New-York tribune., 1920-04-19

shortc, and tho longs in ths Stntz ~
fair amply. protected by counsel. the
pages OF the court records reonrd;n ..
the ways Of the bears seem thnmb
worn from excessive use IN recent
days.
Speculative, But Legal
The Stock Exchange bases T.. .+.rd
on the legality Of short sales on sev-
eral classic decisions. In the case ~
Hurd VS.. Taylor (1s1 N. Y. 2311 thu
Court of Appeals Of New York said
The purchase Of stocks through a
broker, though the party ordering such
purchase does not intend to hold tho
stocks as an investment, but expects
the broker to carry them for him with
the design on the part Of the purchaser
to sell again the stocks when their
market value has enhanced, is, how
ever speculative, entirely legal. Equal
~ 40 IS Short sale, where the seller
has not the stock he assumes to sell.
put bcrrows it, and expects to replace
II when the market value has declined I"
g moreover, In Bibb VS.. Allen (149 u.
8, AS1), the Supreme Court Of the
Umted States says: "It is we'll set
ticd that contracts for the future. de-
livery OF merchandise or taneible
property are not void, whether sach
property is in existence in the hands
OF the seller or to be subsequently,
acquired" The court then quoted with
approval the charge of the trial court
IN irwin VS.. Williar (11o, 499). which
was. IN part, as follows:
=, person may make a contract for
inc sale OF personal property for fu-
Nre ocllvery which he has not got.
4xnerchants Y and traders often do this.
A contract for fho oo1c %
property which the vendor does non
own or possess, but expects to obtain
oy purchase or otherwise, Is bindina IL
an actual transfer Of property is con-
templated.' So''-
The 1ntention's the Thing
l.. And dealing with the general ques-
ton OF selling before owning. tho An.
peIiate Division Of the Supreme Court
IN this state, in Bolts VS.. the Mercan-
aile ane> Bank of Memphis (17O Appel. Div.
o791 decided that dealing in futures
IS illegal only where intention not to
oeliver or receive is shared by both
parties as element of contract"
bcsides decisions like the foregoing,
the Stock Exchange rules npholdin"
short selling are made valid bv nro.
lnnnclamento by a New York court in
me In case Of Cohen VS.. Budd (52 misc.
|lD, which held that "stock exchanges
nave the lower to enact such rules For
the government Of their affairs "a arc
necessary to carry out their purpose
When not contrary to the law of the
land" VI ''o
Stock Exchange folk in actual prac:
tlce act on the assumption that short
ssellng is legal IN this state, and ample
legal proof can be marshalled forth to
support the view. New York State
IN the past, however. at times out
record of court rulings. in otbee
states as we'll as in New York. MANY
instances could be modified to support
the opposition in its view that short
selling is merely gambling.
When the Hanoverian Georges had
some influence in New York in tho
days when it was still British COLONY,
laws were enacted. against "sellinp
what isn't his'n." These barriers were
subsequently removed, but In 1880 the
early statute barring short sales was
reenacterd in the revised statutes.
ut seems, however" says Dos Pas
SOS, in his text book on the law affect
ing exchanges. "that the statute of
New York was not very efficacious in
preventing short sales of stock, and in
the year 1858 it was repealed bv nm
act Of the Legislature.
by this act the selling of securities
short is legalized and the doctrine Of
the common law reestablished. The
courts OF New York have held that the
erect OF the repeal of the statute re-
iat,ng to stock jobbing takes away the
defense OF illegality as to contracts
passed; the theory Of the law being
that the repeal Of a statute when
makes contracts illegal on the ground
OF public policy legalizes those en-
tered into during Its continuance, in
violation Of the same. Nor is it nee
essary, In an action to recover dam
ages for the non-performance of con-
tract for the purchase Of stock, for the
plaintiff to allege in his complaint that
ne was. the owner Of the stock at the
time time OF making the contract, or that
the contract. wac in writing.''
SO much for the law.
The Ethics of tho Case
Some who are challenging short sales
attack it on economic and ethical
grounds, charging short sale is sim
ply gambling and that it is an unfair
attempt to depress the value of other
peoples holdings. The practice. how
ever is approved perhaps by a major
ity OF economic thinkers.
Short sellers are born, not made"
Otto H. Kahn once remarked in defend
ing the operations Of the shorts. "But
II there were not people born who sell
short they would almost have to be in
vented.
"Short selling has Legitimate place
tn the scheme Of things economic. Il
acts. as a check on undue optimism. it
tends to counteract the danger Of an
upward runaway market, it supplies
sustaining force in heavily declining
market at times Of unexpected shock
or panic 1t is valuable element In
preventing extremes Of advance and de-
cline.
"The short seller contracts to deliver
at certain price a certain quantity of
stocks which he does not own at the
time. but which he expects the course
OF the market to permit him to buy at
Il profit.
Short selling does become wrong
when and to the extent that the meth
DDS and intent of the short seller are
wrong
ebO