mm m ?tatE (i^alUge of Agriculture At QfotnEll Mittucrfiity Stljara. K. g. Hibraty Cornell University Library HF 1239.C63 Business law, a working manual of every-d 3 1924 013 819 036 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/cu31924013819036 BUSINESS LAW A Working Manual of Every-day Law BY J THOMAS CONYNGTON Of the New York Bar; Author of "Corporate Organiza- tion and Management," "The Modern Corporation,'' etc. WITH THE COLLABORATION OF ELIZABETH A. SMART Of the New York Bar (Second Printing) NEW YORK THE RONALD PRESS COMPANY 1918 Copyright, 1918, by The Ronald Press Company (2 121 '5 0- William G. Hewitt Press, Brooilyn, Prlntera J. F. Tuploy Co., New Torlt, ElnilarB PREFACE In engineering, medicine, and almost every other depart- ment of liuman endeavor, there has been in the last few decades, marvelous development and achievement. In the law alone there has been no progress. We live under a cumbrous and archaic system that is exceedingly difficult to amend or to improve. Moreover, as a people wc have a superstition that any kind of evil can be overcome merely by passing a law against it. As a result we are a law-ridden people. We are governed by the Constitution of the United States and the constitutions of our individual states; by the enactments of Congress and by the enactments of our state legislatures; by the ordinances of our boards of aldermen; by the regulations of boards of health ; and by the orders and the rulings of many other boards, bureaus, commissions, and officials. W'ith all this multiplicity of regulation, the ordinary citizen must exer- cise no small amount of care and study to avoid entanglement in the far-extended meshes of the law. Yet from this unwieldy mass of law may be elicited certain guiding principles that everyone should know — general rules of conduct that will carry us safely past most of the difficult places. Knowing these, it is possible for a business man to go through life and so to shape his business course and his rela- tions with his fellows as to have comparatively little to do with courts and lawyers. Courts and lawyers are necessary institu- tions — so are doctors and hospitals — but all of us prefer to avoid them as far as possible and as long as possible. The theory of the law is admirable. The object of the law is to secure right and justice to all men. The practice and the application of the law through the courts, however, comes iii IV PREFACE sadly short of attaining these ends. It is the purpose of this book to explain the conditions and to point out as nearly as may be, how the individual may shape his conduct and manage his affairs so as to avoid the more serious legal difficulties. Law in its modern manifestations cannot be studied with- out some reference to economics and sociology. The law awards compensation to injured workmen ; it compels persons who erect buildings to make them sanitary and to provide modern conveniences; it compels the factory owner to provide appliances for the safety of his workmen ; it prohibits combina- tions in restraint of trade. Much of the legislation of the present day consists in the application of these modern prin- ciples to the social and industrial life of the country. In this work the authors have tried to prepare a manual of every-day law for the man or the woman who owns property, does business, and engages in affairs — a book of guidance which may save both time and expense. They have tried to make the statement of the law plain, concise, and non-technical, and to add to each statement such advice as would be given by a careful lawyer who desired rather to keep his clients out of the courts than to win cases. Blackstone has said in his famous Commentaries that "the science of the law should in some manner be the studv of every free citizen." If this work can make plain to its readers some of the practical features of the law under which we live, so that they may appreciate its virtues and know its faults, and from that knowledge may, by their influence and votes, strive to sim- plify its procedure and remedy its deficiencies, the book will have served its end. TnOMAS CONYXGTON Elizabeth A. Smart New "S'ork City, March i, 1918. CONTENTS Part I— The Law of the Land Chapter Page I Evolution of Law i § I. Definition 2. The Origin of Law 3. Law and Liberty 4. Sources of Law II The ^^'RITTE^; Law . 4 § 5. Definition 6. Constitutional Government 7. The United States Constitution 8. Laws of Congress 9. State Constitutions 10. Constitutional Amendments 11. Constitutions That Legislate 12. Legislative Enactments 13. Subsidiary Laws III The Unwritten Law 10 § 14. Definition 15. The Doctrine of Precedents 16. Court Reports 17. The Volumes of Reports 18. The Common Law 19. Unconstitutional Laws 20. The Recall of Judges IV Law and Equity ... 15 § 21. Remedial Law 22. Equity in the Legal Sense 23. Suits at Law and in Equity 24. Bringing a Suit at Law 25. Trial at Law 26. Bringing a Suit in Equity 27. Appeals to a Higher Court 28. Advisability of Litigation V Criminal Law . 26 § 29, Criminal Procedure 30. Classes of Illegal Actions 31. Penalties V vi CONTENTS Part II— Contracts Chapter Page VI Essential Features of a Contract .... 29 I 32. Introductory 33. Definition 34. Essential Features 35. Competency of Parties 36. The Subject Matter Must Be Lawful 37. Agreement of the Parties 38. Consideration VII How Contracts Are Made 41 § 39. Oral Contracts 40. Written Contracts 41. The Statute of Frauds 42. Contracts Under Seal 43. Implied Contracts VIII Effect of Contracts 47 § 44. Illegal Contracts 45. Effect of Mistakes 46. Effect of Fraud 47. Duress 48. Undue Influence 49. Law as to Alteration 50. Interpretation of Contracts IX Assignment and Novation 57 § 51. Assignment of Contracts 52. Novation X Discharge of Contracts 61 § S3- Discharge by Performance 54. Discharge by Agreement 55. Discharge by Various Other Causes XI Enforcement of Contracts 67 § 56. Breach of Contract 57. Remedies for Breach of Contract 58. Law Governing Remedy 59. Statute of Limitations XII Actions on Contracts — General Rules . . 76 § 60. Introductory 6i. Specific Performance 62. Rules of Evidence CONTENTS vii Chapter Page XIII Tender of Payment or Performance ... 83 § 63. Definition 64. Time to Tender Performance 65. Extent and Kind of Tender 66. Acceptance of Tender XIV Joint and Several Contracts 86 § 67. Contracts Made by More Than Two Parties Part III— Sales XV Contracts to Sell 89 §68. Definitions 69. Uniform Sales Act 70. What Is Necessary to the Contract of Sale 71. The Agreement 72. Sales to Persons Incompetent to Contract 73. The Consideration 74. Nature of Subject Matter 75. Destruction of Subject Matter 76. A Contract of Sale Must Be Legal XVI Passing Title 95 § "JT. Delivery 78. Rules for Delivery 79. Sales Without Delivery 80. Conditional Sales 81. State Laws on Conditional Sales 82. Requirement of Affidavits to Conditional Sales Contracts 83. Rights in Illinois and Pennsylvania 84. Protection Against Lien on Property 85. Protection Against Destruction of Property XVII The Statute of Frauds 102 § 86. Contracts to Sell 87. When the Contract of Sale Must Be in Writing 88. Exception for Part Payment 89. Exception for Part Delivery 90. Exception for Amounts Below Specified Value 91. Exception for Work or Services XVIII Warranties 107 § 92. Introductory 93. Conditions Precedent Vlll Chapter XIX CONTENTS 94. Express Warranties 95. Implied Warranties Page Remedies • • § 96. Rights of Unpaid Seller Under the Contract 97. Rights of Buyer 98. Rescission of Sale 113 XX Sales at Auction . ... § 99. Regulations for Sales at Auction 100. Compliance with Conditions loi. Duties of Auctioneer 119 Part IV — Agency XXI Principles of Agency 121 § 102, Introductory 103. Definitions 104. The Principal 105. The Agent 106. General Agents 107. Special Agents 108. Del Credere Agents XXII The Contract of Agency 128 § 109. Appointment no. Express Appointment 111. Implied Appointment 112. Ratification 113. Sealed Contracts 114. Appointment of Subagents 115. Servants and Employees 116. Void Contracts of Agency XXIII The :II7. 118. 119- 120. Principal Principal 136 Duty to Aprent Principal's Duty to Third Party Principal's Liability An Undisclosed Principal XXIV The Agent §121. .Agent's Duty to Principal 122. Agent's Obedience 123. Agent's Good Faith 124. Agent's Care, Skill, and Diligence 140 Chapter XXV XXVI CONTENTS 125. Agent's Duty to Third Party 126. Limitation of Agent's Authority 127. Agent's Fraudulent Conduct 128. Agent's Liability The Third Party § 129. Third Party's Relation to Agent 130. Third Party's Relation to the Principal Termination of Agency § 131. Termination by Fulfilment 132. Termination by Either Party 133. Termination by Disability 134. An Agent with an Interest IX Page 152 '03 Part V — Negotiable Instruments XX\'II Form and Interpretation .... § 135. The Quality of Negotiability 136. Certainty as to Sum 137. Promise to be Unconditional 138. Certain Future Time 139. Allowable Provisions 140. Non-Essentials 141. Payable on Demand 142. Payable to Order 143. Payable to Bearer 144. The Date 145. Delivery 146. Rules of Construction 147. Signature 148. Consideration 149. Liability of Accommodation Signer 161 XXVIII Negotiation 168 § ISO. Method of Negotiation 151. Blank or Special Indorsement 152. Restrictive Indorsement 153- Qualified Indorsement 154. Conditional Indorsement 155. Effect of Indorsement XXIX Rights of Holder 171 § 156. Holder in Due Course 157. Defects of Title 158. Effect of Irregular Transfer CONTENTS Chapter XXX Liability of Parties § 159. Liability of Maker, Drawer, and Acceptor 160. Liability of Indorser Page 173 175 XXXI Presentment for Payment § 161. Necessity of Presentment 162. Requirements for Presentment 163. Presentment Excused 164. When Due XXXII Notice of Dishonor 177 § 165. Necessity of Notice 166. Effect of Notice 167. Form of Notice 168. Time of Notice 169. Where to Send Notice 170. When Notice Is Not Required 171. Protest XXXIII XXXIV Discharge of Negotiable Instruments g 172. Discharge 173. When Not Discharged 174. Effect of Alteration Bills of Exchange . § i/S. Definition 176. The Drawee 177. Acceptance 178. Presentment for Acceptance 179. Protest for Non-Acceptance 180. Acceptance for Honor 181. Bills in a Set 182. Notes and Checks 180 182 Part VI — Insurance XXXV Fire Insurance .... §183. 184. 185. 186. 187. 188. 189. 190. 191. Introductory Nature of the Contract The Parties Agents The Policy Premiums The Property Insured Warranties and False Representations Settlement of Losses 187 CONTENTS XI Chapter XXXVI Life Insurance § 192. Nature of Contract 193. Insurable Interest 194. The Parties 195. The PoHcy 196. Premium Rates 197. Agents 198. Right to Change Beneficiary 199. Assignment of Policy 200. Settlement of Losses Page 197 XXXVII Sundry Insurance Contracts . §201. Enumeration 202. Marine Insurance 203. General Average 204. Accident Insurance 205. Health Insurance 206. Group Insurance 207. Liability Insurance 208. Burglary Insurance 209. Plate Glass Insurance 210. Title Insurance 211. Sundry Insurance Contracts 204 Part VII — Employment XXXVIII The Contract of Employment 211 §212. Introduction 213. Definition 214. What Constitutes a Contract of Employment 215. Independent Contractors 216. An Express Contract Cannot Be Proved by Custom 217. Interpretation of Contract 218. Modification of Contract 219. When Contract Begins 220. Duration of Contract 221. Termination of Contract 222. Rights and Remedies 223. Employment After Expiration of Contract XXXIX Relations of Parties 221 § 224. Duties of Employee to Employer 225. Duties of Employer to Employee 226. Presumption with Regard to Joint Owners 227. Wages 228. Fines, Deductions, etc. Chapter CONTENTS XL Employer's Responsibility Page 232 j 229. Introductory 230. Doctrine of Assumption of Risk 231. Doctrine of Contributory Negligence 232. The Fellow-Servant Rule 233. Employers' Liability Acts 234. Workmen's Compensation Acts 235. Third Persons Part VIII — Partnership XLI Introductory ... .... §236. Definition 237. Partnerships Distinguished from Xon-Part- nership Organizations 245 XLII Tii-E Contract of Partnership 249 § 238. Parties 239. Kinds of Partners 240. Partnership Contracts 241. The Firm Name 242. Partnership a Personal Relation 243. Classification of Partnerships XLIII XLIV XLV Partnership Property . .... § 244. Nature of Partnership Property 245. Liability of Partnership Property for Debts 246. Profits Powers and Liabilities of Partners § 247. Powers of Partners 248. 249. Liabilities to Copartners Liabilities to Third Persons Termination of Partnersi-iip § -'30. 256 262 267 Termination by Agreement 231. Enforced Dissolution 252. Winding Up the Business Part IX — Corporations XLVI Nature of Corporations 273 i 253. ■^34- Corporate Entity Classification Chapter XLVII -57' 25X. J39. 260. 261. 262. 263. 264. 265. CONTENTS Corporations Without Capital Stock ('orporations With Capital Stuck Distinctive Features XIU Page (i) Creation hy the State (2) Limited Powers (3) Limited Liability (4) Legal 'Entity of Corporation (5) Permanence (6) Stock System (7) Corporate Alechanism (8) Attractiveness to Investors The Charter 279 § 266. Definition — Synonyms 2^1-. Charter Powers — General 26-;. (i) To Sue and Be Sued 269. (2) To Use a Seal 270. (3) To Buy, Sell, and Hold Property 271. (4) To Appoint Directors, Officers, and Agents 272. .(5) To Make By-Laws 273. (6) To Dissolve Itself 274. (7) To Do All Things Necessary 275. Charter Powers — Special 276. Things Ultra Vires 277. Amendment of Charter XLVIII By-Laws . . . § 278. Definition 279. Adoption 280. Amendment 281. Enforcement 2S4 XLIX Stock §282. 283. 284. 28s. 286. 287. 288. 289. 290. 291. 286 Capital Stock Stock Certificates Capital Stock vs. Capital Unissued and Issued Stock Full-Paid Stock No Par Value Stock Common Stock Preferred Stock Treasury Stock Lost Certificates 292. How Transferred L Stockholders and Their Meetings § 293. Incorporators 294. What Constitutes a Stockholder 293 xiv CONTENTS Chapter Page 295. Rights of Stockholders 296. Powers of Stockholders 297. Liabilities of Stockholders 298. Stockholders' Meetings 299. Quorum 300. Voting SOI. Proxies LI Directors and Their Meetings 29S § 302. Status and Functions of Directors 303. Number and Authority 304. Liabilities 305. Qualifications 306. Vacancies and Removal of Directors 307. Regular Meetings 308. Special Meetings 309. Quorum 310. Election of Officers 311. Vacancies and Removal of Officers 312. Dividends 313. Bank Deposits 314. Execution of Contracts 315. Corporate Seal LII Incorporation . . 303 §316. Application for Incorporation 317. Incorporators 318. Name of Corporation 319. Purposes 320. Capitalization 321. Shares Z22. Location 323. Duration 324. Number of Directors 325. Classification of Stock 326. Cumulative Voting 327. Execution of Certificate 328. Filing and Recording Part X — Personal Property LIII Property Rights 307 § 329. Origin of Property 330. Right to Real Property 331. Rights to Personal Property 332. Rights Classified CONTENTS XV Chapter LIV Characteristics of Personal Property §333- Personal Property Defined 334. Real Property Defined 335- Questionable Cases 336. Fixtures Page 310 LV Title to Personal Property .... §337- Original Title 338. Derived Title 339. Accession 340. Confusion 341. Kinds of Ownership LVI Transfer of Title to Personal Property §342. Gift 343- Sale 344. Chattel Mortgage 345- Pledge 313 • 317 Part XI— Real Property LVII Nature of Real Property . .... § 346. Definition 347. Estates in Real Property 348. Remainders and Reversions 349. Vested and Contingent Remainders 350. Executory Devises 351. Dower and Courtesy 352. Homestead 353. Easements 354. Joint Tenancies and Tenancies in Common 355. Trusts 321 LVIII Title to Real Property § 356. Original Title 357. Acquired Title 328 LIX Transfer of Real Property . § 358. Conveyance of Real Property 359. Record of Deeds 360. Restrictions in Deeds 361. Searching Title 362. Mortgage of Real Property 363. Foreclosure 364. Kinds of Mortgages 365. Lease of Real Property 330 CONTENTS L HAPTER LX Part XII — Wills and Inheritance Distribution of Property After Death . §366. 367- 368. 369. Page 341 Dying Intestate What Will Become of Real Property What Will Become of Personal Property Is It Wise to Make a Will? LXI How TO Make a Will 349 § 370. Who Can Make a Will 371. Restrictions on the Power of Making a Will 372. General Form for Wills 373. How to Dispose of Real Property 374. How to Dispose of Personal Property 375. The Residuary Clause and Its Uses LXII How TO Change or to Revoke a Will § 376. How to Change a Will 377. How to Revoke a Will • 362 LXIII Other Ways of Disposing of Property After Death .... 364 !378. 379- Deeds of Trust Gifts in View of Death LXIV How TO Take Care of the Property of a De- ceased Person . . . . ... 366 § 380. If the Deceased Person Left a Will 381. If the Deceased Person Did Not Leave a Will LXV Rights in Property Left By Will . §382. If Real Property Has Been Devised by Will 3H3. l.f Personal Property Has Been Left by Will 370 LX\'I Rights in Property Where There Is No Will 373 §384. In the Case of Real Property 385. In the Case of Personal Property 386. Rights of a Husband or a Wife LXVII Rkhits of Creditors . § 387. What Creditors ■^fust Do CONTENTS xvii Part XIII — Personal Relations Chapter Page LXVIII Husband and Wife 377 § 388. Persons Who May Marry 389. What Constitutes a Marriage 390. Personal Rights of Husband and Wife 391. Rights of Husband and Wife in Each Other's Property 392. Rights of Husband or Wife in Case the Other Is Injured 393. Divorce LXIX Parent and Child 387 §394. Duties and Rights of Father in Relation to Child 395. Duties and Rights of Mother in Relation to Child 396. What Duties and Rights M.iy Be Claimed by Adopted Children 397. Children as Criminals LXX Guardian and Ward . § 398. Personal Guardian 399. Guardian of Property 391 Part XIV— Suretyship LXXI The Contract of Suretyship § 400. Definition 401. Nature of Contract 402. Written Contract 395 LXXII The Contract of Suretyship (Coxtixi ed) § 403. Parties 404. Consideration 405. Delivery and Acceptance 398 LXXIII RiGHT.s OF Surety . § 406. Notice 407. Reimbursement 408. Extension of Time 409. Subrogation 410. Contribution 411. Defenses 412. Discharge 400 CONTENTS Chapter LXXIV Page 40s Part XV — Bankruptcy Enforcing Payment of Debts ....... § 413. When the Creditor Has Some Security for the Debt 414. Where There Is No Security for the Debt 415. Attempts to Defraud Creditor 416. The Modern Theory of Credit 417. Insolvency 418. Bankruptcy LXXV Bankruptcy Proceedings 411 § 419. Voluntary Bankruptcy 420. Involuntary Bankruptcy 421. Persons Who May Bring Bankruptcy Pro- ceedings 422. Persons Who May Become Involuntary Bank- rupts LXXVI Bankruptcy Proceedings (Continued) . § 423. How Bankruptcy Proceedings Are Instituted 424. Rights of an Individual Creditor in Such Pro- ceedings 425. Rights and Duties of Receiver 426. Rights and Duties of Trustee 427. What Debts Remain Undischarged 428. Rights and Duties of Bankrupts in Bank- ruptcy Proceedings 414 Part XVI— Taxation LXXVII LXXVIII Laying Taxes § 429. Who Has the Rig:ht to Lay Taxes 430. Purposes for Which Taxes May Be Laid 431. Methods of Taxation 432. Extent to Which Persons May Be Taxed Collecting Taxes § 433. Assessment of Real Property 434. Assessment of Personal Property 435. Collection of Taxes 421 426 Part XVII— The Legal Profession LXXIX Lawyers § 436. The Legal Profession 437. The Domination of Precedent 431 Chapter CONTENTS 438. Tlic Conservatism of the Law 439. Ethical Standards of the Bar 440. The Criminal Lawyer 441. Selecting a Lawyer 442. Lawyers' Compensation XIX Page Part XVIII— Arbitration LXXX Arbitration and Law . . . . § 443. Advantages of Arbitration 444. Objections to Arbitration 445. Statutory Arbitration 446. Arbitration by Agreement 447. Withdrawal from Arbitration 448. Hearings 449. Setting Aside the Award 450. Signing the Award 451. Enforcing the Award 452. Agreement for Arbitration 441 Part XIX— Forms LXXXI CoxTRACT Forms 447 Form 1. Simple Contract 2. Contract by Letter 3. Unilateral Contract 4. Formal Contract 5. Corporate Contract 6. Assignment of Contract 7. Assignment of Contract — Indorsement Form LXXXII Sales Contracts Form 8. Memorandum of Sale g. Contract of Sale By Letter 10. Conditional Sales Contract 11. Guaranty Contract By Letter 12. Guaranty Contract 13. Bill of Sale — Personal 14. Bill of Sale — Personal 15. Contract of Warranty 452 LXXXIII Agency Forms Form 16. Appointment of Special Agent 17. Appointment of General Agent 458 XX CONTENTS Chapter Page 19- 20. 21. 22. 23- Power of Attorney- Power of Attorney — Corporate Revocation of Power of Attorney Proxy — Simple Form Proxy — Unlimited Revocation of Proxy LXXXIV Negotiable Instruments 464 Form 24- 25- 26. 27- 29. 30. 31- 32. 33- 34. Check by Individual Corporate Check Indorsement of Corporate Check Voucher Check Note by Individual Corporate Note — By President Corporate Note — By Treasurer Corporate Note — Collateral Security Sight Draft Bank Acceptance Trade Acceptance LXXXV Contracts of Employment 474 Form 35. Contract of F.mployment — Simple Form 36. Contract of Employment 37. Contract of Employment by Letter 38. Contract of Employment with Share in Profits LXXXVI LXXXMI Partnership Forms . ... Form 39. Simple Articles of Partnership 40. Articles of Ci.ipartnership 41. Sundry Partnership Clauses 477 Corporate Organization Form 42. Sub.scription List Forms 481 43. Stock Certificates — Common Stock 44. Assignment of Stock Certificate 45. Certificate of Incorporation — New York 46. By-Laws — Simple Form LXXXVIII Forms for Corporate Meetings 490 Form 47. Call and Waiver for Special Meeting of Directors 48. Agreement to Consent Meeting of Directors CONTENTS XXI Chapter Page 49. Notice of Special Meeting of Directors 50. Minutes of Special Meeting of Stockholders 51. Minutes of Regular Meeting of Directors 52. Motions 53. Directors' Resolutions 54. Certified Resolution Designating Bank LXXXIX Miscellaneous Corporate Forms . . . . , Form 55. Corporate and Official Signatures 56. Testimonium Clause 57. Resignation of Director 58. Resignation of Director — Peremptory 59. Report of Committee on By-Laws 60. Treasurer's Affidavit — Corporate Statement 496 XC Real and Personal Property . Form 61. Chattel Mortgage 62. Lease 63. Deed with Full Covenants 64. Real Estate Mortgage 501 XCI Sundry Forms . Form 65. General Release 66. Will 67. Agreement for Arbitration .lO?; BUSINESS LAW Part I — The Law of the Land CHAPTER I EVOLUTION OF LAW § I. 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. At times 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 I 2 THE LAW OF THE LAND 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 go\ern their actions. Among the students of every college there is a curiously complex 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. 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. Strangers comment on the number of "Es ist vcrboten" signs in Germany, but a complicated s}'stem of law is the necessary consequence of a dense population and a highly or- ganized social structure. § 3. Law and Liberty Laws are a necessary evil incident to social existence. The lone man in a wilderness has complete liberty. As others join him, laws and established rules become necessary. Every law and every rule subtracts from the individual's previous libertv of action and circumscribes his freedom. On the other hand, the advantages of social life and achievement are great; there- fore the majority 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 accord- ing to the principles of the law of England as it existed at EVOLUTION OF LAW 3 that time — that is, they utiHzed as much as was apphcable to conditions prevaiUng in the colonies. This law was prin- cipally the famous "common law" ui England that had grown up through the centuries. This fact was of great advantage to the colonists when the rights conferred by the common law ■ were infringed by the arbitrary acts of the home government. They were able to show that the rights they clauned were conferred by the common law, and that the king and the parHament were seeking to deprive them of the common birthright of Enghshmen.' Most of the colonies had been established under charters — instruments which served as our written constitutions do now. Connecticut and Rhode Island continued to use colonial charters as substitutes for constitutions even after the Revolu- tion. 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 provisions of the charter under which the particular colony existed. At the time of the Revolution the colonies adopted the Articles of Confederation, which left each separate colony to establish such government as it saw fit. The authority of these governments was expressed usually in a constitution -which took the place of the old charter and in legislative enactments passed to supplement the constitution and to apply general principles to particular cases. Later, when the federal con- stitution was adopted, its authority became supreme, and as each colony joined the new nation the local governments were shaped according to the basic principles of the federal con- stitution. The common law, the state constitutions and charters, and the enactments 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. ' Cooky's Conatitutional Limitations, Chapter IH. CHAPTER II THE WRITTEN LAW § 5. Definition The technical term "written law" means law that is em- bodied in constitutions, acts of Congress, of state legislatures, and of other bodies with legislative authority. In many coun- tries 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 pre- vailing in France. The "Code Napoleon" which was the result has from that time to the present day been the major law of France and is what we call "written law." No similar codifi- cation 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 separate 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 govern- ment and limits the exercise of those powers for the protection of individual rights. The power of Congress is derived from the Constitution of the United States. Each state legislature has only the power granted by the state constitution. "Con- 4 THE WRITTEN LAW 5 gress can pass no laws but such as the Constitution authorizes expressly or by clear implication." § 7. The United States Constitution The Constitution of the United States is the highest au- thority in the United States. Next in rank come laws enacted by Congress in pursuance of the powers enumerated in the Constitution. For example, Congress has power to regulate commerce with foreign nations and among the several states, and under this authority it has passed the "Anti-Trust Law." On the other hand, the Constitution does not grant Congress any legislative power in regard to marriage and divorce, and for this reason Congress is not authorized to enact a federal law regulating divorces, however desirable such a uniform law might be. Under the present Constitution this matter is left to the discretion of the separate states, and divorce laws change as state lines are crossed. At the time of the adoption of the Federal Constitution the separate states were very jealous of their rights. The makers of the Constitution held that the powers of the United States as a nation were to be limited, so as to leave to the separate states the maximum of sovereignty. Their purpose in drafting the Constitution was to define these limits to national suprem- acy with exactitude and carefully to mark out the powers of Congress beyond which it could not go. Fortunately, grants of power as expressed in the Constitution were couched in general language, and in interpreting their meaning the Supreme Court of the United States has, in many instances, placed a liberal construction vipon them, so that Congress today is a far more powerful body than it otherwise would have been. For example, at the time the Constitution was adopted no one dreamed of the enormous power granted to Congress in the right "to regulate commerce between the states." The com- merce between the states at the time the Constitution was 5 THE LAW OF THE LAND adopted was of little significance and the power to regulate was of small moment. With the vast extension of our interstate commerce, however, the congressional power of regulation has grown to tremendous proportions. The recent decision of the Court in regard to the constitutionality of the Adamson rail- road wages law would seem to extend this power almost with- out limit. The wonderful thing about the Constitution of the United States is that though it was devised over a century and a quarter ago, and though the changes in our country and in its modes of life, in its social relations, and in its methods of business have been tremendous, the old Constitution, with but few changes, still serves as the fundamental law of the land and chafes in but few places. Well did Bryce in his "Ameri- can Commonwealth" say of it: The Constitution of 1780 .... aiter all deductions .... ranks above every other written constitution for the intrinsic excellence of its scheme, its adaptation to the cir- cumstances of the people, the simplicity, brevity, and precision of its language, its judicious mixture of definiteness in prin- ciple with elasticity in detail. § 8. Laws of Congress The legislative power of Congress is limited to specific objects enumerated in the Constitution. Congress has the power to "regulate commerce with foreign nations and among the several states, and with the Indian tribes," but has no power to pass any laws affecting a railway or any kind of traffic which operates entirely within a single state. On the other hand. Congress is atithorized to "coin money, regulate the value thereof and of foreign coin, and fix the standard of weights and measures" ; this power gives us a system of coinage and of weights and measures which is uniform for the entire country. If ever we adopt the metric system it will be THE WRITTEN LAW 7 through the action of Congress, under this constitutional grant of power. 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 l)y 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 effect, except in those particu- lars which were overruled by the Constitution of the United States. The newer states have adopted constitutions, and be- fore the states were admitted it was necessary fur Ci ingress to accept the proposed constitutions. But within the limits nf 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. Constitutional Amendments It was intended by those who framed our system of government that amendment of the Constitution of the United States should be both difficult and slow. They did not intend that a majority of the voters should at any time amend the Constitution. They did not have such entire confidence in the wisdom of the common people as to be willing to empower a bare majority of the voters to set aside the constitutional provisions they had so carefully devised. So they provided that no amendment should be valid as a part of the Constitu- 8 THE LAW OF THE LAND tion unless it were first proposed by two-thirds of both Houses of Congress and afterwards ratified by three-fourths of the several states. As it was purposely made difficult to amend the United States Constitution, so most of the states have likewise made it more or less difficult to amend or to change their constitutions. In some states a convention for the special purpose of revising the constitution is called at stated periods ; others leave to the legislature the calling of the conventions, while the usual plan is for the legislature to submit separate amendments to the people from time to time. § II. Constitutions That Legislate Constitutions are intended to be permanent, and therefore should lay down only broad principles. They should not be encumbered with legislation on any subject on which the policy or the best interests of the people are likely to change. The pressure for change has been quite as strong as the framers of the constitution foresaw. At the present time many persons desiring to introduce reforms and to secure liberal legislation fret at the delays and the difficulties of overcoming constitutional impediments, and hence advocate making our constitutions, both federal and state, easier of amendment and less restrictive in their pro- visions. There is such a distrust today, moreover, of the wisdom of legislatures that in many of the newer state con- stitutions provisions have been incorporated that should have been left for legislative action. For example, the Constitution of Oklahoma provides that eight hours shall constitute a day's work throughout the state ; that railways shall not charge passengers more than two cents per mile, while the corporation commission may exempt any railway in case its earnings are so low as to justify a higher rate; that railways shall have adequate, comfortable, and clean stations, etc. By incor- porating such detailed legislation in a state constitution, its THE WRITTEN LAW n function, which is to ])r(nide fundamental and basic law, is confused with that of the legislature, which is to provide laws for such specific subjects as hours of labor, rates nf fare, and all sanitary details. § 12. Legislative Enactments Next in dignity and authority 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 that in dignity come the ordinances or laws of boards of aldermen and com- mon 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. § 13. Subsidiary Laws In late years there has come into existence an immense additional body of written law consisting of the rules and regulations issued by boards of health, building boards, school authorities, and various bureaus and commissions. For in- stance, the Interstate Commerce Commission is empowered by Congress or the legislatures of the states to regulate particu- lar matters. Moreover, the different 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 semi-legal enactments, from articles of the Constitution down to the rules of the trustees of the smallest school district. CHAPTER III THE UNWRITTEN LAW § 14. Definition To the layman, perhaps, the term "unwritten law" is some- what 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 vehicles 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 re- ceived 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 actu- ally be zvrittcn down, yet it is still called "unwritten law" because it is based on the earlier unwritten custom instead of upon legislative enactment. Lawyers distinguish these classes as lex scripta and lex non scripta. 10 THE UNWRITTEN LAW II § 15. The Doctrine of Precedents The courts do more than record customs; they create law by decisions that then become precedents. In primitive days when men had differences of opinion they would get someone older and supposedly 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 according 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. § 16. 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." 12 THE LAW OF THE LAND § 17. The Volumes of Reports The difficulty in our country at the present time is that we have over forty-eight different and independent systems ot 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. Lawyers depend on large law libraries, kept up usually on a co-operative basis, to which they have access. Meanwhile, they subscribe for volumes of digests and use encyclopedias of law to guide them in their searches through this ever-increas- ing maze of judicial decisions. In each state the decisions of the highest state courts are paramount, and the lawyers in the state try to familiarize themselves with at least the trend of these decisions. Whenever political, economic, and social conditions change so radically that the decisions of the higher courts become unjust or restrict legitimate activity too much, the state legislature interferes and enacts laws that supersede the judi- cial decisions. In other words, the written law prescribed by the legislature overrules the unwritten law that comes from the decisions of the court. § 18. 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 founda- THE UNWRITTEN LAW 13 tion of the general system of law prevailing throughout most of this country. In Louisiana, however, and to a certain ex- tent 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 English law is indebted to the Roman system more than English common law advocates are willing to admit, and it might have been better had more been borrowed. The original English common law was a harsh and bar- barous code, having little or no consideration for the rights of women and children and making man the tyrant of the family. Any infractions of its provisions were punished with drastic penalties. The smallest theft by man, woman, or child, was punished by death. At the present time most of the harsher features of the common law have been eliminated. Juries refused to convict prisoners on account of the cruel penalties and the law has been modified by numberless legisla- tive enactments and expanded by judicial construction, to fit a more civilized and cultivated society than that in which it originated. It is evident that the term "unwritten law" covers a wider field than "common law." Therefore it is used in this work to designate the law that is contained in the reports of the courts. § 19. Unconstitutional Laws It frequently happens that a legislative enactment designed to overrule some objectionable decision of the courts comes into conflict with a provision of the state constitution or of the United States Constitution and the courts may decide this new law to be unconstitutional. If the people in the state should still desire to maintain the legislative enactment, thc)' would 14 THE LAW OF THE LAND have to amend the state constitution. In case the law were in conflict with the Constitution of the United States, the people must either submit or else undertake the very arduous task of stirring up all the people in the country to amend the federal Constitution. A notable instance of this is the income tax law, which was passed by Congress but declared unconstitutional by the Su- preme Court. Then the Constitution was amended, whereupon Congress passed the present income tax law which, with its amendments, will doubtless be a permanent feature of our system of taxation. § 20. The Recall of Judges Within the last few years many persons have become im- patient with the slow process of changing the Constitution. This has led them to advocate, as a short cut to securing better laws, the recall, that is, the dismissal, of any judges who decide that popular laws are unconstitutional. If this law went into effect any judge who rendered decisions opposed by the major- ity of the voters could be recalled and a more subservient arbitrator elected. For several reasons such a procedure seems unwise. It would be better to facilitate the process of amend- ing the Constitution than to seek judges who will disregard the plain letter of existing law and will support, as legal, laws that plainly are not in harmony with the provisions of the Constitution. But this is too large a subject for treatment here. CHAPTER IV LAW AND EQUITY § 21. 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 formal- ity and "red tape." Too often this tendency becomes so ex- cessive 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 ordi- nary meaning attached to them. A real, technical distinction 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 15 l6 THE LAW OF THE LAND by confusing the ordinary English use of the words with the legal signification. § 22. 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 diffi- cult 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 remedy, relief could be obtained by applying directly to his chancellor. 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 contra- distinction to the common law. Such a procedure before the chancellor was called a suit in "chancery" or "equity," as dis- tinguished 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 ecjuity than at law, this dis- tinction soon vanished and eciuity proceedings became even more complex and technical than the procedure at law. The chancellor, however, gave relief in many cases for which the ccimmon law gave no remedy. The common law was adapted to a simple life and a crude social system. As the English people advanced its deficiencies were manifest and the intro- duction of the courts of equity was a long step in legal reform. The two distinct systems both continued, the procedure was different, the rules \\'ert different, and the relief given was different. The lawyers who practiced before the chancellor were called solicitors; the lawyers who appeared in the com- mon law courts were counselors or barristers. In equity the remedies are different from those provided hv a suit at law. To illustrate the difference, if an^-one breaks down T|'our fences and makes a road across vour propert}-, at /'iri' you can sue for dama'.^es ; in equity you can ask an injunc- tion restraining the offender from further trespa^s. LAW AND EQUITY 17 i 23. Suits at Law and in Equity The distinction between law and cquit)- was brought to this country and as a result there arc in all the states the divisions of the work of the courts and the two methods of bringing suit. In a few states the law and the 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 be- tween law and equity administration. 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, and in the fact that in most cases at law there is a jury trial, while in ecjuity cases a judge or judges alone hear the case. A court of law hears both civil and criminal cases. Civil cases are the ordinary suits about contracts and property rights and are brought by private parties against other private parties. Criminal cases are suits brought by the state itself against offenders who have broken the law, and who are punished l)y fine or imprisonment. In such a case the fine goes to the state. (See Chapter V.) A court of equity hears only civil cases. If a person is interfering with another's rights, a court of equity will grant an injunction forbidding him to do so in the future, and will at the same time make him pay damages to the injured party for the wrong which has already been done. § 24. 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 1 8 THE LAW OF THE LAND 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, in some in- stances, if the claim is definite, it will grant a judgment by default against A and in favor of B, without a trial or any- thing more than a sworn complaint to prove the case. 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 usually brings 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. The other party then replies to the counterclaim. There may in some states be several such replies after the service of the complaint. The procedure depends on the law of the particular state where the action is being brought. Each party must serve a copy of each paper in the action on the other party or his attorney. 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 decides that the demurrer presented by the plaintiff is well taken, the complaint is dismissed. The plaintiff can then LAW AND EQUITY 19 usually 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 plaintiff and denied on the part of the defendant. The foregoing statement of proceedings before trial pre- supposes very simple proceedings, but usually there are re- quests to amend and much incidental procedure, which tend to delay the trial of the main issue. § 25. Trial at Law When the parties have finally come to an issue, i.e., when the plaintiff has alleged certain things and the defendant has denied them or has interposed a defense, 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 delay, a jury (if it is a law and not an equity case) 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. 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. 20 THE LAW OF THE LAND 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 iDettcr chance. If one party is a corpora- tion, the jury is inclined to regard it as a soulless oppressor, and to aA\ard damages in favor of the poor workingman, widow, etc., whom the corporation is supposed to be injuring. Very frecjuently cle^-er 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 on account of the imperfect workings of the jury system. Notes: I. Consider all the chances before bringing a lawsuit. § 26. Bringing a Suit in Equity The outline gi\en applies to a court of law. If the court is a court of ecjuity jurisdiction, the procedure is essentially the same except that the first statement may be called a petition or a bill in equity. In New York complaints are also used in ecjuity. All procedure in courts follows generally the lines laid down, with many variations as to details and inci- dentals. A suit in equity can be brought only A\hen the party cannot obtain justice at law. The other party must answer the peti- tion or the bill. Copies of all papers must be served on the opposite party by the party making the charges. LAW AXD EQUITY 21 In a suit in equity, only a jud;;'e, or several judges, hear the case. For this reason a court of equity is not so strict about keeping out evidence that docs 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 allo\\x'd to alTect 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 XII.) 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 darnages which he can obtain at law will not conpensate 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 in- stituted 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. §27. Appeals to a Higher Court The decision of a trial may be appealed from by the dis- satisfied party. The unsuccessful litigant has to pay the dam- 22 THE LAW OF THE LAND ages adjudged to be due his opponent, the costs of the suit, and the fees of his own lawyer. His fighting blood is stirred by the evidence that brings to mind the original dispute and the perverseness of the opposite party, by the arguments of the counsel on each side, and by the failure of the court and jury to give them the weight he feels they have, and he feels as if he would spend all he has to vindicate himself and to punish those who have wronged him. His lawyer feels much the same way, and, as he is paid for appealing instead of having to pay, he can better afford to indulge his feelings. Usually the first thing is to file excep- tions to the alleged irregularities in the trial; that is, happen- ings of the following nature: That evidence was admitted which should have been shut out. That evidence was rejected which should have been ad- mitted. That questions were allowed which should have been barred. That questions were disallowed which should have been allowed. That the judge charged the jury in a way he should not have charged it. That the judge refused to charge the jury as requested and as he should have charged it. That the verdict was excessive or inadequate or not supported by the evidence. Then a motion is made for a new trial and, when this is overruled, counsel announces that he will appeal. 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 of each of the opposing LAW AND EQUITY 23 counsel, ironically termed "briefs" 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 appear 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. In most states there may be indefinite appeals until the case has reached the court of last resort, been decided there on the last technicality, and a rehearing has been asked for and refused. There is always delay between each appeal, and it is entirely possible for a lawsuit to go on for years and become an heirloom, which is handed on from generation to generation. It will be seen that the person or the corporation with the longest purse has a great advantage. They employ more experienced and able counsel and they can stand the mounting costs better than the person who has nothing but a just cause. Attempts have been made from time to time to simplify procedure and to make litigation less costly and less dilatory, but so far without any great measure of success. To laymen both courts and counsel often appear much more concerned in observing the rules of the game than in administering justice as between man and man. As stated in a recent legal periodical: * While every other profession has been practically made over in the past twenty-five years, the conservatism of the legal profession has stood in the way of substantial changes in the rules of procedure and practice. Notes: I. Before becoming involved in litigation reckon the cost to the limit of the last appeal. ' Case & Comment for July, 1917. 24 THE LAW OF THE LAND § 28. Advisability of Litigation There are circumstances under which it is necessary to go to law and then its advisability is not open to discussion. Such circumstances may be compared with cases in which surgical operations have become imperative. The only question then is to be sure that you secure a skilful attorney to repre- sent you. But many cases arise where there is strong tempta- tion to bring suit, but where it might be more prudent to compromise or settle by other means. What follows applies to these debatable cases. When you feel that you have been wronged and consult a lawyer, you want him to sympathize with you, to assure you of the merits of your case, and to advise you to show the other party that he cannot ride rough-shod over you. This is the lawyer's selling talk that you expect. You tell him to go ahead and cheerfully give him a check for a few hundred, which he saj^s will be plenty to keep things moving tmtil the case comes to trial. If instead, he tells you judicially that, while you have a good case, it will save time and money to compromise in some way rather than to litigate, you take it as an unfriendly act, grudge him his modest fee for saving you a lawsuit, and tell your friends that he is too cautious ever to make much at the bar. Next time you have trouble yuu think you will find a lawyer with a little more sand. Lawyers know that most men whu consult them feel this way. As one lawyer expressed himself, it is easier to get a $1,000 fee for trying ^ case than $100 for effecting a com- promise. Therefore do not expect that your lawyer is going to punish himself to do )'(ju an unwelcome service. You can try this plan. Ask your lawyer to make you an estimate of what the .:ase will cose in counsel fees, preparation for trial, court costs, and incidentals. Then inquire as to what amount of your time will be required for consultation, attend- LAW AND EQUITY 25 ance on trial, waiting for case to be called, etc. Estimate what your time is worth in your business and add to previous amount. Estimate how much thought and worry you will- put into it and how much this will detract from your business efficiency. Assume you get judgment in your favor and the case is not appealed. How does the account stand? You may have a good case and still lose out. Such things have happened. Appeals are possibilities. There is a chance of heavy costs and fees. Consider all eventualities before you decide on your course. Notes: 1. Prevention is better than cure. "Beware of en- trance to a quarrel." 2. Calculate your costs in advance. This discourages litigation. 3. Tell your lawyer you would rather pay him to keep you out of litigation than to win your case. If he is young at the business he may take you at your word. CHAPTER V CRIMINAL LAW § 29. Criminal Procedure Criminal law is administered in a manner different from the usual procedure at law and in equity. The state prose- cutes for crime, and, while the accused person is called the defendant, there is no plaintiff save the state. The designa- tion 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 allowed 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 eighteen 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 representative of the state, the prosecuting attorney. The object of the grand jury investigation is to ascertain what 26 CRIMINAL LAW 27 persons should be tried before a trial jury and whether the evidence against people accused of crime is sufficient to justify the state in prosecuting them. If an indictment is found and the person 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 system is painfully cumbrous. In many states criminal procedure has become so complex and so overridden with technicalities that any criminal who can afford to pay skilful counsel may escape all penalty except the large payments he makes to his own lawyers. The diffi- culty of convicting a wealthy criminal is the scandal of our legal administration of justice. § 30. Classes of Illegal Actions It is well to know that offenses against the criminal law are divided into two classes: crimes and misdemeanors, according to the degree of the offense. A crime is a grave offense, punishable by heavy penalties. A misdemeanor is a lighter breach of the law and is punish- able by lesser penalties. Burglary — the breaking into a house after dark — is a crime and is punished by conhnement in a penitentiary. Driving an automobile too fast is a misdemeanor and may be punished by a fine or confinement in the county jail. Criminal offenses are also divided into two classes: those which are wrong in themselves and those which are wrong merely because the law prohibits them. In order to make this distinction easier to keep in mind, lawyers use the Latin terms "malum in se" (wrong in itself) and "malum prohi- bitttm" (wrong because it is prohibited). At the present time there are a great many naturally indifferent actions whicli have been made into crimes by the procedure of the legisla- ture, and there is such a multitude of these laws that it is 28 THE LAW OF THE LAND very hard for anyone even with the best intentions to avoid violation of the law at some time. §31. 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. Part II— Contracts' CHAPTER VI ESSENTIAL FEATURES OF A CONTRACT § 32. Introductory Civilized life may be said to be founded on agreements. \Mienever an individual buys or sells something, he makes an agreement. Our whole social and business life is based upon a series of understandings with those with whom we come in contact. The more complex our civilization becomes, the more agreements are made and the more extended be- come our contractual relations. \\'henever an agreement is of such a nature that it may be enforced in a court of law, it is called a contract. ]\Io;,t 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. The sale of goods is a contract, the appoint- ment of an agent is a contract, and the business done by an agent is that of making contracts. Insurance, whether of life or of property, is a contract; partnerships and corpora- tions are both based on contracts ; in fact, there is no business relation but is either itself a contract or else is based upon a contract. § 33. Definition A contract is defined as an agreement between two or more parties, for a sufficient consideration, to do or not to do • For forma of contracts, see Chapters LXXXI, LXXXII, Forms 1-15. 29 30 CONTRACTS some specified thing or tilings. Tiiis is tlie accepted legal definition of a contract. It is an agreement, and the minds of the parties, to use the technical phrase, "must meet." There must be tzvo legally competent parties to a contract ; there may be many. There must be a consideration, without which there can be no legal obligation. If a man agrees to do something, there must be a valid reason or inducement for him to bind himself. This, in legal parlance, is the consideration. If the promise were gratuitous, that is, if there were no induce- ment for the promise, it might be a matter of honor to carry it out, but it would not be a matter of legal compulsion. A naked promise, without consideration, cannot be enforced in a court of law. There must be the obligation, or thing to be done. This promise may be to pay money, to do work, or to deliver goods; or it may be merely not to do something which the person contracting had a right to do. § 34. Essential Features In order to make any agreement legally enforceable as a contract, there must be the following essentials: 1. The parties to the agreement must be legally com- petent to contract. 2. The agreement must be to do something lawful. 3. The parties must agree to the same thing. 4. There must be a sufficient consideration. These several elements of a contract will be explained in the following sections. § 35- Competency of Parties Generally all persons are able to bind themselves bv con- tract. It is a positive right. But there are exceptions to ESSENTIAL FEATURES 31 the general rule. Certain persons are not competent to con- tract, and certain other persons have only a qualified right to make contracts. If a person has been legally declared a lunatic or a spend- thrift, and a guardian has been appointed by the court to look after his property, such person has no power to enter into a binding contract. No agreement made by him could be enforced, even though the person dealing with him did not know that he was insane or a spendthrift and had been legally declared incompetent. There is one exception to this rule — a contract to buy absolute necessities for life and health. A person may supply an insane person with necessary things and will be legally entitled to payment for them. As it is necessary for a party to give his free consent to an agreement and to know what he is consenting to, intoxi- cated and insane persons who have not been legally declared to be such, cannot make enforceable contracts if the insanity or the intoxication prevents them from understanding the nature of their acts at the time the contract is entered into. The Laiv Varies idtli Location. This question of com- petency depends on the law of the place where the contract was made. If a person legally declared a spendthrift should go into another state, he would be perfectly capable of making contracts there until he has been declared a spendthrift in the courts of that state. A person legally declared insane, if he had lucid intervals, might in a state other than that in which he had been declared insane make an enforceable con- tract in a lucid interval. The age at which a person becomes legally competent to contract varies in different states. The local law should always be consulted. Indians. Indians living on government reservations are protected by the federal law, and may make enforceable con- tracts only under such conditions as that law prescribes. If they leave the reservations and enter into ordinary business 32 CONTRACTS relations, they are usually held liable in the same way as any other business men. Married iroiiicii. A married woman does not have entire freedom of contract. As a usual rule a married woman cannot make an enforceable contract with her husband. Formerly a married woman could not make a contract at all without her husband's consent, but this has been changed. 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 give her a measure of irresponsibility. A married woman may, in any state, act as an agent for her husband. (See S .390.) Minors. Minors (persons who are under legal age, which is generally 21) have only a c[ualified ability to make con- tracts. That is to say, the minor mav make a contract but the other contracting party cannot enfiirce 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. If the minor has taken a fraudulent advantage of the other person by leading that person to think he is of full age, the law will later prevent the minor from stating that he is under age when he comes into court, and will therefore make him perform his agreement. If under the contract the minor has received property or money from the other party, he will be made to repay or to return it if possible; but if he has spent or other- wise disposed of it he may, as a rule, still refuse to pay for it. People dealing with young persons are supposed to look out for their own interests and to find out whether such parties are of age or not. The minor, because of his in- experience, is guarded by the law not only against the designs of other persons but also against his own carelessness. He is not, howcA-er, guarded against his own wrongdoing. If he injures property he will be obliged to pay damages. ESSENTIAL FEATURES 33 After a minor has come of age he may confirm any con- tracts 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, however, the court will consider that he has confirmed it. Moreover, unless the minor pleads his infancy in court, a contract may be enforced against him the same as against any other person. No one else may plead this for him. If he becomes insolvent, a receiver of his property may not call off any of his contracts for him, no matter how unfair. If the minor himself chooses to stand by them, they are legally binding. Xotes: I. It is not safe to have any business dealings with a minor. § 36. The Subject Matter Must Be Lawful The subject matter of a contract is that wliich the agree- ment is about. It may consist of an\' property, commodity, or service which could be the subject of a business transaclinn, or it may be to do or not to do something, such a-^ 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 would be unenforceable. An agreement to do anything which, while not directly contrary to any special statute, would be in- jurious to the peace and good order, the health, or the morals of the community, would be against public policy and would be unenforceable. The following agreements would be contrary to public policy and therefore unlawful: 1. An agreement to prevent a person from marrying or to break up a marriage. 2. An agreement to persuade one person to marry 34 CONTRACTS another; for instance, the Jewish custom of arranging mar- riages through marriage brokers. 3. An agreement in restraint of trade. The Supreme Court has decided that agreements in reasonable restraint of trade are not contrary to pubhc policy. Where a person sells out his business to another he may agree never to engage in that business again within certain reasonable territorial limits — usually the limits of the territory which his business actually covered, unless it covered the entire country. 4. Gambling contracts. Contracts for the buying and selling of "options" and "futures" and of stock "on margin," are regarded as gambling contracts in some states, and will not be enforced unless the party selling the stock was in some way entitled to it or was selling it as agent for the real owner. 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. 5. Contracts in which usurious interest is charged. Some- times the contract 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 contract. 6. Contracts to commit a fraud or a crime. 7. Contracts for the sale of adulterated goods. 8. Contracts to bribe public officials, or contracts of bribery with such officials. 9. Agreements by candidates to appoint persons to posi- tions in case said candidates are elected, or to do anything else in return for aid in securing their election. 10. Agreements not to prosecute a person for a crime. ESSENTIAL FEATURES 35 All of these last cases are contrary to public policy be- cause the subject matter pertains to something unlawful and injurious to the community. 11. An agreement made in advance not to take a dispute into court. The law favors the settling of disputes out of court as much as possible ; but it is contrary to public policy to deprive any man in advance of his right to be heard in court whether by agreement or otherwise. But, while two parties may not contract to refrain from taking a possible disagreement to court, they may contract to arbitrate in a specified manner before the court is resorted to. 12. A contract to perform services in return 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 fees which may have been agreed upon cannot be collected. When an illegal contract has been made, the courts will refuse to interfere at all. The parties are simply left as they are, to straighten the matter out as best they can. The Law of Place. The law which governs a contract is the law of the place where it was made. If it is to be per- formed 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 which it was made must always be expressly stated in it. (See also § 58.) The Subject Matter Must Exist. There must be some 36 CONTRACTS subject matter in existence to contract about. If the contract were to add a wing to a house and the house were burned down at the time of the agreement without the knowledge of the contracting parties, there would be no contract. If, ho\ve\'er, the contract was about something that has been lost or destroyed but that might be replaced, such as a contract for the sale of grain, the contract is valid and the party who agreed to deliver the grain must procure it elsewhere. Notes: 1. A contract to do anything unlawful cannot be enforced. 2. No money paid on such a contract can be recoxered. 3. Xo services so rendered can be made the basis of a suit. § 37- Agreement of the Parties It is essential that the parties to a contract should agree on the terms; or, in legal phraseology, that "their minds should meet." This agreement results usually from an offer made by one party which is accepted by the other. The offer or proposal may be oral or written, and the acceptance may be oral or written. 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 together 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 Chapters LXXXI, LXXXII, Forms 2, 9, 11.) Acceptance by Mail or Tclcgrapli. If the party making the offer requests an answer b}- mail or telegraph, the post- office or the telegraph company becomes his agent to receive ESSENTIA!. FEATURES 37 the acceptance, and the agreement becomes effective the moment a properly stamped and addressed letter of acceptance is deposited in the mail box (even though the letter does not reach its destination) or the moment a [trepaid 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. The point is important because the person making the offer has a right to withdraw it if he informs the other party of his change of decision before the other party has accepted, i.e., has put a letter in the mail or has sent a telegram of acceptance. In other words, a contract may be complete before the acceptance is actually received, and it is then too late to withdraw the offer. If a party makes an offer by mail or telegraph, he is regarded as having requested a reply by the same means unless he expressly asks for a reply in some other wav ; so that if the party receiving the offer replies in the same way, his acceptance becomes effective from the moment he mails it or gives it to the telegraph company to send. If, on the contrary, he replies in some other way, there is no agreement Jiiitil the aiis-zucr actually reaches the other party. In this last case, if the first party sends a letter withdrawing the offer and this letter arrives at its destination before the letter of acceptance reaches the first party, there is no agreement. Maimer of Acceptance. The offer must be accepted in accordance with its terms. To accept an offer in any terms other than those in which it was made amounts to a refusal. The first party may decide to accept the new terms, in which case there will be a new and different agreement, but he has the privilege of rejecting the proposed contract entirely. If the offer was made to one person only, another could not accept it; if made for a limited time, it must be accepted within that time. Advertisements offering a reward for the 38 CONTRACTS return of lost articles are made to the public in general and the offer may be accepted by anyone who finds the goods. An offer cannot be accepted, however, after the party who made it dies or becomes insane, and it must in any case be accepted within a reasonable time; people cannot be held to offers made long ago and forgotten, or after the circum- stances which led to the offers have changed. What consti- tutes a reasonable time will depend on the circumstances. The party who makes the offer may set a time limit for its acceptance, after the expiration of which the offer is no longer open for acceptance. It is always prudent to accept a desirable offer promptly. Verbal Agreement. In many cases of contract the parties agree upon the terms orally by discussion, proposal and counter-proposal, suggestion and objection, until they think that they have arrived at substantial agreement. At this stage the contract should be reduced to writing. When this is attempted it will usually develop that each party has under- stood the discussion differently and a renewed discussion results. Finally, when the written agreement is agreed to by both, it is signed ; and then it supersedes all understandings and binds the parties. In most cases an oral contract is as good as a written one except that it is harder to prove. After a discussion of terms each party has a different impression of the conclusions reached. 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 absolutely contradictory accounts of the same transaction. Here the great advantage of the written transaction becomes apparent. That which is written changes not; and the law will not allow oral evidence to be introduced to contradict that which the parties have agreed to in writing. If, mean- ESSENTIAL FEATURES 39 while, one of the parties has died, the written contract is yet more essential for proof. Hence, in business, one should never entrust to memory anything that can possibly be put into writing. (See §39, 40.) Notes: 1. In most disputes over contracts, the trouble arises because part or all of the contract is not written. 2. On this account the exchange of letters makes for certainty in contracts. § 38. Consideration A promise to do something or to give something is not a contract, since a mere promise cannot be enforced by law. There must be a consideration for the promise ; the considera- tion being something done, given, or promised by the other party. One party's promise is a good consideration for the promise of another party. If A agrees to pay B for a certain service and B agrees to perform such service, a valid con- tract has been created and A must fulfil his promise when B has fulfilled his. Or if A promises to pay B for goods delivered to C, when B has made such delivery A must pay him. Mutual Promises as Consideration. If a person makes a promise in return for another person's promise, the law will require him to make good his promise when the first party has fulfilled his. In other words, mutual promises are con- sideration for each other. An example may be found in an ordinary real estate contract wherein one party promises to sell and the other party promises to buy. The consideration for an enforceable contract may be very small compared with the value of what is agreed to by the other party; it may be inadequate or even insignificant. For instance, a man might offer to give his son $1,000 if 40 CONTRACTS he would refrain from smoking until he was twenty-one. It would seem that the son gives very little in return for the money, but he is giving up the right to smoke — and the con- tract will be enforced. In this case, the consideration for the $i,000 is the surrender of a privilege. It is very common to mention the sum of $i in contracts where the parties do not wish the real amount of the con- sideration to be known. Inadequate Consideration. If the consideration agreed to by one of the parties is something impossible to perform, the contract is void and unenforceable. This would be true if one of the parties agreed to do an illegal act in return for the other party's promise. He could not be required to perform it; consequently he has given nothing. Doing something that one is already obliged by law to do is not a valid consideration ; for instance, a promise to pay a debt already owed would not be a good consideration for a new agreement. Love and affection for one's friends and relatives do not constitute a legal consideration for a contract. One does not love them more or less on account of the agreement. There is no change in the situation of the person which would make it necessary for the law to interfere to compel the other party to keep his promise. Notes: 1. Some consideration should alwavs be mentioned in the contract. 2. It is wiser to name the true consideration, as then there can be no misunderstanding if it becomes necessary to prove the contract in court. CHAPTER VII HOW CONTRACTS ARE MADE § 39. 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. The court may decide that the testimony as to what happened is so vague and contradictory that it cannot be enforced as a contract. The prudent business man will insist that all agreements be made in writing and properly signed, in order that there may be no question as to just what obligations he has assumed or what he may properly expect from the other party to the contract. Some contracts must be in writing or the courts will refuse to enforce them. (See §41.) Notes: 1. Avoid oral contracts. 2. Have all contracts written and signed by the parties thereto. §40. Written Contracts The written contract need not be a formal document. Two letters, one making a proposition and the other accepting 41 42 CONTRACTS it, constitute a contract just as much as a legal document duly signed and sealed and acknowledged 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, ZLihcn it is to be done, and in what manner; together with any arrangements 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 ofifer and a reply from the party accept- ing or rejecting it are usually the most satisfactory method of securing a written contract. Each party has his own records. Since they are accustomed to expressing themselves by letter, they understand what they have agreed to better than 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 agree- ment,' 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 Chapters LXXXI, LXXXII, Forms 2, 9.) Notes: I. Write all contracts. Never trust to an oral under- standing. § 41. The Statute of Frauds In order to do away with the uncertainty of relying on people's memories in contracts by word of mouth, a law was HOW CONTRACTS ARE MADE 43 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 most of the states of the Union. The Statute of Frauds requires that the contract shall be proved by some memorandum in writing. It is not necessary to make the memorandum at the time the contract is agreed upon. If any memorandum or letter containing the essential terms of the contract, i.e., the names of the parties, the con- sideration, and enough to show the nature of the agreement, and signed by the party to be held, is written at any time before the other party comes into court to enforce the con- tract, the requirements of the law are satisfied. Form of the Memorandum. The memorandum must be signed by the party against whom it is to be enforced, or he will not be liable under it. It need not be signed by the other party. Under the law as enacted in some states, this signature must be at the end; in others it is sufficient if it is put in any part of the memorandum with the intention of signing. This written memorandum need not be one paper ; it may be written on two or three sheets if all refer to each other plainly and together make a complete memorandum of the terms of the contract. At an auction or a 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. Contracts Which Must Be in Writing. 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. 44 CONTRACTS 3. A promise to be responsible for the debt, the default, or the miscarriage of another. This means a contract of suretyship or guaranty, which will be explained later. (See Part XIV, "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 XVII, "The Statute of Frauds.") Notes: I. The fact that an oral contract may be unenforceable ! because of the Statute of Frauds is another reason why all contracts should be in writing. HOW CONTRACTS ARE MADE 45 § 42. Contracts Under Seal The use of the seal is a survival from the time when very few people could read or write. The seal was used on the most important documents as we use a signature today. Because of the importance that was attached to it then, the seal is still used on documents of tlic greatest importance. Deeds and mortgages of land, and in some states wills, must be under seal. A power of attorney to deed land also requires a seal. A seal on any document, such as a deed or a contract, is regarded as showing that there was consideration for the deed or the agreement whether any is mentioned in the document itself or not. In this country, however, a person is usually allowed to prove that there was no consideration, even if there is a seal. A seal may in many states be merely a scroll. In others a little red wafer is used. In New York the letters L.S. (locus sigilli, the place of the seal) which were originally intended as instructions as to where the seal should be placed, are now regarded as a sufficient seal. A corporation generally verifies papers, particularly im- portant documents, with its corporate seal. Notes: I. Seals are generally required in connection with legal papers dealing with real estate, on bonds, and sometimes on wills. § 43. Implied Contracts If one person accepts the benefit 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. 46 CONTRACTS 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 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. Notes: I. It is always most satisfactory to have a distinct understanding as to prices for services rendered. Even lawyers, dentists, and plumbers sometimes have "kicks" coming about their valuation of their services. CHAPTER VIII EFFECT OF CONTRACTS §44. Illegal Contracts What constitutes an illegal contract has been explained in § 36. The point to make is that no contract which is against the law or against public policy can be enforced. If the parties come into court, both are equally chargeable with knowledge of the law and therefore with guilt in breaking it; and the court will refuse to help either or to interfere at all. If one of them has been defrauded out of his property by inability to enforce the contract, that constitutes his punishment for en- tering into such a contract. Such a party cannot get his property back nor can he enforce the contract. There is a legal maxim to the effect that "ignorance of the law excuses no one." This seems harsh, but it is rigidly en- forced. Therefore, if there is any doubt about the legality of a contract, the parties should assure themselves that it is in accordance with the law. Ignorance or good intentions will not excuse a man if he makes an illegal contract. (See also fraudulent contracts, § 46. ) § 45. Effect of Mistakes There are two kinds of mistakes possible in making a contract : 1. A mistake as to whom one is dealing with, \\'hat the agreement is about, or what is to be done under the contract. 2. A mistake as to the quality or the value of the subject the contract deals with or its legal efifect. 47 48 CONTRACTS A mistake under the first heading will mean that there is no contract. A party cannot be forced to observe a contract 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 meeting of their minds and no contract. If, however, there was no mistake as to what the contract was about or what was to be done, the fact that either or both of the parties believed that the subject of the contract was more or less valuable than it actually was will not make any difference in enforcing it. An agreement has been made and they will be held to it even if it means loss to one of them. Neither will it make any difference if either or both of the parties did not realize that he would 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 failed to find out about it in the first place. If a person knows that the instrument he is signing is a contract, and fails to read it, he will be bound by it even though it is a contract to do something entirely different from what he intended. No one should ever sign contracts without read- ing them. In case, however, through the fault of some clerk in writing the contract an error of some sort gets into the written document so that it misrepresents the actual agreement between the parties, the court will order it rewritten to ex- press what they really agreed upon. That is, a clerical error will be corrected. Notes: I. The terms of a contract should be written down clearly and in simple language. Both parties should then read them over, and any questions that arise should be cleared up before signing. Much trouble EFFECT OF CONTRACTS 49 and litigation would be saved if this course were followed in all cases. § 46. Effect of Fraud If there is any fraud in inducing a party to enter into a contract, he may refuse to perform his share of the agreement. If the contract is already carried out, he may recover his property or its value. If he wants to annul the contract, how- ever, he must return anything he has received under it unless it 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. What Coiistihites Fraud. If any false representation is made by a person who knows it to be false or has no positive belief or adequate knowledge in regard to the matter, intending to induce action and to create a false impression in the other party's mind, or to prevent him from investigating to find out the truth about the transaction, it amounts to a fraud. Mis- statements about unimportant matters, or mere expressions of opinion in recommending an article for sale, do not affect the contract. The buyer must be on his guard against overstate- ments of opinion by the seller as to the virtues of the article he is selling. Overstatements are to be expected everywhere. When a party relies on the opinion of an expert, however, or when he seeks advice from a person in whom he has a right to repose confidence, such as a father, a guardian, or an attorney, it is a different matter. Then an expression of opinion without sound grounds would amount to fraud. If the reading of a contract be dispensed with as the result of fraud, the injured party may refuse to live up to the terms of the contract, or he may claim damages for the injury sus- tained. This rule holds good also whenever the legal effect of the contract has been misrepresented or when a fraudulent value is placed on that which is being bought or sold. 50 COiXTRACTS The injured party must act promptly as soon as he dis- covers the fraud. By delay he may lose his rights, since he will be considered to be content with the terms of the contract. Taking advantage of another person's mistake is fraud. In Shelton v. Ellis, Shelton & Co. learned of a mistake in the rate sheet of the Western and Atlantic Railroad Company by which the fare from Atlanta, Ga., to Rogers, Ark., was c|uoted as $21.25 when it should have been $36.70. They in- duced Garland, a traveling salesman, to buy a large number of tickets for them before the railroad company discovered the mistake. The court held that the tickets must be returned.^ If any part of the representations which induced the other party to enter into the contract was fraudulent and had any effect in inducing him to agree to it, the fact that most of the representations were honest will not make the contract good. But if the fraudulent representations referred to matters of no consequence and were not material to the contract they will not affect it. Also, if the other party relied on his own judgment in the matter, rather than upon what was told him, the fraudu- lent misrepresentations will make no difference. PVhat Fraud Will Nullify a Contract. Fraud in any of the negotiations leading up to a contract will nullify it. If fraud has prevented the party from making an independent investi- gation, or if it has led him astray in regard to the facts, it will make the contract void. Fraud not connected with the im- mediate contract but with previous negotiations will not affect the present contract. Specious Schemes. Ordinary people of the salaried and the professional classes lose money running up into millions 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- ' 70 Ga. 297. EFFECT OF CONTRACTS 51 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: (i) the character and the experience of the management, (2) the amount of capital they will have to work with, and (3) the subject matter of the business. On these essential points there is rarely any positive information in prospectuses of this sort. Notes: I. Consult your own lawyer or banker before investing money. § 47. Duress A party must consent to a contract of his own free will. That is the essential element of an agreement. Conse(|uently, 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 member of his family, or of an injury to his property, and must have been made under such circumstances that a man 52 CONTRACTS 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. § 48. Undue Influence Undue influence is when one party takes advantage of another through near relationship, 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 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 tlie 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. Notes: I. No contract is of any value unless it is made by the free and unbiased will of both parties. EFFECT OF CONTRACTS 53 § 49. Law as to Alteration Any alteration in a written contract by one of the parties without the consent of the other, makes the contract of no effect as against the other. The parties to a contract may alter it if they can agree on the changes to be made. If it is a written contract, one of the parties may make the alterations in the contract itself with the consent of all the other parties, or the parties may make a new written contract. If parties attempt to modify a written con- tract by an oral agreement there must be a new consideration for it distinct from that of the original contract, so that in effect a new and oral contract has been made. A New Agreement. If the same parties make a new agree- ment about the same subject which is entirely inconsistent with the old agreement, the old agreement will be regarded as set aside by the new. If, however, there is any part of it which is not inconsistent with the new, that part still remains enforce- able. (See also § 54.) If one of the parties to a contract makes alterations in it without the consent of the other parties to it, this amounts to fraud, and the contract becomes unenforceable by the guilty party. If a person, not a party to the contract, and not acting for any of the parties to it, should make altera- tions in it, they would be treated as though they did not exist. The nature of the original contract could be proved by the testimony of the parties, and the contract would be enforced as it stood before the alterations were made. Filling in a Contract. If the contract is not complete, how- ever, but blank spaces have been left for any of the terms to be filled in later, any party to it to whom it is entrusted 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 54 CONTRACTS 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 uf under that heading. (See § 159.) Notes: 1. The best way to change an existing contract is to make a new written agreement signed by all the parties. 2. A new contract may be made by letters if they point out clearly what the new agreement is. 3. It is not safe to leave any written instrument with unfilled blanks. § 50. 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 interpreted 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, r)r 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. EFFECT OF CONTRACTS 55 If a contract refers to any other papers or documents, these will be reati in connection with it. Rules to . Isccrfaiii Meaning of Contracts. There are certain general rules which the court will always follow to get at the meaniiii,' c>f 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 in- tention 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 mention 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. In order 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 doubtful 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 rmderstood by the agreement. Notes: I. A contract should always be stated in the simplest and most intelligible language possible, and the parties should go over it carefully to make sure that all of the terms are clear. 56 CONTRACTS 2. If it be desired to make it with reference to some particular business custom, it would be well to mention that custom so that there can be no doubt that both of the parties understood that it was to be part of the contract. CHAPTER IX ASSIGNMENT AND NOVATION § 51. Assignment of Contracts A contract which calls for personal services cannot be assigned by either of the parties to it. No one can be com- pelled to work for a person unless he agrees to it; and no one can be compelled to have another working for him whom he did not choose, and these conditions would result if such contracts could be assigned. A contract which depends on the skill, ability, or trust- worthiness of one of the parties to it cannot be assigned by that party, but may be assigned by the other party. For example, a contract to write a poem cannot be assigned by the poet, but may be assigned by the publisher. Any other contract may be assigned by either of the parties to it unless there is something said in the contract to forbid it. A party may assign a contract by simply hand- ing the written contract over to the party to whom he assigns it, or by informing the other party to the contract by word of mouth that he has given up all his rights under it to the person to whom he wishes to assign it. Forjn of Assignment. The proper way to assign a con- tract is in writing, usually on the back of the contract, if it is in writing, or if it is an oral contract, by a written assignment. In the case of contracts under the Statute of Frauds, the law requires the assignment to be in writing. No particular form of words is necessary if the intention to transfer all the rights in the contract is plain. (See Chapter LXXXI, Forms 6 and 7-) 57 58 CONTRACTS Liabilities of the Assignee. A person to whom a contract is assigned by one of the parties becomes liable to perform all the duties of the party who assigns the contract. He re- ceives only such rights as the original party enjoyed under the contract. If the contract was obtained by fraud, duress, or undue influence, or the other party to it was not competent to make a contract, such other party may refuse to perform it just as much as though the assignee were one of the original parties. If the party who assigned the contract owed the other party anything which could have been offset against the con- tract, the other party may offset that amount against the person to whom the contract has been assigned. Rights of Assignee. If a party should assign all his rights under a contract to one person and afterwards assign them to another, the second person would get no rights under the contract. If the party assigned only part of his rights to the first persr.n, the second person might enforce such rights as remained. The second person would be entitled to sue for damages the party who claimed to assign the contract to him. Subject to the rights of the other party, the person to whom a contract has been assigned may bring a suit to enforce it in all cases where the party who assigned it to him would be entitled to do so. In some states, if he sues in a court of law, he must bring his suit in the name of the person who assigned the contract to him. He may sue in a court of equity in his own name. In a case where there have been several assignments, the suit must be brought in the name of the party who gave the first assignment. A person to whom a contract has been assigned should notify the other party to the contract at .jnce that the con- tract has been assigned to him. If there has been an assign- ment to any other parties, the one who is the first to give this ASSIGNMENT AND NOVATION 59 notice will be entitled to have his rights enforced first. Then, too, it prevents the other party from paying out anything to the person who has assigned the contract. If he should pay it to him in ignorance of the assignment, the party to whom the contract has been assigned could not compel him to pay again to himself. Xotes: 1. All contracts which do not involve the personal element may be assigned unless prohibited by the law or by public policy. 2. Any form of assignment which cuts off all control of the assignor over the contract will be sufficient. 3. The assignee takes all the rights which the original party had in the contract, and the contract is subject to all the defenses which have arisen prior to its assignment. 4. The assignee should always give the other party prompt notice that the contract has been assigned to him. § 52. 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 paying for it, tells Samuel Brown, who owes him money, to pay the money to Henry Jones, and Henry Jones agrees to take Samuel Brown as his debtor for the amount, this is a nova- tion. Samuel Brown has been substituted for John Smith in the contract, which can now be enforced against him, Samuel Brown. Agreement of Parties. In order to constitute a good novation, all the parties must agree to the arrangement. Henry Jones must discharge John Smith from his agreement 6o CONTRACTS to pay for the horse, and take Samuel Brown's agreement in place of it; John Smith must agree to discharge Samuel Brown from his debt to him in consideration of his payment to Henry Jones for the horse. If any of these considerations are lacking, the novation will not be enforceable. The dis- charge of Samuel Brown's indebtedness to John Smith is the consideration 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. In Ford v. Adams,^ Jacob Schyer owed Ford some money. He gave a written order to Adams, who owed him, Schyer, to deliver 40 cords of wood to Ford. Ford accepted the substitution. Adams did not deliver the wood, and Ford sued him for it. The court said that there was not a good novation, because it was not shown that Schyer had released Adam's debt to him, and without that there would be no consideration to Adams for his promise. Notes: 1. To constitute a good novation, the other party to the contract must accept the substitution and re- lease the party making it from his obligation to him. 2. The party making the novation on his part must release the new party from all his claims. 3. All of the parties must accept the new arrange- ment. '2 Barb. (N. V.) 349. CHAPTER X DISCHARGE OF CONTRACTS § 53. Discharge by Performance The usual way to discharge 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. 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 otlicr party for any loss he has sustained. This is specially true of building contracts, where even in an action at law substantial per- formance will be sufficient. Substantial Performance in Building Contracts. If the variations in performance of an agreement were intentional, they would amount to breach of the contract. Where they were not intentional, the other party is entitled to deduct from the price the value of any such omissions as there may have been, and to have them repaired himself if he desires. This rule applies especially to building contracts. In Heckman v. Pinkney, Heckman had a contract to do the carpenter work on a house that was being built for Pink- ney. He failed to make cornices and to put centerpieces in some of the rooms according to the agreement; and the material for deadening the floors did not have hair in it, as had been stipulated. The court said that the variations were 61 62 CONTRACTS not intentional or material, and that the contract had been substantially performed. ' Where time is of the essence of the contract, the per- formance must be within that time ; a performance after the time set in the contract is not a performance. Although everything recjuired 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. At the same time, he must be honest about his dissatisfaction and not pretend to be dissatisfied when he is not really so. Sometimes there is an agreement that the judgment of a third person shall h^ the test as to whether the contract is performed or not. In such case, the contracting parties must abide by his judgment, unless he is mistaken or fraud is shown. Notes: 1. Performance must be substantially in accordance with the terms of the contract. 2. Where time is material to the contract, the per- formance must be within the time set. 3. \A'hcre the parties agree that the performance must be to the satisfaction of one of them, or to the satisfaction of a third party, the honest judgment of that party is the test of whether or not the contract has been performed. § 54. Discharge by Agreement An agreement between the parties to rescind a contract, or a later agreement between the same parties with regard til the same subject matter, the provisions of which later agreement are inconsistent with the contract, will discharge the original contract. igi N. Y. -ni. DISCHARGE OF CONTRACTS 63 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. There is only one case in which the parties may not agree to cancel a contract, and that is when it was made for the benefit of a third person and the third person has notified them that he accepts it. At any time before he accepts they may declare the contract void. For instance, a farmer might come into town and tell a storekeeper to send away and get a suit of overalls for his hired man and he would pay for them. He informs the hired man of what he has done and the hired man tells the storekeeper that he will call for the overalls when they are expected. At any time before the hired man told either the farmer or the storekeeper that he would take the overalls, they might have cancelled the contract, but not afterwards. 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 dis- charged to that extent. For instance, in an agreement of novation (see § 52), by accepting the substituted party, the other party discharges 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. Notes: I. The parties may agree together to rescind a con- tract, except that where it was made for the benefit 64 CONTRACTS of a third party, they may not rescind it after he has given notice of acceptance. 2. A later agreement, between the same parties and with regard to the same subject matter, whose terms are wholly or partly inconsistent with a prior agreement, revokes that agreement so far as it is inconsistent with it. 3. An oral agreement is superseded and discharged by a later written agreement, and a contract in writing is superseded by a sealed instrument. § 55. Discharge by Various Other Causes Operation of Lazv. A contract may be discharged by the operation of law. When a contract is discharged by the making of a new written or sealed contract, as has already been explained (§ 54), it is discharged by the operation of the law which declares that a written instrument is of greater value than an oral agreement, a sealed instrument than a written contract. When a person goes into bankruptcy, the law discharges all of his contracts with a few exceptions. Impossibility of Performance. There are some cases in which impossibility of performance discharges a contract. If it were for some particular article which could not be replaced and the article were destroyed, or if it were a contract for personal services and the person became ill or died, the con- tract would be considered discharged, and there would be no liability for damages. The parties are considered to have realized that if such a thing were to happen the contract could not be performed, and to have made the contract on the under- standing that it would be carried out only in case the article were in existence or the person were able to perform at the time. If the other party to a contract by his acts made per- formance impossible, it would discharge the other party from all obligation. (See Chapter XIII.) DISCHARGE OF CONTRACTS 65 Act of God. Where the pcrfdrmance becomes impossible by what is known as an "act of God," that is, a tornado, a hurricane, a flood, a tremendous conflagration, or some other accident or disaster amounting to a pubhc calamity, the con- tract is discharged. Ordinarily a person takes the risk of the contract being impossible to perform if he does not make some provision for it in the agreement, and impossibility of performance is no excuse. In the case mentioned in § 36, where the subject matter was destroyed at the time the contract was made, if one of the parties knew of it, he will be held liable for a breach of the contract, notwithstanding that it is impossible for him to perform it. In the case of a contract where one of the parties promises to do one of two things, if one of those things was impossible at the time the contract was made, he must perform the other. In Case of War. When two countries go to war, all possibility of friendly relationship 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. Effect of Strikes. A contract may provide in itself that it is to be discharged on the happening of certain conditions. It is very common to provide against strikes, etc., in this way. The provision, however, must be in the body of the contract to be good. A notice at the top of the firm letterhead that all sales were to be subject to strikes or accidents would not form part of a contract afterward written on the letterhead. Lapse of Time. Any contract is supposed to be performed within a reasonable time. Even if no time for performance be given in the contract, it will nevertheless be discharged if 66 CONTRACTS a long period of time goes by without anything being done on it by either party. Offer to Perform. If due performance is offered by one party and is not accepted by the other, the first party is dis- charged. Notes: Contracts may be discharged: 1. By the operation of conditions agreed to by the parties. 2. By merger or alteration of a written instrument, or by the discharge of the party in bankruptcy. 3. By lapse of time if delay is unreasonable. 4. By an offer to perform, if it was refused by the other party. 5. By impossibility of performance, where the im- possibility is caused In^ the act of the other party; by operation of law, including a declara- tion of war; or by the destruction of the subject matter where the contract concerned a par- ticular article or was for personal services ; but not otherwise. 6. In making contracts to handle orders, to carrv on construction work, etc., involving large amounts, where there is a possibility of strikes and various labor disputes preventing the finish- ing of the work at all, or at least within the time limited by the contract, parties should always provide against such delays. It is usually safe to have a fire clause, and to pro- vide against destruction by floods, torna- does, etc. CHAPTER XI ENFORCEMENT OF CONTRACTS § 56. Breach of Contract The obligation of a contract is an obligation created and determined by the will of the parties. Herein is the charac- teristic difference of contract from all other branches of law. The business of the law, therefore, is to give effect so far as possible to the intention of the parties, and all the rules of interpreting contracts go back to this fundamental principle and are controlled by it."- 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. Denying that there is such a contract. 4. Making it impossible for himself to perform the contract. Failure to Perform. If a party breaks a contract by fail- ing to perform it, the other party must have done all that can be required from him under the contract before he is entitled to bring suit. If his part of the contract was to pay after the other party had performed it, he need not pay until such performance. If a 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 'Encyc. Brit., nth Ed., Vol. VII, page 38. 67 68 CONTRACTS 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. 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 value 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. 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 it, 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. A party is always allowed until the last minute of the time set to perform, and the day on which the contract was dated or the demand made will not be counted as a part of that time; for instance, if the contract was dated or the demand made on July i, giving him 30 days in which to per- form the contract, the time will not be considered to have expired until midnight of July 31. Refusal to Perforin. If a party refuses to perform the conditions of the contract when the time comes for per- formance, he also relieves the other party from further obliga- tion and gives him an immediate right to sue for damages. ENFORCEMENT OF CONTRACTS 69 If a party refuses to carry out a contract before the time for its performance has arrived, in some states the other party has a right to regard this as final, but in the other states he must wait until the time for performance has passed before he is entitled to bring suit. When a party notifies the other party that he does not intend to perform his part of the agreement and tells him to stop work on it, the latter, if he accepts the notice, should stop work immediately. He may, if he prefers, however, ignore the notice and treat the contract as still existing by continuing to perform his part, and in that case he is entitled to whatever is due at the end of the time for performance. If he does not accept the notice, he is bound to perform his part. Denial of Contract. If a party denies that there is a con- tract, or makes it impossible for himself to perform it by disposing of its subject matter in some way, the other party is immediately relieved from all obligations and has the right to sue at once for the damages he has sustained. Notes: 1. Refusal to perform a contract is a breach of the contract. 2. Making it impossible for one's self to perform a con- tract is a breach of the contract. 3. In either of the cases cited above, the other party may abandon the contract and sue at once for damages. 4. Failure to perform one part of a divisible contract is not a breach of the entire contract, and does not excuse the other party from performance of the rest. 5. In case of a breach by failure to perform, the other party must show that he has performed his part, •JO CONTRACTS or was ready and willing to do so, before he can claim damages. 6. Where a contract has been partly performed by one party, the other party must carry out his part of it, unless the first party has refused to perform further, or the circumstances are such that he would not be able to perform the rest of it. 7. The party who broke the contract must be paid the reasonable worth of what he has done on it, unless his breach of it was wilful or the contract pro- vided that he should have nothing unless he per- formed the whole. § 57. Remedies for Breach of Contract The party who is injured by a broken contract may sue for damages, or he may abandon the contract and sue for the value of his services or of the goods furnished. 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. Action for Breach of Contract. If an action for breach of contract is to be brought at all, it is l^cst to do it as soon as possible after the contract has been broken, as the court may consider that a person has voluntarily surrendered his right if he waits too long, or possibly something may happen that will excuse the other party from performance. But there is one class of contracts in regard to which a great deal of care must be taken when bringing suit; these are contracts where there are several parts entirely separate from and having no connection with each other. If it is perfectly clear that they are separate, a party would have a right to sue for a breach of one of the parts at once without affecting his ENFORCEMENT OF CONTRACTS 71 rights under the rest of the contract. For instance, a breach of warranty in a contract would give a right to damages for that warranty without in any way affecting- the rest of the contract. W here 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 ; and where a contract has been partly performed by one of the parties and the other party has received any benefit from what has been done, he must pay for it unless the breach was wilful and intentional. There are some exceptional cases in which an action for damages would not be an adequate remedy for the injured party, and in such a case a court of equity will compel the first party to perform the contract. (See § 61.) In Marsh v. Blackman, Mrs. Marsh agreed with the two sons of Judge Blackman to take care of their father until his death for $2 a week. They later notified her that they refused to perform the contract. The court said that it would be impossible to compute the damages with any certainty as their amount would depend on the len.t^lh of Judge Black- man's life, and that it would therefore compel the two sons to carry out their agreement. ^ Instalment Contracts. But in contracts, for instance, which are to be performed by instalments, such as a contract to deliver 1,000 barrels of oil at the rate of 100 barrels a month until the contract is completed, it is not perfectly clear whether a failure to deliver one lot of 100 barrels would be a breach of the whole contract or not. The courts in the various states hold different views on this question. If a party brought an action for damages at once, he might find himself cut off from any further damages in case of the other 2 50 Barb. (N. Y.) 329. (This is an old case, before the high cost of living became noticeable.) •J2 CONTRACTS party's failing to deliver the rest of the oil; or if he treated the contract as broken he might find himself the one guilty of breaking it. The only safe thing to do in these cases is to consult a local lawyer. A contract which is to be performed to the satisfaction of a party thereto or of a third person, such as an architect or an engineer, must meet with the party's satisfaction, but, as a general rule, the court will hold him to what it considers reasonable. Breach by Failure to Perform. A breach by failure to perform does not usually take place until the time for per- formance has passed. However, in contracts where goods are to be paid for in instalments, or rent is to be paid by the month, if the contract is an entire and not a divisible con- tract, failure to deliver one instalment or to pay one month's rent will be a breach of the entire contract. Where the con- tract is a divisible one, failure as to a separable portion is a breach of that part of the contract, and the party may sue on that while the rest of the contract is being performed. Breach by Refusal or Denial. Where the party positively refuses to perform, or denies the existence of the contract, an action may be brought at once for a breach of the contract. The other party does not need to do anything further on the contract himself, and, if he does do anything further, cannot recover anything for the extra work. There must be, how- ever, a positive refusal to perform under any conditions. Time to Bring Suit. The party has always a right to ignore an intermediate breach and to wait until the time for final performance arrives before bringing suit; but if he does this he takes the risk that some other happening may dis- charge the contract before that time. If, on the other hand, he waits until the time for performance, he is entitled to all the damages which he has sustained up to that time. In any case professional advice should be secured and followed. ENFORCEMENT OF CONTRACTS 73 It mvist be borne in mind that if the breach was of one provision of a divisible contract, the party must show that he performed whatever was due from him under that provision before he can claim damages for its violation. Notes: 1. Wliere there is a contract for the delivery of goods or the performance of work by instalments, and there is a failure to perform one of the parts of the contract as agreed upon, a party ought to consult a lawyer as to his rights before making any statements to the other party about it. 2. It is always a matter for serious consideration whether a breach of contract justifies a remedy so costly and uncertain as a suit at law. (See Chapter IV, "Law and Equity.") § 58. Law Governing Remedy It has already been explained (§ 36) that a contract is interpreted in reference to the law of the place where it was made, unless the parties state that they intend it to be governed by some other law; but if they specify some other law merely to evade the law of the place where the contract was made, the local law will govern despite their provision. In bringing an action on a contract, the method of bring- ing it, the right to bring it, and the defenses that may be made to it, are all governed by the law of the place where it is brought, and defenses which may be made in some states cannot be used in others. The Statute of Limitations (§59) differs in the dififerent states, so that a contract on which an action may not be brought in one state may be sued on in another if the party to be sued is subject to its jurisdiction. Notes: I. The place to bring suit is a matter regarding which it is necessary to seek legal advice. 74 CONTRACTS § 59. 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. Sometimes the Statute of Limitations provides that, after the time specified, the party shall have no further right of action. This means that the cause of action is dead altogether, and thus cannot be enforced anywhere. If the law of the state where the contract was made has such a statute, the contract cannot be sued on anywhere after that time has passed, because the statute is said to "go to the right of suit" ; that is, it ceases to exist. Usually, however, the Statute of Limitations merely "goes to the remedy"; that is, the cause of action remains, but the law does not allow the courts to enforce it after a certain time, and, if suit is brought after that time, the other party may plead that the law has barred the right to bring suit. If, however, the other party does not plead the Statute of Limitations in such a case, the action may be brought, because it was passed only to protect him from the bringing of a suit at a time when he might not be able to get the evidence for his side, and if he is willing to fight the case on its merits he can do so. Where the Statute of Limitations in the state where the contract was made affects only the remedy, it does not affect the contract; and the question as to whether the action may or may not be brought depends on the law of the state in ENFORCEMENT OF CONTRACTS 75 which it is desired to sue. Therefore, a contract on which an action could not be brought in the state where it was made might be sued on and enforced in some other state where a longer time was allowed by the Statute of Limitations for the bringing of the action, provided the other party lived there. Notes: I. It is right and just that if a party sleeps on his rights he should lose his cause of action, and that men should not have to fight stale claims. CHAPTER XII ACTIONS ON CONTRACTS— GENERAL RULES § 60. Introductory Besides the particular provisions of the law of the state where the action is brought, there are certain general rules which apply to actions anywhere. Assigned Contracts. Where a contract, or a cause of action arising out of a contract, has been assigned, the party to whom it has been assigned must bring the action in the name of the party to the contract from whom he received it, unless there is a law allowing, him to sue in his own name. This is the rule of the common law, but now in most states the party who has the actual interest in the contract is allowed to sue in his own name. Joint Contracts. Where there is a joint contract, all the parties to it must be brought into the action; that is, if other parties are jointly interested with the party suing, he must join them with himself as plaintiffs. If, however, they refuse to join as plaintiffs, the law in many cases provides that they may be joined as defendants, in which case the partv so join- ing them must explain that they refused to be joined as plain- tiffs and mention the statute by which he is allowed to join them as defendants. If several parties are jointly obligated to the plaintifif by the same contract, when he sues he must include them all as defendants. If any of the parties to the contract are left out of the suit, they are released from all obligations under it, unless they agreed in the contract to be liable individually for the whole contract apart from all the others. 76 ACTIONS ON CONTRACTS n -Issiiiuf'tion of Legality. The law always assumes that a contract is legal and proper; therefore the person who asserts that it was illegal, or the result of fraud, undue influence, duress, etc., must prove the fraud or other allegation. Notes: 1. The law of the place where the contract is made governs its interpretation. 2. The law of the place where suit is brought governs the right to bring action on it, and the defenses which may be made. 3. Where the Statute of Limitations of the place where the contract was made takes away the right of action, no action may afterwards be brought on the contract in any state. 4. The assignee of a contract must sue in the name of the party to the contract from whom he received his interest, except where the law provides that he may sue in his own name. 5. In suing on a joint contract, all the parties must be joined, either as plaintififs or as defendants. § 61. Specific Performance There are some cases where damages do not repay the party for what he lost on the contract, as, for instance, if the contract was to buy some valuable work of art which he could not duplicate elsewhere. In contracts 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 im- possible to compute the damages, or where the property pur- chased is a work of art, an heirloom, or something else which cannot be duplicated or easily purchased elsewhere, so that damages do not compensate him for his loss, the court will compel the other party to perform the contract. This is 78 CONTRACTS known as "specific performance," and is granted by what is termed a court of equity. Land, with everything relating to it, is always regarded as having a peculiar value; so that 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 in order to escape imprisonment would be worth much. If, however, the other party has disposed of the property or otherwise put it out of his power to per- form the contract after the suit in equity has been begun, the court of equity, contrary to its usual custom, will award damages. Requirements of Courts of Equity. The party who brings a suit in equity must show that he has not been careless or negligent regarding his rights, but has insisted on them and promptly taken action to protect them. This carelessness and negligence are known in legal terms as "laches," and, unless there is some excuse for them, will prevent the delinquent party from recovering in a suit. The party who brings such a suit must also be able to show that he has been in all respects just and fair himself, and he cannot ask the court to enforce any contract which is in the slightest degree unfair to the other party. He must show, too, that he has done everything in his power to fulfil the contract on his own part, and, if the other party has pre- vented him from performing it, he must show the court that he was and is able and willing to do all that was required on his part. A court of equity will not enforce an illegal contract, or one that has been obtained by duress, fraud, or undue ACTIONS ON CONTRACTS 79 influence. Nor will it enforce a contract that is unconscion- able, or where an unfair advantage has been taken of another party's ignorance or inexperience. (See Chapter IV, "Law and Equity.") Notes: 1. A court of equity does not enforce a contract which is illegal or improper. 2. Specific performance is granted only where damages would not compensate the party for his loss. 3. Courts of equity will see justice done as nearly as possible, and therefore, the party who seeks their aid must be prepared to do justice himself. § 62. 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 to take up the time of the court unnecessarily; others for the sake of being fair to both parties. Some of the rules of evidence 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, and 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 8o CONTRACTS 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. (See §§ 39, 40.) The Parol Evidence Rule. The meaning of this rule is that other evidence will not be admitted to vary the terms of a written contract, because the contract itself is the best cA-idence of what its terms are. Oral evidence may ahva}-s be introduced to support the contract. Necessarily, the per- fdrmance of the contract, or a breach of it, will have to be shown Ijy oral testimony. The same is true of abandonment of the contract; and anything which would show adequate motive may be introduced as tending to support the proof of the abandonment. There are exceptions to the parol evidence rule. Where 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, iiowe\'er, may prove anything which the other party said ACTIONS ON CONTRACTS 8l against his own interest, and must also show any other state- ments made in connection with the admission which might have Hmited its effect. 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 admissions which the agent made after the execution of the contract. Transactions With a Deceased Party. In order to protect 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 \'ery important to remember, because, in the case of an oral contract where no witnesses were present, the party who is still living might not be able to prove the contract at all; and this is another reason why all contracts should be reduced to writing. Notes: 1. The burden of proof is on the party who asserts anything. 2. Any evidence in order to be introduced must have some direct bearing on the contract itself, or on the transactions connected with its making and discharge. 3. Parol evidence cannot be introduced to vary the terms of a written contract except in case of fraud, duress, undue influence, or illegality; or where the contract is not complete in itself or its terms cannot be understood without reference to out- side circumstances. 82 CONTRACTS 4. A party cannot use his own words and acts as evidence in his favor; but his admissions against his own interest may be used against him. 5. A party may not testify to his transactions with a deceased person where no other witnesses were present. CHAPTER XIII TENDER OF PAYMENT OR PERFORMANCE § 63. Definition When a person is prevented by the other party to the con- tract 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 other party is not there to receive the goods. § 64. 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 performance has arrived does not meet 83 84 CONTRACTS the requirements for a tender and will not save the rights of the party making it. If the contract specifies "on or ahout" a certain clay, or "within" a certain time, a tender made a few days before the day set would be good. If a party cannot make the tender before sunset Ijecause 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 off 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 certainty that the attempt would be useless will excuse him. § 65. Extent and Kind of Tender The exact amount of goods or money called for by the contract, including any interest due, and, if the other party has begun an action or suffered 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 n(.)t be offered. Five-cent pieces are a legal tender up to $5 and not over, while silver coins less than one dollar 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 offer more than enough, as too little will not make a good tender. If the contract called for services, the tender will consist of TENDER OF PAYMENT OR PERFORMANCE 85 notifying the other party that the party is ready and wilHng to perform the services at all times. A tender must be made unconditionally. The party must simply offer what is due without calling for anything in return, not even a receipt or change, or it is not a good tender. § 66. 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 partv 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 separate account and not drawn upon. CHAPTER XIV JOINT AND SEVERAL CONTRACTS § 67. Contracts Made by More Than Two Parties Very frequently we find contracts to which there are more than two parties ; and these may be of two kinds, namely, what is known as a joint contract, in which all the parties on one side agree to be liable together for what is promised in the contract, each one doing a proportionate part of it ; or a several contract, where each of the parties agrees to be separately liable for the whole contract. In some cases parties agree to be both jointly and separately liable, and then the person with whom the agreement was made has his choice of holding all of them liable together or each one liable separately. Where the contract itself does not expressly state whether the parties are to be liable separately or all together for the whole contract, the court decides the nature of the contract from the probabilities of the case. For instance, the ordinary subscription agreement is a several, not a joint, contract, and no one would imagine that each party who signed expected to be held liable for the whole amount to be raised. Where, instead of being an agreement by several parties to do something, the agreement was to do something for the benefit of several parties, the test as to whether it is a joint or a several contract is whether the agreement had to be per- formed for all of them together, or whether it could be per- formed for each one separately. If it was a contract made to a firm or a corporation, the corporation would be regarded as one person, but all the members of the firm would have to join in any suit on such a contract. 86 JOINT AND SEVERAL CONTRACTS 87 If, on the contrary, it was an agreement to perform services for several persons as individuals, it usually amounts to a separate agreement with each of the individuals, and each of them might bring suit to enforce the agreement with the first party without paying any attention to the other persons. Where there is more than one person on either or on both sides of a contract, it should be stated in the contract whether their obligation is joint or several, or whether the obligation to them is jointly or severally. To do so will save much trouble in enforcing the contract, as, if a person brings suit on a joint contract against one person only, he releases all the rest of them from their obligations; while if it were a several contract he may bring suits against one after the other until he has managed to collect the entire amount due him. Notes: 1. Where it was clearly not the intention of the parties to be liable for each other, the contract is several. 2. Where their interest is identical and in the whole contract, it is joint. 3. Where they intend to be both jointly and severally liable on the whole contract, the contract is joint and several. 4. A joint contract must be enforced by or against all of the parties to it. 5. A party to whom others are jointly and severally liable may sue all of them together, or he may sue one at a time. Part 1 1 1- Sales CHAPTER XV CONTRACTS TO SELL' § 68. Definitions A sale is a completed transaction. The ownership of the goods has passed from the seller to the buyer, even though the seller may still hold the goods in his possession and the price may not yet have been paid. A contract to sell means that the ownership of the goods is to be transferred at some time in the future. The definitions given in the Uniform Sales Act are as follows : 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 whereliv the seller agrees to transfer the property in goods to the buyer for a consideration, called the price. The distinction between a contract to sell and sale is this: in a contract to sell the goods are not delivered and title does not pass; while in a sale delivery is made or the title passes. The Statute of Frauds applies only to contracts to sell. ( See .^ 86.) § 69. Uniform Sales Act On account of the confusion of the law in regard to com- * For forms of sales contracts, see Chapter LXXXII, Forms 8-15. 89 90 SALES mercial transactions, commissions have been appointed by the various states to unite in working out uniform laws governing such transactions. Largely as a result of the activities of these commissions, two laws have been passed by many states : ( i ) The Uniform Negotiable Instruments Law has been adopted in 43 out of the 48 states of the Union. (2) The Uniform Sales Act has been adopted in the following states: Arizona New Jersey Connecticut New York Illinois Ohio Maryland Pennsylvania Massachusetts Rhode Island Michigan Wisconsin Nevada and the Territory of Alaska. The object of these acts is not to change, but to combine, the best features of the existing laws of the different states. There is, however, one change from general practice in the Uniform Sales Act — an attempt to make bills of lading negotiable instruments. The various states sometimes adopt these acts with slight modifications, but for all practical pur- poses the law is vmiform. § 70. What Is Necessary to the Contract of Sale A contract of sale (or contract to sell) must have the same elements as any other contract. In other words, there must be: 1. Parties who are competent to contract. 2. An agreement between those parties. 3. Consideration for the agreement. 4. The contract must be legal. These elements have all been explained at length in the preceding chapters relating to contracts in general. (See Part CONTRACTS TO SELL gi II.) A few peculiarities which concern sales alone will be taken up in the following sections. Notes: I. A sale is completed when the goods are transferred, but, if the buyer was not competent to make a con- tract, or the contract was illegal, the seller could not collect the price. § 71. The Agreement This has been fully explained under contracts (§37). In the sale and in the contract to sell, there must be the proposal of terms on the one hand, and the acceptance of those terms on the other. Notes: 1. To make a legal sale, there must be an agreement of the parties zfhich can he proved. 2. A written contract signed by both parties is the best evidence of such an agreement. 3. A letter making an offer, which is accepted by an- other letter, is the simplest form of written con- tract. § 72. Sales to Persons Incompetent to Contract The rules which have been laid down under the subject of contracts (§35) with regard to the contracts of certain per- sons who are by law made incompetent to contract or given only a qualified power to contract, apply also to the contract of sale. The exception to the rules laid down, is an actual sale of (not a contract to sell) necessaries. A person who sells necessaries to a person who is not competent to make a con- tract may recover a reasonable price (not necessarily what he asked) for them. The Uniform Sales Act says that the goods must be necessary at the time they are delivered. 92 SALES If a merchant furnishes necessaries to a married woman ''ir an infant, he may charge them ( i ) to the woman or the infant, or (2) he may charge them to the father or the husband. He cannot charge them to both. He must make his choice and afterward bring suit against the party charged. In this country necessaries include only food, clothing, and shelter of a grade suited to the means of the person to whom they are furnished ; and in this connection it is well to bear in mind that such things as riding horses and automobiles are not necessaries. Notes: I. In supplying necessaries to a minor or married woman the merchant should inquire ( i ) whether the incompetent person is already provided; (2) whether he or she has any property from which a claim for necessaries could be collected. If the in- competent person is an infant or a married woman, the merchant may charge the amount to the father or the husband. § 73. The Consideration A sale or a contract of sale which did not name a price might still be good, because the court which was asked to enforce it would assume that the goods were to be paid for at a reasonable price and charge the buyer accordingly. The price fixed may be dependent on outside circumstances that would affect it, as for instance the market price at the time of delivery. The general question of consideration has been very fully discussed under contracts (§ 38). Notes: I. Parties in making a sale should agree on the price. Neither the seller nor the buyer may be satisfied with what the law will consider reasonable. CONTRACTS TO SELL 93 § 74. Nature of Subject Matter A person might make a contract to sell a crop which he had just planted, or grass which might grow in the future on land which he owned, or chickens to be hatched from eggs which his hens might lay ; but if he had not the land or the hens, he could not make a contract to sell grass on land which he might buy in the future, or eggs from hens which he might later acquire. Goods which are already in existence and in shape to be delivered may be contracted to be sold, and also : 1. Goods which still require some process to render them ready for delivery; i.e., cloth to be made by a tailor into a suit. 2. Goods to be acquired by the seller in the future; i.e., a commission merchant selling so many dozens of eggs which he has yet to buy from the producer. 3. Goods which may or may not be acquired by the seller in the future, depending on the happening of some condition; i.e., the same commission merchant selling so many dozens of eggs provided that he can obtain that number from the producers. 4. An undivided share in goods; i.e., a tenth part of a crop of wheat. 5. A definite number, weight, or measure of goods in mass ; i.e., a quart of oats out of a barrel of oats. Under the Uniform Sales Act, the goods mentioned in i, 2, and 3 could not be the subject of a sale, but only of a con- tract to sell, since they are not yet in shape to deliver. § 75. 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 94 SALES refuse to take any of them, or he may take those which are left and pay the full price which was agreed upon. In the last case, if the price was divided up, as so much a quart, a barrel, etc., he may pay for what he gets. If there was one lump price named for the entire lot, he must pay the entire amount, be- cause 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. 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 and buy more to replace what was lost. Notes: I. The agreement of sale should be very definite as to the time when the ownership is to pass from the seller to the buyer. Much may depend on this fact. § 76. A Contract of Sale Must Be Legal Every contract must be legal to be enforceable. A contract for the sale of liquor in a prohibition state could not be en- forced, and, if liquor had been sold, the seller could not recover the purchase price. (See general discussion of illegal con- tracts, §§ 36, 44.) Notes: I. Where there has been an illegal contract, the courts will leave both parties just where they found them, and refuse to help either. CHAPTER XVI PASSING TITLE § 77. Delivery In a sale — not a contract of sale (see § 68) — the delivery is made at the time, and there is no question in regard to the passing of title from seller to purchaser. The delivery may consist in merely setting aside the goods for the new owner, but the title passes, and, if the goods are afterwards destroyed, the loss is his. In one case the delivery consisted in giving to the purchaser the key to the building where some machinery was stored.' A flood or an accident on a railroad which delayed the delivery of goods is not an excuse for the failure to perform a positive contract. It is a general rule that, where an engage- ment to do a certain thing is positive in its terms, an accident will not excuse performance. The Japanese look at this matter exactly the other way, and say that if conditions change after a contract has been made it would be unjust to compel per- formance. In the case mentioned in heading 4 under § 74, where there is the sale of an undivided interest in goods, no actual delivery is necessary. By the sale, the purchaser acquires whatever the seller's rights were in the whole. If the seller had the right to have his share taken out of the mass, the buyer would have the same right; if the seller had a right to a pro- portionate share only in the price received when the goods were sold, the buyer would get only the same right. The time. • Kellogg Newspaper Co. v. Peterson, 163 III. 158. 95 96 SALES present or future, when the title will pass depends on the agreement. In a contract to sell, the time for the title to pass depends r.n the contract; if the intention of the parties is clearly ex- pressed, it passes at the time they have fixed upon. The rules i^iven in the next section will determine when it passes in case the intention is not clearly expressed. Notes: I. Any act which the parties intend to represent de- livery of the goods will be a sufficient delivery. If a grocer weighs out goods ordered and puts them on a separate shelf for the purchaser, they become at once the property of the purchaser. § 78. Rules for Delivery The following are rules for determining the intentions of the parties as to the time at which the title passes, e.g., at which the buyer becomes the owner: 1. Where the goods are picked out and in the shape in which they are to be delivered at the time the con- tract is made, the buyer becomes the owner at that time. 2. When the goods have to be picked out, or something further remains to be done to them before they can be delivered, the buyer does not become the owner until that is done. 3. When a contract is made to sell a certain number, weight, or measure of goods, or goods to be ac- quired in the future by the seller, the buyer becomes the owner after goods answering the description in the contract are turned over to him, or he takes possession of them. 4. (a) When goods are delivered "on trial," or "on PASSING TITLE 97 approval," the buyer becomes the owner upon their delivery. He may, however, cease to be the owner and make the seller again their owner by returning them or notifying the seller within the time specified in the contract, or a reasonable time if none was specified, that he will not accept them, (b) When the buyer lets the time fixed for the re- turn of the goods pass without returning them, or keeps them beyond what is a reasonable time under the circumstances, or signifies his approval and his intention to keep them either by words or acts, he becomes their permanent owner. 5. If the agreement requires delivery to the buyer at a particular place, or payment of freight to the bu}er or to a particular place, the property dues not pass until the goods have reached the buyer or the place agreed upon. Notes: I. A contract to sell should specify precisely when title to the goods is to pass. § 79. Sales Without Delivery Whether or not there has been a legal delivery such as described in § yy, it is always a risk ti> leave property in the seller's possession. The very fact that it is in his pobbcbbion 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, Mon- tana, Nevada, Oklahoma, Pennsylvania, South Dakota, Utah, Vermont, and Washington. The laws in the above states re- gard leaving the property with the seller as opportunity for 98 SALES fraud on other persons ; hence, the party who so left the prop- erty must lose if the goods are sold to an innocent buyer. This is just, as, 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. In most of the states, the court will presume that leaving the property with the seller amounts to a fraud, but the buyer may prove that the sale was a real one, made in good faith, and not a mere sham for the purpose of cheating anyone, and in this way may recover his property. In those states where the Uniform Sales Act has been adopted, the law makes a seller who has the goods left in his possession the agent of the buyer to sell, pledge, or otherwise dispose of them. If it can be shown that there was no real sale, but only a pretended one, a creditor of the seller may treat the goods left with the seller as belonging to him and levy on them in payment of his claim. 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. Notes: 1. If a sale is made the seller should not keep the goods. 2. If the seller is allowed to keep the goods and sells them to an innocent buyer, the first buyer loses. § 80. 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 owner- ship 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 PASSING TITLE 99 last instalment has been paid. Such sales are known as "con- ditional 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. The difficulty arises from the fact that, as the buyer has the property in his possession, third persons are apt to be misled into believing that he owns it and has the right to dispose of it. INIost 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 dispose of the property to a third person who had no knowledge of the seller's rights, the seller loses the property. (See Chapter LXXXII, Form 10.) § 8i. State Laws on Conditional Sales In the following states conditional sales are good against third parties without acknowledgment or filing in any public office: Arkansas Massachusetts California Nevada Delaware Oregon District of Columbia Rhode Island Idaho Tennessee Indiana Utah Louisiana Those states which demand a record require different formalities in order to permit the contract to be put on record. lOO SALES In the following the contract recorded is merely signed by the purchaser : Alabama Montana Arizona New York Kansas Texas Maine Vermont Minnesota West Virginia In some of these more is required if the contract is for the sale of railroad equipment. § 82. Requirement of Affidavits to Conditional Sales Con- tracts Some states require in addition an affidavit by the seller stating the facts of the sale. These are Nebraska, Ohio, and Wyoming. In others, if the contract is signed by a witness, the witness may prove it, and it is then admitted to record ; but in most of the states the contract must be acknowledged by the buyer. In Iowa it may be acknowledged by the seller and is then entitled to be admitted to record. In the District of Columbia, only contracts for conditional sales of goods to an amount of over $100 have to be recorded. § 83. Rights in Illinois and Pennsylvania In Illinois and Pennsylvania the rights of the seller under a conditional sale will not hold against a third party to whom the 1ju)er may have sold the goods. In Illinois the seller may protect himself by taking a chattel mortgage on the article sold and recording that; in Pennsylvania he makes a contract to lease the property, the purchaser to pay a regular rental instead of instalments and to give back the property at the end of the rental period. Then a clause is added giving the purchaser the right to elect to keep the property instead of returning it at the expiration of the lease. PASSING TITLE lOi § 84. Protection Against Lien on Property Some states make selling property under a contract of con- ditional sale unlawful. In those states where a landlord has a lien on property in rented buildings, the contract should be recorded before the property is moved into the building in order to protect it against his lien. If fixtures such as gas and electric chandeliers, etc., are sold under a contract of conditional sale, they will be protected by recording the contract and may be removed as readily as any other personal property. If, however, the property sold was something which went into the building itself and could not be removed without injury to it, such as a mantel or built-in china closets and book-shelves, the only remedy which the seller has is to claim a lien against the building for the amount due him. § 85. Protection Against Destruction of Property Where the property is destroyed wlule it is held under a contract of conditional sale, the decisions are in conflict. In some states the buyer loses ; in others, the seller ; and in other states the matter has not been decided. Usually, under such circumstances, the buyer refuses to make further payments but may be held liable for the value of the goods. Unless the buyer can afford such a possible loss, it is prudent to provide for insurance. Notes: 1. If a sale on condition is to be made, and the value of the article justifies it, a lawyer should be employed. 2. If articles are to be sold on instalments in different states, the laws of each must be considered and much care will be required in making the contract.^ ^ See "Conditional Sales," by Haring. CHAPTER XVII THE STATUTE OF FRAUDS § 86. Contracts to Sell The definition in the Uniform Sales Act is as follows: A contract to sell goods is a contract whereby the seller agrees to transfer the property in goods to the buyer for a consideration called the price. The distinction between a contract to sell and a sale is this: in a contract to sell the goods are not delivered and title does not pass; while in a sale delivery is made or the title passes. The Statute of Frauds applies to contracts to sell, not to sales. § 87. When the Contract of Sale Must Be in Writing The Statute of Frauds discussed in ;^ 41 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, Rhode Island; $2,500 in Ohio. $50 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. For this reason, contracts purely by word of mouth have be- come more risky under the Uniform Sales Act. 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. 102 THE STATUTE OF FRAUDS 103 The written 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 con- nected as to make an intelligible sales contract. The written memorandum of sale need not be made at the time of the con- tract, 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. In states where the Uniform Sales Act does not prevail, the written memorandum of sale may have to be subscribed; that is, signed at the end of the contract. Exceptions to the rule that a sale of goods above the limited amount must be in writing, are: 1. The buyer must have paid part of the price ; or 2. The buyer must have accepted and actually received part of the goods. The last two methods of satisfying the statute will be con- sidered in the following sections. Notes: 1. Any contract of sale above the specified minimum must be in writing. 2. All contracts should be in writing. § 88. Exception for Part Payment A payment made at the time of entering into the con- tract of sale makes it enforceable, though it may be above the Hmited 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. Usually in this country it is part of the price. The amount is not material. I04 SALES The thing delivered in part payment must be of some vakie, but if of any value at all, it will be suiificient to bind the bargain.' Notes: I. Part payment will bind the bargain, but it is no evidence as to time, terms, and essentials of the agreement, and it is a poor substitute for a written contract. § 89. Exception for Part Delivery The second case mentioned in § 87 was: "The buyer must have accepted and actually received part of the goods." The word "received" means taken into actual physical possession, the word "accepted" means that the buyer must have deter- mined in his own mind to become the owner of the goods. Both conditions must be fulfilled to make the contract en- forcea1)le. 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 do not come out (jf the buyer's share are not "part of the goods." If the buyer has directed the goods to be delivered to a railroad company for transportation, a delivery to the railroad company is a delivery to him and their receipt for the goods will be his receipt. If he has not so directed, there is no receipt and acceptance until the buyer or his agent accepts the goods from the railroad company. Notes: I. Although he may have accepted the goods, the pur- chaser could still dispute the price, the warranties, and the other terms of the agreement. The ' Weir V. Hudnut, 115 Md. 535. THE STATUTE OF FRAUDS 105 written contract is the only dependable means of proving the agreement. § 90. Exception for Amounts Below Specified Value Contracts 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 could be enforced, but an oral contract is always hard to prove. (See §39.) 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. Notes: 1. It is safest to make all contracts in writing. 2. Any contract of sale above the specified minimum must be in writing. Any contract of sale below should be in writing. 3. It is never safe to enter into any contract without some memorandum in writing. Especially when there is anything indefinite about the possible value of the goods to be sold, the contract of sale ought to be in writing. § 91. Exception for Work or Services If the article purchased involves work or services which make it suitable only for the original buyer, the contract 106 SALES may be oral. For example, a man goes to a dentist and orders a set of false teeth. The dentist takes some porce- lain 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 § 87. That is, the dentist can bring suit without a written contract. If the article to be made is something which can be sold to someone else, the contract is one of sale and must satisfy the requirements of the Statute of Frauds. The foregoing is a statement of the law where the Uniform Sales Act applies. There have been two other views of the case: one of them the English rule that if any article was to be made as a result of the work and services, the con- tract was one of sale; the other, the former New York rule that if there was any work to be performed on the article, the contract was not a sale but for work and services, and the Statute of Frauds did not apply to it. Either of these two rules may still apply in a state which has not adopted the Uniform Sales Act. Notes: I. Have a written contract in all cases where the price is more than you can afford to lose. CHAPTER XVIII WARRANTIES ' § 92. Introductory 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 machines, and after having 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 took a sporting view of the dealings between buyer and seller, and did not wish to discourage skill in barter by stressing too much any ethical considerations. 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 > For form of warranty contract, see Chapter LXXXII, Form is. 107 lo8 SALES without some conditions or warranties as to quality, utility, or other characteristics of the commodity sold. Notes: I. The buyer should take care that he has a warranty that what he purchases will serve his purpose. § 93- Conditions Precedent An agreement that an article must be up to a certain standard is known as a condition precedent. A condition precedent is a specification of the kind of article that is wanted with which the article must comply before there can be any sale at all. If it is agreed that the article to be sold is to conform to a certain standard, there is no sale until an article is produced according to that standard. For instance, if the seller agreed to furnish a steam pump that would raise lOO gallons a minute to a height of 50 feet, he must furnish a pump that will do exactly this before the buyer is obliged to take it. Notes: I. Where there has been an agreement that the article to be sold shall be of a certain kind and quality, the buyer is not obliged to take any article that is not of that kind and quality. § 94. Express Warranties An express warranty is a statement made by the seller about the quality, durability, working 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 made a statement of fact WARRANTIES 109 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. If there is a warranty, and upon using the goods it turns out to be untrue, the buyer may not return the goods, but he may sue the seller and recover damages in the amount of the difference between what the article is actually worth to him and what it would have been worth had the warranty been true. The buyer must be on the lookout to distinguish between statements of fact and expressions of opinion. Many pros- pectuses are cleverly worded to give the impression of being statements of fact, while still permitting the companies float- ing them to escape legal liability. Any such phrase as "it is estimated," "it appears," "there seems to be," "experts estimate," etc., or any phrase which qualifies the simple state- ment of fact, makes the assertion a mere worthless 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 pufifing." If, on the other hand, he makes an express state- ment that these goods will wear better than certain similar goods manufactured by another firm, you may rely on his statement as 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 I lo SALES the goods prove unsatisfactory. A written warranty pre- vents forgetfulness on the part of the seller. Notes: 1 . In all purchases, make sure that all terms are plainly written out, in positive language. 2. In all prospectuses, analyze the statements and note the positive assertions as to material matters. § 95. Implied Warranties In every sale today there are certain implied warranties which the law compels the seller to make good. In regard to his right to sell the property, he warrants by the mere act of selling goods: 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 incumbrance 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 from the seller the damages which he has suffered because of the sale. Special Situations. There is what seems to the public a curious situation here. If the seller had actually stolen the goods, the buyer would have to give them up to the rightful owner even though he knew nothing of the theft ; whereas, if the seller had obtained the goods with the consent of the WARRANTIES in rightful owner through fraud, the buyer, ignorant of the fraud, might be allowed to keep them. There is a case where a man bought some jewelry on credit by representing himself to be another man, and afterwards sold the jewelry to a third person who had no knowledge of the fraud, and the third person was allowed to keep the jewelry. This is because the jeweler gave up the property of his own accord to the fraudulent seller and therefore enabled the seller to lead the third person into buying the jewelry and paying out his money for it. Other Implied Warranties. There are two other war- ranties which go with a sale of goods even though nothing is said about them. 1. If the buyer makes known to the seller the purpose for which he intends to use the goods, or if this purpose was known to the seller, there is a warranty that the goods are fit for the purpose. Whenever a person goes into a market or a grocery store to buy food, the butcher or the grocer is supposed to know that he is buying it for the purpose of eating it and there is, therefore, a warranty that the food is fit to eat. If the buyer orders goods by their trade names (Quaker Oats, Ivory Soap, etc.), the seller is relieved from any warranty that they are fit for his purpose. 2. If goods are bought from a person who regularly deals in that kind of goods, there is a warranty that they are of merchantable, that is, salable quality. When a person orders goods from a description in a sales catalogue, or from a sample, there is also an implied warranty that they are similar to the description or sample. The seller is liable in damages to the buyer if any of these warranties are broken. He is liable only to the im- mediate buyer, however, and not to other persons to whom the buyer sells the goods, although he may, if he manufactured 112 SALES the article himself, be liable for any injuries suffered as the result of a defect in them. Notes: I. The fact that the law implies certain warranties should not prevent the buyer from obtaining positive written warranties on all important purchases. CHAPTER XIX REMEDIES § 96. Rights of Unpaid Seller Under the Contract The various sorts of warranties protect the buyer in all business transactions. It is, of course, necessary for the rights of the seller to be protected. Most breaches of con- tract 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 shipment 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, and if they were not sold on credit, any of the following courses is possible: (a) The seller may refuse to give them up until they are paid for. (b) If the goods are of a perishable nature, or if the buyer has failed to pay for an unreasonable length of time, or if the seller has reserved that right in his agreement of sale, he may resell them to another person, keep the price, and sue the buyer for damages for any loss he may have sustained by the transaction. 113 114 SALES (c) The seller may, if the time for payment has arrived, notify the buyer that he holds the goods for him and sue him for the price. (d) The seller may, if the time for payment has arrived and no payment has been made, sue the buyer for damages for breach of the contract. The measure of damages will be the difference betv^een what the seller can sell the goods for to someone else and the contract price. If the seller was manufacturing the article, he may claim damages for whatever loss he has sustained in time or otherwise up to the time the buyer notified him that he refused to take the article, not for any loss through con- tinuing 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. If the goods were sold on credit, and the term of credit has expired while they are still in the seller's possession, or if the buyer has become insolvent, then the seller may exercise either of the last two rights. 2. If the goods have been delivered to a railroad com- pany, etc., 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, express company, or other carrier, has not informed the buyer that they are holding the goods subject to his orders. REMEDIES 115 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 was before they reached their destination. If there has been a bill of lading issued for the goods, the railroad company may 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. Notes: I. 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 dependable. This allows him to protect himself by selling them without running the risk of being held guilty of breaking the contract. § 97. Rights of Buyer Where the seller refuses to give up the goods to the buyer, except where the buyer does not pay at the proper time (see § 96) : 1. The buyer may have the right to the ownership of the goods. In this case he may sue the seller for damages for withholding the goods. 2. Or 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; or Ii6 SALES (b) If the article was of a special kind or made to order so that he could not get it any- where else, the buyer may go into a court of equity and sue to compel the seller to perform his contract. The measure of damages in any of these cases is the difference between what the buyer could go out into the market and buy the goods for, and the contract price. If he could get them for the same price or less in the market, he would, of course, have suffered no damages. Where the seller delivers the goods but they fail to come up to a warranty which he has made for them : 1. The buyer may keep the goods, and either (a) Deduct an amount from the purchase price to cover the breach of warranty; or (b) Sue the seller for breach of the contract of warranty. 2. Refuse to accept the goods, and either (a) Return them and demand back the purchase price; or (b) Return them and sue the seller for damages for breach of the contract of warranty. The buyer must return the goods in as good condition as they were when received, unless the damage has resulted be- cause 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. If the goods are really not as warranted, and notice has been given to the seller that the buyer refuses to take the goods, the buyer cannot be held hable for the price. If he has paid any part of the sum due, he is entitled to have that money back before returning the goods, and, if necessary, may REMEDIES 117 sell the goods to another party in order to get back what he has paid on them, handing over the surplus to the seller. The measure of damages which the buyer may recover for a breach of the contract of warranty is the difference between what the goods were actually worth at the time they were delivered, and what they would have been worth if they had been as warranted. A'otes: I. In any case where the buyer intends to assert his rights, he should act promptly. Delay may be fatal. A buyer should never accept goods without examining them. Where there was a warranty of durability, he should notify the seller of his dissatisfaction, or refusal to accept the goods, just as soon as he discovers that they are not up to the warranty. It is a prudent thing in such a case to provide in the agreement of sale that the buyer may keep back part of the purchase price till he has tested the article warranted. § g8. Rescission of Sale The buyer and the seller may agree together to cancel the sale. When the seller has the goods in his possession or has stopped them on the way to the buyer, he may call off the sale if he has reserved that right in the contract and the buyer does not carry out his agreement; or if the buyer fails to pay for the goods within a reasonable length of time. The buyer may call off the contract if the goods are not as war- ranted. When the sale is called off, the buyer must return the goods to the seller, and the seller must return the price to the buyer. But the buyer may keep the goods until the seller pays him back what he has paid, and the seller may keep the price until the buyer returns the goods. Either party could Il8 SALES take the initiative. The one who most desired to cancel the sale would probably move first. When goods are not up to the warranty the buyer must return the goods in the same condition in which they were, unless they were damaged when he received them. He may either actually return them or notify the seller that he refuses to accept them and will hold them subject to his order. Notes: I. Either party who wants to call off the sale should do so just as soon as he finds out that he has been cheated. The court will not look with favor on any delay, as it is not fair to the other party. The buyer may sell the goods if necessary and get out of the money realized what he has paid on them. If he has paid the entire price and the goods dp not realize that amount when sold, he may sue the seller for what he has lost on the transaction. CHAPTER XX SALES AT AUCTION § 99. 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 adver- tisement. 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 offered 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. Otherwise 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. § 100. 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 it 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. 119 I20 SALES 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 pur- chaser 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 damages. § loi. 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 accord- ing to the memorandum of sale. An auctioneer is not allowed to bid for himself at a sale, but he may make bids for some- one 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 property, 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 in order 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 before giving up the property to the purchaser. Notes: I. In planning for an auction sale, all the terms should be decided upon and printed in the handbills advertising it. If the ovmer of the property wants to reserve the right to bid or to have bids made for him, it must be definitely stated. Part IV — Agency CHAPTER XXI PRINCIPLES OF AGENCY § 102. Introductory 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 activities of the world, those with execu- tive ability empower others 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 im- portance. 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 represent 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 im- portance in insurance, partnership, and corporation law. § 103. Definitions An agent is one who represents, or is authorized to repre- sent, another person in a business transaction 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 representative. 121 122 AGENCY The relation between the principal and the agent is termed agency. § 104. The Principal Anyone capable of transacting his own business may appoint an agent to act for him in the same matters. 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 as an agent.' In the California Code it is expressed as follows: Any person having capacity to contract, may appoint an ag-ent. 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, therefore, capable of transacting his own business ; that is, when he appoints an agent, he must be sane, sober, and capable of acting for himself, and also, he must be of full age — hence a minor cannot appoint an agent. The following are legally qualified to be principals: 1. Corporations may appoint agents to accomplish their corporate purposes — in fact, a corporation can act only by its agents. 2. Partnerships may appoint agents, and apart from this each partner is held to be an agent for the firm. 3. Married women may appoint agents. 4. Unincorporated clubs and societies may appoint agents. Notes: I. The principal must be competent to act, and in his sane mind. ^ Mcchem on Agency, 129; Cyc. 31, p. 1175. PRINCIPLES OF AGENCY 123 2. Infants are not competent to act for themselves, and hence cannot appoint agents. 3. Partnerships, cKibs, and societies may be principals. 4. Corporations can operate only through agents. § 105. The Agent Any person who is qualified to perform the act in question may do it as the agent of another. Anyone who has capacity to act for himself is ordinarily capable of acting as agent for another .... it is generally thought he may be capable of acting as agent for another, although he is not capable of acting for himself.^ 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 instance, a minor, i.e., anyone under age, cannot contract for himself, but he may act as agent for an older person and what he does will bind the older person. ^ A child may be the agent of his parent. But it must be because the child has been appointed an agent, not simply because he is the child of, or is living in the house with, the parents. In such cases, to be an agent, the child must have been directly authorized by the parent to act along certain Hnes, or else it must be shown that the child had been in the habit of so acting with the approval of his father or mother. In a New Hampshire case the judge said: A son has no authority, as such, to lend his father's property, and there is no presumption that such authority has been given the son.* Noies: I. A minor who cannot contract for himself may con- tract as an agent for someone else. 2,1 Cyc. 1212; Lyon & Co. v. Kent, 45 Ala. 56. s Sheldon v. Newton, 3 Ohio State 494. 'Johnson v. Stone, 40 N. H. 197. 124 AGENCY 2. Anyone can be an agent to do anything he is sufficiently intelligent to do. 3. A parent is not bound by the contract of a minor child unless he has expressly or impliedly made the child his agent. § 106. 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 an agent have the right to presume that his agency is a general one, and that he is authorized to do anything usually done in such a business. A general agent has unrestricted powers to deal along the line he is engaged in. 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 delegates authority in minor details to subagents who answer to him for what they do. For instance, the manager of a grocery store is a general agent for that purpose and has authority to purchase all kinds of goods that are sold in the store, and to contract for necessary repairs and improvements in the store. He has no authority 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. If such an agent wanted to contract for an addition to the existing store, the contractor would do well to find out whether or not the agent had authority to do this, because this would seem not to be included in his general authority. An agent may possess direct authority to bind his principal in a particular transaction ; that is to say, the principal may PRINCIPLES OF AGENCY 125 expressly empower the agent to bind him; and this direct authority will carry with it, by implication of law, such powers as are suitable and reasonably necessary to accomplish the intended purpose.' A superintendent of a factory is a general agent for the purpose of running the factory, and is presumed to have power and authority to do anything necessary to keep it in operation, and in case of emergency to preserve the business and the building and to protect the employees. It is expedient to know, when you are dealing with an agent, whether he is a general agent or a special agent. Notes: 1. A general agent has wide powers in his particular line of business. 2. He has no authority to bind his principal outside of his general line of business. 3. A third person having ascertained the general character and the scope of an agency may rely on the agent's having such powers as naturally and properly belong to his position. 4. In doubtful cases, it is safest for those dealing with a general agent to ascertain the extent of his authority. § 107. Special Agents A special agent is one authorized to act in a specific trans- action or in a limited line of business. The authority of a special agent is not so broad as the authority of a general agent. 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 ° Hackett v. Frank, 105 Mo. App. 3?4. 126 AGENCY interest of his principal, he would depart from his instruc- tions and he alone would be liable; the party represented would not be bound. For example, an agent authorized to sell a particular 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. Similarly, a special agent might be authorized to buy wheat for his principal; in that case he would have no right to buy lumber, coal, or another grain, but he could bind his principal in any transaction for the purchase of wheat. If the agent has an established office or place of business where he has been doing business for some time with a sign or signs indicating his agency and line of business, a third person would be safe in doing business with him in the particular line. In dealing with a special agent engaged for a particular transaction, a third party should ask to see the agent's authorization, which is usually in writing. 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 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. Notes: 1. A special agent has limited authority. 2. This authority may be indicated by: (a) Written authorization. ° Nixon V. Palmer, 8 N. Y. 398. PRINCIPLES OF AGENCY 127 (b) An established office with signs and adver- tisements. (c) A continued course of dealing. 3. No one can become the agent of another except by the will, expressed or implied, of the principal. 4. The agent cannot create in himself a particular authority merely by the performance of the act. § 108. Del Credere Agents A del credere agent is one who guarantees his principal that his sales will be paid. 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 arrangement, 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' A contract of a commission merchant with his principal whereby he, for a commission of 5 per cent, undertakes to sell goods and guarantees his sales, need not be in writing.* '20 Cyc. 186. * Sherwood v. Stone, 14 N. Y. afir. CHAPTER XXII THE CONTRACT OF AGENCY^ § 109. 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 or spoken contract. The objection to an oral con- tract is the difficulty of proving it, and the strong probability that there will be some misunderstanding as to the terms of the contract between the parties. For all ordinary purposes, an oral contract of agency is just as binding as a written con- tract, provided its terms can be proved. Usually 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 constitute the written contract. When an agent is appointed to vote at a corporate meet- ing, his written appointment is called a proxy, 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. (See Chapter LXXXIII, Forms 21-23.) 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 18). 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 * For forms of agency contracts, see Chapter LXXXIII. Forms 16-23, 128 THE CONTRACT OF AGENCY 129 and it is absolutely essential to have the formal power of attorney executed just as carefully as a deed, and acknowl- edged before a notary so that it can be filed in the registrar's office with the deed or the mortgage. In many cases of agency, the agent is appointed to an office where he exercises certain powers without any formal specification of what he can do and what he cannot do. In such instances, 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 principal 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.^ Notes: 1. An oral contract is hard to prove, and is liable to be misunderstood. 2. An agent should be appointed by a written contract signed by both parties. 3. An agent to sell or to mortgage land must be ap- pointed by a sealed power of attorney executed and filed like a deed. 4. An agent conducting business for his principal has the usual powers of anyone doing such a business. §110. 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 * Baldwin v. Garrett, iii Ga. 876. 130 AGENCY 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. Notes: I. An express written appointment of agency is the most satisfactory arrangement for all concerned. § III. Implied Appointment The appointment of an agent is implied when it is just to imply it from the circumstances. If A stands by and sees B sell goods which belong to A and makes no protest, but ac- quiesces, A will be held to have appointed 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. ^ Dispatch Ptg. Co. v. Nat'I. Bank, log Minn. 440. * Martin v. Webb, no U. S. 7. THE CONTRACT OF AGENCY 131 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. Notes: 1. An agent's authority should be expressed by a written contract. 2. But an agent's authority may be implied from the conduct of his principal. 3. An agent placed in a position requiring authority has implied authority to do all things that are neces- sary. § 112. Ratification Where one acts as the agent of another without authoriza- tion, his acts as agent may be ratified by the acquiescence of the principal or by the principal's taking the benefit of the agent's performance. It happens not infrequently that an agent, appointed for a definite set of duties, sees opportunity to do something for which he has no authority, but which will benefit his principal. Sometimes a person volunteers to act as agent for a principal whom he has not had opportunity to con- sult. After an unauthorized act of this kind has been done, the principal may (when he learns of it) (i) refuse to be bound by it, (2) expressly ratify the act, or (3) if he takes the benefit of the action he will be held to have ratified it. 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. Notes: I. Ratification has the same effect as an original author- ization. 132 AGENCY 2. Ratification may be express, or by acquiescence. 3. Taking the benefit of an unauthorized act (with knowledge of the circumstances) is a ratification of the act. §113. Sealed Contracts An agent in order to execute a deed or sealed instrument must be appointed by an instrument of like formality. For most purposes an agent may be appointed by a simple written agreement or by word of mouth; and sometimes his authority may be implied from circumstances. When, how- ever, land is to be conveyed or mortgaged, or some important instrument like a deed or a mortgage which is to be recorded in some office of public registry is to be executed, it must be done by the principal himself or by an agent appointed by power of attorney executed with all the formalities of a deed or instrument for record filed in the same office of public registry as the deed itself. The most important feature of a deed is the fact that it is executed niidcr seal. It is usually witnessed and then acknowl- edged before a notary public. The power of attorney requires the formal execution and the same acknowledgment that a deed would require. The doctrine may be summarized thus: An agent to contract under seal must be appointed under seal. Authority under seal is necessary to enable an agent to bind his principal by a deed or other instrument under seal. It is a technical, but a thoroughly settled rule of the common law, that an agent cannot bind a principal by a deed of con- veyance, bond or other instrument under seal, unless his authority to do so is also under seal.^ There is no doubt about the general rule that a power to execute an instrument under seal must be conferred by an instrument under seal executed with equal solemnity.* ^ Clark & Skyles on Agency. » Long V. Hartwell, 34 N. J. L. i:?j. THE CONTRACT OF AGENCY j^^ Notes: I. A deed must be executed by the owner of the land or by his agent or attorney appointed under seal. § 114. Appointment of Subagents Unless expressly or impliedly authorized, an agent is not empowered to appoint a subagent. 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 important work could employ others to help him in the mechanical details. If it were customary, he could employ an assistant superintendent and supervisors, but he could not dele- gate the active supervision to someone else. Notes: 1. An agent cannot appoint a subagent. 2. If he attempts to do so, (i) his appointee will have no power, and (2) the agent will be personally liable for the subagent's wages. § 115. Servants and Employees An employee or servant may also be an agent if authorized to do business with third parties. The distinction between an employee or servant and an agent is that the employee or servant is employed to do certain things and has no relation with third parties, while an agent 134 AGENCY is employed to represent the principal in dealings with third parties. 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. A servant employed in domestic activities becomes an agent when he or she is authorized to buy supplies, or to do anything else that involves dealing with third parties. (See § 119.) If a delivery man has been in the habit of making collec- tions, it would be safe to pay him. If a package has been sent C. O. D. the bearer is thereby authorized to receive the amount. Notes: 1. It is not safe to deal with a servant or an employee unless he or she is authorized to do business with third parties. 2. It is not safe to pay money to truck drivers, delivery men, and errand boys, unless it is known that they are authorized to make collections. § 116. Void Contracts of Agency Contracts of agency for an unlawful purpose, as is the case with other contracts (see § 36), are iUegal and cannot be enforced. For example, a contract to conduct a gamUing establish- 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 public policy. To employ a lobbyist to influence legislation; to contract with a lawyer to organize a trust in restraint of trade; to employ a THE CONTRACT OF AGENCY 135 broker to negotiate a marriage; and other similar acts are held void because they are opposed to public policy. 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 § 128.) Notes: 1. Any contract for an illegal or immoral purpose is void. 2. An agent employed to do wrong cannot collect any compensation. 3. In a contract to do wrong, both principal and agent will be liable to damages and to criminal prosecu- tion. CHAPTER XXIII THE PRINCIPAL § 117. Principal's Duty to Agent The principal's duty to his agent is to pay him his com- pensation and proper expenses. The relation of the principal to the agent is one of contract. The agent agrees to render services and the principal promises to pay him a salary, a com- mission, or a fixed sum. If no amount of compensation has been fixed, the agent will be entitled to whatever his services are reasonably worth. Unless provided otherwise, the prin- cipal 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. If the agent were to be paid a com- mission or a gross sum and the principal were to terminate the agency unreasonably, the principal would be liable to pay damages for the breach of his contract. If the agent had completed his undertaking, even though the principal did not take advantage of what the agent had done, the agent neverthe- less would be entitled to full payment for his services. 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 136 THE PRINCIPAL I^^ 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. Notes: I. The principal's duty to his agent is simply to deal fairly. An express contract in writing will prevent misunderstanding. § ii8. Principal's Duty to Third Party If the principal leads the third party to think that the agent has authority beyond his express authorization, the principal will be bound by whatever the agent does in the exercise of his apparent authority. In many such cases, the principal be- comes 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 authority; and this has continued until a course of dealing has become 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. The principal is liable for all acts done by the agent within the apparent, as well as actual, authority given. (See § iii.) Third parties dealing with an agent do not know his secret instructions, 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 position to deliver is authorized to receive payment; but if he is not in possession of the goods he is not authorized to receive payment. ' Gelatt V. Ridge, 177 Mo. 553. 2 Johnson v. Hurley, 115 Mo. 513. 138 AGENCY Usage and trade customs count heavily in deciding what con- stitutes the apparent authority of an agent. Notes: 1. When an agent is appointed, he is given as much authority as his position seems to warrant. 2. Secret instructions or hmitations on the agent's au- thority do not bind third parties unless such in- structions are known to these parties. §119. Principal's Liability A principal is liable for all fraudulent, negligent, or wrong- ful 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 mistakes or the negligence of an agent or an employee while acting in his service. 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- ° Staples V. Schmidt, i8 E. I. ;it. THE PRINCIPAL I^g lessly runs over a foot traveler, the employer will be respon- sible. 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. Notes: 1. A principal is responsible for whatever is done by his agent within the scope of his employment. 2. A principal is not responsible for the acts of his agent done outside the scope of his employment. § 120. An Undisclosed Principal An undisclosed principal may take the benefit of any con- tract made by his agent. As has been stated, an agent may conceal the fact that he is acting for a principal. In such a case, the agent renders himself personally liable, but a princi- pal has the right to take whatever benefit may come from any advantageous contract made by his agent. The undisclosed principal is liable if the third party discovers his existence. With this liability the principal has the right to take the benefit of the contract. The third party upon discovery of an undisclosed principal, may hold responsible either the agent or the undisclosed princi- pal. The third party may bring suit against both principal and agent, though he may recover from but one. Byington v. Simpson was a case where a building contract was signed "J- B. Simpson, Agt." The third party knew that Simpson was in fact contracting for his wife. The wife was held liable though her name was not mentioned.^ Notes: 1. The agent who does not disclose his principal takes the entire responsibility on himself. 2. The undisclosed principal is liable when discovered. * Byington v. Simpson, 134 Mass. 169. CHAPTER XXIV THE AGENT § 121. 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 employ- ment that he should obey orders, act with good faith, and use such prudence, skill, and diligence in his duties as are requisite for their proper discharge. He must, if necessary, keep proper accounts and render 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, he may be discharged, his compensation may be denied, 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. One Cummings, an agent for the sale of stock for the Diamond Match Company, sold stock of the company amount- ing to $170,000 at par for $200,000, and kept the profit of $30,000 for himself. Later this was discovered by the com- pany, which brought suit and recovered the whole amount.' 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. ^ Graham v. Cummings, 208 Pa. St. 516. 140 THE AGENT 14I In a Michigan case, a party employed in a manufactory of fly paper, under contract not to use methods elsewhere, after severing his connection with the factory, made plans to give others the benefit of his information. The court granted an injunction to prevent him from revealing the processes/ 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 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. Notes: 1. A general agent must be obedient, loyal, careful, skilful, honest, and of good habits. 2. A special agent is required to exercise only such qualities as are requisite to effect the purpose of his agency. § 122. 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 responsibility in case of misadven- ture. If, however, circumstances should arise which make it necessary to act contrary to the instructions he has received, 'Thurm Company v. Tloczynski, 114 Mich. 149. 142 AGENCY 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 or railroad varies directions that goods are to go over some particular line, the agent or the railroad 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. This is not to be understood as prohibiting trifling departures and immaterial variations from exact instructions. The law does not regard negligible things. An agent who is instructed to ship goods or to remit money in a particular way must obey his instructions to the letter. Notes: 1. An agent must obey orders if he does not want to make himself liable. 2. When an emergency exists he may act contrary to instructions. 3. A principal should, where possible, give explicit orders to his agent. § 123. 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 in any way, he may be dis- THE AGENT 143 charged ; 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. But it is said that a double agency may be valid where both parties know of the double agency and agree to it ; it is then understood that the agency requires no independent discretion. 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. A broker, in a Michigan case, sold land to a party whom the owner had previously excepted from those to whom the broker might sell. It was held that the latter was not entitled to commission.' In a Massachusetts case, an agent made a sale of some property, and in rendering the account to his employer charged him $50 as paid to an attorney for examining the title, whereas he really paid only $25. The court held that he lost his right to commission.* An Agent Must Not Compete With His Principal. An " Ranney v. Henry, i6o Mich. 597. • Little V. Phipps et al., 208 Mass. 331. 144 AGENCY 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 compel him to make restitution. The law moves on a high plane in matters of this kind. 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 day- time or while attending to business is undoubtedly sufficient 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. A bank, however, employs detectives; and if an employee indulges in loose living he is discharged and has no recourse. Usually an agent who is discharged for any reason of this kind cannot afford to risk the notoriety involved in an attempt to hold his employer for damages. Non-Payment No Excuse for Non-Performance. The fact that the agent is unpaid does not affect his responsibility. The agent's liability does not depend upon how well he is paid for what he does, or whether he is paid at all ; for, if he undertakes to do anything for another, he must do it well; and he is responsible in case of bad faith, negligence, or lack of skill. Notes: 1. The doctrine of the law on the subject of the agent's good faith is on an exceptionally high plane. 2. The agent must not act as the agent of both parties unless both know of and agree to it. 3. The agent must not act for himself in the principal's affairs. THE AGENT 4. The agent must not compete with his principal. 5. The agent must be of good habits. 145 § 124. Agent's Care, Skill, and Diligence If anyone undertalies the duties of an agent, he is assumed to have the necessary skill and ability to perform the said duties. In all matters connected with his agency, he is ex- pected to act as an ordinarily 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 repre- sent his client in an adequate manner. If he is a financial agent and invests his client's funds imprudently, he is responsible. 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 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 to his own bank account; but should open a separate account 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. =• Whitney v. Martine, 88 N. Y. 535. 1 Sheppard v. Davis, 42 A. D. (N. V.) 462. 146 AGENCY Any money held by an agent for his principal is a trust fund. In an Indiana case the judge said: In case it becomes the duty of an agent or a trustee to deposit money belonging to his principal, he can escape risk by making the deposit in his principal's name; or by so dis- tinguishing it on the books of the bank as to indicate in some way that it is the principal's money. If he deposits it in his own name, he will not in case of loss be permitted to throw the loss on his principal.' Notes: 1. The theory of the law in these matters is better than the results in actual practice. It is in most cases impossible to obtain legal redress for the common lack of care, skill, and diligence in agents. 2. In all matters relating to the care and the custody of money belonging to others, too great care cannot be exercised. 3. The treasurers of clubs, informal organizations, and unincorporated associations, should observe the rules that have been given for agents in charge of funds. § 125. 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. The agent is the representative of his principal, and is to work in the interests of his principal. 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 con- tract within the scope of his authority. He binds his principal, not himself. But his principal cannot authorize him to do wrong ; and if he does wrong both he and his principal are held. ' Waltner v. Dolan, io8 Ind. 500. THE AGENT 147 The agent may legally do whatever the law allows his principal to do. The law is not at its best when it defines the rights of buyer and seller. The better business houses, in their actual practice, act on a plane far higher than that which the law compels. In other words, good business prescribes a much higher standard of morality in the matter of sales than does the law. On this account the standards of good business are given here, rather than the legal requirements. Let your dealings be characterized by fairness and liberal treatment. Deal with the third party in such a manner that you can deal with him again. All good and permanent business is to the advantage of both parties. Make every customer a lasting business friend. Treat him as you would like to have him treat you in like case. Notes: I. If an agent has a principal who does not believe in the above standard of good business, he had better look for another job. § 126. Limitation of Agent's Authority The agent rarely has unlimited authority. In established positions, such as that of a bank cashier, a railroad conductor, or a retail salesman, 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 ex- ceeds these limitations, he may be discharged from his position, and may be held for damages if he is responsible. In dealing with third parties, the agent, in all those cases where his apparent authority exceeds his real authority, may 148 AGENCY bind his principal. In such an event, the agent must answer to his principal for his abuse of authority. Notes: 1. An agent has the usual authority pertaining to his position, unless restricted by special agreement. 2. An agent has always such authority as his agreement with his principal permits. 3. An agent may bind his principal wrongfully when his apparent authority exceeds his real authority. § 127. 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 re- sponsibility to his principal. A principal cannot authorize his agent to commit fraud. In Weber v. Weber, 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 where the president of a medical institute was made the party in a proceeding against the institution 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.^ ® Weber v. Weber, 47 Mich. 569. ® Hedin v. Minneapolis Medical Institute, 62 Minn. 146. THE AGENT 149 Notes: 1. An agent cannot use his agency to protect him in doing wrong. 2. In case of fraud or misrepresentation, the agent as well as the principal is liable to the person injured. § 128. Agent's Liability The agent makes himself liable with his principal, as we have seen, when he is guilty of any fraudulent conduct. He also makes himself liable when he exceeds his authority, unless the third party knows the nature of the agent's action. Where the business is illegal, the agent is liable with the principal. In most cases where an agent deals with third parties, the third parties depend upon the agent to inform them correctly as to the extent of his authority. If the agent deceives them as to this, he makes himself personally liable to the third party to the same extent that he would if he had made the contract in his own name instead of that of his principal. One Kroeger insured his premises through Pitcairn, an agent. Pitcairn verbally told Kroeger that he could keep a small amount of gasoline on the premises without making his policy void. Pitcairn had no authority to do this. The prem- ises were burned, and Kroeger could not recover from the insurance company on account of the storage of gasoline. The court did, however, allow him to recover his damages from Pitcairn. " If the agent has apparent avithority but is limited by pri- vate instructions from his principal, he can nevertheless bind his principal by his contract within the scope of his apparent authority. In such a case, he is liable to his principal for any unwarranted action. It happens sometimes that an agent deals with third parties ^ Kroeger v. Pitcairn, loi Pa, St. 311. I50 AGENCY and assumes to be the principal; i.e., he does not represent himself to be an agent, or disclose the fact that he is acting for someone else. In such a case he will be held personally, as though he were the principal. This is plainly just and right. Where an agent represents a principal who is non-existent or irresponsible, he binds himself. On occasion agents have represented themselves as having a principal who did not exist — in such cases they bind themselves. Thus, parties acting as directors in a non-existent corporation may be held. If an agent represents any irresponsible body, such as a social club, a meeting, or any informal organization, he will in all such cases render himself liable. If the agent is authorized by a motion, all members who voted for the motion are liable, and those who are forced to pay can hold for contributions all others who joined in authorizing the expense." The Northeastern Pigeon & Bantam Society, a voluntary association, held an exhibition of fancy stock and offered premiums. The expense exceeded the receipts. The court held that those members who paid the loss could bring suit to compel all the other members who had voted to hold the ex- hibition to pay their pro rata.''^ A common case under this general head is that of a pro- moter who incurs liabilities for a corporation before it is in- corporated. Until the corporation has come into being, it cannot appoint an agent; therefore the general rule is that the corporation cannot be bound, and that those who deal with the promoter must look to him for compensation. The general doctrine that no one is authorized to contract for a corporation before it is formed, applies to all contracts with and by promoters. The promoter himself is liable on these pre-corporate contracts, unless otherwise expressly provided ; but the corporation is not.'^ ^' Lewis V. Tilton, 64 Iowa 220. '^ Ray V. Powers, 134 Mass. 22. " Conyngton's "Corporate Organization and Management" (Edition of 1917), ^32 THE AGENT 151 Where an agent commits an assault in the discharge of his duty, he may be held responsible. The agent in charge of the grounds of a fishing club in Kentucky, assailed a party whom he accused of trespassing. The party assaulted brought suit for damages against the agent and the club, and got judgment against both." If the agent got into a quarrel independently, and not in the discharge of his duty, his principal would not be affected. Sometimes, even when the agent acts in entire good faith, he may become personally liable for his blunders. For in- stance : In a California case, Wilson, a broker, sold some mining stock for a customer. The stock turned out to have been stolen from a party named Swim, who brought suit against Wilson for the value of the stock. The court held that the principal who employed Wilson to sell the stock had no title and could give none to Wilson, who was therefore compelled to pay the value of the stock." Notes: 1. An agent is liable for fraudulent conduct. 2. An agent is liable for exceeding his authority. 3. An agent is liable if he does not disclose his prin- cipal. 4. An agent is liable if he represents a non-existent or irresponsible principal. 5. An agent is liable for wrongful acts within the scope of his employment. 6. An agent may be liable for blunders. " New Ellerslie Fishing Club v. Stewart, 123 Ky. 8. " Swim V. Wilson, 13 Cal. 126. CHAPTER XXV THE THIRD PARTY § 129. Third Party's Relation to Agent Strictly speaking, tlie tiiird party has no relation to the agent. The agent represents the principal, and the third party is dealing only with the principal. When the agent goes be- yond his powers, then he makes himself responsible and may be held; the same is true when he represents an undisclosed principal, or a fictitious principal. The third party should know that the agent with whom he is dealing has authority to represent his principal, and how far this authority justifies the action of the agent. A third party dealing with an agent in excess of his author- ity does so at his own risk. It is obvious that an agent cannot go beyond his authority. He is authorized for such general or special purposes as the principal indicates, and further than this he may not go. Where an agent is empowered by a written instrument to do certain things, it is very plain that he has no authority to do anything more than what is specified ; but as in most cases of general agency the agent has the right to do everything inci- dental to his main agency business, it is sometimes not easy to tell what is in excess of his authority and what he has the right to do. Law sold goods amounting to $320 to Stokes. The sale was made by Sheridan, Law's agent or salesman. The sale was on a credit till end of month. Next day the goods were shipped and a bill was enclosed in a letter. The letter said, "Please remit amount direct to me." The bill had on its face in red ink, "All remittances on account, or in settlement of 152 THE THIRD PARTY 153 bills, must be made direct to the principal." About a month later Stokes paid Sheridan the amount of the bill. Sheridan absconded with the money; Law brought suit and obtained judgment.^ In this case the salesman had no authority to collect. The case was clear for the plaintiff, Law, because he had given notice on his billhead and in his letter of his limitation on the salesman's authority. Usually there would be more trouble in a case of this kind because the proof would not be so clear. The agent himself would be liable to suit by the third party ; but in such a case the probability would be that the agent was judgment-proof or had left for fresh fields and pastures new. In each case the third party should know for his own safety just what power the agent has to bind his principal, and that the principal is responsible. He cannot always rely on the representations of the agent himself as to the extent of his authority. It is the third party's duty to make due inquiry into the matter, as in case of a dispute later the burden of proof is on the third party to show that the agent had authority for this particular act. Notes: 1. It is unsafe for a third party to deal with an agent without sufficient information as to his authority. 2. Care should be taken never to make payments to an unauthorized agent. 3. Where salesmen are not expected to collect payment, customers should be informed of the fact. 4. In dealing with an agent, it is necessary to know whom he represents and how far his authority extends. § 130. Third Party's Relation to the Principal The third party is really dealing with the principal, and the * Law V. Stokes, 32 N. J. L. 249. 154 AGENCY agent is merely the means of communication. When the con- tract is signed, the name of the agent is attached as agent, and the principal, not the agent, is bound. Therefore the relation between the third party and the principal is the same as be- tween any other parties to a contract. The third party is brought into the contract relation as a principal, and after that in most cases the agent is disregarded. The principal and the third party contract with each other, and, if the contract has not been executed, each has the right to compel the performance or to recover damages for any breach or failure in performance. In any dispute in regard to the contract, the resulting suit will be between the parties, and the agent will not figure save as a witness able to give material evidence. If there has been fraud or false representation on either side, the fact that the transaction has been negotiated through an agent does not affect the liabilities or the remedies. Notes: I. When dealing through an agent, the third party should bear in mind that it is the principal with whom he contracts. CHAPTER XXVI TERMINATION OF AGENCY § 131. Termination by Fulfilment The agent's authority is terminated when he completes the purposes of his agency, or at the expiration of the period for which he was engaged. It is obvious that if an agent has been employed to purchase a farm and the farm has been purchased, the agent's authority is ended ; or if a salesman has been en- gaged for a year to sell goods, it is plain that the agency unless renewed terminates at the end of the year. Generally, the rule is that the agency ends at the termination of the period for which the agent has been engaged, or the completion of the undertaking for which he has been retained. The principal should in some way inform those who have been dealing with the agent that the agent no longer has au- thority to act. If the principal fails to do this, and the agent continues to act, the principal is bound. Notes: I. An agency terminates naturally (a) when the term ends, or (b) when the undertaking is completed. § 132. Termination by Either Party The contract of agency may be terminated at any time by either the principal or the agent. It is obvious that the con- tract between principal and agent (like any other contract) may terminate at any time by agreement of the parties. It is also true that the contract (since it is one of mutual trust and confidence) may be terminated at will by either one of the 155 156 AGENCY parties against the consent of the other party, except in the case of an agent having an interest in the subject matter; in which event the principal cannot terminate the relation without the agent's consent. (See § 134.) If the principal and the agent contracted for a certain period of time or for a certain undertaking, and the principal revoked his authority without good cause, the principal would be liable to suit for damages by the agent for breach of contract. Where there is employment for a definite period of time, express or implied, and the agent is discharged without cause before the expiration of the period, the principal will be liable to the agent the same as in the breach of any other contract ; in such cases the agent may elect to treat the con- tract as rescinded and bring an action to recover the value of his services and money expended.^ The agent can renounce his employment at any time. The courts will not force a man to work for another against his will. If, however, the agent has agreed to act for a certain time, or to do some particular thing, he may be liable to pay damages if he breaks off before the expiration of the period. Also, if he tries to act for someone else in the same line of business before the expiration of the term, it is probable that the principal could obtain an injunction to prevent his working for a competitor. In making a contract of agency, it is often customary to put in a clause providing that the agent shall not leave the employ of the principal and represent anyone else in the same line of business for a specified period of time after his contract terminates. (See § 121.) If the subject matter of an agency is destroyed, the con- tract is thereby terminated. A case of this kind would be where a building which is to be leased by an agent is burned before the lease is effected. ^ Glover v. Henderson, 120 Mo. 367. TERMINATION OF AGENCY 157 Notes: 1. Either party may terminate a contract of agency at any time. 2. Either party breaking a contract of agency for a specified period or undertaking without just cause is liable in damages. 3. An agent who breaks his contract may be prevented during the term of agency from taking employ- ment with a business competitor. § 133. Termination by Disability An agent's authority is revoked by the death, insanity, or bankruptcy of his principal; in like manner the relation is destroyed by the death or disability of the agent. This is a principle of universal application. When a man dies, all con- tracts of agency cease at once; all powers of attorney, and every authority to anyone else to act for him are terminated. If in ignorance of his principal's death an agent did business for him, the business would be void and of no effect. A case which often happens is that of a person of advanced years who gives personal property to an agent to deliver to someone else and then dies before the property has been turned over. In such cases the courts hold that the agency is revoked by the death of the principal, and the gift cannot take effect. In an Illinois case, Mrs. Trubey had her lawyer take from a bank vault a metal box of jewels and securities. She made parcels of these and designated to whom each parcel was to go. Then she put them in charge of her lawyer, but set no time for delivery. He receipted for them and placed them in another vault. Within three months Mrs. Trubey died. The matter came before the courts for adjudication. It went to the Supreme Court of Illinois, which held that the lawyer was undoubtedly Mrs. Trubey's agent to deliver the property ; 158 AGENCY but when she died the agency was revoked by that fact, and that, as the property had not been dehvered, it belonged to her estate and the people designated had no claim to it. The court expressed regret that it was not possible under the rules of law to give effect to what Mrs. Trubey evidently intended. It would seem that her lawyer was much at fault. ^ The death of the agent also terminates the relation. When the relation of principal and agent is broken up by the sick- ness or the other disability of the agent, the condition will be the same as when any other employee finds his term of employment broken by disability. In all such cases the general rule is that the agent or the employee is entitled to recover for the time he acted, whatever the services were worth to the principal or the employer. In a New York case it was held that where an agent is prevented by sickness or death from completing his contract, he or his executor is entitled to the value of the services actually rendered. ' Insanity of the principal likewise has the same effect as death. If insane, a principal can no longer contract himself, and neither can he contract by an agent. The insanity of the agent terminates the relation because he has no longer the capacity to represent his principal. The bankruptcy of the principal, and in some cases of the agent, would destroy the relation. In the case of bank- ruptcy, the bankrupt can no longer continue his business, but it is taken over by the court or the trustees in bankruptcy; and as he cannot do business himself he cannot do it through an agent. Insolvency would not have this effect. (See Chapter LXXIV.) If the principal parts with the subject matter, that ter- minates the agency. * Trubey v. Pease, 240 111. 513. * Wolfe V. Howes, ro N. Y. 197 TERMINATION OF AGENCY ijg Notes: 1. An agent can act only for a party who can act for himself. 2. An agent's authority ends when the capacity of the principal to contract ends. 3. An agent's incapacity to act ends the relation. § 134. An Agent with an Interest Where an agency is coupled with an interest, it cannot be revoked by the principal. Where the agent is also in- terested in the matter to be accomplished, it places him in a different relation to the principal; and the principal cannot at will destroy the relation. If, for instance, an agent is em- ployed to sell a horse, and the agreement is that he is to advance the principal one-half the price and pay himself when he sells the horse, the principal cannot prevent him from selling the horse. The agent would have an interest in the matter himself, and could go on and do that which he had agreed to do. The interest that causes a power of attorney to survive must be an interest in the subject matter of the agency and not in that which is produced by the exercise of the power. Notes: I. An agent with an interest in the property itself cannot be discharged, as he is to that extent a partner with the principal. Part V — Negotiable Instruments CHAPTER XXVII FORM AND INTERPRETATION 1 § 135. The Quality of Negotiability The negotiable instruments in ordinary use are ( i ) promissory notes, (2) drafts or bills of exchange, and (3) checks. The quality of negotiability lies in the fact that any person, not an original party, who takes a negotiable instru- ment in the ordinary course of business, may sue on it when due, in his own name, and the person who is the obligor will be compelled to pay it. Any ordinary contract may be assigned by executing an assignment, but in such case the assignee merely steps into the shoes of the person who assigned it, and if there has been any reason, as between the parties, why it should not be paid, this can be set up against the assignee, if he brings suit, exactly as if he were the original party. If this were true of a note, no one would dare to discount it, for, when the time of payment came, any reason for non-payment that might exist between the original parties could be used to destroy the whole value of the note. Hence, for the convenience of business, the law of negotiable instruments has grown up, to protect the man who takes them "in due course of business." "In due course of business" means taken before its date for payment, for a valuable consideration and without knowl- edge of anything that would affect the title. The law says: * For forms of negotiable instruments, see Chapter LXXXIV, Forms 24-34. 161 l62 NEGOTIABLE INSTRUMENTS A holder in due course holds the instrument free from defect of title of prior parties, and free from any defenses available to prior parties among themselves and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. Notes, drafts, and checks are used so extensively that the laws governing their transfer are of great importance. When the subject of uniform lav^s was brought up, the law of negotiable instruments was the first to be reformed and the one most widely adopted. The Uniform Negotiable In- struments Law as devised by the commissioners having the work in hand has at the present time been adopted by every state except California, Georgia, Maine, and Texas. In discussing this subject, the Uniform Negotiable In- struments Law has been followed as closely as possible, and the quotations are from the text of the law. The following are the requirements for negotiable instru- ments as laid down in the law itself: § I. — An instrument to be negotiable must conform to the following requirements : 1. It must be in writing and signed by the maker or drawer. 2. Must contain an unconditional promise or order to pay a sum certain in money. 3. l\Iust be payable on demand, or at a fixed or determin- able future time. 4. Must be payable to order or to bearer; and 5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. § 136. Certainty as to Sum It is to be noted that the law allows certain variations as to the certainty of the sum: § 2. — The sum payable is a sum certain within the mean- ing of this act, although it is to be paid: FORM AND INTERPRETATION 163 1. With interest; or 2. By stated instalments; or 3. By stated instalments, with a provision that upon de- fault in payment of any instalment or of interest, the whole shall become due ; or 4. With exchange, whether at a fixed rate or at the current rate ; or 5. With costs of collection or an attorney's fee, in case payment shall not be made at maturity. § 137. Promise to be Unconditional The Uniform Law allows two variations of this: § 3. — An unqualified order or promise to pay is uncondi- tional within the meaning of this act, though coupled with: 1. An indication of a particular fund out of which reim- bursement is to be made, or a particular account to be debited with the amount; or 2. A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional. § 138. Certain Future Time The law clearly expresses that the time must be certain. § 4. — An instrument is payable at a determinable future time, within the meaning of this act, which is expressed to be payable : 1. At a fixed period after date or sight; or 2. On or before a fixed or determinable future time spe- cified therein ; or 3. On or at a fixed period after the occurrence of a specified event, which is certain to happen, though the time of happening be uncertain. An instrument payable upon a contingency is not negoti- able, and the happening of the event does not cure the defect. § 139. Allowable Provisions § 5. — An instrument which contains an order or promise to do any act in addition to the payment of money is not ne- 164 NEGOTIABLE INSTRUMENTS gotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: 1. Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or 2. Authorizes a confession of judgment if the instrument be not paid at maturity ; or 3. Waives the benefit of any law intended for the advan- tage or protection of the obligor; or 4. Gives the holder an election to require something to be done in lieu of payment of money. But nothing in this section shall validate any provision or stipulation otherwise illegal. § 140. Non-Essentials § 6. — The validity and negotiable character of an instru- ment are not affected by the fact that : 1. It is not dated ; or 2. Does not specify the value given, or that any value has been given therefor; or 3. Does not specify the place where it is drawn or the place where it is payable; or 4. Bears a seal ; or 5. Designates a particular kind of current money in which payment is to be made. But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument. § 141. Payable on Demand § 7. — An instrument is payable on demand : 1. AV'herc it is expressed to be payable on demand, or at sight, or on presentation ; or 2. In which no time for payment is expressed. Where an instrument is issued, accepted or indorsed when overdue, it is, as regards the person so issuing, accepting or indorsing it, payable on demand. § 142. Payable to Order § 8. — The instrument is payable to order where it is drawn FORM AND INTERPRETATION 165 payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: 1. A payee who is not maker, drawer or drawee; or 2. The drawer or maker; or 3. The drawee; or 4. Two or more payees jointly; or 5. One or some of several payees; or 6. The holder of an oflSce for the time being. Where the instrument is payable to order the payee must be named or otherwise indicated therein with reasonable cer- tainty. § 143. Payable to Bearer §9. — The instrument is payable to bearer: 1. When it is expressed to be so payable; or 2. When it is payable to a person named therein or bearer ; or 3. When it' is payable to the order of a fictitious or non- existing person, and such fact was known to the person mak- ing it so payable ; or 4. When the name of the payee does not purport to be the name of any person ; or 5. When the only or last indorsement is an indorsement in blank. The next paragraph provides that: § 10. — The instrument need not follow the language of this act, but any terms are sufficient which clearly indicate an intention to conform to the requirements hereof. § 144. The Date The law provides that the date on the face of the instru- ment is presumed to be the true date, and that it may be ante- dated or post-dated, provided it is not done for a fraudulent purpose. It is also provided that if a date is left blank, any holder may insert the true date. If an instrument is issued with any material particular left out, the holder may fill in the blanks. l66 NEGOTIABLE INSTRUMENTS § 145. Delivery A negotiable instrument is incomplete until delivery. If an incomplete instrument is completed and delivered without authority of the maker or drawer, it will not be valid unless it comes in due course to an innocent holder for value, in which case it will be presumed conclusively to be good. § 146. Rules of Construction § 17. — Where the language of the instrument is ambigu- ous, or there are omissions therein, the following rules of construction apply : 1. Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable ; but if the words are ambiguous or uncertain, references may be had to the figures to fix the amount ; 2. Where the instrument provides for the payment of in- terest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; 3. Where the instrument is not dated, it will be consid- ered to be dated as of the time it was issued ; 4. Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail ; 5. Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election ; 6. Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser ; 7. Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. § 147. Signature The signer of an instrument is liable, and anyone signing a trade name or assumed name will be liable personally. A FORM AND INTERPRETATION 167 duly authorized agent can sign for iiis principal, and if he is duly authorized and signs as agent or in a representative capacity, he will not be personally liable. If, however, he signs as agent without disclosing his prin- cipal, he will be personally liable. The indorsement of a corporation or an infant passes the property in the instrument, though the corporation or infant may not be liable. A forged signature is absolutely void and passes no right or title. § 148. Consideration All negotiable paper is presumed to have been given for a valuable consideration, and everyone whose signature appears on it is presumed to have become a party for a valu- able consideration. Any consideration that would support an ordinary contract will be sufficient. An existing debt would be a good consideration for a note or draft in settle- ment. A holder is deemed a holder for value as to all parties before him on the paper if value has been given in exchange for the instrument at any time. Anyone having a lien on a negotiable instrument, is a holder for value to the extent of his lien. Absence or failure of consideration is not a good defense against a holder in due course for value. § 149. Liability of Accommodation Signer Anyone who for accommodation signs his name to any negotiable instrument as maker, drawer, acceptor, or indorser, is liable to any holder for value. The accommodation signer is liable even though the holder knows that he signed for accommodation and that he received no value. CHAPTER XXVIII NEGOTIATION ' § 150. Method of Negotiation § 30. — An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery; if payable to order it is negotiated by the indorsement of the holder completed by delivery. § 31. — The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient in- dorsement. § 32. — The indorsement must be an indorsement of the entire instrument. An indorsement, which purports to trans- fer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more in- dorsees severally, does not operate as a negotiation of the in- strument. But where the instrument has been paid in part, it may be indorsed as to the residue. § 151. Blank or Special Indorsement §33. — An indorsement may be either special or in blank; and it may also be either restrictive or qualified, or con-, ditional. § 34. — A special indorsement specifies the person to whom, or to whose order the instrument is to be payable; and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is pay- able to bearer, and may be negotiated by delivery. For form of indorsement, see Chapter LXXXIV, Form 26. 168 NEGOTIATION ig^ § 35- — The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement. § 152. Restrictive Indorsement § 36. — An indorsement is restrictive, which either : 1. Prohibits the further negotiation of the instrument; or 2. Constitutes the indorsee the agent of the indorser; or 3. Vests the title in th» indorsee in trust for or to the use of some other person. But the mere absence of words implying power to negoti- ate does not make an indorsement restrictive. § 37. — A restrictive indorsement confers upon the indorsee the right : 1. To receive payment of the instrument; 2. To bring any action thereon that the indorser could bring; 3. To transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement. § 153- Qualified Indorsement § 38. — A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words 'without re- course" or any words of similar import. Such an indorse- ment does not impair the negotiable character of the instru- ment. § 154. Conditional Indorsement The payee is not concerned about a conditional indorse- ment. Such an indorsement affects the rights of only those who take the instrument after the indorsement. A conditional indorsement imposes some condition on payment, as "Pay to Henry Alford upon delivery of motor truck, on March i, 1918. Mark Anderson." 170 NEGOTIABLE INSTRUMENTS § 155. Effect of Indorsement An instrument payable to bearer may be indorsed specially to some particular person and after that may again be passed on by delivery. §41. — Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse, unless the one indorsing has authority to in- dorse for the others. § 42. — Where an instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or cor- poration, it is deemed prima facie to be payable to the bank or corporation of which he is such officer ; and may be ne- gotiated by either the indorsement of the bank or corpora- tion or the indorsement of the officer. § 43. — Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described, adding, if he think fit, his proper signature. § 44. — Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. § 45. — Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue. § 46. — Except where the contrary appears every indorse- ment is presumed prima facie to have been made at the place where the instrument is dated. CHAPTER XXIX RIGHTS OF HOLDER § 156. Holder in Due Course The Uniform Negotiable Instruments Law uses the phrase "a holder in due course" to express the idea of an innocent holder for value, that is, one who has taken the in- strument without knowledge of anything unusual in con- nection with it and who has given a valuable consideration for his title. Such a holder of a negotiable instrument may sue on it in his own name. .§ 52. — A holder in due course is a holder who has taken the instrument under the following conditions : 1. That it is complete and regular upon its face; 2. That he became the holder of it before it was over- due, and without notice that it had been previously dis- honored, if such were the fact ; 3. That he took it in good faith and for value ; 4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. § 53- — Where an instrument payable on demand is ne- gotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course. § 54.— Where the transferee receives notice of any in- firmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore paid by him. § 157. Defects of Title § 55. — The title of a person who negotiates an instrument is defective within the meaning of this act when he obtained 171 172 NEGOTIABLE INSTRUMENTS the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud. § 56. — To constitute notice of an infirmity in the instru- ment or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith. § 57. — A holder in due course holds the instrument free from any defect of title of prior parties and free from de- fenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount there- of against all parties liable thereon. § 158. Effect of Irregular Transfer If a holder of negotiable paper not "a holder in due course" brings suit to collect, he must face all the defenses that can be brought up in a suit between the original parties. There may have been fraud as between the original parties or other cause why the note should not be paid. If it has come into the hands of an innocent holder, he can collect notwithstanding, but if the holder did not take the instrument in due course, any of the defenses existing between the original parties may be used against him. CHAPTER XXX LIABILITY OF PARTIES § 159. Liability of Maker, Drawer, and Acceptor A draft is an order to some party to pay a named payee a sum of money. The one who makes the order is called the drawer. He is analogous to the maker of a note. The maker of a promissory note engages to pay the note he issues accord- ing to its tenor and admits the existence of the payee and his capacity to indorse. The drawer of a draft assumes the same liability, if it is not paid by the drawee and the necessary proceedings on dishonor are taken. A draft may be presented to the drawee before payment to make sure that he will accept its obligations. If he will do this he writes "Accepted" on it and signs his name. He ie then termed the acceptor. The acceptor by acceptance engages to pay the draft and admits (i) the existence of the drawee, his signature, and his right to draw the draft, and (2) the existence of the payee and his capacity to indorse. § 160. Liability of Indorser When any person other than maker, drawer, or acceptor places his signature upon an instrument he is deemed to be an indorser. § 64.^ Where a person, not otherwise a party to -an in- strument, places thereon his signature in blank before de- livery, he is liable as indorser in accordance with the follow- ing rules : 1. If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties. 2. If the instrument is payable to the order of the maker 173 174 NEGOTIABLE INSTRUMENTS or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer. 3. If he signs for the accommodation of the payee he is liable to all parties subsequent to the payee. § 65. — Every person negotiating an instrument by delivery or by a qualified indorsement, warrants: 1. That the instrument is genuine and in all respects what it purports to be ; 2. That he has a good title to it ; 3. That all prior parties had capacity to contract; 4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. § 67. — Where a person places his indorsement on an in- strument negotiable by delivery he incurs all the liabilities of an indorser. CHAPTER XXXI PRESENTMENT FOR PAYMENT § i6i. Necessity of Presentment The maker or acceptor of a negotiable instrument is liable without presentment for payment, but if the drawer and indorsers are to be held, it must be presented for payment. Presentment must be made on the due date except in the case of demand paper which must be presented within a reasonable time. § 162. Requirements for Presentment § 72. — Presentment for payment, to be sufficient, must be made: 1. By the holder, or by some person authorized to re- ceive payment on his behalf; 2. At a reasonable hour on a business day; 3. At a proper place as herein defined ; 4. To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the place where the presentment is made. § 73. — Presentment for payment is made at the proper place. 1. Where a place of payment is specified in the instru- ment and it is there presented ; 2. Where no place of payment is specified, but the ad- dress of the person to make payment is given in the instru- ment and it is there presented ; 3. Where no place of payment is specified and no address is given and the instrument is presented at the usual place of business or residence of the person to make payment. 4. In any other case if presented to the person to make payment vi^herever he can be found, or if presented at his last known place of business or residence. 175 176 NEGOTIABLE INSTRUMENTS § 74. — The instrument must be exhibited to the person from whom payment is demanded, and when it is paid must be delivered up to the party paying it. If payable at a bank, presentment must be made during banking hours unless payee has no funds there, in which case any hour before the closing of the bank will do. § 163. Presentment Excused § 82. — Presentment for payment is dispensed with : 1. Where, after the exercise of reasonable diligence pre- sentment as required by this act cannot be made ; 2. Where the drawee is a fictitious person ; 3. By waiver of presentment, express or implied. § 164. When Due §85. — Every negotiable instrument is payable at the time fixed therein without grace. When the day of maturity falls upon Sunday or a holiday, the instrument is payable on the next succeeding business day. Instruments falling due on Saturday are to be presented for payment on the next suc- ceeding business day, except that instruments payable on de- mand may, at the option of the holder, be presented for pay- ment before twelve o'clock noon on Saturday when that entire day is not a holiday. §86. — Where the instrument is payable at a fixed period after date, after sight, or after the happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run, and by including the date of payment. CHAPTER XXXII NOTICE OF DISHONOR § 165. Necessity of Notice § 89. — Except as herein otherwise provided, when a nego- tiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged. § 166. Effect of Notice § 92. — Where notice is given by or on behalf of the holder, it enures for the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given. § 93.— Where notice is given by or on behalf of a party entitled to give notice, it enures for the benefit of the holder and all parties subsequent to the party to whom notice is given. § 167. Form of Notice The notice may be informal provided it is clear so as not to mislead the party to whom it is sent. It may even be oral. It may be delivered personally or by mail. It may be given to the party or to someone acting as his authorized agent. § 168. Time of Notice Where both parties reside in the same place, the time of notice is as follows: I 103.— I. If given at the place of Ijusiness of the person to receive notice, it must be given before the close of business hours on the day following; 177 178 NEGOTIABLE INSTRUMENTS 2. If given at his residence, it must be given before the usual hours of rest on the day following; 3. If sent by mail, it must be deposited in the post-office in time to reach him in usual course on the day following. If the parties reside in different places, the rule is as follows: § 104. — I. If sent by mail, it must be deposited in the post-office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter. 2. If given otherwise than through the post-office, then within the time that notice would have been received in due course of mail, if it had been deposited in the post-office within the time specified in the last subdivision. ^A'here a notice is duly deposited in the post-office, within the specified time, it is deemed a good notice. The party receiving notice is allowed the same period of time to send notice to antecedent parties that was permitted to the last holder. § 169. Where to Send Notice If the party has gi^-en an address, notice should be sent there; otherwise — § 108. — I. Either to the post-office nearest to his place of residence, or to the post-office where he is accustomed to receive his letters ; or 2. If he lives in one place, and has his place of business in another, notice may be sent to either place; or 3. If he is sojourning in another place, notice may be sent to the place where he is so sojourning. But where the notice is actually received by the party within the time specified in this act, it will be sufficient, though not sent in accordance with the requirements of this section. Delay in gi\ing notice is excused when caused by circum- stances Ijcvond the control of the holder. NOTICE OF DISHONOR 179 § 170. When Notice Is Not Required Notice of dishonor is not required to be given to the drawer in either of the following cases: §114. — I. Where the drawer and drawee are the same person ; 2. Where the draw-ce is a fictitious person or a person not having capacity to contract ; 3. Where the drawer is the person to whom the instru- ment is presented for payment ; 4. Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; 5. Where the drawer has countermanded payment. § 171. Protest Any negotiable instrument may be protested for non- acceptance or non-payment, but such procedure is not legally required, except for foreign bills of exchange. If it is desired to avoid the expense of protest, it is necessary to attach notice of "No Protest" to any instrument sent through a bank for collection, otherwise the bank will give its notaries a chance to make fees. CHAPTER XXXIII DISCHARGE OF NEGOTIABLE INSTRUMENTS § 172. Discharge A negotiable instru«ient is discharged: § 119. — I. By payment in due course by or on behalf of the principal debtor; 2. By payment in due course by the party accommodated, where the iinstrument is made or accepted for accommoda- tion; 3. By the intentional cancellation thereof by the holder ; 4. By any other act which will discharge a simple con- tract for the payment of money ; 5. ^^'he^ the principal debtor becomes the holder of the instrument at or after maturity in his own right. A person secondarily liable on the instrument is dis- charged: §120. — I. By an act which discharges the instrument; 2. By the intentional cancellation of his signature by the holder ; 3. By the discharge of a prior party ; 4. By a valid tender of payment made by a prior party. Also by release of the principal debtor or by extension of his time of payment. -Merely letting the time of payment go by without beginning suit is not granting an extension. § 173. When Not Discharged When paid by a party other than the payee, the instru- ment is not discharged, but the party paying it may enforce payment against all prior parties on the instrument, 180 DISCHARGE igl § 174. Effect of Alteration Any material alteration, unless made with the assent of all parties concerned, will invalidate the instrument, except as against the parties who made the alteration. Any alteration is material which changes: § 125.— I. The date; 2. The sum payable, either for principal or interest; 3. The time or place of payment ; 4. The number or the relations of the parties ; 5. The medium or currency in which payment is to be made; Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration. CHAPTER XXXIV BILLS OF EXCHANGE 1 § 175. Definition § 126. — A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is ad- dressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. An inland bill is one drawn and payable within the state. Any other is a foreign bill. § 176. The Drawee The drawee is not liable unless and until he accepts the bill. A bill may be addressed to two or more drawees, but not in the alternative, nor in succession. Where drawer and drawee are the same person, or the drawee is fictitious, the holder may consider the instrument either a draft or a bill of exchange at his option. § 177. Acceptance § 132. — The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The ac- ceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money. The holder may require that the acceptance be written on the bill. It should not be written on another piece of paper. The drawee has twenty-four hours to decide whether he will accept or not. If he destroys it or fails to return it, he will be held to have accepted it. A qualified acceptance may be given. For form of draft, see Chapter LXXXIV, Form 32. 182 BILLS OF EXCHANGE 1 83 §141. — An acceptance is qualified which is: 1. Conditional, that is to say, which makes payment hy the acceptor dependent on the fulfillment of a condition there- in stated ; 2. Partial, that is to say, an acceptance to pay part only of the amount for which the bill is drawn ; 3. Local, that is to say, an acceptance to pay only at a particular place ; 4. Qualified as to time ; 5. The acceptance of some one or more of the drawees, but not of all. § 178. Presentment for Acceptance Presentment for acceptance must be made : § 143. — I. Where the bill is payable after sight or in any other case where presentment for acceptance is necessary in order to fix the maturity of the instrument ; or 2. ^^'here the bill expressly stipulates that it shall be presented for acceptance ; or 3. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. Presentment for acceptance follows the general rules given for presentment for payment. (See Chapter XXXI.) § 179. Protest for Non-Acceptance A foreign bill appearing on its face to he such must be protested on the day of its dishonor by non-acceptance, if the owner desires to hold the drawer and indorsers. § 153. — The protest must be annexed to the bill, or must contain a copy thereof, and must be under the hand and seal of the notary making it, and must specify: 1. The time and place of presentment; 2. The fact that presentment was made and the manner thereof ; 3. The cause or reason for protesting the bill: l84 NEGOTIABLE INSTRUMENTS 4. The demand made and tbe answer given, if any, or the fact that the drawee or acceptor could not be found. § 154. — Protest may be made by: 1. A notary public; or 2. By any respectable resident of the place where the bill is dishonored, in the presence of two or more creditable witnesses. § 157. — A bill which has been protested for non-accep- tance may be subsequently protested for non-payment. § 180. Acceptance for Honor An outside party may accept or pay a bill of exchange to save the credit of the drawee. In such ca-se the acceptor makes himself liable, and if he must pay the bill, he has a right to be reimbursed by the person who should have paid it. § 181. Bills in a Set § 177. — Where a bill is drawn in a set, each part of the set being numbered and containing a reference to the other parts, the whole of the parts constitute one bill. In such a case, the acceptance should be written on one of the set-s and on one part only. If the drawee accepts more than one part, he may be held lialjle on each part as if it were a separate bill. Ustially, "where any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is dis- charged." ^ When t