Definition
A sum of money paid by a seller of stock to a buyer in exchange for permission to delay delivery of the stock beyond the originally agreed settlement date. The payment compensates the buyer for waiting when the spot price (current market price) of the stock is lower than the forward price — that is, when immediate delivery would be worth less than future delivery to the buyer, creating an incentive for the seller to postpone.
Also spelled backwardation. In modern financial and commodities markets, the underlying concept survives under the term "backwardation," though the meaning has shifted somewhat. The historical legal usage focuses narrowly on the compensation mechanism in stock transactions; modern usage describes the broader market condition in which spot prices exceed futures prices.
Common Language
Modern common usage (Wiktionary): "Backwardation" is the condition in a futures market in which the spot price of a commodity is higher than the futures price, or more generally, the normal market condition for a storable commodity when near-term contracts trade at a premium to later contracts.
Historical common usage (Webster's 1913): Webster's 1913 defines "backwardation" as "the seller's postponement of delivery of stock or shares, with the consent of the buyer, upon payment of a premium to the latter" — closely tracking the legal usage of the period.
The gap between historical legal usage and modern common usage is significant. The historical legal dictionaries treat backadation as a transactional mechanism: a specific payment made to secure a delay. Modern financial usage treats "backwardation" as a market condition or price structure, not a payment. A researcher encountering backadation in a nineteenth-century legal text should read it as referring to the compensation paid, not to a generalized market state.
Common Confusion
Backadation is sometimes confused with contango, which is the inverse market condition. Contango describes a situation in which futures prices exceed spot prices, typically because carrying costs favor deferred delivery. Backadation (or backwardation) describes the opposite. The historical legal dictionaries do not use the term contango, which became standard in commodities market vocabulary later. Researchers should also note that the historical dictionaries define backadation specifically from the seller's perspective — it is the seller who pays — whereas modern usage of "backwardation" describes a market condition without specifying a payment direction.
Why It Matters in Research
Backadation is a narrow, specialized term of nineteenth-century English stock market practice that migrated into American legal dictionaries largely by inheritance from English commercial usage. Its appearance in legal sources is uncommon and generally confined to commercial law and stock transaction contexts.
Researchers encountering this term in historical documents should note three navigational points. First, spelling variation is real: backadation and backwardation appear interchangeably in period sources, and search queries in historical corpora should account for both forms. Second, the term is almost never defined in American case law with any elaboration — its presence in Rapalje & Lawrence is a passing reference embedded in a longer entry, and Bouvier's treatment is brief and derivative of Wharton. Primary legal authority for the concept in American courts would need to be developed through commercial law treatises of the period rather than judicial opinions. Third, the modern financial term "backwardation" carries a different, broader meaning; researchers working in contemporary securities or commodities regulatory materials should not assume that the historical definition maps onto current usage.
The corpus connection most likely to be useful: researchers encountering backadation in transactional records, stock exchange rules, or commercial litigation documents from the mid-to-late nineteenth century should consult materials on English stock exchange practice, as the term originates there and American usage was largely derivative.
Historical Dictionary Support
Bouvier and Rapalje & Lawrence agree on substance: backadation is money paid by the seller to defer stock delivery when the forward price exceeds the spot price. Both trace the definition to Wharton's Law Lexicon (London editions), signaling that the term entered American legal dictionaries through English commercial law channels rather than through independent American legal development.
Neither source elaborates on the legal consequences of the arrangement — whether, for example, the payment was enforceable as a contract term, what happened upon default, or how courts treated the delay period. The historical dictionaries treat this as a commercial practice term rather than a legal doctrine, which explains the brevity of both entries. Rapalje & Lawrence's entry is particularly compressed, embedded within a sequence of "back-" entries without significant elaboration. Researchers should not expect meaningful doctrinal content from either source and should treat both as glossary-level identifications of a commercial practice rather than legal analysis.
What the historical sources miss: neither dictionary addresses how backadation arrangements were documented, whether standard stock exchange rules governed the payment amount, or how disputes over such payments were resolved. Those answers, if they exist in the corpus, would be found in exchange regulations or commercial arbitration records rather than legal dictionaries.
Jurisdictional Note
The term is principally of English stock exchange origin and appears in American legal dictionaries as a borrowed commercial term. There is no evidence of significant American jurisdictional variation in its meaning. Its legal relevance in the United States was likely confined to transactions involving London-listed securities or to American markets operating under English commercial customs.