UR'DtCK hate OtoUcgc of Agticultute 3tt (datnell HnitietBttg ffiibratg HF 1237 B9 '"*" ""'""''^ '-^'"^ The essentials of business law, 3 1924 0ir8T8''962'' p^ Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/cletails/cu31924013818962 TWENTIETH CENTURY TEXT-BOOKS EDITED BY A. F. NIGHTINGALE, Ph.D., LL.D. SUPERINTBNDENT OF SCHOOLS, COOK COUNTY, ILLINOIS ^ THE ESSENTIALS OF BUSINESS LAW BY FRANCIS M. BURDICK DWIGHT PROFESSOR OF LAW IN COIiFMBIA UNIVERSITY LAW RCHOOL D. APPLETON AND COMPANY NEW YORK AND LONDON 192U CoPTBlOHT, 1902, 1908, 1919, Br D. APPLETON AND COMPANY Printed in the United States ot America PREFACE This book has not been written for lawyers, nor for professional students of the law, but for boys and girls in our secondary schools. Its purpose is to show how the rules of law, governing ordinary business transactions, have been developed, and to tell what they are. Technical law terms have been discarded as far as possible. When they have been used, care has been taken to explain and illustrate their meaning, so as to render them easily intel- . ligible to every attentive student. The author believes that the average high-school boy or girl can acquire an accurate knowledge of the essential principles of business law if these are set forth in clear, lucid, popular language. He has endeavored so to present them in the following pages. He has no idea that a mas- tery of this book will fit the student for a bar examination, or will enable him to be his own lawyer. He has the con- viction, however, that it will give the student a fair ac- quaintance with those legal principles and ideas which are involved in ordinary business affairs, and that it will help him to know when he ought to consult a lawyer, in order to avoid business pitfalls. It is hoped that the book will disclose to the reader the meaning of many legal terms which are constantly thrust VI ESSENTIALS OF BUSINESS LAW before him, in conversation and in the newspapers; that it will show him how to make, indorse, and use checks and othe,! forms of negotiable paper ; that it will teach him his rights against hotel-keepers, common carriers, and many others, as well as give him much useful information about the purchase and sale, the transfer and conveyance of land and of personal property. Francis M. Burdick. Columbia University. PREFACE' TO REVISED EDITION The rules ef commercial law in this country have been modified by legislation since the first publication of this book. Many statutes have been drafted by the Commission- ers on Uniform State Laws and enacted by various legis- latures, having for their object not simply the codification of the older law, but its reformation in many respects to suit modern business practices and needs. It has seemed desirable to incorporate these legislative changes into the text, and to note their importance. The student will observe that the law of partnership, of the sale of personal property, of bailments — especially those which involve the use of warehouse receipts and bills of lading — and the law relating to transfers of title to real property, have been modified, and, in most respects, simplified and re- formed by statutes, whose provisions have been summarized in this revision. S6me of these Uniform State Laws have been adopted by many legislatures and most of them prob- ably will be adopted by all of the States, thus bringing about a uniformity in business law throughout our country which is most desirable. Important changes in commercial law and business prac- tices have been effected by Congressional legislation re- lating to interstate commerce, monopolies, postal bail- ments, corporations, public utilities and banking. This revision attempts to bring the text down to date upon all of these topics. Francis M. Buedick. Columbia University. CONTENTS CHAPTER I mTRODVCTORY The Nature and Okigin of Municipal Law 1. The study of municipal law .... 2. Municipal law and the theory of a social compact 3. The social-compact theory exploded 4. Law develops as man improves his condition 5. Lavr was not invented, but grew . . 6. Judicial decisions gave rise to legal rules . 7. Conveyance with copper scales . 8. The Roman law of contracts 9. Law is common sense, but clothed in technical forms PAGE 1 2 3 4 4 5 6 7 8 CHAPTER II TEE LAW MERCHANT AND THE COMMON LAW § 1. The Law Mebchant 10. The sources of modern business law are twofold 11. Their differences illustrated 12. Survivorship at common law 13. No survivorship between partners 14. Effect of death on outstanding contracts 15. Merchants' courts 16. Judges and juries of merchants' courts 17. These courts called pepoudrous . 18. Modern ignorance of the ancient law merchant 19. Fragments of the law merchant in sea codes 20. The ancient law merchant was international 21. Difficulty in applying this law of nature . 22. Decay of merchants' courts ... 23. Merchants' courts in America . 10 10 11 11 11 12 13 13 14 15 15 16 16 17 X ESSENTIALS OF BUSINESS LAW EAOB 24. The law merchant in common-law courts. Second stage in its development : 18 25. Parliament backs the merchants 19 26. Third stage in the development of the law merchant . .19 27. Lord Mansfield's methods 20 28. Fourth stage in the development of the law merchant . 21 29. Summary: Four meanings of "law merchant" . . .22 § 2. The Common Law 30. Various significations of the term 23 31. Common law is unwritten 23 32. The second signification modified in many States . . 24 33. Common law as the law of certain courts . . . .25 34. Merger of common-law and equity courts . . . .25 35. Origin of the common law 26 36. Common-law courts were deliberate and spectacular . . 26 37. Recorded precedents 28 38. Unfortunate precedents ....... 28 39. Getting rid of inequitable precedents . . . .29 40. Legislative correction of precedents 30 41. Distinguishing and limiting precedents . . . .30 42. Principles deducible from recorded cases . . . .30 43. Flexibility of the common law 31 43. (a) Specific rules of common law • 32' CHAPTEE III CONTRACTS § 1. How A Contract is Made 44. A knowledge of the principles governing contracts is im- portant 33 45. Definition and essentials of contract . . . . .33 46. Obligations which are not true contracts . . . .34 47. Quasi contracts 34 48. Contract may be made by acts 35 49. Offer and acceptance 35 50. Intention to contract ....... 36 51. Preliminary negotiations 36 52. OflFer must be definite 37 53. Definiteness of promise 38 54. Acceptance must be absolute and unqualified . . .39 CONTENTS xi FAaB 55. Eight to withdraw offer 40 56. How offer may be withdrawn ...... 40 57. The lapsing of an offer 41 58. Death of the offerer 41 59. Communication of offer 42 60. Communication of withdrawal ...... 42 61. Communication of acceptance 43 62. Necessity of consideration 44 63. Contracts under seal 44 64. A deed ... 45 65. What constitutes a seal 46 66. Delivery of a deed 46 67. Deed differs from simple contract, {a) In respect of con- sideration 46 68. (&) Delivery upon condition .47 69. (c) Estoppel by deed 48 70. (d) Merger • . 48 71. (e) Specialty creditors preferred 48 72. (/) Limitations of actions 49 73. {g) Statutory changes 49 74. The doctrine of consideration 49 75. Definition of the term 50 76. Surrender of a legal right 50 77. Forbearance of a legal right 51 78. At the request of the promisor 51 79. Artificiality of this doctrine 52 80. The Statute of Frauds 52 81. Evils resulting from the statute 53 82. Sections IV and XVII 54 83. Contracts are not void which fail to comply with the statute 55 84. These sections have promoted artificial and technical rea- soning .......... 55 85. The statute as a nuisance 56 § 2. Capacity of Parties 86. Persons engaged in business are generally capable of con tracting 87. The capacity of aliens to contract 88. Common-law incapacity of married women . 89. Incapacity of convicted criminals to contract 90. Incapacity of infants 57 57 58 59 xii ESSENTIALS OF BUSINESS LAW PAGE 91. When the period of infancy terminates . . . .59 92. The legal force of infants' contracts . . . .60 93. Agreements by infants for necessaries are not true con- tracts 60 94. What are necessaries! 61 95. Ratification of contracts by infants . . . .62 96. Limitations upon the infant's right to repudiate . . 63 97. Eight to repudiate is personal to the infant . . .64 98. Contract of marriage can not be rescinded by an Infant, but a contract to marry can ...... 64 99. The contracts of lunatics and drunkards . . . .64 100. The English rule. American modifications . . .65 § 3: Illegal Agreements 101. Iljegal promises not enforceable by the law, and hence not contracts 66 102. Express prohibition or criminality of promise not essen- tial 66 103. Other instances of illegal contracts . . . . .67 104. Reasons for holding contracts in total restraint of trade void 67 105. Rule laid down by House of Lords and Supreme Court . 68 106. Public policy an unruly horse 69 107. Stifiing competition and monopolizing trade . . .70 107. (a) Legislation against monopolies 70 107. (B) State legislation 71 § 4. Want of Mutual Assent 108. Cases of apparent but unreal assent 72 109. Nature and consequences of mistake 72 , 110. Mistake by one party to the contract . . . .73 111. Mistake due to the act of a third party . . . -74 .112. Mistake as to the existence of the subject-matter . . 74 ,113.. Mistake as to the identity of the subject-matter . . 75 114. Nature and consequences of misrepresentation . . .75 115. Misrepresentation may be made a term of the contract . 76 116. Practical wisdom of this rule 77 117. Fraud: meaning of, in law of contracts 77 118. Fraud involves the idea of active misconduct . . .78 119. Non-disclosure of the truth in connection with other cir- cumstances ......... 78 120. Acts may speak louder than words 79 CONTENTS Xlll 121. Misstatement of fact, not of opinion . . . . 122. Misstatement of fact, whick buyer ought not to rely on 123; False statement need not be the sole inducement 124. The rights of the defrauded party . 125. DisaflSrmance must be made promptly . 126. Duress. Its various forms and consequences . 127. Duress by threats of injury to person or property 128. Duress by threats of imprisonment . 129. Threats agafnst the contracting party's relatives 130. Duress must be caused or be adopted by the other to the contract 131. Undue influence defined 132. Relation of undue influence to fraud . 133. Eights of the victim of undue influence . party PAGE 80 80 81 -81 82 82 83 84 84 84 85 85 86 § 5. Pebsons Affected by a Contract 134. Rights and obligations under a contract are generally lim- ited to the parties 86 135. Substitution of third parties may be provided for in the contract 87 136. Interference by outsiders with the obligations of contract 88 137. Rights of third persons under a contract . . . .89 138. Reasons for the American exceptions . . . . .89 § 6. Assignment of Contract 139. Liabilities under a contract not assignable . . .90 140. The assignability of rights under a contract . . .90 141. Notice of assignment should be given . . . .91 142. Assignee is subject to defenses against his assignor . 91 143. Assignment by operation of law 92 § 7. Discharge of Contract 144. Executory contracts pnay be discharged by mutual consent 93 145. Contracts executed ty one party can be discharged only by performance or release ...... 93 146. Discharge by substitution of new contract. Novation . 94 147. A contract may be discharged by the happening of a stip- ulated event 94 148. Discharge by performance 95 149. Tender of performance ....... 95 150. Legal-tender money of the United States . . . .96 151. Consequences of breach of contract by one party . . 96 x\v ESSENTIALS OF BUSINESS LAW PAOB 152. When does a breach by one party discharge the other? 97 153. Breach of a term, which is not of vital importance . . 97 154. Breach of a vital or fundamental term . . . 9S 155. Effect of repudiation of contract by one party, before performance by him is due 99 155. (a) Impossibility of performance 100 CHAPTER IV AOENCY § 1. How THE Relation is Fobued and Tebminated 156. Definition of agency 101 157. Agency may result from appointment or from ratification 101 158. Conditions of ratification 101 159. Agency by operation of law 103 160. Legal capacity of principal and of agent .... 104 161. Master and servant 105 162. Classification of agents: general and special agents . 105 163. Attorney at law and attorney in fact .... 106 164. The authority of an attorney at law is regulated very largely by the rules or usages of courts .... 106 165. Auctioneers 108 166. Bank cashiers 109 167. Brokers . . . . s 109 168. Factor, or commission merchant 110 169. Ships' husbands and masters of ships . . . .111 170. Termination of agency 112 171. Notice of termination 113 § 2. Principal's Liability fob Agent's Acts 172. His contract liability 114 173. Meaning of scope of apparent authority .... 114 174. The principal's liability in tort 115 175. Acts done outside the scope of apparent authority . .116 176. Liability for agent's wilful or malicious acts . . . 118 177. Principal may be liable to criminal punishment for agent's acts 118 178. Distinction between agent or servant and independent contractor 119 CONTENTS XV PAGE § 3. Principal's Rights Acquieed thbough Acts of Agent 179. In case of a disclosed principal 119 180. In case of an undisclosed principal 120 § 4. The Agent's Liability to Thibd Pebsons 181. His liability in tort 120 182. His contract liability . 120 183. The agent's liability for unauthorized contracts . . 120 184. The agent's liability upon contracts improperly executed 121 § 5. The Agent's Bights Against Thibd Persons 185. In case of contracts 122 186. In case of tort 122 § 6. Duties of the Pbinchpal and Agent toward Each Otheb 187. Duties of the principal toward the agent .... 123 188. Duties of the agent toward the principal .... 123 § 7. Masteb's Statdtoby Liabiutt fob Servant 188. (a) Fellow-servant doctrine 124 188. (&) Statutory modifications of rule 125 188. (e) Workmen's Compensation Acts 125 CHAPTEK V BAILMUNTS, INCLUDINO TBE OBLIGATIONS OF POSTMAS- TERS, INNKEEPERS, COMMON CARRIERS, AND TELE- GRAPH COMPANIES § 1. Nattjbe and Classification of Bailments 189. Origin and modification of the term .... 127 190. Bailee's duty may result from agreement or from a rule of law 128 191. Bailment is confined to personal property, which must be delivered over in specie 129 192. Classification of bailments 130 § 2. Bailments fob Bailor's Exclusive Benefit 193. The special purpose of these bailments .... 130 194. Termination of these bailments 131 195. Duty of the bailee while the bailment continues . . 131 xvi ESSENTIALS OF BUSINESS LAW FAGB § 3. Bailments fok the Bailee's Sole Benefit 196. The bailee's duty 132 197. Must exercise extraordinary care ..... 133 198. Bailee has no right to lend the property .... 133 199. The bailor's duty 133 § 4. , Bailments foe Mutual Benefit. Geneeal Peinciples 200. Nature and classification of mutual benefit bailments . 134 201. Duties of the bailee 135 202. Duties of the bailor 136 § 5. Pawn, Pledge, oe Collateeal Secukitt 203. Nature of this bailment 136 204. Possession by the pledgee 137 205. Rights of the pledgee . . , 137 206. Duties of the pledgee 138 207. Pawnbrokers 139 - § 6. Postal Bailments 208. Their peculiar character 140 209. Liability of postal officers 141 210. Summary 141 210. (a) Non-liability of government 142 210. (6) Parcel-post 142 210. (p) United States not suable 143 210. (d) United States may sue 144 § 7. Innkeepebs 211. Definition 144 212. Whom must the innkeeper receive? 145 213. Treatment of sick guests 146 214. Innkeeper's liability for personal injuries to guest . . 147 215. Innkeeper's liability for guest's property . ,_ . . . 148 216. Statutory modification of innkeeper's liability . . . 148 217. The common-law exceptions to liability .... 149 218 Who is a guest? .■ . 151 219. Eights of the innkeeper 152 § 8. The Hiked Use of Chattels 220. A common kind of bailment 152 221. The bailee may be liable for eonversioa .... 153 CONTENTS 222. 223. 223. 223. 223. 223. 223. § 9. HiBED Services about Chattels, othee than the Services of Common Carriees Why this class of bailments is separated from common carriage 154 Warehousemen and warehouse receipts .... 155 (a) Uniform warehouse receipt act ..... 155 (6) Who is a warehouseman ...... 156 (c) The receipt 156 (d) Negotiability of receipt . . . . . .157 (e) Warehouseman's lien 158 § 10. Common Carriers of Goods 224. Definition and general duty 225. Excuses for refusing to carry . 226. Common carrier's liability for goods received 227. Exceptions to the rule of liability . 228. When the carrier's liability begins . 229. Termination of carrier's liability 230. Modification of carrier's liability by contract 231. Keasonable and fair regulations . . - . 232. 233. 233. 233. 233. 233. 158 159 159 160 161 162 163 164 Statutory modifications of carrier's common-law liability 165 Lien of common carriers 166 (a) Interstate Commerce Commission . . . .167 (6) Liability of first carriers 168 (o) Bills of lading 168 (d) Statutory provision 169 § 11. Common Carriers of Passengers 234. Duty to receive passengers 170 235. Care of passengers 171 236. Accommodations for passengers 172 237 Treatment of passengers 172 238. Limitation of carrier's liability by contract . . . 173 239. Carrier's liability for passenger's baggage . . . 174 240. Fault of the passenger 175 241. Termination of carrier's liability 175 § 12. Telegraph and Telephone Companies 242. Not common carriers 176 243. Nature of the company's liability 176 244. Liability may be limited or enlarged by contract . . 177 245. To whom the company is liable 178 xviii ESSENTIALS OF BUSINESS LAW FAQS § 13. Public Utilities 245. (a) Test of a public utility 179 245. (6) Public utility commissions 179 245. (c) Limit of regulation 180 245. {d) Control of business during war 181 CHAPTBE VI BANKRUPTCY AND INSOLVENCY 246. The severity of early bankruptcy laws .... 184 247. The rigor of early law has been softened .... 185 248. Distinction between insolvent and bankruptcy laws . 185 249. Bankruptcy legislation in the United States . . .186 250. State bankruptcy laws are now suspended . . . 187 251. The theory of bankruptcy legislation 187 252. Who may be declared bankrupt 188 253. What are acts of bankruptcy? 188 254. Courts; referees; trustees 189 255. Discharge of a bankrupt 190 CHAPTEE VII INSURANCE 256. Its nature and origin 191 257. Origin of insurance 192 258. Insurance law based upon mercantile usage . . . 192 259. The earliest form of insurance 193 260. Fire and life insurance 194 261. Other forms of insurance 194 262. Insurance is a i5ontract, and generally in writing . . 194 263. Eepresentations and non-disclosure by the insured . . 195 264. Foregoing doctrine modified in life and fire insurance . 196 265. Warranties in insurance ....... 196 266. Waiver and estoppel 197 267. Insurance as a contract of indemnity 197 268. Insurer's rights under principle of indemnity . . . 198 269. The principle of indemnity and life insurance . . . 199 270. Various forms of life insurance 200 271. Accident insurance 200 CONTENTS xix FAQE 272. Objects and form of policy 200 273. The cost of accident insurance 201 274. Notice to the insurer 201 275. Agents of insurer 202 275. {a) Standard insurance policies 202 275. (6) State insurance 203 275. (o) War risk insurance 204 CHAPTER VIII NEGOTIABLE PAPER § 1. Its Omgin and Objects 276. Negotiable paper originated in the usage of merchants . 206 277. Why foreign bills of exchange were used .... 207 278. Inland bills of exchange 208 279. Promissory notes 208 280. Later forms of negotiable paper 209 281. Fqrmal requisites of negotiable paper .... 210 282. Parties who must sign 210 283. An unconditional order or promise 211 284. Time of payment 211 285. Payable to order or bearer 212 286. Bill of exchange must designate a drawee . . . .212 § 2. Liability of the Difterent Paeties to Negotiable Papeb 287. Liability of acceptor 288. Liability of the maker of a promissory note 289. Other engagements of acceptor and maker 290. Qualified acceptance . 291. Certified checks . 292. Liability of the drawer 293. Liability of indorser . 294. Various kinds of indorsement 295. Accommodation parties 296. Delivery necessary to the validity of negotiable paper 213 214 214 214 215 215 216 216 217 218 § 3. Peoceedings on Dishonoe 297. How negotiable paper is dishonored 218 298. What is due presentment? 218 299. Time of presentment 219 ESSENTIALS OF BUSINESS LAW 300. Beasonable hour 301. Delay in making presentment . 302. Presentment may be dispensed with 303. Protest of negotiable paper 304. Why foreign bills must be protested 305. Different significations of protest 306. Manner of protesting paper 307. Notice of dishonor 308. Why notice of dishonor is required 309. Time of giving notice 310. Where notice by mail should be sent PAQE . 220 . 220 . 220 . 221 . 221 . 222 . 222 , 223 . 224 . 224 ,225 § 4. The Eights or a Holdeb 311. How acquired 225 312. A holder in due course, or bona fide 226 313. Transfer after due 226 314. Paper payable on demand 227 315. For value 228 316. An old debt as value 228 317. Taking without notice 229 318. Holder in due course takes title free from personal de- fenses 229 319. Iteal or absolute defenses 230 320. Fraud in securing the signature 231 CHAPTEE IX PARTNERSHIP— JOrNT-STOCK COMPANIES— CORPORA.- TIONS PART I.— COMMON LAW PARTNERSHIPS § 1. The Natxjbe of Pabtnebships 321. What is a partnership? 232 322. The agreement of parties is essential .... 232 323. Specific intent to form a partnership is not necessary . 233 324. Carrying on business together, (a) It must be lawful 234 325. (&) Meaning of business 235 326. (o) A common business 235 327. {d) Sharing the profits of a business . . . . 236 328. Business must be carried on for profit .... 236 CONTENTS xxi § 2. Partnership Property 329. It starts with the firm's capital 237 330. The firm as a person 237 331. Partnership real estate . . . . - . . .238 332. Firm property after the death of a partner . . . 238 333. Firm creditors and separate creditors .... 239 334. A partner's share or interest in firm property . . . 239 § 3. The Powers or Pabtnees 335. A majority rules 240 3Z6. The agency of a partner 241 337. Implied authority of a partner 241 338. Liahility for the misconduct of a partner .... 242 339. Good faith toward copartners 242 § 4. The DISSOLUTI0^^ of Partnees!hip 340. By operation of law 243 341. By act of the parties 244 342. By judicial action . . . . , . . . . 244 343. Upon dissolution, firm property is to be distributed among the partners 244 344. Order of distribution . 245 345. The proportion in which profits and losses are sharable 245 § 5. Uniform Partnership Act 345. (o) Modified existing law 246 345. (6) Partnership real estate 246 345. (c) A partner's share in firm property .... 247 345. (d) Partner's agency 247 345. (e) Partner's liability 248 345. (/) Partnership affairs after dissolution .... 248 345. (g) Order of distribution 248 PAET II § 1. Limited Partnership 346. Borrowed from French law 249 347. Its characteristics 249 348. How limited partnerships are formed .... 249 PAET III §1. Joint-Stock Companies 349. Are partnerships with peculiar features .... 250 350. Mining partnerships 251 351. Statutory joint-stock companies 251 ESSENTIALS OF BUSINESS LAW PART IV § 1. COEPOBATIONS 352. An artificial or legal person 353. How created 354. Liability of stockholders 355. Transferability of stock 356. The power of stockholders 357. Contracts by corporations 358. Dissolution of corporations 358. {a) Eeceivers 358. (6) Federal corporations 358. (c) Uniform stock transfer act 358. (d) Supervision of corporations 251 252 253 254 254 255 255 256 256 257 258 CHAPTER X PROPERTY— ITS ACQUISITION AND TRANSFER § 1. Natore and Forms op Peopektt 359. Meaning of term . 360. Real and personal property 361. Two forms of realty . 362. Two forms of personalty . 363. Realty may become personalty 364. Personalty may become realty § 2. Methods of Acquiring Property 365. By one's own acts, (a) Occupancy . 366. (6) Title by prescription and possession 367. (c) Title by naltural increase 368. {d) Title by one's labor , , . 369. Property acquired upon another's death. 370. Who may make a will 371. The formalities of a valid will . 372. Nuncupative wills .... 373. (6) Upon intestacy .... 374. Acquiring property from a living owner. express consent ..... 375. (6) With the implied consent of former owner 376. Title from living owner without his consent (o) By will (o With his 259 259 260 261 261 262 262 263 263 263 264 265 265 265 265 266 267 268 CONTENTS § 3. Conveyance of Reai. Propeett 377. Real property is transferred by a written conveyance . 268 378. Various kinds of deeds. whose jurisdiction extended throughout the kingdom. If we may trust the preamble of a statute of Edward III, enacted in 1353, merchants' courts in England were intended " to give courage to mer- chant strangers to come with their wares and merchandise into the realm." ^ Evidently these traders were unwilling to come if they were to be subjected to the rules of the English common law and compelled to adjust their disputes in the common-law courts, already notorious for their technical and dilatory procedure. They would come only upon condition that spe- cial courts were organized, which should sit in connection with the fairs or markets where these merchants transacted business, and should do speedy justice "according to the ' The Statute of the Staple, 27 Ed. Ill, c. 2. This is a very im- portant and interesting act of Parliament — one which the student will do well to read if he has access to the English Statutes at Large. It named the towns in which the staple, i. e. , the authorized market of wools, leather, woolens, and lead should be held ; it regulated the conduct of such markets, and provided for merchants' courts in con- nection with them. The staple or market towns were Newcastle-upon- Tine, York, Lincoln, Norwich, Westminster, Canterbury, Chichester, Winchester, Bristol, Kaermerdyn, Devylen, Waterford, Cork, and Drogheda. THE LAW MERCHANT AND THE COMMON LAW 13 law of the staple" or of "the merchant, and not of the common law of the land, nor of the usages of cities, bor- oughs, or towns " where the staple, or market, or fair was held. 16. Judges and juries of merchants' courts. — By the Statute of the Staple it was provided that the common-law judges should not have jurisdiction over the business trans- actions of these merchants, but " that the mayors and con- stables of the staple shall have jurisdiction and cognizance within the towns where the staples shall be, of people, and of all manner of things touching the staple." It was provided, further, that in every staple town " a mayor, good, lawful, and sufficient, shall be made and estab- lished, having knowledge of the law merchant, to govern the staple and do right to every man after the laws afore- said, without favor, sparing, or grief-doing to any." Also that there shall be two constables in each staple or 'market town, " to do that pertaineth to their office as in other staples is accustomed." These mayors and constables were to be "chosen by the commonalty (i.e., the whole body) of the inerchants of the said places, as well of strangers as of denizens." If a jury was to be employed in any ease, it was to consist of merchants only. Merchants " coming to the said staples because of merchandise " were to be sworn to submit their controversies to the mayor and constables and to " maintain as much as in them is the staple and the laws and usages of the same." 17. These courts .called pepoudrous. — Many, perhaps most, of the merchants doing business in these market towns were non-residents. It was very important to them, therefore, that lawsuits in which they became engaged should be disposed of quickly. Accordingly we find the statute declaring that " speedy right be done to merchants from day to day and from hour to hour, according to the laws used in such staples before this time holden elsewhere 3 14 ESSENTIALS OP BUSINESS LAW at all times, so that the merchants be not by malice de- layed for default of speedy remedy." Because of the rapid- ity with which these merchants' courts despatched business, they were styled courts pepoudrous. Lord Coke, writing two centuries and a half after the enactment of the statute ade in building up a system of mercantile law to take the place of that which had been administered by the merchants' courts. With this condition of the law merchant in England, Lord Mansfield was dissatisfied, and he devoted his great abilities to its improvement. His thorough knowledge of the Roman law, especially in its modified form in Scotland, saved him from the narrow partizanship for the common law, which, as we have seen, distinguished Lord Holt. He was not averse to innovations upon the common law, nor did he resent the attempts of Lombard Street bankers and merchants to make law for themselves and for those deal- ing with them. On the other hand, he delighted in cooper- ating with Lombard Street — ^which is but another name for the business men of London — ^in developing a body of legal rules which should be free from many of the techni- calities of the common law, and whose principles should be so broad and sound and Just as to commend themselves to all courts in all countries. Accordingly, when a case in- volving the usages of merchants came before him, he sought to consider not only what those usages were, but the legal principle underlying them. 27. Lord Mansfield's methods. — We are told by Lord Campbell, in his life of Lord Mansfield, that the latter " reared a body of special jurymen at Guildhall, who were generally returned (that is, were summoned and sat as jurors) on all commercial cases to be tried there. He was on terms of familiar intercourse with them, not only conversing freely with them in court, but inviting them to dine with him. Prom them he learned the usages of trade, and in return he took great pains in explaining to THE LAW MERCHANT AND THE COMMON LAW 21 them the principles of jurisprudence by which they were to be guided." The diverse sources of these principles are disclosed in many of his important opinions. Mr. Scrutton has cited as an example Lord Mansfield's "great judgment in Luke vs. Lyde,^ which raised the question of the freight due for goods lost at sea. He cited the Eoman Pandects, the "Con- solato del Mare, the laws of Wisby and Oleron, two Eng- lish and two foreign mercantile writers, and the French Ordonnances, and deduced from them the principle which has since been part of the law of England." So rapid was the development of the modern law merchant, during Lord Mansfield's chief justiceship, that one of his younger asso- ciates and disciples, Mr. Justice Buller, did not hesitate to call him " the founder of the commercial law of England." That he is entitled to this name does not admit of a doubt. It was he who won for the law merchant a recognized place in English jurisprudence. 28. Fourth stage in the development of the law mer- chant. — Still this branch of the law has not only grown since Lord Mansfield's time, but its relation to other branches of the law has undergone a change. That great jurist was accustomed to declare that " mercantile law is not the law of a particular country, but the law of all na- tions." His conception of it was as a body of legal rules to be applied and enforced by English courts, but yet dis- tinct and separate from the common law of England. Dur- ing the century and more since his death the tendency has been toward an amalgamation of the rules of the law mer- chant with those of the common law. The two are no ' Decided in 1759, and reported in 3 Burrows, 883. The decision was that in case of a loss at sea, freight must be paid only in propor. tion to the goods saved, and the part of the voyage which was per formed. 22 ESSENTIALS OP BUSINESS LAW longer distinct systems. Each has been modified by the other, and lost its separate identity. Together they con- stitute the unwritten law of English-speaking countries. 29. Summary : Four meanings of " law merchant." — Erom the foregoing sketch it appears that the term "law merchant " bears at least four distinct significations in English jurisprudence. (1) Originally it meant a body of rules relating to mercantile contracts and transactions, founded upon the usages of merchants, known particularly to merchants, and administered by courts of merchants. (2) After these special courts died out the term was ap- plied to those mercantile customs which the regular judicial tribunals were willing to enforce in cases growing out of commercial disputes. These customs were not law, in the proper sense of that term, but were elements in mercantile transactions to be taken into account in each case by the jury and the court. (3) The third signification originated with Lord Mansfield, and was employed at times by Mr. Justice Story. In this sense, the law merchant meant a body of legal rules, free from the peculiarities and techni- calities of the municipal law of any one country, so reason- able in their nature and so broad in their scope as to be law everywhere. (4) Still a fourth and less definite significa- tion attaches to the term at present. It is not employed to mark off a distinct body of legal rules from all others ; nor does it distinguish one set of business usages from all others; nor does it mean that the rules falling under this title are accepted everywhere as law ; but it is used to desig- nate in a loose and popular, rather than in a scientific man- ner, those branches of law which have been modified to a considerable extent by the usages of merchants, such as the law of insurance, of partnership, df negotiable paper.^ ' In this sense it appears in the Uniform State Laws, e.g., "In any case not provided for in this article, the rules of law and equity, including the law merchant . . . shall govern." THE LAW MERCHANT AND THE COMMON LAW 23 § 2. The Common Law 30. Various significations of the term. — In our account of the law merchant we have referred frequently to the common law. Let us consider now the different senses in which the term is employed, and trace very briefly the his- tory of this system of legal rules. " In its largest sense," says Sir Frederick Pollock, " it means the whole body of legal principle and usage which is common to all parts of England, and now to all jurisdic- tions whose law is of English origin." When used in this sense, it is contrasted, the reader will observe, with the cus^ toms and usages of a particular locality, or with the usages of particular classes, such as merchants, during the period when they were enforced in special courts. Such cus- toms and usages, it must be remembered, were rules of con- duct for the inhabitants of a limited region, or for persons engaged in definite lines of business. They were not bind- ing on all classes throughout the kingdom; they were not common law. In this largest sense the term serves also to contrast the English system of law with other systems, especially with that of Eome. For example, we speak of the laws of Lou- isiana as founded on the civil or Eoman law, while that of every other State of our Union has its origin in the common law of England. 31. Common law is unwritten. — The term is used in another sense, to designate that part of English Jurispru- dence which has not been embodied in statutes. It then means the unwritten law, or the law found in the decisions of the courts. The reader may ask, why should that part of the law which is found in judicial decisions be called " un- written," when those decisions have been written out and printed ? It must be confessed that the word " unwritten " is not a very happy one to use in this connection, but it has 24 ESSENTIALS OP BUSINESS LAW been used so long that it can not now be discarded. When we speak of the law of Judicial decisions as unwritten, we mean that its rules have not been " prescribed in a specific form of words by the legislative authority," while the rules in statutes have been. Many rules of the common law, using the term in this sense, have ceased to exist as such, having been formulated in acts of Parliament in England, or in acts of Congress for the United States as a nation, or in acts of a State Legislature for a particular commonwealth. In this way they have been transformed from unwritten to written law, or, in other words, from common to statutory law. In some of our States, as in California, substantially 'all legal rules and principles have been codified — that is, have been stated in statutory form. The common law, therefore, in the sec- ond sense of the term, does not exist in that State, while in the first sense it still continues. Its form is written or statutory; but its substance is that of the common-law, not of the civil-law system. 33. The second signification modified in many States. — In other States of our Union, the term, in its second sense, has undergone a different modification. When the colonies separated from England and became independent States they were free, of course, to continue the English system of law, or to reject it, or to modify it. Some of them formally declared that so much of the common law and of the statute law of England, as well as of the statute law of the particu- lar colony, as did then form the legal system of the colony, or was suited to the needs of its people, should thereafter constitute the law of that State. i In this way the term common law has been subjected to a peculiar modification in those States. It has come to mean those legal rules and principles which were binding on the people of a particular State, at the opening of the American Eevolution, as distinguished from those which / THE LAW MERCHANT AND THE COMMON LAW 25 have been added by the legislation of the State, since its separation from Great Britain. 33. Common law as the law of certain courts. — A third signification of the term serves to contrast the law, as it was administered by one class of Judicial tribunals, with the law as it was administered by other classes. The body of legal principle and usage recognized and enforced by the courts of the King's Bench, of the Common Pleas, and of the Exchequer was the common law in this third sense of the term. Those courts were the common-law tribunals, in contrast with the equity and the Admiralty courts; and their system of pleading and procedure was styled common- law pleading and procedure. It is the common law, in this sense of the term, against which the charge of technicality, of narrowness, of arbitrary and rigid rulings is most frequently and most persuasively brought. It was this body of legal doctrine and this form of legal procedure, which the merchants most stoutly ob- jected to, and sought exemption from in their special mer- chants' courts. It was to give redress to suitors, who were without remedy in these common-law courts, that the Court of Chancery ^ was instituted; and it was to supplement the. common law, to relieve from its technicalities, and to cure its defects that the system of equity was worked out by the chancellor and his judicial associates. 34. Merger of common-law and equity courts. — Al- though the term is still used in this third signiiication, the ' This court derived its name from the Lord Chancellor, who wa9 its chief ofBcer. Its establishment came about in this way : Prior to the reign of Edward III, a person who thought, himself wronged by the ordinary courts Of law, or to whom these courts could not give redress, appealed directly to the king for relief. As these applica- tions increased, the king began to turn them over to the chancellor for decision. In the twenty-second year of the reign of Edward III, a general order was made referring all petitions of this sort to the chancellor, and thus setting up a court of chancery. 26 ESSENTIALS OP BUSINESS LAW common law is no longer separated from equity by a great gulf of principle and procedure, as it was three centuries ago. In England, the courts of common law and of equity have been consolidated into one Supreme Court of Judi- cature, with a single, system of procedure; and a similar change had been made many years earlier in most of our States. Even before this consolidation of courts, with its attend- ant merger of the two systems of rules, the common law had absorbed many equitable principles and freed itself from not a few of its old technicalities. 35. Origin of the common law. — ^TJsing the term in the first and second significations above described, the common law had its origin in the usages of the English people at larg«, as the law merchant had its rise in the usages of a class. The development of the two bodies of legal rules, however, followed widely different lines. We have called attention already to the fact that the merchants' courts despatched their business rapidly. The pleadings — that is, the statements of the plaintiff's claim and of the defend- ant's reply thereto — were informal ; the proceedings in court were pushed to a speedy conclusion; the judges did not in- dulge in the preparation and presentation of carefully con- sidered and elaborate opinions, and the eases were not reported. As a result, the decisions did not become fixed precedents binding upon the judges in future cases. On the contrary, the law merchant was free to conform to the changing needs of business, and its rules were handed down by tradition rather than in court records or in legislative enactments. 36. Common-law courts were deliberate and spectacular. — In striking contrast to the courts pepoudrous, where as speedy justice was to be done as dust could fall from the feet of impatient suitors, were the Superior Courts of Eng- land, in which the common law was developed. They were THE LAW MERCHANT AND THE COMMON LAW 27 not in haste. They did not sit from day to day and from hour to hour, in their anxiety to dispose of litigation promptly that the litigants might go about their other business. They sat only at stated periods, and then only from eight to eleven in the morning. " For in the after- noons," writes Sir John Fortescue, in the fifteenth century, " these courts are not holden. But the suitors then resort to the perusing of their writings, and elsewhere consulting with the serjeants-at-law and other their counselors." If the plaintiff's lawyer had made a niistake in the form of action which he had brought, or in his manner of stating the cause of action, or in the formal conduct of the litiga- tion, the plaintiff, after waiting months for a hearing, might be turned out of court upon a mere technicality, before the merits of his case received any consideration. Even when no technical mistake had been made by his lawyer, he was obliged to await the slow and stately processes of the court. A recent writer, commenting upon this phase of common- law procedure, declares : " In the eyes of most laymen, the conduct of civil disputes is by no means carried on in a business-like way. There is in the processes of a lawsuit too much the air of a tournament in the setting of the scene; the knight combatants enter the lists on behalf of their clients with more zeal for the display of forensic skill in battle than is compatible with a prompt conclusion ; their more exalted colleagues on the bench seem mainly bent on letting each side have full as well as fair play; while the spectators, legal and lay, crowd the court in order to enjoy the spectacle." And yet .this very deliberation of a common-law court, this stateliness and ceremonial, this spectacular element in its procedure, have contributed not a little to its success. They have fostered a full and fair discussion by trained lawyers of the principles involved in each litigated case. They have established the practise of oral examination and 28 ESSENTIALS OP- BUSINESS LAW cross-examination of witnesses. They have subjected the judges to the criticism of the press and of the public, and have made them careful in their consideration and decision of cases. 37. Recorded precedents. — ^Moreover, at an early day, the practise of officially reporting the decisions of these courts was established. These reports, containing as they do brief statements of the questions in dispute between the parties to each case, with outlines of the legal arguments on behalf of each side, and with the reasons assigned by the judges for their decision, have exercised a great influence over the development of the common law. When a matter of dispute is brought before a court for determination, the first inquiry is, has a like case been presented and decided previously? If this has happened the task of the court is an easy one ordinarily. Stare decisis et non quieta movere — " To stand by decisions and not to disturb what has been settled "■ — is its motto. Accordingly this ease is disposed of as the like case was disposed of before it. A precedent has been established and must be followed by the judges. A rule of law has been fixed, to which parties to like trans- actions must conform, and upon which lawyers can safely rely in advising their clients hereafter. It is true that this strict adherence to precedent does not always result in doing abstract justice in a particular ease ; but it is the theory of the common law that it is bet- ter for the community at large that legal rules be definite, and known and enforced, than that they remain uncertain while halting human wisdom strives to bring them to per- fection. 38. Unfortunate precedents. — At times, it must be con- fessed, this common-law consecration of recorded decisions — of judicial precedents — has resulted in grievous hardship to individual suitors. It may be that the original decision, when made, was in accord with business usages, or business THE LAW MERCHANT AND THE COMMON LAW 29 needs, or the ideal of justice then prevailing in the commu- nity. But, in the meantime, one or all of these have under- gone a change, while the rule established by the precedent has not altered. It is definite, intelligible, rigid. Even though it produces injustice rather than justice, it must be enforced by the courts until it is abolished or modified. The attitude of common-law courts when called upon to enforce such a precedent is that taken recently by a learned judge of the Illinois Supreme Court. The question for de- cision was whether a passenger who, having received a wrong transfer slip from a street-car conductor, and, having refused to pay another fare, was put off the car, could re- cover damages from the street-ear company for the forcible expulsion. Said the learned judge : " I concur in the conclu- sion that the plaintiff can not recover these damages, He is entitled only to the repayment of his fare. I concur be- cause the precedents established by this court prevent a recovery by him. The law is a science of precedents. I bow to the law as announced by the authorities, but am not obliged to surrender my right of private judgment ; and in my opinion, the doctrine referred to is unsound and an abhorrent subordination of the rights and convenience of passengers to the interests of railroad companies." Simi- lar language was used by Chief-Justice Cockburn of a rule of equity which he felt bound to follow. He said : " But though this seems consistent neither with justice nor com- mon sense, it has been so long firmly established that it can only be altered by the legislature." 39. Getting rid of inequitable precedents. — How can the abolition or modification of a' legal rule based on unfor- tunate precedents be accomplished ? In one of three ways, the first of which is by intervention of equity. The right of the English chancellor thus to intervene for the relief of suitors who were victims of the harsh rules and the technical procedure of the common law was not established without 4 30 ESSENTIALS OF BUSINESS LAW a long and hard struggle, in the final stages of which Lord Coke was the champion of the common law and Lord Bacon was the champion of equity. Lord Bacon's view prevailed, and thereafter it was the accepted doctrine that " it is the ofiBce of equity to mitigate the rigor of the common law, to supply its deficiencies, to relieve from its technical rules, and to decide controversies according to equity and good conscience." 40. Legislative correction of precedents. — The second method of obtaining relief is by legislative enactment. This was the method pursued by the bankers and merchants of Lombard Street, as we have seen, when Chief-Justice Holt's decisions were likely to form precedents, opposed to mercan- tile usages and harmful to the- interests of trade. 41. Distinguishing and limiting precedents. — Still a third method is that resorted to by the common-law courts themselves. When the judges become convinced that an established precedent is working injustice, they may over- rule the mischievous decision, or they may distinguish the case which is before them from the one in which the mis- chievous decision was rendered. As a rule, they pursue the latter course. This saves them from openly violating their motto of stare decisis — " standing by the decisions " — and enables them to feel their way cautiously toward the formu- lation of a new and better rule on the subject. 42. Principles deducible from recorded cases. — But sup- pose the matter in dispute has not been previously decided — ■ that there is no judicial precedent which exactly covers the case now before the court. Even here the reported cases are not without value. They will be carefully examined by the lawyers for the contending parties, as well as by the judges, for statements of general principles or of maxims, from which the true rule applicable to the pending case may be deduced. It is in such a case that the great advo- cate or the great judge finds inspiration to lofty efforts, and THE LAW MERCHANT AND THE COMMON LAW 31 a field for the display of all his powers. It is then possible for a Mansfield to make the impression described by Mr. Justice Buller in his famous eulogy of that remarkable chief justice : " We all know the great study has been to find some certain general principle, not only to rule the par- ticular ease under consideration, but to serve as a guide to the future. Most of us have heard those principles stated, reasoned upon, enlarged, and explained till we have been lost in admiration at the strength and stretch of the human understanding." 43. Flexibility of the common law. — The common law is imperfect necessarily, for it is a product of the human mind and will. It is open to criticism. If the student is curious to know what criticism, fair and unfair, may be visited upon it, he should read Jeremy Bentham's works. On the other hand the common law has always had its ar- dent, if not blind admirers. During the struggle between the courts of common law and the chancellors, to which reference has been made. Lord Coke and his followers did not hesitate to declare that the "chancellors interfered through ignorance of the goodness of the common law," and that " the law of the realm is a sufficient rule to order you and your conscience what ye shall do in everything and what ye shall not do." If the common law consisted solely of a code of hard and fast rules laid down in the decisions of reported cases, ' and of the technical procedure which formerly prevailed in its courts, it would deserve harsh criticism. But it does not consist of those alone. Indeed, they are rather the external trappings of the system, while its spirit is found in broad legal principles which the courts apply to the facts of each particular ease. As a body of principles it is con- stantly undergoing change in order to adapt itself to the new needs of the people. It is flexible and expanding, not rigid and stationary. Viewed as a body of principles and 32 ESSENTIALS OP BUSINESS LAW a system of reasoning, rather than as a code of rales and system of procedure, the common law is not unworthy of the encomium of Sir Matthew Hale : " It is not the product of the wisdom of some one man or society of men in any one age, but of the wisdom, counsel, experience, and observa- tion of many ages of wise and observing men." With all its faults it has served and continues to serve well the English-speaking peoples of the world, for " it is the prod- uct and measure of their character and temper; the reflex of their life and character." 43 (a). Specific mles of common, law. — These, as inti- mated in preceding paragraphs, may be changed and often are changed by legislation. Statutes of this sort have been attacked as violative of constitutional provisions, which pro- hibit legislatures from depriving a person of property with- out due process of law. But the courts have held that "no person has a vested interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit." ^ "Rights of property which have been created by the common law cannot be taken away without due process ; but the law itself as a rule of conduct may be changed at the will of the legislature,' unless prevented by constitutional limita- tions. Indeed, the great office of statutes is to remedy defects of the common law and to adapt it to the changes of time and circumstances." ^ 'New York Central Ey. Co. v. White, 243 U. S. 188, 198. The statute modified the common law rule as to liability of employers to employees. N. Y. Laws 1914, Ch. 41, Workmen's Compensation Act. 'Munn v. Illinois, 94 U. S. 113, 134. The statute modified the common law rules as to charges by warehousemen. 111. Laws 1871, approved Apl. 25. CHAPTER III CONTRACTS § 1. How A Contract is Made 44. A knowledge of the principles governing contracts is important. — Before taking up the various branches of business law, it is important that the student should gain a clear idea of the general principles of contracts ; for with- out a knowledge of these he will be unable to follow intel- ligently the discussion of agency, of bailments, or of the other topics. 45. Definition and essentials of contract. — As a legal term, contract means an agreement enforceable by law. While there may be an agreement without a contract, there can not be a contract without an agreement. The very first essential of a contract is the meeting of minds of two or more persons — their mutual assent to- a definite proposi- tion — an agreement between them. But, though the par- ties may have agreed, the law may decline to enforce that agreement. If it does there is no obligation upon the par- ties — no bond holding them together. Either party may break his agreement without subjecting himself to any legal liability. Our law declines to enforce an agreement unless: (1) It is made by parties who have legal capacity to contract; (3) Unless a legal consideration has been given for the promise contained in the agreement; (3) Unless there is a lawful subject-matter for the agreement. These essentials 33 34: ESSENTIALS OP BUSINESS LAW of a contract we shall discuss with appropriate fulness presently; but before doing so let us briefly consider some transactions that are often spoken of as contracts, but which are not contracts at all. 46. Obligations ■which are not true contracts. — It must be confessed that even eminent judges and law-writers have been very careless in their use of the term contract. For example, they often speak of a judgment for money as a contract — " a contract of record." Surely here is no prom- ise to pay on the part of the judgment debtor — that is, the person who was the losing party in the lawsuit and against whom' the court ordered the judgment to be entered. He may feel and often does feel that the debt is one he ought not to pay. So far from ever actually promising to pay the judgment, he has- done everything in his power to repu- diate any liability for it, and to escape payment. He pays the debt because the State, through its courts and their ofii- cials, compels him to pay it, not because he has agreed with the other party to pay it. Again, A takes and uses . up certain property, such as grass, grain, clothing, or money, believing it to be his, when in fact it is B's. In such a case, B has his choice of two forms of action against A: He may bring an action in tort, for the conversion of the property — that is, he may treat A's taking and use of the property as a legal wrong, and recover damages against A for the wrong; or, he may waive the tort,' as it is said, and may sue A for the value of the property, precisely as though he had sold it to A. The liability of A in this second form of action is often spoTcen of as a contract liahility. Here, as in the case of the judg- ment, there is ho actual promise to pay on the part of the person who is forced, by the court to pay. 47. Quasi contracts. — In both of these cases, and in many similar ones which might be referred to, there is not a true contract between the parties. There is no meeting of ' See Appendix, p. 315. CONTRACTS 35 minds — no agreement. The liability of the one party to the other does not rest on an actual promise ; it rests on a rule of law. These cases are examples of quasi contracts — of oiligations resemiling contracts — not of true contracts; of liabilities arising from a rule of law, not from the volun- tary agreement of the parties. They are spoken of as re- sembling contracts only because the law permits them to be enforced by contract actions. 48. Contract may be made by acts. — While an actual promise is essential to a true contract, it is not necessary that t}ie promise be made in express words. A hails a street- car and enters it as a passenger. He has made a contract with the street-car company, binding him to pay the regular fare to the company, and binding it to transport him as a passenger, even though not a word about the fare or the ride may have passed between him and the company's agent, the conductor. By the very act of running its cars the company makes an offer to carry passengers for a re- muneration. This offer the passenger accepts when he en- ters the car. Each makes a promise to the other which the law will enforce. It is true the promises are not expressed in words, as when A says to B, " I will work for you, as bookkeeper, for a year, at fifty dollars a month," and B says, " I accept your offer, and will pay your price "; but the promises are as actual in the one case as in the other. The street-car company and the passenger intend to enter into a con- tract, and understand that their acts are equivalent to words. 49. Offer and acceptance. — If any case of true contract is analyzed, it will be found that the process leading up to its formation always involves an offer by one party to do something, which he has a legal right to refrain from doing, or to forbear doing something which he has a legal right to do; and an acceptance of that offer by the other party. With- 36 ESSENTIALS OF BUSINESS LAW out such offer and acceptance, made either by words or by acts, there can not be a true contract. 50. Intention to contract. — It is to be borne in mind, however, that not every offer and acceptance constitutes a contract. B accepts A's invitation to dinner. Here is an offer by A to supply B with a meal if B will take the trou- ble to come to A's house, and the offer is accepted by B; but there is no contract. A's promise to furnish the dinner is not one " enforceable by law." It is a social engagement only, and not intended by the parties to impose legal lia- bilities on either of them. Again, X hands his watch to Y, who gives his check to X for three hundred dollars. Upon these facts it would ap- pear that X had offered to sell his watch to Y for three hundred dollars; that Y had accepted the offer and had given his check for the purchase price. But suppose Y, when sued on the cheek by X, shows that the whole matter was a piece of frolic; that the watch was worth only fif- teen dollars; that he had no money in the bank on which the check was drawn ; that after he was sued he tendered the watch to X, and that both he and X, as well as the others who were present, understood that the whole affair was one of frolic and banter, and not one of business, surely a court should hold, as it has held, that there was no contract be- tween X and Y. It is true such fooling is hazardous for Y; for when we come to discuss negotiable paper, we shall discover that had X sold and indorsed the check directly after receiving it to one who knew nothing of the transaction in which it was given, such purchaser could have compelled Y to pay the full amount. 51. Preliminary negotiations. — Such cases, as we have been considering, of social engagements and of frolic, do not often come before the courts, and when they do are not difficult to decide. But another class of cases, in which CONTRACTS 37 there is an appearance of an ofEer and acceptance, intended by the parties to constitute a contract, is more troublesome. A standard example of this class is an old English ease, de- cided three centuries or more ago. " The defendant told the plaintiff that he would give one hundred pounds to him who married his daughter with his consent. Plaintiff married defendant's daughter with his consent, and after- ward claimed the fulfilment of the promise, and brought an action upon it. It was held not to he reasonable that a man should ie hound hy general words spoken to excite suitors." Similar decisions have been made in cases where business circulars have been sent out to excite customers. If the court is satisfied, from the circumstances of the case, that what bears the appearance of an offer is put forward simply as a statement of intention to do something — for example, to sell goods at auction — or as a preliminary to -business negotiations, it will hold that the mere acceptance of it by the other party does not turn the transaction into a con- tract. A bookseller's catalogue with the prices stated for the various books or a business circular calling attention to specified goods which are for sale at specified prices is to be treated as a preliminary announcement or advertisement of intention, not as a formal offer to each person to whom it is sent. 52. Offer must be definite. — Not only must the offer be made with a view to the immediate formation of a contract, but it must be made to a definite person. A man's obligations to the indefinite public are political, not con- tractual. He does not enter into a contract with his neigh- bors or fellow-citizens to keep the peace, to live honestly, and to perform his duties in society. In order to come under a contract obligation, he must make an offer which he intends for acceptance hy a definite person. This does not prevent a contract arising in a case where one offers a reward to the finder of property, to the captor of 38 ESSENTIALS OF BUSINESS LAW a criminal, or to one doing some other definite act. It is true that the offer is not made to an ascertained person; that it is made to any one who finds the property or cap- tures the criminal, or does the specified act ; but the accept- ance of the offer, which consists in finding the property, or capturing the criminal, or doing the designated act, fixes at once the individuality of the other party. Hence, the moment the contract comes into existence its obligation is between definite persons. An example is afforded by a case in Wisconsin. B publicly announced that he would give five thousand dollars to any one who would bring the body of his wife, alive or dead, out of a burning building. Upon hearing the announcement, C entered the burning building and brought out the dead body of B's wife. B was bound by contract to pay the reward to C. Such- a case is, in principle, much like that of one who makes a promissory note payable to bearer. He promises to pay it, not to the world at large, but to the individual who is in lawful possession of it, when it falls due, although he does not name that individual in the note; and, of course, when it is made, can not be certain of the personality of the one who may chance to be the holder when it falls due. 53. Definiteness of promise. — The subject-matter of the contract, as well as the parties, must be definite. Vague- ness and uncertainty of statement usually indicate that the parties do not intend to bind themselves by contract ; that each is willing to trust to the other's sense of fairness, and is not striving to bring him under the pressure of a legal obligation. A bought a horse from B for fifty pounds cash, and promised to pay five pounds more or the buying of an- other horse, if the horse was lucky to him. Such a promise was declared to he too loose and vague to constitute a con- tract. Again, "W promised to sell certain goods to X for such price as they might agree upon thereafter. Here a part of the subject-matter — the goods — ^was definite, -but the CONTRACTS 39 other part — the price — was indefinite, and might remain indefinite always, for W and X might never agree upon it. Consequently there was no contract of sale. Even when a party clearly intends to enter into a con- tract, his carelessness in describing the subject-matter may prevent the formation of a contract. M sent a postal card to N", with these words : " Please send me pice of counter -screens like draft," and following these words was a draft of the screen with measurements. The court held that the card was unintelligible ; that " pice " might have been in- tended for " price " or for " piece," and that N had no right to treat the card as an order for a " piece " of counter screens. 54. Acceptance must be absolute and unqualified. — When A writes to B that he will sell his farm to B for five thousand dollars cash, and B sends the written answer^ " I accept the offer- contained in your letter " of such a date, a valid contract is made. But if B replies, " I will buy your farm for five thousand dollars, provided you will take in payment notes of C which I hold," no contract is forrded. A's offer calls for cash, and B does not accept this absolutely; he accepts the offer upon condition that it be changed in a material respect. As a matter of law, B does not accept at all. His answer is a new offer. A may accept this counter-offer or not. If he does accept it, absolutely and unequivocally, a contract is consummated. If, on the other hand, he rejects it, not only is a contract not con- cluded, but, thereafter, B has no right to conclude a con- tract by accepting A's original offer. B's counter-offer was, in legal effect, a rejection of A's offer. He has sinned away his day of grace, and lost a bargaiii. In contracts as in ethics, one should agree with his adversary quickly; agree' with him absolutely and unconditionally. The terms of the/ acceptance must be identical in meaning with those oj th& offer. 40 ESSENTIALS OP BUSINESS LAW 55. Right to withdraw offer. — We have said that the offeree should accept the offer quicyy, if he wishes to be sure of concluding a contract upon its terms. The im- portance of prompt action is due to the fact that the offerer may, at any moment, withdraw his offer. He may do this, although in the offer he has stated that it should remain open for a specified time. Such a statement is not legally binding on him, for reasons which will appear when we take up the topic of Consideration. On the other hand, it serves as a notice to the offeree that the offer will not be held open beyond the specified time, and that an accept- ance after that period can not be made. 56. How offer may be withdrawn. — Ordinarily the with- drawal of an offer is made in express terms, and, as a mat- ter of safety, it should be so made, whenever that is prac- ticable. If the withdrawal is communicated to the offeree before acceptance, his right to accept is terminated. At times, however, the offer is withdrawn by the acts or conduct of the offerer, instead of by words. Cases of this sort — that is, of implied withdrawal or revocation of the offer — ^have given the courts not a little trouble, and the judicial decisions, as well as the views of legal writers, are not entirely in accord regarding them. An example of this class of cases is the following: offers to sell certain goods to C for a stated price, at any time within two days. A few hours later he sells and delivers them to D for a larger price. As he has transferred the goods to D by a valid contract, he can not sell them thereafter to C ; but to prevent C from accepting his offer, and thus bringing him under a contract obligation to sell, he should notify C at once that the offer is withdrawn. Undoubtedly, if C were present when the sale to D was made, his personal knowledge of the transaction would absolve from giv- ing him any formal notice. Such notification would be idle. C could put but one construction on O's conduct — CONTRACTS 41 namely, that it was an implied or tacit revocation of the offer. 57. The lapsing of an offer. — Another example of im- plied revocation or withdrawal of an offer is afforded when a reasonable time has elapsed since the offer was made. It would be unfair as well as contrary to the understanding and usages of business men to hold that when a person makes an offer to sell an article at a specified price, or to perform services for a given compensation, it is made for all time. If a party offers to sell wheat at a dollar a bushel, or to carry freight at a specified rate, or to buy stocks at a fixed price, he does not intend to hold himself in readiness forever to supply the wheat, or to carry the freight, or to transfer the stocks, at the rate named, or at all; and the offeree, as a reasonable business man, understands that the offerer had no such intention. The law seeks to give effect to the real intentions and understandings of the parties. Accordingly, in each case the court inquires, what do the business usages applicable to the particular transaction warrant us in declaring is a reasonable time? In some cases forty-eight hours have been held more than a reason- able time; and, undoubtedly, where" an offer is made of stocks or other articles of a fluctuating value, or of very perishable articles, such as certain kinds of fruit, an offer might be impliedly revoked by the lapse of six hours, and an acceptance thereafter would be too late. 58. Death of the offerer. — An offer can not be turned into a contract by its acceptance after the offerer's death. In the language of a learned judge : " The continuance of an offer is in the nature of its constant repetition. Ob- viously this can no more be done by a dead man than a con- tract can be made by a dead man in the first instance." It is often said that the death of the offerer operates as an implied withdrawal or revocation of the offer. This lan- guage is hardly appropriate. Eevocation or withdrawal 42 ESSENTIALS OP BUSINESS LAW Bignifies an act of the offerer, indicating his change of pur- pose. It is a voluntary refusal to contract; while the death of the offerer interrupts the formation of a contract hy the removal of one of the parties. That the offerer's death ought not to be spoken of as a revocation is apparent from the fact that it renders a subsequent acceptance worthless, even though the offeree did not know of the death when he sent his acceptance. 59. Communication of offer. — Something should be added about the communication of the offer as well as of the acceptance and of the revocation when the parties are in different places during their negotiations. With respect to the offer there is little if any difficulty. Until this is brought to the knowledge of the offeree it is entirely ineffective. A, in Chicago, may send by inail oi«by telegraph to B, in New York, an offer to sell a thousand, bushels of wheat at a dollar a bushel. Before this comes to B's knowledge he may order from A a thousand bushels of wheat at a dollar a bushel. These two offers do not make a contract. In order to turn A's offer into a contract B must accept it, and in order to turn B's offer into a contract A must accept that. Until acceptance by one or the other, there is no meeting of minds. Their opinions and interests may coincide, but there is no consensus of wills ; there is no mutual consent to a contract obligation. 60. Communication of withdrawal. — Moreover, if be- fore the offeree accepts, a revocation from the offerer is brought to his knowledge, his right to accept is lost. It is not lost or in any way affected by an attempted revocation which is not brought to his knowledge. A sends an offer by mail. Before the letter reaches B, or before his acceptance of the offer, he receives a telegram from A withdrawing the offer. He can not bring A into a contract by thereafter accepting the offer. On the other hand, if the telegram does not come to B's knowledge until CONTRACTS 43 after he has accepted the offer, it is ineffective and A is bound by contract. True, there is no actual meeting of minds in such a case, but as the continuance of an offer is deemed by the law a constant repetition of it, there is a conventional meeting of minds. Without such a doctrine it would be extremely hazardous to accept offers made by mail or telegraph. It is declared by some writers that an acceptance may be revoked before it comes to the knowledge of the offerer. In the next paragraph, however, we shall see that an accept- ance may conclude the contract even before it is communi- cated to the offerer; nay, though it never reaches him. In such cases, surely,' the revocation of an acceptance ought not to ie allowed, and there is very little judicial authority in favor of allowing it. 61. Communication of acceptance. — ^Upon this point there is some difference of opinion, although the prevail- ing view, both in England and in this country, is that a person who makes an offer by letter or hy telegram becomes bound by contract the moment the offeree despatches his acceptance by mail or by telegraph. The letter or telegram of acceptance may miscarry, still the offerer is bound, un- less, indeed, the miscarriage is due to some fault on the part of the offeree, such as a misdirection. This view is based on the ground that the offerer impliedly authorizes the offeree to send his acceptance by mail or by telegraph. A delivery of the acceptance, therefore, to the post-office or telegraph agents has the same legal effect as a delivery to an agent of the offerer. This view has been criticized severely in England, as well as in this country, and was rejected in an early Massa- chusetts decision. Under that decision an acceptance, to be effective, must be actually communicated — must be brought to the knowledge of the offerer. Until that happens there is no contract. Kecently, however, the Supreme Court of 44 ESSENTIALS OP BUSINESS LAW that State has overruled the decision referred to, and adopted the prevailing view. Sir Frederick Pollock, after expressing regret that the earlier Massachusetts view had not been taken by the Eng- lish courts, makes this remark, which should be borne in mind by the reader : " The practical conclusion seems to be that every prudent man who makes an offer of any im- portance by letter should expressly make it conditional on his actual receipt of an acceptance within some definite time." Such is the frequent, perhaps ordinary, practise of business men in this country. 62. Necessity of consideration. — It is a general rule of English law that a promise is not legally* enforceable unless it is supported by a consideration. Before attempting to explain this rule, it may be well to dispose of its excep- tions. These are found in so-called contracts of record — that is, court judgments — and contracts under seal. Of the former class we need say nothing in this connection, for we have shown already that, they are not true contracts at all. 63. Contracts under seal. — Of the second class, the typ- ical representative is a bond, of which the following is a specimen : Know All Men by these "Presents. That I, John James, of New York city, am held and firmly bound unto Joseph Johnson, of the same place, in the sum of one thousand dollars, to be paid De- cember 1, 1903, to said Johnson, his attorney, executors, adminis- trators, or assigns ; to which payment I bind myself, my heirs, ex- ecutors, and administrators firmly by these presents. In Testimony Whereof, I have set my hand and seal, this First day of December^ One thousand nine hundred and one. John James. [Seal.] The foregoing is called an absolute bond, because it binds the maker to pay the sum named absolutely. Often a bond contains a conditional clause, inserted between the CONTRACTS 45 words " firmly by these presents " and " In Testimony Whereof " in the above form, which provides that if the obligor — that is, the maker of the bond — does a certain act, for example, pays a stipulated sum of money, or con- veys described property, or honestly performs the duties of some position, as of bank teller or cashier, or of private or public treasurer, then the "bond shall be void; otherwise it shall remain in full force and effect." 64. A deed. — A bond is not the only form of contract under seal. The parties to any written agreement may con- vert it into a sealed contract by intentionally attaching a seal and delivering it as a " deed." This word, " deed," although popularly used to designate a conveyance of land, is the technical term in law for any sealed instrument. Perhaps the narrowing of this term in popular usage is due to the fact that the only important ease in which the common law required a seal to be attached to a written agreement of a natural person was that of a conveyance of real estate. Such a conveyance would naturally be deemed a deed par excellence. At present, however, a seal is required to be attached to various contracts of natural persons, as well as to those of corporations, in order to render them valid and effective; but the statutes on this subject are so different in different States that no attempt will be made to give their provisions here. The execution of a deed, or contract under seal, con- sisted at common law in sealing and delivering it. Both of these acts were necessary to its validity, but the signa- ture of the maker was not. Indeed, during the middle ages, when the legal rules respecting deeds became fixed,, writing was a rare accomplishment, and men generally at- tested their contracts and conveyances by affixing their seals, rather than by writing their names. At present the execu- tion of a deed consists in signing as well as sealing and delivering it. 46 ESSENTIALS OP BUSINESS LAW 65. What constitutes a seal, — The common-law seal was an impression made on wax, wafer, or other substance at- tached to the paper or parchment on which the agreement was written. This impression was made with a signet-ring or die, often having some heraldic device peculiar to its owner. In most of our States no such formal impression is necessary. A piece of wafer, or of adhesive paper, or an impression made directly upon the paper or parchment by a die, and in some States even a scroll or a flourish of a pen, may serve as a, seal. Here again the statutes of each State must be consulted if the reader would know what changes have been made in the common-law definition of a seal. It is not necessary that the maker of a deed personally attach the seal. It is enough if he declares by word or action that he adopts the seal as his own. Writing his name opposite the seal, and delivering the instrument as his deed will amount to an adoption of the seal. 66. Delivery of a deed. — The formal delivery of a con- tract under seal consists ordinarily in handing it over to the party to be benefited by it; but if the party making it declares in good faith that he delivers it as his act and deed, such declaration is equivalent to delivery, and he will be bound by it, although he retains it in his custody. The transaction has the same legal effect as though he had handed the deed to the obligee (the party to be benefited), and the latter had then passed it back, with the request that it be kept for him. 67. Deed differs from simple contract, (a) In respect of consideration. — We have described thus fully the contract under seal, because of the important respects in which it difi!ers from the ordinary or simple contract. In the first place, as we have stated already, it is bind- ing without a consideration, while every simple contract must have a consideration. This is explained generally by the statement that the seal conclusively imports a considera- CONTRACTS 47 tion. The true explanation, however, appears to be that the rales of English law relating to deeds, or contracts under seal, were settled before the doctrine of consideration for simple contracts was developed; and thus deeds escaped from the application of that doctrine. Contracts under seal bind the contractor, because they are under seal — because the early common law declared an agreement made in this form, to be binding on the maker. In other words, a deed is enforceable by the law because of its form, while a simple contract — a contract not under seal — is enforceable because of a consideration. 68. (6) Delivery upon condition. — The second differ- ence relates to the effect of delivery. If the maker of a deed delivers it to the other party upon some condition, for example, that it shall not bind the maker until a cer- tain event happens, the delivery is absolute and final; the deed is binding on the maker, and the condition is void. In order to make such a condition effective, the obligor should not deliver the deed directly to the obligee, but to a third party with directions that he deliver it to the obligee when the event happens. While so held by the third party, it is said to be an escrow, a mere scroll or writing, not a contract obligation. When the stipulated event happens and the deed is delivered by the third party to the obligee, it takes effect, as a rule, not from that date, but from the date of its delivery by the maker to the third person. A written contract not under seal may be delivered by the party making it directly to the other party, upon any condition which the maker may see fit to impose ; and until and unless such condition is fulfilled, the holder can take no benefit under it. For example, A offers his horse to B for three hundred dollars. B replies that he will look at the horse, and if it suits him he will buy it at that price. Thereupon he writes, signs, and hands to A the following paper : " On demand, I promise to pay A three hundred 48 ESSENTIALS OF BUSINESS LAW dollars at my place of business," saying that if the horse does not suit him this paper shall be returned. The horse' does not suit him, and he notifies A. The writing is worth- less. 69. (c) Estoppfl by deed. — Another point of difEerenee is that a statement in a deed which a person admits having executed and delivered can not be disputed by him. To use a technical legal term, he is " estopped " from denying any matter which he has asserted in a deed. Not so with respect to a simple contract. The writing is strong evi- dence against the maker that every statement in it is true, but it is not conclusive. The maker may show that a state- ment contained in the writing is erroneous, unless such statement has been relied upon by the other party and has induced him to alter his position. In other words, the maker of a deed is estopped, from denying any statement in it because it is in the deed. The maker of a written con- tract not under seal is estopped from denying a statement in it only when that statement has induced the other party to alter his position in reliance upon its truth. 70. (d) Merger. — Another point of difference is dis- closed by the doctrine of " merger." If A is owing B one- hundred dollars, and gives him a written promise to pay it on a certain day, but does not pay as agreed, B may sue A either on the original debt or on the written contract. If, however, A had given his bond for the payment of the money, his original indebtedness would have been extin- guished, and the bond would be the only contract remain- ing between them. The original contract for the payment of this money would be " merged " in the sealed contract, because that is regarded by the law as of a higher grade than any simple contract. 71. (e) Specialty creditors preferred. — This higher na- ture of a deed or bond — also spoken of as a specialty — is shown again by the preference given to it by the common CONTRACTS 49 law over simple contracts in the settlement of a deceased person's estate. A specialty creditor was to be paid in full before simple contract creditors could have anything. ' 72. (/) Limitations of actions. — The last important difference which we shall notice is in the limitation of actions. A party who fails to perform a simple contract at the agreed time must be sued within six years from that date, or the cause of action will be outlawed ; while a party who breaks a contract under seal remains liable to an action for twenty years thereafter. 73. (g) Statutory chan^^es. — Some of these qualities of the specialty or sealed contract have been changed by legislation in most of our States. Under many statutes a specialty creditor has no longer a preference over a simple contract creditor in the distribution of a deceased person's estate ; nor does a seal make a contract absolutely binding. In the language of some of these statutes, the seal raises a presumption that a consideration has been given by the obligee, but this presumption is not conclusive. The maker, or obligor, is allowed to dispute and overcome this presump- tion by evidence that no consideration was given. In States where such statutes are in force a person who is sued on a sealed contract will lose his case unless he can show that a consideration was not given; while one sued on a simple contract will win his case unless the other party shows that a consideration was given. 74. The doctrine of consideration. — We shall now ex- plain the meaning of consideration in our law of contracts. It would be quite irrelevant here to trace the history of this doctrine, for that would involve the explanation of much that is obsolete, and more that is highly technical in Eng- lish common law. Nor shall we attempt to show that our law is wiser or better than the Eoman law in requiring a consideration for simple contracts. We shall content our- selves with an efifort to make plain the doctrine itself. 50 ESSENTIALS OF BUSINESS LAW 75. Sefinition of the term. — A learned English judge has defined consideration as consisting " either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other." A shorter statement, often found in law books and in the opinions of judges, is that it consists in a benefit to the promisor or a detriment to the promisee. A still shorter and more accurate defini- tion is " a detriment to the promisee." This is the very essence of consideration. It must be present in every case, to make the promise enforceable by law, while " a right, interest, profit, or benefit accruing " to the promisor is not essential. An every-day transaction will illustrate this. A wishes to buy property, or to borrow money from B. The latter will not trust him, but says, if you can get C to promise payment to me, you can have the property or the money. C does so promise, and B, on the strength of that promise, delivers the property or the money to A. Here is a valid contract between B and C, and yet C, the promisor, has derived no benefit from the transaction. B, however, has sustained a detriment. He has parted with money or other property. He has furnished a valuable con- sideration for C's promise. 76. Surrender of a legal right. — But parting with one's property is not the only way in which a valuable considera- tion may be furnished by the promisee. The surrender or forbearance of any legal right in exchange for the promise constitutes a valuable consideration. I say to you. Let me take your watch for an hour, and I will return it in as ' good condition as it now is. You hand me the watch. I have entered into a binding contract with you. I may not need the watch. My motive in asking for it may be as idle and whimsical as that of the child who wants " to shee the wheels go wound." That is immaterial. The watch is yours. You had a legal right to keep it in your posses- CONTRACTS 51 sion. When you handed it to me you surrendered that right at my request, and in exchange for my promise. My prom- ise to return it in its then condition was based on a valuable consideration, and if the watch is injured while in my possession, or if I do not return it, I am liable to you in damages for my breach of contract. 77. Forbearance of a legal right. — This also constitutes a valuable consideration for a promise when made at the request of the promisor. The following is an example: A is pressing B to pay a debt due A. C asks him not to sue B, and promises that if A will forbear suing for a definite time or a reasonable time, he will pay the debt. A assents. This forbearance of his legal right to sue at once is a valuable consideration for C's promise, and a contract is made between C and A. 78. At the request of the promisor. — ^It is important to bear in mind that the surrender or forbearance of a legal right must be made at the request of the promisor. If A, seeing that B's haystack is in danger from fire, leaves his own work and spends time and energy in saving his neigh- bor's property, he can not recover therefor against B. Nay, even though B, upon learning of A's services, promises to pay him a stipulated, sum, his promise is not enforceable by English common law, for the services were not rendered at his request. He may be under a moral obligation to A, but he is not subject to a legal obligation. True, A suf- fered a detriment and B received a benefit, but no legal consideration for the promise existed. This is called by some writers a case of unreal consideration. Another case, falling within the same principle, is the following: X owes Y one hundred dollars. He pays fifty dollars to Y upon the latter's promise to take it in satis- faction of the entire debt. Here is no contract binding upon Y. He can maintain an action the next moment against X for the remaining fifty dollars. When X paid 52 ESSENTIALS OP BUSINESS LAW one-half of the debt he sustained no legal detriment. He was doing no more than he was legally bound to do. But suppose, instead of paying money, X had delivered or prom- ised to deliver a cow, worth fifty dollars, to Y, upon his promising to take her in satisfaction of the debt. Could Y thereafter recover the remaining fifty dollars from X? No, because X was not legally bound to deliver the cow; he was bound only to pay money, and doing anything over and above what by law he was bound to do is a valuable con- sideration for Y's promise to accept it in satisfaction of the original debt. 79. Artificiality of this doctrine. — Probably most read- ers will agree that the language which Lord Coke once ad- dressed to his Majesty King James I is applicable to this doctrine. The king had been advised by Archbishop Bancroft that he had the right to judge any case which was brought before an English court. Accordingly he sum- moned the judges to know what they had to say against this view. Lord Coke informed him that he had no such right. Whereupon the king expressed surprise, saying that he had always understood that English law wa^ founded upon reason, and that he and others had reason as well as the judges. To which Lord Coke replied: "True it is that God has endowed your Majesty with excellent science as well as great. gifts of nature, but your Majesty will allow me to say, with all reverence, that you are not learned in the laws of this your realm of England, and I crave to re- mind your Majesty that causes which concern life, or in- heritance, or goods, or fortunes of your subjects are not decided by natural reason, but by the artificial reason and judgment of the law, which law is an art which requires long study and experience, before that a man can attain to the cognizance of it." 80. The Statute of Frauds. — Another branch of our law of contract which is highly artificial and confusing is that CONTRACTS 53 which has grown out of the statute of frauds. The motives of Parliament in passing this statute were excellent, and the need of legislation was undoubtedly great. At the time of its enactment (a. d. 1676) parties to a lawsuit were not allowed to be witnesses, because the interest which a plaintifE or a defendant had in winning the suit, it was thought, would lead him to swear falsely. What was- the result ? The result was the plaintiff often hired persons to swear falsely in 'his behalf, only to be met by perjured wit- nesses on behalf of the defendant. This condition of things certainly needed correction. In the light of subsequent ex- perience, ,it seems clear that the proper corrective would have been a statute permitting the parties to be witnesses. Parliament thought otherwise. In its judgment the cure for the evil was a statute requiring a prescribed kind of evi- dence for nearly every important business transaction. Accordingly this statute, which in its preamble recites that it was enacted "for prevention of many fraudulent practises which are commonly endeavored to be upheld by perjury and subornation of perjury," required transfers of land to be in writing and signed by the parties making them or their authorized agents; that wills should be in writing and executed in a prescribed manner; that certain contracts should be reduced to writing, while others should be proved either by a memorandum in writing, or by cer- tain formal acts, such as the payment of a part of the price or an acceptance and receipt of a part of the goods by the purchaser. 81. Evils resulting from the statute. — Some portions of this act of Parliament have proved beneficial, especially those relating to wills ; but the provisions relating to con- tracts have caused greater evils than they have cured. More than half a century ago Chancellor Kent expressed the opinion that the statute had been explained at a cost of not less than five million dollars, and it still continues 64 ESSENTIALS OP BUSINESS LAW one of the most fruitful sources of vexatious and expensive as well as of dishonorable litigation.. An English chief justice declared, in one of his decisions, that he did not know what the draftsman of the statute meant by certain words in it, and he did not believe the draftsman knew. Another eminent jurist of England, after a careful study of the cases to which this piece of legislation has given rise, did not hesitate to speak of the provisions relating to contracts as a nuisance, and to advise their repeal. In his judgment these provisions are a constant incentive to dis- honorable practises, and their evil influence is checked only by the fact that they have fallen practically into disuse in the larger commercial towns. Notwithstanding all this, most of these objectionable provisions have been reenacted by the great majority of our State legislatures, and some account of them must be given here. We shall not undertake, however, to deal with them in an exhaustive or a technical manner. 82. Sections IV and XVII. — These are the sections of the English statute which are of chief importance in busi- ness transactions. They read as follows : " IV. That no action shall be brought (1) whereby to charge any executor or administrator upon any special promise to answer damages out of his own estate ; (2) or whereby to charge the defend- ant upon any special promise to answer for the debt, default, or miscarriages of another person ; (3) or to charge any person upon any agreement made upon consideration of marriage ; (4) or upon any contract or sale of lands, tenements, or hereditaments, or any in- terest in or concerning them ; (5) or upon any agreement that is not to be performed within the space of one year from the making thereof, unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be ia writing, and signed by the party to be charged therewith, or some other per- son thereunto by him lawfully authorized." " XVII. That no contract for the sale of any goods, wares, and merchandises, for the price of ten pounds sterling or upwards, shall CONTRACTS 55 be allowed 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 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 there- unto lawfully authorized." ' 83. Contracts are not void which fail to comply with the statute. — It will be observed that the statute does not declare that any of the enumerated contracts are void, if not made in accordance with the legislative requirements. Its language in the fourth section is "no action shall be brought " ; in the seventeenth, " no contract . . . shall be allowed to be good," unless those requirements have been complied with. In some of our States this phraseology has been changed, and it is declared that these contracts shall be void unless they conform to the statute. Notwith- standing this change in language, the prevailing view in \his country is the same as in England — viz., "That the lorm required does not go to the existence of the con- tract. The contract exists though it may not be clothed with the prescribed form." When a party is sued on such a contract, he can defeat his adversary by pleading and prov- ing that the statutory requirements were not complied with. To state the rule in another way, the contract is valid, but it is not enforceable in a lawsuit, provided the other party avails himself of his statutory defense. 84. These sections have promoted artificial and tech> nical reasoning. — We can not attempt, in an elementarj treatise, to explain the various clauses of the fourth section, ' Neither the language nor the substance of this section appears ii\ the statutes of Alabama, Delaware, Kansas, Kentucky, Louisi- ana, New Mexico, North Carolina, Tennessee, Texas, Virginia, or West Virginia. In the other States this section has been reenacted. with varying modifications. See Uniform Sales Act, Mass. L. 1911, Ch. 571, § 4. 56 ESSENTIALS OF BUSINESS LAW for that would lead us into some of the most perplexing divisions of the law of contract. For example, the second clause, relating to " any special promise to answer for the debt, default, or miscarriage of another person," has given rise to an astonishing amount of litigation, in which the reasoning of judges has been highly artificial and technical, if not obscure and confusing. Comments on the seventeenth section will be reserved for the chapter on Sales of Personal Property. 85^ The statute as a nuisance. — When the eminent Eng- lish judge, James Fitzjames Stephen, declared those provi- sions of the statute of frauds relating to contracts a nui- sance he gave expression, undoubtedly, to the view held by most business men. In large commercial centers those provisions are habitually ighored, and a man who attempts to escape from a contract, on the ground that it has not been put into the statutory form, is deemed guilty of dishonor- able conduct. The haste and rush of modern business en- terprise make it practically impossible for contracting parties to execute even the informal memorandum required by the statute, and as a result the statute is now invoked more frequently to perpetrate than to prevent frauds. It is the man who has entered into a losing contract who usually takes advantage^ of the statute. He pleads it, not to save himself from' a contract which he never made, but to beat the other party out of what is honestly due him.^ And yet such is the conservatism of the English and American bench and bar that attempts to repeal the statute have generally failed. Like the irresolute Hamlet, our legal profession prefers to Bear those ills we have Than fly to others that we know not of. 'The fraud promoting character of the statute is illustrated by Young v. Ingalsbee, 208 N. Y. 503, 102 N. E. 590, discussed in 16 Columbia L. Rev. 273. CONTRACTS 57 § 2. Capacity of Parties 86. Persons engaged in business are generally capable of contracting. — In our discussion, thus far we have as- sumed that the parties to a contract were legally capable of binding themselves by it ; and, as a rule, persons engaged in business transactions do possess such legal capacity. There are exceptions, however, which we now proceed to con- sider. 87. The capacity of aliens to contract. — In primitive law these exceptions are very numerous, but as a people becomes civilized and its legal system develops, they dimin- ish both in number and importance. For example, primi- tive communities confine the power of making legal eon- tracts to citizens. Aliens, whether from friendly or hostile states, are not allowed to exercise this power. Indeed, they are treated as not possessing any rights which citizens are bound to respect. Modem law, however, accords to alieii friends nearly every property and contract right which is possessed by citi- zens, and its tendency is to treat alien enemies, who are allowed to remain in the country during war, as possessed of similar rights. Only those aliens who are citizens of the country at war with the one where the contract is made, and not resident in the latter, are incapacitated from con- tracting with persons in the latter during the war. Even contracts by such aliens, made before the war, are not an- nulled; they are only suspended during the war, unless they involve continued commercial intercourse which is illegal. During our war with Germany we did not force Ger- man citizens to leave the country. Under the Trading with the Enemy Act (40 U. S. Stat., 411, Ch. 106) and the President's proclamations, alien enemies who were -residing here and obeying our laws were permitted to carry on busi- 58 ESSENTIALS OF BUSINESS LAW ness and to sue and be sued in our courts on contracts which did not conflict with our rights and safety. 88. Common-law incapacity of married women. — An- other class of persons incapable, at common law, of enter- ing into contracts, are married women. By a legal fiction, husband and wife were accounted but one person, and the husband was that person. i Upon marriage he became pos- sessed of all her real property, and the absolute owner of all the personal property in her possession. He also had the right to collect and use all debts owing to her. On the other hand, he was bound to support her in a style befitting his station and fortune, and to pay all debts, owing by her at her marriage. From this common-law conception of the legal rela- tion of husband and wife the doctrine of her incapacity to enter into contracts was easily deduced. At the present time, however, neither that conception nor that doctrine prevails. Modern statutes both in England and America have wrought a great change. Indeed, in some of our States married women are empowered to take, hold, and transfer property, to carry on business, and to make con- tracts of every description, precisely as their unmarried sisters may do. 89. Incapacity of convicted criminals to contract. — On the other hand, modern statutes have extended rather than diminished the contractual incapacity of one class of per- sons. At common law, convicted felons and outlaws could not enforce contracts, but were liable upon them. That is, they were not incapable of contracting; they were incapa- ble only of benefiting by contracts. At present, in Eng- land and in many of our States, convicted criminals, sen- tenced to imprisonment in a State prison or similar insti- tution, are incapable of exercising any civil rights, while those sentenced to imprisonment for life are deemed civilly dead. > CONTRACTS 59 90. Incapacity of infants. — English law is not peculiar in declaring that all persons under a prescribed age are in- capable of contracting. Such rule is found in every legal system. True it is that this legal incapacity does not al- ways accord with actual incapacity. Many persons at the age of seventeen are far more capable for and may be more successful in business than the ordinary individual at the age of twenty-five. Still, the age at which a person shall be allowed to exercise full legal control of his person and property must be fixed at some point by positive law, and that point is fixed in England and generally in this country at twenty-one years,^ although in some of our States women are declared to be of full age at eighteen.^ The statutes of each State should be consulted on this point, as well as on the point discussed in the next paragraph. 91. When the period of infancy terminates. — By the common law a person attains his majority — becomes of full age — on the last day of his twenty-first year — that is, the day before his twenty-rfirst birthday.^ As the law does not take account of fractions of a day, it is possible for one to attain his majority nearly forty-eight hours before he is actually twenty-one years of age. Suppose A was born just before midnight on January 1, 1890. That fraction of an hour is counted in law as one day. At midnight he is a day old, and he attains his majority at the first minute 'In la., La. and Tex., an infant of either sex becomes of age upon marriage. In Ala., Md. and Ore., a female infant becomes of age at 18, and in Neb., at 16, if married. lii Wash., her mar- riage to an adult renders her of legal age. ' Such is the rule in Ark., Cal., Colo., Hawaii, Idaho, 111., la., Kan., Minn., Mo., Neb., Nev., N. Dak., Ohio, Ore., S. Dak., Vt., and Wash. Fla. (Compiled Laws, 1914, Art. 17) and Okla. (Rev. Laws, 1916, Ch. 55) authorize judicial proceedings for the re- moval of minors' disabilities. 'In Cal., N. Dak. and S. Dak., a male infant becomes of age on the twenty-first and a female on the eighteenth birthday. 60 ESSENTIALS OP BUSINESS LAW of December 31, 1910, or immediately after midnight be- tween December 30 and December 31. While this method of reckoning prevails in most of our States, it has been modified by statute in some of them. 92. The legal force of infants' contracts. — There is much authority, both in England and in this country, for the statement that an infant's contracts are absolutely void, if they are clearly harmful to him; that they are binding upon him if entered into for necessaries, and that they are voidable if beneficial to him but are not for necessaries. The better view is, however, that an infant's contracts of every kind (except the contract of marriage) are voidable and only voidable. Upon attaining majority he may ratify them, whether they are advantageous or disadvantageous to him ; and until he does so ratify them he can successfully defend any action at law brought against him for their en- forcement. 93. Agreements by infants for necessaries are not true contracts. — The liability of an infant, for necessaries which he has bought and used does not form a real exception to the foregoing doctrine. True, an action can be maintained against him, by the one supplying the necessaries, but the recovery will be based, not on the infant's promise, but on the obligation which the law imposes on him. For example, an infant orders a suit of clothes of a tradesman and prom- ises to pay forty dollars for it. He receives the suit and wears it out, but pays no part of the price. When sued he pleads and proves his infancy, and the tradesman proves the agreement. The tradesman is not entitled to recover forty dollars upon that evidence. Pe must go further, and prove that the fair value of the suit was forty dollars. If the evi- dence shows that the suit was worth only thirty dollars he can not recover more. It is clear, therefore, that the recov- ery against the infant is not on the agreement which he en- tered into. The law does not enforce the promise which he CONTRACTS 61 made. His engagement to pay forty dollars for the suit is not a true contract, and yet that is the only contract that he pretended to make. He did not contract to pay the fair value of the suit. This liability of an infant to pay for necessaries what they are reasonably worth is imposed upon him by law for his benefit. If his credit could not be irrevocably pledged for their fair value, he might be obliged to go without them, and thus be subjected to grievous hardship, though pos- sessed of an ample estate. Tradesmen would be loath to trust him for anything if he were at 'liberty to repudiate every obligation. 94. What are necessaries ? — This question can not be an- swered in very definite terms. On the one hand, the word is not limited to those articles which are absolutely essen- tial to the infant's existence. On the other hand, it does not include everything which the infant is able to pay for out of his income. Perhaps no more definite statement on this point is possible than that of an eminent English judge in a leading case : " Necessaries include such things as are fit to maintain the particular person in the state, de- gree, and station in life in which he is." Not simply food and clothing, but medicines, medical attendance, and edu- cational advantages come within the term. Articles of mere luxury, and those which minister only to the taste or social enjoyment of the infant are not accounted neces- saries, but " luxurious articles of utility " may fall within the term. Finger-rings or earrings are not necessaries, but cuff-buttons and a watch may be. Nor will these lose that character by being artistic and ornamental, if their cost is not out of proportion to the infant's means and station. Courts are not disposed to lay down general rules on this subject, but to decide each case according to its peculiar circumstances, keeping in view the principle that the lia- hility of an infant for necessaries is imposed upon him for 6 62 ESSENTIALS OF BUSINESS LAW his benefitj not for the benefit of the tradesman. Accord- ingly, we find them deciding that a horse, a carriage, or a bicycle is not a necessary, save in exceptionable circum- stances, as when its use by the infant is prescribed by a physician, and that " tobacco, pipes, cigars, liquor, pistols, powder, saddles, bridles, whips, fiddles, and fiddle strings " are not necessaries for infants. 95. Ratification of contracts by infants. — We have said above that an infant may ratify his contracts upon coming of age. Let us n'ow inquire what amounts to a ratification. At common law no particular form was required. All that was necessary was a clear manifestation of the infant's in- tent to ratify or confirm the contract. But a mere acknowl- edgment that it had been made was not enough. The in- fant's words or acts must be such as to amount to a new promise. This common-law rule has been modified in Eng- land and in some of our States by statutes which require the ratification to be in writing and signed. Such legislation, it has been said, is designed to guard a person, upon coming of age, not merely against the results of youthful inexperi- ence, but also against the consequences of honorable scruples as to the repudiation of contracts made during infancy. A writing, substantially as follows, would satisfy the requirements of the statutes referred to : New Yobk, December 1, 1901. I, Henry Smith, having promised to pay James Jackson one hundred dollars for a buggy bought and received from him, during my minority, do hereby ratify and confirm said promise, and bind myself, being now of full age, to its performance. Henby Smith. Even in a State where the common-law rule has not been modified, it is safer and better for the adult to have the ratification in writing; and. if the former infant is will- ing to ratify at all, he should have no objections to putting his ratification in writing. CONTRACTS 63 96. limitations upon the infant's right to repudiate. — An infant's privilege of repudiating or annulling his con- tracts is subject to some important limitations. If they are for necessaries he must pay the reasonable value of what he received, as we have seen. If they are for interests in property of a permanent nature he can not recover what he may have paid without restoring to the other party what he has received under them. For example, if an infant buys land and gives a mortgage to the vendor for the price, he can not avoid the mortgage without restoring the title of the land to the vendor. " It seems to be settled, also, in England and in some of our States, that if an infant pays money on his contract, and enjoys the benefit of it, and then avoids it when he comes of age, he can not recover back the money he had paid. The courts, holding this view, declare that the privi- lege of infancy is to be used as a shield and not as a sword. Applying this doctrine, the New York Court of Ap- peals recently decided that a young woman, seventeen years of age, who bought a bicycle on the instalment plan, and repudiated the contract after using the wheel four months, could not recover the money she had paid toward the pur- chase price. The defendant in this case proved that the use of the wheel, including the deterioration in value, equaled the sum paid by the infant, viz., $26.25. It must be admitted, however, that the weight of Judicial authority in this country is opposed to the doctrine Just stated, and accords to the infant, upon. repudiating his con- tract, the right to reclaim from the other party money paid, or property transferred, even though he may have wasted, injured, or destroyed what was received from the other partyj and thus may be unable to restore it to him. In a recent Missouri case a minor sold a piece of land, re- ceived the price, went on a spree and spent it. Upon com- ing of age a few months later he repudiated the sale and 64 ESSENTIALS OF BUSINESS LAW was allowed to recover the land without repaying the price. Said the court : " The privilege of repudiating a contract is accorded an infant because of the indiscretion incident to his inimaturity, and if he were required to restore an equivalent when he has wasted or squandered the property, or consid- eration, received, the privilege would be of no avail when most needed." Even under this doctrine, it will be noticed, the infant, upon repudiating a contract, must restore any part of the consideration which is still in his possession. It is to be borne in mind, also, that if a contract is executory — ^that is, if neither party has done what the con- tract calls upon him to do — the infant's right of repudiation is unqualified. 97. Bight to repudiate is personal to the infant. — An infant's privilege of repudiating his contracts is limited to him. Neither the other party to the contract nor out- siders can take advantage of it. Undoubtedly, an adult who has contracted with an infant is in a bad plight. Unless he has been defrauded he remains bound, and must await the infant's decision to ratify or to rescind. 98. Contract of marriage can not be rescinded by an infant, but a contract to marry can. — ^Marriage is some- thing more than a contract. It is a relation of the parties from which neither is allowed to withdraw without the ex- press consent of the State.^ A contract to marry is not sub- ject to such consideration. From it an infant may withdraw with impunity. It is voidable at his or her option, precisely as is a contract to bny a house. 99. The contracts of lunatics and drunkards.^Concem- ing the liability of insane and drunken persons upon their contracts, the law is more or less uncertain. ' Legislation often provides for the annulment by a court of an infant's marriage. See N. Y. Code of Civil Procedure, § 1743, applied in Cunningham v. Cunningham, 206 N. Y. 341, 99 N. E. 845 and Kruger v. Kruger, 137 App. Div. 289, 122 N. Y. Supp. 23. CONTRACTS 65 If the lunatic has been judicially declared insane, or the intoxicated person has been judicially declared an habit- ual drunkard, and a guardian or trustee has been appointed for him and his property, his inability to contract is gen- erally absolute. Again, if the lunatic or drunkard is totally bereft of reason, a person who attempts to contract with him is guilty of fraudulent and dishonorable conduct, and a court will have little hesitation in annulling such a con- tract at the request of the defrauded party. The eases which trouble the courts, however, are those where the insanity or drunkenness of one party is unknown to the other when the contract is made. On the one hand, it is urged that no true contract exists, because one party has not a consenting mind, and mutual assent — the meet- ing of sane minds, the understanding of the matter agreed upon in the same sense— is absolutely essential to a con- tract. On the other hand^ it is said that whenever the sane person has no reasonable cause to believe the other party to the contract is insane or drunk, and does not take advantage of any delusion or stupor observable by him, he ought not to lose the fruits of his contract ; that it is fairer and safer to hold the .insane or drunken person to his agree- ment than to give him the option of avoiding it. To lay down the hard and fast rule, that contracts by drunkards or lunatics are voidable, it is argued, would be to encourage unscrupulous people to feign unsoundness of mind, and would result in a vast amount of dishonest litigation. 100. The Eng^lish rule. American modifications. — The latter view has prevailed in England, and the rule in that country seems to be settled as follows : " A contract made by a person who is drunk or of unsound mind so as to be incapable of understanding its effect, is voidable ^t that person's option, unless the other contracting party did not believe and had not reasonable cause to believe that he was drunk or of unsound mind." 66 ESSENTIALS OF BUSINESS LAW In many of our States, however, the doctrine is main- tained that the contract of a person so insane or drunk as to be incapable of understanding its effect is voidable at his option, vrhether such mental incapacity was known to the other party or not, unless the contract has been exe- cuted, and it is impossible for the drunkard or lunatic to restore the property he has received, or, for some other reason, to put the other party in substantially the same posi- tion he was in before the contract was performed. § 3. Illegal Agreements 101. Illegal promises not enforceable by the law, and hence not contracts. — From the very definition of a con- tract, as a promise enforceable by the law, we should con- elude that an agreement to do what is illegal could not take effect as a contract, although it was made for a valuable consideration, between parties capable of contracting, who intended to be bound by it. The law is not so futile as to aid a party in recovering compensation for doing what it has commanded him not to do. " If one bind himself to kill a man, burn a house, or the like, it is void," says one of the early writers on the common law, and such is still and must always remain the rule. 102. Express prohibition or criminality of promise not essential. — Nor is it necessary that the act called for by the agreement be one which is positively prohibited by law in express words, or which is punishable criminally. It is enough that it is clearly opposed to the spirit and policy of a statute, or of a rule of the common law. Accordingly, contracts have been annulled by the courts, which were made for the purpose of cheating, defrauding, or swindling other parties; or for grossly immoral pur- poses; or for the cornering of markets or for the sale of " futures." Contracts for " futures " are so named because CONTRACTS 6Y they are nominally for the sale and future delivery of articles, such as corn, wheat, or stocks, but in reality are mere gambling transactions. The buyer never intends to receive nor the seller to deliver the goods contracted for. The parties are in reality betting on the market price at the future day named in the contract, and all that the losing party is to pay the other is the difference between the con- tract price and the market price. Following is a specimen of such a contract, taken from an Illinois case : Alfbed V. Booth, Grain and Provision Broker. Chicago, Aug. 16, 1899. 10 Weare Com. Co. C. 31 i. Paid. Good till close of change, Sat., Aug. 36, 1899. Wbabb C. Co. The meaning of this document is that the Weare Com- mission Company gave to Booth an option to buy, on or before August 26, ten, thousand bushels of corn at thirty- one and a half cents per bushel. 103. Other instances of illegal contracts. — An agree- ment to work as a lobbyist or to pay for such work is void, because it tends to corrupt the public service. So is one to abstain from reporting a crime or from assisting in its prosecution, for it tends to pervert or obstruct the course of judicial proceedings. We can not undertake, however, to enumerate the various classes of contracts which have been pronounced illegal and therefore void. We must say something, however, of " contracts in restraint of trade," as they are called: — that is, of contracts by which persons bind themselves not to carry on business of a certain kind. 104. Beasons for holding contracts in total restraint of trade void. — They are summarized as follows in a leading Massachusetts decision, which declared void a bond binding the maker never to carry on or be concerned in iron found- 68 ESSENTIALS OP BUSINESS LAW ing: " (1) Such contracts injure the parties making them, because they diminish their means of procuring livelihoods and a competency for their families. They tempt improvi- dent persons, for the sake of gain, to deprive themselves of the power to make future acquisitions. And they expose such persons to imposition and oppression. (2) They tend to deprive the public of the service of men in the employ- ments and capacities in which they may be most useful to the community, as well as themselves. (3) They discour- age industry and enterprise, and diminish the products of ingenuity and skill. (4) They prevent competition and en- hance prices. (5) They expose the public to all the evils of monopoly." That case was decided in 1837, and fairly represents the law as it was then understood in England and in this country. But with a change in trade conditions has come a change in the law on this subject — a change which has been recognized and enforced by the House of Lords in Great Britain and the Supreme Court of the United States. 105. Rule laid down by House of Lords and Supreme Court. — The present rule is, that a contract in restraint of trade is not necessarily void. Whether it is to be upheld or annulled depends upon two considerations: First, is it harmful to the public welfare? Second, is the restraint upon the party seeking to repudiate the contract greater than is required for the protection of the other party ? The contract before the United States Supreme Court, in the case which laid down the foregoing rule, was between two gas companies of the city of Baltimore, to the effect that one of them should not put down any more pipe, and that competition between them should cease. As this con- tract was intended to secure to the parties a monopoly of the gas business within the city and an undue increase in the price of gas to the people, the court held it to be illegal and void as harmful to the public welfare. CONTRACTS 69 A modern Ehode Island case illustrates the second con- sideration referred to by the Supreme Court. The defend- ant, who had been a successful teacher of French' and Ger- man in plaintiff's school, agreed for a consideration not to teach those languages, nor to advertise to teach them, nor to be connected with any person or institution teaching them, within a year after leaving plaintiff's employment. The contract was held void, because the restraint imposed upon the defendant was greater than the plaintiff's protec- tion required. Had the restraint been coniined to the city of Providence, where plaintiff's school was situated, the contract would have been upheld, but as it extended to the whole State, the court believed that it oppressed the defend- ant, as well as deprived people in other parts of the State of the chance of learning the French and German languages from him without benefiting the plaintiff. 106. Public policy an unruly horse. — It must be con- fessed that the judicial decisions upon this topic are not entirely consistent, and that courts have not infrequently illustrated the truth of a learned judge's remark, that "public policy is a very unruly horse, and when once you get astride it, you never know where it will carry you." The modern tendency appears to be not to extend, but rather to limit the doctrine that contracts are to be an- nulled, because, in the opinion of 'the court, they are against public policy. A very able judge, who did much to further this tendency, left on record this statement, which should be heeded by every judicial tribunal : " If there is one thing which, more than another, public policy requires, it is that men of full age and competent understanding shall have ' the utmost liberty of contracting ; and that their contracts, when entered into freely and voluntarily, shall be held sacred, and shall be enforced by the courts. Therefore you have this paramount public policy to consider, that you are not lightly to interfere with the freedom of contract." 70 ESSENTIALS OP BUSINESS LAW 107. Stifling competition and monopolizing trade. — Over against such considerations it is proper, undoubtedly, to set the'harmfulness of monopolies, the tyrannical tend- encies of great combinations, whether of capital or of labor, and the disposition of the managers of many " trusts," as they are popularly called, to fleece the public. The courts may well continue to annul contracts entered into for the formation and conduct of such enterprises, and wise and sane legislation may be needed for the correction, of such evils. To quote from a recent decision of the New York Court of Appeals : " Contracts by which the parties to them combine for the purpose of creating a monopoly in restraint of trade, to. prevent competition, to control and thus to limit production, to increase prices and maintain them, are contrary to sound public policy and are void." 107 (a). Legislation against monopolies. — Not only con- gress but State legislatures have passed statutes intended to curb monopolies. The Interstate Commerce Act (Ch. 104, L. 1887, 24 St. L. 379) prohibits pooling agreements be- tween common carriers, as well as various other combina- tions, contracts or understandings which stifle competition; and provides for an Interstate Commission of five persons to enforce the statute. Three years later congress passed The Sherman Anti- Trust Act (Ch. 646, L. 1890, 36 St. L. 209), intended to protect "trade and commerce against unlawful restraint and monopolies." It has been construed in a multitude of cases. A former Justice of the Supreme Court has spoken of its provisions as uncertain and its definition of wrongs as not precise. It was amended by the Clayton Act (Ch. 323, L. 1914, 38 St. L, 730) in Various respects. The labor of a human being was declared to be not a commodity or article of commerce; and private persons were authorized "to sue for and have injunctive relief . . . against threat- ened conduct that will cause loss or damage." Prior to this CONTRACTS 71 amendment an injunction could be had only by the govern- ment. But a private person could sue at law for triple the damage which was done to his business or property by a violation of the Anti-Trust Act. The Clayton Act exempts from anti-trust laws "labor, agricultural or horticultural organizations instituted for the purposes of mutual help and not having capital stock or conducted for profit," but it does not permit such organ- izations, it has been judicially declared, to coerce outsiders to submit to their demands by blacklisting or by secondary boycotts. A Federal Trade Commission of five members was created in 1914 (Ch. 311, L. 1914, 38 St. L. 717) with power "to prevent persons, partnerships or corporations from unfair methods of competition in commerce." The commission has authority also to investigate the business of corporations, as well as alleged violations of anti-trust laws and to report its findings, with appropriate orders based thereon. For example a certain partnership was charged with stifling and suppressing competition in the manufacture and sale of paints, oils and kindred products, with using adulterated turpentine, and misleading adver- tisements. The commission ordered the defendant to cease and desist from these unfair trade practices. Many cases close with the order to cease and desist, consented to by the defendant. If, however, he refuses to obey the order, the commission may apply to the federal circuit court of appeals, upon its record of testimony and proceedings for a decree affirming its order. The defendant is entitled to a hearing, whereupon the court affirmsj modifies, or sets aside the order. State legislation. — Most of the states have stringent laws against transactions which operate to choke competi- tion and unduly restrain trade. Massachusetts has (St. 1908, Ch. 454), and because of the statute a stockholder in 72 ESSENTIALS OP BUSINESS LAW a corporation, which conducts a monopolistic enterprise, cannot recover his share of profits in this illegal business from his fellow stockholders, who have pocketed them. New York declares illegal and void contracts creating a monopoly in the manufacture or sale of an article in com- mon use. (F. Y. General Business Law §§ 340, 341). New Jersey exempts from this doctrine a contract by a railroad company, giving the exclusive right to an express company to solicit business on railroad premises, as such premises are private property. This view is held by many courts. On the other hand Texas courts hold that a contract binding the parties that one shall buy from or sell to the other exclusively is void as constituting a conspiracy in restraint of trade un- der the statute. (St. 1914, Art. 7798, subd. 1.) Washing- ton's constitution prohibits absolutely monopolies and trusts ; and it has bfeen decided that the business of supplying ab- stracts of title to lands is not susceptible of being monopo- lized, and that an abstract company which acquires the business of a competitor is not within the prohibition. ■ § 4. Want of Mutuai, Assent 108. Cases of apparent hut unreal assent. — We have seen that a true contract involves the mutual assent of the parties to that which is contracted for. This assent must be real. If either party can show that his assent was ap- parent and not real he can escape from his promise, unless the appearance of assent was due to his own fault. 109. Nature and consequences of mistake. — Cases where the unreality of an apparent assent is due solely to mutual mistake are quite rare. They fall within one of the two following classes: (1) Mistake due to the act of a third party. (2) Mistake as to the existence or identity of the subject-matter of the contract. Whenever such a mistake occurs there is in law no contract, although there is in fact a semblance of one. CONTRACTS , 73 In some cases, of still rarer occurrence, the mistake of one party respecting the subject-matter, or respecting the identity of the other party, prevents an apparent agreement from taking effect as a valid contract. Perhaps the follow- ing illustrations will make the foregoing statement some- what clearer. 110. Mistake by one party to the contract. — A. livery- man, X, has been accustomed to buy oats from a produce- dealer, Y. The latter knows that the former never buys nor uses new oats, that he buy's old oats only. X asks the price of oats for his own use, and Y gives him a price, which is the market price of old oats, and a little above the market price of new oats. X orders a hundred bushels at the specified price. Y sends new oats, which X refuses to keep or pay for. Is X under a contract obligation to take the oats and pay the price ? If we look only at the words used by the parties there appears to be a valid contract for the sale and purchase of one hundred bushels of oats, whether new or old, at a given price. But, if we go back of the words to the intention of the parties, do we not discover that their minds never met upon the subject of selling and buying new oats? Of course, if X had never in any way advised Y that he bought only old oats he would have been bound to take and pay for the oats delivered. His mistake, undisclosed to Y, could not affect the latter. If, however, Y knew that X not only thought he was bargaining for old oats, but that X thought Y was offering old oats, when in fact he was offering new oats, then Y is in no position to insist that their minds ever met on the proposition to sell and buy new oats. The as- sent, although apparent, is unreal, and there is no valid contract. The same result follows when one party knows that the other is mistaken as to the former's identity. M buys N's business. 0, in ignorance of the sale, sends an order to N 74 ESSENTIALS OP BUSINESS LAW for a quantity of goods. M ships the goods without ad- vising that he has succeeded to Ws business. is not bound to take or pay for the goods. As between and M there was no meeting of minds which could lead to a binding contract. 111. Mistake due to the act of a third party. — In cases falling within this class the third party is generally a rogue. At times he assumes the worthy role of an agent for farm- ing implements. He accosts an unsuspecting farmer and induces him to contract for the purchase of a harrow, a plow, a wheel-rake, or other article. A printed contract is presented to the farmer to sign. He writes his name under the printed form, and gives the matter no further thought. Some months later a neighboring banker calls upon him to pay a note for five hundred dollars, signed by him, pay- . able to the order of the farming-implement agent and duly indorsed to the banker. He declares he never made any such note. Upon inspection, however, he finds that the signature is his, and .that the rogue of an agent had so ingeniously framed the written contract that by cutting off a part of it and filling in one or two blank spaces, the rem- nant would have the appearance of an ordinary promissory note. Is the farmer under a contract obligation to pay five hundred dollars to the banker, who has bought the note before due, without any intimation of the fraud, and paid full value for it? He is not, unless he was negligent in signing the paper. He never intended to sign a note. In the language of the courts, " the mind of the signer did not accompany the signature, but was fraudulently directed into another channel by the fraudulent conduct of the rogue." 112. Mistake as to the existence of the subject-matter. — An illustration of this sort of mistake is afforded by the following case : A offers to sell, at a specified price, certain bales of cotton which B had seen in A's warehouse, and B CONTRACTS 75 accepts the offer. It turns out that the warehouse and cot- ton had been burned up before the agreement was reached. Here is no contract. They were treating for the sale and purchase of a particular lot of goods ; when these went up in smoke the possibility of a contract went also. There can not be a contract for the purchase and sale of what has. passed into nothingness. 113. Mistake as to the identity of the subject-matter. — This is to be distinguished from a mistake as to the quality, properties, or value of a particular object. The two following eases bring out the distinction very clearly: In the first case, M, the owner of a coin worth ten dol- lars, passed it to IST by mistake for a half-dollar, and N, by a like mistake, passed it to for a half-dollar. M was allowed to regain the coin from upon tendering him a half-dollar. There was not mutual assent between M and N", nor between N and .0 to an agreement that this particu- lar coin should be transferred as a fifty-cent piece. In the second case, X found a queer stone which he showed to Y, who offered him a dollar for it. X accepted the offer, received the money, and delivered the stone. It turned out to be worth several hundred dollars. A valid contract was made, and X can not recover the stone. i In the case of the ten^dollar coin the parties were con- tracting for a fifty-cent piece, and mistakenly thought this coin was one, when it was not. In the case of the stone, they were contracting for that particular article and no other. There was no mistake as to the subject-matter of their agreement. Their assent was mutual and unequivocal. That one or both misjudged the value of the stone did not prevent the formation of a valid and binding contract, in the absence of fraud on the part of the buyer. 114. Nature and consequences of misrepresentation. — This word is used frequently to describe a fraudulent or dishonest representation, but as a technical legal term it sig- 76 ESSENTIALS OP BUSINESS LAW nifies an innocent misstatement of some matter of fact, by one party to a contract. It differs from mistake, wljich we have just discussed, both in its character and its conse- quences. It does not go to the very root of the agreement, but is concerned with something which is preliminary or collateral to it. As a rule, therefore, it does not prevent the formation of a contract as a mistake does, nor does it ren- der it voidable, as, we shall see presently, fraud does. The following is a typical case of misrepresentation : A had a number of horses which he was about to sell at auc- tion. The day before the sale B was examining one of them, when A said to him : " You have nothing to look for. I assure you he is perfectly sound in every respect." B re- plied, " If you say so, I am satisfied," and desisted from his examination. On the next day he bought the horse at auction, and the animal turned out to be unsound. Before the bidding began at the auction, A announced that the horses would be sold without any warranty of soundness, and that bidders must trust to their own examination and judgment. When B discovered the horse was unsound he tendered him back to A and demanded the price he had paid, on the ground that A's misstatement, though made innocently, rendered the contract voidable. But it was held that B was bound by the contrac.t. A's misstatement was made during the preliminary negotiations, and formed no part of the contract of sale. The announcement by A at the opening of the auction gave B fair notice that the talk of the previous day was not to be a part of the contract. 115. Misrepresentation may be made a term of the con- tract. — In the ease just considered, if B had informed A before bidding on the horse that he would not buy the horse nor keep him unless he was sound, and A had replied, " I assure you he is sound in every respect," then this mis- statement, though innocent, would have been a fundamental term of the contract, and B would have had the right to CONTRACTS 77 say to A: "My contract with you was not for this horse, whether sound or unsound, but for this horse provided he wns sound. As he is not sound, the bottom has fallen out of the contract. You must take back the horse and pay back the price." 116. Practical wisdom of this rule. — The rule, that in- nocent misrepresentations shall not affect a contract unless they form a part of its terms, has been applauded by an emi- nent writer as " an instance of the practical wisdom which marks our law of contract. The process of coming to an agreement is generally surrounded by a fringe of statement and discussion; and the courts might find their time occu- pied in endless questions of fact, if it were permitted to a man to repudiate his contract, or bring an action for the breach of it upon the strength of words used in conversation preceding the agreement." 117. Fraud; meaning of, in law of" contracts. — Fraud, as the term is used in the law of contracts, may be defined as a wilful or reckless misstatement of fact by one party for the purpose of inducing and actually inducing the other party to assent to the terms of the contract. It differs from mistake, which we considered on a previous page, in that the error is not mutual; only the defrauded party is mis- taken. It differs from misrepresentation in that the mis- statement is not innocent but is culpable. We have used the word culpable rather than wilful or conscious because it is well settled that a misstatement made recklessly has the same legal consequences as one made wilfully. Here is an illustration : A is anxious to sell cer- tain land. He has never seen it, and does not know its condition. To induce B to buy it he states positively that it has fine buildings, is well watered,' and produces large crops. He hopes all this is true, but he knows that he has no information about it, and as a matter of fact there are neither buildings nor water on the premises, and the 78 ESSENTIALS OP BUSINESS LAW land is unproductive. Surely such conduct is indefensible m morals, and the law declares that, if it induces B to buy the land, it is fraudulent. 118. Fraud involves the idea of active misconduct. — The reader is not to understand, however, that the rule of law on this subject is as broad as the rule of ideal morality. A man is not required by the law to disclose to a party wit^h whom he is negotiating for a contract, all the information which he has on the subject. Each party must take care of himself. The golden rule is so far above the accepted code of business men that courts would be quixotic in attempt- ing to apply it to business dealings. Mere failure, then, to disclose the truth is not fraud. This is well illustrated by a decision of the United States Supreme Court, rendered many years ago by Chief- Justice Marshall. The case grew out of a sale of tobacco at the close of our second war with Great Britain. When making the contract the buyer knew that peace had been concluded between the countries, and that the price of to- bacco would advance at once from thirty to fifty per cent. The seller was ignorant of the conclusion of peace, and the buyer knew he was ignorant of the fact; yet the court de- clared that the buyer was under no legal duty to tell him anything ; that if the buyer did not say or do anything tend- ing to impose upon the seller there was n:o fraud. In other words, there can not be a fraud, in the legal sense of that term, without something in the nature of active misconduct. 119. Non-disclosure of the truth in connection with other circumstances. — A person who takes advantage of the ignorance of another, as in the tobacco case just referred ■to, is in a perilous situation. A very slight misstep may plunge him into the abyss of fraud. Let us refer to the tobacco case again for illustration of our meaning. It ap- peared, in this case, that the buyer had been negotiating with the seller for the tobacco before the news of peace CONTRACTS 79 had been received, and that when the buyer renewed the negotiations, after getting the news, the seller asked if there was any news calculated to advance the price; that the buyer did not answer the question, and the seller did not insist on an answer. Upon these facts, the judge, be- fore whom the ease was tried, charged the jury that there was no fraud on the part of the buyer. But the Supreme Court held that it was not absolutely certain that no im- position had been practised by the buyer, and that, whether the non-disclosure of the truth, taken in connection with the other circumstances, amounted to fraud, was a question for the jury. It should be borne in mind, therefore, that the line which separates non-disclosure from suppression of truth is often dim and shadowy, and that a man who attempts to make a sharp bargain and still keep on the windy side of the law needs ^o have all his wits about him. " He who would sup 'with the devil must have a long spoon." It is to be borne in mind, also, that one may perpetrate a fraud upon another, although telling nothing but the truth. His non-disclosure of other things may so alter the effect of what he actually says as to produce a false and misleading impression. It is the case of " a lie which is half the truth " ; and while the law does not declare it the "blackest of lies," it does adjudge it a fraud. For ex- ample, a man who wished to be trusted for a bill of goods, was asked by the seller " how he stood." He gave a truth- ful statement of the property he owned, but said nothing of what he owed, although his debts nearly equaled the value of his property. " To tell half a truth," said the court, " is, in such a case, to conceal the other half. Concealment of this kind amounts to a false representation." 120. Acts may speak louder than words. — Fraud may be practised without the use of speech. A manufacturer or dealer who paints a step-ladder for the purpose of conceal- 80 ESSENTIALS OP BUSINESS LAW ing a defect in the wood, or who plugs a hole in a gnn- barrel to prevent its discovery, dnd sells the article to one who is misled by its safe appearance, defrauds the buyer as truly as though he had declared in the clearest terms that the ladder or the gun was without defect and safe for use. 121. Misstatement of fact, not of opinion. — In our defi- nition of fraud it Was intimated that the misrepresentation must be one with respect to a matter of fact, as distin- guished from a matter of opinion. The reason for this is that the law does not undertake to help a man who does not help himself — does not attempt to save him from the natural consequences of his own folly. A offers his horse for sale and asserts it is worth five hundred dollars. Is he stating a fact or expressing an opinion? Clearly, the latter. How would the ordinary horse-buyer treat such a statement ? Why, simply as a piece of " seller's talk," no more to be relied on than the pathetic and voluble appeals of an auctioneer to the bystanders not to force him to knock down his wares at such "a perfectly ruinous rate." But suppose A declares that the horse has trotted a mile in two minutes. Here, certainly, is a state- ment of fact; one, too, which the most experienced and shrewdest horse-dealer would consider of importance when deciding whether to buy the horse. If B buys,- relying on the truth of that statement, and the horse has never trotted faster than a mile in three minutes, he has been defrauded. 122. Misstatement of fact, which buyer ought not to rely on. — According to some authorities, a false statement of what the seller paid for the article is one which the buyer ought not to rely on. Consequently, if he does permit it to induce him to buy, he^ has only himself to blame ; he can not hold the seller for fraud. The courts taking this view follow a decision of Lord Mansfield, in which that great judge declared that a false statement as to what the seller had paid for an article was such as was made "by every CONTRACTS. 81 seller every day, who tells every falsehood he can to induce a purchaser to purchase." This doctrine has heen repudiated in England and in many of our States. It is a survival from an age long past, when Hermes, the god of markets, was also the god of liars and of thieves. The development of market usages and law has heen away from the patronage of such a divinity, and in the direction of good faith, fair dealing, and per- sonal probity. A state of millennium has not yet been reached, and the law still tolerates a good deal of lying on the part of sellers, but it tolerates far less than it did in Lord Mansfield's time. 123. False statement need not be the sole inducement. — Kot only must the false representation be one of fact, and _ made with the intention that it should be acted on by the other party, but it must accomplish its purpose; it must deceive the other party and lead him to act as he would not have acted had it not been made. It is not necessary, how- ever, that the falsehood be the sole inducement to his action. It is enough that it is one of the inducements. Accordingly, if A falsely represents that the carpets, cover- ing a number of rooms as well as the hall and stairs in his house, contain about nine hundred yards when he knows they contain only five hundred, he is liable in fraud to a buyer who believes the statement, although the latter goes through the house and makes a rough estimate of the floor space. It is no defense for one who intended to de- ceive and who did deceive another by a false statement of f&ct, that the victim might have discovered the falsity had he been sufficiently suspicious and active. 124. The rights of the defrauded party. — The conse- quences of fraud are quite different from those of mistake or of innocent misrepresentation. Fraud renders the con- tract voidable by the dupe but not by the deceiver. Cer- tainly the victim can say that he did not consent to the 82 ESSENTIALS OF BUSINESS LAW terms of the contract as it was made. Take the case of the carpets, referred to in the last paragraph. The buyer con- sented to the purchase of nine hundred yards of carpets for a specified sum ; he never consented to the payment of that sum for five hundred yards. But while the defrauded party is entitled to avoid the contract, and recover anything which he has paid under it, the law does not limit him to this course. It permits him to affirm the contract, and to sue the defrauding party for damages which the fraud has caused. 135. Disaffirmance must be made promptly. — If he wishes to avoid the contract he should act promptly upon finding that he has been deceived. The acceptance of any benefit under the contract, after the fraud is known to him, will preclude him from avoiding it thereafter. He -will lose this right, also, if he so deals with the subject-matter of the contract or permits the other party so to deal with it, that upon a rescission of the contract, the defrauded party can not be put in the position he occupied before the contract was made. Again, the right will be lost when innocent third parties have acquired an interest for value under the contract. For example : A sells goods to B, relying on B's false statement that he is worth a thousand dollars over all his debts, when, in fact, he is insolvent. If C buys the goods of B, and pays for them, A can not thereafter avoid his sale to B and reclaim the goods. Here, as in cases where he elects to affirm the contract, his only remedy is an action for damages. 136. Duress. Its various forms and consequences. — The most extreme form of duress is that of complete physical compulsion, as when one seizes the hand of another and guides it while it writes or signs a document. A contract executed under such circumstances is absolutely void. It has not even the apparent consent of the one whose name is CONTRACTS 83 signed. The signature is not his act at all, but the act of the one who guided the hand. Next to this is the duress which consists in coercing a person to do an act or to make a promise hy threatening his life if he does not. Here he has the choice of doing the act or making the promise on the one hand, or, on the other, of losing his life. He chooses to do the act or to make the promise. Hence the act or the promise is not void, as is the case of oyerpowering physical compulsion; but as his consent was not freely given, the act or promise is voidable. If a person makes a wijj or a conveyance of property, or en- ters into a contract, under such duress, he may avoid it as against the coercer. 127. Duress by threats of injury to person or property. — The same rule applies to acts done or contracts made when one is threatened with mayhem ^ — that is, with the loss of a bodily member which is useful in fighting, such as an arm, a leg, an eye, or a front tooth. Mere threats of assault and battery, though made by a stronger and brutal man, and inspiring a well-grounded fear of personal injury, did not amount to duress at early common law, nor did threats of destroying one's house or goods, nor of wrong- fully detaining them. Blackstone supports this doctrine on the ground that if the threat is carried into effect the injured party may have satisfaction by recovering equivalent damages, while- no suitable atonement can be made for the loss of life or limb. A better view is presented by Judge Metcalf in his work on Contracts. This doctrine, in his opinion, is character- istic of the age in which it had its origin, an age in which personal valor in defending one's person and possessions was encouraged, and resort to the law for the redress of assault and battery or attacks upon property was discouraged. • Originally written " maiheme "; ancient form for " maim.'' 84 ESSENTIALS OF BUSINESS LAW The tendency in this country is to enlarge the scope of duress, and to give relief from contracts entered into under threats of battery or of destruction of goods. Even in Eng- land a person who pays illegal exactions in order to save his property from destruction, or to get it from one im- properly refusing to surrender it, is allowed to recover such payments, on the ground that they were made without legal consideration. 138. Duress by threats of imprisonment. — Still another form of duress is practised by threats of imprisonment. Here, again, the early common la*^ limited narrowly the operation of duress. The imprisonment threatened must have been unlawful; a person making a contract, under threats that he would be imprisoned for an offense which he had actually committed, could obtain no relief therefrom. At present, however, the prevailing view in this country is, that although one is liable to arrest and imprisonment, if the threat to imprison him is made, not for the protec- tion of the public and the punishment of the crime, but to overcome his will and force him to enter into a con- tract which he would not have made but for this, the con- tract is voidable by him. 129. Threats against the contracting party's relatives. — While it is the general rule that the threats of violence or imprisonment must be directed against the contracting party in order to operate as legal duress, exception is made in ease of threats against the husband or wife, the parent, or child of such party. The exception rests upon the ten- derness of the relationship between the person threatened and the one contracting. Threats to kill or to maim or to imprison a husband, a wife, a parent, or a child are ordi- narily as coercive upon one's will as threats against one's own person. 130. Duress must be caused or be adopted l)y the other party to the contract. — In order that one party to a con- CONTRACTS 85 tract may avoid it on the ground of duress, he must show that the other party is legally responsible for the coercion. It is not necessary, however, to prove that the latter actually and in person practised the duress. It is enough that he procured it ; nay, even that he adopted or took advantage of it, with knowledge that the contract had been obtained by means of it. Such adoption or ratification makes him liable, precisely as if the coercive act had been expressly commanded by him and done under his very eye. 131. Undue influence defined. — Undue influence has been defined as consisting : ( 1 ) In the use, by one in whom confidence is reposed by another, or who holds a real or ap- parent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage to himself. (2) In taking an unfair advantage of another's weakness of mind. (3) In taking a grossly oppressive and unfair advantage of another's necessities or distress. Examples of the first class are afforded by certain trans- actions between attorney and client; between parent or guardian and child or ward ; between a spiritual adviser and one of his flock; and between physician and patient, by which the dominant party obtains a benefit or advantage over the other. The law looks with suspicion upon every such transaction, and compels the attorney, or the parent, or the guardian, or the spiritual adviser or the physician to show that it was fair and honest; that the confidence re- posed in him or the authority exercisable by him was not abused, but that the other party was fully advised as to his rights and allowed to choose and to act freely for himself. 132. Eelation of undue influence to fraud. — All cases of undue influence are, in a sense, cases of fraud, and those falling within the second and third classes enumerated above are generally characterized by the courts as fraudu- lent. In this connection, however, " fraud " has a wider and less precise signification than that given to it a few pages 86 ESSENTIALS OF BUSINESS LAW back. We tlien learned that false statements of opinion' as to the character or conduct of third persons, or as to the value of property, or as to the advantages of a bargain, do not amount to fraud in its narrow, precise, common-law' sense. Such statements, however, are often very effective in un- duly influencing young, inexperienced, weak-minded, or ne- cessitous persons, and hence are unfair and fraudulent to- ward them. " Fraud," said Lord Hardwicke a century and a half ago, "does not here mean deceit or circumvention; it means an unconscientious use of power arising out of the circumstances and conditions of the case." In the language of another judge, " Whenever influence is acquired and abused, wherever confidence is reposed and ietrayed," we have a case of undue influence. 133. Rights of the victim of undue influence. — The effects of undue influence upon a contract, obtained by its exercise, are quite similar to those of fraud, but not pre- cisely the same. The contract is voidable at the option of the victim, but binding on the other party. Receiving bene- fits under the contract, however, with full knowledge that he has been victimized, will not preclude him from rescind- ing thereafter. Not until his will has thrown off the domi- nant influence which unduly controlled it, and has acquired the power to consent freely to the contract, is he held to be in a position to affirm it. § 5. Persons Affected by a Contract 134. Rights and obligations under a contract are gen- erally limited to the parties. — Having learned how a valid contract is made, let us now consider the parties who are affected by it. We have seen that a true contract requires the mutual assent of the parties to its terms. It would seem to follow CONTRACTS 87 from this that only the parties to a contract can be bound by it or entitled under it. A contracts to work for B a year for a thousand dollars. A has come under obligations to B and B has come under obligSitions to A, but neither one has assented to be bound by the contract to any other person. Accordingly, C can not claim A's services under this contract, even with B's assent, for A has not consented to work for C. So, too, D can not force B to accept his services under this contract in lieu of A's, although A may have requested D to act in his place. 135. Substitution of third parties may be provided foi in the contract. — Of course A and B are at liberty to stipu- late in their contract that either may substitute another in his place. Even without any such stipulation, the usages of business or the circumstances of the case may show that the parties intended to give this right of substitution. For example, A contracts to build a house for B. The latter knows that A can not do the work with his own hands, but that he is accustomed to hire workmen to do much of the manual labor, and to sublet parts of the job to masons, plumbers, and others. By entering into the contract with knowledge of such a usage, B impliedly consents to all that the usage permits 'A to do. Even in such a case, however, B's obligation of payment under the contract is limited to A. A's laborers or sub- contractors must look .to him for their pay. They have_ no contract with B. He has assented, indeed, to A's em- ploying others upon the job, but he has not assented to the splitting up of his liability to A among fifty or a hundred of A's workmen and subcontractors. If A gives to a la- borer an order on B, the latter is not bound to honor it, even though he is owing A a much larger sum. He has a right to say: " I have agreed to payB certain sums at cer- tain times, I am ready to perform that agreement, but I decline to pay in driblets to Tom, Dick, and Harry." He 88 ESSENTIALS OP BUSINESS LAW may be as tinaccommodating as Shylock, but, like Shyloek,, lie has the right to stand upon what is " nominated in the bond," and to say " the law allows it." The extent to which this right may be affected by A's assignment of his interest in the contract will be consid- ered presently. 136. Interference by outsiders with the obligations' of contract. — While the parties to a contract and they only can be made subject to its obligations, outsiders are not entirely free to interfere with its performance. Some authorities go so far, indeed, as to lay down the rule that everybody is under a duty to respect the contrac- tual tie ; that if any third person knowingly interferes with it — for example, if he persuades either party to break his contract — he makes himself liable to pay damages to the contracting party injured by such interference. Other authorities repudiate so broad a rule, and de- clare that the duty which rests upon outsiders is only to refrain from interfering with the performance of the eon- tract in certain ways. They must not employ unlawful means, such as threats, violence, falsehood, or deception, to induce a party to break his contract, but they are not under an absolute duty to respect the contractual tie. The chief reason in support of this view is that the person who breaks his contractus liable to the other contracting party in damages; and that if he acts freely in breaking it, the legal as well as the moral responsibility for his act is upon himself, and can not logically be extended to others. A recent decision of the English House of Lords appears to adopt this view, and the courts of last resort in several of our States are fully committed to it, while those of other States and the Federal courts prefer the broader rule first given. The topic, however, belongs to the law of torts, or civil wrongs, rather than to that of contracts, and will not be further discussed here. CONTRACTS 89 137. Sights of third persons under a contract. — As stated above, the right to enforce a contract is limited generally to the parties. Although A has promised B, fot a valuable consideration, to pay money or transfer property to C, the outsider C is not entitled at common law to en- force this promise against A. This appears sound upon principle, for A has never consented to be bound to C. Such is still the rule in England. In this country various exceptions to it are recognized, the chief of which are the following: (1) A delivers prop- erty to B upon B's promise to turn it over to C, or to sell it and turn over the proceeds to C. If B fails to use the property as he contracted with A to do, C can sue him for the property or the proceeds. (2) Again, A is owing C a debt, and sells property to B upon his promising to pay the purchase price to C, in satisfaction, to that extent, of his debt to C. If B does not so pay, C can sue him for the price. (3) Still again, A sells a farm to B, who as- sumes a mortgage of one thousand dollars on it previously given by A to C, and the thousand dollars is deducted from the purchase price. If B does not pay the mortgage debt C can sue him therefor. 138. Reasons for the American exceptions. — In all the?e cases, it will be observed, there are special circumstances, which give C an interest in enforcing the contract, over and above the contract itself. Moreover, to permit C to sue B avoids one lawsuit, for if C could not sue B on his default, he would sue A, and then A would proceed to sue B. Ac- cordingly, these exceptions are to be supported, if at all, upon the grounds (1) that they give the right of action to the party who, in most instances, is chiefly interested in enforcing the contract, and (2) they avoid a multiplicity of lawsuits. 90 ESSENTIALS OF BUSINESS LAW § 6. Assignment of Contract 139. Liabilities under a contract not assignable. — The reason for this rule is very plain. A borrows a thousand dollars of B and promises to repay it three months, there- after. Clearly, B has assented to the contract because of his confidence in the character and financial responsibility of A. No one can be substituted for A without B's con- sent. To be sure, in case of A's death, or of his bankruptcy^ which is often called a business man's commercial death — ■ B is compelled to look to A's personal representative (his executor or administrator) or to his. trustee in bankruptcy for payment; but that is because it has become impossible for A to personally discharge his contract liabilities. 140. The assignability of rights under a contract. — At common law even the rights under a contract could not be assigned. -Various explanations of this rule have been offered. Lord Coke attributed it to the " wisdom and policy of the founders of our law " in discouraging litigation, and preventing wealthy people from buying up claims for the purpose of oppressing the poor. The true explanation, however, seems to be that it " was a logical consequence of the primitive view of a contract as creating a strictly per- sonal obligation between the creditor, and debtor." As our legal system has developed and improved, this rule has been modified from time to time. First, the as- signee was allowed to sue on the contract, but in the name of the assignor. On the records of the court, therefore, the suit would still be between the parties to the contract. The next step was taken by courts of equity, which permitted the assignee to sue in his own name. The third and latest step was taken by the enactment of statutes, which grant the right to an assignee of a contract to sue at law in his own name. Thus has the primitive idea of a contract, as CONTKACTS 91 creating strictly personal obligations between the parties, been superseded by the view that a creditor's right under a contract is prop«)rty, which he may dispose of as he may of a horse or a hat. It is simply an example of common-law rules and conceptions undergoing a change so as to suit the needs of business. Suppose a merchant has sold thousands of dollars' worth of goods to various customers on a credit of six months. He needs to buy new goods. His money is locked up in these accounts against his customers. If he can assign the accounts to a bank he can get the money he needs; if he can not assign them he must go without the money. Surely the common law would not be the flexible and expanding system which it was declared to be in our second chapter if it could not modify the narrow rule and views of Lord Coke's time and adapt itself to the needs of ours. 141. Notice of assignment should be given. — As soon as an assignment of a contract right is made, the assignee should give notice thereof to the debtor. The reason for this rule is not hard to find. If the debtor is not notified of an assignment he is justified in supposing that the original creditor still owns the claim, and that payment to him will satisfy the debt. Of course if the creditor is hon- est he will refuse to take payment from the debtor in case the claim has been assigned, and will direct him to the as- signee. Unfortunately, all creditors are not honest, and it often happens that an assignor takes payment from the debtor, fails to turn it over to his assignee^ becomes in- solvent or absconds, and thus the assignee loses all that he paid for the claim. 143. Assignee is subject to defenses against his assignor. — Not only must the assignee take care that the debtor is notified of the assignment, but he receives the claim sub- ject to any defenses which the debtor could have urged against it in the hands of the assignor. For example, A 93 orders a car-load of sound and marketable potatoes from B at fifty cents a bushel. The latter ships unsound and un- marketable potatoes and assigns to C his claim for the price. C can sue on that claim in his own name, but A can defend on the ground that the potatoes were not such as he ordered, precisely as he could had the suit been brought by B. In other words, the assignee steps into the shoes of the as- signor; he takes such title as his assignor had and no better. It is not uncommon, therefore, for the person who is asked to buy a claim to get a written statement from the debtor that he has no defenses to it. When we come to the chapter on Negotiable Instru- ments we shall find that the law merchant secures to the bona fide transferee of such contracts a title free from most defenses against the transferors. . 143. Assignment by operation of law. — Thus far we have been considering assignments voluntarily made by parties to contracts ; but oftentimes contract rights or liabilities are assigned by operation of law. A party to a contract dies. The law transfers his contract rights, and to some extent, as already noted, his liabilities to his personal repre- sentative — that is, to the executor of his will, or the ad- ministrator appointed by the surrogate or similar officer to settle his estate. This has been the rule of English law from a very early period. Formerly marriage transferred to the husbard all the contract rights and liabilities of the wife, but this form of transfer by operation of law has been abolished in England and in most of our States by statute. Still another method of transferring contract rights and liabilities by operation of law will be discussed in the chapter on Bankruptcy. The law does not transfer to personal representatives either rights or liabilities under contracts for personal skill or services, or those whose breach causes a personal as dis- tinguished from a property loss, e.g., contracts to marry. CONTRACTS 93 § 7. Discharge of Contract 144. Executory contracts may be discharged by mutual consent. — So long as a contract remains executory — that is, unperformed on both sides, the parties may discharge it by mutual consent. For example, A contracts to build a house for B for iive thousand dollars. Before A has done any- thing or B has paid anything they mutually agree to can- cel the contract. Surely, as the obligation sprang from the mutual promises, it must vanish with their withdrawal. 145. Contracts executed by one party can be discharged only by performance or release. — But suppose A has built the house and B has paid nothing or only a part of the price, will a new agreement between them, absolving B from further liability under the contract, discharge it? We have only to revert to the doctrine of consideration to discover that the question must be answered in the nega- tive. B sustains no detriment, gives up no right in ex- change for A's new promise. After A has performed his contract the only way in which B can be discharged from its obligation is by performance on his part or by obtain- ing a release under seal from A. Such a release may be in the following form: Ktww All Men "by these Presents, That I, A, of Buffalo, N. Y., for a valuable consideration, do hereby release and discharge B, of Cleveland, Ohio, from every claim or demand of any kind or nature. In Witness Whereof, I have hereunto set my hand and seal this Tenth day of October, 1901. (Signature.) [Seal.] Under modern statutes in many of our States, as we have seen, such a release would not be an absolute dis- charge unless a consideration was in fact received. At common law the seal, it will be remembered, dispensed en- tirely with proof of consideration; or, as it is sometimes 94 ESSENTIALS OF BUSINESS LAW put, the seal was conclusive evidence of consideration. The statutes above referred to declare the seal is prima facie evidence of consideration — that is, the seal authorizes the presumption that a consideration was given, but that pre- sumption may be overcome by evidence that none- was given. 146. Discharge by substitution of new contract. Nova- tion. — Another way of discharging a contract by the mutual consent of the parties is to substitute a new contract for the original one. Suppose, after A's agreement to build a house for B for five thousand dollars, B~decides to change his plans and erect a smaller house. A assents to the change, and agrees to build this house for four thousand dollars. The original contract is discharged and the new one is substituted for it. So a contract may be discharged by the substitution of a new one having different parties. X and Y as partners are owing Z five hundred dollars for goods purchased. The partnership is dissolved. X buys out Y, agrees to pay the firm debts, and Z assents to accept X as his debtor instead of the firm. The old contract is discharged by the substi- tution of a new one in its place, to which Y is not a party. This is often spoken of as a discharge by novation. 147. A contract may be discharged by the happening of a stipulated event. — Not infrequently a contract contains a provision that it shall cease to be binding at the option of one of the parties, or upon the happening of a certain event. An example of the former is the sale of a horse upon condition that the buyer may return him and receive back the purchase money within a fixed .period if the horse does not suit, him. An ordinary insurance policy is an example of the latter. It provides, among other things, that if the insured premises are used so as to increase the risk, or'if they remain unoccupied for more than a specified number of days, the policy shall be void. CONTRACTS 95 148. Discharge by performance, — The commonest meth- od of discharging a contract is that of performance by both parties. Of course, either party is discharged from his obligation as soon as he has performed what he has agreed' to do, but performance by one party only does not discharge the contract. A sells and delivers an article to B. If it conforms to the contract A''s obligation is at end, but B remains bound until he pays the price. On the other hand, B may pay for the article in advance of receiving it, and thus discharge his contract liability, while A remains bound by his. Money is the ordinary medium of payment, but a eon- tract may provide for payment) by negotiable paper, by the transfer of land, or of a chattel. Even when the contract calls for payment in money the creditor may waive this stipulation and accept negotiable paper, a horse, a wagon, or any other article. When, however, a debtor is allowed to give his promissory note or check, instead of cash, his contract obligation is not discharged unless the creditor agrees to accept the note or check as absolute- payment. It is true this agreement need not be in express words. It may be implied from the circumstances of the case. But in the absence of an agreement, either express or implied, the note or check operates only to suspend the debtor's obli- gation. If the note is not paid when it falls due, or the check when it is duly presented at the bank, the creditor may sue the debtor on the original contract. 149. Tender of performance. — At times one party to a contract refuses to allow the other to perform. In such a case the latter may offer to do what the contract binds him to do — may tender performance. If his obligation is to do an act other than the payment of money, his offer to do it, made at the agreed time and place, although the other party refuses the tender, discharges him from further liability. If his obligation is to pay money, his tender of 96 ESSENTIALS OF BUSINESS LAW performance at the proper time and place does not dis- charge; it only relieves him from interest and the costs of a suit thereafter brought by the creditor. A tender of payment, even to have this effect, must be unconditional; must be of the exact sum, and must be made with money which is a legal tender for debts, in the place where tender is duly made. 150. Legal-tender money of the United States. — In this country the Federal Constitution and statutes regulate the subject of legal tender. By Article I, section 10, of the Constitution, the States are prohibited from coining money and from making anything but gold and silver coin a tender in payment of debts. The United States statutes provide for the coinage of various gold, silver, and minor coins, and for the issue of paper money. The gold coins comprise a quarter-eagle, or two-and-a-half-dollar piece, a half-eagle, an eagle, and a double eagle. The silver coins are the dol- lar, the half-dollar, the quarter-dollar, and the dime. The minor coins are the five-cent piece and the penny. Gold coins of the United States, the United States notes, commonly known as greenbacks, and certain demand Treasury notes, are a legal tender in the payment of all debts, and silver dollars " for all debts, except where other- wise expressly stipulated in the contract." The silver coins below the dollar are legal tender for an amount not exceeding ten dollars in any one payment ; while the minor coins are a legal tender for an amount not exceediug twenty- five cents in any one payment. 151. Consequences of breach of contract by one party. — A person who breaks his contract does not thereby discharge himself from its obligation, although his breach may dis- charge the other party from further liability under the con- tract. In some cases a court of equity will compel the con- tract-breaker to specifically perform his contract. As a rule this will be done when, and only when, the recovery of money CONTRACTS 97 damages will not be an adequate remedy. If A contracts to sell his horse to B, and then breaks his contract, B can not force A' to speciiically perform, by turning over the horse to B and receiving his money. It is a case, the courts say, where B can be compensated for the breach by money damages. With the money he can buy some other horse. If, however, the thing contracted for is not such as can be duplicated in the market, a court of equity will compel the seller to give title to the thing to the buyer. A house, farm, or other real property generally falls within this class. So, it has been held, does " a silver tobacco-box, adorned with several engravings of public transactions and heads of dis- tinguished persons," or "a china jar of unusual beauty, rarity, and distinction," or a patented article. 153. When does a breach by one party discharge the other? — While the contract-breaker remains liable under the contract, his breach may be of such a character as to discharge the other party entirely. Whether it will have this effect or not generally depends upon the question whether it is of a fundamental term of the contract ; or, as it is sometimes said, whether it goes to the very root of the contract. This is admirably illustrated by two cases, one decided by the Court of Queen's Bench in England, the other by the Supreme Court of the United States. 153. Breach of a term, which is not of vital importance. — The plaintiff in the English case, a professional singer, had contracted with the defendant, director of the Royal Italian Opera in London, to sing in concerts and opera for a stated period. One of the provisions of the contract bound the plaintiif " to be in London without fail six days before the commencement of his engagement, for the pur- pose of rehearsals." He did not reach London until two days before the commencement of his engagement, and de- fendant insisted tbat this breach discharged him from the 98 ESSENTIALS OP BUSINESS LAW contract, and lie refused to employ or pay the plaintifE. The court, however, decided against the defendant. It examined the contract carefully, and, finding no express statement by the parties that this provision was of vital importance, de- clared that it must "look to the whole contract, and see whether the particular stipulation goes to the root of the matter, so that a failur'e to perform it would render the per- formance of the rest of the contract by the plaintiff a thing different in substance from what the defendant had stipu- lated for; or whether it merely partially affects it, and may be compensated for in damages." Applying this principle to the contract in suit, the court held that the provision as to the time of arrival in London was not of vital importance- did not go to the root of the matter. Had the plaintiff failed to be present on the opening night of the opera season, his breach might have gone to the root of the contract, and discharged the defendant. It cer- tainly would have had that effect, had it compelled defend- ant to engage some other singer in~ plaintiff's place for the season, or had it forced him to withdraw an opera which had been advertised for that evening, and thus to lose heav- ily in money and reputation. 154. Breach of a vital or fundamental term. — The case decided by the United States Supreme Court illustrates a breach of this character. The plaintiffs contracted to ship five thousand tons of iron rails from European ports to defendants in Philadelphia, at the rate of about one thou- sand tons per month, beginning in February, 1880. Only four hundred tons were shipped in February, and eight hun- dred tons in March. As the market price of such rails had fallen, after the contract was made, the defendants were anxious toget rid of it, and the plaintiffs were equally anx- ious to hold to it. Plaintiffs' failure to ship the stipulated amount each month was such a breach of the contract, the defendants insisted, as discharged them from all liability CONTBACTS 99 under it. Aeeordingly they refused to receive or pay for any rails tendered to them. It will be observed that plaintiffs' breach could not cause any loss to defendants, as the market price had fallen, and rails could be bought at a lower figure than that named in the contract. Defendants, therefore, were seeking to be relieved from this agreement in order to save themselves from a loss, which they would have sus- tained had the plaintiffs shipped the rails on time. The court, in deciding for the defendants, laid down the following principles: "In the contract of mercJiMnts, time is of the- essence. The time of shipment is the usual and convenient means of fixing the probable time of arrival, with a view of providing funds to pay for the goods, or of fulfilling contracts with third persons. A statement de- scriptive of the subject-matter, or of some material inci- dent, such as the time or place of Shipment, is ordinarily re- garded as a condition precedent, upon the failure or non- performance of which the party aggrieved may repudiate the whole contract." 155. Effect of repudiation of contract by one party, be- fore performance by him is due.— Another question of im- portance, and one upon which, unfortunately, our state courts disagree, is whether a party is entitled to consider himself discharged from a contract and to sue for damages, as soon as the other party gives notice of his intention not to perform. The prevailing view in this country, following that which obtains in England, is that he may. Very recently, the Su- preme Court of the United States has declared in favor of this view. In the case before that court a hop-dealer on the Pacific coast contracted to sell to a dealer in New York one thousand bales of hops, to be delivered in lots of one hun- dred bales, at stated dates, during a period of five years. After receiving six hundred bales the buyer notified the seller that he would not take any more hops. Suit was 100 ESSENTIALS OP BUSINESS LAW brought at once by the seller, and the court held that it was well brought at that time; that he was entitled to treat the notice as " an anticipatory breach " of the remainder of the contract, and to recover such damages as he could prove that he had sustained. He proved that the price of the hops -fixed by the Contract was twenty-two cents a pound; that at the time he received the notice (which was the time of the "anticipatory breach"), he could have made contracts with others for the remainder of the hops, at nine cents a pound for the year 1896 and at eleven cents for the year 1897. Accordingly, he recovered a judgment for $10,- 118.30. 155 (a). Impossibility of performance. — This rarely dis- charges a contract. If one promises absolutely to do an act, as to sell and deliver goods, or to render services as a physician, at a specified time, he is not absolved from his contract by the fact, that, owing to strikes, he cannot obtain the goods, or to his call by a second patient, he cannot attend the first. He should have made his promise subject to a condition that the goods could be procured by him, or that his services were not called for by another. TJnder his contract, as made, he took the risk of being able to per- form it. At times, though not often, the circumstances attending the contract show that a condition was intended, though not put into words. Examples : A agrees to lease to B a certain building ; or to sell him specified bales of cotton ; or to ship goods by a particular ship ; or to render services as a physi- cian, or musician, or in any capacity, where performance by a substitute is not contemplated. If performance be^ comes impossible because of the destruction of the building, or the ship or the cotton, or by the sickness of the party who was to render services, the contract is discharged. CHAPTEE IV AGENCY § 1. How THE EeLATION IS FORMBD AND TERMINATED 156. Definition of agency. — An agent, using the term in its broadest sense, is one who acts for and represents an- other, styled his principal; and the legal relation existing ietween such persons is calUd agency. 157. Agency may result from appointment or from rati- fication. — As a rule, the agent receives his authority to act for and represent the principal before he does anything on the latter's behalf. But at times he does not. For example, A, knowing that B is anxious to sell certain property at a certain price, learns that C is willing to buy it. He is not B's agent. B has neither requested nor authorized him to sell the property. Nevertheless, he undertakes to sell and deliver it to C on B's behalf. He tells B what he has done, and B approves of the act. What is the legal effect of the 'transaction? Precisely the same as though B had author- ized A to sell the property as his agent. This adoption of the acts of an unauthorized agent is Tcnown as ratification ; and it is a well-established maxim that the subsequent ratification of an act is in law equivalent to a precedent au- thority to do it. Hence, agency may be created by rati- fication as well as by previous appointment. 158. Conditions of ratification. — It is not to be under- stood, however, that one can ratify any and every act done by another. Without attempting to discuss this point fully, 101 102 ESSENTIALS OP BUSINESS LAW we may say that the chief conditions of ratification are these: 1. The one doing the act must profess to do it, on behalf of an existing principal. Two illustrations will suf- fice to bring out clearly the meaning of this rule. A, with- out any authority to act for B in the matter, contracts in his own name and for himself alone to buy wheat of C. This contract of purchase can not be ratified by B and thus be- come his contract. B may, indeed, buy A's interest in the contract, but he can not make A's act his act, for, when it was done, it was not done on his behalf. Again, those who are engaged in organizing a corporation — " promoters," as they are often called — frequently employ persons or buy property while thus engaged. Such, contracts of hiring or of purchase are not ratifiable by the corporation when it comes into existence. Of course, if the corporation takes the benefit of the services or of the property, it may be liable therefor, but such liability ought {o rest, and the courts gen- erally declare it does rest, on the corporation's own contract made when it receives or retains the benefit. That this is the true ground of liability is apparent the moment we con- sider the consequences of ratification. We have pointed out, already, that a ratification is equivalent to a previous authority. That is, the act, which is ratified, is treated as though it had been authorized be- fore it was done. Accordingly, the rights and liabilities of the principal, the agent, and the' third party will date back to the original act. To say, therefore, that a corporation can ratify an act done before it is organized is to say that one can enter into a contract, or commit a tort before he is born. 2. Another condition of a valid ratification is that the approval of the act be given with full knowledge of all the facts. An approval brought about by mistake or fraud is not binding as a ratification. 3. The act can not be ratified in part and repudiated in AGENCY 103 pari. To illustrate : Suppose A, without B's authority, sells the latter's horse to C and warrants it to be sound. He re- ceives the price and pays it over to B, making a full state- ment of what he has done. If B keeps the money he is bound not only to let C keep the horse, but he is bound also by the warranty of soundness. He can not ratify the sale without ratifying the warranty also, for they were parts, of a single transaction. 159. Agency by operation of law. — Thus far we have been considering agency as the result of an agreement be- tween the principal and the agent. This is the way in which the relation ordinarily arises. As a rule, it is not forced upon the parties. The principal is at liberty to choose his agents, and an agent is equally free to select his principal. However, there are two important exceptions to this rule. Under the first exception we have agency by estoppel ; under the second, agency iy necessity. In each of these cases the agency results from a rule of law,, and not from the assent of the parties. The doctrine of agency by estoppel has been stated as follows by an eminent judge : " Where one has so acted, as from his conduct to lead another to believe he has appointed some one to act as his agent, and knows that another is about to act on that belief, then, unless he interposes, he will, in general, be estopped from disputing the agency, though in fact no agency really existed." This doctrine will be illustrated when we come to consider the liability of the principal for the unauthorized acts of the agent. The commonest example of agency by necessity is that which the law confers upon a wife, whose husband im- properly fails to supply her with necessaries. It gwes her power to pledge his credit for them, even against his will. In the language of Chief -Justice Holmes, "it creates q, compulsory agency." Some courts hold that a similar agency exists in favor of infant children against the father 104 ESSENTIALS OF BUSINESS LAW who improperly neglects to supply them with the necessaries of life. Still another example of agency by necessity is afforded, when the chosen agent becomes suddenly sick or disabled, and the principal's property must be cared for, be- fore he can select a new agent. For example: A's driver drops from his seat in a fit. C takes charge of the team until A can be informed of what has happened. During this time C is A's agent by necessity, and if a third party is in- jured by C's negligence in managing the team, A is liable, as he would have been for his driver's negligence. 160. Legal capacity of principal and of agent. — Any person who is legally capable of contracting may appoint an agent. On the other hand, every person whom the law de- clares absolutely incapable of contracting, is equally inca- pable of appointing an agent. Thus far there is no dif- ficulty. But what is the rule as to persons, such as infants, whose legal incapacity is not absolute, and whose contracts are not void but voidable? It must be confessed that there is a serious difference of opinion upon this point. The older doctrine was that an infant could not act through an agent ; that his appoint- ment of one was void. This still prevails in England and in not a few of our States. The modern tendency of courts, however, especially in this country, is to hold that an in- fant's appointment of an agent is not void, hut voidable Only ; and, therefore, that after he is of age, he may ratify an agent's act as he could his own. Turning now to the inquiry. Who may be an agent? we find the answer a plain and easy one. Any person may he an agent who has sufficient natural capacity to do the act which is delegated to him. Of course, if he does not possess full capacity to contract, he will not be bound by his agreement to serve as agent ; but so long as he does serve his acts will bind his principal. This certainly is in ac- cordance with common sense. It is the principal who plans AGENCY 105 and directs what shall be done, and who is to be liable for what is so done, while the agent is the mere instrument for the execution of the principal's purpose — the medium through which his will operates. 161. Master and servant. — Hitherto we have used- " agent " as a generic term — as including every one who acts for and represents another. It is often employed, however, as a specific term — that is, to designate a species or class of representatives. In this sense, it is contrasted with " servant." When used in this Avay, it is limited to persons whose chief duty consists in making contracts between their employers and third parties; while the "servant," as dis- tinguished from the " agent," is employed not to make con- tracts, but to do other acts for his master. A century and a half ago servant was the broader term of the two. Blackstone uses it as including not only house- servants, apprentices, and laborers, but also stewards, fac- tors, and bailiffs. In his time agents were a species of serv- ants. Now servants are a species of agents. This change in the relative meanings of the two terms has taken place in response to a change in business affairs. Formerly the persons employed to represent others in making contracts were comparatively few. Now they are numerous and im- portant. It is the agent rather than the servant whose acts are of prime importance to the employer and to third persons. Hence the term agency has come to include the relations of master and servant as well as those of principal and agent. It is in this broad, generic sense that agency and agent will be used in this chapter, except when atten- tion is called to the fact that they are employed in their narrower signification. 162. Classification of agfents: general and special agents. —There are two modes of classifying agents : one according to the scope or extent of their authority, the other accord- ing to the nature of their duties. 106 ESSENTIALS OP BUSINESS LAW The first method divides them into general and special agents. The Supreme Court of the United States has, de- fined' a general agent as one who is appointed to do acts of a class, and a special agent as one appointed to do individual acts. In the case then before the court the agent had been employed to buy cotton in Arkansas. He was to buy from whom he could, not from individuals specified by his em- ployer or principal. Accordingly, the court ruled that he was a general agent. Had he been sent to buy a particular lot of cotton, or to buy a described horse, he would have been a special agent. This classification is not a very important or helpful one. Still, when we come to deal with the liability of A principal for the acts of an agent which have not been ex- pressly authorized, we shall find the distinction between general and special agents playing quite a prominent- part. 163. Attorney at law and attorney in fact. — Let us now turn to the other classification of agents — that based upon the nature of their duties — and consider briefly some of the most important of these classes, taking them up in alpha- betical order. Attorney, was at first a mere synonym of agent, meaning one put in the place, stead, or " turn " of another ; but now it is applied either to a professional lawyer who is author- ized to represent another, called his " client," in some legal proceeding, or to one who has received from his principal a letter or power of attorney. 164. The authority of an attorney at law is regulated very largely by the rules or usages of courts. — As soon as he is employed, and without any special directions from his client, he has authority to do all acts in and out of court which are necessary, or incidental to the proper conduct of the matter put into his hands. Indeed, so long as the rela- tion of lawyer and clieijt continues, it is the agent, and not the principal, who appears in court, who conducts the AGENCY" 107 proceedings, and who is recognized by the court ofBeials as the one properly in control and management of the cause. An attorney in fact derives his power to act from the letter or power of attorney. It is important, therefore, that this instrument be drawn up with care. The following is a power of attorney, giving very full and detailed authority to an agent, who is to represent and act for his principal in various business transactions with a bank : litnoD) all itlen bg tt)cse ^Presents : That I, John Doe, of Utica, County of Oneida and State of New York, have made, cqnstituted and appointed, and by these presents do make, constitute and appoint Eichard Eoe, of New York City, my true and lawful Attorney for me and in my name, place and stead, in transacting any business directly or indirectly, with the ffiocn ISjrcJansie JSanft, N. Y., its Officers or Agents, to sign, indorse, draw, accept, make, execute and deliver, all such Notes, Checks, Bills of Exchange, and other Contracts or Instruments in writing, with or without seal, and such Verbal Contracts as he may deem proper,/giving and granting unto my said Attorney full power and authority to do and perform all, any, every act and thing whatso- ever, requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as I might or could do if per- sonally present, with full power of substitution and revocation, hereby ratifying and confirming all that my said Attorney or his substitute shall lawfully do or cause to be done by virtue hereof; and any such Notes, Checks, Bills of Exchange, Contracts or Instru- ments, signed, indorsed, drawn, accepted, made, executed or deliv- ered by my said Attorney, and which shall be hereafter received by or come to said Bank, or its said Officers or Agents, shall bind, and are hereby ratified and confirmed by the undersigned. fin JTOitness JlSBfiereof, I have hereunto set my hand and seal the First day of February, in the year one thousand nine hundred and two. Sealed and'delivered in presence of Jambs Stlvestbk, j^^ jj^^_ ( ^^^^ } David Jenkins. ( » 108 , ESSENTIALS OP BUSINESS LAW Instead of being signed by witnesses, it may be ac- knowledged before a notary public, whose certificate would be as follows : State of New York, > OijEiDA County, i Be it known, that on the first day of February, in the year ona thousand nine hundred and, two, before me, the undersigned, a Notary Public, personally came John Doe, and acknowledged the above letter of Attorney to be his act and deed. £n SestCmons HXSiitteof^ I have hereunto set my hand and affixed my seal the day and year aforesaid. j SOTAHT'S ) RlCHAKD SMITH, ( SEAL ) Notary PuMic in and for Oneida County. I 165. Auctioneers. — An auctioneer is one whose business it is to sell property, at public auction, to the highest bidder. Because of the public character of auction sales, and the op- portunity they give for dishonest practises, their conduct is often regulated by city ordinances and by State statutes. These usually fix or liniit__ the amount of the auctioneer's fees, and require him to take out a license, as well as to give " a bond for the honest conduct of his business. One of the peculiarities of the auctioneer is that he may be the agent of, both parties. In offering the property for sale, in fixing the terms upon which it is to be sold, and in making statements about its quality and condition, he is the agent of the seller. But when the buyer's bid is ac- cepted and the property knocked down to bim? the auction- eer becomes his agent to put down his name as purchaser and thus to sign for him a memorandum of the sale, which will make the contract binding under the statute pf frauds. This agency for the buyer, however, is confined to the time and place of the sale. It is based upon usage (although this usage is, in some Statfes, confirmed by statute) and not upon an express contract. AGENCY 109 Another respect in which the auctioneer differs from most agents is his right to sue in his own name for the purchase price of personal property. Ordinarily the prin- cipal and not the agent must sue. This right of the auc- tioneer is due, also, to business usages. Personal property is generally put into his possession. He is responsible to the owner for its saferkeeping. He is also responsible for the collection and payment over to the principal of the price, less his commissions. Hence, it is held, he has a spe- cial interest in the property — a sort of ownership of it — which entitles him to sue for the price in his own name. 166. Bank cashiers. — In the bank cashier we have an excellent example of a general agent, in the broadest sense of that term. It is true that in some banking-houses the president shares with the cashier the control of ordinary business, but as a rule the cashier is the sole executive chief of the bank. He has charge of the receipts and payments of money, of the purchase and sale of bills of exchange, of loaning and borrowing money, of indorsing and collecting negotiable paper for the bank, and of certifying checks for depositors. He may be authorized to employ tellers, dis- count clerks, and other subordinates to help him, but in doing any of the acts above enumerated, whether by such subagents or in person, he bipds the bank. For example, he certifies a depositor's check as good, when, in fact, the depositor has no money to his credit. That certification is binding on the bank in favor of any one who takes the cer- tified check for value and without notice of the falsity of th& cashier's statement. 167. Brokers. — These cover a very extensive field of busi- ness transactions and are divided into many classes. We have bill and note brokers, insurance brokers, merchandise brokers, money brokers, pawnbrokers, real-estate brokers, stock brokers, and ship brokers, each class receiving its name; from the particular line of business in which it is engagedL 110 ESSENTIALS OF BUSINESS LAW The distinctive characteristic of a broker is that he under- takes to bring the buyer and seller, the lender and the bor- rower, the insurer and the insured, to an agreement. Ac- cordingly, an insurance broker is not to be mistaken for an insurance agent. The latter is an agent of the insurance company, while the business of the former is to negotiate be- tween the insurer, and the insured and bring them to an agreement. Until and unless the broker brings the parties to an agreement, he does not earn any commissions. For unsuc- cessful efforts he is not entitled to compen'sation. " The risk of failure is wholly his. His reward comes only with success." 168. Factor, or commission merchant. — His business is to receive personal property and sell it for a commission. He differs from a broker, it will be noticed at once, in having in his possession the property about which he is to nego- tiate. Moreover, he often makes advances to the owner of goods sent to him. For any money so advanced, as well as for his commissions, he has a lien on the goods and on the proceeds obtained from this sale. By the usages of trade he has the power to sell in his own name and to sue in his own name for the price, as well as for damages to the goods. , * But,' at common law, he had no implied authority to pledge or barter; his authority was to sell. This has been changed in England and in some of our States by statutes called factors' acts. Their provisions, however, are so vari- ous and so complicated that we can not attempt to discuss them here. At times the factor, for an extra commission, guarantees the payment of the price by the buyer. In such a case, of course, if the buyer fails to pay for the gpods the factor is bound to pay out of his own pocket. He is then called a del credire factor. AGENQY 111 169. Ships' husbands and masters of ships. — These agents have a 'very extensive authority. At times one man fills both positions, but, as a rule, the ship's husband, or, as he is now generally called, the managing owner^ is " the general agent of the owners, in regard to all the affairs of the ship in the home port." He it is who arranges for the equipment or repairs of- a ship, who hires the officers, and crew, and has charge of all contracts for freight and pas- sengers to be carried by her. The master of a ship is the one who has command of her. Ordinarily he is called captain, but an officer of lower rank, such as a mate, may be put in command either by the owners, by the ship's husband, or by the captain, and thus become the ship's master. In the home port his authority is sub- ordinate to that of the ship's husband or managing, owner, but during the voyage or in a foreign port his power is supreme to act on behalf of the owners, to pledge their credit, and to make the ship itself liable for money bor- rowed or supplies furnished when these are absolutely neces- sary to enable him properly to protect the ship and its cargo or to accomplish his voyage. 170. Termination of agency. — Having pointed out the ways in which agency may be instituted, and having con- sidered briefly some of the more important classes of agents, let us now inquire how the relation of principal and agent may be terminated. The general rule upon this point may be stated thus: Agency may be terminated by the assent of both parties, or by the act of one, or by the operation of law. To this rule there is an exception, viz., that when the agency is coupled with an interest it can be terminated only by the agent's consent. The exception, however, involves so much of technical law, and is so rarely enforced, that we shall not attempt to explain it here. It is very clear that the relation of principal and agent 112 ESSENTIALS OF BUSINESS LAW must end when the parties are agreed that it shall end. This agreement may be made in advance, as where the agent is hired for a year. At the end of that time the agency ter- minates, because the parties have agreed that it shall ter- minate then. So when the agency is one at will^ the parties assent in advance that it may terminate at the will of either party. It is also clear that either principal or agent has the legal power to end the agency without the other's assent — nay, even against the other's wish and protest. This follows from the fact, already brought out, that the relation is one of contract, for a party to a contract has the legal power to break it, though by breaking it he may render himself liable to pay damages for the breach to the other party. Of course, if the agency is gratuitous, as where the agent is to receive nothing for his services, either party may end the relation without liability to pay damages, for there is no contract — it is a mere matter of agreement without a consideration. The law puts an end to agency in several cases. This happens when the agency becomes illegal, or its perform- ance becomes impossible. An example of the latter case would be an agency for renting a particular building which is afterward destroyed without the owner's fault. Upon the death of either principal or agent, the law terminates' the agency. This follows necessarily from the fact that agency rests upon a continuing contract between the parties. The death of either withdraws his assent. A like result occurs when either party is judicially declared insane or bankrupt. The insane person has not a consenting mind, and the control of his property rests in a guardian or trustee appointed by the court. A bankrupt's property passes to his assignee or trustee, and his person becomes, to some extent, subject to the control of the court. At common law, marriage terminated any relation of principal and agent which had existed between the parties. The hus^ AGENCY . 113 band and wife were one person, in law, and for most pur- poses the husband was that person. 171. Notice of termination. — Whenever the agency is ended by operation of law, notice of its termination need not be given either to the other party to the relation or to third parties. This is sometimes explained by saying that death, or an adjudication of insanity or of bankruptcy, is a public event, of which the whole world is bound to take notice. Such an explanation seems only an artificial way of saying that the law, which puts a stop to the agency, also relieves the parties from necessity of giving the notice that must be given in case the agency is terminated by the private acts of the parties. The reason for requiring notice of the termination of an agency which has been ended by the acts of one or both of the parties is very plain. If notice were not given, third persons would naturally suppose the agency continued, and would act upon that idea. To save such persons from being misled to their harm, notice is required. Where the reason for this rule does not exist, the rule itself has no operation. For example, if a person who deals with an agent knows that the agency has been limited to a definite time — say six months or a year — or to a particular act or series of acts, such as the private sale of a horse, or the sale at auction of a lot of goods, he is not entitled to any addi- tional notice of the termination of that agency. But sup- pose that the person has dealt with a bank cashier, or an insurance agent, or a traveling salesman, whose term of employment he knows nothing about. Naturally he will continue to deal with such agent in reliance on his original authority until he receives notice that the authority has been withdrawn, or, in other words, that the agency has ended. Accordingly, until notice of termination is given, the principal will be bound by the acts of a former agent, though 114 ESSENTIALS OF BUSINESS LAW he is no longer an agent, in favor of those who are misled hy the principal's failure to give notice. § 2. Pkincipal's Liability for Agent's Acts 172. His contract liability. — We .come now to consider some very striking peculiarities of this branch of the law. In the first place, when an agent ma^es a contract, which he is actually authorized to make, between his principal and a third party, he drops out of the transaction entirely. True, it is his mind which has met the mind of the third party in negotiating and closing the agreement. The prin- cipal's mind may have been absolutely unconscious of what was taking place between the third party and the agent Yet, in legal contemplation, it is his mind which is in agree- ment with third party's mind. The contract and obligation are his, not those of the agent. In the second place, the principal may become a party to a contract whose terms are squarely contrary to his ex- pressed will. This results from the legal principle that the act of an agent done within the scope of his apparent au- thority is in law the act of the principal. Let us illustrate.- A sends B out to buy wheat, or cotton, or corn, or hops, but instructs him not to pay more than a certain price. Never- theless, B does buy at a higher price, paying a part and pledging A to pay the balance. A is bound by the contract,' unless the seller knew that B was not authorized to make it. The scope of B's apparent authority was to buy at such prices as he should name. If 3. Meaning of scope of apparent authority. — The scope or extent of an agent's apparent authority is deter- mined, generally, by the conduct of the principal and by business usages relating to the particular transaction. A person permits his coachman to select supplies for his stable, or his butler or cook to order articles for the kitch- • AGENCY 115 en, and pays the bills. By such conduct he holds these agents out as having authority to agree for him as to the quality and price of articles ordered. After such holding OM^,-sUppose he tells his coachman to buy a cheaper grade of feed, or a particular style of harness, or tells his cook not to buy any more apples or potatoes while the price is High. Do these orders change the scope of the agent's ap- parent authority?. Clearly not, unless the tradesmen with whom he has been accustomed to deal are notified of them. By business usages, a factor or commission merchant is authorized to sell at such times and for such prices as he deems best, and in many eases to warrant the quality of the goods. Sales made by him, in accordance with such usages, will bind his principal, although the latter has directed him not to sell at all, or not to sell at the price which he ob- tained, or not to warrant the goods. Secret instructions to an agent can not change the scope of his apparent authority. 174. The principal's liability in tort. — Here again the act of the agent or servant, when actually authorized, or when within the scope of his apparent authority, is, so far as the principal or master is concerned, his act. Hence, a party injured by the negligent act of A's omnibus driver is entitled to recover his damages from A. Authorities differ both as to the origin and the reasonableness of this rule, and the subject is too large and perplexing to be dis- cussed at any length here. Perhaps it is enough to say that one of our greatest American judges has declared': " This rule is obviously founded on the great principle of social duty, that every man in the management of his own affairs, whether iy himself or iy his agents or servants, shall so conduct them as not to injure another; and if he does not, and another thereby sustains damage, 'he shall answer it." It should be borne in mind that the position of the agent or servant who has committed a tort under the ex- 116 ESSENTIALS OP BUSINESS LAW press authority of his principal or master is very different from that of him who has bound his principal by an author-, ized contract. He does not drop out of the transaction. While his wrongful act renders the principal liable for damages, it makes him liable too. It is true that the in- jured party usually sues the principal, and pays no atten- tion to the agent or servant. But that is only because the principal usually has more money with which to pay dam- ages than the agent. Still, the omnibus driver, the coach- man, the street-car driver, or the locomotive engineer, is personally liable for every injury caused by Ms negligence, although his principal is also liable. Nor will the fact that the agent or servant did the wrongful act at the express command of the principal or master enable him to shirk liability. For example. A, without excuse, tells his servant to knock B down, or to shoot B's valuable dog, and the servant obeys, rather than lose his place. He is liable for the tort. B may sue either the servant or A, or he may sue both, and may obtain a judgment against each. As, how- ever, he is entitled to be paid but once, it follows that if he collects one judgment he can not collect the other. 175. Acts done outside the scope of apparent authority. — It is only for those acts of the servant or agent which are actually or apparently authorized that the principal or master is liable in tort. For acts done outside the scope of even apparent authority the agent or servant is alone liable. Such is the rule of law accepted and applied by all courts. It appears to be a very plain and simple rule. And it is. Still, the courts have often differed in applying it to similar sets of facts. Cases of that kind, however, we can not un- dertake to discuss and criticize here. All that we shall at- tempt to' do is to show the meaning of the general rule by a few examples. Two eases, decided by_the N"ew York Court of Appeals during the same year (1892), illustrate the rule very well. AGENCY 117 In the earlier case, a railroad ticket agent ordered the arrest of the plaintifiE on the charge of passing counterfeit money when buying railroad tickets. The agent had been warned by a police detective that men answering to a cer- tain description were passing counterfeit five-dollar bills. He thought the plaintifiE answered the description and that the bill which plaintiff handed him for the tickets was coun- terfeit. He took the bill, gave the plaintiff his change and tickets, and ordered the policeman to arrest him. It turned out that the bill was a good one. Plaintiff was discharged from arrest and sued the railroad company for the tort of false imprisonment. He was beaten. In the latter case a woman was arrested by a ticket seller of the elevated road in New York city, who charged her with passing a counterfeit quarter for her ticket. She in- sisted that the quarter was good, and refused to give back the ticket or the change. It was good. She sued the rail- road company and recovered large damages. How do these cases differ ? Why should the principal be liable in the one case and not in the other? Because, said the court, the plaintiff in the earlier case was not acting within the scope of his apparent authority, while in the latter he was. In the former he took the bill, which he believed to be counterfeit, and had the plaintiff arrested in the hope of bringing a criminal to justice. He was not acting in the interest or for the benefit of his principal. He was intent upon ren- dering a service to the public. In the latter case the agent received the money and gave out the ticket and change before suspecting the quarter to be counterfeit. He then demanded the ticket and change, so as to save his principal from loss. The fact that he blundered and lost his tem- per and did what he was not actually authorized to do did not relieve the principal. The agent was trying to protect and recover his principal's property, to promote his inter- ests, to carry on his business. 118 ESSENTIALS OF BUSINESS LAW 176. Liability for agent's wilful or malicious acts. — Not only for unauthorized acts of his agents or servants may the principal or master be responsible, but his liability may extend to acts done by them for the sole purpose of injuring others. For example, an engineer blows the whistle in order to frighten plaintiff's horse on a public road, causing it to run away and injure plaintiff and his property ; or he runs down and kills plaintiff's cattle when he might have avoided them ; or a motorman wilfully runs his ear against plaintiff's wagon without any necessity therefor ; or a milk- dealer's driver adulterates milk so that he may steal a part of it : the principal is liable. In each case the act done is within the scope of the agent's apparent authority or within the course of the servant's employment. Of course, if the act is outside the stope of apparent authority or the course of employment, the principal or master is not responsible for it. Suppose a street-ear conductor leaves his car, chases and injures boys who have been trying to steal a ride. The company will not be liable for the injuries, for the conductor is not acting in the line of his employment. 177. Principal may be liable to criminal punishment for agent's acts. — How large is the risk a man runs who chooses or is obliged' to have agents or servants is not fully dis- closed until we consider his criminal liability for their acts. Some crimes can not be committed without an actual evil intent. Murder and burglary are of this class. In such cases the intent of the agent is not chargeable to the prin- cipal simply because of the agency. The criminal act must have been actually authorized or adopted by the principal. But' other crimes do not involve the question of intent. Violations of excise or health laws are often of this charac- ter. In such cases the criminal act of the agent is the criminal act of the principal. For example, a statute abso- lutely prohibits the sale of liquor during certain hours, either by a licensed dealer, or by his employees ; or the sale AGENCY 119 of oleomargarine in unstamped packages. A bartender or a clerk makes a sale in violation of the statute, but in the course of his employment. It is no defense to a criminal prosecution of the liquor dealer or the grocer that such sale was in violation of his orders. The act is his act, and he must suffer the penalty. 178. Distinction between agent or servant and inde- pendent contractor. — We have seen " that every man in the management of his own affairs, whether by himself or by his agents or servants," is bound so to " conduct them as not to injure another." Does this duty of an employer ex- tend to the acts of an independent contractor, i. e., of one who contracts to do a particular job in accordance with cer- tain specifications, but over whose conduct and methods the employer does not reserve the right of control ? The answer is that, as a rule, it does not. A contracts to repair B's house, in accordance with the plans and speci- fications furnished by B's architect. During the progress of the work C is injured through the negligence of A or of his workmen. B is not liable to C. B is not managing the work, either in person or by his agent or his servant. It is A's work. He is the manager of the affair and the master of the workmen. Accordingly he is responsible and not B. There are some exceptions to this rule, but the courts are not entirely in accord regarding them, and we shall not enter into their consideration here. § 3. Principal's Eights Acquired through Acts op Agent 179. In case of a disclosed principal. — Ordinarily the party with whom the agent deals knows for whom the agent is acting, and it is the intention of all the parties that the transaction shall be one between the principal thus known and the third party. The agent drops out of the transac- 120 ESSENTIALS OP BUSINESS LAW tion, and the principal acquires all the rights which he would have secured had he conducted the affair in person.,. The agent's acts are his acts. 180. In case of an undisclosed principal. — At times, however, the agent does not disclose his principal. This often happens when the agent is a factor. In such cases what are the undisclosed principal's rights? Here, again, we are to apply the doctrine that the acts of the agent are the acts of the principal. The rights acquired are, there- fore, the principal's rights. If a factor sells his principal's goods on credit, as his own, the principal may in his own name sue the buyer for the price. It is true, these rights of the undisclosed principal are subject to some qualifications and exceptions, but the general rule is that stated above. § 4. The Agent's Liability to Third Persons 181. His liability in tort. — This has been referred to in a previous section, and- we need only repeat the rule there laid down, that an agent is liable for his wrongful acts, al- though they were done at the request or command of his principal. 183; His contract liability. — This also has been men- tioned, but needs to be explained more fully. We have seen that when he negotiates a contract between his principal and a third person, keeping within the limits of his authority throughout, and having the contract properly drawn and executed, he drops out of the transaction and incurs no legal liability. But suppose he fails in either of those two respects; does he thereby make himself liable to the third party? Let us consider the two cases separately., 183. The agent's liability for unauthorized 6ontracts. — If he induces the third person to contract with a ptinci'pal, for whom he knows he has no authority to act, he is giiilty of deceit, and is personally liable for any damages which AGENCY 121 Ms wrongdoing may cause the third person. This is very clear. If, however, he honestly thinks he has authority, hut does not have it, his conduct may be just as harmful to the third person as in the preceding case. Who shall suffer ? Surely the one who is at fault, and that one is the unau- thorized agent. He must pay the damages sustained by the third person through his fault. 184. The agent's liability upon contracts improperly executed. — This liability is confined chiefly to contracts un- der seal, and to negotiable paper, such as bills of exchange and promissory notes. In the case of other written con- tracts, the form in which they are drawn up and signed is not conclusive against the agent. If all the facts show that he and the third party intended that the contract should bind the principal and not him, the courts will give effect to that intention, although the writing itself would seem to bind the agent. However, the safe course for the agent in all cases is to have the written contract niade out in the name of the prin- cipal, and signed in his name by the agent. If thus drawn up and executed, the agent will incur no personal liability. On the other hand, if a contract under seal recites that it is made by John Smith, agent for Jesse James, and con- cludes with these words, " I hereunto set my hand and seal, John Smith, agent for Jesse James," the agent and not the principal will he bound. This is due to the tech- nical rule of the common law, that no one but a party to a deed — i. e., a contract under seal — is liable to be sued upon it. In the foregoing case John Smith is the maker of the deed, and the seal is his seal. So a promissory note or a bill of exchange ought to be signed in the name of the principal by the agent — e. g., " Jesse James, by John Smith, agent." This is because of the technical rule of the law merchant, that persons dealing 122 ESSENTIALS OP BUSINESS LAW with negotiable instruments are presumed to take them on the credit of the parties whose names appear upon them. This rule, however, is not enforced quite so strictly as that relating to contracts under seal. If the entire instrument, including the signature, shows that it was intended to be the bill or note of the principal, he will be held and the agent not. Indeed, even when the intention is not clearly shown by the paper, some courts permit other evidence of the inten- tion to be given; and then enforce the contract against either the principal or the agent, according as it is shown to have been intended to bind the one or the other. § 5. The Agent's Eights Against Third Persons 185. In case of contracts. — An agent's rights against third persons can be disposed of very quickly. Indeed, some of them have been already referred to. We have seen that an auctioneer of personal property or a factor may sue in his own name for the price of goods sold. So may any agent who has a beneficial interest in the price — i. e., who has a right to retain a part of the price for his commissions, advances, or expenditures. Again, an agent who is named as a party to a deed or to a bill or note, may sue upon it. Generally speaking, how- ever, in such an action, the third party may avail himself of any defense which would have been good against the prin- cipal, for the suit is brought largely, if not wholly, for the principal's benefit, although in the agent's name. 186. In case of tort. — The ways in which third persons may wrong an agent in his position as agent (for we are not now considering him in his individual capacity) are not numerous. Perhaps the commonest form of tort against him is that of wrongful interference with the principal's property, which is in his possession and upon which he has some lieif or claim. For example, a third person who wrong- AGENCY 123 fully takes from an auctioneer or a factor the principal's property, may be sued in tort by the agent. Another way in which a third person may make himself liable in tort to an agent is by coercing the principal to dis- miss him through threats of injury to the principal if he does not. Indeed, some courts have held third persons liable in tort who have peacefully persxtaded the principal to break his contract with the agent. § 6. Duties of the Principal and Agent' toward Each Other 187. Duties of the principal toward the agent. — In gen- eral terms these may be said to consist in keeping his con- tract with the agent ; in paying him fairly for his services^ when a rate of compensation has not been agreed upon; in making good his expenditures ; and in saving him harm- less from all claims against him, because of authorized or ratified acts done by him as agent. To this last-named duty there are some exceptions. For example, if the agent's acts were known or ought to have been known by him to be illegal, the principal is not legally bound to save him harmless from their consequences. The principal orders his agent to knock a man down, or to de- stroy his property without lawful excuse, and the agent obeys. If the third party sues the agent and recovers dam- ages from him he can not lawfully call upon the principal for reimbursement. This rule of law was not established out of regard for the dishonest principal, but with a view to discourage law-breaking by agents. 188, Duties of the agent toward the principal. — With- out irreverence these may be summed up in a command- ment, " Thou shalt love thy principal as thyself." An agent who is disloyal, or half-hearted, or covetous, or secretive is in danger of the judgment. He is bound in law. as in 124 ESSENTIALS OF BUSINESS LAW morals, to serve but one master, and to serve him with the utmost good faith. He is bound to give him all the informa- tion which he obtains relating to the business intrusted to his care; to obey instructions; to exercise proper skill, and to account fully and honestly for everything that comes into his hands in the agency. § 7. Master's Statutoet Liability to Sebvant 188 (a). Fellow-servant doctrine. — We have seen that the master is liable to third parties for harm done by his ser- vants in the course of their employment and of his business. If the injured person, however, was a fellow servant of the wrongdoer, our law, as expounded by the courts both in England and in this country, did not subject the master to the same liability as to outsiders. It was the accepted view that one who entered an employment in which he had fellow employees took the risk of their being negligent ; that he received higher wages because of this risk, and that his knowledge that he could not recover from the common em- ployer for injuries caused by a negligent fellow-servant would make him "prompt and vigilant in reporting unfit or negligent fellow-servants." It is to be observed that the fellow-servant doctrine is not as broad as intimated above. The master's exemption from liability to a servant for the negligence of a fellow- servant is not unqualified. Quite the contrary. It is sub- ject to the condition that he has performed his legal duties towards the injured servant. These consist in (1)_ using reasonable care to employ suitable and sufficient fellow- servants; (2) to have proper rules for the conduct of his business; (3) to provide a safe place for work; (4) to pro- vide proper appliances and reasonable inspection of plant and appliances; (5) to give due warning of danger. Nor can the master escape liability by delegating any of these AGENCY 125 duties to others. He is bound at his peril to see that they are performed. Though he exercises the greatest care in selecting employees to whom he commits their perform- ance, he is liable to a servant injured as a result of their non-performance. To this extent, the master is liable at common law to a servant for a fellow servant's negligence. 188 (b). Statutory modifications of rule. — Although our law reports show that many of the risks, incident to fel- low-service, had to be borne by the master and not by the servant, public opinion, both in England and in this coun- try, demanded a modification of the fellow-servant rule. It was accomplished by legislation known as Employers' Liabil- ity Acts. The English act of 1880 (Ch. 42, 43 and 44 Vict.) has served as a model for the Federal Employers' Liability Act (Ch. 149, L. 1908, 35 St. L. 65) and similar statutes in many of our States. They abolish entirely in the case of certain employers, such as railroads, the fellow-servant rule. Some of them relieve the servant from the common law doctrine of assumption of risks, incident to the employment, and from the consequences of his contributory negligence. They also limit, in various ways, the right of master and servant to contract for the former's exemption from lia- bility, and often impose an absolute duty upon the master to provide particular safety appliances. 188 (c). ■Workmen's Compensation Acts. — The freedom of contract between master and servant was further limited, and the master's liability to the servant further extended by legislation bearing the foregoing title. Here, again, an act of Parliament of 1906 (6 Edw. VII, Ch. .58) has served as a model for Congress and State Legislatures. The legis- lation compels the employer to pay employees for injuries sustained in the business, even though they are not due to his fault; they limit the amount which employees can re- cover, and they provide, through insurance or other means, that the sums paid by the employer may be added to the 126 ESSENTIALS OP BUSINESS LAW cost of production, and thus be borne, ultimately, by the community. In England, the authority of Parliament to change the rules of law and to add to the legal liability of the employer is unquestioned. In this country, however, constitutional provisions prohibit legislation which takes a person's prop- erty without due process of law. It was contended by em- ployers that workmen's compensation acts took the employ- er's property without due process of law, where they com- pelled the employer, who was without fault, to pay sums to the employee for injuries not due to the employer's wrong- doing. This contention was sustained by the New York Court of Appeals in Ives v. South Buffalo Ey. Co. (201 N. Y. 271) and the first Workmen's Compensation Act of that state was declared unconstitutional. A similar de- cision was made in the state of Montana. The Ives case led to an amendment of the New York Constitution, which authorized such legislation, and another act was passed (Ch. 816, L. 1913, and Ch. 41, L. 1914), which has been upheld as valid. The statutes of Congress and of the several states differ in many respects, but their primary purpose is to secure to an injured servant, who is without wilful fault in the matter, a definite sum, based upon his loss of earning power, which shall be paid to him speedily and without the expense of prolonged litigation. He is prohibited from waiving statutory rights and from making a contract assigning, releasing or compromising his claim to compen- sation. The operation of these laws has been beneficial to both employers and employed. The former, according to a report of an industrial commission, 'Tiave been relieved of the worry and cost of litigation, and have had the satisfac- tion of knowing that money spent for compensation was being received by the workmen who were injured, rather than going for attorney fees, costs and the expenses." CHAPTER V bailments, including the obligations op postmas- ters, innkeepers, common cabbiebs, and tele- graph companies § 1. Nature and Classification of Bailments 189. Origin and modification of the term. — BailmeBt is derived from the French word iailler, meaning to deliver, and was originally applied to the class of business transac- tions which we are about to consider, because the basis of obligation in every case was supposed to be the delivery of something by its owner, called the bailor, to another, called the bailee. The term has been modified and broadened, however, so as to include transactions, where there has not been a delivery by the owner. A person who finds an article and takes it into his possession is a bailee. So is a sheriff, marshal, or constable who takes property under an execu- tion or other process of a court. So is a postmaster or letter- carrier, although the article, when put into his possession, is not owned by the one who delivers it at the post-oifice, but the one to whom it is directed.. At present, therefore, the distinguishing characteristic of a bailment does not consist in the fact of a delivery of personal property by the bailor to the bailee, so much as in the fact that the person having possession of the property is under a duty to hold it for a special purpose, and to sur- render it when that purpose is accomplished. 127 128 ESSENTIALS OP BUSINESS LAW 190. Bailee's duty may result from agreement or from a rule of law. — Ordinarily the duty of the bailee, referred to above, is fixed by the terms of his agreement with the bailor. A man borrows a horse, or receives a watch to be cleaned, or undertakes to transport a package as a common carrier J in each case he expressly or impliedly contracts to surrender the property as soon as the special purpose for which he has received it is accomplished. But what of the finder of goods, or the sheriff who has seized them under an execution, or a postmaster or letter- carrier in possession of mail-matter ? In neither case does a contract exist between the bailor and bailee. And yet if the finder disposes of the goods without any effort to dis- cover the owner, or if he refuses to deliver them to him upon demand, he commits the tort of conversion, and ren- ders himself liable to pay the owner for the goods. Indeed, he may commit larceny, and be liable to criminal punishment therefor. So the sheriff is bound to surrender the goods seized by him if the owner tenders the amount of the execu- tion and sheriff's fees. And the postmaster must deliver the mail to the one to whom it is addressed. If he demands more postage than he is entitled to and refuses to deliver until that is paid he may be sued and .compelled to pay damages for his misconduct.^ In each of these cases the bailee's duty to surrender the property is imposed upon him by the law. ' This was decided by the United States Supreme Court some fifty years ago. The postmaster at Syracuse, N. Y., refused to deliver a newspaper unless letter postage on it was paid. This was claimed because there was an initial upon the wrapper distinct from the direc- tion. Plaintiff refused to pay, and sued the postmaster for conver- sion before a justice of the peace. He obtained a judgment for 6 cents damages and $2.98 costs. The postmaster carried the case up through the county court, the State Supreme Court, the State Court of Appeals, to the Supreme Court of the United States, and was beaten vn each court. It would be interesting to know how much it cost the BAILMENTS 129 191. Bailment is confined to personal property, which must be delivered over in specie. — The Eoman law recog- nized a bailment of land, but our law does not. The relation existing between the owner of real property and one in possession of it is ordinarily that of landlord and tenant, never that of bailor and bailee. Moreover,, according to our law, a bailment exists only where the bailee is bound to. redeliver the very thing which is bailed to him. If A hires a flock of sheep for a year, agreeing to return the same sheep, the transaction is a bailment. If, on the other hand, he takes a flock of sheep agreeing to return at the end of three years the same number of equally good sheep and a certain amount of money, the transaction is a sale and not a bailment. Again, if a man borrows a horse of his neighbor to use for a week, we have a bailment. If he borrows a bag of oats to feed his own horse, and is to return the same amount of like oats, we have a case of barter. The distinction between bailment on the one hand and barter or sale on the other is very important. If there is a bailment only of the property, and it is destroyed while in the bailee's hands without his fault, the bailor must stand the loss. If, however, there is a sale or a barter, the other party is to bear the loss. Sometimes it is difficult to decide whether a transaction is a bailment or a sale, but the dif- ficulty always comes from the facts being confused — some indicating a bailment and others a sale.. The legal test to be applied, however, is perfectly simple and plain, and is this : 7s the very same property to be surrendered by the party in possession which he received. If it is there is a bailment, otherwise there is not. It is not to be understood, however, that it is necessary parties to settle the rule of law on this point. Probably it cost not much less than a thousand dollars. Should the student care to look up the case, he will find it reported under the title of Teal vs: Pelton, in 1 Barb. fN. T.), 513; 1 N. Y., 537 ; and 13 Howard (TJ. S.), 384. 130 ESSENTIALS OP BUSINESS LAW that the property is to be delivered up by the bailee in the same form in which it was received. A cabinet-maker who receives a broken chair or table for the purpose of supplying a new leg, or arm, or leaf, is a bailee. So is a miller who receives wheat to be converted into flour, or apples to be made into cider. Of course, if the miller agrees to deliver .a certain number of pounds of flour for each bushel of wheat, or a certain quantity of cider for each bushel of apples, and not to deliver the product of the particular wheat or apples brought to him, the transaction is not one of bailment but of barter. 192. Classification of bailments. — Perhaps the best classiflcation is that suggested by Judge Story. He divided bailments into three classes, viz. : First, those which are for the sole benefit of the bailor. Second, those for the sole benefit of the bailee. Third, those for the mutual benefit of both parties. This classification is especially con- venient, because it corresponds with the degrees of care re- quired of bailees. For example, bailees of the first class need take but slight care of the property, while those of the second class are bound to take extraordinary care, and those of the third class ordinary care, as we shall explain more in detail hereafter. § 2. Bailments for Bailok's Exclusive Benefit 193. The special purpose of these bailments. — The earliest form of bailment is still the most frequent form of the class now under consideration. Its purpose is the safe- keeping of an artide without pay. A person leaves his coat or his book in his friend's room until it is convenient for him to take it away ; or he leaves a wagon or mowing- machine in his friend's barn, or a cow in the friend's pas- ture. ,In each case, if the. owner is to pay nothing for the favor, the bailment is solely for his benefit. Less frequent BAILMENTS 131 forms of this class appear when one undertakes to carry another's property or to do some work upon it gratuitously. As a rule these bailments have the assent of bailor and bailee, but not always. The finder of property who takes it into his possession is, as we have seen, a bailee by operation of law, and the bailment is for the bailor's sole benefit. N"o compensation for finding or keeping can be lawfully claimed by the bailee. All that he is entitled to is reimbursement of any reasonable expenditure by him in properly caring for the property. It is to be remembered, however, that one can not be made a gratuitous bailee without his consent. The finder of a roll of bills, or of a diamond pin, or a valuable watch may be certain that the property will be destroyed or stolen if he does not take it into his custody. Still, he is under no legal duty to become its bailee. Nor can one be made bailee of property by having it put into his possession without his knowledge. As soon as, he discovers it he may rid himself of it, and if it is lost or injured in consequence, the owner has only himself to blame. 194. Termination of these bailments. — A bailment of the kind we are now considering may be terminated by the death or bankruptcy^ or by the voluntary act of either party. The death or bankruptcy of the bailee operates to end the bailment, because it is founded upon personal con- fidence in the bailee, and the assignee or executor may be one in whom the bailor has no confidence. Upon the bailor's death or bankruptcy the title to his personal property vests in the assignee or executor or administrator toward "whom the bailee may decline to act gratuitously. The bailment may be ended by the voluntary act of either party whenever there is no contract between them; and ordinarily there is no contract in these cases. 195. Duty of the bailee while the bailment continues. — While, as a rule, the gratuitous bailee is not bound by con- 132 ESSENTIALS OP BUSINESS LAW tract to take or keep the property, although he may have promised to do so, because there is no consideration for his promise; yet, if he does take it into his possession, he comes under a legal duty to exercise care in accomplishing the purpose for which the bailment was made. The degree of care, as we have remarked already, is less than that required in other classes of bailments. It is generally described as slight care — that is, such care as persons of less than com- mon prudence, who may still be called prudent, bestow on their own property of like kind in like circumstances. If the bailee has undertaken not simply to keep the property but to do some work upon it without charge, such as repair- ing a wagon, or doctoring a horse, of cleaning a watch, or carrying money or goods from one place to another, he is under a legal duty to do that work with at least slight care and skill. Of course, conduct that would satisfy the requirement of slight care and skill toward property of small value would fall far below that required toward property of great value. It might be no breach of duty for a gratuitous bailee to leave a horse or wagon in an unlocked barn in the coun- try, while it would be in the city. Such a bailee would not be exercising even slight care of a box of jewels if he kept them no inore securely than he would a wheelbarrow. § 3. Bailments foe the Bailee's Sole Benefit 196. The bailee's duty. — This kind of bailmerit has its origin always in an agreement of the parties. The fitst duty of the bailee, therefore, is to do as he has agreed.' If he borrows an article for a particular purpose he niay U^e it for that purpose, but for no other. If he secured the' loan of it by false statements as to' the use he intends td' make of it he is guilty of fraud, aiid i§ absolutely liable for any harm befalling it while in his possession. Such is also BAILMENTS 133 his liability when he uses it for a purpose materially differ- ent from that agreed upon. He becomes substantially an insurer of its safety. For example, A borrowed a yoke of oxen to use in plowing up a hedge, and used them in drawing stones instead. When he returned them one ox was lame. The court declared that he could not escape liability by showing that he used the oxen with the greatest care. When he used them in a way not agreed upon he took the risk of their being harmed. 197. Must exercise extraordinary care: — Even when the bailee uses the article in accordance with his agreement, he is bound to exercise more than ordinary care. His duty as generally stated is to exercise the greatest care. Or, to put it in another way, he is liable for slight negligence. But he is not an insurer of safety. If a borrowed animal dies, or is injured, or is stolen, without any fault of the bailee, the loss falls on the lender. 198. Bailee has no right to lend the property. — As a rule a person who loans property to another without pay does it because of his coniidence in the borrower. Hence the bailee has no right to lend it or give the control of it to a third party. If he does he violates the confidence re- posed in him; he breaks the agreement, implied if not ex- pressed, under which he received the property, and is liable for any injury it sustains while the third party has it, with- out regard to the care or diligence of such party. Of course, this rule does not apply when the lender understands that the thing loaned is not to be used by the bailee personally, but by some one else, such as a member of his family or a servant. 199. The bailor's duty. — ^While the duty of the gratu- itous bailee is very stringent, as we have seen, that of the bailor is very slight. Ordinarily he is under no legal duty to permit the bailee to take or to keep the property, al- though he has so agreed, for his agreement does not amount 13(4: ESSENTIALS OF BUSINESS LAW to a contract — there is no consideration for his promise. True, it is possible for a gratuitous bailor and bailee to make a contract for the loan of the property, but this is rarely done.* As a rule, therefore, the bailor may refuse to let the bailee take the property, even after promising him the use of it, or he may call for it before the time has expired for which it was loaned without incurring any legal liability. It might be unneighborly conduct, but it would not be unlawful. Again, the bailor is not responsible for defects in the article loaned unless he knew of their existence. The mas- ter of a ship loaned a donkey engine to one who was load- ing freight. Owing to a defect it exploded, and injured the borrower; but, as the master did not know of the defect, it was held that the borrower had no cause of action against him. Had he been aware of the defect, however, it would have been his duty to notify the borrower of it. § 4. Bailments for Mutual Benefit. General Principles 200. Nature and classification of mutual benefit bail- ments. — The name of these bailments fairly indicates their nature, and shows how they differ from those which we have been considering. A person sends a box of silver to 3 safe-deposit company and pays a dollar a month for storage. The transaction is a mutual-benefit bailment. The bailor iinds it to his advantage to have the property stored in a safer place than his house, possibly in a fi!re-proof and spe- cially policed building ; and the bailee receives pay for keep- ing it. These bailments have been variously classified, and learned Latin names have been given to the different classes by some authors. We shall not follow the example of these writers, but shall deal with the subject under the following 'See Appendix, p. 315. BAILMENTS 135 titles: Pawn, pledge, or collateral security; postmasters; innkeepers; the hired use of chattels; hired services about chattels, including common carriage of goods ; common car- riers of passengers; telegraph and telephone companies. Before taking up these topics for particular considera- tion it may be well for us to have in mind certain general principles running through all of them, especially those relating to the duties of the bailee and the duties of the bailor. 201. Duties of the bailee. — His first and most important duty is to guard the property with ordinary care. On the one hand he is not bound to be as careful as the gratuitous borrower, and on the other he must exercise more care than is required of the bailee who receives no benefit from the transaction. The rule, as generally stated, is this : the mu- tual-benefit bailee must use such care as an ordinarily pru- dent person uses toward like property of his own in like circumstances. It will be noticed that the test is not the care which the bailee takes of his own property of like kind and in like circumstances, but the care taken by the ordinarily prudent person. If the bailee is sued for failure to use such care it is generally a question for the jury whether he has come up to this standard or not. In ease the bailee undertakes to do something to the property for pay — for example, to repair a watch, to make a garment out of cloth furnished, or to carry goods — he is bound to do it with the skill and ability which are exer- cised by the ordinary, the average person engaged in such work. Perhaps, as in a previous section, attention should be called to the fact that the bailee's conduct, in order to come up to the proper degree of care or skill, must vary with the character of the property and surrounding circumstances. Conduct which would amount to ordinary care of a lumber 136 ESSENTIALS OP BUSINESS LAW ^ wagon might fall far below such care of an automobile. An express company may need to guard the bag of gold which it is transporting far more closely in one locality than in another; greater caution may be needed at night than in the daytime. 202. Duties of the bailor. — These depend very largely upon the contract in each case. When the bailee hires the property, the bailor is bound to let him keep and use it dur- ing the time and in the manner agreed upon. If he does not he is liable in damages for breach of his contract. When the bailee is hired to do something to the property it is the bailor's duty to pay for the services. If the amount has been agreed upon he must pay that sum ; otherwise, the fair value of the services. When property is hired for a particular purpose it is the duty of the bailor to supply an article reasonably fit for that purpose. In the ease of the donkey engine, referred to above, had the master of the ship received pay for its use he would have been under a duty to furnish an engine fit for the work, and probably would have been liable to the bailee for damages inflicted upon him by the explosion. § 5. Pawn, Pledge, oe Collateral Secueitt 203. Nature of this bailment. — It consists in the deliv- ery of personal property as security for a debt or some other engagement. Pawn is the oldest of the three terms, and is applied, at present, more frequently to petty dealings with licensed pawnbrokers, of whom we shall have a word to say hereafter, than to the larger transactions with banks and bankers, although as a legal term it is synonymous with pledge. Collateral security is sometimes used- in a broader sense than the other two terms, and, in that sense, includes a chattel mortgage, which is not a bailment. But it is also used in the narrow sense of pledge. For example, BAILMENTS ' 137 ^hen a borrower hands to his banker stocks, bonds, or mort- gages to secure payment of the debt, the transaction is spoken of indifferently as a pledge of the prbperty, or as giving collateral security. We have said that a chattel mortgage is not a bailment. They differ in two important respects : First, a bailee does not get title to the goods. He obtains only a special interest in them. A pledgee, for example, has the right to retain the goods until the debt for which they are pledged is, paid, but the pledgor is all the time their general owner. While a chattel mortgage passes the title to the mortgagee, although this title is to be passed back to the mortgagor upon payment of the debt. Second, in order to have a valid pledge, the pledgee must obtain possession of the property, while possession by the mortgagee is not essen- tial to the validity of a chattel mortgage, in the absence of some statute changing the common law on this subject. 204. Possession by the pledgee. — While the pledgee must have possession of the property, it is not necessary that he take it upon his own premises or keep it in his actual cus- tody. Indeed, after taking possession of it he may leave it with the pledgor, as his agent, and still the pledge be valid. If, however, he gives up possession of it to the pledgor, even for a short time, the bailment is at an end, and the pledgor, if dish(\nest, may sell or pledge the property to some other person, and thus defeat the first pledgee of all right to or interest in it. Again, a valid contract for a pledge may be made with- out giving possession — nay, even before that which is to be pledged has come into existence. Such a contract, however, is not a bailment. That can not arise until the property — farm crops or animals, for instance — have come into exist- ence and also into possession of the pledgee. 205. Sights of the pledgee. — In order that the pledgee have any rights the transaction must be legal. If the debt 138 . ESSENTIALS OP BUSINESS LAW for which the property is pledged is a gambling debt, a usurious debt, or any other debt which the law of the place where it is made declares to be illegal and void, the pledgee can not hold the property against the pledgor's demand. The pledge of some things, such as the pensions, bounties, and pay of soldiers and sailors, is forbidden by law. A pledgee of such property acquires no interest in it or rights over it as against the pledgor. When, however, the pledge transaction is a valid one, the pledgee has the right tw retain the property until the debt is paid. But he has no right to hold it as security for any other debt or liability. If the debt is not paid at the time agreed upon he may sell the property at public sale after due notice to the pledgor, and apply the proceeds, over and above the expenses of sale, to the debt. Very often the contract between the pledgor and pledgee gives the latter the right to sell at private sale, and without notice to the pledgor. While the pledgee may sell, he is not bound to do so, but may hold the property and sue the debtor. If he pursues the latter course and collects the judgment for the debt, his right to the property ceases, of course. 206. Duties of the pledgee. — As pledge is a mutual- benefit bailment — the pledgor being benefited by the loan, made in consideration of the security, and the. pledgee being benefited by having the property as security — the pledgee is bound to use ordinary care in guarding the property, but he is not an insurer of its safety. If any profit is de- rived from the pledge this must be accounted for by the pledgee, and if the pledgor pays his debt the profit or in- crease of the property belongs to him as the original se- curity does. Even if the pledgor fails to pay, this profit, as well as the original security, must be applied on the debt. This rule is of especial importance when stocks or bonds or animals are pledged. The interest or dividends received from the stocks and bonds, and the offspring of the animals, BAILMENTS 139 form a part of the collateral security, and are to be dealt with as such. 207. Pawnbrokers. — Early in this section we referred to the fact that pawn is an older term than pledge or collateral security, and that, while it is legally synonymous with pledge, it is popularly limited to transactions with pawn-r brokers. This class of pledges has been the subject of un- complimentary legislation in England ever since the reign of Elizabeth, and in this country the pawnbroker's business is carefully regulated by State statutes or city ordinances, and in some of our commonwealths by both. Some of these statutes do not define a pawnbroker, but assume that the distinction between him and a money- broker or a banker is well known. Others define him as one whose business or occupation is to take by way of pawn, or pledge, or purchase on condition of selling the same back again, any goods, wares, or merchandise as se- curity for the repayment of money lent. He is often spoken of as " the poor man's banker," and many persons who fol- low this business are high-minded and worthy men. Our statutes and city ordinances proceed upon the theory, how- ever, that the great majority of pawnbrokers, especially in large cities, are ready to take unfair advantage of the needy borrower, and that not a few of them are in league with thieves. Accordingly, pawnbrokers are required to take out a license, to give a bond for the faithful perform- ance of the duties or obligations pertaining to their busi- ness, to keep books in which all their transactions are en- tered, to permit inspection of their books by the proper au- thorities, to hold the property pawned for a year before Belling, and to exhibit stolen goods upon demand to the owner or his authorized agent. The rate of interest which they may lawfully charge is generally fixed, and the manner in which the property shall be brought to sale if it is not redeemed is carefully prescribed. 140 ESSENTIALS OF BUSINESS LAW § 6. Postal Bailments 208. Their peculiar character. — It was stated in an earlier section that a postmaster is a bailee of mail-matter in his possession, and is liable as a bailee if he refuses im- properly to deliver it. Attention was then called to the fact that this bailment relation did not arise from a con- tract between the parties. It is true that the sender of mail- matter does enter into a contract with the Government for its transportation. A person wishes to send a letter from New York to San Francisco. He buys a postage stamp, puts it on the envelope, and deposits the letter in a post-box or hands it to a letter-carrier. By so doing he has accepted a standing offer of the Government, and thus closed a con- tract with it for the carriage of the letter to San Francisco, and its delivery to the person to whom it was addressed. If he had made a similar contract with an individual or an express company, such bailee would have been bound to use ordinary care and skill in carrying and delivering the letter, and if it had been lost, stolen, or destroyed because of the bailee's failure to use such care and skill, he would have been liable for it. The rights of the sender of mail against the Government are quite different. Although he has a valid contract, he can not sue the Government for any breach of it. The letter may be stolen by a postal clerk, or it may be lost through the negligence of some agent of the United States, still, neither the sender nor the one to whom it is sent can maintain a suit against the Government. Nor would the sender or the person to whom the letter was mailed have bettered his position had he registered it. Eegistra- tion of a letter or a package makes it easier to detect the dishonest or the careless agent, but it makes no difference in the liability of the Government, unless it assents. This non-liability rule seems a harsh one, especially BAILMENTS 141 when coupled, as it is in this country, with statutes which secure to the Government a monopoly of carrying mail- matter. Under these statutes it is a penal offense for any one to establish an express, or in any manner to provide for the conveyance of letters or packets over any post-route established by law, including the route of a letter-carrier, in a town having the free-delivery system. It is also a penal offense for any one tn send mail-matter by such private express or other conveyance. Notwithstanding the harsh- ness of this rule, it is rigidly enforced. The Government, although a bailee o£ mail-matter for hire, does not permit itself to be sued for the loss, destruction, or theft, even when this results from the gross negligence or even the dishonesty of its agents. 209. Liability of postal officers. — Not only is the Gov- ernment free from legal liability in the cases just men- tioned, but so is the Postmaster-General or any other postal official, unless his own act has caused or directly contributed to the loss. Of course, any postal official, no matter what his rank may be, who carelessly loses a letter or wilfully destroys or withholds it without authority of law, is liable in damages to its owner; but the rule of lia- bility of a private principal for the acts of his agents, which we discussed in the chapter on Agency, does not apply to public officers. The reason for this is twofold. In the first place, the officer is not carrying on a business of his own, but the business of the Government. He is not the principal, and hence is not subject to the duty which rests upon the proprietor of a business, to see that it is carefully conducted. In the second place, his subordinates are not his agents, but are officers of the Government precisely as he is. They do not act for and represent him, but the Gov- ernment. 210. Summary. — To sum up, then, postal bailments have some peculiar characteristics. The bailor makes his con- 142 ESSENTIALS OF BUSINESS LAW t]*aet with the Government, but can not maintain an action for its breach, because the State does not allow itself to be sued. Any postal official having mail-matter in his pos- session is a bailee thereof, but he is liable only for his own acts, and those which he orders or advises. In short, the postal bailee's liability is exceptionally small. 210 (a). The non-liability of the Government under postal bailments has been modified by recent statutes. These provide that the Postmaster General shall make pro- vision for the indemnification of persons who have their letters or packages duly registered. Such regulations have been made and published. At first the indemnity was lim- ited to $10 on each package of first-class mail matter (Comr piled Laws of 1916, § 7405). Later the Postmaster-Gen- eral was authorized to increase it to $100 on each package (§ 7406). Still later the indemnity was extended to third and fourth class matter, for not more than $25 for each package (§ 7407). 210 (b). Parcel-post.— In 1912, Congress instituted a new department in the postal service for the conveyance of third and fourth class mail in larger quantities and at lower rates than theretofore. (Ch. 389, L. 1912, 37 St. L. 557; Compiled Statutes of 1916, § 7624.) By the section last cited, authority is given to the Postmaster-General to make provision for the indemnification of shippers for shipments injured or lost. In accordance with the regulations made by the Postmaster-General, valuable domestic parcel-post mail may be insured against loss or damage, upon the pay- ment of three cents for value not exceeding $5 ; of five .cents for value not exceeding $25; of ten dents for value not exceeding $50; of 25 cents for value not exceeding $100. Upon presenting such' mail properly packed and addressed, the shipper upon paying the postage and insurance fee receives a receipt in the following form: BAILMENTS 143 Receipt toe Instjked Mail No This receipt represents a parcel insured, and must be presented in the event of application Fee paid. . . .ct's. for indemnity which must be made within six (Postmark.) months from date of mailing. The sender should write the name and address of the ad- dressee on the back hereof. Was inquiry made as to contents and packing? POSTMASTER, by Parcel-post matter may be sent "C.O.D." from one money-order post-ofBee to another for an amount not ex- ceeding $100. By this means, a parcel may be sent to the buyer from whom the postal agent collects the price and remits it to the seller, for a fee varying from 10 to 25 cents. 310 (c). ITnited States not suable. — While the govern- ment thus engages in carrying goods, it does not permit itself to be sued as a common carrier. It engages to in- demnify the shipper against injury or loss, but to do this out of postal funds and by proceedings regulated by the postal department, under special statutory provisions. It is. not liable to actions at law on the bailment contract for the carriage and delivery of the package. Even before the statutes gave the right of indemnifica- tion in the case of registered or insured mail, and when the government was under no legal obligation to the owner of injured, lost or stolen mail, it was accustomed to investigate losses and to seek to recover and restore to the owner the value lost, or so much thereof as was possible. The govern- ment now recognizes a legal responsibility to the limited amounts named above. Moreover, it uses its utmost en- deavor to find and restore a lost piece of mail, and if the loss is not caused by a casual disappearance, but is due to the dishonesty or unfaithfulness of its servants, compels restitution from the culprit and from those responsible for 144 ESSENTIALS OP BUSINESS LAW his faithful service. At least such is the statement of a distinguished Attorney-General of the United States. (23 Opinions of Atty.-Genl., 476, 478.) 210 (d). United States may sue. — Postal officials and agents are required to give bonds for the faithful perform- ance of their duties. In case mail matter is lost through the dishonesty or unfaithfulness of one of these persons, the United States may sue the sureties on the bond. In such a case, its recovery is not limited to the amount it is liable to pay the owner of the lost mail. It can recover the entire value of the property, if the bond is for that amount. After reimbursing itself, it will pay the balance to the owner. In a recent case, a bank sent three packages of bank notes by registered mdil. They were stolen by a postal clerk and more than $3,000 thereof put into circulation and thus lost to the bank. The government paid $150 to the bank, under its indemnification agreement, and sued the surety on the dishonest clerk's bond for the full amount of the penalty named in the bond, which was $1,000. The surety insisted it should .pay only $150 ; but the court held that it was liable for the full penalty of $1,000. Even that did not cover the loss of the bank. The court quoted with approval from the Attorney-General's opinion, already referred to, this language: "The Government is morally bound to re- cover from a dishonest official the entire amount of his embezzlement, and, of course, is equally bound in conscience, a^ the statutes recognize, to return to the owner of the registered letter the entire amount thus recovered froni its dishonest employer or from his surety," § 7. Innkeepers 211. Definition, — An inn, as that term is used in Eng- lish common law, is a public house of entertainment for travelers. Its public character is often indicated by a BAILMENTS 145 sign, but a sign is not necessary to an inn. It is to be dis- tinguished on the one hand from the lodging-house, and on the other from the restaurant or the saloon. The inn- keeper undertakes to provide for the traveling public both lodging and food. In this country, tavern and hotel are used interchangeably with inn. Tavern was formerly the ordi- nary designation, but at present hotel is used more fre- quently than either of the other terms. In this section we shall use inn rather than tavern or hotel, because it is the term generally used in statutes and in judicial decisions. Perhaps it should be noted that tavern, in England, is not synonymous with inn or hotel, but with restaurant or re- freshment room. It is not necessary that a house be kept open for the entertainment of the public throughout the year in order to be an inn, as is seen in the case of a hotel in a summer or a winter resort. On the other hand, a private house does not become an inn by being thrown open to the public for a few days during a festival, a fair week, or other special occasion. Oftentimes a public house is conducted on what is known as the "European plan." It provides lodging for its guests, and gives them the option of taking meals in the hotel or elsewhere. Such a house is an inn. 212. Whom must the innkeeper receive? — As he is en- gaged in a sort of public employment, the common law made it his duty to receive every traveler or sojourner who applied for entertainment and was ready to pay for it, provided the house was not full and the applicant was fit to be received. Such is still the rule. The innkeeper has no right to dis- criminate between guests, taking some and turning away others, as whim or personal prejudice may dictate. So long as he has accommodations he must take all fit comers, and treat them fairly. He has the right, however, to charge more for some rooms than others, and is not bound to give 146 ESSENTIALS OP BUSINESS LAW a guest his pick of rooms, even among those of the same class. An innkeeper who refuses to receive, or, after receiving, turns out of his house a guest, without legal excuse, is liable for such damages as his act causes the guest, and may be indicted and punished therefor criminally. In some of our States, statutes have been passed making it a misdemeanor for an innkeeper to discriminate against guests on account of race, color, or creed, and subjecting him to heavy penalties for such discriminations. ^ We have seen that the law does not force an innkeeper to receive unfit persons as guests. Accordingly, he may reject drunken, disorderly, or openly vicious persons; also those coming from infected districts, whose presence would drive away other guests; as well as persons who insist upon bringing their dogs to share with them the corridors and rooms of the hotel. Whether he may lawfully reject or turn away one whose table manners are unpleasant to others seems to depend upon the degree of their vulgarity* A learned English chief justice once ruled that a guest could not be turned away simply because " he was in the habit of reaching across other guests at table, and of taking pota- toes and broiled bones with his fingers." This, said the judge, was not such a " degree of want of polish as would, in point of law, warrant" the innkeeper in excluding the guest from the- inn. 313. Treatment of sick ^ests. — An innkeep'er is not bound to turn his house into a hospital. If a guest falls sick, "mine host" may insist upon his leaving the inn, especially if the disease is contagious; but this exclusion must be carried out in a reasonable and humane manner. A few years since a Pennsylvania innkeeper turned a sick guest ojit of his house and left him on the pavement in a pelting storm, from which exposure he died. Such conduct BAILMENTS 147 the jury found was indefensible, and rendered the landlord liable to damages for the guest's death. 214. Innkeeper's liability for personal injuries to guest. — Something more than three hundred years ago the court of King's Bench in England declared that "if the guest be beaten in the inn the innkeeper shall not answer for it," giving as its reason that " the innkeeper ought to keep the goods of his guest but not his person." Such is not the modern doctrine in this country. N"ot only is the innkeeper liable for personal injuries inflicted by himself or by his agents and servants within the scope of their employment, but, in some cases, for those inflicted by other guests. Here, again, Pennsylvania furnishes a recent decision in point. Two boys became intoxicated in the defendant's tavern. One of them pinned a piece of paper to the other's coat and set fire to it. As a result the victim of the joke was badly burned. The court held that if the defendant saw what was going on and failed to protect the plaintifE, or if he was guilty of making drunk the boy who pinned and fired the paper, he was liable for the damages sustained by the plaintiff, and this general rule was laid down : " Where one enters a saloon or tavern opened for the entertainment of the pubUe, the proprietor is bound to see that he is properly protected from the assaults or insults, as well of those who are in his employ as of the drunken and vicious men whom he may choose to harbor." An innkeeper is also answerable for injuries sustained by his guest because of the unsafe or unsanitary condition of the inn, or because of unwholesome food. If an innkeeper knows that a room has been occupied by a guest sick with smallpox he is bound to have it disinfected. He is also bound to exclude persons whom he knows or has reason to suspect are suffering from contagious diseases. If he is negligent in either of these respects, or in keeping his premises in a reasonably safe condition, or in providing 148 ESSENTIALS OF BUSINESS LAW wholesome food and drink, he is liable for damages due to his negligence. 215. Innkeeper's liability for guest's property. — This is much more severe than his liability for the guest's person, and is substantially that of an insurer. He is bound to keep the property of a guest safely. It is no defense for him at common law that it has been stolen by burglars, or destroyed by a mob or an incendiary fire. Unless he can show that its loss or injury is due to an act of God, or of the public enemy, or the neglect or fraud of the guest, he must pay for it. At least, such is the common-law rule in England and in most of our States. A few of our courts, however, have favored a less rigorous rule, which exempts the innkeeper from liability upon proof that the loss was not due to any fault on his own part or on that of his agents or servants. The common-law rule originated at a time when innkeepers were frequently in league with thieves and highwaymen — a period which is vividly pictured by Charles Eeade in The Cloister and the Hearth. While the modern hotel and the highways leading to it are not infested with thieves and robbers, as were those of three or four centuries ago, the great majority of modern judges have enforced the old rule rigorously. Chief-Justice Shaw, of Massachusetts, declared that " it was founded on the expediency of throw- ing the risk on those who can best guard against it," and Judge Porter, of the New York .Court of Appeals, asserted that "its abrogation would be the removal of a safeguard against fraud, in which almost every citizen has an imme- diate interest." 316. Statutory modification of innkeeper's liability. — The rule has been modified to some extent by legislation both in England and in this country. While statutes on this subject diiler in matters of detail, their main purpose is ito pelieive the innkeeper from his common-law liability for [money, jewelry, and the like belonging to the guest, which BAILMENTS 149 are not delivered to him for safe-keeping. To bring him- self within the protection of these statutes, he must gen- erally provide a safe place for such valuables, and must post notices in the prescribed places and form. In some states the legislature has exempted him from liability for property destroyed by an incendiary fire. As a rule, these statutes have been construed very strictly, and the inn- keeper, who has failed to observe their requirements in any respect, has lost the benefit of them altogether. For exam- ple, the English statute required the innkeeper to post a plainly printed copy of the first section. That section con- tained the words "wilful act, default, or neglect." It was held that an innkeeper whose posted copy omitted the word " act," had not complied with the statute, and was not en- titled to its benefit, but remained subject to his common- law liability. 217. The common-law exceptions to liability. — As was stated in a preceding paragraph, the innkeeper is not liable for the goods of a guest which have been injured or de- stroyed by the act of God, by the public enemy, or by the fraud or fa who pays full value for it, believing the finder was the true owner of it. What are X's rights to the stock? 16. What does the holder of a certificate of stock warrant, when he sells and indorses it to another? 17. A, the owner of a certificate of stock, loses it. He has never indorsed it. What should he do ? 18. To what extent are corporations subjected to super- 340 ESSENTIALS OF BUSINESS LAW vision, by State and Federal authorities, and for what pur- pose ? 19. What is the object of appointing a receiver of a cor- poration? What preference is given to debts incurred by receivers over the claims in existence when the receiver is appointed? 20. What are the rights of stockholders in the manage- ment of the corporation? To whom do they usually commit the management of its affairs? 21. A banking corporation makes a contract to buy a rail- road. The owner of the road refuses to perform the contract. Can the bank maintain an action for damages against the owner ? 22. The State of New York charters a manufacturing cor- poration. A few years later the State passes an act dissolving the corporation. What effect has the act on the rights of the corporation ? CHAPTER X § 1. Pages 269-262 1. X gives to T a deed of the following property: One acre of land within defined boundaries; the right to drive to and from such land over other lands of X; all the loose stones on certain other lands of X, and certain promissory notes made by various persons, and owned by X. Which of the things thus deeded is corporeal real property? Which incorporeal real property? Which is tangible personal property? Which is a thing in action? 2. A has gas pipes put into his dwelling house and gas chandeliers attached to the pipes. He also has book shelves put into his library, which are nailed to the floor and the wall. Thereafter he sells his house to B. Does the deed of the house convey to B title to these pipes, chandeliers, and bookcases ? 3. Suppose A had been a tenant of the house when he put in these things. Would he have been entitled to take them away at the expiration of his lease? PRACTICE PEOBLEMS 341 § 2. Pages 262-268 1. A steals a sheep from B, and keeps it two years, shear- ing it each year. At the end of this time B discovers the sheep and the wool, and takes them from A. Is he entitled to keep them? 2. A dies without having made a wiU, leaving both real and personal property. Who becomes the owner of such property ? § 3. Pages 268-271 1. A mortgages his house to B to secure the payment of $1,000 within a year. He fails to pay. What are the re- spective rights of A and B to the land? 2. X owns certain real estate. Later he marries, and while his wife is living sells the land for full value to Y, and gives his warranty deed thereof. Has Y obtained a perfect title? If not, in what respect is it defective? 3. A sells and conveys certain land to B, who fails to record the deed. Thereafter A sells and conveys for full value the same land to C, who immediately records his deed. Can C hold the land free from any claim of B? CHAPTEE XI § 1. Pages 275-281 1. A orally agrees with B to manufacture and sell to him a quantity of glassware for $100, each piece of glass to have B's monogram cut upon it. A tenders the glass in accord- ance with the agreement. B refuses to receive and pay for it. A sues B for the agreed price, and B sets up the statute of frauds. Can A recover ? 2. Would your answer be different if B had paid $1 toward the price, or if he had received and kept one of the pieces of glass? 3. Suppose A had tendered and B had received and kept a part of the glass, and when the balance was tendered, B had 342 ESSENTIALS OF BUSINESS LAW rejected it because the monogram was not cut, but was painted upon the glass. Could A c'ompel B to receive and pay for such balance? § 2. Pages 281-287 1. A offers to sell his horse Jack to B for $100 cash. B tenders the cash. Who owns the horse? 2. A offers to sell his horse Jack to B for $100 as soon as the horse returns to A's stable. B pays the $100, and di- rects A to send the horse to him as soon as he returns to A's stable. Before he returns to A's stable he is killed by a stroke of lightning. Who owned the horse' when he was killed? What rights, if any, has B against A? 3. B looks at A's ox and says, "If you will feed him up to good beef condition I will pay you $60 for him a month from to-day, and here is $1 to bind the bargain." At the end of the month A tenders the ox in good beef condition and demands $59. B refuses to receive and pay. Who owns the ox? What are A's rights against B? 4. A in New York orders B in Buffalo to ship him 1,000 bushels of white dent corn at $1 a bushel. B ships the corn as ordered and draws upon A for the price. Who owns the corn? 5. Would your answer be the same if B had taken a bill of lading, making the goods deliverable to his Order, and sent this to an agent in New York with instructions to hand it over to A upon the latter's paying a sight draft for the price? 6. X steals Y's horse and sells it to Z, who pays full value, honestly believing the horse to be X's. Later Z sells the horse for full value to A. Can A hold the horse as against X? 7. Would your answer be different if A had been a pawn- broker, and had received the horse from Z as a pledge for money borrowed at the time by Z from A? § 3. Pages 287-291 1. A believing he has perfect title to a watch offers it for sale to B for $50, who pays the price and receives the watch. PRACTICE PROBLEMS 343 In fact, it was C's watch, and he takes it from B. What are B's rights against A? 2. B orders 100 pounds of butter from A, who supplies that quantity of what he has bought in the market as butter, but which B upon examination discovers to be oleomargarine. Is B bound to keep and pay for this ? 3. A_ orders a water filter from B, which will not work as a filter. What are A's rights against B? 4. A sells his horse Jack to B for $100, who pays the money aiid demands the horse. C has a chattel mortgage on the horse, and refuses to allow A to give B possession of the rnimal. What are B's rights against A? 5. A advertises for sale a farm wagon which is described as sound in every respect. B examines it after telling A that he has read the advei-tisement, pays the price and takes the wagon. The next day it breaks down, and it is apparent that the part breaking was unsound when the wagon was sold. What are B's rights against A, assuming that A Was ignorant of the unsoundness when he sold the wagon? § 4. Pages 291, 292 1. A sells his wagon to B for $50. Within an hour, and before B can take the wagon from the barn where it is stored, ^ it burns. Who must bear the loss? 2. What would your answer be if A's agreement was to sell the wagon to B the next day? 3. A sells his horse to B for $100, which sum B pays at once. At the time of sale the horse is in X's boarding stable. B does not take him for two weeks. Who is liable for the horse's keep during that time? 4. A says to B, You must sell me your horse Jim, and B turns the horse over to A, who takes him away. Can B main- tain an action against A for the price of the horse? If so, how is the amount of the price ascertained? § 5. Pages 292-296 1. A sells a stack of hay to B for $50, B paying $10 down, and is to pay the balance within three months. Before taking 344 ESSENTIALS OF BUSINESS LAW and paying, B becomes insolvent. He sends men to take away the hay. Is A bound to let them take it? 2. A sells a carload of wheat to B, taking his note at three months for the price. Before the wheat reaches B he becomes insolvent. What are A's rights over the wheat? 3. The unpaid seller of certain goods stops them in tran- situ. What may he do with them? § 6. Pages 296-299 1. How has the Uniform Sales Act modified the provision of the statute of frauds? 2. A makes an agreement with B for the present sale of the crop of potatoes which A promises to raise on his farm the following year. What is the legal effect of the contract? 3. A agrees to sell to B a piano, which B is to pay for in instalments, and it is agreed that title is to remain in A until the entire purchase price is paid. After B has paid half the price, he fails to pay the next instalment when it falls due, and A takes the piano from B. What are B's rights against A? 4. A sells a horse to B warranting that the horse is sound. After paying the price and taking title to the horse B finds that it is unsound. Is he entitled to return the horse and recover damages for B's breach of the contract? CHAPTER XII Pages 302-314 1. What is a bank? How are banks classified? What is the difference between a bank note or bill, and the promissory note of an individual? 2. For what purpose are savings banks organized? How do their business and practices differ from ordinary commer- cial banks? 3. Name the services rendered to a community by the commercial bank. PRACTICE PROBLEMS 345 4. Has a depositor the right to draw against checks as soon as he has deposited them ? What is a pass book and how should it be used by the depositor? 5. Define the terms " loan," " discount " and " rediscount." 6. Does a commercial bank pay interest to its depositors on their deposits? What is usury, and what the liability of one who takes usury? 7. Is a bank on which a check is drawn bound to cash it, if it has sufficient funds of the drawer on hand? 8. What is the liability of one who gives a check for $100, knowing that he has but $10 to his credit? 9. Has the drawer of a check the right to revoke it ? What should the owner of check do, upon losing it? 10. If a bank pays a check, upon which the drawer's or the indorser's signature is forged, or which has been altered without the drawer's consent, is it entitled to credit itself with the payment? 11. When should a check be presented to the bank on which it is drawn? 12. Describe the operations of a clearing house. 13. For what purpose are' farm loan banks organized and conducted ? 14. Describe the Federal Reserve Bank system and the services it has rendered. 15. What are the probabilities of American bankers play- ing a large role in international banking? INDEX Abstract of title, 271, 273, Acceptance, of offer, 35. must be absolute and unequiv- ocal, 39. of bill of exchange, 210, 213, 214. under statute of frauds, 280. Acceptor of bill of exchange, who is, 210, 212. liability of, 213, 214. Accident insurance, 200. Accommodation for passengers, 172. Accommodation paper, 217. Acquisition pf property, 259, 262. Act of God, 148-151, 159. Action, things in, 26 X, 299. Acts, may amount to offer or ac- ceptance, 35. principal's liability for agents', 114-119, 124, 12S. agent's or servant's liability for his, 116, 118,. * of bankruptcy, 188. Age, golden, silver, iron, lead, 2. at which infancy ends, 59. Agency, definition of, 101. how it originates, 101. by ratification, conditions of, 101, 102. by operation of law, and by estoppel, 103. legal capacity of parties, 104. Agency of attorneys, 106-108. of auctioneers, 108. of bank cashiers, 109. of brokers, 109. of factors, 110. of ships' husbands, 111. how terminated, 112, 113. of a partner, 241, 247. Agent, who is, 101. capacity of, 103. distinguished from servant, 105. classification of, 105. difference between general and special, 106. attorney as an, 106-108. auctioneer as an, 108. bank cashier as an, 109. broker as an, 109. factor, or commission mer- chant as, 110. ship's husband and master as, 111. liability of, for his own acts, 116, 120. liability of, for unauthorized contracts, 120. liability of, for improperly ex- ecuted contracts, 121. rights of, against third parties, 122. ■ duties of, to principal, 123. of common carriers, 158-175. 347 348 ESSENTIALS OF BUSINESS LAW Agent, New York as central re- serve agent, 314. Agent of insurer, 202. a partner as an, 241, 247. Anti-trust act, 70. Appointment of agents, 101. Appropriation of goods to sale contract, 285. Approval, sale on, 284. Artificial person, 251, 254. Assent, mutual, necessary to a contract, 72-86. Assignment of contract, 90-92, 212. notice of, 91. rights under, 90. by operation of law, 92. Attorney, at law, 106. in fact, 107. letter of, 107. Auctioneers, the agency of, 108. may sue in their own names, 109. Authority of agent, 114-119. Authority of a partner, 241, 247, 248. Baggage, what is, 174. carrier's liability for, 168, 174, 175. time for removal of, 175. lien of carrier on, 175. Bailee, various examples of, 127. finder of goods as a, 128. postmaster as a, 128, 140, 141. duty of, in bailments for bail- or's sole benefit, 129. duty of, in bailments for bailee's sole benefit, 130, 131. duty of, in mutual benefit bail- ments, 133. postal ofScer as a, 140, 141. Bailee, innkeeper as a, 144- 52. hirer of chattels as a, 152. who renders service about chattels, 154. common carrier of goods as, 159-166. common carrier of passengers aa, 170-175. Bailments, origin and modifica- tion of term, 127. usually result from agreement, 128. confined to personal property, 129. differ from sale or barter, 129. classification of, 130. for bailor's sole benefit, 130, 131. for bailee's sole benefit, 132, 133. mutual benefit, 134-136. pawn, pledge, or collateral se- curity, 136-139. postal, 140-144. in case of innkeepers, 144-152. hired used of chattels, 152. hired services about chattels, 153. Bailor, meaning of term, 127. duties of, 133, 136. rights of, against postal offi- cials, 128, 140-144. who lets chattels, 152. fault of, 160. deception by, 160. Bankruptcy, of bailee or of bail- or, 131. severity of early laws of, 184. differs from insolvency, 185. legislation in United States, 186. INDEX 349 Bankruptcy, State laws of, now suspended, 187. theory of modern legislation, 187, 188. importance of Federal law of, 188. who may be subjected to, 188. what are acts of, 188, 189. law of 1867, speech about, 188 n. Bankruptcy, courts, referees, and trustees, 189. discharge in, 190. Banks, banking business, 302. classification of, 303. savings, 303. investment, 304. commercial, 304. deposits, 305. loans and discounts, 305. interest and usury, 306. checks, 307. forgery and alteration, 308. presentment of checks, 309. clearing houses, 309. state banks, 310. national banks, 311. farm loan banks, 311. federal reserve bank, 312. bank notes, 313. international banking, 313. Bargain and sale, 281-285. Barter, how it diflfers from bail- ment, 129. Bill of exchange, form of, 206. foreign, why used, 207. inland, what is an, 208. drawee and acceptor of, 210, 212. drawer of, 210, 215. parties to a, 210, 211. Bills of lading, 168, 300. Blackstone, Sir William, 1, 252. Bona fide holder, 226-231. Bond, definition of, 44. legal peculiarities of, 46-49. Breach of contract by one party, consequence of, 96-98. Buller, Mr. Justice, 21, 31. Business, definition of, 235. a common, 235. Business law, 10. Buyer, rights of, against seller, 287-290. duties of, 263, 264, 291, 292. remedies of, 296-298. Capacity of parties, general rule, 57. when one is an alien, 57. in case of married women, 58. in case of convicted criminals, 58. who are infants, 59-64. who are lunatics or drunkards, 64-66. to agency, 104. Capital of a partnership, 237, 245, 249. Capital of corporation, 253. Care required of bailee, 131, 133, 153, 154, 159. Care required of carriers of pas- sengers, 170-175. Carmack amendment, 168. Carriers, common, definition and general duty, 158. may refuse to carry, when, 159. liability of, for goods, 159-166. regulations of, when reason- able, 164, 167. statutory regulations of, 165, 167. of passengers, 170-175. 350 ESSENTIALS OF BUSINESS LAW Carriers, common, and stoppage in trwnsitu, 294. Chancery, court of, 25. Charter of corporation, 251, 255, 256. Chattel mortgage, 137, 271. Checks. ' See Negotiable Paper and Banks. form and definition of, 209. liability of ^ank on which drawn, 213 n, 307. certification of, 215, 307. Coins of United States, 96. Collateral security, 136-139. Commission merchants, 110. Common carriers. See Carriers. Common law, technical and dila- tory, 12, 25, 27. courts of, 12, 18. amalgamated with law mer- chant, 21. meanings of term, 23-25. of American States, 24. origin of, 26. flexibility of, 31. Bentham's view of, 31. Hale's encomium, 32. specific rules of, 32. Communication of offer, 42. of withdrawal, 42. of acceptance, 43. Condition, delivery upon a, 47. sale upon a, 283. Condition sales, 300. Consideration, necessity for, 44. in case of sealed contracts, 44, 49. dbctrine of, 49-52. Contracts, Roman law of, 7. joint, 11. chapter on, 33-97. definition of, 33. Contracts, obligations which are not, 34. differ from quasi-contracts, 34. may be made by acts, 35. require definite offer and prom- ise, 37, 38. withdrawing offer, 40. communication of offer, 42. communication of withdrawal, 42. communication of acceptance, 43. consideration for, 44-52. under seal, 44-49. capacity of parties to, 57-66. if illegal are unenforceable, 66- 72. persons affected by, 86-89. rights and obligations under, 86-89. assignment of, 90-92. discharge of, 93-100. breach of, by one party, 96- 100. vital or fundamental term of, 98. repudiation of, by one party, 99. of agency, 101-123. how agent should execute, 121. for bailments, 127-181. modifying carrier's liability, 163, 165, 173, 180. modifying telegraph, company's liability, 177. discharge from, in bankruptcy, 193. of insurance, 191-204. of indemnity, 197-201. which are negotiable, 206-231. of partnership, 232-249, INDEX 351 Contracts, by corporations, 255. for sale of personal property, 275-301. Conversion, by bailee, 128, 153. Conveyance of real property, 268- 274. Copper and scales, conveyance with, 6. Copyright, title by, 264. Corporations, definition of, 251. how created, 251. charter of, 252. stock and stockholders of, 253, 254. contracts by, 255. dissolution of, 255. receivers of, 256. federal, 256. transfer of stock in, 257. supervising, 258. Corporeal real property, 260. Courts, merchants', 12, 206. of staple, 12, 207. pepoudrous, 13, 17. of common-law, 12, 18, 26. of equity, 12, 16, 25. of bankruptcy, 189. Criminal liability of principal for acts of agent or servant, 118. of finder of goods, 128. Crops as personal property, 261. Cummins amendment, 168. Damages when buyer is liable for, 292. action for, by buyer, 297. extraordinary special, 297. Dartmouth College case, 252, 255. Death of offerer, 41. Death of former owner of prop- erty, 239. Deed, definition of, 45. delivery of, 46, 47. legal peculiarities of, 46-49. various kinds of, of real property, 268, 271. Defenses to' negotiable paper, 229-231. \ Delay in presenting negotiable paper, 220; 309. Delivery of a deed, 46. of a simple contract, 47, 218. necessary [to validity of nego- tiable paper, 218. place of, in sale of goods, 290. Demand, paper payable on, 212, 227. of payment of negotiable pa- per, 214, 219. Description, s^le by, 288. DisaflBrmance for fraud, 81, 82. Discharge of contract, 91. by performance or release, 93, 95. by new contract, 94. by happening of stipulated event, 94. by performance, 95. by tender of payment, 96. by breach of one party, 97- 100. in bankruptcy, 190. Disclosed principal, 119. Dishonor of negotiable paper, 218-225. Dissolution of partnership, 243- 245, 248. of' corporations, 255, 256. Distribution of partnership prop- erty, 245, 248. Dower of widow, 267, 270. 352 ESSENTIALS OP BUSINESS LAW Drawee of bill of exchange, nec- cessi|;y for, 212. Drawer of bill of exchange, who is, 210. liability of, 215. Drunkards, contracts of, 64-66. Duress, its forms and conse- quences, 82-84. Duties of principal to agent, 123. of agent to principal, 121, 122. Duties of bailee, 131, 132. of bailor, 133. of pledgee, 138. of seller of goods, 287-290, 301. of buyer of goods, 291, 292. Easements, 260. Equity, courts of, 12, 16, 25. intervention of, 29. specific performance decreed by, 96. Escrow, what is an, 47. Estoppel, by deed, 48. agency by, 103. of insurer, 197. Factor as an agent, 110. Factors acts, 286. Farm loan banks, 311. Fault of bailor, 160. Federal reserve banks, 312. Finder of goods as a bailee, 128, 131, 262. Fire insurance, 194-198. Firm, meaning of, 237. as a person, 237, 246. property of, 238, 247. creditors of, 239, 247. Fitness for particular purpose, 289. Fixtures, 262. Forbearance, as a consideration, 51. Foreign bill of exchange, 207, 221. Forwarder, common carrier as, 163, 168. Fraud, meaning of, 77. involves active misconduct, 78. may be practised by acts, 79. misstatement of opinion is not, 80. consfequences of, 81, 82. in obtaining signature to ne- gotiable paper, 231. Frauds, statute of, its object, 53. evils resulting from, 54. Frauds, sections iv and xvii, 54, 277-280, 299. does not avoid contracts, 65. as a nuisance, 56, 277-281. French law, limited partnership borrowed from, 249. Futures, definition and illegality of, 66, 67. Gift, title by, 266. God's-penny, 15. Goldsmiths as bankers, 209. Good faith, holder of negotiable paper in, 226-231. required of partners, 242. Guest, who is a, 145-152. treatment of, by innkeeper, 146. rights of, against innkeeper, at common law, 148. rights of, modified by statute, 148. Hale, Sir Matthew, 32. Hired use of chattels, 152, 153. INDEX 353 Holder of negotiable paper, rights of, how acquired, 225. who is a bona fide, 226-229. Holiday, paper falling due on, 219. Holt, Lord, 18-20. Hotel. See Inn and Innkeepers. Husband and wife, property of, 267. Illegality' of agreements, 66-71. in case of agency, 112. for Sunday driving, 153. for partnership, 234, 243. Incorporeal real property, 260. Indemnity, insurance as a eon- tract of, 197-201. Independent contractor, how he differs from agent or serv- ant, 119. Indorsee, who is, 211. Indorsement, nature of contract of, 216. various kinds of, 216, 217. delivery necessary to, 218. Indorser, the payee as an, 210, 211. liability of, 216. notice of dishonor to, 223-225. Infants, capacity of, to contract, 59. who are, 59. legal force of contracts of, 60. ^ ratification of contracts of, 62. repudiation of contracts by, 63. Inland bill of exchange, 208. Inn, definition of, 144. Innkeepers, public nature of em- ployment, 144, 145. must receive whom, 145. treatment of guests by, 146. Innkeepers, liability of, for per- sonal injuries, 147. liability of, for guest's prop- erty, 148-151. rights of, 152. Insane. See Lunatics. Insolvency, differs from bank- ruptcy, 185. popular meaning of, 185, 186. State laws of, 187. in connection with stoppage in transitu, 294. Insurance, nature and origin of, 191. mortuary tables for, 191. based on mercantile usage, 192. earliest form of, maritime, 193. fire and life, 194, 200, 204. misrepresentations in, 195, 202. warranties in, 196, 202. waiver and estoppel in, 197. as a contract of indemnity, 198. accident, 200, 201. notice to insurer, 201. agents of insurer, 202. standard insurance policy, 202. State insurance, 203. war' risk insurance, 204. Intellectual productions, 263. Intention, to enter into contract, 36. as to passing title to personal property, 283-285. Interest, agency coupled with an, 112. of insured, in subject of in- surance, 195. on demand paper, 227. 354 ESSENTIALS OF BUSINESS LAW Interest, and usury, 306. International banking, 313. International copyright, 264. Intestacy, title upon, 265. Invention, as a source of title, 263, 264. Jenekes, Congressman, speech by, 188 n. Joint contracts, T 1. Joint-stock companies, are part- nerships, 250. capital of, divided into shares, 250. statutory, 251. Kent, Chancellor, 1. Landlord and tenant, 262. Law merchant, nature and de- velopment of, 10-22, 206, 210. modern ignorance of, 14. in sea codes, 15. international character of, 15, 21. four meanings of, 22. its relation to insurance, 191- 202. negotiable paper, 206-231. Law, nature and definition of, 1. social compact theory of, 2. grows, and is not invented, 4. Law, Roman, or civil, 4-7, 23. , technical character of early, 6-8. , clothed in technical forms, 8. merchant, 10-22. common, 12, 23. agency by operation of, 103. terminates agency, when, 112. bailment by operation of, 128, 13L Law, supreme, in the United States, 186. business usages become, when, 210. dissolution of firm by opera- tion of, 243. Law of nature, 2, 16. Letter of attorney, 107. Liabilities, under contract, not assignable, 90. of principal, or ma'ster, 114- 119. of agent to third persons, 120- 122. of bailee, 132, 152, 154. of bailor, 133, 136. of pledgee, 138. of pawnbroker, 139-151. of postal officers, 141. of innkeepers, 145. of warehousemen, 155-158. of common carriers of goods, 158-166. of common carriers of pas- sengers, 170-175. ' of insurers, 191-204. of telegraph companies, 177. of parties to negotiable paper, 213-218. of partners, 241-248. Lien, of innkeeper, 152. of common carriers, 166. of seller of personal property, 293. of warehousemen, 158. Life-insurance, 194, 196, 200-204. Limited partnership, borrowed from French law, 249. characteristics of, 249. how formed and managed, 250. uniform law of, 249 n. INDEX 355 Lloyd's, its relation to insur- ance, 193. Losses of partnership, 245, 248. Lunatics, contracts of, 64-66. as partners, 244. Maine, Sir Henry, 8. Majority, powers of, in a part- nership, 240. Maker of promissory note, who is, 211. liability of, 214. presentment to, 214. Managing partner, 250. Mancipation, 6. Mansfield, Lo.rd, relation of, to law merchant, 20, 21. his view of trade falsehoods, 81. on liability of common car- riers, 160. Marine insurance, 193. Marriage, title by, 267. Married women, capacity to con- tract, 58. husband's right to property of, 267. statutes relating to property of, 267. should sign deeds and mort- gages with husbands, 270. Market overt, 286. Marshall, Chief-Justice, 7'8, 252. Master, distinguished from prin- cipal, 105. of ship. 111. liability of, for servant's acts, 114-119, 124. Mayhem, its relation to duress, 83. Memorandum under statute of frauds, 279. Merchantable goods, 288. Merchants, law of, 10-22. courts of, 12, 13, 16, 17. encouraged to come to Eng- land, 12. usages of, 15, 18, 192, 206. contracts of, 99. Merger, doctrine of, 48. Mining partnerships, 251. Misrepresentation, as an inno- cent faisstatement, 75, 76. when a term of the contract, 76, 195. fraudulent, 77. in insurance contracts, 195- 197. Misstatement of fact, 80. Mistake, nature and conse- quences of, 72. by one party to a contract, 73. due to act of third party, 74. as to existence of thing, 74. as to identity of thing, 75. Money, which is legal tender in the United States, 96. negotiable paper must be pay- able in, 211. negotiable paper as a substi- tute for, 228. Monopolies, their bearing upon contracts, 70. Mortgage, of chattels, 137. of land, 269. Mortuary tables, 191. Municipal law, definition of, 1. evolution of, 2-6. Mutual assent necessary to a contract, 72-86. Mutual benefit bailments, 134- 136. Mutual savings banks, 303. 356 ESSENTIALS OF BUSINESS LAW NeceBsaries, liability of infant for, 60. what are, 61. Megligence, of bailees, 130, 132, 135, 153, 154, 159, 170-175. exemptions of carriers from, 163, 173. of telegraph companies, 176- 178. Negotiable paper, originated in usage of merchants, 206. earliest form of, 206. inland bills as, 208. promissory notes as, 209. later forms of, 209. formal requisites of, 210-213. parties to, 210. must be payable in money, 211. payable to order or bearer, 212. liability of parties to, 213-218. for accommodation, 217. delivery necessary to, 218. . how dishonored, 218. presentment of, 218-220. protest of, 221-223. notice of dishonor of, 223-225. rights of holder of, 225-231. defenses to, 229-231. certificates of stock as, 254, 257. exception to rule that seller can not give . a better title than he has, 286. Negotiation, for a contract, 36. of commercial paper, 206-231. Northampton tables, 191. Notary public, presentment; of p?;per by, 219. Iswrt. :. protest by, 221. notice of dishonor by, 22.3. Notice, of termination of agency, 113. to insurer, 201. Notice, of dishonor of negotia- ble paper, 223-225. of defects in negotiable paper, 229. of stoppage in tra/nsitu, 285. Nuncupative will, 265. Obligation, of contracts limited to parties, 86. substitution of third parties to, 87. interference of third parties with, 88. discharge from, in bankruptcy, 190. of insurer, 195-202. of contracts, 255. Occupancy, title by, 262. Offer, and acceptance necessary to a contract, 35. must be definite, 37. withdrawing, 40. lapsing of, 41. communication of, 42. Oleron, laws of, 15, 21. Operation of law, agency by, 103. bailment by, 128, 131. discharge by, in bankruptcy, 190. dissolution of partnership by, 243. Parties to negotiable paper, 210. Partner, who is, 232. capital of a, 237. creditors of a, 239. share of a, 239, 247. powers of a, 240-247, 248-. INDEX 357 Partner, liabilities of a, 221-227, 228, 241-247, 248. Partnership, definition of, 232. agreement essential to, 232. specific intent not necessary, 233. must be lawful, 234. sharing profits in a, 236. property' of a, 237-239, 246. creditors of a, '239. how managed, 240. liability of,- for a partner's acts, 241, 242, 247. good faith required in, 242. dissolution of, 243-246. effects, distribution of, 245, 248. profits, and losses of, how shared, 245, 248. limited, 249. joint-stock company as a, 250. mining, 251. uniform act, 246-248. Part payment under statute of frauds, 286, 299. Passengers, common carriers of, 170-178. care of, by common carriers, 171. accommodations for, 172. treatment of, by carrier's agents, 172. Patents and Patent OflSce, 264. Pawn and pawnbrokers, 136-139. Pepoudrous courts, 13, 17, 206. Person, artificial, 251, 255. Personal property, what is, 259- 262. Pledge, as a bailment, 136. differs from chattel mortgage, 136, 137. ! Possession, things in, 261. title by, 263. seller's" duty to give, 289. Postal bailments, 140-142. Post-ofiBce, its use, upon the dis- honor of negotiable paper, 225. Potential existence, doctrine of, 282, 300. Power of attorney, 107. Precedents, legal, none in mer- chantaf'-oourts, 14. in common-law courts, 28-30. principles deducible from, 30. Prescription, title by, 263. Presentment of -negotiable paper, 218-221. Price, necessary to a sale, 276. under statute of frauds, 277, 299. buyer is under duty to pay, 292. Principal, who is a, 101. legal capacity of, 104. distinguished from master, 105. liability of, for agent's acts, 114-119, 124. rights acquired by, through agent, 119, 120. duties of, to agent, 123. Proceedings on dishonor of pa- per, 218-225. Profits of a partnership, 236, 245, 248. Promissory notes. See Negoti- able Paper, form of, 210. liability of maker of, 214. Property, meaning of term, 259. what may not be private, 259. real and personal, 259-262. 358 ESSENTIALS OF BUSINESS LAW Property, methods of acquiring, 262-268. conveyance of real, 268-274. sales of personal, 275-301. Property of partnership, 237-245, 246. Protest of negotiable paper, 221- 223. Public enemy, 140, 149-160. Public policy, its relation to con- tracts, 68-70, 164, 173, 176. Public service companies, 179- 181. Public utilities, 179-181. Qualified' acceptance, 214. Quasi-contracts, 34, 60. Quasi-sale, 277. Quit-claim deed, 268, 271. Katification, of infants' con- tracts, 62. of agency, 101. Real estate, of partnership, 238, 246. definition of, 259. different forms of, 260. occupancy of, as source of title, 262. will o^, 264. conveyance of, 268-274. Reasonable hour, 220. Receipt under statute of frauds, 280, 299. Recording conveyances of land, 270i 273. Regulations, of common car- riers, 164-175, 180. of telegraph companies, 177- 180. Remedies, of the seller, 292-296. of the buyer, 296-299. Reports of legal cases, their character, 28. principles deducible from, 30. Repudiation of infants' con- , tracts, 63, 64. by one party, before perform- ance is due, 99. Resale after stoppage mi transi- tu, 296. Restraint of trade, contracts for, ■when illegal, 67-70. Rights, under contracts, how limited, 86. of third parties under con- tracts, 89. assignability of, 90. of principal acquired through agent, 119. of agent against third persons, 122, 123. of pledgee, 137. of bailor against postal oflB- cials, 128, 140. of innkeepers, 152. of common carriers, 164-176. of insurers, 198, 202. of holder of negotiable paper, 225-231. of firm creditors, 239-248. of partners, 240-248. of stockholders, 254. of buyer of goods, 287-290. of seller of goods, 291-292. Rules for determining when title passes, 283-285. Sales of personal property, im- portance of, 275. definition of, 276. distinguished from similar transactions, 276. formalities of, 277-280, 299. INDEX 359 Sales of personal property, when title passes, 281-286, 300. duties of seller, 287-290. duties of the buyer, 291, 292. remedies of the seller, 292-296. remedies of the buyer, 296-298. uniform act, 299-30L Seal, 45, 268, 269, 271. Seller, can not give a better title than he has, 286. duties of the, 287-290. rights of the, 291, 292. remedies of, 292-296. Servant, distinguished from agent, 105. liability of, for his own acts, 116. Services, hired, about chattels, 152-154. Share of a partner, 239, 245, 247. Ships' husbands as agents. 111. Skill required of bailee, 131, 132, 134, 152, 154, 159, 174. Specialty, contracts by, 48. Specific performance, rarely com- pelled in sales of goods, 296. Staple, definition of, 12 n. statute of, 12. towns, 12. courts of, 13. Stare decisis, 28. Statistics, of insurance, 194, 200. of sales of personal property, 275. Statute, staple of, 12. law, 23, 24. affecting sealed instruments, 49. of frauds, 52-56, 278, 299. modifying liability of innkeep- ers, 148. Statute modifying liability of common carriers, 165, 169, 179. for limited partnership, 249. for joint-stoek companies, 251. of incorporation, 252, 256. in behalf of married women, 267. Stock exchange, 254. Stockholders of joint-stock com- panies, 250. of corporations, 253, 257. liability of, 253. power of, 254. Stock of corporations, 253, 257. Stoppage, in transitu, origin and nature of, 294. how exercisedj 295. how defeated, 295. Surrender, right of resale after, 296. of legal right as a considera- tion, 50. Survivorship, at common law, 11. none by law merchant, 11. Tables for insurance, 191. Tally, accounts kept by, 15. Tavern. See Inn and Innkeep- ers. Telegraph and telephone com- panies, not common carriers, 176. their liability, nature of, 176. may be changed by contract, 177. to whom they are liable, 178. Tender, of performance, 95. of payment, 96. money which is legal, 96. 360 ESSENTIALS OF BUSINESS LAW Termination of agency, 111-114. of bailments, 131. of carrier's liability, 162, 175. Testament. See Will. Themistes, nature of, 5. Threats, as an element in duress, 84. Time, of presenting negotiable paper, 219. of giving notice of dishonor, 224. Title, methods of acquiring, 262- 268. conveyance of, to land, 243- 274. abstract of, 271. when it passes by contract of sale, 281-286. Torrens land registration, 271- 274. Tort, may be waived, 34. principal's liability in, 115' 119, 124. agent or servant liable for his own, 116. by bailee, 128, 154, 170, 172. by telegraph company, 176-178. Transfer of negotiable paper, 218, 228. of corporation stock, 254, 257. of real property, 268-274. Treatment of passengers, 172. Ultra vires acts, 255. Undisclosed principal, 120. Undue influence, nature, and consequence of, 85, 86. Uniform negotiable instruments act, 206-231. Uniform conditional sales act, 300. Uniform partnership act, 246- 248. Uniform limited partnership act, 249 n. Uniform sales act, 299-301. Uniform stock transfer act, 257. Uniform Torrens law, 271-274. Uniform warehouse receipt act, 155-158. United States, common law in, 24. legal-tender money of, 96. supreme law of, 187. Constitution of, relating to bankruptcy, 186-190. Constitution of, relating to contracts, 255. — Unwritten law, 23. Usages of merchants, 10-22, 23, 192, 206. Usance, 206 n. Use of chattels for hire, 152, 153. Value paid by holder of negoti- able paper, 228. Wager contracts in insurance, 195. Waiver by insurer, 197. Warehousemen, duties of, 155. common carriers as, 161, 174. Warehouse receipts, 155-158. Warranty, in insurance con- tracts, 196, 202. deed, 269, 271. of title to personal property, 287. of quality of personal prop- erty, 288-290, 301. express, what is, 290, 301. damages for breach of, 298, 301. INDEX 361 Widow, dower oi, 267, 270. Will, title by, 264. who may make a, 265. formalities of a valid, 265. witnesses to a, 265. Will, nuncupative, 265. Wisby, laws of, 15-21. Withdrawal of offer, 40. communication of, 42. Witnesses to a will, 265. (23)