The original of tinis 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/cu31924018825889 A MANUAL OF COMMERCIAL LAW o CONTAINING A CLEAR, CONCISE AND LOGICAL EXPOSITION OF THE RULES RELATING TO BUSINESS TRANSAC- TIONS AND THE MANAGEMENT OF AFFAIRS BY EDWARD W SPENCER of the Milwaukee Bar, Late Associate Dean of Marquette University Law School THIRD EDITION o to INDIANAPOLIS THE BOBBS-MERRILL COMPANY PUBLISHERS 1922 Copyright, 1898 By The Bowen-Merrill Company Copyright, 1913, 1922 By The Bobbs-Merrill Company e 7. f frmred in the United States of Americe. PUBLISHER'S PREFACE This work was originally published in 1898. The aim of the author in this, as in former editions, is to state clearly, accurately and in language as free as possible from technicalities, the ele- mentary rules and principles of American law with which it seems most important that business men should be familiar, his object being to make an instructive manual and reference work for general readers and men of affairs, and a practical text-book for use in schools and colleges where commercial branches are taught. Though the book has been recognized as standard and has formed the basis of the work of many of the leading com- mercial schools and departments throughout the country for many years, the present revision has seemed a practical necessity owing, among other things, to the recent adoption in many states of uniform commercial codes, and to occasional important develop- ments and applications of legal rules, or to statutory changes in the law. In this, as in former editions, an effort has been made to render the work as practical as possible. Business men are interested chiefly in knowing the general nature and extent of their legal rights and duties. For this reason technicalities and details of jurisdiction and procedure have been excluded, as the space neces- sary to their discussion is rnuch better occupied with the prac- tical rules of general contract law and the rules applicable to ne- gotiable instruments, agency, partnership, business corporations, sales of chattels, and the like. The entire work has been thoroughly revised and many parts of it have been entirely rewritten. The text of the negotiable instruments law, in force in over forty American jurisdictions, has been printed as the basis of the work on commercial paper, accompanied by explanatory notes and illustrations, and the chap- ters on fire insurance have been largely rewritten with reference to the standard policies in force in most of the states. A new (iii) iv Preface. chapter upon wills and administration has been added for the benefit of the general reader and for the use of teachers who de- sire to present the subject in the class room. Reference has so been made to the more important changes in the law embodied in the uniform sales act, and the matter on corporations has been considerably expanded. Shorter definitions and statements of the law have frequently been substituted in the present edition and the number of practical illustrations of the application of legal principles has been considerably increased, and many additional questions and problems for review have been given. Nearly one hundred practical legal and commercial forms have been dis- tributed throughout the text or embraced in the appendix, and a complete glossary has been added. The entire work of revision has been done by the author per- sonally, who has brought to bear upon it his long experience both as a teacher and as an active practitioner of the law. Both author and publishers desire to acknowledge their in- debtedness for valuable suggestions as to the preparation of this edition, to Stephen W. Oilman, Professor of Business Adminis- tration, Commercial Law and Accounting in the University of Wisconsin, and Prof. J. B. Geijsbeek, Dean of the School of Commerce of the University of Denver, and to many others, teachers and accountants, who have used the former editions of the book professionally or in the class room. The Bobbs-Merrill Company. Indianapolis. TABLE OF CONTENTS CHAPTER I. LAW IN GENERAL. SECTIONS. PAGES. 1-lS. Nature, source and classification of laws 1-8 CHAPTER n. LEGAL RIGHTS. 16-34. With special reference to the right of property 9-16 CHAPTER in. LEGAL REMEDIES. 35-42. With reference to the remedy by action, at law and in equity 17-21 CHAPTER IV. CONTRACTS. 43-57. Definition, nature and classification of contracts, ex- press and implied 22-29 CHAPTER V. CONSIDERATION. S&-75. Definition, adequacy and failure of consideration 30-37 CHAPTER VI. THE AGREEMENT — OFFER AND ACCEPTANCE. 76-87. Nature and formation of the agreement required in contract 38-43 (v) vi Table of Contents. CHAPTER VII. PARTIES TO CONTRACTS. PAGES. SECTIONS. 88-125. Including contracts by alien enemies, corporations, infants, insane persons and married women 44-58 CHAPTER VIII. CONTRACTS THAT MUST BE IN WRITING. 126-143. With special reference to the statute of frauds 59-66 CHAPTER IX. REALITY OF CONSENT. 144-179, As affected by mistake, fraud, undue influence and duress 67-81 CHAPTER X. ILLEGAL COI/TRACTS. 180-229. Including contracts contrary to statute, contrary to the common law, violative of public policy and fraudulent upon credit 82-99 CHAPTER XI, ASSIGNMENT OF CONTRACT. 230-238. At common law, in equity and under the law mer- chant 100-103 CHAPTER XII. INTERPRETATION OF CONTRACTS. 239-260. Including proof and rules of interpretation 104-110 CHAPTER XIII. DISCHARGE OF CONTRACT. 261-265. By agreement, waiver and rescission 111-112 Table of Contents. vii CHAPTER XIV. DISCHARGE OF CONTRACT. SECTIONS. PAGES. 266-295. By performance, including payment and tender 113-123 CHAPTER XV. DISCHARGE OF CONTRACT. 296-298. By impossibility of performance 124-126 CHAPTER XVI. DISCHARGE OF CONTRACT. 299-310. By operation of law 127-133 CHAPTER XVn. DISCHARGE OF CONTRACT BY BREACH. .311-321. 134-138 CHAPTER XVIII, REMEDIES FOR BREACH OF CONTRACT. 322-331. Damages and specific performance 139-144 CHAPTER XIX. DISCHARGE OF RIGHT OF ACTION FOR BREACH. 332-353. Limitations of actions — award and satisfaction — arbi- tration 145-154 CHAPTER XX. CONFLICT OF LAWS. 3S4-3S8. By what law contract governed 155-156 CHAPTER XXI. NEGOTIABLE CONTRACTS. 3S&-370. Nature, form and element , , 157-1^7 viii Table of Contents. CHAPTER XXII. NEGOTIABLE INSTRUMENTS IN GENERAL. SECTIONS. PAGES. 371-393. 168-179 CHAPTER XXIII. NEGOTIABLE INSTRUMENTS. 394-399. Consideration 180-182 CHAPTER XXIV. NEGOTIABLE INSTRUMENTS. 40(M19. Negotiation 183-187 CHAPTER XXV. NEGOTIABLE INSTRUMENTS. 420-428. Rights of the holder 188-191 CHAPTER XXVI. NEGOTIABLE INSTRUMENTS. 429-438, Liability of parties 192-195 CHAPTER XXVII. NEGOTIABLE INSTRUMENTS. 439-457. Presentment for payment 196-201 CHAPTER XXVIII. NEGOTIABLE INSTRUMENTS. 458-487. Notice of dishonor 202-209 CHAPTER XXIX. DISCHARGE OF NEGOTIABLE INSTRUMENTS. 488-494. 210-212 Table of Contents. ix CHAPTER XXX. BILLS OF EXCHANGE. SECTIONS. PAGES 495-535 213-223 CHAPTER XXXI. PROMISSORY NOTES AND CHECKS. 536-541. 224-229 CHAPTER XXXII. AGENCY. 542-559. Nature and formation 230-238 CHAPTER XXXIII. AUTHORITY OF AGENTS. 560-577. Its nature, extent and manner of execution 239-246 CHAPTER XXXIV. EFFECT OF THE RELATION OF AGENCY. 578-604. The duties and liabilities of principal and agent to each other and to third persons 247-258 CHAPTER XXXV. TERMINATION OF AGENCY. 605-625. By act of the parties and by operation of law 259-264 CHAPTER XXXVI. SPECIAL FORMS OF AGENCY. 626-653. Including factors, brokers, auctioneers and attorneys . . 265-275 CHAPTER XXXVII. PARTNERSHIP. 654-668. Nature and formation 276-285 X Table of Contents. CHAPTER XXXVIII. PARTNERSHIP CAPITAL AND PROPERTY. SECTIONS. PAGES. (>C>9-677. The right of partners with respect thereto and their rights and duties as between themselves 286-290 CHAPTER XXXIX. POWER OF PARTNERS TO BIND THE FIRM. 678-697. The agency of partners in general, including power to do particular acts 291-297 CHAPTER XL. DISSOLUTION OF PARTNERSHIP AND ITS CONSEQUENCES. 698-727. Including distribution of partnership property and pri- orities of partners and creditors therein 298-309 CHAPTER XLI. CORPORATIONS. 728-737. Nature, importance and formation 310-317 CHAPTER XLII. CAPITAL AND CAPITAL STOCK. 738-759. Including the ownership and transfer of shares therein 318-327 CHAPTER XLIII. MANAGEMENT OP CORPORATIONS. 760-781. Including corporate meetings and the powers and duties of corporate officers 328-337 CHAPTER XLIV. CORPORATE POWERS AS TO PROPERTY AND CONTRACTS. 782-789. With some reference to corporate trusts and to foreign corporations 338-342 I'able of Contents. xi CHAPTER XLV. LIABILITY OF SHAREHOLDERS TO CREDITORS. SECTIONS. PAGES. 790-795. Under statutes and where capital is impaired 343-346 CHAPTER XL VI. DISTRIBUTION OF PROFITS. 796-801. The general subject of corporate dividends 347-M9 CHAPTER XLVn. DISSOLUTION AND WINDING UP. 802-815. Causes and consequences of dissolution 350-359 CHAPTER XLVIII. SALES OF PERSONAL PROPERTY. 816-830. Nature and formation of contract— statute of frauds 360-370 CHAPTER XLIX. WHEN THE TITLE PASSES. 831-840. Including the delivery necessary as against third parties 371-376 CHAPTER L. WARRANTIES ACCOMPANYING THE SALE. 841-850. Including warranties express and implied 377-380 CHAPTER LI. PERFORMANCE OF THE CONTRACT. 851-875. Including remedies by lien, stoppage in transitu, suits for damages and rescission 381-394 CHAPTER LIL CONDITIONAL SALES. 876-881. Including sales on trial and to arrive 395-399 xii Tart.f, of Contents. CHAPTER LTIi. MORTGAGES OF PERSONAL PROPERTY. SECTIONS. PAGES. 882-898. The general law of chattel mortgages 400-409 CHAPTER LIV. BAILMENTS. 899-915. General principles of law — appliable to ordinary bail- ments 410-416 CHAPTER LV. GRATUITOUS BAILMENTS. 916-925. Including deposit, mandate and loan for use 417-419 CHAPTER LVI. MUTUAL BENEFIT BAILMENTS. 926-942. Hire for use, hire of services and hire of custody 420-427 CHAPTER LVIL PLEDGE AND COLLATERAL SECURITY. 943-970. Including pledges of stock and negotiable instruments. 428-438 CHAPTER LVIII. EXCEPTIONAL BAILMENTS — CARRIERS OF GOODS. 971-990, Including delivery for transportation 439-446 CHAPTER LIX. carrier's LIABILITY DURING TRANSIT. 991-1005. At common law and under special contracts 447-454 CHAPTER LX. carrier's duty to DELIVER. J006-1019. Including the carrier's right of lien 455-460 Table of Contents. xiii CHAPTER LXI. OTHERS OWING PUBLIC DUTIES. SECTIONS. PAGES. 1020-1032. Carriers of passengers — innkeepers — telegraphs 461-465 CHAPTER LXH. GUARANTY AND SURETYSHIP. 1033-1067. Including further discussion of the statue of frauds 466-481 CHAPTER LXIII. FIRE INSURANCE. 1068-1088. Formation of the contract 482-490 CHAPTER LXIV. SPECIAL PROVISIONS OF THE POLICY. 1089-1102. With reference to the risk 491-496 CHAPTER LXV. LOSS AND PROCEEDINGS AFTER LOSS. 1103-1121. Including notice, proofs and adjustment 497-504 CHAPTER LXVI, LIFE INSURANCE — ACCIDENT INSURANCE. 1122-1141. 505-516 CHAPTER LXVII. OTHER FORMS OF INSURANCE. 1142-114r.- 517-518 CHAPTER LXVIII. REAL PROPERTY. 1148-1152. Nature and classification 519-521 NOTE TO THIRD EDITION. In this edition no substantial changes have been made in the arrangement or matter of the book. Some inaccuracies have been corrected, however, and some paragraphs and notes have been added or rewritten by the author. This, it is beHeved, materially increases its value both to teachers and pupils as a readable, teach- able exposition of the fundamentals of our business law of today. The Bobbs-Merrill Company. Indianapolis, October 1, 1922. COMMERCIAL LAW CHAPTER I. OF LAW IN GENERAL. § 1. Importance of legal study — The law a system. — Sir William Blackstone,in the introduction to his famous Commen- taries, states that: "The science of law should in some manner and in some degree be the study of every free citizen." If this was true in his day and generation, how much more occasion is there in this country and at this time for some knowledge of the law, particularly in such of its branches as have to do with the increas- ingly complex transactions and agencies involved in modern busi- ness and commercial life? That this occasion is recognized is evidenced by the fact that in every law school a growing proportion of the student body is taking the full professional course with an eye single to its value as a direct preparation for a business career. Indeed, it may be confidently stated that no man is properly equipped for the management of property and af- fairs, or for the duties of a successful manager, proprietor, au- ditor or accountant, without some considerable knowledge of the fundamental principles of the law of property and the law gov- erning the various means, agencies and associations by which it is owned and disposed of, administered and controlled. It should be noted at the outset that the law is not a mass of ar- bitrary rules, but consists, in the main, of a series of general prin- ciples founded upon justice and experience and the social and business habits and needs of the community. These principles are so closely related and interwoven as to constitute a more or less coherent and harmonious system in all civilized communities. Some general idea of the nature and origin of our law and the 2 Commercial Law. § ^ mariner in which it controls or influences human conduct is there- fore necessary at the outset. § 2. Different meanings of the word "law."— /w its widest sense the word "law" signifies a rule of action; that which is set, fixed, prescribed or laid down beforehand. So defined it includes not only the rules of action that control or influence the conduct of men in communities, whether such rules are recognized and enforced by the authority of states and nations, or by public opin- ion merely, but it is also descriptive of the order, sequence, or course of nature. We therefore speak of the laws of gravitation, of mechanics, or of optics. Much confusion arises from a failure to distinguish between what are rather vaguely called moral laws, and technical or posi- tive law. If a rule of conduct is merely moral, either in the sense of being right according to generally accepted notions of what constitutes virtue or goodness, or because, for some other reason, it meets with more or less general approval, it differs from actual or positive law in that the power of the state cannot be appealed to in case it is disregarded.^ § 3. Same — Positive law — Definition and nature. — Techni- cal or positive law — the law of the courts and lawyers — may be defined as a general rule of conduct, or of^ external human action, prescribed and enforced by public authority.^ Other meanings of the word "law" may be treated as figurative merely. § 4. International and municipal law distinguished. — Law is either international or municipal. International law is that system of rules, established by the common consent of civilized ' The phrases, law of nature, law of God, divine law, law of reason or right reason, natural justice and natural equity, are also rather loosely em- ployed, but usually to describe those rules or precepts which meet with the general approval of mankind, because they satisfy what we call the con- science or the moral sense. ^By public authority is meant the state; and a state may be defined as a community of persons, living within certain limits of territory, under a permanent organization which aims to secure the prevalence of justice and to promote the common peace and welfare by self-imposed laws. § 5 Law in General. 3 nations, which regulates their intercourse with one another. It has sometimes been denied to be positive la;w at all, because there is no international tribunal to which a nation may appeal if its rights are invaded by another. Municipal law, on the other hand, is not prescribed by the com- mon consent of nations, but by the supreme power in a particular state or nation. It is without binding force outside its territo- rial limits, except so far as other states or nations see fit, in ex- ceptional cases, to recognize and apply it.^ Municipal law, there- fore, is a rule of civil conduct prescribed and enforced by the supreme power in a state, regulating the intercourse of the state with its inhabitants and of those inhabitants with each other. It is immaterial whether founded on statutes or constitutions or upon usage and custom. § 5. Moral basis of positive law. — From the distinctions al- ready drawn we must not understand that law in its technical sense has no ethical or moral basis. It is largely the reflection of popular convictions, not only of what appears morally just and proper, but of what seems reasonable, convenient and expedi- ent, in view of circumstances of climate, habits, occupation and surroundings. The positive law, however, does not define and enforce all moral duties, both because they are often very diffi- cult to ascertain, and because of the practical impossibility of their enforcement by state authority. Thus, the moral law requires us to be charitable, the municipal law does not ; the moral law de- mands that he who promises shall perform, but the municipal law enforces only such promises as are made in a certain form or under certain prescribed circumstances, as will later appear. ' § 6. American law largely of English origin — Common or customary law. — The greater part of the municipal law of the several states of the Union, with which we most frequently come in contact, was transplanted to American soil by the English colonists. An inquiry into the sources of English law, therefore, must be largely an inquiry into the sources of our own. Custom was the earliest form of law-making, and a large share ^Post, § 354, et seq. 4 COMMERCTAL LaW. § 7 of the law which governs us to-day had its rise in usage, or the general and long continued observance of a certain course of con- duct among our English ancestors. Law so made is called com- mon, customary, or unwritten law, because it is not, like the writ- ten or statute law, expressed in any set form of words. The customs out of which the common law originated were founded largely in reasons of expediency and convenience, and in popular conceptions of justice and moral and religious truth and propriety. Originally enforced by public opinion or private vengeance the state, finally, by its judges, recognized these cus- toms and assumed them to be law, and they thus acquired the force of positive law, the same as statutes or express acts of the legislature. § 7. The law merchant. — Much of our common law is made up of what is called the law merchant, or the general customs and usages of merchants. Many of these customs did not originate in England, but became known to Englishmen through commercial intercourse with other nations of Europe, and were incorporated into the English law by judicial and legislative sanction. The rules of the law merchant, therefore, are a part of the law of other enlightened commercial nations. The phrase, "law merchant," how- ever, is not synonymous with commercial law in its widest sense, for the commercial law of any state or country includes, not only the law merchant, but also whatever other legal rules, writtenor unwritten, govern generally, or to any considerable extent, what may properly be termed business or commercial transactions. "■* § 8. Evidences of the common law. — The chief evidences of the common law are found in the printed accounts of decided cases in which its rules and principles have been recognized and 'Though there has ceased to be a "law merchant" distinct from our common law, the phrase is still employed to designate such branches of the common law as, like the law of marine insurance, commercial paper and shipping, had their origin in the customs of merchants as above in- dicated. The law now, as in the origin of the law merchant follows busi- ness, not business the law, save to the extent that considerations of gen- eral public policy serve to restrain and regulate business activities for the general good. §9 Law in General. 5 applied by courts. These cases are collected in volumes called re- ports. The cases themselves are termed precedents, for they em- body authoritative statements of what the courts deciding them deemed to be the rule of law governing the particular states of fact before them, and are usually followed in subsequent cases, not only where the facts are identical in all their essential details, but where the facts are such that the rule or principle previously applied ought in reason to govern. Thus, to decide that one carry- ing by stage coach and horses should answer for injuries to a pas- senger due to such defects in his vehicle as he might, by the use of care and diligence, have discovered and remedied, decides nothing directly as to the liability of a railroad company for de- fects in its cars ; yet by just argument or inference the carrier by rail should be even more strictly answerable for defects in his vehicles than the carrier by coach, and so it is held. § 9. Equity. — Early systems of law are inclined to be rigid and inflexible and do not readily mold themselves to the wants of advancing civilization. This was true of the common law. It be- came the practice in England, therefore, in cases where the com- mon law was powerless to afford redress, to appeal to the king as the source and the repository of justice. The king finally clothed a great officer called his chancellor with the power to grant relief in these exceptional cases. This practice gave rise in England to a distinct court, termed the high court of chancery, which administered justice in cases where the common law was deficient, either because it failed to recognize a right, or, recogniz- ing it, failed to afford adequate means for its enforcement. At first the chancellors proceeded with little regard to rule or system, assuming that they had power to decide according to natural justice, or equity in its broadest sense. But finally the rules and principles according to which they administered justice grew into a system scarcely less strict and rigid than common law itself. The rules of equity like those of the common law proper are evi- denced by reported cases. Equity in its technical sense now means, not natural justice, in its widest sense, but that particular kind of justice administered in courts following the practice of dhe high court of chancery in England in the exercise of its extraordinarj 6 Commercial Law. § lo jurisdiction. In other words, it is a system of rules and princi- ples, forming a part of the positive law in those states and coun- tries whose law, like our own, is derived from that of England, which, by reason of its peculiar scope and structure, supplements and supplies the deficiencies of the early common law and miti- gates its rigor and harshness.^ Some practical examples of juris- diction and relief in equity are found elsewhere." § 10. Unwritten, law in America. — The English settlers of America brought with them so much of their law, common, statu- tory, and equitable, as was adapted to their changed circum- stances and surroundings. From the early English colonies, the unwritten law has naturally been carried westward, and is in force by virtue of express or tacit adoption, and with greater or less modifications, in all the states of the Union except Louisiana. This state, being settled by the French, has a system founded upon the Roman or civil law. There is no common law of the United States as a nation. The federal courts decide common-law questions coming to them from ■the different states according to the local or state law, save that upon questions of general commercial law they adopt their own ideas and precedents in declaring what that law is. Furthermore, the states are not agreed at all points as to what the common- law or equity rules are or were as they came to us from England, and local customs and decisions frequently influence the rules in the different states even on questions to which no statute applies. For this reason it sometimes happens that the rules of the com- mon or unwritten law in one state will be quite different on cer- tain points from the rules prevailing in other states. These dif- ferences, however, are exceptional. § 11. Written law — Constitutions* — Statutes — Treaties. — The common law and the principles of equity are collected from the ' In this country the rules of the common law and the rules of equity and the peculiar relief of the old chancery court are commonly adminis- tered in the same courts, and in many states most of the old technical or formal distinctions between actions at law and suits in equity are abol- ished. 'Post, § 40, et seq. § 12 Law in General. 7 printed reports of decided cases, and from the writings of those learned in the law. In this sense they are written. They are not expressed in any fixed or unvarying form of words, however, but according to the taste or accuracy of the judge or writer announc- ing them. In this sense they are unwritten. Many laws, however, are enacted by the law-making authority in a fixed and unvarying form of words, and for this reason are called written laws, being evidenced by the records of the law-making body and the copies of such records published by authority of law. Written law with us consists of (i) constitutions, (2) statutes, (3) treaties. § 12. Constitutions. — In every country where the freedom of the subject is regarded, there is a fundamental law embodied in a written document, or implied in its institutions and usages, which defines with more or less precision the character and frame- work of government. In the United States the word "constitu- tion" means the written instrument agreed upon by the people of the Union or of a particular state as the absolute rule of action and decision for all departments and officers of the government in respect to all the points covered by it, which must control until changed by the authority which established it, and in opposition to which any act or ordinance of such department or officer is null and void. § 13. Statutes. — A statute is the written will of the legisla- ture, solemnly expressed according to the forms necessary to make it a law. In this country, it is an act of congress or of the state or territorial legislature, passed and promulgated accord- ing to the requirements of the constitution of the state or United States, or in the territories, in accordance with the law of congress. § 14. Federal and state laws. — Within the scope of the pow- ers delegated to it by the people at the adoption of the federal constitution, the general government is supreme, and all laws of the several states are inoperative and void in so far as they are in conflict with the federal constitution and the laws and treaties made under it and by its authority. So, too, all laws made by 8 Commercial Law. § I5 congress must conform to, and find authority for their existence in, the federal constitution, or they are mere waste paper. Each state has its constitution. This establishes the several de- partments of government and distributes the powers of govern- ment among them, points out the manner of their exercise, and prohibits the exercise of certain powers which, in the opinion of the people, it is unwise to entrust to the hands of those who shall represent them in administering the government. Every law of the state must conform not only to the constitution, laws and treaties of the United States, but also to the constitution of the state enacting it, otherwise it is, in like manner with an unauthor- ized federal statute, illegal and void. To such laws as are in conflict with the federal or state con- stitution, the term "unconstitutional law" is applied. § 15. The effect of statutes upon the prior law. — A statute may introduce into the law of a state an entirely new rule with- out abrogating, or, in legal phrase, repealing, any prior rule of law, common, equitable or statutory ; or it may be merely declara- tory of the pre-existing law and passed to remove a doubt as to its existence or limits ; or it may repeal and abrogate, in whole or in part, some prior rule, unless such rule be a part of the consti- tution. What its effect shall be depends upon the intention of the legislature as ascertained by the courts in the discharge of their duty of interpreting and applying the law. CHAPTER II. OF LEGAL RIGHTS — AND PARTICULARLY OF THE RIGHT OF PROPERTY. § 16. Legal rights — Wrongs. — Theoretically the object of law is to promote the greatest good of the greatest number. Its immediate effect, however, is the creation and protection of legal rights, or, what is the same thing, the creation and enforcement of legal duties, for every right implies a duty to respect it. A legal right is the power or capacity residing in one person of con- trolling, with the assent and assistance of the state, the actions of others. Whosoever disregards or invades it commits a legal wrong. A wrong may be civil, in which case the state merely as- sists the injured party in getting a remedy ; or it may be criminal, in which case the state pursues and punishes the wrong-doer through an action in its own name. Civil wrongs are of two classes : (i) Torts or wrongs independent of contract such as libel, slander, assault, trespass, negligence, and the like. (2) Breaches of contract, or the refusal or neglect of a party to a binding agreement to perform the duties thereby imposed upon him. § 17. Rights — Primary and remedial. — A primary right is one that is given for its own sake and exists before any wrongful act has been done. Thus, the right to be secure in one's person from attacks or assaults is a primary right, and the same is true of the right of every person to have contracts in his favor per- formed or his property left undisturbed. But when one of these rights has been invaded, as by an assault and battery, a trespass, or the breach of a contract, there rises in favor of the party in- jured and against the wrong-doer what is sometimes called a sec- ondary or remedial right, i. e., a right to reparation consisting, ordinarily, in civil cases, of an award of money, called damages.^ '■Post, chap, xviii. (9) 10 Commercial Law. § i8 § 18. Substantive and remedial law. — The greater part of the law is concerned with defining rights and duties. This is called substantive law. But as rights are sometimes invaded and the performance of duties withheld, there is necessity for a set of rules prescribing the course of action to be taken for the redress of wrongs. This is called the remedial or adjective law, or the law of procedure. Its object is the prompt, safe, and orderly application of an ade- quate legal remedy for wrongs actually done.^ § 19. Against whom rights are available. — A right may be available against sll pptsoDs indefinitely and not against one per- son more than another. Thus, if A owns a field every person is bound to respect his ownership or proprietary right therein. His right of ownership is, in this respect, similar to the right to per- sonal security or to reputation, available against the world, so that whoever invades it becomes a wrong-doer. Rights of this sort are called rights in rem. If, on the other hand, A has deposited $i,ooo in bank, he has a right to a return of the money available, not against all persons indefinitely, but against the banker only. The right of a servant to his wages against the master is of the same general kind, and so of the right of one whose land has been trespassed upon to have compensation from the wrong-doer. Rights of this sort are called rights in personam, because they are available against a certain determinate person and not against all persons indefi- nitely.'' § 20. The right of property. — To acquire and appropriate objects external to himself and to render them fit to support his existence and contribute to his comfort seems inherent in the na- ture of man. Whether private ownership has existed from the beginnings of society, or whether, and to what extent, it is the offshoot of ownership in common by the family or the tribe, we cannot stop to inquire. We must be content to examine the right of private property much as the law defines it, without inquiry into its beginnings in the social state. 'Post. chap. iii. ^Post, § 44. §21 Legal Rights. ri § 21. What may be the subjects of property — Property de- fined. — While light, air, the sea, and the waters of the great navigable rivers are not the subject of private ownership, every- thing else is, or may become such. Property, or more properly the right of property, is practically synonymous with ownership, and signifies, in general, the right in one person to have, control, enjoy and dispose of a thing to the exclusion of every other person. In recognizing, defining and pro- tecting this right, the law has in view not only a certain measure of abstract justice toward individuals, but equally, perhaps, the encouragement of thrift and industry and the prevention of the hostility, contentions and consequent disorder which rival claims would otherwise produce. The term property is also commonly used to describe the object of the right of ownership, or the par- ticular money, land, goods, or other thing over which the right is exercised. § 22. Classes of property. — Property, or things over which rights of ownership may be exercised, is divided in EngHsh and American law into two great classes. Real and Personal. Accord- ing to Blackstone, things real are such as are permanent, fixed or immovable, and which cannot be carried out of their place, as lands and tenements ; things personal are goods, money, and all other movables, which may attend the owner's person wherever he thinks proper to go. The necessity for distinguishing between real and personal property arises from the fact that they are governed by systems of law in many respects different. The law of real property was largely developed out of the feudal system, which had but little influence upon the law of per- sonal property. Real property can only be conveyed or disposed of in accordance with the law of the place where it is situated ; a transfer of personal property is usually governed by the law of the place where the transaction occurs.* Personal property may usually be transferred by simple and informal means, while real property must be conveyed by a deed *Post, § 357. 12 Commercial Law. § ^3 or formal written instrument of grant, recorded in a public office.'' Real property is subject to dower; personal property is not.* Upon the death of the owner of real estate it descends to his heirs under rules peculiar to that class of property; personal property goes to the executors or administrators of the deceased owner to be applied as the will or the law may direct.'' § 23. Things in action and possession. — The coins in my hand, like goods on my shelf, are so far within my possession and control that I need not resort to legal proceedings to gain the possession and enjoyment of them. They are therefore called choses (things) in possession. If payment of a debt is denied or withheld, however, my lawful remedy is by suit in court, for its recovery, and my property consists of a mere right of action to compel payment or restitution. This right, which is regarded as a species of personal property, is called a chose (thing) in action. But what seems a better classification is suggested ; thus : §24. Corporeal and incorporeal property. — Such objects of ownership as can be seen, touched, and appreciated by the physical senses are termed corporeal property. On the other hand, certain rights or combinations of rights recognized by law which may, by being realized and enforced, give us the enjoyment and control of tangible things, are likewise property in the eye of the law. As they cannot be seen, handled or appreciated by the physical senses, they are termed incorporeal property. To this class belong choses in action, so called, including book-debts, debts due on all sorts of written securities, as bills of exchange, checks, promissory notes, and bonds, and shares of stock in corporations, shares in partnerships, and the rights under policies of insurance. In fact, every right to proceed in a court of law or equity for the recovery of money or some valuable thing is property of this class. Many of these rights, with the securities which evidence them, are treated in many respects like tangible property, and may be bought and sold, transferred and assigned. Of the same general nature 'Post, § 1199. 'Post, § 1159. ''Post, chap. Ixxiv. § 25 Legal Rights. T3 are the rights of an author, either at common law or under copy- right statutes, a patent for an invention, a trade-mark, and the good-will of a business, as elsewhere defined.^ So real property is also classed as corporeal and incorporeal." The right of ownership is qualified in various ways as is shown in the note below. ^° § 25. How ownership is acquired — Title. — The word "title" is generally used to describe- the source or foundation of owner- ship, or the means whereby ownership is established. Title may be acquired in various ways, as for example, (i) by occupancy; (2) by accession and confusion; (3) by gift; (4) by will; (s) by intestate succession ; and (6) by contract, including sale and as- signment. § 26. Occupancy. — Things abandoned by the owner (thrown away) belong to him who first takes them with intent to make them his own. So a finder of lost property is entitled to it as against all the world except the true owner. A finder, however, and for stronger reasons a thief, cannot hold as against the true owner, nor can he transmit to another, however innocent, a title which will enable the latter to hold as against the rightful pro- prietor,^^ except in certain cases as of money and negotiable in- struments indorsed in blank or payable to bearer, as later ex- plained.^^ § 27. Accession and confusion. — Accession is a sort of title to property by virtue of its becoming annexed to or incorporated with the property of one who thus becomes the owner. The owner of property is usually entitled not only to its natural increase, as in the case of animals, but to the profits accruing from 'Post, §674. "Post, § 1148, et seq. "By the right of the government to prohibit or restrict the sale or manufacture of certain things as intoxicating liquor, to levy taxes, to con- demn for the public use, to impose building restrictions or otherwise regu- late the use of land. It may also be qualified by the act of the owner as in giving a pledge or mortgage. "Pojf, § 819. "Post, § 361. 14 Commercial Law. § 28 its use, as the interest on invested capital, or the profits arising from the employment of a ship or coach. The property of one may become so mixed and confused with that of another, either by accident, or the innocent error of one owner, or by his design, or by the act of a stranger, that it cannot be identified or separated. The rules applicable in all these various cases cannot be accurately stated within brief limits, and are not uniform or well settled in this country. It will be sufficient to say that where the addition or change of form is made by one under the employment of the owner, whatever is added belongs to the owner, whatever its value may be. The manufacturer or me- chanic has, at most, a mere right to retain the property as security for his pay. But where the property of one is converted into a new kind or species by the act of a trespasser, the new thing is usually held to belong to the party injured so long as his property can be identified in the new thing. This rule has been applied to timber cut into ties, to wood burnt into charcoal, and even to corn made into whisky. But some courts refuse to apply this rule where a change wrought in good faith has produced an article of much greater value than the property taken. If the goods of two or more become mingled by accident, or by the unauthorized act of a stranger, the rights of the several owners will be adjusted by treating them as owners in common, having rights in proportion to i'^eir respective interests. The same is usually true where the intermi ;-ture was by consent. ^^ § 28. Title by creation. — An dogous to the title by accession is the title of an inventor undc. patent laws, though this is often called title by creation. So, at common law, every person has an exclusive right to his own literary productions. But unless copy- right laws exist, and he has brought himself within their protec- tion, he loses this right by publication. A trade-mark is acquired by adopting and using some sign, symbol, or arbitrary word or device to designate or make known to the public the origin or ownership of an article connected with trade or manufacture. Whoever first adopts it will be protected in the exclusive use of such sign, etc., for the purpose for which "Post, §902. §29 Legal Rights. 15 It was appropriated, until he loses his right by abandonment or sale. An analogous right is found in the good-will of a business.'* § 29. Gift. — A gift is the voluntary making over by one per- son to another of the title to personal property without recom- pense or reward. An ordinary gift becomes irrevocable the mo- ment the thing given is delivered by the giver or donor to the recipient or donee. A mere promise to give is not enforceable at law.^^ A gift made in expectation of death shortly occurring from present illness or apprehended danger may be revoked at the pleasure of the donor at any time, and is revoked by his recovery from the illness, or escape from the danger, in view of which it was made. § 30. Succession after death. — As to wills as a source of title to things real and personal, we all have some notions, reasonably correct in the main. Intestate succession takes place where one dies leaving property undisposed of by will. Testate and intestate succession is dis- cussed in another place.'" § 31. Contract as a source of title. — The ownership of prop- erty is most frequently acquired by the concurrent act of two parties whereby one makes over his title to another, not by way of gift, but in return for some price or recompense in money, labor, property, or other beneficial thing. In short, almost all the business of the world consists, from one point of view, of the making and performing of private agreements by which one party or the other, or both parties, acquire present rights of ownership in things real or personal ; or a future right to have the title or ownership made over to them ; or to have the temporary custody or enjoyment of property; or to have some act done, some service rendered, or some right forborne in their favor. The subject of contracts, which forms the body of our work, will be taken up after a few other matters of general interest have been discussed. " Post, § (574. " Post, § 59. '"Post, chap. Ixxiv. i6 Commercial Law. § 32 § 32. Other methods of acquiring title. — There are other methods of acquiring title to things real or personal, some of which are treated under the head of Real Property, and are ap- plicable to that class of property alone, while others are applicable both to real and personal' property, as in the case of title by pur- chase at sales upon execution for debt or at sales for taxes. § 33. Rights of several in same property. — Ordinarily a per- son owns lands or goods singly and alone. But several may ac- quire ownership in the same thing by the same or different titles, and in equal or unequal shares, in which case they are either joint tenants or tenants in common.^ ^ The interest of the several part- ners in firm property is a peculiar example of joint ownership. § 34. Legal and equitable ownership. — In equity one may have and be protected in the beneficial use and enjoyment of prop- erty the technical or legal ownership of which is in another. Thus, if property is conveyed to A with directions to apply it to the support, education and comfort of B, A has only the legal title while B has the beneficial ownership and may compel A, in equity at least, to apply it according to the terms upon which he received it. This is what is termed a trust. Trusts may be expressly created, or they may arise by construction or implication of equity to prevent fraud or carry out the presumed intention of the parties. ^^ "See Post, § 1162, where joint tenancy and tenancy in common are dis- tinguished. See, also, partnership, post, § 670. "See, also post, § 1164. CHAPTER III. OF LEGAL REMEDIES. Actions. § 35. In general. — When legal rights are invaded, society must either permit the injured party to use private force in main- taining them, or it must require him to set in motion the public force, and through it obtain protection and redress. To allow every man to take the law into his own hands would invite violence and confusion, to the destruction of that peace and good order which it is the object of government to establish and maintain. The right of self-help in applying a remedy is therefore confined to cases in which individuals can act for themselves without disturb- ing the public peace, and where, as in case of violent and sudden attack, delay would result in serious or irreparable mischief. In other cases the injured party must apply to the courts. § 36. Court, action, procedure and judgment. — A court, or court of justice) is an agency of the state or government whose function it is to hear and decide controversies respecting legal rights and invasions thereof, and to grant remedies for the pro- tection of rights and the redress of wrongs by the enforcement of its decisions. An action (popularly called a lawsuit) is the pursuit of a legal remedy in a court of justice. The party instituting the action is called the plaintiff; the party against whom it is instituted is called the defendant. Lack of space forbids us to detail at any length the proceedings in an action. Such proceedings are regulated by rules of. law, however, the object of which is to secure order, certainty and dispatch in the administration of justice. The principal steps in an ordinary action are usually as follows : (17) 2 — Com. Law. 18 Commercial Law. § yj (1) The writ or summons, whereby the defendant is brought before the court or notified to defend the suit. (2) The pleadings, or the written statements of the plaintiff's cause of action and the defendant's ground of defense. (3) The trial or hearing, at which each party seeks to satisfy the court of the justice of his case, either by presenting evidence and arguments upon disputed facts or argument and authorities upon disputed questions of law. (4) The judgment, by which the court determines the rights of the parties by deciding the question in dispute. § 37. Enforcing judgment — Execution. — In ordinary cases a judgment for the plaintiff is for money damages,^ and such a judgment is enforced by execution. This is a writ directed to the sheriflf, authorizing and commanding him to seize and sell the defendant's property and apply the proceeds to the discharge of the judgment and costs. In other cases the judgment may order the transfer of specific, real or personal property directly to the plaintiff, or confirm his title thereto, or grant him other relief .^ The enforcement of a judgment by means of execution may fail— (1) Because the defendant has no property whatever; or, (2) Because what he has is exempt by law from seizure and sale on execution. § 38. Same— Exemptions. — The common law had no favors for the debtor, and the creditor, by legal process, might hound him to the very door of the alms-house, or imprison him in de- fault of other satisfaction. Imprisonment for simple debt is largely abolished, and now, by statutes in all the states, the debtor is entitled to retain certain property free from the liability to be 'Damages are explained ^ost, chap, xxxiv. 'Post, §§ 40, 41, 42. There are various remedies, legal and equitable, in aid of or supplementary to execution. Attachment and garnishment are of this class. So, too, proceedings may be had to discover and reach property and assets concealed or conveyed away in fraud of creditors, to set aside fraudulent transfers, injunctions against such transfers, or re- ceiverships in aid of creditors under certain circumstances, § 39 Legal Remedies. 19 seized upon execution. These exemptions are based upon con- siderations of humanity, for the protection of poor debtor* and their famihes, and to mitigate the consequences of thoughtless- ness and improvidence. They also rest on public policy, which forbids that individuals should be stripped of their all by cred- itors, and be cast, together with their families, a burden upon the public. The most important exemption is the family homestead,^ after which come wearing apparel, tools of trade, and many other things.* § 39. Attachment — Garnishment — Replevin. — Among the the most efficient remedies for the collection of debts are attach- ment and garnishment. Attachment is the actual seizure of the defendant's property in advance of the trial of the case, as secur- ity for, or as a means of obtaining satisfaction of, any judgment the plaintiff may recover. Being a harsh remedy, inasmuch as it may deprive the defendant of the possession of his property before the merits of the case are determined, it is given only in cases where delay would prejudice ordinary remedies, as where the debtor is (a) a non-resident, (b) a foreign corporation, or (c) has absconded or is about to do so, or (d) has concealed or fraudulently conveyed or disposed of his property, or (e) is about to fraudulently dispose of it, or (f) the debt was fraudulently contracted. Garnishment is a species of attachment whereby the money or property of the defendant is seized in the hands of a third party (usually an ordinary debtor), who is warned by the process of the court to hold it to satisfy the plaintiff's claim should it be made out. Usually it is not allowed unless there is ground for an ordinary attachment or unless there is no property of the debtor to be reached by an ordinary execution. Both of these remedies are purely statutory. Replevin is the appropriate action for the recovery in specie of personal property, wrongfully taken or detained. 'Post, § 1160. ' As each state regulates this matter for itself, students must consult the local statutes and decisions for precise information. 20 Commercial Law. § 40 § 40. Equitable relief. — Courts of equity act somewhat dif- ferently, and in many cases more effectively, than do courts of law. In fact, it is commonly essential, to entitle one to equitable relief, that he should have no adequate remedy at law.^ The fol- lowing are common examples of relief in equity : § 41. Same — Injunction. — While courts of law have no rem- edy to prevent the commission of threatened wrongs, equity will often stay or prevent a threatened mischief by injunction. This is a judicial order commanding the party against whom it is di- rected to refrain from doing some act therein specified. Common examples of its use are to prevent the infringement of patents, to restrain the commission of serious injuries to land,^ to restrain the transfer of property pending suits affecting the title, and to restrain the maintaining of nuisances."^ § 42. Same — Receivers, specific performance, reformation. — Courts of equity also appoint receivers, or persons not in- terested in the result of the suit, to hold and preserve the prop- erty or fund in dispute when it would be unsafe or improper to entrust it to either of the parties until their rights are finally de- termined. Equity has also the power in certain cases to compel the actual or specific performance of private agreements.^ While a court of law must either enforce a contract as it finds it or declare it altogether void, a court of equity may, in a proper case, correct mistakes therein and reform it to read as the parties intended it should, or may compel it to be canceled and delivered up in cases where it might otherwise work injustice. The orders and judgments of equity courts are often enforced by fine and im- prisonment. ' Post, § 330. 'Post, § 1156. ' For other examples of this remedy, see post, § 329, et seq. •Discussed, post, §§ 350, 821. Legal Remedies. 21 REVIEW. LAW IN GENERAL. 1. Define law in its narrow or proper sense — the sense in which you are studying it. 2. By what authority is such law enforced? 3. What is meant by moral law, and how is it enforced? 4. What do you understand by common or customary law, and from whence is our common law derived? 5. What are the evidences of the common law? 6. What is equity? 7. Of what does written law consist in this country? 8. What is meant by the term unconstitutional as apphed to a law, and to what higher law must state laws conform? 9. Define property or the right of property? 10. Into what two classes is property divided? 11. State some of the reasons why it is important to distinguish be- tween real and personal property. 12. Distinguish between choses in possession and choses in action. 13. Are there other kinds of incorporeal personal property besides choses in action, strictly speaking? If so, give an example. 14. Tell what is meant by title, and state four methods by which title may be acquired. 15. Through what means or agency must legal remedies usually be sought? 16. By what means is the judgment of court for money damages com- monly enforced? 17. What are exemption laws, and what is their policy and purpose? 18. What is the nature of attachment and of garnishment and how do they differ? 19. (a) State what is meant by injunction, and give an example of its use. (b) Give examples of two other forms of equitable relief. CHAPTER IV. CONTRACTS NATURE AND CLASSIFICATION. § 43. In general — Defined. — By far the most important legal topic in modern times is that of contracts. Business itself, from one point of view, consists almost entirely of the making and performance of the private agreements involved in the buying, selling, lending, leasing, pledging, insuring, carrying, and serv- ing for hire, with which we are all, to some extent, familiar. In its proper legal sense, a contract is any promise or agree- ment enforceable by law. It involves two ideas: (i) Agreement, and (2) Obligation. In short, the parties to every contract may be regarded as making a law for themselves, each being bound to conform his conduct to his agreement, or else to pay damages or be otherwise subjected to some penalty or compulsion at the hands of the courts, at the suit of the other party. § 44. Executed and executory contracts distinguished. — Be- fore what has been agreed upon has been carried out, a contract is said to be exectitory ; after it has been fully performed, the contract is termed executed. Executory contracts alone are within our definition, for when a contract has been executed there is no longer any obligation to do or forbear, and the bargain is of in- terest only as a means of ascertaining the nature and extent of the rights of ownership to which its performance has given rise. Thus, if A buys a watch for cash, the watch is his and the money be- longs to the tradesman. If A loses the watch, it is no affair of the dealer ; nor does it concern A if the money is stolen from the dealer's till. An executed contract, therefore, is said not to be properly a contract at all. It is rather a present right of property (right in rem) which has been acquired by means of contract.^ 'An executed contract, however, is within the protection of the federal constitution forbidding the states to pass laws impairing the obhgation of contracts. (22) § 45 Contracts — Nature and Classification. 23 But a contract may be executed on one side and executory on the other, so that while one of the parties thereto may have received the benefit of some completed service, or acquired a vested right of property, the other may have a mere personal claim upon him, as, for example, to exact payment of the price. § 45. Some results of the distinction. — The following are some of the practical results of the above distinction. An agree- ment to do an unlawful act will not, while it remains executory, be enforced, since the law cannot be invoked to defeat its own ends. But if such a contract has become executed, whatever has been paid or transferred in performance of it cannot be recovered back, for the law leaves the parties to a corrupt agreement where it finds them, refusing its aid to either.^ So the law often declines to enforce agreements while executory because they are not evi- denced by writing as is sometimes required by statutes. If, in such a case, the parties have actually performed their agreement, it will not be disturbed.^ § 46. Contracts are either formal or informal. — Contracts by the common law are either formal or informal. The formal con- tracts of the common law are contracts of record,* and contracts under seal, also called deeds or specialties." All contracts not under seal, or of record, are informal and are called parol or simple contracts, whether in writing or not. § 47. Peculiarities of sealed contracts — Consideration. — Every promise not under seal requires a consideration to make it valid. Consideration is something esteemed in law as of value in exchange for which the promise in a contract is made." It is nearly synonymous with^gric_e or recompense . By the common law a sealed contract is of higher dignity and greater solemnity than a simple one. It derives its validity from its form and not 'Post, § 218, et seq. 'Post, §§ 131, 132. • Post, § 52. ' The word deed is also used in a more restricted sense to describe an instrument conveying the title to land, termed more fully a deed of con- veyance. Post, § 1176. ' Post, § 58, et seq. 24 Commercial Law. §48 from the presence of a consideration, and is valid, as a rule, and may be enforced, though not founded upon a consideration. In some states, by statute, a seal upon an executory contract raises a mere presumption of consideration, and in a few states the dis- tinction between sealed and unsealed contracts is abolished, and a consideration is presumed in favor of all written contracts until its absence is shown. Independent of special statutes sealed contracts need seldom be employed, unless they affect the title to land. Still, every simple contract, as we have seen, requires a consideration to support it, and a promise not under seal is void if it amounts to a mere undertaking to make a gift in the future. A promise of that kind if under seal, however, is binding at com- mon law if not under statutes making a seal presumptive evidence of consideration."'' § 48. Same — Estoppel. — The statements of facts contained in simple contracts, though strong evidence against the party from whom they proceed, are not absolutely conclusive upon him. But one who enters into a solemn engagement by and under his hand and seal as to certain facts, will not be permitted to deny or gainsay any matter he has so asserted. This preclusion to deny facts is called an estoppel. V_ ' -' > ^\/ '"--- § 49. Same — Merger — Limitation of actions — Administra- tion. — A sealed contract is of higher dignity than a simple con- tract. If, therefore, parties have entered into a sealed contract or engagement covering all the terms of a prior simple one, the lat- ter is merged or swallowed up in the deed and hence discharged."*' By statute, also, in the majority of states, the right of action upon a simple contract is barred, and the remedy for its enforcement taken away after some comparatively short period (usually six years), but the right of action for the enforcement of a sealed contract often survives as long as twenty years. ^ So, by the com- mon law, debts due on sealed contracts were entitled to be paid first from personal estate of a deceased debtor, though creditors 'a As to the necessity of a seal in the case of a release without payment see Post, § 348. "bPost, § 299. ' Post, § 336. § 5° Contracts — Nature and Classification. 25 upon simple contract got nothing. This rule has been generally abolished.* § 50. Sealed contracts — How made. — A deed or specialty is a writing upon paper or parchment, signed, sealed and delivered. The signing is probably essential, but that alone does not make it a deed. It must be sealed. At common law a seal was an impres- sion on wax or wafer affixed to an instrument. Statutes in many states, however, give the same effect to a mere scroll or scrawl, drawn with a pen opposite the signature of the party sealing. But unless the statute authorizes it, such a scroll is without effect. The last step in making a sealed contract is delivery, and this is absolutely essential. Delivery is effected by handing the instru- ment over to the party in whose favor it is to operate, or to a third person for his benefit, or by otherwise relinquishing control of it in his favor, with intent to put it in force. One who makes a grant or promise under seal is called a grantor, obligor, or covenantor ; one who receives it is called the grantee, obligee, or covenantee. § 51. Same — Delivery in escrow. — Where a deed is deliv- ered, not directly and absolutely to the grantee or obligee, but to a stranger (one not a party) to be delivered to the former only when some event happens, or some condition is performed, it is called an escrow. Delivery to the grantee, or obligee, or his agent, makes a deed absolute instead of an escrow. If the party to whom a deed is delivered in escrow delivers it over to the grantee or obligee before the condition is performed, the deed is without effect. Thus, if A makes his deed to B but delivers it to C to hold and deliver to B when he has given a specified security for the purchase price the delivery is in escrow. If the deed was deliv- ered directly to B it would pass the legal title immediately though the condition had not been performed. Promissory notes and other unsealed writings obligatory are sometimes delivered in escrow. § 52. Contracts of record. — Of the contracts of record, so called because they are evidenced by the records of a court, judg- * For other matters growing out of the distinction between sealed and simple contracts, see post, §§ 348, SSI, 691. 26 Commercial Law. § 53 ments only are of particular interest. While a judgment for money damages creates an obligation to pay, it differs from a true contract in that it does not rest upon the consent of the party bound. Though it may be enforced by an action in form upon contract, it may also be enforced by execution against the debtor's property in the state where the judgment is rendered. It is a se- curity of higher dignity than a sealed or simple contract, and its further characteristics may be enumerated as follows : ( i ) Un- less reversed or vacated, it imports absolute verity and binds ab- solutely the parties thereto and their privies, being proved by the record itself. (2) It merges and extinguishes the contract or other matter upon which the action leading up to it was founded." (3) As to the time within which legal proceedings can be brought for its enforcement, it is, in most states, upon the same or a better footing than a sealed instrument. For this reason, it is sometimes well to reduce to a judgment a debt that is not presently collect- ible, in the hope that it will become so during the longer period of limitation. In many states, a judgment, when properly entered, constitutes a species of lien on the lands of the judgment debtor in the county where the judgment is docketed. § 53. Express and implied contracts. — Express contracts are such as arise from the words of the parties, whether written or oral, showing an intention to be bound. But express words are not always necessary to a valid contract ; it may be implied, thus : § 54. Contracts implied in fact. — Every true contract is the result of an agreement to be bound. But this agreement may be inferred as a fact from what the parties have done as well as from what they have said or written. Whether a contract is ex- press or implied, it exists because the parties have willed that they should be bound under circumstances to which the law at- taches the sanction of an obligation. Thus, if A orders goods of B in the course of trade, it is a fair inference that he intends to be bound for their value, though he makes no express promise to pay. So, if he orders B to make him a suit of clothes, or to shingle his house, and B thereupon does as requested, a promise to 'Post, § 299. § 55 Contracts — Nature and Classification. 27 pay B's reasonable charges will be implied. But if one member of the household should request another to perform some office of kindness, such as is seldom or never paid for between relatives, no promise of payment would be implied, for the facts negative its existence. The only difference between express and implied contracts, therefore, is in the mode of proof. An express contract is proved by direct evidence, or by proof of what the parties said, an implied one by circumstantial evidence, or by proof of such conduct on their part as warrants the inference that the parties really intended to be bound. § 55. Contracts implied in law or quasi contracts. — The term implied contract, however, has been used to describe obli- gations that are not true contracts at all, but rather creations of law having some of the characteristics of a contract, but otherwise wholly different because the element of agreement or consent is lacking or there is even a clear dissent. To these the name quasi contract, or contract implied in law, has been given, in order to distinguish them from true contracts or obligations resting upon consent in fact. Thus a party who in good faith supplies neces- saries to an insane person, an idiot, or a person suddenly bereft of all sense and reason by a stroke of accident or disease, may re- cover their reasonable value in an action in form upon contract. So one may recover, in a like action, money paid under duress, or 1 under mistake of fact, or upon a consideration that has failed, or money obtained from him by fraud. In many cases the injured party has a choice of remedies. Thus, if A converts the goods of B to his own use by selling them with- out authority, B may, if he so elects, treat A as a purchaser and sue him for the price received on the resale, or he may sue in tort and get the value of the goods at the time of the conversion. Many authorities permit an action in contract form even where there has been no sale by the wrong-doer, while others permit it only where the goods have been converted into money by resale. § 56. Implied from express. — It is seldom that everything to which the parties bind themselves in contracting is set out in terms. Even though the contract be of the class called express, more or less is left to be understood. Thus, if parties expressly 28 Commercial Law. § 57 agree to be partners, the law, by implication, annexes to their bargain all the incidents of partnership, including the obligation to act in good faith for the common good ; and if one sells per- sonal property as his own, the law implies a promise that he has good title to transfer.^" Still more is shown under the title "usage. "^'■ § 57. Formation of a simple contract. — Simple contracts as we have seen, are such as do not derive their validity from the presence of a seal, but from the presence of a consideration. Most of the business of the world is carried on by means of simple contracts, sometimes expressed in writing in more or less orderly form, but quite often merely oral, and, in many cases, wholly or in part implied. We will now direct our attention chiefly to the formation of simple contracts, to the validity of which the fol- lowing elements are essential : (i) A sufficient consideration. (2) Mutual consent expressed in offer and acceptance. (3) Parties capable of contracting. (4) A real consent. (5) Compliance with the forms prescribed by law. (6) A lawful object. These same elements, with the exception of a consideration, are likewise requisite to a valid contract under seal. "Post. § 844. "^Post, § 247, et seq. REVIEW. CONTRACTS IN GENERAL. 1. (a) Define a contract and distinguish between an executed and executory contract. (&) Distinguish between sealed and simple contracts, (c) Tell how a sealed contract is made, (d) Distinguish between express and imphed contracts, {e) What is the difference between a contract im- plied in fact and one implied by law? (/) Give the elements of a simple contract. 2. What is the legal difference between a cash sale and a credit sale of goods actually delivered? 3. A sells to B all the wheat in a certain bin and agrees to keep it for Contracts — Nature and Classification. 29 A's accommodation until the following day. In the meantime the wheat is burned, wfthout A's fault. Does the loss fall upon A or B ? 4. X makes a deed in favor of Y, but says nothing about it and locks it away in his safe. X dies, and the deed is found among his papers. Can Y claim any rights by virtue of it? 5. A son employs a lawyer to contest his father's will without saymg anything about fees or compensation to the attorney. The attorney prose- cutes the contest diligently and skillfully. May he recover for his services, and if so, how much? 6. A daughter remains in her father's household after reaching her twenty-first year, receiving the same support and being treated upon the same footing as before. Nothing having been said about the matter, is she entitled to charge for such domestic services as she was previously accustomed to render? 7. A converts B's goods to his own use by selling them to N. Can B recover their value from A? Can he recover the price received by A from N regardless of their value? 8. A owes B a sum of money, but by mistake in computation pays B more than is his due. Has A a remedy to recover the excess? See Needles v. Burk, 81 Mo. 573. CHAPTER V. CONSIDERATION. § 58. Nature and necessity. — It is an elementary rule of English and American law that every executory contract, unless under seal, requires a valuable consideration to support it. In law, consideration does not mean forethought or deliberation. It is nearly synonymous with price or recompense, and has been well defined as something esteemed in law as of value in exchange for which the promise in a contract is made. § 59. Gift — Promise to give. — A mere promise to make a gift of property, or to confer any other benefit without recompense and without there being anything promised, parted with, sur- rendered, or foreborne by the promisee, is not binding in law, though a gift of property is valid and binding as between the parties when the thing given has been actually delivered to the donee. ^ § 60. Seal. — We have already seen that a promise under seal is valid without a consideration, being binding on account of its form alone, though this rule has undergone statutory changes in some states as previously stated. § 61. Essentials — Benefit and injury — Parting with legal rights. — In order to be valuable, the consideration must con- sist, it is said, in some benefit accruing to the promisor, or some detriment to the promisee. In most mercantile dealings there is an element of benefit and injury on both sides, for each party parts with some thing valuable or beneficial for some thing he deems valuable or beneficial in return. Yet, a consideration, in order to be valuable, need not be so much a benefit to the promisor as a 'As to the presumption of consideration in favor of negotiable in- struments and the want of it as a defense to actions thereon see post §§ 394, 426, (30) § ^2 Consideration. 31 detriment to the promisee. Thus, if A writes to X, saying, "Give B goods on credit and I will pay you if B does not," A is bound to X if the credit is given, because X has suffered a detriment in parting with his goods at A's request.^ So a promise to pay an- other's expenses if he would take a trip to Europe, which he did, was held to be upon sufficient consideration to bind the promisor. And the bare waiver of legal rights by the promisee, though there be no real detriment to him and no real benefit to the promisor, at whose request it is done, is a sufficient consideration to support a promise. Thus, an uncle promised to pay his nephew $5,000 if he would not drink, use tobacco, swear, or play cards for money until he came of age. The nephew having performed, recovered the money, the court saying that the restriction upon his lawful freedom of action, within certain limits, was a sufficient considera- tion for the uncle's promise and a detriment to the nephew in the legal sense of that term. Marriage is a valuable consideration, and will support either a promise or a grant. § 62. Promise for a promise. — A promise is a sufficient con- sideration for a promise, so that A's promise to deliver goods or render services is a good consideration for B's promise to accept and pay for them. This rule is also exemplified by mutual prom- ises of marriage, the promise on the one side forming a sufficient consideration for the promise on the other. § 63. Same subject — Subscriptions. — Some courts sustain the validity of voluntary subscriptions by several to some object of common interest, charitable, religious or otherwise, on the the- ory that the promise of each subscriber is the consideration for the promise of the others. Other courts refuse to sustain them unless some act has been done, expense incurred, or duty assumed by the plaintiff in reHance upon the promise of the others, or unless the subscription is under seal. § 64. Same — Mutual promises must be mutually binding. — But in order that a promise may be supported by a promise there must be mutuality of obligation. In other words there must be ^Post, § 1037. 32 Commercial Law. § 65 really a promise from the other side. Thus A offers to deliver to B at 6 cents all the sugars he may order during the next month, and B signifies his acceptance.