ii!lli;.j ; mi 'Wl.KlJ ,.a\ •:iH:i'-i'^:'l, Hattd^alUse af Agriculture At Otocnell Uninecattg 2Itbrai:g HF1237.C7T" """""'"-"""'' Business law; a text-book for schools of 3 1924 013 818 996 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013818996 Business Law A TEXTBOOK FOR COLLEGES AND SCHOOLS OF BUSINESS ADMINISTRATION By THOMAS CONYNGTON Of the New York Bar; Author of " Corporate Organiza- tion and Management/* ** The Modern Corporation," etc. And LOUIS O. BERGH Of the New York Bar; Assistant Professor of the Law of Commerce and Finance, New York University School of Commerce, Accounts, and Finance Second Printing NEW YORK THE RONALD PRESS COMPANY 1920 Copyright, 1920, by The RoNAiD Press Company All Rights Reserved PREFACE With so many texts on business or commercial law already in existence, the reader's natural question is — why another? The question is a fair one, and deserves a specific answer set- ting forth what the new book offers by way of improvement over the old college texts. The primary justification for the present text lies in the distinct requirements of the modern courses in business administration in which it is intended the book should be used. These requirements are new, and it is only proper that they should be recognized. The object of the courses given in our colleges and uni- versities is to produce business men of trained business inteUi- gence of a very high type. The graduate may specialize in a number of ways. He may become an accountant ; he may be- come a banker; he may become an industrial manager; but whatever the specialization of his after-life, he will always be a business man and not a lawyer. The time available for instruction in business law in most colleges is limited, and the question is : What can be imparted in one year's time that will be of most value to the student in his career as a business man ? To sum up the situation roughly, the course should at least fix the keystones of the legal structure firmly in the student's mind ; should lead him to real- ize the limitations of his layman's knowledge; besides some understanding of the legal theory, should give him some idea of the way the law operates as a matter of practice ; and most important of all the legal knowledge he has should be so firmly impressed that in every business transaction he will subcon- sciously have the legal aspect in mind, and be able to perceive legal storms when they are still small clouds on the horizon. iii IV PREFACE Put in another way, it is the business man's working knowledge of law that we want to impart, and not drill in legal verbiage or abstruse problems. These requirements were admirably met by Mr. Thomas Conyngton's original work on " Business Law," published in 1 918. That book was intended, however, as a working manual for the business man and needed some condensation and rearrangement to adapt it for uses in the classroom. On the basis of some years of experience in teaching law to students of business administration, the present editor has, therefore, made such condensation, modifications, and rear- rangements of the work as have seemed necessary to adapt it for use as a text. The book now stands adjusted to the peda- gogical needs of the instructor and the practical demands of the student of business. Some chapters have been omitted, some condensed, and some new material has been added. Re- view questions have been placed at the end of each chapter, and nearly two hundred problems from actual cases appear at the end of the book. These furnish material for the drill which is indispensable to the acquisition of a working knowl- edge of any subject. These cases, all of which are taken from actual court de- cisions, should be extremely useful in classroom discussion. Business law, like most other subjects, cannot be taught suc- cessfully on a pure lecture basis. The student will not be likely to understand or remember the subject matter or to care to do either unless he is required to work out problems, and the more practical the problems the keener will be the interest of the student. Answers to these problems, made up largely of excerpts from the judicial opinions involved, will be pub- lished in a separate pamphlet. The present editor desires to express his thanks to his col- league, Major Samuel Greason, Jr., for reading the proof and for making many useful suggestions. PREFACE V The authors and the publishers hope that users of the book will send in such queries, suggestions, and frank criticisms, as text use will provoke. These will be cordially received and utilized in the preparation of subsequent editions. Louis O. Bergh. New York City, January 15, 1920. CONTENTS Part I— The Law o£ the Land Chapter Pace I Evolution of Law 3 § I. Definition 2. The Origin of Law 3. Law and Liberty 4. Sources of Law II The Written Law 7 § S. Definition 6. Constitutional Government 7. The United States Constitution 8. Laws of Congress 9. State Constitutions 10. Legislative Enactments 11. Subsidiary Laws III The Unwritten Law 11 § 12. Definition 13. The Doctrine of Precedents 14. Court Reports 15. The Volumes of Reports 16. The Common Law IV Law and Equity 15 § 17. Remedial Law 18. Equity in the Legal Sense 19. Suits at Law and in Equity 20. Bringing a Suit at Law 21. Trial at Law 22. Bringing a Suit in Equity 23. Appeals to a Higher Court V Criminal Law 24 §24. Criminal Procedure 25. Classes of Illegal Actions 26. Penalties viii CONTENTS Part II— Contracts Chapter Page VI Essential Features of a Contract 29 § 27. Agreements and Contracts 28. Definition of Contract 29. Essential Features VII Agreement of the Parties 3^ §30. Mutual Assent 31. Acceptance Must Be Unqualified 32. Acceptance by Mail or Telegraph 33. Withdrawal of Offer 34. Time of Acceptance 35. Termination of Offer 36. Options Zl. The Parties Must Intend a Contract VIII Competency of the Parties 39 § 38. Who Are Competent to Contract 39. Minors 40. The Minor's Liability for Necessaries 41. Insane Persons 42. Married Women 43. Corporations IX Consideration 45 §44. Definition of Consideration 45. Consideration Involves a Request 46. Consideration Need Not Have any Material Value 47. A Promise Without a Consideration Is Not Bind- ing 48. The Consideration of Love and Affection Is In- sufficient 49. A Moral Obligation Does Not Constitute a Con- sideration 50. Adequacy of Consideration 51. Seal as Consideration 52. Carrying Out a Legal Duty Is Not a Considera- tion 53. Past Consideration 54. An Executed Agreement Lacking Consideration Will Not Be Set Aside X Legality of Subject Matter 53 §55. The Subject Matter of Contracts 56. Illegal Agreements 57. Agreement Contrary to Public Policy 58. The Law of Place 59. Effect of Agreements that Are Illegal or Con- trary to Public Policy CONTENTS IX Chapter Page XI How Contracts Are Made 59 § 60. Oral Contracts 61. Written Contracts 62. The Statute of Frauds in General 63. Memorandum Required by Statute of Frauds 64. Contracts Covered by the Statute of Frauds 65. Contracts under Seal 66. Implied Contracts 67. Quasi-Contracts XII Effect of Contracts 65 §68. Effect of Mistakes 69. Signing. Without Reading 70. Mistakes of Expression 71. Mistake as to Parties 72. Mistake as to Price, or Quantity 73. Mistake as to Quality 74. Effect of Fraud 75. What Constitutes Fraud 76. Specious Schemes JT. Duress 78. Undue Influence 79. Law as to Alterations 80. Filling in a Contract 81. Interpretation of Contracts XIII Assignment and Novation 76 § 82. Assignment of Contracts 83. Form of Assignment 84. Liabilities of the Assignee 85. Rights of the Assignee 86. Notice of Assignment 87. Novation XIV Discharge of Contracts 80 §88. How Contracts Are Discharged 89. Discharge by Performance 90. Discharge by Breach 91. Discharge by Agreement 92. Discharge by Bankruptcy 93. Discharge by Impossibility of Performance XV Tender of Payment or Performance .... 86 § 94. Definition 95. Time to Tender Performance 96. Extent and Kind of Tender 97. Acceptance of Tender Chapter XVI CONTENTS Enforcement of Contracts § 98. Breach of Contract 99. Failure to Perform 100. Refusal to Perform loi. Making Performance Impossible 102. Remedies for Breach of Contract 103. Separable and Entire Contracts 104. Recovery for Part Performance IDS. Specific Performance 106. Rules of Evidence 107. Statute of Limitations Page • 89 XVII Damages 98 § 108. When Damages Are Allowed log. Damages Are Allowed for a Certain but Not a Speculative Loss no. Damages Are Allowed Only for the Natural and Immediate Consequences of the Breach of Contract 111. Damages Are Allowed Only for Results that Were Understood by the Parties as the Prob- able Results of a Breach 112. Damages Must Be Reduced as Much as Pos- sible Part III— Sales XVIII The Sales Contract 107 § 113. Uniform Sales Act 114. Difference Between a Sale and a Contract to Sell 115. Importance of Distinction 116. Price 117. Existence of Subject Matter 118. Destruction of Subject Matter XIX Passing the Title 113 §119. Importance of Selection 120. Exceptions to Rule of Selection— Goods in Mass 121. Exception to Rule of Selection— Appropriation of Goods to the Contract 122. The Intention of the Parties 123. Delivery 124. Importance of Shipping Terms 125. Sales Without Delivery 126. Conditional Sales 127. State Laws on Conditional Sales 128. Effect of Conditional Sale CONTENTS XI Chapter XX The Statute of Frauds § 129. When the Contract of Sale Must Be in Writing 130. Exception for Part Payment 131. Exception for Part Delivery 132. Sales for Amounts Below Specified Value 133. Exception for Work or Services Page . 12\ XXI Warranties 125 § 134. Definition 135. Express Warranties 136. Conditions 137. Implied Warranties of Ownership 138. Implied Warranties of Quality XXII Remedies 131 § 139. Rights of Unpaid Seller Under the Contract 140. Rights of Buyer XXIII Sales at Auction 137 § 141. Regulations for Sales at Auction 142. Compliance with Conditions 143. Duties of Auctioneer Part IV — Agency XXIV Principles of Agency 141 § 144. Subject of Agency Is Important 145. Definitions 146. The Principal 147. The Agent 148. General Agents 149. Special Agents 150. Del Credere Agents 151. Contracts Under Seal 152. Interpretation of Contract 153. Servants and Employees 154. Independent Contractors XXV The Contract of Agency 149 ( 155. Appointment 156. Express Appointment 157. Implied Appointment 158. Ratification 159. Appointment of Subagents 160. Void Contracts of Agency Xll CONTENTS Chapter XXVI Page • I5S The Principal § i6i. Principal's Duty to Agent 162. Principal's Duty to Third Party 163. Principal's Liability for Wrongs Done by Agent 164. Undisclosed Principal 165. Employer's Duty to Protect Employees XXVII The Agent 162 § 166. Agent's Duty to Principal 167. Agent's Obedience 168. Agent's Good Faith 169. The Agent Must Be of Good Habits 170. Agent's Care, Skill, and Diligence 171. Agent's Duty to Third Party 172. Limitation of Agent's Authority 173. Agent's Fraudulent Conduct 174. Agent's Liability XXVIII The Third Party 171 § 175. Third Party's Relation to Agent 176. Third Party's Relation to the Principal XXIX Termination of Agency 174 § 177. Termination by Fulfilment 178. Termination by Either Party 179. Termination by Disability 180. An Agent Coupled with an Interest Part V — Negotiable Instruments XXX Form and Interpretation .... 181 § 181. The Quality of Negotiability 182. Instrument Must Be Written and Signed 183. Certainty as to Amount 184. Promise to be Unconditional 185. Certain Future Time 186. Payable to Order or to Bearer 187. Allowable Provisions 188. Non-Essentials 189. Supplying Omissions igo. Forgery 191. The Promissory Note 192. Draft or Bill of Exchange 193. The Check 194. Terms 195. Consideration 196. Liability of Accommodation Signer 197. Delivery 198. Rules of Construction CONTENTS Chapter XXXI Negotiation § 199. Methods of Negotiation 200. Blank and Special Indorsements 201. Restrictive Indorsement 202. Qualified and Restrictive Indorsements 203. Effect of Indorsement XUl Page . 192 XXXII Rights of Holder 197 § 204. Holder in Due Course 205. Rights of a Holder in Due Course 206. Rights of One Who Is Not a Holder XXXIII Liability of Parties 200 § 207. Defenses 208. Liability of Maker 209. Liability of Drawer and Acceptor 210. Liability of Indorser 211. Liability When Negotiation Is by Qualified In- dorsement or by Delivery Only XXXIV Presentment for Payment 204 §212. Necessity of Presentment 213. Requirements for Presentment 214. Presentment Excused 215. When Due XXXV Notice of Dishonor 207 §216. Necessity of Notice 217. Effect of Notice 218. Form of Notice 219. Time of Notice 220. Where to Send Notice 221. When Notice Is Not Required 222. Protest XXXVI Bills of Exchange 210 § 223. Definition 224. The Drawee 225. Acceptance 226. Presentment for Acceptance 227. Protest for Non-Acceptance 228. Notes and Checks Part VI — Partnership XXXVII The Essentials of a Partnership 217 §229. Definition 230. Partnerships Distinguished from Non-Partner- ship Organizations XIV CONTENTS Chapter XXXVIII Page . 221 The Contract of Partnership § 231. Parties 232. Kinds of Partners 233. Partnership Contracts 234. The Firm Name 235. Partnership a Personal Relation 236. Classification of Partnerships XXXIX Partnership Property 229 §237. Nature of Partnership Property 238. Liability of Partnership Property for Debts 239. Profits XL Powers and Liabilities of Partners 234 § 240. Powers of Partners 241. Liabilities to Copartners 242. Liabilities to Third Persons XLI Termination of Partnership 238 §243. Termination by Agreement 244. Enforced Dissolution 245. Winding Up the Business Part VII — Corporations XLII Nature of Corporations 245 251- 252. 253- 254- 255- §246. Corporate Entity 247. Classification 248. Corporations Without Capital Stock 249. Corporations With Capital Stock 250. Distinctive Features (i) Creation by the State (2) Limited Powers (3) Limited Liability (4) Legal Entity of Corporation (5) Permanence 256. (6) Stock System 257. (7) Corporate Mechanism 258. (8) Attractiveness to Investors XLIII The Charter 251 § 259. Definition — Synonyms 260. Charter Powers — General 261. (i) To Sue and Be Sued 262. (2) To Use a Seal 263. (3) To Buy, Sell, and Hold Property 264. (4) To Appoint Directors, Officers, and Agents CONTENTS Chapter XV Page 265. (s) To Make By-Laws 266. (6) To Dissolve Itself 267. (7) To Do All Things Necessary 268. Charter Powers — Special 269. Things Ultra Vires 270. Amendment of Charter XLIV Incorporation 256 § 271. Application for Incorporation 2^2. Incorporators 273. Name of Corporation 274. Purposes 275. Capitalization 276. Shares 2^^. Location 278. Durationi 279. Execution of Certificate XLV Stock 260 §280. Capital Stock 281. Stock Certificates 282. Capital Stock Versus Capital 283. Unissued and Issued Stock 284. Full-Paid Stock 285. No Par Value Stock 286. Common Stock 287. Preferred Stock 288. Treasury Stock 289. Transfer of Stock XLVI Stockholders and Their Meetings . . ' . . . 266 § 290. What Constitutes a Stockholder 291. Rights of Stockholders 292. Powers of Stockholders 293. Liabilities of Stockholders 294. Stockholders' Meetings 295. Voting 296. Proxies XL VII Directors and Their Meetings 270 §297. Status and Functions of Directors 298. Number and Authority 299. Liabilities 300. Qualifications 301. Meetings 302. Election of Officers 303. Dividends 304. Execution of Contracts XVI CONTENTS Chapter XLVIII Part VIII — Insurance Fire Insurance §305. The Contract of Insurance 306. Nature of the Contract 307. The Parties 308. Agents 309. The Policy 310. The Property Insured 311. Warranties and False Representations Page • 275 XLIX Life Insurance 281 §312. Nature of Contract 313. Insurable Interest 314. The Parties 3x5. The Policy 316. Premium Rates 317. Right to Change Beneficiary 318. Assignment of Policy 319. Settlement of Losses L Sundry Insurance Contracts 286 § 320. Enumeration 321. Marine Insurance 322. General Average 323. Accident Insurance 324. Health Insurance 325. Liability Insurance 326. Burglary Insurance 327. Title Insurance 328. Sundry Insurance Contracts Part IX — Personal Property LI Characteristics of Personal Property §329. Personal Property Defined 330. Real Property^ Defined 331. Questionable Cases 332. Fixtures . 295 LII Title to Personal Property 298 §333- Original Title 334. Derived Title 335. Accession 336. Confusion 337. Kinds of Ownership Chapter LIII CONTENTS Transfer of Title to Personal Property xvu Page • 301 §338. Gift 339. Sale 340. Chattel Mortgage 341. Pledge Part X — Real Property LIV Nature of Real Property . 307 § 342. Definition 343. Estates in Real Property 344. Remainders and Reversions 345. Dower and Curtesy 346. Easements 347. Joint Tenancies and Tenancies in Common 348. Trusts LV Title to Real Property 312 § 349. Original Title 350. Acquired Title LVI Transfer of Real Property 314 § 351. Conveyance of Real Property 352. Record of Deeds 353. Restrictions in Deeds 354. Searching Title 355. Mortgage of Real Property 356. Foreclosure 357. Kinds of Mortgages 358. Lease of Real Property Part XI— Suretyship LVII The Contract of Suretyship . 325 § 359- Definition 360. Nature of Contract 361. Written Contract 362. Parties 363. Consideration 364. Delivery and Acceptance LVIII Rights of Surety 330 §365. Notice 366. Reimbursement 367. Extension of Time 368. ' Subrogation xviii CONTENTS Chapter Page 369. Contribution 370. Defenses 371. Discharge Part XII — Bankruptcy LIX Enforcing Payment of Debts 337 §372. When the Creditor Has Some Security for the Debt 373. Where There Is No Security for the Debt 374. Attempts to Defraud Creditor 375. Bankruptcy 376. Persons Who May Bring Bankruptcy Proceed- ings Zn. Persons Who May Become Involuntary Bank- rupts LX Bankruptcy Proceedings 341 § 378. Voluntary Bankruptcy 379. Involuntary Bankruptcy 380. Acts of Bankruptcy LXI Bankruptcy Proceedings (Continued) .... 345 § 381. How Bankruptcy Proceedings Are Instituted 382. Composition With Creditors 383. Rights and Duties of Receiver 384. Rights and Duties of Trustee 385. Rights and Duties of Bankrupts in Bankruptcy Proceedings 386. What Debts Remain Undischarged Appendix A — Forms Contract Forms 353 Form 1. Simple Contract 2. Contract by Letter 3. Unilateral Contract 4. Formal Contract 5. Assignment of Contract — Indorsement Form Sales Contracts 356 Form 6. Memorandum of Sale 7. Contract of Sale by Letter 8. Conditional Sales Contract 9. Guaranty Contract by Letter 10. Bill of Sale — Personal 11. Contract of Warranty CONTENTS XIX Page Agency Forms 359 Form 12. Appointment of Special Agent 13. Appointment of General Agent 14. Power of Attorney 15. Proxy — Simple Form Negotiable Instruments 361 Form 16. Check by Individual 17. Corporate Check 18. Indorsement of Corporate Check 19. Note by Individual 20. Corporate Note — By President 21. Sight Draft Partnership Forms ^ . 363 Form 22. Articles of Copartnership Corporate Organization Forms 364 Form 23. Subscription List 24. Stock Certificate — Common Stock 25. Assignment of Stock Certificate 26. Certificate of Incorporation — New York Real and Personal Property . . • 368 Form 27. Chattel Mortgage 28. Lease 29. Deed with Full Covenants 30. Real Estate Mortgage Sundry Forms 37^ Form 31. General Release Appendix B — Cases Business Law PART I THE LAW OF THE LAND CHAPTER I EVOLUTION OF LAW §1. Definition — The English word "law" has a variety of meanings. We talk loosely of the law of gravitation, civil law, common law, written law, ecclesiastical law, the laws of health, the laws of God, etc., etc. For the sake of clearness it is necessary in this book to limit the word to those rules of action and conduct which regulate our relations with our fellow-men. The legal definition of law is " a rule of action prescribed by the supreme authority," and to that is usually added, " com- manding that which is right and prohibiting that which is wrong." This last part of the definition must always be quali- fied by the explanation that the words " right " and " wrong " in this connection are to be construed as legally right and legally wrong. In rare cases what is legally right may be morally wrong, and at other times what is legally wrong may be morally right. §2. The Origin of Law — It is impossible to imagine any state of society without some law, that is, some " rule of action." A solitary man in an uninhabited country might be said to be without law, but as soon as one other human being came into any relation with him certain rules and customs would grow up to regulate their mutual rights, and these would soon have the form and the force of law. Children in their play have rules and customs to govern their actions. Among the students of every college there is a curiously com- plex system of rules and customs, rigidly enforced, which defines the rights and the duties of the different classmen and their relations to others in the college. 3 4 THE LAW OF THE LAND A simple people living in a sparsely settled country could get along with a minimum of law, but a highly organized people living in a densely populated country requires many laws. §3. Law and Liberty. — Laws are a necessary evil incident to social existence. Every law and every rule subtracts from the individual's previous liberty of action and circumscribes his freedom. On the other hand, the advantages of social life and achievement are great; therefore the maJ9rity of mankind are willing to pay the price, which is submission to law. The trouble comes from the fractious few who, while they enjoy the advantages of living in a civilized community, are not willing to pay the price, and who seek to evade the laws which are obeyed by others and which alone make the civilized community possible. §4. Sources of Law — The beginnings of our legal system go back to the early history of our country when the colonists from England first established courts, and decided the cases that came up according to the principles of the law of Eng- land as it existed at that time — that is, they utilized as much as was applicable to conditions prevailing in the colonies. This law was principally the famous " common law " of Eng- land that had grown up through the centuries. Most of the colonies had been established under charters — instruments which served as our written constitutions do now. To the common law were added the enactments of the colonial legislatures that had been established in each colony. The power of these colonial legislatures was limited by the pro- visions of the charter under which the particular colony existed. After the Revolution, when the Federal Constitution was adopted, its authority became supreme, and as each state joined the new nation the local governments were shaped according EVOLUTION OF LAW 5 to the basic principles of the Federal Constitution. The com- mon law, the state constitutions and charters, and the enact- ments of state legislatures, all gave way on any point that conflicted with the Federal Constitution. This subject is treated more fully in the two succeeding chapters. In order of time the origins of our law may be classified as follows : 1. Common law 2. Colonial charters 3. Laws passed by colonial legislatures 4. Articles of Confederation 5. Constitution of the United States, constitutions of the several states, laws of Congress, laws of state legis- latures In order of authority our existing law may be classified as follows : 1. Constitution of the United States 2. Laws of Congress 3. Constitutions of the states 4. Laws of the state legislatures 5. The common law Review Questions 1. Give the legal definition of "law." 2. What do you understand by "the supreme authority" in the definition of law? 3. Give two reasons for obeying the law of the land. 4. Does willingness to incur the penalty justify disobedience of the law? What of speeding a motor car? 5. What is the origin of law? 6. What is the effect of an increasing population and an advancing civilization on the volume of law? 7. How do laws limit individual liberty? 6 THE LAW OF THE LAND 8. Give five instances where you have felt the restriction of the law on your freedom of action. 9. Why are we willing to submit to law and lose our freedom to do as we choose? 10. What would be the condition of a community without any law? 11. What is the source of the earliest forms of law in this country? 12. Name in order of time the different origins of law in this country. 13. Name in order of authority the various existing sources of law in this country. 14. What do you understand by an " unconstitutional law " ? CHAPTER II THE WRITTEN LAW §5. Definition — The technical term " written law " means law that is embodied in constitutions and in acts of Congress, of state legislatures, and of other bodies with legislative au- thority. In many countries all the governing law is this so- called "written law." Napoleon, who had a better title to fame in the code of laws to which his name is attached than in all his conquests, called together the persons most learned in law to reduce into one orderly compact body all the varying laws at that time prevailing in France. The " Code Napo- leon " which was the result has from that time to the present day been the major law of France and is what we call " writ- ten law." No similar codification of all existing laws has ever been attempted in the United States, and our so-called " written law " is only a part of the body of law by which we are governed. §6. Constitutional Government — Nevertheless in our country the written constitution is the basis of all law. This is true of the United States as a whole and also of each sep- arate state. A written constitution is the fundamental law on which all other laws are based and to which they are all subject. A constitution has been explained as that written instrument which defines the powers of government and limits the exercise of those powers for the protection of individual rights. The power of Congress is derived from the Constitu- tion of the United States. Each state legislature has only the power granted by the state constitution. " Congress can pass no laws but such as the Constitution authorizes expressly or by clear implication." 7 8 THE LAW OF THE LAND §7. The United States Constitution. — The Constitution of the United States is the highest authority in the United States. Any federal or state law that contravenes it will be declared unconstitutional and invalid by the courts. §8. Laws of Congress. — Next in rank to the United States Constitution come laws enacted by Congress in pursuance of the powers enumerated in the Constitution. The legislative power of Congress, as noted above, is limited to specific ob- jects enumerated in the Constitution. For example, Congress has the power to " regulate commerce with foreign nations and among the several states and with Indian Tribes." By virtue of this clause it has passed the Interstate Commerce Commission Act, the Anti-Trust Law, The Trade Commission Act, and other important legislation relevant to commerce " among the states," i.e., interstate commerce. On the other hand, it has no legislative power in regard to intrastate com- merce, i.e., commerce entirely within one state. Whenever Congress acts under a constitutional grant of power, the states are excluded from legislation on that subject. For instance, Congress has power to pass " uniform laws on the subject of bankruptcy," and when the present bankruptcy law was passed in 1898 it at once nullified all the existing state laws on the subject of insolvency. Laws passed by Congress in pursuance of its constitutional powers are superior to state constitutions and state laws. §9. State Constitutions — At the time of the adoption of the National Constitution, each of the thirteen original states was exercising the powers of government under some form of written constitution. These instruments remained in ef- fect, except in those particulars which were overruled by the Constitution of the United States. The newer states have adopted constitutions, and before the states were admitted it THE WRITTEN LAW 9 was necessary for Congress to accept the proposed constitu- tions. But within the limits of each particular state the state constitution is supreme. The state legislature cannot enact a law which goes counter to any of the provisions of the state constitution. §10. Legislative Enactments. — Next in dignity and au- thority to the state constitutions come the laws or acts of the separate state legislatures, so far as they conform to the Constitution of the United States and the constitution of the particular state. Below state laws in dignity come the ordi- nances or laws of boards of aldermen and common councils in towns and cities. The law from all of these different sources — constitutions, laws of Congress, laws of legislatures, and ordinances of municipal governments — may be said to make up the body of what is called the " written law," in contradistinction to what we call the " unwritten law " which is discussed in the next chapter. §11. Subsidiary 'Laws. — In late years there has come into existence an immense additional body of written law consist- ing of the rules and regulations issued by boards of health, building boards, school authorities, and various bureaus and commissions. For instance, the Interstate Commerce Com- mission is empowered by Congress under the Federal Consti- tution to regulate certain specific matters. Moreover, the dif- ferent transportation companies and the other corporations operating public utilities have the right to make reasonable regulations for the government of those using their facilities. Thus, in the aggregate, the " written " or " statutory " law comprises a vast number of legal and semilegal enactments, from articles of the Constitution down to the rules of the trustees of the smallest school district. lO THE LAW OF THE LAND Review Questions 1. What is the characteristic feature of written law? 2. What do you understand by a " constitutional government " ? 3. Does a constitution have to be written? 4. Why does not New York City have a constitution ? 5. Why does the state of New York have a constitution ? 6. Why is it difficult to discard an existing constitution? 7. What is the highest source of law in the United States ? 8. Where does Congress get its powers to make law? 9. Why could not Congress pass a law to regulate the open season for deer in the state of Maine? 10. Name some congressional laws passed within recent years. 11. What is the effect of a state constitution? 12. What laws are superior to a state constitution? 13. Name some laws passed by the legislature of your own state. 14. What other local laws of less dignity are found in your state? 15. Is it necessary to have as many sources of law as we have? Give a reason for your answer. 16. At the time of the Revolution did they have so many laws as we have now? 17. Will there be more or fewer laws fifty years from now? Give a reason for your answer. CHAPTER III THE UNWRITTEN LAW §12. Definition — To the layman, perhaps, the term "un- written law " is somewhat misleading. It is called unwritten law because there was a time when it was not written. As soon as men commenced to live in communities they found it necessary to conduct their intercourse and dealings according to rules, and these customs or uniform methods of doing things are supposed to be the foundation of what is now called the " common " or " unwritten law." For instance, when ve- hicles meet it is the custom in this country to turn to the right. This custom is not the enactment of any legislature, and yet it is practically a law, for if anyone driving a vehicle failed to observe it he would be liable for any damage that resulted in consequence. It might be possible to find cases where this particular matter had come up and received the ratification of a court decision, but in such cases the court did not make either the custom or the law; it merely recognized that the custom was general and hence had the force of law. That is, the court recognizes the custom as law because men have acted in one way until that way has become a rule of action; the court is bound by it although there is no written record. When so recognized by a court, it would be placed upon the court records and so would actually be written doivn, yet it is still called " unwritten law " because it is based on the earlier un- written custom instead of upon legislative enactment. Law- yers distinguish these classes as lex scripta (written law) and lex non scripta (unwritten law). §13. The Doctrine of Precedents — The courts do more than record customs; they create law by decisions that then II 12 THE LAW OF THE LAND become precedents. In primitive days when men had differ- ences of opinion they would get someone older and sup- posedly wiser than the rest, to arbitrate or decide the matter. When a given matter had once been decided in a certain way, the inhabitants of the country would shape their conduct ac- cording to this decision; it would be a precedent for future action and future decisions and in this way would become part of the unwritten law. Gradually, as civilization increased and these precedents accumulated, a " body " of unwritten law grew up, founded partly on customs and partly on precedents established by the courts. Moreover, if a question came before one of these early courts and no custom could be found on which to base the decision and no precedent to guide it, the judge would decide according to his ideas of right and justice and thus would add a new item to the sum of this unwritten law, which in turn would become a precedent for later cases like it. England has been eulogized by its poet laureate as : A land of settled government, A land of old and fair renown. Where Freedom broadens slowly down, From precedent to precedent. §14. Court Reports — :In the old days when writing was a rare accomplishment, individual lawyers used to make their own notes of cases in what were called " Common-Place Books," which they would use as authorities when similar cases were tried. In this way there grew up the custom of making court reports. Today the decisions of the courts are most carefully recorded and published, and the court reports are the greatest repositories of this so-called " unwritten law." §15. The Volumes of Reports. — The difficulty in our coun- try at the present time is that we have over forty-eight dif- THE UNWRITTEN LAW 13 ferent and independent systems of courts, all grinding out decisions, which are recorded and published in long rows of volumes. In the first place the number of reports has become so great that it is impossible for even the most industrious lawyer to keep up with them. The existing law reports of this country fill thousands of volumes, and every year they are growing in number and complexity. In the second place, there are forty-eight separate jurisdictions, the decisions do not always harmonize, and then occurs a conflict of laws. §16. The Common Law — This unwritten law was also called, as has been said, the " common law," and old-school lawyers were fond of extolling it as the perfection of human wisdom. When this country broke away from England at the time of the Revolution we retained the English common law, and it became the foundation of the general system of law prevailing throughout most of this country. In Louisiana, however, and to a certain extent in Texas and California, the so-called Roman or " civil law " was introduced and became largely the foundation for the systems of law in those states. This system, based on the old Roman law, prevails in Italy, France, and other Latin countries in Europe and is utilized by the Teutonic peoples as well. The term " unwritten law " covers a wider field than " com- mon law." Therefore it is used in this work to designate the law that is contained in the reports of the courts. Review Questions 1. Mention some instance where a custom has become a law. 2. When a custom is recognized by a court, and its decision isi re- corded, what is the effect? 3. Is it better for courts to decide cases on precedents, or to decide each case as it comes up on its merits ? Give reasons for answer. 4. What are court reports? What is a court decisiion? 14 THE LAW OF THE LAND 5. Why is there such a multiplicity of reports? 6. How do legislatures set aside judicial precedents? 7- Where do we get our common law? 8. What country's laws are most nearly equivalent to ours ? CHAPTER IV LAW AND EQUITY §17. Remedial Law. — ^When anyone has suffered wrong and his legal rights have been infringed, he seeks a remedy. The law itself may be ideal, but if the machinery to enforce the rights defined by the law be defective, abstract perfection will avail but little. Therefore a study of what is called remedial law is necessary before we can tell what real help we are likely to obtain from the law. The " law's delay " is proverbial. In all matters of judicial procedure there has always been a tendency to formality and " red tape." Too often this tendency becomes so excessive that it nullifies the remedy and results in a denial of justice. The remedy may be so costly and long deferred that it were better left unsought. The man with limited means is too often, on this account, barred from seeking justice. Suits or actions to redress wrongs or to enforce rights are classified as suits at law and suits in equity. It is not easy to explain briefly the distinction between " law " and " equity " as they are used in our administration of justice. The two words are used in this connection without any reference to the ordinary meaning attached to them. A real, technical distinc- tion exists between a case at law and a case in equity which a lawyer must thoroughly understand. Whether it would pay a business man to study out the exact and full distinction between the two is doubtful. But, as it is impossible for a lawyer to avoid using the terms in their technical sense, it is important that the layman should have a general idea of what the lawyer means, so that the plain man may not be misled by confusing the ordinary English use of the words with the legal signification. IS l6 THE LAW OF THE LAND §i8. Equity in the Legal Sense — In England many years ago the proceedings at law had become so cumbersome and so limited in scope that it was difficult to obtain justice in the courts of common law. King Henry VII then provided that in those cases in which the common law did not afford a rem- edy, relief could be obtained by applying directly to his chancel- lor. This official, who was also a dignitary of the church, favored the Roman or civil law and adopted a procedure founded on that law in contradistinction to the common law. Such a procedure before the chancellor was called a suit in " chancery " or " equity," as distinguished from the procedure " at common law " or simply " at law." It should be noted, however, that while at first it was simpler to bring a suit in equity than at law, this distinction soon vanished and equity proceedings became even more complex and technical than the procedure at law. The chancellor, however, gave relief in many cases for which the common law gave no remedy. The common law was adapted to a simple life and a crude social system. As the English people advanced the deficiencies of the common law were manifest and the introduction of the courts of equity was a long step in legal reform. The two distinct systems both continued, the procedure was dif- ferent, the rules were different, and the relief given was different. In equity the remedies are different from those provided by a suit at law. To illustrate the difference : If anyone breaks down your fences and makes a road across your property, at law you can sue for damages ; in equity you can ask an in- junction restraining the offender from further trespass. §19. Suits at Law and in Equity. — The distinction between law and equity was brought to this country and still survives so that today we have this division of the work of the courts and the two methods of bringing suit. In a few states the LAW AND EQUITY 17 law and equity courts are kept entirely separate, as is the case in New Jersey; and in these states the public realizes more readily the real difference between law and equity administra- tion. But in most states today, the actions are brought in the same courts, the only difference being in the preliminary procedure, the remedies which the courts grant, ai^d in the fact that in most cases at law there is a jury trial, while in equity cases a judge or judges alone hear the case. §20. Bringing a Suit at Law — When A refuses to pay a debt that is due, or fails to do what he has contracted to do, or by his negligence or wrong-doing has caused damage to B, if B wishes to bring suit against A he employs a lawyer who prepares a written statement setting forth his client's cause of action. This paper is called a " complaint " and must be served upon A. At the same time with or before the service of the complaint, B must serve a notice or summons on A requiring him to answer within a certain number of days. If A does not appear, the court will consider that A does not mean to defend and, usually, if the claim is definite, will grant a judgment by default against A and in favor of B, without a trial or anything more than a sworn complaint to prove the case. If the claim is indefinite, there will be a one-sided trial, in vvhich B will have to present his evidence perfunctorily, but he will not be cross-examined or contradicted by opposing witnesses. The party bringing the action is called the " plaintiff," in some states the " complainant." The party against whom the action is brought is called the " defendant." The written papers by which the parties bring their cause before the court are called " pleadings." If the defendant does not wish to allow judgment to go against him by default, he or his lawyer must within the time set serve an answer to the other party's complaint upon him. In this paper the defendant may l8 THE LAW OF THE LAND bring forward any cause of action which he may have against the other party. This is called a " counterclaim." If the de- fendant denies the facts alleged or sets up a counterclaim, the pleading is called an " answer." If what has been stated in the complaint does not make a legal cause of action, the defendant through his lawyer may object to it by filing a demurrer. A demurrer objects to the complaint on legal grounds ; for example, that it is not brought in the right court, or that the facts alleged, even if true, do not constitute a cause of action. Then the matter of the demurrer comes up before the court. It is argued by the lawyers on each side, and if the court de- cides that the demurrer presented by the defendant is well taken, the complaint is dismissed. The plaintiff can then usu- ally get leave (by paying the costs up to date) to file a new complaint in which his lawyer will try to avoid the particular legal difficulty. If the court decides, however, that the demurrer is not well taken, it is dismissed, and this leaves the defendant to answer the complaint as to the facts, that is, as to the matters which have been alleged on the part of the plaintifif and denied on the part of the defendant. §21. Trial at Law — ^When the parties have finally come to an issue, i.e., when the plaintifif has alleged certain things and the defendant has denied them or has interposed a de- fense, then the case is set down for trial, and takes its place on the court calendar. When the cases that are ahead of it on the calendar have been tried, or postponed, the case is called and the lawyers on each side are asked if they are ready. When both sides are ready, or have no excuse for longer de- lay, a jury is assembled and the judge proceeds with the case. In a court of law a party has a right to have a jury decide any disputed facts. LAW AND EQUITY 19 The witnesses for each side are sworn and testify, then the case is argued by counsel for each party and goes to a jury to decide or is decided by the judge, or is taken under advise- ment by the judge, who will give his decision after due con- sideration. If the case goes to a jury, the jurymen are placed in the custody of a court officer until they reach a decision or find that they cannot agree. If the judge is to decide the case and takes it under advisement, it may be days, weeks, or months before he will render his decision. Since a jury is composed of human beings, it is likely to show certain very human characteristics in its decisions. The sympathies of the jury are usually with the under dog, whether he is plaintiff or defendant. Often the plaintiff, by the mere fact of going to court with his troubles and then by being heard first, has the better chance. If one party is a corpora- tion, the jury is inclined to regard it as a soulless oppressor, and to award damages in favor of the poor workingman, widow, etc., whom the corporation is supposed to have injured. Very frequently clever and unscrupulous lawyers get in some touch to appeal to the sympathies of the jury, as a photo- graph of an injured man's wife and children, etc. These are usually ruled out by the court, but the effect on the jury has been gained just the same. It is to be remembered that if one man on the jury is stubborn, prejudiced, or dishonest, he can prevent a verdict and the whole expense and trouble of the trial has to be repeated. The law frequently breaks down in vindicating rights because of the imperfect workings of the jury system. §22. Bringing a Suit in Equity — The outline given applies to a court of law. If the court is a court of equity jurisdic- tion, the procedure is essentially the same except that the first statement may be called a petition or a bill in equity. In New 20 THE LAW OF THE LAND York, complaints are also used in equity. All court procedure follows the general lines explained in this chapter, but with many variations as to details and incidentals. In a suit in equity, only a judge, or several judges, hear the case. For this reason a court of equity is not so strict about keeping out evidence that does not properly have anything to do with the case, or that might prejudice a jury. The judge is supposed to know the law and to be guided only by such evi- dence as ought to be allowed to affect the decision of the case. A court of equity tries to give a remedy to fit the nature of the wrong that is being done. If the wrong consists in a refusal to perform a contract, the court will, in some instances where the contract should be performed, compel the offending party to carry out his agreement. (See Chapter XVI.) If the wrong alleged consists in the defendant's continuing to do anything which is injuring another, the court will issue what is called an injunction forbidding the continuance of the in- jurious conduct. Practically speaking, however, the courts are chary of granting an injunction where it may be avoided. It is useless to attempt to bring an action in equity unless the party is certain that he can prove to the court that the damages which he can obtain at law will not compensate him for his injury, and unless he is willing to do everything which the court may require from him in the interests of justice. The maxim is that he who seeks equity must do equity. Another maxim in equity is that he who comes into a court of equity must come with clean hands, i.e., if the complainant alleges fraud, he must show that he has been scrupulously fair in all his own dealings. If the party resorts to equity when he should have insti- tuted an action at law, he will merely find that he is obliged to go to the expense of bringing another action at law. The practice in equity is no less complicated than that at law. LAW AND EQUITY 21 §23, Appeals to a Higher Court.— The decision of a trial may be appealed from by the dissatisfied party. The most common grounds of appeal are the following : 1. That evidence was admitted which should have been shut out. 2. That evidence was rejected which should have been admitted. 3. That questions were allowed which should have been barred. 4. That questions were disallowed which should have been allowed. 5. That the judge charged the jury in a way he should not have charged it. 6. That the judge refused to charge the jury as requested and as he should have charged it. 7. That the verdict was excessive or inadequate or not supported by the evidence. The appeal is a costly and complicated proceeding. All of the papers and much, in some cases all, of the evidence must be printed. Then the arguments, ironically termed " briefs," of each of the opposing counsels, are printed. After more delay and often much sparring of counsel over points of procedure, the case will take its place on an appeal docket and in due course will be reached by the appellate court. Next the case is heard, which means that counsel for both sides ap- pear and argue the case on appeal. Finally the court takes it under consideration and if a new trial is granted it must be tried again in the original court. Suggestions for Students Each student is advised to attend the trial of a civil case before a magistrate in his vicinity. This is the court where suits for small 22 THE LAW OF THE LAND sums are brought; its procedure is simpler and a suit is completed in less time than in a court of more extended powers. Note the whole procedure from the time the case is called until the decision is rendered. Such a suit is typical of all Anglo-Saxon courts. Note the function of the magistrate, the counsel, the con- stable, marshal, or other officer of the court. Note how witnesses are called, sworn, examined, and cross-examined. Note the argu- ments of counsel, and how they impress you. Then answer these questions. 1. After hearing the witnesses, how would you have decided the case? 2. After hearing the lawyers argue, would you have decided otherwise ? 3. Do you think the actual decision was just? Give reasons. 4. Allowing fair rates of payment for men of the ability engaged in the trial, and for the time of the judge, marshal, parties, lawyers, and witnesses, how much did the trial cost the community? What was the amount involved in the litigation ? Was the suit so witnessed a fair average as to time, number in attendance, etc. ? 5. Could you devise any better system of settling disagreements between men? Review Questions 1. Does punishing a thief help the man who has been robbed? 2. If a man has been defrauded what relief should the law give? What hinders this relief? 3. What was your idea of the technical distinction between " law " and " equity " before reading this chapter? What is it now? 4. What was the origin of the distinction between courts of equity and courts of law? 5. Why does not this distinction exist in countries other than those speaking English? 6. What is " procedure " and what is " remedy," as the words are used by lawyers? 7. What are the most obvious differences between legal and equitable practice in this country? 8. What is the difference between a civil and a criminal case ? 9. When will an injunction be granted? Is it a legal or an equitable remedy ? LAW AND EQUITY 23 10. Outline the procedure in bringing a suit at law. 11. Define "complaint," "answer," and "demurrer." 12. What is meant by " being at issue " ? 13. When has a party a right to a jury? 14. Does the majority rule in a jury? 15. Why are the verdicts of juries liable to be unsatisfactory? 16. Why should a lawsuit be avoided when possible? 17. When is a suit in equity brought? 18. Can either party have a jury trial? 19. What does " He who seeks equity must do equity," mean ? 20. Mention some circumstances that entitle a defeated litigant to appeal. 21. Why are appeals costly? 22. Why do corporations and wealthy people have an advantage in litigation ? CHAPTER V CRIMINAL LAW §24. Criminal Procedure. — Criminal law is administered in a manner different from the usual procedure at law and in equity. The state prosecutes for crime, and, while the accused person is called the defendant, there is no plaintiff save the state. The designation of a criminal case might be : " State of Ohio V. John Doe (name of accused)." In the different states there is more or less variation in the administration of criminal law. Criminal prosecutions are usually instituted by a warrant sworn to by the aggrieved party before a magistrate. The magistrate then summons the accused person to appear or issues a warrant for his arrest. In minor cases the magistrate tries the person, or in some instances the accused may demand a trial by jury. Where the offense is serious, the magistrate has only jurisdiction to commit the accused to await the action of the grand jury. In most cases the accused person is al- lowed to give bail for his appearance when the grand jury meets. Serious crimes must always be prosecuted by indictment, i.e., a written accusation authorized by a grand jury. The grand jury consists of twenty-three men and is convened from time to time in each county to investigate any charges of crime that may be brought before it. Proceedings before a grand jury are, of course, ex parte, i.e., only one side is heard. These proceedings are under the supervision of the legal rep- resentative of the state, the prosecuting attorney. The object of the grand jury investigation is to ascertain what persons should be tried before a trial jury and whether the evidence against people accused of crime is sufficient to justify the state 34 CRIMINAL LAW 25 in prosecuting them. If an indictment is found and the per- son has not been arrested, the authorities try to arrest him. The names of all who are indicted are placed on a criminal docket to await trial before a trial jury. The grand jury sys- tem is painfully cumbrous, and has been abolished in some states. §25. Classes of Illegal Actions — Offenses against the criminal law are divided into two classes: felonies and mis- demeanors, according to the degree of the offense. A felony is a grave offense, punishable by heavy penalties. A misdemeanor is a lighter breach of the law and is punishable by lesser penalties. Burglary — the breaking into a house to steal or to commit some other crime therein — is' a felony and is punished by confinement in a penitentiary. Driving an automobile too fast is a misdemeanor and may be punished by a fine or confine- ment in the county jail. §26. Penalties. — The penalties for violation of the criminal law are fines, imprisonment, and, for a few offenses, death. In this country the Constitution of the United States prohibits banishment and forbids cruel and unusual punishments. Review Questions 1. Why does the state act as plaintiff in criminal cases? 2. Outline the usual criminal procedure. 3. What is the most obvious defect of our criminal procedure? 4. What can be done to improve criminal procedure ? 5. What is the difference between a felony and a misdemeanor? Give an example of each. 6. How is the criminal law enforced? 7. What is the primary object of legal penalties for crime: (i) jus-. tice, (2) prevention of crime, or (3) the reformation of the criminal? What should be the object? PART II CONTRACTS CHAPTER VI ESSENTIAL FEATURES OF A CONTRACT §27. Agreements and Contracts. — Civilized life may be said to be founded on agreements. Whenever an individual buys or sells something, he makes an agreement. Our whole social and business life is based upon a series of understand- ings with those with whom we come in contact. The more complex our civilization becomes, the more agreements are made and the more extended become our contractual relations. Whenever an agreement is of such a nature that it may be enforced in a court of law, it is called a contract. Most of the laws on our statute books and most of the laws affect- ing the daily life of the individual have to do with the sub- ject of contracts. Every time we buy or sell merchandise, securities, or property of any kind, ship goods, take out in- surance, hire an employee or become one, we make a contract. In fact, the entire business of our industries,' railroads, and banks is based on contracts, for every business relation is either itself a contract or else the result of a contract. §28. Definition of Contract. — A contract is defined as an agreement enforceable in court between two or more parties, for a sufficient consideration, to do or not to do some specified thing or things. (See Form 4.) It is an agreement, and the minds of the parties, to use the technical phrase, " must meet." This meeting of the minds means that the parties must agree on all the terms of the agree- ment. Every agreement is not a contract. To be a contract, the agreement must " be enforceable in the courts." The par- ties must have intended it to be binding legally. Obviously a mere social engagement, such as an agreement to spend a 29 30 CONTRACTS vacation with a friend, is not a contract. In short, the agree- ment must aflfect the legal relations of the parties. There must be at least two parties to the contract, for a man cannot make a contract with himself. This is true, even though one acts in different capacities. An executor of an estate cannot as an individual sell his personal property to himself as executor. To this minimum requirement, i.e., that there be two distinct parties, there is no corresponding maxi- mum; we may have three, four, or even a hundred parties. Furthermore, the parties must be legally competent to make a contract. This word " parties " has an additional technical meaning. The terms " the parties of the first part " and " the parties of the second part," which we often see in written contracts, refer to persons who are grouped together as hav- ing the same rights and liabilities in the contract. Moreover, there must be a consideration, without which there can be no legal obligation. If a man agrees to do some- thing, there must be a valid reason or inducement for him to bind himself. This, in legal parlance, is the considera- tion. If the promise were gratuitous, that is, if there were no inducement for the promise, the promisor might be morally, but he would not be legally, bound to carry it out. A naked promise, without consideration, cannot be enforced in a court of law. There must be, also, the obligation, or thing to be done. This may be to pay money, to do work, or to deliver goods; or it may be to refrain from doing something which the person contracting had a right to do. §29. Essential Features — Thus an agreement to be legally enforceable as a contract, must have the following essentials: 1. The parties must agree to the same thing. 2. The parties to the agreement must be legally compe- tent to contract. ESSENTIAL FEATURES 31 3. There must be a sufficient consideration. 4. The agreement must be to do something lawful. Review Questions 1. Explain the importance of the subject of contracts. 2. What contracts have you made within the last year? What did you do or give in each ? What did the other parties do or give ? 3. Give the definition of a contract. 4. What is meant by the term " the meeting of the minds " ? 5. Give an example of an agreement which could not be the basis of a contract. 6. How many parties are required to make a contract? 7. Why must there be a consideration for a contract? 8. Give the four essential elements of a contract. CHAPTER VII AGREEMENT OF THE PARTIES §30. Mutual Assent. — As noted in Chapter VI, the parties to a contract must agree on all the terms. This agreement results usually from an offer made by one party which is ac- cepted by the other. The offer or proposal may be oral or written, as may the acceptance, except in certain special cases when writing is required. The simplest form of contract is an offer to sell goods at a specified price and an acceptance of the goods at that price. If this offer is made by letter and the acceptance is made by letter, the two letters taken to- gether constitute a complete contract of sale. Some other points might be mentioned, but these the law will supply. When nothing is said as to terms, the law implies cash. When nothing is said about delivery, the law implies that the buyer will be entitled to delivery when he pays the price. (See Forms 2, 7, 9.) The contract arises when the acceptance takes place. The party making the offer is the offeror; the party re- ceiving the offer is the offeree. §31. Acceptance Must Be Unqualified — The offer must be accepted in accordance with its terms. The offeree must ac- cept all the terms of the offer, no more, no less. If he adds any qualifications or conditions, his attempted acceptance is nugatory. For instance, Trescott by letter offered to sell ap- ples to Myers in certain quantities at prices named. Myers accepted, but added in his letter " goods must be prime quality and run two hundred net to the barrel." Trescott refused to deliver and Myers sued for breach of contract. The court decided for Trescott, pointing out that Myers had qualified 32 AGREEMENT OF THE PARTIES 33 his acceptance and made it depend " upon facts not contained in the proposal of sale." ^ The attempted acceptance by Myers was in reality a re- jection of the offer and the making of a new or counter offer. Trescott might have decided to accept the new terms, in which case there would have been a new and different agreement, but he had the privilege of rejecting the proposed contract en- tirely. Thus we see that it takes an unconditional acceptance of a definite offer to constitute a meeting of the minds of the parties. If, however, the offeree accepts the offer as stated, but inquires whether or not the offeror will change some term or terms, the acceptance is valid. For example, Meyers might have agreed to take the goods named in the offer, but might have stated that he would prefer a larger or smaller quantity or a different date of delivery. Had Trescott accepted the changes proposed, a modified contract would have resulted and Meyers would have been better satisfied. If the offeree rejects the offer by attempting to accept it on terms varying from those offered, he cannot afterwards take advantage of it; because an offer once rejected cannot afterwards be revived without the consent of the offeror. §32. Acceptance by Mail or Telegraph. — If the party mak- ing the offer requests an answer by mail or telegraph, the post- office or the telegraph company becomes his agent to receive the acceptance, and the agreement becomes effective the moment a properly stamped and addressed letter of acceptance is de- posited in the mail-box (even though the letter does not reach its destination) or the moment a prepaid telegram (unless the other party had directed that it be sent " collect " ) with the proper address, is given to the telegraph company to be sent. 1 Myers v. Trescott, 59 Hun (N. Y.) 393. 34 CONTRACTS If a party makes an offer by mail or telegraph, he is re- garded as having requested a reply by the same means unless he expressly asks for a reply in some other way. If the party getting the offer accepts in the mode thus requested, he is entitled to the benefit of the rule that the acceptance is effective when sent; but if he uses some other method of acceptance, the acceptance will not be considered effective until it is actually received by the offeror. The acceptance must be in plain, unequivocal language. For instance, in one case a debtor and creditor were nego- tiating for the part payment of an account by having the creditor take two engines belonging to the debtor. After con- siderable dickering the debtor fixed a figure for the engines. The creditor wrote, " You are a great deal like my wife. I have to let her have the last say. I hope you will tell the boys to try and find a rod for the big engine. Don't load the engines yet for I am too busy to take care of them now." This, the court held, did not constitute an acceptance.^ §33- Withdrawal of Offer — After acceptance neither party can withdraw, because then the contract has come into exist- ence. If this were not the rule, a contract would be merely " a scrap of paper." But before acceptance, neither offeror or offeree is bound. Consequently the offeror has the legal right to withdraw his offer even though his doing so may en- tail a considerable loss to the other party who is planning to accept. The offeror must, however, notify the offeree of the withdrawal, or the latter would naturally expect the offer to continue open for a reasonable time. Let us apply this principle to the preceding section. If the offeror sends a telegram of withdrawal and later, but before this telegram reaches its destination, the offeree sends a tele- gram of acceptance, a contract results because the acceptance 2 Mahar v. Compton, 45 N. Y. Supp. 1126; 18 App. Div. (N. Y.) 536. AGREEMENT OF THE PARTIES 35 is good when sent and the withdrawal is not effective until received. But if the offeree in this case had mailed instead of telegraphed his acceptance, telegraphing having been re- quired, the telegram of withdrawal woiild be effective, be- cause the offeree, not having accepted in the mode required, would not be protected by the usual rule. §34. Time of Acceptance. — If an offer specifies a limited time for acceptance, it must be taken up within that time. If the offer is made by a Chicago firm to a prospective purchaser in New York and is good for three days, the New York man has until midnight of the third day to mail or telegraph his ac- ceptance, because, as noted above, the requirement is that the acceptance be sent and not that it be received within the time limit. If the offer calls for acceptance by return mail, a reply the same day, but not by the next mail, is insufficient. If no time for acceptance is fixed in the offer, the recipient of the offer is entitled to a reasonable time to make his deci- sion. What is a reasonable time depends upon the circum- stances. If the goods are perishable, an immediate acceptance is required. If the price is subject to sudden fluctuations, common fairness to the seller requires a prompt acceptance, because otherwise the prospective buyer could take advantage of a change in the market at the expense of the seller. §35. Termination of Offer — An offer terminates in the fol- lowing ways : 1. When it is withdrawn and the offeree has received notice of the withdrawal. 2. When it is rejected by the offeree. 3. When the time specified in the offer as the period within which acceptance must be made expires with- out acceptance. 36 CONTRACTS 4. In the case of an offer without any time limit, when a reasonable time has elapsed. 5. When either the offeror or the offeree dies or becomes insane before acceptance. In the case of a corpora- tion or partnership on the dissolution of the con- cern. §36. Options — Frequently a prospective buyer will get from the seller an option or refusal, good for a certain time. Although the seller, having given his word, should keep the offer open for the time promised, he is not legally bound to do so, because he is not under contract, as he has not received any consideration. He has simply extended a privilege for which he has received nothing in return. Consequently he may withdraw the privilege. So an option for which no con- sideration has been given may be withdrawn at any time with- out preliminary notice; but a mere uncommunicated decision to recall the option is insufficient. The offeror, in accordance with the rules given for the revocation of the offer, must notify the offeree that the option is terminated and until he does so the offeree may accept the offer. When the offeree pays something, or otherwise furnishes a consideration for the option, a contract of option results, for the offeree has parted with something in return for the right to have the offer kept open a certain time. If the offeree, after having made a contract of option, ac- cepts the offer, the amount paid for the option will not count towards the purchase price unless the parties had so agreed. §37. The Parties Must Intend a Contract. — Where a state- ment is made as a jest or a boast or in anger and the cause of the utterance should be apparent to a reasonable man, the statement cannot be accepted as a contractual offer. This point is well illustrated by the case of McClurg v. Terry. In AGREEMENT OF THE PARTIES 37 this case while some young people were returning from a picnic, one member of the party challenged one of the couples in the party to get married. They took the dare, went before a justice of the peace, and were married. They never lived together, however, as man and wife, and subsequently one of the parties brought an action for annulment. The court granted the application on the ground that the parties had never intended to enter into a marriage agreement.* There is a distinction between offers to make contract and invitations to deal. Price lists, catalogues, circular letters, advertisements, etc., are considered as announcements to pro- spective buyers and as invitations to them to send in offers to buy. When a merchant quotes prices to a prospective cus- tomer, he sometimes intends to bind himself to fill a resulting order; but in many cases he quotes prices simply as the basis for negotiations or dealings, reserving the right to accept or reject any orders. The merchant will usually be bound, if he offers to sell a definite quantity at a definite price ; but if no quantity is men- tioned, the statement will be considered as a mere proposal. This point was decided in the case of Moulton v. Kershaw.* In a letter Kershaw wrote the following to Moulton : " In consequence of a rupture in the salt trade, we are authorized to offer Michigan fine salt, in full carloads of 85 to 95 bar- rels, delivered at your city, at Ss4 per barrel. At this price it is a bargain. Shall be pleased to receive your order." Moulton ordered two thousand barrels but Kershaw refused to ship. Thereupon Moulton sued for damages for non-de- livery. The court decided that the letter was a mere invita- tion to deal, because to hold it as an offer to sell would mean that Moulton could bind Kershaw by ordering any quantity from one carload up. This would be unfair as Moulton might Itl^la^: KeSkw! f^-h^VeT^S N. W. >;.; 48 An,. Rep. 5-6. 38 CONTRACTS order a quantity far beyond any dealer's capacity to deliver, while to construe the letter as an offer to sell a reasonable quantity would introduce an element of great uncertainty into the contract. A man may, of course, make an unlimited offer to sell; that is, he may give the buyer the privilege of ordering any quantity he may desire. But the seller will not be held on this liasis unless the language makes it very clear that he intends to be so held. When the seller desires to indicate that his proposition is to be taken as an offer and not as a mere invitation to deal, he may do so by stating that the proposition is a " firm bid," because this term means a definite, binding offer. Review Questions 1. Can a contract be made orally? 2. What terms will be implied? 3. Who is the offeror and who is the offeree? 4. When does the contract arise? 5. What is the effect of a modified acceptance? 6. Can the offeree in accepting the offer safely make an inquiry in regard to a change in the terms ? 7. When does the acceptance take place in case it is sent by mail or telegram ? 8. How may an offer be properly withdrawn ? 9. What is the result if a letter of acceptance and a letter withdraw- ing the offer cross in the mail ? 10. What are the rules in regard to the time of acceptance? 11. State the various ways in which the offer may terminate. 12. What is the meaning of the term "option "? 13. When is an option effective? 14. Discuss the subject of intention as it affects the agreement of the party. 15. Give illustrations of business proposals that are not intended as offers to make a contract. 16. Explain the case of Moulton v. Kershaw. CHAPTER VIII COMPETENCY OF THE PARTIES §38. Who Are Competent to Contract — Generally speak- ing, all persons are able to bind themselves by contract. It is a positive right. There are, however, exceptions to the general rule. Certain persons are not competent to contract, and certain other persons have only a qualified right to do so. §39. Minors — Minors (persons who are under legal age, which is generally twenty-one) have only a qualified capacity to make contracts. That is to say, the minor may make a contract, but the other contracting party cannot enforce it if the minor chooses not to perform his part. The minor may even annul the contract after it has been performed, return the property, and demand his money back, or vice versa. The reason for granting this privilege to the minor is that his immaturity of judgment, due to lack of business experi- ence, may lead him to make imprudent and disastrous bargains and thus render him an easy prey for the unscrupulous. After a minor becomes of age, he may confirm any contract made while he was a minor. He may do this either by words or by acts. If he keeps the property obtained under such a contract for an unreasonable length of time after reaching his majority, the court will consider that he has confirmed it. The minor may disaffirm the contract in most cases before he becomes of age. An exception to this is in the case of cer- tain realty contracts which he is not allowed to disaffirm until he reaches his majority. If the minor disaffirms the contract, he must return to the other party any property or money that he received under the contract, provided he still has the property or its proceeds ; 39 4° CONTRACTS but if he has parted with what he received, he will in most cases be allowed to disaffirm even though he cannot restore the consideration. This will be true even though he has dis- sipated or squandered what he received. It is necessary to apply this privilege of rescinding the contract to this extent, because otherwise it would be of little practical avail to the reckless minor, whom the law seeks to protect. Unless the man as a minor does cancel the contract, he will, as an adult, be bound. If the minor himself chooses to stand by his contract, it will be legally binding. If, however, the minor dies, his contracts may be canceled by the representa- tive of the estate. The minor's right of cancellation applies even to business contracts. If a minor goes into business and buys merchan- dise, he may cancel the merchandise contract after he has sold the merchandise and used the money, and still be under no liability whatever. This right, however, is qualified somewhat when the minor goes into partnership, because he cannot, in such a case, withdraw his share of the firm's capital until all the creditors have been paid. It is not safe to have business dealings with a minor unless he is known to be of such high character that he will not resort to this rather technical de- fense of infancy, or unless the dealings are safeguarded by a bond or a written guaranty furnished by some third party. The minor is protected against his own inexperience, but not against his own wrong-doing; if he injures another's prop- erty, he will be liable for damages. §40. The Minor's Liability for Necessaries. — Necessaries are food, clothing, lodging, medical attendance, and other things depending upon the minor's station in life. The minor is not liable on contracts for necessaries, but under some cir- cumstances he is for the reasonable value of the necessities. In many cases, of course, the reasonable value and the con- COMPETENCY OF THE PARTIES 41 tract value are the same. On the other hand, there are cases where the merchant takes advantage of the minor and charges him an exorbitant price. This price the infant will not have to pay. The reason for this exception to the rule of non- liability is to give a minor, who is in need, an opportunity to get credit. This exception is very strictly construed by the courts. The tradesman, in order to hold the minor liable for the reasonable value of necessaries furnished, must show two things : 1. That the minor was not being cared for by the parent or guardian and was without funds of his own. 2. That the articles furnished were necessaries, i.e., arti- cles required by the infant according to his station in life. §41. Insane Persons — If a person has been legally declared a lunatic and a guardian has been appointed to look after his property, he cannot make a binding contract, for the court has adjudged that he is mentally deficient. No agreement, made by him can be enforced, even though the person dealing with him did not know that he was insane, because such adjudi- cation is supposed to be known to the public. In this same class are persons who have been adjudged habitual drunkards or spendthrifts. Such a decision has no effect outside of the state in which it was rendered. So, although a person has been adjudged a lunatic or a habitual drunkard or spendthrift, he could in spite of his incompetency in his home state, go into other states and make binding contracts. There are people at large who should be in insane asylums. Such persons are not competent to make contracts because they cannot understand the real meaning of proposed agree- ments. Their contracts are binding upon the sane party ; but 42 CONTRACTS they may be affirmed or disaffirmed by the insane person on his recovery to sanity or during a lucid interval, or by his guardian or representative, should one be appointed. Sometimes a person is insane only on some subjects. He may have a religious mania, but still be entirely normal about his business affairs, in regard to which his contracts will be binding. There are two exceptions to the rule that the contracts of an insane man, who has not been adjudicated, are voidable. One is where the sane party to the contract acted in good faith — that is, had no reason to suspect the other party's sanity — and cannot be restored to his original position. For illustra- tion, A, who is really insane, but at the time apparently normal, buys jewelry on credit from X who knows nothing of A's in- sanity. Then A disposes of the jewelry. As X has acted in good faith, it would be unfair to make him stand the loss; so he can hold A to the contract. On the other hand, if the jewelry can be returned to X, the contract may be canceled if this is done, for then X will not suffer any loss. The other exception, which strictly speaking is not an ex- ception at all, although it has the same effect, is in a case in- volving necessaries. The insane person is not liable on a con- tract that he makes for necessaries, but he, like the minor, may be liable for the reasonable value of the necessaries. §42. Married Women. — A married woman does not have entire freedom of contract. In some states a married woman cannot make an enforceable contract with her husband, but today, in most states, she may make a contract with her hus- band on any subject except in regard to the matrimonial status or in regard to the household services that she is expected to render. It is safest to consult the law of the state in which one resides before entering into a contract with a married woman, as a few states still restrict her contractual capacity and give her a certain measure of contractual immunity. A COMPETENCY OF THE PARTIES 43 married woman may, in any state, act as an agent for her husband. §43. Corporations — In making a contract with a corpora- tion, one should be sure that the officer or employee represent- ing the corporation has authority to bind it. One should consider, also, whether the corporation is com- plying with the requirements of its charter and by-laws. In most cases the party dealing with a corporation is not bound by its by-laws, but is bound by the provisions of its charter or articles of incorporation. A corporation, of course, is limited by the power granted it by its charter. The interest of its stockholders and the general public demand that a corporation be limited in this way. If it makes a contract and oversteps its limited powers, the contract is called " ultra vires," mean- ing " beyond the powers." As long as the ultra vires contract has not as yet been carried out, either the corporation or the other party contracting with it may rescind the contract. If the contract has been carried out by the corporation but not by the other party, the corporation, having carried out its part, is entitled to receive what is due it under the contract. Any other rule would be a manifest injustice. On the other hand, if the corporation has received the benefit of the con- tract, it, of course, will have to comply with the contract and pay for what it receives. In such a case the courts in some states hold that the corporation will have to pay only for the reasonable value of the benefit received; whereas in certain other states, among which are New York, Illinois, and Michi- gan, the rule is that where the ultra vires contract has been carried out by the other party, the corporation must stand by the contract as made and cannot resort to the reasonable value basis. 44 CONTRACTS Review Questions 1. When a minor makes a contract with an adult, what is the effect of the contract on the adult ? 2. What is the effect on the minor? 3. Why is the minor given a special privilege in regard to contracts? 4. May the minor affirm the contract before reaching his majority? 5. Give illustrations of acts which would constitute affirmance by a minor. 6. If a minor disaffirms a contract, may he keep what he received under the contract? 7. Can the minor disaffirm the contract even though he cannot re- store what he obtained from the other party? 8. Is there any restriction on the minor's right to withdraw his share of the capital of the firm of which he is a member? If so, what is it? 9. What is meant by the term " necessaries " ? 10. Under what circumstances is the minor liable for necessaries? 11. Can an adjudicated lunatic or drunkard make a contract? 12. If a contract be made between a party competent to contract and a party incompetent to contract, could the competent party re- fuse to do his part? 13. Under what circumstances is the contract of an insane man en- forceable ? 14. Discuss the competency of married women to make contracts. 15. In making a contract with a corporation, what things should one keep in mind? 16. What is the meaning of the term " ultra vires "? 17. What are the rules in regard to ultra vires contracts? CHAPTER IX CONSIDERATION §44. Definition of Consideration Every contract must have a consideration. Tlie meaning of the term " considera- tion " is that each party to the contract must give up some legal right or agree to do something he would not otherwise have to do. As a result of the contract he must be bound to do something which he otherwise would not be required to do, or to refrain from doing something which he otherwise would be privileged to do. It is often said that the consideration is an act or forbearance, or a promise of an act or forbear- ance. The meaning of this is evident but most of the defini- tions given are extremely technical. It will be sufficient to remember that the consideration is the surrender of a legal right by a party in return for what he gets under the contract. Of course, all the parties must furnish a consideration. Let us apply this principle to some concrete cases. A manu- facturer makes a contract to manufacture and deliver certain merchandise ordered by a retailer. Here the consideration is the manufacturer's promise to use his time and capital in manufacturing the goods and the buyer's promise to take the goods and pay for them. An attorney makes a contract to try a case for a certain fixed sum. The attorney gives up his legal right to use his time for other clients or to spend his time in some other way. The client agrees to pay him the sum fixed. In a matrimonial engagement contract the consideration is the mutual promises of the parties. Each gives up his or her right to remain single and promises to marry the other party to the agreement. An illustration of a consideration in the form of a for- 45 46 CONTRACTS bearance is the case where a man seUing out his business agrees not to re-engage in the same business for a certain length of time, or within a certain territory. §45. Consideration Involves a Request. — It is not sufficient that a legal right be given up. It must be given up at the request of the other party and in return for the act of for- bearance or promise of the other party. As an illustration, suppose that you were running for some political office, and, unknown to you, a friend of yours went about electioneering on your behalf. Here the friend clearly gave up a legal right, because he might have used the time he spent campaigning in some other fashion. But as you did not request the services and in fact did not know that they were being rendered, you will not have to pay anything. To vary the illustration, let us suppose that your friend notified you of his desire to help out in the campaigning, and that you consented to this. Here your consent would be construed as an implied request for the services, but nevertheless there would not be any contract be- cause the circumstances indicated that the services were to be rendered gratuitously. On the other hand, an implied re- quest will often be sufficient. If A starts to render services for the benefit of B without B's request and B allows A to continue, B will have to pay, if the services are such as are usually rendered for pay. §46. Consideration Need Not Have Any Material Value. — The rather common idea that the consideration is the money or property value that one gets from the contract is a mis- conception. It is not necessary that any money be paid or promised. A matrimonial engagement, as already explained, is a contract and here there is no money consideration. An agreement between an uncle and a nephew, that the uncle would pay the nephew $5,000 on the nephew's becoming CONSIDERATION 47 twenty-one years of age if he would until that time " refrain from drinking liquor, using tobacco, swearing, playing cards for money " was held to be a contract.^ The uncle offered to pay a large sum of money without any material return except the mental satisfaction of know- ing that he had helped to strengthen the character of his nephew. There was, however, a sufificient consideration, be- cause in return for the uncle's promise to pay $5,000, the nephew gave up the legal right to drink liquor, use tobacco, etc. §47. A Promise Without a Consideration Is Not Binding. — A promise to do something or to give something is not a con- tract, since a mere promise cannot be enforced by law. There must be a counter promise or the doing of some act by the other party. Consequently, a mere promise without any con- sideration to pay a certain sum of money, even though in writ- ing, could not be enforced against the promisor by the promisee. §48. The Consideration of Love and Affection Is Insuf- ficient — The consideration can never be one-sided. Conse- quently, no matter how laudable the motive or how earnest the desire of the promisor, the promise will not be enforced unless the promisor gets some consideration from the other party. An illustration of this is the so-called " consideration of love and affection." A man, as a token of affection and as a reward for his son's successful college career, gives the son a written promise to give him an eight-cylinder car on his next birthday. This is not enforceable at law. §49. A Moral Obligation Does Not Constitute a Consid- eration. — If a man, on hearing that his adult son had been taken sick in a foreign country and there had been befriended and cared for by strangers, should write to the strangers and iHamer v. Sidway, 124 N. Y. 538; 27 N. E. 236; 12 L. R. A. 463. 48 CONTRACTS promise to pay all expenses incurred up to that time, he would not be bound by his promise because he had not requested that the expenses be incurred. Morally, of course, he ought to pay as he has given his word, but he would not be legally bound to do so. Another illustration is the case of a man who has been discharged in bankruptcy and who goes about orally promising the creditors to pay their claims. Here again we have an illustration of a moral, though not a legal, obliga- tion. §50. Adequacy of Consideration. — The court usually will not consider the adequacy of the consideration. It is the duty of the court to interpret and not to remake the contracts sub- mitted to it, since there would be little use of making a con- tract if the court could revamp it. If we make a bargain that is advantageous for us and disadvantageous for the other side, we know that it will stand because the court does not have any time to sympathize with the people who make bad bargains. In a written contract we often see one dollar stated as the consideration. This in nearly all cases will be suf- ficient. " A valuable consideration, however small or nominal, if given or stipulated for in good faith, in the absence of fraud, is sufficient to support an action. A stipulation in considera- tion of one dollar is just as efifectual and valuable a considera- tion as a larger sum stipulated or paid." ^ There are two exceptions to the rule that the courts will not examine into the question of the fairness of the considera- tion. One is where there is a claim of fraud. Here the ques- tion of consideration is a very relevant issue because a very small consideration would tend to sustain the claim of fraud. The other exception is where the contract calls for an exchange of sums of money. If the contract is to pay a large sum for an old coin, the contract will be valid because the 2 Lawrence v. McCalmont, 2 Howard (U. S.) 426. CONSIDERATION 49 coin may have the value stated in the opinion of the purchaser ; but if the contract were to pay $100 a month hence in return for $10 paid today, the contract would not be upheld because the parties would be providing for the exchange of sums of money as to the value of which there can be absolutely no question. Moreover, a contract of that sort would of course be an evasion of the usury laws. §51. Seal as Consideration — In the formative period of the common law, contracts were usually sealed with the seal of the parties. This was done by stamping the coat of arms of the party signing or executing the document on a bit of wax which was on a piece of ribbon attached to the document. In view of its formal execution, the document was considered by the courts as having received the careful thought and de- liberation of the parties, and proof of an actual consideration was dispensed with on the theory that the consideration was supplied by the seal itself. This rule is still applied although it has been modified in many of our states. In some states the seal simply furnishes a presumption of consideration which presumption may be refuted, while in others it has little, if any, practical importance, as far as consideration is concerned. The form of the seal is not important. It does not have to be a waxed seal. It is sufficient to use the word " seal " or to use the letters " L. S." which are the initials of the Latin words " locus sigilli," meaning the place of the seal. §52. Carrying Out a Legal Duty Is Not a Consideration. — A promise by A to carry out his uncompleted contract, is no consideration for a new promise by B. As A is obligated to carry out his previous contract, in doing so he is simply carrying out his legal duty and is not giving up any legal right. A, for example, has made a contract to erect a build- ing for B for a certain price. When A has partly completed 50 CONTRACTS the job, he finds that continuing the work will, because of the advance in the price of materials and labor, mean a great loss to him. So he prevails upon B to agree to increase the price. This promise by B, for the reason stated, will not be enforce- able. A can, however, protect himself if he induces B to can- cel the original contract and make a new contract. It often happens that a debtor will agree to pay part of the debt and the creditor, rather than run the risk of getting noth- ing, will agree to take this part payment in full settlement. Such an agreement, of course, will not be enforceable, because it is the debtor's duty to pay the debt in full; in paying part of the debt, the debtor is carrying out only part of his legal duty and is not giving up any legal right. The settlement can, however, be made binding if the debtor in addition to the money payment renders some slight service or gives some article of shght value. Another way of effecting a binding settlement is to have the creditor give to the debtor a general release under seal. (See Form 31.) The above paragraph applies to the case where the amount is liquidated, i.e., a fixed and undisputed sum. If the amount of the debt is disputed, a settlement for less than the amount claimed by the creditor will be effective, because the creditor is surrendering his right to insist upon a larger amount and the debtor likewise is surrendering his right to insist upon a smaller amount. These principles should be applied where the debtor remits a check for less than the amount claimed and containing the notation " full payment of account to date." If the amount claimed is seriously disputed, the creditor in using this check will be accepting the debtor's offer of settlement and will be precluded from trying to collect the balance. On the other hand, if the amount of the debt is fixed and the debtor is simply trying to shave off a fraction of his debt, the creditor may safely use the check. A compromise with creditors will be enforced although CONSIDERATION 51 the debtor in this case pays less than the face value of his debt. The consideration is found in the mutual surrender of rights by those creditors who assent to the proposition. A promise to pay more salary to an employee who is under a definite contract if he will render more effective services, is nugatory, because it is the legal duty of the employee under his contract to render the very best services that he can. Like- wise a promise to pay the sheriff compensation in excess of his legal fees if he succeeds in collecting a judgment, is not enforceable, because it is the sheriff's legal duty to do his best to collect the judgment anyway. Promises to pay money or confer other benefits on another party if he will obey court orders or the general laws are without consideration, because it is the duty of every man to obey the orders of the court and to observe the statutes. §53. Past Consideration. — Past consideration means a promise to pay for some benefit which was rendered in the past without a request by the promisor or upon a gratuitous basis. For instance, A renders services that help to bring about the election of B to a political office and B after his elec- tion promises to recompense A. Here A in the past gave up a legal right but he did it gratuitously and not in return for any promise by B. A past consideration is not valid. There are some exceptions to this rule. These are found in cases where the promisor waives the protection of some statute and revives what was once a binding obligation. If a debt has been outlawed by the Statute of Limitations or has been canceled by a discharge obtained in the bankruptcy court and the debtor subsequently promises in writing to pay such a debt, he will be bound. §54. An Executed Agreement Lacking Consideration Will Not Be Set Aside. — If A promises to deliver certain property 52 CONTRACTS to B gratuitously, A, of course, will be within his rights in refusing to carry out the agreement. But if he does carry out the agreement and actually delivers the property to B, the transaction will be construed as an executed gift and A will not be able to get back the property from B or to force him to pay the value thereof. Review Questions 1. What is the meaning of the term " consideration"? 2. Give an illustration of consideration in the form of an act. 3. Give an illustration of consideration in the form of a forbearance. 4. Give an illustration of consideration in the form of a promise. 5. Will the doing of an act by A for B without B's request support B's promise to pay A for the benefit received? 6. Is it necessary that the consideration have any money value ? 7. Will the court enforce a promise to make a gift? 8. Will the court enforce a promissory note when the payee sues the maker and it is shown that the payee gave no consideration for the note? 9. If a man agreed to sell a farm for one-half of its real value, could he be made to carry out his contract? Is this just? 10. If a man had contracted to furnish certain building materials and at the time for delivery the price had advanced so that he would lose $5,000 on his contract, could he be forced to carry out his agreement? Is this juat? 11. Is a consideration of one dollar ordinarily sufficient? 12. When will the court consider the adequacy of the consideration? 13. What is the effect of a seal as consideration? 14. Is a creditor's agreement to cancel a debt on payment of part, binding on the creditor? 15. Does it make any difference whether the claim is liquidated or unliquidated ? 16. Is a compromise with creditors enforceable? Why? 17. What is the meaning of the term " past consideration " ? 18. Give an illustration of past consideration. CHAPTER X LEGALITY OF SUBJECT MATTER §55. The Subject Matter of Contracts — The subject mat- ter of a contract is that which the agreement is about. It may consist of any property, commodity, or service which could be the subject of a business transaction, or it may be to do or not to do something, such as to pay for the privilege of naming a child, or to pay a young man to abstain from using tobacco. An agreement to do anything contrary to law is unenforce- able. Here we must distinguish between illegal agreements and those contrary to public policy. An illegal agreement is one forbidden by some statute. An agreement contrary to public policy does not contravene any law, but is so injurious to the peace, good order, health, or the morals of the com- munity that the court will refuse to enforce it. §56. Illegal Agreements — The following list, which is by no means complete, gives examples of illegal agreements : 1 . Agreements to commit a crime. Illustrations are agree- ments to publish or sell a libelous book ( libel is a crime as well as a civil wrong in most states), or to marry when the parties are already married. 2. An agreement in which usurious interest is charged. Sometimes the agreement itself will be enforced, but the party will be prevented from collecting interest; sometimes he will not be allowed to enforce any part of the agreement. 3. Agreements not to prosecute a person for a crime. This is called " compounding a crime." For example, an employer whose funds have been embezzled by his bookkeeper should, as a good citizen, report the case to the authorities, but he is under no legal obligation to do so ; he does not have to prose- 53 54 CONTRACTS cute the embezzler on his own initiative. On the other hand, he has no power to sell his right to prosecute. He may prop- erly accept restitution, but when doing so he should be careful not to promise to refrain from prosecution. 4. Agreements by candidates to appoint persons to posi- tions in case the candidate is elected or to do anything in re- turn for aid in winning the election. Theoretically at least, the office-holder in making such an appointment should not be influenced by his own personal interests, but should be guided solely by the interest of the public. 5. Agreements to perform services by unlicensed profes- sional men. An agreement, to perform services for money, made by a medical student before he has been licensed, by a law student before he has been admitted to the bar, or by any other person who is required by the law to submit to certain requirements before being licensed to practice his profession or vocation and who is not yet so licensed, is void; any fee which may have been so agreed upon cannot be collected, al- though the services have actually been rendered and have con- ferred a real benefit on the other party. 6. Agreenients to sell mislabeled food products in viola- tion of the Pure Food Law, or some similar statute. Like- wise, sales according to weights and measures that have not been inspected as the law requires, are unlawful. In neither of these cases can the seller recover his costs. The buyer is allowed to keep the goods without paying. This may seem hard on the seller, but it is the penalty he pays for violating the law. 7. Gambling agreements. Gambling is not, of course, countenanced by law. Some forms of gambling are crimes, but usually the only penalty for private gambling is the un- enforceability of the transaction in the court. Stock and pro- duce exchanges have been used for gambling purposes. How- ever, contracts for the buying and selling of " options " and LEGALITY OF SUBJECT MATTER 55 " futures " and of stock " on margin " are in all but a few states considered as legitimate transactions on the theory that actual future delivery of the property is intended, but in the case of the " bucket shop," where no delivery is ever intended, the transactions are unenforceable. Insurance is speculative but is not gambling, because the insured must have an " insurable interest." Fire insurance can be taken out on property only by a party who has some interest in it, and life insurance only by the party insured, his wife, child, or some other person who would be entitled to support, or by a creditor who had a claim against the person whose life was insured, or by a business partner or employer. Otherwise it would merely amount to a bet as to whether the property would be destroyed, or when the person would die. 8. Sunday agreements. The effect of such an agreement depends upon the laws of the state where the case comes up. Massachusetts, New Jersey, Pennsylvania, and Connecticut have very strict laws by which practically all kinds of work and business are forbidden on Sunday, except works of charity and necessity. On the other hand, New York is fairly liberal and Illinois permits the carrying on of any business on Sunday, so long as it does not interfere with the peace and good order of society. §57. Agreement Contrary to Public Policy — The follow- ing agreements are examples of those- which are contrary to public policy : 1 . An agreement to prevent a person from marrying or to break up a marriage. The reason is that the law favors mar- riage, but it does not favor marriages that are arranged by marriage brokers, because such marriages often lead to un- happiness and end in the divorce court. Hence an agreement to pay a marriage broker is contrary to public policy. 2. Agreements tending to corrupt the public service. Lob- 56 CONTRACTS bying is a legitimate activity providing the lobbying is done openly and based on the merits of the proposition; but if the lobbyist threatens, cajoles, or importunes the legislator, he oversteps the limits of the law and is not entitled to any com- pensation. An agreement to pay an agent a commission if he succeeds in securing a government contract for his em- ployer, will not be enforced in the federal courts, but it will be enforced in the courts of some of the states, provided that there is no indication that the agent used or was instructed to use any improper means. In general, any agreement that tends to corrupt public officials will not be enforced. This applies to judicial and executive officers as well as to legislators. 3. Agreements in restraint of trade. The United States Supreme Court has decided that agreements in reasonable re- straint of trade are not contrary to public policy. Here we have to reconcile conflicting interests. The man who buys out a business wants to be protected from the competition of the former proprietor, but the public wants free competition to keep prices down. The solution is found by allowing a reason- able restraint. That is, the man who has sold his business may agree that he will not for a reasonable time engage in the same business again within the limits of the territory in which his business was actually carried on. §58. The Law of Place — The law which governs a con- tract is the law of the place where it was made. If it is to be performed elsewhere, the parties may, if they wish, expressly state that it is made in conformity with the law of the state where it is to be performed, provided they do not do so in an attempt to evade the law of the state where it was made. A contract made in good faith to be performed elsewhere need not comply with the law of the state where it was made if there is a conflict between the two laws, but the fact that it is to be governed by the law of a state other than that in LEGALITY OF SUBJECT MATTER 57 which it was made must always be expressly stated in the contract. §59. Effect of Agreements that Are Illegal or Contrary to Public Policy — ^Agreements that are illegal or contrary to public policy are void. Courts treat them as if they had never existed. A case that is founded upon an illegal agreement will be thrown out of court. The court does this to discourage the making of such agreements and to penalize the parties who do make them. Not only will the court refuse to enforce an illegal agreement, but it will also refuse to undo the agree- ment so as to enable the party who has paid money or de- livered property to recover what he parted with. The court will leave the parties as they are. This, of course, may mean that one party has been enriched at the expense of the other; for example, he may buy whiskey and then refuse to pay for it on the ground of the illegality of the transaction. This is the seller's penalty for selling goods in violation of the statute. There are of course some exceptions to the general princi- ple. The public interest may require the intervention of the court. For instance, in some states in the case of marriage brokerage contracts the client will be allowed to recover the fee paid. The purpose of this is not to protect, but to destroy the marriage brokerage business. Again if the parties are not equally guilty, the less guilty party will be allowed to re- cover what he has parted with. This principle is usually ap- plied in cases of fraud and undue influence. For example, in one case a man falsely stated to his wife that she was liable for certain debts and that the creditors would take her prop- erty. By this statement the husband induced the wife to trans- fer her property to him. Although her purpose in doing so was to defeat her creditors and consequently was contrary to public policy, nevertheless the transfer was set aside on the 58 CONTRACTS ground that she was not equally guilty with the husband. Another exception is where the transaction has not been consummated and one of the parties repents. A man gives money to an agent to use for some illegal purpose, and be- fore the money has been spent he goes to court and applies for an order directing the agent to return the money. Here the relief will be granted on the theory that it is preventing the doing of an illegal act. Review Questions 1. What is the difference between an illegal agreement and one that is contrary to public policy? 2. What is meant by the term " compounding a crime "? 3. What is the effect of a sale in violation of the Pure Food Law, or some similar statute? 4. In such a case, does the buyer have to pay for the goods received ? 5. What is meant by the term " insurable interest " ? 6. Discuss the laws in regard to Sunday contracts. 7. Under what circumstances is lobbying lawful and under what circumstances unlawful ? 8. What is meant by an agreement in restraint of trade? 9. What is the test as to whether an agreement in restraint of trade is contrary to public policy? 10. What law governs the enforceability of a contract? 11. What is the attitude of the court towards contracts that are illegal or contrary to public policy? 12. Under what circumstances will the court make an exception? CHAPTER XI HOW CONTRACTS ARE MADE §60. Oral Contracts — A contract may be made simply by word of mouth or by words and acts. Such a contract is called an " oral contract." If it becomes necessary to go into court in order to enforce it, it will be necessary to prove it by oral testimony. The parties to it will be called on to testify as to what was said and done, and if any other people were present either party may call them as witnesses. In such a case the difficulty is that the agreement has not been reduced to writing and the various parties present prob- ably have entirely different ideas as to the meaning of what they heard. Certain parts deemed favorable by a party are most strongly impressed upon his memory, while other parts not so agreeable are not so well remembered, and after a year or so two men can honestly go into court and swear to abso- lutely contradictory accounts of the same transaction. Here the great advantage of the written transaction becomes ap- parent. That which is written does not change, and the law will not allow oral evidence to be introduced to contradict that which the parties have agreed to in writing. If, since the agreement was made, one of the parties has died, the writ- ten contract is even more essential to establish its conditions. Hence the prudent business man will insist that all agreements be made in writing and properly signed. Then if the agree- ment is well drawn, there is no question as to just what obliga- tions he has assumed or what he may properly expect from the other party. §61. Written Contracts — The written contract need not be a formal document. Two letters, one making a proposi- 59 6o CONTRACTS tion and the other accepting it, constitute a contract just as much as a legal document duly signed and sealed and acknowl- edged before a notary. The written contract should contain all the terms — the names of the parties; a statement of the consideration with the time and the method in which it is to be paid or per- formed; a clear statement of just what is agreed upon, when it is to be done, and in what manner; together with any ar- rangements the parties wish to make if something happens to render the contract impossible of performance, or in case it is only to be performed under specified conditions. Business men are accustomed to expressing themselves clearly, concisely, and explicitly in their letters. Letters and copies are always carefully filed and preserved. For this reason when legal assistance is dispensed with, a letter from the party making the offer and a reply from the party accept- ing or rejecting it usually constitute the most satisfactory method of securing a written contract. Each party has his own records. Since they are accustomed to expressing them- selves by letter, they understand what they have agreed to bet- ter than they might if the terms were expressed in formal legal phraseology. Even if a lawyer is called in later, the exchange of letters is a good way of making an agreement. If there is an extended correspondence before the parties finally arrive at an agreement, the last letter should sum up all the terms on which they have finally agreed, and this should be answered by a simple letter of acceptance, repeating the terms as therein stated. (See Forms 2, 7, 9.) §62. The Statute of Frauds in General To do away with the uncertainty of relying on people's memories in a contract by word of mouth, a law was passed in England, in 1676, called the Statute of Frauds, which required certain contracts to be in writing. This statute has been copied in the law of HOW CONTRACTS ARE MADE 6l most of the states of the Union. The requirement of the statute is not that the contract be written out in its entirety, but that it be evidenced by some memorandum in writing. A complete written contract is, of course, more desirable from every standpoint, but a memorandum will be sufficient. §63. Memorandum Required by Statute of Frauds. — It is not necessary to make the memorandum at the time a contract is agreed upon. It may be made at any time before a lawsuit involving the contract is begun. The memorandum may be very brief. (See Form 6.) It does not have to be in any particular form of language. It may be made up of letters or telegrams, provided they refer to each other plainly and together express the essential terms of the contract. The memorandum must be signed by the party against whom it is to be enforced, or he will not be liable under it. (See Form 3.) Under the law as enacted in some states, this signature must be at the end ; in others, it may be placed anywhere on the memorandum. At an auction or sheriff's sale, the auctioneer or the sheriff is the agent for both of the parties and may sign a memorandum for either of them. §64. Contracts Covered by the Statute of Frauds — The following contracts must be proved by a written memorandum : 1. A contract where the consideration is marriage. 2. The promise of an executor or an administrator to pay a claim against an estate which is in his charge out of his own money. If any property of the estate is left, the claim will be payable out of that, but in any case the executor or the administrator will not be liable personally unless there is a written agreement. 3. A promise to be responsible for the debt, the default, or the miscarriage of another. This means a contract of 62 CONTRACTS suretyship or guaranty, which will be explained later. (See Part XI, " Suretyship." ) 4. A contract for the sale of land or of any interest in land. This does not refer to a deed, but to a contract to give a deed. A deed must always be in writing. A deed which is not in proper form to operate as a deed may some- times operate as a contract to sell the property, and the party will be compelled to give a good deed. A defective deed can- not be corrected without much trouble. If a person makes a contract to sell or to buy land through an agent, the agent must in most states be given authority in writing to sign the contract. Growing things, such as trees, grass, and plants that come up of themselves every year, are regarded as part of the land, and a contract to sell or to buy them must be in writing. Crops which have to be planted every year are not regarded as part of the land even while they are growing. A lease of real property, if it is to last for over a year, must usually be in writing. 5. A contract which is not to be performed within a year from the time it was made. A contract which might possibly be performed in a year, although it might take longer, need not be in writing to be enforceable. It is always better, how- ever, to have such a contract in writing. 6. A contract for the sale of personal property of over a certain fixed amount in value. (This is explained fully in Chapter XX, " The Statute of Frauds." ) §65. Contracts under Seal. — The ancient significance of the seal has to some extent survived, and it is still used on documents of great importance. Deeds and mortgages of land, and in some states wills, must be under seal. A corporation generally verifies papers, particularly important documents, with its corporate seal. HOW CONTRACTS ARE MADE 63 §66. Implied Contracts — If one person accepts the bene- fit of another's services, the law holds that a contract to pay for them at what they are reasonably worth is implied, and the person who performs the service may claim compensation in court. The same reasoning holds if a person occupies land, build- ings, or rooms. The law implies a promise to pay a reasonable rent. If two people have a running account with each other, the law considers that they have promised each other that the one from whom a balance is found to be due shall pay that balance to the other. The promise to pay is based on the fact that the party has willingly taken the benefit of what was done. If something was done for him without his making any re- quest, and without his afterwards voluntarily making any use of it, he could not be charged for it. If, without orders, a man left bread at your door every morning, and you used it, the law would imply a promise on your part to pay for the bread. If he put a new roof on your house in your absence without orders, he could not collect for it, because you would have to use the new roof whether you desired such repair or not. In case the person who performed the service intended to do it without claiming payment for it, it would be a gift and there would be no implied contract to pay for it. §67. Quasi-Contracts. — In some cases where there is no contract, expressed or implied, but where one party has bene- fited by the act of the other party and should in justice pay for the benefit received, the law assumes or implies a fictitious contract and allows the party who has received the benefit to sue in a contractual action. Such an assumed agreement is known as a " quasi-contract." An example of such a con- tract is a case where A by mistake has overpaid B. Here there is no contract ; but B through an error has received some 64 CONTRACTS of A's money which he ought to return. A can recover this money in a quasi-contractual action. Review Questions 1. What sort of a contract is a marriage? 2. How is a marriage proved? 3. Why is the proving of a contract so important? 4. What is the difficulty when a lawsuit arises out of an oral contract? 5. What is the object of reducing a contract to writing? 6. What should the written contract contain? 7. Would a printed or typewritten memorandum be a written contract ? 8. May a contract be made up of letters ? 9. What is the Statute of Frauds? 10. Does it require that the contract be written out in detail? 11. Does the memorandum required by the Statute of Frauds have to be in any particular form? 12. What is the rule as to signature ? 13. Enumerate the six contracts that must be in writing under the Statute of Frauds. 14. What legal papers require a seal? 15. Would it do any harm to put a seal on a paper that did not re- quire it? 16. What is an implied contract? 17. Why is an explicit contract more likely than an implied contract to prevent friction and dispute? 18. What is the meaning of the term " quasi-contract"? 19. Give an illustration of a quasi-contract. CHAPTER XII EFFECT OF CONTRACTS §68. Effect of Mistakes — There are two kinds of mistakes possible in making a contract : 1. A mistake as to the quality or the value of the subject the contract deals with, or as to the legal effect of the contract. 2. A mistake as to whom one is dealing with, what the agreement is about, or what is to be done under the contract. The first heading refers to cases where one or both par- ties believed that the subject of the contract was more or less valuable than it actually was. You cannot avoid a contract by showing that you made a mistake in what you said or wrote. For example, a seller who in making the contract showed a wrong sample or quoted a wrong price, is bound. Parties making a contract should be careful. The court considers not what a party thinks and believes but what he says and does. You should not assume that the other party will look out for your interests by cross-examining you to make sure that you thoroughly understand what you are doing. Without the rule that a party is bound and cannot ple.ad his own mistake where the mistake is one-sided and due to his own carelessness, con- tracts would not be worth the paper they are written on. Neither will it make any difference if one of the parties did not realize that he could be bound by the contract, or did not know just what he was required to do under the law to carry out his agreement. Every man is supposed to know the law and it is his own fault if he fails to find out about it in the first place. 6S 66 CONTRACTS A mistake under the second heading will mean that there is no contract. A party cannot be forced to observe a con- tract with someone with whom he did not intend to contract. The parties must be considering the same thing and must be agreed as to what is to be done about it, or there is no meet- ing of their minds and therefore no contract. §69. Signing Without Reading — Every person who knows that the instrument he is signing is a contract, but fails to read it, will be bound by it, even though the contract contains provisions that he did not expect. No one should ever sign a contract without reading it. If, however, a man is induced by trickery to sign an in- strument which he is told is not a contract, and it subsequently turns out to be a contract, he will not be bound by his signa- ture. A telegraph company desired to get a right of way from a farmer. The agent of the telegraph company induced the farmer to sign a paper which was represented to the farmer as a receipt for a payment made to the farmer for certain services rendered by him, but in reality the paper was a formal document giving the telegraph company a right to erect its poles on the farm.^ In deciding against the telegraph com- pany, the court said : " It certainly would not be just that one who has perpetrated a fraud should be permitted to say to the party defrauded when he demands relief that he ought not to have believed or trusted him. Where one sues another for negligence, his own negligence contributing to the injury will constitute a defence in the action ; but where one sues an- other for a positive wilful wrong or fraud, negligence by which the party injured exposed itself to the wrong or fraud will not bar relief." §70. Mistakes of Expression. — If, in writing the contract, 1 Wilcox V. American Telephone & Telegraph Co., 176 N. Y. 115. EFFECT OF CONTRACTS 67 an error of some sort is made in the written document through the fault of some clerk so that the contract misrepresents the actual agreement between the parties, the court will order it rewritten to express what the parties have really agreed upon. The mere clerical or typographical error will be cor- rected. If the purchase price, which was agreed upon as $100, by mistake is stated in the contract as $1,000, the agreement on the basis of $100 will stand and the contract will be re- formed to carry out this intention. §71. Mistake as to Parties — If a customer sends an order to the firm of A and B, and, unknown to the customer, the firm had previously become incorporated, the corporation would not have the right to accept the order. If it did so, the customer could refuse the goods on the ground of a mis- take of parties. He made an offer to a firm, and a corpora- tion, even though it is run entirely by the members of the old firm, cannot accept the offer. A man has a right to decide upon the party with whom he is willing to contract and no one else can be substituted without his consent. §72. Mistake as to Price or Quantity — A mistake by the seller in quoting the wrong price will, of course, be no ex- cuse. Should the buyer, however, think that he is getting the article by the quart and the seller is intending to sell by the dozen, there is a fundamental mistake and no contract results. If, on the other hand, the seller quotes the wrong price and the buyer knows the seller is making a mistake and does not cor- rect him, there will be no contract, because in this case it is the duty of the buyer to correct the seller. The same rules apply to a mistake in quantity. §73. Mistake as to Quality. — If the buyer relies on his own judgment and takes the article without any statement 68 CONTRACTS from the seller as to its quality and then later finds the article is practically worthless, the buyer will have to bear the loss. If he wants to be sure of its quality he should get a warranty from the seller; because if the goods are warranted as perfect and they turn out to be imperfect, the buyer can either return them or he can get a deduction from the purchase price for the imperfection. If the buyer thinks the goods are being sold with a warranty, but the seller, who in reality is not giving any warranty, notices this mistake on the part of the buyer, and does nothing to correct it, the mistake will invalidate the contract. " The law will not allow one party to accept a promise, which he knows the other party understands in a dif- ferent sense from that in which he understands it." ^ §74. Effect of Fraud — If there was any fraud in inducing a party to enter into a contract, he may refuse to perform his share of the agreement. If the contract has already been carried out, he may recover his property or its value. If he wants to annul the contract, however, he must return anything he has received under it unless the property received has been used up or destroyed at the time he discovers the fraud. If he prefers, he may let the contract stand and claim damages for any loss he may have suffered. §75. What Constitutes Fraud — A false statement stand- ing alone does not constitute fraud. It will not be stigmatized as legally fraudulent, unless it is combined with the other ele- ments of fraud. The elements or requisites for fraud are as follows : I. The statement must be a misrepresentation of a past or existing fact. A statement of opinion or a promise as to the future cannot be taken as the basis of fraud, because an opinion is a matter of personal judgment and ordinarily carries with 2 Clark on Contracts, page 205. EFFECT OF CONTRACTS 69 it no guaranty of correctness, but a statement of facts may be relied upon, because, before making such a statement, the party should investigate and know whereof he speaks. When a party relies on the opinion of an expert, it is a different mat- ter. Then an expression of opinion without sound ground would be the basis of fraud. 2. The misstatement must be of a material fact. Mis- statements about unimportant matters will not amount to fraud. 3. The misstatement must be relied upon. If a buyer to whom articles have been misrepresented makes investigations on his own account and buys the goods on his own judgment, he cannot subsequently claim fraud, because his loss is due to his own poor judgment and not to the misrepresentation. 4. The false statement must be known to be false or must be madQ recklessly without any positive belief or adequate knowledge in regard to its truth or falsity. If the maker of the statement honestly thought that it was true, he will not have to pay damages in an action of fraud although he may be responsible in other forms of action. 5. The statement must be made seriously and with the in- tention that it be relied upon; if made as a joke and the other party as a reasonable man should have understood that it was a joke, it cannot be the basis of fraud. 6. The misstatement must result in injury. There can be no fraud unless damage has been done. In most cases a mere non-disclosure will not amount to fraud, but under certain circumstances failure to disclose im- portant facts will be considered fraud. If a party keeps secret certain facts which it is his duty to disclose, the non-disclosure will amount to an implied representation that such facts do not exist. For instance, it is the duty of an employer in tak- ing out a bond to inform the surety company of the em- ployee's criminal record if he has one. 70 CONTRACTS In Shelton v. Ellis, Shelton and Company learned of a mis- take in the rate sheet of the Western and Atlantic Railroad Company by which the fare from Atlanta, Ga., to Rogers, Ark., was quoted as $21.25 when it should have been $36.70. They induced Garland, a traveling salesman, to buy a large number of tickets for them before the railroad company dis- covered the mistake. The court held that the tickets must be returned.* The injured party must act promptly as soon as he discovers the fraud. By delay he may lose his rights. §76. Specious Schemes. — Ordinary people of the salaried and the professional classes 'lose money running up into mil- lions of dollars by investing in all sorts of specious get-rich- quick schemes. If they would study the prospectuses of these schemers, they would see how carefully they are written so as to avoid any positive misstatements but to give a strong im- pression by a series of carefully worded opinions, estimates, etc. Such phrases as, " it is estimated," " it is expected," " there is every reason to believe," " it is the opinion of old miners," are used again and again. It is astonishing how plausible a prospectus can be made without giving any positive statement, except as to comparatively immaterial matters. The important matters in deciding upon an investment are : 1. The character and the experience of the management. 2. The amount of capital they will have to work with. 3. The subject matter of the business. On these essential points there is rarely any positive in- formation in prospectuses of this sort. §77. Duress. — A party must consent to a contract of his own free will. That is the essential element of an agreement. 3 70 Georgia 297. EFFECT OF CONTRACTS 71 Consequently, if his will is overpowered by that of someone else, the result cannot be a contract that will hold him. There are two ways in which a person may induce another party to make a contract against his own free will. One is by the use of intimidation or force, the other is by taking ad- vantage of mental weakness or of affection to influence him. If a party signs a contract in order to escape from im- prisonment or detention of some kind, he has signed under duress and not of his own free will and the contract cannot be enforced. If he signs it in fear of immediate bodily harm, which he has every reason to believe the other party is capable of inflicting, the same holds true. In a case where there is no detention but merely threats, the threats must be either of bodily harm or of imprisonment to the person himself or to some near relative, or of an injury to his property, and must have been made under such circumstances that a man could reasonably believe that there was immediate danger of their being carried out. As soon as a party escapes from duress or from fear of the threats that coerced him, he may rescind his contract and re- cover any property or other consideration, or value therefor, that was taken from him under the contract. §78. Undue Influence — Undue influence is exercised when one party takes advantage of another through near relation- ship, such as that of attorney and client, doctor and patient, guardian and ward, etc. ; or when, the second party is mentally weak and at the mercy of his more keen-witted fellow-men. A deficient person can hardly be said to exercise his own free will ; contracts can readily be imposed upon him by others, and when this imposition can be proved, contracts made with him have no legal standing. When a person takes advantage of mental weakness, or of near relationship, or of confidence reposed in him to influence 72 CONTRACTS another person to make a contract, it is not the free action of the second party and is no contract. People who are merely friends are not considered to be in such a position that the one can exercise an undue influence over the other. Where the consideration for a contract is plainly inadequate, it may raise a suspicion of undue influence. If the person recovers his mental health, or is separated from the party who influenced him, he may refuse to carry out his contract and recover anything he has turned over to the other party under it. His friends and relatives may also act for him in order to protect his property while he is still under the influence of the other party, or too incapacitated mentally to act for himself. §79. Lav^ as to Alterations — Any alteration in a written contract by one party without the consent of the other makes the contract of no effect as against the other. If a person, not a party to the contract and not acting for any of the parties in it, should make alterations in it, the alterations would be treated as though they did not exist. The nature of the original contract would be proved by the testimony of the par- ties, and the contract would be enforced as it stood before the alterations were made. Parties to a contract may alter it if they can agree on the changes to be made. Even though the contract is in writ- ing, it may be modified by an oral agreement. In most cases, however, some consideration is necessary to support the modi- fication. If the time for payment or for performance is ex- tended, the party thus benefited should furnish some new con- sideration for an extension, though in some states it is held that the original consideration is sufficient. §80. Filling in a Contract — If the contract is not com- plete, however, but blank spaces have been left for any of the EFFECT OF CONTRACTS 73 terms to be filled in later, any party to it to whom it is en- trusted may fill out the blank spaces in any way which would be consistent with the other terms of the contract and enforce it as he has made it. If he were given instructions for filling it out, he himself could not enforce any other contract than one that was in accordance with the instructions, but he might fill it out contrary to the instructions and transfer it to another party, who, knowing nothing of the instructions, would be entitled to enforce it as he received it. This question arises more often in the case of negotiable instruments and will be spoken of under that heading. (See §189.) §81. Interpretation of Contracts — A contract should be so clear that its meaning may be easily understood. As a matter of fact, many contracts are far from clear and all sorts of disputes arise over their meaning. A contract is inter- preted so as to carry out the intention of the parties as nearly as may be. The court will try to interpret a contract in such manner as to make it lawful and enforceable. In this matter law and common sense coincide. In getting at the intention of the parties where the contract is not clear, anything which is unessential and tends to confuse the meaning will be disregarded. If there are two statements which absolutely conflict, the court will consider that the first gives the true meaning and will disregard the latter. The parties may bring in evidence to show the meaning of any technical terms which were used, or to prove some well-recognized custom or usage of business which will ex- plain the meaning of certain terms, or which may be con- sidered part of the contract. If a contract refers to any other papers or documents, these will be read in connection with it. Rules to Ascertain Meaning of Contracts. There are cer- tain general rules which the court will always follow to get 74 CONTRACTS at the meaning of a contract. One is that in a printed form which has been filled out, if the written and the printed words are inconsistent, the court will disregard the printed words and follow the written ones. If any words or phrases are inconsistent with the rest of the contract, and a clear intention can be gathered from the rest without them, the court will treat them as surplusage. If a general term is used, such as an agreement to do the " mason work " on a building, and it is followed by the men- tion of any specific kinds of mason work, such as " stone and brick work," " plastering," etc., it is a contract to do only the special kinds of mason work mentioned and not all the mason work on the building. To make a general contract for all the mason work, this intention should be clearly stated. If any of the terms of a contract were intentionally made ambiguous by one of the parties for the purpose of taking advantage of the other party, the court will interpret the doubt- ful terms in the way that will least favor the party at fault. In trying to decide what the parties intended where the meaning is doubtful, the court will be influenced by the words and the acts of the parties at the time of making the agree- ment, or the manner in which they have carried it out since. Their manner of carrying out the conditions shows what they understood by the agreement. Review Questions 1. What are the two kinds of mistakes made in making contracts? 2. What ordinarily is the effect of a mistake by one party, the other party to the contract not being at fault? 3. What is the effect of signing the contract without reading it ? 4. Under what circumstances will a man who has signed a contract without reading it be allowed to show that it contained some- thing that had not been agreed upon ? 5. What is the effect of a mistake of expression? EFFECT OF CONTRACTS 75 6. Suppose that both parties have made a mistake as to the identity or existence of the subjecst matter. What is the effect of such a mistake? 7. What is the effect when there is a mutual mistake as to price or quantity ? 8. Will a party who contracted to buy merchandise be allowed to show that he made a mistake in regard to the quality of the goods which are the subject matter of the contract? 9. When will he be allowed to show that there was such a mistake? 10. What are the essentials of fraud? 11. What is the meaning of "duress"? 12. What are the two forms of duress? 13. What is " undue influence " ? 14. What is its effect on a contract? 15. What is the effect of alteration on a contract? 16. How can the parties alter the written contract? 17. What would be the effect of an alteration by a third party with- out instructions from either of the parties to the contract? 18. If a note payable to B was signed by A and given to B, without instructions to insert the amount, would A be bound by the amount put in by B? 19. What is the best way of changing an existing contract ? 20. If the parties cannot agree on the meaning of a contract, what happens ? 21. How do courts try to interpret contracts? 22. Give some of the general rules of interpretation. 23. -How can trouble of this sort be avoided? CHAPTER XIII ASSIGNMENT AND NOVATION §82. Assignment of Contracts — A party who is entitled to rights under a contract may assign the contract provided these rights are not coupled with corresponding liabilities. A creditor may assign his claim for money due, because it can make no difference to the debtor whether he pays the creditor or the creditor's assignee. But where the situation is reversed, an assignment will not be allowable. A debtor may not as- sign his liabilities because the creditor who has relied upon the debtor and given credit to him cannot be forced to accept some substitute. No one can be compelled to work for a person unless he agrees to do so; and no one can be compelled to have another work for him whom he did not choose. Therefore a contract whjch calls for personal services cannot be assigned by either of the parties to it, since these conditions would result if such contracts could be assigned. Any other contract may be as- signed by either of the parties to it unless there is some pro- vision in the contract forbidding such action. The party who assigns the contract is the assignor; and the party who re- ceives the assignment is the assignee. §83. Form of Assignment — A party may assign a contract by simply handing the written contract over to the assignee, or by orally informing the other party to the contract that he has given up all his rights under it to the assignee. The proper way to assign a contract is in writing. If the contract is a written one, the assignment is usually written on the back of it; if the contract is oral, a separate written as- signment is usually made. No particular form of words is 76 ASSIGNMENT AND NOVATION 77 necessary if the intention to transfer all the rights in the con- tract is plain. (See Form 5.) §84. Liabilities of the Assignee — The assignee of a con- tract becomes liable to perform all the duties of the assignor and receives only such rights as the assignor enjoyed under the contract. If the contract was obtained by fraud, duress, or undue influence, or if the other party to it was not competent to make a contract, such other party may refuse to perform it just as though the assignee were one of the original parties. If the assignor owed the other party anything which could have been offset against the contract, the other party may off- set that amount against the assignee. §85. Rights of the Assignee — If a party should assign all his rights under a contract to one person and afterwards as- sign them to another, the second assignee would acquire no rights under the contract. The second assignee would, how- ever, be entitled to sue the party who claimed to have assigned the contract to him. If the assignor assigned only part of his rights to the first assignee, the second assignee might enforce such rights as remained. Subject to the rights of the other party, the assignee may bring a suit to enforce the contract in all cases where the assignor would be entitled to do so. §86. Notice of Assignment.— The assignee should notify the other party to the contract at once that the contract has been assigned to him. If there has been an assignment to any other parties, the one who is the first to give this notice will be entitled to have his rights enforced first. Then, too, it prevents the other party from paying out anything to the as- signor. If he should pay him in ignorance of the assignment, the assignee could not compel him to pay again to himself. 78 CONTRACTS §87. Novation — Novation is the substitution of other parties, or another party, for one of the original parties to the contract. Where John Smith has an agreement with Henry Jones to buy a horse for a certain sum, and instead of doing so he assigns the contract to Samuel Brown, and Henry Jones agrees to take Samuel Brown as the party to the agreement, this is a novation. Samuel Brown has been substituted for John Smith in the contract, which can now be enforced against him, Samuel Brown. Agreement of Parties. To constitute a good novation, all the parties must agree to the arrangement. Henry Jones must discharge John Smith from his agreement to pay for the horse, and take Samuel Brown's agreement in place of it; John Smith must have assigned all his interest in the con- tract to Samuel Brown, whose agreement to pay for the horse is the consideration for Henry Jones' acceptance of him as a substitute for John Smith. If any of these considerations are lacking, the novation will not be enforceable. The discharge of Samuel Brown's indebtedness to John Smith is the consid- eration for his promise to pay Henry Jones ; and his agreement to pay for the horse is the consideration for Henry Jones's acceptance of him as a substitute for John Smith. Review Questions 1. May a claim for money due be assigned? 2. May liabilities be assigned? Give reason. 3. Could a teacher turn over a contract to teach' to someone else ? 4. Can an oral contract be assigned? 5. Write an assignment of an agreement to sell coal. 6. " I agree to sell John Doe two cords of oak wood for $25 payable on delivery, November 15, 1919, Richard Rowe." John Doe assigns this to Albert Hayes. What would be Hayes's liability ? ASSIGNMENT AND NOVATION 79 What should Hayes do immediately? Why? If Rowe fails to deliver the wood, whom should Hayes sue? 7. What are the rights of the assignee? 8. Are the rights of the assignee afifected by any counter claims or offsets that the third party may have against the assignor? 9. Is it important to give notice of the assignment to the third party ? Why ? 10. Explain the meaning of the term " novation." 11. If one party to a contract wished to make a novation and the other party would not agree, what could the first party do? 12. What is the difference between an assignment and a novation? CHAPTER XIV DISCHARGE OF CONTRACTS §88. How Contracts Are Discharged. — The different ways in which contracts may be discharged are the following: 1. By performance 2. By breach 3. By agreement 4. By alteration 5. By operation of law § 89. Discharge by Performance — The usual way to dis- charge a contract is by performance or fulfilment. This means performance by both of the parties. Performance by only one of the parties releases that party from liability on the contract, but does not discharge the contract or release the other party from his obligation. In many cases tender of performance is equivalent to per- formance. This subject of tender is considered in Chap- ter XV. Under the old common law rule, the performance must be strictly in accordance with the provisions of the contract. This has worked so much hardship and real injustice that equity has modified the doctrine, and allows a substantial per- formance with damages to compensate the other party for any loss he has sustained. This is especially true of building contracts, where even in an action at law substantial per- formance will be sufficient. Where time is of the essence of the contract, the perform- ance must be within that time ; a performance after the time set in the contract is not a performance. Although everything 80 DISCHARGE 8i required under the contract is done, if it is done after that time it is not a performance. Where the parties agree that the contract must be per- formed to the satisfaction of one of them, nothing which does not satisfy him will be performance. In some states, however, the rule is that where no question of personal taste or fancy is involved, all that is required is performance which would satisfy the average reasonable man. Sometimes there is an agreement that the judgment of a third person shall be the test as to whether the contract is performed or not. In such case, the contracting party must abide by the judgment of this third party, unless the latter is proved to be mistaken or guilty of fraud. §90. Discharge by Breach — When one party is guilty of breaking the contract in some essential respect, the other party has the option of canceling it. If the latter does so, he is discharged from any further obligations on the contract. This subject of breach of contract is discussed in Chapter XVI. §91. Discharge by Agreement. — An agreement between the parties to rescind a contract, or a later agreement between the same parties with regard to the same subject matter, the provisions of which later agreement are inconsistent with the contract, will discharge the original contract. The agreement to rescind the contract must, like all other agreements, conform to all the rules governing contracts. The release of one party from his obligations is the consideration for the release of the other from his. But, where one party has performed his part of the contract, there must be some new consideration to him for releasing the other, or the agree- ment to rescind will not be enforceable. The courts will not interfere in most cases, however, where an agreement without consideration has actually been carried out. 82 CONTRACTS If two parties to an agreement make a new agreement about the same subject matter which is inconsistent with the old agreement in any way, the old agreement will be discharged to that extent. For instance, in an agreement of novation (see §87), by accepting the substituted party, the other party dis- charges the party who substituted him from his obligations under the contract. If the parties put an oral agreement into writing, or instead of a written agreement make a new contract under seal, the old contract is discharged and they are bound only by the new agreement. The material alteration of a contract by one party without the consent of the other, makes the contract voidable at the option of the latter. ( See § 79. ) §92. Discharge by Bankruptcy — When a person goes into bankruptcy and gets from the bankruptcy court what is called a discharge, the law releases him from all of his contracts. There are only a few exceptions to this rule. §93. Discharge by Impossibility of Performance. — There are some cases in which impossibihty of performance dis- charges a contract. The chief cases are the following: 1. Personal Service Contract. If a contract is made for personal services and the person becomes ill or dies, the con- tract will be discharged and there will be no liability for dam- ages by the person who agreed to render the services or by his representatives. The parties are presumed to have re- alized that if such a thing were to happen, the contract could not be performed, and to have made the contract on this under- standing. 2. Destruction of Particular Article Contracted For. If a contract is made for a particular article and this article is de- stroyed, the contract is discharged because the contract was DISCHARGE 83 based upon the existence of a particular subject matter and that subject matter is no longer in existence. The buyer will not be required to take anything else nor will the seller be re- quired to supply anything else. 3. Acts Impossible at Time of Making of Contract. If a contract were made for the sale of a house and unknown to the parties the house had burned down before the contract was signed, the agreement could not be carried out because the subject matter was not in existence when the parties tried to contract. 4. Act of God. Performance may become impossible by what is known as an " act of God," that is, a tornado, a hurri- cane, a flood, an earthquake, etc. If a contract is made to do some definite act by a definite time, however, an act of God will not excuse failure of performance, because if a man takes upon himself a certain definite obligation, he must meet that obligation, no matter what unforeseen conditions may arise. 5. Impossibility Created by the Other Party. The act of the other party in making performance impossible will be a valid excuse. If a contract is made to erect a building, and the owner of the land refuses to allow the builder to come on the premises and finish the job, the owner, of course, can- not object to the fact that the builder has not finished the work. 6. Impossibility Created by the Government or by a Change in the Law. If a new law is passed which makes the per- formance of the contract illegal, the parties, of course, will not expect to perform it, and non-performance will be excused. For example, a contract may be made to erect a building and the municipal authorities may thereafter pass an ordinance forbidding the erection of a building in the neighborhood in question. The passage of the ordinance will, of course, dis- charge the contract. Another application of this principle is seen in case of war. When two countries go to war, all possibility of friendly re- 84 CONTRACTS lationship between them ceases. All contracts between their citizens on which nothing has yet been done are discharged. If anything has been done by either party under the contract, and it is possible to do so without injustice to either party, the contract will merely be suspended until the war is over, when it must be carried out fully in accordance with its terms. For example, an insurance contract : That the defence of impossibility of performance may be availed of, it is customary in many contracts to insert a stipu- lation guarding against strikes, accidents, fires, the outbreak of war, etc. Often a provision of this sort is printed on the let- terhead. As a general rule the printed conditions on the letter- head are not binding. So in an important contract the parties should be very careful to incorporate in the body of the contract these clauses which relieve one or both of the parties from lia- bility in the event of certain contingencies. Review Questions 1. In what ways may a contract be discharged? 2. What is meant by " substantial performance " ? 3. If a contract states " delivery must be made by December I, 1919, and time is an essential part of this contract," would delivery on December 3, 1919, be a "substantial performance"? 4. How do the courts construe a provision that performance must be to the satisfaction of one of the parties? 5. Can one party cancel the contract without the consent of the other? 6. May both parties to the contract make an agreement to rescind it ? 7. Is there any exception to the rule that such an agreement is binding ? 8. What effect does a new agreement concerning the subject matter of an existing contract have on the contract? 9. What is the effect of a discharge in bankruptcy on the contracts of the party receiving the discharge ? 10. What is meant by "impossibility of performance"? DISCHARGE 85 11. How does the question of impossibility of performance arise in contracts for personal service? 12. When the contract calls for a particular article, what effect does the destruction of that article have upon the existence of the contract ? 13. What are acts of God? 14. What effect has war on contracts? 15. How may the efifect of strikes on the carrying out of a contract be guarded against? CHAPTER XV TENDER OF PAYMENT OR PERFORMANCE §94. Definition — When a person is prevented by the other party to the contract from carrying out his part of it, he may make sure of his own rights under it by " tendering " (that is, offering) to pay or to perform. The offer must be made by the party himself, or by someone he has authorized, at the time the contract was due to be performed, and either at the place specified in the contract for goods, etc., to be delivered, or directly to the other party or any agent he has appointed to receive them. For instance, if the other party had ordered goods to be delivered to a railroad company, the goods might be offered to the railroad as an agent authorized to receive the goods. It is safer, however, to offer them to the party himself, as then no question can arise as to the validity of the tender. Where there are bulky goods, the person desiring to make the tender may ask the other party to name a place where they are to be delivered, and, if he fails to do so, may notify him that the goods will be delivered to him at a certain time and place. Then delivery at that time and place will be good tender although the party is not there to receive the goods. §95. Time to Tender Performance — The tender must be made at the exact time specified in the contract, and before sunset on that day in order to give the other party a chance to examine the goods, etc. A tender before the time for per- formance has arrived does not meet the requirements for a tender and will not save the rights of the party making it. If the contract specifies " on or about " a certain day, or 86 TENDER OF PAYMENT OR PERFORMANCE 87 " within " a certain time, a tender made a few days before the day set would be good. If a party cannot make the tender be- fore sunset because the other party has remained away all day, he may make it as soon as the other party returns. If a party positively states that he will not accept a tender under any circumstances, or has the party making it put ofif his premises or refuses to hear him, it is not necessary to make the offer. The party making the tender may show the court what happened, and will be excused. Unless it is absolutely certain that it will be impossible to make a tender, however, the party should at least try to make it. Only the absolute cer- tainty that the attempt would be useless will be a valid excuse. §96. Extent and Kind of Tender — The exact amount of goods or money called for by the contract, including any inter- est due, and, if the other party has begun an action or sufifered any damages, his expenses or the damages due, also must be offered. If it is money, the party should take care that it is in "legal tender." This really means, as a usual rule, that too much small change should not be offered. Five-cent pieces are a legal tender up to $5 and not over, while silver coins less than $1 are a legal tender up to $10 and not over. United States Treasury notes, gold coins, and silver dollars are a legal tender to any amount. Ordinary bank notes are not legal tender, but, unless objected to at the time, a tender in bank notes would be good. If it is not possible to ascertain the exact amount, the party should take care to ofifer more than enough, as too little will not make a good tender. If the contract called for services, the tender will consist of notifying the other party that the party is ready and willing to perform the services at all times. A tender must be made unconditionally. The party must 88 CONTRACTS simply ofifer what is due without calling for anything in return, not even a receipt or change, or it is not a good tender. §97. Acceptance of Tender. — If a party keeps property or money that has been left with him after he has had a sufficiently long time to examine and refuse it, it amounts to an acceptance of the tender. If he refuses to accept, the party making the tender may take the goods or money away, and inform the other party that he will hold them subject to his orders ; he will then keep the goods or money separate from his own property and ready at all times for the other party if he calls for them. If the money is deposited in a bank, it must be put in a sep- arate account and not drawn upon. Review Questions 1. What is the object of making a tender? Why is it done? 2. To whom should the tender be made? When? 3. At what time should the tender be made ? 4. What kind of money should be used in making a legal tender? 5. Would a check be a good tender? 6. Can the person making the payment demand a receipt ? 7. If the party retains the tender, is it an acceptance? 8. If the party refuses to accept, what should the party making the tender do? If it is in money, what must be done? 9. Why should the party making a tender have a witness with him ? CHAPTER XVI ENFORCEMENT OF CONTRACTS §98. Breach of Contract. — A contract may be broken by either party in one of several ways, such as: 1. Failing to perform the contract. 2. Refusing to perform the contract. 3. Making performance impossible for himself or the other party. §99. Failure to Perform. — If a party breaks a contract by failing to perform it, the other party must have done all that can be required from him under the contract before he is en- titled to bring suit. If he himself had previously been guilty of a breach, he cannot take advantage of a subsequent breach by the other party. If one party was to perform work or to deliver goods for which the other party was to pay, he must be able to show that he has either performed or offered to perform the work, or that he has delivered or offered to deliver the goods, before he has any right to claim damages. A party must remain ready and willing and in a position to perform what he agreed during the entire time of the contract; it is not enough once to have made the offer. Of course, if his part of the contract was to pay after the other party had performed it,"" he need not pay until such performance. It is often hard to determine just when a contract has been broken by failure to perform. Unless the time within which it was to be performed was an important part of the \'alue of the contract, the courts usually give parties what they consider a reasonable time in which to complete it, whether the contract sets a definite time for its completion or not. 89 9° CONTRACTS A Reasonable Time. The difficulty is to know what the court will consider a reasonable time. The parties may, how- ever, have this determined beforehand by stating in the con- tract that " time is of the essence (that is, an essential part) of this contract," in which case the court will enforce it within the time specified. Or, if this has not been done, the party for whom the services were to be performed or to whom the goods were to be delivered, etc., may demand that the other party fulfil his part of the contract within a certain time or he will consider it broken. If he has really given the other party a reasonable time, he will have a right to bring action if the services agreed upon have not been performed within that time. §100. Refusal to Perform — If a party refuses to perform the conditions of the contract when the time comes for per- formance, he thereby relieves the other party from any further obligation and gives him an immediate right to sue for dam- ages. In any case, the refusal to perform must be a definite and positive statement, if advantage is to be taken of it. A state- ment that the party is disinclined or unwilling to perform cannot be considered as a clear renunciation of the contract. § loi. Making Performance Impossible If a party makes it impossible for himself to perform a contract by disposing of its subject matter, the other party is immediately relieved from all obligations and has a right to sue at once for the damages he has sustained. For example ; a man who has made a contract to sell his house to A sells the house to X. The same principle applies where one party prevents the other party from performing. (See § 93, par. 5.) §102. Remedies for Breach of Contract — It is important to determine whether the breach is of an essential or of an unes- ENFORCEMENT 91 sential term. For example, a man makes a contract to pay a certain sum for the purchase and installation of a certain ma- chine. Is the provision for installation a vital term of the contract? It depends upon the circumstances. If the pur- chaser can find mechanics with sufficient knowledge and skill to install the machine, he should do so and deduct from the purchase price the expense of the services of the mechanics. On the other hand, if the machine is of such a new and intri- cate type that it can be installed only by the seller's own expert mechanics, the buyer, of course, cannot be expected to take the machine, because it would be useless to him unless installed as provided for in the contract. In the first case the pro- vision for installation is a non-essential term, whereas in the second case it is an essential term or condition of the contract. Thus, the breach of an essential term or condition of the contract gives the injured party the right to refuse to go ahead, that is, to cancel the contract. But the breach of a non-vital term or stipulation of the contract simply gives the injured party the right to claim damages ; he must continue to perform his part of the contract. The moment a contract is actually broken the other party has a right of action for damages, but there must be an actual breach. People are inclined to rush into court when they think that their contract rights are disregarded, without stopping to make sure that there has actually been a breach. If an action for breach of contract is to be brought at all, it is best to do it as soon as possible after the contract has been broken, as the court may consider that a person has voluntarily sur- rendered his right if he waits too long. §103. Separable and Entire Contracts. — If a contract is made up of several parts which are mutually independent, the party who performs part but not all of such a contract may re- cover for the part performed. For instance, a clothier makes 92 CONTRACTS a contract to supply a young man with a hat, an overcoat, a suit, and a necktie. He delivers only the hat and the suit. He is entitled to collect for these and the customer would have to take them. On the other hand, if a young man buys a costume for a fancy dress ball and the costumer failed to deliver an essential part of the costume, the customer could refuse to accept the incomplete costume. In the latter case, the contract would be what is known as an " entire contract " and complete performance would be required. In instalment contracts, such as a contract to deliver i,ooo barrels of oil at the rate of loo barrels every month until the contract is completed, it is sometimes difficult to determine whether the failure to deliver one lot would be a breach of the whole contract or not. Various states hold different views on this question. §104. Recovery for Part Performance. — Where there has been a breach of a vital term of a contract by one party after the other or innocent party had partly performed, the latter has a choice: he may recover in quasi-contract the reasonable value of what he has done ; or he may sue for damages for the breach by the other party, and in such action may recover for his part performance according to the price or schedule of prices fixed in the contract; in addition, he will be allowed damages for the balance or unperformed part of the contract. Even in the case of an entire contract the party who has been guilty of a breach because he has completed only part of his obligations will, in most cases, be allowed the reasonable value of what he has done. Where one of the parties is prevented from performing a contract for personal services by sickness or death, he or his estate may recover the value of what he has already done; where a contract is unenforceable because of the Statute of ENFORCEMENT 93 Fraud but has been performed in part, the party who has this part performance to his credit will be allowed to recover on the basis of reasonable value up to the extent of his per- formance. §105. Specific Performance. — There are some cases in which damages could not repay the party for what he lost on the contract, as, for instance, a contract to buy some valuable work of art which could not be duplicated elsewhere. In con- tracts for the delivery of goods, where it is possible for the party to go out and to purchase other goods of the same nature, his loss can easily be computed and covered by damages; but where it is impossible to compute the damages, or where the property purchased is a work of art, an heirloom, or some- thing else which cannot be duplicated or easily purchased else- where, so that damages do not compensate him for his loss, the court will compel the other party to perform the contract. This is known as " specific performance," and is granted by a court of equity. Land, with everything relating to it, is always regarded as having a peculiar value; so a contract for the sale of land may always be specifically enforced. In cases where the contract is for personal services, or cannot be carried out because the other party has disposed of the property involved, or for any other cause, the court will refuse to make a useless decree. In the case of personal services, it is not considered that any services which the other party might perform to escape imprisonment would be worth much. §106. Rules of Evidence. — Certain rules have grown up with regard to the admission of evidence before a court. Some of these rules have been dictated by convenience, in order not 94 CONTRACTS to take up the time of the court unnecessarily; others for the sake of being fair to both parties. Some of the rules of evi- dence particularly concern contracts. An oral contract must be shown by testimony. The testi- mony of the parties themselves, and of any witnesses who were present and heard the transaction, is competent; but anything in their conversation or relations which has no bear- ing on the contract will be excluded. It often happens that contracts are agreed upon between the two parties, and each remembers only the part that favors himself; in such a case a court cannot give any relief, because the evidence balances. Where it is not possible to prove the making of the contract itself satisfactorily, evidence that the party in some way acknowledged or ratified it, or that he has partly performed it, may be introduced to show that there was such a contract. The Burden of Proof. The burden of proving anything is always on the party who asserts it; thus many cases fail, not because the party is in the wrong, but because he cannot prove his case. Judges and juries can act only on evidence brought before them, and if a case is good but there is no evidence to prove it, a court cannot give relief, and the law should not be blamed for it. This is why written contracts are so important. The Parol Evidence Rule. The meaning of the parol evi- dence rule is that other evidence will not be admitted to vary the terms of a written contract, because the contract itself is the best evidence of what its terms are. Generally, however, the performance of the contract, or a breach of it, will have to be shown by oral testimony. The same is true of abandon- ment of the contract; and anything which would show ade- quate motive may be introduced as tending to support the proof of the abandonment. There are exceptions to the parol evidence rule. Where ENFORCEMENT 95 the contract is not clear in itself, it becomes necessary to resort to parol evidence to explain it. Any other paper or matter to which the contract refers may be proved in con- nection with it, and, if such paper shows on its face that the transaction outlined was not complete, the whole transaction may be proved. Oral evidence may always be introduced to show fraud, duress, undue influence, or illegality in the con- tract. The rules of evidence may even be stretched in such a case to allow the proof of other transactions not directly con- nected with the contract under consideration, tending to prove a fraudulent contract. Admissions. A party will never be allowed to use his own statements and acts unconnected with the actual contract or the transactions leading up to it, to prove that there was a contract, or that what he claims as to its terms is true, but he, however, may prove anything which the other party said against his own interest, and then the other party may show any other statements made in connection with the admission which might have limited its efifect. Where a party employs an agent to deal for him, any admission against the employer's interest which the agent made at the time of, or during the transactions leading up to, the contract, may be used against the employer; but not ad- missions which the agent made- after the execution of the contract. Transactions With a Party Deceased Thereafter. To pro- tect estates against fraud, where a person is suing to enforce a contract against the executor or the administrator of a person who is dead, he will not be allowed to testify to any trans- actions which he had with the dead person, where there were no other witnesses present to testify as to what the dead person said or did. This is very important to remember, because, in the case of an oral contract where no witnesses were pres- ent, the party who is still living might not be able to prove 96 CONTRACTS the contract at all; this is another reason why all contracts should be reduced to writing. §107. Statute of Limitations — The Statute of Limitations is the law that specifies the time limit within which an action may be brought. For the sake of peace and in order to put some limit to the time in which rights of property, etc., can be upset by lawsuits, laws have been enacted in every state providing that after a certain length of time specified in the law, actions may not be brought in the courts. These laws apply to all the various forms of actions, including those on contracts. If the contract is under seal,. the law usually gives a longer time in which to bring action on it. Review Questions 1. If A agrees to rent B his home beginning October I and is un- able to move out until October 2, so that B is not able to move in until October 3, can B consider the contract broken? Give reasons. 2. If a contract is made to dig a cellar and the party who is to do the work is notified to stop after he has commenced to excavate, what would be his legal rights? Suppose he continued to work and finished the job? 3. Wh'at is necessary to constitute a renunciation to the contract? 4. If an actress in her theatrical contract agreed to appear for rehearsals two weeks before the performances were to begin, and then was a week late in reporting for rehearsals, would her failure to comply strictly with the terms of the contract entitle the manager to discharge her? 5. When one party definitely announces that he will not perform the contract, does the other party have to wait until the expiration of the contract period before starting suit ? 6. If a contract is separable, what is the effect of a part per- formance ? 7. If the contract is entire, what is the effect of a part performance? 8. Is an instalment contract considered as a separable or an entire contract ? ENFORCEMENT 97 9. If a man agrees to overhaul certain machinery and after doing half the work quits on account of sickness, can he recover for what he has done ? How much can he recover, i.e., what would be the measure of his recovery ? 10. If a tenant fails to pay rent at the end of the month, can the landlord bring suit? For what would he sue? If he has the tenant dispossessed, is he entitled to the rent for the balance of the period of the lease? 11. What is the meaning of the term " specific performance "? 12. In what cases will the court usually decree specific performance? 13. How is an oral contract proved? What does the court do when each party remembers only that part which favors himself? How can this be avoided? 14. What is meant by the term " burden of proof " ? 15. What is the rule as to parol evidence? Give some exceptions to this rule. 16. What is meant by " an admission "? 17. What is the rule as to admissions? 18. What is the rule as to an admission by an agent? Why? 19. What is the rule as to testimony in regard to transactions with persons who have since died? 20. What is the object of the Statute of Limitations? 21. Is it honorable to plead the Statute of Limitations if there is no other defence? CHAPTER XVII DAMAGES §io8. When Damages Are Allowed. — Damages are allowed only for an actual loss sustained. The general theory of dam- ages is that the party who has been injured by the breaking of a contract should, so far as money can do it, be placed in the same position he would have been in if the contract had been performed. So he is given a judgment for a sum of money, which, if paid, will compensate him for the monetary loss sustained. But he is not allowed anything for loss of time, inconvenience, worry, or the expense of attorney's fees. If a contract has been broken, but no damage has been done, only nominal damages will be allowed. This means a verdict of 6 cents. An illustration of this is the case where the manufacturer refuses to deliver goods, the market price for which had fallen below the contract price on the date of de- livery. Here the customer has not lost anything, because he can go out in the market and buy the goods at a price lower than the price he was to pay the manufacturer. §109. Damages Are Allowed for a Certain but Not a Speculative Loss. — Before a party can get an award of dam- ages, he must show by a preponderance of the evidence that he has suffered a loss in dollars and cents as the result of the other party's failure to carry out the contract. He must show that he has lost money which he would have made if the con- tract had been carried out. In other words, where A breaks the contract, B, the other party to the contract, to recover a verdict must show that the performance of the contract would have netted him a profit. If there is any serious question as to the financial outcome of the contract to him, he will not be 98 DAMAGES 99 allowed damages. As an example, take a contract to deliver machinery. The machinery is not delivered. The buyer of the machinery claims that he has lost an opportunity to make large profits because of the non-delivery of the machinery. The net return from the orders that he could have accepted had the machinery been delivered would depend on his skill, experience, managerial ability, the cost of material, labor con- ditions, the general efficiency of his plant, and other factors. Because of the numerous factors involved, it cannot be said with any degree of certainty that he would have made profits from the operation of the machinery. Consequently, he will not be allowed anything for lost profits and will be restricted for damages to the difference between the price he was to pay for the machinery and the price that it sold for in the market at the time of delivery; or if he ultimately accepted the ma- chinery, he would be allowed for the rental value of the ma- chinery during the period of the delay. If it is clear that one party has suffered a loss because of the breach of contract, btit the amount of the loss is not definite, the injured party will not be forced to forego damages simply because he cannot show the amount of damages down to the last cent. In such a case, the jury will be allowed to estimate the damages. Consequently, the important factor is not the amount of damages, but the certainty that damages of some amount have been suffered. §110. Damages Are Allowed Only for the Natural and Immediate Consequences of the Breach of Contract — The injury for which damages are claimed must be shown to be a direct or natural result of the breach of contract. If the loss for which compensation is claimed is an indirect result of the breaking of the contract, no damages will be allowed. In other words, the breach of contract must be the direct cause of the loss. An example of this is the rather humorous case lOO CONTRACTS of Coppola V. Kraushaar.^ In this case the plaintiff had ordered from the defendant, a dressmaker, two gowns for his betrothed. He told the dressmaker that the wedding was to take place on the 19th of the month and that the gowns must be ready the day before. He paid a deposit of $10. On the 1 8th the gowns were demanded from the defendant but they were not ready. In consequence of the dressmaker's failure to deliver the gowns, the engagement was broken by the girl and the plaintiff thereupon sued for his expenses " in buying presents, wine, clothes, etc." The court held that the plaintiff was entitled to $10, i.e., the return of the deposit, but that the other damages claimed were too remote, as they were not the natural results of the dressmaker's breach of contrac':. The ordinary girl, under the circumstances, instead of break- ing the engagement would have gone ahead with the marriage or postponed it until her trousseau could be completed. In another case ^ the plaintiff sued his bank for $50,000 because the bank failed to pay his note, althougfi he had on deposit a greater amount than the amount due on the note. On hearing of the failure to pay the note, the plaintiff's credi- tors, becoming alarmed, got judgments and levied executions with the result that his business was ruined. The court held that the destruction of the business was not the direct result of the bank's failure to pay. In other words, the immediate cause of the action of the creditors was the plaintiff's shaky financial condition and the action of the bank was simply a remote cause. §111. Damages Are Allowed Only for Results that Were Understood by the Parties as the Probable Results of a Breach. — This principle is very similar to the principle dis- cussed in the preceding paragraph. When a party makes a 1 102 App. Div. (N. Y.) 306 2 Brooke v. Bank, 69 Hun (N. Y.) 202. DAMAGES lOl contract, he understands at the time of making the contract that certain consequences will ensue in the event of his failure to carry out his obligations and he impliedly agrees to be responsible for any money damages suffered by the other party in the event that these consequences do ensue, but he does not agree to be responsible for any unexpected or remote results. An illustration of this is the case where A makes a contract to sell B a certain quantity of goods. B's plan is to use these goods in making up finished products which he contracts to sell to X, Y, and Z. A does not make delivery. Consequently B cannot carry out his contracts with X, Y, and Z, because he cannot get the material from any other source. A, as damages, will have to pay to B, the difiference between the contract price and the market price on the date of delivery, but he will not have to pay to B any damages that B has had to pay out to X, Y, and Z, because A did not know of the con- tracts with X, Y, and Z. On the other hand, if B, at the time of making the contract with A, explains to A that his plan is to use the goods he is ordering from A in manufacturing finished products to be resold to certain customers and that he is relying on A to make prompt delivery, then A understands that in the event of his failure to carry out the contract with B, he will be responsible for all amounts that B may have to pay out in damages to his customers. §112. Damages Must Be Reduced as Much as Possible. — When a contract is broken, the injured party cannot calmly sit by and allow the damages to roll up in the expectation that the party breaking the contract will have to foot the entire bill but he should take every means possible to minimize the damages. Suppose for example, a lease requires a landlord to make all repairs. The tenant notifies the landlord that the roof is leaking but the landlord refuses to do anything about it. The tenant has a very valuable stock of goods which he 102 CONTRACTS is finding trouble in selling. These goods are stored directly under the leaking roof. The tenant allows them to stay there and be ruined by the water coming through the roof, because he thinks that the landlord will have to pay for them. The tenant cannot get damages, because allowing him to recover under these circumstances would put a premium on waste- fulness and negligence. Another illustration is the case of a manufacturer who, while engaged in manufacturing goods under an order, gets word from the customer to stop work on the order. The manufacturer should stop at once and charge the customer only for the work done up to date and for the profit he would have made had he carried out the order. This will enable the customer to save a considerable amount be- cause he will not have to pay the full price ; on the other hand, the manufacturer will get all his expenses and his full profit ; so he is not losing anything. If the manufacturer carries out the order completely, he will be turning out a product that will be practically useless to the customer. Thus, the manu- facturer will not gain any more than he would under the system •outlined. Another example is found in contracts of employ- ment where the employee is dismissed before his time is up. He cannot go off and take a vacation at the expense of the ex-employer, but should make a reasonable effort to find an- other job in the same line. If he makes no such effort, he will not be allowed to recover any damages whatsoever. Review Questions 1. Explain the theory of damages. 2. What is indicated by a verdict of 6 cents? 3. If a mill fails to deliver cloth to a tailor, can he recover as his damages the profits that he expected to make on the garments that he would have made up out of the cloth and sold, had the cloth been delivered? DAMAGES 103 4. If a builder does not finish the building within the contract time, will he have to pay as damages the amount of the rentals which the owner claims he could have secured during the period of the delay, had the building been completed on time? 5. Is it always necessary to show the exact amount of damages in dollars and cents? 6. Suppose an agent telegraphs his employer for $50. The telegraph company in transmitting the message makes a mistake so that it calls for $500. The employer, thinking that the request is for $500, telegraphs this amount to the agent. The agent absconds with the $500. Will the telegraph company be liable for any amount to the employer, and if so on what theory? What is the immediate cause of the loss in this case — the mistake of the telegraph company or the character of the agent ? 7. If the damages are aggravated by special circumstances unknown to the party breaking the contract, will he be responsible for the full extent of the damage? 8. Suppose that a garage with which you have made a contract for the storing of your automobile refuses to allow you to put the car in. You then leave the car on the street in front of the garage. The next morning you find that the car has been stolen. Would the garage be responsible for the loss of the car because of its failure to carry out its contract for the storage of the car ? Give reason. 9. If you make a contract to sell perishable fruit and the buyer re- fuses to take it, are you under any obligation to try to sell it to someone else? Why? PART III SALES CHAPTER XVIII THE SALES CONTRACT §113. Uniform Sales Act — On account of the confusion of the law in regard to commercial transactions, commissions have been appointed by the various states to unite in working out uniform laws governing such transactions. As a result of these activities, we have a number of uniform laws or codes. The best known of these is the Uniform Negotiable Instru- ments Law which has been adopted in all the forty-eight states of the Union except Georgia, and in all the territories except Porto Rico. In connection with sales, we have the Uniform Sales Act, and on allied subjects, the Uniform Warehouse Receipts Act and the Uniform Bills of Lading Act. The Warehouse Receipts Act has been adopted in all the forty-eight states except New Hampshire, South Carolina, Georgia, Kentucky, Mississippi, Indiana, and Arizona. The Bills of Lading Act has been adopted in twenty-one states. The Uniform Sales Act has been adopted in the following states : Arizona Minnesota Oregon Connecticut Mississippi Pennsylvania Idaho Missouri Rhode Island Illinois Nevada Tennessee Iowa New Jersey Utah Maryland New York Wisconsin Massachusetts North Dakota Wyoming Michigan Ohio Alaska The object of these acts is not to change, but to combine, the best features of existing laws in different states. Various states sometimes adopt these acts with slight modifications, but for all practical purposes the law is uniform. 107 108 SALES Our discussion of the subject of sales is based primarily on the Uniform Sales Act. §114. Difference Between a Sale and a Contract to Sell. — In the Uniform Sales Act, we find these definitions : " A sale of goods is an agreement whereby the seller trans- fers the property in goods to the buyer for a consideration called the price." " A contract to sell goods is a contract whereby the seller agrees to transfer the property in goods to the buyer for a con- sideration called the price." An actual sale is sometimes called an " executed contract sale," whereas a contract to sell is called an " executory con- tract of sale." In an executory sale, the title or the ownership of the property does not change. In an executed sale, the buyer assumes the role of owner and all the resulting rights and liabilities. An executed sale may take place even though the goods have not been delivered. The buyer may accept the ownership but may arrange with the seller to leave the goods in storage. Delivery usually indicates that the ownership has passed ; but delivery after all is not the important factor. The determining factor is the intention of the parties. Did they intend that the ownership of the goods should pass from the seller to the buyer or simply that the seller should become obligated at some future time to transfer his title to the buyer ? (See Form 10.) §115. Importance of Distinction — Whether a given trans- action is an executed sale or an executory contract of sale is fre- quently a matter of prime importance. The risk of loss result- ing from fire, flood, or other cause is, of course, upon the owner. So if the ownership has changed hands, the buyer will have to suffer this loss even though he has not yet received THE SALES CONTRACT 109 the goods. An illustration of this is often seen in shipments by a common carrier. A man in New York orders goods from Chicago. The usual rule is that the railroad company is the agent of the buyer. The result is that on delivery of the goods at Chicago to the railroad company, the goods pass into the hands of the agent of the buyer and consequently at that time they become his property. Accordingly if any loss or damage occurs in transit, the buyer is the proper party to make the claim against the railroad company and even though he fails to collect from the railroad company, he never- theless would have to pay the seller for the shipment. The same question of the risk of loss may come up where the goods have been selected by the buyer but left with the seller. If the title passed at the time of selection, as it often does, and subsequently the goods are destroyed before deliv- ery to the buyer, the buyer nevertheless will have to pay the price. The question of the transfer of title or the nature of the contract is also important in connection with the right of dis- posal. The owner of the goods, of course, has the right to dispose of them. If A selects a particular carload of fruit and pays part of the price and it is understood that the car- load became his property at the time the contract was made, he will be entitled to the selected carload, although to get it he will have to pay the balance of the price. If the seller refuses to give up the carload or relinquish the documents relating thereto, A can get a court order forcing him to do so. On the other hand, if the ownership has not changed hands, the buyer cannot force the seller to deliver the goods. In that case, the buyer's only remedy is to sue for damages or to go out in the market and buy goods from somebody else and make the seller pay the excess above the contract price. Ex- cept under very exceptional circumstances, he cannot force the seller to comply with the contract. no SALES §ii6. Price. — A contract of sale which does not mention a price is valid, because the court will assume that the goods are to be paid for at a reasonable price and charge the buyer accordingly. Usually the reasonable price is the market price at the time and place of delivery. If, however, an order is given for goods and the parties agree that the price is to be fixed later, there is no sale, or contract to sell, because the parties have left one essential of the contract for future agreement. Such uncertainty of price will invalidate the sale. Sometimes the price is made dependent on outside circum- stances, as for instance, the market price on the day of deliv- ery; or it may be agreed that the price is to be fixed by a third party. An inadequate or excessive price does not invalidate the sale. A man who makes a bad bargain need not expect any relief or sympathy from the court. The general question of consideration has been very fully discussed in Chapter IX. §117. Existence of Subject Matter — Where the goods are in existence and are owned by the seller, he may, of course, sell all or any portion of the goods. Whether the sale is executed or executory depends upon the intention of the par- ties. For an executed sale, existing subject matter owned by the seller is a necessary and vital element. The, seller cannot transfer the ownership of something which is not in existence or which he does not own. Consequently, when A attempts to sell to B some article which is not in existence, the trans- action amounts merely to an agreement by A to sell the article to B when it does come into existence. Likewise, if A attempts to sell to B an article of which X is the owner, the transaction is not a sale, because A cannot, without X's con- sent, transfer the ownership of property belonging to X. THE SALES CONTRACT ill An exception to this principle is the doctrine of potential existence. This has been abolished by the Uniform Sales Act but it still survives in most of the states that have not adopted the Uniform Sales Act. The theory of potential existence treats agreements to sell articles which are not in existence, but which in the ordinary course of nature will come into existence, as executed sales when the articles come into being or are produced. A farmer contracts to sell the offspring of animals or a future crop. As the subject matter is non- existent, all that the farmer has agreed to sell is an expectancy. The realization of the expectancy, however, is so highly prob- able that the doctrine of potential existence provides that the offspring at birth or the crops on ripening at once become the property of the buyer, just as they would if they had been existing when the farmer made his contract. §ii8. Destruction of Subject Matter When the goods which the seller is offering for sale have been entirely destroyed without his knowledge at the time the agreement is entered into, the contract of sale does not take effect. When they have been partly destroyed, the buyer may refuse to take any of them, or he may take those which are left and pay for them at the contract price. If the goods were sold at so .much a quart, a barrel, etc., he may pay for what he gets. If a lump sum was named for the entire lot, he must pay the entire amount, because the court will not attempt to split it up for him. To do so would be to make a new contract for the parties. If there has been an actual sale and the ownership of the goods has passed to the buyer, the loss falls on him if they are destroyed without fault of the seller, even though they remain in the seller's possession. If the ownership still remains with the seller, the loss would fall on the seller, wherever the goods may be, even though on their way to the purchaser. 1 12 SALES Where the contract was not for any specific articles, but only for so many feet of lumber, bushels of wheat, etc., the destruction of the wheat or lumber which the seller had at the time the contract was made would not excuse him from per- forming it. He must go out into the market and buy more to replace what was lost. Where the contract is for a selected article, as for a par- ticular painting, table, or goods that have been designated by special lot numbers, destruction of the subject matter excuses the seller from performance. He does not have to replace the destroyed subject matter with similar articles, because the con- tract is based on the existence of the particular subject matter selected. Review Questions 1. Is it desirable to have uniform state laws on all subjects that affect business ? 2. What four laws have been made uniform in most states? 3. Define a sale and a contract to sell. 4. Distinguish between the two. 5. Why is it important in many cases to determine whether the transaction is an executed or an executory sale? 6. To have a sale, is it necessary that the price shall have been explicitly agreed upon? 7. Does an inadequate or excessive price have any effect on the agreement ? 8. Is it possible to have an executed sale of articles not in existence? 9. How is the contract of sale affected by the fact that the goods mentioned had been destroyed previously ? 10. What right has the buyer if the goods are partly destroyed? 11. If the sale had been completed before the damage occurred, what would be the result? 12. What is the effect of the destruction of a particular article con- tracted for? CHAPTER XIX PASSING THE TITLE §119. Importance of Selection — It is impossible to trans- fer the ownership of goods that have not been identified or set aside. A contract to sell an automobile of a certain make does not transfer the title to any automobile until a particular automobile is designated as the subject matter of the contract. The precise article or articles that are to constitute the subject matter of the sale must be agreed upon. This means that the subject matter of the sale must have been selected. Usually the selection is made by the buyer, but in some cases the buyer directly or indirectly authorizes the seller to make the selection for him. §120. Exceptions to Rule of Selection — Goods in Mass. — Where the shipment consists of a mass of uniform quality, such as flour, grain, wine, or oil, it is not necessary to have any selection because every particle of the mass is the same. The particular receptacle from which the goods are to be taken must be designated, however. So if a buyer orders 100 bushels of grain and designates the grain elevator from which the grain is to be taken, title to 100 bushels will pass without any separation. Whether the buyer's portion is separated from the whole at the time of the sale or later makes no differ- ence, because in either case he will get exactly the same thing, as he becomes owner of his part or fraction of the unseparated mass. In case of loss, he will bear his proportion of the loss. Should there be a 50 per cent loss, he will have to accept the delivery of half the quantity he agreed to pay for and pay for the entire quantity ordered. "3 114 SALES §121. Exception to Rule of Selection — ^Appropriation of Goods to the Contract — ^An actual selection by the buyer is not necessary if the buyer has agreed that the seller may make an appropriation of goods to the contract. For instance, he may have directed the seller to set aside certain goods, pack up the goods, and mark the packing cases with the buyer's name. This would be a sufficient selection or appropriation. Or again, suppose the buyer orders goods by mail or by tele- graph. Here the buyer is ordering unselected goods. The selection, which is necessary to pass title, he authorizes the seller to make for him. The seller sufficiently indicates his selection or appropriation of the goods to the contract when he delivers them to the common carrier who is considered the agent of the buyer. Of course, the goods must be according to the contract; if they are not, they may be rejected by the buyer. So in the ordinary case, a proper delivery to the com- mon carrier means delivery and transfer of title to the buyer. The parties may change this rule by a special contract or the seller may in some customary way indicate that he reserves the ownership of the goods until payment. §122. The Intention of the Parties. — The question of pass- ing title is primarily a question of the intention of the parties. When do the parties intend title to pass? This is simply a question of fact, but it is in many cases very difficult to de- termine. Where the parties have expressed their intention clearly in the contract that intention will, of course, be fol- lowed. But where their intention is not clear, the following rules will be applied to determine their intention as to the time of the passing of title : 1. Where goods are picked out by the buyer and, at the time the contract is made, are in the shape in which they are to be delivered, the buyer becomes the owner immediately. 2. Where the goods have yet to be picked out or something PASSING THE TITLE 1 15 further remains to be done to them before they can be deliv- ered, the buyer does not become the owner until that thing is done, and the goods are delivered to the buyer or at least are offered to him. 3. When a contract is made to sell a certain number, weight, or measure of goods or goods to be made up by the seller, the buyer becomes the owner when goods answering the description of the contract are turned over to him. 4. When goods are delivered to the buyer on approval or on trial, the buyer becomes the owner when he signifies his approval to the seller or in some, other way approves the transaction, or retains the goods beyond the time allowed for the trial or approval period, or, if no time is fixed, beyond a reasonable time. §123. Delivery. — Selection rather than delivery is the vital factor in determining whether or not title has passed. In many cases where the buyer actually selects the goods, the title passes to him at the time of selection and in advance of delivery. Where there is any question, however, as to whether or not title passed, the fact that the goods were actually delivered to the buyer is strong evidence of a change of owner- ship, because ordinarily a seller will not surrender possession of goods unless he is willing to divest himself of their owner- ship. If the seller is required to deliver the goods to the buyer or to a particular place, title will not pass until the goods have been delivered to the buyer or have reached the place agreed upon. §124. Importance of Shipping Terms — If goods are shipped from Detroit and the shipment reads, " f.o.b. New York," this means that the shipper or seller must get the goods to New York and pay the transportation charges to New "6 SALES York ; f .o.b. simply means " free on board " at the point named. Where the shipment is f.o.b. destination, the title does not pass until the goods reach their destination ; but where the ship- ment is f.o.b. shipping point, it passes to the buyer when the goods are put in the hands of the common carrier. C. O. D. of course means " cash on delivery." Whether or not title passes in this case on shipment depends upon the law of the state where the transaction arises. Under the Uniform Sales Act, this term indicates simply an inten- tion by the seller to preserve his right to withhold actual, delivery until he receives payment. In other words, where the Sales Act prevails, the seller in using this term transfers title but directs the common carrier not to make actual deliv- ery until payment is made. If the seller has the bill of lading made out to the buyer or to the order of the buyer, this indicates that the seller intends to pass title to the buyer. But if the seller has the bill of lading made out to himself or to his agent, tliis indi- cates that he does not divest himself of title. Where the seller desires to protect himself by the form of the bill of lading, he has it made out to his own order, attaches to it a draft or bill of exchange drawn on the buyer, and then gets a bank to discount the draft. The seller, of course, indorses the bill of lading to the bank. Then the bank holding the indorsed bill of lading is able to control the disposition of the goods. The bank or its agent in the city where the goods are to be delivered will not surrender the bill of lading until the draft is paid. In the meanwhile, the buyer cannot get possession of the goods because he does not have the bill of lading. §125. Sales Without Delivery. — Whether or not there has been a transfer of title, it is always a risk to leave property in the seller's possession. The very fact that it is in his pos- PASSING THE TITLE 1 17 session is apt to mislead innocent third parties who have no notice of the sale. If the seller was dishonest enough to sell the property again, there would be no chance of recovering it from any third party to whom he sold or pledged it. This is the case in California, Colorado, Connecticut, Idaho, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Missouri, Montana, Nevada, Oklahoma, Pennsylvania, South Dakota, Utah, Vermont, and Washington. The laws in the above states regard leaving the property with the seller as opportunity for fraud on other persons; hence, the party who so left the property must lose if the goods are sold to an innocent buyer. This is just, for, if a man has property in his possession, it is fair to assume that it is his, and if he sells it again the new buyer should be protected. Where for any reason possession is to be left with the seller, the only safe method for the buyer is to take a formal bill of sale and to file it on record in the proper office of registry for the locality. §126. Conditional Sales — It is possible for the seller to give the purchaser possession of the article that has been sold, and still to retain the ownership himself until the full price or a certain amount of the price has been paid. This can be done only by agreement, however, and where sales are made on the instalment plan it is very common to provide in the agreement of sale that the ownership shall not pass from the seller to the buyer until the last instalment has been paid. Such sales are known as " conditional sales." The law always enforces such an arrangement as between the buyer and the seller. For the sake of ready proof and avoidance of misunderstandings, the contract should be in writing. The usual plan is for part payments to be made as rent, with a proviso that the title passes to the purchaser when the last instalment is paid. "8 SALES The difficulty arises from the fact that, as the buyer has the property in his possession, third persons are apt to be mis- led into believing that he owns it and has the right to dispose of it. Most of the states get around the difficulty by providing that the seller must file the contract in an office of public record. Everybody is then required to know that it exists, as in the case of a mortgage. If the seller does not put the contract on record, and the buyer is dishonest enough to dis- pose of the property to a third person who had no knowledge of the seller's rights, the seller loses the property. (See Form 8. ) §127. State Laws on Conditional Sales — In the following states conditional sales are good against third parties without acknowledgment or filing: Arkansas Michigan California Mississippi Delaware Nevada District of Columbia New Mexico Idaho Oregon Indiana Rhode Island Louisiana Tennessee Massachusetts Utah Those states which demand a record require different formalities to permit the contract to be put on record. The contract recorded is merely required to be signed by the purchaser in the following states : Alabama Montana Arizona New York Kansas Texas Maine Vermont Minnesota West Virginia PASSING THE TITLE 1 19 Some States require in addition an affidavit by the seller stating the nature of the sale. In others, if the contract is signed by a witness, the witness may prove it ; but in most of the states the contract must be acknowledged by the buyer. §128, Effect of a Conditional Sale. — In the case of a con- ditional sale, properly registered, the ownership remains in the seller until the full purchase price has been paid, or, if the agreement of sale stipulates that title should pass on the pay- ment of a smaller amount, until that has been paid. Where the purchaser fails to make the agreed payments, the seller is entitled to the property. If it is not surrendered peace- ably, he may have to resort to legal proceedings to recover possession. (See Form 8.) Review Questions 1. Explain why selection must precede the transfer of the ownership of goods. 2. If the goods sold consist of flour or grains, is it necessary that there be a selection before the title passes? Why? 3. When goods are ordered by mail, when does the title to the goods shipped pass to the buyer? 4. Give other illustrations of the seller's appropriation of the goods to the contract. 5. If a man goes to a clothing store and selects an ovarcoat, which the store as a matter of convenience to him agrees to hold for a week when he is to call for it, and then the store and its contents are destroyed by fire within the week, will the man have to pay the price of the overcoat? 6. Would it make a difference in the last case if alterations were required on the overcoat ? 7. If a person takes a musical, instrument on a ten-day trial period and carelessly neglects to return it within the ten days as he intends to do, will he be liable for the price of the instrument ? 8. How is the question of the passing of the title affected by the matter of delivery? 120 SALES 9. Explain fully the meaning of the term " f .o.b." 10. In case the goods are shipped C. O. D. when does the title pass? 11. In shipping goods to a buyer in another city, how can you provide that the goods shall not be turned over to him until he has paid for them ? How would you make out the bill of lading? 12. Why is it risky to leave goods in the possession of the seller? 13. What is the only safe way of leaving the seller in possession? 14. What is a conditional sale? In such case, who owns the goods? Who has possession of the goods ? IS- How is trouble likely to arise in cases where the buyer has pos- session of goods he does not own ? 16. What is the usual method of making a conditional sale safe ? 17. What are the usual formalities to protect the seller in making a conditional sale? 18. What may happen if the property sold is destroyed before pay- ments are completed? CHAPTER XX THE STATUTE OF FRAUDS §129. When the Contract of Sale Must Be in Writing The Statute of Frauds, discussed in § 64, applies to sales where delivery is to be made later and where the value is over a certain amount. This amount ranges from $30 in Arkansas, Maine, and Missouri ; to $500 in Arizona, Massachusetts, New Jersey, and Rhode Island; and $2,500 in Ohio. Fifty dollars is usual. The words " in value " apply where the Uniform Sales Act has been passed. In the old statute the words were " in price." The price is the amount fixed by the parties themselves ; the value, what the goods are actually worth in the market. In order that a sale above the limited amount may be en- forceable, a written memorandum of the terms of the agree- ment must be signed by the party against whom it is sought to enforce the contract, or his agent. The memorandum of sale required by the Statute of Frauds need not be formal. It may be a note, a letter, a telegram, a receipt, or may consist of several papers so connected as to make an intelligible sales contract. The memorandum need not be made at the time of the contract, but it must state all the material facts, the parties, the price, if a price was agreed upon, and specify the articles to be sold. It must be signed by the party, or by the agent of the party whom it is desired to hold. There are two exceptions to the rule that a sale above the limited amount must be made in writing. These exceptions are: 121 122 SALES 1. Where the buyer has paid part of the price, or 2. Where the buyer has accepted and actually received part of the goods. §130. Exception for Part Payment. — A payment makes the contract enforceable, though it may be above the limited value. The payment may either be a part of the price, or something given or paid to " bind the bargain." This should, strictly speaking, be in addition to the purchase price. In England this earnest is no part of the price of the goods. Usu- ally in this country it is part of the price. The amount is not material. Under the Sales Act the payment may be made at any time ; under the common law, when the contract is made. §131. Exception for Part Delivery. — The second case mentioned in § 129 was : " Where the buyer has accepted and actually received part of the goods." The word " received " means taken into actual physical possession ; the word " ac- cepted " means that the buyer must have indicated his decision to become the owner of the goods. Both conditions must be fulfilled to make the contract enforceable. The buyer may show his consent to become the owner of the goods either by his words or by his conduct. The " part of the goods " must be taken out of the actual amount of the goods to be delivered. Samples or specimens which are not included in the buyer's share are not " part of the goods." §132. Sales for Amounts Below Specified Value. — Con- tracts of sale below the minimum established by the law need not be in writing. If the transaction were below the value set in any particular state, suit could be brought on an oral contract; i.e., a contract not in writing. If it were proved, it THE STATUTE OF FRAUDS 123 could be enforced, but an oral contract is always hard to prove. (See § 60.) If the contract of sale is above the minimum value, suit cannot be brought upon it unless it is in writing. If the parties to such a contract (not in writing) carry it out, it becomes an executed sale and stands, as does any other sale, but if either party refuses to carry it out, the other cannot enforce it at law. A single contract for the sale of a number of articles, each of which is below the limited amount in value, must neverthe- less be in writing if the value of all together is greater than that amount. §133. Exception for Work or Services — If the article pur- chased involves work or services which make it suitable only for the original buyer, the contract may be oral. For example, a man goes to a dentist and orders a set of false teeth. The dentist takes some porcelain and other materials worth very much less than $50 and out of them makes a set for which he charges considerably over $50. His work and skill are what give the teeth their value, and the teeth which are made for one man cannot be sold to another. In such a case the law says it is the dentist's services, not the materials, for which the man is paying, and the contract is not one of sale and need not be subject to any of the conditions mentioned in § 129. That is, the dentist can bring suit without a written contract. Under the Uniform Sales Act, the test as to whether or not a contract is for services or for the sale of goods is this: "If the goods are to be manufactured by the seller especially for the buyer and are not suitable for sale to others in the ordinary course of the seller's business," the contract is for services ; otherwise, it is a contract of sale. This is fair to the seller, because if the goods can readily be sold to others, he 124 SALES can, on the buyer's failure to take the goods, easily sell the goods to someone else and in that way will not lose much ; whereas if the goods are made up on special order for the buyer so that they cannot be easily sold to anyone else, the seller is allowed to recover the contract price from the buyer. Under the Sales Act, the fact that the goods are not in existence or that they are to be prepared or manufactured by the seller, is not important. The test applied is that given in the preceding paragraph. The existence of the goods, however, was the vital factor ill what was known as the " New York rule " before New York State adopted the Sales Act. This rule was that if any work was to be performed on the article to put it in shape for delivery, the contract was not a sale but a contract for work and services. The English rule is that if any article is to be made as a result of the work and services, the contract is one of sale. Either of these two rules may still apply in the states which have not adopted the Uniform Sales Act. Review Questions I. What is the usual minimum amount of a sale above which the Statute of Frauds applies? 2. By whom must the memorandum be signed? Why is it desirable to have both parties sign? 3. What actions of the buyer will make a memorandum of the con- tract unnecessary? 4. What effect has part payment? 5. What effect has part delivery? 6. Is there any reason why a contract of sale for an amount less than is specified by the Statute should be in writing? 7. If both parties carry out the contract, does it matter whether or not it was written ? 8. If the agreement is for services, does it have to be in writing? 9. What is the test to determine whether a contract is for the sale of goods or for the rendering of services? CHAPTER XXI WARRANTIES §134. Definition — The definition of a warranty^ in the Standard Dictionary is : An assurance or undertaking by the seller of property, express or implied, that the property is or shall be as it is represented or promised to be as to quantity, quality or title. If a farmer goes into an agricultural warehouse and asks to look at mowing m.achines, and after havihg inspected its stock and obtained prices to his satisfaction, says he will take the one which he has selected, he has assumed the responsi- bility for its fitness himself and has no recourse as to the seller for damages afterward if it should prove unsatisfactory. The court would apply the maxim caveat emptor, the ancient and harsh doctrine of the common law, signifying, " let the buyer beware." The common law originally took a sporting view of the dealings between buyer and seller, and did not wish to discourage skill in barter by stressing any ethical con- siderations. At the present day, however, both law and trade morality have advanced a long way beyond this primitive conception of the rights of buyer and seller. Nearly all trade transactions are now based on certain contract conditions, expressed or implied, by which the risk to the buyer is largely eliminated. A change of property for a consideration rarely takes place without some conditions or warranties as to quality, utiHty, or other characteristics of the commodity sold. §135. Express Warranties. — An express warranty is a 1 For form of warranty contract, see Form 11. I2S 126 SALES statement made by the seller about the quality, durability, work- ing ability, etc., of the article sold in order to induce the buyer to purchase. The purchaser must have bought the goods in reliance on that statement. If he relies on his own judgment and selects the goods himself, there is no warranty even though the seller makes a statement of fact. Any statement of fact or any promise by the seller in regard to the quantity, quality, or title of a commodity is an express warranty, if the natural effect of such a statement is to induce the buyer to purchase the goods, and if the buyer does purchase the goods relying on such statements. The buyer must be on the lookout to distinguish between statements of fact and expressions of opinion. Many pros- pectuses, as mentioned in § 76, are cleverly worded to give the impression of being statements of fact, while still permitting the companies floating them to escape legal liability. Any such phrases as " it is estimated," " it appears," " there seems to be," " experts estimate," etc., or any phrase which qualifies the simple statement of fact, makes the assertion a mere worth- less expression of opinion. If a merchant tells you that his goods are the best on the market, this is not an express warranty, as it amounts merely to his opinion of them, and is what is called " merchant's pufBng." If, on the other hand, he makes a direct and definite statement that these goods will wear a certain time, his state- ment is an express warranty. It is always well to get a warranty in the most definite terms possible, for if a merchant is really willing to warrant his goods he will not be afraid to say so in plain language if the buyer insists upon it. If the merchant is not willing to make a definite warranty, it is better for the buyer to know it beforehand and to realize that he is relying on his own judgment and can claim nothing from the merchant in case WARRANTIES 127 the goods prove unsatisfactory. Moreover, a written war- ranty prevents forgetfulness on the part o£ the seller. §136. Conditions — There are two kinds of conditions. One is called the " pure condition." It is based upon the hap- pening of some event over which neither of the parties has any control. For example, a contract is made to manufacture goods if a certain proposed law is passed, or a contract is made to buy goods coming from some foreign country " on arrival." In both of these cases, neither of the parties would be bound unless the conditions were carried out. The other kind of condition is what is called the " promis- sory condition." Examples of this are stipulations in sales contracts that the goods will be delivered on a certain date or that they will be of a certain make or description. Where the Sales Act does not apply, both of these classes of conditions are recognized. But where the Sales Act ap- plies, the second class, that is, the promissory conditions, are treated as warranties. It is also to be noted that when the Sales Act applies, warranties are in reality given the same eflfect as conditions, that is, the remedy for breach of warranty is the same as the remedy for breach of condition. Where the Sales Act is not in force, the buyer, on suffering a breach of warranty, will have to be content with securing damages and will not be allowed to return the goods ; whereas if he could prove a breach of condition, he would in that case have his choice of these two remedies. §137. Implied Warranties of Ownership — In every sale today there are certain implied warranties which the law com- pels the seller to make good. In regard to his right to sell the property, he warrants by the mere act of selling goods : 128 SALES 1. That he has a right to sell the goods, or, if it be a contract of sale, that he will have the right to sell them when the time for the sale arrives. 2. That the buyer shall not be disturbed by any claims made by others against the goods. 3. That the goods are free from any claim, charge, or in- cumbrance at the time of the sale. These warranties do not apply to sheriff's sales and auction sales. There the buyer takes the risk that the article may be claimed by someone else. If the seller sells stolen goods, the buyer will be forced to return the goods to their rightful owner, but he may, if he can, recover the amount of his damages from the seller. In this case, the buyer, even though he is entirely innocent of any knowledge of the theft will not be allowed to keep the goods because he has no title to them, inasmuch as he pur- chased from one who had no title to transfer; whereas if the seller had obtained the goods with the consent of the rightful owner through fraudulent misrepresentation, the buyer, who is ignorant of the fraud, would be allowed to keep the goods. In such a case, the goods are transferred from the original owner to the seller by a contract which gives the seller a void- able title. So the seller can convey some title, which in the hands of an innocent buyer is considered as a perfect title, because the original owner gave up his property voluntarily and enabled the seller to get money from the buyer on the strength of his apparent perfect ownership. §138. Implied Warranties of Quality — There are two other warranties which go with a sale of goods even though nothing is said about them. I. If the buyer makes known to the seller the purpose for which he intends to use the goods and the fact that he is rely- WARRANTIES 129 ing on the seller's skill or judgment, there is an implied war- ranty that the goods furnished will be fit for the purpose. For instance, in a certain case, a buyer notified the seller that the automobiles he was ordering would be used in a hilly dis- trict and for heavy trafific. The court held that there was an implied warranty that the automobiles furnished would be fit for the work intended.^ A very common illustration of this is buying food for immediate consumption. Whenever we go into a market or grocery store to buy food, the butcher or the grocer knows, of course, why we are buying it; there is therefore a warranty that the food will be fit to eat. 2. If goods are bought by description from a person who regularly deals in that kind of goods, there is a warranty that the goods furnished will be merchantable, that is, of average quality. When we buy goods from a- dealer and do not see the goods at the time of purchase, if, for example, we order from a catalogue or by mail or telegram, we naturally expect the dealer to furnish us goods of average quality. When a buyer orders goods by their trade-name (Quaker Oats, Ivory Soap, etc. ) the seller is not held to any warranty that they are fit for the buyer's purpose. As the buyer is ordering a known article, he is obviously not relying upon the seller but is using his own judgment. When a person orders goods from the description in a sales catalogue or from a sample, there is also an implied warranty that the goods furnished will be similar to the description or to the sample. The seller is liable for damages to the buyer if any of these warranties are broken. He is liable only to the immediate buyer, however, and not to other persons to whom the buyer sells the goods. An exception to this last statement is in the 2 Bristol Tramways Co. v. Fiat Motors, 2 K. B. 831; 103 L. T. N. S. 443. I30 SALES case where the goods manufactured are of such a nature that they will, if defective, be imminently dangerous to life and limb. If such goods are actually defective and cause an injury to some third party, the manufacturer will be liable to the third party. Review Questions 1. What is the meaning of the term " warranty"? 2. Is it desirable to secure a warranty? 3. As to what matters may warranties be given ? 4. Should a merchant sell goods if not willing to warrant them as to quantity, quality, and title ? 5. If a buyer relies on his own judgment, will any statements made by the seller be construed as warranties? 6. What is the difference between a warranty and a statement of opinion ? 7. What is an express warranty ? 8. If a warranty, turns out to be untrue, what can the buyer do about it? 9. What is the difference between a pure condition and a promissory condition ? 10. Does the Uniform Sales Act make any distinction between war- ranties and conditions? 11. Where the Uniform Sales Act does not prevail, what distinction is made between warranties and conditions? 12. What is the difference between an express warranty and an im- plied warranty? 13. What are the implied warranties of ovraership? 14. Can anyone get or give good title to stolen goods ? 15. How does the statement of the purpose for which the goods are bought affect the sale? 16. What circumstances are necessary to constitute an implied war- ranty that the goods will be fit for the purpose desired ? 17. Under what circumstances does the implied warranty of mer- chantability arise ? 18. What warranty is attached to a sale by sample? 19. Why is a written warranty better than an implied one? CHAPTER XXII REMEDIES §139. Rights of Unpaid Seller Under the Contract — Most breaches of contract in cases of sale arise from the failure of the buyer to make the required payments. In such cases the goods may be in the possession of one of the following three parties : 1. The unpaid seller may still have the goods in his own possession ; or 2. They may be in the possession of a railroad, a steam- ship, or an express company for the purpose of ship- ment to the buyer ; or 3. They may be in the possession of the buyer himself. A seller is still unpaid if he has been given a bad check or note in return for the goods. I. If the seller has the goods in his own possession, he may adopt any of the following courses : (a) The seller in most cases may refuse to give them up until they are paid for. This is known as the " seller's lien." If the sale is on credit, however, and the seller has no reason to believe that the buyer is insolvent, the seller's duty is to deliver the goods. But if he has any good reason to believe that the buyer is insolvent, the seller may withdraw the credit and demand cash. If the credit period has expired, the seller can, of course, refuse to deliver except for a cash payment, as the contract would then be on a cash basis. (b) If the goods are perishable or if the buyer has been in default of payment for an unreasonable length of time, the seller may resell the goods to someone else, keep the proceeds, and sue the buyer for the difference between the contract price 131 132 SALES and the amount realized an the resale. Where the goods are perishable, the seller must adopt this remedy ; otherwise, there would be a total loss. But, except in the case of perishable goods, he is not allowed to sell at the buyer's expense immedi- ately on the buyer's default ; he must give the buyer a reason- able time within which to make good his default. (c) The seller may, if the time for payment has arrived and no payment has been made, sue the buyer for damages for breach of contract. (d) In some cases the seller may hold the goods and sue the buyer for the price. He may always do this where the title of the goods has passed to the buyer. Under the Sales Act, he may also sue for the price under certain con- ditions: where the buyer agrees to pay the price on a certain day and does not do so, he may be sued for the price, because, in this case, he is simply being forced to carry out his promise; and where the goods cannot readily be resold for a reason- able price and the seller has tendered delivery of the goods, which tender has been refused by the buyer, the seller, after notifying the buyer that he is holding the goods as his agent, may sue the buyer for the price. Where suit is brought for damages, as stated in (c) above, the measure of damages will be the difference between what the seller can sell the goods for to someone else and the con- tract price. If the seller was manufacturing the article, he may claim damages for whatever loss he has sustained in labor or otherwise, up to the time the buyer notified him of his re- fusal to take the article, but not for any loss through continuing the work after that. Of course, if he can sell the article when finished to someone else at the same price, there is no loss. A provision permitting the seller to resell the goods in event of non-payment before delivery should be inserted in the contract in those cases where the buyer's credit is not depend- REMEDIES 133 able. This allows him to protect himself by selling the goods without running the risk of being held guilty of breaking the contract because he failed to deliver them. 2. If the goods have been delivered to a railroad company or similar agency for transportation, the seller's rights may be summed up as follows : (a) If in giving the goods to the railroad company for transportation the seller reserves the right of ownership to himself, he may refuse to allow the goods to be delivered to the buyer until the latter pays the purchase price. (b) If the buyer becomes insolvent and the goods are in transit, the seller may stop their delivery and enforce any of the remedies mentioned under (i), provided the railroad, ex- press company, or other carrier, has not informed the buyer that they are holding the goods subject to his orders. The seller cannot, of course, stop the delivery of the goods after they are in the possession of the buyer or his agent, even though it be before they reached their destination. Stopping delivery of the goods in this way is known as " stoppage in transit." If a negotiable bill of lading has been issued for the goods, the railroad company will refuse to give them up until the bill of lading is returned. 3. If the goods have come into the possession of the buyer, they are his property and the seller has lost all claim to them. The seller can only bring suit for the price if it is not paid when due. §140. Rights of Buyer. — Where the seller refuses to give up the goods to the buyer except in the case where the buyer does not pay at the proper time : I. The buyer may have the right to the ownership of the goods. If title has passed to him, he may sue the seller for damages for withholding the goods or he may bring what is 134 Sales known as an " action in replevin " to force the seller to deliver the goods to him. A replevin action is based on the theory that the plaintiff is entitled to the possession of certain per- sonal property. If he succeeds in proving this point, the court will order the defendant who is withholding the property to deliver it to the plaintiff. 2. The buyer may have no right of ownership over the goods, but only a right under the contract to have the goods delivered to him. In this case : (a) The buyer may sue the seller for damages for breach of the contract. (b) Or if the article is of such a special nature that he cannot get it anywhere else, the buyer may go into a court of equity and. sue to compel, the seller to perform his contract. In other words, he would bring an action for specific perform- ance. (See § 105.) The measure of damages when the buyer sues is the differ- ence between what he can buy the goods for in the open market and the contract price. If he can get them for the same price or less in the market, he does not, of course, suffer any dam- ages. The buyer's remedies for the seller's breach of warranty are the following : I. He may keep the goods and either: (a) Deduct an amount from the purchase price to cover the breach of warranty. (If the goods are worthless, he may deduct the entire price because the goods are worth noth- ing.) ; or (b) Sue the seller for breach of the contract of warranty. He would adopt this remedy if he had paid the price before discovering the breach of warranty. REMEDIES 135 2. He may refuse to accept the goods, or if already ac- cepted return them: (a) If the goods have not been accepted and title has not passed, the buyer may refuse to take them and sue for damages for the breach of warranty. (b) If title has passed or if the goods have been actually received, the buyer is limited to rescinding the contract. If he adopts this remedy he can secure damages for any actual loss caused by the defective character of the goods, but not for any lost profits. Also, he can recover the purchase price or any part of it that he has paid. The measure of damages which the buyer may recover for breach of warranty is the difference between what the goods were actually worth as delivered and what they would have been worth if they had been as warranted. When the buyer returns the goods, he must return them in as good condition as they were when received, unless the damage has resulted because of the fact that they were not as warranted. He cannot return them if he once accepted them knowing that they were not as warranted, or if he fails to notify the seller within a reasonable time that he refuses to take them. In any case, if the buyer intends to assert his rights, he should act at once; delay may be fatal. If he can- not make an examination on delivery, he should do so within a reasonable time thereafter. Just as soon as he discovers the defects, he should give notice of these defects to the seller. It is sometimes desirable to provide in the agreement of sale that the buyer may keep back part of the purchase price until he has tested the article warranted. Review Questions 1. Explain the seller's lien. 2. When does it arise? 136 SALES 3. When may the seller sell the goods because of the buyer's failure to take them? 4. In what case must he sell the goods on the buyer's failure to take them? 5. When may the seller sue for damages ? 6. How are the damages estimated? 7. In what cases may the seller hold the goods for the buyer and sue him for the price? 8. What are the seller's rights if the goods are in transit ? 9. What is the seller's only recourse when the goods have been delivered ? 10. What can the buyer do when the seller refuses to deliver the goods although the title has passed? 11. What can the buyer do when he has only the right to have the contract of sale carried out? 12. What could a buyer recover for the seller's failure to deliver goods under the contract? 13. If the goods fail to come up to the warranty, what courses are open to the buyer ? 14. What may be the effect of the buyer's delay in giving notice of a breach of warranty? CHAPTER XXIII SALES AT AUCTION § 141. Regulations for Sales at Auction — A sale at auction is held in accordance with terms printed in the auction bills. The sale is made when the auctioneer lets his hammer fall. He need not accept any bid unless required to do so by the terms of the printed auction advertisement. Generally such an advertisement will specify that the property is to be sold to the highest bidder. An auctioneer may refuse to recognize bids that are not substantially higher than the last bid, the amount depending on the value of the article ofifered for sale. If the seller had printed in the auction bill a provision that he reserved the right to take part in the bidding, himself, he might bid at the sale or have his friends do so for him. Other- wise if the seller, himself, bids, or has bids made for him, the person to whom the goods are finally " knocked down " may refuse to take them if he discovers the situation. §142. Compliance with Conditions The sale may be made on some condition. The buyer must then comply with the condition before he can receive the goods. Sometimes bidders are required to make a deposit before being allowed to bid; sometimes they are required to make a deposit after the bid is accepted. If the bidder does not comply with the terms of the sale he forfeits this deposit, unless he proves that the seller could not give him good title to the property, in which case he may recover his deposit and refuse to take the goods. A purchaser at an auction sale must always pay cash before he is entitled to the property. The seller may sue the purchaser for damages if the latter 137 138 SALES fails to take property which was " knocked down " to him. The seller may also sell the goods to someone else for what he can get for them. This amount will be deducted from his dam- ages. §143. Duties of Auctioneer — The auctioneer acts as an agent for the seller in selling the property; for the buyer in signing a memorandum of the sale. The seller will be bound to carry out the sale which the auctioneer makes, and the buyer to take the goods according to the memorandum of sale. An auctioneer is not allowed to bid for himself at a sale, but he may make bids for someone else. If he does not state for whom he is selling the property, he is personally responsible to the purchaser for seeing that the terms of the sale are carried out. An auctioneer who sells property that does not belong to the seller is personally responsible to the owner of the prop- erty, even though he honestly thought it was part of the goods to be sold. Because of all this responsibility, the law usually requires an auctioneer to have a license. In New York a man must take out a license to act as auctioneer to sell even his own property. The auctioneer has a lien on the property for his com- mission, and may require the commission to be paid him be- fore giving up the property to the purchaser. Review Questions 1. May a man who owns goods being sold at auction bid on them himself ? 2. What terms may be imposed at auction sales? 3. When does the bidder forfeit his deposit? 4. In what legal capacity does an auctioneer act? 5. May an auctioneer, himself, bid? 6. What lien has the auctioneer on the property he has sold? PART IV AGENCY CHAPTER XXIV PRINCIPLES OF AGENCY §144. Subject of Agency Is Important. — In the complex commercial life of today much of the world's business is of necessity transacted by proxy. The amount of business that one man can do is limited. Hence, to conduct the great ac- tivities of the world, those with executive ability empower oth- ers to act for them. At the present time the larger proportion of business men are not doing business for themselves, but are acting as agents for others. On this account the subject of agency is of primary importance. Many men are principals, yet more are agents; and all have to do with agents and should know what agents' powers are and just how far they repre- sent their principals. The matter of agency enters into all departments of business and will come up again and again in the treatment of other subjects in this work. The subject of agency is of vital importance in insurance, partnership, and corporation law. §145. Definitions — An agent is one who represents, or is authorized to represent, another person in a business transac- tion or transactions with third parties. The person represented is known as the " principal." The person appointed may be known as " agent," " factor," " broker," " attorney," " proxy," " delegate," or " represen- tative." The person with whom the agent deals on behalf of the principal is called " the third party." The relation between the principal and the agent is termed " agency." 141 142 AGENCY §146. The Principal — Anyone capable of transacting his own business may appoint an agent to act for him. A standard text-book expresses it thus : It may be stated as the general rule, by the common law every person who is competent to act in his own right, and in his own behalf, may act by an agent.'^ In the CaHfornia Code it is expressed as follows : Any person having capacity to contract, may appoint an agent. The legal doctrine of agency is based on the principle that whatever a person may do for himself, he may do by another person. The person who appoints an agent must be, there- fore, capable of transacting his own business; that is, when he appoints an agent, he must be sane, sober, and capable of act- ing for himself. In regard to the minor, the rule in most states is that the minor's contract with his agent and the contracts made by his agent are, like the ordinary contracts of the minor, voidable. So a minor may, in the great majority of states, be a principal, but may disaffirm the contracts he makes in this capacity. In a few states the minor cannot be a principal and any contracts that he attempts to make as principal are void. Corporations may appoint agents to accomplish their cor- porate purposes. Partnerships may appoint agents and each partner is held to be an agent for the firm. Married women may appoint agents. §147. The Agent. — Any person who is qualified to per- form the act in question may do it as the agent of another. The particular point to be noted in this statement is that a person may be legally incompetent to act for himself, but yet may lawfully act as agent for someone else. For example, a 1 Mechem on Agency, 129; 31 Cyc. 1175. PRINCIPLES OF AGENCY 143 minor in making a contract for himself does not absolutely bind himself, but he may act as agent for an older person and what he does may absolutely bind the older person. The reason for this distinction is that the minor when he acts as agent for another is acting under instructions and is not relying entirely on his own judgment. Furthermore, in the event of any loss, the adult, that is, the principal, and not the minor will be the one who will suffer. A child may be the agent of his parent; but he must be ap- pointed an agent; he is not an agent simply because he is the child of, or is living in the house with the parent. In such cases, to be an agent, the child must have been directly author- ized by the parent to act along certain lines, or else it must be shown that the child had been in the habit of so acting with the approval of the parent. § 148. General Agents — A general agent is one authorized to assume entire charge of his principal's business, or of all of some kind of business, or all of his principal's business at some particular place. Unless notified to the contrary, people dealing with a gen- eral agent have the right to presume that he is authorized to do anything usually done in such a business. They may as- sume that he has wide powers in his particular line and ordi- narily need not make any inquiry as to the extent of his au- thority ; but in doubtful cases they should do so to be on the safe side. The manager of a business is a general agent with power to use his individual judgment and to act largely upon his own initiative. His employer controls and limits his general policy, but he does many specific acts at his own discretion, and dele- gates authority in minor details to subagents who answer to him for what they do. For instance, a manager of a grocery store is a general 144 AGENCY agent for that purpose and has authority to purchase all kinds of goods that are sold in the store, and to contract for neces- sary repairs and improvements in the store. He has no au- thority to buy dry-goods, hardware, or other things outside his line of business. He has no authority to sell the whole store, or to buy real estate, or to build a new store. §149. Special Agents — A special agent is one authorized to act in a specific transaction or in a limited line of business. The authority of a special agent is not so broad as the au- thority of a general agent. Third parties who deal with such an agent should be care- ful to ascertain his exact authority, because they have no right to indulge in any presumptions as to his authority. A special agent is authorized to do some special thing. He may make, for instance, but the one contract or the one sale for which he has been appointed. Should he do some other special thing, which he honestly considers more to the inter- est of his principal, he would depart from his instructions and he alone would be liable; the party represented would not be bound. For example, an agent authorized to sell a particu- lar painting would have authority to sell that painting and to bind his principal in what he did in connection with the one transaction, but he would have no authority to do anything else. In a New York case, a father authorized a son, James L. Palmer, to accept a draft for $2,000, drawn upon the father at not less than thirty days. The son accepted the draft for $482, payable ninety days after date, in the name of his father. The court held that he was a special agent, and had no right to go outside of his authority.* A written request to a real estate broker as special agent, to 2 Nixon V. Palmer, 8 N. Y. 398. PRINCIPLES OF AGENCY 145 find a purchaser for real estate, does not confer upon him any authority to sign a binding contract of sale for his principal. To do this, he must also have authority to sell. §150. Del Credere Agents — An agent employed to sell goods sometimes guarantees his principal against loss from any of the customers to whom he sells ; in such case, the agent is termed a " del credere agent." It is not a common arrange- ment, but nevertheless it is used occasionally in mercantile circles. A factor with a del credere commission or agency is one who in consideration of a higher compensation expressly agrees to pay his principal the price of the goods he sells himself, if the purchaser does not.^ §151. Contracts Under Seal — An agent who is to execute a deed or sealed instrument must be appointed by an instru- ment of like formality. The most important feature of a deed is the fact that it is executed under seal. It is usually wit- nessed and then acknowledged before a notary public. Con- sequently the power of attorney by which the agent is given authority to make the deed on behalf of the principal should have the same formal execution and the same acknowledgment as the deed. In fact, the power of attorney is a formal docu- ment; it should be under seal and should be executed and ac- knowledged as stated. Although the deed, which is the instrument by which the title to the real property is transferred from the seller to the buyer, must have a seal, the contract for the sale of the prop- erty, which precedes the actual giving of the deed, need not have a seal. Under the Statute of Frauds, however, the contract must be in writing; but whether the agent's author- ity to make such a contract need be in writing depends upon 3 20 Cyc. 186. 146 AGENCY the law of the particular state in which the contract is made. There are some exceptions to this rule that an agent to make a contract under seal must be appointed under seal. They are the following: 1. Where the agent signs the contract in the presence of the principal. 2. Where the instrument signed by the agent is not re- quired to have a seal. As the seal in this case is not indispensable, the agent is not required to have authority under seal. 3. Where the agent in signing, signs as a partner for his firm. 4. Where the agent signs for a corporation. § 152. Interpretation of Contract — The contract of agency is to be interpreted in the light of what both parties reasonably understood it to mean. The same rules that apply to contracts in general govern this type of contract. (See § 81.) Any well-recognized custom in the particular trade or business to which the contract of agency relates, such as the custom of paying a certain percentage as commission to insurance agents, . etc., will be considered in seeking to find out the meaning of the contract. §153. Servants and Employees,-^An employee or servant may also be an agent, if authorized, to do business with third parties. An employee or servant is one who is employed to do certain mechanical work and who has no right to enter into business relations with third parties on behalf of the employer. Chauffeurs, brakemen, and factory workers are servants or employees. An agent, on the other hand, repre- sents the principal in dealings with third parties and makes PRINCIPLES OF AGENCY 147 contracts for the principal. In other words, the servant or employee is a mere mechanical worker, whereas the agent is a business representative. It happens in many cases that an employee is also an agent, but his functions as an agent are distinct from his functions as an employee. For example, a domestic servant becomes an agent when he or she is authorized to buy supplies. §154, Independent Contractors. — In a contract of agency, the principal directs how the agent is to do his work and what result he is to attempt to accomplish. This personal direction by the principal is an essential feature. Independent contractors are not agents or employees. An independent contractor is a man who engages with another to hand over to him in completed form some particular piece of work, and to receive a certain sum of money for doing it. Ordinarily the builder, who takes a contract to erect a build- ing, is an independent contractor. His contract in most cases is to erect a building according to certain plans and specifica- tions and to receive a certain sum for so doing. So long as he follows the plans and specifications, the owner has no right to interfere with the work or give him any directions. When this is the arrangement, the owner is relieved from liability for the acts of the workman and any claims for damages must be brought against the builder. On the other hand, when the owner reserves the right to interfere and give directions, whether or not he actually gives any directions, he remains re- sponsible for any injury caused in the construction work be- cause he is the party having the ultimate control. Review Questions 1. What does the word " agent " mean? 2. Why is the subject of agency important? 148 AGENCY 3. Give some names applied to those who act for others. 4. What is needed to make a person competent to appoint an agent ? 5. What is the effect of a minor's appointment of an agent ? 6. Name four kinds of principals. 7. Why is it that a minor can be an agent ? 8. How can it be known that a minor is authorized to act as the agent of his father? 9. If you owned a store and a boy wanted to buy a watch and have it charged to his father's account, what would you do about it? 10. What is a general agent? 11. Wha;t limit is there on the authority of a general agent? 12. How can you tell whether an agent is a general or a special agent ? 13. What is the distinction between a special agent and a general agent ? 14. What are the limits on a special agent's actions? 15. What is the peculiarity of a del credere agent? CHAPTER XXV THE CONTRACT OF AGENCY ^ §155. Appointment — The appointment of an agent may be oral, written, or by usage. An agent can be legally appointed for most purposes by an oral contract. The objection to an oral contract is the difficulty of proving it, and the probability of some misunderstanding as to its terms. But aside from this an oral contract of agency for all ordinary purposes is just as binding as a written contract. Often an agent is appointed in writing; either a formal contract is drawn up and signed by both parties, or a letter or a telegram is sent and the other party replies to it, in which case the letter or the telegram and the reply thereto would con- stitute the written contract. When an agent is appointed to vote at a corporate meeting, his written appointment is called a "proxy," (see Form 15) and is usually signed by the principal and by a witness. Some corporations require acknowledgment of the proxy before a notary public; but this is not usually necessary. When an agent is appointed to sell land, or to perform any important act, or to conduct any important negotiations, he is given formal power of attorney under seal (see Form 14). A power of attorney is a particular kind of written contract of agency. Where land is to be deeded or a mortgage executed, the agent is called an attorney in fact and it is absolutely essen- tial to have the formal power of attorney executed just as care- fully as a deed, and acknowledged before a notary so that it can be filed in the registrar's office with the deed or the mort- gage. 1 For forms of agency contracts, see Forms 12, 13, 14. 149 ISO AGENCY In many cases of agency, the agent is appointed to an office where he exercises certain powers without any formal specifi- cation of what he can do and what he cannot do. In such in- stances, the agent will be held to have all the powers usually attached to such an office. For instance, a ticket-seller for a railroad is an agent of the company and has certain well-known powers ; beyond these he cannot go. An agent appointed to conduct a given business for his prin- cipal has authority to do all things incidental or essential to the performance of his duties as agent. If the duties of the agent involve the management of a mercantile business, and it is necessary to employ salesmen, the principal will be bound for the salaries whether he has given express authority to the agent to employ assistants or not.^ §156. Express Appointment. — The express appointment of an agent requires a specific designation of the agent by the principal. Usually the appointment of an agent is express. It consists of a definite contract for the agent's services. Most agents are appointed in this way. The express authority of an agent is that authority which the principal directly grants to him. This includes of necessity (whether the agency is general or special) all such powers as are necessary and proper as a means of effecting the purpose for which the agency was created.* The apparent authority of an agent is that which the prin- cipal knowingly permits the agent to exercise, or which the agent exercises without objection from the principal. § 157. Implied Appointment — The appointment of an agent is implied when it is just to imply it from the circumstances. 2 Baldwin v. Garrett, 11 1 Ga. 876. » Dispatch Ftg. Co. v. Nat'l. Bank, 109 Minn. 440. CONTRACT OF AGENCY 151 If A stands by and sees B sell goods which belong to A and makes no protest, but acquiesces, A will be held to have ap- pointed B his agent and will be bound by B's transactions. When in the usual course of the business of a corporation an officer has been allowed, in his official capacity, to manage its affairs or to make certain contracts, his authority to repre- sent the corporation will be inferred from the manner in which he has been permitted by the company to conduct its business.* A wife, as the domestic manager of the house, may buy all things that are naturally and ordinarily necessary for the management of a household. She may contract for household supplies, domestic service, medical attendance, articles of cloth- ing for the use of herself and children, suitable to the style in which the husband lives. It is implied that she is authorized to do this, and the husband is held responsible for the cost. She is not held to be authorized beyond this, unless expressly made the agent of the husband for some particular purpose, in the same manner in which he would appoint a stranger. §158. Ratification. — Where one acts as the agent of an- other without authorization, his acts as agent may be ratified by the acquiescence of the principal or by the principal's tak- ing the benefit of the agent's performance. It happens not in- frequently that an agent, appointed for a definite set of duties, sees opportunity to do something for which he has no au- thority, but which will benefit his principal ; or sometimes a per- son volunteers to act as agent for a principal whom he has not had opportunity to consult. After an unauthorized act of this kind has been done, the principal, when he learns of it, may: 1. Refuse to be bound by it. 2. Expressly ratify it. 4 Martin v. Webb, no U. S. 7. 152 AGENCY 3. Impliedly ratify it by accepting the benefit of the action. If the principal ratifies the unauthorized action, he must ratify it as a whole. He may not ratify part of the agent's act and refuse to recognize the other part. Ratification, to be effectual, must be made with full knowl- edge of everything which has any material bearing on the transaction. Ratification has the same effect as an original authorization. After ratification the situation is just as if the agent had been fully authorized from the beginning. §159. Appointment of Subagents — Unless expressly or im- pliedly authorized, an agent is not empowered to appoint a sub- agent. When an agent is appointed, he is appointed because the principal places special trust and confidence in him. It would not be right for an agent to have power to delegate his author- ity to someone else, whom the principal might not care to have represent him. This is a maxim of the law — that delegated authority cannot be passed on to someone else unless the agent has been expressly authorized to do so, or unless it is cus- tomary in the particular line of business. A distinction is to be taken in this matter between acts requiring discretion and acts that simply involve some mechan- ical performance. An agent authorized to perform some im- portant work could employ others to help him in the mechanical details. He may employ clerks, bookkeepers, and draftsmen, but the agent would remain responsible for any mistakes by them. If it were customary, he could employ an assistant superintendent and supervisors, but he could not delegate the active supervision to someone else. §160. Void Contracts of Agency — Contracts of agency for an unlawful purpose, as is the case with other contracts (see § 56), are illegal and cannot be enforced. CONTRACT OF AGENCY 153 For example, a contract to conduct a gambling establisii- ment would be absolutely void. The principal could not com- pel the agent to carry out the contract, and the agent could not collect any compensation for the unlawful service. A contract to procure an agent to commit a positive crime, to bribe legislators, to forge a will, or to commit a burglary, is void absolutely and entirely. Any contract opposed to public policy is void. Certain things are said to be against pubhc policy. Ex- amples are the following: to contract with a lawyer to or- ganize a trust in restraint of trade; to employ a broker to ne- gotiate a marriage; to promise a purchasing agent a certain commission if he will buy your merchandise for his principal. In any contract to do an unlawful act, both agent and principal are liable to damages and to criminal prosecution. If an agent or an employee were engaged to smuggle in silks, both the subordinate and the principal are liable to prosecution and whatever penalties are imposed. In legitimate business the agent acting within his authority makes his principal liable but does not make himself responsible. In any illegal business, the responsibility attaches to principal and agent alike. (See § 174.) Review Questions 1. In what three ways can an agent be appointed? 2. What is a proxy ? 3. How is an agent appointed to sell land ? 4. What are the incidental powers of an agent? 5. What are the advantages of an express appointment? 6. What is the distinction between the express authority of an agent and his apparent authority? 7. Give two reasons why a written appointment of agency is most satisfactory. 8. What is meant by an " implied appointment " ? 154 AGENCY 9. How is it that a woman can contract for anything pertaining to the household and bind her husband without any written authority ? 10. Could a wife contract to sell her husband's real estate? 11. If B acts for A without authority, what three courses can A take? 12. What is the effect of ratification? 13. Why is an agent not allowed to appoint a subagent? 14. What kind of things can an agent have done by someone else? 15. If an agent tries to appoint a subagent, what is the result? t6. When are contracts of agency void? 17. What is the difference between the liability of an agent engaged in lawful business and one doing an unlawful act? CHAPTER XXVI THE PRINCIPAL §i6i. Principal's Duty to Agent — The principal's duty to his agent is to pay him his compensation and proper expenses. The relation of the principal to the agent is one of contract. The agent agrees to render services and the principal prom- ises to pay him a salary, a commission, or a fixed sum. If no amount of compensation has been fixed, the agent will be en- titled to whatever his services are reasonably worth. Unless provided otherwise, the principal is bound to reimburse him for whatever expenses he has properly incurred. The contract should be a written one to avoid misunderstandings and to supply evidence of what the agreement really was. The usual rules which govern employment prevail in this relation. If the principal terminates the agency before the end of the period of employment, he must compensate the agent for the unexpired term, less any amount the agent can secure from some other employment. It is his duty to try to obtain other employment, and the damages which he may recover are limited to the difference between the wages he would have received and any sums which he has been able to earn since, or would have obtained had he really tried to get other employment. In a Missouri case, one Gelatt, a real estate agent, was employed by the owner of a business block to find a purchaser for the property. He found a buyer, but the owner advanced the price and broke up the deal. The court decided that Gelatt was entitled to his full compensation.^ If the principal makes it impossible for the agent to com- plete the undertaking, he must compensate the agent. 1 Gelatt V. Ridge, 177 Mo. 533. ISS 156 AGENCY §162. Principal's Duty to Third Party.^If the principal leads the third party to think that the agent has authority be- yond his express authorization, the principal will be bound by whatever the agent does in the exercise of his apparent author- ity. In many such cases, the principal becomes bound, not by any positive thing which he has said or done, but because of his acquiescence in what the agent was doing, or his failure to protest at the proper time. In other cases the principal has allowed the agent to do certain things beyond the latter's au- thority ; and this has continued until a course of dealing has be- come established. In all such cases, third persons are justified in assuming that the agent's apparent authority is real, and the principal will be bound. To hold otherwise would work an injustice to the third party. For example, a salesman is instructed by his employer that he is not to give any warranties with the goods that he is sell- ing. In disobedience of these instructions, he does in several cases give warranties to customers. The merchandise sold does not come up to these warranties, but the principal, not wishing to take advantage of the agent's lack of authority, makes good on the warranty. Other customers, hearing that the principal has stood by the warranty given by the agent, are entitled to presume that the salesman has authority to give such warranties. The principal is liable for all acts done by the agent within the apparent, as well as actual, authority given. (See § 157.) Third parties dealing with an agent do not know his secret in- structions, and whatever authority the agent appears to have can be used by him to bind his principal. The third party must, however (in good faith), believe that the agent has the authority. An agent to sell goods who has possession and is in a posi- tion to deliver them is authorized to receive payment; but if he is not in possession of the goods, he is not authorized to re- THE PRINCIPAL 157 ceive payment. Usage and trade customs count heavily in de- ciding what constitutes the apparent authority of an agent. §163. Principal's Liability for Wrongs Done by Agent. — A principal is liable for all fraudulent, negligent, or wrongful acts of his agent in the scope of his employment. If this were not so, it would be possible for a man to perpetrate all manner of fraud and wrong, and to escape punishment by em- ploying some agent of no repute to do the " dirty work." A principal is liable for carelessness, deceptions, false pretenses, or wrongful acts of any kind committed by the agent in carry- ing out the purposes of his principal. The principal is liable for any damages to third persons arising from the negligence of an agent or an employee. In a case in Rhode Island, a salesman suspected a woman customer of stealing a package of spoons. He detained her, sent for a policeman, had her taken to a police station and searched. She brought suit against the firm that employed the salesman for the wrongful arrest and search, and was awarded damages. The court said : If in the performance of his duty he, the salesman, mis- took the occasion for it or exceeded his powers or employed an improper degree of compulsion, the mistake and the ex- cess must be answered for by the master. If an automobile salesman takes out a machine belonging to his employer to show to a prospective customer, and care- lessly runs over a pedestrian, the employer will be responsible. If the salesman takes the machine out after hours for his own pleasure and does the same thing, the employer will not be responsible, because the accident did not occur within the scope of the salesman's duties. §164. Undisclosed Principal — An undisclosed principal may take the benefit of any contract made by his agent. Ai^ IS8 AGENCY agent, of course, may conceal the fact that he is acting for a principal and make the contract in his own name. The agent thereby renders himself personally liable, but the unnamed prin- cipal for whom he is in reality acting has the right to come forward and take whatever benefit may come from any ad- vantageous contract made in this way. This is fair to the third party because the rule works both ways, as the third party may sue the undisclosed principal when he finds out his identity. The third party upon discovery of the undisclosed principal may hold either the agent or the undisclosed principal respon- sible. He must elect to hold one or the other : he cannot hold both. To this rule there are the following important ex- ceptions : 1. If the contract made by the agent is in the form of a negotiable instrument or a sealed contract, the undisclosed prin- cipal has no rights or liabilities. He cannot sue or be sued, as such instruments are considered as having been taken solely on the face of the names appearing thereon. 2. If the principal before his identity was disclosed, in good faith paid the money due on the contract to the agent, he cannot be held liable. This is perfectly fair to the third party be- cause he gave credit to the agent and expected to get payment from him and had no knowledge that there was somebody behind the agent. The third party may collect from the agent if he can, but it would be unfair to let him collect from the unnamed principal who in that case would have to pay a sec- ond time. 3. If the third party after learning that there is a certain principal, unequivocably chooses to hold the agent, he cannot alter his decision and proceed against the principal. 4. If the contract states clearly that it is made only by the parties signing and that no other parties are to be intro- THE PRINCIPAL 1 59 duced into the contract, the undisclosed principal rule would not apply. § 165. Employer's Duty to Protect Employees The fol- lowing discussion applies principally to employees who are me- chanical workers, that is, to servants rather than to agents, but in some cases it will also apply to agents. The employer owes it to his employees to provide a safe, healthful, and suitable place to work in, and proper tools to work with. To do this, he must arrange for proper inspection to see that things are in the proper condition and remain so. And it is his duty to hire competent fellow-employees. An employee is not required to expose himself to the danger of working with drunken, reckless, or incompetent associates. These duties of the employer cannot be shirked. He is al- ways responsible for failure to perform them, no matter whom he appoints to attend to them. He must keep build- ings, etc., in proper repair, examine machinery to see that there are no dangerous defects in it, and inspect everything that comes to him from any other person to see that it is in safe condition before giving it to his employees to work with. The law is reasonable. The employer is not responsible for an injury arising from an unknown defect, if he has used reasonable and proper inspection. He cannot be required to be continually inspecting; therefore it is the duty of employees to inform the employer of any defects which they notice. The employer is required to make only the ordinary tests used by those engaged in the same occupation. He need make these tests only at reasonable intervals. Under the common law, the employer's responsibility for injuries to his employees was reduced to a minimum. The doctrine of the assumption of risk held that if the defects of equipment were such that the employee could see them, he assumed all the risk by taking employment. As a man who i6o AGENCY needed work was not in a position to reject it because equip- ment was unsafe, the doctrine prevented a multitude of in- jured workmen from receiving damages. The rule as to contributory negligence relieved the em- ployer from any responsibility if the workman had himself been in any way careless. Many a crippled worker was de- feated in the courts by reason of this rule. The rule as to fellow-servants was a particularly unjust regulation. If the carelessness or negligence of a fellow-work- man caused the injury, the hurt man had no compensation. He did not hire the men with whom he worked, but the law held that if he chose to work with them, and they were care- less or incompetent, the employer who had hired them was relieved of all responsibility. The injustice of these rules and the disadvantage of the injured workman when he tried to enforce his rights in the courts, have led to the passage of many laws designed to remedy the condition. There are two classes of these laws : 1. The employers' liabihty laws, which aim to define the employers' liability and to modify or remove the objectionable common law rules. 2. The workmen's compensation laws, which try to sys- tematize the responsibility for injury and to provide something in the nature of insurance for the wounded and bereaved in the fields of industry. These laws proceed on the theory that if a workman is in- jured from any cause, there is a loss that someone must stand. In such a case, it seems that the particular industry should care for those who were injured in it, and that the care for the injured should be made part of the expenses of the busi- ness, so that careless and conscienceless employers would not be allowed to shirk responsibility. THE PRINCIPAL l6l Review Questions 1. What is the contract obligation of the principal to the agent? 2. Why should the contract between them be written? 3. If the principal terminates the agency before the end of the period of employment, what must he pay? 4. Suppose the principal had not taken advantage of what the agent had done, would he have to pay? 5. To what extent is the principal obligated to the third party? 6. How does he become so bound? 7. What is the distinction between the actual and apparent authority given ? 8. How are third persons to judge of the authority of an agent? 9. To what extent is the principal liable for wrongs done by the agent ? ID. What does the " scope of employment " mean? 11. What advantage has an undisclosed principal? 12. What risk does the agent of an undisclosed principal take? 13. What can the third party do where there is an undisclosed principal ? 14. What are the exceptions to the undisclosed principal rule? 15. Discuss the employer's duty to his employees. CHAPTER XXVII THE AGENT §i66. Agent's Duty to Principal. — An agent is, in the line of his duties, subordinate to his principal. Therefore, it is an essential feature of his employment that he should obey or- ders, act with good faith, and use such prudence, skill, and diligence in his duties as are requisite for their proper dis- charge. He must, if necessary, keep proper accounts and ren- der statements to his principal. He cannot delegate any duty demanding discretion to others without special authority. If he does not do all this, if he fails in his duty in any material respect, he may be discharged, his compensation may be de- nied, and he may be responsible in damages. Any profits made in the course of an agent's employment belong entirely to his principal. An agent may not use his agency for his own advantage. In making a contract with an agent or confidential em- ployee, it is safest to contract that he shall not at any time, either while he is employed or thereafter, reveal or use for the benefit of others any special information, secret processes, lists of customers, or other private matters that may be learned in the course of his duty. The courts will protect such an agree- ment. Where a salesman or solicitor is employed to work up trade, he necessarily becomes familiar with the list of cus- tomers. In such a case, a contract with an agent that he shall not, for a period of years, engage with any other house in the same line doing business in the same territory, will be sus- tained by the courts. What is said as to the duty of the agent here refers to a 162 THE AGENT 163 general agency, where the agent gives his entire services to one principal. In cases of special agency, what is said of the agent's duty applies only so far as is necessary to effect the object of the agency. A bank may be an agent to collect a draft, but is not called upon to exercise general obedience, loyalty, etc. §167. Agent's Obedience — Disobedience is good cause for discharge or refusal to compensate an agent, and renders him liable for any resulting damage. It is an agent's duty to obey orders ; and by so doing he relieves himself of any responsi- bility in case of misadventure. If, however, circumstances should arise which make it nec- essary to act contrary to the instructions he has received, it is his duty to do this, provided, of course, that it is impos- sible to consult his principal before acting. Emergencies may occur where it is the duty of the agent to do the best thing possible, even though it involves his disregarding orders. Where no emergency exists, however, the agent violates his directions at his own risk. It is the principal's right to decide how he wishes his matters attended to; and if the agent obeys and loss ensues, it is the loss of the principal. If a shipping agent varies directions that goods are to go over some particu- lar line, the agent incurs the liability of an insurer. An agent who has been instructed to sell for cash has no authority to allow credit. If he gives credit and loss ensues, he is responsible. If he is authorized to buy or to sell at a certain price, he may not go beyond this. §168. Agent's Good Faith. — Good faith is essential on the part of anyone acting in the capacity of agent. If an agent is found to be working for his own interests as opposed to those of his employer, he may be discharged summarily. If he makes false reports or deceives his employer, or defrauds him l64 AGENCY in any way, he may be discharged, and he will have forfeited any claim to compensation. If he learns of anything in the line of his business to the principal's advantage, it is his duty to let his principal know and have the benefit of it. The Agent Must Not Act for Both Parties. An agent may not represent both parties to a transaction. He may not earn a commission from both buyer and seller. This is a rule that holds good everywhere. A double agency may be vahd, how- ever, where both parties know of the double agency and agree to it; it is then understood that the agent is simply bringing the parties together and is not advising either party. The Agent Must Not Act for Himself. If the agent is employed by a principal to manage his business, what he does is done for the principal. It is not right for the agent to be interested adversely; and all the profits that are made in con- nection with the principal's business belong to the principal, unless he has previously agreed to give the agent a share of the profits as part or all of his compensation. If the agent in the course of acting for his principal obtains any particular advantage to himself, and the principal dis- covers it, the latter can hold the agent accountable for the profits or the property so obtained. An Agent Must Not Compete with His Principal. An agent must not be interested adversely to his principal. Neither may he represent and sell goods for a competitor of his principal. An employer has a right to his agent's absolute loyalty. If an agent uses his knowledge of his principal's affairs to secure an advantage for himself, the courts will com- pel him to make restitution. The law moves on a high plane in matters of this kind. §169. The Agent Must Be of Good Habits. — Any habits which interfere with the proper discharge of the agent's duty are sufficient reason for his discharge. Drunkenness in the THE AGENT 165 day-time or while attending to business is undoubtedly suffi- cient reason for dismissal. As in the case of other employees, the circumstances must be considered. Generally speaking, an agent may be discharged for drunk- enness, gambling, or licentiousness. Possibly, the courts would not in all cases justify too close an inquisition into the private habits of employees. Many banks, however, employ detec- tives; and if an employee indulges in loose living he is dis- charged and has no recourse. Usually an agent who is dis- charged for any reason of this kind cannot afford to risk the notoriety involved in an attempt to hold his employer for dam- ages. §170. Agent's Care, Skill, and Diligence. — If anyone un- dertakes the duties of an agent, he is assumed to have the neces- sary skill and ability to perform the said duties. In all mat- ters connected with his agency, he is expected to act as an or- dinarily prudent, careful business man would act in the conduct of his own affairs. If the agent is a lawyer, he undertakes to have professional ability to represent his client in an ade- quate manner. If he is a financial agent and invests his client's funds imprudently, he is responsible. The New York courts state the rule thus : The rule is well settled that an agent is not only bound to act in good faith, but to exercise reasonable diligence, and such care and skill as is ordinarily possessed by persons of common capacity engaged in the same business.^ A firm engaged as insurance brokers, if it takes out poli- cies for its clients in irresponsible companies, will, in event of loss, be required to make good the damage resulting from its neglect to use proper care.^ Custody of Funds. It is the duty of the agent to account 1 Whitney v. Martine, 88 N. Y. 535. 2 Sheppard v. Davis, 42 App. Div. (N. Y.) 462. l66 AGENCY for all funds and property of the principal which come into his possession. In this particular he must obey the rules that govern one person who holds the property of another. The agent should not deposit funds belonging to his prin- cipal in his own bank account ; but should open a separate ac- count in the name of his principal, or in his own name as agent. If he does this, he is not responsible in the event of the bank's failure and the loss of part or all of the funds. In the same way, it is his duty to turn all money and other property in his possession over to the principal or to the principal's order. §171. Agent's Duty to Third Party. — Observance of the usual rules of fair dealing and honest treatment is the only duty owed by the agent to the third party. If he resorts to trickery or fraud, he himself is liable for any damages caused to the third party. An agent cannot be held for a legitimate business contract within the scope of his authority. He binds his prin- cipal, not himself. But his principal cannot authorize him to do wrong; and if he does wrong both he and his principal are held. §172. Limitation of Agent's Authority — An agent rarely has unlimited authority. In established positions, such as that of a bank cashier, a railroad conductor, or a retail sales- man, the duties are settled and the authority of the incumbent is known to his principal, to those he deals with, and to himself. Usually an agent in such a position keeps to his routine, and his powers are entirely familiar to all concerned. As between his principal and himself, the agent's authority is limited: (i) by the limitations usual to the employment, and (2) by the limitations expressed in the agreement. If he exceeds these limitations, he may be discharged from his position, and may be held for damages if he is responsible. THE AGENT 167 In dealing with third parties, the agent, in all those cases where his apparent authority exceeds his real authority, may bind his principal. In such an event, the agent must answer to his principal for his abuse of authority. §173. Agent's Fraudulent Conduct — The question of the agent's bad faith to his principal has already been discussed. If he perpetrates a fraud on a third party while transacting his principal's business, both principal and agent are liable. The agent will not be able to shift responsibility to his principal. A principal cannot authorize his agent to commit fraud. In a Michigan case, the action was against Caroline Weber for stating positively that there was no mortgage on a piece of land which she was selling as the agent of her husband. The court said : All persons who are active in defrauding others are liable for what they do, whether they act in one capacity or an- other.* In a case in Minnesota where the president of a medical in- stitute was made the party in a proceeding against the institu- tion for defrauding a patient, the judge said : We are not aware of any rule of law which will excuse and absolve a person from the consequence of his own wrong doing, because he happened to be the agent of another at the time of the perpetration of the wrong.* §174. Agent's Liability. — The agent makes himself liable with his principal, as we have seen, when he is guilty of any fraudulent conduct. Where the business is illegal, the agent is liable with the principal. He also makes himself liable when he exceeds his author- ity, unless the third party knew the agent was going beyond his authority. 3 Weber v. Weber, > c ^-^ O S t, goo ^ S a O ,Q O U c« 1-1 , tn o I I > (U g C OS I-* CO ■!-• W^ ^2 ." CO temb mT B H uary •So 8-S ed, Sep m Who Jame ed, Jan u ri ■y -y •" CQ !_, n faw Qh IC •u tH 1-..Q CI rt a U J= t/5 •d CU > Nt/2 u K o K Di 366 APPENDIX Any certificate which clearly indicates the stock it repre- sents and the ownership of this stock, is legally sufficient re- gardless of its form and style. It is customary for two of the company officials to sign stock certificates; also for the corporate seal to be affixed. The officers to sign stock certificates are usually designated by the by-laws of the corporation, though in some states they are prescribed by statute. The president is always required to be one of the signing officials, and the secretary or treasurer is designated as the other. The certificates for preferred stock are similar to those for common stock except that the special provisions as to the priv- ileges enjoyed by the holders are printed in full. Usually when a corporation issues both kinds of stock, they are dis- tinguished by having the class printed in large lettering on the certificates. Stock is transferred by assignment, the form for which is printed or lithographed upon the back of the certificate. This form may be executed in the partially completed condition known as an assignment in blank, and may then pass from hand to hand without further formality. When the owner of a certificate assigned in blank wishes to become the owner of record of the stock it represents, he completes the assignment by the insertion of his own name as in the following form. He may or may not fill in the name of his attorney at his discretion. Form 25. Assignment of Stock Certificate For Value Received, I hereby sell and transfer unto Martin T. Mar- shall, of New York City, Twenty-five Shares of the Capital Stock repre- sented by the within Certificate, and do hereby irrevocably constitute and appoint Chester A. Slater my Attorney to transfer the said stock on the books of the within-named Company, with full power of substitution in the premises. ^ _ Ellis K. Doyle. Dated, October i, 1919- In the presence of: Charles T. Estabrook FORMS 367 Form 26. Certificate of Incorporation — New York Certificate of Incorporation of the PIEDMONT SCALE COMPANY We, the undersigned, all being of full age and two-thirds being cit- izens of the United States and one of us a resident of the State of New York, for the purpose of forming a corporation under the Business Cor- porations Law of the State of New York, do hereby certify and set forth : First — The name of said corporation shall be " Piedmont Scale Company." Second — The purposes for which said corporation is to be formed are as follows : (a) To manufacture, buy, sell, import, export, and generally deal in and with scales, weighing machines, and mechanical devices for weighing, measuring, and recording the weight and measurement of all kinds of goods and merchandise. (b) To apply for, obtain, purchase, or otherwise acquire, and to register, hold, own, use, operate, sell, assign, or otherwise dispose of and turn to account and profit, any and all trade-marks, improve- ments, inventions, tools, apparatus, mechanisms, and machinery, use- ful or necessary in the operations of the Company, whether secured under letters patent of the United States or of any foreign country, or held or secured in any other manner. (c) To take, lease, hire, purchase, manufacture, or otherwise ac- quire and own, and to sell, hire, lease, pledge, mortgage, and other- wise deal in and with all kinds of goods, wares, chattels, mer- chandise, and other personal property, excepting gold and silver bullion, foreign coins, and bills of exchange. Third — The amount of capital stock of said corporation shall be Five Hundred Thousand Dollars ($500,000). The amount of capital with which said corporation will begin busi- ness is Five Hundred Dollars ($500). Fourth — The number of shares of which said capital stock is to con- sist shall be Five Thousand (5,000) Shares of the par value of One Hun- dred Dollars ($100) each. Fifth — The principal office of the corporation shall be in the Borough of Manhattan and in the City, County, and State of New York. Sixth — The duration of said corporation shall be perpetual. Seventh — The number of directors of said corporation shall be three. Eighth — The names and post-office addresses of the directors for the first year are as follows : Names Addresses Howard Maxwell 510 West 176th Street, New York City Howard J. McCall 270 Broadway, New York City Edward Blashfield 30 Broad Street, New York City Ninth — The names and post-office addresses of the subscribers to this certificate and the number of shares which each agrees to take in said corporation are as follows : Names Addresses Shares Howard Maxwell 510 West 176th Street, New York City 460 Howard J. McCall 270 Broadway, New York City 20 Edward Blashfield 30 Broad Street, New York City 20 368 APPENDIX Tenth — At all elections of directors of this corporation, each stock- holder shall be entitled to as many votes as shall equal the number of his shares of stock, multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them, as he may see fit. In Witness Whereof, we have made and signed this Certifi- cate in duplicate, this 27th day of August, in the year One Thousand, Nine Hundred and Nineteen. Howard Maxwell Howard J. McCall Edward Blashfield State of New York 1 County of New York J Personally appeared before me this 27th day of August, 1919, Howard Maxwell, Howard J. McCall, and Edward Blashfield, to me personally known to be the persons described in and who executed the foregoing certificate, and severally acknowledged that they executed the same for the purpose therein set forth. Oscar Jacobs, ( notarial ) Notary Public, Suffolk County, N. Y. } SEAL ) Certificate filed in New York County. REAL AND PERSONAL PROPERTY FORMS Form 27. Chattel Mortgage Chattel Mortgage Know All Men by These Presents : That I, Harry J. Thomas, of New Rochelle, New York, am indebted unto W. H. Richards, of New York City, New York, in the sum of Eighty- Five Dollars ($85), being for goods sold and delivered to me: Now, for securing the payment of the said debt, and interest from the date hereof, to the said W. H. Richards, I do hereby sell, assign, and transfer to the said W. H. Richards all the goods, chattels, and property described in the following schedule, namely, (List of property) _ Said property now being and remaining in the possession of myself, at my store, No. 165 Orchard Street, New Rochelle, New York. Provided always, and this mortgage is on the express condition, that if the said Harry J. Thomas shall pay to the said W. H. Richards the sum of Eighty-Five Dollars ($85), within one year and six months from the date hereof, with interest at Six Per Cent (6%) per annum, which said sum and interest the said Harry J. Thomas hereby covenants to pay, then this transfer is to be void and of no effect ; but in case of non-payment of the said sum at the time or times above mentioned, together with interest, then the said W. H. Richards shall have full power and authority to enter upon the premises of the said party of the first part, or any other place FORMS 369 or places where the goods and chattels aforesaid may be, to take possession of said property, to sell the same, and the avails (after deducting all ex- penses of the sale and keeping of the said property) to apply in payment of the above debt ; and in case the said W. H. Richards shall at any time deem himself unsafe, it shall be lawful for him to take possession of such property and sell the same at public or private sale, previous to the time above mentioned for the payment of said debt, and apply the proceeds as aforesaid, after deducting all expenses of the sale and keeping of said property. If from any cause said property shall fail to satisfy said debt, interest, costs, and charges, the said Harry J. Thomas hereby covenants and agrees'to pay the deficiency. In Witness Whereof, I have hereunto affixed my hand and seal, this eleventh day of December, nineteen hundred and nineteen. Harry J. Thomas [l.s.] In the presence of : George H. Goodwin (Notarial acknowledgment in due form if required.) Form 28. Lease Lease This Agreement of Lease made this 8th day of December in the year 1919, between John K. Robinson of Yonkers, New York, and Henry Smith of Yonkers, New York. WITNESSETH, that the said Robinson does demise unto the said Smith, all of that dwelling-house and land situate {Full description) from the first day of February, 1920, for the term of three years next ensuing, the said lessee, Smith, to pay therefor during the said term the rent of Four Hundred and Fifty Dollars ($450) yearly, payable in equal monthly instalments of Thirty-Seven Dollars and Fifty Cents ($37.50) on the first day of each month, the first instalment to be paid on the first day of February next. The said lessee covenants to pay the rent in the manner above stated ; that he will not assign without leave; that he will leave the premises in good repair, necessary wear and tear excepted ; that the premises shall not be used during the said term for any other purpose or purposes than those above specified; that he will pay all bills for gas used upon the premises during the said term ; that at the expiration of the said term, he will deliver to said lessor, his agents or assigns, quiet and peaceable possession of the said premises, and that the lessor may re-enter for default of ten days in the payment of any instalment of rent, or for the breach of any covenant herein contained. Witness the following signatures and seals. John K. Robinson [l.s.] Henry Smith [l.s.] {Notarial acknowledgment in due form.) 37° ■ APPENDIX Form 29. Deed with Full Covenants Deed This Indenture, made the 21st day .of January, nineteen hundred and twenty, between Arthur Elliott of Ithaca, New York, party of the first part, and Grant Allen of Oyster Bay, New York, party of the second part : WITNESSETH, that the party of the first part, in consideration of Three Thousand Dollars ($3,000), lawful money of the United States, paid by the party of the second part, does hereby grant and release unto the party of the second part, his heirs and assigns forever, all ... . {Description) Together with the appurtenances and all the estate and rights of the party of the first part in and to said premises; To have and to hold the premises herein granted unto the party of the second _ part, his heirs and assigns forever. And said Arthur Elliott covenants as follows : First— That said Arthur Elliott is seized of said premises in fee simple, and has good right to convey the same; Second— That the party of the second part shall quietly enjoy the said premises ; Third — That the said premises are free from incumbrances; Fourth — That the party of the first part will execute or procure any further necessary assurance of the title to said premises ; Fifth — That said Arthur Elliott will forever warrant the title to said premises. In Witness Whereof, the party of the first part has here- unto set his hand and seal the day and year above written. In presence of : Arthur Elliott [l.s.] A. M. Wyckoff {Notarial acknowledgment in due form.) Form 30. Real Estate Mortgage Mortgage This Mortgage, made the isth day of December, nineteen hundred and nineteen, between Daniel H. Coler of Yonkers, New York, the mortgagor, and Charles Fenner of the same place, the mortgagee. WITNESSETH, that to sccurc the payment of an indebtedness in the sum of Twelve Hundred Dollars, ($1,200), lawful money of the United States, to be paid on the iSth day of December, nineteen hundred and twenty-one, with interest thereon to be computed from date, at the rate of six per centum (6%) per annum, and to be paid the mortgagee, according to a certain bond or obligation bearing even date herewith, the mortgagor hereby mortgages to the mortgagee .... (Description) And the mortgagor covenants with the mortgagee as follows: 1. That the mortgagor will pay the indebtedness as hereinbefore 2. That the mortgagor will keep the buildings on the premises insured against loss by fire for the benefit of the mortgagee. 3. That no building on the premises shall be removed or demolished without the consent of the mortgagee. FORMS 371 4. That the whole of said principal sum shall become due after default in the payment of any instalment of principal or of interest for thirty days, or after default in the payment of any tax, water rate, or assessment for ten days after notice and demand. 5. That the holder of this mortgage, in any action to foreclose it, shall be entitled to the appointment of a receiver. 6. That the mortgagor will pay all taxes, assessments, or water rates, and in default thereof, the mortgagee may pay the same, and all amounts so paid shall be added to the amount already secured by this mortgage. 7. That the mortgagor, within five days upon request in person or within ten days upon request by mail, shall furnish a statement of the amount due on this mortgage. 8. That notice and demand or request may be in writing and may be served in person or by mail. 9. That the mortgagor warrants the title to the premises. In Witness Whereof, this mortgage has been duly executed by the mortgagor. In presence of : Daniel H. Coler [l.s.] Anna B. Tyler (Notarial acknowledgment in due form.) SUNDRY FORMS In any settlement of a matter in dispute, it is prudent to provide evidence to show that the matter is finally decided. Frequently a simple receipt for any amount paid " in full settle- ment of all claims " is enough. Where a more formal instru- ment is desired, a release is drawn up in the form following. Sometimes the parties exchange releases, so that each may have written evidence of the settlement. Form 31. General Release General Release To All To Whom These Presents Shall Come Or May Concern, Greetings : — Know Ye, That I, A. B. Corey of New York City, for and in con- sideration of the sum of Sixty Dollars ($60), Twenty Dollars ($20) of which has heretofore been received by me, and Forty Dollars ($40) to me in hand paid, by Harvey M. Price of New York City, the receipt whereof is hereby acknowledged, have remised, released, and forever discharged, and by these presents do for myself, my heirs, executors, and adminis- trators, remise, release, and forever discharge, the said Harvey M. Price, liis heirs, executors, and administrators, of and from any and all manner of action and actions, suits, debts, dues, sums of money, accounts, bonds, bills, contracts, damages, judgments, claims, and demands whatsoever, in law or in equity, which against said Harvey M. Price I ever had, for, upon. 372 APPENDIX or by reason of any matter, cause, or thing whatsoever, from the beginning of the world to the date of these presents. In Witness WnEitEOF, I have hereunto set my hand and seal this i8th day of November, one thousand, nine hundred and nineteen. A. B. Corey. Sealed and delivered in the presence of Mary A. Lake APPENDIX B CASES The cases that follow are digested from actual court de- cisions. As the citations are given, the ambitious university student who has access to a law library can read the decisions in full. The student should study and analyze the statement of facts carefully so that he may determine the issues in the case. These issues will be the basis of classroom discussion. How- ever, this discussion should be amplified and diversified b)' considering various hypothetical variations of the facts stated. In order to avoid the appearance of trying to limit such dis- cussion, the authors so far as possible have refrained from asking precise questions and have simply given a general state- ment of the facts involved in the casq CONTRACTS 1. Minneapolis & St. Louis Ry. Co. v. Columbus Rolling Mill, iig U. S. 149; 30 Law. Ed. 376 On December 8, the mill offered to sell to the railroad from 2,000 to 5,000 tons of iron rails on specified terms, provided an acceptance was sent in by December 20. On December 16, the railroad mailed an order for 1,200 tons. This was declined by the mill on the i8th. On the 19th the railroad company sent in an order for 2,000 tons. As the mill refused to fill this order, the railroad company sued for damages. 2. White V. Corlies, 46 N. Y. 467 Corlies got an estimate for fitting up his offices from White, who was a builder. Then Corlies wrote White a letter in which he said : " Upon an agreement to finish fitting up of offices at 57 Broadway in two weeks from date, you can commence at once." White made no re- ply, but on the same day purchased lumber and made other preparations to begin the job. On the following day he received a note from Corlies in which Corlies countermanded his earlier letter. White brought suit against Corlies for damages. 373 374 APPENDIX 3. Commercial Telegraph Co. v. N. Y. Stock Exchange, 47 Hun (N. Y.) 494 The telegraph company, desiring to have reporters on the floor of the Stock Exchange to collect quotations which it planned to send out on a ticker service to its customers, was negotiating with the Stock Exchange authorities to make the necessary arrangements. The Exchange officials wrote to the telegraph company stating : " We forward to you the fol- lowing plan which will form a basis of agreement with you in the mat- ter of your proposed service on the floor of the Exchange." This was followed by various regulations under which the telegraph company was to act, including a provision for rent but not including any pro- vision as to the duration of the privilege. The telegraph company re- plied : " The plan set forth is satisfactory ; we accept the same and are willing to execute an agreement upon the basis proposed." The Exchange authorities refused to sign the contract and the telegraph company brought this action to force the Exchange to carry out its alleged agreement. 4. International Text Book Co. v. Edward Connelly, 206 N. Y. 188 Connelly, while under age, had made a contract with the International Text Book Company for a course of instruction in engineering. Con- nelly paid part of the price and received a set of books. About three and one-half months after he became of age he made a $5 payment to the company, but he did not receive any further instruction after reach- ing his majority and returned the books. On the strength of the $5 payment, the company claimed that Connelly had ratified and was estopped from pleading infancy. The company also relied on the fact that Con- nelly in signing for the course gave his age as 21. 5. Gregory v. Lee, 54 Con. 407; 30 Atl. 53; 25 L. R. A. 618 Lee, who was a student at Yale College, leased a room for the college year of forty weeks at $10 a week from Gregory. After keeping the room and paying for it for three months, Lee moved out and secured another room. Gregory was unable to rent the room for the remainder of the period and sued Lee on the contract. Lee was 19 years old. 6. Green v. Green, 69 N. Y. 553; 25 Am. Rep. 233 The defendant, while a minor, had conveyed certain premises to his father for a sum of money which he spent before becoming of age. After reaching his majority he did nothing about the matter for three years; then, giving his father notice that he disaffirmed the sale, he re- entered the premises. Thereupon the father, the plaintiflE in this action, sued for trespass. CASES 375 7. Jemison v. Citizens Savings Bank, 122 N. Y. 135; 25 N. E. Rep. 264; g L. R. A. 708 The cashier of the defendant savings bank bought cotton for future delivery from Jemison, a member of the New York Cotton Exchange. He advised Jemison that the order was given by the bank for its cus- tomers whose names, however, he did not disclose. The speculation resulted in a loss and the bank, on being informed of this, refused to pay, stating that the cashier had no authority to engage in such a trans- action. Is the bank liable? 8. Schnell v. Nell, 17 Ind. 29; 79 Am. Dec. 453 The wife of Mr. Nell, the defendant, died leaving a will which con- tained a legacy of $200 for the plaintiff, Mrs. Schnell, but Mrs. Nell left no estate. Her husband, however, desiring to carry out her wishes, entered into an agreement with Mrs. Schnell in which he agreed to give her $200 in consideration of one cent and the love and respect that he bore for his late wife. As Mr. Nell did not carry out the agreement, Mrs. Schnell brought suit. g. Reynolds v. Robinson, 64 N. Y. 589 In this case, Mrs. Reynolds, the wife of the plaintiff, had rendered services in taking care of a boarder who was sick with cancer. Mr. Reynolds sued for the value of the wife's services. The boarder put up the defense that the husband was not the proper party, claiming that the wife, and not the husband, was entitled to payment. 10. Smith V. Whildin, 10 Pa. 39; 4g Am. Dec. 572 Smith, who was a constable in Philadelphia, sued Whildin for a reward of $100 which Whildin had promised him for effecting the arrest of a certain person against whom local warrants were outstanding. Was Smith entitled to the reward? 11. Sheppey v. Stevens, 185 Fed. 147 Stevens, a legatee under a will, had made an agreement with Shep- pey, who was an heir of the deceased, to pay Sheppey a certain sum of money if the latter would forbear from contesting the will. Was this agreement binding? 12. Lingenfelder v. Wainwright Brewing Co., 103 Mo. 578 This action was brought by the executor of Jungenfeld for services rendered by Jungenfeld as an architect. Jungenfeld made a contract to plan and superintend the construction of some buildings. After making the contract he refused, for certain business reasons, to go ahead with the job. Then the defendants, being in a hurry to get the work done 376 APPENDIX and finding it difficult to get a substitute for Mr. Jungenfeld, agreed to give him an extra S per cent on the cost of the buildings if he would carry out his contract. He accepted this offer and carried out his duties as architect. It was for this extra s per cent that suit was brought. 13. Hager v. Catlin, 18 Hun (N. Y.) 448 Catlin was elected sheriff. Shortly afterwards he made an agree- ment with the plaintiff, Hager, whereby Hager was to dispose of his farm and be ready on a certain date to move into the jail where he and his wife were to board Catlin, and in return Catlin was to appoint Hager as jailer and deputy sheriff. Hager carried out his agreement by dis- posing of his farm and holding himself in readiness to perform under the contract, but Catlin refused to appoint him; so Hager brought suit. Catlin demurred to the complaint. 14. Love V. Harvey, 114 Mass. 80 The parties to this suit had made a bet as to where the body of a certain person was buried in Holyhood Cemetery. Each party deposited $20 with a stakeholder. It was determined that Love won the bet, but nevertheless the stakeholder gave all the money to Harvey. Harvey had received the money from the stakeholder after Love had notified the stakeholder not to pay it over. Love sued Harvey for $20. 15. Materne v. Horviritz, loi N. Y. 469; 5 N. E. Rep. 331 Materne had contracted to sell Horwitz domestic sardines with for- eign labels. Foreign sardines were more expensive. Both parties knew of the deceit. Horwitz refused to accept the goods and Materne sued for the price. 16. Guernsey v. Cook, 120 Mass. 501 Cook, who was a large shareholder in a certain corporation, agreed to have Guernsey elected to the office of treasurer if Guernsey in con- sideration therefor would purchase his (Cook's) stock at par. To this Guernsey agreed and in due time his election was procured by Cook. The former, however, refused to carry out his agreement to buy the stock, whereupon Cook sued him on the agreement. 17. Hall Mfg. Co. V. Webster's Steel & Iron Works, 227 Fed. 588 The defendant, a corporation, sold out one branch of its manufactur- ing business with all the machinery, tools, and good-will pertaining to it for a fair price, and in connection with the sale agreed that it would not again enter into the business of manufacturing any of the articles relat- ing to that branch of the business. Its trade in these articles was very extensive, embracing nearly all the states and a large part of Canada. CASES 377 As the defendant did not carry out its agreement, the plaintiff 'brought this action to restrain it from continuing to manufacture tnese articles. i8. Pratt V. Short, 79 N. Y. 437; 35 Am. Rep. 531 The plaintiff was the assignee in bankruptcy of a savings bank which, under the law, was allowed in making loans to accept only certain kinds of securities as collateral. It was not allowed to loan money on com- mercial paper. Nevertheless in violation of the law, a loan had been made to the defendant on his note. As the note was not paid, the plain- tiff brought suit. The defense was that the statute made the whole trans- action illegal. ig. Walker v. Johnson, g6 U. S. 424; 24 Law. Ed. 834 Walker had assigned to Johnson a contract for the construction of a lock and dam in the Illinois River. The contract was made on July 21, 1869, and the work was to have been completed not later than Septem- ber I, 1871. The assignment was oral. Walker also agreed to furnish Johnson with certain materials that he would need for the job. As Walker did not carry out his oral agreement to furnish the material, Johnson sued him for damages for breach of contract. Walker's defense was the Statute of Frauds on the ground that the contract was for more than a year and therefore should have been in writing. 20. Nugent V. Wolfe, in Pa. St. Rep. 471 A certain bank recovered a judgment against John Power & Co. The defendant, being a stockholder of John Power & Co., desired to prevent the enforcement of the judgment against the company. So he induced Nugent, the plaintiff, to assume the judgment on his oral promise that he would reimburse Nugent for any loss. Nugent was forced to pay the judgment. He then sued Wolfe on his oral promise. Wolfe's defense was the Statute of Frauds. 21. Mentz V. Newwitzer, 122 N. Y. 491; 26 N. E. Rep. 758 The plaintiff, through an auctioneer, sold some realty to the defend- ant. The only memorandum of the sale was made and signed by the auctioneer. The memorandum described the property, stated the price, and gave the name of the buyer, but did not give the name of the seller. As the defendant refused to carry out the contract, the plaintiff sued for the price. 22. Drake v. Seaman, 97 N. Y. 230 The plaintiff was engaged by the defendant to act as salesman for a period of three years. The defendant gave the plaintiff the following memorandum of the contract: "The understanding with Mr. Drake is as 378 APPENDIX follows: $2,000 for the first year; $2,500 for the second year sure, and, provided the increased sales will warrant it, he is to have $3,000." As the defendant refused to carry out the arrangement, the plaintiff sued for breach of contract. Seaman's defense vvas the Statute of Frauds. 23. Walker v. Ebert, 29 Wis. 194; 9 Am. Rep. 548 This was an action on a promissory note. The defense interposed by Ebert was that he was unable to read or write the English language and could simply write his name, and that he signed the note thinking that it was a contract, because it had been represented to him by a certain person as a contract appointing him as agent to sell certain patent rights. The plaintiff had purchased the note in good faith, for value and be- fore maturity. Was this mistake by Ebert as to the character of the in- strument that he was signing a defense to the action on the note? 24. Kyle V. Kavanagh, 103 Mass. 356; 4 Am. Rep. 560 This was an action for the price of land, which in the agreement of sale was described as "4 lots of land in Waltham on Prospect Street." Subsequently it was discovered that there were two Prospect Streets in Waltham. Kyle meant one street and Kavanagh the other. Consequently, Kavanagh refused to accept the deed offered by Kyle to four lots on the street that he (Kavanagh) did not have in mind. 25. Dixon V. Wilmington Savings & Trust Co., 115 N. C. 274; 20 S. E. Rep. 464 The plaintiff signed a paper, which was a mortgage on her land, without reading it. She did this because she relied on Davis, her agent, who told her that the paper amounted to nothing. The mortgage was made out to the defendant who took it in good faith and paid value for it. The money was obtained by the agent but was not turned over to the plaintiff. The plaintiff brought this action to have the mortgage can- celed on the ground of mistake and fraud. 26. Sawyer v. Prickett, 86 U. S. 146; 22 Law. Ed. 105 The defendant gave a mortgage to secure his note for $2,000, which he gave to buy railroad stock. The railroad was about to be built near his property. As the note was not paid, this action was brought to foreclose the mortgage. The defendant claimed that the mortgage note was secured from him by fraudulent statements. The representations were that the defendant's property would be greatly enhanced in value by the railroad, that the railroad would enable him to sell his products in a better market, that the road would be constructed and equipped within one year, that the company would pay 30 per cent dividends upon its stock. The road was never even completed. CASES 379 27. Lewis V. Jewell, 151 Mass. 345; 24 N. E. Rep. 52 This was an action based on fraudulent representations alleged to have been made by the defendant in selling carpet. The carpet was rep- resented to contain 900 yards, whereas it contained only 595 yards. The carpet at the time of sale covered four floors, a hall, and a stairway in a dwelling house. The yardage of the carpet was an important element in fixing its value. 28. Davis Co. V. Hoffman-LaRoche Chemical Works, 178 App. Div. (N. Y.) 855 In December, 1913, the parties entered into a written contract whereby the defendant agreed to supply the plaintiff with a certain quantity of chemicals which the defendant expected to get from Europe. The con- tract gave the seller the right to cancel on the ground of "contingencies beyond our control — fire, strikes, accidents to our works or to our stock, or change in tariff." After the Great War broke out, the defendant, being unable to procure the chemicals from the other side because of the embargoes laid by foreign countries, notified the plaintiff that it elected to cancel the contract under the stipulation quoted. The plaintiff refused to accept this and sued for damages, as the price of the chemicals had risen tremendously. 29. Robson & Sharpe v. Drummond, 2 B. & Ad. (Eng. Rep.) 303 Sharpe hired a carriage to Drummond at a yearly rental for five years. As part of the contract, Sharpe agreed to paint the carriage every year and to keep it in good repair. Robson was a partner of Sharpe but Sharpe made this contract as an individual. After three years Sharpe re- tired from business and informed Drummond that Robson would look after the repairing of the carriage and would also receive the rent. Drummond refused to have anything to do with Robson and returned the carriage, whereupon suit was brought for the rental for the last two years. 30. Arkansas Valley Smelting Co. v. Belden Mining Co., 127 U. S. 379; 32 Law. Ed. 246 The defendant made a contract to sell to Billings and Eilers certain ore which was to become the property of Billings and Eilers on delivery and to be paid for after a subsequent assay. The contract was assigned by Billings and Eilers to Billings, who later assigned the contract to the plaintiff. The defendant was notified of the assignment, but refused to carry out the contract with the plaintiff and notified the plaintiff that the contract was canceled. The plaintiff sued for damages for non- delivery. 31. Heaton v. Angier, 7 N. H. 397 The plaintiff sold a wagon to the defendant at auction for $30.25. On 38o APPENDIX the same day the defendant sold the wagon to John Chase for $31.25. Chase and the defendant went to see the plaintiff. Chase offered to pay the $30.25 to the plaintiff for the defendant and the plaintiff agreed to accept Chase's promise to pay. Then the wagon was delivered to Chase. As Chase did not pay as agreed, the plaintiff sued the defendant. 32. Adams Radiator & Boiler Works v. Schnader, 155 Pa. St. 394; 26 Atl. Rep. 745 This was an action for the price of a heater which was sold under a written contract. The contract provided in part as follows : " We (plaintiff) guarantee this apparatus for heating by steam to be con- structed in a good, thorough, and workman-like manner, to give entire satisfaction in its operation, and to work entirely noiselessly. Should it prove unsatisfactory after a thorough and reasonable trial, we will remove it at our expense, refund the money paid to us on account of it, and will place the building in as good a condition as it was when we received it for the purpose of installing our steam heating apparatus." The defendant testified that the heater failed to heat the building and that it was unsatisfactory. A plumber, representing the plaintiff, testified that on an examination of the heater after its installation, he found it working satisfactorily. The issue in the case was whether the plaintiff had to furnish a heater that would actually satisfy the de- fendant, or whether it was sufficient to furnish a heater which would satisfy the ordinary reasonable man. 33. Flynn v. Hurlock, 194 Pa. St. 462; 45 Atl. 312 This was an action for work and material. Plaintiff had rendered the defendant a bill for- $3,990.50. The defendant offered to pay the bill if the plaintiff would give him a receipt " in full of all demands." The plaintiff accepted the money and signed the receipt, but as he did so he stated orally that he waived no right to recover for other claims. 34. Spalding v. Rosa, 71 N. Y. 40; 27 Am. Rep. 7 Rosa had made a contract with Spalding, who was the proprietor of a theater, to furnish the " Wachtel Opera Troupe " for a certain number of performances. Wachtel, from whom the company took its name, was well known and was the chief attraction and inducement for Spalding to make the contract. Wachtel became ill and could not sing; because of this Rosa did not carry out the contract. Spalding sued for damages for the alleged breach of contract. 35. Harmony v. Bingham, 12 N. Y. 99; 62 Am. Dec. 142 The defendant contracted to transport merchandise within a certain time. A certain amount was to be deducted for each day's delay. Be- CASES 381 cause of an unusual freshet which made a canal impassable, the delivery was delayed beyond the contract time. The defendant refused to allow the deduction for delay on the ground that the delay was unavoidable and refused to deliver the merchandise until the full price was paid. The plaintiff paid this under protest and sued to recover the amount which he claimed should have been deducted in accordance with the claim. 36. Labaree Co. v. Grossman, 100 App. Div. (N. Y.) 499; affirmed 184 N. Y. 586 The defendant sold a certain cargo of coffee to the plaintiff to be deliv- ered in New York at a certain time. Because the cargo came from an infected port, the Board of Health at New York refused to allow it to be landed. The plaintiff sued for damages for non-delivery. (a) Would it make any difference if the subject matter of the con- tract had not been a selected cargo, that is, if the contract had simply called for the sale and delivery of a certain quantity of coffee at a certain time? 37. Knight V. Abbott, 30 Vt. 577 The defense in this action was a tender. The evidence was that the defendant had remarked to the plaintiff as he was going by on a team : " I want to tender you this money before Mr. Dodge (at the same time holding in his hand $35.50) for labor you have done for me." The plain- tiff, however, paid no attention, but drove along with his team and made no reply. The defendant in his remarks to the plaintiff did not name the sum which he wished to tender, nor did he state the amount that he held in his hand, although it appeared that the amount was $35.50. Was this a good tender? 38. Canda v. Wick, 100 N. Y. 127; 2 N. E. Rep. 381 The plaintiff agreed to deliver to the defendant 400,000 bricks which the latter agreed to pay for at $7.25 per thousand. The bricks were to be delivered from time to time at the plaintiff's convenience, but without delaying the defendant. Prompt delivery and acceptance were contem- plated by the parties. After the plaintiff had delivered only 2,000 bricks, the defendant refused to receive the remainder. The real reason for the refusal was that the price of bricks had fallen to $6.75 in the market. The plaintiff offered to deliver the balance and stated that if the price advanced he would not be held responsible for delivery. This offer to deliver was repeated but refused. The defendant changed his mind and demanded delivery when the price had advanced to $8.25 per thousand. The plain- tiff sued for breach of contract. 39. Norrington v. Wright, 115 U. S. 188; 29 Law. Ed. 366 The plaintiff contracted to sell to the defendant 5,000 tons of iron rails 382 APPENDIX to be delivered at the rate of about 1,000 tons a month beginning February, the whole amount to be delivered by August i. Payment was to be made on delivery. Only 400 tons were shipped in February. This shipment the defendant accepted and paid for, supposing it only a portion of the February consignment. Not until the arrival of the March consignment of 885 tons did the defendant learn that the 400 tons sent in February comprised the entire February shipment. Then the defendant rescinded the contract. The plaintiff sued for the defendant's failure to take the bal- ance of the iron. 40. Jansen v. Schneider, 78 Misc. Rep. (N. Y.) 48 Plaintiff made an agreement with the defendant for instruction in aviation for which he was to pay the defendant $250. He paid $150 in advance and the remaining $100 was to be payable after the plaintiff had received the lessons and was able to fly. After receiving some instruction in the shop, where the plaintiff learned how to assemble the parts of the airplane, the plaintiff waited six weeks for field lessons. Finally in re- sponse to a lawyer's letter, the defendant gave him one lesson which lasted only about a minute, as the machinery did not work. After re- peated demands and refusal for flying instruction, the plaintiff brought suit for the return of the $150. The defendant claimed that he should be allowed some credit for the shop instruction received by the plaintiff. 41. Equitable Gas Light Co. v. Baltimore Coal Tar & Mfg. Co., 63 Md. 28s The defendant agreed to sell to the plaintiff all the coal tar manu- factured by it during a certain period. The defendant refused to carry out the agreement and the plaintiff filed a bill for specific performance. It was proved on the trial that coal tar was indispensable to the plaintiff's business, that the plaintiff could not obtain the supply from any other parties in Baltimore, and that it would be subjected to great additional expense in trying to get the coal tar from distant cities. 42. Griffin v. Colver, 16 N. Y. 489; 69 Am. Dec. 718 The plaintiff made a contract with the defendant to build a steam engine with boilers, etc., and deliver it on a certain day. Delivery was a week late. During this time the defendant was unable to use a certain machine in his lumber-mill which the plaintiff knew the steam engine was intended to drive. The plaintiff sued for the price of the engine and the defendant put in a claim for damages due to the delay. The defendant offered to give evidence tending to show that his damages were $50 a day. This figure was made up by considering the quantity of lumber the machine driven by the engine was to cut up and clean in a day, the CASES 383 price received by the defendant for his work, and the expenses of running and wear and tear. Was this evidence proper? 43. Hammer v. Schoenselder, 47 Wis. 455; 2 N. W. 1129 The plaintiff, who was a butcher, had a contract with the defendant, whereby the defendant was to furnish him with whatever ice he might require for his ice-box for the season of 1878. The defendant had sup- plied the plaintiff with ice the previous season and knew for what pur- pose the plaintiff needed the ice. In July the defendant stopped supplying ice and refused to continue the contract. As a result the plaintiff lost a considerable quantity of fresh meat and suit was brought for the value of the meat spoiled. What damages was the plaintiff entitled to? 44. Clark V. Marsiglia, i Denio (N. Y.) 317 This was an action for work, labor, and material. The defendant had given to the plaintiff a number of paintings to be cleaned and repaired at a certain specified price. After the plaintiff had started the work, the defendant directed him to stop, but the plaintiff insisted on going on and over the defendant's objection, finished the job, and then claimed that he was entitled to recover for the whole. SALES 45. Decker v. Furniss, 14 N. Y. 611 Brown, being the owner of the steamer Rhode Island, made a con- tract with the defendant, Furniss, whereby it was stated that " Brown sells to Furniss one-half of the steamer as she now is completely fitted and furnished for the transportation of passengers on the Sound at the rate of $50,000 for the whole boat, payable in fifteen months by Furniss's note in favor of Brown." The contract also provided that Brown was to have the steamer fitted up so that she could be used for trading along the west coast of America and that Furniss was to pay one-half of the expenses. The note was to be payable in fifteen months from the date the steamer was ready for sea. The plaintiff had been employed by Brown, but had not been paid. He sued Brown and Furniss jointly. Was Furniss liable? 46. Perry v. Wheeler, 25 N. Y. 520 The plaintiff's assignee had paid the defendant for a quantity of lumber which was in the defendant's lumber-yard. The lumber had been selected, set aside, and paid for; and a bill of sale had been given. On the bill of sale there was indorsed a memorandum that the lumber was " to be delivered to the cars free of charge." Before being delivered to the railroad station, the lumber was destroyed by fire. The plaintiff sued for the return of the price. 384 APPENDIX 47. Stone V. Ross, 61 N. Y. 614 This action involved the sale of grape roots for which the buyer had paid the purchase price. When the roots were delivered they were found to be dead and of no value, whereupon the buyer sent them back and demanded repayment of the price. 48. Kimberly v. Patchin, 19 N. Y. 330; 75 Am. Dec. 334 Dickinson had 6,250 bushels of grain stored in his warehouse when the following transactions took place. Shuttleworth bought 6,000 bushels from Dickinson, who gave Shuttleworth a bill of sale and also a warehouse re- ceipt which stated that he was holding 6,000 bushels of grain in his ware- house subject to Shuttleworth's order. Shuttleworth then sold the 6,000 bushels to the defendant and assigned the bill of sale and the warehouse receipt to the defendant. Sometime after this Dickinson sold all the grain in the warehouse to the plaintiff, but the defendant got possession of the 6,000 bushels. The plaintiff, taking the position that the defendant never had title to any of the grain, sued him for the value of the 6,000 bushels. 49. Higgins V. Murray, 73 N. Y. 252 The plaintiff had manufactured some goods for the defendant under contract. The contract did not specify the place of delivery. The plain- tiff, at the request of the defendant, shipped the goods to the defendant at Lewiston, Maine. The goods were shipped C. O. D., and were de- stroyed by fire while in transit. The plaintiff sued for the price. 50. Cornell v. Clarke, 104 N. Y. 451 ; 10 N. E. Rep. 888 A railroad company made a contract with Munson, whereby he was to furnish the company with 20,000 railroad ties at 55 cents each for the iirst-class ties, and 35 cents for " what shall be adjudged second-class ties," to be inspected and counted by a certain inspector. Munson de- livered a quantity of ties which were never inspected or divided into classes. The railroad company became insolvent and this property was sold on foreclosure. The question arose as to whether the title to the ties had ever passed from Munson to the railroad company. 51. Mixer v. Howarth, 21 Pick (Mass.) 205 In this case the plaintiff had made up a buggy according to the oral directions of the defendant. The directions of the defendant were very specific and the buggy was made up especially for him. When it was completed, he refused to pay for it. The plaintiff sued for the price. The defendant set up the Statute of Frauds as his defense. 52. Evans v. Pelta, 146 App. Div. (N. Y.) 749 The defendants gave the plaintiff's agent an order for merchandise CASES 385 of the value of ^366. The latter made a memorandum which he trans- mitted to the plaintiff. But this memorandum was not signed by the defendants. A few days later the defendants wrote to the plaintiff acknowledging that they had "placed an order for a few skirts on De- cember 7 " and requesting the plaintiff to delay shipment. Finally, the plaintiff shipped the goods and mailed an invoice. Later the defendants wrote that the order was countermanded. The plaintiff sued for the price. 53. Calvert v. Schultz, 143 Mich. 441; 106 N. W. Rep. 1123 The defendant gave the plaintiff an oral order for a car of coal then in the railroad yard. The plaintiff directed the railroad company to turn the car over to the defendant, and on the same day sent to the rail- road company a written order to the same effect. On the trial the de- fendant set up the Statute of Frauds. The plaintiff claimed that a written contract was unnecessary because of a custom prevailing among coal deal- ers by which an order to the railroad company to turn the coal over to the purchaser was considered as equivalent to a delivery and acceptance. 54. Stevens v. Bradley 89 Iowa 174; N. W. Rep. 429 The defendant sold at auction a number of hogs. The defendant said that the hogs were as thrifty a lot as he had ever owned, and that he had been in the hog business for a good many years. The hogs were affected with cholera at the time and died shortly afterward. The plain- tiff sued for loss of the hogs, for the expense of caring for them, and also for the loss of other hogs, to which the disease had been com- municated. Was the plaintiff entitled to any of the damages claimed? Why? 55. Torcheimer v. Stewart, 65 Iowa 593; 22 N. W. Rep. 886 The plaintiff, a provision dealer in Mobile, Ala., bought from the de- fendant, a pork packer in Council Bluffs, Iowa, hams, which the defendant in the correspondence stated were " choice, spiced, sugar-cured, canvased hams." The plaintiff did not see the hams before their arrival. As they were of inferior quality, he sued for damages for breach of warranty. 56. Gaar Stock Co. v. Halverson, 128 Iowa 603; 105 N. W. Rep. 108 In this case the salesman, in selling a second-hand machine, stated that it was practically as good as new, that it would steam well, and that it was of sufficient power to drive the defendant's threshing machine. The engine turned out to be defective and did not work well. When sued for the price, the defendant set up breach of warranty. 57. Cash Register Co. v. Townsend, 137 N. C. 852 The plaintiff's salesman, in making a sale of a cash register to the 386 APPENDIX defendant, stated that the cash register would save the expense of a book- keeper, that it provided for the keeping of books on the machine, and that it would save one-half the time formerly spent in keeping books. After paying part of the price, the buyer found that the machine did not come up to the predictions made by the salesman. He refused to pay the balance and, when sued, set up the defense that he had been induced to buy by these statements of the salesman, and that the statements were false. 58. Bradley Harrington v. Hotel Astor, 184 App. Div. (N. Y.) 317 The plaintiff went into the restaurant of the Hotel Astor in New York, and ordered kidney saute. After eating part of the saute, he dis- covered that it contained parts of a mouse. This discovery made him violently sick, and he was ill for several weeks. Was he entitled to any damages, and, if so, for what reason? 59. Bonwit Teller & Co. v. Kinlen, 165 App. Div. (N. Y.) 351 This action was brought by a department store to recover the price of a dress and waist purchased by a customer. The defense was that there was an implied warranty that the goods would be fit to wear, and that in fact they were not wearable. The defense showed that the buyer at the time of purchase asked no questions about the waist. The only question she asked in regard to the dress was as to whether it would wear well. The saleswoman replied that it was the best material that could be put in the dress for the money. Was there any implied war- ranty by the seller that the goods sold would be fit for use as wearing apparel ? 60. Rice V. Friend Bros. Co., 161 N. W. Rep. 310 In this case the buyer ordered roof paint from a manufacturer of paint. The buyer did not have an opportunity to inspect the paint until it was delivered. The manufacturer knew that the paint was to be used for roof paint. The paint turned out to be of a very poor quality. Was there any warranty in this sale as to the quality of the paint? 61. Empire Cream Separator Co. v. Quinn, 184 App. Div. (N. Y.) 302 The plaintiff, a manufacturer, made a contract with the defendant, a farmer, to sell him a mechanical cow-milking apparatus, consisting of a pumping outfit and three mechanical milker units with pails. These articles were sold under the trade name of " Empire Mechanical Milker." After the defendant had tried the mechanism for about ten days he wrote to the plaintiff that the milker was unsatisfactory and that he would not pay for it. The plaintiff sued for the price. The defendant set up breach of warranty as his defense, claiming that there was a warranty that the milker would be fit for the purpose intended. CASES 387 62. Ames V. Jones, 77 N. Y. 614 This action was brought for damages for the failure of the defendant to buy 30,000 bushels of barley under a contract of sale. The defendant claimed that the sale was by sample and that the barley offered for de- livery was greatly inferior to the sample shown. The evidence showed that the defendant's agent had been shown a sample of barley by the plaintiff, that the agent had then taken the sample to the defendant who had telegraphed the plaintiff for "30,000 choice Napanee" (the name of the place where the barley was grown), and that the plaintiff had sent a telegram of acceptance. At the time the sample was shown to the de- fendant's agent, nothing was said as to whether or not the bulk of the barley would correspond with the sample. Was this a sale by sample? 63. Tuthill V. Skidmore, 124 N. Y. 148; 26 N. E. Rep. 348 Property had been sold by the plaintiff to Lawton, but not delivered. Lawton gave notes for the purchase price. These notes became due and were dishonored. Subsequently the defendant obtained an attachment against Lawton and levied on the goods, although they were still in the possession of the plaintiff. Then the plaintiff brought an action of replevin against the defendant, claiming that he was entitled to the possession of the goods as he still retained the seller's lien. 64. Foote & Co. V. Heisig & Morvell, 94 S. W. Rep. 362 This action was brought by the plaintiffs to recover damages from the defendants for breach of a contract to buy merchandise. The con- tract required the defendants to give shipping directions. Although the defendants were asked repeatedly for such directions, they remained silent and the circumstances showed that they did not intend to go ahead with the contract. Finally the defendants wrote that they would not take the goods under any circumstances. Then the plaintiffs notified the defend- ants that they would sell the goods for their account and hold them for the difference. Accordingly the plaintiffs sold the goods and sued for the loss. 65. Sour Lake Town Site Co. v. The Furniture Co., 39 Texas Civil Appeal 86; 94 S. W. Rep. 188 The Furniture Co. sued the Town Site Co., to recover damages for a breach of contract to buy furniture, as the latter refused to accept the goods. The seller took the goods back, sending some articles back to the factory, putting others back in stock in the furniture store, and finally selling them at retail. On the trial the Town Site Co. claimed that the proper measure of damages in regard to the articles which had been resold, was the difference between the contract price and the amount at which said articles were sold. Under the circumstances what remedies did the Furniture Co. have? 388 APPENDIX 66. Mosler Safe Co. v. Brewer, loo Misc. (N. Y.) 107 The defendant made a written contract with the plaintiflf to buy a safe. Before the safe was delivered the buyer repudiated the contract and notified the plaintiff that he would not accept delivery. The plaintiff brought an action for the price of the safe. On the trial the plaintiff did not produce any evidence that the safe could not readily be resold for a reasonable price, nor did it produce any evidence that it had at any time notified the buyer that the goods were held by the plaintiff as the bailee for the buyer. Was the plaintiff entitled to a judgment for the price? If not, what was its proper remedy? 67. Buckley v. Furniss & F., 15 Wendell (N. Y.) 137 The plaintiff received an order from Titus for iron to be sent in care of Green to Plattsburg for forwarding. The plaintiff was in Albany and Titus was in Malone, N. Y. The iron was sent to Green, who, after a delay, gave it to a common carrier to convey to Titus. Before the ship- ment reached Titus in Malone, it was levied on by a sheriff who had an attachment in favor of the plaintiff against Titus. Several weeks later, the plaintiff brought a replevin action. Consider these questions : Can the right of stoppage in transit be exercised after the goods have been attached by a creditor but before the transit has ended? Did the transit in this case end at Plattsburg? 68. Messmore v. The New York Shop & Lead Co., 40 N. Y. 422 The plaintiff made a written contract with the defendant to buy a large quantity of bullets at the price of 7 cents per lb. The plaintiff was under contract with the state of Ohio to furnish it with the quantity and quality of bullets called for by his contract with the defendant at the price of 7J4 cents per pound, plus transportation expenses. The plaintiff testified that at the time that he was negotiating with the defendant's agent, he told the defendant's agent about this con- tract that he had with the state of Ohio, and that the defendant's agent refused to enter into the proposed contract until he had been shown the Ohio contract, and that the plaintiff then showed it to him. The plaintiff also testified that he explained to the defendant's agent that he desired to secure from the defendant the ammunition for carrying out his Ohio contract. The goods furnished were defective and were rejected by the state of Ohio. The plaintiff then brought this action, suing the defendant for the profits that he would have made had his contract with the state of Ohio been carried out. 69. Raymore Realty Co. v. T. Nesbit Co., 145 App. Div. (N. Y.) 163 The plaintiff made a written contract with the defendant for the pur- chase of about 100,000 Roman bricks to be delivered as ordered. The CASES 389 defendant knew that the bricks were wanted by the plaintiff for the construction of a certain apartment house. At the time of making the contract, the plaintiff informed the defendant that he would suffer a considerable loss if there were any delays in delivery. As a result of the defendant's delays in the delivery of the bricks, the completion of the building was delayed for about three months. On the trial the plain- tiff claimed these four items of damages : 1. $1,700 paid the building contractor as damages for delay. Of this item, $300 was for the amount paid the workmen when idle and waiting for more bricks to be delivered. The balance of $1,400 was estimated as damages claimed to have been sustained by the builder in being prevented from doing work on other contracts outside of the building in question. 2. Interest on the value of the property during the period of delay. 3. $486, the proportionate amount of taxes assessed on the property, for the period in question. 4. $7,778 rentals lost by reason of the delay. Which, if any, of these items is the plaintiff entitled to? Why? 70. Butler V. Wright, 186 N. Y. 259 Butler made a contract with Wright to turn over to the latter certain stock in return for which Wright agreed to deliver to Butler 500 shares of the capital stock of Wright's Automatic Tobacco Packing Machine Co. Although Butler offered to carry out his part of the contract and made demand on Wright to turn over the stock of the Packing Machine Co., Wright refused to comply. The evidence showed " that the stock of the Wright Co. had never been listed on any exchange or had any quoted value or any definite market price or any certain value capable of any exact ascertainment; and that the defendant was the owner of at least 92 per cent of the stock and controlled the balance.'' The plaintiff asked the court to order the defendant to specifically perform his contract. 71. Parks V. Morris Ax & Tool Co., 54 N. Y. 586 This action was for the price of steel purchased by the defendant of the plaintiff. The defense was that the steel had been warranted as equal to the best English ax steel, and that the steel delivered was not up to the warranty. The evidence showed that there was an express war- ranty, that the defendant relying upon it had manufactured 2,000 dozen axes from the steel, that the steel was not of the quality warranted but was much inferior, and that as the result of the defective steel furnished, the axes manufactured were worth $1.50 per .dozen less than they would have been if the quality had been as warranted. The defendant then sued for damages of $3,000. What damages, if any, was he entitled to? 390 APPENDIX 72. Bruce v. Fiss, Doerr & Carroll Horse Co., 47 App. Div. (N. Y.) 373; 62 N, Y. Supp. 96 The facts as stated in the report of the case were as follows : " The action is brought for damages for breach of warranty given on the sale of a horse, that the horse was sound, kind, and true, and gentle and quiet in harness, and suitable for use by plaintiff in his pro- fession as a physician, to drive in harness as a carriage horse." The dam- ages sought to be recovered were for injuries to the plaintiff and his vehicle arising from the kicking and running away of the horse. Subse- quent to the occurrence of the damages complained of, the plaintiff returned the horse to the defendant and was repaid his money, but, as the plaintiff testified and as the jury found, without relinquishing his claim against the defendant for his damages." Was the plaintiff entitled to the damages sought provided the facts were as alleged? Was the plaintiff also entitled to the difference between the actual rvalue of the horse and its value as represented? What remedies, if any, would the plaintiff have had had he decided to keep the horse? AGENCY 73. Patterson v. Lippincott, 47 N. J. L. 457; Atl. Rep. 506 This action was brought against Barclay Lippincott for the balance due under a written contract for the sale of a license to use Patterson's patent. The contract was signed, " George P. Lippincott, per Barclay Lippincott." After payment for the balance due had been refused, the plaintiff learned that George P. Lippincott was under the age of 21 years and that Barclay Lippincott was his father. George Lippincott was still under 21 at the time of the trial. 74. Johnson v. Milwaukee & Wyoming Investment Co., 46 Neb. 480; 64 N. W. Rep. 1 100 The Milwaukee & Wyoming Investment Company owned a cattle ranch in Wyoming, but its business office was in Wisconsin. One Adams was employed as manager of the ranch with authority to purchase supplies, hire men, and send in accounts to the treasurer in Milwaukee who would remit payment for the same, and to gather cattle and ship the same to a commission house in Chicago, but with no authority to ship elsewhere or to sell cattle. Adams, through a cattle salesman in Omaha, sold to Johnson 250 head of cattle from the ranch at $22 a head, Johnson then being in Wyoming. At Johnson's request, Adams shipped the cattle to Central City, Neb., and received checks payable to his order. Neither Johnson nor his Omaha agent had ever before dealt with either the CASES 391 company or Adams. This action was to replevin the cattle from the defendant. 75. Americus Oil Co. v. Gurr, 114 Ga. 624; 40 S. E. Rep. 780 This action was originally brought by Gurr against the Americus Oil • Co. for the price of certain cottonseed. The theory of the plaintiff was that he sold the seed to one Ward, as agent of the defendant, that it received the seed and was therefore liable to him for the price. The evidence showed that the arrangement " between the company and Ward was for him to buy seed and ship the same to the company, he in each instance to pay for the seed purchased with cash furnished him for this purpose by the company." Did Ward have implied authority to buy on credit as he did in this transaction? What kind of an agent was Ward? 76. Worrall v. Munn, 5 N. Y. 229. The defendant by a contract under seal agreed to convey certain land to Noah Worrall, the plaintifT. The agreement was signed, " Henry Worrall for Noah Worrall." When the plaintiff offered to perform, the defendant refused to convey the land and the plaintiff sought to get a decree of specific performance. The defense was that Henry Worrall, as agent for Noah Worrall, was acting under oral authority only and therefore could not make a valid contract under seal for his principal. 77. Linnehan v. Rollins, 137 Mass. 123; 50 Am. Rep. 287 A builder had a contract with the defendants to take down a certain building which they held as trustees. The contract provided that the builder was " to take down the entire building known as the Adams House belonging to said trustees, or as much thereof as the trustees may request; all of said work to be done carefully and under the direction and subject to the approval of the trustees." The plaintiff was injured by the negli- gence of a workman employed on the job and sued the defendants as trustees for his injury. The defense was that the builder was an inde- pendent contractor. 78. New York Tel. Co. v. Barnes, 85 N. Y. Supp. 327 The defendant made Purdy the general manager of his drug store. A separate agreement provided, however, that Purdy should buy goods for the store only for cash and that he should not run up any account for any goods or supplies of any kind whatever. Purdy made a con- tract with the plaintiff for telephone service. The telephone company sued the defendant on this contract made by Purdy. 79. Wycoff V. Davis, 127 Iowa 399 The plaintiff's agent, Dahlberg, had authority to sell and deliver the 392 APPENDIX plaintiff's typewriters and collect for them. Dahlberg, who was short in his accounts, went to the defendant and admitted the shortage, and then borrowed $125 from him to send to the plaintiff to make good the shortage. As security, Dahlberg delivered some of the typewriters to the defendant and gave him a receipt for $205. The receipt was in the usual form, acknowledging a part payment of the price of the machines. Dahlberg sent the money to the plaintiff and it was credited to his ac- count. When the plaintiff learned of the transaction, he brought an action of replevin. The defendant offered to give up the machines, but claimed that he was entitled to be reimbursed for the $125. 80. Eberts v. Selover, 44 Mich. 519; 7 N. W. Rep. 225 A book agent was selling a book, the price of which was $10. The defendant refused to pay $10 but said that he would take the book for $4.27. The salesman agreed to this. The salesman had a subscription book in which the buyers signed, giving their names and addresses. At the top and at the bottom of each page in very large print was the state- ment that the price of the book was $10 and that the agent had no authority to reduce the price. The defendant signed his name in this sub- scription book but with the understanding mentioned. The publisher sued for $10 and the defendant tendered $4.27. 81. Power V. First National Bank, 6 Mont. 251 ; 12 Pac. Rep. 597 This action was brought to recover the amount of a bill of exchange which had been deposited by the plaintiff with the defendant bank for collection. The defendant, in the usual course of business, sent the bill of exchange to its correspondent. The correspondent collected the draft but negligently failed to remit the proceeds and it subsequently went into the hands of a receiver. 82. People V. Taylor, 192 N. Y. 398 The Labor Law of New York State provides as follows : " No child below the age of 14 years shall be employed, permitted or suffered to work in or in connection with any factory in this state. No child between the age of 14 and 16 years shall be employed, permitted or suffered to work unless an employment certificate issued as provided in this article shall have been theretofore filed in the office of the employer at the place of employment of such child. " Any person who violates or does not comply with [these provisions] is guilty of a misdemeanor." A child under 16 years of age was found by a factory inspector work- ing in the factory of which the defendant was superintendent, and who was charged with having violated these provisions of the Labor Law, as no employment certificate had been filed. The girl had been employed CASES 393 by the foreman and the defendant had never seen her and did not know that she was employed in the factory. Was the defendant guilty of any crime? Was the corporation operating the factory guilty of any crime? 83. Howard v. Daly, 61 N. Y. 362; 19 Am. Rep. 285 The plaintiff was engaged by the defendant to act in his theater for a certain definite term at a fixed salary. She reported at the begin- ning of the season for rehearsals but was not given any part or allowed to appear in the performances. She sued for the full amount of the salary for the entire term of the contract. What remedies were open to the plaintiff? Was it necessary for her, in order to recover, to report at the theater every day? 84. Martin v. New York Life Ins. Co., 148 N." Y. 117; 42 N. E. Rep. 416 The facts are thus stated in the opinion : " The plaintiff sued to recover salary at the rate of $10,000 a year from May i, 1892, until January i, 1893, with interest. " The plaintiff entered the employ of the defendant in 1881 and was placed in charge of the real estate department at a salary of $5,000 a year. From the ist of January, 1883, he received salary at the rate of $6,500 a year under an arrangement made in February, 1883. In February, 1884, his salary was increased to the rate of $10,000 a year, payable from January i, 1884. His salary was paid monthly. Without further agree- ment of any kind, the plaintiff continued in the discharge of his duties until April 13, 1892, when he received a letter from the President of the defendant notifying him that his services would not be needed after April 30, 1892." 85. Weinberg v. Blum, 13 Daly (N. Y.) 399 The plaintiff made a contract with the defendants to act as salesman for them. He was to receive a certain commission on his sales and also to have the privilege of drawing $25 per week, which amount was to be deducted from his commissions. He sued for $25 for the last week of his employment. The defense was that he was not entitled to any- thing as the commissions earned during his employment were less than $25 per week. 86. Kalley v. Baker, 132 N. Y. i ; ag N. E. Rep. 1091 The plaintiff, a broker, had been authorized by the defendant to find a purchaser for the defendant's farm, or one who would make an ex- change. The plaintiff brought together the defendant and one Humphrey, and they made a written contract to exchange their properties, both to be free from incumbrances. Later it was found that Humphrey's title was defecti\e and the defendant refused to carry out the contract on this ground. The plaintiff sued for his commission. Was he entitled to it ? 394 APPENDIX 87. Garfield v. Peerless Motor Car Co., i8g Mass. 395; 75 N. E. Rep. 695 The plaintiff was appointed an exclusive agent for certain territory by the defendant. The defendant itself made a sale to a person residing within the territory designated for the plaintiff. The company refused to pay the plaintiff a commission on this sale, whereupon the plaintiff sued for his commission. The defense was that the plaintiff was entitled to commission only on sales made by him. The plaintiff's theory was that he was entitled to commission on all sales made in his territory whether by him or by someone else. 88. Hannon v. Siegel-Cooper Co., 167 N. Y. 244; 60 N. E. Rep. 597 The defendant, which was the proprietor of a department store, advertised that it conducted a department of dentistry for the convenience of its patrons. This statement, however, was not true as the dentist who did the worI< was the real owner of the department and was not subject in any way to the control of the defendant. One of the customers of the defendant, not knowing about the real arrangement and thinking that the dentist was an employee of the defendant, had some dental work done. This work was done very negligently and unskilfully with the result that the customer was seriously injured. The customer brought suit against the defendant. Was the defendant liable? 89. Cannon v. Henry, 78 Wis. 167; 47 N. W. Rep. 186 The defendants, who had a contract to do some railroad construction work, sublet their contract to various subcontractors. They employed McQuade as superintendent to see that the subcontractors carried out their work properly and kept a sufficient number of men at work to finish the job in time. McQuade arranged with the plaintiff to have him board certain laborers employed by the subcontractors and agreed that the defendant would pay the bill. Were the defendants liable? If so, on what theory? 90. Palmeri v. Manhattan Ry. Co., 133 N. Y. 261; 30 N. E. Rep. looi The plaintiff bought a ticket from the defendant's agent at the station and passed through the gate to take the train. The agent followed her, charged her with having given counterfeit money, and demanded another coin in place of the one given. She insisted that the coin tendered was genuine and refused to replace it with another. The agent called her a counterfeiter, placed his hand upon her person, and told her not to stir until he got a policeman. He detained her for a while on the platform, but not getting an officer, allowed her to go. She sued for false arrest. 91. McKeon v. Manze, 157 N. Y. Supp. 623 The defendant conducted a saloon and in connection with it a hotel CASES 395 or lodging house, the rooms of which were over the saloon. The defend- ant employed one Taft as lunchman, that is, Taft conducted what was known as a free lunch counter. Taft's work was over at 6 o'clock in the evening when the free lunches were discontinued, but sometimes Taft would stay around and help out the bartender. Taft lived at the place and had a room over the saloon. One evening Taft got into an altercation with a customer and threw a beer glass at the customer. Taft's aim was bad, however, and the glass hit another customer who had no part in the altercation. Was the defendant liable for the act of Taft? 92. Ludwig V. Gillespie, 105 N. Y. 3 This was an action for the price of merchandise sold and delivered by the plaintiff to the defendant. The contract read in part, "Sold for the account of E. Ludwig, Agent, to L. C. Gillespie, 4,000 cases Syrian Bitumen." The plaintiff was acting as agent for a French firm. Was the plaintiff entitled to sue or should suit have been brought in the name of the French firm? Suppose the situation had been reversed and Ludwig had bought goods as agent for an unnamed French firm. In that case against whom could suit be brought? 93. Laing v. Butler, 37 Hun (N. Y.) 144; 15 N. E. Rep. 442 The defendant gave money to his agent to buy hides for him. The agent, without disclosing his agency, bought them from the plaintiff in his own name and on credit. The plaintiff, having found out that the defendant was the real principal in the transaction, sued him for the price. 94. Scott V. Rogers, 31 N. Y. 676 The plaintiff had 5,500 bushels of wheat stored with the defendant in Buffalo. On July 12 the plaintiff telegraphed the defendant to sell the wheat on that day at $1.08, or if not sold on that day to ship to New York. The defendant offered the wheat at that price to a prospective customer, who asked for an option until the next morning. The defend- ant, acting in good faith and thinking that it would do no harm if he gave the customer until the following morning, granted him the option. At 8 A.M. on July 13 the customer bought the wheat. The plaintiff, on learning the facts, repudiated the sale and sued the defendant for the conversion of the wheat. The plaintiff claimed that he was entitled to the highest market price prevailing in New York within the next four months. 95. Bain v. Brown, 56 N. Y. 285 The defendant was the agent of the plaintiff to sell realty belonging 396 APPENDIX to the latter. The defendant made a contract to sell for $17,000. He informed the plaintiff of this. The next day some other parties applied' to purchase the property. Thinking that he could make some money for himself, he gave these other parties a contract to sell for $26,000, naming himself as the vendor. For a consideration he secured an assignment of the first contract from the first purchaser. Then he induced the plaintiff to make a deed direct to the parties of the second contract on the representation that the purchaser under the first contract had assigned his contract to these parties. The defendant said nothing to the plaintiff about the second contract. The defendant received $26,000 on the second contract but gave the plaintiff only $17,000 and pocketed the profit of $9,000. The plaintiff sued for the $9,000 made by the defendant in this manner. 96. Israelson v. Williams, 166 App. Div. (N. Y.) 25 The plaintiff employed the defendant, an insurance broker, to procure a policy and gave him full information in regard to certain other insur- ance on the property. The defendant secured a policy containing a clause that the policy should be void if there was other insurance on the property. The plaintiff accepted the policy without reading it, believing, of course, that the defendant had obtained a proper policy. After a loss, the insur- ance company successfully defended on the ground that the condition of the policy had not been met. The plaintiff now sues the defendant on the ground of negligence. 97. Peoples Coat, Apron & Towel Supply Co. v. Light & Cohen 171 App. Div. (N. Y.) 671; affirmed 224 N. Y. 227 The facts are thus stated in the opinion : " Light was for some three years in plaintiff's service where, as driver of his wagon, deliver- ing laundered coats and aprons to individuals and collecting payment for the use thereof, he acquired knowledge of and access to plaintiff's customers. Discharged by plaintiff on October I, 1914, Light, after a brief interval entered the service of defendant, Cohen, who, by his induce- ment under the name of The Mutual Coat & Apron Supply Co., began a business similar to that of the plaintiff. Light, using his knowledge of plaintiff's customers acquired in his service, and by virtue of his former representation of plaintiff, went to them and induced them to substitute Cohen's outfittings for that of the plaintiff, and thereby secured their business for Cohen and deprived the plaintiff of it." The plaintiff asked that the defendant be stopped from using the knowledge which Light had gained while in plaintiff's employment in depriving the plaintiff of its own customers. 98. Kroeger v. Pitcairn, loi Pa. St. 311; 47 Am. Rep. 718 The defendant was the agent for a fire insurance company. He stated CASES 397 to the plaintiff, who was a policyholder, that it would be all right for the pfaintiff to keep petroleum on the premises in spite of the fact that this was forbidden by the terms of the policy. The defendant in fact had no right to make this statement, and when a loss occurred the company successfully defended on the ground that this condition of the policy had been violated. Was the defendant responsible to the plaintiff, as agent, for the loss caused by his misrepresentation? Why? 99. Gimdlach v. Fischer, 59 111. 172 The defendants were sureties on a bond given to insure the faithful performance of the duties of an agent under a contract. The agent's contract was to act as agent in selling certain machines. The agency contract did not contain any express provision as to duration, but it did contain a provision that the employer would furnish the agent such machines as he might be able to sell prior to October i, 1867. After that date, but without the consent of the sureties, he continued to act as agent and misappropriated some money collected by him after that date. Were the defendants as sureties liable for this misappropriation of funds? 100. Davol, Jr. v. Quimby, 11 Allen (Mass.) 208 This was an action to recover a debt. The defense was payment to the plaintiff's agent. The evidence showed that the plaintiff had authorized Howe to collect the debt from the defendant. Later the plaintiff engaged an attorney to make the collection. The attorney made a demand on the defendant but without securing payment. Afterwards the defendant paid the debt to Howe. The plaintiff never notified Howe that his authority had been withdrawn. Was plaintiff bound by the payment to Howe? loi. Gaynor v. Jonas, 104 App. Div. (N. Y.) 35 The plaintiff made a contract with the defendant whereby the de- fendant agreed to employ the plaintiff for three months at $16 a week. After one month the plaintiff was discharged because she had been sick and away from business for one and one-half days. She sued for her salary for the balance of the employment period, less what she actually earned during that time. 102. Hess V. Rau, 95 N. Y. 359 The plaintiffs who were brokers, had sold stocks short for a customer. In accordance with the usual custom among brokers, they had borrowed the stocks for delivery from other brokers and thereby had become obligated to return the borrowed stocks. The customer died while the transaction was still open. The defendant did not qualify as executrix until two months after his death. During this interval the plaintiffs 398 APPENDIX " kept the transaction alive by borrowing stocks from time to time to replace the stocks previously borrowed which had been called for." 'A week after the executrix had qualified, they notified her to furnish addi- tional margin and that in default of so doing, they would buy in the stocks on her account at a time and place named in the notice. The margin not being furnished, the plaintiffs bought in the stocks on that day at a loss on the transaction of $9,437.98. The defense claimed that the authority of the plaintiff's brokers ceased automatically on the death of Rau, and that therefore they had no right to continue the speculation after his death, but should within a reasonable time thereafter have bought in the stocks in order to close out the transaction. NEGOTIABLE INSTRUMENTS 103. McNamara v. Hose, 28 Wash. 461 McNamara, the plaintiff, was the holder in due course of a note made by the defendant. McNamara had bought the note from a man named Daly. The defense of Hose, the maker, was that the note had been obtained from him by Daly in a fraudulent transaction. Was this a good defense as against McNamara? 104. Everston v. National Bank of Newport, 66 N. Y. 14; 23 Am. Rep. 9 $35-00. The Indianapolis, Wilmington & Western Railway Com- pany will pay the bearer at its agency in the city of Newport, $35.00 in gold coin on the first day of April, 1871, for semiannual interest on bond # Signed A. P. Lewis, Secretary. The above was a form of interest coupon on the bonds of the rail- road company. Some of these coupons which had been detached from the bonds and sent on to Newport for collection were stolen, and the stolen coupons got into the hands of the plaintiff, Everston, who was a purchaser in good faith. Was he entitled to collect on the coupons? 105. Dodge V. Emerson, 34 Me. 96 Suit was brought on a note " payable to the Protection Insurance Company or order for $271.25 with such additional premium as may arise on policy (50 issued at the Calais Agency.'' The question arose as to whether or not this was a negotiable instrument. 106. C. N. Bank v. Close, 139 N. Y. 307 Action on the following note: u CASES 399 $7,500. Brooklyn, N. Y., August 2, 1890 Three months after date, we promise to pay the Clark & Chapman Ice Company $7,500 at the Mechanics Bank. Value received. E. H. Close, Treasurer S '■ John Clark, President This note was given in payment of ice sold by the Clark & Chap- man Ice Co. to the Ridgewood Co., and was discounted by the plaintiff bank. Suit was brought against Clark and Close. Their defense was that they signed as officers of the corporation and therefore were not per- sonally liable. Would it make any difference in the final result if the plaintiff's bank at the time of discounting the note had known that the note had been given for a liability of the Ridgewood Ice Co.? 107. Richardson v. Carpenter, 46 N. Y. 660 The instrument in this case was in part as follows : " Please pay A or order $500 for value received out of the proceeds of the claim against the Peabody Estate now in your hands for collection when the same shall have been collected by you." Was this a negotiable instrument? Why? 108. Coolidge V. Ruggles, 15 Mass. 387 The defendant signed a paper promising to pay a certain sum of money on the arrival of a certain ship in port. The question came up as to whether or not this instrument was negotiable. log. National Exchange Bank v. Lester, 194 N. Y. 461 The defendant indorsed a note. When he indorsed the note, it con- tained some spaces which made forgery easy. The defendant did not eliminate these spaces. Subsequently, a forger used these spaces to increase the amount of the note. The note was complete in form and contained no blanks. The bank which paid the note sued the defendant on the ground of negligence. no. Kellogg V. Douglas County Bank, 58 Kan. 43; 48 Pac. Rep. 586 This suit involved a note which had the following indorsement: " For value received, we hereby guarantee payment of the within note at maturity, waiving demand, protest, and notice of protest." The in- dorsement was signed by the payee of the note. On the trial the question arose as to whether or not this indorsement was sufficient to transfer the note from the payee to the third party. It was claimed that the indorse- ment amounted to nothing more than a guaranty. 400 APPENDIX 111. Lloyd V. Sigourney, s Bingham (Eng. Rep.) 525 Sigourney was a Boston merchant. Lloyd was a London banker. Samuel Williams had an account with Lloyd. Williams was an American agent and as such received from Sigourney a bill of exchange from a London house which was indorsed by Sigourney as follows : " Pay to Samuel Williams of London or his order, for my use. Henry Sigourney." Williams indorsed this bill to Lloyd who discounted it and gave Williams credit for it in his account. Williams failed before remitting the proceeds to Sigourney and Sigourney brought suit against Lloyd for the amount of the bill. 112. Hunter v. Allen, 127 App. Div. (N. Y.) 572 The cashier of a bank received notes drawn to the order of one of the bank's customers. The notes were blank as to date, time of payment, and amount. He filled in the blanks and procured the indorsement of the payee and placed the proceeds to the payee's credit. In subsequent liti- gation, the point arose as to whether or not the bank was a holder in due course. 113. Ward V. City Trust Co., 192 N. Y. 61 The president of a manufacturing corporation indorsed a check pay- able to the corporation with the corporate name signing his own name as president, and delivered this check to a trust company in payment of a personal loan which he and another officer of the corporation had ob- tained. Later the corporation became insolvent and an action was brought to makes the trust company refund the amount of the check to the corpora- tion on the ground that it was not a holder in due course, inasmuch as it had notice from the nature of the transaction that the president had no right to negotiate the check to pay his own indebtedness. 114. Horan v. Mason, 141 App. Div. (N. Y.) 89 The defendant made promissory notes to the Horan-Marshall Co., Inc. These he refused to pay. The defense was that the notes were procured by fraud and that the holder of the notes being the president, was chargeable at least with constructive notice of the fraud. The evi- dence showed that the notes had been indorsed by the corporation to the plaintiff for full value, whereupon he had indorsed and discounted them at a bank. The bank paid him the full value for the notes and he subse- quently paid the bank and took up the notes when the defendant failed to meet them. The bank clearly was a holder in due course. The plaintiff sued as a holder in due course and also as the successor to the rights of such a, holder. There was no evidence that the plaintiff had been a party to any fraud in connection with the notes. CASES 401 115. Farmers National Bank v. Venner, 192 Mass. 53; 78 N. E. Rep. 540 The defendant made a note payable on demand to his own order. The defendant indorsed the note on the plaintiff's bank. The bank with- out making any demand for payment began suit. The defendant raised the point that the action was improper because no demand for payment had been made at the place specified in the note. 116. Bergstrom v. Ritz Carlton Restaurant & Hotel Co., 171 App. Div. (N. Y. ) 776 The plaintiff sued as assignee of Mrs. Bergstrom and of Bergstrom & Co., a firm of private bankers. Mrs. Bergstrom and her husband, who was one of the partners in the private banking firm, resided at Carlton House, an apartment hotel in New York. The defendant conducted the Ritz Carlton Hotel adjoining Carlton House. Mr. and Mrs. Bergstrom were known to the defendant. A check for $300 on the printed form of check of Bergstrom & Co., indorsed by one Freund, an employee of the Carlton House Co., and bearing the name of Mrs. Bergstrom as drawer and made out to the order of the defendant, was presented to the de- fendant's cashier by one of the employees of the Carlton House with the statement that Mrs. Bergstrom desired to have the check cashed. The check was cashed and was subsequently discovered to be a forgery. In the meantime the' check had been paid by Bergstrom & Co. 117. State Bank v. Fearing, 33 Mass. 533; 28 Am. Dec. 265 The defendant took a note that was indorsed with the name of the payee. The defendant then indorsed it to the State Bank which dis- counted the note. When the note was presented to the maker, he refused to pay. The bank thereupon started to sue the defendant upon his indorse- ment. His defense was that he was not liable because the indorsement preceding his, that is, the indorsement of the payee, was a forgery. 118. Gilpin V. Savage, 201 N. Y. 167; 94 N. E. Rep. 656; 34 L.R.A. (N. S.) 417 , . , This action was against the indorser of a note payable at a particular place which was the maker's residence. The cashier of the bank which held the note as security, telephoned the maker at his residence and stated that the note was held by the bank and that it was due. At the time of this talk, the cashier had the note in his possession. The note was never actually exhibited to the maker. The question arose as to whether or not this was a sufficient presentment to charge the indorser. 119. Cady V. Bradshaw, 116 N. Y. 188; 22 N. E. Rep. 371 The defendant, H. W. Bradshaw, was the indorser of a note made by E. W. Bradshaw to the order of R. Roland. The note was also indorsed 402 APPENDIX by Mr. Roland. The facts which were relied upon to prove a waiver on the part of the indorser of demand and notice of non-payment were thus stated by the court: " Prior to the date at which the note matured, this defendant called upon the plaintiff and asked if he would extend the note another year if the interest should be paid up. He said he wanted it extended another year and Ed (meaning the maker), would pay up the interest. The plaintiff responded that he was willing if the defendant would let his name be pn it and let it be as it was. The plaintiff further asked the defendant if he and Mr. Roland would let their names remain on the note. And the defendant said 'yes,' if the plaintiff would let the note stand as it was. Before the maturity of the note, the plaintiff saw Roland who con- sented to the extension." Do these facts show a waiver of presentment and notice of dishonor? 120. West River Bank v. Taylor, 34 N. Y. 128. This case involved a bill of exchange containing a number of indorse- ments. When the bill was dishonored, notice was sent to the last in- dorser, who in turn sent notice to his preceding indorser, and so on down the line. Ultimately the holder sued the first indorser who defended on the ground that he did not receive notice of dishonor from the holder, although of course he had received notice from his indorsee. 121. Sulsberger & Sons Co. v. Cramer, 170 App. Div. (N. Y.) 114 The defendant paid for merchandise with a check drawn on a local bank. The plaintiff did not put the check into his own bank for collection until five days afterwards. As the plaintiff's bank was in another town, the result was that there was a delay of nine days before the check reached the defendant's bank. On the day previous his bank had sus- pended. During all this period the defendant had sufficient funds in the bank to meet the check. Under the circumstances, the defendant claimed that he was released from liability. 122. First National Bank of Jersey City v. Leach, 52 N. Y. 350; 11 Am. Rep. 708 The defendant drew a check to his own order. He indorsed it to the plaintiff bank which had it certified by the defendant's bank. Later in the same day, when the check was presented for payment, payment was refused on the ground that the bank had suspended. Was the de- fendant liable on the check? CASES 403 PARTNERSHIPS 123. Meehan v. Valentine, 145 U. S. 611; 36 Law. Ed. 835 Perry loaned a partnership $io,ckx) for which the partnership gave him a promissory note payable with interest and agreed also to pay him one-tenth of the net yearly profits of the partnership business, if those profits exceeded the sum loaned. After Perry's death, his executor, the defendant Valentine, was sued for some of the firm's debts. 124. Bush V. Beecher, 45 Mich. 188; 7 N. W. Rep. 785 Williams made a written agreement with Beecher, who owned a hotel, to hire the hotel from Beecher and to pay Beecher one-third of the gross profits. Bush sold some merchandise to Williams and afterwards en- deavored to hold Beecher as a partner. Beecher had never been held out as a partner of Williams. 125. Hackett v. Stanley, 115 N. Y. 625; 22 N. E. Rep. 745 Stanley and Gorham made an agreement whereby Stanley loaned Gorham $750 " for use in the business of heating, ventilating, etc.," and in consideration of this loan and in further consideration of the services of Stanley in securing sales, Gorham agreed to divide the net profits of the business equally with Stanley. The loan according to the agreement was " especially for use in the business and for no other use whatever." The loan was secured by certain collateral. The agreement further pro- vided that Gorham was to be allowed $r,ooo for his services in managing the business. The business was carried on in the name of Gorham. The plaintiff rendered services and furnished materials upon the request of Gorham in fitting up a place in New York for the carrying on of the business of heating, ventilating, etc. Was Stanley liable to the plaintiff? Would your decision be affected by the question as to whether the plaintiff was informed of the agreement between Gorham and Stanley, or was ignorant of the same? 126. Fecheler v. Hand & Co., 133 Fed. 462 A firm and a corporation were in the same line of business operating in different places. They made a contract which provided that each should have the privilege of buying from the other at cost, such goods as it might select from the stock of the other and that each party should pay the other at the end of the year a certain percentage of the gross profits. The method of figuring gross profits was provided for in the contract. The question arose as to whether this agreement made them partners. 404 APPENDIX 127. Cashman v. Lawson, 73 App. Div. (N. Y.) 419; 67 N. E. Rep. 1081 Lawson, Welch & Quincy organized a partnership for conducting a hotel. Quincy actually carried on the work with the knowledge and acquiescence of the other memKers of the firm. He engaged the plaintiff as steward and obtained from him a deposit of $1,000 on the promise of returning it if the plaintiff would give thirty days' notice of his intention to give up the employment. Cashman did not know that Lawson and Welch were associated in the enterprise. After the death of Quincy, he found this out. Were Lawson and Welch responsible to the plaintiff for the return of the $1,000 deposit? 128. Moore v. Williams, et al., 26 Texas Civil Appeal 142; 62 S. W. Rep. 977 The plaintiff made a contract with the defendant, Williams, to build parts of a water works plant. Williams had the contract for the con- struction of the plant. Williams had two partners whose names, how- ever, were not disclosed in connection with the work and everything was done in the name of Williams. He gave some notes in part payment for the plaintiff's services. The question arose as to who was liable on these notes — Williams alone, or Williams and the two secret partners. 129. Linton v. Hurley, 14 Gray (Mass.) igi The plaintiff sued Daniel and John Hurley, alleging that he sustained physical injuries while in their employ. Daniel and John Hurley were partners in the stevedoring business. The plaintiff's injuries occurred while engaged in unloading a vessel under the direction of one of the defendants. The other defendant was not present at the time of the accident. He contended that he was not liable because he was not in any way personally responsible for the accident. 130. Burnett v. Snyder, 81 N. Y. 550 Three men who were arranging to form a partnership desired to have the defendant, Snyder, join them, as he was a prominent man in the business in which the partnership was to engage. Snyder refused to become a partner, but made an agreement to share the profits and losses of one of the partners. This agreement was made with the knowledge and consent of the two other partners. Snyder took no active part in the management of the business. The question arose as to whether Snyder un- der these circumstances could be considered as a partner as to creditors. 131. Hendren v. Wing, 60 Ark, 561; 31 S. Wi. Rep. 149 Wing and two others constituted the firm of the Arkansas Machinery & Supply Co. The firm sold some machinery to Miller on credit and to secure the firm he gave back a chattel mortgage on the machinery. The CASES 405 mortgage was made out in the name of the company. The machinery was obtained by Hendren, who had certain claims against Miller, but without the consent of the Arkansas Machinery & Supply Co. This firm sued to recover possession of the machinery, basing its claim upon the chattel mortgage. Hendren's defense was that the mortgage was void because it did not contain the name of any one of the partners. 132. Freeman v. Abramson, 30 Misc. (N. Y.) 101 The plaintiff and one Meyer were in partnership as cigar dealers. Meyer without the knowledge and consent of his copartners made a bill of sale in the firm name by which instrument he conveyed all the stock-in-trade in the firm property to one Reische. Was this transfer valid ? 133. In re Estes, 3 Fed. 134 Estes and Carter were partners. They went into bankruptcy both as partners and as individuals. The question arose as how the firm's prop- erty and the individual properties of Estes and Carter were to be ap- portioned among the various creditors, that is, among the firm creditors, the creditors of Estes, and the creditors of Carter. 134. Kirk V. Hodgson et al., 3 John. Ch. (N. Y.) 400 Kirk and two others were partners engaged in business as book- sellers. Hodgson, a clerk, stole some money belonging to the firm. Kirk insisted on discharging Hodgson but the other two partners agreed to forgive him and continue him in the employ of the firm. Kirk then brought this action suing Hodgson and his two partners, demanding that the partners be ordered by the court to discharge Hodgson from the employment of the firm. 135. Burgan v. Lyell, 2 Mich. 102; 55 Am. Dec. 53 The plaintiff sued to recover for services rendered to a firm. He had been engaged by Harvie, one of the partners, without the knowledge and consent of the other partners. The other partners refused to pay on the ground that they knew nothing about the work and that the articles of copartnership forbade a single member from making a contract of this nature. The plaintiff did not know that there was any such re- striction in the partnership agreement. 136. Metcalfe v. Bradshaw, 145 111. 125; 33 N. E. Rep. 1116 The plaintiff and the defendant formed a law partnership and agreed to give their time, skill, experience, and talents to the business of the firm. During the existence of the firm, the plaintiff had suggested that the defendant be named as an executor of the estate of a former client 406 APPENDIX of the firm. The suggestion was carried out and the defendant attended to his duties as executor. After the dissolution of the firm, the plaintiff contended that the defendant must account for the fees received as ex- ecutor on the ground that these be included as part of the firm income. 137. Rische v. Rische, 101 S. W. Rep. 848 The parties were partners. The plaintiff asked for a dissolution on the ground that he had been excluded from participation in the manage- ment of the business and in the profits resulting therefrom. Were these sufficient ground for dissolution? 138. Burchinell v. Koon, 8 Colo. App. 463; 46 Pac. Rep. 932 In this case, the surviving member of a partnership obtained a loan, to secure which he gave a mortgage on firm property. The proceeds of the loan were used to pay firm debts. Did the surviving partner have power to give this mortgage? CORPORATIONS 139. Trustees of Dartmouth College v; Woodward, 17 U. S. 518; 4 Law. Ed. 629 Dartmouth College received its charter from the British Crown in 1769. This charter was not dissolved by the Revolution. After the Revolution, the legislature of New Hampshire passed an act amending the charter of the college without the consent of the trustees. The ques- tion arose as to whether this act was constitutional, i.e., as to whether the legislature had the right to alter a charter once granted to an edu- cational corporation. Would your answer be the same if the corporation had been simply a commercial corporation? 140. State V. Carr, 10 N. E. Rep. 318 The question in this case was whether the State University of In- diana was a public or a private corporation. The university was estab- lished by a special act of the legislature. This act provided that certain public lands should be set aside for the university and that the proceeds of the sales of the lands should be put into the state treasury to be loaned out by the state auditor, and that the interest received from such loans should be applied to the current expenses of the university. 141. Thomas v. Dakin, 22 Wendell (N. Y.) 9 This action was brought by Thomas as president of an association called the Bank of Central New York. Under the New York laws, suits CASES 407 by joint stock associations are brought in the name of the president. The defendant contended that the plaintiff in reality was a corporation. The bank was organized under a law which provided for banking associa- tions. This law provided that such associations should have stock, that the stock should be transferable, and that stockholders should not be liable beyond the amount of their stock subscriptions. The law did not, however, use the word " corporation." Was the bank actually a corpora- tion? 142. Hall's Safe Co. v. Herring-Hall-Marvin Safe Co., 146 Fed. 37 Hall's Safe & Lock Co., a corporation, had been engaged for many years in manufacturing safes which were marked and known as " Hall's Safes," and had had a valuable good-will. The company sold its business, property,' and good-will to the Herring-Hall-Marvin Safe Co. This sale was consented to by the three brothers of the Hall family who were officers and large stockholders in Hall's Safe & Lock Co. They signed the agreement of sale as officers of the company, but not as individuals. The Hall brothers organized another corporation under the name of "Hall Safe Co." The Herring-Hall-Marvin Co. petitioned for an injunc- tion restraining the Hall brothers from carrying on the business of manu- facturing safes under the name of " Hall Safe Co." or any other similar name. 143. Sturges V. Vanderbilt, 73 N. Y. 384 A judgment was obtained against the corporation after the expira- tion of the period named in the charter as the duration of the corporation. Was this judgment valid? 144. Jones V. State of Mississippi, loi U. S. 814; 25 Law. Ed. 1079 In 1867 the Mississippi legislature by a special act, incorporated the Mississippi Agricultural, Educational and Manufacturing Aid Society and gave it power to conduct lotteries. In 1870 the legislature passed an act making it unlawful to conduct a lottery in the state of Mississippi. The question arose as to whether this act of 1870 curtailed the power of the Aid Society in regard to conducting lotteries. How does this case differ from Case 140? 145. Nichol V. N. Y. & Erie R. R. Co., 12 N. Y. 121 This company was incorporated for only fifty years. It obtained a deed to certain property. A question arose as to the nature of its title to the property. Was it a title in fee simple or a limited title? 146. People ex rel. v. Pullman Palace Car Co., 175 111. 125; 51 N. E. Rep. 664 The Pullman Palace Car Co. was a corporation chartered to manu- 4o8 APPENDIX facture and purchase such real estate as might be deemed necessary for the successful prosecution of its business. The corporation purchased real estate and built the town of Pullman with streets, sewers, water and lighting systems, dwellings, schools, churches, houses, stores, etc., for employees. The Attorney-General of Illinois brought a proceeding to forfeit the charter on the ground that the corporation had been guilty of usurpation of power. 147. Jacksonville M. P. & R. Navigation Co. v. Hooper, 160 U. S. 514; 40 Law. Kd. 515 In this case the question arose as to the liability of the railroad com- pany for the lease of a hotel at the end of its line on a barren beach in Florida. Did the railroad have the power to make such a lease? 148. The Nassau Bank v. Jones, 95 N. Y. 115 The plaintiff bank made an agreement with Jones whereby he was to subscribe for certain railroad bonds and was to turn over to it one-half of the bonds allotted to him on his subscription. He did not turn over the bank's share, and the bank sued for half of the profits made by Jones on the transaction. The defense was that the contract was ultm vires. 149. Burral v. Bushwick R. R. Co., 75 N. Y. 211 The defendant issued the following certificate : BUSHWICK RAILROAD COMPANY Tompkins Avenue Branch Brookljm, March 25, 1868 This certifies that Charles Foster is entitled to ten (10) shares of the capital stock of the Bushwick Railroad Company, upon surrender of this certificate at the company's office. $1,000. F. W. Kalbfleish, President This certificate was transferred to the plaintiff who demanded that the defendant deliver to him the said "capital stock." This the defendant refused to do. 150. Flinn v. Bagley, 7 Fed- 78s The defendants were subscribers for the increased capital stock of a corporation. The subscription terms were that they were to receive the stock at 66% cents on the dollar. The subscriptions were paid and the certificates of stock issued. Subsequently the corporation went into bankruptcy. The trustee in bankrupt-cy sued the defendant subscribers for the remaining one-third of the par value of the stock. The trus- tee, of course, sued for the benefit of the creditors. CASES 409 151. McNeill V. Tenth Ward National Bank, 46 N. Y. 325 The plaintiff delivered a certificate of stock to his broker to secure the broker for a balance owed him by the plaintiff. On the back of the cer- tificate the plaintiff indorsed the blank assignment and power of attor- ney. The plaintiff owed the broker $3,000. The broker, without the knowledge or consent of the plaintiff, pledged the certificate with a bank for a loan. When the plaintiff learned what had happened, he demanded that the bank deliver the certificate to him. This the bank refused to do unless it were paid $15,000, the amount of the broker's indebtedness for which it held the certificate as collateral. What were the rights of the plaintiff? 152. Lake Ontario Shore R. R. Co. v. Curtiss, 80 N. Y. 219 The defendant and other persons signed the following paper : " The undersigned, citizens of Unionville and vicinity, pledge ourselves to sub- scribe for and take stock, in and for the construction of, the Lake On- tario Shore Railroad, to the amount set opposite our names respectively, on condition said road is located and built through or north of the village of Unionville." The conditions were not fulfilled. The Lake Ontario Shore Railroad sued the defendant on his alleged subscription. 153. Stokes V. Continental Trust Co., 186 N. Y. 185 The plaintiff was a stockholder of the defendant corporation. A resolution of the stockholders was passed to double the amount of the capital stock. The plaintiff demanded the right to subscribe for a num- ber of the new shares equal in amount to what he already held. This demand was refused. A resolution was then passed directing the sale of the new shares to certain bankers at $450 per share. The defendant voted against this proposition. He was not given an opportunity to buy the stock at $450 a share. The stock was increased and sold to the bankers at $450 although the market price at the time was $550 a share. The plaintiff sued for damages. 154. The Chicago City Ry. Co. v. Allerton, 85 U. S. 233; 21 Law. Ed. go2 The directors of the Chicago City Ry. Co., without calling a meeting of the stockholders, passed a resolution to increase the capital stock from $1,250,000, the amount limited in the charter, to $1,500,000. Did the directors have power to do this? 155. Hun V. Cary, 82 N. Y. 65 The defendants were trustees of a savings bank. For six years they conducted the bank at a loss. The average deposits were about $70,000. During the sixth year, the defendants, acting for the bank. 410 APPENDIX purchased a lot, the cost of which was about $30,000 and erected a build- ing at a cost of about $27,000. The object of the purchase of the build- ing was to give the bank better facilities in the hope tliat this would mean an increase in its deposits. Two years later the bank failed. The real estate was swept away by a foreclosure of the mortgage placed upon it. At the time of the purchase of the property and the erection of the building, the bank was insolvent. Was this a case of a mistake in judgment on the part of the defendants or a case of recklessness and of gross carelessness? 155. Hyatt V. Allen, 56 N. Y. 553 The plaintiff sold 20 shares of stock of a corporation to the defen- dant. The agreement of sale provided that all profits and dividends on the stock up to January i, 1872, were to be paid to the plaintiff. The corpora- tion did not declare any dividends until April g, 1872, when it declared a dividend of $15 on each share. Two hundred and fifty dollars of this dividend was derived from an increase in the value of the assets of the company prior to January i, 1872. Were the plaintiffs entitled to this portion of the dividend? INSURANCE 157. Indiana Ins. Co. v. Hartwell, 123 Ind. 177; 24 N. E. Rep. 100 Plaintiff applied to an insurance broker for some insurance. The broker secured the insurance through a firm of insurance agents who placed the risk with the defendant. The insurance agents had no au- thority to accept insurance for the defendant. They simply submitted applications to the defendant and received compensation for such appli- cations as were accepted. In the plaintiff's application there was a mis- statement as to the occupancy of the building, but the insurance agents knew the real facts in regard to the occupancy. Was this knowledge of the insurance agents binding on the defendant? That is, did they act in the matter as the agents of the plaintiff or as agents of the defendant? 158. Foley V. Manufacturers & Builders Fire Ins. Co., 152 N. Y. 131 In this case the question arose as to whether the plaintiffs had an insurable interest in certain buildings covered by their policy. At the time of the fire the buildings were incomplete; they were being erected under contract binding the contractor to furnish the materials and complete the buildings for a said sum to be paid on their completion. 159. Chisholm v. National Capital Life Ins. Co., 52 Mo. 213 The plaintiff took out a policy of life insurance on the life of her fiance, CASES 41 1 and paid the first premium. Before the parties were married, the fiance died. Did she have an insurable interest in his life? 160. Rawls V. American Mutual Life Ins. Co., 27 N. Y. 282 In this case a policy of life insurance was taken out by the plaintiff on the life of his creditor Fish. At the time of the medical examination Fish answered truthfully the questions that were put to him in regard to his health and habits. He was not, however, asked any questions in regard to his use of intoxicants, although he was at the time a heavy drinker, and he did not volunteer any information about this. At the time of Fish's death the plaintiff's claim against him had become outlawed. The com- pany contended that the plaintiff did not have an insurable interest in the life of Fish; that if the plaintiff did have an insurable interest at the inception of the policy, this interest lapsed when his debts became out- lawed ; and that the policy was void because Fish did not disclose the fact that he was a man of intemperate habits. 161. Lowenstein v. Fidelity & Casualty Co., 88 Fed. 474 This was an action on an accident policy issued by the defendant to E. Lowenstein, payable to his wife, the plaintiff, in case of death. The insured died from accidental asphyxiation caused by inhalhig gas while asleep. The defendant company claimed it was not liable because the policy contained this provision: "This insurance does not cover injuries, fatal or otherwise, resulting from poison or anything accidentally taken, administered, absorbed or inhaled." PERSONAL PROPERTY 162. Eibman v. War, 58 N. J. Law 445; 33 Atl. Rep. 958 The owner of certain land started to build a house on it. While the home was in the course of construction, he sold the property and agreed with the buyer that he would complete the house. He put in a portable furnace and a portable cooking stove. In subsequent litigation the ques- tion arose as to whether the furnace and the stove were part of the realty or simply personal property. The heater rested on a cemented floor, and its pipes ran into the chimney flues. The arrangement with respect to the range was similar. 163. New York Life Ins. Co. v. Allison, 107 Fed. 179 In this case the question arose as to whether certain dynamos and engines and electric light fixtures were to be considered as fixtures. The building in question had a system of pipes for lighting with gas, and was also equipped with an electric lighting system which could be connected 412 APPENDIX with the street supply. Dynamos and engines were installed, however, so that the building could have its own electric lighting plant and thereby save money. These dynamos and engines were not especially adapted for this particular building and were easily removable. The electric light- ing fixtures were also easily detachable and consisted principally of a switchboard, chandeliers, electric fan, and an electric sign. 164. Getchell v. Biddeford Savings Bank, 94 Me. 452; 47 Atl. Rep. 895 A man deposited his own money in a savings bank in his wife's name, and never delivered the bankbook to her. There was no evidence that the wife ever saw the bankbook or knew of the deposits. To whom did the money belong? 165. Starr v. Winegar, 3 Hun (N. Y.) 491 The defendant had mingled wheat belonging to the plaintiff with his own wheat. At the trial the plaintiff's attorney requested the court to charge that if the jury found the defendant had mingled his wheat with the plaintiff's, then the defendant must submit to any amount the jury might find. Was this a correct statement of law? 166. Parshall v. Eggert, 54 N. Y. 18 The plaintiffs discounted Roche's note. Roche was a commission merchant. To secure the plaintiffs, Roche gave them a receipt which stated that he had received certain grain in store for the account of the plaintiffs, subject to their order, and as security for his note; and he in- formed the plaintiffs that the grain mentioned in the receipt was in his broker's warehouse. Did the receipt and the statement constitute a valid pledge of the grain? 167. Susman v. Whyard, 149 N. Y. 127 The defendant, who was indebted to the plaintiff, applied to him for a further loan and offered to give a chattel mortgage. The plaintiff said he would not take a chattel mortgage but would take a bill of sale. The. defendant gave the plaintiff a regular bill of sale, which, however, contained this statement : " It is agreed that if Whyard shall pay to Susman $400 within six months, Susman will resell the property men- tioned back to Whyard. It is further agreed that the property is to re- main in the possession of Whyard, who is to pay $2 a weelt rental for its use," $400 was the total indebtedness. The question arose as to whether this was really a bill of sale or a chattel mortgage. CASES 413 REAL PROPERTY 168. Hoffman v. Armstrong, 48 N. Y. 201 Dr. Hoffman and the defendant were the owners of adjoining land separated by a fence. There was a cherry tree on Dr. Hoffman's land with branches overhanging the land of the defendant. The plaintiff, who was a sister of Dr. Hoffman and lived with him was standing on the fence and picking cherries from the limbs overhanging the defendant's land when the defendant ordered her to stop. She refused and he re- sorted to force. She sued for assault and battery. The defendant claimed that the ownership pf land includes everything above the surface. 169. Holbrook v. Finney, 4 Mass. 243 John Finney conveyed certain land to his four sons. The sons gave back to the father a purchase money mortgage, i.e., a mortgage in pay- ment of the price. The plaintiff, who at that time was the wife of one of the sons, did not join in the mortgage. She subsequently brought this action to fix her dower interest in the land. 170. Huntington v. Asher, 96 N. Y. 604 Hogan owned land on which there was a pond. He conveyed a small plot of land a. short distance away from the pond to Asher. The deed contained a clause giving Asher and his heirs or assigns the exclusive right to take ice from the pond, with the privilege of access thereto for that purpose. Hogan later sold all the rest of the land to the plaintiff. Asher sold his lot to the defendant by a deed which contained no refer- ence to the ice privilege. The defendant went upon the plaintiff's land and cut a large quantity of ice. The plaintiff then brought this action for trespassing. 171. Hubbell V. Hendrickson, 175 N. Y. 175 The plaintiff sold and conveyed certain land to the defendant for $3,000 to be paid in annual instalments by the defendant in such amounts as she might be able to pay. The defendant mortgaged the property for $1,000. The proceeds of the mortgage she used to pay other debts. The plaintiff brought an action to have the court declare that he was en- titled to a vendor's lien on the property. Was he entitled to such a lien? If so, was it superior or inferior to the mortgage? 172. Cooper V. Lawson, 139 Mich. 628; 103 N. W. Rep. 168 This was an action brought by a tenant against the landlord for loss to his property caused by a fire from a defective flue. In the lease the landlord did not assume any obligation to make repairs. The land- 414 APPENDIX lord did not retain any control over the chimney flue, and there was noth- ing to prevent the tenant from going on the roof of the building to clean the flue. SURETYSHIP 173. Strong V. DufSeld, 144 N. Y. 392 The defendant's husband gave the plaintiff his demand note for a past due debt. The defendant indorsed the note when the plaintiff stated that he would not present it for collection. The plaintiff said: "I will hold it until such time as I want the money." The plaintiff made no de- mand tor two years and then sued the defendant on her indorsement. She set up the defense of lack of consideration. 174. Cass V. Shewman, 16 N. Y. Supp. 236 In connection with a lease of his farm the plaintiff got from the de- fendant the following guaranty : " I hereby become surety for the ful- filment of the lease by the party of the second part, I hereby agreeing to fulfij all the terms and conditions of said lease not fulfilled by the party of the second part." On the tenant's failure to pay the rent, the plaintiff sued the defendant. The defense was that no demand for the rent had been made on the tenant before the commencement of the suit, and that the defendant had been given no notice of the tenant's default. 175. Kane v. Cortesy, 100 N. Y. 132 The plaintiff was the owner of a mortgage which was guaranteed by the defendant. When the time for the payment of the mortgage fell due, the plaintiff granted an extension of time to the mortgagor and the latter gave to the plaintiff a chattel mortgage on certain personal property as additional security. When the defendant was sued on the guarantee he claimed that the extension of time for paying the mortgage released him from his obligation under the guarantee. 176. Johnson v. Harvey, 84 N. Y. 363 Johnson and Allen went on the bond which was required of the defendant in a lawsuit. Before the trial Allen died, and a judgment was obtained against the defendant on which Johnson was compelled to pay $1,000. Johnson then brought suit against Allen's estate for $500. 177. Bellevue Building & Loan Co. v. Jeckel, 46 S. W. 482 Jeckel was the treasurer of the plaintiff corporation. He had been in its employ for some time. During the period of his employment he had been guilty of embezzlement. This was known to the plaintiff's directors. CASES 415 Without disclosing this fact, the plaintiff obtained from the defendant a surety bond for the faithful performance of his duties as treasurer. After- ward Jeckel was again guilty of defalcation and suit was brought on the bond. BANKRUPTCY 178. In re Luckhardt, loi Fed. 807 A petition in bankruptcy was filed against Luckhardt by his creditors. Luckhardt had been a merchant, but shortly after committing the act of bankruptcy alleged became a farmer. He claims that he was not subject to an involuntary bankruptcy proceeding because he was a farmer by occupation. 179. In re Union Feather & Wool Co., 112 Fed. 774 The president of the Union Feather & Wool Co. from time to time made small advances of money to meet the pay-roll and the necessary expenditures of the corporation, and on each occasion he received a check from the company. He held these checks until the company had funds to meet them and then presented them and they were paid. At the time the checks were paid the company was insolvent. It was claimed in a bankruptcy proceeding that the paying of these checks constituted a preferential transfer, that is, the second act of bankruptcy. 180. Diehans v. Shiiferler, 112 Fed. 505 A firm was charged with transferring property with intent to hinder, delay, and defraud creditors. It appeared that the alleged bankrupts had sold out their stock of goods at a fair value, about $1,165. They spent the proceeds of the sale as follows : $650 was used to pay a note on which the father of the partners was surety; $150 went for back rent; $100 was used for the support of their aged mother; and the balance, $265, was taken by the partners for their own support until they could get other work. There were a number of other creditors, none of whom were paid. Did any of these payments constitute fraudulent or preferential transfers ? 181. In re Scott, 93 Fed. 418 In this case the petitioning creditors claimed that one of the claims presented should be disallowed. This claim was made by a former at- torney for the bankrupt and all that was stated in the proof of claim as the consideration was the following : " That the consideration for said debt was for legal services performed by said Scott during the year 1898." Is this a sufficient statement for a proof of claim? 41 6 APPENDIX 182. In re H. J. Harrington Co., 113 Fed. 499 Out of a total of 89 creditors, representing 95 per cent of the amount of the claims, 86 accepted a proposed composition of 25 cents on the dollar. Only one creditor opposed the confirmation. The referee who investigated the matter, however, reported that it might be possible, although he was not certain, to realize 30 to 35 per cent on the debts if the bankruptcy proceedings were continued. The bankrupt was engaged in a country mer- cantile business and his assets consisted of accounts due, a stock of goods, real estate situated in the country, and estimated contracts for cutting and shipping wood. Do you think that the court should have approved the proposed composition? INDEX (References are to pages) Acceptance, agreement, 32-35 bills of exchange, 210-211 contracts, 32-35 mail or telegraph, 33-34 presentment for, 211 tender, 88 time of, 35 trade, 187 unqualified, 32-33 Acceptor of negotiable instruments, liability of, 201 Accession, 299 Accident insurance, 287-288 Accommodation signer, 188-189 Accounting, right to, by partner, 232-233 Actions (See "Suits") Act of God, effect of on contracts, 83 Admissions, 95 Agency, agent, appointment of, 149-151 auctioneers, 138 authority, 149-ISI care, skill and diligence, 165 competency, 142, 143 custody of funds, 165, 166 del credere, 145 duty to principal, 162, 163 duty to third party, 166 express appointment, 150 express powers, 150 fraudulent conduct, 167 general, 143, 144 Forms, 359 good faith, 164 habits, 164, 165 417 implied appointment, 150, 151 implied powers, 149-151 liability, 167, 168, 171 limitation of authority, 166, 167 minor, 143 must not act for both parties, 164 must not act for himself, 164 must not compete with princi- pal, 164 obedience, 163 oral appointment, 149 proxy, 149 selling personal property, 156, 157 selling real property, 149, 150 special, 144, 145 Forms, 359 subagent, 152 warranty of authority, 168 when appointment requires seal, 145, 146 written appointment, 149 agent, general, appointment of, Forms, 359, 360 authority, 143, 144 definition, 143 agent, special, appointment of, Forms, 359 authority, 144, 145 definition, 144 auctioneers, 138 contract of, 149-154 definitions, 141 del credere agent, 145 employer's duty to protect em- ployees, 159, 160 importance of subject, 141 independent contractors, 147 interpretation of contracts, 146 4i8 INDEX Agent — Continued power of attorney, Forms, 360 meaning, 149 principal, competency, 142 corporation, 142 duty to agent, 155 duty to third party, 156 liability for agent's wrong- doing, 157 liability to third party, 156 minor, 142 partnership, 142 undisclosed, 157-159 ratification, 151, 152 sealed contracts, 145, 146 servants and employees, 146, 147 subagents, 152 termination of, agency coupled with an inter- est, 176 bankruptcy of agent, 176 bankruptcy of principal, 175, 176 by disability, 175, 176 by either party, 174, 175 by fulfilment, 174 death of agent, 175, 176 death of principal, 175 insanity of principal or agent, 176 third party, agent's duty to, 166 agent's liability to, 167, 168, 171 claims against principal for agent's wrongs, 157 liability, 173 relation to agent, 171, 172 relation to principal, 172 rights against principal, 156 undisclosed principal, 157-159 void contracts of agency, 152, 153 Agent (See "Agency") Agreement of the parties, 32-38 Alteration, contracts, 81, 82 new agreements, 81, 82 unauthorized alteration, 82 negotiable instruments, 186 Appeals, grounds, 21 to a higher court, 21 Application, charter, 256 life insurance, 283 Appointment, agent, 149-151 express, 150 implied, 150-151 manner, 149 oral, 149 written, 149 subagent, 152 Articles of association (See "Cor- porations, charter") Assignee, liabilities and rights of, 77 Assignment, assignee, 77 contracts, 76 Forms, 355 liabilities of assignee, 77 notice of, 77, 78 novation, 78 oral assignment, 76 rights of assignee, 77 written assignment, 76, 77 creditors, for benefit of, 341, 342 life insurance policy, 284 notice, 77, 78 novation, 78 stock certificate. Forms, 366 Associations, not formed for profit, 218 partnership, 218 Attachment, debtor's property, 337, 338 Attorney, power of, 149 Forms, 360 Auctioneer, 138 Auctions, 137, 138 bids, 137 compliance with conditions, 137, 138 duties of auctioneer, 138 regulations for sales at, 137 Authority, appointment of subagents, 152 INDEX 419 Authority — Continued limitation of agent's, 166, 167 termination of agent's, 174-176 under seal, 145, 146 Automobile insurance, 289 Average, general, 287 B Bankrupt, (See also " Bankruptcy") discharge, 349, 350 exempt property, 337, 338 involuntary, who may be, 340 rights and duties, 348, 349 voluntary, who may be, 341 Bankruptcy, 337-350. (See also "Bankrupt") acts of, 342-343 assignment for benefit of credit- ors, 341, 342 claims, allowance of, 345, 346 filing list of, 345 proof of, 345 creditors, petitioning, 339, 340 enforcing payment of debts, attachment and sale, 337, 338 attempts to defraud, 338 execution, 337, 338 exempt property, 337, 338 foreclosure, 337 lien, 337 where creditor has security, 337 where there is no security, 337, 338 exempt property, 337, 338 proceedings, 339, 34° assignment for benefit of cred- itors, 341, 342 bankrupt, rights and duties of, 348, 349 composition with creditors, 346 creditors who may bring, 339. 340 discharge, 350 exempt property, 337. 338 filing claims, 345 how instituted, 34s involuntary, 342 petition, 341, 345 voluntary, 441 purposes of law, 339 receiver, appointment of, 345 rights and duties, 346, 347 trustee, election of, 346 rights and duties, 347, 348 undischargeable debts, 349, 350 Beneficiary, right to change in life insurance, 284 Bids, at auction sales, 137 Bill of sale. Forms, 358 Bills of exchange (See " Negotiable instruments ") Blank indorsement, 192, 193 Boiler insurance, 290 Breach of contract (See "Con- tracts ") Brokers, 276, 277 Burden of proof, 94 Burglary insurance, 288, 289 Burial insurance, 290 Buyer, rights of (See "Sales") By-laws, 252, 253 Capitalization, 260 Capital stock (See " Corpora- tions ") Certificate, of incorporation (See "Corpora- tions") of stock (See "Corporations") Charter (See "Corporations") Chattel mortgage. Forms, 368, 369 effect, 301, 302 property that may be mortgaged, 302 recording, 302 Checks, 212 corporate, Forms, 361 definition, 187 individual. Forms, 361 Choses in action, 295 420 INDEX Claims (See "Bankruptcy") Club, liability of members, l68, 169 Common law, 13 Common stock, 263 Competency, of agent, 142, 143 of parties to a contract, 39-43 of principal, 141, 142 Compounding a crime, 53, 54 Conditional indorsement, ' 194 Conditional sales, 117-119 Forms, 357 Conditions in sales, 127 Confusion of goods, 299 Congress, laws of, 8 Consideration, adequacy, 48, 49 carrying out legal duty, 49-51 definition of, 45, 46 love and affection, 47 material value unnecessary, 46, 47 moral obligation, 47, 48 negotiable instruments, 188 past, SI promise without consideration in- valid, 47 request, necessity of, 46 seal, effect of, 49 Constitution, constitutional government, 7 state, 8, 9 United States, 8 Construction, negotiable instru- ments, rules of, 189 Contracts, acceptance, by mail or telegraph, 33, 34 must be unqualified, 32, 33 time of, 35 actions on, for damages, 91 rules of evidence, 93-96 specific performance, 93 Statute of Limitations, 96 agency, I49-I53 agreement of the parties, 32-38 alteration, effect of, 72 assignment, 76-78 assignment of. Forms, 355 blank spaces, filling in, 72, 73 breach of, actions for, 90, 91 failure to perform, 89, 90 making performance impossi- ble, 90 reasonable time, go recovery for past performance, 92, 93 refusal to perform, 90 remedies for, go Statute of Limitations, 96 by letter. Forms, 353, 354 conditional sales contract. Forms, 357 conditions, gi contrary to public policy, when, 55. S6 corporate, 271, 272 definition of, 29, 30 discharge of, 80-84 act of God, 83 act of the government, 83, 84 agreement, 81, 82 alteration, 82 bankruptcy, 82 breach, 81 change in law, 83 impossibility of performance, 82,83 performance, 80, 81 strikes, 84 war, 83, 84 duress, effect of, 70, 71 effects of, 65-74 enforcement of, 89-g6 entire, 91, 92 essential features of, 29-31 formal contract, Forms, 354, 355 fraud, effect of, 68-70 gambling, 54 guaranty contract. Forms, 357, 358 illegal agreements, 53-55 illegality, effect of, 57,58 implied, 63 insane persons, 40, 41 INDEX 421 Contracts — Continued insurance contract, 275 intention of parties, 36 interpretation of, 81, 82 effect of, 73, 74 legality, 53-58 effect of, 57, 58 law of place, 56, 57 public policy, agreements con- trary to, 55, 56 making, methods of, 59-63 married women as parties, 42, 43 minors as parties (See "Min- ors ") mistakes, effect of, 63-68 mutual assent, 32 intention, 36-38 new agreements, effect of, 72 novation, 78 offer, termination of, 35, 36 withdrawal of, 34, 35 of warranty, Forms, 358 options, 36 oral, 59 parties, competency of, 39-43 partnership, 221-226 performance, 89-93 failure to perform, 89 making performance impossi- ble, 90 recovery for part, 92, 93 refusal to perform, 90 specific, 93 quasi, 63, 64 remedies, for breach of contract, 90, 91 of buyer, I33-I3S of seller, 131, 132 restraint of trade, 55, 56 sales (See "Sales") sealed, 62 separable, 91, 92 signing without reading, 66 simple. Form, 353 specific performance, 93 Statute of Frauds, 60-62, 121, 122 (See also "Statute of Frauds " below) subject-matter defined, 53 tender of payment or perform- ance, 86-88 acceptance, 88 definition, 86 extent and kind, 87 time of making, 86, 87 termination of (See subhead " discharge of " above) undue influence, 71, 72 unilateral. Forms, 354 warranty, Forms, 358 written, 59, 60 Contributory negligence, 160 Conveyance of real property, 314 Corporations, by-laws, 252, 253 capacity to contract, 43 capital stock, certificates, 261 Forms, 365 certificates, assignment of, 366 Forms, 366 common, 263 dividends, 264 full paid, 262, 263 issued and unissued, 262 preferred, 263, 264 shares, 257, 258 system, 248-249 transfer of, 265 treasury, 265 value, actual, 260 value, no par, 263 value, par, 260 versus capital, 261, 262 charter, Forms, 367 amendment, 254 buy, sell and hold property, 252 by-laws, power to make, 252, 253 definition, 251 directors, officers and agents, appointment of, 252 dissolution, 253 necessary things, 253 powers, general, 251-253 seal, use of, 252 422 INDEX Corporations — Continued special powers, 253 to sue and be sued, 252 ultra vires, 254 check. Forms, 361 classification of, 245 common stock, 263 corporate, entity, 24s mechanism, 249 creation by the state, 247 directors, appointment of, charter power of, 252 dividends, 271, 272 election of officers, 271 execution of contracts, 272 liabilities, 270-271 meetings, 271 number and authority, 270 status and functions, 270 distinctive features, 246-249 dividends, declared by directors, 271, 272 preferred, 263, 264 domestic, 258 duration, 258 foreign, 258 incorporation, application for, 256 capitalization, 257 certificate of, 251 Forms, 367 certificate of, execution of, 258 duration, 258 incorporators, 256, 257 location, 258 name, 257 purposes, 257 shares, .257, 25B investors, attractiveness to, 249 legal entity, 248 limited, liability, 247, 248 powers, 247 location, 258 nature of, 245-249 no par value stock, 263 note. Forms, 362 officers, appointment of, charter power of, 252 election of, 271 execution of contracts, 272 permanence, 248 preferred stock, 263-264 proxies, 149, 269 Forms, 361 stock (See subhead "capital stock" above) stockholders, 266-269 liabilities, 267, 268 limited liability, 247, 248 meetings, 268 powers, 267 proxies, 269 rights, 266 voting, 268 who are, 266 subscription list. Forms, 364 treasury stock, 265 ultra vires contracts, 43 without capital stock, 246 Counterclaim, 17, 18 Court of equity, 19, 20 Court of law, 18, 19 Court reports, 12, 13 volume of, 12, 13 Creditors, defraud, attempts to, 338 payment of debts, enforcing, 337, 338 Crimes, agreements not to prosecute, 53, 54 contracts to commit, 53 penalties, 25 Criminal law, 24, 25 Curtesy, 308 Damages, 98-102 for certain losses, 98, 99 for natural and immediate results of breach, 99, 100 INDEX 423 Damages — Continued for results understood to be probable, 100, loi injured party's duty to reduce, loi, 102 not for speculative losses, 98, gg reduction of, loi, 102 sales contracts, buyer, 134 seller, 132 Date, negotiable instruments, 186 Deeds, Forms, 370 of trust, 317 quit-claim, 314 recording, 314, 315 requirements, 314 restrictions, 315 warranty, 314 Del credere agents, 145 Delivery, contract of suretyship, 328 goods, to common carrier, 109 negotiable instruments, i8g part, exception for, contract of sale, 122 sales without, 116, 117 transfer of title, effect on, 115 Demurrer, 18 Directors (See "Corporations") Discharge of contracts (See "Con- tracts, discharge of ") Dissolution (See "Partnership") Dividends, declared by directors, 271, 272 preferred, 263, 264 Dormant partners, 222 Dower, 308 Drafts (See "Negotiable instru- ments ") Drawee, 187 Drawer, 187 Duress, 70, 71 contributory negligence, 160 employers' liability laws, 160 protection of, by employer, isg, 160 safe place to work, etc., 159 workmen's compensation laws, 160 Employer, duty to protect employees, 159, 160 employers' liability acts, 160 workmen's compensation laws, 160 Entire contracts, 91, 92 Equity, bringing suit in, 19, 20 law and, 15-21 legal sense, 16 origin, 16 suits in, 16, X7 Evidence, rules of, 93-96 admissions, 95 burden of proof, 94 deceased party, . former transac- tions with, 95, 96 parol, 94, 95 Evolution of law, 3-6 Execution, 337, 338 Exempt property, 337, 338 Felonies, 25 Fidelity insurance, 290 Fire insurance (See "Insurance") Fixtures, 2g6 Foreclosure, 316, 317 Fraud, effect of, 68 specious schemes, 70 Statute of Frauds, 60-62 what constitutes, 68, 69 Futures, contracts for buying and selling, 54, 55 Easements, 308, 309 Employees, acting as agents, 146, 147 Gambling, 54 General agents, 143, 144 424 INDEX General average, 287 General release, Forms, 371, 372 Gifts, 301 God, act of, 83 Government, constitutional, 7 Grand Jury, 24 Guarantor, 325 Guaranty, contract of, 325, 326 Forms, 357, 358 definition, 325 notice of failure to pay, 330 H Health insurance, 288 Holder in due course (See "Nego- tiable instruments ") Illegal actions, classes of, 25 Illegal agreements, 53-58 compounding a crime, 53, 54 effect of illegality, 57, 58 food, sale of, in violation of law, 54 gambling, 54 Sunday agreements, 55 usurious, S3 Implied contracts, 63 Incorporation (See "Corpora- tions ") Incorporators, 256, 257 Independent contractors, 147 Indictment, 24 Indorsement, negotiable instru- ments, blank or special, 192, 193 conditional, 194 corporate check, Forms, 362 effect of, 194 qualified, 194 restrictive, 193, 194 Indorser, 202, 203 Infants (See "Minors") Insane persons, agent, 175 contracts of, 40, 41 partners, 239 principals, 142, 176 suretyship contracts, debtors in, 332 Inspection, employer's duty of, IS9 Insurance, accident, 287, 288 agents, 276, 277 automobile, 289 boiler, ago burglary, 288, 289 burial, 290 contract, 275 credit, 290 fidelity, 290 fire, 275-279 alienation, 278 cancellation of policy, 278 coinsurance, 279 floating stock, 279 insurable interest, 278, 279 nature of contract, 275 ownership or possession, change of, 278 parties, 275, 276 policy, 277, 278 warranties and false represen- tations, 279 what may be insured, 278 what may be insured against, 278 health, 288 liability, 288 life, 281-285 application, 283 assignment of policy, 284 beneficiary, right to change, 284 examination, 283 insurable interest, 281 losses, settlement of, 284, 285 nature of contract, 281 parties, 282 policy, 282, 283 premium rates, 283 marine, 286, 287 general average, 287 losses covered, 286 INDEX 425 Insurance — Continved mutual, 275, 276 plate glass, 290 rent, 290 strike, 290 title, 289 tornado, 290 Interest, usurious, 53 Interpretation, contracts, 73, 74 negotiable instruments, 189 Joint-stock companies, 227 Joint tenancies, 309, 310 Jury, grand, 24 Landlord, 318, 319 Law, congressional, 8 constitutional, 7, 8 Constitution of the United States, 8 criminal, 24, 25 classes of illegal actions, 25 procedure, 24 definition of, 3 equity, relation between, 15-21 evolution of, 3-6 legislative enactments, 9 liberty, relation between, 4 origin of, 5 remedial, 15 sources of, 4, 5 state constitutions, 8, 9 subsidiary, g suits at, 16, 17 trial at, 18, 19 unwritten, 11-13 common law, 13 court reports, 12 definition, 11 precedents, doctrine of, 11, 12 written, 7-9 Lease to real property. Forms, 369 agreement, written, expediency of, 320 landlord, rights of, 318, 319 subletting, 320 tenant, rights of, 319 termination, 318, 319 Legality of contracts, 53-58 (See also " Contracts ") Legislation, enactments, legislative, 9 laws of Congress, 8 subsidiary laws, 9 Lex non scripta, 11 Lex scripta, 11 Liability insurance, 288 Lien, common carriers, 337 seller's, 131 statutory, 337 warehouse, 337 Life insurance (See "Insurance") Limitation, Statute of, 96 Limited partnership, 226 M Maker of negotiable instrument, liability of, 201 Marine insurance, 286, 287 Married women, contracts of, 42, 43 Meetings, directors', 271 stockholders', 268 Memorandum, contract of sale. Forms, 356 Minors, 39-41 agent, acting as, 143 capacity to contract, 149 in partnership, 227 liability for necessaries, 40, 41 principal, acting as, 142 ratification and avoidance of con- tracts, 39, .40 voidable contracts, 39, 40 Misdemeanors, 25 Mistakes in contracts, 65-68 effect of, 65, 66 expression, 66, 67 426 INDEX Mistakes in contracts — Continued kinds of, 65, 66 parties, 67 price, 67 quality, 67, 68 quantity, 67 signing without reading, 66 Mortgage, Forms, 370, 371 building and loan, 318 definition, 316 foreclosure of, 316, 317 form, 316 purchase money, 317, 318 N Negotiable instruments, acceptance, trade, 187 accommodation signer, 188, 189 allowable provisions, 185 ambiguities, 189 amount, certainty as to, 183 bills of exchange, 187, 210, 211 acceptance, 210 acceptance, presentment for, 211 definition, 187, 210 drawee, 210 protest for non-acceptance, 211, 212 blank spaces, filling in, 186 certain future time, 184 checks, 212 Forms, 361, 362 corporate, Forms, 361 definition, 187 consideration, 188 construction, rules of, 189 date, 186 defenses, 200, 201 personal, 200 real, 200, 201 delivery, i8g draft sight. Forms, 363 forgery, 186 form and interpretation, 181-189 holder in due course, 197 rights, 197, 198 indorsement (See subhead "ne- gotiation " below) indorser, 202, 203 interest, 189 interpretation, 189 liability of parties, acceptor, 201 accommodatiorr party, 188, 189 defenses, 200, 201 drawer, 201 indorsers, 202, 203 maker, 201 negotiability, quality of, 181 negotiation, blank or special indorsement, 192, 193 conditional indorsement, 194 effect of indorsement, 194 methods, 192 qualified indorsement, 194 restrictive indorsement, 193, 194 non-essentials, 186 notes, 186, 187 Forms, 362 notice of dishonor, 207-209 effect of, 207 form of, 207 necessity of, 207 time of, 207 when not required, 208, 209 when to send, 208, 209 where to send, 208 omissions, supplying, 186 parties, 188 indorser, 202, 203 joint and several liability, 189 payable to order or bearer, 185 presentment for payment, 204-206 excused, 205 necessity for, 204 requirements for, 205, 206 when due, 205 promise or order, unconditional, 183, 184 protest, 209 quality of negotiability, 181 signed, 182, 183 terms, 188 INDEX 427 Negotiable instruments — Continued Uniform Negotiable Instruments Law, 182 written, 182, 183 Negotiation (See "Negotiable in- struments ") Notes, 186, 187 Forms, 362 partnership, 234 Novation, 78 Obligee, 325 Obligor, 32s Officers (See "Corporations") Oral contracts, 59 Ownership, in common, 300 joint, 300 partnership, 300 Parol evidence rule, 94, 95 Partners, (See also " Partnership") contracts of, 221-226 dormant, 222 insanity, 239 liabilities of, to copartners, 236 to third parties, 236, 237 limited, 222 majority rule, 235 management, voice in, 235 mutual agency, 234 nominal, 222, 223 powers, restriction of, 235 property, personal, 230 real, 230, 231 right to accounting, 232, 233 silent, 222 subpartners, 223 Partnership (See also "Partners") accounting, in dissolution, 240 right to, 232, 233 articles of copartnership. Forms, 363 associations, 218 classification, 225-227 joint-stock company, 227 contract of, 221-226 classification, 225, 226 duration, 223 firm name, 224, 225 general partners, 221 laws regulating, 224, 225 limited partners, 222 nominal partners, 222, 223 oral, 223 parties, 221 personal relation, 225 silent partners, 222 subpartners, 223 contracts that are not partnership contracts, 218, 219 definition, 217 dissolution, 238-241 agreement, 238 bankruptcy of partner, 239 death of partner, 239 enforced, 238, 239 grounds, 238, 239 method, 240, 241 partners, duties of, 241 surviving partner, 241 winding up business, 240, 241 distinctive features, 217, 218 dormant partners, 222 essential elements, 217, 218 firm name, 224, 225 joint-stock, 227 liabilities of partners, 236, 237 limited partners, 222 nominal partners, 222, 223 organizations, distinguished from non-partnership, 218, 219 profits, method of determining, 231, 232 sharing in, 219, 231, 232 property, 229-231 liability for debts, 231 personal, 230 real estate, 229-231 silent partners, 222 subpartners, 223 trading, 226 428 INDEX Past consideration, 51 Payment, of debts, enforcing, 337, 338 part, exception for, contract of sale, 122 Penalties for crimes, 25 Performance (See "Contracts") Personal property (See " Prop- erty") Petition, bankruptcy, 341, 345 Plaintiff, 17 Pledge, 302, 303 Policy (See "Insurance") Potential existence of goods, 1 11 Power of attorney, 149 Forms, 360 Precedents, doctrine of, 11, 12 Preferred stock, 263, 264 Presentment for payment, negoti- able instruments, 204, 205 Principal (See "Agency, princi- pal") Profits, partnership, 219, 231, 232 Promissory notes, 186, 187 Forms, 362 Property, partnership, 229-231 personal, 295-303 accession, 299 chattel mortgage, Forms, 368, 369 transfer by, 301 choses in action, 295 confusion, 299 definition, 295 derived title, 298, 299 distinguished from real, 295, 296 fixtures, 296 gift, transfer by, 301 joint ownership, 300 original title, 298 ownership in common, 300 partnership ownership, 300 pledge, transfer by, 302, 303 sale, transfer by, 301 transfer of, 301-303 real, acquired title, 312, 313 building and loan mortgages, 318 conveyance, 314 curtesy, 308 deeds, 314 Forms, 370 deeds of trust, 317 definition, 295, 296, 307 distribution on intestacy, 312, 313 dower, 308 easements, 308, 309 estate for life, 307, 308 estate in fee simple, 307 foreclosure of mortgage, 316, joint tenancies, 309, 310 lease of, 318-320 Forms, 369 life estate, 307, 308 mortgage, 316 Forms, 370, 371 mortgage, purchase money, 317, 318 original title, 312 records of deeds, 314, 315 remainders, 307 restrictions in deeds, 315 reversions, 307 tenancies in common, 309, 310 title, searching, 315 trusts, 310 Protest, negotiable instruments, 209 Proxies, 149, 269 Forms, 361 Public policy, agreements contrary to, 55, 56 Quasi-contracts, 63, 64 Quit-claim deed, 314 R Ratification, acts of agent, 151, 152 Real property (See "Property") Receiver (See "Bankruptcy") INDEX 429 Recording of deeds, 314, 315 Release, general, Forms, 371, 372 Remainders, 308 Remedial law, 15 Rent insurance, 290 Restrictive indorsement, 193, 194 Reversions, 308 Sales, 107-138 and contract to sell, distinction between, 108, 109 auction, 137, 138 compliance with conditions, 137, 138 duties of auctioneer, 138 regulations, 137 bill of sale, Forms, 358 buyer, rights of, 133-13S breach of warranty, damages for, 134, 135 non-delivery, damages for, 134 replevin, 133, 134 conditional, 11 7-1 19 contract. Forms, 357 effect, 117-119 retention of ownership', 117 state laws, 118, 119 conditions, 127 contract, breach of, remedies for, 131- 13s by letter. Forms, "'?6 conditional sales, Forms, 357 of guaranty. Forms, 357 of warranty. Forms, 358 contracts to sell, 108, 109 damages, buyer, 134 seller, 132 delivery, effect of, on transfer of title, "5 sales without, 116, 117 destruction of subject-matter, in, 112 executed, meaning and effect of, 108-110 executory, 108, 109 existence of goods, no, in memorandum of. Forms, 356 passing title (See subhead "title, transfer of " below) risk of loss, 109 selection, exception — appropriation of goods to contract, 114 exception — goods in mass, 113 importance of, 113 seller, rights of, damages, suit for, 132 lien, 131 price, suit for, 132 resale, 131, 132 stoppage in transit, 133 shipping terms, 115, 116 Statute of Frauds, contracts to sell, 121-124 (See also " Statute of Frauds " below) stoppage in transit, 133 title, transfer of, delivery, effect of, 115 loss, risk of, 109 parties, intention of the, 114, IIS selection required, 113 shipping terms, effect of, 113, 116 Uniform Sales Act, 107, 108 warranties, breach of, remedies for, 134, 135 contract of warranty, Forms, 358 definition, 125 description, sale by, 129 express, 125-127 merchantability, 129 ownership, 127, 128 quality, 128, 129 sample, sale by, 129 Seal, consideration, effect as, 49 contracts requiring, 62 when agent's appointment re- quires, 145, 146 Seller, rights of (See "Sales") 430 INDEX Separable contracts, 91, 92 Servants, 146, 147 Shipping terms, 115, 116 Silent partners, 222 Special agents, 144, 145 Specific performance, 93 Specious schemes, 70 Statute of Frauds, 60-62, 121-124 contracts covered by, 61, 62 contracts to sell, 121-124 amounts below specified value, exception for, 122, 123 part delivery, exception for, 122 part payment, exception for, 122 when in writing, 121, 122 work or services, exception for, 123, 124 effect, 60, 61 memorandum, 61 Statute of Limitations, 96 Stock ( See " Corporations, capital stock ") Stockholders (See " Corpora- tions ") Stoppage in transit, 133 Strike insurance, 290 Strikes, effect on contracts, 84 Subrogation, rights of surety, 331 Suits, appeals to higher court, 21 at law, bringing, 17, 18 criminal prosecutions, 24 evidence, rules of, 94-96 higher court, appeals to, 21 in equity, bringing, 19, 20 Suretyship, 325-333 acceptance, 328 consideration, 327, 328 contract, nature of, 325, 326 written, 326 contribution, 331, 332 cosureties, 331, 332 debt, default or miscarriage, 325 definition, 325 delivery, 328 extension of time, 331 failure to pay, notice of, 330 obligee, 325 obligor, 325 parties, 325, 327 surety, rights of, contribution, 331, 332 defenses, 332 discharge, 332, 333 failure to pay, notice of, 330 obligor, death of, 333 reimbursement, 330, 331 subrogation, 331 Tenancies, in common, 309, 310 joint, 309 Tenant, rights of, 319 Tender, acceptance, 88 of payment or performance, 86-88 definition, 86 extent and kind of, 87 time of, 86, 87 Third party, agent's duty to, 166 agent's liability to, 167, 168, 171 claims against principal for agent's wrongs, 157 liability to principal, 172 relation to agent, 171, 172 relation to principal, 172 rights against principal, 156 Title, personal property, 298, 299 transfer of (See "Sales") Title insurance, 289 Tornado insurance, 290 Trade acceptance, 187 Transit, stopping goods in, 132 Treasury stock, 265 Trial at law, 20, 21 Trustee (See "Bankruptcy") Trusts, 310 INDEX 431 U W Ultra vires, 43 Undisclosed principal, 157-159 Undue influence, 71, 72 Uniform Negotiable Instruments Law, 182 Uniform Sales Act, 107, 108 Usury, S3 War, effect on contracts, 83, 84 Warehouse lien, 337 Warranties (See " Sales, warran- ties ") Warranty of authority by agent, 168 Workmen's compensation laws, 160 Written contracts, 59, 60