called "contracts," but are usually included under the head of "purchases" or "sales."[1]
All these contracts have some time to be performed, and inasmuch as in contracting each of the stockbrokers acts as a principal each is legally bound[2] to the other to perform his part under the terms of any of these contracts. If he fails to do so, every Stock Exchange gives to the other stockbroker an effective and immediate method of liquidating his loss,[3] and will enforce this liquidated claim so far as it is able by suspension of the defaulting stockbroker, and the sale of his "seat" or share in the Exchange.[4] To facilitate stockbrokers in performing the contracts that they make, every Stock Exchange has established rules by which the performance[5] of all contracts made on its floor can be conveniently and expeditiously carried out. In consequence of this, every offer to buy or to sell securities, made on the floor of a Stock Exchange, is understood to contain an implied term to the effect that the contract which will result from its being accepted shall be performed according to the rules of such Stock Exchange. It is to be noted that by these rules the actual performance of any of these contracts takes place away from the Stock Exchange on the floor of which it is made. In spite of this, it is customary to speak of "buying" and "selling"[6] securities "on the floor" or "on the Exchange," and also of purchases and sales being made "on the floor" or "on the Exchange," where it would be more proper to speak of contracting to buy or to sell, and of contracts for the purchase and sale of securities.
- ↑ The verb generally used in all cases "to buy" or "to sell," instead of "to contract to buy" or "to contract to sell."
- ↑ Where a stockbroker contracts in his own name, even though he be actually acting for an undiscovered principal, he can sue and be sued on his contract as a principal. Knapp v. Simon, 96 N. Y. 284, s. c., 86 N. Y. 311; Cobb v. Knapp, 71 N. Y. 384; Mechem on Agency, §§ 929, 957, 977, 983.
- ↑ By a so-called purchase or sale "under the rule," see Constitution and Rules of the New York Stock Exchange, Art. XXIX. In consequence of this remedy it is not usual for a member of a Stock Exchange to sue another for a breach of a contract made on its floor, and suits by a customer (the undiscovered principal) against a stockbroker who has defaulted on a contract made with the customer's stockbroker are unheard of.
- ↑ On the nature of a stockbroker's seat on an Exchange, see Dos Passos, 17-21.
- ↑ Subject to the rules of each Stock Exchange this is done either directly by and between the two stockbrokers or through a Clearing House acting as the agent of both. On Stock Exchange Clearing Houses, see article on, by Alexander D. Noyes, in Pol. Sc. Quarterly, Vol. VIII. No. 2. p. 252, June, 1893. Among other matters the rules prescribe what shall be "good" delivery of securities as between two contracting stockbrokers.
- ↑ See note 1, above.
