Assigned Estate of L. H. Taylor & Co. , 192 Pa. 304 ( 1899 )

Opinion by

Mr. Justice Mitchell,

It has been settled by this Court so often that it ought not to require reiteration that dealing in stocks even on margins is not gambling. Stocks are as legitimate subjects of speculative buying and selling as flour or dry goods or pig iron. A man may buy any commodity, stock included, to sell on an expected rise, or sell “ short ” to acquire and deliver on an expected fall, and it will not be gambling. Margin is nothing but security, and a man may buy on credit, with security or without, or on borrowed money, and the money may be borrowed from his broker as well as from a third person. The test is, did he intend to buy, or only to settle on differences ? If he had bought and paid for his stock, held it for a year and then sold, no one would call it gambling and yet it is just as little so, if he had it but an hour and sold before he had in fact paid for it. And so with selling. Every merchant who sells you something not yet in his stock but which he undertakes to get for you, is selling “ short,” but he is not gambling, because, though delivery is to be in the future, the sale is present and actual. The true line of distinction was laid down in Peters v. Grim, 149 Pa. 163, and has not been departed from or varied, “ A purchase of stock for speculation, even when done merely on margin, is not necessarily a gambling transaction. If one buys stock from A and borrows the money from B to pay for it, there is no element of gambling in the operation, though he pledges the stock with B as security for the money. So, if instead of borrowing 'the money from B, a third person, he borrows it from A or, in the language of brokers, procures A to ‘ carry ’ the stock for him, with or without margin, the transaction is not necessarily different in character. But in this latter case, there being no transfer or delivery of the stock, the doubt arises whether the parties intended there should ever be a purchase or delivery at all. Here is the dividing line. If there was not under any circumstances to be a delivery, as part of and completing a purchase, then the transaction was a mere wager on the rise and fall of prices, but if there was in good faith a purchase, then the delivery might be postponed, or made to depend on a future condition, and the stock carried on margin or otherwise in the mean while, without affecting the legality of the operation.” This has been uniformly followed: Hopkins v. O’Kane, 169 Pa. 478; Wagner v. Hildebrand, 187 Pa. 136. And the rule goes so far that an agreement for an actual sale and purchase will make the transaction valid though it originated in an intention merely to wager: Anthony & Co. v. Unangst, 174 Pa. 10.

Turning now to the facts of the present case, it is clear that the law was not correctly applied by the auditor and the court below. The brokers made an assignment on December 21,1895, on which day they held certain stock for appellant, which they had bought on his order, and he had certain other stock which they had sold on his order, but which he had not yet delivered to them. He desired to close the account, complete the mutual deliveries and receive the balance which the transactions left in his favor. He was entitled to do so, even if the transactions were wagering, the agreement of the parties to make the sales actual would, under Anthony & Co. v. Unangst, 174 Pa. 10, supra, have made them valid. It is true, the settlement was not actually made until January 10, but it was made as of December 20, the day before the assignment, and the auditor reports that there had been no change of values meanwhile. The time of striking a balance on the books and delivering the stock was not important. Delivery is not in itself a material fact. Its only value is as evidence of the intent to make a bona fide sale. If such is the intent, the delivery may be present or future without affecting validity.

But there was no sufficient evidence that the transactions were illegal at anytime. The auditor reports that “the stocks ordered to be bought or sold by the customers of L. H. Taylor & Co. were, as shown by their books, actually bought and sold, and as this evidence is uncontradicted I must and do so find. .... Thus, so far as L. H. Taylor & Co. were concerned, the transactions were not fictitious, but were actual purchases and sales of stock.” This finding should have been a warning to caution in taking a different view of the appellant’s position in the transactions. It is true, the purchase or sale may be actual on part of the broker and merely a wager on part of the customer (see Champlin v. Smith, 164 Pa. 481), but there should be at least fairly persuasive evidence of the difference. There is none here. The transactions covered by the account began with a small cash balance to appellant’s credit, followed by an order to buy 200 shares of Wabash common, which were bought by the brokers, paid for by appellant and delivered to him. The close, two years and a half later, showed, as already said, a large number of shares in the hands of the brokers, bought for appellant, and of which he demanded delivery, and other shares sold for him and which he had in his possession ready to deliver. As to the intermediate transactions, appellant testified, “It was always the intention to buy the stocks out and out and pay for them, and I had money to do it with.” In the face of these facts and this uncontradicted testimony, the auditor found that “ the account, including his enormous short sales, has all the earmarks of a gaming transaction and I so find it.” This was a mere inference, unwarranted by the account itself, and wholly opposed to all the evidence in the case.

Judgment, so far as it relates to appellant’s claim, reversed and claim directed to be allowed.