MARGIN. A sum of money, or its equiva lent, placed in the hands of a stock broker, by the principal, or person on whose account a purchase of stock or commodities is to be made, as a security to the former against kisses to which he may be exposed by a sub sequent depression in the market value of the stock. See Markham v. Jaudon, 49 Barb. (N. Y.) 462.
A sale on margin is a sale on time of stock retained as security and not delivered until final payment is made. If the stock falls in value before the time of final payment, the buyer is called upon to advance more margin. The effect of the contract is that the broker, upon the performance of certain conditions I by the customer, will buy and bold a certain number of shares, and in case any advance accrues and is realized by a sale, made under the authority of the customer, he shall enjoy the benefit of it, and in case a loss ensues, the broker having performed the contract on his part, the customer shall bear it; Mark ham v. Jaudon, 49 Barb. (N. Y.) 464; Baker v. Drake, 66 N. Y. 518, 23 Am. Rep. 80.
Stock purchased on a margin instantly be comes the property of the customer, with all future dividends and earnings, and the client is entitled to the possession of it upon pay ing the purchase money with commissions ; Markham v. Jaudon, 41 N. Y. 235, 247, 257, 258; Baker v. Drake, 53 N. Y. 211, 216, 13 Am. Rep. 507. It was settled in New York by the leading case of Markham v. Jaudon that a purchase of stock on margin by bro kers to be carried for the customer in their own name and with their own funds, creates the legal relation of pledgor and pledgee, and that a sale, not judicial, or upon notice and demand for payment of advances and com missions is a wrongful conversion. This doc trine was finally distinctly reaffirmed in New York ; Gruman v. Smith, 81, N. V. 25 ; and in other states ; Baltimore Marine Ins. Co. v. Dalrymple, 25 Md. 269 ; Esser v. Linder man, 71 Pa. 76; and apparently in England; 5 Bligh N. S. 165, affirming 3 Sim. 153. See Dos Passos, Stock Brokers 112, where many other cases are cited. The pledged is not
liable for neglect to sell the stock where it depreciates in his hands or even becomes worthless, if be has not been requested to sell or refused to transfer the stock for that purpose; O'Neill v. Whigham, 87 Pa. 394; Howard v. Brigham, 98 Mass. 133 ; nor is he liable if the pledge be stolen without negli gence on his part ; Abbett v. Frederick, 56 How. Pr. (N. Y.) 68 ; and a stock broker is I not liable where spurious securities are pur chased for a customer in the regular course of business, if he sells such and in conse quence refunds the purchase money, he can recover it from his customer ; 15 M. & W. 308, 486; 8 C. B. 373. It thus appears that one purchasing stock on a margin is GI all essential parts the owner of the stock, en titled to the advantages and subject to the responsibilities of that relation.
A speculative contract for the purchase and sale of stocks on margin is not invalid as a gambling transaction ; Richter v. Poe, 109 Md. 20, 71 Atl. 420, 22 L. R. A. (N. S.) 174; Rice v. Winslow, 180 Mass. 500, 62 N. E. 1057 ; Post v. Leland, 184 Mass. 601, 69 N. E. 361 ; Peter§ v. Grim, 149 Pa. 163, 24 Atl. 192, 34 Am. St. Rep. 599 ; Hallet v. Ag gergaard, 21 S. D. 554, 114 N. W. 696, 14'L. R. A. (N. S.) 1251; even though the buyer had not the means of paying for such stocks, if he availed himself of the broker's credit and facilities for borrowing on the stocks themselves ; Winward v. Lincoln, 23 R. I. 476, 51 Atl. 106, 64 L. R. A. 160. An inten tion by the parties to engage in a gambling transaction may be inferred where the par ty making the purchase never calls upon the party ordering the purchase for the purchase money, but only for margins ; Jamieson v. Wallace, 167 Ill. 388, 47 N. E. 763, 59 Am. St. Rep. 302.
The provision of the California constitu tion invalidating contracts for the sale of futures is held to apply to a sale of stock on margin ; Cashman v. Root, 89 Cal. 373, 26 Pac. 883, 12 L. R. A. 511, 23 Am. St. Rep. 482. See FUTURES ; STOCK ; WAGER.