grounds, upon which the relief prayed for rests, are explicitly denied by the answer. It admits that among the transactions had between themselves and Richter there were purchases of Amalgamated Copper Stock to the extent five hundred shares, but they deny that the transactions were a mere gambling wager, or that there was no intention or belief on the part of Richter, or the defendants that the stock for the purchase of which orders had been given should ever be delivered to him; they deny that the sole purpose was that there should be an accounting and settlement of the differences as the stock rose and fell in price; they deny that the transactions were wagers on the part of Richter; they deny that the only expectation of all the parties to the transactions was that they should be completed as set forth in the bill, and they alleged that they stood ready and willing to deliver to Richter all shares of stock that he had purchased. From this statement of the pleadings it will be perceived that the two important questions presented for decision are: First, were the transactions mere wagering, or gambling, contracts, and therefore void ?

Secondly, was there an agreement between the parties to the effect that the appellees, in consideration of the execution and delivery of the promissory note and mortgage, would carry the stock until it should decline to forty-five dollars per share ? It is settled that “where the contract is that in case of a decline in the market price of the stock, the purchaser is to pay the difference between the contract price and the market price, and there is no intention that he shall receive and pay for tho stock itself, the dealing is a gambling contract, and ²⁴ the law does not permit an action to be maintained, upon it.” Billingslea v. Smith, 77. Md. 519; Stewart v. Schall, 65 Md. 290 ; Cover v. Smith, 82 Md. 614 . Such a contract is null and void.

Dryden v. Zell & Merceret, 104 Md. 345 . It is said in Irwin v. Williar, 110 U. S. 508 , that: “The generally accepted doctrine in this country is, as stated by Mr. Benjamin,, that a contract-for the sale of goods to be delivered at a future day is valid, even though the seller has not the goods, nor any other means of getting them than to go .into the market and buy them; but such a contract is only valid when the parties really intend and agree that the goods are to be delivered by the seller and the price to be paid by the buyer; and if, under guise of such a contract, the real intent be merely to speculate in the rise and fall of prices, and the •goods are not to be delivered, but one party is to pay to the other the difference between the contract price and the market price of the goods at the date fixed for executing the contract, then the whole transaction constitutes nothing more than a wager, and is null and void.” If it appear that the transaction is a gambling contract, the fact that it is clothed in legal form will not avail. The Court will look through the mere guise in which it is attempted to be conducted, and will declare its true nature. But there is a broad and well-recognized distinction between a gambling contract and a speculative contract for the purchase and sale of stocks on margin.

Such transactions are valid. The true relations which exist between the broker and the customer in such cases, in the absence of some special agreement, where the stock is purchased on margin for speculative account, are these: The broker undertakes and agrees: 1. At once to buy for the customer the stocks indicated. 2. To advance all the money required for the purchase beyond the per cent, furnished by the customer. 3.

To carry or hold the stock for the benefit of the customer so long as the margin agreed upon is kept good, or ■until notice is given by either party that the transaction ²⁵ must be closed. An appreciation in the value of the stock is the gain of the customer, and not of the broker. é. At all times to have, in his name and under his control, ready for delivery, the shares purchased, or an equal amount of other shares of the same stock. 5. To deliver such shares to the customer when required by him, upon the receipt of the advances, commissions and interest due to the broker; or, 6.

To sell such shares, upon the order of the customer, upon payment of the like sums to him, and account to the customer for the proceeds of such sale. Under this contract the customer undertakes: 1. To pay the margin agreed upon on the current market value of the stock. 2. To keep good such margin according to the fluctuations of the market. 3.

To take the shares so purchased on his order whenever required by the broker, and to pay the difference between the percentage advanced by him and the amount due the broker. Markham v. Jaudon, 41 N. Y. 235 ; Richardson v. Shaw, 209 U. S. 365 , decided by the Supreme Court of the United States, April 6th, 1908. The first question is: Does the evidence support the appellants’ contention that the transactions between them and the appellees were gambling contracts for the purchase and sale of this stock ? Whether they were mere wagers, or were valid purchases and sales on margin within the rules stated, were questions to be decided upon a consideration of all the facts ■and circumstances in the case.

In determining these questions upon the record before us, in which appears upon the material issues of facts raised by the pleadings the most dil’ect and irreconcilable conflict of evidence, two things must be remembered: first, that