Cf f (Jorttell ICaui ^riyonl l&ibrarg KF 801 .C43 rne " UniversityUbrar y C SKmiwi?iKM», ership :con *aining al 3 1924 018 739 387 The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924018739387 HOME LAW SCHOOL SERIES No. 4 Contracts and Partnership CONTAINING ALL THE ESSENTIAL ELEMENTS NECESSARY TO MAKE A COMPLETE AND BINDING CONTRACT, TOGETHER WITH A FULL EXPLANA- TION OF THE LAW OF PARTNER- SHIP, WITH MANY FORMS OF BOTH CONTRACTS AND PARTNERSHIPS BY CHARLES E. .CHADMAN, LL.D. AUTHOR OP "THE HOME LAW SCHOOL SERIES," AND MEMBER OF THE OHIO BAR. CHICAGO FREDERICK J. DRAKE & CO. PUBLISHERS COPYRIGHT, 1899, BY CHARLES &. CHADMAN PREFACE. Previous numbers of the Home Law School Series having met with nothing but success and approval, the author feels disinclined to apologize for attempting to give within the limit of 200 pages the principles of the two important branches of Contract and Partnership. He does not expect that the reader or student will find in the present book all tfhat is contained in the well- known text-books upon these subjects. Nor is he ready to admit that a larger or more comprehensive book is desirable to answer the purpose intended by the volumes of the Home Law School Series. It is only the aim and purpose of the Series to furnish in convenient and inviting form the principles and ele- ments of the American law. Under the head of Contracts it has not been at- tempted to discuss the various special contracts, which are now considered as distinct legal subjects. Sales, Bailment, Negotiable Instruments, Agency, etc., will be treated in later numbers of the Series. The discus- sion has been limited to the method of making a com- plete and binding contract, with a consideration. of the essentials of such a contract; determining the effect of such a contract when made; the method of interpreting or construing the terms of the contract; and, finally, when and how the contract is terminated. The same general plan has been followed in treating the subject of Partnerships. That no great space is necessary for such a consideration of these subjects is .evident. Believing and hoping that the elementary principles herein presented will be of service and benefit to that large class of men who desire to know the common principles of law applicable to their daily business, and to students-at-law in preparing to enter a profession, which is best understood when actually entered upon, the author submits his work without further comment. CHARLES E. CHADMAN. n ABBREVIATIONS. (See also the abbreviations given in previous numbers.) Abb. Pr.— Abbott's Practice Reports, N. Y. Courts. Add. Cont. — Addison on Contracts. Ala. — Alabama Reports. Alb. L. J. — Albany Law Journal. Am. ed. — American Edition. Am. L. Reg. — American Law Register. App. Cas. — Appeal Cases. (Eng.) Ark. — Arkansas Reports. Barb. Ch. — Barbour's Chancery Reports, N. Y. Chancery. B. & Aid. — Barnewall and Alderson's Reports, Eng. King's Bench. B. & C. — Barnewall and Cresswell's Reports, Eng. King's Bench. B. & S. — Best and Smith's Reports, Eng. Queen's Bench. Beav. — Beavan's Reports, Eng. Rolls Court. Cont. or Contr. — Contracts. C. B. — Common Bench Reports, Eng. C. P. D. — Common Pleas Division Reports, Eng. C. J. — 'Chief Justice. Contra. — To the contrary. Ch. App. — Chancery Appeal Cases, Eng. Dill.— Dillon's Reports, U. S. Cir. Ct. D. & J. — De Gex and Jones' Reports, Eng. Chancery. East. — East's Reports, Eng. King's Bench. E. & B— Ellis and Blackburn, Eng. Queen's Bench Re- ports. , Exch. — Exchequer Reports, Eng. Fed. Rep. — Federal Reporter, U. S. Courts. Ga. or Geo. — Georgia Reports. Grat. — Grattan's Reports, Virginia Courts. H. Bl. — Henry Blackstone's Reports, Eng. H. L. — House of Lords Cases, Eng. H. L. Sc. App.— House of Lords Scotch Appeal Cases, Eng. Hill.— Hill's Reports, N. Y. Court. Hun'.— Hun's Reports, N. Y. Sup. Ct. la. — Iowa Reports. Idem. — The same. J. — Judge or justice. J. Parsons,, or J. Pars.— James Parsons. J. & H.— Johnson & Heming's Reports, Eng. Chancery. Johns. Cas.— Johnson's Cases, N. Y. Sup. Ct. & Ct. of Errors. L. R. — Law Reports, Eng. La. Ann. — Louisiana Annual Reports. Mete. — Metcalf's Reports. M. & S. — Maude & Selwyn's Reports, Eng. King's Bench. N. J. L. — New Jersey Law Reports. Nor. — Norris' Reports, Pa. N. H. — New Hampshire Reports. N. S. — New Series. N. W. Rep. — North Western Reporter. O. St.— Ohio State Reports. Ohio C. C. — Ohio Circuit Court Reports. Oreg. — Oregon Reports. Part. — Partnership. P., or pp. — Page or pages. Pa. St. — Pennsylvania Reports. Q. B. D. — Queen's Bench Division Reports. Eng. Roll. Abr. — Rolle's Abridgment. R. I. — Rhode Island Reports. S. C. — Same Case, used for duplicate citation. Sergt. & R. — Sergeant & Rawle's Pa. Reports. South. — Southard's Reports. N. J. U. S. Cir. Ct. — United States Circuit Court Reports. Vt. — Vermont Reports. W. Va. — West Virginia Reports. Wm. Bl. William Blackstone's Reports. Eng. Wr.— Wright's Reports, Pa. CONTENTS. Page. Preface iii. Abbreviations v. CONTRACTS. CHAPTER I. INTRODUCTION. Importance of Contracts in Society I Purpose of the Law of Contracts 2 Same Subject — Implied Contracts 2 Contract Defined 3 Essentials of the Definition 4 Classification of Contracts 5 Same Subject — Express and Implied Contracts 6 Same Subject — Executed and Executory Contracts 7 Same Subject — Other Classifications 7 Method of Presenting the Law of Contracts 7 Authorities on the Law of Contracts 8 CHAPTER II. THE FORMATION OF A VALID CONTRACT. Elements of a Valid Contract 9 What Is Meant by Agreement? 9 Nature of the Agreement or Assent of the Parties 10 Acceptance Necessary to Complete the Assent 11 How Acceptance May Be Made 12 An Offer Is Revocable Until Accepted 13 vii Page. Offers on Time *4 General or Public Offers H Offers at Auction, when Accepted? IS Effect of Failure to Communicate all the Terms of the Offer 16 The Offer Must Be Intended as Such 18 How an Offer May Be Terminated 19 Agreements Made by Post Considered 20 Same Subject— Special Holdings 22 Reality of Consent 23 Same Subject — Mistake 23 Same Subject — Misrepresentation 28 Same Subject — Fraud 32 Same Subject — Duress 38 Same Subject — Undue Influence 38 Necessity of Consideration to a Valid Contract 40 Contracts Under Seal, or Specialties 41 Same Subject — Distinctions 43 Same Subject — Deeds, Bonds, Records 44 Consideration Need Not Be Expressed, but Must Be Proved 46 Kinds of Consideration 46 Same Subject — "Good" Consideration 47 Same Subject — Valuable Consideration 47 Same Subject — Full and Valuable Consideration 48 Valuable Consideration Need Not Be Adequate 48 Consideration Arising from Moral Obligation Discussed.. 49 Examples of Valid and Sufficient Considerations 50 Same Subject — Forbearance 51 Same Subject — Work and Service '. 52 Unreal Considerations S3 Same Subject — Part Payment in Discharge of Whole 53 Consideration Void in Part 55 Executory, Executed and Past Considerations Discussed. . 56 Failure of Consideration Discussed 58 Parties to Contracts — General 59 Persons Incapacitated to Make Contracts 59 Same Subject — Infancy 59 Same Subject — Married Women 60 Same Subject — Persons Mentally Deficient 60 vUi Page. Same Subject — Aliens 6a The Subject- Matter as an Element in a Valid Contract. ... 63 Immoral Agreements 64 Impolitic Agreements 64 Illegal Agreements 67 Effect of Illegal Contract 70 The Statute of Frauds 71 Construction of the Fourth Section of the Statute of Frauds 71 Same Subject — Nature of the Contracts in the Section 73 Same Subject — Effect of Failure to Satisfy ihe Statute 75 Contracts Within the Seventeenth Section 76 Construction of the Seventeenth Section 76 Effect of Failure to Satisfy the Seventeenth Section 78 CHAPTER III. THE OPERATION OF CONTRACT. The Scope of the Contractual Obligation Stated 79 A Contract Cannot Impose Liability on a Third Party.... 79 A Contract Cannot Confer Rights on a Third Party 81 A Contract May Be Assigned 82 Liabilities Under a Contract Cannot Be Assigned 82 Assignments of Rights — At Common Law 83 Same Subject — In Equity 83 Same Subject — By Statute 84 Same Subject — By Operation of Law 86 CHAPTER IV. THE INTERPRETATION OF CONTRACT. What Is Meant by the Interpretation of Contract? 88 Interpretation a Matter of Law 88 Evidence — Proof of the Document 89 Evidence as to Fact of Agreement 90 Evidence as to Terms of the Contract 90 Same Subject — Exceptions Noticed 91 Rules of Construction 93 CHAPTER V. THE DISCHARGE OF CONTRACT. How the Discharge of Contract May Be Effected 95 Page. Discharge by Agreement 95 Same Subject— Waiver 96 Same Subject — Substituted Agreement 97 Same Subject — Condition Subsequent 97 Same Subject— Form of Discharge by Agreement 98 Discharge by Performance 99 Discharge by Breach 101 Same Subject— As Indicated by the Method of the Breach. 101 Same Subject — Independent Promises 103 Same Subject — Conditional Promises 105 Same Subject — Remedies for preach 107 Same Subject — Discharge of Right of Action Arising from Breach no Discharge by Impossibility of Performance ! ill Discharge of Contract by Operation of Law 112 PARTNERSHIPS. CHAPTER I. OF THE FORMATION OF PARTNERSHIPS. Introductory 115 Authorities on Partnership 116 Manner of Treating the Subject 116 Partnership Denned 117 How Partnership Is Created 117 Same Subject — The Valid Agreement 118 Same Subject — The Agreement Must Be Executed 119 When the Partnership Begins 119 Who May Become Partners 120 Kinds of Partners 122 Kinds of Partnerships 123 Purposes of Partnership 124 Tests of a Partnership 125 Same Subject — When the Partnership Is Implied 126 Same Subject — Partnerships as to Third Persons 129 Sub-Partnerships 132 Partnership May Result from Attempted Incorporation. ..133 CHAPTER II. PRINCIPLES REGULATING PARTNERSHIP DURING EXISTENCE. The Capital of the Firm 134 x Page. Real Estate as Firm Property 135 Same Subject — Its Sale by a Partner 136 Same Subject — When Considered Personalty 137 Title to Firm Property Generally 137 Same Subject — Partner's Exemption 139 The Firm Name as Property 140 The Good-Will of the Firm as Property 141 Implied Powers of Partners 141 Same Subject — Extent of Powers 142 Same Subject — Instances 143 Powers of a Majority 146 Rights and Duties of Partners 146 Liability of Partners on Firm Contracts 148 Same Subject — Extent of Liability 150 Liability of Partners and the Firm for Torts 151 Same Subject — The Liability Joint and Several 152 Actions by and Against the Firm ■. 152 Actions Between Partners 153 Same Subject — In Equity 155 CHAPTER III. PRINCIPLES BY WHICH THE BUSINESS IS WOUND UP. Reasons for Dissolution 157 Same Subject — Dissolution by Act of the Parties 157 Same Subject — Dissolution by Operation of Law 158 Necessity of Notice of Dissolution 159 The Effect of Dissolution 161 The Partner's Equitable Lien 163 The Principles Governing the Winding Up, or Final Ac- counting 164 Same Subject — Method of Accounting 165 Same Subject — Sharing Losses 168 Concerning the Action of Accounting 168 Limited Partnerships 169 Same Subject — The Statutory Requirements 170 Limited Partnership Associations 172 Helps to Students and Forms 173 The Home Law School 183 Questions for Students 185 Advertisements 197 xi PRINCIPLES OF THE LAW OF CONTRACTS. INTRODUCTION. THE SUBJECT OUTLINED AND DEFINED. Sec. 402. IMPORTANCE OF CONTRACTS IN SOCIETY. — The subject of Contracts is pre-eminent- ly the most important and far-reaching branch of the municipal or positive law. "Indeed," says Professor Parsons, "it may be looked upon as the basis of hu- man society." In a state of wild or savage nature, each man was at war with all other men; presumably by a gradual evolution men came to make voluntary or involuntary compacts and agreements with each other, by which each recognized the existence and rights of others in consideration that his own existence and rights be in turn recognized by all the rest. In some such manner were social relations established. By the same process — agreement — have arisen the multitude of relations which exist between individuals; so that in almost every phase of human life, in the state, the community and the family, in business and pleasure, contracts, and the law of contracts, are of the utmost importance.* ♦Almost the whole procedure of human life implies, or, rather, is, the continual fulfillment of contracts." I Pars. Conts. 1. 2 CONTRACTS. Sec. 403. PURPOSE OF THE LAW OF CON- TRACTS.— Rules of law regulating and enforcing contracts are made necessary because men, when they have made a contract, are not always ready and willing to carry it out; also from the fact that unrighteous and immoral contracts are made, and these it is to the common good to be declared void, while those which are valid and just should be enforced by proper sanc- tions. If all contracts or agreements between man and man were clearly made, and honestly fulfilled, there would be little need of regulating principles of law. But some men are dishonest and unfair in dealing with their fellow men, and all are liable to make mistakes and errors. Hence the law may at one time coerce performance, and again restrain a party from demand- ing the fulfillment of a contract. The law aims to lay down certain general characteristics and demand that all contracts be brought within their scope if they are to be legal and enforceable; These principles or char- acteristics prescribed by the law are the developed and practical expedients believed to be necessary to secure justice and fair-dealing between man and man in the employment of the important right of contract. Sec. 404. SAME SUBJECT— IMPLIED CON- TRACTS. — It is not always convenient for contract- ing parties to express clearly and fully the terms of the contract between them. In such cases the law has to step in, and by rules or principles of construction and interpretation declare from the situation of the parties what should, and what should not, be implied CONTRACTS. 3 between them. These general rules, gradually evolved by impartial and experienced men — judges — are pre- sumed to be known and understood by the contracting parties, and to be acquiesced in by each, and this pre- sumption is not to be varied. These equitable terms which the law adds to the situation of the parties creates an "implied contract," defined by Blackstone as, one which reason and justice dictates, and which, therefore, the law presumes that every man undertakes to perform, (n Bl. Com. 443.) Sec. 405. CONTRACT DEFINED.— A contract is an agreement between two parties, resulting in an obligation or legal tie, by reason of which one party is entitled to have certain stipulated acts performed or forborne by the other.* The word "contract" is the term now commonly used to denote that one person is bound to another to do or render something, and that a duty is imposed as well as a right conferred, though "obligation," "agreement," "covenant," and "promise" are some- 1 times used in the same sense. In the Roman Civil ♦There are many definitions of a contract. "A con- tract is an agreement, upon sufficient consideration, to do a particular thing." (2 Bl. Com. 446.) "A contract is an agreement in which a party undertakes to do, or not to do, a particular thing." (Marshall C. J., in Sturges v. Crowning- shield, 4 Wheat. 197.) "An agreement enforcable at law, made between two or more persons., by which rights are acquired by one or more to acts or forbearances on the part of the other or others." (Anson Conts. 9.) According to the etymology of the word, from "contraho," a contract is a drawing together of the minds of the parties until they meet in agreement. (Mc- nulty v. Prentice, 25 Barb. 204.) 4 CONTRACTS. Law, "obligation" was the term used to designate all the rights and liabilities which we term "rights in per- sonam," or the rights which one person has to acts or forbearances from others. Here, as in all contractual relations, two parties are necessary, as a contract or obligation with one's self is a mere nullity. (Faulkner v. Howe, 2 Exch. 595.) . Sec. 406. ESSENTIALS OF THE DEFINI- TION. — The essential things to be considered in every contract are: The agreement, the parties, the consid- eration, and the subject matter, or the thing to be done or omitted. (Fuller v. Kemp, 138 N. Y. 231.)* The agreement, or assent of the parties to the terms of the contract, need not be a union of the two minds, but simply a union of the manifest thoughts or pur- pose of the contracting parties. So in implied con- tracts, we shall see that this assent is conclusively pre- sumed to exist as to all such features as the judge or legal expert thinks reasonable to the situation and surroundings of the parties. The consideration is the reward or inducement which engages one or the other to enter into the contract. The parties must be two or more in number and competent to contract. The sub- ject matter of the contract may be as varied as the ne- *"To constitute a contract, there must be parties capable of contracting, consent, a lawful object, and a sufficient con- sideration; and the consent must be free, mutual and communi- cated by each to the other and must not be induced by fraud, undue influence or mistake, else it is not free and the contract may be rescinded." (Beach on Cont. Sec. 1; Loaize v. Supr. Court, 85 Cal. 11.) CONTRACTS. 5 cessities of human life; so that it is the few things dis- allowed as subjects of contract that are to be men- tioned, and not those that are allowed. Each of these essential elements will receive attention in the subse- quent sections. Sec. 407. CLASSIFICATION OF CON- TRACTS. — The word "contract" is used by the pro- fession to designate every description of agreement or obligation, whether verbal or written, with or without seal, by which one party is bound to another to per- form or to omit to perform a stipulated act. In this most general sense, contracts may be classified as, (1), .contracts under seal, or specialties; and (2), simple contracts. (1). Contracts Under Seal. Contracts under seal, also called specialties, have been of greater significance in the past than they are at present. The seal, or solemn execution of the contract, imported the assent and in- tention of the parties to which the court gave effect. At first the form in which the intention was manifested was of more importance than the consideration, and the rule still prevails that a deed, or contract under seal, requires no consideration. Now that considera- tion has become of more importance than form, it is said that the presence of the seal implies a considera- tion. See Anson on Contracts, Part II., Ch. 2. (2) Simple Contracts. All contracts not under seal, whether in writing or verbal, are called simple or parol contracts. There being no distinction between verbal and written contracts as regards validity, save where 6 CONTRACTS. the Statute of Frauds requires certain contracts to be in writing to be valid. (Beckham v. Drake 9 M. & W. 92.) Sec. 408. SAME SUBJECT— EXPRESS AND IMPLIED CONTRACTS.— Contracts are further di- vided, into express and implied contracts. Express contracts are those which are openly ut- tered in detail, or are reduced to writing so that the terms are known to each of the contracting parties, as an agreement to sell stated goods at a stated price. An implied contract, as we have seen in Section 404, arises when the parties have not openly stated the terms, but justice and honesty require that a contract should exist between them, as where one party has rendered the other service, or furnished him goods; here an implied agreement arises that the party bene- fited is to repay the other what such services or goods are reasonably worth. In general, the only distinction between express and implied contracts is in the mode of proof. An express contract is proved by evidence of the words used, and by a rule of evidence, when the words of the contract are in writing and definite, oral testimony will not be admitted to contravene or vary them. In implied con- tracts the intention of the parties is determined by proving the facts and circumstances surrounding them, and adding those terms which justice and honesty re- quire from parties in such circumstances. But when contracts are established in either of these ways, they are of the same validity and effect, and the conse- quences of a breach are the same. CONTRACTS. y Sec. 409. SAME SUBJECT— EXECUTED AND EXECUTORY CONTRACTS.— A contract that is fully performed on both sides is said to be "executed." While a contract under which nothing has been done is "executory." Contracts may be part performed and part unperformed, that is, both executed and executory in part. (2 Bl. Com. 443 ; Fletcher v. Peck, 6 Cranch, 87, 136.) Sec. 410. SAME SUBJECT— OTHER CLASSI- FICATIONS. — A contract consisting of mutual exec- utory promises is said to be "bilateral," as in the exec- utory contract of sale, where one is bound to buy and pay the price, and the other to deliver the thing sold. Where the consideration is executed on one side and executory on the other, the contract is said to be "uni- lateral," as where an option is given to buy or sell. (Leake on Contracts, 18.) A contract is said to be aleatory or hazardous when the performance of its object depends on an uncertain event, as in the contract of insurance. A contract is certain when the thing to be done depends on the will of the party, or when it must happen in the usual course of events. See Louisiana Code, Sees. 1766-76. Sec. 411. METHOD OF PRESENTING THE LAW OF CONTRACTS.— Authors differ in their method of treating the subject of contracts. We pre- fer to follow the plan adopted by Sir William Anson, in his Principles of the English Law of Contract, and treat, First, of the formation of a valid contract, and its essential elements; Second, the effect or operation of contract; Third, the interpretation of contract, or 8 CONTRACTS. the rules of construction followed when presented to the court for decision; and, Fourth, the discharge of the contract, or the final solution of the legal tie be- tween the contracting parties. A chapter will be de- voted to each of these topics. See Anson on Con- tracts, p. i. Sec. 412. AUTHORITIES ON THE LAW OF CONTRACT. — Among the numerous English text- writers on the subject of Contracts, may be mentioned Chitty, Addison, Pollock and Anson. The works of these authors have been published with American notes, and are standard authorities at this time. Of the American authors on the subject, we mention Story, Parsons, Metcalf, Wharton, Bishop and Beach. The last author, Beach, has compiled a most useful and valuable two-volume work on "The Modern Law of Contract," and has taken pains to digest late American cases. CONTRACTS. CHAPTER II. THE FORMATION OF A VALID CONTRACT. Sec. 413. ELEMENTS OF A VALID CON- TRACT. — As we have seen in Section 406, the essen- tial elements of a valid contract are: 1. Agreement, or the mutual and genuine concurrence of the parties in the thing to be done or omitted, usually indicated by offer and acceptance. 2. Consideration, or the induce- ment which marks the agreement as one justly enti- tled to be an act in the law. 3. Parties with capacities to contract. 4. A subject matter not illegal or opposed to public policy. Where all of these elements are pres- ent a valid and enforceable contract is created. The effect of the absence of any one of the four requisites will be noted as we proceed to discuss them in their order.* I.— AGREEMENT. Sec. 414. WHAT IS MEANT BY AGREE- MENT? — Agreement, in its popular and most gen- eral sense, means no more than concord; the concur- ring of two minds in the same opinion or purpose. In this sense the term does not imply any exchange of promises, or a consideration influencing the agree- ment; there is a mere mutual assent, or concurring views. (Sage v. Wilcox, 6 Conn. 81; Abbott's Law Diet., "Agree.") *See Anson on Contract, p. 10. -o CONTRACTS. But when the word is used in reference to a mutual arrangement for determining future acts of the parties, agreement "means a meeting or concurrence of minds upon a course to be taken; a concord established by reciprocal promises or by compensating a promise. Also, secondarily, agreement designates the language, oral or written, embodying mutual promises. In this use of the word it is nearly equivalent to the verb and noun 'contract.' " (Abbott's Law Diet. "Agree.") As a result of these uses of the word, it is disputed whether or not agreement imports a consideration.* Abbott states the true view to be "that it (agree) properly im- ports more than promise, followed by assent; it implies reciprocal promises, though not necessarily promises which would form a legal consideration." (Law Diet. "Agree.") Sec. 415. NATURE OF THE AGREEMENT OR ASSENT OF THE PARTIES.— In general, the agreement or assent of the parties must be a mutual willingness to enter upon and be bound by an under- stood bargain. There is no contract unless the parties so assent to the same thing and in the same sense. But this does not necessitate a union of the secret thoughts and intention of the parties; it is sufficient if there be , i. *"Agree no more implies a consideration than the word promise." (Newcomb v. Clark, 1 Den. 226; Sage v. Wilcox, 6 Conn. 81.) "Agreement is more comprehensive than promise; signi- fies a mutual contract, on consideration, between two or more parties. A statute (of frauds) which requires the agreement to be in writing includes the consideration." (Wain v. Wal- ters, S East, 10; Andrews v. Pontue, 24 Wend. 285.) CONTRACTS. u a plain request on the one side and an assent on the other. All that is necessary is a manifest outward as- sent of the parties to the same thing in the same gen- eral sense, (i Pars. Cont. 475.) This assent or agree- ment usually originates from question and answer, that is, offer and acceptance. Thus A says to B, "I will sell you my horse for $50." B replies, "I accept your offer." By this offer and its acceptance the as- sent of the parties is manifested and the spoken words conclude both from denying that they did so assent. Sec. 416. ACCEPTANCE NECESSARY TO COMPLETE THE ASSENT.— When a proposition has been communicated by one party to another it must be accepted, and the acceptance communicated, or put in a proper way to be communicated, to the maker of the offer in order to form a union of mind necessary to agreement. The acceptance of the terms of the offer must be as full and complete as they were made. There must be no reservations, or adding of conditions by the acceptor; the offer must be accepted or rejected in toto. So if an offer be made to a person by mail or otherwise, to sell a certain horse for $50, a complete acceptance of such an offer might be made by the reply "Yes ;" but if the answer should be "Yes, if you will warrant him," there is a change or qualifi- cation of the offer which is not an acceptance, but a re- fusal of the offer as made, and the submission of a new offer to the seller, which he may accept or reject.* *i Pars. Cont. 476; Sawyer v. Brossart, 67 Iowa, 678; Baker v. Holt, 56 Wis. 100; Fenno v. Weston, 31 Ver. 345.) 12 CONTRACTS. Sec. 417. HOW ACCEPTANCE MAY BE MADE. — The acceptance of an offer may be by ex- press words or by conduct. Where an offer is made and neither accepted nor rejected expressly, but the party to whom the offer is made proceeds in the matter and derives profit or benefit from it, or asserts rights over the thing in regard to which the offer, is made, here the offer is held to be impliedly accepted. Where some particular thing is to mark the acceptance, a do- ing of this thing completes the contract, as where a letter asked if goods would be supplied at a certain price, and stated that if they would the first cargo was- to be shipped on receipt of letter. A shipment of the cargo was held to complete the contract.* In general, an offer cannot be made in such terms that an acceptance will be assumed without communi- cation, as if a letter making an offer should state that if no reply was received an acceptance would be as- sumed. The burden of writing a refusal cannot be thus put upon a party. (Felthouse v. Bindley, 11 C. B. N. S. 689.) But a comparatively recent case holds that a proposal may be made under such circum- stance as not by necessary implication to call for a reply in acceptance. (Fry v. Franklin Ins. Co., 40 O. St., 108.) Any fraud on the part of the offerer in getting the acceptance will void the contract. Where the party to secure the signature to a note read less interest than the note was written for, this was held to void the con- tract. (Stacy v. Roos, 27 Tex. 8.) ♦Beach, on Contracts, 57; Storm v. U. S. 94 U. S. 76. CONTRACTS. 13 Sec. 418. AN OFFER IS REVOCABLE UNTIL ACCEPTED. — Any offer without consideration may- be withdrawn at any time before acceptance, but in the case of an offer communicated by mail, the offer is considered as being repeated every instant of time until the letter has reached its destination, and the cor- respondent has had a reasonable time to answer it. (Dunlap v. Higgins, 1 H. L. Cas. 381.) If the offer is not retracted it remains in force until the time for ac- ceptance or rejection has arrived. It may be retracted before acceptance, but the revocation must be com- municated to be effective. (Stitt V. Huidekopers, 17 Wall. 384; Beach on Contracts, Sec. 37.) The offerer may withdraw the offer at any time be- fore acceptance, but if he does not do so, how long may the acceptor wait and then accept without the offer lapsing? Will it be a minute, or a week, or longer? This is a question that cannot be answered definitely in any case. The rule is, that the offer con- tinues a reasonable time, and that the determination of a reasonable time depends upon the circumstances of the particular case, and does, in fact, vary from a few minutes in cases to a much longer time. When the facts are shown, what is a reasonable time is a question of law.* ♦Loring v. Boston, 7 Mete. 409; Ferrier v. Storer, 63 la. 484. The circumstances attending the negotiations, and the character and subject matter of the contract will aid in deter- mining the question of reasonable time. In general, the in- tention of the parties as to the time the offer is to remain open will govern ; if the time is stated there is no trouble, and where no time is stated or agreed on then a reasonable time is in- i 4 CONTRACTS. Sec. 419. OFFERS ON TIME.— All offers might be considered as on time, as the answer must follow the offer and cannot be exactly simultaneous with it. But by an offer on time is meant one in which the offerer gives the person a definite time within which he may accept. Thus the person making the offer may say, "I will give you this hour, or this day to decide," and thus fixes the time during which the offer is to con- tinue. The offerer may withdraw the offer within the time as there is no consideration for his agreeing to keep the offer open. But in case an option is given to buy or sell within a certain time, and a consideration paid for it, a complete contract has been made which is binding upon both parties. Sec. 420. GENERAL OF PUBLIC OFFERS.— At its first promulgation an offer need not be made to any specific person. It may be made generally and left open so that any one accepting it is the one con- tracted with. A common example of such an offer is in the case of a reward, which is offered to all the world, and when its terms are complied with by any one it is binding. But such an offer must be acted on with knowledge of, and with a view to obtaining the tended. Convenience, policy and common sense aid in deter- mining what shall be a reasonable time in each particular case. If an offer were made to one who was present and refused to consider it and turned away, the offer would doubtless be construed as terminated at once, but where it is made by mail to one at a distance, it would continue until the party would have a reasonable time to consider and accept, provided it was not recalled in the meantime. See Beach on Contract, Sec. 44. CONTRACTS. 15 reward. (Beach on Cont., Sec 41 ; Burke v. Express Co., 50 Cal. 218; Fitch v. Snedaker, 38 N. Y. 250.) A public offer to do work at fixed terms, is impliedly as- sented to by one having work done, so a public offer to do advertising at certain rates is accepted by persons having work performed by the person advertising. A general or public offer is revocable by the offerer at any time before it is accepted or anything done in reliance on it, and if publicly recalled, a person though ignorant of the recall cannot claim reward for the ser- vice done. It differs in this respect from a promise made to an individual. (Shuey v. U. S., 92 U. S. 73.) Sec. 421. OFFERS AT AUCTION, WHEN AC- CEPTED? — Bids by persons at an auction are simply offers to buy at that price, and are not binding, and may be withdrawn at any time before acceptance. The acceptance is announced by letting fall the hammer and knocking the article off to the bidder; when this is done the offer is irrevocable.* ♦Orders for goods. An order sent by a person to a dealer for goods is an offer to buy, and does not become a contract until it is accepted by the dealer, or some act is done on the faith of it, as the shipment or delivery of the goods. (Dent v. Steamship Co. 49 N. Y. 390; Briggs v. Sizer, 30 N. Y. 652; Crook v. Cowan, 64 N. C. 743) What is an offer or proposal? Preliminary negotiations must be distinguished from an offer or proposal. The ques- tion is one of intention; did the party mean to make a proposal or was he only settling terms of agreement into which he pro- posed to enter when all the particulars were adjusted? Until all the terms are settled the proposer may retire from the bar- gain. So all communications addressed in general language to those interested in a trade or business, as circulars, stating terms upon which goods may be ordered, are mere advertise- 16 CONTRACTS. Sec. 422. EFFECT OF FAILURE TO COM- MUNICATE ALL THE TERMS OF OFFER— "If an offer contains on its face the terms Of a com- plete contract, the acceptor will not be bound by any other terms intended to be included in it; unless it ap- pear that he knew of those terms, or had their existence brought to his knowledge and was capable of inform- ing himself of their nature. Cases which illustrate this rule arise when a contract has been made with a rail- way company for the safe carriage of the plaintiff, or of his luggage; or for the deposit or bailment of baggage in a cloak room; or, as in the last reported case on the subject, where a contract has been made for the de- posit of an article and its sale upon commission. In each case the document or ticket delivered to the plaintiff contained terms modifying the liability of the defendant, the offerer, as carrier or bailee; in each case the plaintiff, as acceptor, alleged that the terms were not brought to his notice so as to form part of the offer which he accepted. "The law applicable to these cases is thus laid down by Mellish, L. J. : 'If the person receiving the ticket did merits and not offers. (Beach on Contract, Sec. 36; Hill v. Webb, 43 Minn. 545; Moulton v. Kershaw, 59 Wis. 316; Lin- coln v. Erie Preserving Co., 132 Mass. 129.) Rule as to written draft. If an agreement is concluded and acted upon, it is binding, though it is understood that it is afterwards to be reduced to writing. But if a written draft is viewed as the consummation of the negotiations, and not a mere memorial, there is no contract until it is finally signed. (Beach on Contract, Sees. 2, 3 ; Steamship Co. v. Swift, 86 Me. 248; Blaney v. Hoke, 14 O. St. 296; Sanders v. Pottlitzer Co., 144 N. Y. 209.) CONTRACTS. 17 not see or know that there was any writing on the ticket, he is not bound by the conditions;* if he knew there was writing, and knew or believed that the writ- ing contained conditions, then he is bound by the con- ditions;** if he knew there was writing on the ticket but did not know or believe that the writing contained conditions, nevertheless he would be bound, if the de- livering to him of the ticket in such a manner that he could see there was writing upon it, was, in the opinion of the jury, reasonable notice that the writing con- tained conditions.' "*** (Anson on Contract, p. 16; Parker v. S. E. Railway Co., 2 C. P. D. 423.) * In Henderson v. Stevenson, L. R. 2 H. L. Sc. App. 470, the plaintiff bought a ticket by steamer from Dublin to White- haven. On the face of the ticket were these words only, "Dublin to Whitehaven." The back of the ticket contained a statement exempting the company from liability for loss, in- jury or delay to the holder or his baggage. The vessel being lost by the neglect of the Company's servants, the House of Lords held that the Company were liable for the lost baggage notwithstanding the terms on the back of the ticket, of which the plaintiff knew nothing and consequently could not have assented to. ** Harris v. G. W. Railway Co., 12 B. D. 515. In this case luggage was deposited in the parcel room of the Com- pany, and a ticket given the depositor, bearing on its face the words, "Subject to the conditions on the other side." One of the conditions limited the Company's liability to $25 for each package. The luggage was lost, and a suit brought to recover more than $25; plaintiff admitted a knowledge that the ticket contained conditions, but did not read them. The court held the plaintiff bound by the conditions and limited the recovery to the amount stated. *** Parker v. S. E. Railway Co., 2 C. P. D. 416. In this case baggage was left in the cloakroom of Company on terms stated on the back of a ticket, on the face of which was printed, 18 CONTRACTS. Sec. 423. THE OFFER MUST BE INTENDED AS SUCH.— The intention of the one party to ob- serve the matter in question, expressed to and accepted by the other, for the purpose of creating a right to its observance, constitutes a promise. (Leake on Cont. 13.) But where a person whose horse had been stolen, exclaimed, "I will give $100 to any one who will find out the thief," it was held not to be an offer to pay a reward, but merely an explosion of wrath against the thief. (Higgins v. Lessig, 49 111. App. 459.) So where a man with a marriageable daughter said he would give $500 to him who married his daughter with his consent, he was held not to be bound by the offer, the words being considered merely to excite suitors. (Week v. Tibold, Roll. Abr., p. 6.) And it is held that a proposal must not only be in- tended to create legal relations, but must also be ca- pable of creating them, that is, must not be so indefin- ite or illusory as to make it difficult to say what had been promised. (Anson on Contract, p. 19.) "See back." The plaintiff admitted knowing that there was writing on the ticket, but denied knowing that the writing contained conditions. The decision of the Court of Appeals was, that the plaintiff was bound by the conditions if in the opinion of the jury the ticket amounted to reasonable notice of its existence. "In all of these cases the question is the same. Have the terms of the offer been fully communicated to the acceptor? And the tendency of judicial decision is towards a general rule, that if a man accepts a document which purports to con- tain the terms of an offer, he is bound by all the terms, though he may not choose to inform himself of their tenor or even of their existence." (Anson on Contract, p. 18.) CONTRACTS. i(J Sec. 424. HOW AN OFFER MAY BE TERMI- NATED. — We have seen (Section 418) that any offer may be revoked before acceptance, but this rule should except offers under seal. Further we have seen that an offer unaccepted will lapse by the expiration of a reasonable time, and that where the parties have pre- scribed a definite time the offer terminates by efflux of the specified time without acceptance. (Section 4I9-) Again, an offer may be terminated by breach of pre- scribed conditions as to the mode of acceptance. Thus where the offer was to sell flour the answer to be sent by return of the wagon which brought the offer, an acceptance by letter, though supposed to be speedier was not a proper acceptance. (Eliason v. Henshaw, 4 Wheat., 225.) This failure to. accept in the manner prescribed by the offerer may be considered a refusal of the offer as made, and the making of a counter prop- osition, in which case the offerer may treat the offer as rejected. (Beach on Contract, Sec. 51.) The ac- ceptance must be without condition, and absolute (Eg- ger v. Nesbitt, 122 Mo. 667.) But it is held that if an offer is not revoked, a party may accept it, although he previously asked the proposer to modify the terms. (Stevenson v. McLane, L. R. 5 Q. B. D. 346.) The death of either party before acceptance termi- nates the offer. The representatives of the maker of an offer are not bound by an acceptance, nor can they accept it on behalf of his estate. (Anson on Contract, p. 22; Frith v. Lawrence, 1 Paige, 434.) So notice of so CONTRACTS. the dissolution of a partnership revokes an offer by the firm. (Goodspeed v. Plow Co., 45 Mich. 322.) Sec. 425. AGREEMENTS MADE BY POST CONSIDERED.— An offer communicated by letter is construed a continuing offer during every instant of time until it has reached the person addressed and a reasonable time has been given in which to accept or reject.* It may be withdrawn by the sender at any time before the letter of acceptance is mailed, but the notice of withdrawal must reach or be communicated to the person to whom the offer has been made before it is effective.** The acceptance of an offer by post is ♦Adams v. Lindsell, 1 B. & Aid. 681. In this case there was an offer to sell wool to plaintiff made by letter dated Sept. 2d, 1817. The letter was misdirected and did not reach plain- tiff until Sept. sth, it was then accepted and letter posted; the defendant had in the meantime sold the wool elsewhere. The plaintiff sued for the non-delivery of the wool, and the de- fendant claimed that the contract was not complete until the letter of acceptance reached him. But the court held "that if that were so no contract could ever be completed by the post. For if the defendants were not bound by their offer, when accepted by the plaintiffs, till answer was received, then the plaintiffs ought not to be bound till after they had received the notification that the defendants had received their answer and assented to it. And so it might go on ad infinitum." The case intimates that the postoffice is made the agent for the party making the offer, both to deliver the offer and re- ceive the acceptance. (Beach on Contract, Sec. 37.) ** *** Byrne v. Van Tienhoven, 5 C. P. D. 349. In this case the offer was sent by post from Cardiff on October 1st to the plaintiff at New York; the offer requested a reply by cable. On the nth of October the plaintiff received the letter and at once accepted by cable. On the 8th of October a letter had been posted withdrawing the offer. The court CONTRACTS. 2I complete when the letter of acceptance is duly posted., properly addressed and prepaid. The assent of the par- ties to the terms is then complete, and the agreement is binding on both, and this is so although a letter with- drawing the offer has been written and posted previous- ly, but not yet received by the offeree.*** The accept- ance makes the contract when posted, and it does not matter if the letter of acceptance fails to reach the of- ff>T*PT* ^ ^ 5jc sfe passed upon the two questions: "i. Whether a withdrawal of an offer has any effect until it is communicated to the party to whom the letter is sent. 2. Whether posting a letter of withdrawal is a communication to the person to whom the letter is sent." And held "that both legal principle and prac- tical convenience require that a person who has accepted an offer not known to him to have been revoked shall be in a position safely to act upon the footing that the offer and the acceptance constitute a contract binding upon both parties." To the same effect, see Tayloe v. Merchant Fire Ins. Co., 9 How. 290; Hamilton v. Lycoming Ins. Co., 5 Pa. St. 342; Lungstrauss v. German Ins. Co., 48 Mo. 201. The rule just stated is well settled in this country where the letter of accept- ance is mailed, or placed in the hands of an agent of the pro- poser, but if the acceptance be sent by an agent of the ac- ceptor, then the rule is that it must be received by the pro- poser. (Minnesota Oil Co. v. Collier Lead Co., 4 Dill. 431; Washburn v. Fletcher, 42 Wis. 152.) .Where an offer is made and a stated time given in which the offer may be accepted, such an offer without consideration may be retracted at any time, and it seems that in such a case no formal notice is necessary to constitute a withdrawal of the offer. It is held sufficient if the person making the offer does some act inconsistent with keeping the offer open, as, selling the property or thing to some other person, and that the per- son to whom the offer was made has knowledge of such act. (Pomeroy on Cont. Sec. 61; Dickinson v. Dodds, 2 Ch. D. 453.) And see Cooke v. Oxley, 3 Term, 653. **** Household Ins. Co. v. Grant, 4 Ex. D. 221 This case 2i Contracts. Sec. 426. SAME SUBJECT— SPECIAL HOLD- INGS.— In Massachusetts the law is that an accept- ance by post only takes effect when it reaches the pro- poser. (McCulloch v. Ins. Co., 1 Pick. 278.) Where the sender in mailing an acceptance has, under the postal regulations, a "locus poenitentiae" or opportunity to withdraw the letter before it leave the town, the postoffice is probably his agent until the letter has left the town. But if there can be no recla- mation of the letter it is the property of the addressee as soon as posted. (Beach on Contract, Sec. 60; Ex- Parte Cote, L. R. 9 Ch. App. 27.) The authority to accept by post arises from the in- tention of the parties, which may be express, or gath- ered from the fact that in the ordinary conduct of af- fairs it must have been intended that the post was to be the means of communication. Where it is the cus- tom and general usage to deal by post, the authority will be presumed. (Beach on Contract, Sec. 61.) It is well settled, both in the United States and En- gland, that the rules applicable to communications by post, govern communications by telegraph. ("Con- tracts by Telegraph," 14 Am. L. Reg. 401 ; Trevor v. Ward, 36 N. Y. 307; Egger v. Nesbitt, 122 Mo. 667.) holds that the agreement is complete from the moment the letter is put in the mail, and that the subsequent fate of the letter can not affect it. Thesiger, L. J., stating the law to be, "that the acceptor, in posting the letter, has put it out of his control and done an extraneous act which clenches the matter and shows beyond all doubt that each side is bound. How then can a casualty in the post, whether resulting in delay, which in commercial transactions is often as bad as no delivery, or in non-delivery, unbind the parties or unmake the contract?" CONTRACTS. 23 The place of the contract, when material, is deter- mined by the place of acceptance. So where an offer was made in Boston and accepted by telegram from Providence, R. I., the contract was held to have been made in Rhode Island, though it was to be performed in Massachusetts. (Perry v. Mt. Hope Iron Co., 15 R. 1. 380.)* Sec. 427. REALITY OF CONSENT.— Consent being an act of mind, it follows that there must be mental capacity in the contracting parties, and we shall see that insane persons, idiots, etc., cannot assent to or make an offer which will bind them. Further, the con- sent of the contracting parties must be real and gen- uine, and if given under such circumstances as nega- tive a genuine expression of intention there is no valid agreement The cases or causes of unreality of con- sent are usually classified as arising from, Mistake, Misrepresentation, Fraud, Duress, and Undue Influ- ence, each of which we shall notice briefly. Sec. 428. SAME SUBJECT— MISTAKE.— Where the parties have not meant the same thing; or one or both may, though meaning the same thing, have formed untrue conclusions as to the subject matter of the agreement, it is a mistake. (Anson on Contract, p. 121.) Mistake of intention, which, is here being considered, *"The place of contract is material as prima facie denoting the law by which it is to be construed and regulated, and the law by which the capacity of the parties to the contract, as dependent upon infancy, lunacy, marriage, is determined." (Leake on Contract, 49.) 24 CONTRACTS. is to be distinguished from mistake of expression, which the courts allow parties to explain or correct. It is also to be distinguished from failure of consider- ation, where the question is not whether the party con- tracted at all, but whether the terms of the contract have been fulfilled. If a party fails to put in the agree- ment all the terms of the contract consented to and thereby bind the other party to fulfillment, this is not mistake. It is to be observed that the cases in which mistake invalidates contracts are exceptions to the general rule stated in a previous section (Ante, Sec. 415) that the parties are bound by their assent; ex- pressed in plain terms, and uninfluenced by fraud or duress. Anson, in his work on contracts mentions several instances of mistake as follows: (a) Mistake as to the Nature of the Transaction. This, he says, is of rare occurrence, because men us- ually know what they are contracting about. The mis- take arises from some misrepresentation or deceit on the part of a third party, and thus distinguishes the case from that of fraud. Where a deed was executed by an illiterate person who was told that it was a re- lease of arrears of rent, it was held void for mistake. (Thoroughgood's Case, 2 Co. Rep. 9.) So in Foster v. McKinnon, L. R. 4 C. P. 704, an indorsement of a bill of exchange was secured by the representation by the acceptor that it was a guarantee, and it was held not to be a binding endorsement, though in the hands of a subsequent bona fide endorsee for value. This rule is fol'owed in the American cases, the reason for CONTRACTS. 25 the rule being that it is invalid not merely for fraud, if fraud i9 present, but because the mind of the signer did not accompany the signature ; that is, he never intend- ed to sign such a contract as he did sign. But the rule is qualified to this extent, that as a defense against a bona fide holder of negotiable paper, the defendant must show that he was not guilty of negligence in sign- ing the paper. (Piffer v. Smith, 57 111. 527; Soper v. Peck, 51 Mich. 563; Ross v. Doland, 29 Ohio St. 473.)* (b) Mistake as to the Person with Whom the Con- tract is Made. A party contracting with another has regard to his credit and character, and is not bound if by mistake, or without his consent, another is substi- tuted for the one intended to be contracted with. Thus, in a case where ice was being supplied to a customer by a dealer, and another bought the dealer's business and kept on supplying the consumer without notifying him of the change, it was held that there was no privity of contract between the new dealer and consumer, which, with the possession and use of the property, would support an implied promise to pay for the ice. (Boston Ice Co. v. Potter, 123 Mass. 28; Boulton v. Jones, 2 H. & N. 564.) *In nearly all of the United States it has been held, that a person in full possession of his faculties, and not illiterate to the extent of inability to read, who signs a paper or note under the belief that it is a contract of a different character, though he has not read it, and has relied on the reading and represen- tations of another, is still bound, as his execution of the paper under such circumstances is prima facie negligence as will render him liable to a bona fide holder. (Baldwin v. Barrows, 86 Ind. 351; Chapman v. Rose, 56 N. Y. 137; Mackey v. Peter- son, 29 Minn. 299.) 26 CONTRACTS. (c) Mistake as to the Subject Matter of the Con- tract. In order to constitute such a mistake as to the subject matter of the contract as to avoid it, it must clearly appear that the party, without any fault of his own, made a prima facie agreement contrary to his real intention. A mere mistake as to his powers, judg- ment, rights, etc., will not entitle a party to avoid a contract which he has knowingly, but indiscreetly, entered into.* *"If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was as- senting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms." (Blackburn, J., in Smith v. Hughes, 6 Q. B. p. 607.) "The question is not what the parties thought, but what they said and did. A sells to X, and X believes that he is buying 'this bar of gold,' 'this barrel of oysters,' 'this case of champagne.' The bar turns out to be brass, the barrel to contain oatmeal, the case to contain sherry. The parties are honestly mistaken as to the subject-matter of the contract, but their mistake has nothing to do with their respective rights. These depend on the answer to the question: Did A sell to X a bar of metal or a bar of gold? a case of wine or a case of champagne? a barrel of provisions or a barrel of oys- ters? A contract for a bar of gold is not performed by the delivery of a bar of brass. A contract for a bar of metal leaves each party to take his chance as to the quality of the thing contracted to be sold, but this again would not be performed by the delivery of a bar of wood painted to look like metal." (Anson on Contract, pp. 127-8.) Such a failure to deliver the article sold, or the delivering of one of a different character, is not mistake of intention, but merely failure of considera- tion — failure to perform the terms of the contract. The con- tract exists, but is broken; but where there is mistake of in- tention, there is no contract created. CONTRACTS. 27 Mistake as to the subject-matter of a contract, says Anson, will only avoid it in three cases : (i) Where the parties have agreed upon the subject-matter, but un- known to them it has ceased to exist, the contract is void.* (ii) Where there are two things of the same name or description, and the parties fail to agree in intention to the identity of the subject-matter, the contract fails.** (iii) Where there is a mistake in in- tention as to the nature of the thing promised, and such mistake is known to the party to whom the prom- ise is made, and he does not inform the promisee, the contract is not binding.*** * Couturier v. Hastie, 5 H. L. C. 673. In this case there was a sale of a cargo of corn which was supposed by the par- ties at the date of sale to be in voyage from Salonica to England. The corn had been as a matter of fact unloaded and sold prior to the date of the agreement because it had heated and was about to spoil. The contract of sale was held void, as the intention was that there was something to be sold, and something to be purchased at the time, when in fact the object contemplated had ceased to exist. (Gibson v. Pelkie, 37 Mich. 380; Brick Co. v. Pond, 38 Ohio St. 65.) ** Raffles v. Wichelhaus, 2 H. & C. 906. Where the agree- ment was for the sale of a cargo of cotton "to arrive ex Peer- less from Bombay," there being two ships of that name, the buyer meaning one and the seller the other, it was held that there was no contract. The buyer was not bound to accept cotton though it arrived as stated, because it was not the vessel he had intended when he made the contract. *** Smith v. Hughes, L. R. 6 Q. B. 597. In this case the defendant was sued for refusing to accept oats which he had bought of the plaintiff; his defense was that he intended and had agreed to buy old oats, and the oats delivered were new. The court held that it was not enough to excuse the defendant that the plaintiff knew that the defendant intended and thought he was buying old oats, but to avoid the sale, the plaintiff 28 CONTRACTS. Effects of Mistake. As has been seen in the pre- vious sections, the effect of mistake is to avoid the contract. The common law remedies being the right to repudiate the agreement, and set up the mistake as a defense to any action brought to enforce it; and in case money has been paid under the contract it may be re- covered because of the failure of the contract by mis- take. In equity the mistake will be a good defense to a suit for specific performance, and the court will de- clare the contract void. Sec. 429. SAME SUBJECT— MISREPRESEN- TATION. — "One of the parties may have been led to form untrue conclusions respecting the subject mat- ter of the contract by statements innocently made, or facts innocently withheld by the other. This is Mis- representation." (Anson on Cont. p. 121.) Misrepresentation is to be distinguished from fraud; and from such a representation of facts as amounts to a promise, which, if proven untrue, allows the contract to be formed, but gives a right of action for the breach of the promise. We are now treating of the misrepre- sentations which affect the validity of the contract and not of those which affect the performance of a con- must have known that the defendant thought he was being promised old oats. It was said that if the plaintiff knew that the defendant was contracting on the assumption of getting old oats, "'he is deprived of the right to insist that the defend- ant shall be bound by that which was the apparent, and not the real bargain." But it was stated by the court that the sale of a specific article, without warranty of a specific quality, is not to be avoided, though the one party supposed it to be of that quality. See Anson on Contract, 132-4. CONTRACTS. 29 tract. Fraud voids the contract and also gives an ac- tion for the wrong or deceit; misrepresentation merely invalidates the contract. It is fraud, and involves the action of deceit, if there is knowledge of the false state- ment, though no dishonest motive is present. (Polhill v. Walter, 3 B. & Ad. 114; Bartlett v. Tucker, 104' Mass. 636; McCurdy v. Rogers, 21 Wis. 197.) So statements, if intended to be acted upon, which are made recklessly and without reasonable grounds of be- lief, constitute fraud. (Walsh v. Morse, 80 Mo. 568.) Misrepresentations made by one party to another, or innocent non-disclosure of facts, only affects the valid- ity of certain contracts in which the greatest of good faith between the contracting parties is required. An- son mentions contracts of marine or fire insurance, contracts for the sale of land, and for the purchase of shares in companies as contracts in which such mis- representation is fatal to the formation of the contract. (Anson on Cont. p. 137).* The contracts which are affected in their formation by misrepresentation or non-disclosure, are of a na- ture that one of the parties must rely upon information *"In dealing with innocent misrepresentation and non- disclosure of fact, we may say generally that, unless they occur in the particular kinds of contract already mentioned, they do not affect the validity of consent. The strong tendency of the courts has been to bring, if possible, every statement which, from its importance, could affect consent, into the terms of the contract. If a representation can not be shown to have had so material a part in determining consent as to have formed, if not the basis of the contract, at any rate an integral part of its terms, such a representation is set aside altogether." (Anson on Cpntract, p. 139.) 30 CONTRACTS. furnished by the other, and more confidence must of necessity be placed in the party making the disclo- sures; hence the contracts are said to be "uberrimae fidei," that is, of the most abundant good faith. Marine Insurance. In McLanahan v. Universal Ins. Co. i Pet. 170, the court, speaking of marine insur- ance, said : "The contract of insurance is one of mutual good faith; and the principles which govern it are those of enlightened moral policy. The underwriter must be presumed to act upon the belief that the party procuring insurance is not, at the time, in possession of any fact material to the risk, which he does not dis- close." Every fact which would influence the accept- ing or rejection of the risk by the underwriter, is ma- terial, and must be communicated; any concealment, though resulting from accident, or mistake, will, when material, avoid the policy. (Lexington Ins. Co. v. Paver, 16 Ohio, 334; Knowlton's Ed. of Anson on Contract, p. icjon.) Fire Insurance. "In the contract of fire insurance the description of the premises appears to form a rep- resentation on the truth of which the validity of the contract depends." (Anson, Cont. p. 148.) But it is said that not so high a degree of good faith and dili- gence is required in fire insurance as in marine insur- ance, and the rule of marine insurance that the insured is bound, without inquiry, to disclose every fact within his knowledge material to the risk, does not apply in its full extent. (Wood on Fire Ins. Sec. ig6n ; Burritt v. Saratoga Fire Ins. Co. 5 Hill, 192.) And now where applicants for insurance fill out the inquiries submitted, CONTRACTS. 31 in writing, an innocent failure to communicate facts about which the insured was not asked, will not avoid the policy of insurance. (Washington Mills Co. v. Weymouth Ins. Co. 135 Mass. 505; Browning v. Home Ins. Co. 71 N. Y. 548.) Life Insurance. "The contract of life insurance differs from those of marine and fire insurance in this respect. Untruth in the representations made to the insurer as to the life insured will not affect the validity of the contract unless they be made fraudulently, or unless their truth be made an express condition of the contract." (Anson on Cont. p. 149; Wheelton v. Har- disty, 8 E. & B. 232; Schwarsbach v. Pro. Union, 25 W. Va. 655.) But in Vose v. Eagle Life & Health Ins. Co. 6 Cush. 42, it is- said: "An untrue allegation of a material fact will avoid the policy, though such allega- tion or concealment be the result of accident or neg- ligence or design." The rule seems to be that if the representations were material to the risk and falsely made, they avoid the policy. (Campbell v. New Eng. Ins. Co. 98 Mass. 396.) Sale of Land. "In agreements of this nature a mis- description of the premises sold or the terms to which they are subject, though made without any fraudulent intention, will vitiate the contract." (Anson on Cont. p. 150.) In this case the contract is not strictly "uber- rimae fidei," and though latent defects in the title should be disclosed by the vendor, yet "if the vendor has said or done nothing to throw the purchaser off his guard or to conceal a patent defect, there is no fraudu- lent concealment on the part of the vendor; the pur- 32 CONTRACTS. chaser has an opportunity of inspecting and judging for himseif; and the principle of caveat emptor ap- plies." (2 Add. on Cont. 914.) Purchase of Shares in Companies. "Those who is- sue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations there- in contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge the existence of which might in any degree affect the nature, extent or quality of the privileges and advantages which the prospectus holds out as inducements to take shares." (Per Kin- dersley, V. C. in Brunswick & Canada Ry. Co. v. Mug- geridge, 1 Dr. & Sm. p. 381.) It is to be observed that expressions of opinion, and such commendatory expressions as are ordinarily used to induce purchasers to buy are not treated as fatal rep- resentations, though occurring in the special contracts just mentioned, and more extravagant than correct. (Anson, Cont. pp. 152-3.) Sec. 430. SAME SUBJECT— FRAUD.— Where untrue conclusions have been induced by representa- tions of one party, made with a knowledge of their un- truth, and with the intention of deceiving, it is fraud. (Anson, Cont. p. 121.) The essential features which constitute Fraud are: (a) A false representation of fact,, (b) made with a knowledge pf its falsehood, or in reckless disregard CONTRACTS. 33 whether it be true or false, (c) with the intention that it should be acted upon by the complaining party, (d) and actually inducing him to act upon it. (Anson, p. I S4 _ S-) We shall consider each of these elements briefly. (a) False Representation of Fact. Mere innocent non-disclosure does not constitute fraud ; there must be a false statement, or one true in part, but which, be- cause of the parts concealed, makes it convey a false impression.* So it is held that where the defendant rented a house which he knew was desired for immediate occupation, and knew that it was in an unfit and dangerous state, but did not disclose this fact to the plaintiff, the action for fraud would not lie. This was so because there was no representation, or warranty, expressed or implied that the house was fit for occupation. (Keates v. Lord Cadogan, 10 C. B. 591.) But it is the duty of the ♦Ward v. Hobbs, 3 Q. B. D, 150; 4 App. Cas. 14, was a case where the defendant sent pigs to a public market know- ing that they were suffering from a contagious disease. They were sold "with all faults" to the plaintiff. A large number of them died from the disease, and other pigs of the plaintiff were infected with the disease. It was claimed for the plain- tiff that the placing of the pigs in the market for sale amounted to a representation that they were free of disease of a conta- gious nature. In the Court of Appeals it was held that the facts did not authorize the jury to find that the defendant rep- resented the pigs as free from infectious disease. In this case the sale was "with all faults," and without warranty. And it is said that the sale of an animal, known to have a contagious disease, without communication of the fact to the buyer, is a fraud for which an action on the case will lie. (Jeffrey v. Big- elow, 13 Wend. 518; Minor v. Sharon, 112 Mass. 477.) 34 CONTRACTS. landlord to inform the tenant of the existence of any nuisance on a premise which may be prejudicial to life or health, and if this information is not given an action for fraud or deceit will lie. (Caesar v. Karutz, 60 N. Y. 229; Lucas v. Caulter, 104 Ind. 81.) It must be a representation of fact, and not a mere expression of opinion or intention, if it is to constitute fraud. A representation by the seller that the article is worth a given sum, is a mere expression of opinion and not a representation of fact. (Noetting v. Wright, 72 111. 390; Cagney v. Cuson, yj Ind. 494.) So statements as to the cost of an article are treated as mere opinions unless made under such circumstances as justify the buyer in relying on them as statements of fact. (Cooper v. Lovering, 106 Mass. 79; Markel v. Mondy, n Neb. 213.) As regards intention, it is to be observed that while a statement of future intention is not a statement of fact, a false expression of present intention is such a fraud as invalidates the contract. For example, the purchase of goods with the intention not to pay for them is held to be a fraudulent misrepresentation. (An- son on Cont. p. 156; Donaldson v. Farwell, 93 U. S. 631 ; Talcott v. Henderson, 31 O. St. 162.)* * Misrepresentation of law or of the legal effect of a con- tract is not fraud for which the contract may be rescinded, or the action of deceit brought, unless the misrepresentation has been made by a party holding a relation of confidence or trust with the other party, or the party to whom they are made is ignorant and unable to judge of the legal operation and effect of the instrument or contract. (Berry v. Whitney, 40 Mich. 71; Townsend v. Coles, 31 Ala. 428; Upton v. Tribilcock, 01 U. S. 45-) CONTRACTS. 35 (b) Made with Knowledge of Its Falsehood or in Reckless Disregard of Its Truth or Falsity. If a rep- resentation is made without knowledge of its being false, and without such recklessness of statement as constitutes bad faith, the party injured has no right of action. (Cole v. Cassidy, 138 Mass. 437; Terrell v. Bennett, 18 Ga. 404; Cox v. Higby, 100 Pa. St. 249.)** It is not necessary that a dishonest motive be present to constitute fraud. Misrepresentations in fact false, though believed or hoped to be true, if not justified by the knowledge of the party making them, will consti- tute fraud. (Polhill v. Walter, 3 B. & Ad. 114.) (c) Made with Intention to Be Acted Upon by the Complaining Party. This does not require the state- ments to be made to the injured party, and if damage results from the false statement as a direct consequence, ** "The general rule of law is clear that no action is main- tainable for a mere statement, although untrue, and although acted upon to the damage of the person to whom it is made, unless that statement is false to the knowledge of the person making it." (Per Bramwell, L. J., in Dickson, v., Reuter's Tel Co. 3 C. P. D. 1.) "It is now settled that a statement made with a bona fide belief in its truth can not be treated as fraudulent; but reckless assertions are on the border line, which it is hard to draw ac- curately between truth and falsehood. There may well be occasions in the course of business when a man is tempted to assert for his own ends that which he wishes to be true, which he does not know to be false, but which he strongly suspects to have no foundation in fact. Suoh statements can not be regarded as bona fide, and the maker of them must be held responsible if they turn out to be false." (Anson on Cont. P- 159) 3« CONTRACTS. the party guilty of the fraud is responsible to the party injured.* Where a druggist negligently labels poison so that it appears as a harmless medicine and sells it to dealers in such articles, he is liable to any one who buys it and is injured by its use, providing there is no negligence on the part of the retailers. (Davidson v. Nichols, II Allen 519.) So it is held that representations made to commer- cial agencies by business firms as to their financial standing and responsibility for the purpose of securing credit and a rating, if untrue, will form the basis of an action for deceit by a person dealing with the firms on the strength of the representations. (Eaton v. Avery, 83 N. Y. 31; Genesee Co. Savs. Bk. v. Mich. Barge Co., 52 Mich. 164.) * Langridge v. Levy, 2 M. & W. 519. A gun was sold to the father of the plaintiff upon the representation that the gun had been made by "Nock" and was "a good, safe and secure gun." The plaintiff used the gun, it exploded and injured to such an extent that his hand had to be amputated. The repre- sentations made by the seller of the gun were proven to be untrue, and the court held that he was liable upon them though made to the father and not to the plaintiff. In Barry v. Croskey, 2 J. & H. I,. Wood, V. C, says: "Every man must be held liable for the consequences of a false representation made by him to another upon which a third person acts, and so acting is injured or damnified, provided' it appear that such false representation was made with the in- tent that it should be acted upon by such third person in the manner that occasions the injury or loss. But to bring it within the principle, the- injury, 1 apprehend, must be the immediate and not the remote consequences of the representa- tion thus made." CONTRACTS. 37 (d) The Representation Must Induce the Party to Act. "In an action of deceit the plaintiff cannot estab- lish a title to relief simply by showing that the defend- ants have made a fraudulent statement; he must also show that he was deceived by the statement and acted upon it to his prejudice." — Per Cotton L. J., in Ark- wright v. Newbold, 17 Ch. D. 324. (Marshall v. Hub- bard, 117 U. S. 415; Branham v. Record, 42 Ind. 181; Bartlett v. Blaine, 93 111. 25.) The Effect of Fraud. The effect of fraud upon the contract is to be distinguished from the right given the injured party, both at common law and in equity, to re- cover from the injuring party the loss occasioned by the fraud. The perpetration of a fraud gives the in- jured party a right to recover independent of contract, and also affects the rights of the parties under the con- tract. It is the effect which fraud has on the contract that we wish to consider. The party to the contract who has been injured by the fraud of the other party, has a two-fold right; he may, on discovery of the fraud, affirm the contract, re- tain the article or goods sold, and sue for the damage sustained because of the fraud. Or, he may elect to rescind the contract, and may then resist an action brought upon it at common law, or for specific per- formance in equity; or obtain a judicial avoidance of it in equity. (Anson on Cont. p. 163.) The contract, until the injured party has elected his remedy, is voidable, and not void. The right is limited in this, that it must be exercised before accepting a benefit with knowledge of the fraud, and before deal- 38 CONTRACTS. ing with the subject-matter of the contract so that the position of the parties cannot be restored, and also be- fore innocent third parties have acquired an interest for value under the contract. See Dean v. Yates, 220 St. 388; Cochran v. Stewart, 31 Minn. 435. Sec. 431. SAME SUBJECT— DURESS.— Where the contract is assented to by one of the parties by rea- son of his being coerced by actual or threatened vio- lence, it is duress, and the party coerced may avoid it. What constitutes duress has been explained in a pre- vious volume of this series, and need not be repeated here. (Vol. 3, Sec. 254, Home Law School Series.) The duress to be ground of avoidance of the contract must affect the promisor and not some third person, and it must be a personal injury which is impending and an injury to property. (Anson on Cont. p. 164.) See Hackly v. Headly, 45 Mich. 570. Sec. 432. SAME SUBJECT— UNDUE INFLU- ENCE. — "Circumstances may render one of the par- ties morally incapable of resisting the will of the other, so that his consent is no real expression of intention. This is Undue Influence." Anson on Contract, p. 122. Undue Influence is a sort of fraud which does not in- clude deceit or circumvention; it means an unconscien- tious use of the power arising out of the circumstances and conditions of the parties. And it is said that, when from the relative positions of the parties the presump- tion of undue influence arises, the contract cannot stand unless the party claiming the benefit of it can show that it is fair, just, and reasonable. (Earl of Ayles- ford v. Morris, 8 Ch. 490.) CONTRACTS. 30 The presumption of the presence of undue influence n contract may arise from circumstances as well as rom the relations of the parties. Anson mentions the bllowing as arising from the circumstances, "that equity will not enforce a gratuitous promise even :hough it be under seal; that the acceptance of a volun- tary donation throws upon the person who accepts it :he necessity of proving 'that the transaction is righteous;' that inadequacy of consideration is regard- id as an element in raising the presumption of undue influence or fraud, but does not amount to proof of either." Of the relations between the parties which will raise the presumption of undue influence, the following are examples: The parental relation, as between father and son, or quasi-parental as between uncle and niece ; the confidential relations, as attorney and client, doctor and patient, etc. ; and the relation between a person and his spiritual adviser. But beyond these special rela- tions of confidence or trust existing between parties, the courts are inclined to hold that any influence, how- ever gained, may raise the presumption of unfair deal- ing.* So the courts have guarded persons against those ♦Smith v. Kay, 7 H. L. C. 750. In this case the influence exerted by a man advanced in years over a young person who had just obtained his majority, though neither spiritual, parental or fiduciary, entitled the young man to relief from the court. It was said that while in the special relations the in- fluence was presumed in the outside cases it had to be proved extrinsically, but when proved the remedy was granted just as freely in the one case as the other. 46 Contracts. who would take advantage of their improvidence, moral weakness, or of their ignorance and unprotected situation. Thus, expectant heirs at the common law are protected from extortionate rates of interest, and those dealing with uneducated persons or those under pressure will be required by the equity courts to show fairness "and honesty on their part, (i Story's Eq. 336; Jenkins v. Pye, 12 Pet. 241.) In the case of the sale of the equity of redemption by a mortgagor to the mortgagee, the courts will scrutin- ize the transaction and refuse to carry out the express agreements of the parties when it would be a gross in- justice to the one to do so. (Dorrill v. Eaton, 35 Mich. 302; Butler v. Duncan, 47 Mich. 94.) Right to Rescind for Undue Influence. In general, the right to avoid a contract for undue influence is the same as in the case of fraud, with this exception, that while an affirmation of the contract after knowledge of fraud binds the party in the case of undue influence he will not be bound by such affirmation unless it is clear that the influence or difficulty under which he labored is entirely removed. (Anson on Contract, p. 170.) II.— CONSIDERATION. Sec. 433. NECESSITY OF CONSIDERATION TO A VALID CONTRACT.— As a general rule of law every valid contract must be founded upon a legal consideration moving from the promisee to the prom- isor, and mere gratuitous promises will not be en- forced. (Bank v. Rice, 107 Mass. 37.) The considera- tion may consist of a benefit to the maker of a promise, or some loss, trouble or inconvenience, or a charge or CONTRACTS. 41 obligation resting upon the party to whom the promise is made. (Beach on Cont. Sec. 5.) The only exception to this general rule requiring a consideration, is in the case of specialties, or contracts under seal, where it is said that the seal or the form of the contract imports a consideration. (Northern As- surance Co. v. Hotchkiss, 90 Wis. 415.) A contract or agreement, other than specialties, in which no consideration has passed, is termed a "nudum pactum," or naked agreement, and is without binding force. The term is derived from the civil law, where it designated such stipulations as were not clothed with the prescribed formalities or "vestitum," and was called "nudum," or naked, because of the absence of these formalities. Sec. 434. CONTRACTS UNDER SEAL, OR SPECIALTIES. — The rule of the Common law is that a contract executed with a seal, called a specialty, does not require a consideration. The origin of this rule is traced to the fact that in the early history of the law, form was of more importance than consideration. So that the seal or the solemn form of entering into the contract entitled it to be enforced in law. In the Civil law, formality was also important in the formation of contract. With the development of contract it be- came necessary to have a universal test to determine what contracts should be actionable, and this test was supplied by the doctrine of consideration. Informal promises were held to be enforceable if there was a con- sideration, or "quid pro quo" for the promise. And this test first applied in the chancery courts and adopted 42 CONTRACTS. into the common law courts, has come to be so uni- versal as to overshadow the formal contract, which is said to be valid because the seal imports a considera- tion. (Anson on Cont. p. 49)* ♦Formal Contracts, and Seals. "There is another division of contracts into specialties and parol or simple contracts. Specialties include contracts under seal and obligations of record. Simple contracts, otherwise denominated parol con- tracts, include all other contracts, whether written or oral. It is then the seal or the record which constitutes the specialty. Seals are of two kinds, public and private. Public or official seals are those used by public officers, for the authentication of public documents. With these we have at present no con- cern. Private seals are those used by private individuals, in the execution of private contracts. A sealed contract is tech- nically called a specialty, deed, bond, covenant, or writing obligatory. Every contract may be under seal, if the parties so elect; and there are some contracts which are invalid with- out a seal; as deeds for the conveyance of real estate, and various kinds of bonds prescribed by statute. The law relat- ing to these contracts abounds with technical and arbitrary distinctions, which serve no other purpose than to confuse the mind. There is perhaps no branch of the law in which re- form would be more salutary. It may be safely asserted that the total abolition of private seals would be an immense im- provement, without any admixture of evil; for they are not only of no conceivable use, but positively injurious, from the complexity which they occasion. This will be evident from a brief examination. According to Blackstone, seals were first introduced because men could not write. (2 Bl. Com. 295.) Not being able to ratify contracts by signature, each person had his own particular seal, with some distinctive device, which he used in the place of a signature. The moment, there- fore, that writing became general, the reason of using seals ceased; but the custom nevertheless continued. From the origin of seals, then, we gather this: that instead of being a 'relic of ancient wisdom,' as the books declare, they are in reality a monument of ancient ignorance. We further learn that the original purpose of a seal has been entirely lost sight of in modern times; for we not only never affix a seal without CONTRACTS. 43 Sec. 435. SAME SUBJECT— DISTINCTIONS. At Common law, the presence of a seal is said to im- a signature, but where a person can not write his own name, we write it for him, and he ratifies it. * * * For what pur- pose then are seals continued in use? The pretext is that they add solemnity to the instrument to which they are affixed. To judge from the language of the books, one might suppose that a seal was some mystic symbol or amulet; and that the ceremony of affixing it was attended with something like re- ligious pomp. But according to Lord Coke (Inst. 169), 'a seal is wax impressed,- because wax without an impression is not a seal.' The solemnity, then, which is attached to a seal, must consist in melting the wax, and making the impression; a rite which can not be very august or awful. But how is even this solemnity diminished, when we come to a definition of a seal in our statutes; which may be 'either of wax, of wafer, or of ink, commonly called a scrawl seal.' * * * The 'scrawl' seal which we have, substituted, possesses the same mysteribus virtue as the wax described by Coke!" (Walker, Am. Law, pp. 463-4) This language of Professor Walker, used in 1844. indicates the effort which is required to bring about a reform, or the dropping of a useless technicality in legal science. In a num- ber of States such assaults have borne good fruits. Thus, in Ohio, private seals are abolished, and the affixing of such a seal to any instrument whatever shall not give such instru- ment any additional force or effect, or in any way change the construction thereof. (Rev. Stat. Ohio, Sec. 4.) In the States generally, while a seal imports consideration, yet want of con- sideration may be shown in defense to an action on a sealed instrument. And in a number of States all distinctions be- tween sealed and unsealed instruments are abolished. See Codes of Iowa, California, Kentucky, Kansas and Indiana. The legislation regarding seals has taken three forms: (1) The abolishing of all private seals (Ohio, Ind., Kan., Neb., Tex., N. Dak., S. Dak.). (2) Abolishing all distinctions be- tween sealed and unsealed instruments (Ky., Tenn., Tex., Cal., Ore.). (3) Making seal, when used, only presumptive evi- dence of consideration which may be rebutted as if unsealed. (Beach on Cont. Sec. 150; Stimson Am. Stat. Law, 455; Allen v. Allen, 40 N. J. L. 446.) 44 CONTRACTS. port a consideration, without its being expressly stated, and to preclude the denial of that fact, while the same words without a seal would have no such effect. (2 Kent Com. 464.) So statements made in a deed or under seal are said to be absolutely conclusive against the parties, and to estop the party from proving any- thing to the contrary. (Sage v. Jones, 47 Ind. 122.)* So a contract under seal, being of a higher nature, su- persedes a simple contract upon the same subject-mat- ter; this is the doctrine of merger. (Banorgee v. Ho- vey, 5 Mass. 11.) At Common law, a debt due under a sealed contract was entitled to a priority out of the assets of the deceased, before debts due upon contracts not under seal. But this doctrine is eliminated by our statutes of distribution. (Walker, Am. Law, p. 465.) Quite generally a right of action arising upon a simple contract is barred in less time than an action arising from a contract under seal. So at Common law a gratuitous promise under seal is binding, when the same promise without the seal would be absolutely void. (Anson on Cont. p. 49.) It is to be observed that this rule is quite generally abrogated in the Ameri- can States. See note to previous section. Sec. 436. SAME SUBJECT— DEEDS, BONDS, RECORDS.— 1. Deeds. The term "deed" is applicable to all contracts under seal, but it is now most frequently used in a'limited sense to denote an instrument for the conveyance or incumbrance of real estate. Its execu- ♦Recitals in a deed do not estop a stranger from showing the real facts as against a party to the deed. (Thomaston v. Dayton, 40 Ohio St. 63; Allen v. Alien, 45 Pa. St. 473.) CONTRACTS. 4S tion consists in its being "signed, sealed and delivered," and is then conclusive between the parties. Its form and requisites will be fully discussed under the subject "Real Property" in a'subseqeunt number of the Home Law School Series. 2. Bonds. A bond is an instrument under seal ac- knowledging the existence of a debt. It differs from a "covenant" in that the latter is always an executory contract for something future, though each is called a "writing obligatory."* 3. Records. Specialties of record are obligations of indebtedness evidenced by judicial records. The rec- ords form the highest evidence, and the only question that can be controverted is, whether the record exists. So specialties of record are the highest kind of special- ties. They are of two kinds : Recognizances, and judg- *"Bonds are of two kinds, single bonds and penal bonds. A single bond, more frequently called a single bill, is a simple acknowledgement of indebtedness without any condition of qualification; as if I, under hand and seal, acknowledge myself indebted to you in a given sum. A penal bond is an acknowl- edgement of indebtedness, accompanied by a condition, upon compliance with which such acknowledgement is void. The sum here made as a debt is called a penalty, because it is in- serted merely to secure the performance of the condition, which is the principal thing. It is held that an action will not lie to recover a penalty, unless it be under a seal. * * * The very idea of a penalty supposes that the amount is greater than the value of the condition, the performance of which it is de- signed to secure; yet, as the law formerly stood if the condi- tion was not strictly performed, the entire penalty could be recovered. The hardship thus occasioned induced chancery to interfere and prohibit the recovery of anything more than reasonable damages, and statutes permit the courts of law to do the same thing." (Walker, Am, Law, pp. 466-7.) 46 CONTRACTS. ments or decrees. A recognizance is an acknowledg- ment of indebtedness made before a court or author- ized officer, with a condition making it void on the happening of certain things mentioned in it, and the whole forming part of the record of the case. A judg- ment or decree is the final decision of a court upon a matter submitted to it, and being entered of record forms the highest kind of a specialty, as its terms admit of no dispute, but are proved by the production of the record. It merges the previous rights, and gives the judgment creditor convenient remedies not before his, as the right to issue execution, the creation of a lien, and the like. (Anson on Cont. p. 45.) Sec. 437. CONSIDERATION NEED NOT BE EXPRESSED, BUT MUST BE PROVED.— As a general rule no consideration need be expressed in a written contract and one may be shown to have passed. /(Tingley v. Cutler, 7 Conn. 291; 1 Pars. Cont. 430.) Where a contract states that it was made for valuable consideration, this is prima facie evidence of consid- eration only, and may be disproved. By statute in a number of States written instruments are made pre- sumptive evidence of consideration, and are thus placed on the same footing as bills of exchange and promis- sory notes, requiring the party contesting the validity of the contract to show lack of consideration. (Beach on Cont., Sec. 150.) Sec. 438. KINDS OF CONSIDERATION.— Under the Roman Civil there were four kinds of con- sideration, as follows: "Do ut Des," money or goods to receive money or goods; "Facio ut Facias," work for work or an act for an act, as mutual promises; "Fa- CONTRACTS. 47 tio ut Des," work for a price, express or implied; "Do ut Facias," price or wages for work. (2 Bl. Com. 444.) Consideration at common law may be "good," "val- uable," or "full and valuable." The common law also recognized that a consideration may consist of a benefit to the promisor, or of a detriment, or loss suffered by the promisee. (Pars. Cont. pp. 430-1.) Sec. 439. SAME SUBJECT— "GOOD" CON- SIDERATION.— A "good" consideration is defined by Blackstone by giving an example of it, "as that of blood, or natural affection, when a man grants an es- tate to a near relation; being founded on motives of generosity, prudence and natural duty." And he fur- ther observes that "deeds made upon good considera- tion only are considered as merely voluntary, and are frequently set aside in favor of creditors and bona fide purchasers." (2 Bl. Com.. 297.) It was early held that a person might make a binding promise to another to do something for the other's son or daughter, and that the relationship would entitle the party to be benefited to sue upon the contract. But this is no longer law, and it is held that the party suing upon a promise must show that the consideration for the promise was some benefit conferred or detriment sustained by himself. (Anson on Cont. p. 78; Contra Emmitt v. Brophy, 42 Ohio St. 82.) And generally, blood, or natural affec- tion is not such a consideration as will support a promise. Sec. 440. SAME SUBJECT—VALUABLE CON- SIDERATION.— A valuable consideration "is such 48 CONTRACTS. as money, marriage or the like, which the law esteems an equivalent given for the grant." (2 Bl. Com. 297.) Valuable usually means a money consideration or its equivalent, marriage being the chief exception to this. (Pars. Cont. p. 431.) Sec. 441. SAME SUBJECT— FULL AND VAL- UABLE CONSIDERATION.— A full and valuable consideration is one which is a just equivalent for what is given or promised. A valuable consideration is good in law, and as be- tween the parties can only be attacked for such gross inequity as amounts to fraud, or constitutes a fraud as against the creditors of the contracting parties. If the consideration is full and valuable, it cannot be attacked in equity by antecedent creditors, unless the contract was made with knowledge of their claims and is void for want of good faith. Sec. 442. VALUABLE CONSIDERATION NEED NOT BE ADEQUATE.— If a consideration be valuable it need not be adequate, since the court does not require the consideration and the thing to be done to be in exact proportion, one to the other. A party may drive a good bargain, so long as he does it with- out deceit or fraud. But the consideration must have some real value, and if this be very small, that fact of it- self, or with other circumstances, indicates a fraud up- on the promisor. And though courts hesitate to dis- turb contracts on account of inadequacy of considera- tion, yet if the agreement be unconscionable, though not to a degree to be a fraud, yet equity would not spe- cifically enforce it, and the law would only give rea- Contracts. 4d sonable damages for a breach of it. (i Pars. Cont. 437; Nash v. Lull, 102 Mass. 60.) Where a consideration fails or is of no real value, as where one promises under a mistake as to an obliga- tion supposed to be imposed by law, the contract fails. And the adequacy of consideration, when called in question, is for the court to pass upon. (Homer v. Ashford, 3 Bing. 437.) Sec. 443. CONSIDERATION ARISING FROM MORAL OBLIGATION DISCUSSED.— By moral obligation is to be understood one which derives its sanction from the moral law, and which is not legally enforceable. Such obligations may arise from benefits received in the past, from motives of piety, conscience and friendship, and from the rules of honor and duty among men as social beings. Thus a man is bound in honor to pay money lost in wager, but he is not legally bound because the law makes gambling illegal. Now is this moral obligation, however arising, sufficient consideration to support a promise to pay for it from the person so obligated? The rule is, that a moral ob- ligation is insufficient to support a promise unless the pre-existing obligation is one which has become inop- erative by the interference of a rule of positive law, as a statute of limitations, the law protecting infant's con- tracts and the like. (Pars. Cont. p. 437; Philpot v. Gruninger, 14 Wal.. 570; Osier v. Hobbs, 33 Ark. 215.) And the new promise in such case must be distinct and specific, and will not be inferred from the payment of interest on a note, or from statements to third persons of promises to pay a debt which is barred. $0 CONTRACTS. So where services have been rendered without the request of the party to whom they are rendered, and without expectation of payment, a subsequent promise to pay for them is unenforceable for lack of consid- eration. (Bartholomew v. Jackson, 20 Johns. 28; Al- len v. Bryson, 67 la. 591.) Where one is under a moral and legal obligation to do a thing, and another does it for him under circum- stances of decency and humanity admitting of no de- lay, the law implies a promise to pay for such service.* Sec. 444. EXAMPLES OF VALID AND SUF- FICIENT CONSIDERATIONS.— The following are held to be valid and sufficient considerations : (a) The prevention of litigation, as the mutual submission of a controversy to arbitration, both being bound, the mu- tual promises being a consideration each for the other; (b) a compromise when mutual; and the courts will not enter into and estimate the value of the different claims submitted, as the law favors the settlement of disputes (Hodges v. Saunders, 17 Pick. 470); (c) a promise to pay a debt if proved, or to pay a debt if the party would swear to it, where it has been denied; and in this case the fact that the party swore falsely is no defense (Brooks v. Ball, 18 Johns. 337); (d) a liability incurred by reason of the promise of another; (e) a promise to do a thing which the party is under legal obligation to do. *Force v. Harris, 17 N. J. L. 385, where a person paid the funeral expenses for the wife of another, and a promise to repay was implied. And see Bentley v. Lamb, 25 Am. L. Reg. (N. S.)6 3 2. CONTRACTS. SI So the assignment of a debt or engagement is a good consideration for the promise of the assignee, but if the assignment is illegal or void for any reason, as in fraud of creditors, the promise fails, because of failure of consideration. And this is true, in general, in every case of failure of consideration, except in the case of negotiable instruments which have passed into the hands of a bone fide holder for value. A surrender of a suit or proceeding to try a disputed legal question is a good consideration for a promise to pay a sum of money for so doing, and in these cases mere inequality of consideration does not constitute a valid objection. But if the promise was to pay money to abandon a suit in which the public are interested, it is not enforceable, as such a promise would be against public policy, (i Pars. Cont. 440.) Sec. 445. SAME SUBJECT— FORBEARANCE. — To forbear for a time to bring proceedings at law is a valid consideration for a promise. But such a consid- eration fails if the claim is wholly false, and clearly un- sustainable at law or in equity, though if the claim is merely doubtful the consideration would be good. The proceeding or suit need not have been commenced. The time for which the delay is granted ought to be definite ; but a general agreement to forbear all suits is construed to be a perpetual forbearance. The party making the promise need not have a direct interest in the suit which is delayed; it is sufficient if he requests the delay, as the detriment suffered by the creditor makes a valid consideration for the promise. The 52 CONTRACTS. waiver of any enforceable right at the request of a person is a valid consideration for a promise, and this is true though the right waived be an action for a tort, (i Pars. Cont. 442-4; Beach on Cont., Sec. 168; Von Brandenstein v. Ebensberger, 71 Tex. 267.) Sec. 446. SAME SUBJECT— WORK AND SER- VICE. — Work and service is always a sufficient con- sideration when rendered at the request of the party promising, and is a frequent form of consideration. The request to do the work or service may be im- plied, and generally is so when the party accepts and holds the benefit of the work or service. So if the promisor requests that service be done for a third party, it is consideration for" his promise. But a subsequent promise to pay for work done as a mere gratuity, and which has not been requested, is void for want of consideration. Where the requested service is not done, but some other, there is no implied promise to pay for such work, and it must be afterwards accepted to bind, the employ- er. (1 Pars. Cont. 446.) A promise for a promise is a good con- sideration. And this is so previous to performance or without performance, as mutual promises to marry, to become partners, and the like; the promises being each the consideration for the other. Such promises are usually concurrent in point of time. Each party must be bound to fulfill his promise. So where the promise on the part of an apprentice to remain a certain time was given without the master promising to instruct CONTRACTS. S3 the apprentice, the contract was void for want of mu- tuality, (i Pars. Cont. 448.)* Sec. 447. UNREAL CONSIDERATIONS.— A consideration which is impossible or so vague in terms as to be practically impossible will be treated as unreal. (Harvey v. Gibbons, 2 Lev. 161; Stevens v. Coon, 1 Pinney (Wis.) 357.) As regards vagueness, the prin- ciple is, that what can be made certain, is certain; so a contract to sell all the straw one has to spare, not ex- ceeding three tons, is not void for uncertainty, as the quantity to be sold can be determined. (White v. Her- man, 51 111. 243; Parker v. Petti t, 43 N. J. L. 512; Thompson v. Stevens, 71 Pa. St. 161 ; Kaufman v. Far- ley Mfg. Co., 78 la. 679.) And the consideration is treated as unreal where it consists of a promise to do, or the doing of a thing which a man is legally bound to do, for the promisor is getting nothing more than he is entitled to without the promise. (Robinson v. Jewett, 116 N. Y. 40; Sul- livan v. Sullivan, 99 Cal. 187.) Likewise a promise not to do what a man legally cannot do is an unreal con- sideration. (Anson on Cont. p. 83.) Sec. 448. SAME SUBJECT— PART PAYMENT IN DISCHARGE OF WHOLE.— A promise to re- ♦Where the contract is binding upon only one of the par- ties it is generally void for want of mutuality. Thus where an agreement is made to submit a dispute to arbitration, and it is only signed by one of the parties, the one not signing, not be- ing bound, can not enforce it against the other. An exception to this rule is found in the contracts of infants, where the infant is not bound because of its infancy, while the adult contracting with him is bound. & CONTRACTS. linquish part of a debt, or take part in discharge of the whole is a nudum pactum and without legal obliga- tion. (Day v. Gardner, 42 N. J. Eq. 199.) "The pay- ment of a smaller sum in satisfaction of a larger is not a good discharge of a debt.* It is, in fact, doing no more than a man is already bound to do, and it is no consideration for a promise, express or implied, to fore- go the residue of the debt. There must be something different to that which the recipient is entitled to de- mand, in the thing done or given, in order to support his promise. The difference must be real, but the fact that it is slight will not destroy its efficacy in making the consideration good. * * * Thus the giving a ne- gotiable instrument for a money debt, or the gift of a horse, a hawk or a robe, in satisfaction is good." (An- son on Cont. p. 83.) Where the damages for the breach of a contract are uncertain, a payment of a certain sum is a valid con- sideration for the promise to forego a larger but un- certain amount. (Potter v. Douglass, 44 Conn. 541; Goss v. Eliason, 136 Mass. 503-, Bedell v. Bissell, 6 Col. 162.) If the damage is certain in amount, then the ♦Railroad Co. v. Davis, 35 Kan. 464; Gould v. Buller, 127 Mass. 386; Singleton v. Thomas, 73 Ala. 205. The rule is considered a technical one, and generally criticised by the courts. It is limited to its precise import, and every oppor- tunity taken to evade it; thus if the payment of the less sum is made before the debt is due, or at a different place from the one stipulated, or any collateral benefit received by the cred- itor, which would raise a technical legal consideration, how- ever small, it is held sufficient to support the agreement. (Harper v. Graham, 20 Ohio, 105; Varney v. Conroy, ^ Me. 527.) See Knowlton's Ed. of Anson, p. 83n. CONTRACTS. $$ promise to forego such claim, or a portion of it, is only supported by giving something different in kind, or by a payment at an earlier date. And whether certain or uncertain, the consideration for the promise to forego must be executed, that is, carried out, as an accord and satisfaction. (Anson on Cont. p. 85; Daniels v. Hollen- beck, 19 Wend. 408; Summers v. Hamilton, 56 Cal. 593.) For a modification of this latter rule, see Whit- sett v. Clayton, 5 Col. 476; Schweider v. Lang, 29 Minn. 254. A composition by a debtor with his creditors, by which each agrees to take a part in satisfaction of the whole of his claim is an apparent exception to the rule that part payment will not discharge the whole debt. It is said that in the case of a composition with creditors, the consideration is the agreement between the differ- ent parties, forming in reality a new agreement, with different parties, and for a previous debt.* Sec. 449. CONSIDERATION VOID IN PART.— Where the consideration is void in part, and is entire in character and inseparable, then the whole contract fails. Equally so, if a promise is entire and not in writing, when a part of it is required to be in writing by the statute of frauds, it fails entirely because of the void part. But where the consideration is separable, or there are several considerations, and one is frivolous or fails, but is not illegal, the contract may stand be- cause of the rest, unless the remaining considerations are inadequate. (Goodman v. Cheesman, 2 B. & Ad. 328; Murray v. Snow, 37 la. 410; Robert v. Barnum, 80 Ky. 28.) S6 CONTRACTS. If any part of a consideration, whether entire or sep- arable, be illegal, the promise will fail because it is against public policy to enforce a promise obtained by an illegal act. Thus where a promissory note was given in payment of an account, some of whose items were for groceries, and others for liquors sold in vio- lation of the statute, it was held that the note was void entirely. (Widoe v. Webb, 20 O. St. 431.) Sec. 450. EXECUTORY, EXECUTED AND PAST CONSIDERATIONS DISCUSSED.*— 1. An executory Consideration refers to a future act; thus, a promise for a promise constitutes a contract upon ex- ecutory considerations. Either may perform, or offer to perform, and thus bind the other, to fulfill or com- pensate for the breach. 2. An executed consideration arises where one of two parties has, either in the act which amounts to a proposal, or the act which amounts to an acceptance, done all that he is bound to do under the contract, leav- ing an outstanding liability on the other party only. (Anson on Cont. p. 90.)** * The student should take notice that these terms, exe- cuted and executory, are not used in the same sense by all legal •writers; thus Walker uses "executed" in the sense of "past" (Am. Law, p. 439), as do a number of other writers. (Bisfa. on Cont. Sec. 440; 1 Pars. Cont. 468.) ** If a thing is done at the time a promise is given the consideration is executed; if there is only a promise to do it in return for another promise, the consideration on both sides is executory. A contract with an executed consideration is unilateral; if there are two promises, each being the considera- tion for the other, the contract is bilateral. (Farrington v. Tenn. 95 U. S. 679, 683.) CONTRACTS. 57 3. "A past consideration is some act or forbearance in time past by which a man has benefited without thereby incurring any legal liability. If afterwards, whether from good feeling or interested motives it mat- ter not, he makes a promise to the person by whose act or forbearance he has benefited, and that promise is made upon no other consideration than the past benefit, it is gratuitous and cannot be enforced ; it is based upon motive and not upon consideration." (Anson on Cont. p. 92; Osier v. Hobbs, 33 Ark. 215; Ludlow v. Hardy, 38 Mich. 690.) The exceptions to the rule that a past consideration is, in effect, no consideration, are as follows: 1. Where the past consideration was given or rendered at the re- quest of the promisor, or the circumstances and bene- ficial nature of the consideration implied a request, such consideration will support a subsequent promise. (Pool v. Homer, 64 Md. 143; Oatfield v. Waring, 14 Johns. 188; O'Connor v. Beckwith, 41 Mich. 657.) 2. Where a person has voluntarily done what another was legally bound to do ; this, though a past consideration, is sufficient to uphold an express promise to recom- pense such voluntary act. This exception is founded upon the rule that a subsequent ratification of a volun- tary act amounts to a previous authority. (Gleason v. Dyke, 22 Pick. 393.) 3. Where a person has received a benefit in the past, but by rules of law, incapacity to contract, or lapse of time, his promise then made is not enforceable against him, such promise may be revived when the law is changed or the incapacity removed. The principle being "that where the consideration was 58 CONTRACTS. originally beneficial to the party promising, yet if he be protected from liability by some provision of the statute or common law, meant for his advantage, he may renounce the benefit of that law; and if he prom- ises to pay the debt, he is then bound by the law to per- form it." (Parke, B., in Earle v. Oliver, 2 Exch. 71.) We have seen (Section 443, Ante) that the doctrine of moral obligation as a consideration covers these cases, and so some cases hold. (Stafford v. Bacon, 25 Wend. 384.) But later cases abandon the doctrine of moral obligation. (Bishop on Cont, Sec. 100.) Sec. 451. FAILURE OF CONSIDERATION DISCUSSED. — A consideration may apparently be valuable and sufficient, and turn out to be no considera- tion at all, or before the contract is executed it may fail. (1 Pars. Cont. 462.) If the thing to be done is in its nature separable and divisible, and there is no under- standing which makes it entire, the part which fails not going to the essence of the contract, it is good in part, and the failure in part will not destroy the residue. (Lucas v. Godwin, 3 Bing (N. C.) 746.) Some con- tracts are by their nature and intent not to be avoided by reason of a slight or immaterial variation of failure in the consideration, as in the sale of lands where a definite number of acres are called for, followed by the words "more or less." A total failure of consideration invalidates the contract, and money paid out on ac- count of it may be recovered. But except in case of mistake of fact, money paid voluntarily by a person who knows fully what bargain he is making, cannot be recovered. (1 Pars. Cont. 466.) CONTRACTS. 59 III. — PARTIES TO CONTRACTS. Sec. 452. IN GENERAL.— As contract results from agreement, and agreement requires two or more assenting minds,' it follows that there must be at least two parties to every contract. The parties to a con- tract may be individuals, or aggregations of persons, as corporations, partnerships and the like; they may act for themselves, or represent others as their agents, attorneys, servants, and the like; they may act jointly or severally. But at present we are not concerned with these distinctions. For the purpose of the forma- tion of a valid contract there must be parties capable of contracting, and it is our purpose to find out who are thus capable, or, rather, to find out who are incapable, as all persons are presumed competent to contract, and disability where it exists, must be set up when re- lied upon as a defense to a contract. Sec. 453. PERSONS INCAPACITATED TO MAKE CONTRACTS.— Some persons by the policy of the law, and for their own benefit, are incapacitated from binding themselves by contract. The incapacity may be entire or partial, and arises from a variety of causes, as infancy, coverture, imbecility, political status, and the like. Sec. 454- SAME SUBJECT— INFANCY.— A per- son under the age of majority, which age is usually regulated by statute, is presumed not to have attained to such years of discretion as to be able to assent or agree, and because of this he is allowed the privilege of avoiding contracts made during infancy, except those which are made for necessaries. This subject has been 60 CONTRACTS. fully discussed in a previous number of this series and will not be repeated here.* Sec. 455. SAME SUBJECT— MARRIED WOM- EN. — At common law, except as to their equitable sep- arate estate, married women were unable to make a valid contract either to bind themselves or to acquire rights thereby, but this disability is now removed by statutes in the several States, and with a few excep- tions married women may contract as though single. For this subject in more detail the student is referred to the chapters on "Husband and Wife," in No. 3 of this Series. Sec. 456. SAME SUBJECT— PERSONS MEN- TALLY DEFICIENT.— Idiots, lunatics and imbe- ciles cannot make binding contracts. This follows from the nature of a contract; persons having no mind cannot contract, as an act of mind is required. But as there are many degrees of mental unsoundness, vary- ing from mere weakness of intellect to entire incapac- ity, it is sometimes difficult to say just what cases are void for lack of mental capacity. In general, to invalidate the contract there must be such mental disability as from its character and inten- sity disables the person from understanding the nature and effect of his acts. So mere mental weakness or disability from old age, if not to the extent just stated, will not invalidate a contract entered into by a party so affected. (1 Pars. Cont. 383.) And even an insane adult may become liable on an implied contract for necessaries. *Home Law School Series, No. 3, Sees. 378-380. CONTRACTS. 61 The insanity to avoid the contract must exist at the time of entering into it, and though the party after- wards recover his mind he may repudiate a contract made while insane. Though the mental incapacity be caused by the party's own fault, as by his drunkenness, he may still avoid the contract unless his intoxication was part of a scheme to defraud, (i Pars. Cont. 384.) Contracts of Lunatics. A lunatic is a person once of sound mind but who has lost his mental capacity through sickness or accident. He may avoid all his contracts save those bona fide made for necessaries. The term "necessaries" here meaning the same as in the case of infants — all proper things as well as indis- pensables. His contracts, except those for neces- saries, may be avoided by his guardian or other repre- sentative if he were actually insane at the time of mak- ing the contract, though he was seemingly sane and no unjust advantage was sought to be taken of him.* The law aims to protect insane persons or those men- tally incapable of caring for themselves, but not those who are merely ignorant or careless. So one who, lacking ordinary intelligence or shrewdness, makes a bad or foolish bargain, may not avoid it on the ground of his incapacity. (1 Pars. Cont. 387.)** *Rev. Stat, of Ohio, Sees. 6302-6317. ♦♦Spendthrifts. Persons incapable by reason of extreme prodigality to preserve their property may be put under guard- ianship, and thus lose the right to make contracts. And this is true of habitual drunkards. See Rev. Stat. Ohio, Sec. 6317. Seamen. These are protected by law from their own care- lessness both as regards their person and rights. The U. S. 62 CONTRACTS. Sec. 457. SAME SUBJECT— ALIENS.— An alien is a person born out of the jurisdiction of a country in which he lives and not naturalized therein. By a rule 'of law and construction the children of ambassadors, ministers, etc., though born out of the jurisdiction of their country, are yet citizens. And children born to citizens while temporarily sojourning in aforeign coun- try are citizens of their parents' country, but they may elect to become citizens of the country where born. Aliens at common law could not hold real property, and their right to personal property was precarious. The rights of aliens to hold real property are regu- lated by the States, and with a few exceptions, where they have been limited as to the amount they might acquire in each county, they have the same right to acquire and hold property as citizens. The Congress of the United States has the power to confiscate the goods and properties of alien enemies, and in time of war may give the subjects of the power with whom we are at war a stated time to remove from our territory. But until so ordered out an alien may sue and be sued in our courts, both in peace and war; but they must obey the laws and are amenable to all laws of the juris- diction in which they live. (Clark v. Morey, 10 Johns. 68; Brook v. Filer, 35 Ind. 402; McVeigh v. U. S., 11 Wall. 256.) Rev. Statutes, Sections 4554-4591, contain many provisions for their protection and benefit. And an agreement by a seaman to shipping articles which do not contain the general rights and privileges prescribed for such articles is void. (1 Pars. Qont. 390.) CONTRACTS. 63 During the war of rebellion, the inhabitants of the Northern and Southern States were enemies, and all contracts made between them during the continuance of hostilities were void. (Materson v. Howard, 18 Wall. 99; Mutual Ins. Co. v. Hilliard, 37 N. J. L. 444.) Contracts existing before the war were not ended or void, but the remedy was suspended, until peace was restored. (University v. Finch, 19 Wall. 106; Cohen v. New York Mutual Lifee, 50 N. Y. 610.)* IV. — LEGALITY OF THE SUBJECT-MATTER. Sec. 458. THE SUBJECT-MATTER AS AN ELE- MENT IN A VALID CONTRACT.— In general the parties may contract about whatever they choose. This freedom of contract is limited only in this, that public policy refuses to sanction the contracts of the parties made along certain lines, and though all other requi- sites of a valid contract be present if the parties have in contemplation one of these prohibited objects it will not be enforced. Again, the law may prescribe certain formalities to be followed by the parties in making cer- tain contracts, and unless these are followed as pre- *At common law persons convicted of treason or felony or excommunicated were incapacitated from contracting, but these common law disabilities have never prevailed in this country. Barristers and Physicians. By the common law barristers and physicians could not sue for professional services ren- dered, whether upon an implied or express contract. This rule has never prevailed in the United States, and attorneys and physicians have the same right to sue and recover upon contracts as others. 64 CONTRACTS. scribed the contract is not enforceable. The classes of objects which the law refuses to sanction are those which are immoral, impolitic, or illegal; those for which it prescribes formalities and refuses to sanction if the formalities are not followed, come under the head of fraudulent contracts, and the statute prescribing the formalities is known as the "statute of frauds." The nature and effect of these objects and formalities we shall now discuss. Sec. 459. IMMORAL AGREEMENTS.— Where the undertaking on either side is to do or permit some- thing decidedly immoral, as prostitution, making inde- cent books or pictures, and the like, the law will not aid either party in enforcing the contract. But the law will not avoid contracts merely indelicate, and if the con- tract is to be avoided it must grow immediately out of or be connected with the illegal or immoral act. The question of Morality is not always open to discussion, and, in general, only those contracts will be held void for immorality which the precedents have decided to be immoral.* Sec. 460. IMPOLITIC AGREEMENTS.— Agree- ments or contracts against public policy are such as the precedents have established to be so. Like the ques- tion of morality, the question of what constitutes an ♦Chitty on Contracts, 577-9; Forsyth v. State, 6 Ohio, 19; Hawks v. Naglee, 54 Cal. 51; Smith v. Richards, 29 Conn. 232; Wallace v. Rappleye, 103 111. 249. A promise under seal in consideration of past cohabitation has been sustained in cases. (Brown v. Kinsey, 81 N. C. 245; Wyant v. Lesher, 23 Pa. St. 338.) Contracts. 65 impolitic object of contract is not to be canvassed for every contract, and unless there is some recognized au- thority that a certain contract is contrary to settled public policy this is not a good defense. Among the contracts which are adjudged impolitic and void are: Contracts in restraint of marriage or trade, that is, in general restraint of marriage or trade, for a contract not to marry a particular person, or not to go into a certain trade in a limited district may be good. Agreements in restraint of marriage are dis- couraged for political and moral reasons ; so a promise under seal to marry no one but the promisee, where there was no promise of marriage on either side was held void, as being purely restrictive. (Anson on Cont. p. 187; Chalfact v. Fayton, 91 Ind. 202.) So marriage- brocage contracts, or promises to pay money for bring- ing about marriages, are against public policy. And agreements looking to the future separation of hus- band and wife are also illegal. (Phillips v. Thorp, 10 Oreg. 496; Johnson v. Hunt, 81 Ky. 322; Randall v. Randall, 37 Mich. 571.) Until about 1870 it was settled law that a contract in which one of the parties agreed not to carry on a par- ticular business within a State was void as in restraint of trade. (Taylord v. Blanchard, 13 Allen 370.) But now the rule is modified, the restraint, it is said, may extend far enough to afford a fair protection to the purchaser of a business, and this may include the terri- tory of a State. (Beal v. Chase, 31 Mich. 490; Chappel V. Brockway, 21 Wend. 162; Arnold v. Kreutzer, 67 la. 214.) But if there is no limitation as to the territory 66 CONTRACTS. the contract is void. (Thomas v. Miles, 3 Ohio St. 274; Wiley v. Baumgardner, 97 Ind. 66.) The contract may be unlimited as to time. Contracts to stifle or prevent a criminal prosecution, or to induce an officer not to perform his duty are against public policy. (McMahon v. Smith, 47 Conn. 223.)* So are lobbying contracts, or agreements to advocate a claim with members of the legislature or se- cure legislation through personal influence or by cor- rupt measures. (Trist v. Child, 21 Wall. 441 ; McBrat- ney v. Chandler, 22 Kans. 692.) So are contracts to withdraw opposition to a divorce proceeding. (Stout- enburg v. Lybrand, 10 O. St. 228.) So is the sale of a public office, or the assignment of his salary before due by a public officer. (Hall v. Gavit, 18 Ind. 390; Morse v. Ryan, 26 Wis. 356; Bliss v. Lawrence, 58 N. Y. 442; 66 Cal. 72.) And agreements in which the parties are bound to submit all disputes arising therein to arbitra- tors are void as being attempts to oust the court's of their jurisdiction. (D. & H. Canal Co. v. Pa. Coal Co. 50 N. Y. 250; Reed v. Washington Ins. Co., 138 Mass 572.) But the parties may stipulate for the determina- tion of specific questions by arbitration, as the amount of damages sustained by a breach, and make stich de- termination, or a bona fide effort to obtain.it, a condi- tion precedent to the right of action on the contract. (Mentz v. Armenia Fire Ins. Co., 79 Pa. St. 480; Phoe- nix Ins. Co. v. Badger, 53 Wis. 288.)* ♦Stifling Prosecutions. "You shall not make a trade of a felony. If you are aware that a crime has been committed you shall not convert that crime into a source of profit or Contracts. 6> Sec. 461. ILLEGAL AGREEMENTS.— By an il-' legal agreement or contract is meant, not one lacking some of the legal requisites of a binding contract, but one, the subject-matter of which is in contravention of some positive law. (Walker, Am. Law, 467.) The prin- ciple being that if the general intent of the legislature as determined from a penal statute forbidding an act to be done under penalty, is to prohibit the act, or to protect the public health or morals, then any contract to do such act is invalid, whether the statute declares so or not.* benefit to yourself." (Per Lord Westbury, in Williams v. Bayley, L. R. j H. L. 220.) This rule Anson states to be subject to the qualification, "that where civil and criminal remedies co-exist, a compromise of a prosecution is permissible." (An- son, on 71 Ga. 400. In Lester v. Buel, 49 Ohio, St. 240, it is held that a contract in whioh one of the parties is to have the option to buy or sell a certain commodity at a future time, it being understood that there was to be no delivery, the party losing to pay the other the difference in the market price, is by com- mon law, as well as the statute in Ohio, a gambling contract or wager upon the future price of the commodity, and there- fore void. Bohemian Oats Contracts. What are known as Bohemian oats contracts are held to be fraudulent, immoral and against public policy. The law refusing to aid their enforcement while executory, nor aid either party when the contract is executed, to place himself in statu quo, but will leave the parties where it finds them. (Carter v. Lillie, 3 Ohio, C. C. 364; Shirey v. Ulsh, 2 Ohio, C. C. 401.) Insurance Contract. The contract of insurance is an ex- ception to the law against wagering contracts. Insurance is a wagering contract, but the law permits such contracts to be valid where the insured has what is called an "insurable inter- est" in the risk. See Anson on Cont. pp. I7S» 180; Wood on Fire Ins. 90; Warnock v. Davis, 104 U. S. 77s; 36 Albany Law J. p. 83. 70 CONTRACTS. and wagering contracts are illegal independent of stat- utes. (Love v. Harvey, 114 Mass. 82; Eldred v. Mal- loy, 2 Col. 320; Wilkinson v. Tousley, 16 Minn. 299.J Usury, or the taking of greater interest than the law allows, may be made to avoid the contract. The rate of interest is prescribed by statute in the various States, and the penalty prescribed for taking a greater amount than the law allows. The taking of usurious interest does not now void the contract, but as a rule the in- terest above the legal rate is applied on the principal debt, or may be recovered by suit.* Sec. 462. EFFECT OF ILLEGAL CONTRACT. — Where the contract is illegal it is void and the party *Rev. Stat. Ohio, Sees. 3179-3183; 7 Ohio 80. Computing Interest in Ohio. When a partial payment is made on an account drawing interest, if it exceed the interest due it is to be applied on the interest and the balance on the principal, if less than the interest it is to apply on the interest; and where interest is payable annually, such partial payment will be applied (1) on the interest due upon interest, (2) in satisfaction of interest accrued on the principal, and (3) upon the principal; but in no case will interest upon interest be made to bear interest. (Anketel v. Converse, 17 Ohio St. 11.) That is, interest due and unpaid draws simple interest until paid, but compound interest is not allowed. On contracts for the payment of money evidenced by bond, bill, promisory note or other instrument in writing, the inter- est is payable from the stated time or from the day of maturity, but if the contract is to pay on demand, it has been held that interest does not begin until demand is made. On judgments, decrees, or orders, simple interest is to be computed from the date thereof. On book accounts the interest is computed on the balance found due at the date of settlement. (Walker, Am. Law, 471.) The contract to pay interest is interpreted according to the law of the place where it is to be paid. (Story, Confl. Laws, Sees. 291-301.) CONTRACTS. ft promising is released from his promise whether made under seal or by parol, the defense of illegality is not a favor to either of the parties, but is allowed in the inter- est of the public. (Lyon v. Waldo, 36 Mich. 353 ; Buf- fendeau v. Brooks, 28 Cal. 641.) Sec. 463. THE STATUTE OF FRAUDS.— The Statute of Frauds, so-called, requiring in certain cases written evidence of a contract, was passed in the 29th year of the reign of Charles II., being A. D. 1677. The statute was passed to prevent frauds upon third parties growing out of contracts, two sections of the act, the 4th and 17th, have been copied into the statute law of the American States in substance, if not in the exact terms.* The 4th section of the statute provides: "That no action shall be brought whereby to charge any executor or administrator upon any special prom- ise to answer damages out of his own estate ; or where- by to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person; or to charge any person upon any agreement made in consideration of marriage; or upon any con- tract or sale of lands, tenements or hereditaments, or any interest in or concerning them; or upon any agree- ment that is not to be performed within the space of one year from the making thereof; unless the agree- ment upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith or some other person thereunto by him lawfully authorized." Sec. 464. CONSTRUCTION OF THE 4TH SECTION OF THE STATUTE OF FRAUDS.— It *Rev. Stat. Ohio, Sees. 4195-99 (1810). p CONTRACTS. is said that the form required by the statute is not nec- essary to the existence of the contract but only to its proof. Hence the note in writing may be made at any time between the formation of the contract and the bringing of the action. And a draft made and signed by the proposer will be sufficient though the contract is concluded by a subsequent parol acceptance. (Anson on Cont. p. 55; Hardman v. Wolfstein, 12 Mo. App. 366.) The memorandum of the contract should men- tion or designate the parties. (Grafton v. Cummings, 90 U. S. 100; Dykes v. Townsend, 24 N. Y. 57.) Sev- eral writings, though made at different times, may be construed together to satisfy the statute as to the signed memorandum. If part only of such writings are signed, reference must be made in these to those un- signed unless it appears by comparison that they re- late to the same matter. That is, the several writings must be consistent, connected and complete. (Thayer v. Luce, 22 O. St. 62; North v. Mendel, 73 Ga. 400.) Whether the consideration must appear in the writ- ing is a disputed' question. The English rule is that it must, and this is followed in some of the American States. (Wain v. Warlters, 5 East. 10; Sears v. Brink, 3 Johns. 210; Taylor v. Pratt, 3 Wis. 674.) Other States hold that the consideration need not be ex- pressed. (Reed v. Evans, 17 Ohio 128; Sage v. Wil- cox, 6 Conn. 81; Ashford v. Robison, 8 Ind. 305.) The memorandum must be signed by the party charged or his agent, it need not be signed by both parties. (McElroy v. Seerey, 61 Md. 389.) An auc- tioneer, being the agent of both parties, may bind them CONTRACTS. 73 by his signature, but his memorandum should be made at the time of the purchase. (Horton v. McCarty, 53 Me. 394.) The name may appear anywhere on the in- strument, but must be for the purpose of authenticity. (Anderson v. Harrold, 10 Ohio 399.) The subject mat- ter of the contract should be so described in the mem- orandum that it can be identified. (Wood v. Davis, 82 111. 3"-) Sec. 465. SAME SUBJECT— NATURE OF THE CONTRACTS IN THE SECTION.— The special promise to answer for the debt of another must be a promise to stand good for that which another person is primarily liable to pay. If no credit was given to the party receiving the benefit and the promisor alone is liable the promise is not within the statute and need not be in writing. (Wendell v. Hudson, 102 Ind. 521; Welsh v. Marvin, 36 Mich. 59; Morehouse v. Crangle, 36 O. St. 130.) The agreement made in consideration of marriage does not include the promise to marry, but applies to a promise to pay money or make a settlement condi- tional upon a marriage taking place. An interest in land within this section must be a substantial interest, and not arrangements preliminary to the acquisition of interest, as the cost of an abstract of title, or such a remote interest as the agreement to transfer shares in a railway company which owns land as incidental to its business. Again, "fructus indus- triales," or the fruits of industry produced by the labor of men, do not constitute an interest in land, while "fructus naturales," as growing grass, timber, or fruit 74 CONTRACTS. upon trees are considered to do so if the sale contem- plates the passing of property in them before they are severed from the ground. (Anson on Cont. 61.) Of agreements not to be performed within the space of a year it is to be said that the agreement must con- template non-performance within the year, and by both parties. That is, the agreement would not be within the statute if the agreement is to be fully performed by one of the parties within the year. (Donneallan v. Read, 3 B. & Ad. 899; Winters v. Cherry, 18 Mo. 350; Smalley v. Green, 52 la. 241.) By judicial construc- tion of the phrase "to be performed," this portion of the statute has been greatly restricted. The rule being that if the agreement by any possibility may be ful- filled or completed within the year it is not within the statute, and this though it is not likely to be, or ex- pected to be, performed within the year. Thus con- tracts to be performed on the happening of an uncertain event, as on the death or marriage of a person, are sus- tained though not in writing. (Blakeney v. Goodale, 30 Ohio St. 350; Niagara Fire Ins. Co. v. Green, yy Ind. 590.) So contracts to support a person during life or to educate a child, are held not to be within the stat- ute, as the person may die within the year. (Bell v. Hewitt, 24 Ind. 280; Kent v. Kent, 62 N. Y. 560.) And a contract to restrain from doing an act or carrying on a business indefinitely are not within the statute, as the contract ends with the death of the individual, which may happen within the year. (Doyle v. Dixon, 97 Mass. 208.) CONTRACTS. 75 Sec. 466. SAME SUBJECT— EFFECT OF FAIL- URE TO SATISFY THE STATUTE.— A contract of the kind mentioned in this section which is not put in writing and signed is not void but cannot be proved. (Leroux v. Brown, 12 C. B. 801 ; Pritchard v. Norton, 106 U. S. 134.) But in those States which expressly provide that certain contracts "shall be void" unless put in writing, the failure to observe the statute would seem to go to the existence of the contract. The statute does not prevent the making of contracts without the written memorandum, but introduces a new rule of evidence and creates a new defense by requiring that the agreement shall be proved by a writing. (Crane v. Powell, 139 N. Y. 379.) As a general rule, part performance will take a con- tract out of this section of the statute. This was the equitable rule to prevent a fraud being perpetrated under cover of the statute by the purchaser of land on a parol consideration, who sets up the statute to avoid paying for the land. (Brown on Stat, of Frauds, Sec. 441; Randall v. Turner, 17 O. St. 262.) The rule is subject ,to qualifications, and Anson states that it only applies where the contract is for an interest in land, and that even in this case the acts relied on to take it out of the statute must be more than service rendered in consideration of a promise to convey lands, or the payment of the price wholly or in part; the acts relied on as part performance must be unequivocally and in their own nature referable to some such agreement as is sought to be proved. (Anson on Contr. 63-4; Madi- 76 CONTRACTS. son v. Alderson, 8 App. Ca. 479; Crabill v. Marsh, 38 Ohio St. 331; Kinyon v. Young, 44 Mich. 339.) Sec. 467. CONTRACTS WITHIN THE SEVEN- TEENTH SECTION.— The seventeenth section of the Statute of Frauds is as follows: "That no contract for the sale of any goods, wares, and merchandise for the price of 10 pounds sterling or upwards shall be al- lowed to be good, except the buyer shall accept part of the goods so sold and actually receive the same; or give something in earnest to bind the bargain, or in part of payment; or that some note or memorandum in writing of the said bargain be made and signed by the parties to be charged by such contract, or their agents thereunto authorized." This section has also been copied substantially into the statute law of the several States, the amount being usually "$50 or upwards," in- stead of "10 pounds sterling." Sec. 468. CONSTRUCTION OF THE 17TH SECTION. — In this section several methods are pro- vided in which the contract may be validly made aside from the written memorandum. The same requisites for the memorandum are applicable in this case, as under the 4th section, with the exception that the au- thorities are unanimous that in this case the considera- tion need not be stated, the promise to pay a reasonable price, in the absence of a specified consideration, being presumed. (Anson on Cont. p. 65.) There is some difficulty of determining just what constitutes goods, wares and merchandises under this section. In the contract of bargain and sale the prop- erty in the thing sold passes to the purchaser. Hence CONTRACTS. 77 there must be an ascertained and specific chattel con- templated by the parties to which nothing remains to be done; when this is so it is an executed contract of sale. But there may be an executory agreement to sell, as where the goods are not specific, or something remains to be done to complete the article or ascertain and fix the price, as the purchase of hay in the stack, which is to be weighed to ascertain the price. In this case the property does not pass to the purchaser, but only a right to have the agreement carried into effect. The early English cases held that executory con- tracts of sale did not fall within the statute, and a sub- sequent act (Lord Tenterden's Act, 9 Geo. IV.) was passed to extend the section to executory contracts of sale for goods intended to be delivered in the future, or which had to be made, procured, or completed after the agreement. And by Lee v. Griffin, 1 B. & S. 272, it is held that the contract is within the section, and for the sale of goods if it contemplates the ultimate de- livery of a chattel, notwithstanding the work and labor in the making or constructing such chattel is the most important part. This rule is hardly approved in this country. (Finney v. Apgar, 31 N. J. L. 270; Cooks v. Milliard, 65 N. Y. 360; Meinicke v. Falk, 55 Wis. 427.) The decisions in New York distinguish between the sale of goods in existence, when the contract is made, which are held to be within the statute, and those for goods to be manufactured, which are not within the statute. (Parsons v. Loucks, 48 N. Y. 17; Deal v. Maxwell, 61 N. Y. 652.) The sale of bonds, stocks and promissory notes are held to be within the statute, 78 CONTRACTS. (Tisdale v. Harris, 20 Pick. 13; Boardman v. Cutter, 128 Mass. 388.)* Sec. 469. EFFECT OF FAILURE TO SATISFY THE 17TH SECTION.— The 17th section of the Stat- ute of Frauds, unlike the 4th section, is said to go to the existence of the contract, and invalidate a contract within the section which is not made as it prescribes. (Leroux v. Brown, 12 C. B. 809; Houtaling v. Ball, 20 Mo. 563.) Anson questions the substantiality of this rule, and asserts that the words of the 17th section, which declare that the contract shall not "be allowed to be good," do not any more than the words of the 4th section relate to the existence of the contract. (An- son on Contract, pp. 67-8.)** This subject will be discussed at greater length in a sub- sequent number of this series, under the head of "Personal Property." **The seventeenth section is not a part of the Ohio statute of frauds, Rev. Stat. Ohio, Sees. 4195-99. CONTRACTS. 79 CHAPTER III. THE OPERATION OF CONTRACT. Sec. 470. SCOPE OF THE CONTRACTURAL OBLIGATION STATED.— In general, it may be said that no one but the parties to a contract can be bound by it or entitled to rights under it. But under certain circumstances the rights and liabilities created by a contract may pass to a person or persons other than the original parties to it, either by the act of the parties, or by rules of law operating in certain events. (Anson on Cont. p. 208.) A discussion of these gen- eral principles will be the subject of the present chap- ter. Sec. 471. A CONTRACT CANNOT IMPOSE LIABILITY ON A THIRD PARTY.— A contract acts upon the parties, and is founded upon their assent to its terms; it follows that one not a party, and not assenting to its terms, cannot be made to assume its obligation. So it is said "a man cannot, of his own will, pay another man's debt without his consent, and there- by convert himself into a creditor." (Durnford v. Mesr siter, 5 M. & S. 446.) While it is true that a contract between parties can- not confer a liability upon a third party, yet the ex- istence of such contract does impose a duty upon all persons extraneous to such contract not to interfere with its due performance. "A contract confers upon f 86 CONTRACTS. the parties to it, rights in rem (in the thing) as well as rights in personam; and it not only binds together the parties by an obligation, but it imposes upon all the world a duty to respect the contractual tie." (Anson on Cont. p 212.)* The case of Lumley v. Gye, above cited, is followed in a number of American cases. (Dudley v. Briggs, 141 Mass. 584; Jones v. Stanley, 76 N. C. 355.) In this latter case it was said "the same reasons cover every case where one person maliciously persuades an- other to break any contract with a third person. It is not confined to contracts of service." Other cases hold that the doctrine of Lumley v. Gye, or Bowen v. Hall, does not generally prevail in this country, and state that a man "may advise another to break a contract, if it be not a contract for personal services. He may use any lawful influences or means to make his advice pre- vail. In such a case the law deems it not wise or prac- ticable to inquire into the motives that instigate the ♦Lumley v. Gye, 2 E. & B. 216. In this case, the plaintiff, manager of an opera house, having engaged a singer to per- form in his theater, the defendant induced her to break her contract. The plaintiff sued the defendant for procuring the breach of contract, and the questions which the court passed upon were (1) whether an action would lie against one who procured the breach of any kind of a contract, and (2) if not, would an action lie in this case for the enticing away the servant from the master? The majority of the court answered both these questions in the affirmative. This case was decided in 1853, and in 1881 the case of Bowen v. Hall, 6 Q. B. D. 339, decided the uncertainty which still existed as to whether an action would lie for the securing the breach of a contract, in- dependent of the relation of master and servant, by holding that such an action would lie. CONTRACTS. 81 advice. His conduct may be morally and not legally wrong." — Peters, J. in Haywood v. Tillson, 75 Me. 352. (Cooley's Torts, 279; 35 Albany L. J. p. 224.) Sec. 472. A CONTRACT CANNOT CONFER RIGHTS ON A THIRD PARTY.— As a general rule it is stated that a contract between two or more persons cannot confer rights on a third person any more than liabilities, unless the contract amount to a declaration of trust. (Anson on Cont.) This rule, which is thus positively stated on English authority, is modified by a number of exceptions re- sulting from the nature of the contract, the relationship of the third person to the promisee, and the statutes requiring actions to be prosecuted in the name of the real party in interest. So if the defendant has money in his possession which equitably belongs to the plain- tiff, it is not a defense to the suit that the consideration did not move from the plaintiff, or that there is want of privity between the parties. (Lewis v. Sawyer, 44 Me. 332; Hosford v. Kanouse, 45 Mich. 620.) The principle that nearness of relationship between the promisee and the person to take a benefit under the contract will allow such third person to bring an action, though overruled in England, is followed by some cases. (Exchange Bank v. Rice, 107 Mass. 42.) The statutory or code provision, requiring actions to be prosecuted in the name of the real party in interest, gives the party for whose benefit a contract is made the right of action. So where a promise is made to a third party, and accepted by him, though he is not a party to the contract, he can yet assert his right under such 82 CONTRACTS. contract. (Emmitt v. Brophy, 42 Ohio St. 82.) Under the old rule the promisee would have been trustee for the party to be benefited. It is now quite generally held, and independent of code provisions, that a person may maintain an action on a parol promise made to another for his benefit. (Kimball v. Noyes, 17 Wis. 71 ; Flirt v. Cadenasso, 64 Col. 83; Hendrick v. Lindsey, 93 U. S. 143.)* Sec. 473. A CONTRACT MAY BE ASSIGNED. — As we have seen a contract ordinarily affects only the parties to it. But by acts of the parties or by rules of law the parties may be replaced by others who then assume their rights and obligations. Sec. 474. LIABILITIES UNDER A CONTRACT CANNOT BE ASSIGNED.— It is a general principle that a mere liability or debt cannot be assigned. (Can- non v. Kreipe, 14 Kans. 324; Van Scotter v. Leffets, 11 Barb. 140.) The rule is said to be based on sense and convenience. A party contracts with reference to the character, credit and substance of a particular per- son, and could this person place some one else in his place to make good his liability there would be no safety in contract. The limitations to this rule are: 1st, That the liability may be assigned with the consent of the party entitled, which is in effect the rescission, by ♦Another exception to the general rule that a third person is not effected by the contract between others, is that of Agency. In this class of contracts the agent represents the third party and of course may contract so as to involve his principal. This subject is to be treated at length in a subse- quent number of this series. CONTRACTS. 83 agreement, of one contract and the substitution of a new one with different parties; 2d, where the contract engages the party to do work which is not dependent upon the special skill or ability of the party, the work may be done by some other person equally competent, but the original party is liable if the work is not done as agreed; 3d, where an interest in land is transferred, liabilities attaching to the enjoyment of the interest pass with it. (Anson on Cont. p. 219.) Sec. 475- ASSIGNMENT OF RIGHTS— AT COMMON LAW.— The benefits or rights under a contract may be assigned. But at Common Law, ex- cept in the case of negotiable instruments, the rights under a contract cannot be assigned so as to enable the assignee to sue upon it in his own name, the action must be brought in the name of the assignor, or his representatives. By a novation, or substituted agree- ment, the parties might discharge the old agreement and substitute a new one. Thus, if A owes B a certain amount and B owes C the same amount, an agreement between the three that A shall pay C instead of B, and C shall accept A's payment instead of B's will be such a new agreement as will substitute C for B, the latter being discharged. The mutual promises constitute the consideration for the new agreement, hence there must be a definite agreement between the parties and the assignee. (Forter v. Pain, 63 la. 85; Am. Lumber Co. v. Mulcrane, 55 Mich. 622; Murphy v. Hanrahan, 50 Wis. 485.) Sec. 476. SAME SUBJECT— IN EQUITY.— In equity the rights under a contract may be assigned and 84 CONTRACTS. the assignee maintain a suit upon it in his own name. The only exception to this is in the case of a contract for personal services, the right to which may not be assigned. The assignment to be supported in equity, and a suit maintained upon it, must conform to certain conditions. These are: i. A consideration must have been given by the assignee. 2. The person obligated under the contract is not liable until he has notice of the assignment, otherwise the assignment is valid from the moment made. 3. The assignee takes subject to all defenses that might have been set up against the as- signor. (Anson on Cont. p. 222.) As regards notice, it is held that a payment by the debtor to his creditor without notice of the assignment of the claim is a good discharge. And that as between successive purchasers of a chose in action he who first gives notice to the debtor will be entitled to payment. (Judson v. Corcoran, 17 How. 615; Murdock v. Dick- son, 21 Mo. 138.) But some cases hold that purchasers take title according to the priority of time, regardless of notice to the debtor. (Thayer v. Daniels, 113 Mass. 129; Summers v. Huston, 48 Ind. 230.) The rule as to the assignee taking subject to all de- fenses good against the assignor may be varied by the express agreement of the parties, providing that an assignment shall be free from equities. Sec. 477. SAME SUBJECT— BY STATUTE.— Choses in action, or rights arising from contracts are made assignable by statute in the several States, but the statutes are not uniform in their terms or construe- CONTRACTS. 8s tion. The statutes usually require the suit to be brought in the name of the real party in interest, and this authorizes the assignee to bring the action in his own name. The rules applicable to assignments in equity apply largely to the cases of statutory assignments. Every right of property which was assignable in equity and survives to the personal representatives of the owner is assignable under the statutes. (Hoyt v. Thompson, 5 N. Y. 320; Grand v. Ludlow, 8 O. St. 37.) The right and duty to render personal service cannot be assigned. (Chapin v. Longworth, 31 Ohio St. 421; Palo Pinta Co. v. Gano, 60 Tex. 249.) The right of action for a tort is not generally assignable, except such actions for torts as survive to the personal representatives. (Stew- art v. Railway Co. 62 Tex. 246.) Actions for deceit, breach of promise of marriage, negligent injury to the person, malicious prosecution and the like are not as- signable. (Dayton v, Fargo, 45 Mich. 153; Ward v. Blackwood, 41 Ark. 295.) The creditor can assign his claim without the assent of his debtor, but if the debtor has the right to pay the claim as a whole, a part of it cannot be assigned with- out his assent. (Madeville v. Welch, 5 Wheat. 277.) No particular form of assignment is required, and if a parol assignment is good in equity it is good under the statute. The assignment may be conditional or for se- curity. Notice to the debtor is not necessary as be- tween the parties to the assignment, but should be given by the assignee if he wishes to protect himself from subsequent assignments by the assignor, or from & CONTRACTS. payment being made to him by the debtor. (Farley's Appeal, 76 Pa. St. 42.) The assignee takes subject to equities in favor of the debtor at the time of the assignment. (Spinning v. Sullivan, 48 Mich. 5 ; Kleeman v. Frisbie, 63 111. 482.)* Sec. 478. SAME SUBJECT— BY OPERATION OF LAW. — Independent of the act of parties rights and liabilities in contract may be transferred from one person to another. Rights arising from contract are transferred by operation of law to others im the case of interests in realty which run with the land, and when by the death or bankruptcy of a party his representa- tives acquire his rights and liabilities for certain pur- poses. Covenants that Run with the Land, Agreements or covenants in a lease which "touch and concern the thing demised," as to repair, pass to the assignee of the lessee whether expressed to have been made with the lessee and "assigns" or not.; (Anson on Cont. p. 232; Leppla v. Mackey, 31 Minn. 75.) And by statute the assignee of the reversioner or landlord is entitled to maintain an action on the covenants of the lease. (Baldwin v. Walker, 21 Conn. 168; Smith v. Harrison, 42 O. St. 184.) At Common Law covenants entered into with the owner of land, and for his benefit, if not merely per- sonal, and concerning the land, pass to his assignees; while covenants entered into by the owner of land ♦The rules regarding the transfer of rights under contract which are negotiable will be treated under the subject "Nego- tiable Instruments" in a subsequent number of this series. CONTRACTS. 87 which restrict his enjoyment of the land do not bind his assignees unless an easement is created. (Keppel v. Bailey, 2 Mylne & Keen, 517; Cole v. Hughes, 54 N. Y. 444.) The reason of the rule is the impolicy of al- lowing land to be trammeled in its transfer by con- tracts of previous owners. (National Bank v. Segur, 39 N. J. L. 184.) The common law rule just stated that covenants lim- iting the enjoyment do not pass to assignees is changed by the courts of equity, which enforce restrictive cov- enants made between parties to a deed though the land has been' assigned. (Stines v. Dorman, 25 Ohio St. 460; Anson on Cont. p. 234-5.) The Death or Bankruptcy of a Party. The death of a party passes to his personal representative all his per- sonal estate, and all rights in action affecting it, and all liabilities chargeable upon it. Covenants affecting freehold pass to the heir or devisee of the realty. (An- son on Cont. 23,5.) The exception to this rule is that contracts of personal service expire with either of the parties to them, and performance of contracts which depend upon personal skill, or service cannot be de- manded of the personal representative. Nor can a breach of a contract which involves a purely personal loss, as a breach of promise to marry, give a right of action to the executors. (Chamberlain v. Williamson, 2 M. & S. 408; Grubb, Admr. v. Sull, 32 Grat. 203.) The assignee of a bankrupt is appointed for the pur- pose of collecting the assets and settling the liabilities of the estate. The same principles which apply to per- sonal representatives apply largely to him. CONTRACTS. CHAPTER IV. THE INTERPRETATION OF CONTRACT. Sec. 479. WHAT IS MEANT BY THE INTER- PRETATION OF CONTRACT.— By the interpreta- tion of contract is meant die method of determining its validity, scope and effect when before the court. Defin- ite rules have been established by the courts for prov- ing the terms, for permitting extrinsic evidence when the contract is written, and for construing the meaning of terms used, and these are the rules which demand our attention in the present chapter. Sec. 480. INTERPRETATION A MATTER OF LAW. — The interpretation or construction of a con- tract is for the court, that is, is a matter of law. Where the dispute is as to what was said in an oral contract it is a question of fact for the jury to determine. But when the agreement between the parties is proved it is for the court to determine its effect, and neither party can avoid the plain meaning of his words by claiming he did not intend what he said. So where the parties have written out their agreement in full, by a rule of evidence they are precluded from adding to or varying such written agreement by oral or parol evidence. This general rule of evidence applying to written contracts is subject to certain exceptions, or the rule when inter- preted admits certain extrinsic evidence, and this ad- missible evidence Anson classifies under three heads: CONTRACTS. 89 "l. Proof of existence of document. Evidence as to the fact that there is a document purporting to be a contract, or part of a contract. "2. Of fact of agreement. Evidence that the pro- fessed contract is in truth what it professes to be. It may lack some element necessary to the formation of contract, or be subject to some parol condition upon which its existence as a contract depends. "3. Of terms of contract. Evidence as to the terms of a contract. These may require illustration which ne- cessitates some extrinsic evidence; or they may be ambiguous and then may in like manner be explained; or they may comprise, unexpressed, a usage the na- ture and effect of which have to be proved. "We are thus obliged to consider (1) evidence as to the existence of a document, (2) evidence that the document is a contract, (3) evidence as to its terms." (Anson on Contract, pp. 238-9.) Sec. 481. (1) PROOF OF THE DOCUMENT.— If the contract is under seal it is proved by calling one of the attesting witnesses, and if dead or incapable or out of the jurisdiction, by proving the handwriting of the witness. (Richards v. Skiff, 8 O. St. 586; Elliott v. Dycke, 78 Ala. 150.) If the contract is not under seal, that is, a simple contract, it is necessary to identify the party sued as the one making the contract by parol evi- dence. So, if the writing is only a part of the contract, or consists of several documents unconnected (except where the statute of frauds requires a connected mem- orandum), or the written instrument is lost, oral evi- dence is admissible, to complete the contract, or con- go CONTRACTS. nect the writings, or prove the contents of the lost doc- ument. (Anson on Cont. p. 241; Myers v. Munson, 65 la. 423; Blake v. Coleman, 22 Wis. 396.) Sec. 482. (2) EVIDENCE AS TO FACT OF AGREEMENT. — A written contract may be shown invalid by parol evidence of the incapacity of a party, want of genuine consent, illegality or immortality of object, and the like. (Wooden v. Shotwell, 23 N. J. L. 465; Totten v. United States, 92 U. S. 105.) So it may be shown that no consideration passed for the promise; and that a contract formally executed never received the assent of the parties, or that their assent depended on a contingency which has not happened. (Anderson v. Walter, 34 Mich. 113.) That is, evidence is admis- sible not to vary a written contract but to show that there never had been a contract at all, as the writing does not conclusively establish the existence of the contract. (Burnes v. Scott, 117 U. S. 582; Leddy v. Barney, 139 Mass. 394.) Sec. 483. (3) EVIDENCE AS TO TERMS OF THE CONTRACT.— The general rule of law is that the written statement of a contract forms the best evi- dence of the intention of the parties, and is not to be enlarged or varied by parol evidence. Exceptions to this rule mentioned by Anson are: (a) Terms supple- mental or collateral to so much of the agreement as is in writing; (b) cases requiring explanation of the terms of the contract; (c) in introducing a custom or usage into the contract; (d) in applying equitable remedies in a case of mistake. (Anson on Cont. 244.) CONTRACTS. 91 Sec. 484. SAME SUBJECT— EXCEPTIONS NOTICED. — (a) Where all the terms have not been put in the writing, parole evidence of the supplemental terms is admissible as completing the contract. (Lyon v. Lenon, 106 Ind. 567; Mobile, etc. v. Jurey, m U. S. 584.) An example of a collateral term allowed to be proven by parol is cited by Anson, where a farmer made a lease upon the parol promise by the lessor that the game upon the land should be killed down, and he was allowed damages for the breach of this promise, though it was not mentioned in the lease. (Anson on Cont. 245.) Such collateral agreements will be ad- mitted if it be not contrary to the written agreement. (Walker v. France, 113 Pa. St. 203; Keen v. Beckman, 66 la. 672.) (b) The explanation of the terms of a written con- tract may be necessary to identify parties, as to show the position which a contracting party occupies, as an agent, partner, and the like. (Leach v. Dodson, 64 Tex. 185.) Or to identify the subject-matter of the contract. (Barrett v. Murphy, 14 Mass. 133; Thomp- son v. Stewart, 60 la. 223.) Or to show the applica- tion of a phrase, where a vessel is warranted as "sea- worthy," a house promised to be kept in "tenantable" repair, and the like, parol evidence is admissible to show what the parties intended by these phrases. (An- son on Cont. p. 246.) (c) A written contract may be explained by parol evidence of a local custom or usage, though a term is thereby added, or a different meaning given to one of its terms. (Lowe v. Lehman, 15 Ohio St. 179; Brown 92 CONTRACTS. Chemical Co. v. Atkinson, 91 N. C. 389; Swift Iron & Steel Co. v. Drury, 37 O. St. 242.)* The custom or usage to be admissible must not be at. variance with the express terms of the contract, or re- pugnant to statutory law. (Mansfield v. Inhabitants, 15 Gray, 159.) Or against public policy, or unreason- able or oppressive. (Raisin v. Clark, 41 Md. 158; Penna. Coal Co. v. Sanderson, 94 Pa. St. 302.) And words of manifest and clear import should not be given an unnatural meaning. (Lawson on Usages & Cus- toms, p. 434; Hedden v. Roberts, 134 Mass. 138.) (d) Where an offer has been made through a mis- take, or a written agreement is made and through mu- tual mistake a term of the contract is contrary to the intention of the parties, it may be shown by parol evi- dence that the real agreement of the parties was differ- ent. (Webster v. Cecil, 30 Beav. 62.) The equity courts will rectify a mutual mistake in a deed or writing, and make the document conform to the true intention of the parties, and for this purpose oral evidence is admis- sible. (Fowler v. Fowler, 4 D. & J. 250.) If the mis- *These usages are annexed to the agreement on the "pre- sumption that in such transactions the parties did not mean to express in writing the whole of the contract by which they intended to be bound, but to contract with reference to those known usages." (Hutton v. Warren, I. M. & W. 466; Soutier v. Kellerman, 18 Mo. 509.) Lowe v..Lehman, 15 Ohio St. 179. In this case it was held parol evidence of a local custom to estimate the number of brick by measurement of the walls, upon a uniform rule based on the average size of brick, was admissible under a written contract to lay the brick by the thousand. (Contra, Sweeney y. Thomason, 9 Lea (Tenn.) 359.) CONTRACTS. 93 take is not mutual, oral evidence will be admitted only in cases having an element of fraud in them, as where the mistake was caused by the party in whose favor it operated, and was known to him before the contract changed his position. (Anson on Cont. p. 250.) Sec. 485. RULES OF CONSTRUCTION.— The contract being proved as to the terms and stipulations of the parties, and the written agreement having been explained as we have just described, the court follows certain rules of construction in interpreting such con- tract. These are: ' (1) Intention of the Parties. The intention of the parties is to be ascertained from the words used, and when ascertained governs. The words cannot be forced to mean what the parties ignorantly intended them to mean; "horses" could not be read "oxen" by the court, until it was made certain by ex- trinsic evidence that it was so intended. (2 Pars. Cont. 495.) The words are to be understood in their plain and literal meaning, but in case of error, or mutual mistake, the contract may be rectified, which is to be distinguished from construction. This rule is modi- fied, however, by another, that a valid legal construc- tion is preferred to one invalid, and a construction that will make the contract mean something to one which will render it senseless. (2) General Rules. Every contract is to be construed with reference to its object and all of its terms; and likewise the situation of the parties at the time of con- tracting, and the purpose and intention of making the . 94 CONTRACTS. contract are to be considered in determining the in- tention of the parties. The terms used are to be construed according to ' their plain, ordinary and popular sense, except, of course, technical words, which, when employed, are supposed to be used with regard to their technical sense, and to be always used in the same sense. But the contract is to be supported rather than defeated. Again, all instruments are construed "contra profer- entum," or most strongly against him who gives or undertakes, or enters into an obligation ; the reason of this rule being that a person is supposed to regard his own interests first, and having promised and chosen his own words, he should be held to all they may im- port as against him who accepts. (2 Pars. Cont. 507.) General words will be limited by more specific and par- ticular descriptions of the subject-matter to which they refer. Exceptions and conditions in a contract will control only so far as they extend, as the condi- tions are not favored. At Common Law the time within which a contract was to be performed was of the essence of the contract in all cases, but in 'equity this was not so, and unless the contract was meant to depend upon being fulfilled at a day certain it might be performed within a rea- sonable time. The equitable rule is also the legal rule to-day, and in the absence of an express agreement to that effect, time will not be regarded as of the es- sence of the contract. (Maltby v. Austin, 65 Wis. 527.) And in some States equity may disregard a stipulation declaring time of the essence of the contract, if it would CONTRACTS. 95 be unconscionable to allow it. (Cole v. Wells., 49 Mich. 453; Ballard v. Cheney, 19 Neb. 58; Austin v. Wacks, 30 Minn. 335.) CHAPTER V. THE DISCHARGE OF CONTRACT. Sec. 486. HOW THE DISCHARGE OF A CON- TRACT MAY BE EFFECTED.— The modes in which a contract can be discharged are thus stated by Anson: 1. Agreement. — It may be discharged by the same process which created it, mutual agreement. 2. Performance. — It may be performed; and all the duties undertaken by either party may be thereby ful- filled, and all the rights satisfied. 3. Breach. — It may be broken ; upon this a new obli- gation connects the parties, a right of action possessed by the one against the other. 4. Impossibility. — It may become impossible by rea- son of certain circumstances which are held to exon- erate the parties from their respective obligations. 5. Operation of Law. — It may be discharged by the operation of rules of law upon certain sets of circum- stances. (Anson on Cont. p. 257.) These respective methods of discharging a contract will be considered in the present chapter. Sec. 487. (1) DISCHARGE BY AGREEMENT. — The contract which is created by the agreement of o6 CONTRACTS. the parties may be discharged in the same way. And the agreement of the parties which effects its discharge may be in the form of a waiver or rescission, a substi- tuted agreement, or result from the happening of a specified event which was to discharge the contract, called a condition subsequent. (Anson on Cont. 248.) Sec. 488. SAME SUBJECT— WAIVER.— When the parties to a contract agree that it shall no longer be binding upon them, the contract is waived, cancelled or rescinded. .But in discharging a contract in this way, it is to be observed that a consideration must ap- pear for the agreement to waive. In executory con- tracts the release of each party is the consideration for the promise of each to waive. (Kelly v. Bliss, 54 Wis. 187.) And the agreement to waive a claim arising from contract, after it had fully accrued, nothing re- maining to be done by the party waiving, would be void for lack of consideration. (Moore v. Detroit Lo- comotive Works, 14 Mich. 266.) This rule is said by the weight of authority to apply to promissory notes, and a waiver of rights under them cannot be made by parol without consideration. (Seymour v. Menham, 17 Johns. 169; Byers v. Ryington, 34 la. 205.)* *In Foster v. Dawber, 6 Exch. 839, it was held "that it is competent for both parties to an executory contract, by mutual agreement, without any satisfaction, to discharge the obligation of that contract. But an executed contract cannot be discharged except by a release under seal, or by perform- ance of the obligation, * * * but a promissory note or a bill of exchange appears to stand on a different footing to simple contracts, * * and may be discharged by express waiver." But this is not the American rule. Where a bill or note is surrendered with the intent and for the purpose of dis- CONTRACTS. 91 Sec. 489. SAME SUBJECT— SUBSTITUTED AGREEMENT.— Where the parties by agreement substitute a new party for one of those contracting, or so alter the terms of the contract as to make it different from and inconsistent with the original contract, the contract is said to be discharged by substituting an- other agreement in its place. (Church v. Florence Iron Wks., 45 N. J. L. 129.) If the agreement thus discharged is one required to be in writing by the Stat- ute of Frauds, the new agreement should also be in writing. (Browne on Stat, of Frauds, 411.) When a party is substituted for another, a new contract results though the terms remain the same. (Boyd v. Ber- trand, 7 Ark. 321.) The substitution may be by ex- press agreement between the parties, or arise by im- plication from conduct indicating that' the substitution is satisfactory. (Hart v. Alexander, 2 M. & W. 484; Luddington v. Bell, 77 N. Y. 141.) Sec. 490. SAME SUBJECT— CONDITION SUBSEQUENT. — The parties may have agreed in their contract that the failure to fulfill a specified term, or the happening of a stated event, should discharge the contract, or they may have agreed that one of the parties should have the right to determine it upon no- tice to the other. The discharge of a contract by the occurrence of a specified condition or event, is illustrated by the case charging the debt, and without fraud or mistake, it operates as a discharge of the debt, and without consideration if the transaction is fully executed. (Albert v. Zeigler, 29 Pa. St. 50; Larkin v. Hardenbrook, 90 N. Y. 334.) 98 CONTRACTS. of a bond, the liability upon it being terminated upon the happening of the condition expressed. In con- tracts of personal service it is quite customary to stipu- late for the determination of the contract by a reason- able notice being given, and in England these stipula- tions have grown into presumptions of fact, but not in this country. (Miller v. Goddard, 34 Me. 102; The Saxonia Co. v. Cook, 7 Col. 572.) Sec. 491. SAME SUBJECT— FORM OF DIS- CHARGE BY AGREEMENT.— "The general rule is, that a contract must be discharged in the same form as that in which it is made. A contract under seal can only be discharged by agreement; if that agreement is also under seal, a contract entered into by parol may be discharged by parol." (Anson on Cont p. 268.) This rule, as stated by Anson, is qualified by Ameri- can cases, and a contract under seal may be modified or rescinded by an executed parol contract. (Cook v. Murphy, 70 111. 96; Green v. Wells, 2 Cal. 584; Allen v. Jacquish, 21 Wend. 632.) The parties having acted upon the parol of agreement and altered their situa- tion it would be an injustice not to give it effect. (Rob- inson v. Bullock, 66 Ala. 554.) So it is held that the contract under seal may be discharged by a parol con- tract, after there has been a breach. (McMurphy v. Garland, 47 N. H. 323.) A parol or simple contract may be discharged by word of mouth or in writing, regardless of the fact that the contract discharged is in writing. The only ex- ception to this is that already noticed in regard to the discharge of a contract which the Statute of Frauds re- CONTRACTS. 90 quires to be in writing, such a contract, if discharged by a new agreement, requires the new agreement to be in writing. (Ante, Sec. 489; Musselman v. Stoner, 31 Pa. St. 265; Hill v. Blake, 97 N. Y. 216.)* Sec. 492. (2) DISCHARGE BY PERFORM- ANCE. — When a contract has been fully performed according to its terms on both sides it is discharged. But the performance by one party of his promise, un- less it is a promise given for an executed considera- tion, does not necessarily discharge the contract, though it may do so. Payment is a common mode of discharging a con- tract by performance. The contract may contemplate the payment of a sum certain at a specified time, and payment of this sum is a performance of the contract. But the payment may result in performance by being substituted for some other act, or by being accepted in satisfaction of a breach of the contract.** When a ne- gotiable instrument is given in payment of a contract claim, if the parties expressly agree that it shall be a discharge of the existing liabilities, the note alone can be Sued on. Otherwise the note is but a conditional ♦But it is held that a substituted performance agreed upon by parol, fully executed by the vendor, and accepted by the vendee, may be set up in defense at law in a suit on a written contract within the statute of frauds. Long v. HartweM, 34 N. J. L. 116. ♦*"p a y m ent, then, is the performance of a contract, whether it be a performance of an original, or of a substituted contract, or of a contract in which payment is the consideration for a forbearance to exercise a right of action which may have arisen from the breach of an agreement." (Anson on Cont. p. 272.) ioo CONTRACTS. discharge, and failure to pay it revives the previous lia- bility.* A mere tender, whether of payment or of perform- ance of an act, may discharge the person tendering from further obligation under the contract.** Where the performance due is the payment of a sum of money, tender does not discharge the debt, and the debtor must remain ready and willing to pay, and if sued must pay the money into court, and such tender if full and sufficient will protect him from liability for costs.*** ♦Emenine v. O'Brien, 36 Ohio St. 491; Walsh v. Lennon, 98 111. 27; McGuire v. Bidwell, 64 Tex. 43. A distinction is made between notes given for precedent debts, and those given for contemporaneous debts. Where the note of a third person is given for a debt contracted at the time, the inference is that the note is in payment of the indebtedness, but this is not the case if the debt is a precedent one, or the note of the debtor is given for a present debt. (Ford v. Mitchell, 15 Wis. 308; Whitbeck v. Van Ness, 11 Johns. 409.) If the debtor indorses the note of the third party it operates as a conditional pay- ment. (Shriver v. Keller, 27 Pa. St. 61.) ♦♦Simmons v. Green, 35 Ohio St. 104; Cleveland v. Sterrett, 70 Pa. St. 204. Thus if the vendor of an article does all he agreed in regard to delivery of the article, and the purchaser fails to accept the article, the vendor is discharged by such tender, and may sue for the breach, or successfully defend if sued. ***See State statutes for requisites of tender. (Rev. Stat. Ohio, Sees. 5137-8.) Art. I., Sec. 10, U. S. Const, prohibits the States from making anything but gold and silver coin a tender in payment of debts. As a rule the party tendering a money payment should not only have the money about him, and in such denominations that the amount due may be paid without having to give change, but should produce it, unless this is waived by the absolute refusal of the creditor to receive it. (Aulger v. Clay, 109 111. 487; Elderkin v. Fellows, 60 Wis. CONTRACTS. 101 Sec. 493. (3) DISCHARGE BY BREACH.— A party who fails to perform his promises under a con- tract thereby commits a breach of the contract, and such breach in every instance gives the other party a right of action either to secure damages for the breach or to enforce the party in default to specifically per- form his promise. Further, such breach by a party may discharge the other party from the performance of what he has promised in the contract. It is to be observed that while every breach gives a right of ac- tion to the opposite party, it may not be sufficient to discharge such party from his duty of performance. So it is necessary to inquire in what case a breach will amount to a discharge. (Anson on Cont. 276.) Sec. 494. SAME SUBJECT— AS INDICATED BY THE METHOD OF THE BREACH.— A breach of contract may occur: (a) By a party renounc- ing his liabilities under it, (b) by a party so acting as to make it impossible to fulfill his promise, (c) or by the party totally or partially failing to perform what he has promised. (Anson on Cont. 281.) (a) A party may renounce his liability under a con- tract before performance is due, or in the course of performance. If he renounces it in toto before per- formance is due, the other party may treat the con- tract as discharged, and sue at once for a breach.* So, if the party during performance refuses to perform his 339.) This subject will be considered more fully in connection with the subject of "Personal Property" in a later number of this series. *Hochster v. Delatour, 2 E. & B. 678; Crabtree v. Messer- smith, 19 la. 182; James v. Adams, 16 W. Va. 267. The ex- 102 CONTRACTS. part, the other party is discharged from further per- formance and may bring an immediate action for the breach.* (b) The action of the party which makes it impos- sible for him to fulfill his promise may also be before or during performance. In either case, if one of the par- ties by some positive act makes it impossible that he should perform his promise, it is such a breach of the contract as will discharge the other party, who may sue at once for the breach, and if the impossibility occurs when the contract is part performed, the plaintiff may sue also on a quantum meruit for tihe part done.** (c) A partial or total failure of a party to perform what he has promised without an open expression of intention to abandon his rights under the contract, may, or may not,, discharge the other party. In the cases just considered the party in default by breach, has, by renunciation, or acts making it impossible for him to perform, made performance by the other party unnecessary; the breach causing a discharge of the contract as regards the party injured, nothing remains but the right of action for the breach. But where the breach results from a failure of performance by one pression of intention not to perform should amount to an ab- solute refusal, and be treated as such by the opposite party. (Dingley v. Oler, 117 U. S. 503.) if the party during performance refuses to perform his ♦Anson on Cont., p. 284; Hosmer v. Wilson, 7 Mich. 304; Collins v. Delaporte, 115 Mass. 162. **Wolf v. Marsh, 54 Cal. 288; Boyle v. Guysinger, 12 Ind. 273; Hawley v. Keeler, 53 N. Y. 114; Rankin v. Darnell,. 11 B. Monr. 30; Lovell v. Mut. Life Ins. Co., m U. S. 264. CONTRACTS. 103 party, the other may yet have to perform his promise under the contract, though having a right of action for the breach by the other. If the promises of the parties are independent of one another, then a breach by one party failing to perform does not discharge the other from his promise; but if the promises are conditional upon one another, the failure to perform by one will discharge the other. Hence we shall have to consider promises which are independent, and those which are conditional. Sec. 495. SAME SUBJECT— INDEPENDENT PROMISES. — A promise may be independent in sev- eral ways : (i) It may be absolute, (ii)it may be divisible, (iii) it may be subsidiary. (Anson on Cont. p. 287.) (i) By an absolute promise is meant one for which the consideration is the mere liability of the other party, and not the performance of his promise.* The order in which things are to be done serves to test whether the promises are absolute or not.** And the modern tendency is to favor that construction which ♦Anson gives as an illustration of absolute promises a case in which one party agreed to raise 500 soldiers and take them to a port, and the other to provide transportation and victuals to transport them to Galicia; the party failed to provide the ships and victuals at the time appointed, and when sued for the breach set up as a defense that the plaintiff had not raised the soldiers. The defense was held bad on demurrer, as the promises were distinct covenants, and to be performed inde- pendent of one another. Either having an action against the other for non-performance. (Anson on Cant p. 288; Ware v. Chappell, Style, 186; Dey v. Fox, 9 Wend. 129.) **Mattock v. Kinglake„io A. & E. 50; McCoy v. Bixbee, 6 Ohio, 312; Street Ry. Co. v. Butler, 50 Cal. 574. 104 CONTRACTS. will render the promises dependent rather than abso- lute.* (ii) Where the performance of a promise is divisible a partial breach is no discharge. A common example in which the promise of each party is thus divisible in its performance is the sale of goods by a contract under which the delivery and acceptance are to take place by installments. The decisions are conflicting in regard to installment contracts being divisible or not.** The default in one installment may show intent to break the contract, as where it is accompanied with a state- ment to that effect, or where the non-payment of one installment indicates the inability of the buyer to pay for the rest. So the parties may agree that there shall be a full performance of a divisible contract before the other promise is binding.*** ♦Hamilton v. Thrall, 7 Nebr. 218; Seheland v. Erpelding, 6 Or. 258. **In Simpson v. Crippin, L. R. 8 Q. B. 14, where a quantity of coal was sold to be delivered in equal monthly installments for a year, and one party was to send wagons to get the coal, and failed to send wagons sufficient to receive the first in- stallment, it was held that this did not authorize the other party to rescind the contract. (Scott v. Killaning Coal Co., 89 Pa. St. 231; Cohen v. Piatt, 69 N. Y. 348. In Norrington v. Wright, 115 U. S. 203, it was held that the failure to ship a monthly installment of iron rails as agreed did authorize the other party to rescind the contract and refuse to receive the remaining installments. The monthly shipment was considered as a condition precedent, the failure of which authorized the repudiation of the whole contract. This case is directly contra to Simpson v. Crippin, as are Hill v. Blake, 97 N. Y. 221; Robson v. Bonn, 27 Minn. 233, and numerous others. *** Anson on Cont., p. 292; Cutter v. Powell, 6 T. R. 320. CONTRACTS. lot (iii) "Where a promise is to be performed in the course of the performance of the contract and after some of the consideration, of which it forms a part, has been given, it will be regarded as subsidiary, and its breach will not effect a discharge unless there be words expressing that it is a condition precedent, or unless the performance of the thing promised be plainly es- sential to the contract."* So a warranty of quality in an executed contract of sale is an example of a sub- sidiary promise, for a breach of which damages are re- coverable, but the contract stands. Sec. 496. SAME SUBJECT— CONDITIONAL PROMISES. — Conditional promises are, as regards time of performance, either subsequent, concurrent, or precedent. The effect of a condition subsequent has already been considered. (Ante, Sec. 490.) The rights *Anson on Cont. p. 294; Bettini v. Gye, 1 Q. B. D. 183. In this case, Bettini, a singer, agreed to be in London at least six days before the commencement of his engagement, for the purpose of rehearsals. The promise was broken by his arriving only two days ahead, and the manager of the opera, to whom Bettini had engaged himself as a singer upon terms of which the above was one, elected to treat the contract dis- charged. But the court held that this term was not expressly made vital to the contract, and since from a survey of the whole contract the failure of the term did not change the con- tract, it did not go to the root of the matter so as to authorize the defendant to rescind. A contract which is entire and indivisible, as a contract to work for "six months certain" at a stated price per month, gives the party stipulating no right to recover for a part per- formance. (Larkin v. Buck, 11 Ohio St. 561; Grant v. John- son, s N. Y. 247.) But this rule is being modified by later decisions. (Wilson v. Wagar, 26 Mich. 464; Wolf v. Gerr, 43 la. 339; Benjamin on Sales, 4th Am. Ed. Vol 12 p. 902.) io6 CONTRACTS. of the one to the promise of the other is terminable up- on the happening of the specified event. A condition is concurrent when the rights of the one party are dependent upon his doing, or being prepared to do, something at the same time that the other party performs his promise. Thus, payment and delivery, in a contract of sale in which nothing is said as to the time of payment, are concurrent conditions; and nei- ther party can enforce performance by the other with- out standing ready and willing to perform his part.* And like concurrent conditions are the mutual promises of the parties, which are each the entire con- sideration for the other. Where the mutual promises are the whole consideration on both sides, neither can sue the other without averring that he has performed, or is ready to perform, his promise.** * "Where goods are sold, and nothing is said as to the time of delivery or the time of payment, and everything the seller has to do with them is complete, the property vests in the buyer, so as to subject him to the risk of any accident which may happen to the goods, and the seller is liable to de- li\er them whenever they are demanded upon payment of the price; but the buyer has no right to have possession of the goods till he pays the price." (Baylay, J., in Bloxam v. San- ders, 4 B. & C. 941; Elevator Co. v. Bank, 23 Ohio St. 311; Brunswick & Balke Co. v. Martin, 20 Mo. App. 158; Simmons v. Green, 35 O. St. 104.) **Anson on Cont., p. 299; Boone v. Eyre, I H.B1. 273n. But the rules stated in this section are, in the case of sales, execu- tory or executed, modified to this extent; that goods which do not answer the description of the article sold, or are not marketable and worthless, the buyer is not bound to accept them, and if he has done so and paid the price, he may re- scind the contract and recover it back. (Cosgrove v. Bennett, 32 Minn, 341; Marston v. Knight, 29 Me. 341; Bronson v. CONTRACTS. 107 A condition precedent is defined to be, "a statement or promise, the untruth or non-performance of which discharges the contract." (Anson on Cont. p. 303.) In the case of a promise which is a condition precedent the rights of the one to the promise of the other does not attach until something has been done, or has hap- pened, which the parties treated as essential to the contract.* But if the parties do not treat a statement or promise as essential it fails to become such a condition as will discharge the contract and is treated as a warranty, and only gives rise to an action for damages.** Sec. 497. SAME SUBJECT— REMEDIES FOR BREACH. — When the contract is discharged by a breach, the injured party has the three distinct rights : Turner, 77 Mo. 489; Rogers v. Hanson, 35 la. 283; Byers v. Chapin, 28 Ohio St. 306.) Some cases hold that the right to rescind an executed contract of sale for breach of warranty is confined to cases where the warranty is fraudulent. (Hoover v. Sidener, 98 Ind. 290; Wright v. Davenport, 44 Tex. 164.) ♦That a breach of a condition precedent discharges a con- tract, see Roger v. Sheerer, 77 Me. 323; Bell v. Hoffman, 92 N. C. 273. But the performance may be waived, or rendered impossible by act of God, the law or the other party, and then it does not discharge. (Dermott v. Jones, 2 Wall. 1.) ** Anson on Cont. p. 304. And the same author thus de- fines a warranty, "Warranty is a more or less unqualified promise of indemnity against a failure in the performance of a term in the contract. * * * The breach of a term which amounts to a warranty will give a right of action, though it will not take away existing liabilities; it is a mere promise to indemnity." But the courts do not use the terms "condition" and "warranty" with the same precision as Anson, and fre- quently use the terms as synonymous. (Norrington v. Wright, US U. S. 203; Benjamin on Sales, 4th Am. ed., Sec. 965.) 108 CONTRACTS. (a) To be exonerated from further performance, (b) to sue upon a quantum meruit, if he has done anything under the contract, this being considered a new cause of action based upon the conduct of the parties; (c) to sue for the breach of the contract. (Anson on Cont. p. 308.) And, further, whether the contract be discharged or not by the breach, the injured party may maintain an action for damages for the loss suffered, and in cer- tain cases may, by an action for specific performance, compel the defaulting party to carry out the terms of the contract. Damages. The general rule for determining the amount of damages recoverable is, that the amount shall be the equivalent of, or a compensation for, the loss or injury sustained.* If no loss has occurred the plaintiff is entitled to "nominal damages," by which is meant "a sum of money that may be spoken of, but that has no existence in point of quantity," as, for ex- ample, "six cents."** Remote or consequential damages, by which is meant such as arise indirectly from the breach of an agreement, cannot be recovered. The rule being that the plaintiff may recover the actual and direct loss sus- tained by him, and for such consequential injuries as are the natural and fair results of the defendant's vio- lation of his contract.*** Another statement of this rule *Noble v. Ames Mfg. Co., 112 Mass. 497; Buckley v. Buck- ley, 12 Nev. 439; Griffin v. Colver, 16 N. Y. 494. **Beaumorrt v. Greathead, 2 C. B. 494. ***Manahan v. Smith, 19 O. St. 384; Daniels v. Ballantine, 23 O. S. 532. Where the plaintiff agreed to do a piece of work at a stated price, and defendant refused to let the work CONTRACTS. 109 is that the plaintiff is entitled to such damages as might have been supposed by the parties to be the natural re- sult of a breach of the contract; or such as. might have been in their contemplation when the contract was made.* An exception to the general rule that damages are recoverable only as compensation and not by way of punishment, is made in the case of the breach of prom- ise of marriage, where the injury to the feelings of the plaintiff are considered as specific pecuniary loss.** Specific Performance. Specific performance is an equitable remedy which compels a party to carry out his agreement as promised; if the promise is to for- bear, then the corresponding remedy is by an injunc- tion to compel forbearance. As a rule these remedies canot be resorted to where : (a) The common law rem- edy of damages is adequate to the loss sustained; (b) or the matter of the contract is such that the courts cannot supervise its execution.*** be done in breach of the contract, the damages were held to be the profits arising from the doing of the work. ((Doolittle v. McCullough, 12 O. St. 360.) Profits contingent upon fu- ture bargains, or other contracts, or speculations, are not in general recoverable. (U. S. v. Behan, no U. S. 338; Sterling Organ Co. v. House, 25 W. Va. 64; Goodrich v. Hubbard, 51 Mich. 62.) *Anson on Cont., p. 310; Hadley v. Baxendale, 9 Exch. 355; Shouse v. Neiswanger, 18 Mo. App. 245; Fleming v. Beck, 48 Pa. St. 312; Buffalo Barb Wire Co. v. Phillips, 64 Wis. 338. **Johnson v. Travis, 33 Minn. 231; Thorn v. Knapp, 42 N. Y. 474; Sedgwick on Damages, 437. *** Anson on Cont., p. 312; Lumley v. Wagner, 1 D. M. & G. 604. In this cage the court refused to specifically enforce a HO CONTRACTS. Sec. 498. SAME SUBJECT— DISCHARGE OF RIGHT OF ACTION ARISING FROM BREACH. — The right of action arising from the breach of a con- tract may be discharged in either of three ways : (a) By consent of parties; (b) by the judgment of a court of cempetent jurisdiction; (c) by lapse of time. (Anson on Cont. p. 314.) (a) The person entitled may consent to release or waive the right of action, and this release if made upon consideration discharges the right. (Ante, Sec. 488.) Or the parties may, by an accord and satisfaction, dis- charge the right of action.* (b) The judgment of a court having jurisdiction ot the right of action in the plaintiff's favor discharges or merges the right of action into a contract of record. If the judgment is adverse to the plaintiff he is estop- ped from bringing another suit on the same cause, but on appeal a higher court may reverse such judgment. A judgment adverse to the plaintiff in order to dis- charge the action by estoppel, must have been a final judgment rendered upon the merits of the case.** (c) Aside from the statutes of limitations lapse of contract to sing in the plaintiff's theater, but restrained the defendant from singing elsewhere (Port OintoE 1ft Co. v. Cleveland R. Co., 13 O. St. 544-550; Marble Co. t. Ri ^ey, 10 .Wall. 358.) ♦Pettis v. Ray, 344; Hemmingway v. Stansell, idl U. S. 399; Simmons v. Hamilton, 56 Cal. 493. **Atkins v. Anderson, 63 la. 739; Gage v. Ewing, 114 111. 315; Knapp v. Eldridge, 33 Kans. 106; Maxwell v. Clark, 139 Mass. 112. CONTRACTS. m time does not affect the rights of parties to contracts.* The statutes withdraw the remedies after the lapse of the specified time, but do not extinguish the rights. Hence remedies barred by the statute of limitations may be revived in certain ways, as by acknowledgment or by part payment.** Sec. 499. (4) DISCHARGE BY IMPOSSIBIL- ITY OF PERFORMANCE.— As a general rule a subsequent impossibility of performance will not ex- cuse a party who has made an unconditional promise to do a thing.*** But a group of excepstions to the rule ♦Each State regulates the time within which actions must be brought by statutes, called "Statutes of Limitations." They are founded on older English statutes, but are not uniform in their provisions. The English statute of 21 James I. c. 16, required actions on simple contract to be brought within six years, and on specialties within twenty years. See Wood on Lim. of Actions; Rev. Stat. Ohio, Sees. 4974-4992. **An acknowledgment to revive a debt barred by the stat- ute of limitations must be made with the formalities required by the statute; must amount to a promise to pay the debt, and be made by and to the proper person. (Riddel v. Brizzolara, 64 Cal. 354; Parker v. Shuford, 76 N. C. 219; Wood on Lim. of Actions, 128.) Part payment to revive a barred action must amount to an acknowledgement; it must be made on account of the barred debt, and as a part payment of a greater debt. (Benton v. Holland, 58 Vt. 533; Miner v. Lorman, 56 Mich. 212.) *** "If the promisor make the performance of his promise conditional upon its continued possibility, the promisee takes the risk. * * If the promisor makes his promise uncondi- tionally, he takes the risk of being himself liable, even though performance should become impossible by circumstances be- yond his control." (Anson on Cont. 321-2; Paradine v. Jane, Aleyn, 26; Harrison v. Mo. Pac. R. Co., 74 Mo. 371; The Harriman, 9 Wall. 172; Jones v. U. S., 96 U. S. 29; School Dist. No- 1 v. Dauchy, 25 Conn. 530.) 112 CONTRACTS. have been established by judicial precedents. Thus, if the impossibility arises from a change in the law of the country, the promisor will be exonerated.* Or. if the continued existence of a specific thing is essential to the performance of the contract, its destruction, without fault of either party, discharges the contract. ** And if the object of the contract is the rendering of personal services, it will be discharged by impossi- bility arising from the death or illness of the prom- isor.*** Sec. 500 (5) DISCHARGE OF CONTRACT BY OPERATION OF LAW.— -The operation of rules of law in certain cases discharge a contract; thus, the bankruptcy of a party when legally determined by a competent court discharges previous debts and liabili- ties, so the contract may be merged into a higher obli- gation as a judgment or deed, and by spoliatiop or al- teration of a deed or written contract it may be dis- charged. To effect a merger of a simple contract, the security given in its stead should be of a higher efficiency; the ♦People v. Ins. Co., 91 N. Y. 174; Semmes v. Ins. Co., 13 Wall! 158; Miss, etc., R. Co. v. Green, 9 Heisk (Tenn.) 588. **Taylor v. Caldwell, 3 B. & S. 826; Dexter v. Norton, 47 N. Y. 65; Powell v. R. Co., 12 Oreg. 489; Wells v. Calnan, 107 Mass. 514. ***Green v. Gilbert, 21 Wis. 401; Fenton v. Clark, 11 Vt. 557; Harrington v. Fall River Iron Works Co., 119 Mass. 82; Spalding v. Rosa, 71 N. Y. 40. The prevalence of a fatal dis- ease in the vicinity where work was to be performed was held to discharge a laborer from his contract for service in Lake- man v. Pollard, 43 Me. 463. Though in Dewey v. School Dist., 43 Mich. 480, the closing of a school on account of smallpox was held not to discharge a contract with the teacher. CONTRACTS. 113 subject matter of both securities should be identical, and the parties the same.* In general, the alteration or spoliation of a deed or instrument in writing, which will effect its discharge, must be made by a party to the contract, or while in his possession and for his benefit,** without the consent of the other party, and such alteration must be ma- terial, that is, cause the instrument altered to have a different legal effect.*** *Anson on Cont. p. 326; Martin v. Hamlin, 18 Mich. 364; Hutchins v. Hebbard, 34 N. Y. 24; Doty v. Martin, 32 Mich. 462. **Martin v. Tradesmen's Ins. Co., 101 N. Y. 504; Wilming- ton v. Kitchen, 91 N. C. 39; Peirsol v. Grimes, 30 Ind. 129. Material alteration made by a stranger will not avoid the in- strument. (Fullerton v. Sturges, 6 Ohio St. 529.) And see Nickerson v. Swift, 135 Mass. 518; Sullivan v. Rudisill, 63 la. 158. ***Greenl. Ev. 5; Fuller v. Green, 64 Wis. 159. PRINCIPLES OF THE LAW OF PARTNERSHIPS. CHAPTER I. OF THE FORMATION OF PARTNERSHIP. Sec. 501. INTRODUCTORY.— Partnerships are of ancient origin, and the law of partnerships is a com- pound of the Roman Civil Law, the Law-Merchant, and the Common Law. Under the Roman law part- nership was founded upon confidence, and was inde- pendent of contract. The partners, usually united by a tie of blood, were mutual trustees in the business, and shared the profits in proportion to the contribution each made to the common fund. During the middle ages, when trade was carried on under great difficul- ties, partnership assumed its modern form. It was recognized as a contractual relation, but the necessity of trade confining partners to members of the same family, perpetuated the Roman principle of its being a confidential relation and negatived the doctrine of consideration, which had become the controlling ele- ment in contractual relations. Partnership became a function of trade; by the Law-Merchant a partner had the power to buy, sell, or make any contract in the course of trade; the Common law, which recognized H6 PARTNERSHIPS. joint ownership, but did not permit the joint owner to sell or mortgage his co-tenant's share, found it neces- sary to incorporate the rules of the Law-Merchant, and thus we have the special rules applicable to joint owners who are partners.* Sec. 502. AUTHORITIES.— Of the English writers on Partnership we mention Archbold, Collyer, Lindley, and Pollock. American writers on the sub- ject are Theophilus Parsons, Story, Bates, James Par- sons and Mechem. Ewell and Wentworth are Ameri- can editors of Lindley's work. The student is also referred to the statutes of his State, as many principles regulating partnerships are now fixed by local statutes. This is especially true of Limited partnerships, and partnership associations. In England the law of partnership has been codified, and this has been done in several of the American States.** Sec. 503. MANNER OF TREATING THE SUB- JECT. — The subject of Partnership can be best treated under the three parts, into which it naturally divides itself: 1. The formation of partnership, or the assum- ing the relations of partners. 2. The principles which regulate partnership during its existence. 3. The principles by which the business is wound up.*** Ac- cordingly we shall in the present chapter treat of the formation of partnership ; in the second, of the princi- *See Sees. I, 2, 3, 5, J. Parson's Prin. of Part. **See Louisiana Code, Sees. 2801-2890; Code of Calif., Sees. 2401-2520; also Codes of Montana and Dakota. ***This is the division followed by J. Parsons in his treatise. Partnerships. m pies regulating partnership; and, in the third, of the dissolution of partnership. Sec. 504. PARTNERSHIP DEFINED.— "Part- nership is a legal relation, based upon the express or implied contract of two or more competent persons to unite their property, labor or skill in carrying on some lawful business as principals for their joint profit. The persons so united are called 'partners.' The term 'co- partnership' is sometimes used to designate the rela- tion, and the term 'co-partners' to designate the par- ties. The partners collectively are called the firm."* There is difficulty in defining a partnership, as the term has a double significance. 1. It is a contract rela- tion subsisting between persons who have united their property, labor or skill in an enterprise or business as principals for the purpose of joint profit. 2. It is also the organization as an entity, or the thing created and existing by reason of such persons entering into the relation described. \ Sec. 505. HOW PARTNERSHIP IS CREATED. — To create a partnership two things must concur: *Mechem, Elements of Partnership, Sec. 1. "Partnership is the relation which subsists between per- sons carrying on a business in common with a view to profit." (Eng. Part. Act. of 1890.) "A partnership is the contract relation subsisting between persons who have combined their property, labor or skill in an enterprise or business as principals for the purpose of joint profit." — Bates on Partnership. "Partnership is the association of two or more persons for the purpose of carrying on business together and dividing its profits between them." (Sec 2395 Cal. Code.) tig PARTNERSHIPS. i. There must be a valid agreement to enter into it. 2. The agreement must be executed, or acted upon. Sec. 506. SAME SUBJECT— THE VALID AGREEMENT.— By a valid agreement is meant that the partnership contract, or the articles of agreement between the partners must have the ordinary essen- tials of a binding legal contract, and that the partner- ship should have a legal object. The partnership agreement may be express or im- plied. The parties may expressly agree orally or in writing to become partners, upon certain stipulated conditions, or the existence of the partnership may be implied or inferred from transactions between the par- ties, as the law presumes that the parties intend the legal consequences of their voluntary acts. (Duryea v. Whitcomb, 31 Vt. 393.) The contract or agreement between the parties to a partnership agreement must be mutual and voluntary. No person can be introduced into a partnership with- out the consent of all the partners, but this consent may be expressly given or implied from their ac- quiescence in permitting the new party to assume the position and duties of a partner. A partnership contract, like other contracts, is vi- tiated and avoided by fraud, deception, coercion, and the like. It must have competent parties, and be upon consideration.* It may be oral or in writing,- but in ♦The mutual agreements to become partners, and the con- tribution of the parties usually form the consideration. The contributions need not be equal. (Mechem on Part., Sec. 33.) PARTNERSHIPS. il$ cases where the statute of frauds requires contracts to be in writing, the statute must be followed. Sec. 507. SAME SUBJECT— THE AGREE- MENT MUST BE EXECUTED.— The mere execu- tory agreement to form a partnership does not invest the parties with the character of partners, or constitute the partnership. There must be something done to carry out the agreement and consummate, or launch, the partnership. The agreement must be executed. Until the agreement has been acted upon the partner- ship has not come into being, and a breach of the agreement gives only a right of action for damages or a suit in equity for specific performance of the agree- ment.* Sec. 508. WHEN THE PARTNERSHIP BE- GINS. — Where the partnership agreement is express, and a date is set in the articles for the commencement of the partnership, it is presumed to have commenced on that date in the absence of other evidence. Where the partnership is implied from acts, it will be pre- sumed to have commenced when those acts transpired. It is the intention of the parties, expressly stated, or implied from their actions, which governs. The writ- ten agreement may be varied to conform with the facts, and, if such is the intention, the partnership may come into being before the articles of agreement are formu- lated.** ♦Reed v. Meagher, 14 Colo. 335; Buzard v. McAnulty, 77 Tex. 438; s. c. 14 S. W. Rep. 138. **Guice v. Thornton, 76 Ala. 466; Cook v. Carpenter, 34 Vt. I2i ; s. c. 80 Am. Dec. 670. i20 Partnerships. The question whether or not a partnership exists in a given case, may be a question of law or fact. When the facts upon which the partnership is based are in dispute, it is a question of fact for the jury; if the facts are admitted it is a question of law for the court. (Morgan v. Farrell, 58 Conn. 413; Boston Smelting Co. v. Smith, 13 R. I. 27.) The burden of proving the existence of partnership, and identifying the partners, rests upon the party set- ting up the fact of partnership. (Dunham v. Love- rock, 158 Pa. St. 197.) As between the partners them- selves the fact of partnership may be. shown by the arti- cles, the conduct or admission of the parties, the books of the firm, or other writing, showing who were the partners. Third persons may show who were the part- ners and establish the partnership by parol evidence of the admissions of the parties sought to be charged. (Reed v. Cremer, 1 1 1 Pa. St. 482.) The existence of a partnership cannot be proved or the partners identi- fied by general reputation or hearsay. (Bowen v. Rutherford, 60 111. 41.) And the admissions of one party to charge another must be shown to have been authorized or acquiesced in by the party to be bound. (Wanderhurst v. De Witt, 95 Cal. 57.) Sec. 509. WHO MAY BECOME PARTNERS.— Any number of competent persons, more than one, may enter into a partnership. Persons who are com- petent to transact ordinary business on their own ac- count are competent to become members of a partner- ship. Under this rule, infants, alien enemies, persons PARTNERSHIPS. 121 mentally unsound, and those under guardianship are incompetent to become partners. The contracts of in- fants being voidable and not void permits an infant to become a partner, but he may at any time before ma- turity set up his infancy against personal liability as a partner. As a partner the infant has all the rights and powers of a member of the firm; his interest in the partnership is liable for the firm debts, and his contri- bution may not be recovered from the firm unless he has been induced to enter the firm through fraud. (Adams v. Beall, 67 Md. 53.) At majority the infant partner may ratify his partnership transactions and bind himself for obligations incurred during his mi- nority. Corporations cannot become partners unless their charter gives them express authority to do so. (Butler v. Am. Toy Co., 46 Conn. 136.) But a partnership as a partnership may enter into another firm, or enter into a partnership with an individual. (Raymond v. Putnam, 44 N. H. 160.) The personal representative of the estate of a de- ceased person cannot make the estate a partner. And the purchaser of a partner's interest cannot become a member of the firm without the consent of the other partners. This is because the relation is one of confi- dence, and requires the utmost good faith between the partners. Hence as a general rule of partnership great respect is paid to the choice of persons (Delectus Per- sonae) by which partners, whose relations are founded on mutual trust and confidence, may protect them- selves from having irresponsible and untrustworthy 122 PARTNERSHIPS. persons introduced into the firm. (Love v. Payne, 73 Ind. 80.) Sec. 510. KINDS OF PARTNERS.— In respect to their relation to the partnership, partners are vari- ously designated as: Ostensible, Secret, Nominal, Si- lent, Dormant, Retiring, Incoming, General and Spe- cial partners. An Ostensible partner is one who is publicly held out to the world as a partner, as by being joined in the name, sign, letter heads, and the like. A Secret part- ner is one who keeps himself concealed from the pub- lic, and from all customers of the partners. He profits by his secrecy only while it continues. A Nominal partner is one who, though not a partner in fact, is held forth as a partner with his own consent so as to make him liable as a partner, on the ground that he has given credit to the firm, and authorized transactions on his responsibility. A Silent partner is one who takes no active part whatever in the business of the firm, and exercises none of the rights of a partner except that of receiving his share of the profits. Such a partner is the opposite of the active partners or those who participate in the firm undertaking. A partner who does not participate in the business is a silent partner, whether he is known or not as a partner. A Dormant partner is one who is both unknown and secret to the public and wholly inactive concerning the affairs of the firm. A General partner is one who, as a member of a lim- PARTNERSHIPS. 123 ited partnership, transacts the business of the firm; whose name is used in the firm name, and who is liable to the full amount for the debts and obligations of the firm. A Special partner is one who contributes a spe- cial amount of capital to a limited partnership, and who, by complying with the provisions of the law under which the limited partnership exists, is not lia- ble for debts of the firm beyond the amount which he contributes. A person who leaves an existing firm is called a Re- tiring partner; and one who enters such a firm is called an Incoming partner. Sec. 51 1. KINDS OF PARTNERSHIP.— Part- nerships are either: Universal, General, Special, or Limited. A Universal partnership is one in which all the prop- erty owned by the parties is contributed, and all the profits are joint benefits.* A General partnership is one in which the partners have united for the general purpose of conducting some kind of a business as it is usually carried on. A Special partnership is one created for the conduct of a single adventure or enter- prise. A Limited partnership is one in which one or more of the partners are partners in the ordinary and gen- eral way in respect of authority, property and liability, and where one or more have placed a certain sum in the business and have no liability beyond the loss of ♦Universal partnerships are not common, but may exist. (Rice v. Barnard, 20 Vt. 479; U. S. Bank v. Binney, 5 Mason— U. S. Cir- Ct— 183; Gray v. Palmer, 9 Cal. 616.) 124 PARTNERSHIPS. the sum so contributed. At the Civil law this was the normal type of partnership, but now limited partner- ships exist by virtue of State statutes.* In addition to the partnerships just mentioned, the statutes of many States provide for Joint-stock com- panies, which are partnerships with transferable shares ; and Partnership associations limited, which are crude forms of corporations.** The various unincor- porated social clubs, societies, lodges, granges, Chris- tian and co-operative associations, not organized for profit, are not partnerships, and their members cannot be held liable as partners. But the members of such associations who authorize acts to be done by other members may be held liable under the rules applicable to principal and agent.*** Sec. 512. PURPOSES OF PARTNERSHIP.-^ There is no lawful business that may not be the subject of a partnership. But a personal office, as a public of- fice of any kind, is not to be made the subject of a part- nership. There may be a partnership for carrying on every sort of a trade, manufacture, or profession.**** *See J. Parsons on Part., Sec. 26. **Mechem on Partnership, Sec. 7; Rev. Stat. Ohio, Sees. 3l6ia-3i6im. ***Lafond v. Deems, 81 N. Y. 507; Burt v. Lathrop, 52 Mich. 106. **** "The transformation of trade from its starting point in the exchange of commodities to its triumph in the commercial and industrial state has made partnerships co-extensive with business." (J. Parsons, Part., Sec. 7.) There may be a part- nership in manufacturing, which is not a trade, but an in- dustry, and in fact neither buying nor selling need be an ele- ment in the business. (Holmes v. N. Ins. Co., 2 Johns. Cas, 329.) PARTNERSHIPS. 125 At Common law land was not a natural subject of com- merce, but now a partnership may exist for dealing in land, or for improving land.* A mining partnership forms a distinct species. In it there is no "delectus personae," and the holder of a share in the stock is invested with membership even against the will of his co-partners. And neither the death of a partner nor the assignment of his share dis- solve the firm. (Jones v. Clark, 42 Cal. 180; Taylor v. Catle, 42 Cal. 367.) Where the purpose of the partnership is unlawful or opposed to public policy, as for the operation of a gambling establishment, the speculation in "futures," or to prevent competition, or to carry on any occupation which is forbidden, or in violation of the law, it is void.** The effect of the illegal object is to prevent any action being brought to enforce the partnership contracts, but third persons innocent of wrongdoing may sue the members of such a partnership. The members or part- ners themselves will be left where they have placed themselves.*** Sec. 513. TESTS OF A PARTNERSHIP.— The question whether or not the relation existing between *Yeoman v. Lasley, 40 O. St. 190; Blacks App., 8 Norris (Pa.) 201. But farming on shares does not constitute a part- nership, but only the relation of landlord and tenant. (Brown v. Jaquette, 13 Nor. 113.) The parties may agree to be part- ners in farming. See J. Parsons, Part., Sees. 7-12. **Mechem on Part, Sec. 18; Gaston v. Drake, 14 Nev. 175; Davis v. Gelhaus, 44 O. St. 69. ***Anderson v. Powell, 44 la. 20; Hunter v. Pfeiffer, 108 Ind. 197; Craft v. McConoughy, 79 111. 346. 126 PARTNERSHIPS. the parties constitutes a partnership is sometimes dif- ficult to answer. If the parties expressly intended to become partners, their intention usually governs. But unless their contract and the relation assumed consti- tutes a partnership, the mere fact that they intended a partnership or called it so, will not answer. (Sailors v. Nixon-Jones Co., 20 111. App. 509.) Where the parties allege that they did not intend to become partners the question is more complicated. While the general rule is stated to be that there can be no partnership between the parties if thy did not in- tend one, and none as to third persons if there was none as between the alleged partners themselves; this rule is subject to the exceptions or explanations: 1. That the legal effect of an agreement will prevail against the in- tention of the parties, and' make them liable as part- ners as between themselves; and, 2, a person, though not a partner, may so conduct himself toward third persons as to reasonably induce them to rely upon him as a partner, and then he is estopped from denying his liability as a partner. This is said to be a partnership as to third persons, or a quasi-partnership, to distin- guish it from the case in which there is a true part- nership between the parties. See Mechem on Part., Sees. 38-40. Sec. 514. SAME SUBJECT— WHEN THE PARTNERSHIP IS IMPLIED.— Though the par- ties deny that they intended to create a partnership, they are nevertheless bound as partners if the legal ef- fect of their acts and contracts constitutes a partner- PARTNERSHIPS. 127 ship. The expression of their intention is not so pow- erful as the legal effect given to their words and con- duct; and their real intention is determined by ascer- taining whether or not the relation which they have assumed possesses the incidents of a partnership or of some other relation.* The word partnership need not necessarily be used by the parties, as their intention is determined from the effect of the entire contract, re- gardless of special expressions. Thus where the agreement between the parties bears all the insignia of a partnership, as where they have united their capital or labor in an enterprise, managed and owned jointly, each having the rights of a pro- prietor as to the conduct of the business and the shar- ing of profits or losses, the agreement constitutes a partnership as a matter of law. But the mere sharing of profits does not necessarily create a partnership, as one party may receive them as agent, servant or cred- itor and not as a co-proprietor.** There must be at *Moore v. Davis, 11 Ch. D. 261; Beecher v. Bush, 45 Mich. 188; Post v. Kimberly, Johns. 504. The law simply imposes upon the parties an adherence to the positions which they have taken, not in semblance but in fact, and charges them as principals where the facts make them so. The attribute which distinguishes a partner from all who are not partners is the undertaking of a business and being a co-proprietor of it. If the business is not carried on by the partner it is at least for him, and the power which could and can terminate the relation perpetuates it by permitting it to stand. So an advance, coupled with partnership privileges, makes a lender a partner. (J. Parsons on Part., Sec. 50.) ** "The distinction between taking profit as profit, and tak- ing it not as profit, but as the payment of a debt, is a familiar one, firmly established by the authorities, but not always ex- 128 PARTNERSHIPS. least these elements of a partnership : A community of interest in some lawful business, for the conduct of which the partners are mutually principals of, and agents for, each other, with general powers within the scope of the business; though the_ powers may be re- stricted so as to make one the sole agent of the others.* Sharing both profits and losses does not make part- / plained as clearly as it might be. The one is taking it as a principal, as of his business; the other is taking in the capacity of a hired man or other creditor." (Eastman v. Clark, 53 N. H. 297— Doe. C. J.) As the extension of the word "sharing" would make every- body a partner who partook of the profits, the law was pre- served by denying the effect of a partnership unless the shar- ing was in the capacity of a principal or co-proprietor. (J. Parsons, Part., Sec. 59; Hargrave v. Conroy, 4 C. E. Greene, N. J., 281 ; Lamb v. Grover, 47 Barb. 317.) So sharing profits as part of salary does not make the person so receiving profits a partner. (Vanderburg v. Hull, 20 Wend. 70.) And the prin- ciple of hiring extends to any employment in which the em- ploye is subject to the control and direction of the principal. (Mair v. Glennie, 4 M. & S. 240.) So an attorney who takes half the profits with the client for his fees is not a partner, but a professional employe. (Prouty v. Swift, 51 N. Y. 594, 1873.) An agent of the proprietor, whatever his dignity, is but an em- ploye, and not a principal as long as he does not act on his own behalf in conducting the business. The moment he acts for himself or as a principal he becomes or is liable as a pro- prietor. (Will v. Simmons, 8 Hun. 189.) *Beecher .v. Bush, 45 Mich. 188; Berthold v. Goldsmith, 24 How. 541; Flower v. Barnekoff, 20 Ore. 137; Clifton v. Howard, 89 Mo. 192; Spaulding v. Stubbins, 86 Wis. 255. "Partners being nothing but co-proprietors in business, proving the indicia of ownership, charges a principal who would not otherwise be identified as a partner." (J. Parsons, Part., Sec. 54.) PARTNERSHIPS. I2