THE GREEN BAG the certificates of stock were not the property but .only tokens of ownership, it was immaterial that he was not compelled to return any desig nated ones to his customer. This case squarely raised the issue of what is the exact legal relation between a stock broker and his customer, where shares are bought on margin. When a broker takes an order for the purchase of shares of stock, he acts as agent for his customer. All the courts agree on this proposition. Then the second stage of the transaction is for the broker to advance from his own funds for the benefit of his customer that part of the purchase price of the stocks which the customer has not paid. All the authorities agree that in the second stage of the transaction the stock broker does not act as an agent, but there has been a wide difference of opinion as to just what the relationship between the broker and his customer is during the second period. In 1867 the Hew York Court for the first time gave this matter careful consideration, and held, in a majority opinion, that the relationship was that of pledger and pledgee. This view was seri ously questioned in some subsequent New York opinions. However, the majority of courts, as a matter of course, fell into line with the New York precedent. For a collection of cases see i Dos Passos, Stock Brokers and Stock Exchanges, 1930. Many of the better considered decisions, however, refused to follow the New York view, and held that this relationship between the customer and the broker was not that of pledger and pledgee, but that of independent contractors, the one a buyer, the other a seller. Flagg r. Baldwin, 38 N. J. Eq. at 228-9. Rutchizky r. De Haven, 97 Pa. St. 202. North v. Phillips, 89 Pa. St. 250. Fariera v. Gabel, 89 Pa. St. 99. Brua's Appeal, 55 Pa. St. 294. Ingraham v. Taylor, 58 Conn. 503; 20 A. 601. Thompson v. Cummings, 68 Ga. 134. Gregory v. Wendell, 40 Mich. 432. Re Daniels, 13 N. B. R. 46. Wood v. Hayes, 15 Gray 375. Covell ii. Lord, 135 Mass. 41. Weston?•. Jordan, 168 Mass. 401; 47 N. E. 133. Chase v. Boston, 180 Mass. 458; 62 N. E. 1059. Rice v- Winslow, 180 Mass. 500.
In Re Swift 105 Fed. 493 S. C. in C. C. A. 112 Fed. 318. Bongiovanni Societe Generate 54 L. T. (N.S.) 320. Bentinck v. London Joint Stock Bank L. R. [1893] 2 Ch. 120. The logic of the relationship seems most clearly analyzed by the English Chancery Court in the Bentinck case: "When a client directs a broker to buy stock for which the client is not himself finding the money to pay at the time, the money is provided by the broker, and he borrows the money for the purpose. This is done sometimes, no doubt, by a pure and simple loan; but in a very large majority of cases . . . the thing is done by the broker finding the money on ' contango ' and then what happens is this : he is treated not as the mortgagee or pledgee of the shares for the money which he advances, but he becomes by contract the purchaser of the shares out and out, and they become his own property. The shares are not yet transferred to him, he does not acquire any legal interest in them; but, as between the client on whose account he has bought them on the one hand, and himself on the other ... he becomes the absolute owner of the property, subject, however, to a contract made at the same time, or part of the same contract, that he is to re-sell to the client a like amount, not the same identical shares, but a like amount of similar shares. . . . Therefore, in fact, these ' contango ' transactions, although they are constantly treated as loans of money, even by persons who are thoroughly familiar with the business, although they are popularly spoken of, even on the Stock Exchange and by members of the Stock Exchange, when they come before the Court, as loans, yet when the transaction is regarded from a legal point of view, it is not a loan on the client's security, but is a sale by which the broker becomes entitled to the security as his own, although he is subject to a contract to re-sell to the client, not the same, but an equal amount of similar shares of stock at a future date. In all these transactions, therefore, when money is borrowed from a stock broker on ' contango ' or ' continuation,' whether the money is obtained from the dealer or from other stock brokers, or from bankers, the result is the same: the arrangement is one by which the broker becomes, as between himself and his client, the owner of the shares in question, although he is under a contract to provide an equal amount of similar shares at a future date. This being the
