Sometimes they are accompanied by a detachable form, known as the "client's return contract note," to be filled in, signed and returned by the client; but even the "client's return contract note" is retained by the client's own broker, and is only a memorandum of the terms of employment. The following is a form of contract note rendered by a broker to his client for American cotton, bought on the Liverpool Cotton Exchange for future delivery. The client's contract note is attached to it, and is in precisely corresponding form.


Delivery Contract Note.




We have this day.............. to/from you .............. lb American Cotton, net weight, to be contained in .............. American Bales, more or less, to be delivered in Liverpool, during .............. on the basis of .......... per lb for ............ on the terms of the rules, bye-laws, and Clearing House regulations of the Liverpool Cotton Association, Limited, whether endorsed hereon or not.

The contract, of which this is a note, is made between ourselves and yourselves, and not by or with any person, whether disclosed or not, on whose instructions or for whose benefit the same may have been entered into. Yours faithfully,


The contract, of which the above is a note, was made on the date specified, within the business hours fixed by the Liverpool Cotton Association, Limited.

......... per cent to us.

Please confirm by signing and returning the contract attached.

The above form of contract note illustrates the tendency of exchanges to alter the relations between the broker and his principal. The object of inserting in the printed form the provision that the contract is made subject to the rules of the Liverpool Cotton Association is to make those rules binding upon the principal, and if he employs his broker upon the basis of the printed form, he does bind himself to any modification of the relations between himself and his broker which those rules may effect. The object of the principal clause in the above and similar printed forms is apparently to entitle the broker to sell to or buy from his principal on his own account and not as agent at all, thus disregarding the duty incumbent upon him as broker of making for his principal a contract with a third party.

It is not possible, except very generally, to state how far exchanges have succeeded in imposing their own rules and usages on non-members, but it is probably correct to say that in most cases if the question came before the courts, the outside client would be held to have accepted the rules of the exchange so far as they did not alter the fundamental duties to him of his broker. On the other hand, provisions purporting to entitle the broker in disregard of his duties as broker himself to act as principal, would be rejected by the courts as radically inconsistent with the primary object of the contract of brokerage and, therefore, meaningless. But it is undoubtedly too often the practice of brokers who are members of exchanges to consider themselves entitled to act as principals and sell on their own account to their own clients, particularly in futures. The causes of this opinion, erroneously, though quite honestly held, are probably to be looked for partly in the habit of acting as principal on the market in accordance with the rules, partly in the forms of contract notes containing "principal clauses" which they send to their clients, and perhaps, also, in the occasional difficulty of effecting actual contracts on the market at the time when they are instructed so to do.

A stockbroker is a broker who contracts for the sale of stocks and shares. Stockbrokers differ from brokers proper chiefly in that stocks and shares are not "goods," and the requirement of a memorandum in writing, enacted by the Sale of Goods Act 1893, does not apply. Hence actions may be brought by the principals to a contract for the sale of stocks and shares although no memorandum in writing exists. For instance, the jobber, on failing to recover from the buyer's broker the price of shares sold, by reason of the broker having failed and been declared a defaulter, may sue the buyer whose "name was passed" by the broker. The employment of a stockbroker is subject to the rules and customs of the Stock Exchange, in accordance with the principles discussed above, which apply to the employment of brokers proper. A custom which is illegal, such as the Stock Exchange practice of disregarding Leeman's Act (1867), which enacts that contracts for the sale of joint-stock bank shares shall be void unless the registered numbers of the shares are stated therein, is not binding on the client to the extent of making the contract of sale valid.

But if a client choose to instruct his broker to buy bank shares in accordance with that practice, the broker is entitled to be indemnified by his client for money which he pays on his behalf, even though the contract of sale so made is unenforceable. For further information the reader is referred to the article Stock Exchange and to the treatises on stock exchange law.

An insurance broker is an agent whose business is to effect policies of marine insurance. He is employed by the person who has an interest to insure, pays the premiums to the underwriter, takes up the policy, and receives from the underwriter payment in the event of a loss under the policy. By the custom of the trade the underwriter looks solely to the broker for payment of premiums, and has no right of action against the assured; and, on the other hand, the broker is paid his commission by the underwriter, although he is employed by the assured. Usually the broker keeps a current account with the underwriter, and premiums and losses are dealt with in account. It is only in the event of the underwriter refusing to pay on a loss, that the broker drops out and the assured sues the underwriter direct. Agents who effect life, fire or other policies, are not known as insurance brokers.

Ship-brokers are, firstly, "commission agents," and, secondly, very often also ships' managers. Their office is to act as agents for owners of ships to procure purchasers for ships, or ships for intending purchasers, in precisely the same manner as house-agents act in respect of houses. They also act as agents for ship-owners in finding charterers for their ships, or for charterers in finding ships available for charter, and in either case they effect the charter-party (see Affreightment).

Chartering brokers are customarily paid by the ship-owner, when the charter-party is effected, whether originally employed by him or by the charterer. Charter-parties effected through brokers often contain a provision - "2½% on estimated amount of freight to be paid to A B, broker, on the signing of this charter-party, and the ship to be consigned to him for ship's business at the port of X [inserting the name of the port where A B carries on business]." The broker cannot sue on the charter-party contract because he is not a party to it, but the insertion of the clause practically prevents his right from being disputed by the ship-owner. When the broker does the ship's business in port, it is his duty to clear her at the customs and generally to act as "ship's husband."

A bill-broker was originally an agent who, for a commission, procured for country bankers the discounting of their bills in London. But the practice arose of the broker guaranteeing the London banker or financier; and finally the brokers ceased to deposit with the London bankers the bills they received, and at the present day a bill-broker, as a rule, buys bills on his own account at a discount, borrows money on his own account and upon his own security at interest, and makes his profit out of the difference between the discount and the interest. When acting thus the bill-broker is not a broker at all, as he deals as principal and does not act as agent.


Story, Commentaries on the Law of Agency (Boston, 1882); Brodhurst, Law and Practice of the Stock Exchange (London, 1897); Gow, Handbook of Marine Insurance (London, 1900); Arnould, On Marine Insurance, edited by Messrs Hart & Simey (1901); J.R. Dos Passos, Law of Stock-Brokers and Stock Exchanges (New York, 1905).

(L. F. S.)