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 KF 888.B86 
 
 Cases on business law, 
 
 3 1924 018 935 936 
 
Cornell University 
 Library 
 
 The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924018935936 
 
CASES 
 
 ON 
 
 BUSINESS LAW 
 
 BY 
 
 WILLIAM EVERETT BRITTON 
 
 PEOFESSOB OF LAW, INDIANA UNIVERpiTT 
 AND 
 
 RALPH STANLEY BAUER 
 
 ASSISTANT PBOFESSOB OP BUSINESS LAW 
 UNIVEE8ITT OF ILLINOIS 
 
 ST. PAUL 
 
 WEST PUBLISHING CO. 
 1922 
 
B /d^s^oi 
 
 OOPTEIGHT, 1921-1922 
 BY 
 
 WEST PUBLISHING COMPANY 
 (B.& B.Bus.Law) 
 
"^^l^^i. 
 
 PREFACE 
 
 This collection of cases is designed for the use of students in schools 
 of commerce and business administration. 
 
 The scope, content, and method of treatment of materials for such a 
 course depends largely upon the ends sought to be accomplished 
 thereby. If the acquisition of specific legal information were the chief 
 goal toward which the nonprofessional law student were to direct his 
 efforts, the treatment of the subject intended for his study would be 
 extensive, perhaps, over the greater portion of the entire field of the 
 law. On the other hand, if the chief end of such study were the ade- 
 quate equipment of the student for acting as his own legal adviser, a 
 complete course in a law school would »be .necessary. 
 
 The ends to be attained from the study of law by this class of non- 
 professional law students lies somewhere between these two extremes, 
 The future business man may well obtain such a knowledge of law 
 as will be of value to him in avoiding some litigation. From its study, 
 he should be enabled to appreciate with greater certainty the time and 
 the circumstances under which the guidance of competent counsel is 
 needed, and his knowledge should constitute additional equipment for 
 intelligent co-operation with counsel. As a student, irrespective of his 
 future work, he may well be permitted to gain whatever of educational 
 value there may be in the study and discussion of legal problems. As 
 a citizen, he should know something of the nature and development of 
 the methods by which organized society encourages initiative, controls 
 human action, and advances individual and social interests through the 
 administration of justice. 
 
 An extensive treatment of law, it is believed, is not calculated to 
 produce the best results. Some intensive work is indispensable, for 
 otherwise some of the chief ends of the study are likely to be defeated. 
 The materials placed in his hands and the nature of his study should 
 emphasize, upon the mind of one who spends but a short time in the 
 study of law, the truth that he has surveyed but a limited portion of a 
 broad field of study and that his observation thereof has not pene- 
 trated to any great depth. But this same material and his work upon 
 it should, however, unmistakably reveal to the student some of the 
 chief sources of controversy and litigation, and should impart to him 
 a knowledge of the problems involved in the formulation and inter- 
 pretation of legal principles and of the difficulty inherent in their ap- 
 plication to the limitless variety of economic and social facts. The 
 picture drawn canndt be complete, but it should be true as far as it 
 moves within the range of vision. There exist just as strong reasons, 
 therefore, for the belief that judicial decisions constitute the materials 
 best suited for conveying to the business student some definite notions 
 
 iii 
 
IV PREFACE 
 
 concerning the nature of law and its relation to human affairs, as 
 there are for the belief that the same materials are best adapted to 
 equip one for the legal profession. 
 
 But there is a possibility of error in the direction of too intensive 
 treatment. The business student will not as a rule be justified in 
 spending as much time in the study of law as is spent by a professional 
 law student in one semester's work. If he does choose to go this far, 
 it is believed that professional law courses are better suited to his 
 needs. Whatever time is allotted, he could, with profit, employ this 
 time in taking one or two regular law school courses. But it is be- 
 Ueved that the average business student may spend, with greater value 
 to himself, the same amount of time upon a larger number of law 
 subjects. By so doing there is some loss in educational Vcdue, in the 
 knowledge of the law's historical development and in other respects; 
 but there is a gain in acquaintance with a greater variety of legal 
 problems common to modern business, which, it is believed, exceeds 
 these losses. 
 
 Confronted, therefore, with the problems of selection and apportion- 
 ment of topics, the present compilers have thought that the law of 
 contracts in its general and some of its special aspects and the law 
 relating to business associations should be treated, that approximately 
 one-third of the time should be devoted to the general law of contracts, 
 about one-fifth to partnerships and corporations, and the principal 
 portion of the remainder to agency, negotiable instruments, and sales. 
 
 This material has been organized with the view of aiding, as much 
 as possible, the student's understanding of the subjects presented. 
 The subjects are introduced in a natural order. The law of sales could 
 have been taken up before negotiable instruments; but the reverse 
 order was selected, so that the sections dealing with negotiable docu- 
 ments of title would appear more intelligible. Each part, obviously, 
 deals with a particular legal relation or group of closely related legal 
 relations. In each part, as a rule, the cases first taken up are concerned 
 with the question: What facts will operate to produce the particular 
 relation under discussion and what facts will not so operate? When 
 we have once established what facts are essential to create a certain 
 relation, cases dealing with the nature of the relation and the efifects of 
 facts subsequent to its creation are taken up. 
 
 Obviously there is a fairly wide range of possibilities in determining 
 the order of treatment of facts subsequent to the creation of a particu- 
 lar relation. In fixing this order the compilers have been influenced 
 chiefly by the desire so to arrange the topics that the student will be 
 aided in visualizing the subject in its constituent parts and as a whole, 
 and, it is hoped, in gaining some real knowledge concerning it. In the 
 general law of contracts, after the development of the topics of offer, 
 acceptance, and consideration, these ideas have led to the treatment of 
 the important facts relating to perfonnance and breach as they affect 
 the normal contract. After noting the collateral operative effect of the 
 contract upon third parties, attention is then paid to the facts that 
 operate to discharge the relation, thus completing the picture of the 
 
PREFACE V 
 
 origin, nature, and termination of the normal contractual relation. 
 With these ideas in the background, the student is then led to note the 
 variation in operative eflfect caused by the introduction of the ab- 
 normal elements of fraud, mistake, duress, illegality, incapacity, and 
 the noncompliance with the statute of frauds. The same ideas have 
 been carried out in the other parts of the book, each chapter featuring 
 either some distinctive and closely related groups of facts, or the 
 nature, extent, and operation of a particular relationship between two 
 parties. 
 
 It has also been thought desirable to introduce, very briefly indeed, 
 some aspects of the pledge, the bailment, the contracts of affreight- 
 ment, insurance, and suretyship, and some leading ideas of the law of 
 damages and legal remedies, including a short summary of the Bank- 
 ruptcy Act. It is conceded that, in the absence of a fairly extended 
 development of some special topics, this fragmentary introduction of 
 other special topics would be ill-advised. But it is believed that, with 
 these correctives in plain view, there is some value in permitting the 
 business student, for example, to read a few cases dealing with the 
 special defenses of the surety, his rights of reimbursement, contribu- 
 tion, subrogation, and exoneration, and in taking some note of the 
 nature and operation of common-law, equitable, and statutory remedies. 
 
 Here and there throughout the volume, the opportunity presenting 
 itself, cases drawn from other branches of the law were availed of, 
 in part to illustrate the main subject then being developed, and in part 
 to show concretely the existence of other departments of the law 
 not taken up. This policy it was thought would tend to widen the 
 student's perspective of the field of the law and also to make that por- 
 tion of it which was selected for more intensive cultivation to appear 
 in its true light, as a portion only of a legal system. This policy ex- 
 plains the use of several cases in agency dealing with various kinds 
 of torts, the insertion of a case in the sections on assignment of con- 
 tracts dealing with the declaration of trust, and it explains the use, in 
 the chapter on performance of contracts, of a case concerned with the 
 right of specific performance against a vendor of land whose wife re- 
 fused to release her dower. A few cases from quasi contracts and 
 equity, particularly on its remedial side, were set out for the same 
 reason. Obviously there are many such topics of equal, perhaps 
 greater, importance, which might have been dealt with in like manner. 
 The law relating to the delivery of deeds is certainly of as much im- 
 portance as the law relating to the delivery of a negotiable instru- 
 ment, but no case dealing with the former problem was inserted. The 
 idea, however, was not to bring into the discussion from other de- 
 partments of the law only those cases which were -deemed to be of 
 more importance than those omitted, but rather to introduce a suffi- 
 cient number of cases from other branches, to show that there were 
 other fields of the law, and also to mark out some of the boundary 
 lines of the legal system as a whole. 
 
 The various sections have not all been developed to the same de- 
 gree. To some has been given a more intensive treatment than to 
 
VI PREFACE 
 
 Others, not always because of the actual or supposed importance of the 
 matters involved over those not so intensively developed, but because 
 of a desire to impress upon the mind of the student the fact that the 
 legal aspects of any particular group of circumstances is capable of 
 a much more extended study. If the leading idea wrere to impart in- 
 formation as to what should be done in certain eventualities, then the 
 organization of materials would have been quite different ; but it is be- 
 lieved that the value in such treatment would be of a transitory nature, 
 obtained at too great a sacrifice of the scientific principle to be desir- 
 able. 
 
 In the selection of cases, the compilers have been guided by several 
 considerations. In the first place, limitations of space prevent the de- 
 velopment of the law historically and comparatively. Occasionally, 
 however, modern cases have been inserted which contain historical 
 discussions of the rules involved, and also some cases have been used 
 to present conflicts of authority, enough, it is hoped, to show that the 
 history of the law is a part of it, and that courts may differ, in a given 
 case, as to what the rule should be, or as to the interpretation of an 
 accepted rule, or as to its application to facts. 
 
 As a rule the older cases have been pmitted, although they may be 
 leading cases, and modern cases included, which discuss the leading 
 authorities and show how they have been applied. This policy has 
 caused thp omission of such cases as Shadwell v. Shadwell, Price v. 
 Neal, and Northern Pacific R. R. Co. v. Boyd. But it has not always 
 been found possible to do this. Many cases have been inserted be- 
 cause of their facts, facts with which the student is likely to be familiar, 
 or because of their present-day business importance, their dramatic 
 value, or merely because they were modern. In the editing of cases, 
 citations of authorities, as a rule, have been omitted. In the selection 
 of all cases the compilers have kept in mind the important fact that 
 the student is engaged in his study to learn something of the law as 
 it is, and it is hoped that the cases selected will be found well adapted 
 to this end. 
 
 Fully aware of the objections which may be raised to the use of the 
 texts of the Uniform Acts relating to Negotiable Instruments, Sales, 
 and Partnership as the points of departure for the' study of these sub- 
 jects, the compilers have nevertheless felt that the policy of setting out 
 portions of the text at the beginning of chapters or sections before the 
 introduction of cases was not only justifiable, but desirable. It is be- 
 lieved that this method makes for clearness, and also tends to facilitate 
 the student's comprehension of the subject as a whole. Even in juris- 
 dictions which have not enacted these Uniform Acts, it is believed 
 that the common-law rules there in force may just as easily, if not 
 more easily, be taught in this way. Moreover, the use of this method 
 in the codified subjects, appearing alongside the development of un- 
 codified branches, calls attention to the difference in juridical method 
 shows that concepts behind a statute are not solids, but fluids, that 
 codification does not arrest development, and, perhaps, may furnish the 
 occasion for noting the existence of some of the problems of juristic 
 
PREFACE Vn 
 
 science. Most of the cases dealing with negotiable instruments and 
 sales have been cases decided under the Uniform Acts. Out of a total 
 of 580 cases contained in the volume 379 have been decided since 1900. 
 
 The compilers have also thought that it would be of some assistance 
 to the student, in understanding the cases and in organizing the results 
 of his work, to make some comments at the beginning of each subject, 
 and also at the beginning of some of the chapters and sections, not, 
 however, for the purpose of informing him with respect to certain 
 principles of law to be taken up, but rather to indicate the nature of 
 the legal problems with which the material immediately following is 
 concerned. The short statement used as an introduction to the study 
 of law was included for the purpose of giving the student some ad- 
 vance information as to the nature of the subject, the material used, 
 the methods of study, and also to designate that portion of the law 
 with which the book deals. A fairly extended list of definitions of 
 legal terms was added for the convenience of the student. 
 
 In the preparation of this volume the compilers have been much 
 assisted by the works of Professors Williston, Corbin, Mechem, God- 
 dard, Brannan, Gilmore, Wormser, and Richards. A large part of the 
 merit which this collection may possess is traceable to their -scholarship 
 and to the scholarly works of many others who have made contribu- 
 tions to the subjects surveyed in this book. A special debt is owed to 
 Professor Corbin, whose writings have influenced to a marked degree 
 the character of the introductory statements and the organization of 
 material throughout the book. Grateful acknowledgment is also due 
 Professor Lewis for his kind permission to reprint his scholarly notes 
 to the Uniform Partnership Act and to the members of the faculty of 
 the College of Commerce and Business Administration of the Univer- 
 sity of Illinois, for their helpful suggestions. 
 
 W. E. B. 
 R. S. B. 
 
 JiAECH, 1922. 
 
TABLE OF CONTENTS 
 
 Part Page 
 
 Intboduction I 
 
 I. CONTEACTS i!S 
 
 II. Agenct 484 
 
 III. Negotiable iNSTRtiMExTs fKil 
 
 IV. Sales !>51 
 
 \. Pabtnebship 1215 
 
 vi. coepobations 1377 
 
 Introduction to thb Study of Law 
 
 Section 
 
 1. Nature of Law 1 
 
 2. Systems of Law 4 
 
 3. Objects of Law 5 
 
 4. Legal Relations , 7 
 
 5. IHvisions of Law 8 
 
 6. Legal Procedure 12 
 
 7. Judicial Decisions 15 
 
 S. History and Development of the Law 19 
 
 PART I 
 Contracts 
 
 Chapter 
 
 I. Offer and Acceptance 2" 
 
 II. Consideration 93 
 
 III. Performance of Contracts 140 
 
 IV. Eights of Third Parties in Contracts 245 
 
 V. Discharge of Contracts 274 
 
 VI. Effect of Mistake, Fraud, Duress and Undue Influence 289 
 
 VII. Illegality 314" 
 
 VIII. Capacity 344 
 
 IX. Contracts Required to be in Writing 362 
 
 X. Remedies 388 
 
 XI. Special Types of Contracts 443 
 
 CHAPTER I 
 
 OiTEE AND Acceptance 
 Section 
 
 1. Introduction 2P, 
 
 2. What Constitutes an Offer 28 
 
 3. Duration of OfCer.s 37 
 
 4. Acceptance — Time of Taking Effect 55 
 
 5. Nature of Acts or Language Essential to Constitute an Acceptance. . . 62 
 
 6. Offer and Acceptance Implied in Fact or in Law 81 
 
 B.& B.Bus.Law (ix) 
 
X TABLE OF CONTENTS 
 
 CHAPTER il 
 
 CONSIDEEATION 
 Section 
 
 1. Introduction 93 
 
 2. Consideration in Unilateral Contracts 95 
 
 3. Performance of, or Promise to Perform, a Pre-existing Legal Duty . . 100 
 
 4. Promises in the Nature of Gratuities 115 
 
 5. Illusory Promises 120 
 
 6. Promises to Pay for a Benefit Previously Received 129 
 
 7. Sealed Instruments 1^57 
 
 CHAPTER III 
 
 PEEFORilANOE OF CONTRACTS 
 
 1. Introduction 140 
 
 2. Interpretation 141 
 
 3. Conditions in Contracts — General Statement 154 
 
 4. Performance on Time as a Condition 159 
 
 5. Performance to the Satisfaction of Another as a Condition 164 
 
 6. Procuring Certificate of an Architect as a Condition 167 
 
 7. Substantial Performance in Various Other Types of Contracts as Con- 
 
 ditions ; 170 
 
 8. Tender of Performance as a Condition 188 
 
 9. Divisible Contracts 193 
 
 10. Conditions Subsequent 200 
 
 11. Prevention as an Excuse for Non-Performance 202 
 
 12. Waiver as an Excuse for Non-Performance 205 
 
 13. Anticipatory Breach of Contract 212 
 
 14. Right of a Party Materially in Default to Recover for His Incomplete 
 
 Performance 218 
 
 15. Impossibility of Performance as a Condition 227 
 
 CHAPTER IV 
 Rights of Third Parties in Contracts 
 
 1. Introduction 245 
 
 2. Contracts for the Benefit of a Donee of the Promisee 245 
 
 3. Contracts for the Benefit of a Creditor of the Promisee 251 
 
 4. Nature and Requisites of an Assignment 259 
 
 5. Interests Capable of Assignment 265 
 
 6. Nature and Extent of the Interest Acquired by the Assignee 270 
 
 CHAPTER V 
 Discharge op Contracts 
 
 1. Introduction zii 
 
 2. Discharge by Agreement, Accord and Satisfaction, Account Stated, 
 
 and Merger 274 
 
 3. Discharge by Novation 279 
 
 4. Discharge by Release, Cancellation, and Alteration 282 
 
 5. Discharge in Bankruptcy Proceedings 283 
 
 6. Effect of Statutes of Limitations 288 
 
 CHAPTER VI 
 
 Effect of Mistake, Fbaud, Duress and Undue Influence 
 
 1. Introduction 289 
 
 2. Mistake 290 
 
 3. Fraud 299 
 
 4. Duress 307 
 
 5. Undue Influence 311 
 
TABLE OF CONTiHNTS XI 
 
 CHAPTER VII 
 
 Illegality 
 Section 
 
 1. Introduction , 314 
 
 2. Contracts in Restraint of Trade 315 
 
 3. Contracts Limiting the Liability of Bailees and Other Persons 324 
 
 4. Gambling Contracts 328 
 
 5. Other Illustrations of Illegal Contracts 330 
 
 6. Effect of Illegality 337 
 
 7. Sunday Contracts 342 
 
 CHAPTER VIII 
 
 Capacity 
 
 1. Introduction 344 
 
 2. Disaffirmance 345 
 
 3. Ratification 356 
 
 4. Contracts for Necessaries 359 
 
 CHAPTER IX 
 
 Contracts Required to be ix Writing 
 
 1. Introduction 362 
 
 2. Contracts of Guaranty 363 
 
 3. Contracts of Executors and Administrators 367 
 
 4. Contracts Made in Consideration of Marriage 368 
 
 5. Contracts for the Sale of Lands 369 
 
 6. Contracts Not to be Performed Within the Space of One Year 374 
 
 7. Contracts for the Sale of Personal Property 376 
 
 8. Compliance with the Statute 380 
 
 9. Effect of Non-Compliance with the Statute 384 
 
 CHAPTER X 
 
 Remedies 
 
 1. Introduction 388 
 
 2. Measure of Damages 389 
 
 3. Rescission 398 
 
 4. Judgments and Executions 401 
 
 5. Garnishment 403 
 
 6. Attachment of Property .'.■,;. . . 406 
 
 7. Specific Performance 410 
 
 8. Injunction 416 
 
 9. Enforcement of Decrees by Attachment for Contempt 419 
 
 10. . Bankruptcy 421 
 
 11. Receiverships 440 
 
 CHAPTER XI 
 
 Special Types of Contracts 
 
 1. Introduction 443 
 
 2. Bailments 444 
 
 3. The Contract of Carriage 451 
 
 4. The Contract of Pledge 467 
 
 5. The Contract of Suretyship. 469 
 
Xll TABLE OF CONTEXTS 
 
 PART II 
 
 Agency 
 
 Chapter 
 
 Introduction 484 
 
 I. Source and Scope of the Agent's Power 489 
 
 II. Relations of the Principal and Third Persons 520 
 
 III. Termination of the Relation ' 565 
 
 IV. Relations of the Principal and Agent 579 
 
 V. Relations of the Agent and Third Persons 611 
 
 CHAPTERl I 
 
 SOTJECB AHD SCOPE OF THE AGENT's PoWEB 
 Section 
 
 1. Powers Arising from Express, Implied, and Incidental Authority, 
 
 Necessity and Estopjiel, Considered Generally 48& 
 
 2. Illustrations 496 
 
 CHAPTER 11 
 Relations of the Peincipai, and Third Persons 
 
 1. Rights and Liabilities of the Disclosed Principal 520 
 
 2. Rights and Liabilities of the Undisclosed Principal 529 
 
 3. Ratification 537 
 
 4. Master's Liability for Torts of the Servant 547 
 
 CHAPTER III 
 Termination Of the Relation 
 
 1. What Constitutes a Termination of the Relation 565 ' 
 
 2. Irrevocable Powers 573 
 
 3. Effect of Terminating the Relation 577 
 
 CHAPTER IV 
 Relations of the Principal and Agent 
 
 1. Rights of the Principal Against the Agent 579 
 
 2. Rights of the Agent Against the Principal 597 
 
 CHAPTER V 
 Relations or the Agent and Third Persons 
 
 1. Rights of the Agent Against Third Persons 611 
 
 2. Rights of Third Persons Against the Agent. 615 
 
 PART III 
 
 Negotiable Instruments 
 
 Chapter 
 
 Introduction 631 
 
 I. Formal Requisites 638 
 
 II. Right of the Holder to Complete, to Sue Upon, and to Negotiate 
 
 the Instrument 725 
 
 III. Who are Holders in Due Course 74s 
 
 IV. Rights of the Holder Against the Maker and Acceptor. . . . ' 798 
 
 V. Rights of the Holder Against Indorsers and the Drawer 874 
 
 VI. Presentment, Notices of Dishonor, and Protest 903 
 
 VII. Discharge 932 
 
TABLE OF CONTENTS Xlli: 
 
 CHAPTER 1 
 
 ■Formal Requisites 
 Section 
 
 1. Introduction 63S 
 
 2. Writing and Signature" 639 
 
 3. Necessity for a Promise or Order 639 
 
 4. Tlie Promise or Order Must be Unconditional 640 
 
 5. Time of Payment Must be Certain 656 
 
 6. Tlie Instrument Must be Payable in Money 671 
 
 7. Tlie Sum to be Paid Must be Certain 684 
 
 8. The Instrument Must be Payable to Order or Bearer 688 
 
 9. Provisions Not Affecting Negotiability 692 
 
 10. Designation of Parties to Negotiable Instruments 696 
 
 11. Date of the Instrument 713 
 
 12. Interpretation of Ambiguous Instruments 714 
 
 13. Consideration 714 
 
 14. Delivery 720 
 
 CHAPTER II 
 
 Right of the Holder to Complete, to Sue Upon, and to Negotiate 
 THE Instrument 
 
 1. Introduction 725- 
 
 2. Completion of the Instrument 725 
 
 3. Right to Sue Prior Parties 726- 
 
 4. What Constitutes a Negotiation 731 
 
 5. Negotiation by Special Indorsement 733 
 
 6. Negotiation by Blank Indorsement 734 
 
 7. Negotiation by Restrictive Indorsement 737 
 
 8. Negotiation by Qualified Indorsement 741 
 
 9. Negotiation by Conditional Indorsement 742 
 
 10. Transfer of Unindorsed Paper Payable to the Order of the Trans- 
 
 feror '. ." 743 
 
 11. Surrender to the Drawee 744 
 
 12. Other Formal Riequisites and Aspects of Negotiation 746 
 
 CHAPTER III 
 
 Who are Holders in Due Coib.se 
 
 1. Introduction 748 
 
 2. Must be a Purchaser for Value 74.s 
 
 3. Must be a Purchaser Before Maturity 754 
 
 4. Must be a Purchaser in Good Faith 761 
 
 5. Payee may be a Holder in Due Course 777 
 
 6. Transferee from a Holder in Due Course is a Holder in Due Course. . 783 
 
 7. Rights of the Reacquirer 785' 
 
 8. Rights of a Transferee from a Holder in Due Course of Unindorsed 
 
 Paper Payable to the Order of the Transferor 793 
 
 CHAPTER IV 
 
 Rights of the Holder Against the Maker and Acceptor 
 
 1. Introduction 798 
 
 2. Defenses and Claims of Ownership Not Available Against Holders in 
 
 Due Course 800- 
 
 3. Defenses and Claims of Ownership Available Against Holder in Due 
 
 Course 826. 
 
XIV TABLE OF CONTENTS 
 
 Section 
 
 4. Right of the Drawee to Recover Money Paid to the Holder under 
 
 Mistake 840 
 
 5. Right of the Drawee with Respect to Instruments Payable to the 
 
 Order of a Fictitious Payee. 854 
 
 6. Relation of the Drawee Bank to the Drawer 862 
 
 7. Eights and Liabilities of Parties with Respect to Acceptances and 
 
 Payments for Honor 871 
 
 8. Bills in a Set 873 
 
 CHAPTER V 
 
 Rights op the Holdeb Against Indoksers and the Dbaweb 
 
 1. Introduction 874 
 
 2. Rights of the Holder Against the Unqualified Indorser 875 
 
 3. Rights of the Holder Against the Qualified Indorser and the Trans- 
 
 feror by Delivery 877 
 
 4. Rights of the Holder Against the Accommodation Indorser 885 
 
 5. Rights of the HoWer Against the Restrictive Indorser 898 
 
 6. Rights of the Holder Against the Drawer 899 
 
 CHAPTER VI 
 
 Peesentment, Notices of Dishonor, and Protest 
 
 1. Introduction 908 
 
 2. Time of Presentment for Payment of Demand Notes 903 
 
 3. Time of Presentment for Payment of Demand Bills of Exchange, in 
 
 Order to Charge the Drawer and Indorsers, Drawers of Checks 
 Excepted 904 
 
 4. Time of Presentment of Checks in Order to Charge the Drawer.... 915 
 
 5. Time of Presentment of Instruments Bearing a Fixed Maturity 920 
 
 6. Other Aspects of a Due Presentment for Payment 921 
 
 7. Presentment for Acceptance 923 
 
 8. Notice of Dishonor 926 
 
 9. Protest 930 
 
 CHAPTER VII 
 
 Discharge 
 
 1. Introduction 932 
 
 2. Discharge of the Maker and Acceptor 932 
 
 3. Discharge of the Regular Indorsers 941 
 
 4. Discharge of a Surety 942 
 
 PART IV 
 
 Sales 
 
 Chapter 
 
 Introduction i 951 
 
 I. Transfer of Title in Contracts of Sale of Ascertained Goods 953 
 
 II. Transfer of Title in Contracts to Sell Unascertained Goods 989 
 
 III. Powers of Persons Not Owners of Goods to Transfer Title to In- 
 
 nocent Purchasers 103(5 
 
 IV. Negotiable Documents of Title 1063 
 
 V. Remedies of the Seller _ .1093 
 
 VI. Warranties '. . , 1128 
 
 VII. Rights and Remedies of the Buyer .'. .1183 
 
TABLE OF CONTENTS XV 
 
 CHAPTER I 
 
 Transfer of Title in Conteacts of Sale of Ascertained Goods 
 Section? 
 
 1. Introduction 953 
 
 2. Title Passes When the Parties Intend It to Pass 95i 
 
 3. In Contracts to Sell Ascertained Goods in a Deliverable State, Pre- 
 
 sumptively Title Passes at the Time the Contract is Made 95!) 
 
 4. Further Illustrations of the Application of the Presumption 966 
 
 5. Application of the Presumption Where Acts of Weighing or Measur- 
 
 ing Must, Alone be Done to Ascertain the Amount of the Purchase 
 Price 967 
 
 6. Presumption That Title Passes at the Date of the Contract is Ap- 
 
 plicable Where the Sale is a Sale on Credit 968 
 
 7. Presumption That Title Passes at the Date of the Contract Overcome 
 
 by Proof That the Parties Intended a Cash Sale 971 
 
 8. Contracts on Sale or Return and Contracts to Sell on Approval 976 
 
 9. Conditional Sales 9S5 
 
 CHAPTER II 
 
 Transfer of Title in Contracts to Sell Unascertained Goods 
 
 1. Introduction 989 
 
 2. Acts of Unconditional Appropriation 991 
 
 3. Acts of Unconditional Appropriation with Respect to Only a Portion 
 
 of the Goods 997 
 
 4. Acts of Unconditional Appropriation Xot Necessary in Sales of Fungi- 
 
 ble Goods 1000 
 
 5. Passing of Title to Goods Which at the Date of the Contract are 
 
 Not in Existence 1002 
 
 6. Passing of Title to Property Contracted to be Sold upon Its Delivery 
 
 to a Carrier or Other Bailee 1006 
 
 7. Effect of the Form of the Bill'Of Lading upon the Passing of Title. . .1028 
 
 CHAPTER III 
 
 Powers of Persons not Owners of Goods to Transfer Title to 
 Innocent Purchasers 
 
 1. Introduction 1036 
 
 2. Estoppel of the Owner to Deny Custodian's Power to Transfer 
 
 Title 1042 
 
 3. Sale by One Having a Voidable Title 1046 
 
 4. Sale by a Seller in Possession of Goods Already Sold 1050 
 
 5. Rights of Creditors Agains-t Goods Sold in Seller's Possession 105 1 
 
 6. Rights of Creditors Against Goods Sold in Violation of Bulk Sales 
 
 Acts 1054 
 
 CHAPTER IV 
 
 Negotiable Documents of Title 
 
 1. Introduction 1063 
 
 2. Definition of a Negotiable Document of Title 1064 
 
 3. Negotiation of Negotiable Documents of Title 1066 
 
 4. Rights of an Indorsee of a Negotiable Document of Title 106.S 
 
 5. Rights of the Indorsee Against Indorsers 1086 
 
 6. Rights of Creditors Against Goods Represented by Negotiable Docu- • 
 
 ments of Title. ■. 1090 
 
 7. Rights of Transferees of a Non-Negotiable Document of Title 1090 
 
 B.& B.Bus.Law— b 
 
XVI TABLE OF CONTENTS 
 
 CHAPTER V 
 
 Remedies of the Seli-ee 
 
 Section 
 
 1. Introduction 1093 
 
 2. Action for the Purchase Price 1093 
 
 3. Seller's Eights Against the Goods in General 1098 
 
 4. Unpaid Seller's Lien HIS 
 
 5. Right of Resale 1120 
 
 6. Right of Rescission 1123 
 
 7. Right to Damages for Breach of Contract to Sell 1125 
 
 CHAPTER VI 
 
 Waebanties 
 
 1. Introduction 1128 
 
 2. Express Warranties 1130 
 
 3. Implied Warranties Considered Generally 1143 
 
 4. Implied Warranty of Title 1143 
 
 5. Implied Warranty That the Goods Shall Correspond to the Descrip- 
 
 tion 1146 
 
 6. Implied Warranty That the Goods shall Correspond to the Sample. . .1153 
 
 7. Implied Warranty of Merchantability 1158 
 
 8. Implied Warranty of Fitness for a Particular Purpose 1161 
 
 9. Implied Warranties May Arise from the Usage of Trade 1171 
 
 10. Implied Warranties May be Negatived by Agreement 1173 
 
 11. Rights of Sub- Vendees Against Former Warrantors 117T 
 
 CHAPTER VII 
 
 Rights and Remedies of the Buyer ^ 
 
 1. Introduction ., 1183 
 
 2. Buyer's Eight to Examine the Goods 1183 
 
 3. Nature and Consequences of an Acceptance of the Goods 1190 
 
 4. Buyer under No Duty to Return Goods Not Accepted Because of Non- 
 
 Compliance with the Contract 1193 
 
 5. Remedies of the Buyer for Breach of Warranty 1195 
 
 6. Buyer's Right to Recover Damages for Breach of the Contract to 
 
 Sell 1207 
 
 7. Right of the Buyer to Sue the Seller for Conversion of the Goods. . . .1211 
 
 8. Buyer's Right of Specific Performance 1212 
 
 PART V 
 
 Partnership 
 
 Chapter 
 
 Introduction 1215 
 
 I. What Constitutes a Partnership. 1218 
 
 II. Relations of the Partners Between Themselves 1241 
 
 III. Relations of Partners to Third Persons 1298 
 
 IV. Causes of Dissolution 1.318 
 
 y. Effect of Dissolution upon the Relations of the Partners Between 
 
 Themselves 1325 
 
 VI. Effect of Dissolution upon the Relations of the Partners to Third 
 
 Parties 1334 
 
 VII. Limited Partnerships 1363 
 
TAIiLB OF CONTKXTS XVll 
 
 CHAPTER I 
 
 What Constitutes a Partnebship 
 Section 
 
 1. Partnership the Result of Intention 1218 
 
 2. Partnership by Estoppel 1228 
 
 3. Partnership by Operation of Law as to Third Persons 1230 
 
 4. Partnerships Distinguished from Trusts for Business Purposes 1235 
 
 CHAPTER II 
 
 Relations of the Paetners Between Themselves 
 
 1. Partner's Interest in Specific Partnership Property 1241 
 
 2. What Constitutes Partnership Property 125!> 
 
 3. What Constitutes Partnership Capital 1261 
 
 4. Acquisition and Transfer of Partnership Realty 1264 
 
 5. Partnership Name and Good Will .- 1266 
 
 6. Partner's Interest in the Partnership 1274 
 
 7. Sharing of Profits and Losses 1275 
 
 S. Partner's Right to Repayment of Contributions 1277 
 
 9. Partner's Right of Indemnity lilS 
 
 10. Partner's Right to an Accounting 1278 
 
 11. Fiduciary Relation of Partners 1284 
 
 12. Partner's Right to Participate in Maniigement 1292 
 
 13. Partner's Right to Information 129.-1 
 
 14. Partner's Right to Remuneration for Services 1291! 
 
 CHAPTER III 
 
 Relations of Partners to Third Persons 
 
 1. Scope of a Partner's Power in General 129S 
 
 2. Particular Powers 1302 
 
 3. Powers with liespect to Partnership Realty 1303 
 
 4. Powers Arising by Estoppel 1.303 
 
 5. Liability of Partners, When Joint or Joint and Several 1305 
 
 6. Right of a Creditor of a Partner in the Partner's Individual Capacity 
 
 with Respect to Partnership Property 1312 
 
 CHAPTER IV 
 
 Causes of Dissolution 
 
 1. Nature of Dissolution in General 1318 
 
 2. Causes of Dissolution Not Based on Breach of the Partnership Agree- 
 
 ment 1318 
 
 3. Dissolution Caused by Breach of Partnership Agreement 1319 
 
 4. Dissolution Caused by Business Becoming Illegal 1319 
 
 5. Dissolution Effected by Court Decree 1319 
 
 6. Effect of Assignment of a Partner's Intere.st 1323 
 
 CHAPTER V 
 
 Effect of Dissolution Upon the Relations of the Partners 
 Between Themselves 
 
 1. Effect, as Between the Partners, of a Dissolution Not Caused by the 
 
 Act, Bankruptcy, or Death of a Partner 1325 
 
 2. Effect, as Between the Partners, of a Dissolution Oaused by the Act, 
 
 Bankruptcy, or Death of a Partner 1325 
 
XVUl TABLE OF CONTENTS 
 
 Section 
 
 3. Liability of a Partner to His Co-Partners for Wrongfully Causing a 
 
 Dissolution 1327 
 
 4. Power of the Partners to Wind up the Partnership Affairs 1327 
 
 5. Rights of Partners After Dissolution with Respect to the Disposition 
 
 of Partnership Assets 1331 
 
 6. Relations of the Partners After Dissolution upon Their Election to 
 
 Continue the Business 1331 
 
 7. Right of a Partner Who has Wrongfully Caused a Dissolution 1332 
 
 8. Right of a Partner Who has Rescinded a Partnership Contract for 
 
 Fraud 1333 
 
 chapter: VI 
 
 Effect of Dissolution Upon the Relations of the Partnebs 
 TO Thibd Parties 
 
 1. Effect, as to Third Parties, of a Dissolution upon Partnership Lia- 
 
 bilities Existing Prior to Dissolution 1334 
 
 2. Effect, as to Third Parties, of a Dissolution upon Transactions Sub- 
 
 sequent to Dissolution 1340 
 
 3. Rights of Creditors of the Dissolved Partnership Against the In- 
 
 dividual or Partnership Continuing the Business 1345 
 
 4. Priorities Among Claimants in the Settlement of a Partnership 
 
 Estate 1349 
 
 CHAPTER VII 
 Limited Paetneksiiips 1365 
 
 PART VI 
 Corporations 
 
 Chapter 
 
 Introduction 1377 
 
 I. Organization of a Corporation 1380 
 
 II. Contracts of Promoters 1399 
 
 III. Corporate Powers 1407 
 
 IV. The Relation of Stockholders to the Corporation 1414 
 
 V. The Relation of Creditors to the Corporation 1473 
 
 VI. Relation of the Corporation to the State 1500 
 
 CHAPTER I 
 
 Organization of a Corporation 
 Section 
 
 1. Effect of Complete Organization — The Corporate Entity 1380 
 
 2. When Corporate Entity may be Disregarded 1387 
 
 3. Effect of Incomplete Organization 1391 
 
 CHAPTER II 
 
 Contracts op Promoters 
 
 1. Relation of the Promoter to the Corporation 1399 
 
 2. Relation of the Subscriber to the Corporation on Promoters' Con- 
 
 tracts 1405 
 
TABLE OF CONTEXTS XIX 
 
 CHAPTER III 
 
 COUPORATE POWEES 
 a 
 
 Scope of Corporate Powers 1407 
 
 L'lti-a Vires Contracts 140S 
 
 CHAPTER IV 
 
 The Relation of Stockholders to the Corporation 
 
 Nature of a Share of Stock 1414 
 
 Rights of the Preferred Stockholders 1417 
 
 Right to Inspect Corporate Books 1419 
 
 Right to Participate in Xew Issues of Stock 1421 
 
 Stockholders' Meetings 1425 
 
 Voting Trusts 1428 
 
 Rights of the Minority 1433 
 
 Right to Maintain Actions upon Corporate Causes of Action 1437 
 
 Rights with Respect to Declared Dividends and Surplus 1442 
 
 Apportionment of Interests Between Life Tenant and Remainder- 
 man 1452 
 
 Rights of the Corporation Against Officers and Directors 1459 
 
 Rights and Liabilities of Parties with Respect to Transfers of 
 Stock 1465 
 
 CHAPTER V 
 
 The Relation of Creditors to the Corporation 
 Rights of Corporation Creditors Against a Purchaser of the Assets 
 
 of the Debtor Company 147:^ 
 
 Priorities Among the Various Classes of Creditors in General 1480 
 
 Current Operating Expenses to be Paid out of Current Earnings in 
 
 Preference to Claims of Secured Creditors 1481 
 
 Rights of Unsecured Creditors Arising upon Reorganization 14.s,s 
 
 Rights of Creditors Again^^t Stockholders 1493 
 
 CHAPTER VI 
 
 Relation of the Corporation to the State 
 
 Power to Alter the Charter 1500 
 
 Police Powers of the State 1501 
 
 Taxing Powers of the State 1504 
 
 Powers with Respect to Foreign Corporations 1510 
 
 noNARY or' Lbgal Terms 1513 
 
 ■X 1543 
 
TABLE OF CASES 
 
 Oases printed in ordinary type are tlie cases reported as the text of this 
 volume. Cases printed in italics are found in tlie footnotes and in text ; they 
 are included in this table either because they are stated and discussed, or 
 because they are printed in other casebooks and have become known to many 
 teachers and students, who will thus be enabled to use this table as a supple- 
 mentary index. 
 
 Page 
 
 Abbott V. Doane 112 
 
 Abe Stein Co. v. Robertson 113S 
 
 Abraham v. Karger 969 
 
 Adams v. Burks 323 
 
 Adams v. Guyandotte "Valley K. 
 
 Co 159 
 
 Adams Express Co. v. Croninger.. 458 
 
 Aebi v. Bank of Evausville 909 
 
 Agri Mfg. Co. V. Atlantic Fertiliz- 
 er Co 1025 
 
 Ahem V. Baker 565 
 
 Aiple-Hemmehnann Real Estate 
 
 Vo. V. Spelbrink 173, 175 
 
 Alaska Coast Co. v. Alaska Barge 
 
 Co 454 
 
 Alderman Bros. Co. v. Westing- 
 house Air Brake Co 1031 
 
 Alffer V. Thacher 316 
 
 Allen, In re 1046 
 
 Allen V. Bank i 593 
 
 Allen V. Bryson 129 
 
 Allen Grocery Co. v. Bank of Bu- 
 chanan County 808 
 
 Alsens American Portland Cement 
 Works V. Degnon Contracting 
 
 Co 207 
 
 American Soda Fountain Co. v. 
 
 Spring Water Carbonating Co. 1167 
 Anderson v. Board, etc., of Public 
 
 Schools 31 
 
 Anderson v. May 229 
 
 Andrews v. Durant 993 
 
 Angus V. Downs 807 
 
 Anning v. Anning 260 
 
 Anonymous 746 
 
 Appleton V. Citizens' Cent. Nat. 
 
 Bank 1408 
 
 Aragon Coffee Co. v. Rogers 787 
 
 Aragon Coffee Co. v. Rogers 789 
 
 Ash v. Guie 1220 
 
 Assets Realization Co. v. Ameri- 
 can Bonding Co. of Baltimore. . 479 
 Atlantic Coast Line v. Riverside 
 
 Mills 459 
 
 Atlantic Coast Line R. Co. v. 
 Goldsboro 1501 
 
 Page 
 Atlantic Coast Realty Co. v. Town- 
 send 577 
 
 Austin V. Burge 82 
 
 Automatic Time-Table Advertis- 
 ing Co. V. Automatic Time-Table 
 
 Co 964 
 
 Averett's Ailm'r v. Booker 642 
 
 Avery v. Dougherty 522 
 
 Ayer v. Hutchins 775 
 
 Bacigalupo v. Parrilli 928 
 
 Bacon v. Fourth Nat Bank (502 
 
 Bailey v. Be Crespigny 238 
 
 Bailey v. Pardridge 540 
 
 Baird v. Shlpman (>22 
 
 Baker v. Drake 394 
 
 Baker Go. v. Brown 1074 
 
 Baldicin Bank v. Smith 9'U 
 
 Bank V. Burkham 850 
 
 Bank v. Burkhardt 850 
 
 B.ank V. Morgan 820 
 
 Bank of Ainerica v. Waydell T-jO 
 
 Bank of Batavia v. New York, L. 
 
 E. & W. R. Co 510 
 
 Bank of Dearuom v. Matney .... 423 
 Bank of CarroUton, Miss., v. Lat- 
 
 ting 136 
 
 Bank of Monongahela Valley v. 
 
 Weston 1304 
 
 Bartley Co. v. Lee 1095 
 
 Basket v. Moss 337 
 
 Batchelder v. Council Grove Wa- 
 ter Co 652 
 
 Bauer v. O'Donnell 322, 323 
 
 Baxendale v. Bennett 810 
 
 Beach v. First Methodist Episco- 
 pal Church 4.J 
 
 Beck V. Wilkins-Ricks Co 450 
 
 Beck & Pauli Lithographing Co. 
 V. Colorado Milling & Elevator 
 
 Co. .• ...161 
 
 Bergeron v. Hobbs 1391 
 
 Berry, Demoville & Co. v. Sowell . 296 
 
 Bethell v. Clark . 1116 
 
 Bettiai v. Gye 177 
 
 B.& B.Bus.Law 
 
 (xxi) 
 
xxu 
 
 TABLE OF CASES 
 
 Page 
 B. P. Sturtevant Co. v. Firepi-oof 
 
 Film Co 71 
 
 Bingham v. Mears 475 
 
 Bird V. Munroe 384 
 
 Birdsong & Co. v. Marty 1209 
 
 Bishop V. Chase 713 
 
 Bishop V. Baton 60 
 
 Bissell V. Michigan Southern & N. 
 
 I. R. Cos 1411 
 
 Blake v. Hamilton Dime Sav. 
 
 Bank Co 862 
 
 Blanchard v. Blanchard 473 
 
 Bloom V. Lofgren 1291 
 
 Boatsman v. Stockmen's Nat. 
 
 Bank 802 
 
 Boatmen's Sav. Bank v. Johnson. 470 
 
 Bolton Partners v. Lambert 545 
 
 Boon^e V. Eyre 187 
 
 Borden v. Fine 1154 
 
 Borgnis v. Falk Co 151 
 
 Boston Steel & Iron Go. v. Steuer 780 
 Bowditch V. Jackson Co. ... 14:J2, 1433 
 Bracken v. Fidelity Trust Co. 686, 687 
 Bradford Piano Co. v. Hacker . . 963 
 
 Brager v. Levy 501 
 
 Brander v. Brandcr 1453 
 
 Bretz V. Diehle 444 
 
 Briggs V. Spaulding 1459 
 
 Bristol Mfg. Co. v. Arkwright 
 
 Mills 995 
 
 British Waggon Co. v. Lea & Co. 266 
 
 Britton v. Turner 219 
 
 Broivn v. Foster 165 
 
 Brown v. Perera 675 
 
 Brown V. Western Maryland R. 
 
 Co 414 
 
 Buchanan v. Orange 176 
 
 Buehatian v. Tildcn 247, 250, 251 
 
 Buffalo & L. Land Co. v. Bellevue 
 
 Land & Improvement Co 170 
 
 Buffalo & Lancaster Land Co. v. 
 
 Bellevue, L. & I. Go 240 
 
 Bulkcley v. House 478 
 
 Burch V. Americus Grocery Co.. . 569 
 Butchers' Advocate Co. v. Ber- 
 
 kof 46 
 
 Button v. Hoffman 1383 
 
 California Vegetable Union v. 
 
 Crocker Nat. Bank 870 
 
 Gallanan v. K., A. G. <& L. C. R. 
 
 . Co 400 
 
 Canales v. Earl 1043 
 
 Canandaigua Nat. Bank v. Cleve- 
 land, C, C. & St. L. R. Co 1083 
 
 Capitol Hill State Bank v. Raw- 
 lins Nat. Bank 743 
 
 Capuano v. Italian Importing Co. 
 
 of New York 1118 
 
 Carey' l\ Donahue '. . 433 
 
 Carnegie Steel Co. v. U. S 235 
 
 Carroll v. Bowersock 242 
 
 Carroll v. Haskins 900 
 
 Case V. Beauregard 1245 
 
 Cassiday v. McEentie 571 
 
 Castle V. Swift & Co 380 
 
 Page 
 
 Cellers v. Meacfiem 945 
 
 Central Imp. Co. v. Cambria Steel 
 
 Co 1488 
 
 Central Transp. Co. v. Pullman's 
 
 Palace Car Co 1408 
 
 Central Trust Co. of Illinois v. 
 
 Chicago Auditorium Ass'n 287 
 
 Central Trust & Safe Deposit Co. 
 
 V. Respass 1282 
 
 Century Electric Co. v. Detroit 
 
 Copper & Brass Holding Mills. .1170 
 C. E. White & Co. v. Century Sav. 
 
 Bank 1091 
 
 Challiss V. McCrum 878 
 
 Chandelor v. Lopus 1131 
 
 Chapman v. Cole 682 
 
 Chapman v. Rose 831 
 
 Charles Moe Co. v. J. H. Logue 
 
 Co 504 
 
 Cheever v. Pittsburg R. Co... 767, 774 
 Chicago, B. & Q. R. Co. v. Illinois 1503 
 Chicago Hansom Cab Co. v. 
 
 Yerkes 1435 
 
 Chicago R. Co. v. Merchants' Bank 641 
 Chicago Railroad Equipment Co. 
 
 V. Merchants' Nat. Bank . .650, 760 
 Chicago Washed Coal Co. v. Whlt- 
 
 sett 210 
 
 Childers v. Neely 1322 
 
 C, H. <& D. R. Co. V. Bank 864 
 
 Citizens' Banking Co. v. Ravenna 
 
 'Sat. Bank, Ohio 429 
 
 Citizens' Nat. Bank v. First Nat 
 
 Bank 760 
 
 Citizens' State Bank v. Cowles . . 751 
 City Bank of Neiv Haven v. Per- 
 kins 729 
 
 City of East Grand Forks v. 
 
 Steele 581 
 
 Claflin V. Lenheim 565 
 
 Clark V. Bever 1493 
 
 Clark V. Hovey 597 
 
 Clavl: V. Marsiglia 217 
 
 Clark V. O'Rourke 619 
 
 Clark V. Thompson 712 
 
 Clayton v. Merrett 571 
 
 Cleary v. De Beck Plate Glass 
 
 Co 692 
 
 Coates, Appeal of 961 
 
 Goildim.gton v. Bay 749 
 
 Coffln, In re 436 
 
 Colcord v. Banco De Tamaulipas. 702 
 
 Cole V. Harrison 765 
 
 Collin County Nat. Bank v. Har- 
 ris & Jaggers 1032 
 
 Columbia Grocery Co. v. Marshall 938 
 Columbia Knickerbocker Trust Co. 
 
 V. Miller 934 
 
 Columbian Banking Co. v. Bowen 906 
 Columbus, H. V. & T. R. Co. v. 
 
 Gaffney 81 
 
 Commercial Bank v. J. K. Arms- 
 
 liy Co 1073 
 
 Commercial Nat. Bank v. Canal- 
 Louisiana Bank & Trust Co. . . .1078 
 
TABLE OF CASES 
 
 xxni 
 
 Page 
 Oommercial Realty & Const. Co. 
 
 V. Dorsey 1166 
 
 Com. V. Illinois Cent. R. Co 13So 
 
 Oomstock V. Buckley 790 
 
 Coolidge & McClaine v. Saltmarsh 683 
 Cooney, Eckstein & Co. v. Sweat. .1059 
 
 Cooper T. Sonk 896 
 
 Cope's Estate, In re 961 
 
 Gorbett V. Clark 641 
 
 Corbiii V. I'racy 412 
 
 Courtney Shoe Co. v. E. W. Curd 
 
 & Sim 1 66 
 
 Cox V. Hickman 1226, 12;!2 
 
 Crompton v. Btedle 305 
 
 Culmer v. American Grocery Co. . . 272 
 
 Cumber v. TflfOie 100, 101, 102 
 
 Cummins Amendment, In re 463 
 
 Cundij V. Lindsay 1049 
 
 Cushion Heel Shoe Co. v. Hartt . . 1402 
 
 Daniel v. Buttner 697 
 
 Daniels v. 'Newton 214 
 
 Darby v. Gilligan 1362 
 
 Darrow v. Calkins 1247 
 
 Dartmouth College, Case of 1501 
 
 Darthmouth College v. Wood- 
 
 u-ard 1502 
 
 Davis V. Butler 301 
 
 Davis V. First Nat. Bank 737 
 
 Davis V. Van Camp Packing Co.. .1180 
 Davison Chemical Co. of Baltimore 
 County V. Baugh Chemical Co. 
 
 of Baltimore County 144 
 
 Dean v. Dean 1261 
 
 De Cicco V. Schweizer Ill 
 
 Deeves & Son v. Manhattan Life 
 
 Ins. Co 205 
 
 Dcitz V. Insurance Co 513 
 
 De La Chaumette v. Bank of Eng- 
 land 678, 680, 681 
 
 Delaware Trust Co. v. Calm 188 
 
 Deming v. Darling 1134 
 
 Dempsey v. Chambers . 537 
 
 Derry v. Peek 629 
 
 Dewey v. Union School Dist. of 
 
 City of Alpena 204 
 
 Dick V. Page 571 
 
 Dickey v. Waldo 1003 
 
 Diebold Safe & Lock Co. v. Hus- 
 ton 1148 
 
 Diem v. Koblitz 1110 
 
 Dinsmore v. Rice 983 
 
 D. M. Ferry & Co. v. Hall 978 
 
 Dr. Miles Medical Co. v. John D.. . 
 
 Park & Sons Co 322 
 
 Dodge V. Ford Motor Co 1443 
 
 Doner v. Stauffer 1245, 1256 
 
 Donovan v. Purtell 1389 
 
 Downer v. Union Land Co: of St. 
 
 Paul 1497 
 
 Doyle V. Dixon 374 
 
 Drake v. Markle 674 
 
 Driggs V. Bush 382 
 
 Drummond & Sons v. E. H. Van 
 
 Ingen & Co ll'S 
 
 Du Bose V. Kell 311 
 
 Page 
 
 Dunham v. Peterson 710 
 
 Dunton V. Westchester Fire Ins. 
 
 Co 330 
 
 Diitton V. Pool 255 
 
 Dyer v. Sebrell 729 
 
 Earp's Appeal 1453, 1455 
 
 Eastman v. Sunset Park Land Co. 675 
 
 Eaton V. Blackburn 1188 
 
 EdmMnd.ion's Estate, Matter of. . 251 
 
 Edwards r. Harhen 1052 
 
 B. Eising & Co. v. American Alco- 
 hol Co 1156 
 
 Eising & Co. v. American Alcohol 
 
 Co 1156 
 
 Eisner v. Macomber 1452, 1505 
 
 Ellas V. Whitney 76.j 
 
 Elidson V. Henshaiv 69 
 
 Elkins V. Board of Com'rs of Wy- 
 andotte County 62 
 
 Ellis r. Trust Co 843 
 
 Elton, E.T parte 1.354 
 
 Engraving Co. v. Moore 163 
 
 Essex Trust Co. v. Knwri^'ht 586 
 
 Estes V. Levering Shoe Co 757 
 
 Etheredge v. Barkley 64 
 
 Eiieret v. Williams 1283 
 
 Eu-an r. Brooks-Water Field Co. 889 
 
 Exchange Bank v. Thrower 503 
 
 ExchSinge Bank v. Gardner 1292 
 
 Faber-Musser Co. v. William E. 
 
 Dee Clay Mfg. Co 49G 
 
 Fairbanks v. Snow 805 
 
 Fidrmount Glass Works v. Grun- 
 
 den-Martin Woodeuware Co. . . . 3.'! 
 Farmers' Co-Operative Trust Co. 
 
 V. Floyd 615 
 
 Farmers' Loan & Trust Co^ v. 
 
 McCoy 687 
 
 Farmers' Xat. Bank v. Farmers' 
 
 & Traders' Bank . .' 850 
 
 Farmers' Nat. Bank v. McCiill . . 651 
 Farmers' Produce Co. v. JIcAles- 
 
 ter Storage & Commission Co. . . 56 
 
 Farnsworth v. Burdick 731 
 
 Farretl v. Manhattan Market Co. 1166 
 Far Rockaway Bank v. Norton . . 891 
 Farwell r. Boston & W. R. Cor- 
 poration 606 
 
 Faucher v. Wilson 456 
 
 Ferry & Co. v. Hall 978 
 
 Field V. Kane 557 
 
 Fillebrown v. Hayward Ti'< 
 
 Finley v. Smith 664, 684 
 
 Finley v. Smith 668, 669 
 
 First Nat. Bank v. Allen 820 
 
 First Nat. Bank v. Allen 528 
 
 First Nat. Bank v. Bank of Wynd- 
 
 . mere 843, 852 
 
 First Nat. Bank v. Barnum 423 
 
 First Nat. Bank v. Commercial 
 
 Bank 704 
 
 First Nat. Bank v. Corporation 
 
 Securities Co 413 
 
XXIV 
 
 TABLE OF CASES 
 
 Page 
 J''irst Nat. Bank v. First Nat. 
 
 Bank 740 
 
 Mrst Nat. Bank v. Kelgord 733 
 
 First Nat. Bank v. Leach 901 
 
 First Nat. Bank v. Lightner 640 
 
 First Nat. Bank v. McGullough . . 797 
 l^irst Nat. Bank v. National Park 
 
 Bank of New York 933 
 
 First Nat. Bank v. Sprague 594 
 
 JTirst Nat. Bank v. Sullivan 643 
 
 First Nat. Bank v. Watkins 59 
 
 Fleming v. Sherwood 647 
 
 Fletcher v. Eeed 1327 
 
 Fotbkes V. Beer 100 
 
 Foffg V. Atheneum 83 
 
 Folsom V. Marietta 1277 
 
 Folwell V. Miller 624 
 
 Ford V. People's Bank 844 
 
 Forrest v. Safety Banking & Trust 
 
 Co. . . . : 689 
 
 Fosdick V. Schall 1482 
 
 Foster v. Essex Bank 447 
 
 Fountain v. Bigham 309 
 
 Fowler v. Bwtterly 806 
 
 Fox V. Bank of Kansas City 753 
 
 Fox V. Ryan 597 
 
 Fradley v. Hyland 533 
 
 Francis v. McNeal 423 
 
 Frew V. Secular 477 
 
 Gage V. Oallanan 509 
 
 G. A. Kelly Plow Co. v. London . . 583 
 
 Gallagher v. Jones 392 
 
 Galuslia v. Sherman 1 308 
 
 (iandell v. Pontigny 600 
 
 Gardner v. Beacon Trust Co 824 
 
 Gardner v. Watson 277 
 
 Garrettson v. Bank 705 
 
 Gascoigne v. Cary Brick Co 1155 
 
 •Gass V. Southern Pac. Co 1111 
 
 Gay V. Householder 1296 
 
 Gehl V. Peycke Bros. Commission 
 
 Co \ 1008 
 
 Oeorffe M. West Go. v. Lea Bros.. 1349 
 
 Oerard v. McGormiek 774 
 
 Gerli & Co. v. Mistletoe Silk Mills 1206 
 
 Oermania Bank v. Bout ell 844 
 
 Gerstein v. C. F. Adams Co 556 
 
 Oibions V. Mahon 1452 
 
 Oibson V. Granage 165 
 
 Gihson v. Holland 387 
 
 Gieseke v. Johnson 475 
 
 Gifford V. Corrigan 250 
 
 Gillette v. Hodge 759 
 
 Gillis v. Cobe 222 
 
 Glantz V. Gardiner 1054 
 
 Glenn v. Rossler 190 
 
 Glennan v. Bochester Trust & 
 
 Safe Deposit Co 865 
 
 Globe Mutual Life Ins. Ass'n v. 
 
 Wagner 304 
 
 Goddard v. Binney 377 
 
 Goddwrd v. O'Brien 100, 101, 102 
 
 Good V. Martin 895 
 
 ■Gordon v. Aumiller 1300 
 
 Gordon v. Levine 917 
 
 Page 
 Gore V. Canada Life Assur. Co. . . 498 
 
 Gourd V. Healy 1001 
 
 Gray v. Barton 102 
 
 Green y. Gunsten 833 
 
 Green v. Wilkie 830 
 
 Greene v. McAuley 72S 
 
 Greenway v. Gaither 215 
 
 Green-Wheeler Shoe Co. v. Chica- 
 go, R. I. d P. R. Co 452 
 
 Greenwood v. Union Freight R. 
 
 Co 1502 
 
 Gregory v. Lee 360 
 
 Griffiths v. Kellogg 831 
 
 Grigsby v. Kussell 334 
 
 Guardian Trust Co. v. Cambria 
 Steel Co 1488 
 
 Haddock, Blanchard & Co. v. Had- 
 dock 891 
 
 Hadley v. Baxendale 389 
 
 Hahnenfeld v. Wolff 508 
 
 Hall V. Kansas City Terra Cotta 
 
 Co 404 
 
 Hall V. Newcomh 893 
 
 Hall V. Page 467 
 
 Hall V. Wright 238 
 
 Hall & Brown Woodworking 
 Mach. Oo. V. Haley Furniture & 
 
 Mfg. Co 526 
 
 Hamer v. Sidway 95 
 
 Hardy Implement Co. v. South , 
 
 Bend Ironworks 269, 270 
 
 Harriman, The 237 
 
 Harris v. Independence Gas Co. . .1409 
 
 Harrison v. Henderson 275 
 
 Harbison v. Shirley 332 
 
 Hart V. Pennsylvania R. R. ... 459, 463 
 Hartington Nat. Bank v. Breslin. 770 
 
 Harvey v. Chllds 1231 
 
 Havner v. Stephens 1320 
 
 Halves v. Oakland 1450 
 
 Hawkes v. Kehoe 172 
 
 Hawley v. Maiden 1504 
 
 Haworth v. Jackson 1323 
 
 Htaywar'd v. Leonard 223, 224 
 
 Heald v. Kenworthy 534 
 
 Healy v. Healy . . .'. 297 
 
 Hebblethwaite v. Flint 683 
 
 Hebert v. Dewey 168 
 
 Helgar Corporation v. Warner's 
 
 Features 198 
 
 Hendrix v. Bauhard 710 
 
 Henry v. Heeb 541 
 
 Herrington v. Davitt 132 
 
 Herter v. Mullen 240 
 
 Hertzog v. Hertzog 82 
 
 Hewes £ Co. v. Jordan 381 
 
 Heydon v. Hey don 1245 
 
 Hines, In re 431 
 
 Hobart v. Young 1131 
 
 Hobbs V. Hinton Foundry, Ma- 
 chine & Plumbing Co 356 
 
 Hobbs V. Massasoit Whip Co. . . . 80 
 Hochster v. De La Toiu- .213, 214, 215 
 
 Hodge v. Smith 723 
 
 Hodge Bros. v. Wallace 760 
 
TABLE OF CASES 
 
 XXV 
 
 Page 
 
 Hoe V. Sanborn S80 
 
 Hoffman & Co. v. Bank of Mil- 
 waukee 846 
 
 Hogan V. Stophlet 105 
 
 HoUiday State Bank v. Hoffman 
 
 662, 684 
 HoUiday State Bank v. Hoffman 
 
 666, 069 
 
 Holmes v. Gilman 590 
 
 Home, The v. Selling 256 
 
 Hopkins v. Ratliff 85 
 
 Hosmer v. WiUon 217 
 
 Hotclikiss V. National City Bank. 30 
 Hoyt V. Hainsworth Motor Co. ... 1162 
 
 Hubbard v. Ten Brook 536 
 
 Hunt V. Rousmanier 574 
 
 Hunt V. Security State Bank 934 
 
 Hunter v. Wilson 784 
 
 Hussey v. Home-Payne 70 
 
 Ide V. Leiser 47 
 
 Illinois Cent. R. Co. v. Goley 621 
 
 Illustrated Postal Card & iS'ovelty 
 
 Go. V. Holt 1096 
 
 Imperial Products Oo. v. Capitol 
 
 Chemical Co 1186 
 
 IngersoU-Rand Co. v. U. S. Fideli- 
 ty & Guaranty Co 148 
 
 Inhabitaijts of Montclair Tp. v. 
 
 Ramsdell 784 
 
 Inland Compress Co. v. Simmons 324 
 Interstate Fiuahce Co. v. Schroe- 
 
 der 800 
 
 Interstate Grocer Co. v. George 
 
 Wm. Bentley Co 1147 
 
 Ireland v. Floyd 710, 711 
 
 Irvine v. Watson 534 
 
 Ives V. Mahoney 1357 
 
 . Ives V. South Buffalo R. Co 604 
 
 Jaffray v. Davis 100 
 
 J. A. Kirsch & Co. v. Benyunes . . 1140 
 James Drummond & Sons v. E. H. 
 
 Van Ingen & Co 11.58 
 
 Jaquith v. Alden 428 
 
 Jaquith v. Hudson 396 
 
 J. B. Bradford Piano Co. v. Hack- 
 er 963 
 
 Jennings, Appeal of 1295 
 
 Jensen v. Barbour 551 
 
 J. Ii. Price Brokerage Co. v. Chi- 
 cago, B. & Q. R. Co 73 
 
 Johnson v. Collier 435 
 
 Johnson v. Northwestern Mutual 
 
 Life Ins. Co 347 
 
 Johnson v. Wingfield 1312 
 
 Johnston & Co. v. Button's Adm'r 1293 
 
 Jones V. Just 1160 
 
 Joseph V. Catron 660 
 
 Jump V. Sparling 698 
 
 Kahn v. Walton 704 
 
 Kauffman v. Raeder 185 
 
 Keeble v. Keeble 397 
 
 Keener v. Crull 1.34 
 
 Keighley, Maxsted & Co. v. Du- 
 rant 543 
 
 ^ Page 
 
 Keller v. Holderman 36 
 
 Kelly Plow Co. v. London 583 
 
 Kelsey v. J. W. Ringrose Net Co.. 1202 
 
 Kelso & Co. V. Ellis 749 
 
 Kennedy v. Broderick 666 
 
 Kessler v. Ensley Co 1437 
 
 Eimierty v. Patchm 1002 
 
 King V. Duluth, M. & N. R. Co. . . 106 
 
 Kingan & Co. v. Silvers 547 
 
 Kinzer Const. Co. v. State 237 
 
 Kirkpatrick v. Kepler 1144 
 
 Kirksey v. Kirksey 98 
 
 Kirsch & Co. V. Benyunes 1140 
 
 Kline Bros. & Co. v. Royal Ins. Co. 545 
 
 Klinkoosten v. Mundt 280 
 
 Knights of Modern Maccabees v. 
 
 Sharp 246 
 
 Knox V. Eden Musee Co 683 
 
 Kost V. Bender 7S« 
 
 Kronprinzessin CedUe, The 232 
 
 Labinsks v. Hoist , 598 
 
 Lamkin v. Palmer 366 
 
 Lancaster v. Baltzell 727 
 
 Landell v. Lybrand 624 
 
 Langhorne v. Richmond R. Co. ..1478 
 
 Lassas V. McCarty 750 
 
 Latta V. Kilbourh 1287 
 
 Lawrence v. Fox 249, 254 
 
 Leather Manufacturers' Bank v. 
 
 Morgan 871 
 
 Lee V. Mathews 620 
 
 Legal Tender Cases 677 
 
 Lemmon v. Beeman 345 
 
 Lester v. Jewett 189 
 
 Lewis V. Browning 58 
 
 Liberty Trust Co. v. Tilton . . .780, 808 
 
 Lickbarrow v. Mason 1040 
 
 Lill V. Gleason 791 
 
 Lindquist v. Dickson 529 
 
 Lindsey v. Stranahan 1296 
 
 Linick V. A. J. Nutting & Co 835 
 
 Linick v. Nutting 810 
 
 Linn County Bank v. Davis 1058 
 
 Lissberger v. Kellogg 1151 
 
 Littauer v. Goldman 880 
 
 Littaver V. Goldmun 883, 884 
 
 Livingston v. Page 330 
 
 Lobdell V. Baker 878 
 
 Lockwood V. Robbins 599 
 
 Lord V. Baldicin ,..1245 
 
 Lord V. Hull 1278 
 
 Lorillard v. Clyde 240 
 
 Loring v. Boston 38 
 
 Lucas V. Western Union Tel. Co.. . 55 
 Ludeclve v. Des Moines Cabinet 
 
 Co 1474 
 
 Luthy V. Ream 1428 
 
 Lutton V. Baker 764 
 
 McCarthy v. Louisville & N. R. 
 
 Co 457 
 
 McClay v. Harvey 57 
 
 McCleiiathan v. Davis 658 
 
 McClendon v. Bank of .Vdvance. . 847 
 
 MoComh V. Kitfridffc 110 
 
 McConnick v. Kelly 1135 
 
XXVI 
 
 TABLE OF CASES 
 
 Page 
 
 McCornick t. Swem Hao 
 
 McCuUougli V. Hitchcock 505 
 
 Mackin v. Dwyer 99 
 
 McKinney v. Boston & M. R. K. . . 17 
 
 Macleed v. Snee 641 
 
 McMullan v. Dickinson Co 599 
 
 MaNary v. Farmers' Nat. Bank 
 
 710, 711 
 Mahar v. Harrington Park Villa 
 
 Sites \ 1511 
 
 Maker v. Taft 110 
 
 Manchester v. Parsons 822 
 
 Mangold & Glandt Bank v. Ut- 
 
 terback 709 
 
 Marling v. Jones 720 
 
 Martin v. Leeper Bros. Lumber 
 
 Co 279 
 
 Mason v. Eldred 1306 
 
 Mauldin v. Southern Shorthand & 
 
 Business University ' 359 
 
 Maurmair v. National Bank of 
 
 Commerce 827 
 
 May V. Mitchell 508 
 
 Mayo V. American Malting Co. . . 183 
 
 Meech v. Ensign 252 
 
 Meehan v. Valentine 1223 
 
 Meickley v. Parsons 1136 
 
 Melroy v. Kemmerer 104 
 
 Melton V. Pensacola Bank & Trust 
 
 Co 750 
 
 Menagh v. Whitwell 1251 
 
 Mercantile Nat. Bank v. Silver- 
 man 860 
 
 Merchants' Nat. Bank v. Guilmar- 
 
 tin 560 
 
 Merchant's Nat. Bank v. Santa 
 
 Maria Sugar Co 752 
 
 Merriam v. Woloott 883 ' 
 
 Meyer v. Krohn 1343 
 
 Meyer v. Richards 882 
 
 Mick V. Eoyal Exc. Assur 562 
 
 Miles V. Dodson 785 
 
 Miles Medical Co. v. John D. Park 
 
 & Sons Co 322 
 
 Miller v. Ball 372 
 
 Miller v. Harvey 1012 
 
 Miller v. Race 1038 
 
 Miller v. SutlifC 303 
 
 Miller v. Trustees of Mariners' 
 
 Church 391 
 
 Miller V. Western College of To- 
 ledo 115 
 
 Millikan v. Security Trust Co. . . 674 
 Minneapolis & St. L. Ry. v. Colum- 
 bus Rolling Mill 53 
 
 Minne.'iota Linseed Oil Co. v. Col- 
 lier Vi^hit'^ Lead Co 40 
 
 Minot V. Pavno 1453, 1455 
 
 Mimot v. R'uss 901 
 
 Missouri Pac. E. Oo. v. Peru- Van 
 
 Zandt Implement Co 612 
 
 Mitchell V. Crassiceller 553 
 
 Mitchell V. Reed, 1284 
 
 M. M. & D. D. Brown v. Wesfern 
 
 Maryland R. Co 414 
 
 Moe Co. V. J. H. Logue Co 504 
 
 Page 
 
 Moha V. Hudson Boxing Club 171 
 
 Moody v. Amazon Ins. Co 200 
 
 Moore v. Elmer 131' 
 
 Moore v. Norman 192 
 
 Moore v. Small 370 
 
 Moore v. VParner Coal & Land 
 
 Co 1403 
 
 Moore & Tierney, Inc., v. Boxford 
 
 Knitting Co 233 
 
 Moran v. Dnnphy 614 
 
 Morey v. Wakefield 758 
 
 Morrison & Co. v. Shaw, Savill 
 
 & Albion Co 455 
 
 Morse v. Tillotson & VPolcott Co.. 69 
 
 Moses, Appeal of 270 
 
 Moss V. Uaiwock 679 
 
 Motley V. VFickofC 1336 
 
 Mugler v. Kansas 1503 
 
 Munn V. Illinois 1503 
 
 Munroe v. Perkins 108 
 
 Murphy v. Coppieters 1311 
 
 Murray v. Morris 1019 
 
 Murray v. Murray 1356 
 
 Murray v. Thompson 838 
 
 Myles & Co. v. A. D. Davis Pack- 
 . ing Co 1246 
 
 Naltner v. Dolan 588 
 
 Namquit Worsted Co. v. Whitman 611 
 National Bank v. First Nat. Bank 
 
 .739, 842 
 National Bank v. Wentworth . . . 642 
 National Bank of Commerce y. 
 
 Bussemeyer 738 
 
 National Bank of Commerce v. 
 
 Chicago, B. & N. R. Co 511 
 
 National Bank of Commerce v. 
 
 Farmers' & Merchants' Bank . . 745 
 National Bank of Commerce v. 
 
 Kenney 661 
 
 yational Bank of Commerce v. 
 
 Mechanics' American Nat. Bank 739 
 National Cable & Mfg. Co. v. Fil- 
 bert 179 
 
 National Exch. Banlc v. Lester.. 816 
 National Exch. Bank v. Lester 
 
 819, 836 
 National Park Bank v. Seahoard 
 
 Bank 753 
 
 National Safe Deposit Savings & 
 Trust Co. of District of Colum- 
 bia V. Hibbs 1465 
 
 Neal, Clark & Neal Co. v. Tarby . . 981 
 Nebraska Seed Co. v. Harsh .... 30 
 
 Newton V. ToUes 294 
 
 New York Cent. R. Co. v. White . . 60.S 
 
 A'ichols V. Ruggles 641 
 
 Nickell V. Bradshaw 667 
 
 Nohle V. Beeman-Spaulding-W ood- 
 
 iVKird Co 792 
 
 Nolan V. Whitney 167 
 
 Norfolk Hardwood Co. v. New- 
 York Cent. & H. R. E. Co 1114 
 
 Norrington v. Wright 195 
 
 Northern Grain Co. v. WifBer . . . 1113 
 Northern Pac. R. Co. v. Boyd .. .1489 
 
TADLE OF CASES 
 
 xxvu 
 
 Page 
 Northtcestem Nat. Bank v. Bank 
 
 of Commerce 8 J3, S44 
 
 N. P. Sloan Corporation v. Linton 120S 
 Nugent V. Wolfe 363 
 
 O'Brien v. People 419 
 
 O'Connor's Adm'x v. Clark 1044 
 
 O'Donnell v. Daily News Co. of 
 
 Minneapolis 375 
 
 Olcott V. McClure 35 
 
 Olson V. Sawyer-Goodman Co. . . . 328 
 O'Neill V Supreme Council A. L. 
 
 of H 212 
 
 Osborne, In re 1453 
 
 Oscar Schlegel Mfg. Co. v Peter 
 
 Cooper's Glue Factory 123 
 
 Owosso Carriage & Sleigh Co. v. 
 
 Mcintosh & AVarren 1061 
 
 Pabst Brewing Co. v. Milwaukee . 205 
 
 Paddock v. Davenport 412 
 
 Page v. Edmunds 436 
 
 Paige V. Faure 268 
 
 Paine v. Melter 172 
 
 Parker v. Russell 214 
 
 Patterson v. Meyerhofer 203 
 
 Pattillo V. Alexander 710 
 
 Paul Gerli & Co. v. Mistletoe Silk 
 
 Mills 1206 
 
 Paulson V. Boyd 722 
 
 Payne v. Potter 508 
 
 Peacock v. Rhodes 1038 
 
 Pelican v. Mutual Life Ins. Co. of 
 
 New York 184 
 
 Pennington v. Howland 164 
 
 Pennsylvania Co., Appeal of .... 262 
 Pennsylvania Sugar Co. v. Czarni- 
 
 kow-Rionda Co 149 
 
 People V. North River Sugar Re- 
 fining Co ...1387 
 
 People ex rel. Cams v. Matthies- 
 
 sen 1425 
 
 People ex rel. National Exp. Co. 
 
 V. Coleman 1380 
 
 Pepper v. Western Union Tel. Co. 74 
 
 Percy v. Millaudon 1460 
 
 Perkins v. Smith 620 
 
 Phalen v. V. S. Trust Co 249 
 
 Phelps v. McQuade 1048 
 
 Philadelphia Ball Club v. Lajole. 417 
 
 Phillips V. A. W. Joy Co 812 j 
 
 Phillips V. Phillips 1221 
 
 Phillips' Estate, In re 270 
 
 Philpott's Estate, In re 764 
 
 Piagglo V. Somerville 230 
 
 Pickert v. Marston 506 
 
 Pinnel, Case of 100 
 
 Pittsburgh Provision & Packing 
 
 Co. V. Cudahy Packing Co 1020 
 
 Planktnton Packing Co. v. Berry. . 515 
 
 Plant V. Woods 615 
 
 Plate v. Durst 36 
 
 Plover Sav. Bank v. Moodie 911 
 
 Pollock V. Farmers' Loan & Trust 
 
 Co 1505 
 
 Pond V. Neio Rochelle Water Co. 250 
 
 Page 
 
 Porter v. Gossell 68 
 
 Powelson v. Tennessee Eastern 
 
 Electric Co 1419 
 
 Powers v. Briggs 1137 
 
 Pratt V. I-Ilggirison 693 
 
 Pratt V. S. Freeman & Sons Mfg. 
 
 Co 1109 
 
 Presbyterian Church of Albany v. 
 
 Cooper 117 
 
 President, etc.. Bank of Columbus 
 
 V. Hagner 189, 191 
 
 Preston v. Garrard 1338 
 
 Preston v Prather 447 
 
 Price V. Neal 843, 851, 852 
 
 Price Brokerage Co. v. Chicago, 
 
 B. & Q. R. Co 73 
 
 Procter v. Atlantic Fish Cos. ...1171 
 Proctor & Gamble Co. v. Peters, 
 
 White & Co 991 
 
 Producers' Coke Co. v. Hillman . . 193 
 Public Bank of New York City v. 
 
 Knox-Burchard Mere. Co 814 
 
 Pullen V. Placer County Bank . . . 866 
 
 Raftery v. World Film Corpora- 
 tion 399 
 
 Railroad Tax Cases 1500 
 
 Ramey Lumber Co. v. John Schroe- 
 
 der Lumber Co 125 
 
 R. A. Myles &, Co. v. A. D. Davis 
 
 Packing Co 1246 
 
 Ratcliffe v. Costello . .' ". 789 
 
 Ray County Sav. Bank v. Hutton 626 
 
 R. C. Bartley Co. v. Lee 1095 
 
 Regina Co. v. Gately Furniture 
 
 Co 120.J 
 
 Rheinstrom v. Steiner 1193 
 
 Rhoda V. Annis 563 
 
 Rice V. Boyer 354 
 
 Rich V. Doneghey 127 
 
 Richard Deeves & Son v. Manhat- 
 tan Life Ins. Co 205 
 
 Richards v. Dclbridge 263 
 
 Richards v. Market Exch. Bank. . 945 
 
 Richmond v. Moore 342 
 
 Riegel v. American Life Ins. Co. . 291 
 Riverside Bank v. First Nat. Bank 849 
 Robb V. Penftsylvanla Co. for In- 
 surance on Lives & Granting 
 
 Annuities 828 
 
 Roberts v. Anheuser-Busch Brew- 
 ing Ass'n 1179 
 
 Roberts v. Smith 673 
 
 Robinson Bank v. Miller 1259 
 
 Robson V. Drummond 267, 268 
 
 Rochester & C. Turnpike Road Co. 
 
 V. Paviour 771 
 
 Rochester & Oleopolis Oil Co. v. 
 
 Hughey 999 
 
 Rockfleld v. First Nat. Bank 888 
 
 Rock Glen Salt Co. v. Segal 1014 
 
 Rodgers v. Meranda 1350 
 
 Rodijkeit v. Andrews 265 
 
 Rochm V. Horst 214 
 
 Rogers v. Bluenstein 333 
 
XX vm 
 
 TABLE OF CASES 
 
 Page 
 RohrbacJi v. Germania Fire Ins. 
 
 Co 336 
 
 Kohrbough v. TJ. S. Exp. Co 512 
 
 Boland M. Baker Co. v. Brown . . . 1074 
 
 RoUn V. Steward 869 
 
 Koseberry v. Hart-Parr Co 538 
 
 Rosenstein v. Burns 1321 
 
 Ross V. Northrup, King & Co 1173 
 
 Rowe V. Rand 611 
 
 Royal Ins. Co. v. Beatty 78 
 
 Rubin V. Huhn 450 
 
 Riimmell v. Blanchard 1117 
 
 Sabine v. Paine 837 
 
 Sackett v. Palmer 659 
 
 St. Clair v. Cox 1510 
 
 St. Louis Gunning Advertising Co. 
 
 V. Wanamaker & Brown 489 
 
 St. Louis & Southwestern R. Co. v. 
 
 James 707 
 
 Saltus V. Everett 1037 
 
 Sanders v. Brock 224 
 
 San Mateo County v. Southern 
 
 Pac. R. Co 1500 
 
 Sash d Door Co. v. Bank 913 
 
 Scandinavian-American Bank v. 
 
 Westby 945 
 
 Sceva V. True 89 
 
 Schlegel Mfg. Co. v. Peter Coop- 
 er's Glue Factory 123 
 
 Schultz V. Griffin 507 
 
 Scraper Go. v. Sadilelo 913 
 
 Scully V. Roche 84 
 
 Seaboard Air Line Ry. v. JIullln. . 452 
 Seaboard Nat. Bank v. Bank of 
 
 America 858 
 
 Searles v. Gebbie 1442 
 
 Seaver v. Ransom 248 
 
 Security Trust & Savings Banlc v. 
 
 Gleichmann 686, 688 
 
 Sewell V. Underbill 172 
 
 Shadwell v. Shadwell 112 
 
 ShafCer v. Bond 715 
 
 Shea V. Vahey 897 
 
 Sheahan v Davis 791 
 
 Sheahan v. National S. S. Co. ... 578 
 
 Shelley, Case of 335 
 
 Shepwwg Voting Trust Gases 1432 
 
 Sherwin v. National Cash Regis- 
 ter Co 51 
 
 Shipman v. Bank of State of New 
 
 York 858 
 
 Siegel v. Chicago Trust & Saving 
 
 Bank , . . 645 
 
 Silslm/ry v. McGoon 592 
 
 Silver v. Graves 99 
 
 Silverthom v. Wylie 130 
 
 Simonds v. Heard 520 
 
 Simson v. Klipstein 1235 
 
 Slaughter House Cases 1503 
 
 Sleath V. Wilson 554 
 
 Sloan V. MoCarty 648 
 
 Sloan Corporation v. Linton 1208 
 
 Smith V. Alexander 525 
 
 Smith V. Herring-Hall-Marvin 
 Safe Co 580 
 
 Page 
 Smith V. Nelson Land & Cattle 
 
 Co : 795 
 
 Smith V. Tracy 507 
 
 Smith V. Vtley 625 
 
 Smith Co. V. Marano, 1022 
 
 Smith Premier Typewriter Co. v. 
 
 National Hartel Light Co 505 
 
 Smith's Estate, In re 262 
 
 Southern Iron & Equipment Co. v. 
 
 Vaughan 1212 
 
 Southern R. Co. v. Carnegie Steel 
 
 Co 1481 
 
 Spalding, In re- 430 
 
 Spencer Heater Co. v. Abbott 1168 
 
 Springs v. Hanover Nat. Bank . . . 845 
 S. S. Allen Grocery Co. v. Bank of 
 
 . Buchanan County 808 
 
 Staples V. Schmid 559 
 
 Stapleton v. Independent Brewing 
 
 Co 555 
 
 State Bank, In re 740 
 
 Stearns Salt & Lumber Co. v. Den- 
 nis Lumber Co 208 
 
 Steinbrenner v. Minot Auto Co. . . 65 
 
 Stein Co. v. Robertson 1138 
 
 Steinmeyer v. Schroeppel 295 
 
 Sternbergh v. Brock 1417 
 
 Stewart v. Newbury 194 
 
 Stewart v. Robinson 1328 
 
 Stewart v. Stone 239 
 
 Stokes V. Continental Trust Co. of 
 
 City of New York 1421 , 
 
 Stone V. Hills 553 
 
 Stout V. Baker 1309 
 
 Straus V. Victor Talking Mach. 
 
 Co 319 
 
 Sturtevant Co. v. Fireproof I'ilm 
 
 Co 71 
 
 Swift V. Tyson 749 
 
 Swift & Co. v. Miller 920 
 
 Tanner v. Merrill 104 
 
 Taylor v. Caldwell 238 
 
 Taylor v. Curru 643 
 
 Taylor v. Florida, etc., R. Co. ... 415 
 
 Taylor v. Griswold 1430 
 
 Taylor V. Jagues 806 
 
 Tebeau v. Ridge 173 
 
 Terwilllger v. Ontario, C. & S. B. 
 
 Co 573 
 
 Thilmany v. Iowa Paper Bag Co.. 617 
 
 Third Nat. Bank v. Ober 868 
 
 Thomas v. Beaver Dam Mfg. Co. . . 579 
 
 Thompson v. Fairbanks 433 
 
 Thompson v. First Nat. Bank 1229 
 
 Thomson V. Davenport 533, 616 
 
 Thorp V. Mindeman 651 
 
 Tillis V. Smith 297 
 
 Times Square Automobile Co. v. 
 
 Rutherford Nat. Bank 901 
 
 Tolerton & Stetson Go. v. Anglo- 
 California Bank 1088 
 
 Torkomian v. Russell 1126 
 
 Toume v. Wason 729 
 
 Tovmsend v. Rackham 250 
 
 Trentor v. Pothcn 52s 
 
TABLE OF CASES 
 
 XXIX 
 
 Page 
 Trust Co. of America v. Conklln . . 818 
 Trust Co. of Amcrioa v. CuHkUn. . 836 
 Trust Co. of America v. Hamilton 
 
 Bank 857 
 
 Tweddle v. Atlcuison 255 
 
 Twitchell-Cliamplin Co. v. Radov- 
 
 sky 1022 
 
 Twyman v. Avera Loan & Invest- 
 ment Co 801 
 
 Twyne, Case of 1052 
 
 TJUsperger v. Meyer 383 
 
 Union Nat. Bank v. Mayfleld 686 
 
 Union Trust Co. v. MtGinty 943 
 
 U. S. V. Adams Exp. Co 1010 
 
 U. S. V. Addystone Pipe & Steel 
 
 Co 315 
 
 U. S. V. Bethletiem Steel Co 397 
 
 U. S. Radiator Corporation v. 
 
 State 1414 
 
 Vpton V. Tribilcoclc 1476 
 
 Utterson v. Elmore 471 
 
 Valley Nat. Bank of Chambers- 
 burg V. Crowell 693 
 
 Vanderford v. Farmers' Ba)ik . . . 945 
 
 Yander Ploeg v. Van Zuuk 782 
 
 Van Dyke v. Van Dyke 531 
 
 Venner v. Chicago City R. Co. . . .1429 
 Vrooman v. Turnei- 255, 257 
 
 Wadhams v. Page 1334 
 
 Wadleigh v. Katahdin Pulp & Pa- 
 per Co 87 
 
 Walker v. Bank 616 
 
 Walters v. Rock 767 
 
 Ward V. Great Atlantic & Pacific 
 
 Tea Co 1164 
 
 Wasco County v. New England 
 
 Equitable Ins. Co 480 
 
 Watson V. King 575 
 
 Waugh V. Carter 1232 
 
 Weare v. Gove 616 
 
 Weare Commission Co. v. Druley 406 
 Weatherford, M. W. & N. W. R. 
 
 Co. V. Granger 1399 
 
 Weber v. Hirsch 758 
 
 Weeks V. Crie 378 
 
 Wegman Piano Co., In re 937 
 
 Page 
 
 Welch V. Owenby 649 
 
 Weld V. I'ostal Telegraph Cable 
 
 Co 326, 328 
 
 Wells V. Calnati 173 
 
 Welshausen v. Charles Parker 
 
 Co 1177 
 
 West Go. V. Lea 427, 430 
 
 West Co. V. Lea Bros 1349 
 
 Western Union Tel. CV.. v. U. S. 
 
 c& Mexican Trust Co 1480 
 
 Westmoreland Coal Co. v. Syra- 
 cuse Lighting Co 1017 
 
 Wetopsky v. New Haven Gas 
 
 Light Co 370 
 
 Wheeler v. McGuire 518 
 
 Whitcomb v. Converse 1275 
 
 White V. Bluett 97 
 
 White V. Rintoul 365 
 
 White V. Schweitzer 1191 
 
 White & Co. V. Century Sav. Bank 
 
 of Des Moines, Iowa 1091 
 
 Whitlock V. Auburn Lumber Co.. . 987 
 
 Whitney v. Eliot Nat. Bank 642 
 
 Whitney v. Wlyman 523 
 
 Wickham & Burton Coal Co. v. 
 
 Farmers' Lumber Co 120 
 
 Wigent V. Marrs 216 
 
 Williams v. Farrand 1266 
 
 Williams v. Milton 1238 
 
 Williamson-Halsell-Frazier Co. v. 
 
 Ackermau 307 
 
 Wilson v. Hundley 301 
 
 Wilson V. Mason 597 
 
 Wilson V. Railroad Co 774 
 
 Wilson V. Tumman 543 
 
 Wilson V. Walrath 1051 
 
 Wilson Bros. v. Xchon 429 
 
 Winship v. Bank of United States 1298 
 
 Winter v. Stock 120.J 
 
 Wood V. Boynton 29:! 
 
 Wood V. Lucy, Lady Duff-Gordon. 125 
 Wright V. Frank A. Andrews Co.. .1119 
 Wright Bros. v. Merchants' & 
 
 Planters' Packet Co 1405 
 
 Young v. Grote 810 
 
 Zaleski v. Clark 165 
 
 Ziemer v. C. O. Bretting Mfg. Co.. 1473 
 
CASES ON BUSINESS LAW 
 
 INTRODUCTION TO THE STUDY OF LAW 
 
 Section 
 
 1. Nature of Law. 
 
 2. Systems of Law. 
 
 3. Objects of Law. 
 
 4. Legal Relations. 
 
 5. Divisions of Law. 
 
 6. Legal Procedure. 
 
 7. Judicial Decisions. 
 
 8. History and Development of the Law. 
 
 SECTION 1.— NATURE OF LAW- 
 
 Law exists only in the state. Law assumes the existence of a 
 government, and of agents thereof, through whose actions law 
 manifests itself. When a governor of a state calls an extra session 
 of the legislature, pardons a prisoner, or appoints some individual 
 to office ; when a legislative body in some proper form registers its 
 will that certain things shall or shall not be done ; when a court, as 
 a result of a proceeding before it, formally declares that A. owes 
 B. a specified sum of money ; when a sheriff seizes A.'s property and 
 delivers it to C. in exchange for money which is in turn given to B. 
 in payment of the debt ; when a policeman halts the stream of traf- 
 fic on a busy thoroughfare — these physical acts are the manifesta- 
 tions of state life ; they are manifestations of law. , It is only in a 
 figurative sense that we speak of certain words as constituting a 
 legal principle, or that law is to be found in certain kinds of books. 
 
 Law is a science. Like all sciences, its study involves the ex- 
 amination of data and the acquisition of all possible knowledge 
 concerning it, with the view of determining the sequence of events 
 which are certain or likely to follow a given set of conditions. 
 When a ball is thrown into the air, one may determine the equation 
 of the curve thus described, and that the ball will strike the earth 
 in a certain number of seconds. In so doing one is studying the 
 sciences of physics and of mathematics. When an electric current 
 is passed through water under certain conditions, the liquid sep- 
 arates into its constituent gases. In such a case the investigator 
 is studying the sciences of physics and of chemistry. When one 
 has ascertained the relation between exports and imports between 
 two countries, the quantity of gold in each, the amount of debts 
 owed by persons in each country to persons in the other, and many 
 other analogous facts, and his problem is to determine what the ex- 
 B.&B.Bus.Law— 1 
 
2 INTRODUCTION TO THE STUDY OF LAW 
 
 change rates will be, the inquirer is studying the science of eco- 
 nomics. And so in the study of law the task is to accumulate 
 the necessary data, to learn all that may be learned about it for 
 the purpose of being able to prophesy with a fair degree of ac- 
 curacy what the agents of the state will or will not do under any 
 particular group of circumstances out of the multitudinous facts of 
 human life. Under what circumstances will the governor pardon a 
 prisoner ; when will the court direct the sheriff .to seize a person's 
 property and deliver it to some other person ; when will the sheriff 
 confine persons in the jail or prison; when will a person be per- 
 mitted to exercise dominion over property which theretofore had 
 been within the control of another person? When one accumulates 
 data for the purpose of answering these questions, he is studying 
 law. 
 
 Most persons know a great deal about law, although they may 
 never have studied law books. It is impossible for one to observe 
 the everyday facts of life without being able to prophesy with con- 
 siderable accuracy what the agents of government will do under , 
 various circumstances. But knowledge derived exclusively in this 
 way, however extensive, is likely to be disorganized, and the data 
 wholly insufficient as a basis for safe prophecy in all cases. The 
 average case of theft is readily recognizable by all persons as a 
 criminal act, but there would be a difference of opinion as to 
 whether one is guilty of an attempt to steal by thrusting his 
 hand into an empty cash drawer with intent to steal its contents. 
 Knowledge, until it passes beyond the stage of accumulated details 
 into the field of generalization, is not scientific, although the ac- 
 quisition of such information involves the study of science. One 
 does not become an astronomer by observing the movement of 
 the heavenly bodies, nor a philosopher by conjuring with the con- 
 cepts of time and space. Nor will one be able to comprehend the 
 criminal law by witnessing, however frequently, the incarceration 
 of offenders in the state prison and the county jail. 
 
 Law, while a science, in and of itself, is related to and dependent 
 upon all other sciences and upon philosophy. Like other sciences, 
 law must take account of and utilize knowledge, from whatever 
 source derived. The determination of the question of liability to 
 respond in damages for negligent acts may involve the truths of 
 mathematics, of chemistry, of geology, or of botany. The question 
 as to the existence, performance, or discharge of contractual rela- 
 tions, under a given state of facts, may be largely a question of 
 geography, of biology, or of the rules of English grammar. In 
 prosecutions for crime, guilt or innocence may depend upon knowl- 
 edge acquired from medical science, or from investigations into the 
 pyschology of the human mind. A particular science is not de- 
 veloped, nor does it exist as a field of knowledge, independent of 
 other fields of knowledge. Each makes contributions to the other. 
 Each in turn is sustained and vitalized by truth discovered in allied 
 fields. The study of law, therefore, is not a study of materials 
 
INTRODUCTION TO THE STUDY OP LAW 3 
 
 itni-elated to the materials of other fields of study. All branches 
 of learning possess some object in common. Whether in scientific 
 or philosophical study, man, in some sense, is the central figure. 
 The study of Mendel's law of heredity, of the Malthusian theory of 
 population, of the federal law for the taxation of incomes, though 
 pursued in volumes widely separated from each other on the shelves 
 of the library, leads the inquiring mind into channels of investiga- 
 tion which converge upon a common point. 
 
 But, more particularly, law is one of the social sciences. The 
 facts which make it what it is are in great measure the same facts 
 which engage the attention of the economist, the sociologist, the 
 political scientist, and the historian. The desirability of obtaining 
 a perspective of the law in its relations to other branches of knowl- 
 edge leads us in this connection to call to mind the larger Objects of 
 its companion sciences. "Economics is the social science which 
 treats of that portion of human activity which is concerned with 
 earning a living. * * * J^ analyzes wants, classifies goods with 
 reference to them, and considers all of the circumstances which 
 affect the production and distribution, or sharing, of goods among 
 the individuals who compose society." ^ "Political science begins 
 and ends with the state. Its fundamental problems include an 
 investigation of the nature of the state as the highest political 
 agency for the realization of the common ends of society and the 
 formulation of fundamental principles of state life; an inquiry 
 into the nature, history, and forms of political institutions; a de- 
 duction therefrom, so far as possible, of the laws of political growth 
 and development." * "Sociology, is ethical, regarding the weal and 
 woe of all men as facts to be accounted for. It views the facts of 
 human experience as caused, and belonging to the orderly course 
 of nature. * * * Sociology sets itself to the task of synthesis, 
 and searches out those principles which operate throughout the 
 realm of social realities. In the study of these facts, it aims to 
 dissolve all bonds of party, sect, and prejudices. * * * Sociol- 
 ogy aims at nothing less than the transfer of ethics from the do- 
 main of speculative philosophy to the domain of objective sci- 
 ence." * "History, in the broadest sense of the word, is all that 
 we know about everything that man has ever done, or thought, or 
 hoped, or felt. It is the limitless science of past human affairs, a 
 subject immeasurably vast and important, but exceedingly vague." * 
 With these notions in the background, the declaration that "law 
 is the body of principles recognized and applied by the state in the 
 administration of justice"® takes on a fairly definite meaning. 
 At least, law cannot be conceived of as a system created for the 
 mere preservation of the peace, or as the establishment of the 
 
 1 Seager, Principles of Economics, p. 1. 
 
 2 Garner, Introduction to Political Science, p. 15. 
 
 a Hayes, Introduction to the Study of Sociology, pp. 4 and 8. 
 * Robinson, History of Western Europe, p. 1. 
 5 Salmond, Jurisprudence, § 5. 
 
4 INTRODUCTION TO THE STUDY OF LAW 
 
 machinery for the regulation of private vengeance. In its larger 
 aspects, the administration of justice will mean what science and 
 philosophy make it mean. 
 
 SECTION 2.— SYSTEMS OF LAW 
 
 There are two great systems of law in the world to-day; the 
 common law, and the civil law. The common law is that system 
 which 'developed in England, for the most part, after the Norman 
 conquest. This systerri of law is in force quite generally through- 
 out the British Empire and in the United States. The civil law is 
 that system which developed in the main from the Roman law, 
 and prevails generally throughout the world. The codes of con- 
 tinental European states, and of South American countries, are 
 based upon the Roman law. Some portions of the British Empire, 
 Quebec and Scotland, are civil-law countries. In the United States, 
 Louisiana has adopted the civil law. These two great systems of 
 law should not be conceived of as different, in the sense that legal 
 controversies are decided in one way under the common law and a 
 different way under the civil law. The larger aspects of the con- 
 ception of justice are very much the same everywhere. There 
 are such differences, of course. Some controversies would be de- 
 cided one way under the common law and another way under the 
 civil, law. For that matter, there are differences of decision on the 
 same facts in different civil-law countries, just as there are quite 
 frequently differences in the decisions of particular cases in the 
 various states of the United States. The same court may even de- 
 cide a case in one way on one occasion, and reach a contrary re- 
 sult in the same kind of case on another occasion. As a general 
 rule, however, there is not this kind of break in the history of a 
 rule of law. The two systems of law, like nationalities, oftentimes, 
 are different, chiefly, in the sense that they have had different his- 
 tories. 
 
 There are a few differences of a rather fundamental character. 
 The Roman law, which prior to the time of Justinian was expressed 
 in the decisions of the courts, in statutes, and in the writings of 
 legal scholars, during his reign passed into the form of a code, cov- 
 ering all branches of the law. In civil-law countries to-day, the 
 basic principles of the entire field of the law are expressed in the 
 form of legislative enactments. In deciding particular controversies 
 the courts are then called upon to interpret and apply the code. 
 In England and the United States the major portion of the law is 
 not expressed in the form of statutes, but is to be found expressed 
 for the most part in the decisions of the courts. The courts in Eng- 
 land and the United States must therefore decide controversies up- 
 on some basis other than by interpreting and applying some statu- 
 tory generalization of the law. It should be remarked that, both in 
 England and in the United States, the importance of statutes in 
 the legal system has been growing very rapidly since the middle 
 
INTRODUCTION TO THE STUDY OF LAW 5 
 
 of the nineteenth century. In some states nearly the whole field of 
 the law has been codified, and in all states the tendency to increase 
 the number and variety of governmental functions, and a similar, 
 but independent, tendency to organize and systematize existing 
 law, has caused a notable increase in legislation. 
 
 There is a further difference between the civil law and the com- 
 mon law, to be found in the attitude which the courts under the 
 two systems assume toward former decisions involving the same 
 or analogous facts. Courts which are a part of the civil law system 
 are chiefly concerned with the text of the code. They apply the 
 code directly, or, if interpretation is necessary, they interpret the 
 language according to some accepted standard of interpretation, 
 and then apply the interpreted statute to the facts. The civil-law 
 courts do not regard as binding upon them former determinations 
 of the meaning of the code as reached by the same or other courts. 
 Just the contrary is true under the system of the common law. 
 If a court once decides a particular question, that decision is re- 
 garded thereafter as a precedent binding upon them. This atti- 
 tude to prior decisions is called the doctrine of stare decisis. Much 
 of the work of a court applying common-law principles is taken 
 up in the endeavor to ascertain what the same or other courts have 
 decided on the same or analogous set of facts. The decisions of the 
 Supreme Court of a particular state are regarded as binding prece- 
 dents in that state. Decisions of the Supreme Courts of other 
 states are not deemed binding precedents, but they are often re- 
 lied upon as a basis of decision. Such decisions from other juris- 
 dictions are of persuasive authority, varying in persuasiveness ac- 
 cording to the state where rendered, to the strength of the reasoning 
 employed, and even with the reputation of the individual judge who 
 wrote the opinion. There is some tendency in civil-law countries to 
 regard former decisions to some extent as binding precedents, 
 while in the United States and in England there is some tendency, 
 ' especially in 'certain departments of the law, to break away from 
 precedent, when changed economic or social conditions seem to de- 
 mand a change. Thus the two systems tend toward the same gen- 
 eral policy. For the most part, change in the law comes as a 
 result of legislation, and not by judicial decisions, but the process of 
 change by judicial decisions is distinctly traceable. 
 
 SECTION 3.— OBJECTS OF LAW 
 
 The problems of the law are not all of the same nature. They 
 do not have the same immediate objects. They sustain various re- 
 lations, one to the other and to the conduct of human affairs. Some 
 problems of the law are primary and of overshadowing impor- 
 tance. Others are secondary, subordinate, or derivative. The broad 
 concept of the administration of justice, as a primary object, breaks 
 up into a number of more detailed, but nevertheless fundamental, 
 
6 INTRODUCTION TO THE STUDY OF LAW 
 
 conceptions. As formulated by an eminent thinker, Roscoe Pound,® 
 these fundamental conceptions arrange themselves into the follow- 
 ing jural postulates: 
 
 I. In civilized society men must be able to assume that others 
 will commit no intentional aggression upon them. 
 
 Corollary of Jural Postulate I : One who intentionailly does any- 
 thing which on its face is injurious to another must repair the re- 
 sulting damage, ' unless he can (1) justify his act under some so- 
 cial or public interest; or (2) assert a privilege because of a coun- 
 tervailing individual interest of his own which there is a social or 
 a public interest in securing. 
 
 II. In civilized society men must be able to assume that they 
 may control for beneficial purposes what they have discovered and 
 appropriated to their own use, what they have created by their own 
 labor, and what they have acquired under the existing social and 
 economic order. 
 
 III. In civilized society men must be able to assume that those 
 with whom they deal in the general intercourse of society will act 
 in good faith, and hence 
 
 (a) Will make good reasonable expectations which their prom- 
 ises or other conduct reasonably create ; 
 
 (b) Will carry out their undertakings according to the expecta- 
 tions which the moral sentiment of the community attaches thereto ; 
 
 (c) Will restore specifically or by equivalent what comes to 
 them by mistake or unanticipated situation whereby they receive 
 what they could not reasonably have expected to receive under 
 the actual circumstances. 
 
 IV. In civilized society men must be able to assume that others, 
 when they act affirmatively, will do so with due care with respect 
 to consequences that may reasonably be anticipated. 
 
 V. In civilized society men must be able to assume that others, 
 who maintain things likely to get out of hand or to escape and do 
 damage, will restrain them within their proper bounds! 
 
 Hence one is liable in tort for — 
 
 I. Intentional aggression upon the personality or substance of 
 another. 
 
 II. Negligent interference with person or property — i. e., failure 
 to come up to the legal standard of due care under the circum- 
 stances, while carrying on some affirmative course of conduct, 
 whereby injury is caused to the person or property of another. 
 
 III. Unintended non-negligent interference with the person or 
 property of another through failure to restrain or prevent the es- 
 cape of some dangerous agency which one maintains. 
 
 These sweeping generalizations represent the ends to be realized 
 in society. They mark out the bold headlands of the substantive 
 law. The preservation of the institution of private property, the 
 guaranty of individual liberty, the balancing of individual and so- 
 
 « An Inti'ochiction to American Law, pp. 36-44. 
 
INTRODUCTION TO THE STUDY OF LAW 7 
 
 cial interests under the influence of social, economic, and political 
 controversy, and the furtherance of the public welfare generally, are 
 the great ends of the existing legal system. 
 
 SECTION 4.— LEGAL RELATIONS 
 
 Turning our attention now to the more detailed aspects of the 
 problem, it will appear that the idea of law involves the notion of 
 the existence of legal relations between persons. Prominent among 
 them is that relation where a right is said to reside in one person 
 and a duty in some other person or persons. For example : Where 
 A. and B. have entered into a contract, A. has a right that B. 
 shall perform; B. is under a duty of performing. A. has a right 
 not to be struck by B. B. is under a duty of refraining from strik- 
 ing A. In both cases the consequences are that, if B. violates his 
 duty, A. may successfully sue B. for damages, or he may be enti- 
 tled to some other appropriate legal remedy. Illustrations might 
 be multiplied, but the point to be noted is that, if a person pos- 
 sesses a legal right, there exists another person or persons who 
 are under correlative legal duties, which, if violated, will enable the 
 person possessing the right to obtain, through legal proceedings, 
 some appropriate remedy against the person who violated his duty. 
 
 A legal relation of different character exists where a person, 
 A., is privileged to do an act under circumstances where another 
 person, B., or perhaps all other persons, have no rights that A. 
 shall or shall not exercise his privilege. An owner of land may 
 cultivate it, erect buildings upon it, or do many other physical acts 
 with respect to the land. While these acts are often spoken of as 
 rights, they may more accurately be spoken of as privileges. B. 
 might, of course, by physical interference prevent the exercise of 
 the privilege. This act of B., however, would be a violation of his 
 duty not to assault A. 
 
 A third legal relation exists where A., by an act of his, may ena- 
 ble B., by an act of his own, to create, alter, or extinguish some 
 legal relation then existing between two or more other persons. 
 
 A. makes an offer to enter into a contract with B. By accepting, 
 B., by an act of his own, creates a contract between himself and A. 
 
 B. may be said to possess a power, and A. is under a correlative 
 liability to have his relations changed by B.'s act. An owner of 
 property has power to transfer his interests with respect to the 
 same to other persons. Frequently the term "right" is employed to 
 describe that which is here described as a power. 
 
 Finally, a legal relation of different nature exists where, under a 
 given state of facts, one person, A., is under a disability, and some 
 other person possesses a correlative immunity, as, for example, a 
 person in rightful possession of another's chattels — a bailee — has 
 no power to transfer title to the same to 'an innocent third party. 
 
8 INTRODUCTION TO THE STUDY OF LAW 
 
 The party in possession is under a disability. The owner possesses 
 an immunity.' ' 
 
 SECTION 5.— DIVISIONS OF LAW 
 
 Having adverted briefly to the fundamental conceptions of the 
 law, we may now proceed to indicate in a somewhat more detailed 
 manner the boundaries of the field of legal study, for the primary 
 purpose of noting what particular portions of this field will engage 
 our attention in this book. It might be stated that we shall be 
 concerned largely with the law of contracts, and of the special 
 types of contracts, agency, negotiable instruments, and sales, and 
 with the law of partnership and corporations, but that the law of 
 torts, criminal law, personal property, real* property, equity, trusts, 
 wills, conflict of laws, constitutional law, etc., are not taken up in 
 this book. This statement would be true, but it does not indicate 
 very definitely the subject-matter of the courses bearing these la- 
 bels. It may aid in visualizing the field of legal study to look upon 
 it through the various legal relations which may exist between per- 
 sons. What facts give rise to legal- relations ? What is their con- 
 tent? How may they be employed; how protected, altered, or ex- 
 tinguished? 
 
 A person possesses many legal rights merely because of his ex- 
 istence in society. One has a right not to have his physical per- 
 son interfered with; a right not to be defamed; a right to enter 
 into legal relations with others. Such rights are possessed by each 
 against all other persons. Violations of these personal rights are 
 called torts. Accordingly, assault, assault and battery, false im- 
 prisonment, malicious prosecution, libel and slander, harms to one's 
 person resulting from negligent acts, constitute special kinds- of 
 torts. This list is not exhaustive. A person possesses rights against 
 all other persons which arise out of the existence of domestic re- 
 lations. The law protects the relation of husband and wife ; of par- 
 ent and child. Interferences therewith are torts. The same act, 
 therefore, may be a tort to more than one person. A person also 
 possesses rights against all other persons by reason of his owner- 
 ship or possession of real and personal property. Accordingly tres- 
 pass to land or personal property, conversion of personal property, 
 the obta,ining of property or other thing of value by fraud, con- 
 stitute torts. The law of torts is, therefore, that branch of the law 
 which protects legal relations which one has with respect to his 
 physical person, his reputation, his domestic relations, his prop- 
 erty, and which, to a large extent, protects him in the acquisition 
 of other relations. The purpose of this brief paragraph is merely 
 to call attention to the existence of an immensely broad field of the 
 
 ■> The above brief reference to legal relations Is based on the masterly pa- 
 pers of the late Professor Wesley Newconib I-Iohfeld on Fundamental Legal 
 Conceptions as Applied in Judicial Reasoning (1913) 23 Yale Law Journal 
 16, and (1917) 26 Yale Law Journal, 710. 
 
INTRODUCTION TO THE STUDY OF LAW , 9 
 
 law, which, except incidentally, is not discussed in 1|his volume. 
 Here. and there throughout this volume a case appears which deals 
 with the law of torts, but in no sense is there any attempt here 
 made to develop this broad and important field of the law. 
 
 The criminal law, closely allied to the law of torts, is not taken 
 up in this book. Often an act which constitutes a tort will also 
 constitute a crime. Crimes are acts, iisually accompanied by some 
 kind of ^mental element, called criminal intent, which are more seri- 
 ous invasions of personal and property rights than are those torts 
 which are not crimes. There are some kinds of crimes which are 
 not directed against any particular persons or property, and which 
 are not torts-, as, for example, gambling, violation of the laws pro- 
 hibiting the manufacture and sale of intoxicating liquor, violations 
 of pure food laws, treason, violations of the revenue laws, etc. The 
 list is a long one, as is also the list of crimes which are directed 
 against some particular person or property. All crimes have this 
 element in common: The proceeding in the courts against the al- 
 leged offender is instituted by some officer of the state, and is un- 
 der his control, and is not under the control of the person who may 
 have been injured by the act. For his injury he has his independent 
 remedy against the wrongdoer. 
 
 We turn now to another field of the lawj which may be called 
 the law of property. Having noted that one important object of 
 the law is to protect interests with respect to prof^erty, the ques- 
 tion arises : How may interests with respect to property be ac- 
 quired ? To enumerate some of the methods : Property may be ac- 
 quired by gift; by contract of sale; by deed; by will; by inher- 
 itance. Property may also be acquired by confusion ; that is, where 
 the property of one person becomes so mixed with that of another 
 that it cannot be separated. The whole mass, as a result, may be- 
 long to the one or the other, depending upon circumstances. So, 
 also, property may be acquired by adverse possession; that is, 
 by exercising dominion over it for some prescribed period of time. 
 A riparian owner of land becomes the owner of the land added to 
 the shore line by accretion. Ownership in things, not theretofore 
 the subject of ownership, and in things abandoned, may be acquired 
 by asserting and maintaining control over them. This field of the 
 law, and it is but dimly and partially sketched here, occupies a most 
 prominent position in the law generally. The law with respect to 
 the acquisition and transfer of titles to land, the law with respect to 
 wills, and of intestate succession alone, might readily engage the 
 attention of a scholar for years. But this branch of the law, like 
 the law of torts, is not taken up in this book, except in so far as 
 titles to personal property may be acquired by sale, and of negotia- 
 ble instruments by negotiation. 
 
 Another portion of the law of property, in itself vast in extent, 
 deals, not with the methods of acquiring interests in property, but 
 rather with the kinds of interests which may be acquired. Owner- 
 ship pf property is a very complex set of legal relations. When a 
 
10 INTRODUCTION TO THE STUDY OF LAW 
 
 person owns property, his dominion over it reaches its highest 
 stage. He possesses all legal relations with respect to it. He haS 
 the privilege of user. He has the power to substitute other per- 
 sons in the position which he occupies with respect to the prop- 
 erty. He has a right that it shall not be injured or used by other 
 persons. If other persons attempt to exercise powers with respect 
 to the property, such as by attempts to sell it, such acts do not af- 
 fect the' owner's position with respect to the property. All of these 
 relations are involved in the concept of ownership. The idea that 
 an owner of property may dispossess himself of all of his legal re- 
 lations with respect to his property is a fairly simple one. The 
 question here is: How may the owner transfei: his interests? But 
 the further question arises: May an owner transfer some of his 
 relations with respect to his property, an'd retain all other rela- 
 tions? May he transfer some relations to one person, and other 
 relations to other persons? Observation shows that this is done 
 constantly. For example, the mortgaging or pledging of property 
 is a separation of the total relations constituting ownership, and a 
 transfer, in some mode permitted by law, of some of these relations, 
 and a retention of those remaining. So, also, property may be held 
 in trust for other perspns, in which case it is said that the trustee 
 possesses the legal title and the beneficiary of the trust has the 
 equitable title.^This statement does not disclose what interests 
 are held by the trustee, and what interests are held by the benefi- 
 ciary; but it does declare that the sum total of the relations con- 
 stituting ownership may be so divided, and that when a sufficient 
 number of these, of the appropriate kind, are possessed by one per- 
 son, such person will be called a trustee, and the persons who pos- 
 sess the remaining interests will be called beneficiaries of the trust, 
 or cestuis que trustent. Possession of property alone may be trans- 
 ferred under various circumstances. The party in possession is 
 . called a bailee ; the party with whom he dealt, the bailor. Here 
 again we have a division of the interests with respect to property. 
 There are various other terms used in the law to describe par- 
 ticular situations when interests of property have been separated 
 and possessed by different perspns. Property may be left by will 
 to A., and upon his death to B. The possibilities for creating vari- 
 ous sorts of future interests in property are numerous. Property 
 may be leased. A right to use another's land, or to take something 
 of value from it, may be acquired. These interests are called ease- 
 ments and profits. The point of emphasis here is that the legal 
 relations with respect to property are exceedingly complex, and that 
 the possibilities for segregating various combinations of these in- 
 terests, and of transferring them to different persons, is limited 
 only by man's ingenuity and by principles of public policy. Like 
 the law of torts, the law relating to the methods of acquiring inter- 
 ests in property, though most important and extensive, does not 
 constitute the subject-matter of this book. For answers to the 
 questions suggested above, we would be obliged to consult works 
 
INTRODUCTION TO THE STUDY OF LAW 11 
 
 on the law of mortgages, leases, pledges, trusts, bailments, future 
 interests, and easements. There will appear, in the volume, an oc- 
 casional reference to some aspect of the law of mortgages, of pledg- 
 es, of trusts, and of bailments; but such references are incidental 
 to the main theme. 
 
 There is still another aspect of the law of property, likewise not 
 taken up in this book. This branch of the law marks the outer; 
 limits of the relations constituting ownership. How much water 
 may a riparian owner take from the stream? May he drain the 
 surface water from his land upon adjoining land? May one use his 
 land for any purpose he sees fit? Are there any restrictions with 
 respect to the manner in which one may use his land? A riparian 
 owner does not own the water that flows by his land, although' he 
 may use it; in some states only a reasonable amount; in others, 
 under certain circumstances, he may take all. Likewise there are 
 different rules with respect to drainage. In some states one may 
 not interfere with the natural flow of the water; in others he may 
 lawfully build dikes against it. The restrictions upon the use of 
 land are numerous. One has a privilege of using his land only in 
 a reasonable manner. He may not so use his land as to interfere 
 with a reasonable use of adjoining land. Certain kinds of improper 
 uses are called nuisances. Modern legislation has added greatly 
 to the number of restrictions upon the use of land. The height of 
 buildings is regulated by statute. Certain kinds of industry can- 
 not be conducted in close proximity to residential districts. These 
 questions open up broad fields of inquiry in other portions of the 
 law of real property, into modern legislation and constitutional 
 law. In this connection one should call to mind the various stat- 
 utory regulations applicable to the conduct of business generally. 
 
 This brings us to the consideration of that portion of the law 
 which constitutes the subject-matter of this volume. It has been 
 noted above that legal relations — legal rights and duties, and other 
 legal relations — attach to individuals by the edict of the law alone 
 merely because they are individuals, and that other legal relations 
 arise out of the acts of parties themselves. In both cases, of course, 
 the legal relations exist by virtue of the law, but in the first group 
 they exist independerit of the acts of the parties, while in the sec- 
 ond group the relations do not arise until the parties have done 
 certain acts. A particular group of facts which operate to create or 
 change existing relations may constitute a will ; another, a convey- 
 ance; another, a license; another may be a contract, and so on. 
 The first four parts of this book deal with the various groups of 
 facts, called contracts, which have the effect of creating or chang- 
 ing existing legal relations between persons. The reason for throw- 
 ing the emphasis upon this branch of the law is because the greater 
 volume of business transactions in everyday life are transactions 
 which do create, or otherwise concern, contractual legal relations. 
 While the average person, in the course of a lifetime, will, no doubt, 
 be interested many limes in conveyances of land, wills, mortgages, 
 
12 INTRODUCTION TO THE STUDY OF LAW 
 
 pledge agreements, trusts, etc., it will nevertheless be true that 
 the number of these transaetions, compared with the number of con- 
 tracts in which he will be concerned, will be relatively few. Hence 
 the emphasis is thrown on contracts. Part I deals with the gen- 
 eral principles applicable to all contracts. Parts II, III, and IV 
 deal with special kinds of contracts. Parts V and VI are devoted 
 to some of the special problems which arise out of the form in 
 which business is done; i. e., the partnership and the corporation. 
 
 SECTION 6.— LEGAL PROCEDURE 
 
 Some attention may now be given to the matter of legal pro- 
 cedure, to the end that it may contribute something to the under- 
 standing of the materials which constitute the chief basis for legal 
 study; i. e., the decisions of the courts. The party who institutes 
 a proceeding at law is called the plaintiff. In a suit in equity such 
 party is Usually called the complainant. In either case the party 
 proceeded against is called the defendant. The first step consists in 
 notifying the defendant that an action has been begun against him. 
 Eor very just reasons the law does not permit a person to be sued 
 unless such person has notice of the action. The defendant is noti- 
 fied by the service upon him of a document usually called a sum- 
 mons. In some states the law permits the plaintiff or his counsel 
 to serve the summons. In other states the law requires the clerk of 
 the court to issue the summons. The expression "service of sum- 
 mons" means the act of bringing to the defendant knowledge of the 
 fact that a suit has been instituted against him. Usually statutes 
 require that the defendant be personally served with the summons ; 
 that is, the party serving the same will be required either to read the 
 same to the defendant or to leave a copy of the summons with him. 
 Some statutes authorize the service of summons upon any member 
 of the family wherein the defendant resides, and sometimes service 
 may be made by publication. The next step consists in the filing of 
 a document, variously called a declaration, a statement of claim, or 
 petition, by the plaintiff, containing an orderly statement of the 
 essential facts out of which the litigation developed. 
 
 The defendant then interposes his defense. The defense may be 
 of various kinds: First, the defendant may admit the truth of the 
 facts alleged, but contend, as a matter of law, that they do not en- 
 title the plaintiff to recover. This issue is raised by a pleading 
 known as a demurrer. The question as to whether or not the plain- 
 tiff has stated a cause of action is then decided by the judge. A 
 second kind of defense arises when the defendant denies the truth of 
 the facts alleged by the plaintiff. This 1-aises an issue of iact. A 
 third type of defense exists when the defendant admits the truth of 
 the facts alleged in the declaration, but sets up other facts which he 
 contends defeat plaintiff's cause of action. This raises an issue of 
 fact. Issues of fact are tried by the court, with or without a jury, 
 
INTRODUCTION TO THE STDDY OF LAW 13 
 
 depending upon the nature of the action and desire of the parties. 
 It may here be mentioned that the Constitutions of the various 
 states contain provisions which guarantee trial by jury. This guar- 
 anty does not apply to all kinds of actions. In general, there are 
 three kinds of cases wherein there is a constitutional guaranty of 
 jury trial : First, criminal cases ; second, breaches of contract ; 
 third, actions of tort. In all other cases, as a rule, there will not 
 be a constitutional guaranty of jury trial, although statutes may, 
 in some instances, give the right of jury trial where there was no 
 such right under the Constitution. Unless authorized by statute, 
 there is no right to jury trial in proceedings in equity, as distin- 
 guished from proceedings at law. 
 
 The first step in a trial consists in the impaneling of the jury. 
 The process of impaneling the jury consists in questioning the pro- 
 spective jurors with respect to their competency to serve. Statutes 
 prescribe what the qualifications of jurors shall be. In general, a 
 juror will be competent to serve if he has no fixed opinion with 
 respect to the cause in which he is to sit as a juror, and if he has no 
 prejudices for or against either of the parties to the action or their 
 counsel. Following the impaneling of the jury, counsel may make 
 an opening statement. This statemeTit is merely for the purpose of 
 informing the jury of the general nature of the action and of 
 what the parties expect to prove. Following the opening state- 
 ment comes the examination of witnesses. Generally the plain- 
 tiff is required first to introduce his evidence. Upon him, as a 
 rule, rests the burden of proof. The defendant is not called upon 
 to introduce any evidence until the plaintiff has completed his case. 
 The evidence is then heard. 
 
 There are many restrictions with respect to the obtaining of evi- 
 dence. A witness may not relate on the witness stand every fact 
 which he may deem germane to the case. The rules of the sub- 
 stantive law of property, of contract, tort, crimes, etc., the rules of 
 pleading, and the rules of evidence prescribe the circumstances un- 
 der which evidence may be given. In a suit upon a negotiable in- 
 strument by a holder in due course against the maker, evidence 
 that the instrument was not delivered to the payee is inadmissi- 
 ble, because a rule of substantive law declares that this fact consti- 
 tutes no defense. In an action for assault and battery where the 
 only issue of fact tendered by the pleadings was whether the de- 
 fendant did the act, evidence tending to show justification or excuse 
 would be excluded. The law of pleading fixes the issues. Evidence 
 of facts not in issue is inadmissible. Only that evidence relevant to 
 the issues as framed by the pleadings is admissible. The scope of 
 the law of evidence is indicated by Professor Wigmore in the fol- 
 lowing language: "The law of evidence * * * includes the 
 rules applicable when any knowable fact or group of facts is offered 
 before a legal tribunal for the purpose of producing persuasion, posi- 
 tive or negative, on the part of the tribunal, as to the truth of a 
 
14 INTKODUCTION TO THK STUDY OF LAW 
 
 proposition, not of law or of logic, on which the determination of 
 the tribunal is to be given." Wigmore on Evidence, § 1. 
 
 Evidence jnay be real, testimonial, or circumstantial This is a 
 broad field of inquiry. Not all evidence which satisfies the gen- 
 eral requisites of relevancy is admissible. Relevant evidence is 
 sometimes excluded because it is untrustworthy. Oral evidence of 
 the contents of a written instrument is generally inadmissible. 
 The best evidence of its contents is the document itself. The orig- 
 inal writing must be produced, or its absence accounted for, before 
 secondary evidence is admissible. Hearsay evidence^ is inadmissi- 
 ble, although there are many exceptions to the rule. A witness is 
 frequently not permitted to state his opinion as regards the truth 
 of certain facts in issue. Relevant testimony is sometimes ex- 
 cluded, not because it is untrustworthy, but because a rule of public 
 policy forbids its admission. Parol evidence, tending to vary or 
 eotatradict the terms of a written instrument, is generally inadmis- 
 sible. A rule of substantive law forbids. There are a number 
 •of real or apparent exceptions to the rule. The process of eliciting 
 the evidence upon the issues in a trial is therefore hedged about by 
 a great many rules of law. ^ith these branches of the law this 
 book is not concerned. Herfe^and there some detailed aspects of 
 these rules present themselves in the cases. 
 
 At the close of the taking of. testimony, the controverted ques- 
 tions must be decided. This determination involves the exercise 
 ■of r two I functions : (l)~The finding of facts; and (2) the appli- 
 cation of the law to the facts. • The facts will be found either by the 
 court without a jury or by the jury. Where a court sitting without 
 a jury decides the issues, the formal entry of judgment operates both 
 as a'firiding of fact and as the application of the law to the facts. 
 Sometimes the court will make a special finding of fact, separate and 
 distinct from the entry of judgment. Where the trial is by jury, the 
 jury Avill be directed to iind the facts ; that is, to make necessary in^ 
 f erejTices/ from the detailed evidentiary facts, and, in the event of 
 .conflicts in the testimony, to- determine whose witnesses are to be 
 believed. In a jury trial, the jury, as a rule, applies the law to the 
 facts. The usual procedure is for the court to give a number of 
 instructions to the jury which declare what the law is with respect 
 -to the various possible states of facts. The jury then determines 
 what the facts are, and applies those instructions which fit the facts 
 as found, and bring in their verdict accordingly. Sometimes the 
 jury is directed to bring in a special verdict, which contains a recital 
 of the facts only, in which case the court applies the law to the 
 facts as found. When the jury finds the facts, and applies the 
 law as given them by the court, the resulting verdict is called a 
 general verdict. 
 
 Upon the return of a verdict, an opportunity is given to the triat 
 court to correct errors which may have occurred during the course 
 of the trial. This opportunity formally arises, upon a motion for 
 new trial, made by the losing party. The possible errors which may,. 
 
INTRODUCTION TO THE STUDY OF LAW IB 
 
 at this point, be urged as grounds for a new trial, in general, are as 
 follows: (1) The erroneous admission of evidence; (2) the er- 
 roneous exclusion of evidence; (3) the giving of erroneous in- 
 structions to the jury ; (4) the erroneous refusal to give correct in- 
 structions to the jury; (5) that there is a fatal variance between 
 the pleadings and the proof; (6) that the evidence is insufficient 
 to support the verdict; (7) that the misconduct of the court, of 
 counsel, or of the jury during the course of the trial was prejudicial 
 to the losing party. If, upon the argument for new trial, the court 
 believes that any of these errors occurred, and if he believes that 
 such errors were so far prejudicial that the losing party did not have 
 a fair trial, a new trial will be granted. Sometimes the court will 
 even enter judgment for the losing party notwithstanding the ver- 
 dict. If the court overrules the motion, judgment on the verdict 
 usually follows as a matter of course. 
 
 This action terminates the cause as far as the trial court is con- 
 cerned. If the losing party is still of the opinion that substan- 
 tial error occurred, he may take the case to a court of review, some- 
 times called an appellate court, or Supreme Court, and there urge 
 the contentions unsuccessfully made in the court below. This 
 procedure is sometimes called an appeal. Sometimes the action of 
 the losing party in the court of review is called the suing out of a 
 writ of error to review the action of the trial court. There are 
 methods of review other than by appeal and by writ of error. 
 In any event, the purpose is to get before the upper court a complete 
 record of what occurred in the trial court, for the purpose of making 
 the contention that the trial court erred in entering judgment 
 against the appellant. Sometimes this party, instead of being called 
 the appellant, is called the plaintiff in error. The party who won 
 in the trial court is called the appellee, or the defendant in error. 
 
 No new trial is had in the court of review. The cause is submit- 
 ted on the record. The reviewing court has before it copies of all 
 the papers filed in the court below, copies of the testimony, the 
 verdict, judgment, and all other orders entered with respect to 
 the litigation. Briefs of counsel for each party are filed, which pre- 
 sent arguments in support of their respective contentions- The 
 cause is then decided by the court, and to one of the members of 
 the court is assigned the duty of preparing a written opinion. The 
 opinion sets forth the reasons for the affirmance, modification, or 
 reversal of the action of the trial court. These opinions are collect- 
 ed and printed in book form, and are called reports. The reports of 
 the courts in the United States number several thousand. 
 
 SECTION 7.— JUDICIAL DECISIONS 
 
 It is to these decisions and to the argument advanced in support 
 thereof that one looks, in the first instance, for the law applicable 
 to any situation not specifically covered by statute. Even where 
 
16 INTRODUCTION TO THE STUDY OF LAW 
 
 there is a statute, the decision of a court interpreting that, or some 
 closely analogous statute, in the light of similar situations of fact, 
 will be the index as to what the law is. This volume consists in 
 a compilation of judicial decisions which develop the general prin- 
 ciples of contracts, agency, negotiable instruments, partnership, 
 and corporations. 
 
 A final word may be added with respect to the attitude with which 
 one should approach the study of judicial decisions. This attitude 
 is determined by an appreciation of the nature of a judicial deci- 
 sion, by a knowledge of the data employed by the court in arriving 
 at its conclusion, and also of the process of reasoning by which the 
 result was reached. 
 
 As a practical matter, to-day, the data employed by a court in de- 
 ciding a legal controversy consist of former decisions of the same 
 or other courts. The principle of stare decisis leads the court to 
 assume, at the start, that the case then before them must be decided 
 in the same way in which they have always decided such cases. 
 Where a former decision by the same court can be found which is 
 identical with the case then pending, the decision is readily arrived 
 at. Where there is no such decision, the search among the prece- 
 dents is for some case analogous on its facts and issues presented. 
 The process of reasoning by which it is determined that a, particular 
 decision is analogous to the case at bar is a process of noting 
 similarities and differences between the case at bar and the prece- 
 dent under examination. If, in accordance with the , established 
 principles of inductive reasoning, the similarities strongly predomi- 
 nate, the former decision will be deemed to control the decision 
 of the case at bar. The process of determining that a particular 
 decision is analogous to a given case is not entirely a process of 
 inductive reasoning. To some extent it is deductive. Where no 
 former decision analogous on its facts and issues can be discovered, 
 the first process of reasoning is, by induction, to discover some 
 wider generalization of the law therein involved, a testing of the 
 validity of this generalization by comparing it with other cases, 
 and a final formulation of the generalization by indflction. This 
 generalization then constitutes the major premise for deductive 
 argument. The minor premise will then consist in a declaration 
 that the facts and issues in the case at bar fall within and are com- 
 prehended by the operative facts which constitute the subject of 
 the major premise. The truth of this subordinate assertion must 
 have first been proved, largely by inductive reasoning. The predi- 
 cate of the major premise is a statement of the legal effect of the 
 facts generalized in the subject. The decision is thus arrived at 
 both by inductive and deductive reasoning. 
 
 Of course, this is but a theoretical explanation of the process of 
 judicial reasoning. The actual solution of a legal controversy, aris- 
 ing, as it does, out of the complicated facts of economic and social 
 life, cannot be worked out by the mere application of the technical 
 rules governing inductive and deductive reasoning. Too many 
 
INTRODUCTION TO THE STUDY OF LAW 17 
 
 forces beat upon the situation to permit the confinement of the 
 process of administering the law to the straight-jacket of a syllo- 
 gism. And it is well that this is so, for courts are established in 
 the interests of the administration of justice. There is an evolu- 
 tion of business and social life, just as there is an evolution of plant 
 and animal life. The present cannot be understood without a 
 knowledge of the past. Any attempt to divorce the present from 
 the past, to strike out on new lines, without regard for historical 
 knowledge, is likely to prove unfortunate. And yet the truths of 
 history do not constitute the sole data for the formation of judg- 
 ments in the law, or with respect to any other phase of human 
 activity. The courts do take the present into consideration, and 
 the judicial decision is the result of an appreciation of the value of 
 historical precedent, of logical processes of thought, and of present- 
 day affairs. The most conspicuous changes in the law, and also 
 by far the more numerous changes, are the result of legislation ; 
 but the process of change in the scope and content of common-law 
 principles does go on as a result of judicial action. 
 
 In the study of judicial decisions, one should therefore be keen- 
 ly aware of the marked differences between this kind of material 
 and that found in a text-book. The study of judicial decisions is a 
 study of source materials, while the study of a text-book is the 
 study of secondary materials. A writer, in developing a book, will 
 assert general propositions, and establish their truth by the intro- 
 duction of the detailed evidence which has led him to these con- 
 clusions. The material is well organized and developed, with due 
 regard to emphasis, force, and clearness. Immaterial and irrelevant 
 matters have been eliminated as a result of the research. 
 
 The study of original materials, such as decisions of the courts, 
 presents quite a different situation. There will often be found, 
 in judicial decisions, matter which is immaterial to the issue, or, 
 if material, only remotely so. They will not always be carefully 
 organized, and the really important parts may not stand out with 
 proper emphasis. Occasionally the major portion of the opinion 
 may not be germane to the issues. In explanation of this situa- 
 tion it should be remembered that judicial decisions are not pre- 
 pared with a view to their use as materials for educational purposes. 
 A decision is prepared to justify some action taken by the court, 
 and the language therein is directed to those who are directly con- 
 cerned in the administration of the law, and are trained in it. In 
 the study of judicial decisions, attention is not directed, in the first 
 instance, toward the generalizations of the law which appear in the 
 opinion and to the proof introduced to support them. On the con- 
 trary, the successive steps necessary to the understanding of a ju- 
 dicial decision involve the ascertainment of (1) the ultimate ma- 
 terial facts in the case ; (2) the issues, or points involved, as dis- 
 closed by the errors alleged by the appellant party; (3) the judg- 
 ment of the court, whether for appellant or appellee ; (4) the vari- 
 B.& B. Bus. Law— 2 
 
18 INTRODUCTION TO THE STUDY OP LAW 
 
 ous principles of law necessarily involved in and to be inferred from 
 the judgment on the issues as raised. 
 
 The first and third aspects of a case — the facts, and the judg- 
 ment — are readily discoverable. The real problem concerns the 
 determination of points 2 and 4: What are the issues? And what 
 are the inferences of law necessarily involved in the judgment? 
 These two points are interrelated. Point 2 merely raises a question, 
 or series of questions, of law. Point 4 is an inference, or series of 
 inferences, which contain the reply to the questions raised in point 
 2. It appears, therefore, that the purpose of the study of a judi- 
 cial decision is to obtain the inference of law which arises from 
 the force of the judgment. It is impossible for a court to decide a 
 controversy without that decision giving rise to necessary infer- 
 ences of law. Judicial decisions should be studied with the end in 
 view of determining what is involved by the action taken by the 
 court. This inference of law, arising from the judgment, is some- 
 times called the decision of the court, using that term in a narrow 
 sense. The terms "judgment" and "decision" are not always em- 
 ployed with the same meaning. In this discussion the term "judg- 
 ment" is used to describe the order of affirmance, reversal, or modi- 
 fication of the final orders of the trial court. The decision is the 
 necessary inference of law arising from the judgment. This aspect 
 of the case is also quite commonly called the "holding" of the 
 court. 
 
 It will be noticed that, so far, but little mention has been made 
 of the discussion which the court advances in support of the ac- 
 tion taken. This portion of the case is usually called the opinion. 
 The opinion is the argument presented by the court in reaching the 
 judgment. In addition to the opinion proper, there will appear in 
 the discussion some statements which are not necessary steps in 
 the argument. These judicial generalizations or expressions are 
 called dicta, or obiter dicta. The dicta in the case bear no neces- 
 sary connection with the decision. The dicta are of secondary 
 importance- — at least this is so from a standpoint of determining 
 what principle of law the case actually stands for. Other consid- 
 eration may make the dicta highly valuable, as, for instance, the 
 fact that it was expressed by a particular judge. A court actually 
 makes law by what it does. What the court says by way of dicta, 
 or opinion, is not necessarily law. 
 
 The opinion, however, while it does not necessarily express law, 
 is more important, for the purpose of determining what the case 
 stands for, than statements made by way of dicta. The opinion 
 states the reasons for the actions taken by the court. But it should 
 be borne in mind that the opinion and the judgment are two very 
 different things. It is possible that the opinion may not express 
 the reasons which actuated the court in reaching the result. There 
 ejtist the strongest of reasons for believing that the prepared opin- 
 ion does state the reasons which did bring about the decision and 
 judgment. Nevertheless there is a vital difference between the in- 
 
INTRODUCTION TO THE STUDY OF LAW 19 
 
 ference of law necessarily arising from the judgment and the opin- 
 ion of the court as to why it reached that judgment. It is very 
 common to find courts in various states reaching the same result 
 in cases involving the same issues, but upon different lines of argu- 
 ment. Sometimes the arguments differ widely from each other. 
 It occasionally happens, that the courts will reach a particular re- 
 sult on a certain course of argument, and later repudiate the rea- 
 sons and support the decision on other grounds. 
 
 The object of the study of a judicial decision is, therefore, to 
 ascertain what the case actually decides. This decision springs 
 from the judgment in the light of the issues involved in the case. 
 The opinion and dicta constitute evidence — in fact, the strongest 
 kind of evidence — of what that decision is ; but still there is a 
 difference between the decision, the necessary inference of law 
 arising therefrom, and the reasons assigned for that decision. 
 
 SECTION 8.— HISTORY AND DEVELOPMENT OF 
 THE LAW 
 
 The common law of England, so far as the same is applicable 
 and of a general nature, and all statutes of the British Parliament 
 made in aid of and to supply the defects in the common law, down 
 to and including a part of the colonial period, have been made the 
 rule of decision by the various states of the United States. The 
 history of American law, in large measure, is the history of Eng- 
 lish law. English law is not a direct descendant of the Roman 
 law, as is true in most European states. The long period of Roman 
 occupation of the British Isles, from 55 B. C. to the middle of the 
 fifth century, might well have led to a different result ; but the de- 
 velopment of a strong government in England by the Normans be- 
 fore the reception of the Roman law by European states caused 
 an independent development of legal institutions. The early legal 
 systems of the English, Saxons, and Danes, such as they were, 
 which prevailed on down until the middle of the eleventh century, 
 influenced later English law but little. The Codes of Alfred and 
 Knut, mere fragments in comparison with a complete legal system, 
 did not survive the invasion of William the Conqueror. 
 
 The Norman conquest of England in 1066 caused a break in the 
 continuity of the governmental and legal order, and an independent 
 development began. The centralization of political power and the 
 reign of feudalism under the Norman and Angevin kings estab- 
 lished the guiding principles of the law during the two centuries 
 following the conquest. The Curia Regis, the great court of the 
 Norman kings, forced the local courts of the Anglo-Saxons into the 
 background, and maintained' its sway for nearly 200 years. Early 
 law did not have for its objects the carrying out of the dictates of 
 ethics and of economic expediency. The early forms of trial bear 
 ample testimony to these facts. Trials by ordeal, by battle, and 
 
20 INTRODUCTION TO THE STUDY OE* LAW 
 
 by procuring a certain number of witnesses to take oath to the 
 truth of a litigant's claim were not calculated to terminate con- 
 troversy justly. The feudal system of land tenure, representing a 
 fusion of economic and political organizations, produced a body of 
 law quite dissimilar to that .of to-day. The bulk of the law re- 
 lated to tenures. The law of torts was narrow. Only the more vio- 
 lent injuries to person and property were the subject of redress. 
 Contracts were of a formal character. The beginning of the jury 
 system in the latter half of the twelfth century was the forerunner 
 of many legal reforms. Magna Charta, in 1215, made great con- 
 tributions to English liberty. The breaking up of the Curia Regis 
 into the Courts of Common Pleas, King's Bench, and Exchequer 
 produced a better judicial organization. Nevertheless the law tend- 
 ed to formalism. One's legal rights were measured by his legal 
 repiedies, and his legal remedies were no wider or more numerous 
 than those which had theretofore been allowed. Growth to meet 
 new conditions was checked. 
 
 Beginning with the reign of Edward I (1272-1307), a number of 
 influences became operative, which greatly expanded the scope of 
 legal rights, emphasized individual liberty and property rights, and 
 tended to convert the administration of law into the administra- 
 tion of justice ; that is, these tendencies are traceable to that time, 
 although their development cannot be said to have reached reason- 
 able completeness until the seventeenth century. Some of the in- 
 cidents of feudalism were abolished during this reign. Statutes 
 were passed which had a tendency to expand the field of tort lia- 
 bility. 
 
 The most notable development concerns the origin and estab- 
 lishment of the principles of equity by the king's Chancellor, and 
 later by the Court of Chancery. Beginning in the fourteenth cen- 
 tury, a practice, grew up of petitioning the king for relief from the 
 rigors of the hard and fast rules of the common law. Some of these 
 petitions were referred to the Chancellor for action. The right 
 of the petitioner was frequently recognized, and relief accorded to 
 him in circumstances where the rules of the common law denied him 
 a remedy. The Chancellor usually was a dignitary of the church, 
 learned in the canon and Roman law, and no doubt in many in- 
 stances possessed a keen appreciation of what constituted justice. 
 This process of the amelioration of the common law, at first by the 
 extrajudicial action of the Chancellor, soon developed an established 
 court, presided over by the Chancellor, and called the Court of 
 Chancery, or Court -of Equity. This result was not accomplished 
 without opposition from the judges of the courts of common law, 
 an opposition which continued and reached its climax in the early 
 years of the seventeenth century, when it became established that 
 the Court of Chancery was supreme. 
 
 The changes in the law accomplished by the Court of Chancery 
 were of two kinds — changes in the rules of the substantive law, and 
 changes in legal remedies. It is beyond the scope of this book 
 
INTRODUCTION TO THE STUDY OF LAW 21 
 
 to develop independently the nature of these changes in the body 
 of legal doctrine, although in many of the decisions herein collected 
 the nature of equitable doctrines and equitable remedies is dis- 
 tinctly seen. Some of the leading notions of equity may, however, 
 be indicated. Some of the so-called maxims of equity, in accordance 
 with which the detailed rules have been developed, are as follows : 
 (1) Equity regards that as done which ought to be done. (2) Eq- 
 uity looks to the intent, rather than to the form. (3) He who seeks 
 equity must come with clean hands. (4) He who seeks equity 
 must do equity. (5) Equality is equity. (6) Where there are 
 equal equities, the first in order of time shall prevail. (7) Where 
 there is equal equity, the law must prevail. (8) Equity aids the 
 vigilant, and not those who slumber on their rights. (9) Equity 
 follows the law. (10) Equity will not suffer a wrong without a 
 remedy. 
 
 The application of these general principles worked great changes 
 in the law with reference to the consequences of accident, fraud, 
 and mistake. One of the important ends of equitable jurisdiction 
 is to afford relief from effects of accident, fraud, and mistake. 
 Rights with respect to property, particularly real property, very 
 early engaged the attention of the Court of Chancery. New inter- 
 ests in property were recognized and protected. The mortgagor's 
 equity of redemption, the vendee's interests in land before the ex- 
 ecution and delivery of the deed, were the creation of courts of eq- 
 uity. Equitable doctrines made it possible for one person, called 
 a trustee, to hold all the incidents of ownership for the benefit of 
 others, called cestuis que trustent. The equitable remedies of spe- 
 cific performance and of injunction, enforceable by fine or imprison- 
 ment, added to the common-law remedies of money damages, and 
 the specific restitution of property. The history of the English 
 Court of Chancery is the history of great fundamentals of English 
 and American law. 
 
 But the courts of common law were by no means oblivious to the 
 necessity of extending the scope of legal rights. The simple con- 
 tract, which for the most part is the subject of this book, owes its 
 origin and development to the common-law courts. The field of 
 tort liability has been greatly extended by the evolutionary process 
 of judicial decisions by the rivals of the Court of Chancery. The 
 histories of these two great courts, and of the respective systems 
 of laws recognized and applied by them, down to the time of their 
 consolidation near the middle of the nineteenth century, contain 
 within their pages a substantially complete declaration and exposi- 
 tion of the principles of English and American law as it is known 
 at the present time. 
 
 The sources for the study of early English law, which appeared 
 during the period, are the reports of judicial decisions, court rec- 
 ords, the great abridgements of the decisions, and text-books. Glan- 
 vil's work appeared about 1187; Bracton's great treatise, about 
 1259; the less valuable statement by Fleta, about 1290; the dec- 
 
22 INTRODUCTION TO THE STUDY OF LAW 
 
 laration of the law by Britten, about 1290; the contributions of Lit- 
 tleton on the law of real property, in 1481 ; the Institutes of Lord 
 Coke, in 1628 ; and the Commentaries of Blackstone, in 1765. The 
 Year Books, beginning during the r^ign of Edward I, 1272,. and 
 extending into the reign of Henry VIIL 1535, containing the re- 
 ports of the decisions of the courts, present a substantially complete 
 record of the judicial business of the country during this long pe- 
 riod. Beginning with StathaiA, 1495, followed by B'itzherbert, in 
 1514, Brooke, 1568, Rolle, 1668, Bacon, 1736, Viner, 1741, Comyns, 
 1762, there appeared the famous abridgements of the Year Books; 
 the later ones carrying the statement of the law beyond the period 
 of these early reports. With the ending of the series of the Year 
 Books, the system of private reporting of judicial decisions began, 
 which continued until 1865, the date of the commencement of the 
 official reports. Researches by eminent scholars of the nineteenth 
 century and of the present time have added a wealth of knowledge 
 of the origin and development of Anglo-American legal institu- 
 tions. 
 
 American law, therefore, has its origin in English law. The 
 common law is the law in the United States. There is divergence 
 here and there, of course. Even as between the several states, 
 there is not entire harmony in the application of the principles of 
 the common law to varied states of facts. But in their broader 
 aspects the systems of law in the two countries are the same. 
 Even to-day, the current decisions of the English courts are some- 
 times relied upon by the courts in the United States, and, con- 
 versely, decisions of American courts are occasionally cited by 
 English judges. The development which is going on to-day is by 
 the slow process of judicial decision and by legislative enactment; 
 statutes being a much more prominent factor than they were in 
 earlier days. 
 
PART I 
 CONTRACTS 
 
 •Chapter 
 
 I. Offer and Acceptance. 
 
 II. Consideration. 
 
 III. Performance of Contracts. 
 
 IV. Rights of Tliird Parties in Contracts. 
 V. Discliarge of Contracts. 
 
 VI. Effect of Mistake, Fraud, Duress, and Undue Influence. 
 
 VII. Illegality. 
 
 VIII. Capacity. 
 
 IXj Contracts Required to be in Writing. 
 
 X. Remedies. 
 
 XI. Special Types of Contracts. 
 
 CHAPTER I 
 OFFER AND ACCEPTANCE 
 
 Ection 
 
 1. Introduction. 
 
 2. "What Constitutes an Offer. 
 
 3. Duration of Offers. 
 
 4. Acceptance — Time of Taking Effect. 
 
 5. Nature of Acts or Language Essential to Constitute an Acceptanca. 
 
 6. Offer and Acceptance Implied in Fact or in Law. 
 
 SECTION 1.— INTRODUCTION 
 
 Anson has defined a contract as "an agreement enforceable at 
 law, made between two or more persons, by which rights are ac- 
 quired by one or more to acts or forbearances on the part of the 
 other or others." ^ It is to be noticed that this definition deals 
 with two ideas. In the first place, a contract is said to be a par- 
 ticular kind of an agreement. Attention is here focused upon cer- 
 tain physical facts. The definition then proceeds to direct atten- 
 lion to the legal effect of these facts. The facts constitute one idea ; 
 their legal effects, another. The former may be seen or heard. 
 The latter are wholly intangible. An agreement made in New 
 York might bring about a certain legal result, while the same agree- 
 ment entered into in France might produce quite different legal 
 ■effects. The same conversation had on some portions of the earth's 
 surface not claimed by any organized state would have no legal 
 effect there. A definition of a contract therefore, must deal with 
 the facts and with their result. Professor Corbin's very carefully 
 constructed definition of a contract throws the emphasis in the first 
 instance upon the legal effect of the facts. Accordingly Professor 
 
 1 Anson on Contract (Corbin's Ed.) § 9. 
 B.& B.BUS.LAW (23) 
 
24 CONTRACTS (Part 1 
 
 Corbin defines a contract as "the legal relations between persons 
 arising from voluntary expression of intention, and including at 
 least one right in personam, actuaLor potential, with its correspond- 
 ing duty." * 
 
 In the cases following, we shall be concerned both with the facts 
 and their legal effect, but primarily our inquiry will be : What com- 
 binations of facts will bring contractual legal relatipns into exist- 
 ence? We leave for later chapters the consideration of the ques- 
 tions as to the nature of the legal relations created by these facts. 
 Professor Anson employs the word "agreement" to refer to these 
 operative facts. Professor Corbin refers to these facts by the phrase 
 "voluntary expression of intention." The word "agreement" obvi- 
 ously has a broader meaning than the phrase "voluntary expression 
 of intention," for the former does not necessarily connote action, 
 while the latter does. What is a voluntary expression of intention ? 
 What is an agreement? How may we identify that Hind of an agree- 
 ment by which rights are acquired by one or more to acts or for- 
 bearances on the part of the others enforceable at law ? When will 
 "a voluntary expression of intention" produce "at least one primary 
 right in personam, actual or potential, with its corresponding 
 duty"? 
 
 Persons may agree as to the existence or non-existence of a past 
 fact or a present fact, or they may agree that a specified fact or some 
 phenomenon will occur in the future. Suppose the parties agree 
 that a specified phenomenon shall occur in the future as the result 
 of the acts of one of the parties, or that some specified situation 
 will not occur as the result of a conscious limitation upon the free- 
 dom of action of one of the parties, as for example, that B. shall 
 bring his horse to A.'s stable on Tuesday next, or that B. shall 
 thereafter refrain from keeping his store open on Sunday. This 
 kind of an agreement comes near to that kind of an agreement which 
 we shall call a simple contract, but for reasons which will later ap- 
 pear, it is not such. Notice in these cases that the only act to be 
 done or refrained from being done concerns but one of the parties 
 alone. The agreement contains no suggestion that the other will 
 perform any act or refrain from acting. Suppose, again, that A. 
 and B., actuated by mutual impulses of generosity, while walking 
 along the street together, should simultaneously shout, A. announc- 
 ing "I will give you $100 next Tuesday," and B. declaring, "I will 
 give you my horse next Tuesday and bring him to your stable." 
 Does this kind of agreement create a contract? This case differs 
 from the preceding in that, here, the agreement does contemplate 
 action by each party, but even this agreement falls short of being 
 a contract. Suppose, finally, that A. says, "B., I will give you $100 
 for your horse if you will bring him to my. stable next Tuesday." 
 B. replies, "All right, I will do that." This agreement is a con- 
 tractual agreement. It differs from the preceding agreement in 
 
 2 Professor Arthur L. Corbin, "Offer and Acceptance, and Some of the Re- 
 sulting Liegal Relations," 26 Yale Law Journal, 169. 
 
Ch. 1) . OFFER AND ACCEPTANCE 25 
 
 that, in this last case, the agreement that on next Tuesday two 
 facts will come into existence — i. e., the bringing of the horse to 
 A.'s stable and the handing over by A. of $100 to B. — possess a re- 
 lationship not found in the other case. There is a sort of connec- 
 tive tissue of causal relationship between the two acts. We could 
 substitute negative acts, i. e., restraint or limitation upon freedom 
 of action, and our result would be the same. A. could say, "I will 
 not attend the sessions of the Board of Trade next Tuesday, if 
 you will not," B. saying, "All right, I will stay awiy on that day." 
 Or the agreement might forecast an affirma^tive act by one of the 
 parties and a negative act by the other. If it is clear in these last- 
 mentioned cases that the parties have done something which jus- 
 tifies organized society in saying to A. and B., through the medium 
 which we call law, "You have now gone so far that society thinks 
 that these two acts should be performed, and, moreover, in the 
 event that one of the parties refuses to bring into existence the 
 fact which he said he would bring into existence, and the other 
 party performs his act, or tenders performance, that society, through 
 its judicial organization, will send a person, called the sheriff, to 
 the assistance of the party who has been disappointed." 
 
 The kind of agreement in which we are interested here, therefore, 
 is that kind of agreement which suggests future human action or 
 which foreshadows limitation upon human action. The parties to 
 the agreement have each manifested their determination so to or- 
 der their future conduct that their present intentions pertaining to 
 these future acts will be realized objectively, so that society, through 
 the law, will say that these facts must be brought into existence, 
 or that the unjustifiable failure of one of the parties to perform his 
 act shall result in the imposition of some kind of penalty upon him, 
 provided that there exists between these two future acts a kind 
 and degree of interrelationship, which, as a matter of broad public 
 policy, justifies society in taking cognizance of them. 
 
 The question of practical importance then arises : Under what cir- 
 cumstances will some party other than those to the supposed or 
 actual agreement be justified in concluding that these parties have 
 actually entered into an agreement? It is altogether possible for 
 two minds to be in agreement as to future acts, it is possible that 
 these two persons definitely understand that each is to do some- 
 thing in the future, and yet the external evidence of their subjec- 
 tive convictions is insufficient to convey to the mind of another 
 person the consciousness that these two parties have "agreed," and 
 the evidence may be insufficient to transfer to such other party the 
 intelligence, or the comprehension of the nature of these future acts. 
 Why is this aspect of contract important? Subjective truth and 
 objective evidence of that truth are quite distinct. The parties to 
 the agreement are not to be judges in their own cause. Some 
 other person is to be judge as to whether they entered into an agree- 
 ment. This third party, the judge or jury, or whoever it may be, 
 must have before them some evidence, consisting of language, of 
 
26 CONTRACTS (Parti 
 
 conduct, or of attendant circumstances, which will enable them to 
 arrive at a conclusion that the parties did or did not enter into an 
 agreement. The things which actually took place in. the minds of 
 the parties constitute, in a sense, the object of the search. But it 
 is impossible to find out what actually occurred there. External 
 evidence must be relied upon as the best means of discovering these 
 things. We shall find, in fact, that the law realizing the impossir 
 bility of obtaining an external reproduction of a mental state, vir- 
 tually makes no effort to find out what the parties to the agreement 
 actually thought. Instead the law substitutes, for their actual 
 thought, some thought which, in the light of external evidence, the 
 parties most likely did entertain. 
 
 So our inquiry into the circumstances under which a third per- 
 son will be justified in assuming that two or more other persons 
 have entered into an agreement is not a journey into the hidden re- 
 cesses of the human mind but is an observation directed at ex- 
 ternal phenomena, spoken words, acts, and circumstances, from 
 which we obtain a conclusion as to what the parties did have in 
 mind. It is this conclusion which governs — the conclusion of a 
 third party — hence the emphasis, in Professor Corbin's definition 
 of a contract, is laid, not upon "intention," but upon the expression 
 of intention. A recognition of this truth will explain many things 
 in the law. It is very easy to employ the expression, "What did 
 the parties intend?" and we shall, for convenience, use this ex- 
 pression ; but we should realize that it does not mean exactly what 
 it says. 
 
 We are looking at the acts of persons ; that is, muscular activity 
 generated by the exercise of volition — conduct, their spoken and 
 written words, and figures, to ascertain therefrom whether they 
 have entered into an agreement. What brings these external things 
 into existence? In the first instance, it is the desire of one of the 
 parties, and later on the desire of the other party. A. desires to 
 possess B.'s horse. He could go and get it, without asking for it; 
 but this he knows is wrong. In the nature of things, if A. is to 
 gain possession, control, over the horse, which is B.'s, he must 
 obtain B.'s consent to the taking. The origin of agreement, there- 
 fore, is to be found in transferring to the mind of B. the knowledge 
 of A.'s desire to have B.'s horse. What shall we call the act of 
 A. in communicating to B. the knowledge of A.'s desire for B.'s 
 horse ? There is no single word that adequately describes what has 
 just occurred, but it is safe to call this act or series of acts "pre- 
 liminary negotiations." Suppose, however, that in addition to the 
 act of communicating A.'s desire for B.'s horse, A. promises to do 
 some act, such as handing to B. $100, if B. will consent to take his 
 horse to A. Two future acts are now the subject of discussion, 
 and they are closely related to each other. The probabilities are 
 that, if one of them comes into existence, the other will also, and, 
 if one fails, so will the other. What shall we call this act of A. 
 ia making known to B. (1) A.'s desire to have B.'s horse afid (2) 
 
Ch. 1) OFFER AND ACCEPTANCE 27 
 
 t 
 
 A.'s willingness or intention to give to B. $100? In the law, the 
 expressions used by A. in communicating to B. his desire to have 
 B. act, and his own willingness to act, is called an offer. If B. 
 manifests his willingness to do the suggested act, and his own de- 
 sire to have A. perform the act, which A. said he would perform, the 
 law calls B.'s expression an acceptance. Contractual agreement is, 
 therefore, a compound composed of two elements: Offer and ac- 
 ceptance. 
 
 Our future inquiry, therefore, is to be directed to the ascertain- 
 ment of the circumstances under which it is fair to assume that a 
 person has made an offer, and a person to whom it was made has 
 accepted this offer., We live in a busy world. We do not always 
 have time to express our minds as accurately as we should like 
 to, and, even if we did, it is not certain that another person would 
 always understand precisely what we meant. Contractual agree- 
 ments spring out of circumstances, as well as out of spoken and 
 written words. A great deal of the time of the courts is taken up 
 in trying to find out what the parties intended — using that word 
 as we have heretofore explained its use, the external evidence of a 
 mental state which foreshadows the future exercise of the human 
 will in such a way as to bring into existence some external reality. 
 When A. leaves his home in the morning and boards a street car, 
 a contractual agreement is formed. What were its terms? Not a 
 word was spoken. Arriving down town, A., proceeds to the bank 
 and pushes some bills, checks, and coin over the counter to the 
 cashier. A contractual agreement was formed. What was it? A 
 moment before the money belonged to A. Does it belong to A. after 
 the cashier picked it up ? Suppose a bank robber took this money 
 at that moment, whose money was lost? It depends upon what the 
 parties agreed to. A. goes across the street and enters the floor 
 of the Stock Exchange. He makes signs. B. is attracted, and B. 
 makes signs. They make a little memorandum, which many would 
 not understand, but they may have entered into a contractual agree- 
 ment. A. spends the rest of the morning in conference with C, 
 and at the end of the conference they draw up a lengthy document 
 and sign. It may have been a contractual agreement. Enough has 
 been said to show that the questions : (1) Did the parties enter into 
 any agreement at all? was there an offer? was there an accept- 
 ance? and (2) if we find that there was an agreement, what were 
 its terms? are questions which may be very difficult, indeed, to an- 
 swer; Yet we do these things every day. We cannot always take 
 time to explain carefully what we should like to have done and 
 what we are willing to do in return. One who sat down at a table 
 in a public restaurant, and while looking over the menu heard the 
 waiter announce in solemn tones, "Sir, we offer to provide for you 
 the food which you see listed here at the prices marked opposite 
 each item," might entertain some fleeting notion that the waiter's 
 mental faculties were not functioning normally. We are forced 
 to take some things for granted. While certain phases of this 
 
28 CONTRACTS (Part 1 
 
 restaurant transaction are so obvious that no language is neces- 
 sary to express the meaning, who can say whether the food brought 
 has been sold to the patron or merely placed there for him to eat 
 until his hunger has been appeased. If some one stole it while the 
 customer was preparing to dine, whose food was stolen, the restau- 
 rant keeper's or the patron's? Courts have taken contrary views 
 on this question, and have written elaborate opinions in support of 
 their respective contentions. 
 
 In some cases parties are willing to enter into contractual agree- 
 ments without reducing the agreement to language. In other cases 
 the parties deem it advisable to spend time in fixing upon the terms 
 of a contract. Sound judgment will indicate when it is safe to trust 
 to circumstances and to implications, and will also indicate when 
 it is advisable to exercise a rather high degree of care in entering 
 into an agreement and in prescribing its terms. The study of this 
 collection of cases will contribute to the formation of a judgment 
 as to when special care should be exercised in the making of con- 
 tracts, and will also contribute to an understanding of the methods 
 and procedure for exercising this care, and to indicate the circum- 
 stances under which it will be advisable to seek the advice of com- 
 petent counsel. With this preliminary statement we may now take 
 up the study of the two problems presented in this chapter: (1) 
 What constitutes an offer? (2) What constitutes an acceptance? 
 
 In going into these questions, and into others into which the first 
 leads us, we shall, of course, focus attention upon the rules of law 
 as such, to understand them ; but beyond that, and from a practi- 
 cal business stapdpoint, one should obtain an appreciation of the 
 nature and of the causes of misunderstanding and of litigation which 
 arise out of the formation of contracts. The exercise of care be- 
 forehand will often prevent such unfortunate results, but care can- 
 not effectively be exercised without an intelligent understanding of 
 the origin and nature of legal controversy. 
 
 SECTION 2.— WHAT CONSTITUTES AN OFFER 
 
 Viewing an offer as an operative fact, as distinguished from its 
 legal effect, an offer is a communication to the offeree of the in- 
 tention of the offeror to do an act, or to. refrain from acting in the 
 future, provided that the offeree will likewise in the future perform 
 some act or refrain from acting. However phrased, the offer will 
 make reference to two future acts, one usually to be done by the 
 offeror, the other usually by the offeree. But it is convenient, and 
 sometimes necessary, to distinguish between the various ways in 
 which it is possible to refer to these two future acts. (1) The of- 
 feror may say, "I will give you $500 if you will arrest and obtain 
 the conviction of the persons who burglarized my store last night." 
 This is an offer of a promise for an act other than a promise. The 
 language employed by the offeror is called an offer, but in the 
 event of its acceptance this language is then converted into a prom- 
 
Ch. 1) OFFER AND ACCEPTANCE 29 
 
 ise. While still an offer, it is not certain that the act which the 
 offeror proclaims his willingness to perform will ever be performed. 
 But, after acceptance, his language is then an unqualified assertion 
 that he will perform. The "if" has disappeared. For this reason 
 we speak of the offer after its acceptance as a promise. In the 
 above case, the offeree cannot accept by promising to arrest and 
 obtain the conviction of the burglar. He may accept only by doing 
 these acts. (2) Or an offeror may say, "I will arrest and obtain 
 the conviction of the person who burglarized your store last night, 
 if you will pay me $500." The offeree replies, "All right." This 
 is an offer of a series of acts for a promise. In each of these cases, 
 the contract will not come into existence until the act is done. It 
 is also true that, at the moment when the contract does come into 
 existence, one of the parties has fully performed. It is for this 
 reason that. these contracts are called unilateral; that is, that just 
 as soon as there is a contract at all there is but one side to it which 
 is unperformed. (3) The offeror may say, "I will pay you $10,000 
 if you will agree to erect this building in accordance with these 
 specifications." The offeree promises to construct the building. 
 Here we have an offer of a promise for a promise. This type of 
 contract is called bilateral, meaning that, as soon as the contract 
 comes into existence, neither of the parties has performed his prom- 
 ise. The contract imposes obligations upon each. 
 
 To return to our general question: What constitutes an offer? 
 People may do a great deal of talking without making offers. They 
 may even refer, rather definitely, to their future conduct and still 
 no offer may result. What test may be applied to language and 
 coi;duct by means of which offers may be identified? How are 
 we to draw the line between words and conduct referring to future 
 acts amounting to offers from words and conduct likewise refer- 
 ring to future acts which fail to be offers? 
 
 Words and conduct will fail to produce an offer for any one of 
 four reasons — reasons which are not wholly mutually exclusive : (1) 
 The language or conduct may fail to refer to any act to be done 
 by the offeree, as, for example, "I will give you $100, if you will 
 take it." It is possible, of course, to say that this is an offer, but 
 that a contract fails to result for other reasons. (2) The language 
 or conduct may make such an indefinite reference to the nature 
 of the acts to be done by the parties, as to the time when they 
 should be done, that we are not justified in concluding that a true 
 offer was made. (3) The language or conduct may or may not 
 refer to future acts with sufficient definiteness, but there may also 
 be apparent from attendant circumstances unmistakable evidence 
 that the parties intended that such language should not be regarded 
 as an offer. (4) The offer, while it may conform to all formal req- 
 uisites, may fail to be such because it was not communicated to the 
 offeree. 
 
 Having ascertained what words or conduct amount to offers, we 
 next meet the question: What is its legal effect? While an offer 
 
30 CONTRACTS (Part 1 
 
 is but one of the essential steps in the formation of a contract, and 
 accordingly does not create any rights or duties, the offer does cre- 
 ate a legal relation between the offeror and offeree which has not 
 theretofore existed; for, by making and communicating the offer, 
 the offeror has made it possible for the offeree to create a contract 
 between them. Hence it is proper to say that the legal effect of 
 the words or conduct which are generalized by the word "offer" is 
 to create in the offeree a legal power. 
 
 HOTOHKISS V. NATIONAL CITY BANK OP NEW TOKK. 
 (IMstrict Court of the United States, S. D. New York, 1911. 200 Fed. 28T.J 
 
 Hand, District Judge. * * * A contract has, strictly speaking, 
 nothing to do with the personal, or individual, intent of the parties. 
 A contract is an obligation attached by the mere force of law to cer- 
 tain acts of the parties, usually words, which ordinarily accompany and 
 represent a known intent. If, however, it were proved by twenty bish- 
 ops that either party, when he used the words, intended something else 
 than the usual meaning which the law imposes upon them, he would 
 still be held, unless there were some mutual mistake, or something 
 else of the sort. Of course, if it appear by other words, or acts, of 
 the parties, that they attribute a peculiar meaning to such words as 
 they use in the contract, that meaning will prevail, but only by virtue 
 of the other words, and not because of their unexpressed in- 
 tent. * * * 
 
 NEBKASKA SEED CO. v. HARSH. 
 
 (Supreme Court of Nebraska, 1915. 98 Neb. 89, 152 N. W. 310, 
 L. R. A. 19I15F, 824.) 
 
 MoRRissEY, C. J. Plaintiff, a corporation, engaged in buying and 
 selling seed in the city of Omaha, Neb., brought this action against 
 the defendant, a farmer residing at Lowell, Kearney County, Neb. 
 The petition alleges: 
 
 "That on the 26th day of April, 1912, the plaintiff purchased of and 
 from the defendant 1,800 bushels of millet seed at the agreed price of 
 $2.25 per hundredweight, F. O. B. Lowell, Neb., which said purchase 
 and contract was evidenced by writing and correspondence passing be- 
 tween the respective parties of which the following is a copy : 
 
 " 'Neb. Seed Co., Omaha, Neb. — Gentlemen : I have about 1800 bu. 
 or thereabouts of millet seed of which I am mailing you a sample. This 
 millet is recleaned and was grown on sod and is good seed. I want 
 $2.25 per cwt. for this seed f . o. b. Lowell. 
 
 " 'Yours truly, H. F. Harsh.' 
 
 "Said letter was received by the plaintiff at its place of business in 
 Omaha, Neb., on the 26th day of April, 1912, and immediately there- 
 after the plaintiff telegrsfphed to the defendant at Lowell, Neb., a copy 
 of which is as follows : 
 
 " 'H. F. Harsh, Lowell, Nebr. Sample and letter received. Accept 
 your offer. Millet like sample two twenty-five per hundred. Wire how 
 soon can load. The Nebraska Seed Co.' " 
 
Ch. 1) OFFER AND ACCEPTANCE 31 
 
 It alleges that defendant refused to deliver the seed, after due de- 
 mand and tender of the purchase price, and prays judgment in the sum 
 of $900. Defendant filed a demurrer, which was overruled. He saved 
 an exception to the ruling and answered, denying that the petition 
 stated a cause of action ; that the correspondence set out constituted a 
 contract, etc. There was a trial to a jury with verdict and judgment 
 for plaintiff, and defendant appeals. 
 
 In our opinion the letter of defendant cannot be fairly construed into 
 an offer to sell to the plaintiff. After describing the seed, the writer 
 says, "I want $2.25 per cwt. for this seed f. o. b. Lowell." He does 
 not say, "I offer to sell to you." The language used is general, and 
 such as may be used in an advertisement, or circular addressed gener- 
 ally to those engaged in the seed business, and is not an offer by which 
 he may be bound, if accepted, by any or all of the persons addressed. 
 
 ,"If a proposal is nothing more than an invitation to the person to 
 whom it is made to make an offer to the proposer, it is not such an offer 
 as can be turned into an agreement by acceptance. Proposals of this 
 kind, although made to definite persons and not to the public generally, 
 are merely invitations to trade ; they go no further than what occurs 
 when one asks another what he will give or take for certain goods. 
 Such inquiries may lead to bargains, but do not make them. They ask 
 for offers which the proposer has a right to accept or^jfeject as he 
 pleases." 9 Cyc. 278e. 
 
 The letter as a whole shows that it was not intended as a final propo- 
 sition, but as a request for bids. It did not fix a time for delivery, 
 and this seems to have been regarded as one of the essentials by plain- 
 tiff, for in his telegram he requests defendant to "wire how soon can 
 load." 
 
 "The mere statement of the price at which property is held cannot 
 be understood as an offer to sell." Knight v. Cooley, 34 Iowa, 218. 
 
 We do not think the correspondence made a complete contract. To 
 so hold where a party sends out letters to a number of dealers would 
 subject him to a suit by each one receiving a letter, or invitations to 
 bid, even though his supply of seed were exhausted. In Lyman v. 
 Robinson, 14 Allen (Mass.) 242, 254, the Supreme Court of Massa- 
 chusetts has sounded the warning : 
 
 "Care should always be taken not to construe as an agreement letters 
 which the parties intended only as a preliminary negotiation." 
 
 Holding, as we do, that there was no binding contract between the 
 parties, it is unnecessary to discuss the other questions presented. 
 
 The judgment of the. district court is reversed. 
 
 ANDERSON et al. v. BOARD, ETC., OF PUBLIC SCHOOLS. 
 (Supreme Court of Missouri, 1S94. 122 Mo. 61, 27 S. W. 610, 26 L. R. A. 707.) 
 
 Action by Anderson and others against the Board of President and 
 Directors of Public Schools. From a judgment sustaining a demurrer 
 to the petition, plaintiffs appeal. 
 
 BarcIvAY, J. Plaintiffs appealed from a judgment based on a ruUng 
 sustaining a demurrer to their petition. The substance of their alle- 
 gations is as follows: Plaintiffs are copartners in the business of 
 building, and defendant is a corporation having charge and control of 
 the public schools and school property in the city of St. Louis. The 
 
32 CONTRACTS (Part 1 
 
 defendant had a well-known rule in regard to buildings, by which it 
 was provided that all new buildings, etc., should be "let by contract 
 to the lowest and best bidder." Defendant being desirous of erecting 
 a large school building to be known as the "New High School," duly 
 advertised for bids for the erection thereof. The advertisement was 
 this : "Proposals for the Erection of the New High School Building on 
 Grand Avenue. Office of Board of President and Directors of the 
 St. Ivouis Public Schools. St. Louis, August 28, 1891. Sealed pro- 
 posals will be received at the office of the secretary on or before Mon- 
 day, September 7, 1891, at 4 p. m., for the erection of the new high 
 school on Grand avenue. All bids are to be addressed to John W. 
 O'Connell, Esq., chairman building committee, and must be accom- 
 panied by a certified check, payable to the order of the 'Board of Presi- 
 dent and Directors of the St. Louis Public Schools,' or cash, amount- 
 ing to $2,500, which is to be forfeited by the successful bidder if -he 
 fails or refuses within five days after the award of contract by this 
 board to enter into written contract, and furnish good and sufficient 
 security, for the faithful performance of the work." Plaintiffs sub- 
 mitted a bid (in accordance with the above advertisement) to build 
 the proposed high school for $196,965 ; but defendant refused to ac- 
 cept the bid of plaintiffs, but "without cause, arbitrarily and capri- 
 ciously, through favoritism and bias," rejected it, and then accepted 
 the bid of another for $197,000. . Plaintiffs alleged a loss of profits in 
 the sum of $15,000, and prayed judgment, etc. The above is a suf- 
 ficient outline of the facts on which plaintiffs rely. 
 
 It is claimed by defendant that, as the plaintiff's bid for the erection 
 of the high school building related to public work, no action can be 
 maintained for the refusal to allow plaintiffs to execute such work. 
 The contention is that bids for public work are not governed by the 
 general principles of the law of contracts. We do not consider it nec< 
 essary to examine into the soundness of that contention, as we think 
 the ruling of the trial judge was obviously correct, even conceding to 
 plaintiffs that the transaction should be treated as an ordinary one 
 between individuals, irrespective of the supposed public nature of its 
 subject-matter. That binding obligations can originate in advertise- 
 ments addressed to the general public may be assumed as settled law 
 to-day. But the effect to be given to such an advertisement as the basis 
 of a contract depends entirely on the intent manifested by its terms. A 
 public proposal of that nature may be so expressed as to need but an 
 acceptance, or the performance of some act by a person otherwise un- 
 designated, to constitute an enforceable legal agreement ; while, on the 
 other hand, the proposal may amount to nothing more than a sugges- 
 tion to induce offers of a contract by others. Proposals of contract by 
 advertisement have a place in the modern common law of England 
 and of this country, though they have not been so definitely classified 
 in our jurisprudence as in that of some continental nations. Mr. Pol- 
 lock, in his valuable treatise on the Principles of Contract, remarks on 
 this point : "We have no special term of art for a proposal thus made 
 by way of general request or invitation to all men to whose knowledge 
 it comes." 4th Ed. *p. 13. Still less have we any scientific nomen- 
 clature for that sub-division of the class of public proposals with which 
 we have now to deal, namely, that class in which is disclosed the in- 
 tent to invite mere offers of a contract, as distinguished from an intent 
 to propose a contract for a direct acceptance by whom it may concern. 
 
Ch. 1) OFFER AND ACCEPTANCE 33 
 
 3ut the principles to be applied by our law to such proposals are not, 
 on that account, uncertain or obscure. When the intent expressed in 
 the advertised proposal is reduced to certainty by interpretation, our 
 system of administration of law is fully capable of giving effect to that 
 intent. 
 
 In the case in hand the advertisement has the following caption: 
 "Proposals for the erection of the new high school building on Grand 
 avenue." But the opening lines of the official statement, which fol- 
 lows, show that the caption refers to the proposals to be received, and 
 is not intended to describe the effect of the advertisement as a whole. 
 If there was otherwise any doubt on this point, it is set at rest by the 
 last sentence, viz. : "The board reserves the right to reject any or all 
 bids." That language demonstrates the nature of the advertisement 
 as a mere invitation for offers for a contract. As such it did not lay 
 the foundation of a completed contract. It was merely the opening 
 of negotiations for a contract. The plaintiffs' bid was a proposal to 
 build, whicli the defendant, by the terms of its statement, had the right 
 to reject. The facts in judgment are wholly unlike those considered 
 in McNeil v. Boston Chamber of Commerce (1891) 154 Mass. 277, 
 28 N. E. 245, 13 L. R. A. 559, cited on behalf of the plaintiffs. In that 
 case it was found as a fact that the defendant had agreed with the bid- 
 ders to accept the lowest bid, and accordingly was held liable for a 
 breach of that agreement. But in the present appeal that essential fact 
 is wanting. The right to reject the bids was unconditional. Defend- 
 ant was entitled to exercise that right for any cause it might deem 
 satisfactory, or even without any assignable cause. The judgment is 
 affirmed. 
 
 UNIFORM SALES ACT, SECTION 21. SALE BY AUCTION 
 
 Subsection (2). A sale by auction is complete when the auc- 
 tioneer announces its completion by the fall of the hammer, or in 
 other customary manner. Until such announcement is made, any 
 bidder may retract his bid; and the auctioneer may withdraw the 
 goods from sale xmless the auction has been announced to be with- 
 out reserve. 
 
 FAIRMOUNT GLASS WORKS v. GRUNDEN-MARTIN 
 WOODENWARE CO. 
 
 (Court of Appeals of Kentucky, 1S99. 106 T^y. 659, 51 S. W. 196.) 
 
 Action by the Grunden-Martin Woodenware Company against the 
 Fairmount Glass Works to recover damages for breach of contract. 
 Judgment for plaintiff, and defendant appeals. 
 
 HoBSON, J. On April 20, 1895, appellee wrote appellant the fol- 
 lowing letter: 
 
 "St. Louis, Mo., April 20, 1895. Gentlemen : Please advise us the 
 lowest price you can make us on our order for ten car loads of Mason 
 green jars, complete, with caps, packed one dozen in a case, either de- 
 livered here, or f. o. b. cars your place, as you prefer. State terms and 
 cash discount. Very truly, Grunden-Martin W. W. Co." 
 
 To this letter appellant answered as follows: 
 
 "Fairmount, Ind., April 23, 1895. Grunden-Martin Wooden Ware 
 B.& B.Btts.Law— 3 
 
34 CONTRACTS (Part 1 
 
 Co., St. Louis, Mo. — Gentlemen : Replying to your favor of April 20, 
 we quote you Mason fruit jars complete, in one-dozen boxes, delivered 
 in East St. Louis, 111. : Pints $4.50, quarts $5.00, half gallons $6.50, per 
 gross, for immediate acceptance, and shipment not later than May 15, 
 1895 ; sixty days' acceptance, or 2 off, cash in ten days. Yours truly, 
 
 "Fairmount Glass Works." 
 
 "Please note that we make all quotations and contracts subject to 
 the contingencies of agencies or transportation, delays or accidents be- 
 yond our control." 
 
 For reply thereto,, appellee sent the following telegram on April 34, 
 1895: 
 
 "Fairmount Glass Works, Fairmount, Ind. : Your letter twenty- 
 third received. Enter order ten car loads as per your quotation. Speci- 
 fications mailed. Grunden-Martin W. W. Co." 
 
 In response to this telegram, appellant sent the following: 
 
 "Fairmount, Ind., April 24, 1895. Grunden-Martin W. W. Co., 
 St. Louis, Mo. : Impossible to book your order. Output all sold. See 
 letter. Fairmount Glass Works." 
 
 Appellee insists that, by its telegram sent in answer to the letter of 
 April 23d, the contract was closed for the purchase of 10 car loads of 
 Mason fruit jars. Appellant insists that the contract was not closed by 
 this telegram, and that it had the right to decline to fill the order at 
 the time it sent its telegram of April 24. This is the chief question in 
 the case. The court below gave judgment in favor of appellee, and 
 appellant has appealed, earnestly insisting that the judgment is er- 
 roneous. 
 
 We are referred to a number of authorities holding that a quotation 
 of prices is not an offer to sell, in the sense that a completed contract 
 will arise out of the giving of an order for merchandise in accordance 
 with the proposed terms. There are a number of cases holding that 
 the transaction is not completed until the order so made is accepted. 
 Biit each case must turn largely upon the language there used. In this 
 case we think there was more than a quotation of prices, although ap- 
 pellant's letter uses the word "quote" in stating the prices given. The 
 true meaning of the correspondence must be determined by reading it 
 as a whole. Appellee's letter of April 20th, which began the transac- 
 tion, did not ask for a quotation of prices. It reads : "Please advise 
 us the lowest price you can make us on our order for ten car loads of 
 Mason green jars. * * * State terms and cash discount.'' From 
 this appellant could not fail to understand that appellee wanted to know 
 at what price it would sell it ten car loads of these jars; so when, in 
 answer, it wrote : "We quote you Mason fruit jars * * * pints 
 $4.50, quarts $5.00, half gallons $6.50, per gross, for immediate ac- 
 ceptance; * * * 2 off, cash in ten days," — it must be deemed as 
 intending to give appellee the information it had asked for. 
 
 We can hardly understand what was meant by the words "for im- 
 mediate acceptance," unless the latter was intended as a proposition to 
 sell at these prices if accepted immediately. In construing everv con- 
 tract, the aim of the court is to arrive at the intention of the par- 
 ties. In none of the cases to which we have been referred on behalf 
 of appellant was there on the face of the correspondence any such 
 expression of intention to make an offer to sell on the term's indi- 
 cated. In Fitzhugh v. Jones, 6 Munf. (Va.) 83, the use of the ex- 
 pression that the buyer should reply as soon as possible, in case he v/as 
 
Ch. 1) OFFER AND ACCEPTANCE " 35 
 
 disposed to accede to the terms offered, was held sufficient to show that 
 there was a definite proposition, which was closed by the buyer's ac- 
 ceptance. The expression in appellant's letter, "for immediate accept- 
 ance," taken in connection with appellee's letter, in effect, at what 
 price it would sell it the goods, is, it seems to us, much stronger evi- 
 dence of a present offer, which, when accepted immediately, closed the 
 contract. Appellee's letter was plainly an inquiry for the price and 
 terms on which appellant would sell it the goods, and appellant's an- 
 swer to it was not a quotation of pricesrbut a definite offer to sell 
 on the terms indicated, and could not be withdrawn after the terms 
 had been accepted. 
 
 Appellant also insists that the contract was indefinite, because the 
 quantity of each size of the jars was not fixed, that 10 car loads is too 
 indefinite a specification of the quantity sold, and that appeHee had 
 no right to accept the goods to be delivered on different days. The 
 proof shows that "10 car loads" is an expression used in the trade as 
 equivalent to 1,000 gross, 100 gross being regarded a car load. The 
 offer to sell the different sizes at different prices gave the purchaser 
 the right to name the quantity of each size, and, the offer being to ship 
 not later than May 15th, the buyer had the right to fix the time of de- 
 livery at any time before that. The petition, if defective, was cured 
 by the judgment, which is fully sustained by the evidence. 
 
 Judgment affirmed. 
 
 OLCOTT V. McCLURB. 
 (Appellate Court of Indiana, 1912. 50 lud. App. 79, 98 N. E. 82.) 
 
 Appellant, plaintiff in court below, brought action for a commission 
 on a sale of realty. Plaintiff alleged that defendant, appellee, made 
 him an offer of such a commission in a letter reading in part as fol- 
 lows: "Inclosed you will find description of a Texas farm, offered 
 for sale at a very attractive price. To the agent with whose buyer 
 I consummate a sale, at the price and terms mentioned, I will pay a 
 commission of $1.00 an acre so soon as the terms of the sale are com- 
 plied with, but I am in no event to be held liable for more than one 
 commission." Judgment below for defendant. 
 
 HoTTEL, J. * * * If a writing contains matter sufficient to en- 
 able the court to ascertain the subject-matter and the terms and condi- 
 tions of the obligation or contract to which the parties intended to 
 bind themselves, it is sufficient. The effect of such written contract is 
 to be collected from "all within the four corners" of the several letters 
 or writings which go to make up the same, and, if it can be so collected, 
 such writings will be held sufficient to constitute a contract. 
 
 Under the averments of this paragraph of complaint, the subject- 
 matter of the contract,' namely, the farm offered for sale, its descrip- 
 tion, the terms upon which it was offered,, the amount which the ap- 
 pellee agreed to pay to the agent with whose buyer he might consum- 
 mate a sale, can all be definitely and certainly ascertained. Appellee 
 in his brief says : "The primary question is whether the correspondence 
 shows an agreement upon which the minds of the parties met, as to 
 description, terms, price, and commission, or whether the negotiations 
 are inchoate and unperfected until something should intervene and be 
 determined in order to give it full effect." J. A. Everett, Seedsman 
 v. Bassler, 25 Ind. App. 303-308, 57 N. E. 560. We think the test here 
 
36 CONTRACTS (Part 1 
 
 furnished a proper one, and that the contents of letter No. 1, supple- 
 mented by the averments of the complaint as to the contents of appel- 
 lant's letter of acceptance and the lost paper and letter, meet every re- 
 quirement of the rule announced. 
 
 It is insisted by appellee that his first letter or proposition was noth- 
 ing more than an invitation to the person to whom it was made to make 
 ah offer to the proposer. This contention is clearly against the import 
 and meaning of the language of the proposition, especially that part of 
 the same which is in the following words : "To the agent with whose 
 buyer I consummate a sale at the price and terms named, I will pay 
 a commission of $1.00 per acre, so soon as the terms of the sale are 
 complied with." These words import more than an invitation for 
 an offer. They are a definite, certain proposition, the acceptance of 
 which should bind the proposer. Of course, standing alOne, Exhibit 
 A is nothing more than a proposition which is unilateral ; but it is such 
 a proposition as may become binding by acceptance. 
 
 Judgment reversed. 
 
 KELLER V. HOLDERMAN. 
 (Supreme Court of Michigan, 1S63. 11 Mich. 248, 83 Am. Dec. 737.) 
 
 Action by Holderman against Keller upon a check for $300, drawn 
 by Keller, and not honored. The check was given for an old silver 
 watch worth about $15. Keller took the watch and kept it till the 
 day of the trial, when he tendered it back to the plaintiff, who refused 
 to receive it. The whole transaction was a frolic and banter, neither 
 party intending to enter a contractual relation. The defendant, when 
 he drew the check, had no money in the bank. Judgment below for 
 plaintiff. 
 
 Martin, C. J. When the court below found as a fact that "the 
 whole transaction between the parties was a frolic and a banter, the 
 plaintiff not expecting to sell, nor the defendant intending to buy, the 
 watch at the sum for which the check was drawn," the conclusion 
 should have been that no contract was ever made by the parties, and 
 the finding should have been that no cause of action existed upon the 
 check to the plaintiff. 
 
 The judgment is reversed, with costs of this court and of the court 
 below. The other justices concurred. 
 
 PLATE V. DURST. 
 
 (Supreme Court of Appeals of West Virginia. 1S96. 42 W. Va. 63, 
 24 S. E. 580, .32 L. E. A. 404.) 
 
 Assumpsit by Amelia C. Plate against George L. Durst. There was 
 a judgment for plaintiff, and defendant brings error. 
 
 Dent, j. * * * The material facts in the case are as follows, to- 
 wit : When the plaintiff was about twelve years of age, in the absence 
 of other home, she went to live with the defendant, her brother-in-law. 
 This was in the year 1885. For the first three or four years she was 
 sent to school, and during the whole period she lived in the family as 
 the defendant's own daughter might have done. On her part, the plain- 
 tiff rendered services such as might have been required and expected 
 from a daughter ; attending to the marketing, and assisting in the care 
 
Ch. 1) OFFER AND ACCEPTANCE 37 
 
 of the young children. In addition to these services the plaintiff as- 
 sisted the defendant in his store, attending to customers, looking after 
 entertainments the defendant had in charge, and doing whatever else 
 the exigencies of the business, and her own capacities, from time to time 
 suggested. According to the plaintiff's testimony, a conversation took 
 place four years before August, 1894, late one evening, in the store 
 of the defendant. This conversation was repeated several times in 
 the plaintiff's testimony, and was given by her as follows : "Mr. Durst 
 asked me if I was tired. I said, 'Yes, sir;' and he said, 'How long 
 have you been with me now' ? and I told him, 'Five years ;' and he said, 
 'Well, when you are with me ten years, I will give you one thousand 
 dollars.' " On another occasion, defendant remarked that when she 
 (the plaintiff) should get married he would give her $1,000, and a $500 
 diamond ring. Defendant does not positively deny either of these 
 conversations, except as to the time of the first, but intimates that he 
 was not in earnest, but jesting. 
 
 It must be admitted, in any view of the matter, that this was jesting 
 on a very serious subject- to this unfortunate and parentless young 
 girl — still, in the eyes of the law, an infant — engaged early and late, 
 week days and Sunday, at home and abroad, actively, earnestly, and 
 faithfully endeavo'ring to promote the worldly interests of the defend- 
 ant. Jokes are sometimes taken seriously by the young and inex- 
 perienced in the deceptive ways of the business world, and if such is 
 the case, and thereby the person deceived is led to give valuable services 
 in the full belief and expectation that the joker is in earnest, the law 
 will also take the joker at his word, and give him good reason to 
 smile. The law discountenances deceit, even practiced under the 
 form of a jest, if the weak, immature, or confiding are thereby im- 
 posed on to their injury. Where the law raises a presumption of 
 gratuitous ser\^ice, because of the relationship of the parties, the person 
 rendering such service must rebut such presumption by either show- 
 ing an express contract, "or such facts and circumstances as will au- 
 thorize the jury to find the services were rendered in expectation by 
 one of receiving, and by the other of making, compensation." 
 
 And now it devolves upon us to say whether she is entitled to pay 
 for what her services were actually worth, or does the law, from 
 the fact that he was only misleading her, and never intended to pay 
 her, excuse him from doing so? A person is estopped from denying 
 the sincerity of Ijis conduct, to the injury of a person misled thereby. 
 We therefore must conclude that these promises, in spite of the dec- 
 laration of the defendant to the contrary, were made in sincerity, as 
 an inducement to her future service. As these promises are not here 
 sued on, the question of the statute of frauds does not arise; but, the 
 plaintiff having been prevented by the defendant from performing her 
 part of the undertaking, she is entitled to recover for the services al- 
 ready rendered, in view of the compensation promised. The judgment 
 is therefore affirmed. 
 
 SECTION 3.— DURATION OF OFFERS 
 
 It will usually happen that an offer will not be accepted at the 
 moment it is made. How long will the offer survive as such? The 
 making of the offer alone has conferred upon the offeree a power 
 
38 CONTRACTS (Part 1 
 
 to create contractual relations between the parties. Under what cir- 
 cumstances may it be said that this power continues in existence? 
 Obviously the power will not exist indefinitely. Moreover, the 
 offer having been made by one of the parties alone, it would seem 
 that he should have power to destroy that which he created. The 
 party to whom the offer was made should also have power, not only 
 to convert the offer into a contract but also to destroy it. 
 
 Accordingly there are three ways in which an offer may be termi- 
 nated : (1) By some event subsequent to the offer, not then within 
 the control of either party; (2) by an act of the offeror, called 
 revocation; (3) by an act of the offeree, called rejection. 
 
 Under each of these we shall consider two independent problems : 
 What is the nature of the event which may have the effect of de- 
 stroying the oft'er ; and at what point of time and under what cir- 
 cumstances will it take effect? 
 
 la) TERMINATION OF AX OFFER BY S05IE EVENT 
 
 (1) If the offeror has specified a definite timeVithin which the 
 offer may be open for acceptance, and this period of time elapses 
 before acceptance, the offer thereafter is non-existent — incapable 
 of acceptance. (2) If no time is specified in the offer, then the 
 offer is deemed to be open for a reasonable time. What constitutes 
 a reasonable time will depend upon" the circumstances of the case. 
 (3) If the offeror dies or becomes insane before acceptance, the 
 offer is thereby terminated. 
 
 LOBING et al. v. CITY OF BOSTON. 
 (Supreme Judicial Conrt of JVIassachnsctts, 1844. 7 Mete. 409.) 
 
 Assumpsit to recover a reward of $1,000, offered by the defendants 
 for the apprehension and conviction of incendiaries. 
 
 In May, 1837, defendant city offered a reward of $1,000, by adver- 
 tisement in daily papers, the publication of the advertisement continu- 
 ing about a week, for the conviction of any person setting fire to any 
 building within the city limits. In January, 1841, an extensive fire, 
 took place. Plaintiffs, suspecting one Samuel Marriott of having set 
 the fire, pursued Marriott to New York, brought him back to Boston, 
 and secured his conviction of setting said fire. The only question in 
 this case is, whether said offer of reward continued to be in force at 
 the time of this fire. There had been no express revocation of the 
 offer. 
 
 Shaw, C. J. There is now no question of the correctness of the 
 legal principle on which this action is founded. The offer of a re- 
 ward for the detection of an offender the recovery of property, and 
 the like is an offer or proposal, on the part of the person making it, to 
 all persons, which any one capable of performing the service may 'ac- 
 cept at any time before it is revoked, and perform the service; and 
 such offer on one side, and acceptance and performance on the otlier, 
 is a valid contract made on good consideration, which the law will en- 
 
Ch. 1) OFFER AND ACCEPTANCE 39 
 
 force. That this principle applies to the offer of a reward to the pub- 
 lic at large was settled in this Commonwealth in Symmes v. Frazier, 
 6 Mass. 344, 4 Am. Dec. 142, and it has been frequently acted upon, 
 and was recognized in the late case of Wentworth v. Day, 3 Mete. 
 352, 37 Am. Dec. 145. 
 
 The ground of defense is that the advertisement, offering the re- 
 ward of $1,000 for the detection and conviction of persons setting fire 
 to buildings in the city, was issued almost four years before the time 
 at which the plaintiff arrested Marriott and prosecuted him to convic- 
 tion; that this reward was so offered in reference to a special emer- 
 gency in consequence of several alarming fires ; that the advertisement 
 was withdrawn and discontinued ; that the recollection of it had passed 
 away ; that it was obsolete, and by most persons forgotten ; arid that 
 it could not be regarded as a perpetually continuing offer on the part 
 of the city. 
 
 We are then first to look at the terms of the advertisement, to see 
 what the offer was. It was competent to the party offering such re- 
 ward to propose his own terms; and no person can entitle himself to 
 the promised reward without a compliance with all its terms. The first 
 advertisement offering the reward demanded in this action was pub- 
 lished May 26, 1837, offering a reward of $500; and another on the 
 day following, increasing it to $1,000. No time is inserted in the 
 notice, vs^ithin which the service is to be done for which the reward 
 is claimed. It is therefore relied on as an unlimited and continuing of- 
 fer. 
 
 In the first place, it is to be considered that this is not an ordinance 
 of the city government, of standing force and effect ; it is an act tem- 
 porary in its nature, emanating from the executive branch of the city 
 government, done under the exigency of a special occasion indicated 
 by its terms, and continued to be published but a short time. Although 
 not limited in its terms, it is manifest, we think, that it could not have 
 been intended to be perpetual, or to last ten or twenty years or more ; 
 and therefore must have been understood to have some limit. 
 
 Supposing, then, that by fair implication there must be some limit 
 to this offer, and there being no limit in terms, then by a general rule 
 of law it must be limited to a reasonable time ; that is, the service must 
 be done within a reasonable time after the offer made. 
 
 What is a reasonable time, when all the facts and circumstances are 
 proved on which it depends, is a question of law. To determine it, 
 we are first to consider the objects and purposes for which such reward 
 is offered. The principal object obviously must be to awaken the at- 
 tention of the public, to excite the vigilance and stimulate the exertions 
 of police officers, watchmen, and citizens generally, to the detection 
 and punishment of offenders. Possibly, too, it may operate to prevent 
 offenses, by alarming the fears of those who are under temptation to 
 commit them, by inspiring the belief that the public is awake, that 
 any suspicious movement is watched', and that the crime cannot be 
 committed with impunity. To accomplish either of these objects, such 
 offer of a reward must be notorious, known and kept in mind by the 
 public at large; and for that pu'rpose the publication of the offer, if 
 not actually continued in newspapers, and placarded at conspicuous 
 places, must have been recent. After the lapse of years, and after the 
 publication of the offer has been long discontinued, it must be pre- 
 sumed to be forgotten by the public generally, and if known at all. 
 
40 CONTRACTS (Part 1 
 
 known only to a few individuals who may happen to meet with it in 
 an old newspaper. The expectation of benefit then from such a prom- 
 ise of reward must in a great measure have ceased. Indeed, every 
 consideration arising from the nature of the case confirms the belief 
 that such offer of reward, for a special service of this nature, is not 
 unlimited and perpetual in its duration, but mUst be limited to some 
 reasonable time. The difficulty is in fixing it. One circumstance (per- 
 haps a slight one) is that the act is done by a board of officers, who 
 themselves are annual officers. But as they act for the city, which is 
 a permanent body, and exercise its authority for the time being, and 
 as such a reward might be offered near the end of the year, we cannot 
 necessarily limit it to the time for which the same board or mayor 
 and aldermen have to serve; though it tends to make the distinction 
 between a temporary act of one branch and a permanent act of the 
 whole city government. 
 
 We have already alluded to the fact of the discontinuance of the 
 a,dvertisement, as one of some weight. It is some notice to the public 
 that the exigency is passed for which such offer of a reward was par- 
 ticularly intended. And though such discontinuance is not a revoca- 
 tion of the offer, it proves that those who made it no longer hold it 
 forth conspicuously as a continuing offer; and it is not reasonable to 
 regard it as a continuing offer for any considerable term of time after- 
 wards. 
 
 But it is not necessary, perhaps not proper, to undertake to fix a 
 precise time as reasonable time; it must depend on many circum- 
 stances. 
 
 Under the circumstances of the present case, the court are of the 
 opinion that three years and eight months / is not a reasonable time 
 within which, or rather to the ex;tent of which, the offer in question 
 can be considered as a continuing offer on the part of the city. We 
 are therefore of opinion that the offer of the city had ceased before 
 the plaintiffs accepted and acted upon it as such, and that consequently 
 no contract existed upon which this action, founded on an alleged 
 express promise, can be maintained. 
 
 Plaintiffs nonsuit. 
 
 MINNESOTA LINSEED OIL 00. v. COLLIER WHITE LEAD CO. 
 
 (United States Circuit Court, D. Minnesota, 1S76. 4 Dill. 431, 
 Fed. Cas. No. 9,635.) 
 
 This action was removed from the state court and a trial by jury 
 waived. The plaintiff seeks to recover the sum of $2,151.50, with in- 
 terest from September 20, 1875 — a balance claimed to be due for oil 
 sold to the defendant. The defendant, in its answer, alleges that on 
 August 3d, 1875, a contract was entered into between the parties, 
 whereby the plaintiff agreed to sell and deliver to the defendant, at 
 the city of St. I^ouis, during the said month of August, twelve thou- 
 sand four hundred and fifty (12,450) gallons of linseed oil for the 
 price of fifty-eight (58) cents per gallon, and that the plaintiff has 
 neglected and, refused to deliver the oil according to the contract ; that 
 the market value of oil after August 3d and during the month was 
 not less than seventy (70) cents per gallon, and therefore claims a set- 
 off or counter-claim to plaintiff's cause of action. The reply of the 
 
Ch. 1) OFFER AND ACCEPTANCH 41 
 
 plaintiflE denies that any contract was entered into between it and de- 
 fendant. 
 
 The plaintiff resided at Minneapolis, Minnesota, and the defendant 
 was the resident agent of the plaintiff, at St. Louis, Missouri. The 
 contract is alleged to have been made by telegraph. 
 
 The plaintiff sent the following dispatch to the defendant : "Minne^ 
 apolis, July 29, 1875. To Alex. Easton, Secretary Collier White Lead 
 Company, St. Louis, Missouri : Account of sales not enclosed in yours 
 of 27th. Please wire us best offer for round lot named by you — one 
 hundred barrels shipped. Minnesota Linseed Oil Company." 
 
 The following answer was received: "St. Louis, Mo., July 30, 1875. 
 To the Minnesota Linseed Oil Company : Three hundred barrels fifty- 
 five cents here, thirty days, no commission, August delivery. Answer. 
 Collier Company." 
 
 The following reply was returned: "Minneapolis, July 31, 1875. 
 \^'ill accept fifty-eight cents (58c.), on terms named in your telegram. 
 iMinnesota Linseed Oil Company." 
 
 This dispatch was transmitted Saturday, July 31, 1875, at 9 :15 p. m., 
 and was not delivered to the defendant in St. Louis, until Monday 
 morning, August 2, between 8 and 9 o'clock. 
 
 On Tuesday, August 3, at 8 :53 a. m., the following dispatch was 
 deposited for transmission in the telegraph office: "St. Louis, Mo., 
 August 3, 1875. To Minnesota Linseed Oil Company, Minneapolis : 
 Offer accepted — ship three hundred barrels as soon as possible. Col- 
 lier Company." 
 
 The following telegrams passed between the parties after the last 
 one was deposited in the office at St. Louis : "Minneapolis, August 3, 
 1875. To Collier Company, St. Louis : We must withdraw our offer 
 wired July 31st. Minnesota Linseed Oil Company." 
 
 Answered: "St. Louis, August 3, 1875. Minnesota Linseed Oil 
 Company: Sale effected before your request to withdraw was re- 
 ceived. When will you ship? Collier Company." 
 
 It appeared that the market was very much unsettled, and that the 
 price of oil was subject to sudden fluctuations during the month pre- 
 vious and at the time of this negotiation, varying from day to day, and 
 ranging between fifty-five and seventy-five cents per gallon. It is 
 urged by the defendant that the dispatch of Tuesday, August 3d, 1875, 
 accepting the offer of the plaintiff transmitted July 31st, and delivered 
 Monday morning, August 2d, concluded a contract for the sale of the 
 twelve thousand four hundred and fifty gallons of oil. The plaintiff, 
 on the contrary, claims, 1st, that the dispatch accepting the proposi- 
 tion made July 31st, was not received until after the offer had been 
 withdrawn ; 2d, that the acceptance of the offer was not in due time ; 
 that the delay was unreasonable, and therefore no contract was com- 
 pleted. 
 
 Nelson, District Judge. It is well settled by the authorities in this 
 country, and sustained by the later English decisions, that there is no 
 difference in the rules governing the negotiation of contracts by corre- 
 spondence through the post office and by telegraph, and a contract is 
 concluded when an acceptance of a proposition is deposited in the tele- 
 graph office for transmission. 
 
 The reason for this rule is well stated in Adams v. Lindsell, 1 Barn. 
 & Aid. 681. The negotiation in that case was by post. The court 
 said : "That if a bargain could not be closed by letter before the an- 
 
42 CONTEACTS (Part 1 
 
 swer was received, no contract could be completed through the mediurn 
 of the post office; that if the one party was not bound by his offer 
 when it was accepted (that is, at the time the letter of acceptance is 
 deposited in the mail), then the other party ought not to be bound un- 
 til after they had received a notification that the answer had been re- 
 ceived and assented to, and that so it might go on ad infinitum." In the 
 case at bar the delivery of the message at the telegraph office signified 
 the acceptance of the offer. If any contract was entered into, the 
 meeting of minds was at 8 :53 of the clock, on Tuesday morning, Aug- 
 ust 3d, and the subsequent dispatches are out of the case. 
 
 This rule is not strenuously dissented from on the argument, and it 
 is substantially admitted that the acceptance of an offer by letter or by 
 telegraph completes the contract, when such acceptance is put in the 
 proper and usual way of being communicated by the agency employed 
 to carry it; and that when an offer is made by telegraph, an acceptance 
 by telegraph takes effect when the dispatch containing the acceptance 
 is deposited for transmission in the telegraph office, and not when it 
 is received by the other party. Conceding this, there remains only one 
 question to decide, which will determine the issues': Was the acceptance 
 of defendant deposited in the telegraph office Tuesday, August 3d, 
 within a reasonable time, so as to consummate a contract binding upon 
 the plaintiff? 
 
 The better opinion is, that what is, or is not, a reasonable time, must 
 depend upon the circumstances attending the negotiation, and the char- 
 acter of the subject-matter of the contract, and in no better way can 
 the intention of the parties be determined. If the negotiation is in re- 
 spect to an article stable in price, there is not so much reason for an 
 immediate acceptance of the offer, and the same rule would not apply 
 as in a case where the negotiation related to an article subject to sud- 
 den and great fluctuations in the market. 
 
 The rule in regard to the length of the time an offer shall continue, 
 and when an acceptance completes the contract, is laid down in Parsons 
 on Contracts (volume 1, p. 82). He says; "It may be said that 
 whether the offer be made for a time certain or not, the intention or 
 understanding of the parties is to govern. * * * If no definite 
 time is stated, then the inquiry as to a reasonable time resolves itself 
 into an inquiry as to what time it is rational to suppose the parties 
 contemplated; and the law will decide this to be that time which as 
 rational men they ought to have understood each other to have had in 
 mind." Applying this rule, it seems clear that the intention of the 
 plaintiff, in making the offer by telegraph, to sell an article which fluc- 
 tuates so much in price, must have been upon the understanding that 
 the acceptance, if at all, should be immediate, and as soon after the 
 receipt of the offer as would give a fair opportunity for consideration. 
 The delay here was too long, and manifestly unjust to the plaintiff, for 
 it afforded the defendant an opportunity to take advantage of a change 
 in the market, and accept or refuse the offer as would best subserve its 
 interests. 
 
 Ju.dgment will be entered in favor of the plaintiff for the amount 
 claimed. The counterclaim is denied. Judgment accordingly. 
 
Ch. 1) OFFER AND ACCEPTANCH 43 
 
 BEACH et al. v. FIRST METHODIST EPISCOPAL CHURCH. 
 (Supreme Court of Illinois, 1880. 96 III. 177.) 
 
 Dickey, C. J. The record shows that Lorenzo Beach had presented 
 to him a subscription paper in the following words : 
 
 "Fairbury, February 14, 1874. 
 
 "We, the undersigned, agree to pay the sum set opposite our re- 
 spective names! for the purpose of erecting a new M. E. church in 
 this place, said sums to be paid as follows : One-third to be paid when 
 contract is let, one-third when building is enclosed, one-third when 
 building is completed. Probable cost of said church from ten thou- 
 sand dollars ($10,000) to twelve thousand dollars ($12,000)." 
 
 To which he attached and subscribed the following: 
 
 "Fairbury, 1874. 
 
 "Dr. Beach gives this subscription on the condition that the re- 
 mainder of eight thousand dollars is subscribed. 
 
 "Lorenzo Beach, $2,000." 
 
 On the 20th day of April, 1875, Lorenzo Beach was adjudged by the 
 county court of Livingston county insane, and Thomas A. Beach and 
 C. C. Bartlett were appointed conservators of his person and prop- 
 erty, and they continued to act as such until the death of Dr. Beach, 
 which occurred in August, 1878. 
 
 This action was brought shortly before the death of Dr. Beach for 
 the last installment of the subscription, $666. After his death, his 
 heirs were made parties, under a stipulation, and defended the action. 
 
 In the circuit court, judgment was rendered for the unpaid one- 
 third of the subscription, and costs. On appeal to the Appellate Court, 
 that judgment was affirmed. The defendants appeal to this court. 
 
 The subscription made by Dr. Beach was, in its nature, a mere offer 
 to pay that amount of money to the church upon the condition therein 
 expressed. 
 
 There is nothing in the record tending to show that the church, in 
 this case, took any action, upon the faith of this subscription, until 
 after Dr. Beach was adjudged insane, or that the church paid money, 
 or incurred any liability. His insanity, by operation of law, was a 
 revocation of the offer; In Pratt, Administratrix, etc., v. Trustees 
 of the Baptist Society of Elgin, 93 111. 475, 34 Am. Rep. 187, this court 
 said, in relation to such a subscription : "The promise, in such case, 
 stands as a mere offer, and may, by necessary implication, be revoked 
 at any time before it is acted upon. It is the expending of money, etc., 
 or incurring of legal liability on the faith of a promise, which gives 
 the right of action, and without which there is no right of action. 
 Until acted upon, there is no mutuality, and, being only an offer, and 
 susceptible of revocation at any time before being acted upon, it fol- 
 lows that the death of the promisor, before the offer is acted upon, is 
 a revocation of the offer. * * * The continuance of an offer is 
 in the nature of its constant repetition, which, of course, necessarily 
 requires some one capable of making a repetition. Obviously, this 
 can be no more be done by a dead man than a contract can, in the first 
 instance, be- made by a dead man." 
 
 The paper signed by Dr. Beach was of such a nature that no bind- 
 ing contract sprung therefrom until the church had accepted the same 
 by incurring some legal liability, or expending money upon the faith 
 of it. There being no binding contract upon Dr. Beach at the time 
 
44 CONTRACTS (Parti 
 
 his conservators made the payments, they had no lawful authority to 
 make the same, and the estate of Dr. Beach was not bound thereby. 
 
 The judgment of the Appellate Court in this case must be reversed 
 and the cause remanded. Judgment reversed. 
 
 (b) REVOCATION BY THE OFFEKOE 
 
 There are four independent questions pertaining 'to the express 
 revocation of offers: (1) Does the offeror possess the legal power 
 and legal privilege of revoking? (2) What language or conduct 
 will amount to a revocation? (3) Must the intention to revoke be 
 communicated to the offeree, and what amounts to a communica- 
 ' tion? (4) Must the communication be transmitted by the offeror, 
 or may it come through indirect channels ? 
 
 (1) In answer to the first question it may be definitely stated 
 that an offeror may revoke his offer. He has the legal power to 
 do so ; that is, he may make it impossible for the offeree thereafter 
 to accept. An attempted acceptance would be a nullity, or at most 
 a new offer to the former offeror. The power to revoke may be 
 exercised, even though the' offeror has promised to hold the offer 
 open for a specified period of time which has not yet elapsed. It 
 may strike one as somewhat unjust for the law to permit a person 
 who has, for example, offered to sell certain land to the offeree, and 
 has told the offeree that he would give him ten days in which to 
 make up his mind, to revoke his offer before the ten days are up ; 
 but the law does permit this to be done. There is an apparent ex- 
 ception, where the offeree has paid the offeror a sum of money 
 for the privilege of accepting or rejecting within a specified time — 
 the case of an option contract. Even in this case the offeror may, 
 in most cases, effectually terminate the offeree's power to accept, 
 remaining liable in damages to the offeree for having done so. 
 Not only does the offeror have the legal power to revoke, but he 
 has the legal privilege of revoking; that is, the offeror will not be 
 compelled to respond in damages to the offeree for having re- 
 voked. 
 
 Certainly, what is stated above is true with respect to bilateral 
 contracts; that is, that kind of contract where there is a promise 
 for a promise, such as a promise to convey land, given in exchange 
 for a promise to pay the price for the land. 
 
 But, should there be the same power to revoke an offer which 
 contemplates the creation of a unilateral contract? The under- 
 lying theory which enables an offeror to revoke is that one party 
 cannot, and, in justice, should not, be bound, unless the other is 
 bound, before he accepts, and therefore the offeror is not bound. 
 If he is not bound, it follows that he should be able to destroy his 
 offer. But how does this work in connection with unilateral con- 
 tracts? A. offers to pay B. $25, if B. will plow his field. Note that 
 B. is not asked to promise to plow the field. B. may accept only 
 by performance, and his acceptance is not- complete until the work 
 
Ch. 1) OFFER AND ACCEPTANCE 45 
 
 is finished. B. walks away, debating the matter in his mind. He 
 is not bound. He decides to plow the field and to that end begins 
 the work. After plowing half an hgur he decides to quit and 
 does so. May A. sue B. for breach of contract? Clearly not, 
 because B. has never promised to plow the field. Suppose the 
 situation be reversed, and that B. begins to plow the field, and 
 when B. is half finished A. approaches B. and says: "B., I re- 
 voke my offer. Get off the land." May B. sue A. for breach of con- 
 tract? It would- seem not, because at that moment B. could have 
 stopped work, and A. would have had tio right of action against him. 
 Since B. was not bound, A. was not bound, and therefore A. could 
 revoke. The injustice to B., many people would say, was apparent; 
 but still a contrary holding would probably get us into greater 
 difficulty. In this particular case, however, B. does obtain a sub- 
 stantial measure of protection. While B. cannot sue A. on A.'s 
 promise, there is another principle of law under which B. could re- 
 cover from A. the reasonable value to A. of the services rendered by 
 B. The law calls this a quasi contract. It is not a contract, and, 
 for that reason, it is called an obligation "just as if it were a con- 
 tract." 
 
 The law imposes this obligation irrespective of the intention of 
 the parties. Offer and acceptance form no part of it. But this 
 quasi contractual obligation cannot be imposed upon a person un- 
 less that person has been enriched by the acts of the plaintiff; 
 that is, obtained some pecuniary or proprietary gain. This obliga- 
 tion is not imposed because the plaintiff has sustained a detriment. 
 In the above case, A. has clearly obtained something of value, and 
 the law will compel him to pay a reasonable sum, not necessarily 
 at the contract rate, for what he has received. There will be many 
 cases of unilateral contracts where the offeree has incurred ex- 
 pense and expended considerable effort with no corresponding gain 
 to the defendant. A revocation in this case leaves the offeree 
 without any remedy. Suppose there be an offer of r.eward for the 
 apprehension of a criminal, and a detective agency begins work on 
 the case. Agents are sent to various parts of the country. Great 
 expense may be incurred. The offer is revoked. Is there any 
 remedy against the offeror? Most of the cases have held that the 
 offeror may still revoke, even though the offeree has partly per- 
 formed. It is perhaps possible to say that the offeror makes two 
 offers: (1) To pay for the performance of the specified act; and 
 (2) by implication, an offer to hold the first offer open a reason- 
 able time, which second offer is actually accepted by the offeree's 
 beginning his performance. This result would be more just to the 
 parties. The offeror would not be bound to pay for a partial per- 
 formance ; he would simply be bound not to revoke the main offer 
 after performance started. Professor Corbin suggests that this 
 result could be brought about by the adoption of the following rule : 
 "Where an offer has been made so that it can be accepted only by 
 performing a series of acts requiring an appreciable length of time 
 
46 CONTRACTS . (Part 1 
 
 and effort or expense, such offer shall be irrevocable after the offeree 
 has begun the performance of the requested acts, unless the offeror 
 expressly reserved the power of revocation." * 
 
 BUTCHERS' AI>VOCATE CO. v. BERKOF et al. 
 
 (Supreme Court of New York, Appellate Division, 1916. 94 Misc. E«p. 299, 
 
 158 N. Y. Supp. 160.) 
 
 Action by the Butchers' Advocate Company against Jacob W. Berkoi 
 and another. From a judgment for plaintiff, and an order denying 
 defendants' motion for new trial, defendants appeal. 
 
 Lehman, J. The defendants, on or about August 1, 1914, signed 
 a paper which reads as follows: 
 
 "Brooklyn, N. Y„ August 1, 1914. 
 
 "Undersigned hereby authorizes the publishers of the Butchers' Ad- 
 vocate to insert our ad. to occupy % page in Butchers' Advocate for 
 one year and thereafter until publishers have order to discontinue the 
 ad., for which we agree to pay $8.00 (eight dollars) per insertion. 
 
 "Safety Auto Trolley, 
 
 "J. W. Berkof." 
 
 The plaintiff proceeded under this authorization to publish advertise- 
 ments for the defendant. Some time in September the defendants 
 notified the plaintiff to discontinue the advertisement, but the plaintiff 
 nevertheless continued to insert same in each issue, and has recovered 
 a judgment for the sum of $416, the price named for the insertion 
 of the advertisement for one year. 
 
 This judgment is in direct conilict with the decision of this court in 
 the case of White v. Allen Kingston Co., 69 Misc. Rep. 627, 126 N. Y. 
 Supp. 150. In that case the defendant on April 6, 1909, signed a paper 
 which is essentially in the same terms and must be given the same 
 force as the paper signed by this defendant. The plaintiff in that case 
 proceeded to publish the advertisement, but was notified, on June 23, 
 1909, to discontinue the advertisement. Nevertheless the plaintiff con-- 
 tinned the publication thereafter. The court there held: 
 
 "The club never obligated itself to publish the advertisement; and 
 ih the absence of an obligation on its part, there being no other con- 
 sideration shown, the so-called contract is wanting in mutuality and 
 is not enforceable. To constitute an agreement there must be a propo- 
 sition by the one party and acceptance by the other ; and, when the 
 parties are hot together, the acceptance must be manifested by some 
 appropriate act. At most the printed order was a unilateral contract, 
 or a mere offer, which could be withdrawn by the defendant. In so 
 far as the defendant's order had been executed up to June 23, 1909, 
 the defendant was liable; but, in so far as the order was executory, 
 and unfulfilled at the time of the notification to suspend the publica- 
 tion of the advertisement, the liability of the defendant to pay for fu- 
 ture publications ceased." 
 
 If that case was correctly decided, then there can be no doubt but 
 that the trial justice erroneously awarded a judgment for insertions 
 after the time when the defendant notified the plaintiff to discontinue 
 the publication. 
 
 3 "OfEer and Acceptance, and Some of the Resulting Legal Relations " 
 Corbin, 26 Yale Law Journal, 169. 
 
Ch. 1) OFFER AND ACCEPTANCE 47 
 
 The plaintiff does not attempt to distinguish that case in any way, 
 but he relies upon the opinion of the Court of Appeals in the case of 
 Grossman v. Schenker, 206 N. Y. 466, 100 N. E. 39, which was decided 
 after the case of White v. Allen Kingston Motor Car Co., supra. The 
 Court of Appeals in that case stated : 
 
 "Even when the obligation of a unilateral promise is suspended for 
 want of mutuality at its inception, still, upon performance by the 
 promisee, a consideration arises 'which relates back to the making of 
 the promise, and it becomes obligatory.' * * * ^ contract in- 
 cludes, not only what the parties said, but also what is necessarily to be 
 implied from what they said. * * * IfV^hat is implied in an ex- 
 press contract is as much a part of it as what is expressed' * * * 
 for 'the law is a silent factor in every contract.' " 
 
 These statements in the opinion of the Court of Appeals obviously 
 do not lay down any new rule of law, but are statements of the well- 
 established rules which that court found applicable to the case before 
 them. They are not, however, applicable to the case before us. In 
 this case the defendant in the written agreement merely authorizes 
 the plaintiff to publish his advertisement for one year. The defend- 
 ant at that time did not expressly 'nor impliedly in any form agree 
 to do anything. It was evidently a mere offer or unilateral promise 
 on the part of the defendant, which could ripen into a mutual contract 
 only when the offer was accepted and the acceptance evidenced either 
 by an express promise to perform or by performance. Neither of 
 these elements exist in the present case. * * * 
 
 In this case, as well as in the case of White v. Allen Kingston Co., 
 supra, the offer was merely to pay a certain sum per insertion, which 
 was authorized for one year, and in such cases the past performance 
 implied only an acceptance of the offer to pay according to the in- 
 sertions. It follows that the plaintiff is entitled to no recovery for 
 insertions made after the defendants had notified it to cease publi- 
 cation. 
 
 Judgment should therefore be reversed. * * * 
 
 An apparent exception to the rule that an offer may be revoked 
 arises in the case of options. If (1) A. makes an offer to B., and 
 (2) offers to hold the offer open for a specified time if B. will pay 
 
 A. a specified sum, in this case offer (1) cannot be revoked, for 
 offer (2) has been accepted, thus creating a contract. If A. at- 
 tempted to revoke the first offer, A. would break his contract with 
 
 B. The next case contains a discussion of option contracts, al- 
 though, in this particular case, there was no attempt even to revoke. 
 
 IDE V. LMSER. 
 (Supreme Court of Montana, 1890. 10 Mont. 5, 24 Pac. 695, 24 Am. St. Rep. 17.) 
 
 The plaintiff pleads the following instrument in writing : "For and 
 in consideration of one dollar ($1.00) to me in hand paid, I hereby 
 agree to give Frank L. Ide the sole right and option to purchase from 
 me at any time within ten days from the date of this instrument the 
 following described property, to-wit (describing the property). I fur- 
 thermore agree to furnish a good and sufficient deed of conveyance of 
 
48 CONTRACTS (Part 1 
 
 said property, and of the whole thereof. The price of said property 
 to be one thousand dollars ($1,000). Helena, Montana, September 24, 
 1889. J. J. Leiser." "I hereby extend the above option for a period 
 of ten days from this date. Helena, Oct. 3, 1889. J. J. Leiser." The 
 complaint further sets forth that on October 11, 1889, the plaintiff 
 tendered defendant $1,000, and demanded a conveyance of the prop- 
 erty. That defendant refused to give the conveyance and still refuses. 
 That plaintiff is still willing to pay said $1,000. Plaintiff demands 
 judgment that defendant make conveyance to him of the real estate 
 described. The defendant demurred to the complaint on the ground 
 that it did not set forth f lets sufficient to constitute a cause of action. 
 Demurrer was sustained, and judgment entered for the defendant. 
 Plaintiff appeals from the judgment. The question raised by the 
 record, and discussed by counsel, is whether the instrument in writing 
 pleaded, and the tender of $1,000 by plaintiff to defendant, October 
 11, 1889, are sufficient to entitle plaintiff to a conveyance as demanded. 
 No tender of money or demand for a deed was made during the 
 10 days limited in the original instrument ; but were made during the 
 period defined in the extension indorsed on the instrument. 
 
 De Witt, J. (after stating the facts as above). For conveilienceof 
 terms we will designate the original document pleaded as the first in- 
 strument, and the option therein as the first option, and" the indorse- 
 ment extending the time as the second ' instrument and option. We 
 will not discuss the validity of the first instrument as a foundation 
 for an action for specific performance. • We will assume, for the pur- 
 pose of this decison, that it is good. The option assumed to be granted 
 therein was not exercised within the time limited, and expired October 
 4. The consideration for this option was one dollar, whether paid by 
 Ide to Leiser, or still a debt owing from Ide to Leiser, is immaterial. 
 That consideration was exhausted by the expiration of the option on 
 October 4. Ide paid his money, the one dollar, and received his goods, 
 the option. Leiser took the one dollar, and delivered a consideration 
 therefor, viz., the option. The transaction was complete, and the 
 terms performed by each party to the agreement. 
 
 We come to the second instrument and option. No consideration 
 is named therein, specifically or by reference. The consideration for 
 the first option cannot do service for the second. That consideration 
 was functus officio in the first instrument. A consideration determined 
 by the parties to be the consideration for the sale of one article on one 
 day, and so declared in writing, cannot, in the face of such declara- 
 tion, be construed by the court as a consideration for the sale of 
 another article on another day. The first ten days' option was a thing 
 of value, and paid for as such. The second was another separate valu- 
 able article. Was there any consideration for its sale ? We believe the 
 same definitions and distinctions will aid this discussion. There may 
 be (1) a sale of lands; (2) an agreement to sell lands; and (3) what 
 is popularly called an "option." The first is the actual transfer of 
 title from grantor to grantee by appropriate instrument of conveyance. 
 The second is a contract to be performed in the future, and if fulfilled 
 results in a sale. It is a preliminary to a sale, and is not the sale. 
 Breaches, rescission, or release may occur by which the contemplated 
 sale never takes place. The third, an option, originally is neither a 
 sale nor an agreement to sell. ' It is simply a contract by which the 
 oyvner of property (real estate being the species we are now discussing) 
 
Ch. 1) OFFER AND ACCEPTANCE 49 
 
 agrees with another person that he shall have the right to buy his 
 property, at a fixed price, within a time certain. He does not sell his 
 land ; he does not then agree to sell it ; but he does then sell something, 
 viz., the right or privilege to buy at the election or option of the other 
 party. The second party gets, in praesenti, not lands, or an agreement 
 that he shall have lands, but he does get something of value ; that is, 
 the right to call for and receive lands if he elects. The owner parts 
 with his right to sell his lands, except to the second party, for a limited 
 period. The second party receives this right, or rather, from his point 
 of view, he receives the right to elect to buy. That which the second 
 party receives is of value, and in times of rapid inflations of prices, 
 perhaps of great value. 
 
 A contract must be supported by a consideration, whether it be the 
 actual sale of lands, an agreement to sell lands, or the actual sale of 
 the right to demand the conveyance of lands. ' A present conveyance of 
 lands is an executed contract. An agreement to sell is an executory 
 contract. The sale of an option is an executed contract ; that is to say, 
 the lands are not sold ; the contract is not executed as to them ; but 
 the option is as completely sold and transferred in praesenti as a piece 
 of personal property instantly delivered on payment of the price. 
 Now this option, this article of value and of commerce, must have a 
 consideration to support its sale. As it is distinct from a sale of lands, 
 or an agreement to sell lands, so its consideration must be distinct; 
 although, if a sale of the lands afterwards follows the option, the 
 consideration for the option may be agreed to be applied, and often is, 
 a part payment on the price of the land. But there must be some con- 
 sideration upon which the finger may be placed, and of which it may 
 be said, "This was given by the proposed vendee to the proposed 
 vendor of the lands as the price for the option, or privilege to pur- 
 chase." 
 
 Examine the two options granted in the cases before us. L. sold I. 
 an option for ten days from September 24th for one dollar. He then 
 gives an option for another ten days from October 3d, for what? For 
 nothing. L. transfers this option, this incorporeal valuable something, 
 for nothing. The transfer of the option was nudum pactum, and 
 void. But, the point just discussed being conceded, appellant still 
 contends that this second instrument or option was a continuing offer 
 to sell, at a given price, and was accepted by respondent before re- 
 tracted, and that such acceptance, evidenced by, and accompanied with, 
 the tender of the price, and demand for a deed, constitute an agree- 
 ment to sell land, which may be enforced in equity. We leave behind 
 now our views of options, and consideration therefor, and meet a 
 wholly different proposition. 
 
 Reading the two instruments together we find that on October 3d 
 L,. extended to I. an offer to sell his lands at the price of $1,000. There 
 was no consideration for the offer, and it could have been nullified by 
 L. at any time by withdrawal. But it was accepted by I., while out- 
 standing, the price tendered, and deed demanded. It must be plain 
 from the previous discussion that we do not hold that the offer, when 
 made, or at any moment before acceptance, was a sale of lands, an 
 agreement to sell lands, or an option. But upon acceptance and ten- 
 der was not a contract completed? If one person offers to another to 
 sell his property for a named price, and while the offer is unretracted 
 iB.& B.Bits.Law-^ 
 
30 CONTRACTS (Part 1 
 
 the other accepts, tenders the money, and demands the property, that 
 is a sale. The proposition is elementary. The property belongs to 
 the vendee, and the money to the vendor. Such is precisely the situ- 
 ation of the parties herein. L,. offered to sell for $1,000, I. accepted, 
 tendered the price, and demanded the property. Every element of a 
 contract was present, parties, subject-matter, consideration, meeting 
 of the minds, and mutuality. And as to the matter of mutuality we are 
 now beyond the defective option. We have simply an offer at a 
 price, acceptance, payment or tender, and demand. That this was a 
 valid contract we cannot for a moment doubt. 
 
 In discussing a transaction of this nature, in Gordon v. Darnell, 5 
 Colo. 304, Beck, C. J., in one of his clear opinions, says: "Its legal 
 effect is that of a continuing offer to sell, which is capable of. being 
 converted into a valid contract by a tender of the purchase money, 
 or performance of its conditions, whatever they may be, within the 
 time stated, and before the seller withdraws the offer to sell." Lurton, 
 J., in Bradford v. Foster, 87 Tenn. 8, 9 S. W. 195, says:, "Before 
 acceptance, such an agreement can be regarded only as an offer in 
 writing to sell upon specified terms the lands referred to. Such an 
 offer, if based upon no consideratipn, could be withdrawn by the seller 
 at any time before acceptance. It is the acceptance while outstanding 
 which gives an option, not given upon a consideration, vitality." In 
 Railroad Co. v. Bartlett, 3 Cush. (Mass.) 227, we find the following, 
 by Fletcher, J. : "In the present case, though the writing signed by 
 the defendants was but an offer, and an offer that might be revoked, 
 yet while it remained in force and unrevoked it was a continuing offer 
 during the time limited for acceptance, and during the whole of that 
 time it was an offer every instant; but as soon as it was accepted it 
 ceased to be an offer merely, and then ripened into a contract." This 
 case readily distinguishes Bean v. Burbank, 16 Me. 458, 33 Am. Dec. 
 681, which may seem to hold a contrary doctrine. It also repudiates 
 Cooke V. Oxley, 3 Term R. 653, and claims that the English case is 
 said to be inaccurately reported, and, in any event, entirely disregard- 
 ed in the later decisions. 
 
 We cannot but conclude that the transaction in the case at bar con- 
 stituted a valid contract, upon which specific performance may be had. 
 * * * The judgment of the district court is reversed, and the cause 
 is remanded, with directions to that court to overrule the demurrer. 
 
 (2) As regards the nature of the language or the conduct of the 
 offeror, the question whether it amounts to an indication of an in- 
 tention to revoke is the same kind of question raised in determin- 
 ing whether certain words or conduct amount to an offer. Has 
 the offeror clearly manifested his desire to put an end to the out- 
 standing offer? 
 
 (3) The intention to revoke must be communicated. It would 
 not be just to permit an offeror to terminate an offer merely by 
 thinking that he had done so. But what is meant by communica- 
 tion? Would the act of mailing a letter be deemed a revocation? 
 If not, would the receipt of the letter by the offeree be deemed a 
 communication, even though the offeree lost the letter before he 
 had learned its contents? Suppose the offeree were away on a 
 
Ch. 1) OFFER AND ACCEPTANCE 51 
 
 business trip and the letter reached the office of the offeree, would 
 this be a communication? It is not altogether clear just what the 
 law actually means by requiring a communication. Certainly the 
 law cannot require that the offeree be made actually conscious of 
 the intention of the offeror to revoke. After an offeree has re- 
 ceived a letter and has it in his possession, a communication has 
 been made, even though the letter subsequently be lost or thrown 
 away before it was read. But where the letter reaches the offeree's 
 place of business, he being away, the case is not so clear. Certain- 
 \y, from a practical standpoint, an offeror who desires to revoke 
 should use every effort actually to communicate the intelligence to 
 the mind of the offeree, and thus obviate the possibility of a future 
 law suit. 
 
 SHBRWIN V. NATIONAL CASH REGISTER OO. 
 (Court of Appeals of Colorado, 1894. 5 Colo. App. 162, 38 Pac. 392.) 
 
 Action by the National Cash Register Company against John J.- 
 Sherwin for goods sold and delivered. Judgment for plaintiff, and 
 defendant appeals. 
 
 Thomson, J. This is a suit by the appellee against the appellant to 
 recover the value of a cash register alleged to have been sold and de- 
 livered by the plaintiff to the defendant, at his instance and request. 
 
 The following agreed statement was filed in the cause ; "* * * 
 That on the 8th day of January, 1890, one Walter McD. Cool visited 
 the store of defendant, in Idaho Springs, Colo., and defendant signed 
 and gave him an order for a cash register. * * * That on the 9th 
 day of January, 1890, the said defendant wrote and signed a letter 
 countermanding or withdrawing his said order, and said letter was on 
 said day sealed in an envelope having a return card printed on the out- 
 side thereof, and directed to the National Cash Register Co., Dayton, 
 Ohio, and the postage thereon duly prepaid, and then deposited in the 
 post office at Idaho Springs, Colorado, in time for the 3 :30 p. m. mail 
 of said day. * * * That on the 16th day of January, 1890, the 
 plaintiff shipped by freight to defendant a cash register of the kind, 
 make, and description mentioned in the writing referred to in para- 
 graph three thereof, and the same arrived at Idaho Springs, Colo., on or 
 before two weeks from the date of shipment, and defendant refused 
 to take or receive the same from the railroad company. * * *" 
 No further evidence was offered on either side, and the court rendered 
 judgment against the defendant, upon the agreed statement, for $175. 
 The defendant appealed. 
 
 The order given for the register was simply an offer or proposal 
 which required the acceptance of the plaintiff to constitute a contract. 
 Until such acceptance there was no meeting of minds, or mutuality, in 
 respect to the terms proposed or the subject-matter of the contract. 
 A proposal, while it remains unaccepted, is of no binding force, and is 
 completely under the control of the person who makes it. At any 
 time before acceptance, he may withdraw it, and, when so withdrawn, 
 it is a nullity; but, to render the withdrawal effective, it must be 
 brought to the knowledge of the other party before acceptance. * * * 
 We agree with counsel that the notice of the withdrawal of an offer 
 
52 CONTRACTS (Part 1 
 
 must be actual, and must be received before the offer is accejpted ; but 
 we think the admissions concerning the postinjg-^ of the defendant's let- 
 ter are at least prima facie evidence of actual notice. The letter was 
 deposited in the post office on January 9th, in time for the out-going 
 mail, and the order was given on the 8th, after the departure of the 
 mail, so that the two probably went out together, and were received 
 at the, same time. At all events, the letter was posted in time to have 
 reached the plaintiff one or two days before the date of its letter of 
 acceptance. The presumption is that the letter of withdrawal reached 
 its destination within the time usually required for the transmission of 
 letters from the defendant's to the plaintiff's post office. The pre- 
 sumption that the letter was received in due time is subject to rebuttal 
 by evidence that it was not in fact received. No attempt at rebuttal 
 was made ; and, in the absence of rebutting evidence, the presumption 
 became, for the purposes of the case, conclusive. * * * 
 
 In this case the presumption of the receipt of the letter is strength- 
 ened by the fact that it was never returned to the defendant, either 
 in obedience to the direction of the return card on the envelope, or 
 through the dead-letter office. There was ample time for its return 
 between the date of its posting and the date of the agreed statement, 
 and the presumption also is that it would have been returned if it 
 had not been delivered. Upon the admitted facts, the judgment should 
 have been for the defendant. Having been given otherwise, it must 
 be reversed. 
 
 (4) Suppose A. offers to sell land to B. and to keep the offer'open 
 ten days. Two days after the making of the offer, A. deeds the land 
 to C. D., a bystander, knowing of the prior offer to B., goes and 
 tells B. of the sale to C. Does the knowledge thus obtained by 
 B. of the sale to C. constitute a communication of the revocation of 
 A.'s offer? Does the knowledge thus obtained by B. from D. 
 amount to a communication? Could B., by manifesting his inten- 
 tion to accept, create a contract between himself and A.? The 
 courts hold that the offer is revoked, although this result is open 
 to criticism. It would be easier to support this result if the law 
 merely required notice to the offeree of the intention to revoke, 
 instead of apparently requiring communication, because the word 
 "notice" does not so clearly connote that the information should 
 be started on its way to the offeree by the offeror, as does the 
 word "communicate." 
 
 (c) RE.TECTION BY THE OFFEREE 
 
 (1) What is the nature of the subject-matter of a rejection? (2) 
 When will the intention to reject take effect? The subject-mat- 
 ter of a rejection must reveal an unequivocal intention of the offeree 
 of refusing the offer. Language or conduct which shows that he 
 does not care to enter into that kind of bargain is a rejection. 
 But this does not mean that any further discussion between offeror 
 and offeree concerning the proposed transaction will operate as a 
 rejection. However, an offeree should realize strongly that a mani- 
 
Ch. 1) OFFER AND ACCEPTANCE 53 
 
 festation of a present unwillingness to close the deal coupled with 
 any discussion looking to a modification of the terms of the offer 
 is very likely to be regarded as a rejection. If an offer has been 
 made, and the offeree is really interested, and if he fears that it is 
 likely to be withdrawn at any instant, further discussion stimulated 
 by him probably will be a rejection. As a matter of practical busi- 
 ness, when a proposed transaction is being discussed, the probabili- 
 ties are that there are numerous offers, numerous rejections, and 
 counter offers. It is very difficult to ascertain, out of a lengthy 
 period of negotiation, which of the parties made the final offer, if 
 one was made, because many of them have been rejected during the 
 course of the discussion. A counter proposal is a rejection; so, 
 also, is an attempted acceptance, varying from the terms of the 
 offer. 
 
 When does an intention manifested by the offeree take effect? 
 When the evidence of the intention to reject is sent by mail, is 
 the offer rejected at the time when the letter is deposited in the 
 mails, or at the time when the letter is received? This is a diffi- 
 cult question, and it is not certain what the law is. If the letter of 
 rejection is like an acceptance, the intention to reject would take 
 effect when the letter was mailed. On the contrary, if it is like a 
 revocation .from the offeror, then the letter must be received by 
 the offeror before the offer is rejected. The case could arise in 
 the following way : If the offeree deposits in the mails a letter of 
 rejection at 10 o'clock in the morning, and at 11 o'clock telegraphs 
 an acceptance, is there a contract? There would be, if the rejection 
 did not become operative, as such, until received. In this case, 
 justice would seem to call for the holding that there was a con- 
 tract, for the contrary result would enable the offeree to go back on 
 his bargain, under circumstances where the offeror, who, having 
 actually received the acceptance before he learned of the rejection, 
 would feel justified in assuming that there was a contract. 
 
 MINNEAPOLIS & ST. L. RY. v. COLUMBUS ROLLING MILL. 
 
 (Supreme Court of the United States. 1886. 119 U. S. 149, 7 Sup. Ct. 1C8, 
 
 30 L. Ed. 376.) 
 
 This was an action by a railroad corporation established at Minneap- 
 olis in the state of Minnesota against a manufacturing corporation es- 
 tablished at Columbus in the state of Ohio. The petition alleged that 
 on December 19, 1879, the parties made a contract by which the plain- 
 tiff agreed to buy of the defendant and the defendant sold to the 
 plaintiff, two thousand tons of iron rails of the weight of fifty pounds 
 per yard, at the price of fifty-four dollars per ton gross, to be deliv- 
 ered free on board cars at the defendant's rolling mill in the month of 
 March, 1880, and to be paid for by the plaintiiT in cash when so de- 
 livered. The answer denied the making of the contract. It was ad- 
 mitted at the trial that the following letters and telegrams were sent 
 at their dates, and were received in due course, by the parties, through 
 their agents: 
 
54 CONTRACTS (Part 1' 
 
 December 5, 1879. Letter from plaintiff to defendant: "Please 
 quote me prices for 500 to 3000 tons 50 lb. steel rails, and for 2000 
 to 5000 tons 50 lb. iron rails, March 1880 delivery." 
 ' December 8, 1879. lyCtter from defendant to plaintiff : "Your favor 
 of the Sth inst. at hand. We do not make steel rails. For iron rails, 
 we will sell 2000 to 5000 tons of 50 lb. rails 'for fifty-four ($54.00) 
 dollars per gross ton for spot cash, f. o. b. cars at our mill, March 
 delivery. If our offer is accepted, shall expect to be notified of same 
 prior to Dec. 20th, 1879." 
 
 December 16, 1879. Telegram from plaintiff to defendant : "Please 
 enter our order for twelve hundred tons rails, March delivery, as per 
 your favor of the eighth. Please reply." 
 
 December 16, 1879. Letter from plaintiff to defendant: "Yours 
 of the 8th came duly to hand. I telegraphed you today to enter our 
 order for twelve hundred ( 1200) tons 50 lb. iron rails for next March 
 delivery, at fifty-four dollars ($54.00) f. o. b. cars at your mill. 
 Please sertd contract. * * *" 
 
 December 18, 1879. Telegram from defendant to plaintiff, received 
 same day : "We cannot book your order at present at that price." 
 
 December 19, 1879. Telegram from plaintiff to defendant: "Please 
 enter an order for two thousand tons rails, as per your letter of the 
 eighth. Please forward written contract. Reply." 
 
 December 22, 1879. Telegram from plaintiff to defendant: "Did 
 you enter my order for two thousand tons rails, as per itiy telegram 
 of December nineteenth? Answer." 
 
 After repeated similar inquiries by the plaintiff, the defendant, on 
 January 19, 1880, denied the existence of any contract between the 
 parties. 
 
 The jury returned a verdict for the defendant, under instructions 
 which need not be particularly stated ; and the plaintiff alleged excep- 
 tions, and sued out this writ of error. 
 
 Gray, J. The rules of law which govern this case are well settled. 
 As no contract is complete without the mutual assent of the parties, 
 an offer to sell imposes no obligation until it is accepted according to 
 its terms. So long as the offer has been neither accepted nor rejected, 
 the negotiation remains open, and irnposes no obligation upon either 
 party; the one may decline to accept, or the other may withdraw his 
 offer; and either rejection or withdrawal leaves the matter as if no 
 offer had ever been made. A proposal to accept, or an acceptance, 
 upon terms varying from those offered, is a rejection of the oft'er^ and 
 puts an end to the negotiation, unless the party who made the original 
 offer renews it, or assents to the modification suggested. The other 
 party, having once rejected the offer, cannot afterwards revive it by 
 tendering an acceptance of it. * * * If the offer does not limit 
 the time for its acceptance, it must be accepted within a reasonable 
 time. If it does, it may, at any time within the limit and so long as it 
 remains open, be accepted or rejected by the party to whom, or be with- 
 drawn by the party by whom, it was. made. * * * 
 
 The defendant, by the letter of December 8, offered to sell to the 
 plaintiff two thousand to five thousand tons of iron rails on certain 
 terms specified, and added that if the offer was accepted the defendant 
 would expect to be notified prior to December 20. This offer, while 
 it remained open, without having been rejected by the plaintiff or re- 
 voked by the defendant, would authorize the plaintiff to take at his 
 
Ch. 1) OFFER AND ACCEPTANCE 55 
 
 election any number of tons not less than two thousand nor more than 
 five thousand, on the terms specified. The offer, while unrevoked, 
 might be accepted or rejected by the plaintiff at any time before De- 
 cember 20. Instead of accepting the offer made, the plaintiff, on De- 
 cember 16, by telegram and letter, referring to the defendant's letter . 
 of December 8, directed the defendant to enter an order for twelve hun- 
 dred tons on the same terms. The mention in both telegram and let- 
 ter, of the date and the terms of the defendant's original order, shows 
 that the plaintift''s order was not an independent proposal, but an an- 
 swer to the defendant's offer, a qualified acceptance of that offer, vary- 
 ing the number of tons, and therefore in law a rejection of the offer. 
 On December 18, the defendant by telegram declined to fulfill the plain- 
 tiff's order. The negotiation between the parties was thus closed, and 
 the plaintiff could not afterwards fall back on the defendant's original 
 offer. The plaintiff's attempt to do so, by the telegram of December 
 19, was therefore ineffectual and created no rights against the de- 
 fendant. * * * 
 Judgment affirmed. 
 
 SECTION 4.— ACCEPTANCE— TIME OF TAKING EFFECT 
 
 LUCAS V. WESTESIN U^'IO'N TELEGRAPH CO. 
 
 (Supreme Court of Iowa, 1906. 131 Iowa, 669, 109 N. W. 191, 
 6 L. R. A. [N. S.] 1016.) 
 
 Action for damages occasioned by delay in transmitting a telegram. 
 Plaintiff sought to recover profits he would have made in an exchange 
 of real estate but for the negligence of the defendant in failing prompt- 
 ly to transmit a telegram. The telegram in question was an attempted 
 acceptance of an offer by mail to make a certain trade in real estate, 
 the offeror saying, "I will have to know at once." The telegram was 
 handed to the telegraph company on the morning following the evening 
 of the receipt of the offer by mail, and, through the negligence of the 
 company's servants, was not delivered to the offeror until about six 
 p. m. of that day. The defendant company asserted that there was no 
 loss to the, plaintiff, because plaintiff's acceptance reached the offeror 
 in time to complete the contract, and because, further, contract was 
 complete upon the delivery of the message of acceptance to the tele- 
 graph company. Judgment below for plaintiff. 
 
 IyADD, J. * * * Having sent the proposition by mail he impliedly 
 authorized its acceptance through the same agency. Such implication 
 arises (1) when the post is used to make the offer and no 'other mode 
 is suggested, and' (2) when the circumstances are such that it must 
 have been within the contemplation of the parties that the post would 
 be used in making the answer. * * * 'jj^g contract is complete in 
 such a case when the letter containing the acceptance is properly ad- 
 dressed and deposited in the United States mails. * * * f jjjg jg 
 on the ground that the offeror, by depositing his letter in the post of- 
 fice, selects a common agency through which to conduct the negotia- 
 tions, and the delivery of the letter to it is in effect a delivery to the of- 
 feror. Thereafter the acceptor has no right to the letter and cannot 
 withdraw it from the mails. Even if he should succeed in doing so the 
 
56 CONTRACTS (Part 1 
 
 withdrawal will not invalidate the contract previously entered into. But 
 plaintiff did not adopt this course. On the contrary he chose to indi- 
 cate his acceptance by transmitting a telegram to Sas by the defendant 
 company. Sas had done nothing to indicate his willingness to adopt 
 such agency and the defendant in undertaking to transmit the message 
 was acting solely as the agent of plaintiff. The latter might have with- 
 drawn the message or stopped its delivery at any time before it actually 
 reached Sas. It is manifest that handing the message to his own 
 agent was not notice to the sendee of the telegram. The most formal 
 declaration of an intention of acceptance of an offer to a third person 
 will not constitute a contract. A written letter or telegram, like an 
 oral acceptance, must be communicated to the party who has made 
 the offer or to some one expressly or impliedly authorized to receive 
 it, and this rule is not complied with by delivering it to the writer's 
 own agent or messenger even with direction to deliver to the of- 
 feror. * * * 
 
 The. plaintiff then did not accept the offer of Sas until the tele- 
 gram was received by the latter, a few minutes after 6 o'clock p. m. 
 of the day after the letter had been received and the question arises 
 whether this was "at once" within the meaning of the offer which stated 
 that another deal was pending. L,ike "forthwith" and "immediately," 
 "at once" does not mean instantaneously but requires action to be taken 
 within a reasonable time. In view of the particular circumstances of 
 the case, or, as said in Warder, Bushnell & Glessner Co. v. Home, 110 
 Iowa, 285, 81 N. W. 591, it is synonymous with the words mentioned 
 and "as soon as possible," and is "usually construed to mean within 
 such reasonable time as shall be required under all the circumstances 
 for doing the particular thing." It is doubtful whether the same vigi- 
 lance should be exacted in the acceptance of an offer to exchange or 
 purchase real estate as in transactions relating to the transfer of chat- 
 tel property. * * * The circumstances of each case necessarily have 
 an important bearing. There was no evidence of the time a letter, if 
 promptly mailed, might have reached Sas. He has indicated in his let- 
 ter that he was contemplating another deal, and we think ordinary 
 minds fairly differ as to whether, in these circumstances, an accept- 
 ance 23 or 24 hours after the letter had been received was in time to 
 bind the party making the offer, and the issue was for the jury to de- 
 termine. * * * 
 
 Reversed. 
 
 FARMERS' PRODUCE CO. v. McALBSTER STORAGE & COMMISSION CO. 
 
 (Supreme Court of Oklahoma, 1915. 48 Okl. 488, 150 Pac. 483, 
 L. R. A. 1916A, 1297.) 
 
 RoBEERTS, C. *_ * * The law respecting the making of contracts 
 by correspondence is that the contract is completed when the proposal 
 made by one side is communicated by letter or telegram, and the other 
 party wires his acceptance, or deposits in the post office his letter of 
 acceptance. The moment the telegram is delivered, or th6 letter mailed 
 in the post office, and not until then, is the contract completed and the 
 parties concluded and bound. 
 
 But plaintiff in error contends that the letter of acceptance, and in- 
 structions to ship, was not binding upon it, nor did it close the contract, 
 for the reason that it was not sent by the same carrier or agent through 
 
Ch. 1) OFFER AND ACCEPTANCE 57 
 
 which the other correspondence had been conveyed. In Support of 
 that contention, counsel call our attention to the case of Lucas v. West- 
 ern U. Tel. Co., 131 Iowa, 669, 109 N. W. 191, 6 L. R. A. (N. S.) 
 1016. On examination of that case, we must admit that it seems to 
 uphold the doctrine contended for by counsel ; but, on examination of 
 other authorities on the subject, it appears to us that the case cited 
 stands practically alone. After a careful consideration of the few 
 authorities we have been able to find on the subject, we are of the 
 opinion that the reasonable and best rule should be, where there is no 
 direction as to the mode of communicating the acceptance it may be 
 accomplished through the post office, unless it can be fairly and rea- 
 sonably inferred from the offer, or other prior communications, that 
 some other means is expected, and that would be a question of fact 
 to be determined by the jury or the trial court. 
 
 As stated by L^rd Herschell, in Henthorn v. Fraser, [1892] 2 Chan. 
 27 : "Where the circumstances are such that it must have been within 
 the contemplation of the parties that, according to the ordinary usages 
 of mankind, the post might be used as a means of communicating the 
 acceptance of an offer, the acceptance is complete as soon as it is 
 posted." 
 
 And as stated by Justice Kay in the same case, supra : "Posting an 
 acceptance of an offer may be sufficient, where it can be fairly inferred 
 from the circumstances of the case that the acceptance might be sent 
 by post." 
 
 In the instant case one party lived and was doing business in Okla- 
 homa, the other in the state of Wisconsin. The only matter to be 
 considered was a question of time to fill contract, when no time was 
 specified in the offer. We are of opinion that both parties contem- 
 plated that the letter sent by post was a means by which an acceptance 
 might be communicated, and that was a fact upon which the trial court 
 passed and should not be disturbed by this court. * * * 
 
 MACLAY V. HARVEY. 
 (Supreme Court of Illinois, 1876. 90 111. 525, 32 Am. Rep. 35.) 
 
 ScHOLFiELD, J. Appellant brought assumpsit against appellee, in 
 the court below, on an alleged contract whereby the latter employed 
 the former to take charge of the millinery department of his store in 
 Monmouth, in this State, for the season commencing in April and end- 
 ing in July, in the year 1876, and to pay her therefor $15 per week. 
 
 The judgment was in favor of appellee, and appellant now assigns 
 numerous errors as grounds for its reversal. 
 
 In our opinion, the case may be properly disposed of by the consid- 
 eration of a single question. Appellant's right of recovery is based 
 entirely upon an alleged special contract, and unless there was such a 
 contract, the judgment below is right, however erroneous may have 
 been the rulings under which it was obtained. * * * 
 
 [After some preliminary correspondence] appellee wrote appellant : 
 
 "Monmouth, 111., March 21, 1876. 
 
 "Miss L,. Maclay, Peoria, 111. ; * * * i ^iU give you $15 per week, 
 and pay your fare from Chicago to Monmouth, and pay you the above 
 wages for your actual time here in the house at that rate per season. 
 * * * You will confer a favor by giving me your answer by return 
 mail. Yours, John Harvey." 
 
58 CONTRACTS (Part 1 
 
 Appellant says she received this in the afternoon, and repHed the 
 next day by postal card, addressed to appellee at Monmouth, as fol- 
 lows : 
 
 "Peoria, March 23. 
 
 "Mr. Harvey: Yours was promptly received, and I will go up to- 
 Chicago next week, and when my services are required you will let me 
 know. 
 
 "Very respectfully, L. Maclay." 
 
 Appellant did not place this in the post office herself, but she says 
 she gave it to a boy who did errands about the house of her sister, 
 with whom she was then staying, directing him to place it in the office. 
 
 The postmark on the card, which is shown to be always placed on 
 mail matter the same day it is put in the office, shows that the card 
 was not mailed until the 2Sth of March. * * * 
 
 If a contract was consummated between the parties, it was by the 
 mailing of appellant's postal card on the 25th of March. * * * It is 
 clear here that the nature of the business demanded a prompt answer, 
 and the words, "You will confer a favor by giving me your answer 
 by return mail," do in effect stipulate for an answer by return 
 mail. * * * 
 
 The evidence shows that there were two daily mails between Peoria 
 and Monmouth, * * * ^nd it did not require more than one day's 
 time between the points. Appellee's letter to appellant bears date 
 March 21st. * * * gj^g received appellee's letter on the evening of 
 the 22d. Appellee was, therefore, entitled to expect a reply mailed on 
 the 23d, which he ought to have received on that day, or at the farthest, 
 on the morning of the 24th, but appellant's reply was not mailed until 
 the 2Sth. It does not relieve appellant of fault that she gave the postal 
 card to a boy on the 23d to have him mail it. * * * The boy was her 
 agent, i^ot that of appellee, and his negligence * * * was her neg- 
 ligence. 
 
 Judgment affirmed. 
 
 LEWIS V. BKOWNING. 
 (Supreme Judicial Court of Massachusetts, 1881. 130 Mass. 173.) 
 
 Gray, C. J. In M'Culloch v. Eagle Ins. Co., 1 Pick. 278, this court 
 held that a contract made by -mutual letters was not complete until 
 the letter accepting the offer had been received by the person making 
 the offer ; and the correctness of that decision is maintained, upon an 
 able and elaborate discussion of reasons and authorities, in L,angdell 
 on Contracts (2d Ed.) 989-996. In England, New York and New 
 Jersey, and in the Supreme Court of the United States, the opposite 
 view has prevailed, and the contract has been deemed to be completed 
 as soon as the letter of acceptance has been put into the post office 
 duly addressed. * * * 
 
 But this case does not require a consideration of the general ques- 
 tion; for, in any view, the person making the offer may always, if 
 he chooses, make the formation of the contract which he proposes 
 dependent upon the actual communication to himself of the accept- 
 ance. * * * And in the case at bar, the letter written in the plaintiff's 
 behalf by her husband as her agent on July 8, 1878, in California, and 
 addressed to the defendant at Boston, appears to us clearly to mani- 
 fest such an intention. After proposing the terms of an agreement 
 
Ch. 1) OFFER AND ACCEPTANCE 59 
 
 for a new lease, he says : "If you agree to this plan, and will telegraph 
 me on receipt of this, I will forward power of attorney to Mr. Ware," 
 the plaintiff's attorney in Boston. "Telegraph me 'yes' or 'no.' If 
 'no,' I will go on at once to Boston with my wife, and between us we 
 will try to recover our lost ground. If I do not hear from you by the 
 18th or 20th, I shall conclude 'no.' " Taking the whole letter together, 
 the offer is made dependent upon an actual communication to the plain- 
 tiff of the defendant's acceptance on or before the 20th of July, and 
 does not discharge the old lease, nor bind the plaintiff to execute a 
 new one, unless the acceptance reaches California within that time. 
 Assuming, therefore, that the defendant's delivery of a dispatch at the 
 telegraph office had the same effect as the mailing of a letter, he has 
 no ground of exception to the ruling at the trial. 
 Exceptions overruled. 
 
 FIRST NAT. BANK v. WATKINS. 
 (Supreme Judicial Ckjurt of Massachusetts, 1891. 154 Mass. 385, 28 N. E. 275.) 
 
 Action by the First National Bank against Eugene C. Watkins on 
 a promissory note. Direction of verdict for plaintiff. Defendant ex- 
 cepts. 
 
 The report was as follows : "This is an action of contract. At the 
 trial the plaintiff proved the execution of the note, and the indorse- 
 ments thereon, and rested. Thereupon the defendant offered to prove 
 that the note was made to one H. M. Benedict by the defendant, and 
 at the same time a mortgage of personal property was given to secure 
 the note. The note was made payable at the plaintiff bank. Benedict 
 indorsed the note in the bank, and made over his interest in the mort- 
 gage to the plaintiff, and thereupon both became the property of the 
 plaintiff. The defendant afterwards sold his equity in the mortgaged 
 property to a third party, and the plaintiff then agreed with him that 
 it would look to the mortgage property alone for payment of the note. 
 The plaintiff afterwards extended the time for thfe payment of the 
 note, as appears on the back of the same, without the knowledge or re- 
 quest of the defendant. On the 4th day of April, 1890, the sum of 
 ■$178.15 was paid, and indorsed upon the note. The defendant did 
 not pay this sum of money, but claimed it was the amount realized 
 from a foreclosure and sale of the mortgaged property, which had 
 greatly depreciated in value since the maturity of the note, and which 
 at the time of such maturity was of more than sufficient value to pay 
 the note. Thereupon, at the request of plaintiff's counsel, the court 
 ruled that if the defendant proved what was stated in his opening it 
 would not amovint to a defense to the plaintiff's claim, and ordered a 
 verdict for the plaintiff for the full amount, and the case is now re- 
 ported. If said ruling was right the verdict is to stand; otherwise 
 to be set aside, and a new trial ordered." 
 
 Knowlton, j_ * * * The contention chiefly relied on by the 
 plaintiff is that such an agreement is not available in defense to a suit on 
 the note, although if broken it would furnish a good foundation for 
 an action for damages. We do not assent to this proposition. An 
 agreement "to look to the mortgaged property alone for the payment 
 of the note" would be, in effect, an agreement to discharge the defend- 
 ant from all liability upon it, which, if made upon a valuable considera- 
 tion, would be a good defense to a suit for payment of it. Although 
 
60 coNTKACTS (Part 1 
 
 a new and independent contract, it would.be unreasonable to permit 
 a plaintiff, who had made such an agreement to collect his note of the 
 rnaker, and to compel the maker to seek his remedy by a suit to recover 
 back from the payee as damages the sum which was paid. The tend- 
 ency of the modern cases is to allow such an agreement to be shown 
 in defense, to avoid circuity of action. * * * jf there was an agree- 
 ment purporting to be made in reference to the defendant's sale of 
 the equity of redemption in the mortgaged property in the form of an 
 offer that the defendant might, if he chose, refrain from paying the 
 note, and from taking measures to secure payment of it out of the 
 proceeds of the mortgaged property, and that the plaintiff would look 
 to the properly alone for the payment of it ; and the defendant, relying 
 upon the offer, did refrain from making an effort to have the property 
 applied to the payment of the note when it became due, and thereby 
 suffered detriment— there would be a sufficient consideration for the 
 agreement. It would be an ordinary case of a unilateral contract, 
 growing out of an offer of one party to do something if the other will 
 do or refrain from doing something else. If the party to whom such 
 an offer is maHe acts upon it in the manner contemplated, to his own 
 disadvantage, such action makes the contract complete, and notice of 
 the acceptance of the offer before the action is unnecessary. * * * 
 The entry should be, verdict set aside. 
 
 BISHOP V. BATON. 
 
 (Supreme Judicial Court of Slassachusetts, 1894. 161 Mass. 496, 37 N. E. 66a, 
 
 42 Am. St. Rep. 437.) 
 
 Knowlton, J. The first question in this case is whether the con- 
 tract proved by the plaintiff is an original and independent contract or 
 a guaranty. The judge found that the plaintiff signed the note relying 
 upon the letter, "and looked to the defendant, solely, for reimburse- 
 ment, if called upon to pay the note." The promise contained in the 
 letter was in these words : "If Harry needs more money, let him have 
 it, or assist him to get it, and I will see that it is paid." On a reason- 
 able interpretation of liiis promise, the plaintiff was authorized to 
 adopt the first alternative, and to let Harry have the money in such a 
 way that a liability of Harry to him would be created, and to look to 
 the defendant for payment if Harry failed to pay the debt at maturity ; 
 or he might adopt the second alternative, and assist him to get money 
 from some one else in such a way as to create a debt from Harry to 
 the person furnishing the money, and, if Harry failed to pay, to look 
 to the defendant to relieve him from the liability. The- words fairly 
 imply that Harry was to be primarily liable for the debt, either to the 
 plaintiff or such other person as should furnish the money, and that 
 the defendant was to guaranty the payment of it. We are therefore 
 of opinion that, if the plaintiff relied solely upon the defendant, he 
 was authorized by the letter to rely upon him only as a guarantor. 
 
 The defendant requested many rulings in regard to the law appli- 
 cable to contracts of guaranty, most of which it becomes necessary to 
 consider. The language relied on was an offer to guaranty which the 
 plaintiff might or might not accept. Without acceptance of it, there 
 was no contract, because the offer was conditional, and there was no 
 consideration for the promise. But this was not a proposition which 
 
Ch. 1) OFFER AND ACCEPTANCE 61 
 
 was to become a contract only upon the giving of a promise for the 
 promise, and it was not necessary that the plaintiff, should accept it in 
 words, or promise to do. anything before acting upon it. It was an 
 offer which was to become effective as a contract upon the doing of 
 the act referred to. It was an offer to be bound in consideration of an 
 att to be done, and in such a case the doing of the act constitutes the 
 acceptance of the offer, and furnishes the consideration. Ordinarily, 
 there is no occasion to notify the offerer of the acceptance of such an 
 offer, for the doing of the act is a sufficient acceptance, and the prom- 
 isor knows that he is bound when he sees that action has been taken 
 on the faith of his offer. But, if the act is of such a kind that knowl- 
 edge of it will not quickly come to the promisor, the promisee is bound 
 to give him notice of his acceptatice within a reasonable time after 
 doing that which constitutes the acceptance. In such a case it is im- 
 plied in the offer that, to complete the contract, notice shall be given 
 with due diligence, so that the promisor may know that a contract has 
 been made. But where the promise is in consideration of an act to be 
 done, it becomes binding upon the doing of the act so far that the 
 promisee cannot be affected by a subsequent withdrawal of it, if, within 
 a reasonable time afterwards, he notifies the promisor. 
 
 In accordance with these principles, it has been held, in cases like 
 the present, where the guarantor would not know of himself from the 
 nature of the transaction whether the offer has been accepted or not, 
 that he is not bound without notice of the acceptance, seasonably giv- 
 en after the performance which constitutes the consideration. * * * 
 In the present case the plaintiff seasonably mailed a letter to the de- 
 fendant, informing him of what he had done, in compliance with the 
 defendant's request, but the defendant testified that he never received 
 it, and there is no finding that it ever reached him. The judge ruled 
 as a matter of law that, upon the facts found, the plaintiff was en- 
 titled to recover, and the question is thus presented whether the de- 
 fendant was bound by the acceptance when the letter was properly 
 mailed, although he never received it. When an offer of guaranty of 
 this kind is made, the implication is that notice of the act which con- 
 stitutes an acceptance of it shall be given in a reasonable way. What 
 kind of a notice is required depends upon the nature of the transaction, 
 the situation of the parties, and the inferences fairly to be drawn from 
 their previous dealings, if any, in regard to the matter. If they are 
 so situated that communication by letter is naturally to be expected, 
 then the deposit of a letter in the mail is all that is necessary. If that 
 is done which is fairly to be contemplated from their relations to the 
 subject-matter, and from their course of dealing, the rights of the par- 
 ties are fixed, and a failure actually to receive the notice will not affect 
 the obligation of the guarantor. 
 
 The plaintiff in the case now before us resided in Illinois, and the 
 defendant in Nova Scotia. The offer was made by letter, and the de- 
 fendant must have contemplated that information in regard to the 
 plaintiff's acceptance or rejection of it would be by letter. It would 
 be a harsh rule which would subject the plaintiff to the risk of the de- 
 fendant's failure to receive the letter giving notice of his action on the 
 faith of the offer. We are of opinion that the plaintiff, after assisting 
 Harry to get the jnoney, did all that he was required to do when he 
 seasonably sent the defendant the letter by mail, informing him of 
 What had been done. How far such considerations are applicable to 
 
'•62 CONTRACTS (Part 1 
 
 the case of an ordinary contract made by letter, about which some 
 of the early decisions are conflicting, we need not now consider. The 
 plaintiff was not called upon under his contract to attempt to collect 
 the money from the maker of the note,., and it is no defense that he 
 did not promptly notify the defendant of the maker's default, at least 
 in the absence of evidence that the defendant was injured by the de- 
 lay. * * * 
 
 \Ve^ find one error in the rulings which requires us to grant a new 
 trial. It appears from the bill of exceptions that, when the note be- 
 came due, the time for the payment of it was extended without the 
 consent of the defendant. The defendant is thereby discharged from 
 his liability, unless he subsequently assented to the extension and rati- 
 fied it. * * * The court should therefore have ruled substantially 
 in accordance with the defendant's eighth request, instead of finding 
 for the plaintiff as a matter of law on the facts reported. * * * 
 
 Exceptions sustained. 
 
 SECTION 5.— NATURE OF ACTS OR LANGUAGE ESSEN- 
 TIAL TO CONSTITUTE AN ACCEPTANCE 
 
 ELKINS V. BOARD OF COM'ES OF WYANDOTTE COUNTY 
 (ZIMMER, Intervener). 
 
 (Supreme Court of Kansas, 1914. 91 Kan. 518, 138 Pac. 578, 51 L. R. A. 
 [N. S.] 638, Ann. Cas. 1915D, 257.) 
 
 Action by J. W. Elkins against the Board of Commissioners of 
 Wyandotte County, in which Henry T. Zimmer intervenes. From 
 judgment for Zimmer, plaintiff appeals. 
 
 Mason, J. The board of county commissioners of Wyandotte county 
 offered a reward for the "arrest and conviction" of the person who 
 had committed a murder. J. W. Elkins brought action against the 
 county for the amount, asserting that he had met the conditions. H. T. 
 Zimmer set up a conflicting claim, which he sought to enforce by in- 
 terpleading. The county admitted its liability to one or the other of 
 the claimants. Upon a trial the court sustained a demurrer' to the evi- 
 dence of Elkins and rendered judgment for Zimmer, which was re- 
 versed on appeal. * * * Upon a new trial judgment was again 
 rendered in favor of Zimmer, and Elkins again appeals. 
 
 There was evidence tending to establish these facts : Elkins, learn- 
 ing of the offer of the reward, began an investigation of the case. By 
 talking with one James McMahon he induced him to produce and turn 
 ■over some articles, including a gun, which were hidden in a cornfield. 
 He told the sheriff of this, stating that McMahon was the guilty per- 
 son. The sheriff directed the underslieriff and Zimmer to send and 
 get him. McMahon was arrested, and on being confronted with the 
 articles found in the field, confessed. Elkins was at the time a "spe- 
 cial and non-pay" deputy sheriff. The description of Elkins as a 
 "special and non-pay" deputy seems fairly to imply that, while he held 
 a commission as a deputy sheriff, his activities in that connection were 
 limited to serving such papers as might be delivered to him, or per- 
 forming such other acts as might be specifically directed. Clearly he 
 was under no obligation to devote time to the investigation of criminal 
 
Ch. 1) OFFER AND ACCEPTANCE 63 
 
 offenses. This was evidently the view of the trial court, for the mere 
 fact of Elkins' official character was not held to prevent his recovering 
 the reward. 
 
 A reversal is asked because of an instruction to the effect that it 
 was the duty of any one seeking to earn the reward to do all he legally 
 had a right to do towards the arrest of the murderer ; that, if Elkins 
 was a deputy sheriff, he had a legal right to arrest McMahon upon dis- 
 covering him to be the murderer; and that if, having the right and 
 the opportunity to make such arrest, he voluntarily chose not to do so, 
 and Zimmer, acting for his own benefit and for himself, arrested Mc- 
 Mahon, then Zimmer was entitled to the reward. Public policy for- 
 bids an officer to claim a reward for merely doing his duty, but that 
 is the extent to which his official character affects the matter. * * * 
 If Elkins is entitled to the reward, it is because of voluntary investiga- 
 tions, not required by his office, which resulted in discoveries leading 
 to the arrest and conviction of McMahon. His official character can 
 hardly enter into the matter, because as a private citizen he had author- 
 ity to make the arrest. * * * If in order to gain the reward he was 
 required to do all he legally could toward the arrest, his omission to 
 make the arrest would be equally fatal to his recovery, whether he was 
 an officer or a private citizen. 
 
 In some circumstances the person actually making an arrest might 
 obviously be entitled to the reward — for instance, where a known and 
 unconcealed murderer was at large, and the difficulty in enforcing the 
 law lay in taking him into custody. The present case does not appear 
 to be one to which that rule applies. The jury may have found that 
 the only real difficulty in the affair was to ascertain by whom the mur- 
 der was committed and by what evidence this could be proved, that 
 Elkins by his own efforts discovered the facts that made it known that 
 McMahon was the murderer, that he reported these facts to the sher- 
 iff, and that as the natural result of this report the arrest was made 
 by Zimmer. Such findings in the opinion of this court would require 
 a verdict for Elkins. But under the instruction complained of such a 
 verdict was forbidden if the jury also found that Elkins could have 
 himself arrested McMahon, but omitted to do so. We think the in- 
 struction put too much stress upon the question as to who made the 
 arrest, and unduly limited the effect of another instruction, in the 
 following words, which correctly stated the principle by which the 
 matter in dispute should be determined: "A literal compliance with 
 the terms of the reward is not required, neither need there be an actual 
 physical arrest by a claimant; but if you find from a preponderance 
 of the evidence that one of the said parties, plaintiff or intervener, 
 acting with a knowledge that said reward had been offered and with 
 a view to obtain it, performed substantially the terms of said offer of 
 reward, and discovered evidence and performed services which were 
 the primary, proximate, procuring, and predominant cause of the ar- 
 rest and conviction of one James McMahon for the crime in question, 
 you will find for that party." * * * 
 
 The judgment is reversed, and a new trial ordered. All the Justices 
 concurring. 
 
64 CONTRACTS (Part 1 
 
 ETHEREDGE v. BARKLET. 
 (Supreme Court of Florida, 1889. 25 Fla. 814, 6 South. 861.) 
 
 Mitchell, J. The appellant, complainant below, foreclosed a mort- 
 gage in the circuit court of Jackson county against the appellee (de- 
 fendant below). Decree was rendered November 26, 1883, for $267.30. 
 Subsequently the following agreement was entered into : 
 
 "January 29, 1886. 
 
 "In consideration of an extension granted me until March 1, 1886, 
 I do hereby agree that a certain decree of foreclosure obtained against 
 me in the circuit court of Jackson county, Florida, by James B. Slade 
 and Charles A. Etheredge, copartners under the firm name and style 
 of Slade & Etheredge, bear interest at the rate of twelve per cent, 
 per annum, instead of the legal rate, and I promise hereby, for the 
 consideration aforesaid, to pay said rate of interest on said decree from 
 date of same. It is understood that if I fail to make payment of 
 said decree by March 1, 1886, but shall instead give Slade & Etheredge 
 such further security as they have before this proposed by letter to 
 Liddon & Carter, my attorneys, then payment of said decree is not 
 to be enforced before (Dctober 1, 1886. B. B. Barkley. 
 
 "Witness: Benj. S. Liddon." 
 
 The defendant failed to make payment by the first of March, 1886, 
 and the plaintiff commenced suit upon the said agreement. * * =i' 
 
 The gravamen of the case is whether the defendant, . Barkley, was, 
 under the circumstances, liable to the plaintiff upon the agreement 
 to pay him the increased rate of interest therein provided for. 
 
 Judge Story (1 Story, Cont. § 490) says : "In order to create a con- 
 tract, it is essential that there should be a reciprocal assent to a cer- 
 tain and definite proposition. So long as any essential matters are 
 left open for further consideration, the contract is not complete; and 
 the minds of the parties must assent to the same thing, in the same 
 sense. A mere offer not assented to constitutes no contract, for there 
 must be not only a proposal, but an acceptance thereof. So long as a 
 proposal is not acceded to, it is binding upon neither party, and may 
 be retracted." \ 
 
 The intention of the defendant in signing the agreement is patent. 
 It was for the purpose of procuring an extension of time in which to 
 settle his indebtedness to Slade & Etheredge; but what can be gath- 
 ered from the alleged agreement as to the intention of Slade & Ether- 
 edge? They did not sign the agreement, nor did they, by any act of 
 theirs, show that they intended to assent to the terms of it. On the 
 contrary, they plainly indicated that they did not feel bound thereby, 
 and that they would not be controlled by the terms thereof. 
 
 Frank Philips was appointed master by the court to sell the mort- 
 gaged property, and, notwithstanding the agreement, he advertised 
 the property for sale on the first Monday in February, 1886, just a 
 few days subsequent to the date of the agreement. The defendant 
 went to him and showed him the agreement, but he said that there 
 had been different payments made on the decree directly to Slade & 
 Etheredge ; that he wanted his costs, and would sell the land if the de- 
 fendant did not pay them. Before sale day Philips telegraphed and 
 wrote to Slade & Etheredge (who at the time resided at Columbus, 
 Ga.), asking for instructions, and they instructed him to sell if the 
 costs were not paid by the defendant, and thereupon the defendant 
 
Ch. 1) OFFER AND ACCEPTANCE 65 
 
 paid the costs, as he says, to prevent the sale of his property, notwith- 
 standing he had not agreed to do so. 
 
 And, now, can it be that this agreement was binding upon the de- 
 fendant? Can it be that he is Hable upon the same, and the other 
 parties to the agreement are hot bound by it, or only bound by it when 
 they think it is to their interest to be so bound? This is not the law. 
 To make such agreements binding upon one party, it must be binding 
 upon all, and if a party bound violates the agreement it releases the 
 other party. * * * 
 
 Judgment [for defendant] affirmed. 
 
 STBINBRENXER v. MINOT ATj'TO CO. 
 (Supreme Court of Montana, 1919. 56 Mont. 27, 180 Pac. 729.) 
 
 Action for damages for breach of contract. Defendant prepared 
 and sent to plaintiff an agreement giving plaintiff the exclusive right 
 to sell Willys-Overland automobiles in certain territory for a certain 
 length of time. The agreement provided that it was to take effect from 
 the date of signature by Stearns, defendant's general manager. Plain- 
 tiff signed and returned the agreement. Defendant acted as if the 
 agreement were completed and so indicated by its correspondence, but 
 the formal contract was never completed by the manager's signature. 
 Defendant later broke its contract by giving said exclusive right to 
 another dealer. 
 
 Brantly, C. J. * * * The contention is that the contract, 
 though executed by both plaintiff and defendant, never became operative 
 for the reason that it amounted to no more than an offer by the plaintiff 
 to enter into a contract until it had been formally accepted by defend- 
 ant, as therein provided ; that is to say, until the acceptance had been 
 evidenced "by the signature of L. C. Stearns." It is true, as counsel 
 say, that in order to form a contract there must be an offer by one 
 party and an unconditional acceptance of it by the other in accordance 
 with its terms. * * * It is also settled law that the party making 
 the offer may prescribe the mode by which acceptance must be made, 
 if at all. * * * The plaintiff, however, did not prescribe any mode 
 by which the defendant should accept. The mode was provided by the 
 defendant itself and for its own benefit. It was at liberty, therefore, 
 to waive acceptance by the mode prescribed and accept by any other 
 mode. "Anything that will amount to a manifestation of a formal de- 
 termination to accept communicated or put in the proper way to be 
 communicated to the party making the offer will complete the contract. 
 The principle governing the matter of acceptance is that there must 
 be a concurrence of the minds of the parties upon a distinct proposi- 
 tion, manifested by an overt, act." 1 Beach on the Modern Law of 
 Contracts, § 49. Where a contract is signed by one of the parties 
 only, but is accepted or acted upon by the other party, it is just as 
 binding as if signed by both parties. 9 Cyc. 300. 
 
 One, reading the portions of the correspondence between the parties 
 quoted above, cannot entertain any doubt that from and after the time 
 defendant received the triplicate copies of the contract for its accept- 
 ance, accompanied by the order of lyiay 26th it regarded plaintiff as 
 its authorized sub-dealer at Missoula, bound to it by all the obligations 
 B.& B.Bus.Law— 5 
 
66 CONTEACTS (Part 1 
 
 which he had proposed to assume. By these letters, it communicated 
 its acceptance as fully and conclusively as if Stearns had formally 
 approved the contract and returned one of the triplicate copies of it 
 to the plaintiff. It could not insist thereafter that there was no con- 
 tract and avoid its obligations thus asstfmed. The plaintiff had the 
 right to conclude * * * that he had secured the exclusive privilege 
 for the following year of selling cars manufactured by the Willys- 
 Overland Company of the models therein mentioned, in the designated 
 territory and to supply the necessary parts. He could have no other 
 understanding than that he was at liberty to contract for the sale of 
 the cars which defendant had promised expressly to forward as soon 
 as the manufacturer could furnish them. It was then beyond defend- 
 ant's power to proceed upon the assumption that there was no contract 
 because Stearns had omitted the formality of signing his name as the 
 contract provided. 
 
 No question is made as to the authority of Smith to negotiate the 
 contract in the first instance, subject only to approval by Stearns. Nor 
 does counsel suggest that Stearns did not have authority to waive, for 
 the defendant, the requirement of formal approval. The argument is 
 wholly without merit. 
 
 The court submitted to the jury the question whether the defendant 
 had accepted the contract. There was no controversy that Stearns 
 wrote the letters quoted, nor that he had authority to do so. The ques- 
 tion whether the contract had been accepted was therefore one arising 
 upon uncontroverted evidence, which furnished the basis for but a 
 single inference, viz., that the defendant had accepted the contract 
 and become fully bound by it. The court should have so held and 
 required the jury to find the amount of damages only. The error in 
 this regard, however, was in favor of the defendant, resulting in no 
 prejudice to it. * * * 
 
 The judgment [for plaintiff] and order affirmed. 
 
 COURTNEY SHOE CO. v. E. W. CURD & SON. 
 
 (Court of Appeals of Kentucky, 1911. 142 Ky. 219, 134 S. W. 146, 
 38 li. R. A. [N. S.] 903.) 
 
 Action by the Courtney Shoe Company against E. W. Curd & Son. 
 Judgment on a verdict in favor of defendant on a counterclaim, and 
 plaintiff appeals. 
 
 HoBSON, C. J. The Courtney Shoe Company is a wholesale house 
 doing business in St. Louis, Mo. E. W. Curd & Son are merchants 
 doing business at Cave City, Ky. On August 22, 1909, Curd & Son 
 gave W. B. Yater, a traveling salesman of the Courtney Shoe Com- 
 pany, two orders, one for stock shoes amounting to $49.15, the other 
 for sample shoes amounting to $1,772.35; both to be shipped as soon 
 as it could. The order though made on the 22d, was dated the 21st, 
 as the 22d was Sunday. It was mailed to the house by the drummer, 
 reaching the house on August 23d ; the house then wrote Curd & Son 
 the following card: "St. Louis, Mo., August 23, 1909. Dear Sirs: 
 Your order of 8/21 — 09 to our Mr. Yater is at hand and will receive 
 our prompt and careful attention. Thanking you for same, and hoping 
 to merit your future favors, we are Yours truly. The Courtney Shoe 
 Co." On August 31st the Courtney. Shoe Company wrote Curd & 
 Son a letter in which they rejected the order for sample shoes amount- 
 
Ch. 1) OFFER AND ACCEPTANCE 67 
 
 ing to $1,772.35, telling them that the drummer had no authority to 
 sell the samples, and that they could not accept the order. The stock 
 shoes to the amount of $49.15 were shipped, and, Curd & Son refusing 
 to pay for them, the Courtney Shoe Company brought this suit to re- 
 cover the price. Curd & Son pleaded as a counterclaim the failure 
 of the plaintiff to fill the order for the sample shoes, alleging that the 
 order was accepted by the house, and that it had thereafter refused 
 to fill the order to their damage in the sum of $1,083.20. Issue was 
 joined on the counterclaim, and on a trial of the case before a jury 
 the^e was a verdict for the defendant on the counterclaim, fixing the 
 damages at $250. The court entered judgment on the verdict, and 
 the plaintiff appeals. * * * 
 
 There were no technical words used in the card. There is no proof 
 of. any usage of trade by which the words used have acquired a pe- 
 culiar sense distinct from their popular sense. The words are there- 
 fore to be understood in their plain, ordinary, and popular sense, and 
 what they mean is a question for the court. In Manier v. Appling, 
 112 Ala. 663, 20 South. 978, the Supreme Court of Alabama had before 
 it the question whether a card acknowledging the receipt of an order 
 sent in by a drummer, and stating that "the same shall receive prompt 
 attention," was an acceptance of the order. Holding that it was not, 
 the court said : "The response, and the only response, the defendants 
 made, was an acknowledgment by postal card of the receipt of the 
 order or proposal, accompanied by the expression, 'the same shall 
 have prompt attention'; and it is this response, it is insisted, consti- 
 tuted an acceptance of the proposal, converting the proposal and ac- 
 ceptance into a contract of sale. Unless these words, 'the same shall 
 have prompt attention,' are deflected from their natural, ordinary 
 meaning, they cannot be construed into an acceptance of the proposal 
 of the plaintiff, converting the two into a concluded or completed con- 
 tract. The operative words are 'attention' and 'prompt.' The latter, 
 when read in connection with tlie terms of the proposal tliat the shoes 
 should be shipped on the succeeding 15th of June, signifies, and was 
 intended to signify, no more than that attention would be given in time 
 to meet this term. If given within that time, it was as speedy as the 
 nature or necessities of the transaction required. Promise to give the 
 proposal attention was not a promise of acceptance ; it was not an as- 
 sent to it. It was no more than a courteous promise to give it con- 
 sideration, and this we do not doubt is the sense in which it is gener- 
 ally, if not universally, employed in transactions of this charac- 
 ter." * * * 
 
 In the case at bar, if the plaintiff's letter of August 23d, rejecting 
 the order, had been mailed to defendant directly, and not to the drum- 
 mer, it is hard to believe that this controversy would have arisen. It 
 is true the card uses the words "our prompt and careful attention"; 
 but the addition of the word "careful" adds nothing to the sense, nor 
 do the concluding words of the card thanking Curd & Son for the 
 order and hoping to merit future favors. These are simply the usual 
 expressions of merchants on receiving an order, and throw little light 
 on the question of its acceptance or rejection. The promise to give 
 the order attention was simply a promise to do what the plaintiff did. 
 They did give it attention and rejected it. * * * 
 
 In determining what is an acceptance where there is nothing in the 
 conduct of the parties to show an acceptance in fact of the order, 
 
68 CONTRACTS (Part 1 
 
 we think it is a safe and sound rule that the words of the writing shall 
 be taken in their plain, ordinary, and popular sense, and that they 
 should not be strained to express a meaning they do not naturally 
 convey. 
 
 We therefore conclude that there was no acceptance of the order 
 for the sample shoes, and that the court should have instructed the 
 jury peremptorily to find for the plaintiff the amount of their claims 
 sued for. 
 
 Judgment reversed. 
 
 PORTER V. GOSSELI/. 
 (Supreme Court of Arkansas, 1914. 112 Ark. 380, 166 S. W. 533.) 
 
 Action by F. L,. Gossell against J. I. Porter. From a judgment for 
 plaintiff, defendant appeals. 
 
 McCuLLOCH, C. J. Appellee instituted this action below against 
 appellant to recover damages resulting from appellant's failure or re- 
 fusal to perform his alleged contract whereby he sold and undertook 
 to deliver to appellee a car load of oats. The case was tried before 
 the court sitting as a jury, and the only question we have to determine 
 is whether the testimony, viewing it in the light most favorable to ap- 
 pellee, is sufficient to sustain the finding of the court. * * * 
 
 The first communication on the subject was that of appellee in a let- 
 ter dated June 23, 1911, concerning the purchase of hay, and adding 
 the following inquiry about purchase of a car load of oats : "Do you 
 know of any one that has any oats which they might offer in car load 
 lots in your section of the country? If so, I would be glad to have 
 you write me what you think they can be bought at, or would like 
 to have you give me their names, and I will write them concerning 
 the same." 
 
 Appellant replied by letter on the same day as follows : "Yours of 
 23d to hand and noted. I have no oats on hand, but can quote you 
 for immediate delivery, car load lots, bulk oats, at 42 cents, or sacked, 
 45 cents, f. o. b. tracks here. This is a close price, and, if you are 
 in the market for any oats now, would be glad to hear from you right 
 away so that we may be looking out for them." 
 
 That letter constituted a proposal to enter into a contract with re- 
 spect to the sale of a car load of oats at the price and terms therein 
 named. Appellee replied on June 26th as follows: "Your favor of 
 the 23d at hand, and would say, if the oats you quote are No. 3 or 
 better red oats, destination weights and grades guaranteed, I could 
 use a car at 42 cents, f . o. b. your track, immediate shipment. I think 
 the price you name is just a little bit high though, and in fact have 
 been offered No. 2 oats from Oklahoma on the same basis. I wish 
 you would please write or wire me immediately upon receipt of this 
 if you will ship car as above." 
 
 It will be observed that this letter did not constitute an unconditional 
 acceptance, and was not so regarded by appellee. He stated the con- 
 dition that, if the oats quoted were of a certain grade and the weights 
 were guaranteed at destination, he would purchase a car at 42 cents. 
 The letter shows that he did not intend it as an acceptance of appel- 
 lant's offer, but intended it as a counter proposition, for he requested 
 an immediate response by letter or wire from appellant, indicating 
 whether the latter was willing to accede to those terms. Negotiations 
 
Ch. 1) OFFER AND ACCEPTANCE 69 
 
 had not then proceeded to a contract, for the minds of the parties had 
 not yet met. * * * 
 
 Appellant replied to the last letter above named on June 28th as 
 follows: "I would not want to load and ship the oats without you 
 would take the city scale weights here. Oats are advancing some; 
 but I can get you a car of bulk oats at 42 cents, I think, if you will 
 take the city scale weights." * * * 
 
 Appellee, on the next day (June 29th), replied by wire as follows: 
 "Your letter. Rush car oats, your city scale weights, affidavit at- 
 tached, satisfactory." He followed this up with letter, written on the 
 same day, saying : "However, as advised you, please furnish me with 
 sworn weight certificate at your end, and it will be perfectly satisfac- 
 tory. I ask this simply because I know party doing the weighing 
 will necessarily be more careful in furnishing sworn certificate." 
 
 The case turns on the question whether appellee's letter and tele- 
 gram constituted an unconditional acceptance of appellant's offer so 
 that the minds of the parties met on the same proposition, or whether 
 they constituted a new offer which required acceptance upon the part 
 of appellant before a contract was established. 
 
 We are of the opinion that the letter and telegram were not an ac- 
 ceptance of appellant's offer, but constituted a proposal containing 
 another condition or qualification, namely: That an affidavit of the 
 weigher should be furnished. Now, that was a condition to which 
 appellant was not bound to accede. There having been no uncondi- 
 tional acceptance of his offer, he had the right to recede from the ne- 
 gotiations. The qualification thus imposed by appellee was a material 
 one, for the reason that appellant had no control over the weigher and 
 could not require him to furnish an affidavit. If it had been merely 
 a matter of appellant furnishing his own affidavit as to the weights, 
 the case might be different ; but appellee demanded the affidavit of the 
 weigher, a person over whom appellant is not shown to have had any 
 control, and therefore it was an important qualification of the terms 
 originally proposed by appellant. It changed the terms, in other 
 words, to the extent that it prevented the minds of the parties from 
 meeting, and the negotiations, therefore, did not result in a contract. 
 
 "It is an undeniable principle of the law of contracts," said the 
 Supreme Court of the United States, "that an offer of a bargain by 
 one person to another imposes no obligation upon the former until it 
 is accepted by the latter according to the terms in which the offer was 
 made. Any qualification of, or departure from, those terms invalidates 
 the offer, unless the same be agreed to by the person who made it. Un- 
 til the terms of the agreement have received the assent of both parties, 
 the negotiation is open, and imposes no obligation upon either." 
 Eliason v. Henshaw, 4 Wheat. 225, 4 L. Ed. 556. * * * 
 
 The judgment is therefore reversed, and the cause dismissed. 
 
 MORSE etal. v. TIIJX)TSON & WOL-COTT OO. 
 
 (United States Circuit Court of Appeals, Second Circuit, 1918. 253 Fed. 340, 
 165 C. C. A. 122, 1 A. L. R. 1485.) 
 
 The action is for breach of contract. The complaint alleges that the 
 plaintiff agreed to purchase notes of a corporation to be organized 
 by defendants, which notes were to amount to $555,084, for the price 
 
70 CONTRACTS (Part 1 
 
 of $518,000, aatid it alleges that the defendants undertook ' that the 
 transaction should be carried out by the corporation, and afterwards 
 repudiated the agreement. 
 
 The answer is a general denial, except it states that "there were 
 negotiations between the plaintiff and the defendants, for the purpose 
 of agreeing, if possible, upon a contract under which the plaintiff was 
 to make a loan upon the credit of some or all of the ships named in 
 the complaint; but the plaintiff and the defendants failed to agree 
 upon the terms of such loan, and no contract was entered into between 
 the plaintiff and the defendants with respect thereto." 
 
 The case was tried before Judge Grubb and a jury, and a verdict 
 was returned for the plaintiff in the sum of $31,316, with interest at 
 6 per cent, from March 16, 1916. 
 
 Rogers, Circuit Judge. * * * The defendants assert that the 
 minds of the parties never met, that one of the conditions of the agree- 
 ment was that the attorneys for the plaintiff were to be furnished with 
 abstracts of title to the ships and that they were to examine them, and 
 that the deal was not to be consummated until the title was approved. 
 In the letter dated February 28, 1916, written by the president of the 
 plaintiff corporation the writer stated that, when the attorneys "advise 
 us that the title is good, we will advance up to $280,000 on bonds at 
 92 and interest." And there is no evidence in the case that, when de- 
 fendants on March 16th canceled the agreement, the plaintiff's coun- 
 sel was satisfied that the titles were good or that he had rendered any 
 opinion on that subject. It will no doubt be conceded that an offer to 
 sell implies that the title is marketable. And if an offer to sell is 
 made by A. and accepted by B., subject to the title being found good 
 upon examination, it hardly seems that the words "subject to the title 
 being found good" import any new term into the acceptance, so as 
 to prevent a meeting of the minds upon the offer as made. 
 
 In Hussey v. Horne-Payne, L. R. 8 Ch. Div. 670 ( 1878) , an offer 
 was made to sell land for a specified sum of money, and the offer was 
 accepted "subject to the title being approved by our solicitors." The 
 defendants afterwards declined to complete the sale, the title not yet 
 having been approved, and the plaintiff claimed specific performance. 
 The Vice Chancellor had held that the offer had been unconditionally 
 accepted, and the demurrer was overruled. The case was carried to 
 the Court of Appeal, where it was reversed, and the demurrer was 
 sustained. In his opinion Jessel, M. R., said: 
 
 "The expression 'subject to the title being approved by our solicit- 
 ors' appears to be plainly an additional term. The law does not 
 give a right to the purchaser to say that the title shall be approved by 
 any one either by his solicitor, or his conveyancing counsel, or any 
 one else: All that he is entitled to require is what is called a market- 
 able title, or, as it is sometimes called, a good title. Therefore, when 
 he puts in 'subject to the title being approved by our solicitors,' he 
 must be taken to mean what he says ; that is, to make it a condition 
 that solicitors of his own selection shall approve of the title." 
 
 The case was carried to the House of Lords (L,. R. 4 A. C. 311), 
 where it was affirmed, but upon different ground. The House of 
 Lords did not agree with the Court of Appeal upon the point upon 
 which that court decided the case. Upon that point the Lord Chan- 
 cellor (Earl Cairns) declared that he was disposed to look upon the 
 words "subject to the title being approved by our solicitors" as meaning 
 
Ch. 1) OFFER AND ACCEPTANCE 71 
 
 — "nothing more than a guard against its being supposed that the title 
 was to be accepted without investigation, as meaning in fact the title 
 must be investigated and approved of in the usual way, which would 
 be by the solicitor of the purchaser. Of course, that would be sub- 
 ject to any objection which the solicitor made being submitted to deci- 
 sion by a proper court, if the objection was not agreed to." 
 
 The thing sold in that case happened to be land; but the decision 
 would have been the same, had it been bonds or ships. * * * 
 
 There is a clear difference between an agreement to sell "subject to 
 the approval" of title by counsel and an agreement which declares that 
 the entire writing is not to be binding unless a certain thing happens 
 which never happens. * * * 
 
 Judgment affirmed. 
 
 B. F. STDRTEVAXT CO. v. FIREPROOF FILM CO. 
 
 (Court of Appeals of New York, 1915. 216 N. T. 199, 110 N. E. 440, L. B. A. 
 
 1916D, 1069.) 
 
 Action by the B. F. Sturtevant Company against the Fireproof Film 
 Company. From a judgment for plaintiff, defendant appeals. 
 
 Seabury, J. This action is brought to recover damages for the 
 breach of an alleged contract. The plaintiff and defendant are foreign 
 corporations. The plaintiff is a designer and builder of heating and 
 ventilating and drying apparatus. The defendant was engaged in 
 building a factory for the manufacture and sale of motion picture 
 films. On December 29, 1911, the plaintiff submitted to the defend- 
 ant an elaborate "proposal and specifications," which had been pre- 
 pared after consultation with a representative of the defendant for 
 the performance by the plaintiff of the work therein specified. The 
 "proposal and specifications" was in the form of a letter addressed 
 to the defendant, and stated that : 
 
 "Supplementing our quotation of December 6th, we beg to quote 
 you upon the following apparatus," etc. 
 
 The letter was typewritten, and describes in detail the apparatus, 
 and specifies the terms, price, and time of delivery. The specifications 
 that are attached to the letter are printed, although the "dimensions 
 and data" relating to the apparatus are supplemented by typewritten 
 statements. The letter is signed "B. F. Sturtevant Company, by J. 
 L,. Williamson.", Upon the letter is indorsed the following: 
 
 "Accepted:' The Fireproof Film Company. H. Kuhn, Vice Presi- 
 dent and Treasurer. Date, December 30th, 1911." 
 
 The plaintiff actually commenced work under this alleged contract 
 on January 1, 1912. * * * 
 
 Several letters passed between the parties, and on February 10, 1912, 
 the defendant wrote to the plaintiff : "We notify you herewith that we 
 will have to cancel the contract for fans for the Fireproof Film Com- 
 pany." * * * 
 
 The principal ground urged for the reversal of the judgment is that 
 there was no contract between the parties, because at the bottom of 
 the first page of the plaintiff's office stationery, upon which the pro- 
 posal was written, appear the words : "All agreements are contingent 
 upon strikes, fire, accidents or delays beyond our control. All prices 
 are subject to change without notice, and all contracts and orders taken 
 
.72 CONTRACTS (Parti 
 
 are subject to the approval of the executive office at Hyde Park, 
 Mass." 
 
 These sentences are printed in very small type, and the first type- 
 written numeral that indicates the page number is typewritten over 
 this printed matter. The appellant, claims that the proposal was given 
 "subject to the approval of the executive office at Hyde Park, Mass." 
 and that, as there was no proof that this approval was given and com- 
 municated to it, there was no contract. It appears clearly that Wil- 
 liamson had, authority to make the contract, and that his action in so 
 doing was ratified by the executive office at Hyde Park, Mass. The 
 plaintiff actually commenced to perform the work, and continued work- 
 ing under the contract until it received the notice of the defendant 
 that it had canceled the contract. * * * The claim that is now urged 
 rests, entirely upon the contention that the clause "all contracts or or- 
 ders taken are subject to the approval of the executive office at Hyde 
 Park, Mass.," is to be deemed a part of the proposal. If this provi- 
 sion was a part of the proposal, there could be no proof of a contract ' 
 in the absence of evidence that the order was approved, and that the 
 defendant had been notified of that fact. 
 
 Ill view of the manner in which this provision is printed upon the 
 stationery of the plaintiff, it cannot be held, as a matter of law, that it 
 was incorporated in and a part of the proposal. The language of the 
 proposal is clear and explicit, and this provision, which is printed in 
 small type, cannot be allowed to change, alter, or modify it, unless 
 it was a part of the proposal. It was not incorporated in the body of 
 the proposal or referred to in it. No suggestion was made, either in 
 the pleadings or the proof, that it was a part of the proposal. If an is- 
 sue had been raised upon the trial whether it was a part qf the proposal, 
 that issue would have presented a question of fact to be determined 
 by the jury. As no such question was raised upon the trial, and as 
 it does not appear from an inspection of the proposal that this pro- 
 vision was a part of it, the defendant is not now in a position to se- 
 cure the reversal of this judgment upon this ground. 
 
 When an offer, proposal, or contract is expressed in clear and ex- 
 plicit terms, matter printed in small type at the top or bottom of the 
 office stationery of the writer, where it is not easily seen, which is not 
 in the body of the instrument or referred to therein, is not necessarily 
 to be considered as a part of such offer, proposal, or contract. In 
 Sturm v. Boker, ISO U. S. 312, 327, 14_ Sup. Ct. 99, 103, 37 L. Ed. 
 1093, it was said that : "The contract being clearly expressed in writ- 
 ing, the printed billhead of the invoice can, upon no well-settled rule, 
 control, modify, or alter it." 
 
 In Summers v. Hibbard & Co., 153 111. 102, 109, 38 N. E. 899, 901, 
 46 Am. St. Rep. 872, the court said : "The printed words were not 
 in the body of the letter or referred to therein. The fact that they were 
 printed at the head of their letter heads would not have the effect of 
 preventing appellants from entering into an unconditional contract of 
 sale." 
 
 In Menz Lumber Company v. McNeeley & Company, 58 Wash. 223, 
 229, 108 Pac. 621, 624, 28 L. R. A. (N. S.) 1007, it was said that: 
 "The printed matter on the letter heads was not referred to in either 
 the order or the acceptance, and is not; a part of the contract. * * * 
 The construction contended for by the respondent would make that 
 which is an absolute, unqualified acceptance upon its face a conditional 
 
Ch. 1) OFFER AND ACCEPTANCE 73 
 
 one by reference to a letter head which was not referred to by either 
 parties." * * * 
 Judgment affirmed. 
 
 J. L. PRICE BROKERAGE 00. v. CHICAGO, B. & Q. R. CO. et al. 
 (Kansas City Court of Appeals, Missouri, 1917. 199 S. W. 732.) 
 
 Action by the J. L. Price Brokerage Company against the Chicago, 
 Burlington & Quincy Railroad Company and another. Judgment for 
 plaintiff, and defendant Powell National Bank of Powell, Wyoming, 
 appeals. 
 
 Trimble, J. This was a replevin suit brought by the plaintiff brok- 
 erage company at St. Joseph, Mo., to obtain possession of a carload 
 of potatoes shipped from Wyoming to St. Joseph, Mo., by the de- 
 fendant National Bank of Powell, Wyo. There was a finding and 
 judgment for plaintiff, from which the defendant bank appealed. 
 
 A sale of the potatoes was made by an exchange of telegrams be- 
 tween the Wyoming bank and the plaintiff. The bank first telegraphed 
 an offer to sell on certain terms. As delivered by the bank to the tele- 
 graph company, the telegram read : "Can furnish one car clean white 
 potatoes at one thirty-five per hundred f. o. b. Powell." 
 
 But, through a mistake in the transmission of the telegram, when 
 delivered to the plaintiff it read : "Can furnish one car clean white po- 
 tatoes at once thirty-five per hundred f. o. b. Powell." 
 
 Plaintiff immediately telegraphed: "Wire just received. We ac- 
 cept car. Ship quick as possible." * * * 
 
 When it, in the first place, offered by telegram to sell potatoes to 
 the plaintiff, it made the telegraph company its agent to convey that 
 offer, and, for any mistake the agent made in doing so, the appellant 
 must suffer the loss incurred. The contract was made at 35 cents per 
 hundred. It called for delivery on board cars at Powell, Wyo. The 
 seller appropriated the potatoes to the contract, and placing them on 
 board the cars shipped them to St. Joseph. In shipping the potatoes 
 and directing the bill of lading to be turned over upon payment for 
 them, the seller manifestly intended that plaintiffs should have pos- 
 session of the potatoes, the only thing remaining to be done was the 
 payment of the contract price. 
 
 It is true the seller thought the contract price was $1.35, but un- 
 fortunately for the seller, that was its mistake so far as the purchaser 
 was concerned. As the real contract stood, there was nothing further 
 to be done except for the purchaser to pay the agreed price, and when 
 said vendee made a tender thereof, it was the same as if the agreed 
 price had been paid. When the tender was made, the title passed then 
 even if, on account of the terms of the bill of lading, the title did not 
 pass when the potatoes were delivered on board the cars at Powell. 
 When the tender of the price according to contract was made, the ven- 
 dor had no right to withhold possession. The situation was the same as 
 if the vendee, plaintiff, had gone out to Powell, Wyo., and said to the 
 vendor bank : "Here is a contract made with your agent for this car of 
 potatoes at 35 cents per hundred and here is the amount of money due 
 at that price." 
 
 The bank would have no right to say : "I have the potatoes here in a 
 car for you, but my agent made a mistake in contracting with you at 
 
74 CONTRACTS (Part 1 
 
 35 cents, and therefore I will not turn them over to you until you pay 
 me $1.35." 
 
 Under such circumstances, a tender of the contract price on the 
 part of the vendee would make it's right of possession complete, and 
 replevin would lie. * * * 
 
 The judgment is affirmed. All concur. 
 
 PEPPER V. WESTERN UNION TELEGRAPH CO. 
 
 (Supreme Court of Tennessee, 1S89. 87 Tenn. 554, 11 S. W. 783, 4 L. R. A. 
 660, 10 Am. St. Rep. 699.) 
 
 FoiyKBS, J. This is a suit by complainants to recover damages for 
 a breach of a contract to deliver correctly a certain telegram intrusted 
 to defendant as the owner and operator of a telegraph line. The facts 
 necessary to a correct understanding of the case are as follows : On 
 October 5, 1886, R. F. Bugg & Co., produce brokers at Birmingham, 
 Ala., sent by defendant company to complainants, who were produce 
 dealers at Memphis, this telegram: "Quote cribs loose, and strips 
 packed." Thereupon complainants wrote out upon the usual printed 
 blanks of the defendant company, and delivered to the proper agent 
 of the defendant for transmission, this reply, addressed to Bugg & 
 Co., at Birmingham: "Car cribs six sixty, c. a. f., prompt." The 
 word "cribs" meant in the meat trade clear ribs, and "c. a. f ." meant 
 cost and freight. These terms were well understood in the trade and 
 by the defendant. This telegram, as delivered by the company to 
 Bugg & Co., read "six thirty," instead of "six sixty," being in other 
 respects correct. Thereupon Bugg & Co. ordered a qarload of the 
 meat, amoun):ing to 25,000 pounds. Complainants shipped the meat, 
 and drew on Bugg & Co. for $1,650, the price of the meat at "six 
 sixty." Bugg & Co. refused to pay the draft, relying on the telegram 
 as received by them; and complainants accepted of them $1,575, the 
 value of the meat at the price of "six thirty," making a loss to com- 
 plainants of $75. Complainants at once notified the company of the 
 mistake, and that the same had entailed upon them the loss of $75, and 
 
 demanded payment of this sum, which the company declined to make. 
 
 * * * 
 
 There was judgment for the complainants for the sum of $75, with 
 interest from the date of the delivery of the meat. Defendant has 
 appealed, assigning errors. 
 
 It is unnecessary for us to determine what is the measure of dam- 
 ages for error in the transmission of a telegram written in cipher — 
 a question upon which the authorities are not in harmony, and one 
 where there are very many nice distinctions and refinements. The 
 telegram before us is in no sense a cipher. It is an abbreviation mere- 
 ly, and, from the proof in the cause, an abbreviation known to the com- . 
 pany. * * * 
 
 This brings us to the consideration of the third and serious grovmd 
 of defense — the measure of damages in this particular case. The 
 contention of the counsel for complainants is-^and such was the view 
 of the learned chancellor — that the company was the agent of the 
 complainants as the sender of the telegram, and that the complainants 
 were therefore bound to let Bugg & Co. have the goods at $6.30, the 
 price erroneously named in the dispatch as delivered; and that the 
 loss must be measured by the difference between the price at which 
 
Ch. 1) OFFER AND ACCEPTANCE 75 
 
 they were willing and expected to sell and the price which in conse- 
 quence of the error of such agent they were compelled to sell. 
 
 In our opinion this contention cannot be maintained, either upon 
 principle or authority. The minds of the party who sends a message 
 in certain words and the party who receives the message in entirely dif- 
 ferent words have never met. Neither caia therefore be bound the 
 one to the other, unless the mere fact of employment of the telegraph 
 company, as the instrument of communication, makes the latter the 
 agent of the sender. Upon what principle can it be said such an 
 agency arises? The telegraph company is in no sense a private agent. 
 It is clothed by the state with certain privileges ; it is allowed to exer- 
 cise the right of eminent domain. In exchange for such franchises 
 it is onerated with certain duties, one of which is the obligation to ac- 
 cept, and transmit over its wires, all messages delivered to it for that 
 purpose. The parties who resort to this instrumentality have no other 
 means of obtaining the benefits of rapid communication, which is the 
 price of its existence. They have no opportunity and no power to 
 supervise or direct the manner or means which the company use in the 
 discharge of their duties to the public in the transmission of messages 
 for particular individuals. They can only deliver to the company a 
 legible copy of what they wish communicated, with no expectation 
 that such paper is to be carried to the party addressed; and their con- 
 nection with the company there and then ceases. They have contract- 
 ed with the company to transmit the words of the message to the 
 party addressed, through its own agents, and with its own means. The 
 party receiving the message knows that he is not obtaining any com- 
 munication direct from the sender, but that he is receiving what the 
 company has taken, and changed the form of, from the paper on 
 which it was written, transmitted by electricity over the wires of the 
 company, and reduced to writing at its destination by an agent of the 
 company; and that it only represents what is written by the sender, 
 in the event that there has been no imperfection in the mechanism of 
 the company, nor negligence in the servants of the company. 
 
 Knowing the scope of the employment and the methods of transmis- 
 sion, the receiver should be held to know that the sender is bound by 
 the contents of the telegram as received only so far as it is a faithful 
 reproduction of what is sent. He knows, furthermore, that if he acts 
 on the telegram, and it should turn out to have been altered" by the 
 negligence or wrongful act of the company, the latter is liable to him 
 for such injury as he may sustain thereby. Ordinarily there is no rela- 
 tion of master and servant between the sender of the telegram and the 
 company. Where this relationship does not exist the principal is not 
 responsible for the torts of the agent, and the negligent delivery of 
 an altered message, when acted on by the receiver to his detriment, is 
 a tort for which the telegraph company alone is responsible. The 
 company retaining exclusive control of the manner of performance, 
 and of its own employees and instrumentalities, the sender of the 
 message being absolutely without voice in the matter, it seems to us 
 that the position of the company to its employer is that of "independent 
 contractor," as defined and understood in the well-settled class of cas- 
 es where the employer is held to be not responsible for the negligence 
 of the contractor in the performance of his work or undertaking. The 
 many and marked differences between the employment of such com- 
 panies to transmit a dispatch and the employment of a private person 
 
76 CONTRACTS (Part 1 
 
 to deliver a verbal message, are so manifest that we cannot assume 
 the liability of the sender in the first instance, from his conceded lia- 
 bility in the last for the negligence of the instrunieatality employed. 
 Such a holding not only does violence to well-settled principles- of the 
 law of agency, but may lead to the absolute ruin of the party employ- 
 ing this useful, and now necessary, public medium of rapid transmis- 
 sion of intelligence; so that every consideration of pubKc policy would 
 seem to point to a different result, unless the courts find themselves 
 constrained by the great weight of authority to uphold' the conteKtiio>n 
 here made. 
 
 How are the authorities? In England and Scotland the idea of 
 agency in the company, so as to bind the sender upon a telegram negfi- 
 gently changed in the transmission, is repudiated. * * * Mr. Gray, 
 in his work on Communication by Telegraphy, while stating the law 
 to be in England and Scotland as above, says that in this country the 
 rule is in general otherwise, citing a number of cases in note 3, section' 
 104. It is to be noticed, however, that this author, after making the 
 statement above given, throws the weight of his learning and research 
 against what he says is the tendency of the American courts, and in 
 an instructive discussion of the question seems to demonstrate that the 
 English rule is the correct one. * * * 
 
 Being of opinion, then, that the complainants were not Bound to let 
 I Bugg & Co. have the goods at the price erroneously communicated by 
 the telegraph company, but that it was their privil^e to have reclaimed 
 them when Bugg & Co. refused to pay the price as written- by com- 
 plainants, let us see what were their rights and duties, and what is the 
 criterion of damage in such a case. They were bound to have taken ^ 
 just such steps as a reasonably prudent man woald take tO' save him- 
 self had the mistake or error been his own. A man, under such cir- 
 cumstances, is not to be held to have done the wisest and best thing, 
 but to the exercise of reasonable skill and diligence. * * * 
 
 Applying these principles to the case ^.at bar, we find no proof in the 
 record that would enable us to ascertain the damages fairly resulting 
 from the negligence of the telegraph company. There is nothii^ to 
 show what was the market value of the meat at Birmingham, nor at 
 Memphis, unless the telegram as written by the sender is to be consid- 
 ered as fixing it. This is evidence of what the sender was willing to 
 take for it, and, in the absence of proof to the contrary, may be said 
 to furnish evidence of the market value in favor of the party making 
 the offer, as against third parties. There is no proof as to freight 
 either way, so that we cannot say whether the complainants have acted 
 prudently in selling at the price named in the erroneous telegram, or 
 whether they should have sought other purchasers at Birmingham, or 
 recalled the meat to Memphis, or taken some other course. In the 
 absence of some such proof it is impossible for the court to ascertain 
 the extent of the injury inflicted by the company's negligence, so as to 
 fix and determine the compensation therefor with certainty. But, the 
 negligence being established, and the complainants having shown that 
 they disposed of the goods at the price named in the erroneously de- 
 livered message, which was one of the means open to the shipper of 
 extricating himself with the smallest loss, and there being no proof 
 whatever tending to show that such disposition of the goods was not 
 the very best thing to be done under the circumstances, we are of opin- 
 ion that the difference between the price named in the telegram as 
 
Ch. 1) OFFER AND ACCEPTANCE 77 
 
 sent and as delivered, where sale is actually made at the latter price, 
 may be taken as the correct measure of damages where, as in the case 
 at bar, the difference is not so great as to excite suspicion, and where 
 from the character of the goods it does not appear unreasonable and 
 improper to make such disposition of the goods. * * * 
 Let the decree be affirmed, with costs. 
 
 McKINXBY et al. v. BOSTON & M. R. R. 
 
 (Supreme Judicial Court of Massachusetts, 1914. 217 Mass. 274, 
 104 N. E. 446.) 
 
 Action by Daniel L. McKinney and others against the Boston & 
 Maine Railroad. 
 
 LoRiNG, J. The plaintiffs in this action had a verdict in the sum of 
 $300 for negligence in the transportation of a horse from Newbury- 
 port to Boston. The horse was shipped at Newburyport by a servant 
 of a third person (who shipped the horse to the plaintiffs in their be- 
 half), one Herlihy by name. Herlihy testified that he could not read 
 nor "sign his name." The defendant produced a contract or bill of 
 lading signed: "John Herheley, Shipper, by His Mark, Shipper's 
 Agent. F. W. Russell, Witness." The words "Shipper," "by," "Ship- 
 per's Agent," and "Witness" were printed words in a blank used by the 
 defendant in case of the shipment here in question. The other words 
 were written. Herlihy further testified that he delivered the horse to 
 "Russell, one of defendant's agents, for shipment." * * * j^ addi- 
 tion Herlihy testified that at this time he made his mark on two pa- 
 pers, one of which the defendant's agent Russell kept and the other 
 Russell gave to him ; that he did not know what he did with the pa- 
 per which Russell gave him, on which he rpade his mark; he did not 
 know whether he kept it in his pocket or "put it in the office" of his 
 employer, who was shipping the horse to the plaintiffs. He further 
 testified "that Russell did not read over the live stock contract to him 
 cr say anything about it and asked no question as to whether he want- 
 ed the high rate or the low rate ; that he didn't know whether the rate 
 which he had was the high rate or the low rate." It was the conten- 
 tion of the defendant that by the terms of the contract or bill of lad- 
 ing the consignee in consideration of the rate of freight charged agreed 
 that the valuation of the hoise was to be $100, and that beyond that 
 valuation it (the carrier) was not to be liable in any event. * * * ' 
 
 It is plain that the plaintiffs were entitled to the full damage done 
 to the horse unless the shipper in behalf of the plaintiffs had entered 
 into a special contract limiting the defendant's liability. 
 
 It is settled: That a special agreement between a shipper and a 
 carrier by which in consideration of the rate charged the value of the 
 property shipped is agreed upon in case of injury or loss, is valid. 
 * * * That one who receives from a common carrier a bill of lad- 
 ing which purports on its face to set forth the terms of carriage, and 
 accepts and acts upon it, without objection, will be ordinarily presumed 
 as in other cases of contract, in the absence of fraud or other sufficient 
 excuse, to have assented to its terms, as far as the provisions therein 
 contained are lawful and not opposed to public policy. * * * That 
 a person who signs a written instrument as the contract between him 
 and another cannot show that he did not know its contents "because 
 of his limited intelligence and inability to read our language." * * * 
 
78 CONTRACTS (Part 1 
 
 It was held in Jones v. Cincinnati, Selma & Mobile R. R., 89 Ala. 
 376, 8 South. 61, that the effect of the acceptance of a bill of lading by 
 a shipper without objection is not affected by the fact that the shipper 
 could not read nor write. * * * 
 
 Where the shipper signs the bill of lading the carrier has a right to 
 assume that he can read and that he understands what he has signed 
 and so assents to the terms of the writing as a contract. As matter 
 of business fairness it is not open to the shipper in such a case to show 
 that he did not read the bill of lading or that he could not understand 
 its terms. * * * 'j^]^£ carrier has the right to make the same as- 
 sumption when a shipper who cannot read or write accepts a receipt 
 containing the terms of the contract of carriage without disclosing the 
 fact rhat he is an illiterate person. * * * But where the shipper 
 tells the carrier that he cannot read or (as in the case at bar) that fact is 
 otherwise brought home to the carrier's knowledge, there is nothing 
 which gives the carrier a right to make any assumption. , In such a 
 case, the question whether a contract (limiting the carrier's liability) 
 has or has not been made depends upon the fact of the shipper's hav- 
 ing in fact known and agreed to it. 
 
 In the case at bar the fact that the shipper's servant was an illiter- 
 ate person was brought home to the carrier by the fact that the servant 
 executed the bill of lading by making his mark, and the further fact 
 that the agent who acted for the carrier in arranging for the shipment 
 witnessed the mark so made. Further the shipper's servant testified 
 that the carrier's agent "did not read over the live stock contract to 
 him or say anything about it and asked no question as to whether he 
 wanted the high rate or the low rate; that he did not know whether 
 the rate which he had was the high rate or the low rate." And lastly, 
 there was no evidence that the bill of lading ever reached the shipper 
 or the plaintiffs, and so there was no evidence that it was acted upon 
 as the contract under which the horse was accepted by the carrier. It 
 is to be noted that the duplicate original of the bill of lading put in evi- 
 dence was produced by the defendant. 
 
 The presiding judge was right in refusing to rule under these cir- 
 cumstances that as matter of law the shipper in behalf of the plain- 
 tiffs had entered into a special contract with the carrier limiting its 
 common-law liability. 
 
 In accordance with the terms of the report the verdict is to stand. 
 
 ROYAL I.VS. CO. V. BEATTT. 
 
 (Supreme Court of Pennsylvania, 188S. 119 Pa. 6, 12 Atl. 607, 
 4 Am. St. Rep. 622.) 
 
 This was an action by William Beatty against the Royal Insurance 
 Company, on a policy of fire insurance, averring a renewal, and that 
 it was in force at the time of the fire. There was a verdict and judg- 
 ment for plaintiff. Defendant brings error. 
 
 Green, J. We find ourselves unable to discover any evidence of a 
 contractual relation between the parties' to this litigation. The contract 
 alleged to exist was not founded upon any writing, nor upon any 
 words, nor upon any act done by the defendant. It was founded alone 
 upon silence. While it must be conceded that circumstances may exist 
 which will impose a contractual obligation by mere silence, yet it must 
 be admitted that such circumstances are exceptional in their character. 
 
Ch. 1) OFFER AND ACCEPTANCE 79 
 
 and of extremely rare occurrence. We have not been furnished with 
 a perfect instance of the kind by the counsel on either side of the pres- 
 ent case. Those cited for defendant in error had some other element 
 in them than mere silence which contributed to the establishment of 
 the. relation. But, in any point of view, it is difficult to understand 
 how a legal liability can arise out of mere silence of the party sought 
 to be aflfected, unless he was subject to a duty of speech, which was 
 neglected, to the harm of the other party. If there was no duty of 
 speech, there could be no harmful omission arising from mere silence. 
 
 Take the fwesent case as an illustration. The alleged contract was 
 a contract of fire insurance. The plaintiff held two policies against the 
 defendant, but they had expired before the loss occurred, and had not 
 been formally renewed. At the time of the fire the plaintiff held no 
 policy against the defendant. But he claims that the defendant agreed 
 to continue the operation of the expired policies by what he calls 
 "binding" them. How does he prove this? He calls a clerk who took 
 the two policies in question, along with other policies of another person, 
 to the agent of the defendant to have them renewed, and this is the 
 account he gives of what took place : "The Royal Company had some 
 policies to be renewed, and I went in and bound them. I went into 
 the office of the Royal Company, and asked them to bind the two poli- 
 cies of Mr. Beatty expiring tomorrow. These were the policies in 
 question. I renewed the policies of Mr. Priestly up to the 1st of April. 
 There was nothing more said about the Beatty policies at that time. 
 They did not say anything, but I suppose that they went to their books 
 to do it. They commenced to talk about the night privilege, and that 
 was the only subject discussed." 
 
 It will be perceived that all that the witness says is that he asked the 
 defendant's agent to bind the two policies, as he states at first, or to 
 renew them, as he says last. He received no answer: nothing was 
 said, nor was anything done. How is it possible to make a contract 
 out of this ? It is not as if one declares or states a fact in the presence 
 of another, and the other is silent. If the declaration imposed a duty 
 of speech on peril of an inference from silence, the fact of silence 
 might justify the inference of an admission of the truth of the declared 
 fact. It would then be only a question of hearing, which would be 
 chiefly, if not entirely, for the jury. But here the utterance was a 
 question, and not an assertion ; and there was no answer to the ques- 
 tion. Instead of silence being evidence of an agreement to do the 
 thing requested, it is evidence, either that the question was not heard, 
 or that it was not intended to comply with the request. Especially is 
 this the case when, if a compliance was intended, the request would 
 have been followed by an actual doing of the thing requested. But 
 this was not done ; how, then, can it be said it was agreed to be done ? 
 There is literally nothing upon which to base the inference of an agree- 
 ment, upon such a state of facts. Hence the matter is for the court, 
 and not for the jury ; for, if there may not be an inference of the con- 
 troverted fact, the jury must not be permitted to make it. 
 
 What has thus far been said relates only to the effect of the non-ac- 
 tion of the defendant, either in responding, or doing the thing re- 
 quested. There remains for consideration the effect of the plaintiff's 
 non-action. When he asked the question whether defendant would 
 bind or renew the policies, and obtained no answer, what was his 
 duty? Undoubtedly, to repeat his question until he obtained an an- 
 
80 CONTRACTS (Parti 
 
 swer; for his request was that the defendant should make a contract 
 with him, and the defendant says nothing. Certainly, such silence is 
 not an assent in any sense. There should be something done, or else 
 something said, before it is possible to assume that a contract was es- 
 tablished. There being nothing done and nothing said, there is no foot- 
 ing upon which an inference of agreement . can stand. But what was 
 the position of the plaintiff? He had asked the defendant to make a 
 contract with him, and the defendant had not agreed to do so ; he had 
 not even answered the question whether he would do so. The plaintiff 
 knew he had obtained no answer, but he does not repeat the question ; 
 he, too, is silent thereafter, and he does not get the thing done which 
 he asks to be done. Assuredly, it was his duty to speak again, and to 
 take further action, if he really intended to obtain the defendant's as- 
 sent ; for what he wanted was something affirmative and positive, and 
 without it hfe has no status. But he desists, and does and says nothing 
 further. And so it is that the whole of the plaintiff's case is an unan- 
 swered request to the defendant to make a contract with the plaintiff, 
 and no further attempt by the plaintiff to obtain an answer, and no 
 actual contract made. Out of such facts it is not possible to make a 
 legal inference of a contract. 
 Judgment reversed. 
 
 HOBBS V. MASSASOIT WHIP 00. 
 
 (Supreme Judicial Court of Massachusetts, 1893. 158 Mass. 194, 
 33 N. B. 495.) 
 
 Action by Charles A. Hobbs against the Massasoit Whip Company 
 to recover for eel skins alleged to have been sold to defendant by 
 plaintiff. Judgment for plaintiff, and defendant excepts. 
 
 Holmes, J. This is an action for the price of eel skins sent by the 
 plaintiff to the defendant, and kept by the defendant some months, 
 until they were destroyed. It must be taken that the plaintiff received 
 no notice that the defendants declined to accept the skins. The case 
 comes before us on exceptions to an instruction to the jury that,, wheth- 
 er there was any prior contract or not, if skins are sent to the de- 
 fendant, and it sees fit, whether it has agreed to take them or not, to 
 lie back, and to say nothing, having reason to suppose that the man 
 who has sent them believes that it is taking them, since it says nothing 
 about it, then, if it fails to notify, the jury would be warranted in find- 
 ing for the plaintiff. 
 
 Standing alone, and unexplained, this proposition might seem to 
 imply that one stranger may impose a duty upon another, and make 
 him a purchaser, in spite of himself, by sending goods to him, unless 
 he will take the trouble, and bear the expense, of notifying the sender 
 that he will not buy. The case was argued for the defendant on that 
 interpretation. But, in view of the evidence, we do not understand 
 that to have been the meaning of the judge, and we do not think that 
 the jury can have understood that to have been his meaning. The 
 plaintiff was not a stranger to the defendant, even if there was no 
 contract between them. He had sent eel skins in the same way four 
 or five times before, and they had been accepted and paid for. On the 
 defendant's testimony, it was fair to assume that if it had admitted 
 the eel skins to be over 22 inches in length, and fit for its business, as 
 the plaintiff testified and the jury found that they were, it would have 
 
Ch. 1) OFFER AN'D ACCEPTANCE 81 
 
 accepted them ; that this was understood by the plaintiff ; and, indeed, 
 that there was a standing offer to him for such skins. 
 
 In such a condition of things, the plaintiff was warranted in sending 
 the defendant skins conforming to the requirements, and even if the 
 offer was not such that the contract was made as soon as skins corre- 
 sponding to its terms were sent, sending them did impose on the de- 
 fendant a duty to act about them ; and silence on its part, coupled with 
 a retention of the skins for an unreasonable time, might be found by 
 the jury to warrant the plaintiff in assuming that they were accepted, 
 and thus to amount to an acceptance. * * * The proposition stands 
 on the general principle that conduct which imports acceptance or as- 
 sent is iacceptance or assent, in the view of the law, whatever may have 
 been the actual state of mind of the party — a principle sometimes lost 
 sight of in the cases. * * * 
 
 Exceptions overruled. 
 
 SECTION 6.— OFFER AND ACCEPTANCE IMPLIED 
 IN FACT OR IN LAW 
 
 COLUMBUS, H. V. & T. EY. 00. v. GAFFNEY. 
 
 (Supreme Court of Ohio, 1901. 65 Ohio St. 104, 61 N. E. 152.) 
 
 MiNSHALL, C. J. * * * There is some confusion in the state- 
 ment of the law applicable to what are frequently called "implied con- 
 tracts," arising from the fact that obligations generically different have 
 been classed as such, not because of any real analogy, but because, 
 where the procedure of the common law prevails, by the adoption of a 
 fiction in pleading — that of a promise where none in fact exists,' or can 
 in reason be supposed to exist — the favorite remedy of implied assump- 
 sit could be adopted. This was so in that large class of cases where 
 suit is brought to recover money paid by mistake, or which has been 
 obtained by fraud. Here it is said the law implies a promise to repay 
 the money, when it is well understood that the promise was a mere 
 fiction, and in most cases without any foundation whatever in fact. 
 The same practice was adopted where necessaries had been furnished 
 an insane person, or a neglected wife or child. In all these cases no 
 true contract exists. They are, by many authors, termed "quasi-con- 
 tracts," a term borrowed from the civil law. In all these cases no 
 more is meant than that the law imposes a civil obligation on the de- 
 fendant to restore money so obtained, or to compensate one who has 
 fyrnished necessaries to his wife or child, where he has neglected his 
 duty to provide for them, or, by reason of mental infirmity, is unable 
 to obtain them for himself. But contracts that are true contracts are 
 frequently termed implied contracts — as where, from the facts and 
 circumstances, a court or jury may fairly infer as a matter of fact that 
 a contract existed between the parties, explanatory of the relation exist- 
 ing between them. Such implied contracts are not generically different 
 from express contracts. The difference exists simply in the mode of 
 proof. Express contracts are proved by showing that the terms were 
 expressly agreed on by the parties, while in the other case the terms 
 are inferred as a matter of fact from the evidence offered of the cir- 
 B . & iB . Bus. La w— 6 
 
82 CONTRACTS (Part 1 
 
 cumstances surrounding the parties, making it reasonable that a con- 
 tract existed between them by tacit understanding. In such cases no 
 fictions are or can be indulged. The evidence must satisfy the court 
 and jury that the parties understood that each sustained to the other 
 a contractual relation, and that by reason of this relation the defendant 
 is indebted to the plaintiff for services performed or for goods sold 
 and delivered. jA 
 
 In the leading case of Hertzog v. Hertzog, 29 Pa. 465, the distmc- 
 tion is clearly stated by Judge Lowrie. After quoting from Black- 
 stone, and observing that his language is open to criticism, he says: 
 "There is some looseness of thought in supposing that reason and 
 justice ever dictate any contracts between parties, or impose such upon 
 them. All true contracts grow out of the intentions of parties to trans- 
 actions, and are dictated only by their mutual and accordant wills. 
 When the intention is expressed, we call the contract an express one. 
 When it is not expressed, it may be inferred, implied, or presumed 
 .from circumstances really existing, and then the contract, thus ascer- 
 tained, is called an implied one. * * * It is quite apparent, there- 
 fore, that radically different relations are classified under the same 
 term, and this often gives rise to indistinctness of thought. And this 
 was not at all necessary; for we have another well-authorized tech- 
 nical term exactly adapted to the office of making the true distinction. 
 The latter class are merely constructive contracts, while the former 
 are only implied ones. In one case the contract is a mere fiction, a 
 form imposed in order to adapt the case to a given remedy; in the 
 -other it is a fact legitimately inferred. In one the intention is disre- 
 garded ; in the other it is ascertained and enforced. In one the duty 
 defines the contract; in the other the contract defines the duty." The 
 subject is instructively treated by Professor Keener in chapter I of 
 his work on Quasi-Contracts. He expresses the difference between 
 an express contract and a true implied contract as follows: In the 
 one case the language of contract is in terms used, and because of the 
 expressions used the contract is called an express contract; whereas 
 in the other case the contract is established by the conduct of the par- 
 lies, viewed in the light of surrounding circumstances, and is called a 
 contract implied in fact." * * * 
 
 AUSTIN V. BURGE. 
 
 (Kansas City Court of Appeals, Missouri, 1911. 156 Mo. App. 286, 
 137 S. W. 618.) 
 
 Action by O. D. Austin against Charles Burge. From a judgment 
 for defendant, plaintiff appeals. 
 
 Ellison, J. This action was brought on an account for the sub- 
 scription price of a newspaper. The judgment in the trial court was 
 for the defendant. It appears that plaintiff was publisher of a news- 
 paper in Butler, Mo., and that defendant's father-in-law subscribed 
 for the paper, to be sent to defendant for two years, and that the 
 father-in-law paid for it for that time. It was then continued to be 
 sent to defendant, through the mail, for several years more. On two 
 occasions defendant paid a bill presented for the subscription price, 
 but each time directed it to be stopped. Plaintiff denies the order to 
 stop, but for the purpose of the case we shall assume that defendant 
 -is correct. He testified that, notwithstanding the order to stop it, it 
 
Ch. 1) OFFER AND ACCEPTANCE 83" 
 
 was continued to be sent to him, and he continued to receive and read 
 it, until finally he removed to another state. 
 
 We have not been cited to a case in this state involving the liability 
 of a person who, though not having subscribed for a newspaper, con- 
 tinues to accept it by receiving it through the mail. There are, how- 
 ever, certain well-understood principles in the law of contracts that 
 ought to solve the question. It is certain that one cannot be forced 
 into contractual relations with another and that therefore he cannot, 
 against his will, be made the debtor of a newspaper publisher. But 
 it is equally certain that he may cause contractual relations to arise 
 by necessary implication from his conduct. The law in respect to 
 contractual indebtedness for a newspaper is not different from that 
 relating to other things which have not been made the subject of an 
 express agreement. Thus one may not have ordered supplies for his 
 table, or other household necessities, yet if he continue to receive and 
 vise them, under circumstances where he had no right to suppose they 
 were a gratuity, he will be held to have agreed, by implication, to pay 
 their value. In this case defendant admits that, notwithstanding he 
 ordered the paper discontinued at the time when he paid a bill for it, 
 yet plaintiff continued to send it, and he continued to take it from the 
 post office to his home. This was an acceptance and use of the prop- 
 erty, and, there being no pretense that a gratuity was intended, an ob- 
 ligation arose to pay for it. 
 
 A case quite applicable to the facts here involved arose in Fogg v. 
 Atheneum, 44 N. H. 115, 82 Am. Dec. 191. There the Independent 
 Democrat newspaper was forwarded weekly by mail to the defendant 
 from May 1, 1847, to May 1, 1849, when a bill was presented, which 
 defendant objected to paying on the ground of not having subscribed. 
 Payment was, however, finally made, jmd directions given to discon- 
 tinue. The pai)er changed ownership, and the order to stop it was 
 not known to the new proprietors for a year; but, after being notified 
 of the order, they nevertheless continued to send it to defendant until 
 1860, a period. of 11 years, and defendant continued to receive it 
 through the post office. Payment was several times demanded during 
 this time, but refused on the ground that there was no subscription. 
 The court said that: "During this period of time the defendants were 
 occasionally requested, by the plaintiff's agent, to pay their bill. The 
 answer was, by the defendants, 'We are not subscribers to your news- 
 paper.' But the evidence is the defendants used or kept the plaintiff's 
 * * * newspapers, and never offered to return a number, as they 
 reasonably might have done, if they would have avoided the liability to 
 pay for them. Nor did they ever decline to take the newspapers from 
 the post office." The defendant was held to have accepted the papers, 
 and to have become liable for the subscription price by implication of 
 law. 
 
 In Ward v. Powell, 3 Har. (Del.) 379, it was decided that an implied 
 agreement to pay for a newspaper or periodical arose by the continued 
 ^taking and accepting the paper from the post office, and that "if a par- 
 ty, without subscribing to a paper, declines taking it out of the post 
 office, he cannot become liable to pay for it ; and a subscriber may 
 cease to be such at the end of the year by refusing to take the papers 
 from the post office, and returning them to the editor as notice of such 
 determination." In Goodland v. Le Clair, 78 Wis. 176, 47 N. W. 268, 
 it was held that if a person receives a paper from the post office for a 
 
84 CONTRACTS (Part 1 
 
 year, without refusing or returning it, he was liable for the year's 
 ■subscription. And a like obligation was held to arise in the case of 
 Weatherby v. Bonham, 5 C. & P. 228. 
 
 The preparation and publication of a newspaper involves much men- 
 tal and physical labor, as well as an outlay of money. One who ac- 
 cepts the paper, by continuously taking it from the post office, re- 
 ceives a benefit and pleasure arising from such labor and expenditure 
 as fully as if he had appropriated any other product of another's la- 
 bor, and by such act he must be held liable for the subscription price. 
 On the defendant's own evidence, plaintiff should have recovered. 
 
 The judgment will therefore be reversed, and the cause remanded. 
 
 SCULLY V. ROCHE. 
 
 (Supreme Court of New York. Anpellate Division, 1912. 76 Misc. Rep. 458, 
 
 135 N. Y. Supp. 633.) 
 
 Action by Thomas J. Scully against Margaret Roche. From a judg- 
 ment for defendant after trial by the court without a jury, plaintiff 
 appeals. 
 
 Page, J. Plaintiff's assignor entered into a lease with the defendant, 
 dated October 23, 1909, for certain premises therein described, for 
 a period of 11 months from November 1, 1909, at a rental of $462,, 
 payable in installments of $42 monthly in advance. In August or Sep- 
 tember, 1910, prior to the expiration of the lease, a new lease was 
 prepared for one year at a rental of $540, payable $45 monthly. This 
 lease was not signed. 
 
 Defendant testifies that she told the agent that she would not sign the 
 lease at that rental [and was] then told by the agent she would hold 
 over. On the 1st of October, however, she paid the increased rent. On 
 the 1st of November she paid the increased rent, and the agent inquired 
 about the lease, and she testifies she said: "I told you distinctly I 
 will never sign a lease here. In the first place, my eyes are in a bad 
 condition, and my aunt is getting weak, and I don't know what time I 
 will have to give the place up," and "after that I said I wouldn't sign, 
 and under no considerations would I stay. He told me at the time it 
 didn't satisfy him. Then I said to him, 'When I move I will always 
 give you notice.' " 
 
 She further testified that she paid the $45 each month, and— "noth- 
 ing was referred to again. I thought my terms had suited him, be- 
 cause, if they didn't, it was his place to tell me then and there to set 
 out." * 
 
 She continued in possession until June 30th. In the early part of 
 June she notified the landlord that she intended to move on June 30th, 
 to which the landlord replied : "Do you wish me to try and rent the 
 apartment for you ? * * * Your lease does not expire until October 
 1, 1911, and this time of the year is very poor for renting. If you 
 desired moving before October 1st, I would be satisfied if you moved 
 September 1st, but at present time it would be hard to rent." 
 
 Defendant, without replying to this letter, moved June 30th. The 
 claim for rent was assigned to plaintiff, and this action brought to re- 
 cover from the defendant rent for the months of July, August, and 
 September, on the theory that the lease was renewed. The case, how- 
 ever, was tried upon the theory that the defendant was liable for the 
 
Ch. 1) OFFER AND ACCEPTANCE 85 
 
 rent of July and August as a tenant holding over after the expiration 
 of her term. 
 
 The court gave judgment for the defendant. This was erroneous. 
 Where a tenan^ holds over after the expiration of a lease, without any 
 other or new agreement with his landlord, the law implies a continu- 
 ance of the tenancy on the same terms and subject to the same cove- 
 nants as those contained in the original lease, and the option was with 
 the landlord to treat him as a trespasser or as a tenant. The tenant 
 has no such option and holds over at his peril. * * * if^ however, 
 the tenant has notice from the landlord that if he retains possession 
 he must pay a higher rent, he must be deemed to assent to pay such in- 
 creased rent. He cannot hold the premises after such notice and fix 
 his own terms for the rent. * * * 
 
 In the case at bar, in addition to the new lease which was presented 
 to the defendant, a written notice was delivered to her, notifying her 
 that the rent was to be at the increased rate. On September 30th the 
 tenant had the option to vacate the premises or hold over. She elected 
 to hold over, and on October 1st paid the increased rent. On October 
 1st the landlord had the option to treat her as a trespasser and remove 
 her from the premises, or as a tenant and accept the rent. They both 
 made their election. The tenant paid the increased rent and the land- 
 lord accepted it. Their status became settled and determined. Neither 
 could alter the situation without the consent of the other and making 
 a new agreement. Therefore the statement by the tenant as to the 
 terms upon which she would remain on November 1st in no way al- 
 tered the situation. The landlord was not required either to accept 
 or reject the proposition; therefore his silence was not an imphed as- 
 sent. The appellant now concedes that the renewed term must be 
 for 11 months, the same period as the old lease. The term, therefore, 
 would expire on September 1st, and the plaintiff could not recover for 
 more than the rent for the months of July and August, 1911. 
 
 The judgment will be reversed, and a new trial ordered. 
 
 HOPKINS V. RATLIFF. 
 (Supreme Court of Indiana, 188S. 115 Ind. 213, 17 N. E. 288.) 
 
 MiTCHEi,!,, J. * * * f he question is whether he [the defendant 
 counter-claiming] is entitled to recover as upon an indebitatus as- 
 sumpsit for the improvements made on his father-in-law's land while 
 in possession tmder the arrangement disclosed in the foregoing sum- 
 mary of the answer. It seems clear enough to us that the question must 
 receive a negative answer. The occupancy of land under an agreement 
 with the owner to pay rent presumably creates the relation of landlord 
 and tenant. This relation continues as long as the land is occupied 
 under that agreement. It is, of course, true that a person who goes 
 into possession of real estate under a contract to purchase does not 
 thereby become a tenant of the vendor so as to become liable for rent 
 in case the contract is rescinded. * * * y!^ suit for use and occupa- 
 tion, or, for rent, can only be maintained when there is a contract, 
 express or implied, which creates the relation of landlord and tenant. 
 * * * The defendant in the present case went into possession under 
 an arrangement whereby he expected ultimately to become possessed 
 of the land as purchaser by device, which could only take effect at 
 
86 CONTRACTS (Part 1 
 
 the plaintiff's death. Until the happening of that event, the legal title 
 and ownership was to remain in the plaintiff, and the defendant was 
 to pay rent. This created no other legal relation between the parties 
 except that of landlord and tenant ; and so long as the defendant oc- 
 cupied he did so as tenant, yielding, or under contract to yield, rent to 
 the owner of the land. There being no valid contract of purchase, 
 the possession and improvements can only be referred to the agree- 
 ment to take possession and pay rent. 
 
 The landlord agreed to erect a small house with four rooms on the 
 land. This he neglected to do. He prevailed upon the tenant to re- 
 pair the old house ; but it is not alleged that he had agreed to make 
 repairs, nor does it appear that he in any manner promised or agreed 
 to pay for repairs made by the tenant. In respect to the repair of 
 the old house, their duties and obligations were such as the law im- 
 posed upon landlord and tenant. There is no implied obligation on 
 the part of the landlord to make repairs, and,, in the absence of an 
 express contract, the duty of keeping the premises in repair rests 
 solely upon the tenant. The tenant must determine for himself the 
 fitness of the buildings for use, or whether they are sufficiently com- 
 modious for his purposes. If he repairs or enlarges the buildings for 
 his own convenience, even though it is by the persuasion of the land- 
 lord, he does not, in the absence of an agreement or promise, thereby 
 acquire a right to charge the landlord with the expense of repairs. 
 * * * Where a landlord covenants to repair, in case of a breach of 
 the covenant the tenant may make the repairs, and charge the expense 
 to the landlord, or he may recover damages for the breach. * * * 
 The failure of the landlord to erect a house with four rooms, in com- 
 pliance with the agreement, did not, in the absence of a contract to pay, 
 authorize the tenant to charge the cost of repairing another house to 
 the landlord. If the failure or refusal to build the house resulted in 
 damages to the tenant by reducing the value of the leas^old, that be- 
 came a matter altogether apart from the subject of repairs. *' * * 
 The defendant might have built the house and recovered the cost there- 
 of, or, if the plaintiff refused to build, after notice he might have re- 
 covered damages. A tenant who makes improvements of a permanent 
 and fixed character, which are annexed so as to become part of the re- 
 alty, can neither remove them nor recover for their cost without a 
 special contract with the landlord. * * * If it should be considered 
 that the defendant occupied the land and made the improvements, not 
 as tenant, but in part performance of a contract of purchase, still, 
 since after enjoying the possession for about four years, he cannot 
 now place the plaintiff in the same situation he was in before the con- 
 tract was made, he cannot repudiate the contract in advance of the 
 time for performance on the part of the plaintiff, and maintain in- 
 debitatus assumpsit to recover the cost orthe improvements. 
 
 The defendant has done nothing in part performance of a contract 
 except to take possession and make improvements. These acts, as we 
 have seen, can be much more readily referred to his contract of ten- 
 ancy than to the contract of purchase, which was not to be performed 
 on either side until after the plaintiff's death, and which is wholly un- 
 enforceable until it shall have been so performed as to be taken out of 
 the statute. Where possession has been taken by a purchaser, and 
 lasting and valuable improvements have been made under and in re- 
 liance upon an oral contract of purchase, if the circumstances are such 
 
Ch. 1 ) OFFER AND ACCEPTANCE 87 
 
 as to show that the vendor repudiated the contract with a fraudulent 
 purpose to obtain the benefit of improvements made by the purchaser, 
 the contract will be held so far valid as to support an action for dam- 
 ages for breach of the contract. In such a case, a purchaser who has 
 made inprovements on land with the knowledge of. the vendor, in re- 
 liance on a contract; which improvement the latter gets the benefit 
 of by refusing to perforni on his part, may recover the value of the 
 improvements so made, deducting the value of the rents and profits 
 of the land. * * * Where money has been paid on a contract that 
 is wholly void, there being no part performance, the party receiving 
 the money having repudiated the contract, a recovery may be had upon 
 the common count. Where, however, the action is to recover for im- 
 provements made while in possession, and in part performance of the 
 contract of purchase, the action must be for damages for breach of 
 the contract, even though the contract may be so far invalid as not to 
 be enforceable. * * * The plaintiff, according to the averments in 
 the complaint, is in no default. He agreed to make a will, and the will 
 cannot speak until the testator's death. The defendant avers that he 
 is informed or has learned that the plaintiff's will, as it is now pre- 
 pared, does not conform to the agreement. This is not sufficient to 
 authorize him to repudiate the contract and maintain an action on ac- 
 count of improvements made. The answer was not sufficient. The 
 demurrer should have been sustained. 
 Judgment reversed, with costs. 
 
 WADLEIGH V. KATAHDIN PULP & PAPER CO. 
 (Supreme Judicial Court of Maine, 1917. 116 Me. 107, 100 Atl. 150.) 
 
 Action by Moses B. Wadleigh against the Katahdin Pulp & Paper 
 Company. Verdict for plaintiff, and defendant excepts and moves 
 for new trial. 
 
 King, J. Action to recover compensation for driving certain of the 
 defendant's pulp wood down the Penobscot river to its destination, 
 which pulp wood had become intermixed with the plaintiff's logs in 
 said river so it could not be conveniently separated, and also to recover 
 wages and expenses of the plaintiff's men furnished the defendant to 
 assist in separating the pulp wood from the logs at the sorting gaps 
 at the defendant's booms. The verdict was for the plaintiff for 
 $912.24, of which sum $408 is the amount found by the jury for the 
 driving of the intermixed pulp wood. The case comes up on defend- 
 ant's exceptions and motions for a new trial. 
 
 R. S. c. 43, § 6, provides : "Any person, whose timber in any waters 
 of the state is so intermixed with the logs, masts or spars of another, 
 that it cannot be conveniently separated for the purpose of being floated 
 to the market or place of manufacture, may drive all timber with 
 which his own is so intermixed, toward such market or place, when 
 no special and different provision is made by law for driving it, and 
 is entitled to ^^.^reasonable compensation from the owner, to be re- 
 covered after demand therefor on said owner or agent, if known, in 
 an action on the case; he has a prior lien thereon until thirty days 
 after it arrives at its place of destination, to enable him to attach it; 
 and if the owner cannot be ascertained, the property may be libeled 
 
88 CONTRACTS (Part 1 
 
 according to law, and enough of it disposed of to defray the expenses 
 
 thereof ; the amount to be determined by the court hearing the libel." 
 
 * * * 
 
 It is a well-settled general principle that where one party renders 
 services beneficial -to another, under circumstances that negative the 
 idea that the services were gratuitous, and the party to whom the serv- 
 ices are rendered knows it, and permits it, and accepts the benefit of 
 those services, he is bound to pay a reasonable compensation therefor. 
 That is because such facts and circumstances justify a presumption 
 that the party to whom the services are rendered must have requested 
 them, and must intend to pay for them, and therefore the law impHes 
 a promise on his part to pay for them. , 
 
 But we think the case at bar is not quite within the scope of that gen- 
 eral principle. The plaintiff had a right by statute to drive the defend- 
 ant's pulp wood as he did, if it had become so intermixed with his logs 
 that it could not be conveniently separated therefrom. The defendant 
 could not prevent it. No request on the part of the defendant was 
 necessary, and under those circumstances we think it is not to be in- 
 ferred. "This statute gives to a party a right to enforce a claim for 
 services, supposed to be rendered for the benefit of another, but with- 
 out his request, and sometimes without his knowledge, and possibly 
 against his wishes. Such a statute is in derogation of the common 
 law." L,ord v. Woodward, 42 Me. 497. The common law gives no 
 right to enforce payment for services rendered without a request, ex- 
 press or implied, because in such case no promise to pay can be im- 
 plied. It is not to be doubted, we think, that the plaintiff drove the 
 defendant's pulp wood because he had a right to do so under the 
 statute provisions, and not because of any request or assent, express 
 or implied, on tlie part of the defendant. It is plain from the record 
 that the plaintiff's claim at the trial was to recover the reasonable 
 compensation provided for in the statute for driving the pulp wood 
 under the authority of the statute. To sustain that claim it was in- 
 cumbent upon him to prove the demand provided for by the statute. 
 That he undertook to do. But the jury were instructed that if they 
 did not find that a demand for the services of driving was made, "then 
 the plaintiff is entitled in this action to recover of the defendant what 
 the jury would consider a reasonable compensation for these services 
 under the quaptum meruit count in the writ." We think the instruc- 
 tions as to the plaintiff's right to recover under his count upon a quan- 
 tum meruit must be held to be error prejudicial to the defendant, and 
 that its exceptions thereto must be sustained. Those instructions en- 
 abled the jury to give the plaintiff "reasonable compensation" for driv- 
 ing the defendant's pulp wood, under the authority of the statute, but 
 without proof of the demand therefor required by the statute. And 
 the jury may have done so. * * * 
 
 Exceptions sustained as stated in the opinion. 
 
Ch. 1) OFFER AND ACCEPTANCE 89 
 
 SOEVA V. TRUE. 
 (Supreme Judicial Court of New Hampshire, 1873. 53 N. H, 627.) 
 
 Assumpsit for the value of the support furnished by the plaintiff's 
 intestate, Enoch F. Sceva, to Fanny True, his sister-in-law, who was, 
 and for more than a quarter of a century had been, so hopelessly insane 
 as to have no reason or understanding. Prior to his death, August 11, 
 1822, William True, father of said Fanny and her sister Martha, wife 
 of said intestate, owned a farm in Andover and Hill, with a house, barn, 
 and outbuildings thereon, situate in said Andover. On May 25, 1822, 
 in expectation of death, William True made the following disposition 
 of his property : He gave, by an instrument in writing under seal, all 
 his personal property, upon certain conditions and subject to certain 
 charges, to his widow, Betsey True, who died upon said premises in 
 May, 1844, without remarrying. He also gave her on the same day, in 
 the same way, "the use and occupation of said real estate, both of 
 lands, buildings, and tenements, so long as she, the said Betsey, remains 
 my widow." He also, by, deed, conveyed on the same day one undivid- 
 ed half of all said real estate to each of said daughters. Said intes- 
 tate carried on said premises in 1822, and married said Martha in De- 
 cember, 1823, and lived on said premises till about one month before his 
 death. All the parties, save Fanny, treated said deeds and instru- 
 ments as valid, and supposed they were valid; and, aside from the 
 time that the said defendant was away in insane asylums and infirma- 
 ries for treatment, all lived together on said premises in one family 
 till they died, or until said Enoch F. Sceva refused to support said 
 Fanny longer; and she was taken away about said November 1, and 
 when said Enoch F. Sceva left, the rnonth prior to his death. Said 
 Sceva took the entire charge of the premises, used the crops and 
 the proceeds of the lumber, wood, and bark, sold off the whole farm 
 for the common benefit of the family, and paid the taxes and other 
 bills for the support and maintenance of the family. 
 
 No administration was ever had upon any part of the estate of 
 said William True, nor was there any use or trust for the benefit of 
 said Fanny. No attempt was ever made to make any contract with 
 said Fanny about her support or anything else. No application was 
 made for the appointment of a guardian in the interest of said Enoch 
 F. Sceva, because of the opposition of his wife to any step looking to 
 that end. She has been supported during said forty years by said 
 Sceva, his wife, and her mother, out of the avails of said real estate 
 taken as aforesaid, and out of their own funds. Since 1844 her chief 
 support has been from said Sceva. Said intestate was worth nothing 
 when he commenced on said farm, and died worth about $1,600. 
 
 The defendant moved to dismiss. For the purpose of raising ques- 
 tions of law, and no other, the parties agreed that the facts are as 
 stated above, and the questions were reserved for the whole court. 
 
 Ladd, j. * * * We regard it as well settled, by the cases re- 
 ferred to in the briefs of counsel, * * * that an insane person, an 
 idiot, or a person utterly bereft of all sense and reason by the sudden 
 stroke of accident or disease, may be held liable, in assumpsit, for nec- 
 essaries furnished to him in good faith while in that unfortunate and 
 helpless condition. And the reasons upon which this rests are too broad, 
 as well as too sensible and humane, to be overborne by any deductions 
 
90 CONTRACTS (Parti 
 
 which a refined logic may make from the circumstance that in such 
 cases there can be no contract or promise in fact — no meeting of the 
 minds of the parties. The cases put it on the ground of an implied con- 
 tract; and by this is not meant, as the defendant's counsel seems to 
 suppose, an actual contract — that is, an actual meeting of the minds of 
 the parties, an actual, mutual understanding, to be inferred from 
 language, acts, and circumstances, by the jury, — ^but a contract and 
 promise, said to be implied by the law, where,, in point of fact, there 
 was no contract, no mutual understanding, and so no promise. The 
 defendant's counsel says it is usurpation for the court to hold, as 
 matter of law, that there is a contract and a promise, when all the 
 evidence in the case shows that there was not a contract, nor the sem- 
 blance of one. It is doubtless a legal fiction, invented and used for the 
 sake of the remedy. If it was originally usurpation, certainly it has 
 now become very inveterate, and firmly fixed in the body of the law. 
 
 Suppose a man steals my horse and afterwards sells it for cash. The 
 law says I may waive the tort, and recover the money received for 
 the animal of him in an action of assumpsit. Why? Because the 
 law, in order to protect my legal right to have the money, and en- 
 force against the thief his legal duty to hand it over to me, implies a 
 promise — that is, feigns a promise, when there is none — to support 
 the assumpsit. In order to recover, I have only to show that the de- 
 fendant, without right, sold my horse for cash, which he still retains. 
 Where are the circumstances, the language or conduct of the par- 
 ties from which a meeting of their minds is to be inferred, or implied, 
 or imagined, or in any way found by the jury: The defendant never 
 had any other purpose but to get the money for the horse and make 
 off with it. The owner of the horse had no intention to sell it, never 
 assented to the sale, and only seeks to recover the money obtained for it 
 to save himself from total loss. The defendant, in such a case, may 
 have the physical capacity to promise to pay over to the owner the 
 money which he means to steal; but the mental and moral capacity is 
 wanting, and to all practical intents the capacity to promise according 
 to his duty may be said to be entirely wanting, as in the case of an 
 idiot or lunatic. At all events, he does not do it. He struggles to get 
 away with the money, and resists with a determination never to pay 
 if he can help it. Yet the law implies, and against his utmost resist- 
 ance forces into his mouth a promise to pay. 
 
 So, where a brutal husband, without cause or provocation, but from 
 wanton cruelty or caprice, drives his wife from his house, with no 
 means of subsistence, and warns the tradesmen not to trust her on his 
 account, thus expressly revoking all authority she may be supposed to 
 have, as his agent, by virtue of the marital relation, courts of high au- 
 thority have held that a promise to pay for necessaries furnished her 
 while in this situation, in good faith, is injplied by law against the hus- 
 band, resting upon and arising out of his legal obligation to furnish her 
 support. * * * 
 
 So, it was held that the law will imply a promise to pay toll for 
 passing upon a turnpike road, notwithstanding the defendant, at the 
 time of passing, denied his liability and refused payment. * * * 
 In the recent English case of Railway Co. v. Swaffield, L. R. 6 Exch. 
 132, the defendant sent a horse by the plaintiffs' railway, directed to 
 himself at S. station. On the arrival of the horse at S. station, at 
 night, there was no one to meet it, and the plaintiffs, having no ac- 
 
Ch. 1) OFFER AND ACCEPTANCE 91 
 
 conimodation at the station, sent the horse to a Hvery stable. The de- 
 fendant's servant soon after arrived and demanded the horse. He 
 was referred to the hvery stable keeper, who refused to deliver the 
 horse, except on payment of charges, which were admitted to be rea- 
 sonable. On the next day the defendant came and demanded the 
 horse, and the station master offered to pay the charges and let the 
 defendant take away the horse ; but the defendant declined, and went 
 away without the horse, which remained at the livery stable. The 
 plaintiffs afterwards offered to deliver the horse to the defendant at 
 S. without payment of any charges, but the defendant refused to 
 receive it unless delivered at his farm, and with payment of a sum of 
 money for his expenses ahd loss of time. Some months after, the 
 plaintiffs paid the livery stable keeper his charges, and sent the horse 
 to the defendant, who received it ; and it was held that the defendant 
 was liable, upon the ground of a contract implied by law, to the plain- 
 tiffs for the livery charges thus paid by them. * * * 
 
 The evidence of an actual contract is generally to be found either 
 in some writing made by the parties, or in verbal communications which 
 passed between them, or in their acts and conduct considered in the 
 light of the circumstances of each particular case. A contract im- 
 plied by law, on the contrary, rests upon no evidence. It has no ac- 
 tual existence; it is simply a mythical creation of the law. The law 
 says it shall be taken that there was a promise, when, in point of fact, 
 there was none. Of course this is not good logic for the obvious and 
 sufficient reason that it is not true. It is a legal fiction, resting wholl)' 
 for its support on a plain legal obligation, and a plain legal right. If 
 it were true, it would not be a fiction. There is a class of legal rights, 
 with their correlative legal duties, analogous to the obligationes quasi 
 contractu of the civil law, which seems to lie in the region between 
 contracts on the one hand and torts on the other, and to call for the 
 application of a remedy not strictly furnished either by actions ex 
 contractu, or by actions ex delicto. The common law supplies no 
 action of duty, as it does of assumpsit and trespass ; and hence the 
 somewhat awkward contrivance of this fiction to apply the remedy of 
 assumpsit where there is no true contract, and no promise to support it. 
 
 All confusion in this matter might be avoided, as it seems to me, 
 by a suitable discrimination in the use of the term "implied contract." 
 In the discussion of any subject there is always danger of spending 
 breath and strength about mere words, as well as of falling into 
 error when the same term is used to designate two different things. 
 If the term "implied contract" be used indifferently to denote (1) the 
 fictitious creation of the law spoken of above; (2) a true or actual, 
 but tacit, contract — that is, one where a meeting of the minds or mutual 
 understanding is inferred as a matter of fact from circumstances, no 
 words, written or verbal, having been used; and (3) that state of 
 things where one is estopped by his conduct to deny a contract, al- 
 though, in fact, he has not made or intended to make one — it is not 
 strange that confusion should result, and disputes arise, where there 
 is no difference of opinion as to the substance of the matter in con- 
 troversy ; whereas, were a different term applied to each — as, for ex- 
 ample, that of legal duty to designate the first; contract, simply, to 
 designate the second; and contract by estoppel, the third — this dif- 
 ficulty would be avoided. It would, of course, come to the same thing, 
 in substance, if the first were always called an implied contract, while 
 
92 CONTRACTS (Parti 
 
 the other two were otherwise designated in such way as to show dis- 
 tinctly what is meant. This is not always done, and an examination 
 of our Own cases would perhaps show that more or less confusion 
 has arisen from such indiscriminate use of the term. A better nomen- 
 clature is desirable. But whatever terms are employed, it is indispens- 
 able that the distinction, which is one of substance, should be kept 
 clearly in mind, in order that the principles governing in one class of 
 cases may not be erroneously applied to another. * * * 
 
 It by no means follows that this plaintiff is entitled to recover. In 
 the first place, it must appear that the necessaries furnished to the 
 defendant were furnished in good faith, and with no purpose to take 
 advantage of her unfortunate situation. And upon this question the 
 great length of time which was allowed to pass without procuring the 
 appointment of a guardian for her is a fact to which the jury would 
 undoubtedly attach much weight. Its significance and importance 
 must, of course, depend very much on the circumstances under which 
 the delay and omission occurred, all of which will be for the jury to 
 consider upon the question whether everything was done in good faith 
 towards the defendant, and with an expectation on the part of the 
 plaintiff's intestate that he was to be paid. 
 
 Again, the jury are to consider whether the support for which the 
 plaintiff now seeks to recover was not furnished as a gratuity, with 
 no expectation or intention that it should be paid for, except so far 
 as compensation might be derived from the use of the defendant's share 
 of the farm. And upon this point the relationship existing between the 
 parties, the length of time the defendant was there in the family with- 
 out any move on the part of Enoch F. Sceva to charge her or her 
 estate, the absence (if such is the fact) of an account kept by him 
 wherein she was charged with her support and credited for the use 
 and occupation of the land — in short, all the facts and circumstances of 
 her residence with the family that tend to show the intention or ex- 
 pectation of Enoch F. Sceva with respect to being paid for her sup- 
 port — are for the jury. * * * jf jj^ggg services were rendered, 
 and this support furnished, with no expectation on the part of Enoch 
 F. Sceva that he was to charge or be paid therefor, this suit cannot be. 
 maintained ; for then it must be regarded substantially in the light of 
 a gift actually accepted and appropriated by the defendant, without ' 
 reference to her capacity to make a contract, or even to signify her ac- 
 ceptance by any mental assent. 
 
 In this view, the facts stated in the case will be evidence for the 
 jury to consider upon the trial ; but they do not present any question of 
 law upon which the rights of the parties can be determined by the 
 court. Case discharged. 
 
Ch. 2) CONSIDERATION 93 
 
 CHAPTER II 
 CONSIDERATION 
 
 Section 
 
 1. Introduction. 
 
 2. Consideration in Unilateral Contracts. 
 
 3. Performance of, or Pi-omise to Perform, a Pre-existing l^egal Duty. 
 
 4. Promises in the Nature of Gratuities. 
 
 5. Illusory Promises. 
 
 6. Promises to Pay for a Benefit Previously Received. 
 
 7. Sealed Instruments. 
 
 SECTION 1.— INTRODUCTION 
 
 We have observed that an offer and an acceptance of that offer, 
 either express or implied, are requisites to the existence of a con- 
 tract. It is possible, however for the parties to have arrived at an 
 agreement through an offer and its acceptance under circumstances 
 where no contract is created. There is a third requisite to the ex- 
 istence of a contract. That requisite is called consideration. The 
 determination of the nature and characteristics of consideration 
 calls for a re-examination of the offer and the acceptance from a 
 somewhat different point of view. If A. says to B., "I will sell you 
 my bicycle for $25," and B. replies, "I accept your offer," common 
 knowledge tells us that this sort of agreement is a contract. If we 
 assume that consideration is necessary, we must infer that, what- 
 ever consideration may be, it must be present in this case. What 
 is it, and how may we express, in general terms, what constitutes 
 consideration? Before stating some of the definitions of considera- 
 tion, let us inquire into a few other kinds of agreements. A. says 
 to B., "I have made up my mind to give my horse to you, if you 
 are willing to accept the gift." B. replies, ''I shall be very glad to 
 accept." A. later changes his mind and decides not to give the horse 
 to B., and B. sues A. Scarcely any one would be surprised to learn 
 that the law would not permit B. to recover. Why? The courts 
 would say, "Because there was no consideration for A.'s promise." 
 Again, suppose A. gives the horse to B. as a gift, and subsequent- 
 ly B. promises to pay A. $100 for the horse, and then repudiates 
 the promise, and is sued by A. Would the courts enforce this 
 promise? No; because there is no consideration for the promise 
 to pay the $100, although A. agrees to accept the money. Suppose 
 a bank held M.'s note, and that, before maturity, the officers of 
 the bank requested A. to indorse the note. Is A. bound? Would 
 it make any difference if, at the time A. indorsed the note, the 
 holder promised not to sue M. until six months after the date of 
 maturity fixed in the note? Again, suppose A. offers to sell his 
 automobile to B. for $1,000, but adds that it is to be understood 
 that, if he changes his mind within the next three days, the sale 
 is not to be made, and B. accepts. Could B. sue A., if A., within the 
 time specified, expressed his intention not to carry out the trans- 
 
94 CONTRACTS (Part 1 
 
 action? The answer to these questions depends upon whether or 
 not there is consideration for the promise sought to be enforced. 
 
 It should be apparent that, as a matter of public policy, the law 
 should not hold a person liable for refusing to make a gift which 
 he had previously promised to make, or for his failure to keep 
 many kinds of social or business engagements. This does not 
 imply that society should sanction the deliberate refusal to carry 
 out one's promises. In fact, just the contrary is true. Every one 
 instinctively expects a person, who has said that he would do a 
 certain thing, actually to carry out his promise. , Not only that, 
 but society goes further, and expects that a person will do a great 
 many things ; that he will •conduct himself in a certain manner, 
 even though he has not promised to do so, and his failure so to do 
 calls forth social condemnation. Social and business life would 
 be quite different, if established customs were not almost univer- 
 sally complied with. But it is quite a different thing for the law 
 to provide that, unless a person does keep all of his promises, he 
 must pay damages to the individual whose expectations have been 
 disappointed. The law follows custom, but never catches up with 
 all customs. It is well that this is so, because the law should not 
 undertake to do the impossible. The law should and does fix 
 minimum standards of conduct, and, for violations of these stand- 
 ards, persons guilty thereof are subjected to various penalties. 
 And so, with respect to the liability for the failure to perform one's 
 promise, the law allows one to break some promises. It permits a 
 violation of social and business customs and of promises up to a 
 certain point; but, beyond that, promises cannot be broken without 
 liability for the damage caused. Our problem in this chapter is to 
 find out where this point is. This involves the determination of 
 the nature of consideration, because only those promises founded 
 upon consideration are enforceable. 
 
 The question what constitutes consideration is not altogether 
 free from difficulty. In the ordinary case, no doubt, the presence, 
 or absence, of consideration is easily discoverable, but in the 
 border line cases there exists greater doubt. A great deal of the 
 difficulty in the subject of consideration arises from the fact that 
 there is no single generalized statement of the doctrine of con- 
 sideration that has received universal acceptance. Courts and 
 writers differ in their phraseology of the rule. In fact, no definition 
 of consideration could be so framed as to convey an accurate and 
 complete notion of the nature of this requisite to the validity of a 
 contract. That may be obtained only by an examination of the 
 cases where the doctrine of consideration has been discussed and 
 applied. But at this point it will be of some assistance to note a few 
 definitions of this term. 
 
 Sir William R. Anson has defined consideration as "something 
 done, forborne, or suffered, or promised to be done, forborne, or 
 suffered, by the promisee, in respect of the promise."^ 
 
 1 Anson on Contract (3d Am. Ed.) § 118. 
 
Ch. 2) CONSIDERATION 
 
 95 
 
 Professor Williston has stated that "there may still be found 
 several somewhat distinct and conflicting ideas as to what con- 
 stitutes a sufficient consideration. * * * The idea that the con- 
 sideration is the price requested and received by the promisor for 
 the promise, * * * jg undoubtedly the fundamental and, as to 
 most cases, the generally accepted idea of consideration at the 
 present time." * 
 
 Professor Corbin has said : "No single definition that has been 
 given serves to explain all the currently approved decisions. Con- 
 sideration is a fact other than a seal, which, when it accompanies 
 a promise, operates to create a legal duty in the promisor. Courts 
 may give operation (1) to facts long antecedent to the promise; 
 (2) 4:0 contemporaneous facts regarded as the equivalent of and in 
 exchange for the promise; and (3) to subsequent facts consisting 
 of acts in reliance on the promise. In all contract law our problem 
 is to determine what facts will operate to create legal duties and 
 other legal relations. We find at the outset that bare words of 
 promise do not so operate. Our problem then becomes one of 
 determining what facts must accompany words in order to create 
 a legal duty and other legal relations. We must know what these 
 facts are, in order that we can properly predict the enforcement,, 
 reparation, either specific or compensatory, in case of non-per- 
 formance. We are looking for a sufficient cause or reason for the 
 legal enforcement of a promise. This problem was also before the 
 Roman lawyers, and it must exist in all systems of law. With 
 us it is called the problem of consideration." ^ 
 
 The cases following present a series of problems with respect to 
 the doctrine of consideration.* 
 
 SECTION 2.— CONSIDERATION IN UNILATERAI, 
 CONTRACTS 
 
 HAMEE V. SIDWAT. 
 
 (Court of Appeals of New York, 1891. 124 N. Y. 538, 27 N. E. 256, 
 12 L. E. A. 463, 21 Am. St. Sep. 693.) 
 
 ParkBR, J. The question which provoked the most discussion by 
 counsel on this appeal, and which lies at the foundation of plaintiff's 
 asserted right of recovery, is whether by virtue of a contract defend- 
 ant's testator, William E. Story, became indebted to his nephew, Wil- 
 liam E. Story, 2d, on his twenty-first birthday in the sum of $5,(X)0. 
 The trial court found as a fact that "on the 20th day of March, 1869, 
 * * * William E. Story agreed to and with William E. Story, 2d, 
 that if he would refrain from drinking liquor, using tobacco, swearing,. 
 
 2 Williston on Contracts, § 100. 
 
 3 "Does a Pre-existing Duty Defeat Consideration? " by Arthur L. Cor- 
 bin, 2T Yale Law Journal, 362. 
 
 * For a bibliography of the leading discussions of the doctrine of con- 
 sideration, see notes to chapter IV of Anson on Contract, Corbin's Edition.. 
 
96 CONTRACTS (Part 1 
 
 and playing cards or billiards for money until he should become twenty- 
 one years of age, then he, the said William E. Story, would at that 
 time pay him, the said William E. Story, 2d, the sum of $5,000 for 
 such refraining, to which the said William E. Story, 2d, agreed," and 
 that he "in all things fully performed his part of said agreement." The 
 defendant contends that the contract was without consideration to sup- 
 port it and therefore invahd. He asserts that the promisee, by re- 
 fraining from the use of liquor and tobacco, was not harmed, but bene- 
 fited ; that that which he did was best for him to do, independently of 
 his uncle's promise — and insists that it follows that, unless the prom- 
 isor was benefited, the contract was without consideration, a conten- 
 tion which, if well founded, would seem to leave open for controversy 
 in many cases whether that which the promisee did or omitted to do 
 was in fact of such benefit to him as to leave no consideration to sup- 
 port the enforcement of the promisor's agreement. 
 
 Such a rule could not be tolerated, and is without foundation in the 
 law. The Exchequer Chamber in 1875 defined "consideration" as fol- 
 lows : "A valuable consideration, in the sense of the law, may consist 
 either in some right, interest, profit, or benefit accruing to the one par- 
 ty, or some forbearance, detriment, loss, or responsibility given, suf- 
 fered or undertaken by the other." Courts "will not ask whether the 
 thing which forms the consideration does in fact benefit the promisee 
 or a third party, or is of any substantial value to any one. It is 
 enough that something is promised, done, forborne, or suffered by the 
 party to whom the promise is made as consideration for the promise 
 made to him." Anson, Cont. 63. "In general a waiver of any legal 
 right at the request of another party is a sufficient consideration for 
 a promise." Pars. Cont. *444. "Any damage, or suspension, or for- 
 bearance of a right will be sufficient to sustain a promise." 2 Kent, 
 Comm. (.12th Ed.) *465. Pollock in his work on Contracts (page 166), 
 after citing the definition given by the exchequer chamber, already 
 quoted, says: "The second branch of this judicial description is really 
 the most important one. 'Consideration' means not so much that one 
 party is profiting as that the other abandons some legal right in the 
 present, or limits his legal freedom of action in the future, as an in- 
 ducement for the promise of the first." 
 
 Now, applying this rule to the facts before us, the promisee used 
 tobacco, occasionally drank liquor, and he had a legal right to do so. 
 That right he abandoned for a period of years upon the strength of 
 the promise of the testator that for such forbearance he would give him 
 $5,000. We need not speculate on the effort which may have been 
 required to give up the use of those stimulants. It is sufficient that he 
 restricted his lawful freedom of action within certain prescribed limits 
 upon the faith of his uncle's agreement, and now, having fully per- 
 formed the conditions imposed, it is of no moment whether such per- 
 formance actually proved a benefit to the promisor, and the court will 
 not inquire into it; but, were it a proper subject of inquiry, we see 
 nothing in this record that would permit a determination that the 
 uncle was not benefited in a legal sense. Few cases have been found 
 which may be said to be precisely in point, but such as have been, 
 support the position we have taken. 
 
 [Judgment for plaintiff affirmed.] 
 
Ch. 2) CONSIDERATION 
 
 WHITE, Executor of Bluett, v. BLUETT. 
 (Court of Exchequer, 1853. 2 C. L. R. 301.) 
 
 Assumpsit by the plaintiff, as surviving executor of John Bluett. 
 The first count was on a promissory note, whereby the defendant prom- 
 ised to pay the said John Bluett, on demand, the sum of £50, with in- 
 terest. The second count was for money payable by defendant to 
 John Bluett in his lifetime, for money lent by John Bluett to the de- 
 fendant. Defendant pleaded that the said John Bluett was defend- 
 ant's father, and that after the accruing of the causes of action, the 
 defendant complained to John Bluett, that he, the defendant, had not 
 received at his hands so much money or so many advantages as the 
 other children of John Bluett, and certain controversies arose between 
 John Bluett and defendant concerning these matters, and that John 
 Bluett admitted that such complaints were well founded ; and there- 
 upon afterwards it was agreed between John Bluett and defendant 
 that defendant should forever cease to make such complaints, and that 
 in consideration thereof, and in order to do justice to the defendant, 
 and also out of his natural love and affection towards the defendant, 
 he, John Bluett, would discharge the defendant of his liability on said 
 causes of action. 
 
 Clarke, counsel for defendant, argued that a promise is consideration 
 for a promise. 
 
 Pollock, C. B. I am of opinion that the plaintiff is entitled to judg- 
 ment. I think the plea is bad, as it sets up an agreement totally with- 
 out consideration. The principle contended for at the bar on behalf 
 of the defendant is correct; but it has been pushed to the extreme 
 of absurdity. If we attend to mere language — to words simply, and 
 not to reason: — it may be that there is a foundation for the argument 
 which has just been addressed to the court. Mr. Clarke says that 
 the son had a right to complain, and to say to his father, "I will cease 
 to complain if you will give up your claim on that note ;" and that 
 having ceased to complain on his father's answering "Yes," there was 
 a binding agreement, with a good consideration, between them. If this 
 plea can be supported, there are many cases of a most absurd char- 
 acter which might be suggested as affording equally good ground of 
 consideration with that in the present plea. For instance, suppose a 
 man to be in the habit of walking a great deal on a particular highway, 
 and to have been remonstrated with by the surveyor because he used 
 the road more than his neighbors and gave more trouble — if these two 
 were to agree that the one should pay a sum of money, and the other 
 should abstain from complaining of his walking on the highway more 
 than other people, it might just as well be argued that that would be 
 an agreement on which an action would lie. So, again, if we take the 
 case of a bill with two joint makers, one of whom is surety for the 
 other ; suppose the surety to be always complaining to the holder that 
 he is only surety, and not answerable, and that thereon the holder 
 should say to him, "Very well, if you will cease from pouring these 
 complaints into my ears, and say no more to me about the hardship of 
 being sued for the debt of another, I will promise not to sue you," 
 could such an agreement stand? It appears to me that it could not; 
 and when you examine this plea, it is clear that no consideration for 
 any agreement is alleged on the face of it. 'If, on the part of the 
 B.& B.Bus.Law— 7 
 
98 CONTRACTS (Part 1 
 
 father, there was nothing more than an unequal distribution of his 
 property, he had a perfect right to do that as he pleases ; and the son 
 had no right whatever to complain of it. That is the fallacy of Mr. 
 Clarke's argument, which assumed that the son had a right to com- 
 plain. He had no such right ; and when he promised to abstain from 
 that course, he only promised not to do that which he was bound with- 
 out any such promise, to abstain from doing. As the case was pressed 
 on our attention in the argument at the bar, I have gone thus fully into 
 it, to show that I entered into and appreciated that argument; but I 
 confess, that I never met with a clearer case. 
 
 KIRKSEY V. KIEKSET. 
 (Supreme Court of Alabama, 1S45. 8 Ala. 131.) 
 
 Assumpsit by the defendant, against the plaintiff in error. The ques- 
 tion is presented in this court, upon a case agreed, which shows the 
 following facts : 
 
 The plaintiff was the wife of defendant's brother, but had for sorne 
 time been a widow, and had several children. In 1840, the plaintiff 
 resided on public land, under a contract of lease, she had held over, 
 and was comfortably settled, and would have attempted to secure the 
 land she lived on. The defendant resided in Talladega county, some 
 sixty or seventy miles off. On the 10th October, 1840, he wrote to her 
 the foflowing letter: 
 
 "Dear Sister Antillico: Much to my mortification I heard that 
 brother Henry was dead, and one of his children. I know that your 
 situation is one of grief and difficulty. You had a bad chance before, 
 but a great deal worse now. I should like to come and see you, but 
 cannot with convenience at present. * * * I do not know whether 
 you have a preference on the place you live on or not. If you had, 
 I would advise you to obtain your preference, and sell the land and 
 quit the country, as I understand it is very unhealthy, and I know so- 
 ciety is very bad. If you will come down and see me, I will let you 
 have a place to raise your family, and I have more open land than I 
 can tend ; and on the account of your situation, and that of }"our fam- 
 ily, I feel like I want you and the children to do well." 
 
 Within a month or two after the receipt of this letter, the plaintiff 
 abandoned her possession, without disposing of it, and removed with 
 her family, to the residence of the defendant, who put her in comforta- 
 ble houses, and gave her land to cultivate for two years, at the end of 
 which time he notified her to remove, and put her in a house, not com- 
 fortable, in the woods, which he afterwards required her to leave. 
 
 A verdict being found for the plaintiff', for two hundred dollars, 
 the above facts were agreed, and if they will sustain the action, the 
 judgment is to be affirmed, otherwise it is to be reversed. 
 
 Ormond, J. The inclination of my mind is, that the loss and incon- 
 venience, which the plaintiff sustained in breaking up, and moving to 
 the defendant's a distance of sixty miles, is a sufficient consideration 
 to support the promise, to furnish her with a house, and land to culti- 
 vate, until she could raise her family. My brothers, however, think 
 that the promise on the part of the defendant was a mere gratuity, 
 and that an action will not He for its breach. The judgment of the 
 court below must therefore be reversed, pursuant to the agreement of 
 the parties. , 
 
Ch. 2) CONSIDERATION 99 
 
 SILVER et al. v. GRAVES. 
 
 {Supreme Judicial Court of Jlassachusetts, 1911. 210 Mass. 26, 95 N. E. 
 948, Ann. Cas. 1912D, S88.) 
 
 Action by Lena M. Silver and others against Charles L,. Graves. 
 Verdict for plaintiffs, and defendant excepts. 
 
 RuGG, J. The fathe* of the three plaintiffs and of the defendant 
 was survived by them and a widow. By his will each of the plaintiffs 
 was given $100, the widow $1,000, and the defendant the residue of 
 the estate, amounting to about $7,500. The plaintiffs appealed from 
 a decree of the probate court allowing the wiU. There was evidence 
 tending to show that during the pendency of the appeal there were 
 several conferences between the plaintiffs, or some of them, and the 
 defendant, at which the defendant promised the plaintiffs that, if they 
 would withdraw the appeal and let the will be allowed, he would "make 
 it right * * * with a certain sum" and "give a certain sum which 
 would be satisfactory." He declined to name any specific sum of 
 money which he would pay to them. As a consequence of his prom- 
 ise, the plaintiffs withdrew their appeal, and the will was allowed 
 finally. This action is brought to recover [for] the breach of this 
 agreement. * * * 
 
 There is no doubt that the forbearance to prosecute a genuine con- 
 test in the courts is a sufHcient consideration for a promise. In order 
 that it may have this effect, however, the intention must be sincere 
 to carry on a litigation which is believed to be well grounded and not 
 false, frivolous, vexatious or unlawful in its nature. The abandon- 
 ment of an honest purpose to carry on a litigation, even though its 
 character be not such either in law or fact or both, as ultimately to 
 commend itself to the judgment of the tribunal which finally passes 
 upon the question, is a surrender of something of value, and is a suf- 
 ficient consideration for a contract. But the giving up of litigation, 
 which is not founded in good faith, and which does violence to an en- 
 lightened sense of justice in view of the knowledge of the one making 
 the concession, is not the relinquishment of a thing of value, and does 
 not constitute a sufficient consideration for a contract. * * * As 
 was said by Mortan, J., in Mackin v. Dwyer, 205 Mass. 472, at 476, 91 
 N. E. 893, at 894 : "A threat to contest the will, merely for the pur- 
 pose of compelling the defendant to settle with her and buy his peace, 
 without any intention on her part of actually contesting the will if no 
 such settlement was made, would not be sufficient and would not consti- 
 tute a valid consideration for the defendant's promise." * * * 
 
 Moreover,' the jury saw all the parties to the controversy upon the 
 witness stand, and their manner of testifying may have furnished 
 bafeis for an opinion as to the purpose of the plaintiffs in making the 
 contest. These and all the other circumstances of the case, together 
 with the presumption, which exists commonly that people act in good 
 faith rather than corruptly, * * =>= rendered improper a ruling that 
 a jury could not find that the contest which the plaintiffs forbore upon 
 the defendant's promise was a real one honestly undertaken. * * * 
 
 Exceptions overruled. 
 
100 CONTRACTS (Part 1 
 
 SECTION 3.— PERFORMANCE OF, OR PROMISE TO PER- 
 FORM, A PRE-EXISTING LEGAE DUTY 
 
 JAFFRAY V. DAVIS. 
 
 (Court of Appeals of New York, 1891. 124 N. Y. 164, 26 N. E. 351, 
 11 L. R. A. 710.) • 
 
 Potter, J. The facts found by the trial court in this case were 
 agreed upon. They are simple, and present a familiar question of law. 
 The facts are that defendants were owing plaintiffs, on the 8th day of 
 December, 1886, for goods sold between that date and the May previ- 
 ous, at an agreed price, the sum of $7,714.37, and that, on the 27th 
 of the same December the defendants delivered to the plaintiffs their 
 three promissory notes amounting, in the aggregate, to $3,462.24, se- 
 cured by a chattel mortgage on the stock, fixtures, and other property 
 of defendant, located in East Saginaw, Mich., which said notes and 
 chattel mortgage were received "by plaintiffs, under an agreement to 
 accept same, in full satisfaction and discharge of said indebtedness; 
 that said notes have all been paid, and said mortgage discharged of 
 record. The question of law arising from these facts, and presented 
 to this court for its determination, is whether such agreement, with full 
 performance, constitutes a bar to this action, which was brought after 
 such performance to recover the balance of such indebtedness over 
 the sum so secured and paid. 
 
 One of the elements embraced in the question presented upon this 
 appeal is, viz. whether the payment of a sum less than the amount of 
 a liquidated debt under an agreement to accept the same in satisfac- 
 tion of such debt, forms a bar to the recovery of the balance of the 
 debt. This single question was presented to the English court in 1602, 
 when it was resolved, if not decided, in Pinnel's Case, 5 Coke, 117, 
 "that payment of a lesser sum on the day in satisfaction of a greater 
 cannot be any satisfaction for the whole," and that this is so,- although 
 it was agreed that such payment should satisfy the whole. This simple 
 question has since arisen in the English courts, and in the courts of this 
 country, in almost numberless instances, and has received the same so- 
 lution, notwithstanding the courts, while so ruling, have rarely failed 
 upon any recurrence of the question to criticise and condemn its rea- 
 sonableness, justice, fairness, or honesty. No respectable authority 
 that I have been able to find has, after such unanimous disapproval by 
 all the courts, held otherwise than was held in Pinnel's Case, supra, and 
 Cumber v. Wane, 1 Strange, 26; Foakes v. Beer, L. R. 9 App. Cas. 
 605; Goddard v. O'Brien (Q. B. Div.) 21 Amer. Law Reg. 637, and 
 notes. The steadfast adhesion to this doctrine by the courts, in spite 
 of the current of condemnation by the individual judges of the court, 
 and in the face of the demands and conveniences of a much greater 
 business, and more extensive mercantile dealings and operations, dem- 
 onstrate the force of the doctrine of stare decisis. But the doctrine of 
 stare decisis is" further illustrated by the course of judicial decisions 
 upon this subject; for, while the courts still hold to the doctrine of the 
 Pinnel and Cumber-Wane Cases, supra, they have seemed to seize with 
 avidity upon any consideration to support the agreement to accept the 
 lesser sum in satisfaction of the larger, or, in other words, to extract, 
 if possible, from the circumstances of each case, a consideration for 
 
Ch. 2) CONSIDERATION 101 
 
 the new agreement, and to substitute the new agreement in place of 
 the old and thus to form a defense to the action brought upon the 
 old agreement. . ■; 
 
 It will serve the purpose of illustrating the adhesion of the court 
 to settled law, and at the same time enable us, perhaps more satis- 
 factorily, to decide whether there was a good consideration to sup- 
 port the agreement in this case, tO refer to (the consideration in) a 
 few of the numerous cases which the courts have held to be sufificient 
 to support the new agreement. Lord Blackburn said, in his opinion 
 in Foakes v. Beer, supra, and while maintaining the doctrine, "that a 
 lesser sum cannot be a satisfaction of a greater sum," "but the gift 
 of a horse, hawk, or robe, etc., in satisfaction, is good," quite regard- 
 less of the amount of the debt; and it was further said by him, in the 
 same opinion, "that payment and acceptance of a parcel before the 
 day of payment of a larger sum would be a good satisfaction in regard 
 to the circumstance of time ;" "and so, if I am bound in twenty pounds 
 to pay you ten pounds at Westminster, and you request me to pay 
 you five pounds at the day, at York, and you will accept it in full satis- 
 faction for the whole ten pounds, is it a good satisfaction?" It was 
 held in Goddard v. O'Brien, 9 Q. B. Div. 37 : "A., being indebted to B. 
 in il25 7s. and 9d. for goods sold and delivered, gave B. a check 
 (negotiable I suppose) for £100, payable on demand, which B. 
 accepted in satisfaction, was a good satisfaction." Huddleston, B., 
 in Goddard v. O'Brien, supra, approved the language of the opinion in 
 Sibree v. Tripp, 15 Mees. & W. 26: "That a negotiable security may 
 operate, if so given and taken, in satisfaction of a debt of a greater 
 amount ; the circumstance of negotiability making it in fact a different 
 thing, and more advantageous, than the original debt, which was not 
 negotiable." It was held in Bull v. Bull, 43 Conn. 455 : "And, although 
 the claim is a money demand, liquidated, and not doubtful, and it can- 
 not be satisfied with a smaller sum of money, yet, if any other personal 
 property is received in satisfaction, it will be good, no matter what the 
 value." And it was held, in Cumber v. Wane, supra, that a creditor 
 can never bind himself by simple agreement to accept a smaller sum 
 in lieu of an ascertained debt of a larger amount, such agreement being 
 nudum pactum, but, if there be any benefit, or even any legal possi- 
 bility of benefit, to the creditor thrown in, that additional weight will 
 turn the scale, and render the consideration sufficient to support the 
 agreement. It was held in Le Page v. McCrea, 1 Wend. 164, 19 Am. 
 Dec. 469, and in Boyd v. Hitchcock, 20 Johns. 76, 11 Am. Dec. 247, 
 that, "giving further security for part of a debt, or other security, 
 though for a less sum than the debt, and acceptance of it in full of 
 all demands, make a valid accord and satisfaction ;" that, "if a debtor 
 gives his creditor a note indorsed by a third party for a less sum 
 than the debt (no matter how much less), but in full satisfaction of 
 the debt, and it is received as such, the transaction constitutes a good 
 accord and satisfaction." Varney v. Conery, 77 Me. 527, 1 Atl. 683. 
 And so it has been held, "where, by mode or time of part payment 
 different than that provided for in the contract, a new benefit is oV 
 may be conferred, or a burden imposed, a ncAV consideration arises 
 out of the transaction, and gives validity to the agreement of the cred- 
 itor." Rose V. Hall, 26 Conn. 392, 68 Am. Dec. 402. And so "pay- 
 ment of less than the whole debt, if made before it is due, or at a 
 different place from that stipulated, if received in full, is a good satis- 
 
102 CONTRACTS (Part 1 
 
 faction:" Jones v. Bullitt, 2 Litt. (Ky.) 49. * ** In Watson v. 
 Elliott, 57 N, H. 511-513, it was held: "It is enough that something 
 substantial which one party is' not bound by law to do is done by him, 
 or something which he has a right to do he abstains from doing, at the 
 request of the other party, is held a good satisfaction." 
 
 It has been held in a number of cases; that, if a note be surrendered 
 by the payee to the maker, the whole claim is discharged and no action 
 can afterwards be maintained on such instrument for the unpaid bal- 
 ance. * ' * ■ * It has been held that a partial payment made to an- 
 other though at the creditor's instance arid request, is a good discharge 
 of the whole debt. Harper v. Graham, 20 Ohio, 106. "The reason of 
 the rule is that the debtor in such case has done something more than 
 he was originally bound to do, or, at least, something different. It may 
 be more, or it may be less, as a matter of fact." It was held by the su- 
 preme court of Pennsylvania in Bank v. Houston, 11 Wkly. Notes Cas. 
 389 (February 13, 1882) : The decided advantage which a creditor ac- 
 quires by the receipt of a negotiable note for a part of his debt, as by 
 the increased facilities of recovering upon it, the presumption of a con- 
 sideration for it, the ease of disposing of it in market, etc., was held 
 to furnish ample reason why it should be a valid discharge of a larger 
 account or open claim Mrinegbtiable. It has been held that a, payment 
 in advance of the time, if agreed to, is a full satisfaction for a larger 
 claim not yet due. Brooks v. White, 2 Mete. (Mass.) 283, 37 Am. 
 Dec. 95. In some states, notably Maine and Georgia, the legislature, 
 in order to avoid the harshness of the rule under consideration, have, 
 by statute, changed the law upon that subject, by providing: "No 
 action can be maintained upon a demand which has been canceled by 
 the receipt of any sum of money less than the amount legally due there- 
 on, or for any good and valuable consideration, however small" — 
 citing Weymouth v. Babcock, 42 Me. 42. And so in Gray v. Barton, 55 
 N. Y. 68, 14 Am. Rep. 181, where a debt of $820 upon book account 
 was satisfied by the payment of one dollar by calling the balance a 
 "gift," though the balance was not delivered, except by fiction, and the 
 receipt was in the usual form, and was silent upon the subject of a 
 gift, and this case was followed and referred to in Ferry v. Stephens, 
 66 N. Y. 321. So it was held in Mitchell v. Wheaton, 46 Conn. 315, 
 33 Am. Rep. 24, that the debtor's agreement to pay, and the payment 
 of $150, with the costs of this suit, upon a liquidated debt of $299, 
 satisfied the principal debt. These cases show in a striking manner 
 the extreme ingenuity and assiduity which the courts have exercised 
 to avoid the operation of the "rigid and rather unreasonable rule 
 of the 'old law,' " as it is characterized in Johnson v. Brannan, 5 
 Johns. 268-272; or as it is called in Kellogg v. Richards, 14 Wend. 
 116, "technical and not very well supported by reason" ; or, as may be 
 more practically stated, a rule that "a bar of gold worth $100 will dis- 
 charge a debt of $500, while 400 gold dollars in current coin will not." 
 See note to Goddard v. O'Brien, supra, in 21 Amer. Law Reg. 640, 641. 
 
 The state of the law upon this subject, under the modification of lat- 
 er decisions, both in England and in this country, would seem to be 
 as expressed in Goddard v. O'Brien, supra : "The doctrine in Cumber 
 v. Wane, is no doubt very much qualified by Sibree v. Tripp, and I 
 cannot find it better stated than in 1 Smith, Lead. Cas. (7tli Ed.) 595 : 
 'The general doctrine in Cumber v. Wane, and the reason of all the 
 exceptions and distinctions which have been ingrafted on it, may per- 
 
Ch. 2) CONSIDERATION 103 
 
 haps be summed up as follows, viz. : That a creditor cannot biiiid him- 
 self by a simple agreement to accept a smaller sum in lieu of an ascer- 
 tained debt of larger amount, such an agjreement being nudum pactum. 
 But, if there be any benefit, or even any legal possibility of benefit, to 
 the creditor thrown in, that additional weight will turn the scale, and 
 render the consideration sufficient to support the agreement.' " 
 
 In the case at bar, the defendants gave their promissory notes upon 
 time for one-half the debt they owed plaintiff, and also gave plaintiff a 
 chattel mortgage on the stock, fixtures, and other personal property of 
 the d,efendants, under an agreement with plaintiff to accept the same 
 in full satisfaction and discharge of said indebtedness. Defendants 
 paid the notes as they became due, and plaintiff then discharged the 
 mortgage. Under the cases above cited, and upon principle,, this new 
 agreement was supported by a sufficient consideration to make it a 
 valid agreement, and this agreement was, by the parties, substituted in 
 place of the former. The consideration of the new agreement was 
 that the plaintiff, in place of an open book account for goods sold, got 
 the defendants' promissory notes, probably negotiable in form, signed 
 by defendants, thus saving the plaintiff perhaps trouble or expense of 
 proving their account, and got security upon all the defendants' per- 
 sonal proj)erty for the payment of the sum specified in the notes, where 
 before they had no security. It was some trouble at least, and per- 
 haps some expense, to the defendants to execute and cfeliver the se- 
 curity, and they deprived themselves of the legal ownership, or of any 
 exemptions, or the power of disposing of this property, and gave the 
 pvaintiff such ownership, as against the defendants, and the claims 
 thereto of defendants' creditors, if there ^v■ere any. It seems to me, 
 upon principle, and the decisions of this state, * * * and of quite 
 all of the other states, the transactions between the plaintiff and the 
 defendants constitute a bar to this action. All that is necessary to pro- 
 duce satisfaction of the former agreement is a sufficient consideration 
 to support the substituted agreement. 
 
 The doctrine is fully sustained in the opinion of Judge Andrews, in 
 AlHson V. Abendroth, 108 N. Y. 470, 15 N. E. 606, from which I 
 quote : "But it is held that, where there is an independent considera- 
 tion, or the creditor receives any benefit, or is put in a better position, 
 or one from which there may be legal possibility of benefit to which he 
 was not entitled, except for the agreement, then the agreement is not 
 nudum pactum, and the doctrine of the common law, to which we have 
 adverted, has no application." Upon this distinction the cases rest, 
 which hold that the acceptance by the creditor in discharge of the debt 
 of a different thing from that contracted to be paid, although of much 
 less pecuniary value or amount, is a good satisfaction, as, for example, 
 a negotiable instrument binding the debtor and a third person for a 
 smaller sum. Curlewis v. Clark, 3 Exch. 375. Following the same 
 principle, it is held that, when the debtor enters into a new contract 
 with the creditor to do something which he was not bound to do by 
 the original contract, the new contract is a good accord and satisfaction, 
 if so agreed. The case of accepting the sole liability of one of two 
 joint debtors or copartners, in satisfaction of the joint or copartnership 
 debt, is an illustration. This is held to be a good satisfaction, because 
 the sole liability of one of two debtors "may be more beneficial than 
 the joint liability of both, either in respect of the solvency of the par- 
 
104 CONTRACTS (Part 1 
 
 ties, or 'the convenience of the remedy." Thompson v. Percival, 5 
 Barn. & Adol. 925. The judgment must be reversed. 
 
 MELROY V. KIMJIEKER. 
 
 (Supreme Court of Pennsylvania, 1907. 218 Pa. 381, 67 AH. 699, 11 L. R, A. 
 [N. S.] 1018, 120 Am. St. Rep. 888.) 
 
 Mitchell, C. J. * * * In the present case the debtor, being in 
 failing circumstances and contemplating bankruptcy, offered the plain- 
 tiffs 30 per cent, of his debt as a settlement in full. The plaintiffs dis- 
 suaded him from going into bankruptcy, accepted his alternative offer, 
 received the money, and closed the account. They have now brought 
 this suit for the balance. In the absence of any express decision in 
 this state on this point, the learned judge below did not feel at liberty 
 to depart from the general rule. We have no such hesitation. The 
 exact point is whether the debtor's relinquishment of his intention to 
 seek a discharge in bankruptcy, and his payment of 30 per cent, in- 
 stead, constitute a sufficient consideration to bind the creditor to the 
 agreement. On that point we have no doubt. A valuable considera- 
 tion may consist in some right, interest, or benefit to one party, or 
 some loss, detriment, or responsibility resulting actually or potentially 
 to the other. ■ "If there is any advantage to the creditor, the law will 
 not weigh the adequacy of the consideration." Fowler v. Smith, 153 
 Pa. 639, 25 Atl. 744. The accord in this case was good on both branch- 
 es. By it the creditors got a sum certain, instead of the chances of 
 an uncertain dividend in bankruptcy. On the other hand, the debtor 
 accepted the responsibility of paying a sum certain, whether his assets 
 were sufficient or not, and gave up his right to a release of his fu- 
 ture assets, and to a discharge from his whole debt, without regard 
 to the sufficiency of his present assets. 
 
 The decisions on this exact point in other states are not numerous, 
 but the general trend is uniform to the result we have reached. * * * 
 On principle and on authority, therefore, the agreement in the present 
 case was binding, and, there being no dispute on the material facts, 
 the defendant's sixth point, asking for binding instructions, should 
 have been affirmed. Judgment for plaintiff reversed. 
 
 TANNER V. MERRILL. 
 
 (Supreme Court of Michigan, 1895. 108 Mich. 58, 65 N. W 664 31 L R A 
 171, 62 Am. St. Rep. 687.) 
 
 Hooker, J. The defendants appeal from a judgment recovered 
 against them at circuit. They are lumbermen, and the plaintiff worked 
 for them at Georgian Bay, his transportation from Saginaw to that 
 place having been paid by them. When he quit work, a question arose 
 as to who should pay this, under the contract of employment, and de- 
 fendants' superintendent declined to pay any transportation. The 
 plaintiff needed the money due him to get home, and showed a tele- 
 gram announcing the illness or death of his mother, and said that he 
 must go home, to which the superintendent replied that "he did not 
 pay any man's fare" ; whereupon a receipt in full was signed, and the 
 money due, after deducting transportation, was paid. The' plaintiff 
 
Ch. 2) CONSIDERATION 105 
 
 testified that they had no dispute, only he claimed the fare and the 
 superintendent refused to allow it. * * * 
 
 It is urged upon behalf of the plaintiff that receipts are always open 
 to explanation, and that there is no consideration to support the ac- 
 ceptance of a portion of a vahd claim as full payment. The cases 
 which counsel cite do not support the broad contention of plaintiff's 
 counsel, which would seriously derange business affairs if it should 
 be sustained. The doctrine tha,t the receipt of part payment must 
 rest upon a valid consideration to be effective in discharge of the entire 
 debt is carefully limited to cases where the debt is liquidated, by agree- 
 ment of the parties or otherwise, which was not the case here. It was 
 in dispute. * * * in Marion v. Heimbach, 62 Minn. 215, 64 N. W. 
 386, the court say: "But where the claim is unliquidated, it would 
 seem to be true that if the creditor is tendered a sum less than his 
 claim, upon the condition that, if it is accepted, it must be in full sat- 
 isfaction of his whole claim, his acceptance is an accord and satisfac- 
 tion." * * * The important fact to ascertain is whether the plain- 
 tiff's claim was a liquidated claim or not. If it was, there was no con- 
 sideration for the discharge. If not, the authorities are in substantial 
 accord that part payment of the claim may discharge the debt, if it is 
 so received. 
 
 Upon the undisputed facts, the claim of the plaintiff, as made, was 
 not, liquidated. It was not even admitted, but, on the contrary, was 
 denied, because the defendants claimed that it had been partially paid 
 by a vaHd offset.. While the controversy was over the offset, it is 
 plain that the amount due the plaintiff was in dispute. If so, it is 
 difficult to understand how it could be treated as a liquidated claim, 
 unless it is to be said that a claim may be liquidated piecemeal, and that, 
 so far as the items are agreed upon, it is liquidated, and to that extent 
 is not subject to adjustment on a basis of part payment. Cases are 
 not numerous in which just this phase of the question appears. This 
 would seem remarkable, unless we are to assume that, in calling a 
 claim unliquidated, the courts have alluded to the whole claim, and 
 have considered that, where the amount is not agreed upon, the claim 
 as a whole is unliquidated, and therefore subject to adjustment. If 
 this is not true, no man can pay an amount that he admits to be due 
 without being subject to action whenever and so often as his creditor 
 may choose to claim that he was not fully paid, no matter how solemn 
 may have been his acknowledgment of satisfaction, so long as it is not 
 a release under seal. 
 
 The judgment must be reversed. No new trial should be ordered. 
 
 HOGAN V. STOPHLET. 
 
 (Supreme Court of Illinois, 1899. 179 111. 150, 53 N. E. 604, 44 L. R. A. 800.> 
 
 Appellant Hogan sued appellee Stophlet to recover a reward of 
 $50 offered by the latter for the, apprehension and conviction of an in- 
 cendiary. Appellant, sheriff of Pulaski county, arrested the incendiary 
 in the county. The incendiary was convicted of arson. Appellant 
 recovered in the justice of the peace ,court. The circuit court, on ap- 
 peal, found for the appellant. The Appellate Court, upon appeal to it, 
 found for the appellee, reversing the case without remanding it. Ho- 
 gan now appeals to the Supreme Court. 
 
lOiS CONTKACTS (Part 1 
 
 Magruder, J. * * * The Appellate Court has found in its find- 
 ing of facts, as embodied in its judgment, that the Harry Howard who 
 was arrested was so arrested for the offense of setting on fire and 
 burning the store building of appellee, and for the apprehension and 
 conviction of the party committing this offense the reward was offer- 
 
 PQ ^K sf: i(i 
 
 The appellant was the sheriff of Pulaski county. The arrest of 
 Howard was made in Pulaski county, and for a felony committed by 
 Howard in that county ; Howard also being a resident of that county. 
 It was, therefore, appellant's duty to make the arrest. * * * It be- 
 ing true that it was the official duty of the appellant| as sheriff, to make 
 the arrest of the guilty party, and that the fees' which he is entitled to 
 charge for the performance of his official duties are fixed by law, it 
 follows upon well-established principles, that the appellant was not 
 entitled to the reward sued for in this case. It is against public policy 
 to allow a man to recover a reward fpr doing his duty as a public offi- 
 cer. It is also against public policy, and illegal, for a sheriff to re- 
 ceive, for services for which fixed compensation is prescribed by law, 
 any other or further fees, although extraordinary diligence may have 
 been exercised by him in the discharge of his duty. * * ' * A prom- 
 ise to pay an officer a reward for doing what, it is his duty to do under 
 the law is a promise without any consideration to support it. 
 
 There are some decisions which hold to the contrary of the views 
 herein expressed, but these decisions will be found upon examination 
 to be cases where the officer arrested the offender beyond his terri- 
 torial jurisdiction, or cases arising under particular statutes which 
 did not make it the duty of the officer to make the arrest. Many of 
 these decisions are reviewed in the very able opinion delivered by the 
 Supreme Court of Connecticut in Re Russell, 51 Conn. 577, 50 Am. 
 Rep. 55, and are there distinguished from such cases as that which is 
 presented by the present record. ' 
 
 For the reasons above stated, the judgment of the appellate court is 
 affirmed. 
 
 KING v. DULUTH. JI. & N. EY. CX5. 
 (Supreme Court of Minnesota, 1803. 61 Minn. 482, 63 N. W. 1105.) 
 
 Action by George R. King, as surviving partner of the late firm of 
 Wolf & King, against the Duluth, Missabe & Northern Railway Com- 
 pany, on contract. From an order overruling a demurrer to the com- 
 plaint, defendant appeals. 
 
 Start, C. J. This is an action brought by the plaintiff, as surviving 
 partner of the firm of Wolf & King, to recover a balance claimed to be 
 due for the construction of a portion of the defendant's fine of rail- 
 way. The complaint alleges two supposed causes of action, to each 
 of which the defendant demurred on the ground that neither states 
 facts constituting a cause of action. From an order overruHng the de- 
 murrer the defendant appealed. 
 
 The complaint for a first cause of action alleges, among other things, 
 substantially, that in January, 1893, the firm of Wolf & King entered 
 into thr6e written contracts with the president and representative of 
 the defendant for the grading, clearing, grubbing, and construction 
 of the roadbed of its railway for a certain stipulated price for each of 
 
Ch. 2) CONSIDERATION 107 
 
 the general items of work and labor to be performed ;• that the firm 
 entered tipon the performance of such contracts, but in the latter part 
 of February, 1893, in the course of such perfonmance, unforeseen dif- 
 ficulties of construction involving unexpected expenses, and such as 
 were not anticipated by the parties to the contracts, were encountered. 
 That the firm of Wolf & King found that by reason of such difficulties 
 it would be impossible to complete the contracts within the time agreed 
 upon without employing an additional and an unusual force of men 
 and means, and at a loss of not less than $40,000 to them, and conse- 
 quently they notified the representative of the defendant that they 
 would be unable to go forward with the contracts, and unable to com- 
 plete or prosecute the work. Thereupon such representative entered 
 into an agreement with them modifying the written contracts, whereby 
 he agreed that if they would "go forward and prosecute the said work 
 of construction, and complete said contract," he would pay or cause 
 to be paid to them an additional consideration therefor, up to the fuU 
 extent of the cost of the work, so that they should not be compelled to 
 do the work at a loss to themselves; that in consideration of such 
 promise they agreed to forward the work rapidly, and force the same 
 to completion, in the manner provided in the specifications for such 
 work, and referred to in such contracts ; that in reliance upon the 
 agreement modif3'ing the former contracts, and in reliance upon such 
 former contracts, they did prosecute and complete the work in accord- 
 ance with the contracts as so modified by tlie oral agreement, to the 
 satisfaction of all parties in interest ; that such contracts and the 
 oral contract modifying them were duly ratified by the defendant, and 
 that fhe actual cost of .such construction was not less than $30,000 
 in excess of the stipulated amount provided for in the original written 
 contracts. 
 
 It is claimed by appellant that the complainant shows no considera- 
 tion for the alleged promise to pay extra compensation for the work ; 
 that it is at best simply a promise to pay the contractors an additional 
 compensation if they would do that which they were already legally 
 bound to do. The general rule is that a promise of a party to a con- 
 tract to do, or the doing of, that which he is already under a legal ob- 
 ligation to do by the terms of the contract is not a valid consideration 
 to support the promise of the other party to pay an additional compen- 
 sation for such performance. * * * In other words, a promise by 
 one party to a subsisting contract to the opposite party to prevent a 
 breach of the contract on his part is without consideration. * * * 
 If the allegations of the complaint, when taken together, are in legal 
 effect simply that the contractors, finding by the test of experience in 
 the prc/secution of the work that they had agreed to do that which 
 involved a greater expenditure of money than they calculated upon, 
 that they had made a losing contract, and thereupon notified the oppo- 
 site party that they were unable to proceed with the work, and he 
 promised them extra compensation if they would perform their con- 
 tract, the case is within the rule stated, and the demurrer ought to have 
 been sustained as to the first cause of action. 
 
 It ir. claimed, however, by the respondent, that such is not the proper 
 construction of the complaint, and that its allegations bring the case 
 within the rule, adopted in several states, and at least approved in our 
 own, to the effect that if one party to a contract refuses to perform his 
 part'of it unless promised some further pay or benefit than the contract 
 
108 CONTRACTS (Part 1 
 
 provides, and -such promise is made by the other party, it is supported 
 by a valid consideration, for the making of the new promise shows a 
 rescission of the original contract and the substitution of another. In 
 other words, that the party, by refusing to perform his contract, there- 
 by subjects himself to an action for damages, and the opposite party 
 has his election to bring an action for the recovery of such damages 
 or to accede to the demands of his adversary and make the promise ; 
 and if he does so it is a relinquishment of the original contract and 
 the substitution of a new one. Munroe v. Perkins, 9 Pick. (Mass.) 
 305, 20 Am. Dec. 475; Bryant v. Lord, 19 Minn. 396 (Gil. 342); 
 Moore v. Locomotive Works, 14 Mich. 266; Goebel v. Linn, 47 Mich. 
 489,' 11 N. W. 284, 41 Am. Rep. 723; Rogers v. Rogers, 139 Mass. 
 440, ] N. E. 122. 
 
 The doctrine of these cases as it is frequently applied does not com- 
 mend itself either to our judgment or our sense of justice, for where 
 the refusal to perform and the promise to pay extra compensation for 
 performance of the contract are one transaction, and there are no ex- 
 ceptional circumstances making it equitable that an increased com- 
 pensation should be demanded and paid, no amount of astute reasoning 
 can change the plain fact that the party who refuses to perform, and 
 thereby coerces a promise from the other party to the contract to pay 
 him an increased compensation for doing that which he is legally 
 bound to do, takes an unjustifiable advantage of the necessities of the 
 other party. To hold, under such circumstances, that the party mak- 
 ing the promise for extra compensation is presumed to have voluntari- 
 ly' elected to relinquish and abandon all of his rights under the orig- 
 inal contract, and to substitute therefor the new or modified agreement, 
 is to wholly disregard the natural inference to be drawn from the 
 transaction, and invite parties to repudiate their contract obligations 
 whenever they can gain thereby. There can be no legal presumption 
 that such a transaction is a voluntary rescission or modification of the 
 original contract, for the natural inference to be drawn from it is oth- 
 erwise in the absence of any equitable considerations justifying the 
 demand for extra pay. In such a case the obvious inference is that 
 the party so refusing to perform his contract is seeking to take ad- 
 vantage of the necessities of the other party to force from him a 
 promise to pay a further sum for that which .he is already legally en- 
 titled to receive. * * * 
 
 It is entirely competent for the parties to a contract to modify or to 
 waive their rights under it, and ingraft new terms upon it, and in such 
 a case the promise of one party is the consideration for that of the 
 other ; but where the promise to the one is simply a repetition of a 
 subsisting legal promise there can be no consideration for the promise 
 of the other party, and there is no warrant for inferring that the 
 parties have voluntarily rescinded or modified their contract. But 
 where the party refusing to complete his contract does so by "reason 
 of some unforeseen and substantial difficulties in the performance of 
 the contract, which were not known or anticipated by the parties when 
 the contract was entered into, and which cast upon him an additional 
 burden not contemplated by the parties, and the opposite party prom- 
 ises him extra pay or benefits if he will complete his contract and he 
 so promises, the promise to pay is supported by a valid consideration 
 In such a case the natural inference arising from the transaction if 
 unmodified by any equitable considerations, is rebutted, and the pre- 
 
Ch. 2) CONSIDERATION 109 
 
 sumption arises that by the voluntary and mutual promises of the par- 
 ties their respective rights and obligations under the original contract 
 are w^aived, and those of the new or modified contract substituted for 
 them. Cases of this character form an exception to the general rule 
 that a promise to do that which a party is already legally bound to do 
 is not a sufficient consideration to support a promise by the other par- 
 ty to the contract to give the former an additional compensation or 
 benefit. * * * 
 
 What unforeseen difficulties and burdens will make a party's refusal 
 to go forward with his contract equitable, so as to take the case out of 
 the general rule and bring it within the exception, must depend upon 
 the facts of each particular case. They must be substantial, unfore- 
 seen, and not within the contemplation of the parties when the contract 
 was made. * * * 
 
 The cases of Meech v. City of Bufifalo, 29 N. Y. 198, where the un- 
 foreseen difficulty in the execution of the contract was quicksand, in 
 place of expected ordinary earth excavation, and Michaud v. Ivlc- 
 Gregor (decided at the present term) 61 Minn. 198, 63 N. W. 479, 
 where the unforeseen obstacles were rocks below the surface of the 
 lots to be excavated, which did not naturally belong there, but were 
 placed there, by a third party, and of the existence of which both par- 
 ties to the contract were ignorant when the contract was made, are il- 
 lustrations of what unforeseen difficulties will take a case out of the 
 general rule. Do the allegations of fact contained in plaintiff's first 
 alleged cause of action bring his case within the exception? Clearly 
 not ; for eliminating all conclusions, and considering only the facts al- 
 leged, there is nothing to make the case exceptional, other than the 
 general statement that the season was so extraordinary that in order 
 to do the stipulated work it would require great and unusual expense, 
 involving a large use of powder and extra time and labor for the pur- 
 pose of blasting out the frozen earth and other material which was en- 
 countered. What the character of this material was we are not told, 
 or what the other extraordinary conditions of the ground were. 
 
 The court will take judicial knowledge of the fact that frozen 
 ground on the Missabe Range, where the work was to be performed, 
 m the month of February, is not unusual or extraordinary. It was a 
 matter which must have been anticipated by the parties, and taken in- 
 to consideration by them when this contract was made. The most that 
 can be claimed from the allegations of the complaint is that the con- 
 tractors had made a losing bargain, and refused to complete their con^ 
 tract, and the defendant, by its representative, promised them that if 
 they would go forward and complete their contract it would pay them 
 an additional compensation, so that the total compensation should be 
 equal to the actual cost of the work. * * * 
 
 So much of the order appealed from as overruled the defendant's 
 demurrer to the supposed first cause of action in the plaintiff's com- 
 plaint must be reversed. * * * 
 
110 CONTRACTS (fart 1 
 
 MAKER V. TAFT. 
 
 (Supreme Court of Oklahoma, 1914. 41 Old. 663, 139 Pac. 970, 
 ."52 L. R. A. [N. S.] 328.) 
 
 GaLbraiTh, C. This was an action in replevin commenced April 3, 
 1911, for the purpose of obtaining the possession of certain horses and 
 cattle described in a chattel mortgage given for the purpose of securing 
 a promissory note for $582. The note being past due, the mortgagee 
 sought the possession of the property in order that he might foreclose 
 the same. The order of replevin was issued, and the property seized 
 and sold after posting notice the required time, and the proceeds of 
 the sale applied in payment of the amount of the note and interest and 
 cost, and a small balance 6f $36 remaining in the hands of the mort- 
 gagee was offered to the defendants, and by them refused. The de- 
 fendants filed a joint answer to the petition in replevin, in which they 
 admitted the execution of the note and mortgage, but denied that they 
 were unlawfully in the possession of the property at the time of the 
 commencement of the suit, for the reason that the maturity of the note 
 and mortgage had been extended for six months a short time prior to 
 
 filing the suit, and specially pleaded that '"on or about the day 
 
 of April, 1911, and before the beginning of this action, said defendants 
 paid to the plaintiff the sum of $50 on said debt, and, as consideration 
 therefor, the plaintiff has promised and agreed with the defendants 
 that said note and mortgage was- extended for a period of six months 
 
 from said day of April, 1911." To this answer the plaintiff 
 
 demurred, on the ground that the same did not state facts sufficient 
 to constitute a defense to the action. * * * 
 
 It is contended that, in paying the $50 interest already due, the de- 
 fendant was doing no more than she was already legally bound to do, 
 and that, therefore, there was no consideration for the agreement to 
 extend the payment of the note. * * * The authorities upon this 
 proposition are in irreconcilable conflict, and it is for this court tt) de- 
 cide which line of authorities to follow upon this proposition. * * * 
 
 In Dare v. Hall, 70 Ind. 545, it was held that, to release a surety on 
 account of the extension of time to the principal, the extension must 
 have been upon a new consideration, and that the payment of interest 
 already due upon the note did not constitute such new consideration. 
 It was also held that an agreement to continue the payment of interest 
 at the same rate as specified in the note, or an agreement to provide 
 paying interest at a reduced rate, created no new consideration for the 
 extension of the note. To the same effect is the case of Wilson v. 
 Powers, 130 Mass. 127; Olmstead v. Latimer, 158 N. Y. 313, 53 N. 
 E. 5, 43 L. R. A. 685. * * * 
 
 There are authorities equally as strong upon the other side of this 
 proposition. * * * In McComb v. Kittridge, 14 Ohio 348, the 
 court in language referred to by Mr. Justice Brewer in Royal v. Lind- 
 say, 15 Kan. 591, said: "It is just as competent for the- principals to a 
 note to extend the time of payment for a specified period as it was to 
 fix the time of payment originally. If the lender of money secured bv 
 a note, after the same becomes due, contracts with the borrower that 
 the time of paying the same shall be extended for one year, or for any 
 other period, upon consideration that tlie borrower shall pay the legal or 
 less rate of interest, why is not that a binding contract ? The lender, 
 by this contract, secures to himself the interest on his money for the 
 
Ch. 2) CONSIDERATION 111 
 
 year; and the borrower precludes himself from getting rid of the 
 payment of the interest by discharging the principal. It is a valuable 
 right to have money placed at interest, and it is a valuable right to 
 have the privilege, at any time, of getting rid of the pa)mient of inter- 
 est by discharging the principal. By this contract,' the right to interest 
 is secured for a given period, and the right to pay off the principal, 
 and get rid of paying the interest, is also relinquished for such period. 
 Here, then, are all the elements of a binding contract. But it is said 
 there is no consideration for the extension of time, because the law 
 gives 6 per cent after the note is due. But the law does not secure the 
 payment of this interest for any given period, or prevent the discharge 
 of the principal at any moment. There is precisely the same consider- 
 ation for the extension of the time as there was for the original loan 
 The consideration of the loan, on the part of the borrower, is the pay- 
 ment of interest. If there was no law limiting the amount of interest, 
 the parties might contract for any rate they pleased. A contract to 
 forbear the collection of a debt for a specified period, in consideration 
 of the payment of a rate of interest beyond what the law allows, is 
 founded upon a valid consideration. This would never have been 
 doubted at all, if the law had not fixed the rate for which collection 
 could be had. But by limiting the rate of interest the law does not 
 declare that such rate is not a valuable consideration but, on the con- 
 trary, declares that such rate is so fully valuable that it will not permit 
 a higher rate for the use of money or forbearance." * * * 
 
 We are constrained to follow the line of decisions holding that the 
 promised extension, if made as set out in the defendants' answer, was 
 without consideration and void. The entire debt at the time of this 
 payment being past due, and the interest then accrued amounting to 
 more than the amount paid, and not having paid or agreed to pay any 
 more than she was under obligation to pay at that time, and not having 
 paid any greater rate of interest than was provided by the terms of the 
 note and mortgage, there was not, in any aspect of the case, a con- 
 sideration passing from the maker of the note to the payee sufficient 
 to support the alleged promised extension, and for that reason the an- 
 swer did not set out facts suflicient to constitute a defense, and the 
 demurrer thereto should have been sustained. The same objection, 
 as raised at the subsequent stages of the trial, was well taken, and the 
 denial thereof was prejudicial error. 
 
 On account of these errors, the judgment appealed from should be 
 reversed, and said cause remanded to the superior court of Custer 
 county for further proceedings not inconsistent with the foregoing 
 opinion. 
 
 DE CICCO V. SCHWEIZEK et al. 
 
 (Court of Appeals of New York, 1917. 221 N. Y. 431, 117 N. B. 807, L. B. A. 
 191SB, 1004, Ann. Cas. 1918C, 816.) 
 
 Cardozo, J. On January 16, 1902, "articles of agreement" were ex- 
 ecuted by the defendant Joseph Schweizer, his wife, Ernestine, and 
 Count Oberto Gulinelli. The agreement is in Italian. We quote from 
 a translation the part essential to the decision of this controversy: 
 "Whereas, Miss Blanche Josephine Schweizer, daughter of said Mr. 
 Joseph Schweizer and of said Mrs. Ernestine Teresa Schweizer, is now 
 affianced to and is to be married to the above said Count Oberto Gia- 
 
112 CONTRACTS (Part 1 
 
 como Giovanni Francesco Maria Gulinelli: Now in consideration of 
 all that is herein set forth the said Mr. Joseph Schweizer promises and 
 expressly agrees by the present contract to pay annually to his said 
 daughter Blanche, during his own life and to send her, during her life- 
 time, the sum Of twd thousand five hundred dollars, or the equivalent of 
 said sum in francs, the first payment of said amount to be made on the 
 20th day of January, 1902." Later articles provided that, "for the same 
 reason heretofore set forth," Mr. Schweizer will not change the provi- 
 sion made in his will for the benefit of his daughter and her issue, if 
 any. The yearly payments in the event of his death are to be continued 
 by his wife. 
 
 On January 20, 1902, the marriage occurred. On the same day, the 
 defendant made the first payment to his daughter. He continued tlie 
 payments annually till 1912. This action is brought to recover the in- 
 stallment of that year. The plaintifif holds an assignment executed by 
 the daughter, in which her husband joined. The question is whether 
 there is any consideration of the promised annuity. That marriage 
 may be a sufficient consideration is not disputed. The argument for 
 the defeijdant is, however, that Count Gulinelli was already affianced 
 to Miss Schweizer, and that the marriage was merely the fulfillment 
 of an existing legal duty. For this reason, it is insisted, consideration 
 was lacking. The argument leads us to the discussion of a vexed prob- 
 lem of the law which has been debated by courts and writers with much 
 subtlety of reasoning and little harmony of results. There is general 
 acceptance of the proposition that where A. is under a contract with B., 
 a promise made by one to the other to induce performance is void. The 
 trouble comes when the promise to induce performance is made by 
 C, a stranger. Distinctions are then drawn between bilateral and 
 unilateral, contracts; between a promise by C. in return for a new 
 promise by A., .and a promise by C. in return for performance by A. 
 Some jurists hold that there is consideratioii in both classes of cases. 
 Ames, Two Theories of Consideration, 12 Harvard Law Review, 515, 
 and 13 Harvard Law Review, 29, 35 ; Langdell, Mutual Promises as 
 a Consideration, 14 Harvard Law Review, 496; Leake, Contracts, p. 
 622. Others hold that there is consideration where the promise is 
 made for a new promise, but not where it is made for performance. 
 Beale, Notes on Consideration, 17 Harvard Law Review, 71 ; 2 Street, 
 Foundations of Legal Liabilities, pp. 114, 116; Pollock, Contracts 
 (8th Ed.) 199; Pollock, Afterthoughts on Consideration, 17 Law 
 Quarterly Review, 415 ; 7 Halsbury, Laws of England, Contracts, p. 
 385 ; Abbott v. Doane, 163 Mass. 433, 40 N. E. 197, 34 L. R. A. 33. 
 47 Am. St. Rep. 465. Others hold that there is no consideration in 
 either class of cases. Williston, Successive Promises of the Same Per- 
 formance, 8 Harvard Law Review, 27, 34 ; Consideration in Bilateral 
 Contracts, 27 Harvard Law Review, 503, 521; Anson on Contracts 
 (11th Ed.) p. 92. 
 
 The storm center about which this controversy has raged is the case 
 of Shadwell v. Shadwell, 9 C. B. (N. S.) 159, 99 E. C. L. 158, which 
 arose out of a situation similar in many features to the one before us. 
 Nearly everything that has been written on the subject has been a com- 
 mentary on that decision. There an uncle promised to pay his nephew 
 after marriage an annuity of il50. At the time of the promise the 
 nephew was already engaged. The case was heard before Erie, C. J 
 and Keating and Byles, JJ. The first two judges held the promise to 
 
Ch. 2) CONSIDERATION 113 
 
 be_ enforceable. Byles, J., dissented. His view was that the nephew, 
 being already affianced, had incurred no detriment upon the faith of 
 the promise, and hence that consideration was lacking. Neither of the 
 two opinions in Shadwell v. Shadwell can rule the case at bar. There 
 are elements of difference in the two cases which raise new problems. 
 But the earlier case, with the literature which it has engendered, gives 
 us a point of departure and a method of approach. 
 
 The courts of this state are committed to the view that a promise by 
 A. to B. to induce him not to break his contract with C. is void. 
 
 * * * If that is the true nature of this promise, there was no con- 
 sideration. We have never held, however, that a like infirmity attaches 
 to a promise by A., not merely to B., but to B. and C. jointly, to induce 
 them not to rescind or modify a contract which they are free to 
 abandon. To determine whether that is in, substance the promise be- 
 fore us, there is need of closer analysis. 
 
 The defendant's contract, if it be one, is not bilateral. It is uni- 
 lateral. * * * The consideration exacted is not a promise, but an 
 act. The count did not promise " anything. In effect the defendant 
 said to him : If you and my daughter marry, I will pay her an annuity 
 for life. Until marriage occurred, the defendant was not bound. It 
 would not have been enough that the count remained willing to marry. 
 The plain import of the contract is that his bride also should be will- 
 ing, and that marriage should follow. The promise was intended to 
 affect the conduct, not of one only, but of both. This becomes the 
 more evident when we recall that though the promise ran to the count, 
 it was intended for the benefit of the daughter. * * * When it 
 came to her knowledge, she had the right to adopt and enforce it. 
 
 * * * In doing so, she made herself a party to the contract. 
 
 * * * If the contract had been bilateral, her position might have 
 been different. Since, however, it was unilateral, the consideration be- 
 ing performance, action on the faith of it put her in the same position 
 as if she had been in form the promisee. That she learned of the prom- 
 ise before marriage is a. legitimate inference from the relation of the 
 parties and from other attendant circumstances. The writing was 
 signed by her parents; it was delivered to her intended husband; it 
 was made four days before the marriage ; it called for a payment on 
 the day of the marriage ; and on that day payment was made, and made 
 to her. From all these circumstances, we may infer that at the time 
 of the marriage the promise was known to the bride as well as the 
 husband, and that both acted upon the faith of it. 
 
 The situation, therefore, is the same in substance as if the promise 
 . had run to husband and wife alike, and had been intended to induce 
 performance by both. They were free by common consent to terminate 
 their engagement or to postpone the marriage. If they forbore from 
 exercising that right and assumed the responsibilities of marriage in 
 reliance on the defendant's promise, he may not now retract it. The 
 distinction between a promise by A. to B. to induce him not to break 
 his contract with C, and a like promise to induce hi"m not to join witli 
 C. in a voluntary rescission, is not a new one. It has been suggested 
 in cases where the new promise ran to B. solely^ and not to B. and C. 
 jointly. Pollock, Contracts (8th Ed.) p. 199; Williston, 8 Harv. L. 
 Rev. 36. The criticism has been made that in such circumstances 
 there ought to be some evidence that C. was ready to withdraw. Will- 
 b:& B.Bus.Law— 8 , 
 
114 CONTRACTS (Part 1 
 
 iston, supra, pp. 36, 37. Whether that is true of contracts to marry is 
 not certain. Many elements foreign to the ordinary business contract 
 enter into such engagements. It does not seem a far-fetched assum])- 
 tion in such cases that one will release where the other has repented. 
 We shall assume, however, that the criticism is valid where the prom- 
 ise is intended as an inducement to only one of the two parties to the 
 contract. It may then be sheer speculation to say that the other party 
 could have been persuaded to rescind. But where the promise is held 
 out as an inducement to both parties alike, there are new and differ- 
 ent implications. One does not commonly apply pressure to coerce 
 the will and action of those who are anxious to proceed. The attempt 
 to sway their conduct by new inducements is an implied admission 
 that both may waiver ; that one equally with the other must be strength- 
 ened and persuaded ; and that rescission or at least delay is something 
 to be averted, and something, therefore, within the range of not un- 
 reasonable expectation. If pressure, applied to both, and holding both 
 to their course, is not the purpose of the promise, it is at least the nat- 
 ural tendency and the probable result. 
 
 The defendant knew that a man and a woman were assuming the 
 responsibilities of wedlock in the belief that adequate provision had 
 been made for the woman and for future offspring. He offered this 
 inducement to. both while they were free to retract or to delay. That 
 they neither retracted nor delayed is certain. It is not to be expected 
 that they should lay bare all the motives and promptings, some avowed 
 and conscious, others perhaps half-conscious and inarticulate, which 
 swayed their conduct. It is enough that the natural consequence of 
 the defendant's promise was to induce them to put the thought of re- 
 scission or delay aside. From that moment, there was no longer a real 
 alternative. There was no longer what philosophers call a "living" 
 option. This in itself permits the inference of detriment. * * * 
 The same inference follows, not so inevitably, but still legitimately, 
 where the statement is made to induce the preservation of a contract. 
 It will not do to divert the minds of others from a given line of conduct, 
 and then to urge that because of the diversion the opportunity has gone 
 by to say how their minds would otherwise have acted. If the tend- 
 ency of the promise is to induce them to persevere, rehance and detri- 
 ment may be inferred from the mere fact of performance. The 
 springs of conduct are subtle and varied. One who meddles with them 
 must not insist upon too nice a measure of proof that the spring which 
 he released was effective to the exclusion of all others. 
 
 One other line of argument must be considered. The suggestion is 
 made that the defendant's promise was not made animo contrahendi. 
 It was not designed, we are told, to sway the conduct of any one : it 
 was merely the offer of a gift which found its motive in the engage- 
 rnent of the daughter to the count. Undoubtedly, the prospective mar- 
 riage is not to be deemed a consideration for the promise "unless the 
 parties have dealt with it on that footing." Holmes, Common Law, p. 
 292. * * * "Nothing is consideration that is not regarded as such 
 by both parties." Philpot v. Gruninger, 14 Wall. 570, 577, 20 L. Ed. 
 743. * * * But here the very formality of the agreement suggests 
 a purpose to affect the legal relations of the signers. One does not 
 commonly pledge one's self to generosity in the language of a cove- 
 nant. That the parties beheved there was a consideration is certain. 
 The document recites the engagement and the coming marriage. It 
 
Ch. 2) CONSIDERATION 115- 
 
 states tliat these are the "consideration" for the promise. The failure- 
 to marry would have made the promise ineffective. In these circum- 
 stances we cannot say that the promise was not intended to control the 
 conduct of those whom it was designed to benefit. Certainly we cannot 
 draw that inference as one of law. Both sides moved for the direc- 
 tion of a verdict, and the trial judge hecame by consent' the trier of 
 the facts. If conflicting inferences were possible, he chose those fa- 
 vorable to the plaintiff. 
 
 The conclusion to which we are thus led is reinforced by those con- 
 siderations of public policy which cluster about contracts that touch 
 the marriage relation. The law favors marriage settlements, and seeks 
 to uphold them. It puts them for many purposes in a class by them- 
 selves. * * * It has enforced them at times where consideration, if 
 present at all, has been dependent upon doubtful inference. * * * 
 It strains, if need be, to the uttermost the interpretation of equivocal 
 words and conduct in the effort to hold men to the honorable fulfill- 
 ment of engagements designed to influence in their deepest relations, 
 the lives of others. 
 
 The judgment should be affirmed with costs. 
 
 SECTION 4.— PROMISES IN THE NATURE OF 
 GRATUITIES 
 
 BIILLER et al. v. WE.STKItX OOLLERE OF TOLEDO. 
 
 (Supreme Court of Illinois, ISOS. 177 111. I'SO, r.2 X. E. 4:',l'. 42 L. R. A. 797.. 
 
 69 Am. St. Rep. 242.) 
 
 In the matter of the estate of Mary Beatty, deceased, the Western 
 College of Toledo obtained a judgment against Jacob Miller and an- 
 other, executors, and they appealed to the Appellate Court, which af- 
 firmed the judgment, and they again appeal. * * * 
 
 The note, filed as a claim against the estate of the deceased, is as 
 follows : 
 
 "$7,000.00. Dover, 111., Dec 9, 1887. In consideration of a desire 
 to aid the cause of Christian education, and the privilege of sending 
 one student four years free of tuition, I promise to pay to the order of 
 the treasurer of Western College, of Toledo, Iowa, for the erection 
 of the Ladies' Boarding Hall of said college, on or before the first 
 day of December, 1910, the sum of seven thousand dollars, without in- 
 terest: provided, that in the event of my death before the maturity of 
 this note it shall become then due. Mary Beatty. P. O.: Dover. 
 County: Bureau. State: 111. Witness: H. H. Maynard. W. M. 
 Beardshear." * * * 
 
 The appellee is a college located at Toledo, in the state of Iowa, and 
 is under the management of the denomination known as the United 
 Brethren in Christ. Prior to December, 1887, the college had com- 
 menced the erection of a building to be known as the "Ladies' Boarding^ 
 Hall" of the college and had expended upon the stone foundation there- 
 of the sum of $2,000, donated to it by a man in Ohio, named Dodds. 
 In December, 1887, representatives of the college appealed to the de- 
 •-eased, Mary Beatty, at her home in Dover, 111., for a donation of $10,- 
 
116 CONTRACTS (Part 1 
 
 000, to complete the erection of said hall, she being a member of the 
 denomination to which the college belonged. On December 9, 1887, 
 she was visited by H. H. Maynard, a soliciting agent of the college, 
 and W. M. Beardshear, president of the college. On December 3, 
 1887, she had given to Maynard $500 in cash, a note for $1,500, pay- 
 able on or before December 3, 1890, and a note for $5,000 of like 
 tenor with the note for $7,000 above set forth. On December 9, 
 1887, she destroyed the $5,000 note, and gave to Maynard and Beard- 
 shear the $7,000 note above described, and also a short-time note for 
 
 $r,ooo. * * * 
 
 Magrudbr, J. It is contended, however, that the note for $7,000, 
 filed as a claim in this case was executed and delivered without any 
 valid consideration to support it. The note recites upon its face that 
 the maker thereof promises to pay "in consideration of a desire to aid 
 the cause of Christian education, and the privilege of sending' one 
 student four years free of tuition." * * * Whether this note, upon 
 its face, imports a consideration or not, it is well settled that proof may 
 be introduced to show the facts in regard to the consideration of the 
 note. The evidence tends to show that the deceased availed herself of 
 the privilege, specified in the note, of sending one student four years 
 free of tuition. The certificate embodying such privilege was issued to 
 Mrs. Beatty, and was made use of by a female student upon the order 
 of Mrs. Beatty. We do not deem it necessary, however, to decide 
 whether or not the privilege specified upon the face of the note, and 
 the use of it made by the deceased, constituted a vaUd consideration. 
 The proof tends to show that the note for $7,000 was a gift or "dona- 
 tion to the college. Such a note partakes of the nature of a volun- 
 tary subscription to raise a fund or promote an object. It is well set- 
 tled that a promissory note without consideration, and intended as a 
 gift to the payee by the maker thereof, is but a promise to make a gift 
 in the future, and is not enforceable. As a gift it is always revocable 
 until it is executed, and is not executed until it is paid. "The promise 
 stands as a mere offer, and may, by necessary consequence, be revok- 
 ed at any time before it is acted upon." Pratt v. Trustees, 93 111. 475, 
 34 Am. Rep. 187. In Blanchard v. Williamson, 70 111. 647, we said 
 (page 652) : "If a party delivers his own promissory note as a gift, it 
 is but a promise to pay a sum certain at a future day, and we are not 
 aware such a promise can be enforced, either at law or in equity. It 
 could not be enforced against the maker in his lifetime, and his rep- 
 resentatives could defend against it on the ground there was no con- 
 sideration." * * * But, while such a note, amounting to a mere 
 gift, is open to the defense of a want of consideration, yet that defense 
 cannot be made to it if money has beeh expended, or liabilities have 
 been incurred, in reliance upon the note. If money has been expended, 
 or liabilities have been incurred, which, by legal necessity, must cause 
 loss or injury to the person so expending money or incurring liability, 
 if the note is not paid, the donor or maker thereof is, in good con- 
 science, bound to pay ; and the gift will be upheld upon the ground of 
 estoppel, and not by reason of any valid consideration in the original 
 undertaking. We have said: "It is the expending of money, etc., or 
 incurring a legal liability on the faith of the promise, which gives the 
 right of action ; and without this there is no right of action." Pratt 
 v. Trustees, 93 111. 475, 34 Am. Rep. 187. 
 
 There was evidence in the case at bar tending to show that the ap- 
 
Ch. 2) CONSIDERATION 117 
 
 pellee expended motley in the construction of the building known as 
 "Ladies' Boarding Hall" upon the faith of the promise made by the 
 deceased as embodied in the note for $7,000. It makes no difference 
 that she did not advance any money upon that note, but preferred to 
 donate $6,700, and take back certificates, which secured to her the 
 payment of annuities thereon during her life. The instructions given 
 by the court to the jury required them to find whether or not the col- 
 lege, during the lifetime of Mary Beatty, entered into a contract to 
 build and erect, and did build and erect, and expend moneys and incur 
 liabilities in building and erecting, the Ladies' Boarding Hall on the 
 faith and strength of the note for $7,000. The question as to the ex- 
 penditure of such moneys and the incurring of such liabilities upon 
 the faith and strength of the note was a question of fact, which was 
 submitted to the jury by the instructions. In the present state of the 
 record, we are obHged to assume that the jury found in favor of such 
 expenditures of money and the incurring of such liabilities on the part 
 of the appellee. This being so, the appellee is entitled to its right of 
 action, even if the note for $7,000 was without consideration before it 
 was thus acted upon. Upon this branch of the case, therefore, we are 
 of the opinion that the courts below committed no error in holding the 
 claim of appellee to be a valid claim. * * * 
 Judgment affirmed. ■ 
 
 PRESBYTERIAN CHURCH OF ALBAXY v. COOPER. 
 
 (Court of Appeals of New York, 1889. 112 N. Y. 517, 20 N. E. 352, '3 L. R. A. 
 468, 8 Am. St. Rep. 767. 
 
 Appeal from order of the General Term of the Supreme Court in 
 the third judicial department, made the first Tuesday of May, 1887, 
 which reversed a judgment in favor of plaintiff, entered upon the re- 
 port of a referee, and ordered a new trial. 
 
 This was a reference under the statute of a disputed claim against 
 the estate of Thomas P. Crook, defendants' intestate. The claim 
 arose under a subscription paper, of which the following is a copy: 
 
 "We, the undersigned, hereby severally promise and agree to and 
 with the trustees of the First Presbyterian. Church in this city of Al- 
 bany, in consideration of one dollar to each of us in hand paid and 
 the agreements of each other in this contract contained, to pay on or 
 before three years from the date hereof to said trustees the sum set 
 opposite to our respective names, but upon the express condition, and 
 not otherwise, that the sum of $45,000 in the aggregate shall be sub- 
 scribed and paid in for the purpose hereinafter stated; and if within 
 one year from this date said sum shall not be subscribed or paid in for 
 such purpose, then this agreement to be null and of no effect. . The 
 purpose of this subscription is to pay off the mortgage debt of $45,000. 
 now a lien upon the church edifice of said church, and the subscrip- 
 tion or contribution for that purpose must equal that sum in the aggre- 
 gate to make this agreement binding. 
 
 "Dated Mav 18, 1884." 
 
 The defendants' intestate made two subscriptions to this paper — 
 one of $5,000 and the other of $500. He paid upon the subscription 
 $2,000. The claim was for the balance. 
 
 Andrews, J. It is, we think, an insuperable objection to the main- 
 tenance of this action that there was no valid consideration to uphold 
 
118 CONTRACTS (Part 1 
 
 the subscription of the defendants' intestate. It is, of course, unques^ 
 tionable that no action can be maintained to enforce a gratuitous prom- 
 ise, however worthy the object intended to be promoted. • The per- 
 formance of such a promise rests wholly on the will of the person 
 making it. He can refuse to perform,' and his legal right to do so 
 cannot be disputed, although his refusal may disappoint reasonable 
 expectations, or may not be justified in the forum of conscience. By 
 the terms of the subscription paper the subscribers promise and agree 
 to and with the trustees of the First Presbyterian Church of Albany, 
 to pay to said trustees, within three years from its date, the sums 
 severally subscribed by them, for the purpose of paying off "the mort- 
 gage-debt of $45,000 on the church edifice," upon the condition that 
 the whole sum shall be subscribed or paid in within one year. It re- 
 cites a consideration, viz., "in consideration of one dollar to each of 
 us (subscribers) in hand paid and the agreement of each other in this 
 contract contained." It was shown that the one dollar recited to have 
 been paid was not in fact paid, and the fact that the promise of each 
 subscriber was made by reason of and in reliance upon similar prom- 
 ises by the others constitutes no consideration as between the corpora- 
 tion for whose benefit the promise was made and the promisors. The 
 recital of a consideration paid does not preclude the promisor from 
 disputing the fact in a case like this, nor does the statement of a par- 
 ticular consideration which, on its face, is insufficient to support a 
 promise, give it any validity, although the fact recited may be true. 
 
 It has sometimes been supposed that when several persons promise 
 to contribute to a common object, desired by all, the promise of each 
 may be a good consideration for the promise of others, and this al- 
 though the object in vieM' is one in which the promisors have no pe- 
 cuniary or legal interest, and the performance of the promise by one 
 of the promisors would not in a legal sense be beneficial to the others. 
 This seems to have been 'the view of the chancellor as expressed in 
 Stewart v. Hamilton College, when it was tried before the Court of 
 Errors, 2 Denio, 417, and dicta of jttdges will be found to the same ef- 
 fect in other cases. * * * But the doctrine of the chancellor, as we 
 understand, was overruled when the Hamilton College Case came be- 
 fore this court (1 N. Y. 581), as have been also the dicta in the Massa- 
 chusetts cases, by the court in that state, in the recent case of Cottage 
 Street Methodist Episcopal Church v. Kendall, 121 Mass. 528, 23 Am. 
 Rep. 286. The doctrine seems to us unsound in principle. It proceeds 
 on the assumption that a stranger both to the consideration and the 
 promise, and whose only relation to the transaction is that of donee of 
 an executory gift, may sue to enforce the payment of the gratuity for 
 the reason that there has been a breach of contract between the several 
 promisors and a failure to carry out as between themselves their, mu- 
 tual engagement. It is in no proper sense a case of mutual promises, 
 as between the plaintiff and defendant. * * * 
 
 In the disposition of this case we must, therefore, reject the con- 
 sideration recited in the subscription paper as ground for supporting 
 the promise of the defendant's intestate, the money consideration, be- 
 cause it had no basis in fact, and the mutual promise between the sub- 
 scribers, because, there is no privity of contract between the plaintiff 
 and the promisors. Some consideration must, therefore, be found oth- 
 er than that expressly stated in the subscription paper, in order to 
 sustain the action. It is urged that a consideration may be found in 
 
^h. 2) CONSIDERATION 119 
 
 the efforts of the trustees of the plaintiff during the year, and the time 
 and labor expended by them during that time, to secure subsci'iptions 
 in order to fulfill the condition upon which the liability of the subscrib- 
 ers depended. There is no doubt that labor arid services, rendered by 
 one party at the request of another, constitute a good consideration for. 
 a promise made by the latter to the former, based on the rendition of 
 the service. But the plaintiff encounters the difficulty that there is no 
 evidence, express or implied, on the face of the subscription paper, nor 
 any evidence outside of it, that the corporation or its trustee did, or 
 undertook to do, anything upon the invitation or request of the sub- 
 scriberfe. Nor is there any evidence that the trustees of the plaintiff, 
 as representatives of the corporation, in fact did anything in their cor- 
 porate capacity, or otherwise than as individuals, interested in pro- 
 moting the general object in view. 
 
 Leaving out of the subscription paper the affirmative statement of 
 the consideration (which, for reasons stated, may be rejected), it 
 stands as a naked promise of the subscribers to pay the several 
 amounts subscribed by them for the purpose of paying the mortgage 
 on the church property upon a condition precedent limiting their lia- 
 bility. Neither the church nor the trustees promise to do anything, 
 nor are they requested to do anything, nor can such a request be im- 
 plied. It was held in Hamilton College v. Stewart, 1 N. Y. 581, that 
 no such request could be implied from the terms of the subscription 
 in that case, in which the ground for such an implication- was, to say 
 the least, as strong as in this case. It may be assumed from the fact 
 that the subscriptions were to be paid to the trustees of the church 
 for the purpose of paying the mortgage, that it was understood that 
 the trustees were to make the payment out of the moneys received. 
 But the duty to make such payment, in case they accepted the money, 
 would arise out of their duty as trustees. This duty would arise upon 
 receipt of the money, although they had no antecedent knowledge of 
 the subscription. They did not assume even this obligation by the 
 terms of the subscription, and the fact that the trustees applied money, 
 paid on subscriptions, upon the mortgage debt, did not constitute a 
 cons' deration for the promise of the defendant's intestate. We are 
 unable to distinguish this case in principle from Hamilton College v. 
 Stewart, 1 N. Y. 581. There is nothing that can be urged to sustain 
 this subscription that could not, with equal force, have been urged to 
 sustain the subscription in that case. In both, the promise was to the 
 trustees of the respective corporations. In each case the defendant 
 had paid part of his subscription and resisted the balance. In both, 
 part of the subscription had been collected and applied by the trustees 
 to the purpose specified. In the Hamilton College Case (which in 
 that respect is unlike the present one) it appeared that the trustees had 
 incurred expense in employing agents to procure subscriptions to make 
 up the required amount, and it was shown, also, that professors had 
 been employed' upon the strength of the fund subscribed. That case 
 has not been overruled, and has been frequently cited with approval in 
 the courts of this and other states. The cases of Barnes v. Ferine, 12 
 N. Y. 18, and Roberts v. Cobb, 103 N. Y. 600, 9 N. E. 500, are not in 
 conflict with that decision. There is, we suppose, no doubt that a 
 subscription invalid at the time for want of consideration, may be 
 made valid and binding by a consideration arising subsequently be- 
 tween the subscribers and the church or corporation for whose benefit 
 
120 CONTRACTS (Part 1 
 
 it is made. Both of the cases cited, as we understand them, were 
 supported on this principle. There was, as was held by the court in 
 each of these cases, a subsequent request by the subscriber to the prom- 
 isee to go on and render service or incur liabilities on the faith of the 
 subscription; which request was complied with, and services were ren- 
 dered or liabilities incurred pursuant thereto. It was as if the request 
 was made at the very time of the subscription, followed by perforrn- 
 ance of the request by the promisor. Judge Allen, in his opinion in 
 Barnes v. Ferine, said, "the request and promise were, to every legal 
 effect, simultaneous," and he expressly disclaims any intention to in- 
 terfere with the decision in the Hamilton College Case. In the present 
 case it was shown that individual trustees were actiye in procuring 
 subscriptions. But, as we have, said, they acted as individuals, and 
 not in their individual capacity. They were deeply interested, as was 
 Mr. Crook, in the success of the effort to pay the debt on the church, 
 and they acted in unison. But what the trustees did was not prornpted 
 by any request of Mr. Crook. They were co-laborers in promoting a 
 common object. We can but regret that the intention of the intestate 
 in respect to a matter in which he was deeply interested, and whose in- 
 terest'was manifested up to the very time of his death, is thwarted by 
 the conclusion we have reached. But we think there is no alternative, 
 and that the order should be affirmed. All concur. 
 Order affirmed and judgment accordingly. 
 
 SECTION 5.— ILLUSORY PROMISES 
 
 WICKHAM & BURTON COAL CO. v. FARMERS' LUMBER CO. 
 (Supreme Court of Iowa, 1920. 170 N. W. 417, 14 A. L. R. 129.3.) 
 
 Counterclaim asserting that damages were due from plaintiff be- 
 cause of a contract made between plaintiff and defendant. A demur- 
 rer to the counterclaim was overruled ; hence this appeal. 
 
 Salinger, J. The counterclaim alleges that about August 18, 1916, 
 defendant, through an agent, entered into an oral agreement "whereby 
 plaintiff agreed to furnish and to deliver to defendant orders given 
 them" for carload shipments of coal from defendant f . o. b. mines, "to 
 be shipped to defendant at such railroad yard stations as defendant 
 might direct, at the price of $1.50 a ton on all orders up to Septem- 
 ber 1, 1916, and $1.65 a ton on all orders from then to April 1, 1917." 
 It is further alleged that "said coal ordered would be and consist" of 
 what was known as plaintiff's Paradise 6" lump, 6x3" egg, or 3x2" 
 nut coal. * * * Then comes an allegation that the agent made oral 
 agreement "that plaintiff would furnish unto defendant coal in car- 
 load lots, that defendant would want to purchase from plaintiff" on 
 stated terms, with character of the coal described, and that the oral 
 contract was confirmed by the letter Exhibit 1. It is of date Augu.st 
 21, 1916, and recites that plaintiff is in receipt of a letter from their 
 agent — "asking us to name you a price [repeating the price and coal 
 description found in the counterclaim]. Although this is a very low 
 price, our agent, Mr. Spalding, has recommended that we quote you 
 this price, and we hereby confirm it. Any orders received between 
 now and September 1st are to be shipped at $1.50. We would like to 
 
Ch. 2) CONSIDERATION 121 
 
 have a letter from you accepting these prices,- and if this is satisfactory 
 will consider same as a contract." 
 
 On August 26, 1916, the defendant responded: "We have your 
 favor of the 21st accepting" our order for coal for shipment to March 
 31, 1917." 
 
 The basis of the counterclaim, so far as damages are concerned, is 
 the allegation that a stated amount of coal had to be purchased by 
 defendant in the open market at a greater than the contract price, and 
 that therefore there is due the defendant from the plaintiff the sum of 
 $3,090. 
 
 The demurrer asserts that the alleged conti-act is "void for failure of 
 mutuality and certainty," is void because there is no consideration 
 between the parties, because it appears affirmatively that the offer was 
 simply an offer on part of plaintiff, which might be accepted by giving 
 an order until such time as it was actually withdrawn or expired by 
 limitation, each order and acceptance of a carload lot constituting a 
 separate and distinct contract, and void because the agreement could 
 not be enforced by the plaintiff on any certain or specified amount of 
 tonnage, or for the payment of any specified tonnage. * * * 
 
 The authorities that deal with uncertainty and indefiniteness hold, 
 in effect, that whatsoever is ascertainable with reasonable effort is suf- 
 ficiently certain to be enforced, if there be no objection to enforce- 
 ment other than uncertainty. Now, grant that it was not difficult to 
 ascertain how much coal defendant would sell in the time stated in 
 the negotiations, how does that help if there was no obligation on one 
 side to sell, or on part of the other to buy? If the defendant was 
 under no binding obligation to buy of plaintiff, it does not matter how 
 much defendant could sell. In fewer words, though an offer to sell a 
 specified number of tons of coal is not uncertain or lacking in definite- 
 ness, such offer is no contract, unless the other party agrees to receive 
 ■ what is offered. In still fewer words, while a writing may be so un- 
 certam as not to be enforceable, a perfectly definite writing may still 
 be unenforceable because there is no mutuality of obligation. 
 
 And the asserted lack of consideration is bottomed on the claim that 
 mutuality is lacking. Appellant does not deny that a promise may 
 be a consideration for a promise. Its position is that this is so only 
 of an enforceable promise. That is the law. If, from lack of mu- 
 tuality, the promise is not binding, it cannot form a consideration. 
 
 * * * There is no consideration by promises which lack mutuality. 
 
 * * * 
 
 The question of first importance then, is, whether there is a lack of 
 mutuality. In the last analysis the counterclaim is based on the alle- 
 gation that plaintiff undertook to furnish defendant such described 
 coal "as defendant would want to purchase from plaintiff." The de- 
 fendant never "accepted." Indeed, it is its position that it gave orders, 
 and that plaintiff did the accepting. But concede, for argument's sake, 
 that defendant did accept. What was the acceptance ? At the utmost, 
 it was a consent that plaintiff might ship it such coal as defendant 
 "would want to purchase from plaintiff." What oMigation did this 
 fasten upon defendant? It did not bind itself to buy all it could sell. 
 It did not bind itself to buy of plaintiff only. It merely agreed to 
 buy what it pleased. It may have been ascertainable how much it 
 would need to buy of some one. But there was no undertaking to buy 
 that much, or, indeed, any specified amount of coal of plaintiff. * * * 
 
122 CONTRACTS (Part 1 
 
 The "contract" on part of appellee is to buy if it pleased, when it 
 pleased, to buy if it thought it advantageous, to buy much, little, or 
 not at all, as it thought best. 
 
 A contract of sale is mutual where it contains an agreement to sell 
 on the one side, and an agreement to purchase on the other. But it is 
 not mutual where there is an obligation to sell, but no obligation to 
 purchase, or an obligatioti to purchase, but no obligation to sell. * *^ 
 
 Where one party agrees to cut for the other hay "not to exceed 200 
 tons," there is lack of mutuality, because the offerant was not bound 
 to deliver any particular quantity of hay, and could cut as little as he 
 pleased. * * * 
 
 And so of an offer to receive and transport railroad iron, not to ex- . 
 ceed a stated number of tons, during specified periods, and at a speci- 
 fied rate per ton. As to this it was held that, though plaintiff answer- 
 ed, assenting to the proposal, there was still no contract, because 
 there was no agreement on his part that he would deliver any iron for 
 transportation. * * * /^jj agreement to purchase all that the man- 
 ufacturer desires to sell at a specified price is void. * * * A written 
 proposition to buy a stated quantity of coal at a stated price is not 
 enforceable, because there is no corresponding obligation on the other 
 to sell the coal at said price. * * * 
 
 No contract is created by a willingness to ship such gauge glasses 
 as the other "'might order," * * * nor by an engagement to deliver 
 at a stated price "as many grapes as he (the other party) should wish." 
 * * * 
 
 A contract to sell personal property is void for want of mutuality 
 if the quantity to be delivered is conditioned entirely on the will, wish, 
 or want of the buyer. * * * An agreement to receive and pay for 
 such beer as the plaintiff might from time to time want from the de- 
 fendant lacks binding force for want of mutuality, though plaintiff 
 agreed to sell all the beer of specified brands which plaintiff should 
 order at prices to be agreed on. * * * 
 
 If there never was a contract to ship anything, that is still the situa- 
 tion when a contract to ship what has not v?t been shipped is asserted 
 as the basis of an action. As said in Cold Blast Co. v. Bolt Co., 114 
 Fed. 80, 52 C. C. A. 25, 57 L. R. A. 696, even though there had been 
 some shipments, there was still no consideration and no mutuality in 
 the contract as to any articles which defendant had not ordered, or 
 which plaintiff had not delivered, and therefore the refusal of plain- 
 tiff to honor the orders of defendants was no breach of any valid 
 contract, and formed no legal cause of action whereon to base a coun- 
 terclaim. * * * 
 
 It is thus stated in 13 Corpus Juris, 341 : "Accepted orders for 
 goods under contracts void within these rules constitute sales of the 
 goods thus ordered at the price named in the contracts, but do not vali- 
 date the agreements as to articles which the one refuses to purchase 
 or the other refuses to deliver, or to deliver under the void contract. 
 This is so because neither party is bound to take or deliver any amount 
 or quantity of these articles thereunder." 
 
 Defendant alleges further that, by reason of the conduct of plaintiff 
 in furnishing defendant two carloads at $1.50 per ton under the con- 
 tract tei-ms, plaintiff is now estopped from claiming there was no bind- 
 ing between the parties for furnishing coal to defendant under the 
 
Ch. 2) CONSIDERATION 123 
 
 contract contended for by defendant. But the claimed estoppel is no 
 broader than the claimed breach of a contract which is no contract. 
 
 Cases relied on by appellee do not, on careful consideration, militate 
 with what we have declared.: All that Keller v. Ybarru, 3 Cal. 147, 
 holds is that, when one party offers to sell as much as the other wishes, 
 
 there is a contract after the other declares what quantity he will take. 
 
 * * *, 
 
 The demurrer should have been sustained. 
 Reversed. 
 
 OSCAR SCHLEGEL UFG. CO. v. PETER COOPER'S GIX'E FACTORY. 
 (Court of Appeals of Xew York, 1921. 2.31 N. Y. 459, 132 X. E. 148.) 
 
 Action by the Oscar Schlegel Manufacturing Company against Pe- 
 ter Cooper's Glue Factory to recover damages for an alleged breach 
 of contract. A judgment for the plaintiff for a substantial amount 
 was affirmed by the Appellate Division, two Justices dissenting ( 189 
 App. Div. 843, 179 N. Y. Supp. 271), and defendant appeals. 
 
 McLaughlin, J. Action to recover damages for alleged breach of 
 contract. The complaint alleged that on or about December 9, 1915, 
 the parties entered into a written agreement by which the defendant 
 agreed to sell and deliver to the plaintiff, and the plaintiff agreed to 
 purchase from the defendant, all its "requirements" of special BB 
 glue for the year 1916, at the price of nine cents per pound. It also 
 alleged the terms of payment, the manner in which the glue was to 
 be packed, the place of delivery, the neglect and refusal of defendant 
 to make certain deliveries, and the damages sustained, for which judg- 
 ment was demanded. The answer put in issue the material allega- 
 tions of the complaint. At the trial a jury was waived, and the trial 
 proceeded before the trial justice. At its conclusion he rendered a 
 decision awarding the plaintiff a substantial amoJnt. Judgment was 
 entered upon the decision, from which an appeal was taken to the 
 Appellate Division, First Department, where the same was affirmed, 
 two of the justices dissenting. The appeal to this court followed. 
 
 I am of the opinion the judgment appealed from should be reversed, 
 upon the ground that the alleged contract, for the breach of which a 
 recovery was had, was invalid since it lacked mutuality. It consisted 
 solely of a letter written by defendant to plaintiff, the material part 
 of which is as follows : 
 
 "Gentlemen : We are instructed by our Mr. Von Schuckmann to 
 enter your contract for your requirements of 'special BB' glue for the 
 year 1916, price to be 9c per lb., terms 2% 20th to 30th of month fol- 
 lowing purchase. Deliveries to be made to you as per your orders 
 during the year and quality same as heretofore. Glue to be packed in ' 
 500-lb. or 350-lb. barrels and 100-lb. kegs, and your special label to 
 be carefully pasted on top, bottom and side of each barrel or keg. 
 
 * * * Peter Cooper's Glue Factory, 
 
 "W. D. Donaldson, Sales Manager." 
 At the bottom of the letter the president of the plaintiff wrote, "Ac- 
 cepted, Oscar Schlegel Manufacturing Company," and returned it to 
 the defendant. 
 
 The plaintiff at the time was engaged in no manufacturing business 
 in which glue was used or required, nor was it then under contract 
 to deliver glue to any third parties at a fixed price or otherwise. It 
 was simply a jobber, selling among other things, glue to such custom- 
 
124 CONTRACTS (Part 1 
 
 ers as might be obtained by sending out salesmen to solicit orders 
 therefor. The contract was invalid since a considei-ation was lackmg. 
 Mutual promises or obligations of patties to a contract, either ex- 
 press or necessarily implied, may furnish the requisite consideration. 
 The defect in the alleged contract here under consideration is that 
 it contains no express consideration, nor are there any mutual promises 
 of the parties to it from which such consideration can be fairly in- 
 ferred. The plaintiff, it will be observed, did not agree to do or re- 
 frain from doing anything. It was not obligated to sell a pound of 
 defendant's glue or to make any effort in that direction. It^ did not 
 agree not to sell other glue in competition with defendant's. The 
 only obligation assumed by it was to pay nine cents a pound for such 
 glue as it might order. Whether it should order any at_ all rested en- 
 tirely with it. If it did not order any glue, then nothing was to be 
 paid. The agreement was not under seal, and therefore fell within 
 the rule that a promise not under seal made by one party, with none 
 by other, is void. Unless both parties to a contract are bound, so that 
 either can sue the other for a breach, neither is bound. * * * Had 
 the plaintiff neglected or refused to order any glue during the year 
 1916, defendant could not have maintained an action to recover dam- 
 ages against it, because there would have been no breach of the con- 
 tract. In order to recover damages, a breach had to be shown, and 
 this could not have been established by a mere failure on the part of 
 the plaintiff to order glue, since it had not promised to give such orders. 
 
 There are certain contracts in which mutual promises are implied: 
 Thus where the purchaser, to the knowledge of the seller, has en- 
 tered into a contract for the resale of the article purchased ; * * * 
 where the purchaser contracts for his requirements of an article neces- 
 sary to be used in the business carried on by him ; * * * or for all 
 the cans needed in a* canning factory; * * * ^11 the lubricating oil 
 for party's own use ; * * * all the coal needed for a found- 
 ry during a specified time ; * * * all the iron required during 
 a certain period in a turnace; * * * ^^d all the ice required 
 in a hotel during a certain season. * * * in cases of this char- 
 acter, while the quantity of the article contracted to be sold is indefi- 
 nite, nevertheless there is a certain standard mentioned in the agree- 
 ment by which such quantity can be determined by an approximately 
 accurate forecast. In the contract here under consideration there is 
 no standard mentioned by which the quantity of glue to be furnished 
 can be determined with any approximate degree of accuracy. 
 
 The view above expressed is not in conflict with the authorities cited 
 by the respondent. Thus, in N. Y. C. Iron Works Co. v. U. S. Radi- 
 ator Co., 174 N. Y.- 331, 66 N. E. 967, principally relied upon and cited 
 in the prevailing opinion at the Appellate Division, "the defendant 
 bound the plaintiff to deal exclusively in goods to be ordered from it 
 under the contract and to enlarge and develop the market for the de- 
 fendant's wares so far as possible." 
 
 In Fuller & Co. v. Schrenk, 58 App. Div. 222, 68 N. Y. Supp. 781, 
 affirmed 171 N. Y. 671, 64 N. E. 1126, the contract provided: "It 
 is hereby agreed that, in consideration of W. P. Fuller & Co. buying 
 all their supply of German mirror plates from the United Bavarian 
 Looking Glass Works for a period of six months from this date, the 
 said United Bavarian Looking Glass Works" agrees to sell certain mir- 
 rors at specified prices. 
 
Ch. 2) CONSIDERATION 125 
 
 In Wood V. Lucy, Lady Duff-Gordon, 222 N. Y. 88, 118 N. E- 214, 
 the plaintiff was to have, for the term of one year, the exclusive right 
 to place defendant's indorsement on certain designs, in return for 
 which she was to have one-half of all the pi-ofits and revenue derived 
 from any contracts he might make. The point was there made, as 
 here, that plaintiff did not promise that he would use reasonable effprts 
 to place defendant's indorsement and market her designs, but this 
 court held that such a promise was fairly to be implied ; that when de- 
 fendant gave to the plaintiff an exclusive privilege for a period of 
 one year; during which time she could not place her own indorsements, 
 or market her own designs, except through the agency of the plain- 
 tiff, that the acceptance of such an exclusive agency carried with it an 
 assumption of its duties. 
 
 In Ehrenworth v. George F. Stuhmer & Co., 229 N. Y. 210, 128 N. 
 E. 108, defendant and its predecessor were desirous of obtaining a 
 market for a particular kind of bread which it manufactured. In 
 order to accompHsh this purpose, it was agreed that plaintiff should 
 purchase and defendant sell all the bread of the kind specified which 
 plaintiff" required in a certain locality and pay therefor a price specified 
 in the agreement. The plaintiff also agreed he would not sell any 
 other bread of that kind on that route during the life of the contract, 
 which was to continue so long as the parties remained in business. 
 This contract, it will be noticed, specified the articles to be sold, the 
 price to be paid, the quantity to be furnished, and the term of the 
 contract, during which time plaintiff agreed not to sell any other bread 
 of the kind named in that territory. 
 
 In the instant case, as we have already seen, there was no obligation 
 on the part of the plaintiff to sell any of the defendant's glue, to make 
 any eft'ort towards bringing about such sale, or not to sell other glues 
 in competition with it. There is not in the letter a single obligation 
 from which it can fairly be inferred that the plaintiff was to do or re- 
 frain from doing anything whatever. 
 
 The price of glue having risen during the year 1916 from 9 to 24 
 cents per pound, it is quite obvious why orders for glue increased 
 correspondingly. Had the price dropped below 9 cents, it may fairly 
 be inferred such orders would not have been given. In that case, if 
 the interpretation put upon the agreement be the correct one, plaintiff 
 would not have been liable to the defendant for damages for a breach, 
 since he had not agreed to sell any glue. 
 
 The judgments of the Appellate Division and trial court should be 
 reversed, and the complaint dismissed, with costs in all courts. * * * 
 
 RAMEY LUJIBKR CO. v. JOHN SCHROEDER LrMBER CO. 
 
 (United States Circuit Court of Appeals, Seventh Circuit, 1916. 2oT Fed. 39, 
 
 150 C. C. A. 241.) 
 
 Plaintiff, the Ramey Lumber Company, Limited, agreed to sell to 
 defendant, the John Schroeder Lumber Company, at stated prices, all 
 the lumber of certain grades that'plaintiff should manufacture or own 
 during the year 1911, in consideration of which defendant agreed to 
 buy all such lumber. Plaintiff- sues for breach of contract. Defenses: 
 Uncertainty and want of mutuality of consideration. Complaint dis- 
 missed below. Plaintiff brings writ of error. 
 
126 CONTRACTS (Part 1 
 
 AlsChdlee, J. * * * As to the defenses of uncertainty and want 
 ■of mutuality, we are unable to concur in the decision of the trial court. 
 The contract did not lack mutuality of obligation. While defendant 
 promised to buy of plaintiff all the lumber of a certain quality that 
 plaintifif might own during the season, plaintiff bound itself, if it did 
 manufacture or acquire any such lumber, to sell all of it to defendant 
 and to no one else. Thus plaintiff deprived itself of the right to sell 
 lumber to whom it pleased. The promise to restrict its freedom by 
 giving up its right to sell to others was real and definite. It was the 
 substantial and contemplated consideration for defendant's promise 
 to buy all that plaintiff might own during the season. There was 
 the mutuality of obligation essential to a bilateral contract ; there was 
 the consideration essential to the validity of any contract. * =>■ * 
 That the plaintiff did not bind itself to acquire or manufacture any 
 such lumber is immaterial. Its promise to deal with defendant was 
 the valid consideration for the obligation by defendant, a consideration 
 that made the undertaking of the other party binding and enforceable. 
 
 With regard to the question of uncertainty, a contract is void (save 
 for the possibility of reformation in equity) because of uncertainty, 
 •only when it is so worded that the intention of the parties cannot be 
 deduced therefrom. If the intention be clear, the mere uncertainty 
 of the amount involved does not invalidate the obligation, however 
 It may affect the possibility of proving damages for a breach. In the 
 present case the preliminary negotiations 'demonstrate that defendant 
 wanted to secure all such lumber that it could possibly obtain, without 
 limit, and without binding plaintiff absolutely and under all circum- 
 stances to deliver any lumber. The parties had a right to make such 
 a contract, even though the amount that would be deliverable there- 
 under was not specified, and was in a sense optional with the vendor; 
 and this they did, in terms which are clear and certain. * * * 
 
 Moreover, there were definite limitations on the amount that could 
 and must be tendered. While plaintiff had the option either to manu- 
 facture and to buy from others, or to refrain therefrom, it was abso- 
 lutely obligated to sell all that it manufactured or owned during the 
 season. When the contract was executed, the maximum amount that 
 would be deliverable thereunder, while unknown to the parties, and in 
 that sense uncertain, was, under the finding of facts, the amount of 
 specified grades of a definite kind of lumber that could be manufac- 
 tured between March and July of the year 1911 either by plaintiff or 
 others. So much thereof as plaintiff might own within a definitely 
 limited time, the season of 1911, was the amount that it had obligated 
 itself to sell. This would necessarily have become certain during tlie 
 season, even if the time limit for plaintiff's ownership included, not 
 merely the manufacturing season, but also the short period thereafter 
 within which delivery must be made. * * * 
 
 We therefore conclude that the plaintiff is entitled to recover as its 
 damages the loss it incurred from defendant's nonacceptance of the 
 20 carloads, and on account of the 1,455,919 feet on hand at time of re- 
 pudiation of the contract. * * * 
 
 The judgment is therefore reversed, and the cause remanded, with 
 directions to the District Court to enter a judgment in favor of plain- 
 tiff for $4,899.82, together with interest, as above stated, to date of 
 ■entry of judgment, and costs. 
 
Ch. 2) CONSIDERATION 12T 
 
 RICH V. DONEGHEY. 
 (Supreme Court of Oklahoma, 1918. 177 Pac. S6, 3 A. r. R. 352.) 
 
 The owners of a tract of 60 acres of land executed an instrument, 
 denominated an oil and gas lease, by the terms of which they granted, 
 demised, leased, and let the same to another, his heirs, executors, ad- 
 ministrators, and assigns, for the sole and only purpose of mining 
 and operating for oil and gas, and of laying pipe lines, and of building 
 tanks, power stations, and structures thereon, to procure and take care 
 of said products. The grant was for a term of five years from date 
 and as long thereafter as oil or gas, or either of them, was produced" 
 by said party. The instrument recited a consideration of $1 paid by 
 the lessee to the lessors. The lessee agreed to deliver to lessors one- 
 eighth of the oil produced and saved from the premises; to pay cer- 
 tain stipulated sum per annum for each gas weir, and for gas utilized 
 from each oil well. The lessee further agreed to complete a well on 
 said premises within six months, or pay at the rate of $15 for each 
 additional month such completion was delayed. The instrument con- 
 tained the further provision that the lessee should have the right at 
 any time, on payment of $1 to the lessors, to surrender the lease for 
 cancellation, after which all payments and liabilities thereafter to ac- 
 crue under and by virtue of its terms should cease and determine. 
 
 The owners of the land bring action to cancel the instrument and 
 remove same as a cloud on their title. It appeared that no well had 
 been commenced, but that the lessee had made timely payments or 
 tender of all sums stipulated to be paid for delay in completing a well. 
 
 MiLEY, J. * * * Among the considerations expressed in this in- 
 strument are the covenants and agreements of the lessee to pay certain 
 stipulated royalties for oil, and for each gas well, and to complete a 
 well within six montlis, or pay at the rate of $15 for each additional 
 month such completion is delayed. It will be conceded that this agree- 
 ment to develop, and the prospective royalties, or the monthly pay- 
 ments in lieu of development, standing alone, would constitute a suf- 
 ficient consideration. But it is contended that under the clause in 
 the instrument conferring on the defendant the option to surrender 
 the lease for cancellation, after which all payments and liabilities there- 
 after to accrue under and by virtue of its terms shall cease and deter- 
 mine, the lessee was not bound to perform these promises, or, as it is 
 said, not bound to do anything. This statement would appear to be 
 too sweeping. Instead of not being bound to do anything, the lessee 
 is obligated thereunder to do one of three things: (1) Drill and com- 
 plete a well in a fixed time, or (2) surrender all his rights and pay in 
 addition the sum of $1, or (3) pay during the term of five years, or 
 until surrender, $15 per month for each additional month the comple- 
 tion of a well is delayed. 
 
 The lessee cannot escape from all these obligations. He may es- 
 cape two of them, but he is absolutely bound to do one of the tliree. 
 If he does the first, and fails to find oil or gas, he will suffer a det- 
 riment, and, if oil or gas is discovered, will confer a benefit on the 
 lessor by way of royalties on the oil and gas produced. If he' does 
 the second, he will suffer a detriment and confer a corresponding bene- 
 fit on the lessor. If he does neither of these, he is absolutely ob- 
 ligated to the other, and the amounts agreed to be paid for the de- 
 lay may be recovered in an action therefor; * * * jf the lessee- 
 
128 CONTRACTS (Part 1 
 
 should choose to perform what may seem to be the least onerous obli- 
 gation, and surrender, the lessor will obtain some benefit and the lessee 
 suffer some detriment, at least to the extent of $1.- It would seem, 
 therefore, that under these alternative obligations to develop, or sur- 
 render, or pay for delay, a consideration is not wanting. The fact that 
 the lessee must pay $1 at the time he exercises the right of surrender 
 should, it would seem, afford ground for distinguishing decisions hold- 
 ing that the lessee was not obligated to anything where, under the 
 leases there under consideration, the lessee was not obligated to pay 
 anything at the time of surrender, or in which it was provided that 
 the lease should terminate and become void as to both parties unless 
 a stipulated sum was paid for delay. 
 
 But, putting that aside, if we give the surrender clause the sweeping 
 effect claimed, and assume that by virtue thereof the lessee has given 
 no binding promise to drill or pay, or do anything, and treat the instru- 
 ment as though it recited no promise whatever, or imposed no obliga- 
 tions to pay royalties, and to develop, or pay a fixed sum at stated times 
 in lieu thereof, it does not follow that the instrument is without suffi- 
 cient consideration. Grants of this character are not dependent for 
 their validity on an agreement to pay royalties and the consequent ex- 
 pressed or implied covenant to develop. They may be for any other 
 consideration agreeable to the parties and valuable in law. The con- 
 sideration may be wholly executed. It may be in money only paid at 
 the time of the execution and delivery of the instrument. Such money- 
 ed consideration, in addition to the covenants before referred to, is re- 
 cited to have been paid and its receipt acknowledged in the face of the 
 instrument. ' It is true that the amount recited is small, being only $1, 
 but a dollar is the unit of value, and is a thing of value in fact and in 
 the eye of the law ; many sales and transactions are had daily in which 
 that sum is the sole consideration. * * * 
 
 The $1 is not the sole consideration, however. It may be urged 
 that it is not the real consideration, but that development and pro- 
 spective royalties, as has been said in some decisions, were the real or 
 moving consideration. That statement would hardly be accurate here, 
 since the parties agreed that development might be deferred through- 
 out the five-year term, and provided stipulated monthly payments in 
 lieu thereof. It would be more accurate to say that one of the con- 
 siderations, perhaps the principal one, for the grant was the covenant 
 to develop and yield prospective royalties or pay in lieu thereof. In 
 this connection, it is argued that, by virtue of the surrender clause, 
 the lessee has the option of terminating the lease, and thereby to escape 
 the obligation to develop or pay in lieu thereof, and thus defeat the 
 main purpose or object of the lessor in making the grant, and therefore 
 that it is likewise optional with the lessor to refuse payments for delay 
 and to compel a surrender. To support this argument, the somewhat 
 misleading, though euphonious, epigram, "that contracts unperformed, 
 optional as to one of the parties, are optional as to both," is invoked. 
 That rule can have no application here. It applies to contracts con- 
 sisting entirely of mutual promises wholly executory and unperformed, 
 the promises on one side being the sole consideration for the promises 
 on the other, and in which, if it is optional with one of the parties 
 whether he will perform his promises, it is said that prior to perform- 
 ance of such promises. by him it is optional with the other whether he 
 will perform his promises. It is but another way of stating the rule of 
 
Ch. 2) CONSIDERATION 129 
 
 mutuality before referred to. * * * So far as the lessors are con- 
 cerned, the lease was fully executed, and by its terms there was granted 
 to the lessee an interest in the land to explore the same for oil and gas, 
 and to produce such as might be found, which interest vested imme- 
 diately vipon execution and delivery of the instrument. Nor was the 
 lease wholly unperformed on the part of the lessee with respect to the 
 covenant now under consideration. He had made two of the monthly 
 payments for delay, which had been accepted, and had tendered the 
 payment for the third month before demand was made for cancellation, 
 and has since performed the promise to pay for delay by depositing 
 the amounts due in the designated bank, in strict conformity with the 
 terms of the agreement. However, if it be assumed that the agree- 
 ment, being fully executed on one side and partly performed on the 
 other, does not make the rule inapplicable, yet the fact that' the agree- 
 ment is founded on an independent consideration, namely, the $1 paid 
 by the lessee at the execution and delivery of the instrument, does have 
 that effect. 
 
 In 13 C. J. 336, it is said : "When there is an agreement founded on 
 a consideration, it is not invalid for the want of mutuality because one 
 party has an option while the other has not, or, in other words, because 
 it is obligatory on one and optional with the other. * * * ^jj^j j-j^g 
 option to relinquish a right acquired under a contract will not render 
 it unilateral." 
 
 In 6 R. C. L,. 687, it is said : "An option, supported by a consider- 
 ation, furnishes another illustration of a contract which is valid not- 
 withstanding the lack of mutuality. It is no objection to the validity 
 of the contract that the holder of the option is under no obligation 
 to exercise it." * * * 
 
 The cases cannot be distinguished in principle on that ground. 
 
 + * :1s 
 
 The judgment is accordingly reversed, and the cause remanded for 
 further proceedings in accordance with the views herein expressed. 
 
 All the Justices concur except Turner and Brett, JJ., not partici- 
 pating, and Owen, J., dissenting. 
 
 SECTION 6.— PROMISES TO PAY FOR A BENEFIT 
 PREVIOUSLY RECEIVED 
 
 ALLEN V. BRYSON. 
 (Supreme Court of Iowa, ISSo. 67 Iowa, 591, 25 N. W. R2a, 56 Am. Rep. 358.) 
 
 Both parties are attorneys at law, and this action was brought to 
 recover for professional services performed by the plaintii? for the 
 defendant, and for personal property sold. Several defenses were 
 pleaded, which are sufficiently referred to in the opinion. Trial by 
 jury. Verdict and judgment for the plaintiff, and defendant appeals. 
 
 SeeveRS, j_ * * * The defendant pleaded that he and the plain- 
 tiff were brothers-in-law, and, in substance, that each of them was en- 
 gaged in the practice of the law, and had been in the habit of assisting 
 each other as a matter of mutual accommodation, and that "all and each 
 of the professional services for which plaintiff seeks to recover in this 
 B.&B.Bus.Law— 9 
 
130 CONTRACTS (Parti 
 
 action were rendered by him as matters of mutual accommodation, 
 and interchange of courtesies, and \yithout charge or expectation of 
 payment or reward by one as against the other." The court instructed 
 the jury: "If, however, such services were rendered by the plaintiff 
 without expectation of reward, or intention on his part to charge there- 
 for, or by any agreement or understanding that the services were to be 
 gratuitous, the plaintiff cannot recover unless, after such services were 
 rendered, and in consideration thereof, defendant agreed with or prom- 
 ised plaintiff to pay for the same. In the latter case the valuable char- 
 acter of the service, and the moral obligation to pay for the same, 
 would be a sufficient consideration to support the promise, and enable 
 the plaintiff to recover the reasonable value of such service." 
 
 We understand this instruction to mean -that where one person ren- 
 ders services for another gratuitously, and with no expectation of being 
 paid therefor, that a moral obligation is incurred by the latter which 
 will support a subsequent promise to pay. In our opinion, this is not 
 the law. If the services are gratuitous, no obligation, either moral or 
 legal is incurred by the recipient. No one is bound to pay for that 
 which is a gratuity. No moral obligation is assumed by a person who 
 receives a gift. Suppose the plaintiff had given the defendant a horse, 
 was he morally bound to pay what the horse was reasonably worth? 
 We think not. In such case there never was any liability to pay, and 
 therefore a subsequent promise would be without any consideration to 
 support it. That there are cases which hold that where a liability to 
 pay at one time existed, which, because of the lapse of time, or for 
 other reasons, cannot be enforced, the moral obligation is sufficient to 
 support a subsequent promise, will be conceded. 
 
 These cases are distinguishable, because the instructions contemplate 
 a case where an obligation to pay never existed until the promise was 
 made. We do not believe a case can be found where a moral obliga- 
 tion alone has been held to be a sufficient consideration for a subse- 
 quent promise. To our minds, however, it is difficult to find a moral 
 obligation to pay anything, in the case contemplated in the instructions, 
 prior to the promise. * * * 
 
 Reversed. 
 
 SILVERTHORN v. WTLIE. 
 (Supreme Court of Wisconsin, 1897. 96 Wis. 69, 71 N. W. 107.) 
 
 Action by George Silverthorn against Winfred Wylie, administrator, 
 etc. Judgment for plaintiff, and defendant appeals. 
 
 Cassoday, C. J. It appears f rpm the record and' the findings of the 
 trial court, in effect, that during 1888, and a long time prior tliereto, 
 one Alexander R. McDonald, of Wausau, was a practical woodsman, 
 and proficient in estimating the quantity and quality of standing tim- 
 ber ; that immediately prior to September 10, 1888, he rendered valu- 
 able services for Daniel B. Wylie, then living at said city, in selecting 
 certain vacant lands and government lands desirable for private cash 
 entry; that said services consisted in obtaining a correct plat of all 
 vacant state and government lands in a town named, and going out 
 over said vacant lands, and running out the boundary lines of the vari- 
 ous subdivisions thereof, and estimating the quantity and quality of 
 standing timber thereon, and making minutes of the same, and thereby 
 selecting four 40-acre tracts, deemed the most valuable and desirable 
 
Ch. 2) CONSIDERATION 131 
 
 for cash entry, one being a state 40, and the other three being govern- 
 ment 40's ; that said services occupied one week, at an expense of $12 
 for an assistant, besides the ordinary expenses of the trip from Wau- 
 sau; that, upon McDonald's report and selection so made, the said 
 Daniel B. Wylie, September 10, 1888, entered or purchased the said 
 three government 40's from the United States and the 40 from the 
 state, paying therefor $200.50, and taking the title in his own name; 
 that said services were so rendered with the understanding, which was 
 afterwards reduced to writing, and embodied in the written contract 
 signed and delivered by the said Daniel B. Wylie to said McDonald, 
 November 26, 1888, in consideration of said services, and as compen- 
 sation therefor, which contract was to the effect that Daniel B. Wylie 
 had purchased or entered the lands which were therein described, and 
 which had been selected by Alexander R. McDonald, and that when 
 said lands should be sold he thereby agreed to pay McDonald, after de- 
 ducting the amount of the purchase money, with 5 pdr cent, per annum 
 interest thereon, also any and alLtaxes that might be levied on said 
 land, with interest at the rate of 10 per cent, per annum, he would di- 
 vide the balance of said proceeds equally between himself and the 
 said McDonald ; that said contract was duly assigned by McDonald to 
 the plaintiff, October 12, 1891. 
 
 The assignments of McDonald to the plaintiff are both in writing, 
 and purport to be upon a good and adequate consideration. But, 
 even if the assignments were without such consideration, j'et it would 
 be no reason for withholding payment of the share of the proceeds 
 which, by the terms of the contract, were to go to McDonald. The 
 contention that the contract to pay McDonald such share of the pro- 
 ceeds was without consideration is without foundation. "A promise 
 to pay for past services implies that they were rendered upon pre- 
 vious request, and such services are a good consideration for the 
 promise." Jilson v. Gilbert, 26 Wis. 637, 7 Am. Rep. 100. * * * 
 The facts found bring the case within the principle of law stated. 
 Certainly we are not to presume that Mcdonald expended his time 
 and money and made the selections mentioned, and then voluntarily 
 bestowed the entire beneficial results upon Daniel B. Wylie gratui- 
 tously, and without any consideration whatever. Daniel B. Wylie was 
 clearly liable for the services which McDonald had rendered for him, 
 and of which he received the benefit. We find no error in the record. 
 The judgment of the circuit court is affirmed. 
 
 MOOEE V. ELMER. 
 (Supreme Judicial Court of Massachusetts, 1901. 180 Mass. 15, 61 N. E. 259.) 
 
 Bill by Josephine D. Moore against Nelson L. Elmer and others, as 
 administrators, etc. 
 
 The following is a copy of the contract sued on : "Springfield, 
 Mass., Jan. 11th, 1898. In Consideration of Business and Test Sit- 
 tings Reseived from Mme Sesemore, the Clairvoyant, otherwise known 
 as Mrs. Josephene L. Moore on Numerous occasions I the undersighned 
 do hearby agree to give the above named Josephene or her heirs, if 
 she is not alive, the Balance of her Mortgage note whitch is the Her- 
 man E. Bogardus Mortgage note of Jan. 5, 1893, and the Interest on 
 sane on or after the last day of Jan. 1900, if my Death occurs before 
 
132 CONTRACTS (Part 1 
 
 then whitch she has this day Predicted and Claims to be the truth, and 
 whitch I the undersighned Strongly doubt. Wherein if she is right 
 I am willing to make a Recompense to her as above stated, but not 
 payable unless death Occurs before 1900. Willard Elmer." 
 
 Holmes, C. J. It is hard to take any view of the supposed contract 
 in which, if it were made upon consideration it would not be a wager. 
 But there was no consideration. The bill alleges no debt of Elmer 
 to the plaintiff prior to the making of the writing. It alleges only that 
 the plaintiff gave him sittings at his request. This may or may not 
 have been upon an understanding or implication that he was to pay 
 for them. If there was such an understanding it should have been 
 alleged or the liability of Elmer in some way shown. If, as we must 
 assume and as the writing seems to imply, there was no such under- 
 standing, the consideration was executed and would not support a 
 promise made at a later time. The modern authorities which speak 
 of services rendered upon request as supporting a promise must be 
 confined to cases where the request implies an undertaking to pay, and 
 do not mean that what was done as a mere favor can be turned into 
 a consideration at a later time by the fact that it was asked for. 
 
 ''r * * 
 
 It may be added that "even if Elmer was under a previous liability 
 to the plaintiff it is not alleged that the agreement sued upon was re- 
 ceived in satisfaction of it, either absolutely or conditionally, and this 
 again cannot be implied in favor of the plaintiff's bill. * * * 
 
 Bill dismissed. 
 
 HERRIA'GTON v. DAVITT. 
 
 (Court of Appeals of New York, 1917. 220 N. Y. 162, 115 N. E. 476, 
 1 A. L. R. 1700.) 
 
 Action by Etta F. Harrington against Ida K. Davitt and others. 
 From a judgment for plaintiii at the Trial Term, affirmed by the Ap- 
 pellate Division (165 App. Div. 942, 149 N. Y. Supp. 1087), defend- 
 ants appeal. 
 
 Collin, J. The action is upon a promissory note made by the de- 
 fendants' testator. After the note was dehvered the maker was ad- 
 judicated a bankrupt, under the federal act of 1898, and thereunder 
 received his discharge. A composition was effected, under the provi- 
 sions of the act, between the bankrupt and his creditors. The plaintiff 
 duly accepted the offer of the composition and the 20 per centum of 
 the face value of the note payable under it. The defendants' testa- 
 tor thereafter wrote to the plaintiff a letter as follows : 
 
 "Troy, N. Y., Dec. 6, 1904. 
 
 "My Dear Sister: Your letter received. Was somewhat surprised 
 at its contents. In regard to your claim against me you will be paid 
 every dollar of it with inst as soon as I sell the mill. If anything hap- 
 pens to me the farm is in my name and you will be paid. I have left 
 orders to that effect. Tell Lester to see what balance there is due me 
 on the books for wood and to pay it to you for inst money. 
 
 "Yours truly, , A. W. Davitt." 
 
 The claim mentioned in the letter was the note. The mill referred 
 to in the letter was sold and conveyed by the testator in January, 1907. 
 This action upon the note was commenced June 8, 1912. Upon the 
 trial judgment in favor of the plaintiff for the unpaid balance pay- 
 
Ch. 2) CONSIDERATION 133 
 
 able by the terms of the note was ordered. The Appellate Division 
 unanimously affirmed the consequent judgment. 
 
 The appellants assert and argue that the letter of December 6, 1904, 
 does not contain or constitute a promise or agreement to pay the sum 
 unpaid. At its writing, a statute provided : 
 
 "Every agreement, promise, or undertaking is void, unless it or some 
 note or memorandum thereof be in writing, and subscribed by the party 
 to be charged therewith, or by his lawful agent, if such agreement, 
 promise or undertaking ; * * * 5. Is a subsequent or new promise 
 to pay a debt discharged in bankruptcy. * * * " Personal Proper- 
 ty Law (Laws 1897, c. 417) § 21. 
 
 The statute has remained in force. * * * The debtor does not 
 promise to pay the debt discharged in bankruptcy, unless there is a 
 distinct and unequivocal expression by him, by a writing of the pre- 
 scribed form, of a clear intention to bind himself to its payment. The 
 acknowledgment of the existence of the debt by the payment of a part 
 of it or of interest upon it or by express written words is not sufficient. 
 For the purpose of creating anew the liability, the law does not imply a 
 promise. The promise need not be made to the creditor, but it must 
 with certainty refer to the debt. No particular form of words need be 
 used. The promise is constituted by words which, in their natural im- 
 port, express the present intention to obligate or undertake to pay. The 
 payment may, however, depend upon a contingency or condition. If 
 so dependent, it must be proved that the contingency has happened or 
 the condition has been performed. * * * 
 
 The letter of the defendant's testator constituted a distinct and un- 
 qualified promise to pay the debt. In effect and in truth it said to the 
 plaintiff, I will pay you every dollar remaining unpaid upon the note, 
 with interest, and will so pay you as soon as I sell the mill. He stated 
 positively that he then undertook and obHgated himself to pay. The 
 construction of the words used by the debtors and the conclusions 
 stated in the judicial decisions above cited, adequately support such 
 decision. 
 
 The rule of law is well-nigh universal that such a promise made has 
 an obligating and validating consideration in the moral obligation of 
 the debtor to pay. The debt is not paid by the discharge in bank- 
 ruptcy. It is due in conscience, although discharged in law, and this 
 moral obligation, uniting with the subsequent promise to pay, creates 
 a right of action. * * * The appellant asserts that the rule does 
 not obtain or have applicability where, as in the present case, there was 
 a composition between the bankrupt and his creditors, assented to 
 and accepted by the creditors seeking to enforce the unpaid debt. The 
 clear weight of judicial opinion and correct reasoning declare such as- 
 sertion erroneous. In Cohen v. Lachenmaier, 147 Wis. 649, 133 N. W. 
 1099, the facts, in the particular under consideration, were as are the 
 facts here. The trial court awarded judgment for the balance unpaid 
 on the note. The Supreme Court of Wisconsin in affirming the judg- 
 ment said : 
 
 "It is further contended that each promise, if made, is nudum pac- 
 tum, because the plaintiff, as one of the creditors, joined with the ma- 
 jority of the creditors in number and amount in accepting the defend- 
 ant's offer of a composition with the creditors in settlement of their 
 claims. This claim is based upon the ground that a discharge in bank- 
 ruptcy in a composition is not a discharge by operation of law but is 
 
134 CONTRACTS (Part 1 
 
 one effected by the voluntary assent of the creditors. The adjudica- 
 tions are to the effect that a debt which has been extinguished by a 
 voluntary agreement of the debtor and creditor will not support a new 
 promise and that one discharged by operation of law will support one. 
 The proceeding resulting in the discharge of a debtor from liability, 
 based on a composition after bankruptcy proceedings are instituted, is 
 not in its nature such a voluntary act of the creditor as is considered 
 in law as being a voluntary assent of the creditor to the satisfaction of 
 the debt. 
 
 In Matter of Merrimam's Estate, 44 Conn. 587, Fed. Cas. No. 9,479, 
 the court stated the principal question as being "whether an express 
 promise made by a bankrupt to a creditor to pay the amount of hi.'^ 
 debt is valid, such creditor having theretofore expressly assented to 
 a composition made and confirmed under the seventeenth section of the 
 amended Bankruptcy Act of June 22, 1874," and carried into effect and 
 held that the promise was valid. It enunciated that an express prom- 
 ise to pay a debt, which had been theretofore- discharged by operation 
 of law, was valid. The adequate consideration was the moral obliga- 
 ton to keep the original promise ; this rule does not apply to a com- 
 position inter partes which derives its validity merely from the will of 
 the parties ; and if a debt is legally discharged by the voluntary act of 
 the party, there remains no obligation which can be deemed a consider- 
 ation for a promise; a discharge by performance of the terms of a 
 bankruptcy composition is a discharge by operation of law ; the com- 
 position is as to the assenting creditor both a voluntary act and an 
 act of the law, but its efficiency is- derived from the compulsory power 
 of the law. * * * 
 
 The case of Taylor v. Skiles, 113 Tenn. 288, 81 S. W. 1258, conflicts 
 with the decisions cited and others of like import. Therein it is stated : 
 "It is very generally held that, in the case of a discharge of a debt 
 under insolvent or bankrupt laws, a subsequent promise to pay by the 
 insolvent or bankrupt will revive the original debt and make it en- 
 forceable at law. But it is otherwise where the creditor comes to 
 terms with his debtor under a vaUd composition, and agrees to, and 
 does, accept a part of his debt for the whole. When this is done, the 
 debt is extinguished. The parties having met on common ground, and 
 agreed on terms of settlement which have been carried out, there is 
 no longer even a moral obligation resting upon the debtor as to the 
 balance of the original liability. So that a new promise after compo- 
 sition is without consideration, and will not afford a cause of action. 
 
 .■i: * :|: >> 
 
 It is to be noted that the decisions thus cited sustain the proposition 
 that a promise to pay a debt voluntarily discharged is not binding for 
 want of a legal consideration, but do not hold that a discharge in bank- 
 ruptcy through a composition is a voluntary release or extinguishment 
 of the debt. * * * The judgment should be affirmed. 
 
 KEENER v. CRULL. 
 (Supreme Court of Illinois, 1S07. 19 111. 189.) 
 This is an agreed case, taken by appeal from Scott, from a judg- 
 ment rendered in the circuit court of said county, at the October 
 term, A. D. 1857, which judgment was rendered upon the following 
 state of facts: 
 
Ch. 2) CONSIDERATION 135 
 
 Sarah Crull, wife of George Crull, while a feme sole, in the lifetime 
 of said John Peniger, deceased, rendered services for said Peniger, 
 which claim for services became barred by lapse of time, and it was 
 insisted by the appellees in the court below, that the case was taken 
 out of the statute of limitations by a subsequent promise, and they 
 relied upon the testimony of George Longwith, which testimony is as 
 follows : That in the month of November, 1850, he (the witness) had 
 a conversation with the said Peniger; had been old neighbors, and 
 they had a long conversation together, at Peniger's; Peniger then 
 told witness that he had agreed to give his daughter, the said Sarah, 
 two hundred dollars a year for her work, and he had not paid her yet, 
 and that she had gone to Ohio. Appellant insists that said testimony 
 of George L,ongwith is not sufficient to take the case out of the statute 
 of limitations. 
 
 It is stipulated, in this case, that said Sarah Crull commenced serv- 
 ices in A. D. 1833, she being then of age, and continued in service 
 until December, A. D. 1838. 
 
 Skinner, J. This was an agreed case. The plaintiffs sue, as hus- 
 band and wife, for a debt due the wif^ when sole. The case shows 
 that the wife, while sole and of full age, remained with her father, 
 and worked in the family from 1833 to 1838; that, in 1850, the father, 
 who is the defendant's testator, in a conversation with one Longwith, 
 said "that he had agreed to give his daughter (the now feme covert 
 plaintiff with her husband), two hundred dollars per year for her 
 work, and he had not paid her yet, and she had gone to Ohio." The 
 debt, if one existed, was barred by the statute, and the question is, 
 whether, by reason of the admissions of her father in 1850, the plain- 
 tiffs are entitled to recover against his executor? 
 
 The great diversity of construction of like statutes, both in the 
 courts of this country and of England, demands in this case the appli- 
 cation of such rule as is consistent with our own decisions, and the 
 current of modern adjudications. 
 
 The statute bars the action, and all remedy for recovery of the debt ; 
 and, when the bar is complete, the statute being interposed in defense, 
 no action for the recovery of the debt can be maintained. 
 
 The debt, however, is not annihilated, and remains the same' as be- 
 fore, excepting that all remedy for enforcement of the obligation is 
 gone. The debt constituting an unquestioned moral obligation, is, 
 however, a good consideration to support a promise to perform that 
 obligation; and a new promise, based upon this moral obligation, is 
 binding upon the debtor in avoidance of the bar of the statute. 
 
 The new promise may arise out of such facts as identify the debt, 
 the subject of the promise, with such certainty as will clearly deter- 
 mine its character, fix the amount due, and show a present unqualified 
 willingness and intention to pay it, at the time acted upon and acceded 
 to by the creditor, the promisee. * * * 
 
 Like any other promise, having legal force and sanction, it must 
 be made to the party seeking its benefits, or to some one authorized to 
 act for him. A promise to a stranger is insufficient to establish a 
 promise to the plaijitiff or the party whom he represents. * * * 
 
 Were this a new question, we should hold that the action could 
 alone be brought upon the new promise. But the current of author- 
 ity and long usage sanction the practice of declaring upon the original 
 cause of action, and of replying the new promise in avoidance of the 
 
136 CONTRACTS (Part 1 
 
 statute of limitation; and we do not feel at liberty to disturb a rule 
 so well settled. 
 
 Tested by the rules stated, the plaintiffs cannot recover. The lan- 
 guage of the defendant's testator was used to a stranger having no 
 concern in the matter, or right to act for the party in interest, the 
 amount of the debt was not named or in any manner indicated, nor 
 was there any language unequivocally importing a present intention 
 or undertaking to pay. 
 
 Judgment [for plaintiff] reversed. 
 
 BANK OF CARROLLTOX, MISS., v. LATTIXG. 
 
 (Supreme Court of Oklahoma, 1913. .37 Old. 8, 130 Pac. 144, 
 44 L. R. A. [N. S.] 481.) 
 
 Action by Bank of Carrollton, Miss., against R. G. Latting, Jr. 
 Judgment for defendant, and plaintiff brings error. 
 
 Sharp, C. On May 17, 1906, the Carrollton Cotton Oil Company, a 
 corporation, engaged in the manufacture of cotton seed products at 
 Carrollton, Miss., was overdrawn in its account with the plaintiff, the 
 Bank of Carrollton. On said day said milling company executed to 
 said bank its demand note for $948.86; that being the amount of its 
 overdraft. This note was signed, "The Carrollton Cotton Oil Co., R. 
 G. Latting, Jr., Sec. Sz: Mgr.," by Mr. Latting, and on the day of its 
 execution was delivered to the bank. Latting was at the time a stock- 
 holder in the mill company, and was also its secretary and manager. 
 Some 10 days after the note was executed and delivered to the bank's 
 cashier, at the cashier's request, Mr. Latting signed the note individu- 
 ally. At the same time it appears that Latting told the cashier of cer- 
 tain collaterals owned by the mill company that he \YOuld put up as 
 collateral security for the company's note. This, however, was not 
 requested by the bank, but was volunteered by Latting acting for the 
 mill company. These collaterals consisted of some accounts, and two 
 bills of lading for two car loads of cotton seed, issued to the mill com- 
 pany by the Southern Railway Company. The giving of the note took up 
 the mill company's overdraft. This, it appears, was all the bank at 
 the time required in the way of a settlement of the mill company's in- 
 debtedness. As testified to by Mr. Latting: "The cashier of the bank 
 called my attention to the fact that the mill had overdrawn some $900 
 or more, and asked me to close it up with a note, which I did." 
 
 The transaction between the principal, the mill company, and the 
 creditor, the bank, upon the execution and delivery of the note, there- 
 upon became an executed one, and apparently the bank was satisfied 
 with the manner in which the transaction was closed. It had extended 
 credit to the mill company by permitting it to overdraw its account, 
 and accepted its demand note in settlement of the overdraft. It does 
 not appear that, at the time of the execution and delivery of the note, 
 any request for security in any form was made. The subsequent un- 
 dertaking of the defendant, Latting, was therefore a collateral one. 
 The indebtedness was that of the mill company. There must, of legal 
 necessity, be a sufficient consideration in order to render valid the con- 
 tract of suretyship or guaranty. This consideration is usually either 
 of benefit to the principal or surety, or of detriment to the creditor. 
 But where the consideration between the principal and the creditor has 
 
Ch. 2) CONSIDERATION 137 
 
 passed and become executed before the contract of the surety or guar- 
 anty is made, and such contract was no part of the inducement to the 
 creation of the original debt, such consideration is not sufficient to 
 sustain such contract. The rule is a very general one, and authorities 
 in support thereof are manifold. * * * 
 
 It is insisted, however, by counsel that the transaction of May 17th, 
 together with that which subsequently took place when the note was 
 signed by L,atting, constituted a single transaction, and was therefore 
 not complete until the date of the latter occurrence. This contention 
 finds no support in the evidence. That the mill company compHed 
 fully with the bank's demand on the day that the note was given is 
 unchallenged. There was no request or agreement on that date that 
 Latting should personally indorse the note, or that the mill company 
 should deposit collateral. It is therefore unnecessary for us to give 
 further consideration to this contention. * * * 
 
 It not appearing that there was any consideration for the defendant's 
 contract of suretyship or guaranty, the judgment of the trial court 
 should be affirmed. * * * 
 
 Per Curiam. Adopted in whole. 
 
 •SECTION 7.— SEALED INSTRUMENTS 
 
 As we have seen, promises are enforced if they are supported by 
 consideration. It is possible for the law to select some other test 
 for the enforceability of a promise ; that is, the requisite of consid- 
 eration could be entirely dispensed with. But, unless the law 
 adopts the policy of enforcing all promises, which it has never 
 done, something must take its place. An intention to make a gift 
 coupled with delivery will transfer rights in property to the donee. 
 Also a gratuitous declaration of trust, unaccompanied by delivery, 
 imposes obligations upon the trustee and confers rights upon the 
 beneficiary. The law imposes duties even in the absence of a prom- 
 ise to assume them, as in the case where one would be unjustly 
 enriched if he were allowed to keep what he received, without pay- 
 ing for it. Moreover, we are under legal duties, not depending upon 
 a voluntary assumption of them, not to commit a trespass or wrong 
 to another's person, to his property, to his reputation, or to his 
 freedom to engage in all lawful social or business activities. Legal 
 obligations arise in various ways. Moreover, legal obligations may 
 arise out of promises for more than one reason. The law could say 
 that all promises in writing shall be enforceable, merely because 
 they are in writing, but it does not say so. The law could say 
 that all promises, either oral or in writing, made in the presence of 
 two witnesses, shall be enforceable. A rule very similar to this 
 exists in the law of wills. A promise to make a gift, when made 
 in conformity with the statute relating to wills, creates rights in the 
 devisee or legatee upon the death of the testator. The usual re- 
 quirement is that the will must be in writing and signed by, the 
 testator -and by two or more witnesses who signed in his pres- 
 
138 COXTKACTS (Part 1 
 
 ence. Wills of personal property are, in some states, valid although 
 oral, if made in the presence of the requisite number of witnesses. 
 
 The law could provide that promises made in open court, or be- 
 fore some public officer, or filed in some public ofifice should there- 
 by be enforceable, and there are situations where this is so. Sup- 
 pose that one makes a promise to a judge in the course of a trial, 
 and deliberately breaks it ; the breach, under some circumstances, 
 may constitute contempt of court, punishable by fine or impris- 
 onment, although the promise was made without consideration. 
 The sworn statements of witnesses on the witness stand, are not 
 promises, in the generally recognized sense ; yet if they are not true, 
 the person making them is guilty of the crime of perjury. State- 
 ments sworh to before notaries public and other officers are of like 
 nature. In the case of deeds and mortgages, there must be an act 
 of delivery before the rights and duties therein created become op- 
 era'tive. Moreover, the law prescribes, generally, that, unless these 
 instruments are recorded in the office of some public official, third 
 parties have the right to deal with the parties to the deed or mort- 
 gage just as if the deed or mortgage had never existed, provided 
 such third parties have no actual knowledge of the existence of 
 such instrument. 
 
 The above statement was made largely foi: the purpose of intro- 
 ducing a comment concerning sealed instruments. The point is, 
 that legal rights and duties may come into existence, either (1) 
 because the lawmaking authority has provided that they should 
 exist, or (2) because the parties have voluntarily created them. 
 But, realizing that people will appear to assume duties and to create 
 rights under many circumstances where, in the long run, it would 
 be more just to condone the non-performance of the promise, the 
 law, of necessity, has had to select some requisite', in addition to the 
 promise, to render it enforceable. Consideration is one test. Man- 
 kind, at all times, has attached more importance to an act attended 
 by some formality than to informal acts. The above illustrations 
 show how various these formalities may be, and those stated, by 
 no means, exhaust the possibilities. 
 
 At a very early day, it became the law that, if a person made a 
 promise in writing, and in addition affixed his seal, the promise was 
 enforceable, no consideration being necessary. In fact, for a 
 long time, the sealed contract was the only kind of executory con- 
 tract. The law of simple contracts, based upon consideration had 
 not yet developed. The seal originally was an impression made in 
 wax, adhering to the instrument. Modern statutes have, for the 
 most part, done away with this form of seal. To-day, in most states, 
 a seal may consist of the word "seal" or some scroll or marks wliich 
 sufficiently indicate that the party signing intended to execute a 
 formal contract. The statutes of most states have changed the 
 legal effect of sealed instruments from what it was at the common 
 law. In some states, it is provided that the presence of a seal on a 
 contract shall have no efifect; that is, the rules of law applicable to 
 
Ch. 2) CONSIDERATION 139 
 
 simple contracts shall apply to and control instruments which in 
 fact have a seal. In some states, it is provided that the presence 
 of a seal raises a presumption of consideration. At common law, no 
 consideration .was necessary. There is a good deal of variation in 
 the phraseology .of the various statutes. Sometimes the statutes 
 which change the law with respect to sealed instruments do so 
 only with respect to certain kinds of contracts, leaving the rules of 
 the common law to apply to all other kinds. 
 
 Seals are important, not only in the law of contract, but also in 
 the law relating to conveyances of property. It is commonly pro- 
 vided that deeds and mortgages must be sealed, that is, unless they 
 are sealed, they will not operate as deeds. Likewise, in the case of 
 wills, statutes sometimes provide that the instrument must be 
 sealed, as well as signed, by the testator. 
 
140 CONTRACTS (Parti 
 
 CHAPTER III 
 PERFORMANCE OF CONTRACTS 
 
 Section 
 
 1 . Introduction. 
 
 2. Interpretation. 
 
 3. Conditions in Contracts— General Statement. 
 
 4. Performance on Time as a Condition. 
 
 5. Performance to the Satisfaction of Another as a Condition. 
 
 6. Procuring Certificate of an Architect a.s a Condition. 
 
 7. Substantial Performance in Various Other Types of Contracts as Con- 
 
 ditions. 
 
 8. Tender of. Performance as a Condition. 
 
 9. Divisible Contracts. 
 
 10. Conditions Subsequent. 
 
 11. Prevention as an Excuse for Xon-Performance. f 
 
 12. Waiver as an Excuse for Non-Performance. 
 
 13. Anticipatory Breach of Contract. 
 
 14. Eight of a Party JIaterially in Default to Eecover for His Incomplete 
 
 Performance. 
 
 15. Impossibility of Performance as a Condition. 
 
 SECTION 1.— INTRODUCTION 
 
 In this chapter we are concerned with two general questions : 
 (1) The question of interpretation of contracts; and (2) the ques- 
 tion of the legal effect of acts which occur after the contract has 
 been entered into. • 
 
 With respect to the first, it is obvious that in many cases the 
 problem of interpretation is either not raised or, if raised, is easily 
 settled. When there is no misunderstanding as to the meaning of 
 words employed in the contract, there is virtually no occasion for 
 interpreting the words. Where the terms of the contract are to be 
 found in the conduct of the parties, or when their meaning is aflfect- 
 ed by custom and usage, the question, "What did each party prom- 
 ise to do?" becomes more difficult to answer. Even where the 
 language forming the agreement is definitely fixed, there are many 
 cases where it is not always easy to decide whether a particular act 
 falls within the meaning of the words used. The discussion and 
 cases in Section 2 present some aspects of the problem of inter- 
 pretation. 
 
 The larger portion of the chapter is devoted to various detailed 
 problems which concern the legal effect of acts done or omitted 
 after the contract was entered into. These problems grow out of 
 performance and of failure to perform contracts. Did the parties 
 promise to do certain things, absolutely and at all events, or, did 
 they, or either of them, promise to perform certain acts condition- 
 ally upon the happening of some event, or conditionally upon the 
 prior performance of some act by the other party? What is a 
 breach of contract? What is the legal effect of a breach upon the 
 party's own rights and duties, and what is the legal effect of the 
 
^'^- ^) PERFORMANCE OF CONTRACTS 141 
 
 breach upon the other party's rights and duties? In the main, 
 these are the broad outlines of the problem. A brief, but some- 
 what more detailed statement concerning the problems growing 
 out of performance is made in Section 3 following. 
 
 SECTION 2.— INTERPRETATION 
 
 Before taking up the question of interpretation, it may be well 
 to advert again to the problem which immediately precedes that 
 of interpretation. In the chapter on Offer and Acceptance, we 
 noted that there are many situations where considerable difficulty 
 is met in determining what promises were actually made by the 
 parties. Whether we are dealing with an express or an implied 
 contract, we are required to ascertain what words, or symbols or 
 conduct are to be deemed parts of the contract. This problem is 
 relatively more difficult with respect to contracts which, in whole 
 or in large part, arise by implication from conduct ; but in all cases, 
 this aspect of the negotiations — i. e., the fixing of the subject-mat- 
 ter to be interpreted — must be settled before we may concern our- 
 selves with the question of interpretation'. 
 
 To present the problem involved in the interpretation of lan- 
 guages and conduct, it may be profitable to resort to a more or less 
 extended illustration. If the idea which lies behind the illustration 
 is grasped, it will contribute something toward an appreciation of 
 the nature of one of the problems of the law. Suppose A. enters 
 into a contract to sell to B., at a specified price, all of his ripe to- 
 matoes then growing or* vines in A.'s tomato patch. Let us assume, 
 further, that the contract does not define what constitutes a ripe 
 tomato, and does not provide that either A. or B. shall have the 
 power, exclusive of the other, to select the tomatoes, or to de- 
 termine what shall constitute a ripe tomato. The parties have 
 simply contracted to buy and sell ripe tomatoes, when, at the time, 
 they had no thought that there might be any differences of opinion 
 on this question. Of course, in the great majority of cases, people 
 would agree as to whether a particular tomato was ripe or not ripe. 
 A very small boy, sent into the garden to bring in a half dozen 
 ripe tomatoes for dinner, would know enough to execute the order 
 without running any great risk of incurring maternal censure for 
 bringing in green tomatoes. But we are dealing, supposedly, with 
 a contract for the sale of several hundred bushels of tomatoes, 
 where it may become of great importance to know what constitute 
 ripe tomatoes for the purposes of this contract. If, for example, 
 the price of tomatoes suddenly rose 20 or 30 cents on the market, 
 the probabilities are that the buyer's judgment now as to what con- 
 stituted ripe tomatoes would include a good many tomatoes which 
 he would call green if the market price of tomatoes, instead of 
 rising, had dropped 20 or 30 cents below the contract price. Ob- 
 viously there should be some way of determining what constitutes 
 
142 CONTBACTS (Parti 
 
 ripe tomatoes by some standard of interpretation which will be rea- 
 sonably workable, certain, and fair to both parties. We are more 
 interested here in discovering the various possible standards of in- 
 terpreting the expression "ripe tomatoes" than we are in determin- 
 ing which standard ought to be adopted. Enough has been said to 
 show that there may be disagreement between the parties on this 
 question. From a business standpoint we are vitally interested in 
 locating the source of controversy, to the end that the possibilities 
 for dispute and litigation over contracts may be reduced as much 
 as possible. 
 
 In how many ways, therefore, may we interpret the words "ripe 
 tomatoes"? (1) The words "ripe tomatoes" might mean all those 
 tomatoes which in the buyer's judgment were ripe. (2) These 
 words might mean all those tomatoes which in the seller's judgment 
 were ripe. (3) The words might include only those tomatoes 
 which were regarded as ripe by both buyer and seller. (4) The 
 expression "ripe tomatoes" might include only those tomatoes 
 wbi'-l; would be regarded as ripe by the general consensus of opin- 
 ion, (h) The words might be given that meaning which they had 
 acquired in that particular community, or which had been given to 
 them by those persons who were engaged in the raising and market- 
 ing of tomatoes. (6) The words might be given that meaning 
 which the party using them had reason to believe that the other 
 party would attach to the words. No doubt there are other stand- 
 ards of interpretation. 
 
 It is reasonably certain that, if the contract contemplated the 
 sale of several hundred bushels of ripe tomatoes, there would be 
 considerable variation in the quantity of tomatoes delivered, ac- 
 cording as one or the other of the above standards for interpreting 
 the expression "ripe tomatoes" was employed. Between some of 
 them there might be great variation ; between others, the variation 
 would be less. The problem with which the law has to deal is, 
 therefore, to select the standard of interpretation to which contracts 
 must be subjected. The adoption of a particular standard of inter- 
 preting language, does not, of course, solve the problem; it merely 
 turns the investigation in a particular direction. The courts have 
 adopted a great many rules, which aid in arriving at an actual re- 
 sult, but we shall not here undertake to consider them. 
 
 The problem of interpretation also has another sfetting, and, for 
 the sake of completeness, we may turn our attention to this phase 
 of the subject although it does not concern the interpretation of 
 contracts. To continue the illustration, suppose that we have a 
 state statute which imposes a tax upon all sales of fruit. Assuming 
 that we have finally determined the number of bushels of tomatoes 
 to which the buyer is entitled, and the question now is whether 
 or not this particular sale should be taxed under a statute impos- 
 ing a tax on sales of fruit. The character of the question is sub- 
 stantially the same as that presented above ; that is : What kinds 
 of physical objects may properly be regarded under the concept 
 
■Ch. 3) PEUFORMANCB OF CONTRACTS 143 
 
 ""fruit"? There is this probable difference: It may be proper to 
 interpret a particular word, when employed in a contract, accord- 
 ing to some standard which would not be a fitting standard for the 
 interpretation of the same word when found in a statute. We 
 use the same words ofttimes to express different ideas, and the 
 particular meaning is to be sought in the circumstances surround- 
 ing the use of the word. Certainly the circumstances surrounding 
 the use of a word in a statute are different from those surrounding 
 the use of the same word in a contract, although this fact in itself 
 may not necessarily point to a different meaning. On the other 
 hand, it is a circumstance which must be considered, because the 
 fact of its use in a statute may indicate a meaning in some respects 
 different from some other accepted meaning of the word. 
 
 Let us explore some of the possibilities in the subject. Where 
 shall we search for the meaning of the word "fruit"? We frequent- 
 ly meet the expression that the interpretation of a statute involves 
 an inquiry as to what the Legislature meant. It is altogether im- 
 probable that all of the members of the Legislature who voted for 
 this particular measure had precisely the same meaning attached 
 to the word "fruit." Even if they had, it would be impossible, 
 years after the measure was passed, to find out what that meaning 
 was. It is altogether possible that many of the members did not 
 read the bill. It is just as probable that many of them voted for 
 the bill because they had the assurance of some other members, 
 in whom they had confidence, that the measure ought to be adopt- 
 ed. If we were in search of actual intention, we might accord- 
 ingly be sent out on a search for the individual who drafted the 
 bill. This individual might or might not be a member of the Legis- 
 lature. Frequently he is not. If it be said, therefore, that a stat- 
 ute is to be taken as meaning that which the draftsman thought 
 it meant, in many cases we should find that some persons who were 
 not members of the law-making body were actually making laws 
 for the community. Obviously, the proper method of interpreting 
 statutes must be sought elsewhere. 
 
 Might it be that we should be justified in ascertaining the mean- 
 ing of the word "fruit" from the standard treatises on botany? 
 If there should happen to be a conflict of opinion, whose opinion 
 should control? Suppose that, at the time the statute was passed, 
 all the botanists were agreed as to the meaning of the word, but 
 that now there was considerable disagreement, or it might be that 
 they all now agreed, 'but that the present meaning was different 
 from what it was at the time the statute was enacted. Which mean- 
 ing is the proper one ? Perhaps scientific opinion has nothing to do 
 with the legal meaning of the word, but that, on the contrary, the 
 meaning is that which is commonly accepted by the people. If so, 
 how is that meaning to be found out? 
 
 It is hoped that enough has been said to show that it is impossible 
 to be so specific and so definite as to put an end to the possibility of 
 controversy over the meaning of words. For some purposes, at 
 
144 CONTRACTS (Part 1 
 
 least, words are poor vehicles for the transference of thought from 
 one mind to another. The problem of interpretation is one of the 
 necessary and continuing problems in all legal systems. 
 
 The following cases are not inserted with a view of developing 
 the subject. They are included merely for the purpose of further 
 illustrating the existence of the problem and of showing some of 
 the difficulties attendant upon its solution. It may be said that 
 every decision of a court involves, in one way or another, some 
 aspect of this problem. 
 
 DAVISON CHEMICAL CO. OF BALTIMORE COUNTS v. BATJGH 
 
 CHEMICAL CO. OF BALTIMORE COUNTY. 
 
 (Coiirt of Appeals of Maryland, 1918. 133 Md. 203, 104 Atl. 404, 3 A. L. R. 1.) 
 
 Suit by the Baugh Chemical Company of Baltimore County against 
 the Davison Chemical Company of Baltimore County. From a decree 
 for plaintiff, defendant appeals. 
 
 Thomas, J. The appellee, the Baugh Chemical Company of !|Balti- 
 more County, plaintiff below, is a corporation engaged in the manufac- 
 ture of acid phosphate, and its plant is located in Baltimore, county, 
 Md., and the appellant, the Davison Chemical Company of Baltimore 
 County, is a corporation engaged in the manufacture of sulphuric acid, 
 and its plant is also located in Baltimore county. The chief materials 
 used in the manufacture of acid phosphate, the product of plaintiff's 
 plant, are sulphuric acid and phosphate rock, and for a number of 
 years prior to the year 1913, the plaintiff had purchased the sulphuric 
 acid required in the manufacture of its acid phosphate from the de- 
 fendant. Sulphuric acid is made from sulphur, and originally, or in 
 the early days, the raw material employed in the manufacture, of that 
 acid was native sulphur or brimstone. After the discovery of the sul- 
 phur bearing ore called pyrites, containing about 50 per cent, of sul- 
 phur, it became the raw material generally used in the manufacture 
 of sulphuric acid, particularly the low grade of acid used in the mak- 
 ing of acid phosphate. Just when this change from brimstone to 
 pyrites took place is not definitely fixed by the evidence in the case, 
 but the lower court in its opinion stated that it was between 1880 and 
 1890. The chief supply of pyrites was imported from Spain, the sup- 
 ply from the Canadian mines and mines in this country being very 
 small, and those mines were generally owned or controlled and their 
 product consumed by companies engaged in the manufacture of acid 
 or acid phosphate. 
 
 In the early part of 1913, the plaintiff and defendant began negotia- 
 tions for the purchase and sale of sulphuric acid, which resulted in a 
 contract executed by them the 28th day of April, 1913, by which the 
 plaintiff purchased from the defendant from 30,000 to 50,000 tons, 
 of 2,000 pounds each, of sulphuric acid per year, of the quality desig- 
 nated "chamber acid ranging from 50 degrees to 54 degrees Beaume," 
 to be delivered at the plaintiff's works at Canton, or to Baugh & Sons 
 Coiiipany, Norfolk, Va., for a period of five years beginning January 
 1, 1913, and ending December 31, 1917, for the sum of $5.75 per ton. 
 The contract provided that the plaintiff should declare on the 2d of 
 January of each year what amount in excess of the minimum amount 
 of 30,000 tons it would take that year, and that the deliveries of sul- 
 
Ch. 3) PERFORMANCE OF CONTRACTS 145 
 
 phuric acid should be made as nearly as possible in equal weekly in- 
 stallments, and also contained the following provisions : 
 
 "Fire, accident or strike, in the work of any of the parties herein 
 mentioned; obstruction to navigation, accident to acid, barges, war, 
 insurrections or other uncontrollable causes rendering buyers unable 
 to receive or sellers unable to deliver, shall be good and sufficient rea- 
 sons to make this contract inoperative during the period of necessary 
 repairs, reconstructions, or continuance of the difficulties." 
 
 Immediately following the execution of the contract, the price fixed 
 thereby was by agreement reduced to $5 per ton. In pursuance of 
 the provisions of the contract, the plaintiff elected to take 50 tons of 
 acid per year, and it appears that the deliveries of the acid were ac- 
 cordingly and regularly made by the defendant during the years 1913 
 and 1914 and until some time early in. the year 1915. During the 
 year 1915, the defendant failed to make full deliveries to the plaintiff, 
 
 * * * and on the 10th of November, 1916, the plaintiff brought suit 
 at law against the defendant to recover damages for the non-delivery 
 of acid in accordance with its contract up to and including June, 1916. 
 
 Interference with the importation of pyrites caused by the war, and 
 which had diminished the normal supply during the year 1915, had 
 largely abated during the fall of 1916 and the early part of 1917, and 
 by reason thereof, and the extra efforts made by the defendant in an- 
 ticipation of difficulty in obtaining the ore, it had, in March, 1917, ac- 
 cumulated at its plant about forty-eight thousand tons. About that 
 time, however, just preceding the entrance of this country into the 
 war, the interference with navigation occasioned by the German U-boat 
 campaign became very serious. The companies with which the de- 
 fendant had contracted for delivery of the ore, and whose contracts 
 contained a clause similar to the clause in the contract between the 
 plaintiff and the defendant which we have quoted, notified the defend- 
 ant that they would be compelled to suspend deliveries. After receiv- 
 ing this notice, and after making efforts to secure further deliveries 
 of ore from the parties with whom it had contracted and from other 
 sources, the defendant notified the plaintiff and all others with whom 
 it had contracts for delivery of sulphuric acid that after the exhaus- 
 tion of its accumulated stock of pyrites it would not be able to make 
 deliveries of the acid contracted for, and would have to take advan- 
 tage of the clause in its contract with the plaintiff authorizing a sus- 
 pension of deliveries. At the same time the defendant stated that it 
 would continue its efforts to secure pyrites, and continue to deliver to 
 them their proportion of acid from any pyrites that it might be able 
 to obtain, and offered to install in its plant brimstone burners, and to 
 furnish the plaintiff and other parties to whom it had contracted to 
 furnish acid, with brimstone acid, provided they would agree to pay 
 the increased cost of the brimstone acid delivered in lieu of acid made 
 from pyrites. All of the parties with whom the defendant contracted 
 accepted the offer of the defendant and entered into agreements ac- 
 cordingly except the plaintiff, and on the 25th of September, 1917, the 
 plaintiff filed in the court below a bill of complaint against the de- 
 fendant. * * * 
 
 On the same day the court passed an order, directing a preliminary 
 injunction to be issued, requiring the defendant to "proceed forthwith 
 to fulfill the contract between the- complainant and the defendant. 
 
 * * *>' 
 
 B.& B.BUS.LAW— 10 
 
146 CONTRACTS (Part 1 
 
 The defense relied on by the appellant is that under its contract with 
 the plaintiff of April 28, 1913, it was not required to deliver acid made 
 from brimstone, and that it was unable by reason of the war to obtain 
 the necessary amount of pyrites to fulfill its contract with the plaintiff 
 and other parties with whom it had contracted to deliver acid or acid 
 phosphate, it was entitled, under the provision we have quoted, to sus- 
 pend the dehveries of acid to the plaintiff to the extent of its inability 
 to secure pyrites. * * * The learned court below took the view that 
 by reason of the conflict in the testimony as to the meaning of the 
 words "chamber acid" the evidence produced by the defendant was not 
 sufficient to establish a usage and to show that the trade meaning of the 
 words "chamber acid" was acid produced from pyrites. * * * 
 
 It is apparent that the first and important question in the case in- 
 volves the construction of the contract between the plaintiff and de- 
 fendant of April 28, 1913. A large part of the evidence was offered 
 for the purpose of showing the meaning of the words "chamber acid." 
 The witnesses produced by the plaintiff testified that they mean acid 
 manufactured by the chamber process from either pyrites or brimstone, 
 while the evidence offered by the defendant tends to show that at the 
 time the contract of 1913 was executed they were generally understood 
 by those engaged in the manufacture or sale of acid and acid phosphate 
 to mean the low grade of acid manufactured from pyrites by the cham- 
 ber process. The precise question, however, to be determined is, What 
 is the meaning of the words "chamber acid" as used in the contract 
 between the plaintiff and defendant? ' 
 
 In the case of Saundefs Co. v. Ducker, 116 Md. 474, 82 Atl. 154. 
 Ann. Cas. 1913C, 817, this court said: "It is an established canon pf 
 ■construction that: 'In order to arrive at the intention of the parties, 
 the contract itself must be read in the light of the circumstances under 
 which it was entered into. General or indefinite terms employed in 
 the contract may be thus explained or restricted as to their meaning 
 and application ; and the contract must be so constructed as to give it 
 such effect and none other, as the parties intended at the time it was 
 made.' " 
 
 Contracts "must receive a reasonable construction so as to give effect 
 to the intention of the parties thereto, and so as to carry out rather 
 than defeat the purposes for which they were executed. They should 
 neither, on the one hand, be so narrowly or technically interpreted as 
 to frustrate their obvious design; nor, on the other hand, so loosely 
 or inartificially as to relieve the obligor from a liability fairly within 
 the scope or- spirit of their term." And in the case of Schlens v Poe 
 128 Md. 352, 97 Atl. 649, the court said; 
 
 "It is therefore the duty of the court to construe them (resolutions) 
 — to ascertain the intention of the parties — ^and that intention must be 
 gathered from the language of the resolution read in the light of the 
 circumstances existing at the time. The rule of construction as stated 
 in Nash V. Towne, 5 Wall. 699, 18 L. Ed. 527, is this: 'Courts, 
 in the construction of contracts, look to the language employed, the 
 subject-matter, and the surrounding circumstances. They are never 
 shut out from the s?-" light which the parties enjoyed when the con- 
 tract was executed, t.i.d, in that view, they are entitled to place them- 
 selves in the same situation as the parties who made the contract, so 
 as to view the circumstances as -they viewed them, and so as to judge 
 -of the meaning of the words and the correct application of the language 
 to the things described.' " , 
 
Ch. 3) PERFORMANCE OF CONTRACTS 147 
 
 The evidence in the case shows that in 1913 the defendant had been 
 furnishing the plaintiff the^acid used in the manufacture of its acid 
 phosphate for a great many years ; that with one or two minor excep- 
 tions sulphuric acid of the quality used in the manufacture of acid 
 phosphate, and sold for that purpose, was made from pyrites ore, 
 which contains about 50 per cent, of sulphur, by the process known as 
 the chamber process, and that only about 5 per cent, of the brimstone 
 or sulphur sold in this country was used for acid making, and that that 
 per cent, of brimstone employed in making acid was used in the pro- 
 duction of what was known as a high grade acid or brimstone acid, 
 which was used for purposes other than the manufacture of acid phos- 
 phate. Dr. Grosvenor, one of the plaintiff's witnesses, testified that in 
 1913 the amount of brimstone or sulphur used in the manufacture of 
 sulphuric acid was only about 5 per cent, of the raw material used for 
 that purpose. The evidence further shows that the cost of the brim- 
 stone or sulphur in 1913 was about $22.50 per ton, while the cost of 
 pyrites containing an equal amount of sulphur was about $11 a ton, 
 and that the cost of the brimstone required to make one ton of acid 
 was $5.15, while the cost of the pyrites necessary to make one ton of 
 acid was $2.60 a ton. The undisputed evidence also shows that the 
 officers of the plaintiff were at the time considering the advisability of 
 manufacturing the sulphuric acid necessary for its own plant, and 
 knew what it would cost to produce it, and that they were familiar with 
 the construction of the defendant's plant, and knew that it was at that 
 time only adapted to the production of sulphuric acid from pyrites. 
 
 In view of this evidence it is impossible to escape the conclusion that 
 when the plaintiff .and defendant used the words "chamber acid" to de- 
 scribe the subject-matter of their contract, they did not refer to acid 
 made from brimstone, which they both knew the defendant could not 
 produce in its plant as then constructed, and could not furnish at the- 
 contract price of $5 per ton. Whether, therefore, strictly and techni- 
 cally speaking, chamber acid may be said to include acid made by the 
 chamber process from either pyrites or brimstone, if we are to give ef- 
 fect to the well-established canon of construction to which we have 
 referred, arriving at the intention of the parties, it would seem reason- 
 ably clear that the contract referred to the kind of sulphuric acid that 
 was almost universally employed in the manufacture of acid phosphate, 
 and to the productioij of which the defendant's plant was adapted, 
 and which alone the defendant could have furnished at the price agreed 
 upon. 
 
 It would be giving the contract a strained and unreasonable con- 
 struction to assume that the defendant obligated itself to deliver 50' 
 tons of brimstone acid per year, through a period of five years and 
 commencing at a date anterior to the date of the contract when it knew 
 and the plaintiff knew it could not do so except at a loss per ton equal 
 to about one-half of the price agreed upon. * * * 
 
 It follows from what we have said that the preliminary injunction 
 should have been dissolved, and we must therefore reverse the decree 
 from which this appeal was taken. 
 
 If the Legislature had enacted a statute imposing a tax on 'all' 
 sales of sulphuric acid, would acid manufactured from pyrites and 
 from brimstone each be taxed, or would acid manufactured fron» 
 P3rrites alone be taxed? 
 
148 CONTRACTS (Part 1 
 
 INGERSOLI/-RAND CO. v. L'NITED STATES FIDELITY & 
 GUARANTY CO. 
 
 (Court of Errors and Appeals of New Jersey, 191S. 92 N. J. Law, 403, 
 
 105 Atl. 236.) 
 
 Suit by the Ingersoll-Rand Company, a corporation, against the 
 United States FideUty & Guaranty Company. Judgment for defend- 
 ant, and plaintiff appeals. 
 
 Trenchard, J. The Ingersoll-Rand Company, the plaintiff below, 
 sued to recover the value of certain machinery which it claimed was 
 its property and was wrongly converted by the defendant to its use. 
 
 The record disclosed the following situation : Prendergast & Clark- 
 son had a contract with the United States government for the building 
 of the Shoshone dam at. Cody, Wyo. They needed certain machinery 
 for use in this work. The plaintiff, in writing, proposed to furnish 
 them an Ingersoll-Rand air compressor "of the size and dimensions 
 as set forth in the attached specifications," together with various other 
 machines and appliances in the proposal described, at a price of $13,- 
 001, upon "terms one-third cash on shipnent, one-third 60 days there- 
 after, and the balance 120 days after shipment." This proposal was 
 signed by the plaintiff, and following the signature is : "Accepted Feb- 
 ruary 24, 1906. Prendergast & Clarkson, by T. J. Prendergast. Presi- 
 dent." To this contract was attached certain unsigned specifications 
 which concluded with a statement that the title and right of possession 
 to the compressor "remains in the Rand Drill Company until the com- 
 pressor has been fully paid for in cash." A part of the machinery 
 thus sold (including the compressor) was delivered to Prendergast & 
 Clarkson at Cody, and was used by them in their work on the dam. 
 Later, by reason of a washout at the dam, they defaulted on their con- 
 tract, and the United States government, pursuant to its contract rights, 
 took possession of all the machinery and appliances on the ground, 
 among others, those which are the basis of this suit, being a part of 
 that furnished by the plaintiff, and then called on the defendant com- 
 pany (which was surety for the performance of the dam contract) to 
 do the work of construction. At the same time the government, in 
 supposed compliance with the defendant surety company's contract 
 rights, turned over to the defendant the machinery and appliances thus 
 taken into possession. Inasmuch as the plaintiff had not been paid in 
 full for this property, it brought this suit, which is based upon the 
 claim that title to the property did not pass until the whole purchase 
 money was paid. 
 
 The trial judge, sitting at the Hudson circuit without a jury, found 
 for the defendant, and the plaintiff appeals. 
 
 We are of the opinion that the judgment must be affirmed. Of 
 course, if we look only at the contract for the sale of this machin- 
 ery (without regard to the specifications), there can be no doubt 
 that the title passed to the purchaser upon delivery. The question 
 which the case presents is, however, whether the unsigned annexed 
 specifications, taken in connection with the contract itself, were oper- 
 ative to retain the title in the plaintiff, for the rule is that unsigned 
 specifications, not contained in the contract nor in terms made a part 
 thereof by the contract itself, but referred to therein and annexed 
 ,4hereto, must be construed therewith. * * * 
 
 But it is also the rule that, where the specifications are referred to 
 
Ch. 3) PERFORMANCE OF CONTRACTS 149 
 
 for a specific purpose only, they become a part of the contract for such 
 purpose only, and should be treated as irrelevant for all other pur- 
 poses. * *■ * Tested by this rule, we think the reservation of title 
 found in the "attached specifications" was no part of the contract. 
 
 The word "specifications," when used in such a contract, ordinarily 
 means a specific and detailed description of the thing to be furnished 
 or the work to be done. The specifications in question were of that 
 character. True, they concluded with the statement that the title and 
 right of possession to the compressor "remain in the Rand Drill Com- 
 pany until the compressor has been fully paid for in cash." But that 
 is not a "specification" within the meaning of the term. 
 
 It is to be noted that the "attached specifications" .were not in terms 
 made a part of the contract, and the only reference therein to them 
 is in the clause describing the compressor as "of the size and dimen- 
 sions as set forth in the attached specifications." No doubt they were 
 thus referred to for the purpose only of fixing the size and dimensions 
 of the compressor, and not for the purpose of adding new terms to 
 the contract by making it a conditional sale. This view is strengthened 
 by the fact that the specifications used were evidently prepared for use 
 by the Rand Drill Company (plaintiff's predecessor in business), and, 
 while quite appropriate for fixing the size and dimensions of the com- 
 pressor, were inappropriate to reserve title in the plaintiff. * * * 
 
 The judgment below will be affirmed. 
 
 PENNSYLVANIA SUGAR CO. v. CZAENIKOW-RIONDA CO. 
 
 (United States Circuit Court of Appeals, Third Circuit, 1917. 245 Fed. 913, 
 
 158 C. C. A. 201.) 
 
 McPhBrson, Circuit Judge. In this action the plaintiff, a purchas- 
 er of raw sugar from the defendant, was nonsuited in the effort to 
 recover damages for failure to make a full delivery. The defendant 
 shipped 32.000 bags from Cuba to Philadelphia, and the plaintiff re- 
 ceived 25,000 bags ; the remaining 7,000 being the quantity in dispute. 
 The plaintiff sets up a right to the whole 32,000, while the defendant 
 contends that 25,000 bags completely fulfilled the cohtract. The facts 
 are as follows : 
 
 The Pennsylvania Company is a Philadelphia refiner, and the Rionda 
 Company is a dealer in Cuban sugar, having an office in New York 
 City, and transacting part of its business through John F. Craig & Co., 
 a firm of brokers in Philadelphia. So far as appears, Craig & Co. 
 were not authorized to make final contracts of sale. Shortly before 
 June 16, 1914, the Pennsylvania Company and Craig & Co. negotiated 
 concerning the sale of sugar, and agreed upon certain terms provi- 
 sionally. The brokers sent these on to New York for approval, and 
 in due course the following written form of agreement, dated June 
 16, signed by the Rionda Company, and identified as "Contract V 
 329," was returned to the brokers to be accepted by the Pennsylvania 
 Company : 
 
 "New York, June 16th, 1914. 
 "To Messrs. Pennsylvania Sugar Company, Philadelphia, Pa. : 
 
 "We have this day sold to you for account of Czarnikow-Rionda 
 Company, New York: 
 
 "Quantity: Twenty-five thousand to thirty thousand (^5/30,000) 
 bags * * * of Cuba centrifugal sugar. 
 
150 CONTRACTS (Part 1 
 
 "Shipment or clearance: To be shipped cleared during August, 
 1914, first half, not before 5th. 
 
 "Destination: Per steamer, or steamers, to be named as soon as 
 possible, for Philadelphia. * * * 
 
 "Price: At two and seven-sixteenth (2 7/16c) cents per pound.. 
 Cost and freight, basis ninety-six (96"), average outturn polarization, 
 net landed weights. 
 
 "Payment: To be made to Czarnikow-Rionda Company by cash 
 in New York in six (6) days from date of delivery of shipping docu- 
 ments to buyers, for the net amount of the invoice, or by sellers or 
 Czarnikow-Rionda Company drawing on buyers at six (6) days' sight 
 for the net amount of the invoice with shipping documents attached. 
 
 "Delivery : Sugar to be delivered at a customary safe wharf or re- 
 finery, as directed by buyers. * * * 
 
 "Marine insurance : To be covered by buyers from shore to shore, 
 including risk of lighters at ports of loading and discharge. 
 
 "Czarnikow-Rionda Company, 
 
 "[Signed] Manuel E. Rionda, Vice President. Brokers." 
 
 Craig & Co. presented this writing to the Pennsylvania Company for 
 acceptance, but were informed that it did not contain all the terms 
 that had been agreed upon. Thereupon the brokers communicated 
 with the Rionda Company and were authorized to write the following 
 letter : 
 
 "Philadelphia, June 17th, 1914. 
 
 Messrs. Pennsylvania Sugar Co., Philadelphia- — Dear Sirs: Refer- 
 ring to contract V 329, dated June 16th, 1914, the understanding at 
 the time of sale of this cargo was that the drafts to be drawn against 
 this cargo were to be made payable in Philadelphia ; also that, should 
 there be any demurrage, the same was to be settled for on the basis 
 of net registered tonnage. The sellers, Messrs. Czarnikow-Rionda 
 Company, authorize us to herewith confirm these conditions and same 
 become part of contract above named. 
 
 "Yours truly, [Signed] Jno. F. Craig & Co., 
 
 "Brokers for Messrs. Czarnikow-Rionda Co., New York." 
 
 * * * The two writings of the 16th and 17th are therefore to be 
 taken together as the contract, and upon their construction the deci- 
 sion of the controversy dejiends. * * * 
 
 The questio^i may perhaps be stated thus: Was the express and 
 definite provision of the contract that calls for a specified quantity of 
 sugar within the limits named so modified by the word "cargo" as to 
 lose its apparent meaning, and to take on the new meaning of a whole 
 shipload, a load that exceeds the maximum limit? It is true that a 
 "cargo" is primarily the load of a ship; but the word, like many 
 another, may carry a varying content, and the question of its scope in 
 a given contract under given circumstances cannot be decided by con- 
 fining the court's inquiry to its abstract meaning. We must determine 
 what scope the parties gave it in this contract, and our opinion is 
 that the meaning here is the same as the meaning of the definite 
 phrase, "25.000 to 30,000 bags of Cubn centrifugal sugar." There can 
 be no doubt that the writing of June 16, unaffectedly the letter of 
 June 17, would have been satisfied by the delivery of 25,000 bags, and 
 we find little in the letter that indicates a different conclusion. The 
 letter is dealing directly with two subjects only— payment in Philadel- 
 phia, instead of in New York, and the settlement of possible demur- 
 
Ch. 3) PERFORMANCE OF CONTRACTS 151 
 
 rage — and the reference to the quantity of sugar is indirect and inci- 
 dental. No doubt the sugar is spoken of as "this cargo ; " but we think 
 this is no more than the write^'s allusion to the large quantity (cor- 
 rectly described as a cargo) that had already been distinctly specified, 
 and therefore did not need to be specified again. * * * 
 
 And this leads to the question, how much sugar did the Pennsylvania 
 Company buy? Tf the word "c"r!7o" wee not in the contract, the an- 
 swer would be plain, namely, from 25,000 to 30,000 bags, at the seller's 
 option. But, as the letter of June 17 put "cargo" into the contract, 
 the effect of introducing it must have been one of two things — either 
 to strike out the figvires and substitute "cargo," or to let the figures 
 stand and add "cargo." * * * Without prolonging the discussion, 
 we conclude that the word "cargo," as used in this contract, does not 
 mean a whole shipload, but does mean the quantity specified, and for 
 this reason we see no occasion to consider in this opinion the cases 
 where the word in other contracts has been held to bear a different 
 meaning — e. g., Kreuger v. Blanck, 5 L. R. Exch. .179; Borrowmen 
 V. Drayton, 2 L. R. Exch. 15. 
 
 The judgment is affirmed. 
 
 The case following is inserted by way of a digression from the 
 generp' subject of contracts, but it does concern the problem of 
 interpretation. The larger question raised may be stated roughly 
 as follows : Are constitutional provisions to be interpreted ex- 
 clusively in accordance with the meaning which the words pos- 
 sessed at the time of the adoption of the constitution, or, may those 
 same words be given a meaning to-day different from that which 
 they had at the time when they were used in the fundamental law? 
 
 There has been much able thought directed toward the solution of 
 this broader problem of the law. It is one which, while involved in 
 innumerable decisions of the courts, is not commonly dealt with as 
 a problem in judicial decisions. This problem is, however, ex- 
 pressly presented in the next case, distinctly so because of the 
 presentation therein of two views wjth respect to its. solution. 
 
 The extracts are taken from a decision sustaining the constitu- 
 tionality of an employers' liability and workmen's compensation 
 law. 
 
 BORGNIS et al. v. PALK CO. 
 
 (Supreme Court of Wi.smnsiii, 1911. 147 Wis. 327, 1?.3 N. W. 209, 37 L. R. A. 
 [N. S.] 489, 2 N. C. C. A. 834.) 
 
 WiNSLOW, C. J. * * * For all the essential purposes of this dis- 
 cussion, it may truly be said that this is the law which is before us, 
 and the question is simply whether there is any vital part of it which 
 the Legislature may not enact because the Constitution forbids it. It 
 is matter of common knowledge that this law forms the legislative re- 
 sponse to an emphatic, if not a perem'ptory, public demand. It was 
 admitted by lawyers, as well as laymen, that the personal injury action 
 brought by the employe against his employer to recover damages for 
 injuries sustained by reason of the negligence of the employer had 
 
152 CONTRACTS (Part 1 
 
 wholly failed to meet or remedy a great economic and social problem 
 which modern industrialism has forced upon us, namely, the problem 
 of who shall make pecuniary recomperfse for the toll of suffering and 
 death which that industrialism levies and must continue to levy upon 
 the civilized world. This problem is distinctly a modern problem. In 
 the days of manual labor, the small shop, with few employes, and the 
 stagecoach, there was no such problem, or, if there was, it was almost 
 negligible. Accidents there were in those days, and distressing ones ; 
 but they were relatively few, and the employe who exercised any rea- 
 sonable degree of care was comparatively secure from injury. There 
 was no army of injured and dying, with constantly swelling ranks 
 marching with halting step and dimming eyes to the great hereafter. 
 This is what we have with us now, thanks to the wonderful material 
 progress of our age, and this is what we shall have with us for many a 
 day to come. Legislate as we may in the line of stringent requirements 
 for safety devices or the abolition of employers' common-law defenses, 
 the army of the injured will still increase, and the price of our manu- 
 facturing greatness will still have to be paid in human blood and tears. 
 To speak of the common-law personal injury action as a remedy for 
 this problem is to jest with serious subjects, to give a stone to one who, 
 asks for bread. The terrible economic waste, the overwhelming temp- 
 tation to the commission of perjury, and the relatively small propor- 
 tion of the sums recovered which comes to the injured parties in such 
 actions, condemn them as wholly inadequate to meet the difficulty. 
 
 In approaching the consideration of the present law, we must bear 
 in mind the well-established principle that it must be sustained unless 
 it be clear beyond reasonable question that it violates some constitu- 
 tional limitations or prohibition. That governments founded on writ- 
 ten constitutions which are made difficult of amendment or change lose 
 much in flexibility and adaptability to changed conditions there can be 
 no doubt. Indeed that may be said to be one purpose of the written 
 constitution. Doubtless they gain enough in stability and freedom 
 from mere whimsical and sudden changes to more than make up for 
 the loss in flexibility ; but the loss still remains, whether for good or 
 ill. A constitution is a very human document, and must embody with 
 greater or less fidelity the spirit of the time of its adoption. It will be 
 framed to meet the problems and difficulties which face the men who 
 make it, and it will generally crystallize with more or less fidelity the 
 political, social, and economic propositions which are considered irre- 
 futable, if not actually inspired, by the philosophers and legislators of 
 the time; but the difficulty is that, while the Constitution is fixed or 
 very hard to change, the conditions and problems surrounding the peo- 
 ple, as well as their ideals, are constantly changing. The political or 
 philosophical aphorism of one generation is doubted by the next, and 
 entirely discarded by the third. The race moves forward constantly, 
 and no Canute can stay its progress. 
 
 Constitutional commands and prohibitions, either distinctly laid 
 down in express words or necessarily implied from general words, 
 must be obeyed, and implicitly obeyed, so long as they remain unamend- 
 ed or unrepealed. Any other course on the part of either legis- 
 lator or judge constitutes violation of his oath of office ; but when there 
 is no such express command or prohibition, but only general language, 
 or a general policy drawn from the four comers of the instrument^ 
 what shall be said about this? By what standards is this general Ian- 
 
Ch. 3) PERFORMANCE OF CONTRACTS 153 
 
 guage or general policy to be interpreted and applied to present day 
 people and conditions? When an eighteenth century constitution 
 forms the charter of liberty of a twentieth century government, must 
 its general provisions be construed and interpreted by an eighteenth 
 century mind in the light of eighteenth century conditions and ideals ? 
 Clearly not. This were to command the race to halt in its progress, 
 to stretch the state upon a veritable bed of Procrustes. 
 
 Where there is no express command or prohibition, but only general 
 language or pohcy to be considered, the conditions prevaihng at the 
 time of its adoption must haVe their due weight; but the changed 
 social, economic, and governmental conditions and ideals of the time, 
 as well as the problems which the changes have produced, must also 
 logically enter into the consideration, and become influential factors in 
 the settlement of problems of construction and interpretation. These 
 general propositions are here laid down, not because they are consid- 
 ered either new or in serious controversy, but because they are believed 
 to be peculiarly applicable to a case like the present, where a law which 
 is framed to meet new economic conditions and difficulties resulting 
 therefrom is attacked principally because it is believed to offend 
 against constitutional guaranties or prohibitions couched in general 
 terms, or supposed general policies drawn from the whole body of the 
 instrument. * * * 
 
 MarshalIv, J. (concurring). The result, itself, meets with my un- 
 qualified approval. Some language in the court's opinion, however, 
 respecting the Constitution, I fear will be construed in a different way 
 than the writer thereof, or any member of the court, intended or would 
 sanction, tending to impair the lofty character of the fundamental law 
 as significantly maintained by this court. * * * 
 
 As to the subject of the enactment, advanced thinkers in econom- 
 ics, law and legislation have been at the front and the public has been 
 slow to follow. It took the industrious, able, patient, tactful legis- 
 lative committee over two years of activity, to educate the people up 
 to willingness to accept on trial the mild law before us. Opposition 
 had to be overcome JDy education on all sides. The Legislature re- 
 sponded, not so much to a general demand, as to a constitutional com- 
 mand, to conserve, in the light of the present, the public welfare. 
 
 The remarks in the court's opinion which may suggest to some that 
 a different meaning is to be read out of the Constitution now than 
 formerly; that it may have meant one thing when framed and later 
 another, and now be held differently, according to judicial interpre- 
 tation to meet social necessities as recognized by human instrumentali- 
 ties in the particular environment — probably was not so intended, but 
 I sense danger of a contrary impression going out. Such ability to 
 bend the fundamental law in the name of judicial interpretation — the 
 idea that an eighteenth century construction for an eighteenth century 
 condition may not, and at the hands of the court does not have to, fit 
 a twentieth century condition — has been advanced by some, but not, 
 significantly at least, by any court. On the contrary, it has met with 
 universal condemnation. That it is wrong, every man of eminence 
 that has ever written upon the subject in the past, as well as the very 
 nature of the case and the very logic and limitations of judicial inter- 
 pretation, bear witness. The fertile method of dealing with the Con- 
 stitution has been characterized as one which has "furnished a mode 
 of argument which would on the one hand leave the Constitution 
 
l-o4 CONTRACTS (Part 1 
 
 crippled and inanimate, or on the other give it an extent of elasticity 
 subversive of all rational boundaries." Story, Constitution, 389. 
 
 Manifestly, there can be but one right interpretation or construction 
 of the Constitution. It is said to have been constructed of general 
 declarations, so that, in letter and spirit, it might abide indefinitely 
 and would have to so abide, dealing with all conditions and all ages, 
 except as amended in the manner therein specified. Considerately 
 with that, there can be but one viewpoint for interpretation, and that 
 is the one from which the framers of the system builded. * * * 
 
 The foregoing I can but regard out of harmony with this, in its 
 letter: "Changed social, economic and governmental conditions and 
 ideals of the time, as well as the problems the changes have produced, 
 must largely enter into the consideration and become influential fac- 
 tors in the settlement of problems of construction and interpretation" 
 — so far as it is pregnant with the thought that the fundamental law is 
 judicially changeable. The words "problems" of "construction" and 
 "interpretation" I think were unfortunately used, if the thought was 
 merely of problems of whether new enactments to cope with new con- 
 ditions are within or without the legitimate field of legislative activity, 
 having regard to appropriateness of means to effect a constitutional 
 end. The latter might be, as I have suggested, at one time and not a 
 half century theretofore, because changed conditions may render an 
 end legitimate, within the unchangeable scope of the fundamental law, 
 which earlier was not, or the selected means to effect that end might 
 be reasonably appropriate at one time, though not so a century, more 
 or less, theretofore. 
 
 Why treat judicial interpretation of law as a process of foMowing 
 changing ideals, social problems and ideas, since its sole ofifice is to 
 solve uncertainties as to the intent at the time of the enactment? In- 
 terpretation commences where begins uncertainty — obscurity as to the 
 meaning the lawgivers purposed putting into the enactment and suc- 
 ceeded, discoverably, in expressing, literally or inferentially. In short, 
 the gist of the matter is the intent when the law was made, not what 
 one can make the language say in a different environment from that 
 of its origin to accomplish a desired purpose. * * * 
 
 It is needless to add that I heartily endorse all said in the court's 
 opinion regarding the importance of the legislation which has received 
 approval. May it be the beginning of a well rounded out constitu- 
 tional system making every one who consumes any product of labor 
 for hire pay his proportionate amount of the cost of the creation rep- 
 resenting the personal injury misfortunes of those whose hands have 
 enabled him to secure the objects of human desire, thus minimizing 
 the sufferings which are the natural incidents of industry and should 
 be borne, so far as they represent pecuniary sacrifice, by the mass of 
 mankind whose desires are administered to by such industry. 
 
 SECTION 3.— CONDITIONS IN CONTRACTS— GENERAL 
 
 STATEMENT 
 
 In the remaining portion of this chapter we are concerned with 
 the problems which arise after the contract has been entered into. 
 We are assuming the existence of a binding contract between the 
 parties. Questions pertaining to offer, acceptance and considera- 
 
"Ch. 3) PERFORMANCE OF COXTRAPTS 15") 
 
 tion have all been settled. The questions which are presented in 
 the following cases grow out of the conduct of the parties to the 
 ■contract and other events which occur subsequent to its formation.^ 
 
 It is obvious that if each party to a contract performs his promise 
 •or promises exactly — that is, if each performs the promised act or 
 acts at the proper time and at the proper place — no controversy will 
 arise. The contract will then be fully performed on both sides 
 and will accordingly be discharged by performance ; that is, having 
 lived its allotted life the contract will cease to exist. Perhaps, 
 "having regard for the countless number of contracts which are 
 daily entered into, the great majority are fully performed without 
 controversy between the parties. But we are dealing with the legal 
 situations which are presented when contracts are not performed 
 by both parties in accordance with their respective promises. We 
 are to be concerned with the questions which arise when one party 
 to a contract sues the other party to the contract. We want to 
 know whether the plaintii? or the defendant is to win, and we want 
 to discover the reasons which will impel the courts to terminate the 
 litigation in favor of the one or of the other. 
 
 It would be possible to discuss these questions by employing the 
 terms "legal rights" and "legal duties," etc., wholly apart from 
 any actual law suit, but it may, perhaps, add to clearness if we have 
 visualized a proceeding in court wherein one of the parties to a 
 •contract is suing the other party. The plaintiff is asking for some 
 relief from the defendant, usually money damages. It is perfectly 
 clear of course, that if the defendant has fully performed all the 
 acts which he promised to perform, and that such performance 
 was effected at the proper time and place, the defendant cannot be 
 Tield liable. In such a case the plaintiff's charge that defendant 
 broke his contract is not made out. The defendant wins because he 
 was not guilty of a breach of contract. 
 
 It is apparent, therefore, that in one view of the situation with 
 which we are dealing — a lawsuit between the parties to a contract — 
 the first question to arise is ; Did the defendant break his contract ; 
 that is, did the defendant fail in any respect to perform the prom- 
 ised act, either with respect to the quality of the act itself, or with 
 respect to the time or place of its performance? If the defendant 
 ■did so fail to perform, he will be held liable to the plaintiff, irre- 
 spective of the extent of such breach. The breach, from a business 
 point of view, may be very trifling. Nevertheless he will be held 
 liable. Perhaps the amount of damages may be but nominal, but he 
 will be liable to this extent. Substantial performance is never a 
 defense. Proof of substantial performance by the plaintiff will 
 ■often enable him successfully to maintain his suit against the de- 
 fendant to recover damages for the defendant's breach, but the 
 
 1 Two of the very best treatments of the difficult subject of Conditions 
 are found in tlie article by Professor Arthur L. Corbin, "Conditions in the 
 Law of Contracts," 28 Yale I.raw .Tournal, 739; also chapter XIII of Cor- 
 toiri's Anson on Contract ; and "The Summary of Conditions in Contracts 
 .•and Impossibility of Performance," by Professor George P. Costigan. 
 
156 CONTRACTS (Part 1 
 
 defendant cannot defend by proving substantial performance. This 
 point should not be lost sight of, for in the cases following there is 
 a good deal of discussion of the doctrine of substantial performance, 
 but in such cases it will be found that it is the plaintiff who is in- 
 sisting that all he need prove is substantial performance, in order 
 to hold the defendant. The defendant is not urging that he is not 
 liable because he has substantially performed. This matter will 
 appear more clearly in the Hght of later discussion. 
 
 We are now at the point where the problems with which this 
 chapter is concerned may be indicated. The bulk of the problems 
 arises in cases where the defendant is admitting that he is guilty 
 of a breach of contract, but he is insisting that he cannot be held 
 liable for such- breach because of the legal effect of certain conduct 
 of the plaintiff. The defendant, therefore, is urging that his non- 
 performance is excused. Looking at the law suit from the stand- 
 point of the defendant, the question is : What conduct by the 
 plaintiff or what outside events will operate as an excuse for the 
 defendant's breach? Looking at the same situation from the stand- 
 point of the plaintiff the question is : What facts must the plain- 
 tiff prove in order to hold the defendant liable for the latter's 
 breach? This statement of the question at once suggests the possi- 
 bility of legal rights being conditioned upon the occurrence of cer- 
 tain events or the performance of certain acts by the holder of the 
 right. 
 
 The idea of "excuses for non-performance" could be used as a 
 basis for the classification of the cases following, or, the notion 
 of "conditions'' could be similarly employed as a basis for classify- 
 ing the subject-matter. It is the latter idea, that of conditions, 
 which has here been used as a basis for arranging the cases, which, 
 in their bfoader aspect, concern problems in the performance of 
 contracts. 
 
 A condition may be defined as follows: A condition in a con- 
 tract is some act or event, either affirmative or negative, expressly 
 or impliedly agreed upon by the parties or interpolated into the 
 contract by the law which creates, qualifies or extinguishes some 
 right or duty or other legal relation arising out of the contract. 
 The' act constituting the condition may be one to be performed by 
 either of the parties to the contract or it may be an act to be per- 
 formed by a third party or it may be some event of nature. The 
 act may or may not be an act, the performance of which has been 
 promised by either of the parties. The act, thus operating as a 
 creation, qualification, or extinguishment of some legal relation may 
 be so referred to in the contract that it must be performed or occur 
 before the relation which it concerns arises. In such a case we 
 would refer to the act as a condition precedent, to the existence of 
 the right or duty or other relation. If we were thinking of the 
 circumstances under which A.'s duty to perform a certain promise 
 in a contract with B., would arise and we discovered that his duty 
 of performance was not to arise, until some act X was to be per- 
 
Ch. 3) PERFORMANCE OF CONTRA'CTS 157 
 
 formed either by A., or by B., or by some third party, we would 
 ref^r to act X as a condition precedent to A.'s duty to perform his 
 promise. Such a promise by A., namely, one, the duty to perform 
 which is ]thus quahfied, is sometimes referred to as a dependent 
 promise, or dependent covenant, because the duty of performance 
 arising thereunder depends upon, and is conditioned upon the hap- 
 pening of some act. This act may be one of actual performance or 
 of tender of performance. If instead of thinking of A.'s duty to 
 perform a particular promise, we were to inquire into the cir- 
 cumstances under which some right of A. were to arise, such as a 
 right to demand immediate performance of some promise by B., 
 or a right to sue B. for damages because of B.'s failure to perform 
 this particular promise, we might also discover that this right of A. 
 against B. would not arise until some act Y was performed. It 
 might be that act Y was an act, which A. was to perform, or which 
 B. was to perform or which was to be performed by some third 
 party. In this case, we are dealing with the same kind of situation 
 as that wherein act X was involved, except that in this case, since 
 we are looking at the transaction from A.'s standpoint, act Y is a 
 condition precedent, not to a duty but to a right of A. Quite often 
 courts refer to certain acts as conditions precedent without stat- 
 ing whether the particular act so referred to is precedent to a duty 
 or precedent to a right. The context will usually make it clear 
 which is meant. It is ob-«iously quite important to find out wheth- 
 er a particular act is regarded as precedent to a duty or precedent 
 to a right and to determine whose duty or whose right is referred to. 
 
 We have thus far, for the most part, apparently assumed that the 
 act which we have here been calling a condition, can be precedent 
 only to duties or to rights. As a matter of fact there are other legal 
 relations to which an act may be precedent. The occurrence of an 
 act or event may be made to operate as a condition precedent to the 
 existence of a legal power or privilege. A power is not the same as 
 a right, though the term "right" is often used to include the con- 
 cept "power." Usually the term "right"' implies a correlative duty 
 in some other person. A power does not imply a duty in some 
 other person, the term power merely means that the person so pos- 
 sessing it, may by some act of his alon^, change some person's re- 
 lations with respect to the subject of the power. Such person is 
 under a liability An agent sometimes has power to bind his princi- 
 pal to a contract which his principal did not authorize him to make 
 but in doing so the agent may break his contract, that is, violate a 
 duty owed to his principal. A thief of a negotiable instrument pay- 
 able to bearer has power to transfer title to an innocent purchaser. 
 We shall not pursue these distinctions further, but they are men- 
 tioned merely for the purpose of showing that acts may operate as 
 conditions precedent to legal relations other than legal rights and 
 legal duties. 
 
 There are acts, which affect rights and duties under contracts, 
 properly called conditions which have a different legal effect in 
 
158 CONTRACTS (Part 1 
 
 their 'operation. A right or duty may be presently owed, except in 
 so far as the passage of time is necessary to render them active, 
 which rights or duties may be destroyed or otherwise affected by 
 the happening of the act. In this case the act would not be re- 
 ferred to as a condition precedent to the right or duty, but would be 
 subsequent to the particular right or duty which is being referred 
 to. For example, if A. sells goods to B. and if by the terms of the 
 contract and by the performance thereunder all of the incidents of 
 legal title or of ownership pass to B., but the contract provides that 
 if within a specified time B. chooses to return the goods, this act of 
 B. may be referred to as a condition subsequent to the passing of 
 title to B. Of course this same act will operate as a condition pre- 
 cedent to A.'s regaining title. Whether the act should be referred 
 to as a condition precedent or as a condition subsequent will thus 
 depend upon whether attention is focused upon what happened be- 
 fore the act occurred or upon what is to take place after the act oc- 
 curred. 
 
 There is another class of acts which, while they operate as con- 
 ditions, have a somewhat different legal effect from conditions pre- 
 cedent to rights or duties or conditions subsequent to rights or 
 duties. It is possible, in fact very common, for a contract to refer, 
 not to one future act alone, but to two future acts, in such a way 
 as to lead to the inference that these two acts are to be performed 
 at the same moment of time. Commonllf one of the acts is to be 
 performed by one of the parties to the contract and the other is to 
 be performed by the other party to the contract. These acts may be 
 called concurrent conditions. When we were sketching the nature 
 and effects of conditions precedent to rights or duties, we noted 
 that the act which operated as the condition precedent must have 
 been performed before the particular right or duty which was in- 
 volved was deemed to have come into existence. The distinction 
 between conditions precedent and conditions concurrent is not so 
 much with respect to the character of the act, nor even with respect 
 to the legal effects which follow a non-performance of the act, but 
 more properly the distinction is with respect to what constitutes a 
 non-performance of the condition. If act X is a condition preced- 
 ent to the existence of right A or duty A, act X must be performed 
 before right A or duty A comes into existence. But if act X is a 
 condition concurrent with act Y, and if right A or duty A is to 
 follow the performance of act X and act Y, the party who owes 
 the performance of act X, or the party who owes the performance of 
 act Y need not actually perform his act in order to bring, let us say 
 his right A, into existence, he needs merely to tender the perform- 
 ance of his act and if the other party signifies his unwillingness or 
 inability to make a tender of performance of his act, then the right 
 or duty which is to follow a performance of the act is deemed to 
 have arisen. Even here it is possible to regard concurrent condi- 
 tions as a special class of conditions precedent, by regarding the 
 act of tender as the real condition precedent. 
 
Ch. 3) PERPORMANCH OF CONTRACTS 159 
 
 Thus far conditions have been classified as precedent, subsequent 
 and concurrent. Looking at conditions from a different point of 
 view, they may be classified as express, implied in fact and implied 
 m law. A condition is said to be express when it is created by lan- 
 guage definitely set out in the oral or written agreement. When a 
 condition is implied in fact it is based upon actual, but unexpressed, 
 intention of the parties. When a condition is implied in law, it is 
 not based upon an actual and unexpressed intention of the parties, 
 but it^is based upon a conviction of the court that in order to do 
 justice between the parties the contract must be dealt with just 
 as though it did provide for such a condition. The two kinds of 
 conditions, those implied in fact and those implied in law, shade 
 gradually into one another so that it is difficult to determine in 
 some cases upon which theory the court proceeded in dealing with 
 them. There is a tendency recognizable in the decisions to call a 
 condition one implied in fact when it would be more proper to re- 
 fer to it as a condition implied in law. Conditions implied in law 
 are sometimes called constructive conditions. The distinctions be- 
 tween the two kinds of implied conditions are not in most cases of 
 great importance, because their legal effects will be substantially 
 the same. There is this difference: where a condition is implied 
 in law, the courts are more likely not to insist upon its literal per- 
 formance to the same extent as in the case where it is implied in 
 fact. When a condition is implied in fact it is to be given the same 
 legal effect as an express condition, because parties are left free, 
 within very broad limits, to enter into such contracts as they 
 choose, and when they have expressed their intention, whether ex- 
 pressly or impliedly, this intention is to be given effect. 
 
 It will be noticed that in the above very brief discussion of con- 
 ditions we have not attempted to consider what words or conduct 
 descriptive of acts will be regarded as creating conditions. We 
 have but briefly touched upon their legal effect. We have merely 
 attempted to create a few concepts, mental receptacles so to speak, 
 into which we may put theSe ideas as we find them developed in 
 the cases. 
 
 SECTION 4.— PERFORMANCE ON TIME AS A CONDITIOIn 
 
 ADAMS et al. v. GUYANDOTTE VALLEY RY. CO. et al. 
 
 (Supreme Court of Appeals of West ^'irginia, 1908. 64 W. Va. 181, 
 61 S. E. 341.) 
 
 Bill to cancel a contract by P. C. Adams and others against the 
 Guyandotte Valley Railway Company and another. Decree for de- 
 fendants, and complainants appeal. 
 
 Po^FENBARGBR, P. The [plaintiff] landowners agreed to * * * 
 lease * * * for coal mining or coal coking purposes any part of the 
 land that lies upon or is drained by the stream emptying into the Guy- 
 andotte river to any party or parties presented by the railway company 
 
160 CONTRACTS (Part 1 
 
 or its assigns, with all such privileges as are necessary and proper for 
 the conduct of mining operations. * * * The covenants and condi- 
 tions imposed upon the railway company were two m number, only the 
 first of which is important, which reads as follows : "It will cause 
 the said railway to be commenced within one year and completed and 
 in operation opposite the said lands of the parties of the first part by 
 the 1st of January, 1903 ; and it is understood that, if the said railway 
 is not completed and in operation by the said date, this^ agreement shall 
 no longer be binding upon the parties hereto." * * * . 
 
 Failure of the railway company to comply with the condition having 
 been shown, the propriety of the remedy invoked by the plaintifts is 
 dependent upon the character of that condition. If it is a condition 
 subsequent, noncompliance with which works a forfeiture of a vested 
 right or estate a court of equity will not enforce the forfeiture. It will 
 leave the parties to their legal remedies. * * * If it is a condition 
 precedent, one which it was incumbent upon the railway company to 
 perform before any interest, right, title or estate vested or could vest, 
 or, in other words,'the performance of which operated to vest the title, 
 or was the means by which the title was to be acquired, not defeated, 
 after acquisition in some other way, equity has jurisdiction to cancel 
 the contract by way of removing a cloud from the title to the land, if 
 it constitutes a cloud thereon, tor this can be done without destroying 
 any right under it. * * * That failure to perform a condition pre- 
 cedent prevents the vesting of title or right is elementary law. * * * 
 
 No authority need be cited for the proposition that the completion 
 and operation of the railroad opposite the land is a condition precedent. 
 
 * * * That was the substance of the thing which it was stipulated the 
 railway company should do. It constituted the whole consideration 
 for all the covenants and agreements made by the other parties. This 
 would necessarily be the conclusion if the terms of the contract did 
 not indicate it, but they do. All the stipulations in favor of the rail- 
 way company are clothed in prospective terms. * * * There is no 
 language in the contract importing a grant of any right in praesenti. 
 
 * * * The only matter about which there could be a doubt is whether 
 time is made an essential part of the condition. In the construction of 
 contracts this is often a perplexing inquiry, but the doubt generally 
 arises in those instances in which the parties have not, by any express 
 terms of the contract, indicated the essentiality of the time specified. 
 Then resort must be had to the nature of the instrument, its subject- 
 matter, the evident purpose had in view, the prior and subsequent 
 conduct of the parties, and the immediate context of the phrase or 
 clause specifying time. The form and legal effect of the stipulation 
 also have important bearing upon the question. In such cases, the 
 inquiry is for the intention of the parties, and it must be gathered from 
 the whole instrument and the surrounding circumstances. * * * 
 
 Under the practically unlimited right and power of parties to make 
 such contracts as they see fit to make, and bind themselves to such ex- 
 tent' and in such manner as they please, they may make performance 
 of any covenant or condition, however unimportant or trivial in char- 
 acter, a condition precedent. Though time of performance may be 
 comparatively or really unimportant in a practical sense, they have 
 the power to stipulate with one another that failure to observe it shall 
 be fatal and put an end to the contract. * * * 
 
 The stipulation under consideration here relates to a condition, the 
 
Ch. 3) PERFORMANCE OF CONTRACTS 161 
 
 nonperformance of which may inflict injury not easily or readily sus- 
 ceptible of ascertainment or compensation. It is not like failure to 
 pay money on a specified day. * * * j^ the event of failure to per- 
 form within the time stipulated, the gravity of the injury would de- 
 pend upon the period of delay. Delay of one month or six months 
 might not be serious ; but, if such delay is permissible, why not a de- 
 lay of one year, five years, or ten years? How could the court fix a 
 time within which the delay would be deemed innocuous, and beyond, 
 fatal? * * * How can we say that this did not signify intention to 
 make the time specified an essential element of the condition? They 
 have solemnly said in their written agreement, not only that the road 
 should be completed and operated opposite the land, but also that it 
 should be completed and operated by the 1st day of January, 1903, 
 and that failure to comply within that time should put an end to the 
 contract. In this final clause the date of completion is referred to as 
 well as the requirement of completion. * * * Our conclusion is 
 that, by the express terms of the contract, time is made of the essence 
 thereof. As the road was not built within that time, no title vested, nor 
 can it ever vest under this contract. Wherefore the agreement now 
 amounts to nothing more than a cloud upon the title of the plaintiffs, 
 and the court should have canceled it as such. * * * 
 
 BECK & PAULI LITHOGnAPHING OO. v. COLORADO JIILLING 
 & ELEVATOR CO. 
 
 (United States Circuit Court of Appeals, EicrUtli Circuit, 1?02. , 52 Fed. 
 700, 3 C. C. A. 248.) 
 
 Sanborn, Circuit Judge. The ground on which it is sought to sus- 
 tain the instruction of the court below to return a verdict for the de- 
 fendant in this case is that the plaintiff failed to tender or deliver the 
 articles contracted for to the defendant, at Denver, until six or eight 
 days after the expiration of the year, that the plaintiff did not there- 
 fore furnish them "in the course of the year," and that this failure 
 justified the defendant in repudiating the contract, and refusing to pay 
 any part of the contract price. 
 
 It is a general principle governing the construction of contracts that 
 stipulations as to the time of their performance are not necessarily of 
 their essence, unless it clearly appears in the given case from the ex- 
 press stipulations of the contract or the nature of its subject-matter 
 that the parties intended performance within the time fixed in the 
 contract to be a condition precedent to its enforcement, and, where 
 the intention of the parties does not so appear, performance shortly 
 after the time Hmited on the part of either party will not justify a re- 
 fusal to perform by the party aggrieved, but his only remedy will be 
 an action or counterclaim for the damages he has sustained from the 
 breach of the stipulations. In the application of this principle to the 
 cases as they have arisen, in the promulgation of the rules naturally 
 deduced from it, and in the assignment of the various cases to the re- 
 spective classes in which the stipulation as to time of performance is, 
 or is not, deemed of the essence of the contract, the controlling con- 
 sideration has been, and ought to be, to so decide and classify the cases 
 that unjust penalties may not be inflicted, nor unreasonable damages 
 recovered. Thus, in the ordinary contract of merchants for the sale 
 B.& B. Bus. Law— 11 
 
102 CONTRACTS (Part 1 
 
 and delivery, or the manufacture and sale, of marketable commodities 
 within a time certain, it has been held that performance within the 
 time is a condition precedent to the enforcement of the contract, and 
 that a failure in this regard would justify the aggrieved party in re- 
 fusing performance at a later day. * * * 
 
 This application of the general principle commends itself as just and 
 reasonable, on account of the frequent and rapid interchange and use 
 of such commodities made necessary by the demands of commerce, 
 and because such goods, if not received in time by the vendee, may 
 usually be sold to others by the vendor at small loss, and thus he may 
 himself measure the damages he ought to suffer from his delay by 
 the difference in the market value of his goods. On the other hand, 
 it has been held that an express stipulation in a contract for the con- 
 struction of a house, that it should be completed on a day certain, and 
 that, in case of failure to complete it within the time limited, the 
 builder would forfeit $1,000, would not justify the owner of the land 
 on which the house was constructed in refusing to accept it for a 
 breach of this stipulation when the house was completed shortly after 
 the time fixed, nor even in retaining the penalty stipulated in the con- 
 tract, but that he must perform his part of the contract, and that he 
 could retain from or recover of the builder the damages he sustained 
 by the delay and those only. * * * This application of the gen- 
 eral rule is equally just and reasonable. The lumber and material 
 bestowed on a house by a builder become of little comparative yalue to 
 him, while they are ordinarily of much greater value to the owner of 
 the land on which it stands, and to permit the latter to escape pay- 
 ment because his house is completed a few days later than the con- 
 tract requires would result in great injustice to the contractor, while the 
 rule adopted fully protects the owner, and does no injustice to any one. 
 The cases just referred to illustrate two well-settled rules of law which 
 have been deduced from this general principle, and in accordance 
 with which this case must be determined. They are : 
 
 In contracts of merchants for the sale and delivery or for the manu- 
 facture and sale of marketable commodities a statement descriptive of 
 the subject-matter, or some material incident, such as the time of ship- 
 ,ment, is a condition precedent, upon the failure or nonperformance of 
 which the party aggrieved may repudiate the whole contract. * * * 
 But in contracts for work or skill, and the materials upon which it is 
 to be bestowed, a statement fixing the time of performance of the 
 contract is not ordinarily of its essence, and a failure to perform within 
 the time stipulated, followed by substantial performance after a short 
 delay, will not justify the aggrieved party in repudiating the entire 
 contract, but will simply give him his action for damages for the 
 breach of the stipulation. * * * 
 
 It only remains to determine whether the contracts in the case at 
 bar are the ordinary contracts of merchants for the (manufacture and 
 sale of marketable commodities or contracts for labor, skill, and mate- 
 rials, and this is not a difficult task. A contract to manufacture and 
 furnish articles for the especial, exclusive, and peculiar use of another, 
 with special features which he requires, and which render them of 
 value to him, but useless and unsalable to others — articles whose chief 
 cost and value are derived from the labor and skill bestowed upon 
 them, and not from the materials of which they are made — -is a con- 
 tract for work and labor, and not a contract of sale. * * * Thus 
 
Ch. 3) PEEFOEMANCE OF CONTRACTS 163 
 
 in Engraving Co. v. Moore, 75 Wis. 170, 172, 43 N. W. 1124, 6 L. R. 
 A. 788, 17 Am. St. Rep. 186, where the Uthographing company had 
 contracted to manufacture a large quantity of engravings and litho- 
 graphs for a theatrical manager, with special features, useful to him 
 only during a certain season, and they were completed and set aside 
 in the rooms of the lithographer, and there burned before delivery to 
 the manager, the court held that the contract was not one for the 
 sale of personal property, but one for work, skill, and materials, be- 
 cause it was not the materials, but the lithographer's work of skill, 
 that gave the value to the finished advertisements, and was the actual 
 subject-matter of the contract, and because that work and skill, while 
 it added tlie chief value to flie finished articles for the especial use of 
 the defendant, made both the articles and the materials worthless for 
 all other purposes. 
 
 The contracts in the case we are considering were not for the blank 
 paper on which they were finally impressed; that was of small value 
 in proportion to the value of the finished articles; they were not for 
 the sale of anything then in existence ; they were for the artistic skill 
 and labor of the employes of the defendant in preparing the sketches 
 and designs, transferring them upon stone, and finally impressing them 
 upon the paper the defendant was to furnish ; and they authorized the 
 plaintiff, without other orders than the contracts themselves, and the 
 approvals of the designs and proofs there called for, to prepare and 
 furnish all the articles named in the contracts and to collect the con- 
 tract price therefor. These contracts required the names of defendant's 
 mills and its trade-marks to be so impressed upon all these articles that 
 when they were completed they were not only unsalable to all others, 
 but worthless to plaintiff for all purposes but waste paper. The con- 
 tracts are evidence that on December 31, 1889, the articles contracted 
 for would have been worth about $6,000 to the defendant, and if a few 
 days later, when they were tendered, they were not worth so much, 
 the defendant may recover the damages it suffered from the delay 
 from December 31, 1889, to the date of the tender, in a proper action 
 therefor, or may have the same allowed in this action under proper 
 pleadings and proofs, and no injustice will result; while, if the de- 
 fendant was permitted on account of this delay to utterly repudiate 
 the contract, the plaintiff must practically lose the entire $6,000. 
 
 The contracts contain no stipulation from which it can be fairly in- 
 ferred that the parties intended the time of performance to be even 
 material; indeed, they strongly indicate the contrary. They provide 
 that a certain portion of the articles shall be furnished in two months, 
 that the remainder of the stationery and 5,000 hangers shall be furnish- 
 ed in the course of the year, and the 5,000 hangers more and the vi- 
 gnette shall be furnished within a reasonable time after the proofs are 
 approved by the defendant ; there is no stipulation for the payment of 
 any damages or the avoidance of the contracts on account of a failure 
 to perform within any of the times stipulated in the contracts, and the 
 parties themselves proceeded so leisurely thereunder that the first and 
 only admitted request by the defendant for the delivery of any of the 
 articles not delivered in August was on December 16, 1889. * * * 
 In the absence of any such stipulation, or any clearly expressed intent 
 that time should be material even, it would be clearly unjustified by 
 the law and inequitable to hold that the plaintiff is compelled to for- 
 feit his entire contract price on account of this trifling delay that may 
 
164 CONTRACTS (Part 1 
 
 have been immaterial to the defendant, and, if not, may be fully com- 
 pensated in damages. 
 
 The result is that these contracts were not for the sale and deliv- 
 ery, or the manufacture and delivery, of marketable commodities. 
 They were contracts for artistic skill and labor, and the rnaterials on 
 which they were to be bestowed in the manufacture of articles which 
 were not salable to any one but the defendant when completed because 
 impressed with special features useful only to it. There was nothing 
 in the contracts or their subject-matter indicating any intention of the 
 parties that the stipulations as to time should be deemed of their es- 
 sence; and the defendant was not justified on account of the slight 
 delay disclosed by the record in refusing to accept the goods, or in 
 repudiating the entire contract. This conclusion disposes of the case, 
 and it is unnecessary to notice other errors assigned. The judgment 
 below is reversed, and the cause remanded for further proceedings not 
 inconsistent with this opinion. 
 
 SECTION 5.— PERFORMANCE TO THE SATISFACTION OF 
 ANOTHER AS A CONDITION 
 
 PENXrXGTON V. HOWLAND. 
 
 (Supreme Court of Rhode Island, 189S. 21 E. I. 65, 41 Atl. 891, 
 79 Am. St. Rep. 774.) 
 
 Action by Harper Pennington against Samuel S. Howland. There 
 was a verdict and judgment for plaintiff. 
 
 StinESS, J. The plaintiff was 'employed to paint a pastel portrait 
 of the defendant's wife for the sum of $500, under a contract by cor- 
 respondence, which only provided for the price. The plaintiff went 
 to the defendant's house, in Washington, D. C, and began his work. 
 The defendant testified that he at once objected to the proposed por- 
 trait, in street dress and hat ; but the plaintiff said it was an artistic 
 idea, which he wished to carry out, and that, if it was not satisfac- 
 tory, he would paint the defendant one "until satisfied." He also tes- 
 tified that the plaintiff undertook the commission with the understand- 
 ing that he would paint a satisfactory portrait. The plaintiff denies 
 this, and says that, upon the completion of his work, Mrs. Howland 
 said that she wanted another portrait, taken in a different style of 
 dress, to show a pearl necklace which had belonged to her mother. He 
 then painted a second portrait, and went away, leaving his implements, 
 as he says, to be sent to him, or, as the defendant says, because the 
 portrait was not finished, and because he was to return to complete it. 
 The defendant says that he received a letter from the plaintiff stating 
 that the pictures should be framed to keep the pastel from brushing 
 off, and that he would give instructions to a man, whom he usually 
 employed, to do it. The frames came, the pictures were put into them, 
 and, after some correspondence, the defendant paid for them, and the 
 pictures are still in his possession. 
 
 Upon this general statement of testimony, the plaintiff's claim was 
 that he painted one portrait at an agreed price, and then another upon 
 request, for which he had charged the same price, and that both were 
 not only without conditions, but were said to be satisfactory. The de- 
 
Ch. 3) PERFORMANCE OP CONTRACTS 1G5 
 
 fendant claims that the plaintiff agreed upon starting his work that, 
 if the picture was not satisfactory, he would paint another ; that, after 
 expressing his dissatisfaction, the plaintiff immediately started another, 
 which he did not finish ; that the pictures were framed simply to pre- 
 serve them until the last one should be finished ; and that they have 
 since remained with him in that way. These conflicting claims pre- 
 sent obvious questions of fact for a jury. Numerous excep.tions were 
 taken at the trial, which can be better considered generally than in 
 detail. 
 
 According to the defendant's statement that the work was to be sat- 
 isfactory to him, he asked the court to instruct the jury that he had 
 the right to reject the first portrait, if he was not satisfied with it. The 
 judge instructed the jury that "satisfactoi7" means "reasonably satis- 
 factory," but, in response to another request, he also instructed the 
 jury that "an artist, if he agreed to paint a picture to one's satisfac- 
 tion, has no cause of action for the price unless the buyer is satisfied, 
 however good the picture is" — adding: "But, unless the man returns 
 the picture, he is conclusively held to be satisfied." This last instruc- 
 tion, without the added sentence, states the law correctly, according 
 to the current of authority; and, in giving the preceding instruction 
 that a portrait must be "reasonably satisfactory," the judge doubtless 
 had in mind another class of cases to which that limitation may apply. 
 When the subject of the contract is one which involves personal taste 
 or feeling, an agreement that it shall be satisfactory to the buyer nec- 
 essarily makes him the sole judge whether it answers that condition. 
 He cannot be required to take it because other people might be satis- 
 fied with it, for that is not what he agreed to do. Personal tastes dif- 
 fer widely, and, if one has agreed to submit his work to such a test, 
 he must abide by the result. A large number of witnesses might be 
 brought to testify that the work was satisfactory to. them, that they 
 considered it perfect, and that they could see no reasonable ground 
 for objecting to it. But that would not be the test of the contract, 
 nor should a jury be allowed to say in such a case that a defendant 
 must pay because, by the preponderance of evidence, he ought to have 
 been satisfied with the work, or, in other words, that it was "reasonably 
 satisfactory." 
 
 Upon this principle numerous cases have been decided. In McCar- 
 len V. McNulty, 7 Gray (Mass.) 139 (an action to recover the price 
 of a bookcase), the court said: "It may be that the plaintiff was in- 
 judicious or indiscreet in undertaking to labor and furnish material 
 for a compensation the payment of which was made dependent upon 
 a contingency so hazardous or doubtful as the approval or satisfaction 
 of a party particularly in interest. But of that .he was the sole judge. 
 Against the consequences resulting from his own bargain, the law can 
 .afford him no relief. Having voluntarily assumed the obligations 
 and risk of the contract, his legal rights are to be ascertained and de- 
 termined solely according to its provisions." Gibson v. Cranage, 39 
 Mich. 49, 33 Am. Rep. 351. was to the same effect, where the subject 
 of the action was a portrait. In Zaleski v. Clark, 44 Conn. 218, 26 
 Am. Rep. 446, the plaintiff was to make a bust of the defendant's de- 
 ceased husband satisfactory to her. The court held that it was for 
 her alone to determine whether it was so, and that it was not enough 
 to show that her dissatisfaction was unreasonable. Brown v. Foster, 
 113 Mass. 136, 18 Am. Rep. 463, was for a suit of clothes. Devens, 
 
166 CONTRACTS (Part 1 
 
 J., said: "It is not for any one else to decide whether a refusal to 
 accept is or is not reasonable, when the contract permits the defendant 
 to decide himself whether the articles furnished are to his satisfaction." 
 The doctrine was carried to very great length in Singerly v. Thayer, 
 108 Pa. 291, 2 Atl. 230, 56 Am. Rep. 207, where an elevator had been 
 erected in a building, and "warranted satisfactory in every respect." 
 It was held that, if it had been substantially completed so that the 
 owner of the building could understand how it would operate, it could 
 be rejected if it was not satisfactory. 
 
 • In Boiler Co. v. Garden, 101 N. Y. 387, 4 N. E. 749, 54. Am. Rep. 
 709, the opinion sets out the two classes of cases with reference to 
 which a distinction has been made. One class is that which involves 
 personal taste and judgment, examples of which we have shown; and- 
 the other class is that where the subject-m,atter of the contract is such 
 that the satisfaction stipulated for must be held to apply to quality, 
 workmanship, salability, and other like considerations, rather than to 
 personal satisfaction. For example, if one agrees to sell land with a 
 satisfactory title, and shows a title valid and complete, the parties 
 must have intended such a title to be satisfactory, rather than to leave 
 an absolute right in the purchaser to say "I am not satisfied," when 
 no reason could be shown why he should not be satisfied. So, if one 
 agrees to do work in a satisfactory manner, it must mean a workman- 
 like manner — as well as it would be expected to be done — rather than 
 a merely personal or whimsical rejection. It is this class of cases to 
 which the term "reasonably satisfactory" applies. Hence in the boiler 
 case, last cited, it was held that a simple allegation of dissatisfaction, 
 without some good reason assigned for it, might be a mere pretext, 
 and would not be regarded. 
 
 In Machine Co. v. Smith, 50 Mich. 565, 15 N. W. 906, 45 Am. Rep. 
 57, the court says : "In the one class the right of decision is complete- 
 ly reserved to the promisor, without being liable to disclose reasons or 
 account for his course ; and a right to inquire into the grounds of his 
 action and overhaul his determination is absolutely excluded from the 
 promisee and from all other tribunals. In the other class the promisor 
 is supposed to undertake that he will act reasonably and fairly, and 
 found his determination upon grounds which are just and sensible; 
 and from thence 'springs a necessary implication that his decision, in 
 point of correctness and the adequacy of the grounds of it, is open to 
 consideration, and subject to the judgment of judicial triors," * * * 
 Even in cases of the latter class, where a rejection is made in good 
 faith, the dissatisfaction of the purchaser is held in many decisions to 
 be sufficient. 
 
 The instruction to the jury in the present case that "satisfactory" 
 means "reasonably satisfactory" was erroneous as applied to the sub- 
 ject-matter of the alleged contract. * * * New trial granted. 
 
Ch. 3) PERFORMANCE OP CONTRACTS 167 
 
 SECTION 6.— PROCURING CERTIFICATE OF AN 
 ARCHITECT AS A CONDITION 
 
 NOLAN et al. v. WHITNEY. 
 (Court of Appeals of Now York, 1882. 88 N. Y. 648.) 
 
 One Alichael Nolan, entered into an agreement with the defendant 
 to do some mason work in the erection of two buildings for the sum 
 of $11,700 to be paid in installments as the work progressed. The last 
 installment of $2,700 was to be paid thirty days after completion of 
 the work which was to be performed to the satisfaction and under the 
 direction of the architect, to be attested by his certificate, before any 
 payment could be required to be made. All the installments were paid 
 except the last, and Nolan, claiming that he had fully performed his 
 agreement, commenced this action to recover that installment. The 
 defendant alleged that Nolan had not fully performed his agreement 
 according to its terms and requirements, and also that he had not ob- 
 tained the architect's certificate, as required by the agreement. 
 
 Upon the trial the defendant gave evidence tending to show that 
 much of the work was imperfectly done, and that the agreement had 
 not been fully performed on the part of . Nolan ; the latter gave evi- 
 dence tending to show that the work was properly done, that he had 
 fairly and substantially performed his agreement, and that the archi- 
 tect had refused to give him the certificate which would entitle him to 
 the final payment. The referee found that Nolan completed the mason 
 work required by the agreement according to its terms ; that he sub- 
 stantially complied with and performed the reqtiirements of his agree- 
 ment ; but that there were trivial defects in the plastering for which a 
 deduction of $200 should be made and he ordered judgment in favor 
 of Nolan for the last installment, less $200. 
 
 The Court in their opinion say : 'Tt is a general rule of law that a 
 party must perform his contract before he can claim the consideration 
 due him upon performance; but the performance need not in all cas- 
 es be literal and exact. It is sufficient if the party bound to perform, 
 acting in good faith, and intending and attempting to perform his con- 
 tract, does so substantially, and then he may recover for his work, 
 notwithstanding slight or trivial defects in performance, for which 
 compensation may be made by an allowance to the other party. 
 Whether a contract has been substantially performed is a question of 
 fact depending upon all the circumstances of the case to be determin- 
 ed by the trial court. * * * According to the authorities cited un- 
 der an allegation of substantial performance upon the facts found by 
 the referee, Nolan was entitled to recover unless he is barred because 
 he failed to get the architect's certificate which the referee found was 
 unreasonably and imprbperly refused. But when he had substantially 
 performed his contract, the architect was bound to give him the cer- 
 tificate, and his refusal to give it was unreasonable, and it is held that 
 an unreasonable refusal on the part of an architect in such a case to 
 give the certificate dispenses with its necessity." 
 
168 CONTRACTS (Part 1 
 
 HEBERT V. DEWEY. 
 (Supreme Judicial Court of Massachusetts, 1906. 191 Mass. 403, 77 N. E. 822.) 
 
 Knowwon, C. J. The first of these actions was brought by the 
 plaintiff's intestate to recover upon a contract in writing for building 
 a house for the defendant. * * * 
 
 The defendant contended that the plaintiff could not recover under 
 the contract, because her intestate failed to obtain from the architect 
 a certificate that the final payment was due. The question is whether 
 a sufficient justification was shown for this failure. The instruction 
 to the jury on this point was as follows : "If the defendant's archi- 
 tect capriciously withheld the final certificate, and capriciously allow- 
 ed the contractor to believe that nothing more remained to be done to 
 entitle him to such certificate, the contractor is thereby relieved from 
 his obligation to secure the certificate." This was in accordance with 
 the plaintiff's request, except that the judge left out the word "fraudu- 
 lently" which was used in the request with "capriciously." The law 
 bearing upon this part of the case has not been definitely settled in 
 this commonwealth. There is a class of cases arising under policies 
 of insurance and other similar contracts, in which it is held that the 
 procurement of the certificate, called for by the contract, is a condition 
 precedent to the plaintiff's recovery. * * * The reason why it is 
 not open to the plaintiff in these cases to show that he could not ob- 
 tain the certificate, is because the nature of the contract and the pur- 
 pose of the requirement of a certificate are such as to make the re- 
 covery conditional upon the presentation of the paper. * * * j^ 
 such contracts the plaintiff takes upon himself the obligation to furnish 
 the required proof, and assumes the risk of whatever difficulty there 
 may be in procuring it. 
 
 Whether a contract is of this kind is a question of construction, 
 dependent upon the meaning of the parties, as ascertained from the 
 writing. A provision for a certificate by an architect, in a building 
 contract, stands differently. The architect is the agent of the owner, 
 to perform an act for the convenience of both parties, in regard to a 
 matter with which he is directly connected as an employe. It is as- 
 sumed by_ the contracting parties and implied in the contract that he 
 will do his duty, and will act in good faith in determining whether 
 a certificate should be granted. In cases under provisions like the one 
 before us, it is everywhere held that the contractor may recover with- 
 out a certificate, if the circumstances relieve him from the obligation 
 to obtain one. What circumstances are sufficient for this purpose is 
 the only question. If the owner wrongfully interferes to prevent the 
 giving' of a certificate, it is universally held that this will entitle the 
 contractor to recover without it. * * * Many of the authorities are 
 to the effect that any wrongful refusal of the architect to give a cer- 
 tificate will entitle the contractor to proceed without one. In some 
 of the cases it is said that if the architect unreasonably refuses to give 
 a certificate it is enough. * * * ijj others it appeared that he refused 
 "dishonestly and arbitrarily," or "willfully and fraudulently," or "ca- 
 priciously." * * * 
 
 In the present case there was evidence from which the jury might 
 have found. that after a complete performance of the contract the 
 plaintiff's intestate applied to the architect for the final certificate, and 
 he willfully and fraudulently refused to give it. It is plain that in 
 
Ch. 3) PERFORMANCE OF CONTRACTS 169 
 
 making- the contract it was understood between tlie parties that the 
 architect would act in good faith in the performance of this part of 
 his duty. In legal effect, the contract is as if their understanding in 
 this particular had been written into it, as one of its terms. If, under 
 such an agreement, after the full performance of the contract, the ar- 
 chitect willfully and fraudulently refuses to act, or dies, or becomes 
 disqualified, and there is no provision for such a case, the question 
 arises whether the contractor is entitled to receive the contract price, 
 the fact of performance being shown in some other way, or whether 
 the entire contract falls to the ground, and the parties are left to en- 
 force their rights under a quantum meruit. It is a general rule that 
 if an implied condition that fails is of the essence of the contract, and 
 enters largely into the consideration, in such a way that there can be 
 no substantial performance under the changed conditions, the whole 
 contract will fail, and the parties may have reasonable compensation 
 for what they have done in reliance upon it. * * * But the provi- 
 sion in this case for the ascertainment of their rights, in reference to 
 the construction of the building called for by the contract is of a differ- 
 ent kind. It is a part of the machinery provided for the ascertain- 
 ment and adjustment of their rights in reference to the matters to 
 which the contract relates. It is provided to be used only upon an im- 
 plied condition that it will be available for use. If, through the death 
 or incapacity of the architect, or his willful refusal to act, it becomes 
 impossible to adopt this method of detennining the rights of the par- 
 ties, other means may be adopted, on the ground that this no longer re- 
 mains as an essential term' of the agreement. In all substantial par- 
 ticulars the contract is complete without the provision for obtaining 
 a final certificate, and, in the case supposed, it should be treated as if 
 the provision were stricken from the contract. * * * 
 
 In all the cases that we have cited under building contracts, it is 
 held that there may be a recovery upon the contract, where the con- 
 tractor's failure to obtain the architect's certificate showing perform- 
 ance of it is caused by the fraud or intentional misconduct of the ar- 
 chitect. * * * We have found no case of this kind in which it is 
 held, on a failure to obtain an architect's certificate after performance 
 of a contract, that the contract lost its force, and that the parties were 
 left to their rights upon a quantum meruit. In a case like the present, 
 we are of opinion that if an architect after the completion of a con- 
 tract willfully, and without excuse, refuses to act at all, or if he acts 
 dishonestly and in bad faith, and the contractor is thereby prevented 
 from obtaining a certificate, the contractor may proceed with his suit 
 without it. * * * 
 
 After telling the jury that certain conduct of Dewey would not be 
 fraudulent in reference to the certificate, he added: "It would still 
 have to be shown by the plaintiff that the certificate ought to have 
 been given, and if it was shown that the work was done and the con- 
 tract substantially performed, then the fact that the certificate was not 
 given was not of any account." This la^t proposition was not correct 
 in law. If the architect, acting in good faith, thought that the work 
 was not properly done and the contract was not substantially per- 
 formed, and refused the certificate for that reason, the mere fact that 
 the certificate ought to have been given, and that the work was done, 
 and the contract was performed, would not entitle the plaintifif to re- 
 
170 CONTRACTS (Part 1 , 
 
 cover without the certificate. The parties were bound by the. 'decision 
 of the architect made in good faith. * * * 
 
 Because the instructions give too httle effect to the requirement that 
 the contractor shall procure a certificate from the architect before he 
 is entitled to payment, there must be a new trial. 
 
 SECTION 7.— SUBSTANTIAL PERFORMANCE IN VARIOUS 
 OTHER TYPES OF CONTRACTS AS CONDITIONS 
 
 BUFFALO & L. LAND OO. v. BELLEVUE LAND & IMPROVEMENT CO. 
 
 (C!ourt of Appeals of 'New York, 1901. 165 N. T. 247, 59 N. E. 5, 
 51 L. B,. A. 951.) 
 
 A vendor in selling land contracted to construct a street car line 
 over such land, and operate cars thereon at certain specified hours "as 
 such street railroads are usually run," until the land was sold by the 
 vendee, and agreed, in case of default, to release its mortgage on the 
 land, and repay the purchase money and certain liquidated damages. 
 The road was constructed by the vendor, and operated according to 
 contract, except during a certain winter, when its service was inter- 
 rupted by heavy snow blockades, but it used all the usual means to 
 keep its tracks clear, and operated its road as well as similar roads in 
 the vicinity. 
 
 O'Brien, J. This is an action to rescind a contract for a breach by 
 the defendant, and to compel the latter to specifically perform certain 
 alternative provisions thereof. * * * The trial court rendered judg- 
 ment for the plaintiff for the relief demanded, which was the restora- 
 tion of the purchase money of the land, so far as paid, and all money 
 paid on the mortgage by the plaintiff ; but on appeal to the appellate 
 division the judgment was reversed, and a new trial granted. * * * 
 
 The agreement to run passenger cars on the road as often as once 
 every half hour was not literally or absolutely performed, and the 
 question is whether the. omission in that respect constitutes such a 
 breach of the defendant's contract as to give to the plaintiff the right 
 to rescind, and to demand from the defendant the restoration of the 
 benefits received under it. We do not think that it would be a fair 
 construction of the contract to hold that the defendant was absolutely 
 bound to run a car every half hour each day under all circumstances 
 and conditions, whether possible or not, or that an omission in that 
 regard, under the circumstances and conditions found, was a breach 
 of the contract to operate the railroad in the manner specified. The 
 whole contract, and its purpose and object, must be brought into view, 
 and the language employed by the parties understood in a reasonable 
 way._ Neither party intended to be bound to do things that were im- 
 possible. The constr,uction for which the learned counsel for the plain- 
 tiff contends would be unreasonable, and would place the defendant at 
 the mercy of the elements, since it is well known that the operation of 
 railroads is frequently interrupted by storms such as are mentioned in 
 the findings in this case. * * * 
 
 It is a well-settled rule of law that where a party, by his own con- 
 tract, absolutely engages to do an act, it is his own fault and folly 
 that he did not thereby provide against contingencies, and exempt him- 
 
^'^- ^) PERFOIilXAXCE OF CONTRACTS 171 
 
 self from responsibility in certain events. In such cases performance 
 IS not excused by inevitable accident or other contingency, although 
 not foreseen or under the control of the party. When the contract is 
 absolute, the vis major is not an excuse for nonperformance. * * * 
 But there are many contracts from which by their very nature a con- 
 dition may be implied that a party will be relieved from the conse- 
 quences of nonperformance, in some slight particular, where the obli- 
 gation is qualified, or when performance is rendered impossible with- 
 out his fault, and we think the contract in question belonged to that 
 class. * * * 
 
 In this case the covenant to run the cars every half hour was quali- 
 fied, not onl} by the nature of the contract and the act to be per- 
 formed, but by the use of the words, "as such street railroads are 
 usually run." We are of opinion that there was no Substantial breach 
 of the agreement upon the facts found at the trial, when they are all 
 taken together, since the railroad was constructed, maintained, and 
 operated in conformity with the agreement, when reasonably and fair- 
 ly construed. * * '■' 
 
 The order and judgment of reversal should be aflfirmed, and judg- 
 ment absolute ordered for the defendant. 
 
 MOHA V. HUDSON BOXING CLTJB. 
 
 (Suprpme Court of Wisconsin, ]91G. 164 Wis. 425, 160 N. W. 266, 
 L. K, A. 1917B, 12.38.) 
 
 Plaintiff is a professional boxer, and sues the defendant to recover 
 22% per cent, of the gross receipts of a boxing contest held under the 
 management^ of the club December 4, 1914, at Hudson, Wis. The 
 contract was in writing, and provided in substance that the plaintiff 
 would box Mike Gibbons of St. Paul ten rounds "to a no decision" at 
 the defendant's boxing arena, receiving as consideration therefor 22% 
 per cent, of the gross receipts, together with certain transportation and 
 hotel expenses, he to deposit with a named stakeholder $100 to guar- 
 antee that he would make the weight specified in the contract, which 
 sum in case of his failure to appear or enter the contest was to belong 
 to the defendant; that the revised Queensbury rules, as interpreted 
 by the referee and in compliance with the laws of this state and the 
 rules of the State Athletic Commission should govern the contest. 
 
 The contest began, and during the second round the referee decided 
 that the plaintiff had struck a foul blow, i. e., a blow below the belt, 
 and stopped the contest. Neither side introduced in evidence the re-, 
 vised Queensbury rules, nor the rules of the State Athletic Commis- 
 sion, but the referee testified that the rules prohibit the striking of a 
 foul blow, and that he stopped the contest because the other man was 
 disabled by the foul blow. 
 
 The trial court held that the plaintiff had failed to perform his con- 
 tract, and hence could not recover. From this judgment, plaintiff' 
 appealed. 
 
 WiNSLOW, C. J. Plaintiff sues to recover tlie contract price of his 
 professional services. In order to succeed he must show at least sub-, 
 stantial performance of his contract. It is certain that there has been 
 none here. He contracted to box ten rounds under certain rules. At; 
 the outset of the contest, in the middle of the second round, he vio- 
 lated one of the rules, and as a result thereof disabled his opponent. 
 
172 CONTRACTS (Part 1 
 
 and thus by his own act made substantial performance impossible. 
 Whether this act was deliberate or not cuts no figure. It was an act 
 which he had contracted not to do, and it prevented performance. 
 * * * It does not seem necessary to consider other questions ; the 
 considerations suggested are decisive. 
 Judgment affirmed. 
 
 SEWELL V. UNDERBILL. 
 
 (Court of Appeals of New York, 1910. 197 N. Y. 168, 90 N. E. 4.30, 27 L. R. A. 
 [N. S.l 233, 134 Am. St. Rep., S63, 18 Ann. Gas. 795.) 
 
 Gray, J. The plaintiff and defendant had entered into an agree- 
 ment for the sale by the latter and the purchase by the former, of a 
 parcel of land at the price of $25,000. * * * 
 
 This action was brought by the plaintiff to recover the damage suf- 
 fered by him through the destruction of the dwelling house, upori the 
 theory that there had been a breach of the agreement, in the failure 
 of the defendant to convey the house. * * * The one question which 
 is presented by the plaintiff's appeal is : Should the loss, occasioned 
 by the accidental destruction of the building upon the premises, be 
 borne by the vendor, or the vendee ? The appellant argues that, upon 
 principle, the loss should fall upon the vendor, and insists- that the 
 contrary view rests upon a rule of the English courts, which is not 
 only unjust, but which is not to be regarded as conclusive upon us. 
 
 I think that it is too late to dispute the English rule, and that we 
 must consider it as established by decisions of the courts of this state. 
 It was authoritatively stated by Lord Eldon, in Paine v. Meller, 6 Ves. 
 Jr. 349, 31 Eng. Repr. 1088, departing from the rule asserted in the 
 earlier case of Stent v. Bailis, 2 P. Wms. 220, 24 Eng. Repr. 70S. In 
 Paine v. Meller the buildings were destroyed by fire before the con- 
 veyance was ready. Somewhat like the present case, there, after the 
 acceptance of the title, a delay occurred in the preparation and execu- 
 tion of the deeds. With respect to that objection of the vendee, 
 which was grounded upon the fire. Lord Eldon said : "As to the mere 
 effect of the accident itself, no valid objection can be founded upon 
 that simply, for, if the party by the contract has become in equity the 
 owner of the premises, they are his to all intents and purposes. Thev 
 are vendible as his ; chargeable as his ; capable of being incumbered as 
 his ; they may be devised as his ; they may be assets and they would 
 descend to his heir." This case has been, repeatedly, recognized as 
 an authority for the rule by the courts of this state. * * * A con- 
 trary view has been taken by courts in other states; but the great 
 weight of authority is in favor of the English doctrine. * * * 
 
 IIAWKBS V. KEHOE et al. 
 
 <Supreme Judicial Court of Massachusetts, 1907 193 Mass 419 70 N E 766 
 10 L. R. A. [N. S.] 125, 9 Ann. Cas. 1053.) ' • • ' 
 
 Sheldon, j. * * m= -yVe need spend no time upon the numerous 
 cases in England and in this country which the industry of counsel 
 has brought to our notice as to the rights of parties to such agreements 
 upon a total or partial destruction of the buildings by fire. * * * -We 
 are of opinion that in this commonwealth, when as in this case, the 
 conveyance is to be made of the whole estate, including both lands 
 
Ch. 3) PERFORMANCE OP CONTRACTS 173 
 
 and buildings, for an entire price, and the value of the buildings con- 
 stitutes a large part of the total value of the estate, and the terms of 
 the agreement show that they constituted an important part of the 
 subject-matter of the contract, it is now settled by the decisions in 
 Wells V. Calnan, 107 Mass. 514, 9 Am. Rep. 65, that the contract is to 
 be construed as subject to the implied condition that it no longer shall 
 be binding if, before the time for the conveyance to be made, the build- 
 ings are destroyed by fire. The loss by the fire falls upon the vendor, 
 the owner; and if he has not protected himself -by insurance, he can 
 have no reimbursement of this loss ; but the contract is no longer bind- 
 ing upon either party. If the purchaser has advanced any part of the 
 price, he can recover it back. * * * jf ^hg change in the value of the 
 estate is not so great, or if it appears that the buildings did not con- 
 stitute so material a part of the estate to be conveyed as to result in 
 an annulling of the contract, specific performance may be decreed, with 
 compensation for any breach of agreement, or relief may be given in 
 damages. * * * 
 
 TEBEAU V. RIDGE. 
 
 (Supreme Court of Missouri, 1914. 261 Mo. 517, 170 S. W. 871, 
 L. R. A. 1915C, 367.) 
 
 Suit for specific performance by George Tebeau against Thomas S. 
 Ridge and another. From a decree for complainant for less than the 
 relief demanded, defendant appeals, and complainant prosecutes a 
 cross-appeal. 
 
 Faris, J. * * * Which brings us to a discussion of the plaintiff's 
 cross-appeal and requires us to ascertain, if we can, what sort of decree 
 should be entered. Should we affirm the case without diminution of 
 price for the outstanding inchoate dower of Mrs. Ridge, leaving plain- 
 tiff to his action at law for relief, if any he has, or will ever have upon 
 the facts here, or should we decree or order a decree for plaihtilBf after 
 diminishing the purchase price to be paid by the value of Mrs. Ridge's 
 inchoate dower, figured as one-third of such actual purchase price? 
 * * * 
 
 There is no unanimity of decision on this question of diminution of 
 purchase price. The cases are in much confusion and irreconcilable 
 contrariety. Three views prevail : ( 1 ) The purchaser is entitled, as 
 against inchoate dower, to have the purchase price diminished by such 
 sum as represents the present value of the wife's contingent interest, 
 estimated by the tables of mortality and by the statute of present values 
 of estates less than a fee (in Alabama, Indiana, Iowa, New York, 
 Massachusetts, Michigan, Minnesota, South Carolina, and Wisconsin) , 
 and in New Jersey, when refusal of the wife to convey is fraudulently 
 brought about; (2) the view that the decree of the court may permit 
 the vendee to retain one-third of the purchase price as an indemnity 
 until the wife die or convey (in Alabama and Iowa) ; and (3) the 
 view that the vendee shall have no abatement of the agreed purchase 
 price on account of the wife's refusal to relinquish her inchoate dower, 
 on the groiind usually that such abatement would serve to put upon the 
 wife unfair coercion to relinquish a right given to her by law (District 
 of Columbia, Illinois, and New Jersey), unless wife's refusal was 
 fraudulently collusive with husband, in which case rule in New Jersey 
 is contra (New York, Pennsylvania, Virginia, Miss'ouri). * * * 
 
 The last holding in this state was in Aiple-Hemmelmann Real Es- 
 
174 CONTRACTS (Parti 
 
 tate Co. V. Spelbrink, 211 Mo. 671, 111 S. W. 480, 14 Ann. Cas. 652, 
 where', by a divided court of three to four, it was held by the majority 
 opinion that the vendee might, if he so wishes, take the title of the 
 husband at the original agreed purchase price, undiminished by the in- 
 choate dower of the wife, but that nothing was to be ruled, so as to for- 
 bid the vendee from suing for his damages by reason of the outstand- 
 ing inchoate dower of the wife. * * * 
 
 In my humble view the great weight of authority, both of the ad- 
 judged cases and the text- writers, adhere to the view that in a proper 
 case — "a purchaser of real estate under a contract such as here 
 
 * * * is entitled as of right to performance. The contracting parties 
 write their own law in their contract. Courts sit to enforce the law. 
 Hence they sit to enforce contracts, not abrogate them." Dissenting 
 opinion by Lamm, J., Aiple-Hemmelmann Real Estate Co. v. Spelbrink, 
 supra. 
 
 Should any or all of the facts that plaintiff, as here, did or did not 
 know there was a wife in the case, or did not know that such wife 
 would not sign, or that the defendant did not request and would not 
 request his wife to sign, because the agreed sale price was inadequate, 
 or had become so from an undreamed of increase in values, serve to 
 prevent a court of equity, in an otherwise just case, from decreeing 
 specific performance? Nevertheless one or more of these reasons is 
 to be found present and controlling in every case where diminution of 
 the purchase price is refused, and consequently specific performance 
 denied, except upon condition that the plaintiff take such title only as 
 the sole deed of the husband will -convey. I say that the authorities' 
 ought not to say so ; neither do the great weight of them say so, as I 
 read them. Performance in a proper case will, it seems, almost al- 
 ways be decreed, but upon terms differing and utterly irreconcilable. 
 
 * * * If, then, such contracts are to be enforced — and the rule is 
 that, while the enforcement thereof is in the discretion of the chancel- 
 lor, the discretion to be used is a sound, judicial, and not a capricious, 
 discretion, and also the rule is that, other things being equal, they are to 
 be enforced — then, in my opinion, both the weight of authority and 
 the reason of the thing lie with the view that there should be a diminu- 
 tion of the purchase price by the present value of the wife's inchoate 
 dower. The defaulting option giver should not get the whole purchase 
 price and then as a reward for his breach of contract, keep one-third 
 of the title in a Hfe estate in the family. Therefore I am forced by 
 the authorities and the text-writers, as well as by the, logic and reason 
 of the case, to follow the dissenting opinion in the Spelbrink Case. 
 This is a stronger case than the Spelbrink Case ; not so much stronger, 
 it may be, as the difference in the rule connotes, but stronger nevertlie- 
 less in that plaintiff was in ignorance of the marital status of defend- 
 ant, and also in that defendant defiantly — approaching the twilight 
 zone of fraudulently, in a constructive sense — refused to even request 
 his wife to convey her inchoate dower; moreover, the estate covered . 
 by the letter of the option, while impliedly a fee, was not agreed to be 
 warranted. 
 
 As forecast above, the cases which refuse to require specific per- 
 formance, except the plaintiff take that title and estate only which the 
 sole deed of the husband will convey, usually put refusal largely upon 
 the ground that to do so would be to coerce the wife, but we have seen 
 that the rule that specific performance will be decreed upon some terms 
 
Ch. 3) PERFORMANCE OF CONTRACTS 175 
 
 is almost universal, and that some of these terms are exceedingly 
 harsh; e. g., the retention as indemnity of one-third of the purchase 
 price till the wife dies or conveys. 
 
 Back of all of the few cases which neither decree diminution of 
 purchase price nor provide for an indemnity to cover inchoate but 
 contingent dower lies the idea that specific performance is a matter 
 resting in the judicial discretion of the chancellor, which discretion 
 will not be exercised, if the exercise thereof shall be beset with dif- 
 ficulties or shall afford opportunity of injustice such as may happen in 
 dealing with the wholly contingent dower of a wife in the lands of a 
 living husband. When these few cases, which neither indemnify the 
 purchaser nor diminish the purchase price by reason of the inchoate 
 dower of the wife, decree specific performance, it is done in a sense 
 ex gratia (that is, the plaintiff is told in effect that he may not have 
 that for which he sues), but, if he be willing to take less than he sued 
 for and less than the option giver contracted to sell, he may have a 
 partial specific performance. If he will not accept the half loaf of 
 justice, he must then take nothing by his solemn, contract. * * * 
 
 It would be bad policy to announce a rule of law which would result 
 in rewarding those who wantonly break their solemn obligations. By 
 compelling the husband to convey at a price diminished by the pres- 
 ent value of the wife's inchoate dower, she personally and presently 
 loses nothing; her husband suffers a loss which, somewhat like bread 
 upon the waters, may come back to the wife. If it be conceded that 
 she is coerced by her husband's present loss to an extent greater than 
 she is buoyed up by the future hope of widowhood and dower in the 
 land, there is no sufficient basis or reason in the view to account log- 
 ically for the rule. For if she sign rather than refuse to do so, the 
 full purchase price is paid to her spouse ; and if — and this contingency 
 must occur to aid her in either case supposed — her husband be gathered 
 to his fathers before her, she takes her statutory interest in the money, 
 to-wit, personal property, of her husband rather than in the land, sub- 
 ject only to her husband's debts. So that upon such view the case 
 largely falls into the category of those things "which are six of one 
 and half a dozen of the other." * * * 
 
 I am led by the authorities' to conclude that the case of Aiple-Hem- 
 melmann Real Estate Co. v. Spelbrink, 211 Mo. 671, 111 S. W. 480, 
 14 Ann. Cas. 652, should no longer be followed, but that the views 
 expressed in the dissenting opinion should be followed as being more 
 in consonance with the reason of things and more in accord with the 
 great weight of authority. * * ' * 
 
 It results, therefore, that this case should be reversed and remanded, 
 -with directions to the trial court to order specific performance in fa- 
 vor of plaintiff, and that if, within a reasonable time to be fixed by the 
 court, defendant and his wife do not rnake, execute, acknowledge, and 
 •deliver to plaintiff a good and sufficient deed of conveyance covering 
 the premises in controversy to plaintiff, the circuit court shall enter 
 a decree divesting out of defendant Thomas S. Ridge all and singular 
 the right, title, interest, and estate of him (said Ridge) in the land in 
 controversy, and vesting the same in the plaintiff, upon the payrrient 
 to defendant by plaintiff of the sum of $68,200, diminished by the 
 value, as of the time of the trial, of the inchoate contingent dower of 
 TVErs. Effie S. Ridge in the one-third part thereof, calculated at 6 per 
 ■cent, upon the basis of a life in the contingent dowress of two years, 
 
176 Contracts (Part 1 
 
 nine months, and six days more than that of defendant, and being 
 therefore the sum of $2,863, and leaving to be paid to defendant the 
 sum of $65,337. Glauque and McClure's Tables, pp. 18, 20, and 158. 
 Taxes and special assessments, if any, since suit was begun to be paid 
 by plaintiff; all costs to follow decree. 
 It is so ordered. * * * 
 
 BUCHANAN v. ORANGE. 
 
 (Supreme Court of Appeals of Virginia, 1916. 118 Ta. 511, 88 S. El. 52, 
 L. R. A. 1916E, 739, Ann. Cas. 19180, 391.) 
 
 Harrison, J. This is an attachment proceeding, brought by the 
 plaintiff in error to recover of the defendant in error rent to become 
 due under a certain contract of lease. 
 
 The evidence shows that Mrs. G. T. Orange entered into a deed of 
 lease in writing, dated May 13, 1911, with D. Buchanan & Son, where- 
 by she leased, for the term of five years from August 1, 1911, the sec- 
 ond floor of a brick storehouse on Broad street, in the city of Rich- 
 mond, to be used as a millinery establishment; the monthly rent of 
 $60 being payable on the first day of each month. The lessor cove- 
 nanted with her for quiet enjoyment, and further stipulated to fur- 
 nish her, free from cost, with water, light, and furnace heat. Mrs. 
 Orange continued in possession of the demised premises until Octo- 
 ber 31, 1914, when she removed to other quarters. * * * 
 
 Testimony of the defendant in error with respect to the discomfort 
 of the premises from the lack of heat and lights is abundantly sup- 
 ported by numerous other witnesses who were familiar with the prem- 
 ises. 
 
 The question to be determined is whether the facts stated consti- 
 tute a constructive eviction of the defendant in err 
 premises, thereby relieving her from the payment of the rent not due. 
 
 It is to be observed in the outset that the subject of the lease in- 
 volved in this case was not land, out of which the rigid principles of 
 the common law governing the relation of landlord and tenant grew, 
 owing to the sanctity with which land was invested in the eyes of the 
 common law, but the subject of the lease was only a floor in the build- 
 ing; the landlord controlling his own Idnd and all of the rest of the 
 building. * * * 
 
 In Taylor on Landlord and Tenant (9th Ed.) § 309a, it is said: 
 "The rule is that, while an eviction was originally a dispossession of 
 the tenant by some act of his landlord, or by failure of the latter's title, 
 it has now come to include any wrongful act of the landlord, either of 
 commission or omission, which may result in a substantial interfer- 
 ence with the tenant's possession or enjoyment, in whole or in part. 
 Actual force is not essential to constitute a wrongful eviction." 
 
 We are of opinion that the great weight of modern authority sus- 
 tains the view that the facts of the instant case constitute a constructive 
 eviction, and entitle the defendant to a release from the payment of 
 rent not due when the premises are vacated. * * * 
 
 The plaintiff in error contends that in order for the acts or defaults 
 of the landlord to amount to constructive eviction, they must be of a 
 grave and permanent character, and they must clearly indicate an in- 
 tention on the part of the landlord that the tenant shall no longer con- 
 tinue to hold the premises, or some material part thereof. Our view 
 of this proposition is so clearly expressed by the learned judge of the 
 
Ch. 3) PERFORMANCE OP CONTRACTS 177 
 
 lower court, in his opinion filed with the record, that we cannot do 
 better than quote what is there said : 
 
 "It is certainly difficult for the modern jurist to apply the stringent 
 common-law principles concerning eviction, as between landlord and 
 tenant, to the conditions of the present day. By eviction at common 
 law originally was manifestly meant an actual dispossession of the 
 tenant by the landlord, in order that the landlord might take posses- 
 sion of the premises, and with an intention on his part so to do, or the 
 eviction may occur under the paramount title of a stranger. Whether 
 the eviction be called actual or constructive, at common law, there 
 must be, in the mind of the landlord, the intention of driving the ten- 
 ant off of the land leased, so that he may take possession of it. To 
 apply this idea to the modern custom of leasing a floor in a building, 
 for business or living purposes, under a contract with varying stipu- 
 lations as to the duties of the landlord towards the tenant, incompatible 
 with the common-law lease, is a task impossible of exact accomplish- 
 ment. * * * It seems to me that the law would be stultifying itself 
 to lay down, as a maxim in these cases, that there can be no abandon- 
 ment unless it be shown that the landlord intended to dispossess the 
 tenant. I am satisfied that under the more modern doctrine in cases 
 of this character, the intention of the landlord should be held to be a 
 matter of law or of fact, to be inferred from tlie acts, so that if the 
 acts of the landlord as a matter of fact resulted in dispossessing the 
 tenant by giving him justifiable cause to vacate the premises, then the 
 law imputes the intention to the landlord, on the general principle that 
 everv man must be held to intend the proximate consequences of the 
 act. * * * " 
 
 [Judgment for defendant (tenant) affirmed.] 
 
 BETTINI y. GYE. 
 (High Court of Justice, 1876. 1 Q. B. DIv. 183.) 
 
 Defendant was the director of the Royal Italian Opera in London, 
 and the plaintiff was a dramatic artist and professional singer. Plain- 
 tiff contracted to sing for defendant from March 30, 1875, to July 13, 
 1875, and agreed to be in London "without fail" at least six days be- 
 fore the commencement of his engagement, for the purpose of rehears- 
 als. The defendant refused to receive the plaintiff into his service un- 
 der the contract. The defendant pleaded, in this action on the con- 
 tract, that the plaintiff was not in London six days before the com- 
 mencement of the engagement for the purpose of rehearsals. 
 
 Blackburn, j. * * * The question * * * is, not whether the 
 plaintiff has any excuse for failing to fulfill this part of the contract, 
 which may prevent his being liable in damages for not doing so, but 
 whether his failure to do so justified the defendant in refusing to pro- 
 ceed with the engagement, and fulfill his, the defendant's part. And 
 the answer to that question depends on whether this part of the con- 
 tract is a condition precedent to the defendant's Hability, or only an in- 
 dependent agreement, a breach of which will not justify a repudiation 
 of the contract, but will only be a cause of action for a compensation 
 in damages. * * * 
 
 We think the answer to this question depends on the true construc- 
 tion of the contract taken as a whole. Parties may think some matter, 
 ■B.& B.Bus.Law— 12 
 
1 78 CONTRACTS (Part 1 
 
 apparently of very little importance, essential ; and if they sufficiently 
 express an intention to make the literal fulfillment of such a thing a 
 condition precedent, it will be one; or they may think that the per- 
 formance of some matter, apparently of essential importance and 
 prima facte a condition precedent, is not really vital, and may be com- 
 pensated for in damages, and if they sufficiently expressed such an in- 
 tention, it will not Jje a condition precedent. 
 
 In this case, if to the seventh paragraph of the agreement there had 
 been added words to this effect : "And if Mr. Bettini is not there at the 
 stipulated time, Mr. Gye may refuse to proceed further with the agree- 
 ment;" or if, on the other hand, it had been said, "And if not there, 
 Mr. Gye may postpone the commencement of Mr. Bettini's engage- 
 ment for as many days as Mr. Bettini makes default, and he shall 
 forfeit twice his salary for that time," there could have been no ques- 
 tion raised in the case. But there is no such declaration of the inten- 
 tion of the parties either way. And in the absence of such an express 
 declaration, we think that we are to look to the whole contract, and 
 applying the rule stated by Parke, B., to be acknowledged, see whether 
 the particular stipulation goes to the root of the matter, so that a fail- 
 ure to perform it would render the performance of the rest of the 
 contract by the plaintiff a thing different in substance from what the 
 defendant has stipulated for ; or whether it merely partially affects 
 it and may be compensated for in damages. Accordingly, as it is one 
 or the other, we think it must be taken to be or not to be intended to 
 be a condition precedent. 
 
 If the plaintiff's engagement had been only to sing in operas at the 
 theatre, it might very well be that previous attendance at rehearsals 
 with the actors in company with whom he was to perform was essen- 
 tial. And if the engagement had been only for a few performances, or 
 for a short time, it would afford a strong argument that attendance 
 for the purpose of rehearsals during the six days immediately before 
 the commencement of the engagement was a vital part of the agree- 
 ment. But we find, on looking to the agreement, that the plaintiff was 
 to sing in theatres, halls, and drawing rooms, both public and private, 
 from the 30th of March to the 13th of July, 1875, and that he was to 
 sing in concerts as well as in operas, and was not to sing anywhere 
 out of the theatre in Great Britain or Ireland from the 1st of January 
 to the 31st of December, 1875, without the written permission of the 
 defendant, except at a distance of more than fifty miles from London. 
 
 The plaintiff, therefore, has, in consequence of this agreement, been 
 deprived of the power of earning anything in London from the 1st of 
 January to the 30th of March; and though the defendant has, per- 
 haps, not received any benefit from this, so as to preclude him from 
 any longer treating as a condition precedent what had originally been 
 ■one, we think this at least affords a strong argument for saying that 
 subsequent stipulations are not intended to be conditions precedertt, 
 unless the nature of the thing strongly shows they must be so. 
 
 And, as far as we can see, the failure to attend at rehearsals dur- 
 ing the six days immediately before the 30th of March could only af- 
 fect the theatrical performances and, perhaps, the singing of duets or 
 concerted pieces during the first week or fortnight of this engagement, 
 which is to sing in theatres, halls, and drawing-rooms, and concerts', 
 for fifteen weeks. 
 
 We think, therefore, that it does not go to the root of the matter 
 so as to require us to consider it a condition precedent. The defendant 
 
Ch. 3) PERFORMANCE OF CONTRACTS 179 
 
 must, therefore, we think, seek redress by a cross-claim for damages. 
 Judgment for the plaintiff. 
 
 NATIONAL CABLB,-j^ MFG. CO. v. FILBEUT. 
 
 (Supreme Court of South Dakota' 1913. 31 S. D. 244, 140 N. W. 741, 
 45 L. R, A. [N. S.] 2.58.) 
 
 Action by the National Cable & Manufacturing Company, a corpora- 
 tion against W. F. Filbert. From judgment for plaintiff, defendant 
 appeals. 
 
 PoLLEY, J. This action grew out of a contract entered into between 
 the plaintiff, and the defendant, a hardware and implement dealer at 
 Twin Brooks, S. D. The contract was entered into on the 18th day 
 of December, 1907, and provided for the sale, by the plaintiff to the 
 defendant, of a quantity of copper cable and other material and equip- 
 ment of lightning rods. The contract provided for the delivery, by the 
 plaintiff, of the goods at the railway station at Niles, Mich. The con- 
 tract gave the defendant the exclusi\'e right to sell the merchandise 
 described in the contract, and other merchandise of a similar character 
 to be purchased from the plaintiff, but restricted the territory within 
 which he might sell to Twin Bi'ooks, Milbaiik, Corona, and Marvin, 
 and limited the time within which he might sell to the period between 
 the acceptance of the contract by the plaintiff and the last day of De- 
 cember, 1908. The defendant was also bound by the contract, during 
 the above period, not to purchase any similar goods from any other 
 manufacturer. It contained a covenant fixing the minimum price for 
 which he should sell said copper cable, and also contained the following 
 covenant, to wit: "That said first party (plaintiff) agrees to furnish a 
 salesman to assist in starting the business as soon as possible after re- 
 quested by said second party, and that said second party in case a 
 salesman is furnished at his request, agrees that on arrival of said 
 salesman, he, said second party, will furnish a man and team and at 
 once proceed to canvass jointly with said salesman, exclusively for the 
 sale of lightning rods, and that, as soon as said canvass is terminated, 
 he, said second party, hereby agrees to pay said salesman, as compen- 
 sation for his services, an amount equal to one-half of the profits 
 arising from the sale of the goods during said canvass." Plaintiff's 
 agent, also, in addition to the nuinerous restrictions contained in the 
 written contract, gave defendant positive instructions not to attempt to 
 put up any rods until they (meaning some of the plaintiff's agents) 
 were there to show him how to put them up. * * * 
 
 The goods were shipped by the plaintiff and received by defendant 
 at his place of business in Twin Brooks, S. D. No question was ever 
 raised as to the value of the goods, or that they were not shipped ac- 
 cording to contract; but the defendant claims that the plaintiff never 
 furnished him with a saleman to assist in starting the business, as pro- 
 vided for in said contract, and justifies his refusal to pay the bill solely 
 upon that ground. * * * 
 
 The case was tried to a jury. The plaintiff, on the trial, treated the 
 agreement to furnish the expert as one of the "conditions precedent"' 
 to be performed by it, and directed the greater part of its somewhat 
 voluminous testimony to an attempt to prove that it had complied with 
 this requirement of the agreement. At the close of all the testimony. 
 
180 CONTRACTS (Parti 
 
 the plaintiff moved the court to direct a verdict for it. * * * This 
 motion was granted, and the defendant took exceptions. 
 
 As the case appears on appeal, the question involved depends wholly 
 upon the construction to be put upon the above-quoted clause of the 
 contract. It is strenuously contendfed by the respondent that this 
 clause in the contract is an independent covenant to be performed by 
 the plaintiff at some subsequent time, and without reference to de- 
 fendant's liability, and that therefore the court was justified in taking 
 the case from the jury. On the other hand, it is just as strenuously 
 contended by the appellant that this covenant is one of the material ele- 
 ments of the contract, or was a "mutual and dependent condition," 
 to be performed by it to entitle it to the purchase price. If this conten- 
 tion is correct, then the question should have been submitted to the 
 jury. 
 
 We may state, at the outset that the fact that the defendant under- 
 took to rescind by returning the goods to the plaintiff would ordinarily 
 be wholly immaterial to a determination of the issues in the case. If it 
 were necessary, as contended by defendant, that the plaintiff must com- 
 ply with the disputed condition in the contract before it became en- 
 titled to the purchase price, it was unnecessary for him to rescind in 
 order to avoid liability. He would have a perfect right to wait until 
 the plaintiff had performed all of its obligations before he became 
 liable for the purchase price. On the other hand, if the disputed clause 
 in the contract was an independent covenant or "condition subsequent," 
 then the defendant became fully liable upon plaintiff's delivery of the 
 
 goods, and his attempted rescission would have been of no avail, 
 * * * 
 
 The contract does not specifically state upon its face that this pro- 
 vision is a condition precedent, and therefore, whether it is such or 
 not is a matter of construction for the court, and depends upon a con- 
 sideration of the entire contract and the intent and understanding of 
 the parties themselves, as disclosed by their conduct relative hereto. 
 
 The court having directed a verdict for the plaintiff, all the evidence 
 of the defendant must be taken as true, and he must be given the bene- 
 fit of all legitimate inferences therefrom. * * * 
 
 Provisions in contracts like the one in dispute in this case have been 
 much litigated in the courts; but, owing to the peculiar nature of the 
 question, each case must be determined in accordance with the fact 
 involved. No definite rule, other than to determine the real intent of 
 the parties, where the same is not clearly expressed by the terms of 
 the contract, can be laid down; and it is rarely that the conclusions 
 reached in one case can be decisive of another. As was said by Foot, 
 J., in Grant v. Johnson, 5 N. Y. 255 : "So many decisions have been 
 made on the vexed question of what are, and what are not dependent 
 covenants, and so many of them are irreconcilable that they rather per- 
 plex than aid the judgment in .determining a given case. One rule is 
 universal, and that is that the intent of the parties is to control." 
 While this is true, the principles and reasoning that have been applied 
 in the adjudicated cases are helpful in determining this vexed ques- 
 tion. * * * 
 
 In Ink et al. v. Rohrig, 23 S. D. 548, 122 N. W. 594, this court an- 
 nounced the rule as follows: "The universal rule laid down under 
 the authorities concerning the construction of covenants in contracts, 
 as to whether they are dependent or independent, is that the relation 
 
Ch. 3) PERFORMANCE OF CONTRACTS 181 
 
 of covenants is to be determined according to the intention and mean- 
 ing of the parties as the same appears in the instrument, and by the 
 application of common sense to each particular case, to which inten- 
 tion, when once discovered, all technical forms of expression must give 
 way. It is further held under the authorities tliat, in case of doubt, 
 the courts will construe such covenants as dependent, rather than inde- 
 pendent." And, quoting from Bank v. Hagner, 1 Pet. 464, 7 L. Ed. 
 219, the court said: "In contracts of this description the undertakings 
 of the respective parties are always considered dependent, unless a con- 
 trary intention clearly appears. A diflferent construction would, in 
 many cases, lead to the greatest injustice, and a purchaser might have 
 payment of the consideration money forced upon him, yet be disabled 
 from procuring the property for which he paid it. Although many 
 nice distinctions are to be found in the books upon the question as to 
 whether the covenants are promises of the respective parties to the 
 contract or to be considered independent or dependent, yet it is evi- 
 dent the inclination of the courts strongly favored the most just. The 
 seller ought not to be compelled to part with his property without re- 
 ceiving an equivalent in return." 
 
 In the case of Davis et al. v. Jeiifris, 5 S. D. 352, 58 N. W. 815, this 
 court used the following language : "Whether or not a covenant is 
 dependent or independent must be ascertained from the contract and 
 attending circumstances ; the rule being that such covenants will be con- 
 strued as dependent, unless a contrary intention appears from the terms 
 of the contract." This was an action to recover on a contract for the 
 construction of a creamery and cold storage plant, according to plans 
 and specifications contained in the contract. The contract provided 
 that the cold storage department should be constructed under the 
 McCray Cold Storage and Refrigerator patents, and contained the fol- 
 lowing covenant: "We agree to furnish with said contract a patent 
 deed from the McCray Refrigerator Company, conveying all the rights 
 under said patents." The provisions of the contract, so far as the erec- 
 tion and equipment of the plant is concerned, were carried out by the 
 plaintiff, but the patent deed for the McCray Cold Storage and Re- 
 frigerator patents was not furnished; plaintiff contending that the 
 stipulation to furnish the said patent deed was an independent stipula- 
 tion or covenant, and that the plaintiffs were not required to prove that 
 they had furnished or tendered such deed to entitle them to recover 
 on the contract. The contract provided that the defendants should 
 pay for the creamery and cold storage when "Completed." The court 
 held that the completion of the plant without the patent deed was not 
 a "completion of the contract," and that proof that the patent deed 
 had been f urni.shed was essential to plaintiff's right of recovery, holding 
 that, although the contract, so far as the completion of the plant is 
 concerned, had been fully complied with by the plaintiff, still it would 
 be of no value, and could be made of no use. to the defendants, unless 
 the patent deed conferring upon defendants, the right to use the Mc- 
 Cray Cold Storage and Refrigerator process was furnished ; that they 
 contracted for something that they' knew would be valueless to them 
 when they got it, or else the covenant to furnish the patent deed was 
 one of the essential elements of the contract. 
 
 This case is directly in point with the case at bar. When all the sur- 
 roundings and attending circumstances are taken into consideration, 
 it cannot but appear that, when the defendant entered into the contract 
 
182 CONTRACTS (Part 1 
 
 sued upon, the furnishing of a salesman to help defendant dispose 
 of the goods contracted for was as important an element' in the 
 transaction as the goods themselves. The goods sued for were not 
 staple goods; they could not be placed upon the shelves in defend- 
 ant's store and sold in the ordinary course of business. In order to 
 dispose of them, it was necessary to canvass the territory oyer which 
 they were to be sold, and to attach them to the buildings of purchasers 
 as they went along. * * * 
 
 Again a careful examination of the disputed clause in this contract, 
 in view of the attending circumstances, will be instructive. It will 
 show that the covenant contained in this provision was as much in 
 contemplation of the parties hereto, at the time of entering into the 
 contract, as the shipment of the merchandise itself. It was the induce- 
 ment that led defendant to enter into the transaction ; it was not an 
 afterthought nor a mere gratuitous act on the part of the plaintiff, to 
 be performed only at the option of defendant. Plaintiff agrees abso- 
 lutely to do it. True, it is to be done so soon as possible after re- 
 quested, but it is to be done whether requested or not; and the only 
 option the defendant had in the matter was by making the request to 
 fix the time, or rather to hasten the time, of his coming. Neither is 
 the condition requiring the defendant to furnish a man and to assist 
 such agent and to pay his compensation out of the profits from sales 
 they jointly made an absolute condition to be performed at all events. 
 He is to do this only in case he has made the request to have the agent 
 sent. If plaintiff sent him in compliance with the terms of his agree- 
 ment, it would be without cost to the defendant. 
 
 It was to the pecuniary interest of the plaintiff to have the goods 
 shipped to defendant disposed of at as early a date as possible ; and 
 it was also to its pecuniary interest to have the lightning rods, when 
 sold, properly attached to the buildings for the purchasers, in order 
 that a market for other similar goods might be created as contemplated 
 by the terms of the agreement. It was for this reason that plaintiff, 
 through its agents, instructed the defendant not to try to put up any 
 of the lightning rods until they were there to show him how to do it, 
 and for this reason defendant could not dispose of the goods nor de- 
 rive any benefit whatever from the purchase until this assistance was 
 furnished. Thus, it will appear that the furnishing of the assistance 
 provided for in the disputed clause of this contract is one of the most 
 important and essential elements of the entire agreement. And this 
 is the view taken by both plaintiff and defendant. Ample time for 
 its performance was allowed between the sale of the goods and the 
 time the purchase price was to become due. During this time, one 
 or two of plaintifli's agents visited the defendant, and plaintiff claimed 
 they had complied with the agreement. Defendant claimed they did 
 not, and refused payment on that account. Later on plaintiff sent 
 other of its agents to defendant, who they claimed rendered defendant 
 the assistance provided for in the contract, but this was disputed by 
 defendant ; and whether they did or not was the principal and practi- 
 cally the only issue raised at the trial. That plaintiff so regarded this 
 condition is apparent from the fact that it assumed the burden on its 
 main case of showing that this clause in the contract had been fully 
 complied with. 
 
 If the intent of the parties, when entering into the contract, is to be 
 gathered from their understanding of and conduct relative' thereto. 
 
Ch. 3) PEEFOEMANCB OF CONTRACTS 183 
 
 then certainly the agreement to furnish the defendant this assistance 
 in starting the business was one of the essential elements of the con- 
 tract ; and the question whether it had been complied with or not should 
 have been submitted to the jury. 
 
 The judgment and order appealed from should be reversed, and a 
 new trial awarded. 
 
 MATO V. AMElilCAN MALTING CO. 
 
 (United States Circuit Court of Appeals, Fourth Circuit, 1914. 
 211 Fed. &45, 128 C. C. A. 443.) 
 
 Action by the American Malting Company against George D. Mayo, 
 trading as the Mayo Milling Company. Judgment for plaintiff, and de- 
 fendant brings error. 
 
 Rose, District Judge. The parties will be designated as they were 
 below. The malting company was there the plaintiff, Mr. Mayo the 
 defendant. On October 26, 1911, the defendant agreed to buy 6,250 
 bushels of malt from the plaintiff. He was to pay $1.32 a bushel for 
 it. The terms were sight draft, bill of lading attached. He was to 
 order the malt shipped in approximately equal monthly installments 
 prior to June 1, 1912. * * * 
 
 The defendant never ordered any of this malt. * * * The rela- 
 tions between the parties began in September, 1911. Defendant then 
 wrote to plaintiff for its prices for distillers' malt. An agent of the 
 plaintiff thereupon called upon the defendant. At the interview an un- 
 derstanding was reached that defendant would buy malt from the plain- 
 tiff, and that the latter would not quote prices on distillers' malt to other 
 persons in Virginia. * * * For some reason during the season of 
 1912, the Richmond distillers bought much less than the usual quantity 
 of malt. The barley crop of 1912 was large and of high average quality. 
 The prices of malt fell rapidly. * * * While things were thus 
 drifting along a car of distillers' malt sold by the plaintiff to the Adams 
 Grain & Provision Company of Richmond arrived in that city. The de- 
 fendant learned of the incident almost immediately. He at once, on the 
 23d of October, wrote to the plaintiff that he regarded this sale to one 
 whom he described as a competitor as a breach of the contract with 
 him, and told it that he would not take any of the malt. 
 
 In the court below and here he contends that he had the right to take 
 this position, and that it is a complete answer to plaintiff's demand. It 
 is to the refusal to tell the jury that the shipment in question in itself en- 
 titled the defendant to rescind, that he makes his most serious objection. 
 It is not every breach of a term or provision of a contract which will 
 justify its rescission by the other party. If the breach did him no 
 hurt, it was immaterial. If the shipment in question forced down the 
 price of defendant's malt, or kept him from selling it, he was injured 
 by it. It could not have harmed him in any other way. Whether it 
 did him that harm was squarely submitted to the jury. They decided 
 against him. * * * We do not see that the defendant has any rea- 
 son to complain of the action of either court or jury. 
 
 Affirmed. 
 
184 CONTRACTS (Part 1 
 
 PELICAN V. MUTUAL LIFE INS. CO. OF NEW YORK. 
 (Supreme Court of Montana, 1911. 44 Mont. 277, 119 Pac._ 778.) 
 
 Action by Jennie Pelican against the Mutual Life Insurance Com- 
 pany of New York. Judgment for plaintiff, and defendant appeals. 
 
 Brantly, C. J. Plaintiff, ■ being sworn, testified that she was the 
 surviving wife of Henry Pelican, the beneficiary named in the pohcy 
 and that no part of the sum stipulated for therein had been paid. Her 
 counsel then introduced the policy and rested. Thfereupon counsel for 
 defendant moved for a nonsuit on the ground that plaintiff had failed 
 to shpw that Pelican was in good health at the time the policy was de- 
 livered. The motion was overruled. Defendant assigns error. Coun- 
 sel argue that, since in the application Pelican agreed that the contract 
 should not become effective unless the first premium was paid and 
 the policy was issued during his "continuance in good health," it had 
 not become a binding contract in the absence of evidence showing that 
 he was in good health at the date of its issuance. The ruling was 
 proper. * * * 
 
 The general rule is that a warranty must be a part and parcel of 
 the contract— made so by express agreement of the parties upon the 
 face of the policy. It is in the nature of a condition precedent and 
 must be strictly complied with or literally fulfilled, to entitle the as- 
 sured to recover on the policy. It need not be actually material to the 
 risk; its falsity will bar recovery because by the express stipulation 
 
 Ihe statement is warranted to be true, and thus is made material. 
 
 ' * * * 
 
 "A representation is not, strictly speaking, a part of the contract of 
 insurance, or of the essence of it, but rather something collateral or 
 preliminary, and in the nature of an inducement to it. A false repre- 
 sentation, unlike a false warranty, will not operate to vitiate the con- 
 tract, or avoid the policy, unless it relates to a fact actually material, 
 or clearly intended to be made material by the agreement of the par- 
 ties. It is sufficient if representations be substantially true. They 
 need not be strictly, or literally, so. A misrepresetitation renders the 
 policy void on the ground of fraud, while a noncompliance with a war- 
 ranty operates as an express breach of the contract." Alabama Gold 
 Life Ins. Co. v. Johijston, 80 Ala. 467, 2 South. 125, 59 Am. Rep. 
 816. * * * 
 
 It is true that in the application there is found the statement that 
 the answers made to the medical examiner were true and were made 
 to the company "as an inducement to issue the proposed policy." Yet 
 it appears, from the condition quoted above from the policy itself, that 
 in the absence of fraud these statements were to be "deemed as repre- 
 sentations and not warranties." * * * 
 
 The evidence tends to show that Pelican died of pulmonary tuber- 
 culosis, attended by chronic pleurisy and chronic pleuropercarditis; 
 
 The evidence left in doubt the truth of the answers of Pelican to the 
 several questions, as well as his good faith in making them. If he 
 was suffering from tuberculosis on September 12, 1908, and died in 
 an advanced stage of the disease in July, 1909, the ordinary layman 
 might suspect that he was afflicted with it at the date of his applica- 
 tion [August 26, 1908] . Yet the testimony of Dr. Hammond tends, to 
 show that he was entirely free from it at that time, and the fact that 
 
Ch. 3) PERFORMANCE OF CONTRACTS 185 
 
 the doctor found him insurable indicates tliat he was then in good 
 health. Therefore the truth or falsity of his answers to questions, 
 which all reflected upon the condition of his healthy depended upon 
 the proper inferences to be drawn from the evidence. There was evi- 
 dence tending to show that, when Dr. Matthews visited him, he in- 
 formed him that he was suffering from influenza. Even though he was 
 then suffering from pleuritic tuberculosis, nevertheless, being a lay- 
 man, he could not himself be expected to have a better knowledge of 
 diseases or of the condition of his health, than had Dr. Hammond, who 
 about a month later made a careful examination to ascertain if the 
 disease was present. Hence, also, the inference of his good or bad 
 faith in making these several answers was to be drawn from conflict- 
 ing evidence. * * * j^ ^^^s peculiarly within the province of the 
 jury to determine whether, upon the whole of the evidence as to any of 
 his answers, Pelican was guilty of fraud within the rule stated above. 
 The apparent haste with which he proceeded to have his life insured, 
 after his illness in 1908, the short time that he was at work thereafter, 
 and the condition of his body as described by the physicians who per- 
 formed the autopsy, some nine months later, might well be regarded as 
 sufficient to create a suspicion that his statements were intentionally 
 untrue. Nevertheless, the court properly refused to take the case from 
 the jury. * * * 
 
 The judgment and order are affirmed. 
 
 , KAUFFMAN v. KAEDER et al. 
 
 (United States Circuit Court of Appeals, Eighth Circuit, 1901. 108 Fed. 171, 
 47 C. C. A. 278, 54 L. R. A. 217.) 
 
 Sanborn, Circuit Judge. May one party to a contract, who has 
 accepted and retained the benefits of its substantial performance by the 
 other party, retain and enjoy these benefits, and still rescind the agree- 
 ment, and escape all the burdens and liabilities of the contract, because 
 the first party has failed to perform at the exact time stipulated there- 
 in a subordinate covenant, incidental to the main purpose of the agree- 
 ment, which goes only to a part of the consideration, and whose breach 
 may be compensated by damages? This is the most important question 
 which this case presents. It will be conducive to brevity and perspicu- 
 ity to obtain a clear idea of the relations of the parties to the agree- 
 ment to be considered, their respective covenants therein, and the mov- 
 ing considerations which induced them to make their stipulations be- 
 fore entering upon the discussion of this issue. This conception must 
 be secured by the light of the fundamental rule that the situation of the 
 parties when the contract was made, its subject-matter, and the pur- 
 pose of its execution are material to determine the intention of the 
 parties and the meaning of the terms they used, and that when these 
 are ascertained they must prevail over the dry words of the stipula- 
 tions. * * =f- 
 
 On June 19, 1895, when this agreement was made, the plaintiff, 
 John W. Kauffman, had made a lease of the valuable premises in the 
 heart of the city of St. Louis, involved in the negotiation, to the Cen- 
 tral Realty & Improvement Company for a term of years, whereby he 
 was secured — First, by his legal right to eject the lessee and to take 
 back the premises upon default in the payment of any installment of 
 
186 CONTRACTS (Part 1 
 
 the rent; and, second, by the covenant of the lessee in the receipt 
 during the year then ensuing of a rent of $35,000 in quarterly pay- 
 ments. The defendants had formed the project of organizing a cor- 
 poration, the Century Building Company, of purchasing this lease 
 from the lessee, of assuming its covenants, and of constructing a build- 
 ing on the leased premises in the name of this prospective corporation. 
 They could derive no rents or income from the premises during the 
 year then ensuing, while the building was in course of construction, and 
 they desired to carry the time of payment of this $35,000 forward to a 
 period when the building would be completed and the property would 
 be yielding an income. For this purpose they induced the plaintiff to 
 make the contract under consideration. In this agreement the plaintiff 
 and the defendants made certain covenants with each other. By the 
 dry words of the contract the plaintiff covenanted to accept preferred 
 stock of the Century Company at its par value for the $35,000 rent 
 Vi'hich was coming due in the then ensuing year, and to assign and 
 transfer this stock to the defendants and their associates for $35,000 
 and interest thereon at 6 per cent, per annum from the time that the 
 rent fell due by the terms of the lease. 
 
 On the other hand, the defendants covenanted to pay this $35,000 
 and interest to the plaintiff on or before July 1, 1898. The legal ef- 
 fect, the real meaning, of the agreement was that Kauffman covenant- 
 ed to release (1) the security of his right to eject the lessee and its as- 
 signee, and to recover back the premises, for a failure to pay any in- 
 stallment of this rent, and (2) the security of his lessee's agreement to 
 pay it, and to accept in lieu of this security the personal covenant of 
 the defendants that they would pay the rent, with interest, on or before 
 July 1, 1898, and the preferred stock of the prospective corporation, 
 which he agreed to hold and to deliver to the defendants upon their per- 
 formance of their covenant to pay the rent. The considerations which 
 Kauffman agreed to give to the defendants for their covenant to pay 
 the rent and interest were (1) the use by the prospective corporation ot 
 the leased premises for a year without the payment of any rent ; (2) 
 the release of the premises from Kauffman's right to retake them for 
 the failure to pay any installment of this rent; (3) the release of the 
 realty company and of its proposed assignee, the Century Company, 
 from liability to pay this rent; and (4) the assignment and transfer of 
 the 350 shares of stock. The single consideration which the defendant 
 agreed to give to the plaintiff for all these covenants was the payment 
 of the $35,000 and interest on or before July 1, 1898. Thus it will be 
 seen that the main purpose of the contract was the novation, the re- 
 lease by the plaintiff of the leased premises, of the lessee and of its 
 proposed assignee from liability for the rent, and the covenant of the 
 defendants to pay it with interest. The desideratum which induced 
 the agreement and which went to the whole consideration of both sides 
 was this novation. Without that the contract would never have been 
 made. The covenant of Kauffman to take, to hold, and to assign 
 and transfer the stock to the defendants was subordinate and inci- 
 dental to the main purpose of the agreement, never induced its mak- 
 ing, and went only to a part of the consideration. * * * 
 
 The plaintiff has released his property, his lessee, and its assignee, 
 the Century Company, from liability for the $35,000 rent, has fur- 
 nished the use of his property to the defendants' corporation for a year 
 v/ithout the payment of any rent, has accepted and held the preferred 
 
C*l- 3) PERFORMANCE OF CONTRACTS 187 
 
 Stock from 1896 until the present time, and has offered and still offers 
 to assign and deliver it to the defendants, as he agreed to do. The de- 
 fendatits have accepted, enjoyed, and still retain the use of the leased 
 premises by their coi-poration during that year without the payment 
 of rent, and the release of the property, of the lessee, and of its as- 
 signee from liability for the $35,000. They have received and retained 
 the gieat desiderata which induced them to make their promise, and 
 yet they refuse to pay a dollar for these benefits and insist that they 
 are absolved from all liability because the plaintiff did not offer to 
 assign and deliver the stock to them in accordance with every legal 
 technicality on the very day when their obligation matured, although 
 he was alvvays ready and willing, and within four months thereafter 
 he offered to do so in compliance with every requirement of the law 
 which the defendants did not waive. Can a party to a contract retain 
 all the benefits of a substantial performance of it by the other party, 
 and then escape all its burdens and repudiate all his obligations by 
 means of such a technicality as this? This issue will be considered 
 ^nd discussed on the assumption that the defendant's theory of this 
 case is sustained by the facts — on the assumption that the plaintiff 
 made no sufficient offer to assign or deliver the stock until after July 
 1, 1898, and that his failure to make this offer was never waived by the 
 defendants. The evidence, however, is conclusive that within four 
 months after that date an adequate offer on the part of the plaintiff 
 to complete his performance of the agreement was made and still the 
 defendants refused to pay any part of the $35,000, and interest. 
 
 There is another principle of law which equally prohibits the main- 
 tenance of the theory of the defendants in this case. It is stated by 
 Lord ]\Iansfield in Boone v. Eyre, 1 H. Bl. 273, in these words: 
 ■"Where mutual covenants go to the whole of the consideration on 
 both sides, they are mutual conditions, the one precedent to the other ; 
 but where they only go to a part, where a breach may be paid for in 
 damages, there the defendant has a remedy on his covenant, and shall 
 not plead it as a condition precedent." * * * 
 
 The breach of a covenant of the first class — a dependent covenant, 
 one which goes to the whole consideration of the contract — gives to 
 the injured party the right to treat the entire contract as broken and 
 to recover damages for a total breach. * * * But a breach of a cov- 
 enant of the second class, an independent covenant, a covenant which 
 does not go to the whole consideration of the contract and is subordi- 
 nate and incidental to its main purpose, does not constitute a breach 
 of the entire contract, does not authorize the injured party to rescind 
 the agreement, but he is still bound to perform his part of it, and his 
 only remedy is a recovery of damages for the breach. * * * Now, 
 the covenant of the plaintiff to assign and transfer the stock to the de- 
 fendants did not go to the whole consideration of the contract, but 
 was subordinate and incidental to its main purpose, as has already 
 teen shown. Its breach was susceptible of comjjensation in damages. 
 Therefore, even though the plaintiff cojnmitted a technical breach of 
 it, the defendants, who had accompljshed the main purpose of their 
 contract, and had accepted the benefits of the plaintiff's performance 
 of that part of his covenants which went to the whole consideration 
 of the agreement, the use of the leased premises by their corporation 
 for a year without payment of the rent, and the release of the prem- 
 
188 CONTRACTS (Parti 
 
 ises, of the lessee, and of its assignee from liability therefor, were still 
 bound by their agreement to pay this rent and interest, and their only 
 remedy for the plaintiff's breach was compensation in damages. 
 
 * * * 
 
 A large number of cases have been discussed which simply hold 
 that, before a party to mutual dependent covenants which are to be 
 performed at the same time can maintain an action for the breach, he 
 must perform or offer to perform his part of them, unless the offer is 
 waived by the other party to the contract. * * * But none of these 
 decisions hold that a failure of one party to perform or to offer to per- 
 form on the day fixed releases the other party from his obligation to 
 fulfill his covenants. * * * 
 
 The facts of this case bring it squarely under the salutary rules 
 that (1) when a covenant goes only to a part of the consideration oi 
 a contract, is incidental and subordinate to its main purpose, and its 
 breach may be compensated in damages, such a breach does not war- 
 rant a rescission of the contract, but the injured party is still bound 
 to perform his part of the agreement, and his only remedy for the 
 breach consists of the damages he has suffered therefrom, and (2) 
 where one party to a contract has received and retained the benefits 
 of a substantial partial performance of the agreement by the other 
 party, who has failed to completely fulfill all his covenants, the first 
 party cannot retain the benefits and repudiate the burdens of the con- 
 tract, but he is bound to perform his part of the agreement, and his 
 remedy for the breach is limited to compensation in damages. The 
 first party upon plea and proof of his substantial partial performance, 
 and without plea or proof of his complete performance, may maintain 
 an action either for specific performance or for damages on account 
 of the failure of the second party to perform, and the latter may se- 
 cure his damages for the plaintiff's breach either by counterclaim or 
 by an independent action. 
 
 The failure of the court below to try this case in accordance with 
 these established principles of the law necessitates a reversal of the 
 judgment in favor of the defendants and another trial of this case. 
 
 SECTION 8.— TENDER OF PERFORMANCE AS A 
 CONDITION 
 
 DELAWARE TRUST CO. v. CALM et al. 
 (Court of Appeals of New York, 1909. 195 N. Y. 231, 88 N. E. 53.) 
 
 _ Vann, J. When the assignors of the plaintiff exercised the option 
 given by the sixth clause of the agreement in question, the arrangement 
 became a contract, whereby one party agreed to purchase, and, by nec- 
 essary implication, the other party agreed to sell "for cash, all the 
 right and interest of" the latter "in said business" and said "agree- 
 ment." The buyers were to pay for the actual amount of cash "paid 
 out or expended" by the sellers "in and about said business." * * * 
 The evidence warrants the inference that both real and personal prop- 
 erty had been acquired in the business, and that the evidence of title 
 stood in the names of various individuals, some of whom, and among 
 
Ch. 3) PERFORMANCE OP CONTRACTS 189 
 
 them certain "nominees" of the sellers, were parties neither to the 
 agreement nor the action. Thus an executory contract came into ex- 
 istence as of the date when the option was exercised for the purchase 
 and sale of both kinds of property. * * * The contract was thus 
 made, but neither party performed it by simply making it, and no time 
 or place for performance was specified. * * * 
 
 Under these circumstances, it was the duty of the plaintiff or its as- 
 signors to tender performance on their part and to demand perform- 
 ance on the part of the defendants before subjecting them to the ex- 
 pense and annoyance of an action to recover the amount of the pur- 
 chase price. Otherwise the sellers would have both money and prop- 
 erty and the buyers nothing. * * * 
 
 The action was brought on the theory that it was for the recovery 
 of a debt, and that the commencement of the suit was a sufficient de- 
 mand, but there was no debt. The express promise of the buyers was 
 to purchase and pay for various rights and interests in a certain busi- 
 ness and agreement, and the implied promise of the sellers was to 
 transfer or assign those rights and interests to the purchasers, for 
 there can be no purchase without a sale. Some of the rights were in 
 the nature of an interest in realty, and the written evidence of title 
 stood in the names of outsiders who had been nominated by the sellers. 
 Concurrent action was required, and no debt could come into exist- 
 ence until the sellers had assigned or offered to assign that which they 
 had agreed to sell. The obligations of the parties were mutual and 
 dependent, for both were to be performed at the same time. * * * 
 ■'The general rule is to consider all covenants dependent, in absence of 
 a contrary intention, for this is the way most men make their bargains, 
 neither party intending to perform unless the other at the same time 
 performs on his part." 29 Am. & Eng. Encyc. of I^aw (2d Ed.) 689. 
 
 One party had something to sell and agreed to sell it, but it was a 
 kind of property that required a written transfer not only from them- 
 selves, but from their nominees or representatives, before the sale 
 could be completed and a debt created. As was said by this court in 
 an early case : "The purchaser is not bound to pay the purchase mon- 
 ey unless he receives the thing purchased ; and how can it be said 
 that he has refused to receive the thing purchased, and to pay the mon- 
 ey for it, when he has never had the opportunity of receiving it?" 
 Lester v. Jewett, U N. Y. 453, 454. "In contracts of this description, 
 the undertakings of the respective parties are always considered de- 
 pendent, unless a contrary intention clearly appears. A different con- 
 struction would in many cases lead to the greatest injustice, and a 
 purchaser might have payment of the consideration money forced up- 
 on him, and yet be disabled from procuring the property for which he 
 paid it." President, etc.. Bank of Columbia v. Hagner, 1 Pet. 455, 7 
 L. Ed. 219. * * * The agreement itself was not a transfer, but 
 merely an implied promise to transfer upon performance by the other 
 party. Where a contract requires contemporaneous performance, 
 neither party can sue at law until he has put the other in default. An 
 offer to perform made in the pleadings or during the trial is not 
 enough, and even that kind of an offer wa.s not made in this case. 
 
 S: :|: ;|c 
 
 Complaint dismissed. 
 
190 CONTRACTS (Part 1 
 
 Gr.ENN V. ROSSLBR et al. 
 (Court of Appeals of New York, 1898. 156 N. Y. 161, 50 N. E. 785.) 
 
 Action by James S. Glenn against Charles Rossler and Richard R. 
 Ditzell. From a judgment affirming a judgment on a verdict for plain- 
 tiff, defendants appeal. 
 
 While the action as originally commenced included other purposes, 
 it was finally treated simply as an action at law by the vendee of real 
 property to recover the payments of purchase money made to the 
 vendor. The property which was the subject of the sale consisted of 
 about 125 acres of land located in the town of Tonawanda, Erie coun- 
 ty, N. Y. On March 11, 1893, a contract was entered into between 
 the defendants and the plaintiff by which the former agreed to sell the 
 latter the premises mentioned for the price of $138,347, to be paid as 
 follows: $1,000 seven days from the date of the contract; $5,000 
 April 15, 1893; $10,000 October 1, 1893— with interest at the rate of 
 6 per cent, on all sums from time to time remaining unpaid, payable 
 at the time of each payment. Then followed this provision: "The 
 party of the first part shall, after the payments mentioned herein are 
 fully made on this contract, at their own proper cost and expense, 
 execute and deliver to the said party of the second part a good and 
 sufficient warranty deed of said premises, and at the time deliver to 
 the second party a tax and title search made by one of the guaranty 
 search companies of the city of Buffalo, showing good and perfect 
 litle; and, at the time deed to said premises is executed and delivered 
 by the first parties to the second party, the party of the second part 
 agrees to execute and deliver to first parties a bond and mortgage for 
 the sum of one hundred and twelve thousand two hundred and thirty- 
 seven ($112,237) dollars, due and payable six years from October 1, 
 1892, with interest at the rate of 6 per cent, per annum, payable semi- 
 annually." 
 
 The plaintiff paid on his contract $1,000 March 17, 1893; $5,000 
 April 15, 1893 ; and $7,000 July 3,_ 1893. There was a subsequent 
 agreement between the parties by which the payment of the remaining 
 $3,000 due July 1st was postponed until October 1st of that year. Oc- 
 tober 1st was Sunday. On the preceding day the parties met and 
 agreed that the contract should be performed on Monday; Upon that 
 day they again met, and the plaintiff tendered to the defendants the 
 sum of $17,330, which was die balance required to make up the sum 
 of the payments due when a deed was to be delivered and a mortgage 
 executed. When that tender was 'made, the defendants were unable 
 to give the plaintiff title, and asked him to extend the time for the 
 delivery of the deed. The plaintiff declined, and demanded a deed 
 upon that day, which was not given. On the next day he demanded 
 a return of the purchase price paid. The defendants refused to repay 
 it, and several days after this action was commenced. 
 
 Martin, J. That the defendants had no title to the premises, and 
 were unable to convey them to the plaintiff when a deed was demanded, 
 are undisputed. Whether the covenants in the agreement in suit on 
 one hand to pay, and on the other to give a deed, were concurrent and 
 dependent so far as the payments to be made on the 1st of October 
 were concerned, or whether they were independent, and the payment 
 of the entire amount then due was a condition precedent to the right 
 of the plaintiff to a conveyance of the property, or upon default to 
 
Ch. 3) PERFORMANCE OF CONTRACTS 191' 
 
 rescind the contract, is practically the only question in this case. The 
 contention of the appellants is that all the provisions of the contract 
 relating to the payment of that portion of tlie consideration constituted 
 independent covenants which the plaintiflf was required to fully per- 
 form by paying the entire amount before he became entitled to a deed, 
 and it was only within a reasonable time after such payments were 
 made that the defendants were required to give him a conveyance of 
 the property. As sustaining that contention, the plaintiff rehes chiefly 
 upon the language of the contract. It is to be observed that it, in 
 terms, provides that, after the payments mentioned are fully made, 
 the defendants shall execute and deliver a sufficient deed of the prem- 
 ises, and "at the time" deliver a tax and title search, and that "at the 
 lime" the plaintiff should execute and deliver a mortgage to the defend- 
 ants. The appellants claim that this language should be construed as 
 not requiring the delivery of the deed until a reasonable time after the 
 payments were made. * * * 
 
 While an examination displays a want of harmony in the authorities 
 upon this question when particular cases are examined and compared, 
 yet it is quite obvious that they all recognize the principle that the in- 
 tention of the parties is to control in determining the question of the 
 dependence or independence of the covenants in such contracts. In 
 the language of Lord Mansfield in Kingston v. Preston, 2 Doug. 690: 
 "The dependence or independence of covenants was to be collected 
 from the evident sense and meaning of the parties, and that, how- 
 ever transposed they might be in the deed, their precedency must de- 
 pend on the order of time in which the intent of the transaction re- 
 quires their performance." Hence the real question to be determined 
 in this case, upon a reading of the entire contract between the parties, 
 is whether it was their intention that the payments which were due 
 October 1st and the delivery of the deed were to be simultaneous and 
 concurrent acts. The rule, as stated by Thompson, J., in Bank v. 
 Hagner, 1 Pet. 455, 464, 7 L. Ed. 219, is that, "in contracts of this de- 
 scription, the undertakings of the respective parties are always consid- 
 ered dependent, unless a contrary intention clearly appears. A different 
 construction would, in many cases, lead to the greatest injustice, and a 
 purchaser might have payment of the consideration money enforced up- 
 on him, and yet be disabled from procuring the property for which he 
 paid it." An application of these principles renders it quite evident 
 that although a literal reading of a portion of the agreement may tend 
 to sustain the contention of the appellants, still, when the whole agree- 
 ment is read and properly construed, the payments due October 1st 
 and the giving of the deed were intended to be dependent and concur- 
 rent acts. The plain inference to be drawn from all its provisions is 
 that the deed was to be executed and delivered at the time of the pay- 
 ment of the account due October 1st. No fair reading of it would 
 justify the conclusion that the payment of the entire consideration then 
 due, amounting to many thousands of dollars, was to precede the trans- 
 fer of the title. We think the trial court properly decided this case,, 
 and that the judgment should be affirmed, with costs. 
 
192 CONTRACTS (Parti 
 
 MOOEE V. NORMAN. 
 
 (Supreme Court of Minnesota. 1S92. 52 Minn. S3, 53 N. W. 809, 18 L. R. A. 
 359, 38 Am. St. Bep. 526.) 
 
 Action by Ella M. Moore against H. G. Norman to recover posses- 
 sion of personal property. Verdict for defendant. From an order 
 refusing a new trial, plaintiff appeals. 
 
 Dickinson, J. The defendant, to secure two promissory notes exe- 
 cuted by him to the plaintiff, mortgaged certain personal property to 
 her. She prosecutes this action to recover possession of a part of the 
 mortgaged property by virtue of her rights as such mortgagee. 
 * * * 
 
 The only issue to which reference is now necessary is as to whether 
 certain payipents and a tender of payment made by the defendant 
 were sufficient and effectual to discharge the mortgages. The whole 
 transaction on the part of the plaintiff was conducted by one George 
 R. Moore, who was her general agent. Long after the maturity of 
 the notes the defendant made a tender of payment to the plaintiff, 
 which on his part is claimed to have been sufficient in amount, with 
 payments which had been previously made, to complete the payment 
 of the debt, and hence to discharge the mortgages. * * * 
 
 The plaintiff, however, then claimed that the amount tendered was 
 not sufficient to pay the debt ; and whether it was so or not was one 
 of the issues in this case, in respect to which the plaintiff's contention, 
 that the amount was insufficient, was supported by evidence which 
 would have sustained a verdict in her favor. The evidence tended 
 to show that the tender was accompanied by a demand that the notes 
 be surrendered; that such surrender was refused, a larger sum being 
 claimed to be due; but that the plaintiff (by her agent, who held the 
 notes) offered to receive the money tendered, and indorse it on the 
 notes, which offer the defendant refused to accept. The court, at the 
 request of the defendant, charged the jury to the effect that if the 
 amount tendered was sufficient the defendant had a right to demand 
 the surrender of his notes. This constitutes one of the errors as- 
 signed. 
 
 We think, as applied to the circumstances of this case, this instruc- 
 tion was erroneous. It may be stated as a general proposition, applica- 
 ble at least where it appears that a larger sum than that tendered is in 
 good faith claimed to be due, that the tender is not effectual as such 
 if it be coupled with such conditions that the acceptance of it, as ten- 
 dered, will involve an admission by the party accepting it that no more 
 is due. * * * 
 
 The most common and familiar illustrations of the proposition above 
 stated are cases where the tender is made as being all that is due, or 
 as payment in full. It is everywhere held that such a tender is not 
 good. The debtor has no right to the benefit of a tender, as having the 
 effect of a payment, when it is burdened with such a condition that 
 the creditor cannot accept the money without compromising his legal 
 right to recover the further sum which he claims to be due. This 
 case falls within the same principle. By offering to pay the money only 
 upon the condition that the plaintiff deliver up the notes (if such was 
 the fact), the , defendant insisted upon a condition the acceptance of 
 which would at least seriously compromise the right of the plaintiff to 
 recover any more, even though it should be true that the amount un- 
 
Ch. 3) PERFORMANCE OF CONTRACTS 193 
 
 paid exceeded the sum tendered. The acceptance of the money and 
 the surrender of the notes would be at least strong evidence against 
 her, in the nature of an admission, that the notes were thereby fully 
 paid. 
 
 The defendant should not be heard to assert that a mere oflfer to 
 pay a specified sum, less than was supposed by the other party to be 
 due, has the effect of a payment, so as to discharge the mortgage, 
 when the offer was burdened with such a condition. It was enough 
 for his protection that the plaintiff would have received the money of- 
 fered and have indorsed its payment on the notes, which were already 
 overdue and still in the hands of the plaintiff. If the defendant re- 
 jected this offer, and insisted upon the surrender of the notes, the nat- 
 ural and only reasonable construction to be put upon his conduct was 
 that he insisted that the tender, if accepted, should be accepted as pay- 
 ment of the notes in full. If that was the effect of the tender, it was 
 bad, under all the. authorities. A mere tender should not be effectual 
 to discharge the lien of a mortgage unless it be certainly sufficient in 
 amount, and unburdened with any conditions which the debtor has 
 not a clear right to impose. * * * 
 
 A new trial must be granted for the reason above stated. * * * 
 Order reversed 
 
 SECTION 9.— DIVISIBI.E CONTRACTS 
 
 PRODUCEUS' COKE CO. v. HILLMAN et al. 
 (Supreme Court of Pennsylvania, 1914. 243 Pa. 313, 90 Atl. 144.) 
 
 Stewart, J. The action was for recovery of a definite quantity of 
 coke sold and delivered by the plaintiff company to the defendants 
 between 3d July, 1912, and the 29th of the same month, at specified 
 rates per ton, on an implied promise that the defendants would pay 
 for the coke furnished. In the affidavit of defense filed defendants 
 aver that on or about 10th May, 1912, the plaintiff company and the 
 defendants entered into a contract, evidenced by writings, by which 
 the plaintiff agreed to place in the hands of the defendants for sale 
 substantially all the coke it produced during the six months from 1st 
 July to December 31, 1912; that, under this contract, the defendants 
 made sales of large quantities of coke in their own names for delivery 
 between 1st July and 31st December; that about 20th July, the same 
 year, the plaintiff desiring to be relieved of its obligations to furnish 
 defendants all the coke it produced within the period named, by mutual 
 agreement the original contract was rescinded, and, as a consideration 
 for defendants' consent to the rescission, the plaintiff promised and 
 agreed that defendant should be protected as to the coke which up 
 to that time they had sold ; and that, to this end, it would deliver during 
 the balance of the year the coke which had been sold by the defend- 
 ants on certain terms then and there specified, as follows : "During 
 the month of July 3,680 tons at the price of $2,379 per net ton, and 
 2,124 tens per month for the months of August, September, October, 
 November, and December at the price of $2,345 per net ton." The 
 plaintiff delivered to the defendants during July about 8441/2 tons 
 less than the amount called for, and failed to deliver any coke what- 
 B.&B.Bus.Law— 13 
 
194 Contracts (Part 1 
 
 ever during the month of September. The suit was brought 19th 
 September, 1912, to recover for coke delivered during July. The 
 contention on part of defendants w^as that the contract set up in the af- 
 fidavit of defense was entire, and that there could be no recovery by 
 plaintiff for any partial performance. A rule for a judgment for 
 want of a sufficient affidavit of defense was made absolute, and judg- 
 ment followed. * * * 
 
 Where a question of this kind arises, it is the intention of the parties 
 that controls, and not the divisibility of the subject, * * * g^d this 
 intention is to be collected from the words employed, where the inten- 
 tion can be clearly derived therefrom. When, as understood in their 
 ordinary sense, the words do not disclose the manner and intent to 
 which the parties intended to be bound, resort must be had to rules of 
 construction as aids. Having regard simply to the words employed 
 in this contract, the inference that the contract was intended to be 
 entire would be quite as reasonable as that it was intended to be divisi- 
 ble. If there are provisions which indicate that a divisible contract 
 was intended, there are others which quite as clearly indicate the op- 
 posite. 
 
 The distinguishing mark of a divisible contract is that it admits of 
 apportionment of the consideration on either side so as to correspond 
 to the unascertained consideration on the other side. Where such a 
 purpose appears in the contract, or is clearly deducible therefrom, it 
 is allowed great significance when ascertaining the intention of the 
 parties. It is a mistake, however, to suppose that in every case it is 
 conclusive in itself. It is determining only when there are no oppos- 
 ing signs or marks. Where these latter are present it becomes a ques- 
 tion of preponderance. * * * 
 
 While it is not averred in the affidavit that failure to complete the 
 contract of plaintiffs would have affected the sale in this case, it is a 
 reasonable inference, in view of the situation of the parties and the 
 object contemplated, that it would have done so. It was not required 
 that it should have been averred in the affidavit. The courts always 
 seek to avoid, as far as they consistently can, a construction that would 
 render a contract ineffectual. The present is a case in which the mani- 
 fest purpose of the agreement would be defeated were it held to be a 
 divisible contract, thereby allowing the plaintiff not simply to disap- 
 point the defendants in what it was intended they should receive for 
 a specific and express purpose, but requiring from the defendants pay- 
 ment for so much performance as met the pleasure, convenience, and 
 advantage of the plaintiff. As against such construction, the defend- 
 ants might well reply, in hasc foedera non venimus. We have dis- 
 cussed the case as though the contract were as averred in tlie affidavit. 
 The defendants should be allowed an opportunity to prove the aver- 
 ment. * * * The' judgment is reversed. * * * 
 
 STEWART V. NEWBURY et al. 
 
 (Court of Appeals of New York, lOlT. 220 N. Y. 379, 115 N. E 984 
 2 A. L. R. 519.) 
 
 Action by Alexander Stewart against Herbert A. Newbury and 
 others, doing business under the firm name and style of the Newbury 
 Manufacturing Company. From a judgment for plaintiff, defendants 
 appeal. 
 
Ch. 3) PKRFORMANCE OF CONTRACTS 195 
 
 Crane, J. The defendants are partners in the pipe fitting business 
 
 under the name of Newbury Manufacturing Company. The plaintiff 
 
 is a contractor and builder residing at Tuxedo, N. Y. Plaintiff agreed 
 
 to do all excavation and concrete work upon a foundry building for 
 
 defendants. The parties agreed as to amounts to be paid for the work. 
 
 Nothing was said in writing about the time or manner of payment. 
 ■f- * * 
 
 In July the plaintiff commenced work and continued until September 
 29th, at which time he had progressed with the construction as far as 
 the first floor. He then sent a bill for the work done up to that date 
 for $896.35. The defendants refused to pay the bill and work was 
 discontinued. * * * 
 
 In this action, which is brought to recover the amount of the bill 
 presented, as the agreed price and $95.68 damages for breach of con- 
 tract, the plaintiff had a verdict for the amount stated in the bill, but 
 not for the other damages claimed, and the judgment entered thereon 
 has been affirmed by the Appellate Division. The appeal to us is upon 
 exceptions to the judge's charge. * * * 
 
 The jury was plainly told that if there were no agreement as to pay- 
 ments, yet the plaintiff would' be entitled to part payment at reasonable 
 times as the work progressed, and if such payments were refused he 
 could abandon the work and recover the amount due for the work 
 performed. 
 
 This is not the law. Counsel for the plaintiff omits to call our at- 
 tention to any authority sustaining such a proposition and our search 
 reveals none. In fact, the law is very well settled to the contrary. This 
 was an entire contract. * * * Where a contract is made to perform 
 work and no agreement is made as to payment, the work must be sub- 
 stantially performed before payment can be demanded. * * * 
 
 The judgment should be reversed, and a new trial ordered. 
 
 NORRINGTON v. WRIGHT et al. 
 
 (Supreme Court of the United States, 1885. 115 TJ. S. 188, 6 Sup. Ct. 12, 
 
 29 L. Ed. 366.) 
 
 Gray, J. This was an action of assumpsit, brought by Arthur Nor- 
 rington, a citizen of Great Britain, against James A. Wright and others, 
 citizens of Pennsylvania, trading under the name of Peter Wright & 
 Sons, upon the following contract: 
 
 "Philadelphia, January 19, 1880. 
 
 "Sold to Messrs. Peter Wright & Sons, for account of A. Norring- 
 lon & Co., London : Five thousand (5,000) tons old T iron rails, for 
 shipment from a European port or ports, at the rate of about one thou- 
 sand (1,000) tons per month, beginning February, 1880, but whole 
 contract to be shipped before August 1, 1880, at forty-five dollars 
 ($45.00) per ton of 2240 lbs. customhouse weight, ex ship Philadelphia. 
 Settlement, cash, on presentation of bills accompanied by custom- 
 house certificate of weight. 'Edward J. Etting, MetaQ Broker." 
 
 The plaintiff shipped from various European ports 400 tons by one 
 vessel in the last part of February, 885 tons by two vessels in March, 
 1,571 tons by five vessels in April, 850 tons by three vessels in May, 
 1,000 tons by two vessels in June, and 300 tons by one vessel in July, 
 and notified to the defendants each shipment. The defendants receiv- 
 ed and paid for the February shipment upon its arrival in March, and 
 
] 96 CONTRACTS (Part 1 
 
 in April gave directions at what wharves the March shipments should 
 be discharged on their arrival ; but on May 14th, about the time of the 
 arrival of the March shipments, and having been then for the first time 
 informed of the amounts shipped in February, March, and April, they 
 gave Etting written notice that they should decline to accept the ship- 
 ments made in March and April, because none of them were in ac- 
 cordance with the contract; and in answer to a letter from him of 
 May 16th, wrote him on May 17th, as follows: "We are advised that 
 what has occurred does not amount to an acceptance of the iron under 
 the circumstances, and the terms of the contract. You had a right to 
 deliver in parcels,, and we had a right to expect the stipulated quantity 
 would be delivered until the time was tip in which that was possible. 
 * * * If we are mistaken as to our obligation for the February and 
 March shipments, of course we must abide the consequences; but if 
 we are right, you have not performed your contract, as you certainly 
 have not for the April shipments. There is then the very serious and 
 much debated question, as we are advised, whether the failure to make 
 the stipulated shipments in February or March has absolved us from 
 the contract. If it does, we of course will avail ourselves of this ad- 
 vantage." 
 
 On May 18th Etting wrote to the defendants, insisting on their lia- 
 bility for both past and future shipments : " * * * You say in your 
 last paragraph that you shall avail yourselves of the advantage, if you 
 are absolved from the contract; but, as you seem to be in doubt wheth- 
 er you can set up that claim or not, I should like to know definitely 
 what is your intention." 
 
 On May 19th the defendants replied: "We do not read the con- 
 tract as you do. We read it as stipulating for monthly shipments of 
 about one thousand tons, beginning in February, and that the six 
 months' clause is to secure the completion of whatever had fallen 
 short in the five months. As to the meaning of 'about,' it is settled 
 as well as such a thing can be ; and certainly neither the February, 
 March, nor April shipments are within the limits. * * * You ask 
 us to determine whether we will or will not object to receive further 
 shipments because of past defaults. We tell you we will if we are en- 
 titled to do so, and will not if we are not entitled to do so. We do not 
 think you have the right to compel us to decide a disputed question of 
 law to relieve you from the risk of deciding it yourself. You know 
 quite as well as we do what is the rule and its uncertainty of applica- 
 tion." * * * From the date of the contract to the time of its re- 
 scission by the defendants, the market ,price of such iron was lower 
 than that stipulated in the contract, and was constantly falling. Aft- 
 er the arrival of the cargoes, and their tender and refusal, they were 
 sold by Etting, with the consent of the defendants, for the benefit of 
 whom it might concern. 
 
 At the trial the plaintifif contended: (1) That under the contract he 
 had six months in which to ship the 5,000 tons, and any deficiency in 
 the earlier months could be made up subsequently, provided that' the 
 defendants could not be required to take more than 1,000 tons in any 
 one month ; (2) that, if this was not so the contract was a divisible con- 
 tract, and the remedy of the defendants for a default in any month 
 was not by rescission of the whole contract, but only by deduction of 
 the damages caused by the delays in the shipments on the part of the 
 plaintiff. But the court instructed the jury that if the defendants, at 
 
Ch. 3) PERFORMANCE OF CONTRACTS 197 
 
 the time accepting the dehvery of the cargo paid for, had no notice 
 of the failure of the plaintiff to ship about 1,000 tons in the month of 
 February, and immediately upon learning that fact gave notice of their 
 intention to rescind, the verdict should be for them. The plaintiff ex- 
 cepted to this instruction, and, after verdict and judgment for the de- 
 fendants, sued out this writ of error. 
 
 In the contracts of merchants, 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. 
 
 The contract sued on is a single contract for the sale and purchase 
 of 5,000 tons of iron rails, shipped from a European port or ports 
 for Philadelphia. The subsidiary provisions as to shipping in different 
 months, and as to paying for each shipment upon its delivery, do not 
 split up the contract into as many contracts as there shall be shipments, 
 or deliveries of so many distinct quantities of iron. * * * The 
 times of shipment, as designated in the contract, are "at the rate of 
 about 1,000 tons per month, beginning February, 1880, but whole con- 
 tract to be shipped before August 1, 1880." These words are not sat- 
 isfied by shipping one-sixth part of the 5,000 tons, or about 833 tons, 
 in each of the six months which begin with February and end with 
 July. But they require about 1,000 tons to be shipped in each of the 
 five months from February to June inclusive, and allow no more than 
 slight and unimportant deficiencies in the shipments during those 
 months to be made up in the month of July. The contract is not one 
 for the sale of a specific lot of goods, identified by independent cir- 
 cumstances — such as all those deposited in a certain warehouse, or to 
 be shipped in a particular vessel, or that may be manufactured by the 
 seller, or may be required for use by the buyer, in a certain mill — in 
 which case the mention of the quantity, accompanied by the qualifica- 
 tion of "about," or "more or less," is regarded as a mere estimate of 
 the probable amount, as to which good faith is all that is required of 
 the party making it. But the contract before us comes within the gen- 
 eral rule : "When no such independent circumstances are referred to, 
 and the engagement is to furnish goods of a certain quality or charac- 
 ter to a certain amount, the quantity specified is material, and governs 
 the contract. The addition of the qualifying words 'about.' 'more or 
 less.' and the like, in such cases, is only for the purpose of providing 
 against accidental variations arising from slight and unimportant ex- 
 cesses or deficiencies in number, measure, or weight." The seller is 
 bound to deliver the quantity stipulated, and has no right either to 
 compel the buyer to accept a less quantity, or to require him to select 
 part out of a greater quantity ; and when the goods are to be shipped 
 in certain proportions monthly, the, seller's failure to ship the required 
 quantity in the first month gives the buyer the same right to rescind 
 the whole contract that he would have had if it had been agreed that 
 all the goods should be delivered at once. 
 
 The plaintiff, instead of shipping about 1,000 tons in February and 
 about 1,000 tons in March, as stipulated in the contract, shipped only 
 400 tons in February, and 885 tons in March. His failure to fulfill 
 the contract on his part in respect to these first two installments justi- 
 fied the defendants in rescinding the whole contract, provided they dis- 
 tinctly and seasonably asserted the right of rescission. The defend- 
 ants, immediately after the arrival of the March shipments, and as 
 
198 CONTRACTS (Part 1 
 
 soon as they knew that the quantities which had been shipped in Feb- 
 ruary and in March were less than the contract called for, clearly 
 and positively asserted the right to rescind, if the law entitled them to 
 do so. Their previous acceptance of the single cargo of 400 tons 
 shipped in February was no waiver of this right, because it took place 
 without notice or means of knowledge that the stipulated quantity had 
 not been shipped in February. The price paid by them for that cargo 
 being above the market value, the plaintiff suffered no injury by the 
 omission of the defendants to return the iron; and no reUance was 
 placed on that omission m the correspondence between the parties. 
 * * * 
 
 For these reasons we are of opinion that the judgment below should 
 be affirmed. 
 
 HELGAR CORP. v. WARNER'S FEATURES, Inc. 
 (Court of Appeals of New York, 191S. 222 N. Y. 449, 119 N. E. ll.'^.) . 
 
 Action by the Helgar Corporation against Warner's Features, In- 
 corporated. 
 
 Cardozo, J. The plaintiff's assignor made a contract with the de- 
 fendant for the sale of films for moving pictures. At least one film 
 was to be delivered every month. Deliveries were to begin in Novem- 
 ber, 1913, and to end in October, 1914. The price was fixed at eight 
 cents per foot, and payment for each film was to be made within 30 
 days after exhibition to the public. By way of additional compensa- 
 tion, the defendant was also to pay one-half of the net profits realized 
 by it as the result of foreign sales. 
 
 The plaintiff, having received an assignment of the contract, deliv- 
 ered pictures of the value at the contract rate of nearly $10,000. The 
 price was payable on December 24, 1913. The finding is that pay- 
 ment was then demanded, and that "the defendant refused and neg- 
 lected to pay the same or any part thereof, nor did the defendant offer 
 or tender a part payment of said amount or offer to pay the same in 
 installments." Two days later this action was begun. The plaintiff 
 alleged its election to terminate the contract by reason of the breach. 
 Judgment was demanded for the price of the films delivered, and also 
 for the profits that would have been gained through the completion of 
 the contract. The referee gave judgment for the price, but refused 
 to award the profits. In his opinion, he put his refusal upon the 
 ground that the failure to make punctual payment was not accom- 
 panied by acts or words evincing repudiation or abandonment.^ The 
 Appellate Division added $2,000 to the judgment. This was the es- 
 timated value of foreign rights which attached to the sales already 
 made. That, value was thought to be recoverable as an incident to the 
 price. With this modification, the\judgment was unanimously affirm- 
 ed. There are cross-appeals in this court. 
 
 The rights of vendor and vendee upon the breach of ari installment 
 contract are now regulated by statute. The rule is to be found in sec- 
 tion 45, subdivision 2, of the statute governing sales of goods : "Where 
 there is a contract to sell goods to be delivered by stated install- 
 ments, which are to be separately paid for, and the seller makes de- 
 fective deliveries in respect of one or more installments, or the buyer 
 neglects or refuses to take delivery of or pay for one or more install- 
 ments, it depends in each case on the terms of the contract and the 
 circumstances of the case whether the breach of contract is so ma- 
 
Ch. 3) PERFORMANCE OF CONTRACTS 199 
 
 terial as to justify the injured party in refusing to proceed further 
 and suing for damages for breach of the entire contract, or whether 
 the breach is severable, giving rise to a claim for compensation, but 
 not to a right to treat the whole contract as broken." Uniform Sales 
 Act, § 45, subd. 2. 
 
 The statute thus establishes a like test for vendor and for vendee. 
 The earlier cases may not be wholly uniform. * * * We do not 
 need to reconcile them. We have departed from the rule of the Eng- 
 lish statute (St. 56 & 57 Vict. c. 71, § 31, subd. 2), which keeps the 
 contract alive unless the breach is equivalent to repudiation. We Iiave 
 established a new test which weighs the' effect of tlie default, and ad- 
 justs the rigor of the remedy to the gravity of the wrong. "It depends 
 in each case on the terms of the contract and the circumstances of the 
 case" whether the breach is "so material" as to affect the contract as a 
 whole. 
 
 The answer to that question must vary with the facts. Williston on 
 Sales, p. 810. Default in respect of one installment, though falling 
 short of repudiation, may under some conditions, be so material that 
 there should be an end to the obligation to keep the contract alive. 
 Under other conditions, the default may be nothing but a technical 
 omission to observe the letter of a promise. * * * General state- 
 ments abound that, at law, time is always of the essence. Williston, 
 supra; Norrington v. Wright, 115 U. S. 188, 6 Sup. Ct. 12, 29 L. Ed. 
 366. For some purposes this is still true. The vendor who fails to 
 receive payment of an installment the very day that it is due may sue at 
 once for the price. But it does not follow that he may be equaJly pre- 
 cipitate in his election to declare the contract at an end. * * * That 
 depends upon the question whether the default is so substantial and 
 important as in truth and in fairness to defeat the essential purposes 
 of the parties. Whatever the rule may once have been, this is the 
 test that is now prescribed by statute! The failure to make punctual 
 payment may be material or trivial according to the circumstances. 
 We must know the cause of the default, the length of the delay, the 
 needs of the vendor, and the expectations of the vendee. If the default 
 is the result of accident or misfortune, if there is a reasonable assur- 
 ance that it will be promptly repaired, and if immediate payment is 
 not necessary to enable the vendor to proceed with performance, there 
 may be one conclusion. If the breach is willful, if there is no just 
 ground to look for prompt reparation, if the delay has been substan- 
 tial, or if the needs of the vendor are urgent so that continued per- 
 formance is imperiled, in these and in other circumstances, there may 
 be another conclusion. Sometimes the conclusion will follow from all 
 the circumstances as an inference of law to be drawn by the judge ; 
 sometimes, as an inference of fact to be drawn by the jury. 
 
 The findings in this case do not enable us to say that the plaintiff 
 was justified in its precipitate election to declare the contract at an 
 end. There is a finding that payment was refused. That is inconclu- 
 sive by itself. The refusal may have been nothing more than a dec- 
 laration of inability to make, payment on the instant. There is a find- 
 ing that the defendant did not offer part payment or payment in in- 
 stallments. That again is inconclusive. It is not an ultimate, but at 
 most an evidentiary, fact. The circumstances may none the less have 
 indicated a temporary default to be followed promptly by full payment. 
 The referee must have interpreted the situation in that way, for he 
 
200 CONTRACTS (Part 1 
 
 states in his opinion that the default was not accompanied by any act 
 or declaration that would indicate abandonment. If we were at lib- 
 erty to look into the evidence and draw our own inferences, we might 
 reach a contrary conclusion. But the evidence is not open to our scru- 
 tiny. The plaintiff has not requested the referee to find the ultimate 
 fact on which the right to the recovery of profits depends. It has not 
 requested a finding that the breach was so material as to justify its 
 hasty election to declare the contract at an end. It has not requested a 
 finding of the circumstances preceding or accompanying the default. 
 There is not even a request which brings before us in due form the 
 ruling that all profits must be excluded. The only request made speci- 
 fies the extent of the loss, and includes elements of damage which the 
 referee, in any view of the breach, was at liberty to reject. In these 
 circumstances, we must hold the plaintiff to the rule which requires 
 a request to find and an exception. * * * ^he findings as made 
 leave the character of the default equivocal. In the absence of an 
 appropriate request for other findings, the evidence is not before us. 
 The rule would be different if we were asked to go behind the find- 
 ings for the purpose of affirmance. * * * The plaintiff asks us 
 to go behind them for the purpose of reversal. Its appeal must there- 
 fore fail. 
 
 The defendant complains of the increase of the judgment directed 
 at the Appellate Division. We think the increase was erroneous. We 
 have seen that the plaintiff was not at liberty to treat the entire con- 
 tract as broken. Its cause of action was limited to the recovery of 
 payments in default. But there has thus far been no default in re- 
 spect of foreign sales. No foreign sales have yet been made. The 
 award in that respect is an estimate of sales to be made hereafter. 
 Until the conditions prescribed by the contract have been satisfied, the 
 extra compensation is not payable. The plaintiff's recovery must be 
 limited to payments already due. 
 
 The judgment of the Appellate Division to the extent that it modifies 
 the judgment entered on the report of the referee should be reversed, 
 and the judgment entered upon such report affirmed, with costs in 
 this court to the defendant. Judgment accordingly. 
 
 SECTION 10.— CONDITIONS SUBSEQUENT 
 
 MOODY V. AMAZON INS. CO. 
 
 (Supreme Court of Ohio, 1894. 52 Ohio St. 12, 38 N. E. 1011, 26 L. R. A 
 :}13, 49 Am. St. Eep. 699.) 
 
 Action by one Moody against insurance company. From a judg- 
 ment of the circuit court affirming a judgment rendered on a verdict 
 directed in favor of defendant, plaintiff brings error. 
 
 The original action was upon a policy of insurance, by the terms of 
 which the defendant insured the plaintiff, ■ to the amount of $500, 
 against loss or damage by fire, on his dwelling house in Ashtabula 
 county, for the period of three years from the 1st day of January, 
 1887. The building was totally destroyed by fire on the 28th dav of 
 September, 1888. 
 
 Williams, J. The policy of insurance upon which the plaintiff 
 sought to recover in the action below provides, among its many con- 
 
Ch. 3) PERFORMANCE OF CONTRACTS 201 
 
 ditions, that "no liability shall exist under this policy for loss or dam- 
 age in or on vacant or unoccupied buildings, unless consent for such 
 vacancy or inoccupancy be indorsed hereon. The answer alleges that 
 the house insured by the policy was burned while it was unoccupied ; 
 and, though that allegation was denied, the court required the plaintiff 
 to take the burden of proving that the building was occupied. That 
 action of the court is assigned for error, and presents the first question 
 for consideration. The court went upon the theory that the provision 
 of the policy above quoted constitutes a condition precedent, the per- 
 formance of which was put in issue by the denial of the averments 
 of the petition. In an action on a policy of fire insurance, the plaintiff 
 may plead generally, as was done in this case, the due performance of 
 all the conditions precedent on his part, and when the allegation is 
 controverted the burden is undoubtedly upon him to show such per- 
 formance. But we do not understand the clause of the policy in ques- 
 tion to be a condition of that kind. An unexpired policy of fire insur- 
 ance, which has been regularly issued, and remains uncanceled, . must, 
 in the absence of a showing to the contrary, be regarded as a valid 
 and effective policy, upon which the assured is prima facie entitled 
 to recover when the loss occurs, and the steps necessary to establish 
 it have been taken ; and, hence, the conditions precedent in such a 
 policy included only those affirmative acts on the part of the assured the 
 performance of which is necessary in order to perfect his right of ac- 
 tion on the policy, such as giving notice and making proof of the loss, 
 furnishing the certificate of a magistrate when required by the terms 
 of the policy, and, it may be, in some cases, other steps of a like nature. 
 Those clauses usually contained in policies of insurance, which pro- 
 vide that the policy shall become void, or its operation defeated or sus- 
 l>ended, or the insurer relieved wholly or partially from liability, upon 
 the happening of some event, or the doing or omission to do some act, 
 are not in any proper sense conditions precedent. If they may be 
 properly called conditions, they are conditions subsequent, and matters 
 of defense, which, together with their breach, must be pleaded by the 
 insurer, to be available as a means of defeating a recovery on the 
 policy ; and the burden of establishing the defense, if controverted, is, 
 of course, upon the party pleading it. This precise question has not 
 heretofore received the consideration of this court, but it has been 
 raised in other states under various clauses of insurance policies. In 
 the case of Lounsbury v. Insurance Co., 8 Conn. 459, 21 Am. Dec. 686, 
 the question was presented in an action on a policy of fire insurance 
 which provided "that the insurers would not be liable for loss or dam- 
 age happening by means of any invasion, insurrection, riot, or civil 
 commotion, or of any military or usurped power; also that if the 
 building insured should be used diiring the term of insurance for any 
 occupation, or for the purpose of storing therein any goods, denomi- 
 nated 'hazardous' or 'extra hazardous' in the conditions annexed to the 
 policy (unless otherwise specially provided for), the policy should 
 cease and have no effect." It was held these were not conditions pre- 
 cedent to the plaintiff's right of recovery, but were matters of defense, 
 to be taken advantage of by pleading. The court in that case sayr 
 "All these conditions, if such they may be called, are inserted in the 
 policy by way of proviso, and not at all as conditions precedent. They 
 are introduced for the benefit of the defendants; and they must be 
 taken advantage of, if at all, by. pleading." In Newman v. Insurance 
 
202 CONTRACTS (Part 1 
 
 Co., 17 Minn. 123 (Gil. 98), it is held that "under a stipulation in a 
 policy that if the risk be increased by any means whatever, within the 
 control of the insured, the insurance shall be void, the assured is not 
 to plead and prove affirmatively that it has not been thus increased ; 
 but, if it has, it is a matter of defense, to be alleged and proved by 
 the defendant." * * * The vacancy, or want of occupancy, of a 
 building, is as much an affirmative fact as its occupancy, and as capable 
 of proof; and the burden upon that subject, under the issues in this 
 case was, we think, upon the defendant. 
 
 The court also erred in its direction to the jury, because, as we have 
 seen, it was not incumbent upon the plaintiff to show the house was 
 occupied; the burden being upon the defendant to prove that it was 
 vacant and unoccupied. * * * No rule is better settled than that 
 such conditions in policies should receive a strict construction, and, 
 when ambiguous, be construed most strongly against the insurer, for 
 the reason that they are prepared by, and inserted for the benefit of, 
 the insurer. The condition of the policy in the present case is not 
 more specific or comprehensive in its requirements concerning the oc- 
 cupancy of the building insured than the one involved in the Ken- 
 tucky case. Insurance Co. v. Kiernan, 83 Ky. 468. It declares that 
 no liability shall exist under the policy for loss or damage to an un- 
 occupied building, but does not stipulate that the insured building shall 
 be used as a dwelling,, or require any particular mode of occupancy. 
 Strictly construed, occupancy for any lawful purpose would satisfy 
 the condition, and preserve the obligation of the policy. At all events, 
 it was not essential that the building should be put to all the uses or- 
 dinarily made of a dwelling, or to some of those uses all of the time ; 
 nor that the whole house should be subjected to that use. Nor does it 
 follow, as a matter of law, that a dwelling house is to be considered 
 as unoccupied merely because it has ceased to be used as a family 
 residence, where the household goods remain ready for use, and it 
 continues to be occupied by one or more members of the family who 
 have access to the entire building for the purpose of caring for it, and 
 who do care for it, and make some use of it as a place of abode. 
 
 ' For each of the errors pointed out, the judgment of the common 
 pleas and of the circuit court will be reversed, and the cause remand- 
 ed. Judgment accordingly. 
 
 SECTION 11.— PREVENTION AS AN EXCUSE FOR NON- 
 PERFORMANCE 
 
 If A. has contracted to perform services for B., for example, to 
 cut timber on B.'s land, and B., by force or otherwise, keeps A. from 
 entering the premises, it is clear that A. is excused from perform- 
 ing, and so A. will not be liable for breach of contract. The con- 
 duct of B. may also amount to a breach of an implied promise on 
 his part which will render him liable to A. Similarly, with respect 
 to the prevention of the fulfillment of a condition, if, for example, 
 A. has contracted to build a house for B., and B. has agreed to 
 pay the contract price upon the express condition that A. procure 
 the certificate of Architect X. that the building was completed in 
 
Ch. 3) PERFORMANCE OF CONTRACTS 203 
 
 accordance with the plans and specifications, and B. by fraud, in- 
 duces X. not to give the certificate to A., A. will be excused from 
 the duty to obtain the certificate as a condition precedent to A.'s 
 right to recover the contract price. In a great variety of ways, one 
 party to a contract may prevent the other party's performance. 
 The performance of many contracts is dependent upon a certain 
 amount of cooperation by the parties. If one of them withdraws 
 his support, the other party will not have the means of perform- 
 ance. The effect of prevention is, therefore, to excuse perform- 
 ance by the party thus restrained, and such act may justify rescis- 
 sion of the contract by him, and the party guilty of the wrongful 
 conduct may be liable for breach. 
 
 PATTERSON v. >rFAERHOFER. 
 (Court of Appeals of New York, 1912. 204. N. Y. 96, 97 N. E. 472.) 
 
 Action by Benjamin Patterson against Anna Meyerhofer. From a 
 judgment for defendant, plaintiff appeals. 
 
 WiLivARD Barixett, J. The parties to this action entered into a 
 written contract whereby the plaintiff agreed to sell, and the defendant 
 agreed to buy, four several parcels of land with the houses thereon 
 for the sum of $23,000, to be partly in cash and partly by taking title 
 subject to certain mortgages upon the property. When she executed 
 this contract, the defendant knew that the plaintiff was not then the 
 owner of the premises which he agreed to sell to her, but that he ex- 
 pected and intended to acquire title thereto by purchasing the same at a 
 foreclosure sale. Before this foreclosure sale took place, the defend- 
 ant stated to the plaintiff that she would not perform the contract on 
 her part, but intended to buy the premises for her own account with- 
 out in any way recognizing the said contract as binding upon her, and 
 this she did, buying the four parcels for $5,595 each. The plaintiff at- 
 tended the foreclosure sale, able, ready, and willing to purchase the 
 premises, and he bid for the same, but in every instance of a bid made 
 by him the defendant bid a higher sum. The result was that she ac- 
 quired each lot for $155 less than she had obhgated herself to pay the 
 plaintiff therefor under the contract or $620 less in all. * * * 
 
 The complaint also prays that the plaintiff be awarded the sum of 
 $620 damages, being the difference between the price which the de- 
 fendant paid at the foreclosure sale for the four houses mentioned 
 in the ocntract and the price which she would have had to pay the 
 plaintiff thereunder. * * * 
 
 In the case of every contract there is an implied undertaking on the 
 part of each party that he will not intentionally and purposely do any- 
 thing to prevent the other party from carrying out the agreement on 
 his part. This proposition necessarily follows from the general rule 
 that a party who causes or sanctions the breach of an agreement is 
 thereby precluded from recovering damages for its nonperformance 
 or from interposing it as a defense to an action' upon the contract. 
 * * * 
 
 By entering into the contract to purchase from the plaintiff property 
 which she knew he would have to buy at a foreclosure sale in order 
 to convey it to her, the defendant impliedly agreed that she would do 
 
204 CONTRACTS (Part 1 
 
 nothing to prevent him from acquiring the property at such sale. The 
 defendant violated the agreement thus implied on her part by biddmg 
 for and buying the premises herself. Although the plaintiff bid there- 
 for, she uniformly outbid him. Presumably, if she had not interfered, 
 he could have bought the property for the same price which she paid 
 for it. He would then have been able to sell it to her for the price 
 specified in the contract (assuming that she fulfilled the contract), 
 which was $620 more. This sum, therefore, represents the loss which 
 he has suffered. It is the measure of the plaintiff's damages for the 
 defendant's breach of contract. * * * 
 
 For these reasons, the judgments of the Appellate Division and the 
 Special Term should be reversed and a new trial granted, with costs 
 to abide the event. 
 
 DEWEY V. UNION SCHOOL DIST. OF THE CITX OF ALPENA. 
 
 (Supreme Court of Jlichiaan, 1880. 43 Mich. 480, 5 N. W. 646, 
 38 .\m. Kep. 206.) 
 
 GkavES, J. The plaintiff was regularly hired by the district to serve 
 as teacher in its public schools for 10 months, for $130 per month. He 
 entered on his duties on the second of September, and continued up to 
 the tenth of December, at which time the district officers closed the 
 schools, on account of the prevalence of small-pox in the city, and 
 kept them closed thereafter, for the same reason, until the seventeenth 
 of March. They were then reopened, and the plaintiff resumed his 
 duties. * * * The district refused to pay him for the period of sus- 
 pension, and he brought this action to recover it. * * * 
 
 Beyond controversy the closing of the schools was a wise and timely 
 expedient; but the defense interposed cannot rest on that. * * * It 
 is not enough that great difficulties were encountered, or that there 
 existed urgent and satisfactory reasons for stopping the schools; but 
 this is all the evidence tended to show. The contract between the par- 
 ties was positive and for lawful objects. On one side school buildings 
 and pupils were to be provided, and on the other personal service as 
 teacher. The plaintiff continued ready to perform, but the district re- 
 fused to open its houses and allow the attendance of pupils, and it 
 thereby prevented performance by the plaintiff. Admitting that the 
 circumstances justified the officers, and yet there is no rule of justice 
 which will entitle the district to visit its own misfortune upon the plain- 
 tiff. He was not at fault. He had no- agency in bringing about the 
 state of things which rendered it eminently prudent to dismiss the 
 schools. It was the misfortune of the district, and the district, and not 
 the plaintiff, ought to bear it. 
 
 The occasion which was presented to the district was not within the 
 principle contended for. It was not one of absolute necessity but of 
 strong expediency. To let in the defense that the suspension' pre- 
 cluded recovery the agreement must have provided for it. But the 
 district did not stipulate for the right to discontinue the plaintiff's pay 
 on the judgment of its officers, however discreet and fair, that a stop- 
 page of the schools is found a needful measure to prevent their invasion 
 by disease, or to stay or oppose its spread or progress in the community, 
 and the contract cannot be regarded as tacitly subject to such a con- 
 dition: 
 
 The judgment for defendant must be reversed, with costs, and a 
 new trial granted. 
 
Ch. 3) PERFORMANCE OF CONTRACTS 205 
 
 SECTION 12.— WAIVER AS AN EXCUSE FOR 
 NON-PERFORMANCE 
 
 RICHARD DiasVES & SON v. MANHATTAN LIFE INS. CO. 
 (Court of Appeals of New York, 1909. 195 N. Y. 324, 88 N. E. 395.) 
 
 Chase, J. * * * Where a building contract provides that the ma- 
 terials shall be furnished and the labor performed for a gross sum and 
 by a day fixed in the contract for the full completion thereof, and the 
 contractor fails to perform by the day so fixed, the owner may insist 
 on his strict legal right, and put an end to the contract. * * * jf t^g 
 owner voluntarily permits the contractor to proceed with such a con- 
 tract and accepts the materials and labor thereafter furnished and 
 performed, and the contractor fully performs his contract, except as 
 to the time provided for the completion thereof, he is estopped from 
 interposing the delay as a defense to the action for the agreed price. 
 One cannot receive and enjoy the benefit of the labor and materials so 
 furnished under the contract and refuse to pay for them simply be- 
 cause the contract was not completed within the time specified. * ' * * 
 'Phis does not mean that an owner is without remedy. He may re- 
 cover his damages by an independent action or by counterclaim in an 
 action brought by the contractor for the contract price. * * * 
 
 PABST BREWING CO. v. CITY OF MILWAUKEE. 
 (Supreme Court of Wisconsiu, 1905. 126 Wis. 110, 105 N. W. 563.) 
 
 Marshall, j. * * * f jjg distinguishing features between the dif- 
 ferent phases of waiver, as viewed in its general sense, are so slight as 
 to hardly be appreciable. Generally speaking, in neither is any con- 
 sideration in a pecuniary sense nor any element of estoppel required. 
 The contrary of this may be found asserted, but the soundness of the 
 foregoing is easily demonstrable by reference to the different situations 
 to which it has been frequently applied. In case of payment of a lax 
 without protest, or other claim voluntarily and with knowledge of the 
 facts, an action cannot be maintained to recover back the money, re- 
 gardless of whether the payee so changed his position on the faith of 
 such payment that the previous status cannot be fully restored by a 
 return of the money. It is manifest that the disability to enforce such 
 return cannot be based on any other reason than that of unqualified 
 submission to the attitude of the payee — the doctrine that one cannot 
 blow hot and then blow cold and have the aid of judicial remedies 
 in the matter. That is not of such universal application as the doc- 
 trine of estoppel. 
 
 The efforts of courts and text-writers to harmonize the situations 
 to which the principle of waiver has been applied with the idea that 
 some element of estoppel or some consideration is necessary to sup- 
 port the defense has led to many interesting discussions and the as- 
 signment of reasons much too shadowy to be appreciated by minds 
 general, if at all. It must be conceded that in many cases where the 
 defense of waiver has prevailed no element of estoppel can be pointed 
 to. If it were otherwise, many instances of supposed waiver would 
 be misnamed, the proper designation of the defense being estoppel. 
 
206 CONTRACTS (Part i 
 
 It may be that the theory advanced by a learned writer that in every 
 case where the law of waiver is applicable and there is no element of 
 estoppel, there is one of consideration, in the broad sense of the term 
 as applicable to contracts. A consideration essential to a contract- 
 is satisfied by a disadvantage to the promisee as well as by a benefit 
 to him. Parsons on Contracts (9th Ed.) vol. 1, § 431. So waiver 
 may perhaps be viewed as involving a consideration and supported on 
 that theory. In every case where the waivee asserts as a defense 
 submission by the waivor, the former would be prejudiced if the lat- 
 ter were allowed to successfully change his position. 58 Cent. Law 
 J. 264. 
 
 It would seem that the more satisfactory ground to support the doc- 
 trine of waiver on is that it is a rule of judicial policy — the legal out- 
 growth of judicial abhorrence, so to speak, of a person's taking incon- 
 sistent positions and gaining advantages thereby through the aid of 
 courts. A rule by which regardless of any element of estoppel or 
 consideration, as those terms are popularly understood, the saying that 
 one should not be permitted to blow hot and with advantage to himself 
 turn and blow cold, within limits sanctioned by long experience as re- 
 quired for the due administration of justice, has been prohibitively 
 applied. It is applied where one with knowledge of the facts volun- 
 tarily pays a demand upon him. It is applied when one with knowl- 
 edge, or reasonable means of knowledge, of the facts having two in- 
 consistept remedies chooses one of them. It is applied where one 
 without objection and with such knowledge, or means of knowledge, 
 receives property in consummation of an executory contract. The 
 tendency of . courts is to consider as within one of the exceptional 
 classes any situation which is within the principle of it, both as regards 
 the mere fact of waiver and the importance in the administration of 
 justice of holding the waivor to the position he voluntarily and with 
 knowledge of the facts has elected to take. * * * 
 
 It is suggested that there can be no waiver without intent to waive 
 based on knowledge of the facts. True, but one is presumed to know 
 that which in contemplation of law he ought to know, and one is pre- 
 sumed to waive that which is necessarily implied from his conduct. 
 Constructive as well as actual knowledge of the facts, and impHed as 
 well as express intent, satisfies the prime essential of a conclusive 
 waiver. * * * A standard reference work puts the matter thus : 
 
 "The intent to waive may appear as a legal result of conduct. The 
 actuating motive, or the intention to abandon a right, is generally a 
 matter of inference to be deduced with more or less certainty from 
 the external and visible acts of the party, and all the accompanying 
 circumstances of the transaction, regardless of whether there was an 
 actual but imdisclosed intention to the contrary." Am & En? Enc 
 of Law (2d Ed.) vol. 29, p. 1095. ' 
 
 Waiver, acquiescence or election by one often precludes him from 
 insisting successfully upon advantages which he has concluded with 
 knowledge of the facts to forego, but that forms but an element pro- 
 ducing the legal consequences denominated estoppel in pais. The 
 crowning element of such legal consequences is the change of position, 
 in reliance upon the prior element mentioned, to one from which there 
 can be no retreat without loss. * * * 
 
Ch. 3) PERFORMANCE OF CONTRACTS 207 
 
 AI.SENS AMERICAN PORTLAND CEMENT WORKS y. DEGNON 
 
 CONTRACTING CO. ' 
 (Court of Appeals of New York, 1917. 222 N. Y. 34, 118 N. E, 210.) 
 
 Action by the Alsens American Portland Cement Works against 
 the Degnon Contracting Company. Judgment in favor of plaintiff, 
 and it appealed. 
 
 Collin, J. The action is to recover the purchase price, at the rate 
 of $1.62 per barrel, of cement sold by the plaintiff to the defendant. 
 The trial justice directed a verdict based upon the purchase price of 
 $1.41 per barrel. A question to be determined, under proper excep- 
 tions, is whether or not there was any evidence creating a question 
 of fact to be submitted to and determined by the jury. 
 
 The evidence is free of contradiction. The undisputed facts, 
 briefly and adequately stated are : In May, 1909, the parties entered 
 into a contract which provided for the sale by the plaintiff to the de- 
 fendant of 175,000 barrels of cement, to be totally ordered for ship- 
 ment by the defendant before March 1, 1913, at the price of $1.41 
 per barrel. On March 1, 1913, there remained unordered for ship- 
 ment 36,000 barrels. Between March 1, 1913, and May 8, 1913, the 
 defendant ordered of and received from the plaintiff 1,900 barrels. 
 Throughout that period the market value was $1.62 per barrel. The 
 plaintiff by this action claims that the 1,900 barrels were not sold under 
 the contract, and should be paid for (except the first two shipments) 
 at the market value. The defendant claims that the sale was within 
 the contract, and the plaintiff should be paid $1.41 per barrel. 
 
 The defendant rightly concedes that the defendant was bound by 
 the contract to order for shipment before March 1, 1913, the total 
 amount of 175,000 barrels, and after that date the plaintiff was free 
 to refuse to make any delivery under the contract. It asserted at the 
 trial and asserts here that the stipulation of the contract thus binding 
 it was, as a matter of law, waived by the acts of the plaintiff. Therein 
 it errs. Under the evidence, whether or not there was a waiver on 
 the part of the plaintiff was a question of fact determinable by the 
 jury. 
 
 In reversing the judgment and granting a new trial, we may not with 
 propriety attempt to define the effect due, in our opinion to any j)art 
 of the evidence. A waiver, not express, found in the acts, conduct, or 
 language of a party, is rarely established as a matter of law rather 
 than as a matter of fact. This conclusion inheres in its nature and 
 character. A waiver is an intentional abandonment or relinquishment 
 of a known right or advantage which, but for such waiver, the party 
 would have enjoyed. It is the voluntary act of the party, and does 
 not require or depend upon a new contract, new consideration, or an 
 estoppel. It cannot be recalled or expunged. * * * It is essentially 
 a matter of intention. Negligence, oversight, or thoughtlessness does 
 not create it. The intention to relinquish the right or advantage must 
 be proved. Occasionally it is proved by the express declaration of the 
 party, or by his undisputed acts or language so inconsistent with his 
 purpose to stand upon his rights as to leave no opportunity for a rea- 
 sonable inference to the contrary. Then the waiver is estabUshed as 
 a matter of law. Commonly it is sought to be proved by various 
 species of proofs and evidence, by declarations, by acts, and by non- 
 feasance, permitting differing inferences, and which do not directly, 
 
208 CONTRACTS (Part 1 
 
 unmistakably, or unequivocally establish it. Then it is for the jury 
 to determine from the facts as proved or found by them whether or 
 not the intention existed. * * * 
 
 In the present case whether or not the plaintiff waived the default 
 of the defendant was a question of fact. There was no express waiver. 
 In the shipments by the plaintiff under defendant's orders of March 
 14th and 28th and the plaintiff's invoices of them, there was evidence 
 that the plaintiff through and by means of them waived the default. 
 The effect of the testimony of Mr. Corbett and the other evidence re- 
 lating to those orders and invoices must be measured by the jury. In 
 the acts, letters, and invoices of the plaintiff subsequent to April 3d 
 and in certain letters prior to March first is evidence that there was 
 not the waiver. The evidence throughout was of an inconclusive or 
 equivocal nature, and furnished only grounds of inference and deduc- 
 tion, which it is the appropriate province of ,a jury only to consider. 
 
 The judgment should be revefsed, and a new trial granted. , 
 
 STEARNS SALT & LUilBER CO. v. DENNIS LUMBER OO. 
 
 (Supreme Court of Michigan, 1915. 188 Mich. 700, 154 N. W. 91, 
 2 A. L. R. 638.) 
 
 Action by the Stearns Salt & Lumber Company against the Dennis 
 Lumber Company. Judgment for defendant, and plaintiff brings 
 error. 
 
 KuHN, J. On December 29, 1911, the defendant company placed 
 an order with the plaintiff company by telephone for two car loads 
 of a certain grade of lumber, and followed this by letter confirming 
 the same. * * ' * To this communication the plaintiff company re- 
 plied under date of December 30, 1911, advising that the lumber would 
 be shipped at once. 
 
 On January 6, 1912, the plaintiff mailed to the defendant an invoice 
 of the first car of lumber shipped, and on January 11, 1912, sent an 
 invoice of the second car load shipped. The first car of lumber was 
 placed for unloading February 19, 1912, and was unloaded on the 
 following day. The other car was placed for unloading on February 
 21, 1912, and the unloading of that car was completed within two 
 days, on February 23d. On the next day, February 24, 1912, defend- 
 ant notified plaintiff of the rejection of part of the lumber received. 
 * * * 
 
 The plaintiff company immediately replied that it would not con- 
 sent to any loss on the car, and must have settlement in full. Further 
 correspondence was had between the parties, and finally suit was 
 brought to recover the sum of $50.75, the claimed balance due on 
 the two cars in question, the value of the lumber rejected. Suit was 
 started in the justice court, which resulted in a judgment in favor of 
 the defendant, and on appeal taken to the circuit court the trial judge 
 directed a verdict of no cause of action. 
 
 It is contended here that the circuit judge erred in holding and in- 
 structing the jury that the contract in question was severable, and that 
 the defendant had a right to reject part of the lumber in question and 
 accept the remainder. It is the contention of the plaintiff that the de- 
 fendant had purchased these two cars of lumber, of one quality and 
 grade, and as soon as the cars arrived the defendant had a reasonable 
 time in which to inspect the same and ascertain if they complied with 
 
Ch. 3) PERFORMANCE OF CONTRACTS 209 
 
 the requirements of the contract as to quahty and grade, and after 
 such examination defendant was obliged to either accept pr reject all 
 of the lumber; and if he accepted a part of the lumber, and then 
 used the same, he was obliged to pay the contract price of all of the 
 lumber. * * * 
 
 It is true that it is the rule of law in this state that in an executory 
 contract for the sale of personal property, where there is an implied 
 warranty, the warranty does not survive the acceptance of the goods, 
 and it becomes the duty of the purchaser to make an inspection and 
 reject or pay the contract price. * * * But the question here is 
 rather whether or not the contract in question is a severable one, and 
 whether or not the defendant could after inspection, in view of the rule 
 of law here established, reject that part of the lumber which did not 
 meet the specifications. * * * 
 
 In the instant case, if the defendant had taken into possession the 
 rejected lumber and assumed to dispose of it at a less price, * * * 
 there could be no question that under the law in this state the damages 
 thus sustained could not have been recouped in an action to recover for 
 the rejected lumber. But here the defendant moved promptly by noti- 
 fying the plaintiff the very next day after the inspection, of the rejec- 
 tion of the lumber in question. 
 
 In a similar case in Maryland, Canton Lumber Co. v. Liller, 107 Md. 
 146, 68 Atl. 500, the court held that the plaintiff had a right to accept 
 lumber which was up to the grade contracted for, and that by so doing 
 it did not accept the part which was below grade. In its opinion the 
 court said : 
 
 " * * * Can it be supposed then that it was the intention of either 
 of the parties that if one-half or one-quarter of the lumber passed 
 the inspection, and the remainder was rejected, that the plaintiff could 
 not use the former for the specific purpose for which it was bought, 
 without being required to take also the rejected portion which he 
 could not use? Such a conclusion is as irrational when attributed to 
 the defendant as when attributed to the plaintiff, under all the circum- 
 stances of this case. * * * As illustrative of this view, it was said in 
 Richards v. Shaw, 67 111. 222, that the modern rule is that the entirety 
 of a contract of sale is severed by the buyers receiving and retaining 
 a part after the seller has refused or failed to deliver the residue of 
 the specific quantity of goods bargained for. 
 
 "The case of Holmes v. Gregg, 66 N. H. 621, 28 Atl. 17, relied 
 on by the plaintiff, is directly in point, and meets with our full concur- 
 rence. That was a sale of lumber shipped on cars in five lots, three 
 of which were accepted and used by the defendants, and the others, 
 not conforming to the order in quality, were rejected and piled in their 
 yard, where they remained, subject to the plaintiff's order. The de- 
 fendants seasonably informed the plaintiffs of their action, and ten- 
 dered the price of the accepted lumber, and the court said : 'Without 
 an express stipulation that the contract was or was not entire, the par- 
 ties might have understood that it was severable in such a sense that 
 the defendants could accept the lumber that conformed to the contract 
 and reject the rest.' " 
 
 We are of the opinion that the trial court was correct in holding 
 that the contract was a severable one, and no error was committed in 
 charging the jury. Judgment affirmed. 
 B.& B. Bus. Law— 14 
 
^10 CONTRACTS (Part 1 
 
 CHICAGO WASHED COAL CO. v. WHITSBTT-et al. 
 (Supreme Court of Illinois, 1917. 278 111. 623, 116 N.' E. 115.) 
 
 Action by the Chicago Washed Coal Company against R. C. Whit- 
 sett and others. From a judgment for defendant, plaintiff appeals. 
 
 Craig, C. J. Appellant, the Chicago Washed Coal Company, on De- 
 cember 3, 1910, brought suit in the municipal court of Chicago against 
 the appellees, R. C. and A. H. Whitsett, co-partners doing^ business as 
 the R. C. Whitsett Coal & Mining Company, to recover damages for an 
 alleged breach of contract to furnish it certain grades of coal at the 
 rate of 150 tons per day from December 28, 1909, to March 30, 
 1910. * * * 
 
 The contract was entered into December 24, 1909, and provides that 
 appellees were to furnish appellant with coal from the mine at Ward, 
 111., from December 28, 1909, to March 30, 1910, at the rate of 50 tons 
 per day of No. 3 screenings at 72% cents per ton, and 100 tons per 
 day of 6 X 3 egg at $1.45 per ton, f. o. b. the mines. The freight rate 
 from the mines to Chicago was 90 cents a ton by way of the Illinois 
 Central Railroad. The coal was to be shipped from the Chicago-Car- 
 bondale Coal Company's mines, appellant to have preference over all 
 other shipments, and all deliveries to be made subject to the usual con- 
 tingencies occasioned by strikes, lockouts, delays in transportation, 
 changes in freight rates, or other causes beyond the control of appellees. 
 All payments were to be made on or before the 10th day of each month 
 for all shipments made during the preceding month. Appellees were 
 unable to secure the kind of coal contracted for the December delivery, 
 and a verbal agreement was made whereby a different kind of coal was 
 received on the contract during that month. The total deliveries for 
 December amounted to $101.83. Appellees rendered appellant a state- 
 ment for the coal so delivered on December 31, 1909. Appellant failed 
 to make payment of this account on or before January 10th, as pro- 
 vided by the contract, and appellees ceased to make deliveries on the 
 contract after that date. The last coal delivered by them was January 
 ■9, 1910. 
 
 On January 15th appellant paid its account for coal delivered in 
 December in full, and on January 17th wrote appellees as follows : 
 "We beg to call your attention to the fact that we have received 
 no shipments on our contract made with you for coal from Ward, III, 
 since January 8th, and have had the matter up with your Mr. Stinson, 
 and was assured by him that he was watching the same and was doing 
 all he could to get same forwarded to us. We must insist that we re- 
 ceive shipment on this contract to the extent of 150 tons per day, as 
 stipulated. Trusting we may hear favorably from you by return mail, 
 we remain." 
 
 To which appellees replied on January 18th as follows: "We are 
 in receipt of your favor of the 17th inst., and are surprised to note 
 that you still expect to receive shipments under this contract. If you 
 refer to your contract, you will note that it calls for payment on or 
 before the 10th of each month for all shipments made during the 
 preceding month. Therefore, inasmuch as we did not receive your 
 lemittance on the 10th inst., we canceled your contract on the 11th 
 inst." 
 
 The total shipments of coal made during the month of January, until 
 the contract was canceled on January Uth, amounted to $281.76.' Ap- 
 
Ch. 3) PERFORMANCE OF CONTRACTS 211 
 
 pellant also failed and refused to pay this account on or before Feb- 
 ruary 10th, as provided in the contract, or at any time thereafter, until 
 suit was brought and a judgment recovered against it for such amount. 
 
 Appellees rely upon the failure of appellant to pay its December 
 account on or before January 10th and their letter of January 17tn 
 notifying appellant of the cancellation of the contract as constituting 
 a rescission of the contract; also the failure of appellant to pay the 
 January account on or before February 10th as such an abandonment 
 of the contract as to preclude a recovery thereon by appellant at this 
 time, even if the prior rescission was wrongful, which they do not con- 
 cede. Appellant insists that the acceptance of the payment for the 
 December delivery on January ISth was a waiver of its failure to pay 
 on or before the 10th of the month, and the letter notifying it of the 
 cancellation of the contract was such a repudiation of the contract by 
 appellees as to excuse appellant from a further performance of the 
 contract on its part. Both the trial and Appellate Courts adopted the 
 view of appellees, and we concur in their views. When appellees 
 ceased to make deliveries on the contract after January 8, 1910, and 
 thereafter notified appellant the contract had been canceled, the con- 
 tract was terminated for all purposes so far as appellees were con- 
 cerned. Their repudiation of the agreement could not have been made 
 more emphatic or complete. The acceptance of the payment for the 
 past-due account did not estop them from insisting upon a rescission 
 of the contract, when they were, at the time of accepting such pay- 
 ment, refysing to further comply with such contract. 
 
 They had the right to receive or accept payment for coal already 
 delivered in any event, whether the contract was canceled or not. If 
 appellant deemed the contract still valid and binding, it then had the 
 right to treat the contract as terminated for all purposes and bring 
 an action for its breach, and for all the damages which it had sus- 
 tained by reason of nonperformance, or being prevented from perform- 
 ing the contract, or it had a right to treat the contract as subsisting 
 and to keep it alive for the benefit of both parties, keeping itself at all 
 times ready, able, and willing to perform its part of the contract, and 
 at the expiration of the term of the contract sue for its damages sus- 
 tained by reason of the wrongful nonperformance by appellees ; but it 
 could not do both. * * * If it elected to keep the contract alive 
 and in force for the purpose of recovering damages for future profits, it 
 must do so for the benefit of both parties, and must both allege and 
 prove performance of the contract upon its part, or a legal excuse for 
 its nonperformance, before there could be a recovery on the contract. 
 * :f= * jn the present instance appellant did neither, although it evi- 
 dently tried to do both. It treated the contract as subsisting in so far 
 as its right to demand delivery of coal thereunder was concerned, and 
 broken in so far as appellees' right to demand payment of the coal 
 previously delivered was concerned. This was fatal to appellant's right 
 of action on the contract. * * * ^ 
 
 If it elected to keep the contract alive, it must show performance on 
 its part, or legal excuse for its nonperformance. In order to do this,, 
 it was incumbent upon appellant to show payment for the coal previ- 
 ously delivered, or an offer to do so, or set the same off against its 
 damao-es on the contract and at the time and in the manner provided, 
 by such instrument. * * *^ 
 
 Judgment affirmed. 
 
212 CONTRACTS (Part 1 
 
 SECTION 13.— ANTICIPATORY BREACH OF CONTRACT 
 Our particular problem here is to determine whether or not a 
 declaration, by one of the parties to a contract that he intends not 
 to perform his future obligations under the contract, will have 
 the same or any of the legal effects brought about by a nonperform- 
 ance of existing obligations. If A. has contracted to build a house 
 for B. according to certain specifications and to have the same com- 
 pleted by January 1 next, and this date arrives and the house is not 
 so built, we know from previous cases what effect is thereby 
 brought about in the relations of A. and B. Suppose, however, 
 that, a few days after the contract was entered into, and before per- 
 formance has started. A., the builder, informs B. that he will not 
 build the house — does this act of A. constitute a breach of con- 
 tract? The situation should be looked upon from the following 
 standpoints: (1) Does A.'s act justify B. in not performing his 
 duties which were to arise before January 1 ? (2) May B. then 
 sue A. for damages, or must A. wait until after January 1 before 
 bringing suit? (3) If B. chooses to wait until after January 1 to 
 sue A., may B. recover damages based upon the state of affairs 
 existing on January 1, or will he be limited to the recovery of 
 damages calculated as of the date of the repudiation? This in- 
 volves also the further question: May B. perform all of his duties 
 under the contract and, after January 1, hold A. liable for the pay- 
 ment for such performance? (4) In the event that B. does not sue 
 A. immediately upon A.'s repudiation, may A., by recalling his re- 
 pudiation, restore the relations which existed before he declared 
 that he would not perform? 
 
 O'NEILL V. SUPREilK COUNCIL A. L. OF H. 
 
 (Supreme Court of New Jersey, 1904. 70 N. J. Law, 410, 5T Atl. 463, 
 1 Ann. Cas. 422.) 
 
 Action by Thomas O'Neill against the Supreme Council American 
 Legion of Honor. 
 
 Pitney, J. The declaration avers that in the year 1891 the defend- 
 ant was a corporation of the state of Massachusetts, engaged in busi- 
 ness in the state of New Jersey, and made a contract under seal with 
 the plaintiff, known as a benefit certificate, * * * whereby it was 
 certified that the plaintiff was a companion of the American Legion of 
 Honor, and thereupon, in consideration of full compliance by him with 
 all by-laws of the supreme council of that order, then existing or 
 thereafter adopted, and the conditions in the benefit certificate con- 
 tained, the supreme council agreed to pay to the plaintiff's sister, in 
 trust for his six children, the sum of $5,000, upon satisfactory proof 
 of the plaintiff's death while in good standing upon the books of the 
 supreme council. It alleges that the contract was made in considera- 
 tion of the payment by the plaintiff of the assessments or premiums 
 which might from time to time be called by the defendant. It avers 
 payment by the plaintiff of all assessmente called, and performance by 
 him of all conditions, until the defendant broke the contract and de- 
 
Ch. 3) PERFORMANCE OF CONTRACTS 213 
 
 clared the same void. It sets up that the defendant has failed, neg- 
 lected, and refused to carry out the conditions of the contract, in that 
 on August 22, 1900, on December 10, 1901, and on divers other days 
 between those dates, the defendant declared to the plaintiff that it 
 would not perform the contract or pay the insurance money thereby 
 agreed to be paid, and that upon the plaintiff's death the beneficiaries 
 should receive only $2,000. The declaration further avers that upon 
 the breach of the contract by the defendant as aforesaid, and upon 
 the several dates mentioned above, the plaintiff tendered to the de- 
 fendant the same monthly assessments and payments as had been there- 
 tofore called or required by the defendant upon the contract, and the 
 plaintiff offered and agreed to continue making such payments, and in 
 all respects offered to comply with the terms and conditions of the 
 contract; yet the defendant refused to accept from the plaintiff the 
 assessments so tendered, and refused to recognize the contract or con- 
 tinue it in force; whereby the plaintiff has sustained damages, to re- 
 cover which the action is brought. The defendant has pleaded the 
 general issue and five special pleas. To each of the latter the plaintiff 
 demurs. 
 
 The first question for consideration is whether the declaration sets 
 forth a good cause of action. The cause of action asserted is not the 
 right to recover the sum named in the benefit certificate according to 
 its terms, but to recover damages for a renunciation of the agreement, 
 by the party bound, in advance of the time set for performance. Nu- 
 merous reported decisions have laid down the doctrine that where a 
 contract embodies mutual and interdependent conditions and obliga- 
 tions, and one party either disables himself from performing, or pre- 
 vents the other from performing, or repudiates in advance his obliga- 
 tions under the contract, and refuses to be longer bound thereby, com- 
 municating such repudiation to the other party, the latter party is 
 riot only excused from further performance on his part, but may at his 
 option treat the contract as terminated for all purposes of performance, 
 and maintain an action at once for damages occasioned by such re- 
 pudiation, without awaiting the time fixed by the contract for perform- 
 ance by the defendant. This doctrine has been followed in the Eng- 
 lish courts for more than half a century. * * * 
 
 In the leading case of Hochster v. De La Tour (1853) 2 El. & 
 Black. 678, 22 L. J. Q. B. 455, 17 Jur. 972, 6 Eng. Rul. Cas. 576, 
 Crompton, J., said, during the argument : "When a party announces 
 his intention not to fulfill the contract, the other side may take him at 
 his word and rescind the contract. That word 'rescind' implies that 
 both parties have agreed that the contract shall be at an end as if it 
 had never been. But I am inclined to think that the party may also 
 Say : 'Since you have announced that you will not go on with the con- 
 tract, I will consent that it shall be at an end from this time (meaning, 
 of course, for purposes of further performance) ; but I will hold you 
 liable for the damage I have sustained, and I will proceed to make 
 that damage as little as possible by making the best use I can of my 
 liberty.' This is the principle of those cases in which there has been 
 a discussion, as to the measure of damages to which a servant is entitled 
 on a wrongful dismissal." And Lord Campbell, C. J., in dehvering 
 judgment, said: "It seems strange that the defendant, after renounc- 
 ing the contract and absolutely declaring that he will never act under 
 it, should be permitted to object that faith is given to his assertion. 
 
214 CONTRACTS (Part 1 
 
 and that an opportunity is not left to him o£ changing his mind. 
 
 * * * The man who wrongfully renounces a contract into which he 
 has deliberately entered cannot justly complain if he is imniediately sued 
 for a compensation in damages by the man whom he has injured; and 
 it seems reasonable to allow an option to the injured party either to sue 
 immediately or to wait till the time when the act was to be done, still 
 holding it as prospectively binding for the exercise of this option, 
 which may be advantageous to the innocent party, and cannot be preju- 
 dicial to the wrongdoer." 
 
 The same rule prevails in the Supreme Court of the United States. 
 Roehm V. Horst (1899) 178 U. S. 1, 20 Sup. Ct. 780, 44 h. Ed. 953, 
 where numerous previous decisions of the same court are cited. And 
 the great weight of authority in the state courts is to the same effect. 
 
 * * * 
 
 The doctrine of Hochster v. De L,a Tour is generally recognized by 
 the text-writers as established law. * * * So far as observed, 
 the only states dissenting from the doctrine are Massachusetts, Ne- 
 braska, and North Dakota. Daniels v. Newton, 114 Mass. 530, 19 
 Am. Rep. 384; Carstens v. McDonald, 38 Neb. 858, 57 N. W. 757; 
 King V. Waterman, 55 Neb. 324, 75 N. W. 830; Stanford v. Mc- 
 Gill, 6 N. D. 536, 72 N. W. 938, 38 L. R. A.. 760. The latter deci- 
 sion is based partly, and the Nebraska decisions principally, upon 
 the authority of Daniels v. Newton, which is the leading case upon 
 this side of the question. It is there held that a mere refusal of per- 
 formance by the promisor, before the time for performance arrives, 
 cannot form a ground for damages. But in Parker v. Russell, 133 
 Mass. 74, it was held a refusal of performance of a substantial part 
 of the contract, after the time of enteringupon performance has begun, 
 entitles the injured party to treat the entire contract as absolutely 
 broken, and to recover immediately his damages, based upon the whole 
 value of the contract, including compensation for nonperformance in 
 the future as well as in the past. In Ballou v. Billings, 136 Mass. 307, 
 it was held that, for purposes of rescission by the promisee, notice that 
 the promisor will not perform has the same effect as an actual breach. 
 These and other cases show that, even in Massachusetts, the reasoning 
 on which the decision in Daniels v. Newton was based is hardly carried 
 to its logical conclusion. * * * Upon the precise point now pre- 
 sented, however, the authority of Daniels v. Newton is still recognized 
 in Massachusetts, as appears from a recent decision in a case that is "on 
 all fours" with the one now before us. Porter v. American Legion of 
 Honor (1903), 183 Mass. 326, 67 N. E. 238. 
 
 The general question of repudiation of contracts is ably discussed 
 by Prof. Williston in 14 Harv. Law Rev. 317, 421, with an ample 
 citation of cases. He combats the doctrine of Hochster v. De L^ 
 Tour, while conceding that it is sustained by the great weight of au- 
 thority. 
 
 There seems to be no controlling decision in our own state ; at least, 
 no reported case that is precisely in point. In Parker v. Pettit, 43 N. 
 J. Law 512, which was an action brought by the purchaser to recover 
 damages for refusal to deliver goods purchased, the vendor, prior to 
 the time of performance, had declared his intention not to perform, 
 and had likewise disabled himself from performing by selling the goods 
 to another. The court held that thereby the vendor had dispensed 
 with the performance of conditions precedent by the purchaser, and 
 
Ch. 3) PERFORMANCE OF CONTRACTS 215 
 
 that neither a demand of performance nor a tender of the consideration 
 money was necessary. It was intimated by Mr. Justice Depue, in the 
 opinion, that the defendant's refusal of performance, before the time 
 for performance arrived, did not of itself amount to a breach of the 
 contract so as to authorize a suit before the time for performance ; but 
 this was obiter dictum, for the suit was in fact brought after that time. 
 In Vickers v. Electrozone Commercial Co., 67 N. J. Law 665, 671, 52 
 Atl. 467, 469, Judge Vredenburgh, speaking for the Court of Errors 
 and Appeals, declared that "a party injured by the repudiation of a 
 contract by the other party, also bound by it, has an election of reme- 
 dies he may pursue, one of which is that he may treat the repudiation 
 as putting an end to the contract for all purposes of performance, and 
 sue for the profits he would have realized if he had not been prevented 
 from performing, and the contract would be continued in force for 
 that purpose." 
 
 It must be conceded that the adoption of this rule was not necessary 
 for the; decision of the case, which was an action to recover damages 
 for the past breach of a single covenant, and was not based upon a 
 repudiation of the entire agreement. But as a pronouncement by our 
 court of last resort, agreeing, as it does, with the English and most 
 of the American decisions, the expression quoted is entitled to great 
 weight in this court. Upon the whole, we are satisfied that the doc- 
 trine of Hochster v. De La Tour is well founded in principle as well 
 as supported by authority. We are also clear that it applies to such 
 a contract as the one in suit, and that the declaration sets forth a re- 
 nunciation so clear and unequivocal as to give ground for an action, it 
 being averred that the defendant has declared to the plaintiff that it 
 will not perform the contract, and has refused to accept the monthly 
 assessments tendered by the plaintiff in performance of conditions 
 precedent on his part. * * * 
 
 The plaintiff is entitled to judgment. 
 
 GRBENWAY v. GAITHER. 
 
 (United States Circuit Court, D. Maryland, 1853. Taney, 227, Fed. Cas. No. 
 
 5,788.) 
 
 Taney, Circuit Justice. * * * i have been referred to an opin- 
 ion delivered in the queen's bench, in the case of Hochster v. De La 
 Tour, 20 Eng. Law & Eq. 157, 2 Ellis & Blackburn, 678. * * * 
 The principle upon which that case was decided is loosely stated by 
 Lord Campbell in the opinion delivered. In the first portion of it, 
 the decision would seem to be placed upon the character of the con- 
 tract, and the necessity the plaintiff was under of preparing himself 
 for the service, before the day when he was to enter upon its actual 
 performance. * * . * But jn the latter part of the opinion. Lord 
 Campbell says, that a man who wrongfully renounces a contract, when 
 is to do an act at a future day, may be sued immediately for a breach 
 of it, without waiting for the time stipulated for its performance. His 
 language, in this part of his opinion is general enough to apply to all 
 cases where an act is to be done by the party on a future day, whether 
 tliat act be to render service, or deliver goods, or pay money ; and it is 
 upon this part of the opinion that the plaintiff in this case relies to 
 support his present application. * * * 
 
 The language of Lord Campbell, in this part of his opinion, is per- 
 
216 CONTRACTS (Part 1 
 
 haps broad enough to bear the construction which the plaintiff has put 
 upon it. It is, however, but justice to him to restrict it to contracts 
 of the character of which he was speaking; and so, I suppose, he in- 
 tended it. For if he meant to say that a contract Hke this, by which 
 the defendant engaged to pay a certain sum of money on certain days, 
 would be broken, and might be sued on immediately, if the party gave 
 notice that he would not comply with it, and intended to dispute it ; if 
 such was the doctrine he meant to announce in that opinion, it cannot 
 be maintained either upon principle or the authority of adjudged cases. 
 It has never been supposed that notice to the holder of a bond, or a 
 promissory note, or bill of exchange, that the party would not (from 
 any cause) comply with the contract, would give to the holder an im- 
 mediate cause of action, upon which he might sue before the time of 
 payment arrived. * * * 
 
 WIGENT V. MARKS. 
 (Supreme Court of MicJiigan, 1902. 130 Mich. 609, 90 N. W. 423.) 
 
 Action by Gardner A. Wigent against Thpmas Marrs, administra- 
 tor of the estate of Chloe R. McClung, deceased. There was a judg- 
 ment in favor of defendant, and plaintiff brings error. 
 
 Hooker, C. J. Plaintiff recovered a verdict and judgment in an 
 action of assumpsit before a justice of the peace, which was reversed 
 in the circuit court on appeal. The declaration was upon the common 
 counts. The facts were undisputed, and in substance are as follows: 
 In May, 1901, defendant's intestate gave a written order to plaintiff's 
 agents for a monument to be erected upon her lot in the cemetery at the 
 agreed price of $100, the same to be completed' between that date and 
 June 30, 1901, unless unforeseen causes should prevent, and in that 
 event as soon thereafter as practicable. It was to be set upon a foun- 
 dation to be erected by her. The contract was approved by the plain- 
 tiff on May 14th, of which Mrs. McClung was notified, and at the same 
 time the monument was ordered to be made at the quarry. The latter 
 part of June the plaintiff notified her to get the foundation ready, in 
 response. to which she wrote him that he need not bring that monu- 
 ment, as it did not come according to agreement. On July 5th plaintiff 
 replied, stating that the monument was well under way, and he could 
 not allow her to countermand her order ; that it would be delivered as 
 soon as completed, and would be strictly according to contract, and 
 she was requested to have her foundation built as soon as possible. In 
 response to this she \yrote: "You have not done according to agree- 
 ment at all. You was to have it up by the 30th of June at the farth- 
 est. We are not obliged to wait your motion, so, if you bring it, you 
 may take it back." The plaintiff had the monument completed and 
 set up upon a foundation erected by himself. This action was brought 
 to recover the contract price and $1.50 for the foundation, with inter- 
 est from August 23, 1900. 
 
 It was shown that the delay was caused by unforeseen circumstanc- 
 es. No complaint was made of the workmanship, which was such that 
 the monument could not be used for any other purpose. The defend- 
 ant claims that the plaintiff, upon receipt of Mrs. McClung's letter, 
 had no legal right to complete the contract, and recover the price; 
 that his only remedy was to recover in damages for a breach of the 
 contract. Plaintiff, on the other hand, claims that it was competent 
 
Ch. 3) PERFORMANCE OP CONTRACTS 217 
 
 to treat the contract as performed, and that he is entitled to recover 
 the contract price upon the common counts. It is undisputed that de- 
 fendant unqualifiedly renounced this contract before the monument 
 was completed, and forbade its completion and erection upon her 
 premises. Many authorities hold that she had the right to do this, and 
 thereafter plaintiff's right of recovery would.be limited to damages 
 for the breach of the contract involved in the renunciation. In Me- 
 chem. Sales, § 1091, the author says: "The law is well settled that a 
 party to an executory contract may always stop performance on the 
 other side by an explicit direction to that effect, though he thereby 
 subjects himself to the payment of such damages as will compensate 
 the other for the .loss he has sustained by reason of having his per- 
 formance checked at that stage in its progress." "The contract is 
 not rescinded, but broken; and immediately the other party has the 
 right to deem it in force for the purpose of the recovery of his dam- 
 ages, he is under no obligation for that purpose to tender complete 
 performance, nor has he the right to imnecessarily enhance the dam- 
 ages by proceeding after the countermand to finish his undertaking." 
 Id. § 1092. 
 
 This subject is discussed in the case of Hosmer v. Wilson, 7 Mich, 
 at page 305, 74 Am. Dec. 716, where Mr. Justice Christiancy says: 
 "And it is certainly very questionable whether the party thus notified 
 has a right to go on after such notice to increase the amount of his 
 own damages. In Clark v. Marsiglia, 1 Denio (N. Y.) 317, 43 Am. 
 Dec. 670, it was held he had no such right, and that the employer has 
 a right (in a contract for work and labor) to stop the work, if he 
 choose, svibjecting himself to the consequences of a breach of his 
 contract; and that the workman, after notice to quit work, has no 
 right to continue his labor, and recover pay for it. This doctrine is 
 fully approved in Derby v. Johnson, 21 Vt. 21." Mr. Justice Chris- 
 tiancy adds that: "This would seem to be good sense, and therefore 
 sound law ; and it would seem that any other rule must tend to the 
 injury, and in many cases to the ruin, of all parties." In the case 
 of Danforth v. Walker, 37 Vt. 244, the court said of a similar case: 
 "While a contract is executory, a party has the power to stop the 
 performance on the other side by an explicit direction to that effect 
 by subjecting himself to such damages as will compensate the other 
 party for being stopped in the performance on his part at that point 
 or stage in the execution of the contract. The party thus forbidden 
 cannot afterwards go on and thereby increase the damages, and then 
 recover such increased damages of the other party." * * * 
 
 We are cited by plaintiff's counsel to the case of Black v. Herbert, 
 HI Mich. 638, 70 N. W. 138, as a case on all fours with the present 
 case, but we think it is readily distinguishable. In that case, after re- 
 nunciation the parties met by appointment, and the plaintiff was per- 
 mitted to alter and set up the monument. It became, therefore, a 
 question for the jury whether or not the contract had been performed. 
 Renunciation must be more than mere idle talk of nonperformance; 
 it must be a distinct, unequivocal, and absolute refusal to receive 
 performance or to perform on his own part. Mechem, Sales, § 1087. 
 The party attempting to renounce may withdraw his renunciation and 
 have the contract performed (Id. § 1090), and it would seem that the 
 defendant in that case did so. There are only two theories upon which 
 the common counts could be relied upon in this case : First, upon the 
 
218 CONTKACTS (Part 1 
 
 theory that the contract had been performed, and that the contract 
 price was therefore recoverable; and, second, for the work and ma- 
 terial used in the foundation built by the plaintiff. The undisputed 
 facts show that the contract was not performed on receipt of the re- 
 nunciation, and there could be no recovery for the erection of the 
 foundation, because the plaintiff was never requested to build it, but, 
 on the contrary, was prohibited from doing anything further in per- 
 formance of the contract. The only redress that the plaintiff would 
 be entitled to recover would be damages for the breach of the contract 
 if renunciation should be found to be unwarranted, which does not 
 appear. 
 
 It follows that the judgment must be affirmed. 
 
 SECTION 14.— RIGHT OF A PARTY MATERIALLY IN 
 DEFAULT TO RECOVER FOR HIS INCOM- 
 PLETE PERFORMANCE 
 
 Suppose that A. has contracted to perform certain personal serv- 
 ices for B., to extend over a prescribed period of time, and, before 
 the work is completed. A., without justification quits work, may 
 A. recover anything for the work he has performed? Or, to raise 
 the same legal problem in other kinds of contracts, suppose that 
 A. has contracted to erect a building for B., and, when the build- 
 ing is but partially constructed, or fully constructed but grossly 
 defective in workmanship' and materials used. A., without just 
 cause, abandons the contract; is A. entitled to any proportionate 
 payment of the contract price? Or, it may be that A. has contract- 
 ed to sell goods of a certain kind and quality to B. and has delivered 
 goods of an inferior quality to B., who has retained them. What, 
 if anything, may A. recover from B.? In other words, our problem 
 is to determine whether or not a party who has materially broken 
 his contract, of whatever nature it may be, either by reason of his 
 failure to perform within the time specified or at the proper place, 
 or because the acts performed were not the acts promised, may 
 recover anything for his defective performance. This question is 
 essentially different from the series of problems discussed in the 
 preceding sections. We have already noted several of the effects 
 which a breach of contract by A. has upon B. We have seen that, in 
 all cases, B. may sue A. for damages. Moreover, if A.'s breach was 
 material, B. may not only sue A. for damages thus sustained by 
 him, but also B. is justified in not performing his remaining duties 
 under the contract, that is, the prior breach by A. is an excuse for 
 the nonperformance by B. Also, we have seen that, in many in- 
 stances, B. may rescind the contract. We are here not concerned 
 with any of these rights and privileges of B. The new point is, 
 does A., the party in default, have any rights against B.? 
 
 Assuming that there is such a right in A. against B., it may very 
 well happen that the damages sustained by B. will more than equal 
 the money value of the right of A. against B., so that the action 
 brought either by A. against B. or by B. against A. would result 
 
Ch. 3) PERFORMANCE OF CONTRACTS 219 
 
 in a judgment in B.'s favor. But the amount of this judgment ob- 
 viously will be cut down by allowing A. a right of recovery. As a 
 practical matter, is it good public policy for the law to declare that, 
 if parties break their contracts, they will be held liable in damages, 
 but to permit such party in default to recover something from 
 the other party; or, on the other hand, is it better policy for the 
 law to provide for a double penalty upon defaulting contractors by 
 making them liable to pay for all damages occasioned to the' other 
 party and by denying them the right of paying some portion of 
 these damages by some valuation placed upon their defective work? 
 
 There is a good deal of conflict in the decisions on this question. 
 In labor and construction contracts, the general rule is that the 
 laborer or builder who has willfully broken his contract can recover 
 nothing, but that, if his breach is not willful, he may recover.^ 
 Likewise where a buyer accepts a defective performance, the weight 
 of authority is that the seller may recover the reasonable value of 
 the goods. In the last case, it will be noticed that there is less 
 •occasion for resorting to the distinction between willful and non- 
 willful breach. In the ordinary case, the breach by the seller would 
 not be willful. 
 
 The following cases discuss some phases of the general question 
 and also the question as to the proper basis for ascertaining the 
 amount of the recovery to be allowed the party in default: 
 
 BKITTON T. TURNER. 
 (Supreme Court of New Hampshire, 1S34. 6 N. H. 481, 26 Am. Dec. 713.J 
 
 Parker, J. It , may be assumed that the labor performed by the 
 plaintiff, and for which he seeks to recover a compensation in this 
 action, was commenced under a special contract to labor for the de- 
 fendant the term of one year, for the sum of one hundred and twenty 
 dollars, and that the plaintiff has labored but a portion of that time, 
 and has voluntarily failed to complete the entire contract. 
 
 It is clear, then that he is not entitled to recover upon the contract 
 itself, because the service, which was to entitle him to the sum agreed 
 upon, has never been performed. 
 
 But the question arises, can the plaintiff, under these circumstanc- 
 es, recover a reasonable sum for the service he has actually perform- 
 ed, under the count of quantum meruit. Upon this, and questions of 
 a similar nature, the decisions to be found in the books are not easily 
 reconciled. 
 
 It has been held, upon contracts of this kind for labor to be per- 
 formed at a specified price, that the party who voluntarily fails to 
 fulfill the contract, by performing the whole labor contracted for, is 
 not entitled to recover anything for the labor actually performed, 
 however much this has been considered the settled rule of law upon 
 this subject. * * * 
 
 That such rule in its operation may be very unequal, not to say 
 unjust, is apparent. A party who contracts to perform certain speci- 
 fied labor, and who breaks his contract in the first instance, without 
 
 2 Williston on Contracts, §| 1474, 1475, 1477. 
 
220 CONTRACTS (Part 1 
 
 any attempt to perform it, can only be made liable to pay the damages 
 which the other party has sustained by reason of such nonperform- 
 ance, which in many instances may be trifling ; whereas, a party who, 
 in good faith, has entered upon the performance of his contract, and 
 nearly completed it, and then abandoned the further performance, 
 although the other party has had the full benefit of all that has been 
 done, and has perhaps sustained no actual damage, is in fact sub- 
 jected^ to a loss of all which has been performed, in the nature^ of 
 damages for the nonfulfillment of the remainder, upon the technical 
 rule, that the contract must be fully performed, in order to a recov- 
 ery of any part of the compensation. By the operation of this rule, 
 then, the party who attempts performance may be placed in, a much 
 worse situation than he who wholly disregards his contract, and the 
 other party may receive much more, by the breach of the contract, 
 than the injury which he has sustained by such breach, and more than 
 he could be entitled to were he seeking to recover damages by an ac- 
 tion. 
 
 The case before us presents an illustration. Had the plaintiff in this 
 case never entered upon the performance of his contract, the damage 
 could not probably have been greater than some small expense and 
 trouble incurred in procuring another to do the labor which he had 
 contracted to perform. But having entered upon the performance, 
 and labored nine and a half months, the value of which labor to the 
 defendant, as found by the jury, is ninety-five dollars, if the defend- 
 ant can succeed in this defense, he in fact receives nearly five-sixths 
 of the value of a whole year's labor, by reason of the breach of con- 
 tract by the plaintiff, a sum not utterly disproportionate to any prob- 
 able, not to say possible damage, which could have resulted from the 
 neglect of the plaintiff to continue the remaining two and a half 
 months, but altogether beyond any damage which could have been re- 
 covered by the defendant, had the plaintiff done nothing towards the 
 fulfillment of his contract. * * * The party who contracts for la- 
 bor merely, for a certain period, does so with full knowledge that he 
 must, from the nature of the case, be accepting part performance from 
 day to day, if the other party commences the performance, and with 
 knowledge also that the other may eventually fail of completing the 
 entire term. 
 
 If, under such circumstances, he actually receives a benefit from the 
 labor performed, over and above the damage occasioned by the failure 
 to complete, there is as much reason why he should pay the reasonable 
 worth of what has thus been done for his benefit, as there is when 
 he enters and occupies the house which has been built for him, but not 
 according to the stipulations of the contract, and which he perhaps 
 enters, not because he is satisfied with what has been done, but because 
 circumstances compel him to accept it such as it is, that he should 
 pay for the value of the house. * * * 
 
 We hold, then, that where a party undertakes to pay upon a special 
 contract for the performance of labor, or the furnishing of materials, 
 he is not to be charged tipon such special agreement, until the money is 
 earned according to the terms of it ; and where the parties have made 
 an express contract, the law will not iinply and raise a contract dif- 
 ferent from that which the parties have entered into, except upon 
 some further transaction between the parties. 
 
 In case of a failure to perform such special contract by the default 
 
Ch. 3) PERFORMANCE OF CONTRACTS 221 
 
 of the party contracting to do the service, if the money is not due by 
 the terms of the special agreement, he is not entitled to recover for his 
 labor, or for the materials furnished, unless the other party receives 
 what has been done or furnished, and upon the whole case derives a 
 benefit from it. * * * 
 
 But if, where a contract is made of such a character, a party actual- 
 ly receives labor or materials, and thereby derives a benefit and advan- 
 tage, over and above the damage which has resulted from the breach 
 of the contract by the other party, the labor actually done and the 
 value received furnish a new consideration, and the law thereupon 
 raises a promise to pay to the extent of the reasonable worth of such 
 excess. This may be considered as making a new case, one not within 
 the original agreement, and the party is entitled to "recover on his 
 new case, for the work done, not as agreed, but yet accepted by the 
 defendant." 1 Dane Abr. 224. 
 
 If, on such failure to perform the whole, the nature of the contract 
 be such that the employer can reject what has been done, and refuse 
 to receive any benefit from the part performance, he is entitled so to 
 do, and in such case is not liable to be charged, unless he has before 
 assented to and accepted of what has been done, however much the 
 other party may have done towards the performance. He has in 
 such case received nothing, and having contracted to receive nothing 
 but the entire matter contracted for, he is not bound to pay, because 
 his express promise was only to pay on receiving the whole, and hav- 
 ing actually received nothing, the law cannot and ought not to raise 
 an implied promise to pay. But where the party receives value, takes 
 and uses the materials, or has advantage from the labor, he is liable 
 to pay the reasonable worth of what he has received. * * * And 
 the rule is the same, whether it was received and accepted by the as- 
 sent of the party prior to the breach, under a contract by which, from 
 its nature, he was to receive labor, from time to time, until the com- 
 pletion of the whole contract ; Or whether it was received and accepted 
 by an assent subsequent to the performance of all which was in fact 
 done. If he received it under such circumstances as precluded him 
 from rejecting it afterwards, that does not alter the case; it has still 
 been received by his assent. 
 
 In fact, we think the technical reasoning that the performance of 
 the whole labor is^a condition precedent, and the right to recover any- 
 thing dependent upon it; that the contract being entire, there can be 
 no apportionment; and that there being an express contract no other 
 can be implied, even upon the subsequent performance of service, is 
 not properly applicable to this species of contract, where a beneficial 
 service has been actually performed; for we have abundant reason 
 to believe, that the general understanding of the community is, that 
 the hired laborer shall be entitled to compensation for the service ac- 
 tually performed, though he do not continue the entire term contract- 
 ed for, and such contracts must be presumed to be made with refer- 
 ence to that understanding, unless an express stipulation shows the 
 contrary. 
 
 Where a beneficial service has been performed and received, there- 
 fore, under contracts of this kind, the mutual agreement cannot be 
 considered as going to the whole of the consideration, so as to make 
 them mutual conditions, the one precedent to the other, without a spe- 
 cific proviso to that effect. * * * It is easy, if the parties so choose. 
 
■222 CONTRACTS ' (Part 1 
 
 to provide by an express agreement that nothing shall be earned, if 
 the laborer leaves his employer without having performed the whole 
 service contemplated, and then there can be no pretense for a recovery 
 if he voluntarily deserts the service before the expiration of the time. 
 
 The amount, however, for which the employer ought to be charged, 
 where the laborer abandons his contract, is only the reasonable worth, 
 or the amount of advantage he receives upon the whole transaction; 
 * * * and in estimating the value of the labor, the contract price 
 cannot be exceeded. * * * If a person makes a contract fairly, he 
 is entitled to have it fully performed, and if this is not done, he is 
 entitled to damages. He may maintain a suit to recover the amount 
 of damages sustained by the nonperformance'. 
 
 The benefit and advantage which the party takes by the labor, there- 
 fore, is the amount of value which he receives, if any, after deducting 
 the amount of damage; and if he elects to put this in defense he is en- 
 titled so to do, and the implied promise which the law will raise, in 
 such case, is to pay such amount of the stipulated price for the whole 
 labor, as remains after deducting what it would cost to procure a com- 
 pletion of the residue of the service, and also any damage which has 
 been sustained by reason of the nonfulfillment of the contract. If, 
 in such case, it be found that the damages are equal to, or greater than 
 the amount of the labor performed, so that the employer, having a 
 right to the full performance of the contract, has not upon the whole 
 case received a beneficial service, the plaintiff cannot recover. * * * 
 
 Judgment on the verdict [for plaintiff]. 
 
 GILLIS et al. v. COBE et al. 
 
 (Supreme Judicial Court of 'Mais.sachnsetts. 1901. 177 Mass. 584, 
 59 N. E. 455.) 
 
 Action by Daniel B. Gillis and others against Mark H. Cobe and 
 others. From a judgment in favor of defendants, plaintiffs appeal. 
 
 LoRiNG, J. The first question submitted to the court by the ref- 
 eree is whether the defendants' act of putting in the tanks constituted 
 an act of acceptance which dispensed with the necessity of the plain- 
 tiffs furnishing the architect's certificate. The plaintiffs contend that 
 this question does not arise in this case, because it is nowhere provided 
 in the contract that their right to recover the contract price depends 
 upon their securing a certificate from the architect. Though the pro- 
 visions of this contract are not as explicit as building contracts usual- 
 ly are in this respect, yet, on a fair construction of its terms, we think 
 that the plaintiffs' right to recover does depend upon their pro- 
 ducing a certificate from the architect. In the specifications, which 
 are made part of the contract, there is this provision: "Payments 
 only to be made upon a written order from the architect as the work 
 progresses. No order will be considered an acceptance of the work on 
 which it is given. Only an order for the final payment shall be con- 
 sidered as an acceptance of the work." This clause, taken in connec- 
 tion with the two following clauses of the contract, must be taken to 
 make the payment of the contract price dependent upon the architect's 
 giving his certificate: "Any disagreement between the owners and 
 the contractor upon any master arising from these specifications or 
 drawings of the work required shall be decided by the engineers and 
 architects, whose decision shall be final and binding on both parties." 
 
Ch. 3) PERFORMANCE OF CONTRACTS 223 
 
 "All payments shall be made upon written certificate of the engineers 
 -and architects." 
 
 We are therefore of opinion that this question does arise. Further, 
 we are of opinion that the acts of the defendants in using the building 
 when the plaintiffs stopped working on it were not an acceptance of 
 it. By the express terms of the contract, "only an order for the final 
 payment shall be considered as an acceptance of the work." The 
 building became the defendants' property as it was affixed to their 
 land. When the plaintiffs stopped working on it, and the architect 
 refused to give a certificate that it was constructed in accordance with 
 the requirements of the contract, the defendants were not bound to 
 remove the building; nor were they bound, so long as the building 
 stood on their land, to abstain from using what was their own. The 
 use of the building, therefore, was not an acceptance of it, under the 
 contract. * * * 
 
 The second question is whether a recovery can be had in this case 
 
 on the common counts, without furnishing the architect's certificate. 
 * * * ' 
 
 The plaintiffs further contend that they are entitled to the fair value 
 of the structure, viewed with reference to the labor and materials 
 which produced jt. * * * But one who has done work under a 
 special contract, and resorts to a recovery under the principle of Hay- 
 ward V. Leonard, 7 Pick. 181, 19 Am. Dec. 268, recovers on the- 
 ground, and only on the ground that the result of his work is of some 
 benefit to the defendant. He comes into court admitting that he has 
 not done what he agreed to do, and that he cannot hold the defend- 
 ant on his promise to pay him the contract price. More than that, he 
 admits that the part which he has failed to perform is one that so 
 far goes to the essence of the contract that it is a condition precedent 
 to a recovery by him on the contract ; for, if the part which he agreed 
 to perform and did not perform was of slight importance, it is not a 
 condition precedent. He can recover the contract price without per- 
 forming it, and the only advantage which the defendant can take of it 
 is by way of recoupment, or by a cross action, in which the burden is 
 on him (the defendant) to prove the damage he has suffered from its 
 nonperformance. The only ground on which a plaintiff who resorts 
 to a recovery under the principle of Hayward v. Leonard is entitled 
 to recover anything is that, though so far as his contract rights are 
 concerned, he is entirely out of court; yet it is not fair that the de- 
 fendant should go out of the transaction as a whole with a profit at 
 his (the plaintiff's) expense ; and therefore if the structure, which, for 
 the purpose of a recovery on this ground, he necessarily admits does 
 not come up to the contract requirements in essential particulars, is 
 nevertheless a thing of some value, the defendant ought to make him 
 compensation therefor. That such is the ground on which a recovery 
 can be had in such a case was laid down in the original case of Hay- 
 ward V. Leonard, 7 Pick. 181, 19 Am. Dec. 268, and has been repeated 
 in the subsequent decisions. * * * 
 
 It had been held by this court 12 years before Hayward v. Leonard 
 was decided that there could be no recovery on the doctrine after- 
 wards stated at length in that case, if the result of the plaintiff's mis- 
 directed work was not a thing of value. * * * 
 
 The contention of the plaintiffs in this connection comes to this : 
 While a plaintiff who has done work under a special contract, when 
 suing on the contract, has the burden of proving that he has com- 
 
224 ' CONTRACTS ' (Parti 
 
 plied with its requirements, yet on his failing to sustain that burden 
 he can, by resorting to a count of quantum meruit, and by provmg the 
 value of the work done by him (which he failed to prove was a per- 
 formance of what he agreed to perform), shift the burden of proof, 
 and throw on the defendant the burden of proving that he committed 
 a breach of the contract, and that in this way he can entitle himself 
 to the value of that work to the same extent as he would have been 
 entitled had that work been done in the manner in which the defend- 
 ant requested to have it done, and to recover that value, unless the de- 
 fendant goes forward and, by way of recoupment, cuts that amount 
 down by proving that he (the plaintiff) committed a breach of the 
 contract under which the work was done, and that he (the defendant) 
 has suffered damages from that breach, and proves the amount of 
 those damages. 
 
 ' There are no cases in which the amount of the compensation to 
 which a plaintiff who resorts to a recovery under the principle of 
 Hayward v. Leonard is entitled has received deliberate consideration. 
 But if the sole ground of his being entitled to anything is that, were 
 he not paid something, the defendant would profit at his expense, al- 
 though his claim is without merit so far as rights under the contract 
 are concerned, it is clear that the amount which should be paid the 
 plaintiff is the amount by which, were no payment made, the defend- 
 ant would profit at his expense ; that is to say, the amount which rep- 
 I esents the fair market value of the structure which, against the wish- 
 es of the defendant, has been put upon his land> * * * 
 
 The case at bar, then, is a case where the plaintiffs have not satis- 
 fied the architect that they did their work as required by the contract, 
 as by the terms of the contract they had to. do before they were enti- 
 tled to be paid for it, and where it is expressly found by the referee 
 that "there was no fraud or collusion between architect and defend- 
 ants which caused him to withhold the certificate, and the retention 
 by architect of certificate was, if wrong, from error of judgment." 
 And it is a case where the plaintiffs have failed to prove that they have 
 performed their contract in constructing the filling on which the floor 
 lests which has given way, and where, by the finding of the referee, 
 "the damages to defendants by reason of the sinking of the floor is in 
 excess of the amount of plaintiff's claim." * * * 
 
 The finding of the referee that the work and materials furnished 
 by the plaintiffs in the construction of the building "are of value 
 $1,266," is not a finding to the effect that the building, as it is, is worth 
 $1,266. * * * 
 
 The appeal from the judgment entered by the superior court for the 
 defendant must .be sustained. 
 
 SANDERS V. BROCK. 
 
 (Supreme Court of Pennsylvania, 1901. 230 Pa. 609, 79 Atl. 772, 
 35 L. R. A. [N. S.] 582.) 
 
 Action by Albert J. Sanders against Seldon J. M. Brock. From an 
 order discharging rule for judgment for want of a sufficient affidavit 
 of defense, plaintiff appeals. 
 
 MestrEzat, J. * * * By an agreement in writing dated January 
 14, 1910, the defendant agreed to sell and convey to the plaintiff 
 the premises at 1507 Walnut street, Philadelphia, for the consideration 
 
Ch. 3) 
 
 PERFORMANCE OF CONTRACTS 
 
 of $104,000, of which $1,000 were to be paid at the signing of the 
 agreement and the balance at the time of settlement on or before Feb- 
 ruary 1, 1910. The premises were to be conveyed clear of all incum- 
 brances and easements, and the title was to be good and marketable 
 and subject to no restrictions. It was agreed that, if the purchaser 
 made an additional payment of $1,000 on the purchase money, the 
 time of settlement should be extended for a further period of 30 days 
 from February 1st. The agreement was executed by the parties as 
 agents for undisclosed principals. The purchaser paid $1,000 at the 
 signing of the agreement, and the additiohal sum of $1,000 on or about 
 February 1st when the time of settlement was extended to March 2, 
 1910. 
 
 The statement, after setting forth the above facts, avers that on 
 March 2, 1910, the plaintiff was ready and willing and offered to settle 
 for the property according to the terms of the agreement, but the de- 
 fendant was unable to convey the premises clear of incumbrances and 
 easements and with no restrictions. * * * 
 
 The defendant filed an affidavit of defense in which he admits the 
 execution of the contract and the payment of the $2,000 as averred in 
 the statement. * * * The affidavit denies that plaintiff was ready to 
 settle on March 2, 1910, as alleged in the statement, and avers that 
 on said date the defendant "was prepared to give a good and market- 
 able title to the said property and estate called for in the said agree- 
 ment and in good faith tendered a proper conveyance thereof to the 
 said plaintiff,~"who, without good reason or legal excuse, positively de- 
 clined and refused to take the said title or to pay the balance of the 
 purchase money reserved and stipulated in the said agreement." 
 
 The defendant admits that prior to the bringing of the suit he sold 
 the property for a price in excess of $104,000, but avers that he did 
 not sell "until after the plaintiff had without good cause or lawful 
 excuse, himself violated his said agreement, and had positively re- 
 fused to take title to the said property or to pay the purchase price 
 therefor." 
 
 The plaintiff bases his right to recover back the $2,000 on the fact 
 that, the defendant having resold the property for a sum in excess 
 of the price agreed to be paid by the plaintiff, the defendant was not 
 injured by the plaintiff's breach of the contract and must therefore 
 return the sum paid on the purchase money. 
 
 We must deal with the case on the averments of fact in the state- 
 ment and affidavit of defense. The defendant tendered the plaintiff 
 a deed which conveyed a good and marketable title to the premises, 
 and in every other respect he complied with the terms of the agree- 
 ment. Without any just or legal excuse or cause, the plaintiff refused 
 to accept the deed and declined to pay the unpaid purchase money. 
 In other words, the plaintiff refused to complete the purchase, violated 
 his contract, and compelled the defendant to retain the property. This 
 action is assumpsit on an implied contract to compel the repayment of 
 money had and received by the defendant for the plaintiff's use. 
 
 When a purchaser of real estate declines to comply with his agree- 
 m.ent by paying the purchase money, the vendor may, in affirmance of 
 the contract, bring an action to compel payment of the money, or he 
 may treat the contract as rescinded and sue for damages for its breach. 
 The vendor, however, is not required, on the breach of the contract 
 B.& B.Bus.Law— 15 
 
226 CONTRACTS (Part 1 
 
 by the purchaser, to pursue him to enforce his rights by an action at 
 law. What the vendor is required to do, under such circumstances, 
 is to be ready and willing at the stipulated time to perforrn his part 
 of the contract and convey the real estate to the purchaser m compli- 
 ance with its provisions. So long as he occupies such a position, he is 
 not in default and has not infringed or rescinded the agreement. 
 
 He, therefore, is not liable to a defaulting purchaser who has vio- 
 lated the contract by declining to fulfill its stipulations. "No rule in 
 respect to the contract (for the sale of real estate) is better settled," 
 says Nelson, J., in Hansbrough v. Peck, 72 U. S. (5 Wall.) 497, 506, 18 
 L. Ed. 520, "than this. That the party who has advanced money, or 
 done an act in part performance of the agreement, and then stopped 
 short and refuses to proceed to its ultimate conclusion, the other party 
 being ready and willing to proceed and fulfill all his stipulations accord- 
 ing to the contract, will not be, permitted to recover back what has 
 thus been advanced or done." * * * 
 
 The plaintiff contends that the defendant, the vendor, by reselling 
 the property rescinded the contract, and that ex aequo et bono he is 
 entitled to have refunded the part of the purchase money which was 
 paid on the agreement. It is upon this ground that he claims that an 
 action for money had and received will lie. * * * 
 
 Could the defendant under the circumstances at any time sell the 
 property without being liable to the plaintiff for the purchase money 
 paid by him? Must he forever continue to hold the property to await 
 the offer and convenience of the purchaser, giving the latter an oppor- 
 tunity to complete the purchase if the property advanced in price or 
 refuse it if its value diminished, and in the meantime subject the ven- 
 dor to the risk of a loss possibly imperiling his financial standing? 
 The law imposes no such unreasonable requirement on a party who 
 has in good faith kept and offered to perform the stipulations of his 
 contract. He has done his duty, and the defaulting party is not in a 
 position to make demands of him which might subject him to financial 
 losses. Under such circumstances, the vendor has the right to accept 
 as final the positive refusal of the purchaser to complete the sale and 
 take the property. * * * 
 
 If the vendor still had the property, the purchaser could not demand 
 a conveyance to him without first tendering the balance of the money 
 due by the contract. * * * Is it reasonable or just that without such 
 tender, after a positive refusal to pay and accept a deed at the date 
 provided in the agreement, the vendor should be compelled to hold 
 the property or be penalized for selling it at the demand of the other 
 party who himself has violated the contract? This action is based on 
 an implied contract to refund the money. The implication must arise 
 from equitable considerations. Such action can be maintained if the 
 vendor rescinds the agreement. He has no right in equity to refuse 
 to carry out his part of the contract and at the same time require per- 
 formance by the other party or retain what has been paid him under 
 the terms of the contract. If he has received the purchase money, 
 equity will compel him to refun4 if he declines to convey ,the premises! 
 Here, however, the vendor did not rescind the agreement or refuse to 
 convey the property, but tendered a deed and insisted upon the pur- 
 chaser accepting the title which he has positively and at all times de- 
 dined. The facts here, therefore, do not raise an equity in favor of 
 the purchaser which will support an action. 
 
Ch. 3) PERFORMANCE OF CONTRACTS 227 
 
 The cases decided by this court and cited by the appellant do not 
 conflict with the rule here announced. The action in those cases was 
 sustained on the ground that there had been a rescission of the con- 
 tract by the vendor or a mutual rescission by both parties, and that 
 under the facts the purchaser was entitled ex sequo et bono to recover 
 back the purchase money. In other jurisdictions, a recovery has not 
 been permitted under facts similar to those in this case. * * * The 
 language used in the opinion in the last case is especially applicable 
 to the facts of the present case. It is there said, inter alia : "It would 
 be an alarming doctrine to hold that the plaintiffs might violate the 
 contract ; and, because they chose to do so, make their own infraction 
 of the agreement the basis of an action for money had and received. 
 Every man who makes a bad bargain, and has advanced money upon 
 it, would have the same right to recover it back that the plaintiffs have. 
 The defendant's subsequent sale of the land does not alter the case; 
 the plaintiffs had not only abandoned the possession, but expressly 
 refused to proceed, and renounced the contract. To say that the sub- 
 sequent sale of the land gives a right to the plaintiffs to recover back 
 the money paid on the contract would, in effect, be saying that the 
 defendant could never sell it without subjecting himself to an action 
 by the plaintiffs. Why should he not sell? The plaintiffs renounced 
 the contract, and peremptorily refused to fulfill it; it was in vain, 
 therefore, to keep the land for them. The plaintiffs cannot, by their 
 own wrongful act, impose upon the defendant the necessity of retain- 
 ing property which his exigencies may require him to sell. This would 
 be most unreasonable arid unjust, and is not sanctioned by any prin- 
 ciple of law." 
 
 The order discharging the rule for judgment is affirmed. 
 
 SECTION 15.— IMPOSSIBILITY OF PERFORMANCE 
 AS A CONDITION 
 
 A. agrees to work for B. for a year, but his work is interrupted by 
 a six months' jail sentence. Is A. liable? A. contracts with B. to 
 run one hundred yards in eight seconds. A. fails; is he liable to 
 B.? A. purchases a ticket for a baseball game. The game is 
 called on account of rain in the first inning. May A. recover the 
 price of his ticket? May A. hold the owners of the baseball clubs 
 liable for breach of contract? A singer is taken seriously ill and 
 cancels his engagements. Is he liable? A. contracts to manu- 
 facture an artillery piece that will fire a' distance of two hundred 
 miles. May he be held liable for nonperformance? A. has been 
 out of work for many weeks on account of illness. He fails to 
 pay his grocer, because he has no money. Is he liable? 
 
 Some of these questions are not altogether easy of solution. It 
 will be noticed that the element of impossibility may be injected 
 into the situation from various angles. The act or event which 
 renders the fulfillment of the condition impossible or which makes 
 the performance of the promise impossible is not always of the 
 same kind. They have different origins. All of the cases mentioned 
 may have substantially the same physical and economic effects, but 
 
228 coxTRACTS (Part 1 
 
 should the legal effect always be the same? Would it be a just 
 rule of law to excuse every breach of contract if the party in 
 default proves that, for any reason whatsoever, physical, economic 
 or otherwise, he could not perform? Obviously not, because this 
 would include the unreasonable proposition that supervening in- 
 solvency would always discharge a debt. On the other hand, if a 
 person who has contracted to perform personal services, by reason 
 of impossibility brought about by physical incapacity, fails to 
 perform his contract, justice would seem to require tliat the em- ' 
 ployee should be relieved of liability. 
 
 It is clear, therefore, that impossibility of performance sometimes 
 will be a defense, and also that the impossibihty of the fulfillment 
 of certain conditions will destroy a duty to perform a possible act, 
 or will create a new right to recover what was parted with. The 
 difficulty arises in the attempt to discover the real reasons for dis- 
 charging a contract on account of impossibility — for impossibility 
 alone will not have this effect. Only that kind- of impossibility 
 which arises in certain ways will so operate. The following cases 
 concern themselves with this problem. 
 
 Before going to the cases, it may be well to examine the general 
 situation under discussion, with a view to relating it to the' sub- 
 ject-matter of the preceding sections. That is, may 'we make use 
 of the terminology relating to conditions? It may be said that the 
 continued absence of the physical facts constituting the impossi- 
 bility is a condition precedent to the duty of performance, or, to em- 
 ploy an affirmative, instead of a negative statement, the occurrence 
 of the physical facts which introduce the element of impossibility 
 operate as a condition subsequent to an existing duty and thereby 
 destroy it. The condition, whether regarded as precedent or sub- 
 sequent, perhaps should be regarded as implied in law rather than 
 as a condition implied in fact. It is possible, of course, to say that 
 the condition is implied in fact, that is, based upon the intention 
 of the parties. But, inasmuch as, in a great many cases, perhaps 
 a majority of them, the situation which did develop, rendering per- _ 
 formance impossible, never entered the minds of the parties, it 
 would seem more logical to say that the law deems the condition 
 present as a means of effecting justice between the parties. 
 
 There is this important distinction between the operation of this 
 kind of condition and the effect of the conditions discussed in the 
 preceding sections : When material promises are rendered impos- 
 sible of performance, or when material conditions are rendered im- 
 possible of occurrence, there is not only an excuse for nonperform- 
 ance; but the contract will be entirely discharged, leaving no 
 causes of action upon the contract. If the impossibility affected 
 only the performance of independent covenants the contract of 
 which it was a part would not be discharged. Even where the en- 
 tire contract is discharged there may be, of course, a recovery for 
 that which has been parted with in reliance upon a performance 
 which becomes impossible ; but such recovery is upon the quasi 
 
Ch. 3) PERFORMANCE OF CONTRACTS 229 
 
 contractual obligation to prevent the defendant's unjust enrich- 
 ment. The weight of authority permits such a recovery for money 
 or property or services so rendered; but some courts, in certain 
 kinds of cases, deny the right to recover. The problem is closely 
 analogous to that heretofore discussed dealing with the right of 
 a plaintiff in material default under an express contract, to recover 
 for work done or materials furnished. Little, if any, distinction 
 need be drawn between cases where the impossibility existed at 
 the time the contract was made — so long as both parties did not 
 know of it — and where the impossibility arose subsequent to the 
 making of the contract. Where the parties, at the time they en- 
 tered into the contract, were aware of the facts constituting the 
 existing impossibility, the courts will sometimes be justified in 
 holding that the agreement was so obviously impossible that the 
 parties had no contractual intent. This would doubtless be true of 
 an agreement whereby one of the parties undertook to shoot a can- 
 non ball to the moon or to run one hundred yards in eight seconds. 
 In other cases, even with knowledge of the facts constituting the 
 impossibility, the court may find such a degree of uncertainty re- 
 lating to the consequences of the facts which would call for the 
 application of the same rules which govern subsequent impossi- 
 bility. 
 
 ANDETtSON v. MAY e't al. 
 
 (Supreme Court of Minnesota, 1892. .50 Minn. 280. .52 N. W. 530, 17 L. R. A. 
 555, 36 Am. St. Rep. 642.) 
 
 Action by G. W. Anderson against L. L. May & Co. on a certain 
 contract. Fron a judgment for plaintiff, defendant appeals. 
 
 GiLFiLLAN, C. J. The defendant having alleged as a counterclaim 
 a contract in June, 1890, between him and plaintiff, whereby the lat- 
 ter agreed to sell and deliver to the former, on or before November 
 15th, certain quantities of specified kinds of beans, and that he failed 
 so to do except as to a- part thereof, the plaintiff, in his reply, alleged 
 in substance that the contract was to deliver the beans from the crop 
 that he should raise that year from his market gardening farm near 
 Red Wing. Upon the trial the contract was proved by letters passing 
 between the parties. From these it fairly appears that the beans to be 
 delivered were to be grown by plaintiff, though it cannot be gathered 
 from them that he^was to grow the beans on any particular land. They 
 contain no restriction in that respect. There can be no question that, 
 if grown by him, and of the kinds and quality specified, defendant 
 would have been obliged to accept the beans, though not grown on any 
 land previously cutivated by plaintiff. The contract, therefore, was, 
 in effect, to raise and sell and deliver the quantities, kinds, and quality 
 of beans specified — a contract in its nature possible of performance. 
 As an excuse for not delivering the entire quantity contracted for, the 
 plaintiff relies on proof of the fact that an early unexpected frost de- 
 stroyed or injured his crop to such extent that he was unable to de- 
 liver the entire quantity. What, in the way of subsequently arising 
 impossibility for the party to perform, will suffice as excuse for non- 
 performance of a contract, is well settled in the decisions; the only 
 
230 CONTEACTS (Part 1 
 
 apparent difference in them arising from the application of the rules to 
 particular circumstances. The general rule is as well stated as any- 
 where in 2 Chit. Cent. 1074, thus : "Where the contract is to do a thing 
 which is possible in itself, or whei;e it is conditioned on any event which 
 happens, the promisor will be liable for a breach thereof, notwithstand- 
 ing it was beyond his power to perform it; |for it was his own fault to 
 run the risk of undertaking to perform an impossibility, when he might 
 have provided against it by his contract. And therefore, in such cases, 
 the performance is not excused by the occurrence of an inevitable ac- 
 cident, or other contingency, although it was not foreseen by, or within 
 the control of, the party." 
 
 An application of this rule is furnished by Cowley v. Davidson, 13 
 Minn. 92 (Gil. 86)., What is sometimes called an "exception to the 
 rule" is where the contract is implied to be made on the assumed con- 
 tinued existence of a particular person or thing, and the person or 
 thing ceases to exist, as, where it is for personal service, and the per- 
 son dies, or it is for repairs upon a particular ship or building, and the 
 ship or building is destroyed. An agreement to sell and deliver at a fu- 
 ture time a specific chattel existing when the agreement is made would 
 come under this exception. The exception was extended further than 
 in any other case we have found in Howell v. Coupland, L,. R. 9 Q. 
 B. 462. That was a contract to sell and deliver a certain quantity from 
 a crop to be raised on a particular piece of land, and the entire crop was 
 destroyed by blight. The court held the contract to be to deliver part 
 of a specific thing, to-wit, of the crop to be grown on a given piece of 
 land, and held it to come within the rule that, where the obligation de- 
 pends on the assumed existence of a specific thing, performance is ex- 
 cused by the destruction of the thing without the parties' fault. With- 
 out intimating whether we would follow that decision in a similar case, 
 we will say that the case is unlike this, in that in this case the plaintiff 
 was not limited or restricted to any particular land. It was not an 
 undertaking to sell and deliver part of a specific crop, but a general 
 undertaking to raise, sell, and deliver the specified quantity of beans. 
 We have been cited to and found no case holding that, where one 
 agrees generally to produce, by manufacture or otherwise, a particu- 
 lar thing, performance being possible in the nature of things, he 
 may be excused from performance by the destruction, before com- 
 pletion or delivery, of the thing, from whatever cause, except the act 
 of the other party. * * * Where such causes may intervene to 
 prevent a party performing, he should guard against them in his con- 
 tract. 
 
 Order reversed. 
 
 PIAGGtO V. SOMEKVILLE. 
 (Supreme Court of Mississippi, 1919. 119 Miss. 6, 80 Soutii. 342.) 
 
 Action by J. W. Somerville against Henry Piaggio. Judgment for 
 plaintiff, and defendant appeals. 
 
 Smith, C. J. This is an action in assumpsit in which the appellee 
 was the plaintiff and the appellant was the defendant in the court 
 below, and they will be hereinafter so designated. 
 
 The declaration in substance alleges that a charter party was en- 
 tered into between the owners of the American schooner Henry S. 
 Little and the W. A. Powell Transport Company, by the terms of 
 
Ch. 3) PERFORMANCE OP CONTRACTS 231 
 
 -which the vessel was to transport a cargo of lumber from the Gulf 
 of Mexico to a port on the west coast of the United Kingdom, London, 
 Lisbon, or the west coast of Italy ; the W. A. Powell Transport Com- 
 pany, or its assigns, having the right to designate the port of loading 
 and of destination; that this charter party was assigned by the W. 
 A. Powell Transport Company to Hunter Benn & Co., who assigned it 
 to the plaintiff; that on the 27th day of February, 1917, the plaintiff 
 assigned this charter party to the defendant. * * * 
 
 The declaration further alleges that the owners of the vessel de- 
 clined to permit it to sail to any of the ports designated in the charter 
 party because of the increased perils of the sea due to the unrestricted 
 submarine warfare then being conducted by Germany in disregard of 
 the rights of neutrals, and in lieu thereof paid to the defendant the 
 sum of $7,500 in full settlement of all claims he might have against 
 them under the charter party, and prayed for a judgment against the 
 
 defendant in the sum of $1,500, together with interest thereon, etc. 
 
 * * * 
 
 The contention of the defendant is that the clearance of the 
 schooner Henry S. Little at Mobile under the charter party is a con- 
 dition precedent to any obligation on his part to pay the plaintiff the 
 money sued for, to which the plaintiff replies that the performance of 
 this condition, if such it is, was waived by the defendant when he ac- 
 cepted the $7,500, from the owners of the vessel, and released them 
 from further liability to him under the charter party, to which defend- 
 ant rejoins that his acceptance of the money and release of the owners 
 of the vessel from further liability under the charter party cannot be 
 construed to be a waiver of the condition precedent for the reason that 
 he could not have enforced its performance had he tried to do so ; the 
 owners of the vessel having been released from the obligation of the 
 charter party because of the danger of being sunk by a German sub- 
 marine to which the vessel would have been subjected had it attempted 
 to make the voyage. 
 
 The charter party contains no such qualification of the obligation. 
 Consequently the owners of the vessel were bound to transpbrt the 
 cargo of lumber as provided therein, notwithstanding, the risk to the 
 vessel of being sunk by a submarine, or pay damages for their failure 
 so to do, for the rule is that when a party by his own contract creates 
 a duty or charge upon himself he is bound to discharge it, although so 
 to do should subsequently become unexpectedly burdensome or even 
 impossible ; the answer to the objection of hardship in all such cases 
 being that it might have been guarded against by a proper stipulation. 
 
 ^ ^ * 
 
 There are, however, certain classes of events the occurring of which 
 are said to excuse from performance because "they are not within the 
 contract," for the reason that it cannot reasonably be supposed that 
 either party would have so intended had they contemplated their oc- 
 currence when the contract was entered into, so that the promisor can- 
 not be said to have accepted specifically nor promised unconditionally 
 in respect to them. * * * These three classes are : First, a subse- 
 quent change in the law, whereby performance becomes unlawful. 
 
 * * * Second, the destruction, from no default of either party, of 
 the specific thing, the continued existence of which is essential to the 
 performance of the contract. * * * And, third, the death or inca- 
 
i32 CONTRACTS (Part 1 
 
 pacitating illness of the promisor in a contract which has for its object - 
 the rendering by him of personal services. * * * 
 
 The case at bar cannot be referred to any of these classes, and, in 
 order for it to be brought within the exception to the rule of absolute 
 liability, it will be necessary for us to add thereto a fourth class, to wit, 
 a stibsequent foreign war or a subsequent change by one or more of 
 the belligerents in the method of waging such a war which renders per- 
 formance more burdensome to the promisor than when the contract 
 was entered into, but so to do would be without the reason of the ex- 
 ception and contrary to the authorities. * * * 
 
 There are a' few cases which cannot be referred to any of the three 
 foregoing classes, such as Kinzer Construction Co. v. State (N. Y. Ct. 
 CI.) 125 N. Y. Supp. 46, and the Kronprinzessin Cecilie, 244 U. S. 
 12, 37 Sup. Ct. 490, 61 L. Ed. 960, which last-mentioned case is errone- 
 ously supposed by counsel for the defendant to sustain his contention. 
 In that case a German-owned vessel sailed from New York to Bremer- 
 haven via Plymouth, England, and Cherbourg, France, on the eve of 
 the outbreak of the recent war, having on board, among other articles, 
 a number of kegs of gold consigned to Plymouth and Cherbourg. In 
 order to escape capture by the French or English, it turned back before 
 reaching either of the last-named ports and returned the gold to the 
 shippers, who instituted libels against it to recover the damages alleged 
 to have been sustained by them because of its failure to deliver the 
 gold. The probabilities of the vessel's capture, had it continued its 
 voyage to either the French or the English port, were so great that 
 the court held that it was justified in turning back, and that its owners 
 were thereby excused from performing their contract to transport and 
 deliver the gold, for the reason that the capture of the vessel was a 
 risk "which, if it had been dealt with (when the contract of shipment 
 was made), it cannot be believed that the contractee would have de- 
 manded or the contractor would have assumed." No such reason can 
 be assigned here for the exclusion from the contract of the risk which 
 the Henry S. Little would run by making the voyage to Italy demanded 
 by the defendant when we remember that commerce was not suspended 
 because of Germany's unrestricted submarine warfare ; but, on the 
 contrary, vessels owned by citizens of both neutral and belligerent coun- 
 tries sailed continuously in the waters in which that warfare was being 
 waged. * * * 
 
 It follows from the foregoing views that the judgment rendered in 
 the lower court is correct, even should it be conceded, which counsel 
 for the plaintiff do not, that the clearance of the Henry S. Little at 
 the port of Mobile under the charter party is a condition precedent to 
 liabiHty on the part of the defendant, that condition, if such it is, hav- 
 ing been waived by the release by the defendant of the vessel's obliga- 
 tion to make the voyage ; but we are of the opinion that the clearance 
 of the vessel is not a condition precedent to liability, but is simply the 
 time fixed for the payment of the money sued for, and consequently 
 that the failure of the vessel to clear at the port under the charter party, 
 for whatever reason, is immaterial, for the consideration of the de- 
 fendant's promise to pay was the assignment to him of the charter 
 party so that it constituted a present liability on his part, payment sim- 
 ply being postponed until the clearance of the vessel at Mobile, and, 
 since that event did not happen, payment became due within a rea- 
 sonable time. * * * 
 
 Affirmed. 
 
Ch- 3) PERFORMANCE OP CONTRACTS 233 
 
 i 
 
 MOORE & TIERNEY, INC., V. ROXFORD KNITTING CO. 
 
 (LTnlted States District Court. Nortliem District of New York, 1918. 
 250 Fed. 278.) 
 
 Ray. District Judge. At the time war was declared between the 
 United States of America and the Imperial Government of Germany 
 the plaintiff, engaged in manufacturing knit underwear, had a valid 
 contract or contracts with the defendant, by the terms of which it was 
 obligated to make and deliver to defendant certain qualities of woolen 
 knit undershirts and drawers at agreed prices and at or within speci- 
 fied times. These contracts came into existence by way of accepted 
 orders, which were subject to delays or nondelivery by strikes, acci- 
 dents, or for any reason beyond the control of plaintiff. It was then 
 engaged in the performance of such contracts, and intended in good 
 faith to perform, but was prevented by the performance of certain 
 government orders. The plaintiff is one of several manufacturers of 
 such goods located at Cohoes, N. Y. Deliveries aggregating $14,090.08 
 were made and not paid for, and considerable quantities were not de- 
 livered. Defendant alleges $20,000 damages for nonperformance or 
 alleged breach of contract. 
 
 May 22, 1917, one A. Frey, who was a member of a committee of 
 the Advisory Board of National Defense, wrote each of these manu- 
 facturers at Cohoes, N. Y., including the plaintiff, informing them that 
 the United States government was in need of and desirous of obtaining 
 knit undershirts and drawers, inquiring as to the capacity of the mills 
 of the manufacturers and the quantities they could furnish. * * * 
 
 July 2, 1917, Mr. Cromwell, signing as chairman, etc., wrote the 
 plaintiff and the other manufacturers of knit goods mentioned as to the 
 urgent Avants and needs of the United States Navy Department for 
 knit undershirts and drawers, and amongst other things wrote : 
 
 "The Knit Goods Committee (of the Council of National Defense) 
 has received an emergency call for the Navy Department," etc. ; and 
 also, "It is absolutely necessary that this underwear should be ob- 
 tained;" and also, "This underwear can be made by only a limited 
 number of mills in the country. We have carefully apportioned it 
 among the different mills, and know that we cannot secure the quantity 
 needed unless we can receive from you 25,000 shirts and 25,000 drawers 
 by October 1st and the same quantity additional by December 1st." 
 * * * 
 
 To fill this order or contract with the Navy Department, and also 
 the orders or contracts with the War Department, demanded and re- 
 quired the total capacity and output of the plaintiff's mill while filling 
 same, and plaintiff was unable, if it filled the government orders or 
 contracts, to make further deliveries to defendant under its contract 
 with it at the times agreed, and defendant was so advised, whereupon 
 it in substance and effect canceled the contract, refused to pay for the 
 goods delivered, and claims damages for nonperformance. Two other 
 contracts or orders were placed with the plaintiff by the government, 
 one November 16, and one December 12, 1917, and from the acts of 
 the parties and the correspondence it cannot be doubted that it was 
 understood the plaintiff in accepting the work, was acting under the 
 orders and demands of the government. The plaintiff does not con- 
 tend that these government requirements released it from the contract 
 with defendant and obligation to perform it, except in so far as it post- 
 
234 CONTRACTS (Part 1 
 
 poned performance on its part and j^ave preference to this government 
 work. The defendant claims these^were not orders under or within 
 the meaning of the acts of Congress referred to, and that it was justi- 
 fied in acting as it did, and may counterclaim its damages. 
 
 If before or after war was declared a party, A., entered into a con- 
 tract with another party, B., to make and deliver to him the goods, 
 wares, and merchandise, stores and supplies such as the government 
 requires for army and navy use, or both, and after the passage of the 
 acts of Congress — Pitblic No. 85, 64th Congress, approved June 3, 
 1916, "An act for making further and more effectual provision for the 
 national defense, and for other purposes," and Public No. 391, 64th 
 Congress, approved March 4, 1917, "An act making appropriation for 
 the naval service for the fiscal year ending June 30th, 1918, and other 
 purposes" — the United States government, being at war, came in and 
 ordered or directed such party, A., to make goods, wares, and merchan- 
 dise of the nature and kind referred to for it, and compliance with such 
 order and requirement of the government demanded or required the 
 entire output of the factory of such party thereafter, all it could reason- 
 ably produce, it was the duty of such party to comply with such gov- 
 ernment order or requirement, and if compliance therewith made it im- 
 possible for such party to fill or comply with or perform its contract 
 with such other party, B., according to its terms and within the time 
 specified, and such other party, on being notified of the inability to so 
 perform, declared the contract ended, he cannot recover damages for 
 nonperformance by A. The same rule applies in case of a contract 
 made after the enactment of such statutes ; a state of war existing. 
 
 In such case or cases it is clear that, under the provision of the acts 
 of Congress referred to, performance by A. within the time required 
 by the contract was made impossible by the act and requirement of the 
 United States government. But if party A., thinking it more profitable 
 or patriotic to work for the government than in the performance of its 
 existing contract with B., voluntarily sought a contract with the gov- 
 ernment and offered its service for compensation in the manufacture of 
 such goods as the government required, and voluntarily entered into 
 such a contract sought by it with the United States, the performance 
 of which demanded and required its entire output, all it reasonably 
 could produce, and party A. thereupon voluntarily declined or refused 
 to proceed further in the performance of his contract with party B., 
 he is not excused, and party B. may recover or offset and counterclaim 
 his damages, if any. In such case performance by A. is not prevented 
 by the act of God, or vis major. Nonperformance is the result of his 
 voluntary act or acts, not that of the government, and he acts under no 
 compulsion whatever. 
 
 But section 120 of the National Defense Act, referred to, authorizes 
 the President, through the head of any department, in addition to the 
 present authorized methods of purchase or procurement, the methods 
 before in use, to "placeman order" with any individual, firm, associa- 
 tion, company, corporation, or organized manufacturing industry for 
 such product or material as may be required, and which is of the nature 
 or kind usually produced or capable of being produced by such indi- 
 vidual, firm, or corporation, and then further provides that, when such 
 an order is placed, "compliance with all such orders for products or 
 material shall be obligatory," and "shall take precedence over all other 
 orders and contracts theretofore placed with such individual, firm, or 
 
Ch. 3) PERFORMANCE OP CONTRACTS 235 
 
 corporation." Refusal to comply is made a crime, and severe punish- 
 ments may be inflicted, etc. * * * 
 
 The correspondence in evidence and the testimony of Paymaster 
 Hancock shows that the plaintiff and the other manufacturers referred 
 to were acting with and pursuant to the direction of these committees 
 or councils appointed by the United States authorities and those of Mr. 
 Cromwell, also acting for the Paymaster of the Navy. * *. * 
 
 I do not doubt that Congress had power to place these burdens on 
 the manufacturers, and on those with whom they had contracted or 
 with whom they should contract. The war power is paramount, arises 
 from necessity, and no government can endure without its exercise on 
 
 occasion. 
 
 * * * 
 
 The parties may come before me at some convenient time to settle 
 findings of fact, and at such time the defendant can oflfer proof of its 
 alleged damages, when I will rule on the question whether proof there- 
 of should be taken. If proof thereof is now taken, and a finding made 
 as to the amount thereof in case the Circuit Court of Appeals, on ap- 
 peal, should reverse, and hold the defendant entitled to counterclaim 
 and offset its damages, and have an affirmative judgment in case such 
 damages exceed the sum plaintiff is entitled to recover for goods de- 
 livered and not paid for, a final judgment could be pronounced, with- 
 out the expense and delay of a retrial. The further proceedings in 
 this court can be determined on a settlement of findings. * * * 
 
 CAR'NEXilE STEEL 00. v. UNITED STATES. 
 
 (Supreme Court of the United States, 1916. 240 U. S. 156, 
 36 Sup. Ct. 342, 60 L. Ed. 576.) 
 
 McKenna, J. Petition in the Court of Claims for the recovery of 
 $8,595.35, alleged to be due claimant as a balance of the price of armor 
 plate furnished the government under a contract between it and claim- 
 ant. 
 
 The contract is an elaborate one and by it claimant engaged to manu- 
 facture for the Ordnance Department armor plates of a certain desig- 
 nated thickness in conformity with instructions, specifications and 
 drawings attached to and made a part of the contract. And claimant 
 agreed to provide certain of the 18-inch plates for the purpose of the 
 ballistic test prescribed by the specifications, and that such plates when 
 subjected to the ballistic test should fulfill certain requirements set 
 forth in the specifications. * * * 
 
 It is alleged that claimant encountered difficulties which were un- 
 foreseen by both parties when the contract was made, and were then 
 unforeseeable, and in consequence thereof the delivery of the armor 
 and pertaining material was delayed unavoidably. 
 
 That prior to the manufacture of the armor no face-hardened armor 
 18 inches in thickness had been manufactured in this or any foreign 
 country and no information with respect to the process or processes 
 to be employed in its manufacture was obtainable. 
 
 That for the purpose of learning what manner of treatment or face- 
 hardening process should be applied to the 18-inch plate, and in order 
 that they might attain the highest degree of efficiency possible and 
 meet all the requirements of the specifications, claimant completed one 
 of the plates, applying to it a treatment or face-hardening process de- 
 duced from the formula which claimant and every other manufacturer 
 
236 CONTRACTS (Part 1 
 
 of armor plate in this and every foreign country had followed in the 
 manufacture of armor plate and which was recognized by authorities 
 on the subject as the one which would give the best results. 
 
 That upon its completion the plate was, on April 19, 1911, subjected 
 to the ballistic test and it met the requirements of the specifications. 
 Thereupon claimant proceeded to complete all of the plates, certain 
 of which were selected for the purpose of the ballistic test and failed 
 to fulfill the requirements of the specifications. Other plates were se- 
 lected and failed. Thereupon claimant, with all due diligence and 
 dispatch, made or caused to be made by metallurgical experts exhaus- 
 tive tests and experiments and it was ascertained that in order to pass 
 the test required by the Ordnance Department the plates must possess 
 certain metallurgical qualities or conditions which, up to that time, 
 were unknown to any one and the necessity for which was not foresee- 
 able when the contract was made. In conducting the test it was neces- 
 sary to use plates of full size and the tests were conducted with all due 
 diligence and dispatch. From the plates thus tested the Ordnance De- 
 partment selected a third plate which was tested January 19 and 24, 
 1912, and was found to fulfill the requirements of the specifications. 
 Claimant in due course finished all of the plates which tlie contract 
 called for and they were approved and delivered as in the manner 
 prescribed. 
 
 It is alleged that by reason of the circumstances detailed there were 
 delays in the delivery of the plates and that the delays were due to 
 causes which were unavoidable within the meaning of the contract. 
 
 On account of the delays, however, the Ordnance Department pro- 
 posed to deduct from the contract price of the armor and pertaining 
 material the sum of $8,595.15 as liquidated damages on account of a 
 portion of the delay. Claimant made protest, asserting that the de- 
 lays were due to causes provided for in articles 4 and 8 of the contract. 
 
 By article 4 it was provided that in case of failure of claimant to 
 deliver any or all of the armor contracted for there would be deducted 
 from any payment to be made to claimant 1/30 of 1% of the contract 
 price of all of the armor remaining undelivered for each and every day 
 of delay in the completion of the contract, not, however, by way of 
 penalty but as liquidated damages. 
 
 It was, however, provided in article 8 of the contract that the Chief 
 of Ordnance in case of delay in the dehvery of the armor as provided 
 in article 1 of the contract, instead of completing the manufacture or 
 delivery of the material at the expense of claimant, might waive the 
 time limit and deduct from any payment due or to become due the 
 liquidated damages, if ai^, provided for in article 4: "Provided, how- 
 ever, that in making final settlement based upon the date of completion 
 of the delivery, the party of the first part [claimant] shall receive 
 credit for such delays occurring during the performance of the contract 
 as the Chief of Ordnance may determine to have been due to unavoid- 
 able causes, such as fires, storms, labor strikes, action of the United 
 States, etc., and the date of completion shall be considered for the 
 purposes of final settlement as the date of the actual completion of 
 the delivery less the delays due to unavoidable causes ; but none of the 
 above causes shall constitute a~basis for an action against the United 
 States for damages." 
 
 It will be observed that the point in the case is a short one. It is 
 whether the causes of delay alleged in the petition were unavoidable 
 
Ch. 3) PERFOBMANCK OF CONTRACTS 237 
 
 or were of the character described in the contract, that is, "such as 
 fires, storms, labor strikes, action of the United States," etc. The 
 contention that tlie alleged, causes can be assigned to such category 
 creates some surprise. It would seem that the very essence of the 
 promise of a contract to deliver articles is ability to procure or make 
 them. But claimant says its ignorance was not peculiar, that it was 
 shared by the world and no one knew that the process adequate to 
 produce 14-inch armor plate would not produce 18-inch armor plate. 
 Yet claimant shows that its own experiments demonstrated the inade- 
 quacy of the accepted formula. A successful process was therefore 
 foreseeable and. discoverable. And it would seem to have been an ob- 
 vious prudence to have preceded manufacture, if not engagement, by 
 experiment rather than risk failure and delay and their consequent 
 penalties by extending an old formula to a new condition. 
 
 But even if this cannot be asserted, the case falls within The Har- 
 riman, 9 Wall. 161^ 19 L. Ed. 629, where it is said that "the principle 
 deducible from the authorities is that if what is agreed to be done is 
 possible and lawful, it must be done. Difficulty or improbability of 
 accomplishing tlie undertaking will not avail defendant. It must be 
 shown that the thing cannot by any means be- effected. Nothing short 
 of this will excuse performance." * * * 
 
 It was said, however, in The Harriman, 9 Wall. 161, 172, 19 L,. Ed. 
 629, 633, that "the answer to the objection of hardship in all such cases 
 is that it might have been guarded against by a proper stipulation," 
 and such a stipulation is relied on in the case at bar. Ignorance of the 
 scientific process necessary for face-hardening 18-inch armor plate is 
 asserted to be an unavoidable cause of the character of the enumeration 
 of article 8 of the contract, that is, "such as fires, storms, labor strikes, 
 action of the United States, etc." The contention is that it is the same 
 "genus or kind," because (1) it was not foreseeable when the contract 
 was made ; (2) was not the result of any act or neglect on the part of 
 claimant; (3) was not a cause the coppany could prevent. What we 
 have already said answers these contentions. Ability to perform a con- 
 tract is of its very essence. It would have no sense or incentive, no as- 
 surance of fulfillment, otherwise; and a delay resulting from the ab- 
 sence of such ability is not of the same kind enumerated in the contract 
 — is not a cause extraneous to it and independent of the engagements 
 and exertions of the parties. 
 
 Judgment affirmed. 
 
 KI.N'ZER CONST. CO. v. STATE. 
 (Court of Claims of New York, 1910. 125 N. Y. Supp. 46.) 
 
 RoDENBECK, J. The claimant made a contract with the state of New 
 York to construct 3.76 miles of the improved Champlain Canal which 
 is a part of the so-called Barge Canal system of the state now in prog- 
 ress of construction ; and while the work was in progress, and claim- 
 ant was excavating for one of the locks, an extensive cave-in occurred, 
 which revealed the fact that for the balance of the contract the earth 
 was of a "slippery, greasy clay," with not sufficient resistency to per- 
 mit of the construction according to the contract, plans, and specifica- 
 tions of the lock and substantially the remainder of the work. The 
 state issued a stop order while it was investigating and determining 
 what to do under these unexpected conditions, and this order remained 
 
238 CONTRACTS (Part 1 
 
 in force for six months, when an alteration order which involved ex- 
 tensive changes in the construction of the remainder of the contract, 
 was submitted by the state to the claimant for the completion of the con- 
 tract. The claimant refused to accept these alterations, insisting that 
 they constituted a fundamental change in the contract and amounted to 
 a breach of the contract by the state, and thereupon the state proceeded 
 to advertise for bids for the completion of the work, and let it to other 
 contractors, and the claimant filed this claim for the work done and 
 not paid for, and for damages including loss of profits on the portion 
 of the work uncompleted, amounting, in all, to $370,525.41. The total 
 amount of the contract, including previous alteration orders, was 
 $968,296.11, and there was uncompleted at the time that the stop order 
 was issued $521,954.42, and of this amount $398,612 was eliminated 
 and new work was added, aggregating $153,584.50, so that the work 
 to be done there was a reduction of $245,027.50 or a decrease of 
 about 25 per cent, of the contract price, and upon these facts, and upon 
 the terms of its contract, the claimant insists that the state violated its 
 contract and justified its course in refusing to complete the contract; 
 while the state claims that the construction of the work when the cave- 
 in occurred revealed the fact that the subsoil was so treacherous that 
 the lock could not be constructed in that section of claimant's contract 
 at all, and made necessary the other changes in the plans and specifi- 
 cations, and also that the alterations were authorized by the contract, 
 and that claimant was guilty of a breach of its contract in refusing to 
 complete it as directed by the alteration order. * * * 
 
 When the excavation for the foundation of the lock had been carried 
 to a depth of 10 or 12 feet, it was found that the underlying stratum 
 was a greasy, slippery clay with no grit in it — -"just like axle grease" — 
 as one witness put it. Claimant's expert said that he had never seen 
 any soil like it, and that it would not be good engineering to build a 
 lock in such material at all. Under this condition of things, the case • 
 falls within that line of decisions where the contract is regarded as 
 at an end and performance is excused because of the failure of con- 
 ditions the existence of which are necessary to the performance of 
 the contract. The early rule upon impossibility as an excuse for the 
 performance of a contract was that inability to execute an absolute 
 executory contract due to subsequent unforeseen accident or misfor- 
 tune without the fault of either party will not excuse performance.- 
 Paradine v. Jane, Aleyn, 26. This rule which was promulgated in 
 English Jurisprudence as early as the year 1178 was based upon the 
 ground as stated in this case that : "Where the party by his own con- 
 tract creates a duty or charge upon himself, he is bound to make it 
 good, if he may, notwithstanding any accident by inevitable necessity, 
 because he might have provided against it by his contract." * * * 
 
 In England the rule prevailed in all its severity down to the middle 
 of the last century (Plall v. Wright, E. B. & E. [1857]), but since 
 then the courts both here and in England have modified it to a large 
 ■fext.ent upon the theory that the event which rendered the performance 
 impossible should be implied as a matter of law as one of the condi- 
 tions of the contract (Taylor v. Caldwell, 3 B. & S. 826 [1863] ; Bailey . 
 V. De Crespigny, h. R. 4 Q. B. 185), thus carrying out the supposed 
 intention of the parties. * * * 
 
 These exceptions have been growing so that now there are at least 
 four well-recognized modifications of the early rule, while the courts 
 
Ch. 3) PERFOKMANCE OP CONTRACTS 239 
 
 seem to be groping for a rule broad enough to include all of the excep- 
 tions. Three of these exceptions have long since been firmly estab- 
 lished in the jurisprudence, not only of this country, but of England, 
 and the fourth has been adopted in many cases of recent date in this 
 state where the existing rules did not equitably meet the peculiar facts. 
 The rule that performance is excused where legal impossibility arises 
 from a change in the law or where the specific thing which is essential 
 to performance is destroyed, or where there is an incapacity by sick- 
 ness or death in the case of a contract for personal services, are of 
 long standing, but quite recently a fourth and broader rule has grown 
 up which is applicable to the case at bar. 
 
 One writer in the Columbia Law Review, in discussing the tendency 
 toward a broader rule to meet cases of impossibility in the perform- 
 ance of contracts, says : "If the contingency which makes the con- 
 tract impossible of performance is such that the parties to the contract, 
 had they actually contemplated it, would probably have regarded it 
 as so obviously terminating the obligation as not to require expression, 
 failure of performance should be excused." Volume 1, p. 533. 
 
 Another writer in the Harvard Law Review, criticising the proposed 
 rule, suggests aijother : "A proper rule, it is suggested, is that impos- 
 sibility should be .recognized as a defense wherever it seems reasonable 
 that, had the contingency which renders performance impossible been 
 contemplated by the parties, they would have both agreed that its intro- 
 duction into the contract as a condition terminating the obligation 
 would be just." Volume 15, p. 419. 
 
 A third writer in the same Review, after referring to the general 
 rule and its exceptions, says : "The New York court, however, has 
 of late been more liberal and in a somewhat indefinite way has laid 
 down the doctrine that impossibility is an excuse when caused by the 
 non-continuance either of the subject-matter of the contract or of the 
 conditions essential to its performance." Volume 15, p. 63. 
 
 There is abundant warrant in the decided cases in' this state for these 
 attempts to state the broad rule that the courts are now following in 
 relation to this subject and to justify the statement that the "modern 
 tendency seems to be toward a more lenient construction. More re- 
 gard is paid to what must have been the intention of the parties." 
 American Law Register, 1909, p. 570. 
 
 In Stewart v. Stone, 127 N. Y. 500, 507, 28 N. E. 595, 596, 14 L. R. 
 A. 215, the factory at which milk delivered by plaintiff and his assignor 
 was to be manufactured into cheese and butter burned, and with it a 
 quantity of butter and cheese and some milk which had not been con- 
 verted into cheese and butter. Judge Bradley says in the course of his 
 opinion: "It is true that, where an absolute executory contract is 
 made, the contractor is not excused by inability to execute it caused 
 by unforeseen accident or misfortune, but must perform or pay dam- 
 ages unless he has protected himself against such contingency by stipu- 
 lation in his contract. * _* * But there may be in the nature of a 
 contract an implied condition by which he will be relieved from such 
 unqualified obHgation, _ and when, in such case, without his fault, per- 
 formance is rendered impossible it may be excused. That is so when 
 it inherently appears by it to have been known to the parties to the 
 contract, and contemplated by them when it was made, that its fulfill- 
 ment would be dependent upon the continuance or existence at the time 
 for performance of certain things or conditions essential to its execu- 
 
240 ' CONTRACTS . (Parti 
 
 tipn. Then in the event they cease, before default, to exist or continue, 
 and thereby performance becomes impossible without his fault, the 
 contractor is, by force of the impHed condition to which his contract 
 is subject relieved from liability for the consequences of his failure 
 to perform. * * * " 
 
 In Lorillard v. Clyde, 142 N. Y. 456, 462, 37 N. E. 489, 491, 24 h. R. 
 A. 113, the defendant was relieved from paying dividends, which he 
 had agreed to do, because the corporation out of whose earnings they 
 were to come had been involuntarily dissolved. Chief Judge An- 
 drews says in his opinion : " * * * The contract in question was 
 not with the corporation whose life was extinguished by judgment of 
 dissolution. But the guaranty assumed that the corporation would con- 
 tinue in existence during the seven-year period. The liability which 
 the defendant assumed was in consideration of the benefits which 
 might accrue to them from the management of the transportation busi- 
 ness of the corporation during that period. Upon the assumption that 
 the death of the corporation was brought about without their fault, 
 were they thereafter bound? Is the doctrine of implied condition less 
 applicable than it would be if the contract had been between the de- 
 fendants and the corporation? If in the one case the contract, so far 
 as it was unexecuted, would be terminated, did not the happening of 
 the same event terminate the engagement of these parties, based on 
 the assumed continuance of the corporation in life?" * * * 
 
 In Herter v. Mullen, 159 N. Y. 28, 40, 53 N. E. 700, 704, 44 L. R. A. 
 703, 70 Am. St. Rep. 517, the defendant was relieved from liability 
 for a year's rent by reason of holding over after the expiration of his, 
 term on account of the sickness of a member of his family. Judge 
 O'Brien says : "Legal rules may sometimes be pushed to a point 
 where they accomplish the grossest injustice, and it then becomes 
 the duty of the courts to limit their application to cases that are within 
 their true scope and fair meaning." 
 
 In Buffalo & Lancaster Land Co. v. Bellevue L. & I. Co., 165 N. Y. 
 247, 254, 59 N. E. 5, 7, 51 L. R. A. 951, the plaintiff failed to secure 
 relief for an alleged breach of a contract for the construction of an 
 electric road under which the defendant had agreed to operate cars 
 certain hours each day, and was prevented from doing so on certain 
 days in the winter by storms of unusual severity. * * * 
 
 In Labaree Co. v. Crossman, 100 App. Div. 499, 504, 92 N. Y. Supp. 
 565, 567, the impossibility of performance arose from an order of the 
 board of health of the city of New York prohibiting the landing of 
 a cargo of coffee. The court, adopting the opinion of the referee 
 who tried the case, says : "In my opinion the doctrine of implied con- 
 dition is applicable to the case, and the parties must be deemed to 
 have contracted upon the condition that there would be no legal inter- 
 ference with the admission of the coffee to the storehouses of the city, 
 or rather that, if performance was rendered impossible by the act of 
 the law, the contract would be dissolved." 
 
 In Whipple v. Lyons Beet Sugar Refining Co., 64 Misc. Rep. 363, 
 365, 118 N. Y. Supp. 338, 340, the impossibility of performance arose 
 from drought and other climatic conditions which prevented the defend- 
 ant from carrying out a contract to grow a certain number of acres 
 of beets for a sugar company according to certain printed instruc- 
 tions. * * * 
 
Ch. 3) PEEPORMANCE OF CONTRACTS 241 
 
 From these cases it will be seen that a fourth exception must be 
 made to the general rule that accident or an unforeseen contingency 
 arising without the fault of either party will not excuse performance 
 of an absolute executory contract, and for the four exceptions may 
 now be stated broadly as follows : First, where the legal impossibility 
 arises from a change in tlie law ; * * * second, where the specific 
 thing which is essential to the performance of the contract is destroy- 
 ed; * * * third, where by sickness or death personal services 
 become impossible; * * * and fourth, where conditions essential 
 to performance do not exist. * * * From these considerations the 
 rule may be deduced fairly in the present case that where in the course 
 of the construction of a canal natural conditions of soil unexpectedly 
 appear which contingency the contract does not in express terms cover, 
 and which render the performance of the contract as planned impos- 
 sible, and make necessary substantial changes in the nature and cost 
 of the contract and substantially affect the work remaining under the 
 contract, the law will read into the contract an implied condition when 
 it was made that such a contingency will terminate the entire contract. 
 
 These terms are implied in the contract by force of the law itself, 
 and not because the parties had them in mind. Whether we approve 
 of their insertion upon the theory that had the attention of the parties 
 been called to the conditions giving rise to the application of the rule, 
 they would have omitted any reference to them because obviously 
 covered by the law (1 Columbia Law Review, p. 533), or upon the 
 theory that they would have regarded them as just provisions to have 
 inserted (15 Harvard Law Review, p. 419). 
 
 In the eyes of the law being a part of the terms of the contract, the 
 conditions that rendered performance impossible do not terminate the 
 contract ab initio, and vitiate what has been done and what remains 
 to be done that is capable of execution. The conditions may be of 
 such an extent as to amount to a substantial abrogation of the entire 
 contract, or they may relate to an insignificant part of the contract, 
 but they excuse performance only to the extent to which performance 
 is impossible, and leave what has been done valid, permitting a recov- 
 ery therefor, and may not excuse performance of the remaining work. 
 No general rule can be laid down which will apply to all cases, but 
 each case must be decided upon its own facts, and that this course can 
 be taken and justice done according to the facts in each case unham- 
 pered by written rules is due to the great flexibility of the common 
 law, which is its chief merit. 
 
 Applying this rule to the case at bar, it will be seen to work out 
 an equitable result. The state was not in a position to compel per- 
 formance of an impossibility, and likewise the claimant could not 
 ask the state to proceed with the contract. It would not have been 
 fair of the state to insist upon the literal performance of its contract, 
 and place the loss upon the claimant for the failure to perform, nor 
 would it have been just for the claimant to insist that the state must 
 carry out its contract as planned or suffer the penalty of paying dam- 
 ages, including prospective profits for the breach of the contract. 
 It is better to regard the contract as at an end, and treat both parties 
 as having been excused from further performance, allowing the claim- 
 ant to recover for work done and for benefits received by the state 
 under the contract down to the time of the discovery of the condi- 
 iB.& B.Bus.Law— 16 
 
242 CONTRACTS (Part 1 
 
 tions which rendered performance impossible, and for such dam- 
 ages as may have resulted to it from the stop order issued by the 
 state. Both of the parties were in the same situation at the time that 
 the conditions were discovered, and the rule applied leaves both of 
 them to share the responsibilities for these conditions which were not 
 anticipated when the contract was made, thus carrying out the spirit 
 of the state Constitution, which provides that, if for any unforeseen 
 cause the terms of any contract prove to be unjust and oppressive, the 
 canal board may, upon the application of the contractor, cancel the 
 contract. State Const, art. 7, § 9. The state, therefore, had the right 
 to relet the completion of the work, but must bear the increased ex- 
 pense resulting therefrom, while the claimant is not entitled to recover 
 for any prospective profits on the work remaining to be done. * * * 
 
 The claimant should have judgment for $70,679.25, with interest on 
 $61,144.16 from December 15, 1908. 
 
 Judgment entered accordingly. 
 
 CARKOLL V. BOWERSOCK. 
 
 (Supreme Court of Kansas, 1917. 100 Kan. 270, 164 Pac. 143, 
 L. R. A. 1917P, 1006.) 
 
 BuRCH, J. The action was one to recover for part performance of 
 a contract to construct a reinforced concrete floor in a warehouse, 
 which was destroyed by fire before the floor was completed. The 
 plaintiflf recovered, and the defendant appeals. * * * 
 
 The court permitted recovery for substantially what the plaintiff had 
 done by way of performance of the contract before the fire. 
 
 The contract was to place the floor in a specific warehouse. De- 
 struction of the warehouse without fault of either party put an end 
 to construction of a floor in that warehouse. No warehouse except 
 the one destroyed having been contemplated or contracted about, the 
 defendant could not be charged with delinquency for not building an- 
 other. To do so would be to charge him with breach of an obligation 
 which he did not assume. If continued existence of the particular 
 warehouse to which the contract related were not taken for granted by 
 both parties, the plaintiff would be bound by his contract and could 
 not recover at all ; no concrete floor having been constructed. * * * 
 
 If a contractor should engage to furnish all labor and material and 
 build a house, and the house should burn before completion, the loss 
 falls on him. If a contractor should engage to refloor two rooms of 
 a house already in existence, and should complete one room before 
 the house burned, he ought to be paid something. So far the authori- 
 ties are in substantial agreement. 
 
 The principle upon which the contractor may recover in a case of 
 the character last instanced has been variously stated. Sometimes it 
 is said that it was a material and substantive part of the contract on 
 the owner's side that he would have the house in existence as long as 
 might be necessary for the contractor to do the work. This statement 
 of the principle arbitrarily attaches to the contract a warranty which 
 the parties did not put there, and places the owner in default when 
 he has been guilty of no wrong. Impossibility of performance be- 
 cause of destruction of the building was not contemplated by either 
 party. Performance was prevented without fault of either party. 
 
Ch. 3) PEBPOEMANCE OP CONTRACTS 243 
 
 and the true rule is that neither party can be charged with delinquen- 
 cy because the contract cannot be fulfilled. * * * 
 
 The contractor cannot give and the owner cannot obtain that which 
 they contracted about. Neither one can complain of the other on that 
 account, and the law must deal with the new situation of the parties 
 created by the fire. The owner cannot be called on to reimburse the 
 contractor merely because the contractor has been to expense in taking 
 steps tending to performance. A contractor may have purchased spe- 
 cial material to be used in repairing a house, and may have had much 
 millwork done upon it. If the material remain in the mill, and the 
 house burn, there can be no recovery. If the milled material be de- 
 livered at the house ready for use. and the house burn, there can be 
 no recovery. It takes something more to make the owner liable for 
 what the contractor has done toward performance. The owner must 
 be benefited. He should not be enriched at the expense of the con- 
 tractor. That would be unjust, and to the extent that the owner has 
 been benefited, the law may properly consider him as resting under a 
 duty to pay. The benefit which the owner has received may or may 
 not be equivalent to the detriment which the contractor has suffered. 
 The only basis on which the law can raise an obligation on the part of 
 the owner is the consideration he has received by way of benefit, ad- 
 vantage, or value to him. ' 
 
 The question whether or not the owner has been benefited fre- 
 quently presents difficulties. Sometimes the question is answered by 
 the owner's own conduct, as when by taking possession, or by insur- 
 ing as his own property, or by other act, he evinces a purpose to ap- 
 propriate the contractor's material and labor. Sometimes the circum- 
 stances are such that the owner is precluded from rejecting the fruits 
 of the contractor's efforts if he would, as when one room is finished 
 under a contract to refloor two. * * * 
 
 The test of .benefit received has been variously stated. Sometimes 
 it is said that benefit accrues whenever the contractor's material and 
 labor, furnished and performed according to the contract, have be- 
 come attached to the owner's realty. The facts of particular cases 
 suggest different forms of expression. After considering all the au- 
 thorities cited in the briefs, the court is inclined to approve, for the 
 purposes of this case, the form adopted by the Supreme Court of 
 Massachusetts, in the case of Young v. Chicopee, 186 Mass. 518, 72 
 N. E. 63, cited by the plaintiff. The action was one for labor and ma- 
 terial furnished to repair a bridge destroyed by, fire while the work 
 was proceeding. The contract required at least half of the material 
 to be "upon the job" before work commenced. The contractor 
 complied with this condition, and distributed material "all along the 
 bridge" and on the river bank A portion of the material thus distrib- 
 uted but not wrought into the structure was destroyed by fire. Lia- 
 bility for work done upon the material wrought into the structure was 
 not .disputed, but the contractor sought to make good his entire loss. 
 The court said : 
 
 "In whatever way the principle may be stated, it would seem that 
 the liability of the owner in a case like this should be measured by the 
 amount of the contract work done which, at the time of the destruc- 
 tion of the structure, had become so far identified with it as that but 
 for the destruction it would have inured to him as contemplated by 
 the contract." 186 Mass. 520, 72 N. E. 64. 
 
244 coxTRACTS (Part 1 
 
 Applying the test stated to the facts of the present controversy, it 
 is clear that the plaintiff should recover for the work done in cutting 
 the old floor away from the wall and. in removing such part of the 
 old floor as was necessary. The warehouse was improved to that 
 extent by labor, the benefit of which had inured to the defendant 
 when the fire occurred. If the fire had not occurred, the undesirable 
 floor would have been out of the way, precisely as the contract con- 
 templated. Likewise, the contractor should recover for the completed 
 concrete footings. 
 
 The contractor should not recover for material furnished or labor 
 performed in the construction of either column or floor forms. They 
 were temporary devices, employed to give form to the structure which 
 was to be produced. They were not themselves wrought into the 
 warehouse, were to be removed when the work was completed, and 
 inured to nobody's benefit but that of the contractor. 
 
 The contractor should not recover for either upright or floor rods, 
 or for the labor of putting them in place. While the rods were wired 
 together, they were not attached to the building and would not have 
 been wrought into the structure until the concrete was poured. If 
 the fire had not occurred, the contractor could have removed the rods 
 without dismembering or defacing the warehouse, and the defendant 
 could not Have held the rods as amalgamated into the fabric of his 
 structure. 
 
 There could be no recovery for superintendence and use of tools, 
 except as regards that part of the work done which had become iden- 
 tified with the warehouse itself. Other items sued for should be al- 
 lowed or disallowed by application of the principle indicated. 
 
 The defendant says he had a right to a specific kind of completed 
 floor which he could test and which would comply with a prescribed 
 test, and that cutting away the old floor from the walls of the building, 
 and concrete footings for a floor which was never laid, were of no 
 value to him. The test is whether or not the work would have inured 
 to his benefit as contemplated by the contract if the fire had not oc- 
 curred. The cutting away of the old floor was done according to the 
 contract, ahd the defendant had the benefit of that work as soon as 
 it was finished. The evidence was that putting in the concrete foot- 
 ings was the next step in the construction of the concrete floor. Those 
 footings would have inured to his benefit, in accordance with the con- 
 tract, if the fire had not occurred. They became a part of his ware- 
 house. Unless he could reject them for want of substantial compli- 
 ance with the contract so far as they were concerned, he was benefited 
 by them at the time of their incorporation into his structure. Test of 
 a completed concrete floor was one of the things rendered impossible 
 by the fire. * * * 
 
 The judgment of the district court is reversed, and the cause is re- 
 manded, with direction tr "ike such additional evidence as may be nec- 
 essary and determine the rights of the parties according to the views 
 which have been expressed. * * * 
 
 Johnston, C. J. (dissenting in part). I am of opinion that the up- 
 right rods set up and tied together were a part of the building, and 
 a recovery for them should be allowed. * * * 
 
Ch. 4) RIGHTS OF THIRD PARTIES IN CONTRACTS 245 
 
 CHAPTER IV 
 
 RIGHTS OF THIRD PARTIES IN CONTRACTS 
 Section 
 
 1. Introduction. 
 
 2. Contracts for the Benefit of a Donee of tlie Promisee. 
 
 3. Contracts for the Benefit of a Creditor of the Promisee. 
 
 4. Nature and Requisites of an Assignment. 
 
 5. Interests Capable of Assignment. 
 
 6. Nature and Extent of the Interest Acquired by tlie Assignee. 
 
 SECTION 1.— INTRODUCTION 
 
 Is it possible for a contract between A. and B. to create rights in 
 C, C. not being otherwise a party to the contract, which may be 
 enforced by C. ? After a contract has been entered into by A. 
 and B., is it then possible for either of them to transfer to C. rights 
 or duties which arise out of the contract? Stated generally, these 
 are the two questions with which this chapter deals. It will be no- 
 ticed that these two questions have to do with situations which are 
 alike in this respect : that a person is interested in a contract to 
 which he is not a party. The two situations referred to differ in 
 this respect: in the first case, the third party's rights, if he has any, 
 arise by force of the terms of the contract itself; in the second 
 case, the third party's rights, if they are to arise, come into exist- 
 ence, not by virtue of the terms of the original contract, but as the 
 result of some independent transaction entered into by him with 
 one of the parties to the contract subsequent to its execution. 
 
 SECTION 2.— CONTRACTS FOR THE BENEFIT OF A 
 DONEE OF THE PROMISEE 
 
 Turning our attention to the first of these questions: Suppose 
 that A. and B. enter into a contract by the terms of which A. is to 
 transfer property to B. and B. is to pay the purchase price. A. 
 desires to make a gift to C, and as a part of the contract B. prom- 
 ises to pay the amount of the purchase price to C. ? If B. rails to 
 perform, may C. sue B.? What difficulties are in the way? In or- 
 der to make an irrevocable gift, the law usually requires delivery. 
 If C, the beneficiary, were allowed to sue B., the promisor, would 
 such result infringe upon the rule relating to the formalities for 
 making, a gift? Is it possible to regard B. as a trustee of any 
 property for the use of the beneficiary, C. ? Clearly A., the party to 
 whom B. made the promise to pay C, being a party to the contract, 
 may sue B. if B. fails to perform. How much may A. recover? 
 Has A. sustained any damage? If A. recovered from B. the full 
 amount, could C. recover this sum from A.? 
 
246 CONTRACTS (Part 1 
 
 These are some of the difficulties presented in attempting to give 
 a person rights in a contract in whjch he is to be the sole party to 
 be benefited. And yet it will readily be recognized that the situ- 
 ation described above is illustrated by the very common case of 
 a life insurance policy taken out by A. upon his own life in favor 
 of C. Is the life insurance case a special case and to be treated 
 differently from similar cases? In other words, the question is: 
 "What is the real basis for allowing C, a beneficiary in a contract 
 between A. and B., to sue the promisor in the contract? May all 
 beneficiaries sue, whatever their relations to B. and C, or may only 
 some of them sue, depending upon the existence of certain circum- 
 stances. If the latter be true, what are these special circumstances? 
 
 KNIGHTS OP THE MODEKN MACCABEES v. SHAEP. 
 
 (Supreme Court of Michigan, 1910. 163 Mich. 449, 128 N. W. 786, 
 33 L. R. A. [N. S.] 780.) 
 
 Bill of Interpleader by Knights of the Modern Maccabees against 
 Malinda Sharp and John L. Clink, guardian for Lena Sharp and oth- 
 ers. Defendant Melinda Sharp appeals. 
 
 OsTRANDER, J. The issues raised by the answers to complainant's 
 bill of interpleader are sufficiently indicated in the opinion of the 
 learned trial judge, as follows: 
 
 "On July 23, 1896, Asa B. Sharp and his first wife, Minnie D. 
 Sharp, lived in the village of Yale, St. Clair county, Mich. At that 
 time he was 30 years of age and his wife 28. They had five small 
 children. He was a laboring man, and his family was dependent on 
 his earnings for support. Some time prior to the above-named date, 
 the husband and wife entered into a contract by the terms of which he 
 agreed he would take out a policy of insurance in complainant order 
 in which his wife should be named as beneficiary and so remain dur- 
 ing her life and his, and, in case his wife should die before he did, 
 that their children shou}d always remain the beneficiaries; the wife 
 agreed she would take out a policy of insurance in the Ladies of the 
 Maccabees, a woman's fraternal benefit association, in which her hus- 
 band should be named as beneficiary, and so remain during his life 
 and hers, and, in case her husband should die before she did, that their 
 children should always remain the beneficiaries. The consideration 
 for this agreement on the part of each was the promise made by the 
 other. The object of this mutual agreement was the protection of 
 the children. * * * Qn July 23; 1896, a poHcy for $1,000 was is- 
 sued by complainant association to Asa B. Sharp, in which his wife 
 was named as beneficiary, and on the same date a policy of like amount 
 was issued by the Ladies of the Maccabees to Minnie D. Sharp in 
 which her husband was named as beneficiary. * * * Qn January 
 1, 1902, Minnie D. Sharp deceased, and the proceeds of her policy in 
 the Ladies of the Maccabees was paid to her husband, Asa B. Sharp, 
 who had remained the beneficiary in her certificate since the time it 
 was issued. On August 17, 1904, Asa B. Sharp married Melinda 
 Sharp, now his widow. * * * Qn April 19, 1906, Asa B. Sharp 
 signed a paper revoking his former designation of beneficiary in his 
 policy, and designated Melinda Sharp, his wife, as the new beneficiary 
 
Ch. 4) EIGHTS OF THIRD PARTIES IN CONTRACTS 247 
 
 * * * Asa B. Sharp surrendered his first certificate, and on May 8, 
 1906, a new one was issued to him by complainant association in which 
 claimant, Melinda Sharp, was named as beneficiary, and she remain- 
 ed as such designated beneficiary up to the time of her husband's 
 death." * * * 
 
 Assuming the mutual promises never to change beneficiaries to have 
 been made as is claimed, upon what theory may the children enforce 
 the contract? No promise was made to them or any of them, no con- 
 sideration for the promise moved from them. The agreement related 
 to no fund in existence. No trust was created. I find no reason for 
 thinking that the parties were not at liberty, at any time, to revoke 
 their promises. It is tn.ie that after the death of the mother there 
 could be no mutual revocation, but, unless some legal interest in the 
 performance of the promise vested in the children when the promise 
 of the father was made, such interest never vested. 
 
 It is the general rule in England that a third person cannot become 
 entitled by the contract itself to demand the performance of any duty 
 under the contract. Pollock, Prin. of Contracts (7th Ed.) 199. The 
 rule, contracts creating trusts aside, is the same whether such enforce- 
 ment is attempted at law or in equity. In this state the English rule 
 has been followed when the attempted enforcement of the contract by 
 a third person was at law. * * * There is a well-recognized excep- 
 tion to the- rule in England as to the provisions contained in a settle- 
 ment made upon and in consideration of marriage, for the benefit of 
 children to be born of the marriage. * * * The contention of ap- 
 pellees is that the principle underlying the English exception to the 
 rule should be extended, at least in equity, so as to support the en- 
 forcement by children of contracts made by their father or mother, 
 with each other or with strangers, for their benefit, and Buchanan v. 
 Tilden, 158 N. Y. 109, 52 N. E. 724, 44 L. R. A. 170, 70 Am. St. 
 Rep. 454, is cited and relied upon. The courts of New York do not 
 follow the English rule. * * * 
 
 The general rule in this state is regarded as settled. I see no rea- 
 son for saying that it is not the same in proceedings at law and in 
 equity. To what extent and under what circumstances an exception to 
 the rule should be recognized in favor of the enforcement by children 
 of contracts (other than those creating trusts), made for their direct 
 or indirect benefit, by persons nearly related to them or by those sus- 
 taining, the duty to provide for them, is a subject which needs to be 
 considered no further than this, that the mutual promises of a father 
 and mother, who each hold the certificate of a beneficial association 
 in which the other is named as beneficiary, never to change the bene- 
 ficiaries so named, create no legal or equitable interest of the children 
 in the fund derived on the death of the surviving parent, although, if 
 no such change had been made, they would have been the legal bene- 
 ficiaries, and although the mutual promises of the parents contemplat- 
 ed that in such case they should be the legal beneficiaries. 
 
 The case presented is ruled precisely as it would be ruled if the 
 children, in the lifetime of the father, were seeking specific perform- 
 ance of the alleged contract or an injunction to restrain a threatened 
 change of beneficiaries. It may be added, although the suggestion re- 
 lates rather to the facts than to the law, that the children, appellees, 
 appear to liave no particular claim, as against the appellant, to equita- 
 ble consideration. It is not claimed that appellant knew of any ar- 
 
248 CONTRACTS (Part 1 
 
 rangement between her husband and his former wife about life in- 
 surance. His relation to her is a sufficient reason for insuring his life 
 for her benefit. If, instead of pursuing the method of substituting one 
 beneficiary for another, he had refused to pay assessments, thus per- 
 mitting the original certificate to lapse, and procured one in which ap- 
 pellant was named as beneficiary, it is clear that her right to any fund 
 derived therefrom and from his death, would be unassailable. 
 
 The decree below, except as to the provision for costs to complain- 
 ant, is reversed, and a decree will be entered in this court for the pay- 
 ment of the fund to the appellant, who, will recover of the appellees the 
 costs of both courts. 
 
 SEAVER V. RANSOM et al. 
 
 (Court of Appeals of New York, 1918. 224 N. Y. 233, 120 N. B. 639, 
 2 A. L. R. 1187.) 
 
 Action by Seaver against Ransom and another, as executors, etc., of 
 Samuel A. Beman, deceased. From a judgment for plaintiff, defend- 
 ants appeal. 
 
 Pound, J. Judge Beman and his wife were advanced in years. 
 Mrs. Beman was about to die. She had a small estate, consisting of 
 a house and lot in M alone and little else. Judge Beman drew his 
 wife's will according to her instructions. It gave $1,000 to plaintiff, 
 $500 to one sister, plaintiff's mother, and $100 each to another sister 
 and her son, the use of the house to her husband for life, and re- 
 mainder to the American Society for the Prevention of Cruelty to 
 Animals. She named her husband as residuary legatee and executor. 
 Plaintiff was her niece, 34 years old, in ill health, sometimes a mem- 
 ber of the Beman household. When the will was read to Mrs. Be- 
 man, she said that it was not as she wanted it. She wanted to leave 
 the house to plaintiff. She had no other objection to the will, but her 
 strength was waning, and although the judge offered 1o write another 
 will for her, she said she was afraid she would not hold out long 
 enough to enable her to sign it. So the judge said, if she would sign 
 the will, he would leave plaintiff enough in his will to make up the 
 difference. He avouched the promise by his uplifted hand with all 
 solemnity and his wife then executed the will. When lie came to die, 
 it was found that his will made no provision for the plaintiff'. 
 
 This action was brought, and plaintiff recovered judgment in the 
 trial court, on the theory that Beman had obtained property from his 
 wife and induced her to execute the will in the form prepared by him 
 by his promise to give plaintiff $6,000, the value of the house, and that 
 thereby equity impressed his property with a trust in favor of plain- 
 tiff. Where a legatee promises the testator that he. will use property 
 given him by the will for a particular purpose, a trust arises. * * *^ 
 Beman received nothing under his wife's will but the use of the house 
 in Malone for life. Equity compels the application of property thus 
 obtained to the purpose of the testator, but equity cannot so impress a 
 trust, except on property obtained by the promise. Beman was bound 
 by his promise, but no property was bound by it ; no trust in plain- 
 tiff's favor can be spelled out. ; 
 
 An action on the contract for damages, or to make the executors- 
 trustees for performance stands on different ground. * * * 'j^jjg. 
 Appellate Division properly passed to the consideration of the question 
 whether the judgment could stand upon the promise made to the wife,. 
 
Ch. 4) RIGHTS OF THIRD PARTIES IN CONTRACTS 249 
 
 Upon a valid consideration, for the sole benefit of plaintiff. The judg- 
 ment of the trial court was affirmed by a return to the general doc- 
 trine laid down in the great case of Lawrence v. Fox, 20 N. Y. 268, 
 which has since been limited as herein indicated. 
 
 Contracts for the benefit of third persons have been the prolific 
 source of judicial and academic discussion. Williston, Contracts for 
 the Benefit of a Third Person, 15 Harvard Law Review, 767; Corbin, 
 Contracts for the Benefit of Third Persons, 27 Yale Law Journal, 
 1008. The general rule, both in law and equity (Phalen v. United 
 States Trust Co., 186 N. Y. 178, 186, 78 N. E. 943, 7 L. R. A. [N. 
 S.] 734, 9 Ann. Cas. 595), was that privity between a plaintiff and a 
 defendant is necessary to the maintenance of an action on the contract. 
 The consideration must be furnished by the party to whom the prom- 
 ise was made. The contract cannot be enforced against the third 
 party, and therefore it cannot be enforced by him. On the other hand, 
 the right of the beneficiary to sue on a contract made expressly for 
 his benefit has been fully recognized in many American jurisdictions, 
 either by judicial decision or by legislation, and is said to be "the pre- 
 vailing rule in this country." Hendrick v. Lindsay, 93 U. S. 143, 23 
 L. Ed. 855 ; Lehow v. Simonton, 3 Colo. 346. It has been said that 
 "the establishment of this doctrine has been gradual, and is a victory 
 of practical utility over theory, of equity over technical subtlety." 
 Brantly on Contracts (2d Ed.) p. 253. The reasons for this view are 
 that it is just and practical to permit the person for whose benefit the 
 contract is made to enforce it against one whose duty it is to pay. 
 Other jurisdictions still adhere to the present English rule (7 Hals- 
 bury's Laws of England, 342, 343; Jenks' Digest of English Civil 
 Law, § 229) that a contract cannot be enforced by or against a per- 
 son who is not a party. [Citing Massachusetts cases.] 
 
 In New York the right of the beneficiary to sue on contracts made 
 for his benefit is not clearly or simply defined. It is at present con- 
 fined: First, to cases where there is a j>ecuniary obligation running 
 from the promisee to the beneficiary, "a. legal right founded upon some 
 obligation of the promisee in the third party to adopt and claim the 
 promise as made for his benefit." [Citing New York cases.] The 
 natural and moral duty of the husband or parent to provide for the 
 future of wife or child sustains the action on the contract made for 
 their benefit. "This is the farthest the cases in this state have gone," 
 says Cullen, J., in the marriage settlement case of Borland v. Welch, 
 162 N. Y. 104, 110, 56 N. E. 556. 
 
 The right of the third party is also upheld in, thirdly, the public 
 contract cases. [Citing New York cases.] Cf. German Alliance Ins. 
 Co. V. Home Water Supply Co., 226 U. S. 220, 33 Sup. Ct. 32, 57 L- 
 Ed. 195, 42 L. R. A. [N. S.] 1000, where the municipality seeks to 
 protect its inhabitants by covenants for their benefit ; and, fourthly, the 
 cases where, at the request of a party to the contract, the promise runs 
 directly to the beneficiary although he does not furnish the considera- 
 tion. [Citing New York cases.] It may be safely said that a general 
 rule sustaining recovery at the suit of the third party would include 
 but few classes of cases not included in these groups, either categori- 
 cally or in principle. 
 
 The desire of the childless aunt to make provision for a beloved 
 and favorite niece differs imperceptibly in law or in equity from the 
 moral duty of the parent to make testamentary provision for a child. 
 
250 CONTRACTS (Part 1 
 
 The contract was made for the plaintiff's benefit. She alone is s,ub' 
 stantially damaged by its breach. The representatives of the wife's 
 estate have no interest in enforcing it specifically. It is said in Bu- 
 chanan V. Tilden, 158 N. Y. 109, 52 N. E. 724, 44 L. R. A. 170, 70 
 Am. St. Rep. 454, that the common law imposes moral and legal obli- 
 gations upon the husband and the parent not measured by the neces- 
 saries of life. It was, howevfer, the love and affection or the moral 
 sense of the husband and the parent that imposed such obligations in 
 the cases cited, rather than any common-law duty of husband and 
 parent to wife and child. If plaintiff had been a child of Mrs._ Be- 
 man, legal obligation would have required no testamentary provision 
 for her, yet the child could have enforced a covenant in her favor 
 identicar with the covenant of Judge Beman in this case. * * * 
 The constraining power of conscience is not regulated by the degree 
 of relationship alone. The dependent or faithful niece may have a 
 stronger claim than the affluent or unworthy son. No sensible theory 
 of moral obligation denies arbitrarily to the former what would be 
 conceded to the latter. We might consistently either refuse or allow 
 the claim of both, but I cannot reconcile a decision in favor of the 
 wife in Buchanan v. Tilden, based on the moral obligations arising out 
 of near relationship, with a decision against the niece here on the 
 ground that the -relationship is too remote for equity's ken. No con- 
 trolling authority depends upon so absolute ^a rule. In Sullivan v. 
 Sullivan, 161 N. Y. 554, 56 N. E. 116, the grandniece lost in a liti- 
 gation with the aunt's estate, founded on a certificate of deposit pay- 
 able to the aunt "or in case of her death to her niece" ; but what was 
 said in that case of the relations of plaintiff's intestate and defendant 
 does not control here, any more than what was said in Dumherr v. 
 Rau, 135 N. Y. 219, 32 N. E. 49, on the relation of husband and wife, 
 and the inadequacy of mere moral duty, as distinguished from legal or 
 equitable obligation, controlled the decision in Buchanan v. Tilden. 
 Bouton V. Welch, 170 N. Y. 554, 63 N. E. 539,' deals only with the 
 rights of volunteers under a marriage settlement not made for the 
 benefit of collaterals. Kellogg, P. J., writing for the court below well 
 said: "The doctrine of Lawrence v. Fox is progressive, not retro- 
 grade. The course of the late decisions is to enlarge, not to limit, 
 the effect of that case." 
 
 The court in that leading case attempted to adopt the general doc- 
 trine that any third person, for whose direct benefit a contract was 
 intended, could sue on it. The headnote thus states the rule. Finch, 
 J., in Gifford v. Corrigan, 117 N. Y'. 257, 262, 22 N. E. 756, 6 L. R. 
 A. 610, 15 Am. St. Rep. 508, says that the case rests upon that broad 
 proposition; E(^ward T. Bartlett, J., in Pond v. New Rochelle Wa- 
 ter Co., 183 N. Y. 330, 337, 76 N. E. 211, 213, 1 E. R. A. (N. S.) 958, 
 5 Ann. Cas. 504, calls it "the general principle" ; but Vrooman v. 
 Turner, confined its application to the facts on which it was decid- 
 ed. • "In every case in which an action has been sustained," says Al- 
 len, J., "there has been a debt or duty owing by the promisee to the 
 party claiming to sue upon the promise." 69 N. Y. 285, 25 Am. Rep. 
 195. As late as Townsend v. Rackham, 143 N. Y. 516, 523, 38 N. 
 E. 731, 733, we find Peckham, J., saying that, "to maintain the action 
 by the third person, there must be this liability to him on the part of- 
 the promisee." Buchanan v. Tilden went further than any case since 
 Eawrence v. Fox in a desire to do justice rather than to apply with 
 
Ch. 4) EIGHTS OF THIRD TARTIES IN CONTRACTS 25i 
 
 technical accuracy strict rules calling for a legal or equitable obliga- 
 tion. In Embler v. Hartford Steam Boiler Inspection & Ins. Co., 158 
 N. Y. 431, 53 N. E. 212, 44 L. R. A. 512, it may at least be said that 
 a majority of the court did not avail themselves of the opportunity 
 to concur with the views expressed by Gray, J., who wrote the dis- 
 senting opinion in Buchanan v. Tilden, to the effect that an employe 
 could not maintain an action on an insurance policy issued to the em- 
 ployer, which covered injuries to employes. 
 
 In Wright V. Glen Telephone Co., 48 Misc. Rep. 192, 195, 95 N. Y. 
 Supp. 101, the learned presiding justice who wrote the opinion in this 
 case said at Trial Term : "The right of a third person to recover up- 
 on a contract made by other parties for his benefit must rest upon the 
 peculiar circumstances of each case rather than upon the law of some 
 .other case." "The case at bar is debided upon its peculiar facts." 
 Edward T. Bartlett, J., in Buchanan v. Tilden. 
 
 But, on principle, a sound conclusion may be reached. If Mrs. Be- 
 man had left her husband the house on condition that he pay the plain- 
 tiff $6,000, and he had accepted the devise, he would have become 
 personally liable to pay the legacy, and plaintiff could have whatever 
 the value of the house. * * * That would be because the testatrix 
 had in substance bequeathed the promise to plaintiff, and not because 
 close relationship or moral obligation sustained the contract. The dis- 
 tinction between an implied promise to a testator for the benefit of a 
 third party to pay a legacy and an unqualified promise on a valuable 
 consideration to make provision for the third party by will is discerni- 
 ble. The tendency of American authority is to sustain the gift in all 
 such cases and to permit the donee beneficiary to recover on the con- 
 tract. - Matter of Edmundson's Estate (1918, Pa.) 259 Pa. 429, 103 
 Atl. 277, 2 A. L. R. 1150. The equities are with the plaintiff, and they 
 may be enforced in this action, whether it be regarded as an action 
 for damages or an action for specific performance to convert the de- 
 fendants into trustees for plaintiff's benefit under the agreement. 
 
 The judgment should be affirmed, with costs. * * * 
 
 SECTION 3.— CONTRACTS FOR THE BENEFIT OF A 
 
 CREDITOR OF THE PROMISEE 
 The second situation with which we have to deal in considering 
 the rights of third party beneficiaries, may be stated as follows : 
 Suppose that A., instead of desiring to make a gift to C, is in- 
 debted to C, and that, in a contract between A. and B., B. prom- 
 ises to pay C. the sum which otherwise he would have promised 
 to pay A. A.'s object, here, is not to /make a gift to C, but to pay 
 his, A.'s, debt to C. C. is still called a beneficiary, but obviously he 
 is a different kind of beneficiary from the beneficiary occupying the 
 position of a donee. May C, under these circumstances, sue B.? 
 May A. sue B. ? A., being a party to the contract, it would certainly 
 seem that he could sue. How much could A. recover from B.? Is 
 A. damaged to the full amount? If C. is deemed to have the right 
 to sue B., is there anything to prevent A. also from suing B.? 
 Could it be said that there is but one right to sue, and that that 
 right belongs to the beneficiary C, and that C. has in some way 
 
252 . CONTRACTS (Part 1 
 
 obtained the right to sue ^.^ which A. formerly had. If the law 
 gave C. the right of A. to sue B., would this not involve a discharge 
 of liability of A. to C, and is there anything in the situation tend- 
 ing to show that C. has given up his right to sue A., or that it is 
 just to deprive him of such right? If we are able to say that, in 
 some way, not yet explained, C. may sue B., when does C. obtain 
 his right, at the time the contract is entered into, or upon notice to 
 C, or upon C.'s giving his assent. 
 
 Finally, it may be asked : Are the rights of a beneficiary, C, a 
 donee of A., the same in origin and extent as the rights of a bene- 
 ficiary, C, a creditor of A., with respect to a contract between A. 
 and B.? 
 
 MEECH V. ENSIGN. 
 
 (Supreme Court of Errors of Connecticut, 1881. 49 Conn. 191, 
 44 Am. Rep. 225.) 
 
 Carpentbr, J. The plaintiffs held a mortgage on real estate. The 
 defendant purchased the equity of redemption, agreeing with the mort- 
 gagor to pay the mortgage debt. Subsequently the mortgage was fore- 
 closed — the property then being worth less than the mortgage debt — 
 leaving a balance unpaid. This action is brought to recover the bal- 
 ance. * * * 
 
 We now have the naked question whether the owner of a debt se- 
 cured by a mortgage may maintain an action on the promise made by 
 the purchaser of the equity of redemption to the mortgagor to pay 
 the debt without an assignment of the right of action which that prom- 
 ise gives. 
 
 As a rule actions on contracts can be brought only by him with 
 whom the contract was made and from whom the consideration moved. 
 The legal title is deemed to be in him alone and strangers to the con- 
 tract cannot sue. The rule is a salutary one and should not be de- 
 parted from except for good reasons. There are, however, some ex- 
 ceptions to it. Actions of assumpsit may be maintained in some in- 
 stances where there is no express contract with the plaintiff and where 
 the consideration does not move from him. If A. receives money from 
 B. to be paid to C, C. may maintain an action against A. These cases, 
 however, are exceptions only in appearance. They in fact recognize 
 the general rule and are really within it ; for the action is not brought 
 on the express promise by A. to B., but on an implied promise by A. to 
 pay the money to C. 
 
 Another class of exceptions is where the contract has for its object 
 a benefit to a third party and is made with that intent. Some early 
 English cases in which promises were made to a father or uncle for 
 the benefit of a child or nephew are instances of this class. There 
 may also be cases in which a third party may have some peculiar equity 
 in the subject-matter of a contract which will enable him to maintain 
 a bill in equity to enforce it. 
 
 Does this case fall within any exception recognized by authority and 
 supported by principle ? Before alluding to decided cases let us examine 
 the case with some care in the light of the circumstances, for the pur- 
 pose of discovering just what the intention of the parties was and pre- 
 cisely what the defendant promised to do. 
 
Ch. 4) RIGHTS OF THIRD PARTIES IX CONTRACTS 253 
 
 What was the transaction? It was not a sale of a piece of land 
 for a fixed price, equal to the value of the land, so as to create a debt 
 for that sum ; but was simply a sale of the equity of redemption. The 
 distinction between the land, unincumbered, and an equity of redemp- 
 tion, is obvious enough, and is an important one, as on it depend in a 
 great degree the rights and obligations of the parties. The defendant 
 purchased the equity of redemption. The finding is that the mort- 
 gagor "conveyed to the defendant said real estate subject to said mort- 
 gage."' So that the only debt brought into existence by the transaction 
 was the price agreed to be paid for the equity of redemption. The 
 mere purchase raised no debt to the mortgagor which the defendant 
 was to discharge by paying the incumbrance. By the contract of as- 
 sumption he obliged himself to the mortgagor to pay the mortgage debt. 
 Whether that raised any personal obligation to the mortgagee is the 
 question in tlie case. If the probable intention of the parties is to 
 govern it is difficult to find any such liability in the transaction. The 
 mortgagee was not a party to it, no part of the consideration moved 
 from him, and he was in no worse condition because of it. He still 
 had the security of the land and the personal responsibility of the 
 mortgagor, and that is all he contracted for or required. The parties 
 contracted with reference to their own interests, not his ; to benefit 
 themselves, not him. He had no legal or equitable interest in the 
 contract and there is no room for the presumption that it was intended 
 for his benefit. 
 
 There was no agency, express or implied. The mortgagor would 
 doubtless be surprised at the suggestion, should it be made, that he was 
 acting as the agent of the mortgagee. There was no substitution or 
 novation, for that requires three parties, and here were only two ; 
 besides the original debtor was not discharged. 
 
 It was not the object of the parties to give the mortgagee additional 
 security ; and to interpret it in that sense is to give it a force and 
 meaning never contemplated by the parties, and is in effect making a 
 contract for them. The only contract which tliey made was simply 
 this, the defendant agreed that he would pay the mortgagor's debt. The 
 promisee alone had the legal and equitable interest. It follows that 
 he alone can enforce it unless he imparts that right to others. That 
 he may sue will not be disputed. If the mortgagee has that right by 
 force of the contract, then two persons wholly independent of each 
 other have an equal right. If either may sue both may, and a suit by 
 one will not abate or bar a suit by the other ; and a discharge by one 
 for any cause short of a fulfillment will not discharge the contract. 
 Thus the promisor may be harassed with two suits at the same time 
 on the same contract, and if he would compromise with the promisee 
 he must obtain the consent of a stranger. If this is the law it- is an 
 anomaly, for another instance of this kind is hardly to be found in 
 the 'whole range of jurisprudence. 
 
 We are aware that there are decisions from courts of the highest 
 authority, and whose opinions are entitled to the highest respect, which 
 hold that the creditor may sue on such contracts ; perhaps it is not too 
 much to say that the prevailing current of authority in this country is 
 in that direction; but believing as we do that they are not founded 
 in good reason or sound policy we cannot accept them as law. The 
 question is an open one in this State, and principle, rather than prece- 
 dents not founded in principle, should determine it. 
 
254 CONTRACTS (Part 1 
 
 We cannot undertake to 'examine in detail the cases alluded to ; we 
 can only refer in a general way to the reasoning by which they are 
 supported. It is interesting to note the various grounds on which 
 they stand, some of which are not only weak in themselves, but fail 
 to strengthen the others. It is an argument of no little weight againfet 
 the correctness of decisions that they seem to require disconnected 
 and inharmonious reasons to sustain them. 
 
 Some of the cases seem to proceed "upon the broad principle that 
 if one person makes a promise to another, for the benefit of a third 
 person, that third person may maintain an action on the promise ;" and 
 that without regard to the question whether the benefit of a third per- 
 son was the principal thing intended or was a mere incident. Law- 
 rence V. Fox, 20 N. Y. 268. * * * 
 
 In cases of this class the reasoning is not uniform. In some it is 
 suggested that from the express promise to the promisee the law im- 
 pHes a promise to the third person. In others the principle of agency 
 is invoked, and the mortgagor in making the contract is treated as the 
 agent of the mortgagee. The difficulty with this last position is that 
 it is contrary to the facts. 
 
 In Urquhart v. Brayton, 12 R. I. 169, Durfee, C. J., holds the de- 
 fendant liable to a third- person on the ground of a novation, while 
 Potter, J., in the same case places the liability on the ground of money 
 had and received. There seem to be several diiificulties , in treating it 
 as a novation; first, it changes the nature of the contract; second, it 
 requires a third party, and here are but two; and third, an essential 
 element of a novation is wanting, the discharge of the original debtor. 
 
 In other cases the transaction is treated as a sale of the land irre- 
 spective of the mortgage and a retention by the purchaser of a portion 
 of the purchase-money, to be paid to the mortgagee. * * * When 
 the circumstances will warrant that view of the lacts there is no dilncul- 
 ty. In such cases the debtor actually places or leaves the money in the 
 hands of the promisor to be paid to the creditor, and the action for 
 money had and received may be maintained, not on a promise to the 
 debtor but on an implied promise to the creditor. 
 
 Other cases, and this class includes a large number, resort to the 
 doctrine of suretyship. * * * We agree that that ground would be 
 tenable, in equity at least, if that was the real contract between the 
 parties; that is, if the parties really intended by the transaction to 
 furnish additional security to the creditor. If not, it seems to us dif- 
 ficult to support the decisions upon that ground. In order to do so 
 the court must assume without reason and contrary to the fact that 
 such was the object and purpose of the contract. We have already 
 endeavored to show that it was not. Let us examine the subject a 
 little further. There is no express contract of suretyship. Whatever 
 element of suretyship there is results by operation of law from, the 
 position in which the parties place themselves. The defendant agreed 
 with the debtor that he would pay the debt. As between themselves 
 he thereby became the principal debtor. The original debtor not being 
 discharged he was also liable to the creditor. If compelled to pay 
 he was a surety' only in this, that he had a right to call on the defend- 
 ant to indemnify him. But all this did not affect the creditor and he 
 is not a party to it. What interest has he in the transaction? And in 
 what consists his equity ? To make that relationship available to him, 
 it is necessary not only to bring him into contract relations with the 
 
Ch. 4) EIGHTS OF THIRD PARTIES IN CONTRACTS 255 
 
 Other parties, but also to reverse the positions of the principal and 
 surety and make the purchaser the surety instead of the principal. 
 Upon what principle can that be done ? By what process of reasoning 
 can it be vindicated? Again, there is no implication of suretyship as 
 between the creditor and the other parties, as no such implication is 
 necessary in order to give full effect to the intention of the parties. 
 
 We come now to a class of cases which constitutes an important ex- 
 ception to the rule we are considering, that suits must be brought by 
 the party making the contract and from whom the consideration mov- 
 ed. We refer to those cases in which the parties confessedly con- 
 tracted for the benefit of third persons, not incidentally but as the 
 principal object. Some of the cases cited by the plaintiffs are cases 
 of this description and are not applicable to the case at bar. There 
 may be cases, however, in which this principle is invoked to sustain 
 actions by the mortgagee against the purchaser of the equity of redemp- 
 tion. 
 
 The principle itself is best illustrated by a brief reference to a few 
 of the leading cases. In Dutton v. Pool, 1 Vent. 318, the defendant 
 promised the father to pay the daughter a sum of money as a mar- 
 riage portion. It was held that the daughter might sue on the prom- 
 ise. The relation of the father to the daughter and his obligation to 
 give her a marriage portion seem to be adopted as a substitute for 
 privity of contract. Some of the decisions in the state of New York 
 have taken a similar view and treat the obligation of the mortgagor to 
 the mortgagee as a "substitute for privity," or "privity by substitu- 
 tion," to connect the mortgagee with the contract. Vrooman v. Tur- 
 ner, 69 N. Y. 280, 25 Am. Rep. 195. * * * Dutton v. Pool, in 
 modern times in this country, would be upheld on the ground that the 
 promise was intended for the benefit of the daughter as its object. 
 
 In Felton v. Dickinson, 10 Mass. 287, the defendant promised the 
 father of a minor son to pay the son a sum of money for his services. 
 After performing the service it was held that the son might maintain 
 an action in his own name. * * * 
 
 And yet this exception seems not now to be recognized in England. 
 Tweddle v. Atkinson, 1 B. & S. 393. Even in Massachusetts the 
 tendency is to narrow the exception and adhere more rigidly to the 
 rule. Exchange Bank v. Rice, 107 Mass. 39, 9 Am. Rep. 1. It seems 
 to us that the exception to the rule is a reasonable one and should pre- 
 vail. 
 
 The question then recurs, is the case at bar within the exception? 
 We have already expressed our views as to the nature of the contract 
 and the real intent of the parties. If we are right it is clear that the 
 question must be answered in the negative. 
 
 That the incidental advantage to the creditor (if it is an advantage 
 to have his debt paid by one man rather than another) is not such a 
 benefit as the exception contemplates, is apparent from a consideration 
 of the possible and even probable consequences of holding it to be so. 
 The case before us affords a good illustralion. The debtor is insol- 
 vent, and the property mortgaged has largely depreciated, so that it 
 fails to pay the debt. Now if the plaintiffs may recover the balance 
 of the defendant, they have a security for their debt which they did 
 not originally have, which they never contracted for, and which the 
 contracting parties did not intend they should have. It in effect makes 
 him the absolute guarantor of the debt. 
 
256 CONTRACTS (Part 1 
 
 Whatever doubt may have existed as to the state of the law in New 
 York on this subject, it seems to be set at rest, for the present at least, 
 by recent decisions. In Garnsey v. Rogers, 47 N. Y. 233, 7 Am. Rep. 
 440, which was an action like this, the court says, by Rapallo, J. : "I 
 do not understand that the case of Lawrence v. Fox, 20 N. Y. 268, has 
 gone so far as to hold that every promise made by one person to an- 
 other, from the performance of which a third would derive a benefit, 
 gives a right of action to such third party, he being neither privy to 
 the contract nor to the consideration. To entitle him to an action the 
 contract must have been made for his benefit. He must be the person 
 intended to be benefited. * * * if such a contract could be enforc- 
 ed by the creditor who would be incidentally benefited by its perform- 
 ance, every agreement by which one party should agree with another, 
 for a consideration moving from him, to become security for him to his 
 creditors, or to advance money to pay his debts, could be enforced by 
 the parties whose claims are thus to be secured or paid. I do not 
 understand any case to have gone this length." * * * 
 
 We advise the Superior Court to render judgment for the defend- 
 ant. 
 
 Judgment accordingly. 
 
 THE HOME V. SETTLING et al. 
 (Supreme Court of Oregon, 1919. 91 Or. 428, 179 Pac. 261.) 
 
 Action by The Home, a corporation, against Ben Selling and another, 
 executors, and others. Judgment for plaintiff, and defendants ap- 
 peal. 
 
 The plaintiff and the defendant Emanuel May Investment Company 
 are corporations. Emanuel May, the individual, died during the prog- 
 ress of this litigation, and his personal representatives were substi- 
 tuted. 
 
 On November 21, 1910, George E. Jacobs and his wife gave their 
 note to the plaintiff for $40,000, due ten years from date, with "inter- 
 est thereon quarter yearly at the rate of six per cent, per annum from 
 date until paid." They stipulated therein that, "in case suit is insti- 
 tuted to collect this note or any part thereof," they would pay a rea- 
 sonable attorney's fee to be determined in the suit. At the same time 
 they gave their mortgage to the plaintiff on certain real property in 
 Portland, Ore., and "covenanted and agreed to pay all sums of money, 
 the principal and interest, specified in said promissory note at the time 
 therein designated." On February 25, 1913, they conveyed the prem- 
 ises to Emanuel May by deed duly executed, containing a statement to 
 the effect that the property was subject to the mortgage mentioned, 
 and that "the grantee herein in part consideration for this conveyance 
 assumes payment of the $40,000 unpaid balance of the first of said 
 mortgages and the interest accrued and to accrue thereon." After- 
 wards May conveyed to the investment company by deed which re- 
 ferred to the premises and the mortgage and contained the following 
 words : 
 
 "And Emanuel May * * * does covenant to and with Emanuel 
 May Investment Company, * * * that the above-named premises 
 are free from all incumbrances except the following mortgages, which 
 are as a part of the purchase price, assumed by Emanuel May Invest- 
 ment Company. * * * Mortgage of $40,000 in favor of The 
 Home, a corporation. * * * " 
 
Ch. 4) RIGHTS OF THIRD PARTIES IN CONTRACTS 257 
 
 This action was brought against Emanuel May, the grantee of Ja- 
 cobs and his wife and against the investment company, May's grantee, 
 to recover the interest on the note from November 21, 1915, to Febru- 
 ary 21, 1917, amounting to $3,000, and the plaintiff claims $300 as a 
 reasonable attorney's fee. 
 
 Burnett, J. One of the principal questions to be determined is 
 whether or not the defendants contracted to pay the mortgage, and 
 whether the mortgagee can maintain an action directly against them. 
 
 According to the decisions in this state, where one accepts a deed 
 which not only recites the mortgage, but adds that the grantee assumes 
 it he becomes personally liable to pay the mortgage. * * * It is 
 plain, therefore, that the acceptance of the deeds mentioned, containing 
 the clauses already quoted, made May and the investment company 
 personally liable to pay the mortgage debt. 
 
 The original general rule was that one who is not a party to a con- 
 tract cannot bring an action on it in a court of law, although he might 
 be benefited by its fulfillment. * * * Oregon precedents are nu- 
 merous to the effect that, on a contract properly made for the benefit 
 of a third person, he can bring an action directly against the promi- 
 sor. * * * 
 
 It is said in 13 C. J. 705, § 815 : "In most of the states the Eng- 
 lish doctrine that where a person makes a promise to another for the 
 benefit of a third person the latter cannot maintain an action on it is 
 not recognized to the full extent, but it is held, subject to the qualifica- 
 tions hereafter stated, that the action may be maintained. This is now 
 the prevailing doctrine in the United States'' — citing a wealth of au- 
 thorities. 
 
 But it is not every agreement to discharge an obligation to a third 
 party that will support an action at law by the latter. The principle 
 is thus stated by Mr. Chief Justice Bean in Washburn v. Interstate 
 Investment Co., 26 Or. 436, 441, 38 Pac. 620, 621 : "The prevailing 
 doctrine in this country undoubtedly is that, where one person, as a 
 consideration or part consideration for an executed contract, prom- 
 ises another, for a consideration moving from him, to pay or discharge 
 some legal obligation or debt due from such other to a third person, the 
 latter, although a stranger to the consideration, and not an immediate 
 party to the contract, may maintain an action thereon, if it was made 
 directly and primarily for his benefit." 
 
 In Vrooman v. Turner, 69 N. Y. 280, 2o Am. Rep. 195, the follow- 
 ing language was used, and approved in Kansas City Sewer Pipe Co. v. 
 Thompson, 120 Mo. 218, 25 S. W. 522: "To give a third party who 
 may derive a benefit from the performance of the promise an ac- 
 tion, there must be : First, an intent by the promisee to secure some 
 benefit to the third party; and, second, some privity between the 
 two, the promisee and the party to be benefited, and some obligation 
 or duty owing from the former to the latter which would give him 
 a legal or equitable claim to the benefit of the promise, or an equiva- 
 lent from him personally." 
 
 The present case comes within the doctrine thus announced, which, 
 we think, is well settled by the authorities. The stipulation to pay 
 the mortgage was for the benefit of the holder thereof, directly. There 
 was a privity between the mortgagor, who is the promisee, and the 
 holder of the mortgage, resulting from that instrument. There was 
 B.& B. Bus. Law— 17 
 
258 CONTRACTS (Part 1 
 
 an obligation from the original mortgagor to the mortgagee to pay; 
 hence, when the mortgagor conveyed his property to May, who as- 
 sumed the mortgage, at once an obligation arose which, under our 
 precedents, considering the lex fori, could be enforced by an action at 
 law. '* * * 
 
 One reason given by the courts which refuse to enforce such an obli- 
 gation except in equity, is that the immediate parties to the agreernent 
 could annul the same, but that matter is controlled by this doctrine, 
 that such a contract cannot be rescinded by the parties thereto after 
 it has been acted upon or accepted by the third party. * * * 
 
 Bringing an action by the mortgagee on the contract for his benefit 
 is an acceptance thereof by him. * * * If the rescission of the con- 
 tract by Jacobs had been mooted here, it is foreclosed by the institu- 
 tion of this action, which makes it impossible now to abrogate it with- 
 out the consent of the plaintiff. * * * 
 
 The second defense, to the effect that neither May nor the invest- 
 ment company ever entered into any contract or. agreement with the 
 plaintiff to pay it any sum of money whatever, is sham, in the legal 
 sense, because, as the record discloses, the acceptance of the deed 
 drawn in the form stated amounts to a contract to pay the mortgage 
 to the holder thereof. * * * 
 
 In assuming the payment of the mortgage the covenant therein as 
 distinguished from the separate personal note was the measure of the 
 grantee's duty. The obligation assumed by him must be construed 
 ■ according to its terms, and is not to be enlarged beyond them. The 
 present grantees did not agree to respond directly to the conditions 
 of the note, but only to the mortgage, which latter instrument does 
 not directly bind them to pay more than the principal and interest on 
 the note ; hence the attorney's fee must be laid out of the case, al- 
 though the note itself is quoted in the complaint. * * * 
 
 On the authority of Hicks v. Hamilton, 144 Mo. 495, 46 S. W. 432, 
 66 Am. St. Rep. 431, the contention is made that the investment com- 
 pany is a remote grantee, and as such is not liable here. In that case 
 the mortgagor conveyed his land merely "subject to the mortgage," 
 without requiring his grantee to assume or pay the incumbrance. The 
 latter in turn deeded the tract to another by an indenture which re- 
 quired the grantee to "assume and pay the mortgage." Thds the con- 
 tinuity lof personal liability was interrupted so that its chain did not 
 unite the original mortgagee with the ultimate grantee, and for this 
 reason it was held that the latter was directly liable to the former. 
 The case at bar is different because the clause assuming and agreeing 
 to pay the mortgage is common to both successive conveyances, which 
 constitutes an unbroken sequence of personal liability from the original 
 mortgagors down to the last grantee. Of course there can be but one 
 satisfaction of the demand, although both grantees are liable. 
 
 The result is that the judgment is modified by allowing the plaintiff 
 to recover from tlie defendants the sum of $3,000, without any attor- 
 ney's fees. 
 
Ch. 4) RIGHTS OF THinn parties in contracts 259 
 
 SECTION 4.— NATURE AND REQUISITES OF AN 
 ASSIGNMENT 
 
 From the preceding cases, it appears that, in many jurisdictions, 
 it is possible for a third party to acquire rights in a contract between 
 other persons and that such rights arise out of the express provi- 
 sions of the contract. It is also possible for one to acquire inter- 
 ests in a contract between other persons by virtue of an act per- 
 formed by one of the parties to the contract subsequent to its for- 
 mation. Such an, act is called an assignment. The party who 
 executes it is called the assignor, and the party to whom the right 
 is transferred is called the assignee. An assignment, therefore, is 
 the manifestation, in some form prescribed by law, of the intention 
 of the assignor to substitute the assignee in his place with respect 
 to the right or other relation assigned. When tangible personal 
 property is the subject of a transfer by an owner who is parting 
 with his entire interest, we speak of sucji transaction as a sale. The 
 parties are referred to as vendor and vendee, or, more commonly, 
 as buyer and seller. When the subject of the transfer is land, the 
 transferor is called the grantor, and the transferee, the grantee. 
 When the subject of transfer is some right other than the rights 
 and other relations constituting ownership of tangible property, it 
 is common to speak of such an interest as a chose in action and to 
 speak of its transfer as an assignment. Sales of tangible personal 
 property, grants of land, and assignments of choses in action have 
 many points in common. The sale of a horse, a grant of a farm, 
 and the assignment of the right to demand payment of $100 from 
 the assignor's debtor, all have this in common: Each transaction 
 is for the purpose of placing the transferee in the same position with 
 respect to the subject-matter of the transfer as the transferor occu- 
 pied. But there are a great many differences in these transac- 
 tions. A special body of rules has been developed which relate to 
 the transfer of land. This branch of the law is not taken up in 
 this volume. There is also a special body of rules pertaining to 
 sales of personal property. This branch of law furnishes the sub- 
 ject-matter of Part IV of this volume. The cases following indi- 
 cate some of the general problems which grow out of assignments 
 of choses in action. In Part III of this volume, we take up, in some 
 detail, the study of the methods of transfer, the rights and liabilities 
 of parties with respect to that special type of chose in action known 
 as a negotiable instrument. The expression "chose in action" in- 
 cludes claims which arise other than from contracts, but in the cases 
 following we are chiefly concerned with questions relating to the 
 assignment of rights arising out of contracts. 
 
 What are some of the more important problems pertaining to 
 assignments? In the first place, it is necessary to ascertain what 
 methods have been prescribed to effectuate a transfer of a chose 
 in action. If A. owes B. $100, may B. give to C. the right to de- 
 mand payment from A., or is consideration necessary for the trans- 
 
260 CONTRACTS (Part 1 
 
 fer? Are there any requirements as regards form? The next ques- 
 tion to' arise is: Are all kinds of rights assignable? A. may owe 
 B. the duty of paying B. $100, or of refraining from doing certain 
 things, or of transferring to B. certain interests in property. Are 
 any or all of these rights of B. capable of assignment by B. ? Again, 
 the question may arise: Are duties assignable? This question 
 has a double aspect. B. owes a certain duty to A. May B. assign or 
 delegate this duty to C. in such a way as to relieve himself from 
 all further duty to A., so that, even in the event that C. failed to 
 perform, B. would not be liable to A. for non-performance? If 
 this cannot be done, may B. at least delegate the duty to C, so that, 
 if C. does perform, A. will be obliged to accept /C.'s performance or 
 tender of performance, just as if it were made by B. Finally, the 
 question arises as to the nature of the interest acquired by the 
 assignee. Does the assignee take the right, subject to all the de- 
 fenses and claims of other parties, including prior assignees, to 
 which it was subject in the hands of the assignor; or, will the 
 assignee, if he is ignorant of these outstanding claims and defenses 
 possessed by the assignor's obligor, take free from such claims of 
 ownership and defenses? 
 
 ANN1N6 V. ANNING et al. 
 (High Court of Australia, 1907. 4 0. L. R. 1049.) 
 
 Griffith, C. J. The question for determination in this case is as to 
 the effect to be given to an instrument under seal executed by William 
 Anning a few days before his death, and alleged to have been made 
 with a view to avoid payment of succession duty. The instrument, 
 which was in form a deed poll, witnessed that Anning freely and vol- 
 untarily conveyed to his wife (the appellant) and his five infant chil- 
 dren (the respondents) all his personal estate of whatsoever nature 
 and wheresoever situate, including a station called Chudleigh Park, his 
 share in another pastoral property called Mount Sturgeon, all cattle 
 and horses thereon, and all moneys lying to his credit in three banks, 
 to be equally divided between the donees. * * * 
 
 Cooper, C. J., * * * held that the deed was intended to operate 
 as an immediate irrevocable gift. * * * 
 
 The whole law on the subject is contained in the judgment of Turner, 
 L. J., in Milroy v. Lord, 4 De. G., F. & J. 264, 274 : "I take the law of 
 this court to be well settled, that, in order to render a voluntary set- 
 tlement valid and effectual, the settlor must have done everything 
 which, according to the nature of the property comprised in the settle- 
 ment, was necessary to be done in order to transfer the property and 
 render the settlement binding upon him. He may of course do this by 
 actually transferring the property to the persons for whom he intends 
 to provide, and the provision will then be effectual, and it will be equal- 
 ly effectual if he transfers the property to a trustee for the purposes 
 of the settlement, or declares that he himself holds it in trust for those 
 purposes ; and if the property be personal, the trust may, as I appre- 
 hend, be declared either in writing or by parol ; but, in order to render 
 the settlement binding, one or other of these modes must, as I under- 
 stand the law of this court, be resorted to, for there is no equity in 
 this court to perfect an imperfect gift." * * * 
 
Ch. 4) RIGHTS OF THIRD PARTIES IN CONTRACTS 261 
 
 It seems clear to me that the testator intended to divest himself of his 
 legal ownership. The question therefore arises, and must be answered 
 with respect to each class of property described in the deed, whether 
 the donor did everything which, according to the nature of the prop- 
 erty, was necessary to be done in order to transfer the property and 
 make the gift binding upon himself. * * * 
 
 With regard to some of the property no difficulty arises. The Chud- 
 leigh Park Station was held under lease from the Crown, which by 
 law was transferable by an instrument duly executed and registered in 
 the Lands Department. Anning did not execute any such instrument. 
 The attempted gift of this leasehold was therefore ineffectual. The 
 same consequences follow as to certain promissory notes payable to 
 order, which the donor failed to endorse. With regard to the donor's 
 share in the Mount Sturgeon property and the stock upon it, his inter- 
 est, being equitable only, was effectually assigned by the deed. 
 
 With regard to his money in the banks, some of which was on fixed 
 deposit and some at current account, a more difficult question arises. 
 The donor's interests in all these funds were choses in action. In 
 Fortescue v. Barnett, 3 Myl. & K. 36, Sir John Leach, M. R., held that 
 a voluntary assignment by deed of a policy of life assurance was valid 
 and complete without notice to the assurance company. He put the 
 case on the same footing as an assignment of a bond, and seems to 
 have thought tha*' as all property is assignable in equity by some means 
 or other, and as no other way of assigning a chose in action than by 
 some writing can be suggested, an assignment by deed is sufficient. 
 In Edwards v. Jones, 1 My. & C. 226, however, Lord Cottenham, C, 
 said that the decision in F^ortesctie v. Barnett, supra, depended upon 
 the relationship of trustee and cestui que trust having been completely 
 created between the assignor and assignee. He did not elaborate his 
 reasons for taking this view, but on consideration they will, I think, 
 be found to be these: Although a legal chose in action was not as- 
 signable at law, a court of equity would give effect to it by allowing 
 the assignee to sue the debtor in his own name. As between the as- 
 signee and the debtor the absence of consideration for the assignment 
 was immaterial. But in such a suit the assignee was bound to join 
 the assignor as a defendant. The foundation of the jurisdiction of 
 the court of equity in such a case was that the assignor would not 
 take the necessary action at law to enable the assignee to get tlie benefit 
 of the assignment. But this assumes some breach of duty on the part 
 of the assignor, against the consequences of which the court will re- 
 lieve the assignee. In the absence of consideration for the assignment 
 it is clear that there is no such breach of duty, unless the assignor has 
 become a trustee for the assignee. Another way of arriving at the 
 same result is to say that a suit by the assignee of a legal chose in 
 action against the debtor was only an instance of the class of suits 
 by a cestui que trust in respect of trust property when the trustee re- 
 fuses to take the necessary steps for its protection. 
 
 Unless, therefore, this relation existed between the assignor and as- 
 signee the court would not interfere in the absence of valuable con- 
 sideration for the assignment. * * * 
 
 In my opinion, * * * the donees are entitled to the benefit of the 
 fund in question. Assuming that the gift, qua gift, fails, the deed, 
 nevertheless, * * * operated as a covenant. The implied cove- 
 nant is not to do anything which will have the effect of preventing the 
 
'262 CONTRACTS (Part 1 
 
 donee from obtaining the benefit of this donation. A receipt of the 
 debt by the donor or his executor before notice given by the donee to 
 the debtor would be a breach of this obHgation, for which an action at 
 law would lie by the donee against the donor or his executor, in which 
 action the amount of the debt, or so much of it as was received by the 
 donor or his executor, could be recovered. * * * 
 
 For these reasons I am of opinion that the assignment was efifectual 
 as to the bank deposits. These considerations do not apply to the 
 promissory notes, as to which the donees could not by any act on their 
 part perfect their title without endorsement by the donor. * * * 
 
 With respect to the horses and cattle and other chattel property, ca- 
 pable of manual delivery comprised in the deed, the gift would be valid 
 according to the law of England, which allows such property to be 
 transferred either by delivery or by instrument under seal. But tlje 
 law of Queensland is different. By the Bills of Sale Acts 1891 a deed 
 purporting to transfer chattels is absolutely void, even as between the 
 
 assignor and assignee, until registered as • prescribed by that Act. 
 
 ^ ^ ^ 
 
 [Dissenting opinion of Higgins, J., omitted.] 
 
 In re SJriTH'S ESTATE. 
 
 Appeal of PENNSYLVANIA CO. 
 
 (Supreme Court of Pennsylvania, 1891. 144 Pa. 428, 22 Atl. 916, 
 27 Am. St. Rep. 641.) 
 
 Accounting of the Pennsylvania Company for Insurance on Lives 
 and Granting of Annuities, as executor of the estate of Thomas Smith, 
 deceased. Henry S. Parmalee, as guardian of Thomas Smith Kelly, 
 claimed and was awarded certain bonds left by testator, on the ground 
 that testator held them in trust for said ward. The executor appeals. 
 
 Clark, J. The appellant is the Pennsylvania Company for Insur- 
 ance on Lives and Granting Annuities, trustee under the will of Thom- 
 as Smith, deceased; the appellee, Henry S. Parmalee, guardian of 
 Thomas Smith Kelly, a minor. The proceeding was the adjudica- 
 tion of an account, filed by the trustee under the will of Thomas Smith, 
 of the principal and income of $13,000 of Pensacola & Atlantic Rail- 
 road Company's coupon bonds, which the said trustees claimed were 
 part of the estate of decedent, and passed to them under his will. The 
 guardian of Thomas Smith Kelly, a minor, appeared before the audit- 
 ing judge, and claimed that the bonds had been held by the testator 
 in trust for said minor, and should be awarded to the latter's guard- 
 ian. The auditing judge and the judges of the orphans' court sus- 
 tained the guardian's claim, and awarded him the fund. 
 
 The owner of personal property, in order to make a voluntary dis- 
 position of it, may, by a proper transfer of the title, make a gift of 
 it direct to the donee, or he may impress upon it a trust for the benefit 
 of the donee. It is well settled, however, that whether a gift or a trust 
 is intended, if the transaction still remains imperfect and executory, 
 equity will not aid in its enforcement. The expression of a mere in- 
 tention to create a trust, therefore, without more, is insufficient. Like 
 a promise to give, it will not be enforced in equity. * * * Almost all 
 trusts are in a certain sense executory. Ordinarily, a trust cannot be 
 
Ch. 4) RIGHTS OF THIRD PARTIES IN CONTRACTS 263 
 
 executed except by conveyance. There is, in most cases, something 
 to be done. But this is not the sense in which a trust is said to be 
 executory. An executory trust, properly so-called, is one in which 
 the limitations are imperfectly declared, and the donor's intention is 
 expressed in such general terms that something not fully declared is 
 required to be done in order to complete and perfect the trust, and 
 to give it effect. When the limitations of a trust are fully and per- 
 fectly declared, the trust is regarded as an executed trust. * * * 
 Nor in such case, if it appear that the intention of the donor was to 
 adopt either one of these methods of disposition, will a court resort to 
 the other for the purpose of carrying it into effect. What is clearly in- 
 tended as a voluntary assignment or a gift, but is imperfect as such, 
 cannot be treated as a declaration of trust. If this were not so, an 
 expression of present gift would in all cases amount to a declaration 
 of trust, and any imperfect gift might be made effectual simply by 
 converting it into a trust. 
 
 There is no principle of equity which will perfect an imperfect gift, 
 and a court of equity will not impute a trust where a trust was in con- 
 templation. * * * Upon the same ground it has been held that a 
 paper of a testamentary character, but invalid for want of proper exe- 
 cution, cannot be enlarged or converted into a declaration of trust. 
 
 * * * In Richards v. Delbridge, L. R. 18 Eq. 11-13, it was held 
 
 * * * that to create a trust there must be the expression of an in- 
 tention not to create a present gift, but to become a trustee. * * * 
 Although the cases may not be altogether consistent, the rule is now, 
 we think, well settled in accordance with the doctrine declared in Rich- 
 ards V. Delbridge, supra, that, if the transaction is intended to be ef- 
 fected by gift, the court will not give it effect by construing it as a 
 trust. It is well settled that nothing can take effect as an assignment 
 or gift which does not manifest an intention to relinquish the right of 
 dominion on one hand and to create it on the other. If the donor has 
 perfected his gift as he intended, and has placed the subject beyond his 
 power or dominion, the want of consideration is immaterial ; the donee's 
 right will be enforced. A gift can only be effectual after the intention 
 to make it has been accompanied by delivery of possession or some 
 equivalent act. If it is not, the transaction is not a gift, but a contract 
 merely. If a trust is intended, it will be equally effectual whether the 
 donor transfer the title to the trustee or declare that he himself holds 
 the property for the purposes of the trust. "It is well settled that the 
 owner of personal property may impress upon it a valid present trust, 
 either by a declaration that he holds the property in trust, or by a trans- 
 fer of the legal title to a third party upon certain specified trusts ; in 
 other words, he may constitute either himself or another person trustee. 
 If he makes himself trustee, no transfer of the subject-matter is nec- 
 essary ; but if he selects a third party, the subject of the trust must be 
 transferred to him in such mode as will be effectual to pass the legal 
 title." * * * In Richards v. Delbridge, I.. R. 18 Eq. 11-13, Sir 
 George Jessel said : "A man may transfer his property without valu- 
 able consideration in one of two ways : He may either do such acts as 
 amount in law to a conveyance or assigriment of the property, and thus 
 completely divest himself of the legal ownership, in which case the per- 
 son who by those acts acquires the property takes it beneficially or on 
 trust as the case may be; or the legal owner of the property may, by 
 one or other of the methods recognized as amounting to a valid declara- 
 
264 CONTRACTS (Part 1 
 
 tion of trust, constitute himself a trustee, and, without an actual trans- 
 fer of the title, may so deal with the property as to deprive himself 
 of its beneficial ownership, and declare that he will hold it from that 
 time forward in trust for the other person." * * * 
 
 If the donor makes a third party a trustee, he must transfer to him 
 the subject of the trust in such mode as will be effectual to pass the 
 title. The transaction, as in the case of a gift, to be effectual, must be 
 accompanied by delivery of the subject of the trust, or by some act so 
 strongly indicative of the donor's intention as to be tantamount to such 
 a delivery; but where the donor makes himself the trustee, no transfer 
 of the subject-matter is necessary. * * * In such cases no assign- 
 ment of the legal title is required, for the nature and effect of the trans- 
 action is that the legal title remains in the donor for the benefit of the 
 donee. It is conceded that, as the bonds of the Pensacola & Atlantic 
 Railroad Company — the bonds in question — were not delivered to 
 Thomas Smith Kelly by Thomas Smith, the transaction cannot be sus- 
 tained as a gift. It is clear that a gift was not in contemplation, and 
 the only question for our determination is whether or not a complete 
 and valid trust was created, for a trust would seem to have been con- 
 templated. 
 
 There is no certain form required in the creation of a trust. In 
 the case of personal property or choses in action, trusts may be proved 
 by parol. If the declaration be in writing, it is not essential, as a 
 general rule, that it should be in any particular form. It may be 
 couched in any language which is sufficiently expressive of the inten- 
 tion to create a trust. "Three things, it has been said, must concur 
 to raise a trust — sufBcient words to create, a definite subject, and a 
 certain or ascertained object; and to these requisites may be added 
 another, viz., that the terms of the trust should be sufficiently de- 
 clared." Bisp. Eq. 65, citing Cruwys v. Colman, 9 Ves. 323. * * * 
 The intention must be a complete one, and this requisite is especially 
 applicable to trusts created by voluntary dispositions. "A mere in- 
 choate and executory design is not enough, and, unless there is some 
 distinct equity — as fraud, for example — it cannot be enforced." Bisp. 
 Eq. 65. The intention, must be plainly manifest, and not derived from 
 loose and equivocal expressions of parties, made at different times, 
 and upon different occasions ; but any words which indicate witla suf- 
 ficient certainty a purpose to create a trust will be effective in so doing. 
 It is not necessary that the terms "trust" or "trustee" should be used. 
 The donor need not say in so many words, "I declare myself a trus- 
 tee," but he must do something which is equivalent to it, and use ex- 
 pressions which have that meaning, for, however anxious the court 
 may be to carry out a man's intention, it is not at liberty to construe 
 words otherwise than according to their proper meaning. * * * jj-, 
 Heartley v. Nicholson, L. R. 19 Eq. 233, Vice Chancellor Bacon says : 
 "It is not necessary that the declaration of a trust should be in terms 
 explicit, but what I take the law to require is that the donor should 
 have evinced by his acts, which admit of no other interpretation, that 
 he himself had ceased to be, and that some other person had become, 
 the beneficial owner of the sUbject of the gift or transfer, and that 
 such legal right of it, if any, as he retained, was held in trust 'for the 
 donee." * * * 
 
 In the case at bar the subject of the alleged trust is certain, the 
 cestui que trust is particularly designated by name and identified, while 
 
Ch. 4) EIGHTS OP THIRD PARTIES IN CONTRACTS 265 
 
 the terms are specific, and, sufficiently shown. The contention is, how- 
 ever, that a trust upon these terms was not sufficiently declared ; th^t 
 the whole matter rested in^the undeclared and unexecuted intention 
 of the donor, and was, therefore, wholly without effect. Thomas 
 Smith, although a married man, had no children. He was the owner 
 of a large estate, the personalty alone aggregating about $1,000,000. 
 Thomas Smith Kelly was his nephew, his godson and namesake, and, 
 although his father and mother were both living, he lived with and 
 was maintained and educated by his uncle from the age of 3 years 
 until the time of the decedent's death, on the 20th of May, 1883, when 
 he was about 13 years of age. His uncle admittedly stood in loco pa- 
 rentis, which would seem to furnish a sufficient motive for making 
 this disposition of the bonds, and would have the like effect generally 
 to that which attends the relation of parent and child. * * * The 
 bonds were purchased 28th of January, 1882, and the death of the 
 decedent occurred on the 20th of May, 1883. A year or more before his 
 decease — which was presumably near the time when the bonds were 
 purchased — Thomas Smith, in a conversation with John H. Kelly, 
 the father of Thomas Smith Kelly, stated "he had laid by or appro- 
 priated some bonds for Tom." After his death, when his box in the 
 trust company's vaults was opened, the bonds in question were found 
 among his assets. The envelope in which they were contained was 
 indorsed: "13 bonds, $1,000 each, held for Tom Smith Kelly. [Sign- 
 ed] T. S. Pensacoia & Atlantic R. R. mortgage bonds." The envelope 
 contained bonds of that description and amount. In the decedent's 
 account-book was an entry in his own handwriting, as follows ; "* * * 
 $13,000 of these bonds I bought for, and are the property of, my 
 neohew and godson, Thomas Smith Kelly, and belong to him. Thom- 
 as'Smith. * * *" 
 
 In the absence of the precise terms "in trust," it is difficult to suggest 
 words more expressive of a trust than the words thus employed. We 
 are of opinion that the trust is fully established, and the decree of the 
 orphans' court is affirmed, and the appeal dismissed, at the costs of the 
 appellant. 
 
 SECTION 5.— INTERESTS CAPABLE OF ASSIGNMENT 
 
 RODI.JKEIT V. ANDREWS. 
 
 (Supreme Court of Ohio, 1906. 74 Ohio St. 104, 77 N. B. 747, 5 L. R. A. 
 |N. S.] 564, 6 Ann. Cas. 761.) 
 
 Summers, J. * * * The question presented is the right of a 
 person in the employ of another,^ in the absence of a contract for a defi- 
 nite time of employment, to assign future earnings from such employ- 
 ment. It is well settled that a mere expectancy or possibility is not 
 assignable at law, consequently wages to be earned in the future, not 
 under an existing engagement, but under engagements subsequently to 
 be made, are not assignable. If there is an existing employment, under 
 which it may reasonably be expected that the wages assigned will be 
 earned, then the possibility is coupled with an interest, and the wages 
 may be assigned. * * * 
 
266 CONTRACTS (Parti 
 
 Some of the early cases were to the effect that the engagement must 
 be for a time covering the wages assigned. * * * And later cases 
 held that the assignment was valid although the engagement was sub- 
 ject to be terminated at any time. But in Kane v. Clough, 36 Mich. 
 436, 24 Am. Rep. 599, Cooley, C. J., states that he is unable to dis- 
 tinguish a case of existing employment merely, where there is no con- 
 tract for a definite time, but only an employment, and an expectation 
 of continuous work, from a case of an existing contract for a fixed 
 time, but subject to the right to discharge at will, and, accordingly, it 
 is there ruled that an assignment of wages to be earned in the tature 
 under an existing employment is valid. * * * "When a party has 
 entered into a contract or arrangement, by the ordinary and legitimate 
 and natural operation of which he will acquire property, his existing 
 right thereunder is certainly not a mere naked hope; it is a possibil- 
 ity of acquiring property coupled with a legal interest in the contract. 
 The cargo to be obtained or the freight to be earned by a ship on. a 
 voyage already contracted for, the wages to be earned under an exist- 
 ing employment, the payment to become due under an existing build- 
 ing contract, are familiar examples." Pom. Eq. Jur. § 1286. "An as- 
 signment of his wages by a laborer, executed when he is not engaged 
 in, and not under contract for, the employment in which the wages are 
 to be earned, is too vague and uncertain to be' sustained as a valid 
 assignment and transfer of property." Lehigh Valley R. Co. v. 
 Woodring, 116 Pa. 513, 9 Atl. 58. But "an assignment of wages ex- 
 pected to be earned in the future in a specified employment, though 
 not under an existing employment or contract, is valid in equity." 
 Edwards v. Peterson, 80 Me. 367, 14 Atl. 936, 6 Am. St. Rep. 207. 
 The reason such an assignment is not good at law, but may be in eq- 
 uity, is tersely stated thus: "To make a grant or assignment valid at 
 law, the thing which is the subject of it must have an existence, actual 
 or potential, at the time of such grant or assignment. But courts of 
 equity support assignments not only of choses in action, but of con- 
 tingent interests and expectations, and also of things whirh b-- e no 
 present actual or potential existence, but rest in mere possibility only." 
 
 M: * >K 
 
 BRITISH WAGGON CO. et al. v. LEA & CO. 
 (Queen's Bench Division, 1880. 5 Q. B. Div. 149.) 
 
 The Parkgate Waggon Company, one of the plaintiffs, let to de- 
 fendants fifty railway waggons, for a term of seven years, lessor con- 
 tracting to keep them in repair. Pour years after the making of the 
 cbntract, the Parkgate Waggon Company assigned the contract 
 to the British Waggon Company, which agreed to do plaintiff's 
 duties under the contract. Defendants assert that this assi<rn- 
 ment is a breach of the contract, and that they may treat the contract 
 as being at an end. Plaintiffs bring suit for rental of the waggons. 
 
 CocKBURN, C. J. * * * The main contention on the part of the 
 defendants * * * was that, as the Parkgate Company had, by as- 
 signing the contracts, and by making over their repairing stations to 
 the British Company, incapacitated themselves to fulfill their obliga- 
 tion to keep the waggons in repair, that company had no right, as be- 
 tween themselves and the defendants, to substitute a third party to do 
 
Ch. 4) RIGHTS OF THIRD PARTIES IN CONTRACTS 267 
 
 the work they had engaged to perform, nor were the defendants 
 bound to accept the party so substituted as the one to whom they were 
 to look for performance of the contract; the contract was therefore 
 at an end. 
 
 The authority principally relied on in support of this contention was 
 the case of Robson v. Drummond, 2 B. & Ad. 303, approved of by 
 this court in Humble v. Hunter, 12 Q. B. 310. In Robson v. Drum- 
 mond, supra, a carriage having been hired of one Sharp, a coachmaker, 
 for five years, at a yearly rent, payable in advance each year, the car- 
 riage was to be kept in repair and painted once a year by the maker — 
 Robson being then a partner in the business, but unknown to the de- 
 fendant — on Sharp retiring from the business after three years had 
 expired, and making over all interest in the business and property in 
 the goods to Robson, it was held that the defendant could not be sued 
 on the contract — ^by Lord Tenterden, on the ground that "the defend- 
 ant might have been induced to enter into the contract by reason of 
 the personal confidence which he reposed in Sharp, and therefore 
 might have agreed to pay money in advance, for which reason the 
 defendant had a right to object to its being performed by any other 
 person" ; and by Littledale and Paike, JJ., on the additional ground 
 that ihe defendant had a right to the personal services of Sharp, and 
 to the benefit of his judgment and taste, to the end of the contract. 
 
 In like manner, where goods are ordered of a particular manufac- 
 •turer, another, who has succeeded to his business, cannot execute the 
 order, so as to bind the customer, who has not been made aware of 
 the transfer of the business, to accept the goods. The latter is entitled 
 to refuse to deal with any other than the manufacturer whose goods 
 he intended to buy. For this Boulton v. Jones, 2 H. & N. 564, is a 
 sufficient authority. The case of Robson v. Drummond, 2 B. & Ad. 
 303, comes nearer to the present case, but is, we think, distinguisha- 
 ble from it. We entirely concur in the principle on which the decision 
 in Robson v. Drummond, supra, rests, namely, that where a person 
 contracts with another to do work or perform service, and it can be 
 inferred that the person employed has been selected with reference to 
 his individual skill, competency, or other personal qualification, the 
 inability or unwillingness of the party so employed to execute the work 
 or perform the service is a sufficient answer to any demand by a 
 stranger to the original contract of the performance of it by the other 
 party, and entitles the latter to treat the contract as at an end, not- 
 withstanding that the person tendered to take the place of the con- 
 tracting party may be equally well qualified to do the service. Per- 
 sonal performance is in such a case of the essence of the contract, 
 which, consequently, cannot in its absence be enforced against an un- 
 willing party. But this principle appears to us inapplicable in the 
 present instance, inasmuch as we cannot suppose that in stipulating 
 for the repair of these waggons by the company — a rough description 
 of work which ordinary workmen conversant with the business would 
 be perfectly able to execute — the defendants attached any importance 
 to whether the repairs were done by the company, or by any one with 
 whom the company might enter into a subsidiary contract to do the 
 work. All that the hirers, the defendants, cared for in this stipulation 
 was that the waggons should be kept in repair; it was indifferent to 
 them by whom the repairs should be done. Thus if, without going 
 into liquidation, or assigning these contracts, the coinpany had en- 
 
2(»8 coxTiiACTS (Part 1 
 
 tered into a contract with any competent party to do the repairs, and 
 so had procured them to be done, we cannot think that this would 
 have been a departure from the terms of the contract to keep the wag- 
 gons in repair. While fully acquiescing in the general principle just 
 referred to, we must take care not to push it beyond reasonable lim- 
 its. And we cannot but think that, in applying the principle, the Court 
 of Queen's Bench in Robson v. Drummond, supra, went to the utmost 
 length to which it can be carried, as it is difficult to see how in re- 
 pairing a carriage when necessary, or painting it once a year, pref- 
 erence would be given to one coachmaker over another. Much work 
 is contracted for, which it is known can only be executed by means 
 of subcontracts; much is contracted for as to which it is indiflferent 
 to the party for whom it is to be done, whether it is to be done by 
 the immediate party to the contract, or by some one on his behalf. 
 * * * 
 
 We are therefore of opinion that our judgment must be for the 
 plaintiffs for the amount claimed. 
 
 PAIGE V. FAURR. 
 
 (Court of Appeals of New York, 1920. 229 N. Y. 114, 127 N. E. 898, 
 10 A. L. E. 649.) 
 
 Action by Paige against Faure. From judgment for plaintiff, de- 
 fendant appeals. 
 
 McLaughlin, J. On the 12th of December^ 1914, the appellant, a 
 dealer in automobile tires bearing his name, entered into a contract 
 with the respondent and one L,indner, the material terms of which, so 
 far as the question presented on the appeal is concerned, are as fol- 
 lows : Faure, for a period of one year, gave to Paige and Lindner the 
 exclusive agency in the United States, except the cities of Boston and 
 New York and certain territory adjacent thereto, to sell automobile 
 tires manufactured by and for him and bearing his name. He agreed 
 to sell the tires and make prompt delivery to Paige and Lindner at 
 the prices charged him for their manufacture by the B. F. Goodrich 
 Company, or any other manufacturer, plus $2 profit on each. He also 
 agreed to immediately consign to them a maximum of 30 tires, title 
 to which was to remain in him until sold ; they agreeing to promptly 
 inform him of sales made therefrom and to pay for all goods sold, 
 whether from consigned stock or those purchased outright, on the 
 20th of the month following the date of sale. They also agreed, upon 
 the execution of the contract, to purchase $1,000 worth of plaintiff's 
 goods, and to thereafter, during the life of the contract or any renew- 
 als thereof, carry and sell his stock ; he agreeing to renew the contract 
 from year to year at their 'option, provided they sold, during the year 
 immediately preceding the renewal, $10,000 worth of his goods and 
 gave him 30 days' written notice before the expiration of the contract 
 of an intention to renew. They purchased $1,000 worth of tires and 
 entered upon and continued to carry out the provisions of the contract 
 until some time in July following, when Lindner sold his interest in 
 the contract to Paige. Paige thereafter continued to perform until 
 some time in November ($10,000 worth of plaintiff's goods having in 
 the rheantime been sold), when he gave notice of his intention and re- 
 quested' a renewal of the contract for another year. Faure refused 
 
Ch. 4) EIGHTS OP THIRD PARTIES IN CONTRACTS 2G9 
 
 to renew, and thereupon this action was brought to recover the dam- 
 ages alleged to have been sustained. Plaintiff had a verdict for $5,- 
 000, upon which judgment was entered, from which defendant appeal- 
 ed to the Appellate Division, where the same (one of the justices dis- 
 senting) was affirmed. He now appeals to this court. 
 
 There was no provision in the contract to the effect that Paige and 
 Lindner were to devote their time and use their best endeavors to 
 further the interest of Faure, or in fact to do anything except to 
 purchase $1,000 worth of tires and pay him for goods sold by them 
 whether from consigned stock or that purchased outright, on or before 
 the 20th of the month following the date of sale. In view, however, 
 of the credit and the exclusive agency given to them it is fairly to 
 be implied that they were to devote their time and do whatever was 
 reasonable and necessary to selling the plaintiff's product. The con- 
 tract meant something. It was not a mere scrap of paper. The owner 
 of a product would not give to another the exclusive agency, cover- 
 ing a wide territory, to sell the same tmless he believed an effort would 
 be made by the one to whom such right was given to sell; and one 
 would not take, if acting in good faith, an exclusive agency to sell 
 another's goods unless he expected and intended to use reasonable 
 efforts to sell. * * * 
 
 This naturally leads to the only other question presented by the ap- 
 peal and that is whether the contract was assignable without Faure's 
 consent ; in other words, did Lindner's assignment to Paige of all his 
 interest in the contract justify Faure in refusing, at the request of 
 Paige, to renew the contract for another year? I am of the opinion 
 that it did. Faure entered into a contract, not with Paige, but with 
 Paige and Lindner. He was to have the benefit of the services of 
 both, not one, in the sale of his product. He agreed to give credit to 
 both, not one, and it may very well be, except for Lindner, he would 
 not have executed the contract at all. 
 
 The general rule is that rights arising out of a contract cannot be 
 transferred if they are coupled with liabilities or if they involve a re- 
 lationship of personal credit and confidence. Nassau Hotel Co. v. 
 Barnett & Barse Corp., 162 App. Div. 381, 147 N. Y. Supp. 283, af- 
 firmed, on opinion below, 212 N. Y. 568, 106 N. E. 1036; * * * 
 Hardy Implement Co. v. South Bend Iron Works, 129 Mo. 222, 31 S. 
 W. 599. * * * 
 
 No bilateral contract for personal services can be assigned by either 
 party to it, without the consent of the other. Williston on Contracts, 
 § 421. But it is urged that this case does not fall within the general 
 rule, because there is a provision in the contract that "This agreement 
 shall bind and benefit the respective successors and assigns of the par- 
 ties hereto." When the whole contract is considered, I am of the opin- 
 ion this did not give Lindner the right, without Faure's consent, to as- 
 sign his interest to Paige. The intention of parties to a contract must 
 be ascertained, not from one provision, but from the entire instrument. 
 * * * When this contract is thus considered, it is apparent that both 
 Paige and Lindner were personally to devote their time to carrying 
 out its terms. This necessarily follows from the language used, which 
 shows that a personal trust and confidence were reposed in both of 
 them. * * * 
 
 In Nassau Hotel Co. v. Barnett & Barse Corp., supra, the plaintiff 
 owned a hotel and entered into an agreement with two men by the 
 
270 CONTRACTS (Parti 
 
 names of Bamett- and Barse to conduct it for a period of years. 
 Thereafter they formed a corporation and assigned the contract, to it. 
 The court held that as the contract involved a relation of trust and 
 confidence, and as a party has the right to the benefit contemplated 
 from the character, credit, and substance of him with whom he con- 
 tracts, the contract was not assignable, notwithstanding there was a 
 provision in it that "this agreement shall inure to the benefit of and 
 bind the respective parties hereto, their personal representatives, suc- 
 cessors, and assigns." 
 
 An authority very much in point is Hardy Implement Co. V; South 
 Bend Iron Works, supra. There defendant entered into a contract 
 with a firm composed of two persons, Hai'dy and Mason, for jhe sale 
 of plows manufactured by it, to which a credit was to be given and 
 certain , discount advantages offered. Mason withdrew from the firm 
 and transferred his interest in the contract to the plaintiff. Defend- 
 ant refused to ship to the plaintiff the goods called for by the con- 
 tract. Action was brought to recover damages alleged to have been 
 sustained. . A demurrer was intei-posed to the complaint, which was 
 sustained, the court stating that where an executory contract is made 
 between two parties and one -of them consists of two persons, compos- 
 ing a partnership, and one of those persons withdraws from the firm, 
 which is thereby dissolved, it is for the party who contracted with the 
 firm to say whether the contract shall proceed or not. The principle 
 upon which the rule stated is predicated is that a party cannot be 
 forced to, accept a contract which he did not, in the first instance, 
 make, and to which he did not subsequently assent. * * * 
 
 The judgments appealed from should therefore be reversed and 
 the complaint dismissed, with costs in all courts. 
 
 SECTION 6.— NATURE AND EXTENT OF THE INTEREST 
 ACQUIRED BY THE ASSIGNEE 
 
 In re PHILLIPS' ESTATE. 
 
 Appeal of MOSES. 
 
 (Supreme Court of Pennsylvania, 1903. 205 Pa. 515, Ej5 Atl. 213, 66 L. E. A 
 760, 97 Am. St. Rep. 746.) 
 
 Appeal by one of the claimants of a fund in the hands of the ex- 
 ecutors of Henry M. Phillips, deceased, for the benefit of H. C. 
 Moses under an alleged assignment of such fund from a decree of the 
 orphans' court for Philadelphia county awarding the fund to another 
 claimant. 
 
 Brown, J- On July 2, 1895, H. Cleremont Moses, a nephew of 
 Henry M. Phillips, assigned to his wife, Andrena Moses, $15,000 of 
 hf^ 'interest in his uncle's estate. On February 28, 1899, he and his 
 brother, Altamont, executed a joint assignment of their interests in 
 the estate to the United Security Life Insurance & Trust Company of 
 Pennsylvania for $60,000. Notice of this second assignment was at 
 once given to the accountants by the assignee, and to it the court be- 
 low awarded the share of H. Cleremont Moses ill decedent's estate, 
 on the ground that, though the assignment to Mrs. Andrena ]\Ioses 
 
Ch. 4) BIGHTS OF THIRD PARTIES IN CONTRACTS 271 
 
 was first in time, as she had not given the accountants any notice of it 
 until July 23, 1901, it was postponed to that held by the appellee. 
 
 Whether, as between successive assignees of a fund in the hands 
 of a third person, that assignee, without regard to the date of his as- 
 signment, who first gives the debtor notice of it, is entitled to be first 
 paid, is a question upon which the American decisions cannot be rec- 
 onciled. In England it is well settled that the claims of competing 
 assignees of a fund rank, as between themselves, not in the order of 
 the dates of assignments to them, but according to the dates when they 
 respectively give notice to the debtor of their assignments. The 
 Supreme Court of the United States seems to have adopted the same 
 view. * * * To review the conflicting views entertained by the 
 courts of our different states would needlessly consume pages. With 
 us the question does not seem ever to have been definitely settled. The 
 learned auditing judge, sustained by the court in banc, adopted the 
 rule that the assignee who first gives notice has the first right to par- 
 ticipate in the assigned fund. In adopting this as the better rule, he 
 reasoned by analogy, saying, what all of us now approve: "The 
 analogies with regard to sales of personal property in possession are 
 certainly in favor of the view taken in the decisions last referred to, 
 the vendee in such case being required, for the protection of subse- 
 quent purchasers, to take possession, to the exclusion of the vendor, 
 where the property is capable of actual possession, or by assuming 
 such open ownership as the case admits of, where it is not. Why 
 should a different rule apply to purchasers of choses in action? Why 
 should the purchaser not be required to do all that lies in his power to 
 make it impossible for the assignor to commit a fraud, or to do an 
 injury to subsequent purchasers, relying on his integrity, and having 
 no means of knowing that he has ceased to be the owner, except by in- 
 quiry of the person in whose hands the fund is? The failure to give 
 notice to such person puts it in the power of the assignor to do this 
 wrong, and the consequences of the failure ought, therefore, to be up- 
 on him who commits it." * * * 
 
 "The maxim, Trior in tempore, potior in jure,' holds, it is true, 
 wherever it has not been inverted by enactment, as it has been by the 
 recording laws, so far as it regards conveyances of land, or where the 
 benefit of it has not been lost by misconduct or imprudence; but it 
 must not be allowed to protect a party who has neglected a requisite 
 precaution to protect from imposition those who maj come after him. 
 * * * " [Gibson, C. J., in Fisher v. Knox, 13 Pa. 622, 53 Am. Dec. 
 
 503.] 
 
 Business transactions constantly require the assignments of choses 
 in action. In many instances personal credit cannot be maintained in 
 any other way, and for assignees who purchase in good faith there 
 ought to be protection. None is found in the recording act, but a 
 measure of it ought not on that account to be withheld, if it can be 
 extended by courts of equity on equitable principles. The protection 
 invoked by the appellee is against the latent equity of the appellant. 
 If it had been informed of this prior assignment, it is not likely it 
 would have taken the second one from the assignor, who failed to say 
 anything about the first when he made the second. Protection can 
 hardly be expected from an assignor who will sell twice what he 
 knows he has a right to sell but once, for, if conscienceless enough to 
 make a second sale, he will conceal the first in his scheme to cheat one 
 
272 CONTRACTS (Part 1 
 
 or the other of his assignees. Protection can only come from him who 
 owes the money, and who, by notice to him, may be able to give pro- 
 tection. He is a mere stakeholder, and it is immaterial to him whorh 
 he pays. There is no reason why he should not be frank with a pros- 
 pective purchaser of the whole or a portion of what he owes, or that, 
 upon inquiry from such a one, he should conceal notice of any other 
 prior purchase or assignment, if notice of it was given him. If it be 
 understood that each assignee of a fund, or a portion of it, can pro- 
 tect himself against subsequent assignees only by giving immediate 
 notice to the debtor, such notice will be given, and, when given, the 
 instances will be very rare when subsequent assignees are imposed 
 upon. 
 
 With the question now fairly before us, we adopt and announce, as 
 the only safe rule, that, if an assignee fails to give notice to the per- 
 son holding the fund assigned to him, a subsequent assignee, without 
 notice of the former assignment, will, upon giving notice of his as- 
 signment, acquire priority. "By such notice the legal holders are con- 
 verted into trustees for the new purchaser, and are charged with 
 responsibility towards him ; and the cestui que trust is deprived of 
 the power of carrying the same security repeatedly into the market, 
 and of inducing third persons to advance money upon it under the 
 erroneous belief that it continues to belong to him absolutely, free 
 from encumbrances, and that the trustees are still trustees for him 
 and for no one else. That precaution is always taken by diligent pur- 
 chasers and incumbrancers; if it is not taken, there is neglect." 
 Dearie v. Hall, 3 Russ. Ch. 13. This rule is recognized and approved 
 by the best text writers. Story, Eq. Jur. §§ 1035a, 1047 ; Beach, Mod- 
 ern Law of Eq. Jur. 344; Pom. Eq. Jur. § 965 ; Bispham, Eq. §§ 168, 
 169. In the last, the learned text writer says: "The decisions, in 
 favor of the English rule, however, appear to be based upon the more 
 correct view of the law." As the appellee is claiming under the as- 
 signment to it, and not under the attachment issued by it, the second 
 question raised on the appeal need not be considered. 
 
 Appeal dismissed at appellant's costs, and as to her the decree is 
 affirmed. 
 
 CULMER V. AMKttlCAN GROCERY CO. 
 
 (Supreme Court of Now York. Appellate Division, 1897. 21 App. Div. 556. 
 
 4S N. Y. Supp. 431.) 
 
 O'Brien, J. * * * In 15 Am. & Eng. Enc. Law, p. 861, the rule 
 prevailing, in this state is given as follows : "The rule is not simply 
 that the assignee takes subject to the equities between the original par- 
 ties, but that the purchaser of a chose in action must always abide the 
 case of the person from whom he buys. The true test is to inquire, 
 what can the mortgagee do by way of enforcement of it against the 
 property mortgaged? What he can do, the assignee can do, and no 
 more. The reason of the rule is that the holder of a chose in action 
 cannot alienate anything but the beneficial interest which he possess- 
 es. It is a question of power or capacity to transfer to another, and 
 that capacity is to be exactly measured by the rights of the assignor. 
 In that state (New York), therefore, it is well settled that the as- 
 signee of a mortgage; is no less bound by equities existing between the 
 
Ch. 4) RIGHTS OF THIRD PARTIES IN CONTRACTS 273 
 
 mortgagee and third persons than by those existing against the mort- 
 gagee in favor of the mortgagor." 
 
 The general rule is that the assignee of a chose in action takes only 
 the interest of his assignor, and while many of the cases from which 
 the rule as stated above has been deduced relate to mortgages, the 
 principle applicable to a policy of insurance would be in no respect 
 different. In Owen v. Evans, 134 N. Y. 514, 31 N. E. 1000, that rule 
 is thus stated: "Our courts recognize no distinction between equities 
 existing in favor of the mortgagor and those in favor of a third per- 
 son\ but hold that, in the absence of an estoppel, an assignee of a mort- 
 gage takes only the interest of his assignor, and subject to any latent 
 equity in favor of any person." 
 
 This is a reaffirmation of what was said in Schafer v. Reilly, 50 N. 
 Y. 61, that: "One who takes an assignment of a mortgage takes it 
 subject not only to any latent equities that exist in favor of the mort- 
 gagor, but also subject to the like equities in favor of third persons." 
 
 hidge Allen, in this case, says : "It is well settled that a seller or 
 assignor of a chattel or chose in action can give not other or better 
 title than he himself has, and that the purchaser or assignee rhust be 
 content to stand in his place and to accept his title." * * * 
 B.& B.BUS.LAW— 18 
 
274 CONTRACTS (Part 1 
 
 CHAPTER V 
 DISCHARGE Gf' CONTRACTS 
 
 Section 
 
 1. Introduction. 
 
 2. OiseharRe by Agreement, Accord and Satisfaction, Account Stated, and 
 
 Merger. 
 
 3. Discharge by Novation. 
 
 4. Di'scliarge by Release, Cancellation, and Alteration. , 
 
 5. Discharge in Bankruptcy Proceedings. 
 
 6. Effect of Statutes of Limitations. 
 
 SECTION 1,— INTRODUCTION 
 
 An offer and an acceptance upon consideration create, between 
 the parties to the contractual agreement thus formed, certain legal 
 relations which theretofore have not existed. The effect of such 
 agreement, more specifically, is to confer certain rights, jiowers, 
 and privileges, and to impose certain duties and liabilities upon the 
 parties thereto. Each has a right that the other party shall per- 
 form his promise. Each may have the' power and privilege of as- 
 signing some right arising out of the contract or of delegating the 
 performance of some duty. The relations which bind the parties to- 
 gether will remain until there has been some act or series of acts 
 constituting a discharge. The life history of a contract dates from 
 the acceptance of an offer, there being consideration therefor ; and 
 it ceases upon the happening of an act constituting a discharge. 
 
 What acts will constitute a discharge? We have already con- 
 sidered certain matters pertaining to discharge. Obviously, com- 
 plete performance on both sides will discharge a contract. Even 
 tender of performance may work a discharge. Generally, of course, 
 a tender of performance is not the equivalent of performance — a 
 debt cannot be paid by a tender, though the running of interest on 
 the debt will be stopped. But where the tendered act is of such a 
 nature that it cannot be performed at a later time, a tender will 
 result in a discharge of the duty to perform the tendered act. 
 There remain to be considered several methods, other than those 
 just enumerated, which bring about a discharge of contractual obli- 
 gations. 
 
 SECTION 2.— DISCHARGE BY AGREEMENT, ACCORD 
 AND SATISFACTION, ACCOUNT STATED, 
 AND MERGER 
 A contract may be discharged by mutual agreement ; that is, the 
 parties enter into a second contract which has the effect of rescind- 
 ing the first. The discharging agreement must be supported by 
 consideration. In the case of bilateral contracts, for example, where 
 neither party has performed, the consideration for the agreement to 
 
^"- ^) DISCHARGE OP CONTRACTS 275 
 
 rescind is found in the surrender of the rights created by the re- 
 scinded contract. If the first contract has been performed on one 
 side, then some independent consideration is necessary to dis- 
 charge the party who has not performed. Where this independent 
 consideration is a promise, we have what is called an accord. 
 
 The term "accord" is employed to describe an executory bilateral 
 contract, whereby one of the parties to a previously existing con- 
 tract agrees to give and the other party to the same prior contract 
 agrees to accept something different from that called for by the 
 original contract. Such an executory contract generally does not 
 discharge the pre-existing contract, for such former contract may 
 still be sued upon, although such suit may involve the breach of the 
 second contract called the accord. The defendant, when thus sued 
 on the first contract, cannot successfully defend by proving the sec- 
 ond contract, nor even by proving a tender of performance or of 
 part performance. His only remedy is to sue for breach of the 
 second contract called the accord. 
 
 The term "satisfaction" is used to describe the situation after 
 full performance of the accord. Here we meet the question of 
 consideration, which was treated in Chapter H. The satisfaction, 
 to operate as a discharge of the former contract, must be on good 
 consideration as that requisite has been interpreted in this class of 
 cases. 
 
 There is one exception to this rule in the law of negotiable instru- 
 ments, where it is held, and now codified in the Negotiable Instru- 
 ments Law, that the holder of a negotiable instrument, may, by 
 written renunciation, without consideration, discharge the instru- 
 ment. 
 
 nAItRI.'^OX V. IIENDERSOX. 
 
 (Supreme Court of Kansas. 1903. 67 Kan. 194, 72 Pac. S7o, 62 L. R. A. 760, 
 
 100 Am. St. Eep. 386.) 
 
 Cunningham, j_ * * * An accord is an agreement, an adjust- 
 ment, a settlement of former difficulty, and presupposes a difference, 
 a disagreement, as to what is right. A satisfaction, in its legal signifi- 
 cance in this connection, is a performance of the terms of the accord. 
 If such terms required a payment of a sum of money, then that such 
 payment has been made. 
 
 In this case there is no evidence of any disagreement between the 
 parties prior to the sending of the account and remittance accompany- 
 ing it. Plaintiff in error contends, however, that, because such remit- 
 tance was denominated "a balance," its acceptance constituted an ac- 
 cord and satisfaction, and cites a number of authorities where courts 
 have held that a remittance made as a balance, and the acceptance of 
 the same, amounted to an accord and satisfaction. These cases have all 
 been carefully examined, and in every one there appears to have been 
 a prior disagreement, a contention as to what amount was due, so that 
 a remittance, being denominated a balance, carried with it to the cred- 
 itor, as a fair conclusion, that it was intended by the debtor to be in 
 full of all demands. Without the requirement being made by the 
 
276 CONTRACTS (Part 1 
 
 debtor that if the creditor accepts and retains the proffered amount he 
 must do so in full satisfaction of his demand, or without accompanying 
 and surrounding circumstances fairly indicating that such was the 
 purpose and object of the debtor in making the remittance, a creditor 
 cannot be said to have so accepted a payment. * * * 
 
 An accord and satisfaction is the result of an agreement between the 
 parties, and, like all other agreements, must be consummated by a meet- 
 ing of the minds of the parties, accompanied by a sufficient considera- 
 tion. If the creditor is to be held to abate his claim against the debtor, 
 it must be shown that he understood that he was doing so when he 
 received .the claimed consideration therefor. A simple tender of a 
 balance, as shown by an account tendered by the debtor, does not carry 
 with it an implication or conclusion that by such tender the debtor 
 paid, or that the creditor agreed to receive, the same in full of the 
 amount due, where there had been no prior disagreement or discussion 
 as to what was actually due. Surely it -cannot be claimed that such 
 was the condition in the case at bar. It was shown in the evidence 
 that the administrator had no knowledge of fees properly chargeable 
 by attorneys in this state for services rendered, or that he even knew 
 of the character and extent of the services which had been rendered. 
 The sender of the check did not require its acceptance in full of all 
 demands upon him as a condition precedent to its acceptance. The cir- 
 cumstances better warrant the conclusion that the sender was saying, 
 "In my judgment these fees charged are correct, and a proper remuner- 
 ation for the services which I have rendered, and, in accordance with 
 this view, the amount sent you is the balance that is due. If, however, 
 after you have investigated, you do not so conclude, we will hereafter 
 have an adjustment of any difference that may then arise," rather 
 than, "I will give you no opportunity whatever to inquire as to the cor- 
 rectness of the charges I have made, and, if you accept the draft, it 
 must foreclose all question." The former view is most just to the 
 plaintiff in error, and it is the position that an honorable and fair- 
 minded attorney would take. * * * We are fully persuaded in this 
 case there was no accord and satisfaction, and that the defendant in 
 error is entitled to recover the amount found due by the referee. 
 
 The judgment of the district court will be affirmed. 
 
 An account stated is similar to an accord, but the transaction 
 called to mind by the expression "account stated" is different from 
 the transaction referred to by the word "accord." The word "ac- 
 cord" carries with it the notion that the parties who entered into 
 such transaction thereby agreed to give and accept some perform- 
 ance in substitution for the performance due under an existing con- 
 tract. An account stated does not suggest a substitution of the 
 performance of one kind of an act for the performance of another 
 kind of act, but, on the contrary, the account stated restates the very 
 act of which the performance is called for by the existing contract. 
 The meaning of the term "account stated" is further restricted and 
 confined to a.n agreement to pay a certain specified sum of money. 
 
 The legal effect of an accord is also different from that of an 
 account stated. An accord, while a binding contract, does not dis- 
 
Ch. 5) DISCHARGE OF CONTRACTS 277 
 
 charge the former agreement ; an account stated does discharge the 
 former contract. 
 
 The transaction is a very common one. The submission of a 
 monthly statement by a merchant to his customer, assented to by 
 the latter, either expressly or impliedly, is an account stated. 
 The balancing of a depositor's book by his bank, when agreed to 
 by the depositor, is an account stated. In the event of a suit by the 
 creditor, action would be brought upon the account stated, and not 
 upon the series of contracts which makes up the account. The rule 
 thus materially tends to simplify the situation by precluding in- 
 quiry, as a general rule, into the former transactions between the 
 parties. There is some danger in it from the standpoint of the 
 debtor who, sometimes, will be held to have assented to the ac- 
 count stated by his failure to protest against its incorrectness, or 
 by other conduct, when perhaps, in fact, he held mental reserva- 
 tions on the subject and intended at some time to take the mat- 
 ter up with his creditor. 
 
 GARDNER v. WATSON. 
 (Supreme Court of California, 1915. 170 Cal. 570, 150 Pac. 994.) 
 
 Henshaw, J. * * * Over what in law constitutes an account 
 there was never any question in this state, and very little uncertainty 
 exists in other states. 
 
 "It must appear [says this court in Baird v. Crank, 98 Cal. 297, 33 
 Pac. 65] that at the time of the accounting certain claims existed, of 
 and concerning which an account was stated, that a balance was then 
 struck and agreed upon, and that defendant expressly admitted that 
 a certain sum was then due from him as a debt." 
 
 To like effect is Coffee v. Williams, 103 Cal. 556, 37 Pac. 506, where 
 it is said : "An account stated is a document — a writing — which exhib- 
 its the state of account between parties and the balance owing from 
 one to the other; and when assented to, either expressly or impliedly, 
 it becomes a new contract. An action upon it is not founded upon 
 the original items, but upon the balance agreed to by the parties. And 
 the general rule is that when the stated account is admitted, it can be 
 avoided only by averment and proof of fraud, mistake," etc. 
 
 The action upon an account stated is not upon the original dealings 
 and transactions of the parties. Inquiry may not be had into those mat- 
 ters at all. It is upon the new, contract by and under which the parties 
 have adjusted their differences and reached an agreement. 
 
 It is not at all necessary that there should be mutual or cross-accounts 
 or demands between the parties. The acknowledgment of a debt, 
 though it consists of but a single item, may form the basis of such a 
 stated account. As has been said, the original transactions between 
 the parties are not the subject of inquiry and may not be made the sub- 
 ject of inquiry except upon such equitable consideration as fraud, 
 dur-ess or mistake. And if it be' sought to avoid the legal effect of 
 the account stated upon any of these grounds, they must be pleaded. 
 Moreover, the writing constituting an account stated need not aver, 
 or at all contain, the grounds and reasons for the conclusion and dec- 
 
278 CONTRACTS (Parti 
 
 laration expressed. It is a complete account stated if it contains a 
 signed and written acknowledgment of a present, unqualified indebted- 
 ness or liability with a promise to pay a named sum. 
 
 Reading the contract between these parties in the light of these prin- 
 ciples, which are so well established that they may be said to be truisms 
 of the law, we are unable to understand how the court , reached the 
 conclusion that the contract in question did not constitute an account 
 stated between these parties litigant. '"I^he said Watson hereby ac- 
 knowledges himself indebted to the said Gardner in the sum of $3,000 
 in the manner above mentioned." The agreement, it is declared, was 
 reduced to writing "to the end that in the event that he has not been 
 able to meet the said obligation prior to the time of his death, the said 
 Gardner shall then and at that time have a valid and subsisting claim 
 against his estate for the payment of the said obligation." Indeed, we 
 think it would be difficult to draw a paper which would more com- 
 pletely conform to the legal requirements of an account stated. 
 
 It is the general rule that the true consideration for a written instru- 
 ment may always be shown. Among the cases constituting an apparent 
 exception to this rule are those upon an account stated. It is open to 
 a defendant, as has been pointed out, to repel the legal effect of the 
 account stated by pleading and proof of its procurement through fraud, 
 duress, mistake, or other grounds cognizable in equity for the avoid- 
 ance of an instrument. But it is not open to a defendant to attempt 
 to defeat the legal effect of such a contract by showing a lack of con- 
 sideration in any other way. Thus, it is not open to a defendant in 
 such a case merely to show that the account stated was based upon a 
 disputed claim of the plaintiff's, which claim subsequently proved to 
 be invalid. Nor wouW it "be open to a defendant to show that the 
 amount justly due was very much less than the amount named in the 
 account stated. All such evidence going to total or partial lack of 
 consideration is forever debarred by the convention and agreement of 
 the parties, for this is of the very essence of an account ' stated. 
 
 A result similar to that of an account stated arises from an arbi- 
 tration and award. If the parties have agreed upon an arbitration 
 and the arbitrators have fixed the amount due, this determination 
 will be conclusive between the parties. Usually, any suit brought 
 thereafter would be upon the award and not upon the original debt. 
 
 A contract may also be discharged by merging it in some other 
 form of contract, as, for example, when a simple contract debt is 
 converted into a negotiable instrument. The mere fact that a nego- 
 tiable instrument has been given will not be conclusive that the 
 original debt is discharged, for the instrument may have been giv- 
 en and received only in conditional payment. The presumption 
 usually is that an instrument is given and received only in con- 
 ditional and not in absolute payment of the debt. 
 
 Similarly a contract will be discharged by judgment obtained in 
 an action upon the contract, the original cause of action thus being 
 regarded as merged in the judgment. 
 
Ch 5) DISCHARGE OF CONTRACTS 279 
 
 SECTION 3.— DISCHARGE BY NOVATION 
 In a sense, discharges of contracts by mutual rescifsion, by ac- 
 cord and satisfaction, and by account stated, are forms of nova- 
 tion, but it is more common to employ the term novation to de- 
 scribe a transaction whereby a new party is, by agreement, sub- 
 stituted as an obligor in the place of the one upon whom the duty 
 rested by the terms of the original, contract. This aspect of a no- 
 vation is presented in the following cases : 
 
 MAETIN V. ILEEPBR BROS. LUMBER CO. 
 (Supreme Court of Oklahoma, 1915. 48 OUl. 219, 149 Pac. 1140.) 
 
 Action by the Leeper Bros. Lumber Company, a corporation, against 
 Swan Martin. Judgment for plaintiff, and defendant brings error. 
 
 Dudley, C. In May, 1912, Leeper Bros. Lumber Company, a cor- 
 poration, defendant in error, hereinafter referred to as the lumber 
 company, commenced this action in the county court of Oklahoma 
 county against Swan Martin, plaintiff in error, hereinafter referred to 
 as owner, to recover judgment for the balance due on account for lum- 
 ber and building material used in making certain repairs upon his 
 property. The lumber company recovered judgment for the amount 
 sued for, and from this the owner has appealed, and the only question 
 presented is whether or not the petition states a cause of action. 
 
 The petition, omitting the caption and the prayer, is as follows : 
 
 << * * * That on or about the day of , 1910, the 
 
 above-named defendant entered into a contract with one Oscar White, 
 in and by the terms of which contract said Oscar White agreed to fur- 
 nish material and do certain repair and construction work upon a 
 building owned by defendant on East Eighth street, Oklahoma City, 
 Okl., for which repair and construction work defendant agreed to pay 
 said Oscar White the sum of $ . * * * 
 
 "That on or about the day of May, 1910, plaintiff entered 
 
 into an oral contract with said Oscar White in and by the terms of 
 which contract plaintiff promised and agreed to furnish the material to 
 be used by said Oscar White in making the repairs and construction 
 work above mentioned; that in pursuance of said contract with said 
 Oscar White plaintiff furnished and delivered to said Oscar White upon 
 the premises where the above-mentioned repair and construction was 
 being done material as shown by Exhibit A hereto attached and made 
 a part hereof, for which said material said Oscar White agreed and 
 promised to pay plaintiff $750.62. 
 
 "That after plaintiff had completed the delivery of the material as 
 shown by Exhibit A upon the premises where the repair work and 
 construction was being done, it was orally agreed by and between de- 
 fendant and said Oscar White that defendant should take over the re- 
 pair and construction work on the building, which said Oscar White 
 had agreed and contracted to do for said defendant, as above set forth, 
 and it was then expressly agreed and understood by and between said 
 Oscar White and defendant herein that this defendant should assume 
 and pay all bills for material on said job, including the amount due 
 plaintiff for material furnished as hereinbefore set forth ; that said Os- 
 car White advised defendant the amount which was then due and owing 
 
280 CONTRACTS (Part 1 
 
 this plaintiff, and defendant fully understood the amount of indebt- 
 edness to this plaintiff which he, the defendant herein, was assuming. 
 
 "That the agreement and arrangement by and between said Oscar 
 White and this defendant whereby defendant assumed and agreed to 
 pay this plaintiff for the material furnished as above set forth was 
 communicated to this plaintiff, and that this plaintiff accepted the offer 
 and promise made by defendant to make payment of the said indebted- 
 ness for material, and then and there released said Oscar White from 
 all further liability to make payment of said indebtedness. 
 
 "The defendant, on or about the 1st day of August, 1910, paid this 
 plaintiff $450 on said indebtedness, and plaintiff allowed defendant 
 a credit for material returned of $55.74, but that defendant always 
 has neglected and now refuses to make payments of the balance of said 
 indebtedness, the balance being $244.88." * * * 
 
 In 29 Cyc. 1134, in discussing the manner in which a novation may 
 be effected it is said: "Novation may be effected in three ways.' (1) 
 By the substitution of a new obligation between the same parties, 
 with intent to extinguish the old obligations; (2) by the substitution 
 of a new debtor in the place of the old one, with intent to release the 
 latter; (3) by the substitution of a new creditor in the place of the 
 old one, with intent to transfer the rights of the latter to the former." 
 The foregoing rule seems to be the general one. * * * 
 
 Measured by these rules, we think the petition sufficient on the the- 
 ory of a novation. It pleads : (1) A contract between the owner and 
 the contractor; and (2) a contract between the lumber company and 
 the contractor. Under the contract between the lumber company and 
 the contractor, the contractor is its debtor. The petition then pleads a 
 release and extinction of the contract between the owner and the con- 
 tractor, and the creation of a new contract by which the owner is to 
 make the repairs, and pay for the labor and material, including the 
 debt of the lumber company. The terms of this contract were made 
 known to and accepted by the lumber company, and its debt against the 
 contractor was released, and the owner accepted as its new debtor in 
 discharge of the original debtor. 
 
 The petition fairly pleads a novation by the substitution of a new 
 debtor, and comes squarely within the rule announced in 29 Cyc. 1136, 
 which is as follows : "The most frequent novation is the substitution 
 of a new debtor. To constitute this kind of a novation, there must be 
 a mutual agreement among three parties, the creditor, his immediate 
 debtor, and the intended new debtor, by which the liability of the last 
 named is accepted in the place of the original debtor in discharge of 
 the original debt." * * * 
 
 The petition sufficiently pleads a consideration under section 926, R. 
 L. 1910, and is sufficient upon the theory of a novation. * * * 
 
 The judgment of the trial court should be affirmed. 
 
 KLINKOOSTEN v. MXTNDT. 
 
 (Supreme Court of South Dakota, 1910. 36 S. D. 595, 156 N. W. 85, 
 L. R. A. 1918B, 111.) 
 
 McCoy, J. Plaintiff, as assignee of the original payee, brought 
 this suit against defendant to recover upon a negotiable promissory 
 note for $25 executed and delivered by defendant to the Unitype 
 Company. * * * In circuit court there was a verdict and judg- 
 
Ch. 5) DISCHARGE OF CONTRACTS 281 
 
 ment in favor of defendant. At the close of all the evidence plaintiff 
 moved the court for a directed verdict in favor of plaintiff. The 
 motion was denied, to which ruling plaintiff excepted. * * * 
 
 Defendant admitted the execution of the note. The defendant plead- 
 ed as a defense that prior to the transfer of said note to plaintiff the 
 (Jnitype Company released defendant from tTie payment of said note 
 and agreed in writing to accept as payor in. lieu of defendant the Mes- 
 senger Publishing Company. It appears from the evidence that at 
 the time of the execution of said note defendant was the proprietor 
 of a printing and publishing business, and purchased certain printing 
 machinery from the Unitype Company, and gave 46 notes, amounting 
 to $1,450 in consideration of the purchase price of said machinery, the 
 note in question being one of such notes. Under the contract for the 
 purchase of said machinery it was provided that the title to such ma- 
 chinery should remain in the Unitype Company until the full payment 
 of said notes. After the making of this contract, and before the ma- 
 turity of said note, defendant sold and transferred his printing and 
 publishing business and said machinery to the Messenger Publishing 
 Company. About the time this sale and transfer were made to the 
 Messenger Company, defendant wrote the Unitype Company that he 
 had made such sale ; that the Messenger Company had agreed to make 
 new notes for those remaining unpaid for such machinery, and would 
 assume the entire obligation of defendant, provided the Unitype Com- 
 pany would consent to take their notes. The Messenger Company also 
 wrote the Unitype Company in substance as follows: We have pur- 
 chased the interest of Mundt in his contract under which the Unitype 
 typesetting machine was installed. We, therefore, assume the rights 
 and obligations of Mundt in the contract, and agree to pay the unpaid 
 notes given by him, and carry out all his obligations under the terms of 
 the agreement. It is agreed between Mundt and the Messenger Com- 
 pany that on completion of the payment of the balance of these notes 
 and the carrying out in full of the terms of the agreement, you are 
 to issue a bill of sale for said machinery to the Messenger Publishing 
 Company. ' This letter was signed by the Messenger Publishing Com- 
 pany by its president, and at the bottom thereof, over the signature 
 of defendant, appeared the following : 
 
 "The Unitype Company is hereby authorized to issue a bill of sale 
 to the Messenger Publishing Co. for the above-described machine when 
 all the terms of the contract have been fully met and all the notes 
 given under the same duly paid." 
 
 Also on the bottom of this letter appears the following : "Accepted. 
 The Unitype Co., by E. J. Andrews, Treas." ' 
 
 The note in question was never paid. The Messenger Publishing 
 Company never executed and delivered to the Unitype Company its 
 notes in place of the notes given by defendant. In order to constitute 
 novation, there must be either an express or implied agreement on the 
 part of the creditor to substitute the new debtor in place of the original 
 debtor, and also an express or implied agreement to release and dis- 
 charge the original debtor. * * * All that the Unitype Company 
 ever assented to as shown by the correspondence, was that the Mes- 
 senger Publishing Company might assume the rights and obligations of 
 defendant under the contract and make payrhent of the notes given by 
 defendant, and when said notes had all been fully paid and satisfied, 
 it would transfer title to the machinery to the Messenger Publishing 
 
282 CONTRACTS (Part 1 
 
 Company. There was no assent or agreement, either express or im- 
 plied, to discharge or release defendant. In most of the adjudicated 
 cases where it has been held that implied novation had occurred there 
 were circumstances such as the delivery to the original debtor of his 
 notes and new notes taken in place thereof, or other circumstances, 
 indicating an intention on the part of the creditor to accept the new 
 debtor in place of the old, and to release and discharge the obligation 
 as against the original debtor. No circumstances of that character ap- 
 pear in this case. We are of the view that the court erred in overruling 
 the motion to direct a verdict for plaintiff; no defense of release by 
 novation having been shown. 
 
 The jiidgment and order appealed from are reversed, and the cause 
 remanded. 
 
 SECTION 4.— DISCHARGE BY RELEASE, CANCEE- 
 EATION, AND ALTERATION 
 
 A release is a declaration in writing by the releasor which mani- 
 fests his intention to regard as extinguished an existing right which 
 he had against the releasee. To constitute a release, the instrument 
 must be under seal. In states where the common-law rules relat- 
 ing to sealed instruments obtain, such an instrument is effective 
 without consideration ; but, in many states, these rules have been 
 altered by statute. Statutory changes must therefore be taken into 
 consideration in determining, in a particular state, the requisites 
 and legal effect of such instruments. In the absence of such 
 changes, the legal effect of a release is to discharge the duty of the 
 releasee referred to in the instrument. In one respect, the effect 
 of a release may be regarded as somewhat extraordinary. Where 
 A. and B. have assumed a joint duty, or a joint and several duty 
 to C, a release of either A. or B. will have the effect of discharg- 
 ing the other, although there be in the instrument no language that 
 manifests A.'s intention to release the other party. The theory 
 apparently is that there is but one set of legal relations between 
 the two or more parties on one side of the contract and that party 
 or parties on the other, and, that, in order to release one of the. 
 parties, it is necessary to destroy these relations. Figures of 
 speech in the law are dangerous, but perhaps the situation bears 
 some figurative resemblance to a case where A. is raising B. and 
 C. up a steep cliff by the aid of a single rope. A. decides to "re- 
 lease" C. and let him drop, but he wants to save B. A. cuts the 
 rope and C. plunges to the bottom, and, despite A.'s prayers, B. does 
 likewise. If the situation were regarded as a double set of rela- 
 tions, a release of one obligor would not have this effect; but the 
 law does not so regard it. But parties to a contract, no matter how 
 numerous on each side, are regarded as tied together by one rope, 
 and not several. But, as usual, a harsh result is mitigated by the 
 introduction of a fiction. A legal fiction, and fictions are legion, is 
 much like a crutch; it assists one in reaching one's destination, 
 but it is a poor method of transportation, when it is not needed. 
 By a legal fiction there has been formulated the rule that, where a 
 
'Ch. 5) DISCHAEGB OF CON'TRACTS 283 
 
 party to a contract enters into a covenant not to sue one of several 
 obligors, or where one of such obligors is released, the releasor re- 
 serving his rights against the other obligors, such other obligors 
 will not be discharged. 
 
 Since, at common law, an instrument under seal gave rise to an 
 obligation without consideration, one method of discharging a 
 sealed instrument was to cancel it. An act of cancellation is ac- 
 complished by surrendering the instrument to the obligor thereon 
 or by mutilating it, marking upon it, or destroying it, with the in- 
 tent to put an end to the legal obligations which it has evidenced. 
 Negotiable instruments, and perhaps some other types of written 
 contracts may be discharged by cancellation. 
 
 Material alteration of the written evidence of a contract also has 
 the effect of avoiding the contract. Where such alterations are 
 innocently made, there may still be a recovery upon the original 
 claim; but, where they are fraudulently made, the entire right of 
 action is destroyed. Material alteration by a stranger does not 
 avoid the instrument, though the contrary is the law in England, 
 and, it seems that, in this country, under the Negotiable Instru- 
 ments Law, a material alteration by a stranger will avoid the in- 
 strument, though there may be a recovery upon the original con- 
 tract, if the holder was not a party to the alteration. The nature 
 and effect of material alteration of negotiable instruments will be 
 treated in more detail in Part III. 
 
 SECTION 5.— DISCHARGE IN BANKRUPTCY 
 PROCEEDINGS 
 
 While it would be decidedly detrimental to the best interests of 
 society and to the individuals directly concerned for the law to 
 provide that insolvency should, of itself, under the doctrine of im- 
 possibility of performance, operate as a discharge of contractual 
 obligations, nevertheless, experience shows, that within relatively 
 narrow limits and under certain restrictions, the policy of granting 
 a discharge of debts on account of insolvency may with propriety 
 be adopted. This is one of the features of the Bankruptcy Act (U. 
 S. Comp. St. §§ 9585-9656), but it is not its primary purpose. 
 The principal aspect of a bankruptcy law is to provide the judicial 
 and administrative machinery requisite for an economical and 
 expeditious collection of the assets of a failing debtor and the equi- 
 table distribution thereof among his creditors. This feature of the 
 bankruptcy act will be taken up in a later chapter. We are here 
 interested only in those provisions of the act which authorize the 
 court to grant a discharge of the debts of the bankrupt. 
 
 The present National Bankruptcy Act does not authorize the 
 granting of a discharge from all kinds of obligations, nor does it 
 provide that, under all circumstances, a bankrupt will be entitled to 
 
284 CONTRACTS (Part 1 
 
 a discharge. Sometimes a bankrupt is not entitled to a discharge 
 of any obligation. 
 
 With respect to the kinds of debts for which a discharge may- 
 be granted section 17 of the National Bankruptcy Act provides: 
 A discharge in bankruptcy shall release a bankrupt from all of 
 his provable debts. The act then proceeds to declare certain ex- 
 ceptions to the rule that all provable debts may be discharged. 
 These exceptions are as follows: (1) A tax levied by the United 
 States, the state, county, district, or municipality in which he (the 
 bankrupt) resides; (2) liabilities for obtaining property by false 
 pretenses or false representations, or for maintenance or support 
 of wife or child or for seduction of an unmarried female, or for 
 criminal conversation. Some of these exceptions under clause 2 
 are inserted out of an abundance of legislative caution, because 
 there is little likelihood that the courts would hold that ^ome of 
 the obligations therein mentioned would be provable debts. Un- 
 less the obligation is a provable debt, there is no necessity for pro- 
 viding for it in these express exceptions. Liabilities for obtaining 
 property by false pretenses or false representations and liabilities 
 for malicious injuries to property are provable debts. Were it 
 not for this express exception, they would be subject to discharge. 
 But liabilities for malicious injury to a person, for alimony, for 
 maintenance of a wife or child, for seduction and for criminal con- 
 versation are probably not provable debts, and therefore could not 
 be discharged even if this express exception were eliminated. 
 
 The third exception consists of debts which have not been duly 
 scheduled in time for proof and allowance, with the name of the 
 creditor if known to the bankrupt, unless such creditor had notice 
 or actual knowledge of the proceedings in bankruptcy. With ref- 
 erence to the scheduling of debts, it may be remarked in passing 
 that this act consists in the preparation and filing by the bankrupt, 
 in the bankruptcy court, of a detailed statement of his assets and 
 liabilities. With reference to the schedules, section 7, clause 8, pro- 
 vides that, the bankrupt shall prepare, make oath to and file in court 
 within ten days, unless further time is granted, after the adjudi- 
 cation, of an involuntary bankrupt, and with the petition if a vol- 
 untary bankrupt, a schedule of his property, showing the amount 
 and kind of property, the location thereof, its money value in de- 
 tail and a list of his creditors, showing their residences, if known, 
 if unknown, that fact to be stated^ the amounts due each of them, 
 the consideration thereof, the security held by them, if any, and 
 a claim for such exemption as he may be entitled to, all in tripli- 
 cate, one copy of each for the clerk, one for the referee and one for 
 the trustee. The time within which claims against a bankrupt 
 may be proved is fixed in section 57n as follows : Claims shall not 
 be proved against a bankrupt subsequent to one year after the 
 adjudication. There are a few minor exceptions not necessary to be 
 noted here, allowing proof of claims more than a year after the date 
 of adjudication. The fourth and last exception to the rule that all 
 
Ch. 5) DISCHARGE OF CONTRACTS 285 
 
 provable debts may be discharged, consists of debts created by 
 fraud, embezzlementy misappropriation, or defalcation while acting 
 as an officer or in any fiduciary capacity. 
 
 Returning to the principal matter involved in this section, the 
 question is: What kinds of debts are siibject to discharge? Sec- 
 tion 17, above quoted, provides, in legal effect, that, unless a debt 
 is a provable debt, it will not be discharged. What is a provable 
 debt? The following section of the act defines what shall constitute 
 a provable debt, although it should here be stated that, in some 
 respects, the section is not clear. There has been a great deal of 
 litigation over this section and the resulting decisions of the courts 
 have gone a long way toward removing the uncertainties, though, 
 even yet, there remains some doubt as to certain types of claims. 
 It may also be pointed out here, that while we are chiefly interest- 
 ed in the following section for the purpose of ascertaining what 
 debts will be discharged in bankruptcy, the section and the discus- 
 sion following may be looked upon purely from the standpoint of 
 a creditor of a bankrupt who faces the question : "Do I have the 
 privilege of filing this particular claim against my debtor, or not?" 
 The creditor is affected in this way: If he holds a provable claim, 
 he must prove if he expects to get anything at all from his bank- 
 rupt debtor, because the debt will be discharged. If his claim is 
 not provable, the creditor can get nothing from the estate, but, since 
 his claim will not be discharged, the creditor will be entitled to the 
 full amount and may recover it in an ordinary action at law. Of 
 course, the judgment will not be paid until the judgment debtor 
 acquires property. Even so, that may be much better than par- 
 ticipating with the other creditors in the bankruptcy proceedings, 
 where the proportion of the debt paid by the estate through the 
 trustee may be very small. Section 63 provides : (a) Debts of the 
 bankrupt which may be proved and allowed against his estate 
 which are (1) a fixed liability as evidenced by a judgment or an 
 instrument in writing, absolutely owing at the time of the filing of 
 the petition against him, whether then payable or not, with any 
 interest thereon which would have been recoverable at that date 
 or with a rebate of interest upon such as were not then payable and 
 did not bear interest ; (2) due as costs taxable against an involun- 
 tary bankrupt who was at the time of the filing of the petition 
 against him plaintiff in a cause of action which would pass to the 
 trustee and which the trustee declines to prosecute after notice; 
 (3) founded upon a claim for taxable costs incurred in good faith 
 by a creditor before the filing of the peitition in an action to re- 
 cover a provable debt ; (4) founded upon an open account, or upon 
 a contract express or implied; and (5) founded upon provable 
 debts reduced to judgments after the filing of the petition and be- 
 fore the consideration of the bankrupt's application for a discharge, 
 less costs incurred and interests accrued after the filing of the pe- 
 tition and up to the time of the entry of such judgments. 
 
 (b) Unliquidated claims against the bankrupt may, pursuant to 
 
286 CONTEACTS / (Part 1 
 
 application to the court, be liquidated in such manner as it shall di- 
 rect, and may thereafter be proved and allowed against his estate. 
 
 It will not be necessary to go into a detailed discussion of the 
 interpretation of this section, but merely to point out some of the 
 more important features. It will be noted that only those debts 
 due at the time of the filing of the petition against the bankrupt 
 will be provable. As will be seen later in some cases these debts 
 need be but contingently due. If the bankrupt buys goods subse- 
 quent to date of the filing of the petition, the claim is not provable 
 nor dischargeable. The bankrupt remains liable therefor. The 
 phrase "absolutely owing, whether then payable or not" has refer- 
 ence to transactions which may be illustrated by the ordinary case 
 of a claim "founded upon a note given for money loaned or prop- 
 erty sold to the maker which is not by its terms payable until a date 
 subsequent to the date of the filing of the' petition. Clause 4 is the 
 most inclusive, since it deals with contracts express or implied and 
 is not limited to contracts in writing, as is clause 1. While clause 
 5 contemplates the possibility of claims reduced to judgment after 
 the filing of the petition, it is to be noticed that this clause does not 
 provide for the proving of any kind of a claim not provable under 
 the preceding clauses, because the application of clause 5 is ex- 
 pressly limited to judgments founded upon provable debts. Clause 
 S is relied upon as the basis for proving a claim which, at the date 
 of the filing of the petition, was unliquidated, that is, where the 
 amount of the claim had not then been determined. The procedure 
 for reducing unliquidated claims to judgment is provided for in 
 clause (b). This clause, like clause 5, does not enlarge the class of 
 claims which are provable. Clause (b) makes provision for the 
 liquidation only of those claims which are provable under the first 
 four clauses. 
 
 The difficult questions arising out of the above section concern 
 the interpretation of the term "fixed liability * * * absolutely 
 owing," and the term "contract express or implied." Or, to ap- 
 proach the question through a different terminology : What is the 
 status of contingent claims ? To illustrate : It is held that a claim 
 for future rent aigainst a bankrupt tenant is not a provable debt. 
 On the other hand, it has been held that the claim of the holder of 
 commercial paper against a bankrupt indorser is provable, although, 
 at the time of the filing of the petition, the party primarily liable on 
 the instrument has not defaulted. It has also been held that the 
 claim of a surety against a bankrupt principal debtor for reim- 
 bursement is a provable debt, although the surety did not pay the 
 debt to the creditor until after the. petition was filed against the 
 principal debtor. This somewhat strained interpretation is proba- 
 bly brought about by the feeling that the bankrupt should be dis- 
 charged from contingent claims as well as non-contingent claims. 
 It is conceivable that a bankrupt might owe relatively few debts 
 absolutely owing and many contingent debts. This would be true 
 
Ch. 5) DISCHARGE OF CONTRACTS 287 
 
 where the bankrupt's business involves the discounting and sale of 
 large quantities of commercial paper. 
 
 The question of the provability of contingent claims also arises 
 over bilateral contracts. It has been held that where a bankrupt 
 is under a contract to perform services, which contract has not yet 
 been broken at the date of the filing of the petition, the fact of 
 bankruptcy operates as an anticipatory breach of the contract, and 
 the claim arising thereon is provable.^ This will not always be the 
 case. Bankruptcy will operate as an anticipatory breach only if 
 there is a reasonable probability that the bankruptcy will in fact 
 render performance by the bankrupt unlikely. If the bankrupt had 
 contracted to perform future personal services for A., with all tools 
 and materials to be furnished by A., bankruptcy would not be a 
 breach of such a contract. Accordingly, this claim would not be 
 provable nor dischargeable. 
 
 Tort claims, such as for assault, trespass to land, libel, slander, 
 malicious prosecution, etc., are not provable claims. An apparent 
 exception exists in the case of conversion of personal property. 
 While this act is a tort, the obligation of the converter to make 
 restitution is also treated as a contract obligation implied in law. 
 The claim is therefore provable under clause 4. 
 
 It was stated above that a bankrupt would not always be en- 
 titled to a discharge. Section 14 of the act provides : Any person 
 may, after the expiration of one month and within the next twelve 
 months subsequent to being adjudged a bankrupt, file an applica- 
 tion for a discharge in the court of bankruptcy in which the pro- 
 ceedings are pending. * * * The judge shall hear the applica- 
 tion for discharge and such proofs and pleas as may be made in 
 opposition thereto * * * and discharge the applicant unless he 
 has (1) committed an offense punishable by imprisonment as herein 
 provided; or (2) with intent to conceal his financial condition, de- 
 stroyed, concealed or failed to keep books of account or records 
 from which such condition might be ascertained; or (3) obtained 
 money or property on credit upon a materially false statement 
 in writing made by him to any person or his representative for the 
 purpose of obtaining credit from such person; or (4) at any time 
 subsequent to the first day of the four months immediately pre- 
 ceding the filing of the petition transferred, removed, destroyed, or 
 concealed or permitted to be removed, destroyed, or concealed, any 
 of his property, with intent to hinder, delay or defraud his credi- 
 tors ; or (5) in volimtary proceedings been granted a discharge in 
 bankruptcy within six years; or (6) in the course of the proceed- 
 ings in bankruptcy refused to obey any lawful order of, or to an- 
 swer any material question approved by the court: Provided, 
 That a trustee shall not interpose objections to a bankrupt's dis- 
 
 1 Central Trust Co. of Illinois v. Chicago Auditorium Association, 240 U. 
 S. 581, 36 Sup. Ct 412, 60 L. Ed. 811, L. B. A. 1917B, 580 (1916). 
 
288 CONTRACTS . (Parti 
 
 charge until he shall be authorized so to do at a meeting of credi- 
 tors called for that purpose. 
 
 . Section 15. The judge may, upon the application of parties in 
 interest who have' not been guilty of undue laches, filed at any 
 time within one year after a discharge shall have been granted, re- 
 voke it upon a trial if it shall be made to appear that it was obtained 
 through the fraud of the bankrupt, and that the knowledge of the 
 fraud has come to the petitioners since the granting of the dis- 
 charge, and that the actual facts did not warrant the discharge. 
 
 SECTION 6.— EFFECT OF STATUTES OF LIMITATIONS 
 
 Statutes of the states provide definite periods of time within 
 which various actions must be brought. With respect to contracts, 
 a period may vary from a year up to ten years; or even more is 
 allowed, depending on the n^ature of the claim, whether a claim 
 against an estate, upon an oral or written contract, negotiable or 
 sealed instrument, etc. The statute begins to run from the date 
 of breach, if the breach is material and the plaintiff elects to treat 
 the contract as abandoned. Where the contract is to pay a sum of 
 money, this rule would be expressed by saying that the period be- 
 gins to run from the day payment is due. In the case of demand 
 notes and bills of exchange, this would mean that the statute began 
 to run from date of issue. But with respect to bank notes and 
 certificates of deposit payable on demand, the statute does not be- 
 gin to run until demand. In case of mutual accounts, the period 
 begins to run from the date of the last entry, "^here the plaintiff is 
 under disability at the time the cause of action arises, it is common- 
 ly provided that the statute does not begin to run until the disa- 
 bility is removed. The general rule also is that the departure of the 
 defendant from the jurisdiction stops the running of the statute and 
 the term during which he resides outside the state will not be count- 
 ed in determining whether the period has elapsed. The legal effect 
 of the running of the statute is not, however, to discharge the 
 debt. The debt in contemplation of law still exists, but no action 
 can be maintained to recover it. This is shown by the fact that 
 a right to sue may be barred in one state but not in another. ,If 
 the claim is barred in state A. and the creditor obtains service, of 
 process upon his debtor in state B. on an action brought there, the 
 statute of limitations of state B. will generally control, and not the 
 statute of state A. The effect of the running of the statute as not 
 constituting a discharge of the obligation is also shown by the rules 
 that, although the debt is barred, the creditor may still resort to 
 securities such as pledges, mortgages, and other liens to enforce 
 payment. The circumstances may be such that the claim of a 
 creditor against his debtor is barred when the claim against the 
 surety is not barred. The surety, in such circumstances, remains 
 liable. 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 289 
 
 CHAPTER VI 
 
 EFFECT OF MISTAKE. FRAUD, DURESS AND UNDUE 
 
 INFLUENCE 
 
 Section 
 
 1. Introduction. 
 
 2. Mistake. 
 
 3. Fraud, 
 
 4. Duress. 
 
 5. I'ndue Influence. 
 
 SECTION 1.— INTRODUCTION 
 
 The preceding chapters have presented the problems which arise 
 out of the formation, performance, and discharge of contracts. 
 Every agreement worthy of the dignity of a contract will ultimate- 
 ly be discharged, either by performance or by some one of the 
 other methods of discharge to which reference has been made. We 
 have surveyed, therefore, the normal life history of a contract. In 
 the four chapters following, we are to be concerned with a group 
 of circumstances of a special nature. Specifically, we deal, in these 
 chapters, with such questions as the following: What effect is 
 brought about in the relations of the parties to a contract by the 
 existence of mistake, fraud, duress, undue influence, or illegality? 
 What is the status of the contracts of minors or of insane persons? 
 Finally, what kinds of contracts must be in writing, and what is the 
 legal effect of a failure to comply with such requirements? 
 
 It would be possible to classify these portions of the law of con- 
 tracts under the topics heretofore treated. For example, a mistake 
 may be of such a nature as to prevent the formation of a contract. 
 This involves the application of the principles of law which fix the 
 requisites of a contract. A mistake may not prevent the formation 
 of a contract, but it may constitute such an important aspect of the 
 transaction that justice would require that it be taken into account 
 in fixing the rights and duties of the parties. In a sense, therefore, 
 the mistake could be regarded as a condition, either implied in fact 
 or in law, which would operate substantially like any other condi- 
 tion. This phase of the subject of mistake could therefore be treat- 
 ed under the head of conditions. So, also, the subject of fraud, du- 
 ress, and undue influence may be examined, sometimes with a view 
 of determining whether there was a contract, and sometimes from 
 the standpoint of conditions. With respect to illegality, it is pos- 
 sible to say that one of the requisites to the existence of a contract 
 is that it shall have a legal object. But, inasmuch as illegal con- 
 tracts do produce some of the effects of a normal contract, it would 
 seem desirable to regard an illegal contract as a real contract, and 
 B.& B.BUS.LAW— 19 
 
290 CONTRACTS ' (Parti 
 
 then to treat the element of illegality as an independent matter, 
 which affects materially the relations of the parties to the contract. 
 
 It is sometimes said that otie of the requisites of a contract is 
 that the parties must be competent, but this is hardly correct. 
 Minors and other persons entitled to a larger measure of protec- 
 tion than normal persons do make contracts, but the law gives to 
 them certain rights and privileges which are not possessed by 
 other persons. The rules of law prescribing that certain kinds of 
 contracts shall be in writing are founded upon considerations of 
 public policy. Sometimes these rules prescribe an actual requisite 
 to the existence of a contract, as in the case of negotiable contracts ; 
 but the rules discussed in Chapter IX, for instance, are not of this 
 character. Failure to reduce such contracts to writing will have 
 some effect, but this effect is not to prevent the formation of the 
 contract. 
 
 In other words, the matters treated in the next four chapters are 
 new chiefly in the sense that the operative facts themselves are new. 
 After it has been determined what constitutes mistake, fraud, du- 
 ress, illegality, etc., the legal effect follows more or less naturally 
 as a result of the application of principles previously developed. 
 
 SECTION 2.— MISTAKE 
 
 The inquiry into the nature and effect of mistake opens up a 
 broad field of study. Mistake may project itself into any of the 
 varied phases of individual, social, business, or political life. One 
 may do a great many things which one would not, if one were 
 aware of all the facts relating, in one way and another, to his 
 conduct. We are interested here in three aspects of mistake: (1) 
 What is a mistake? (2) What kinds of mistake are taken cogni- 
 zance of by the law ; that is, what kinds of mistake will so operate 
 as to create, alter, extinguish, or prevent the formation of legal 
 relations — firincipally contractual relations? (3) What are the 
 legal effects of the various kinds of mistake with which the law 
 is concerned? 
 
 A mistake is a mental state, consisting in the erroneous assump- 
 tion that a specified fact is presently existing or non-existing, or 
 that, in the future, it will or will not exist. The mental state thus 
 called mistake, instead of being an affirmative state of mind, may 
 be a negative state of mind; that is, instead of erroneously as- 
 suming that fact X exists, one may simply fail to think about the 
 existence or non-existence of fact X. Causes of mistake may be 
 various. A mistake may arise as the result of careless mental hab- 
 its, from the failure to follow a line of inquiry which would lead to 
 a discovery of the truth, or from a belief induced by fraudulent rep- 
 resentations of a third party. It is usual to treat that kind of mis- 
 take caused by the fraud of a third party under the general head 
 of fraud, and it will be so treated here. With respect to the kinds of 
 
^^- 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 291 
 
 mistake, it is possible for the mistake to concern the transaction be- 
 tween the parties in such a way as to prevent the formation of any 
 contract. Some reference to this phase of the law relating to mis- 
 take was made in the chapter on Ofifer and Acceptance. Again, the 
 mistake may not prevent the formation of a contract, but it may 
 be nevertheless of so material a nature that the law will permit 
 the rescission of tiie contract on the ground of mistake. Finally, 
 there may be no misunderstanding in the making of the real con- 
 tract, "but, in the same case, some mistake may arise in giving the 
 contract formal expression. In such a case, it may not be just to 
 rescind the contract, but it may be reformed ; that is, the formal 
 expression may be made to conform to the contract actually en- 
 tered into. 
 
 RIEGEL V. AMEItlCAN LIFE INS. CO. 
 
 (Supreme Court of Pennsylvania, 1^93. 153 Pa. 134,. 25 Atl. 1070, 
 19 L. E. A. 166.) 
 
 Plaintiff's intestate, a creditor carrying a $6,000 policy of insurance 
 upon the life of one L,eisenring, her debtor, in order to be relieved of 
 the burden of further premiums, surrendered the same for a paid-up 
 policy for $2,500, under the rules of the company, subsequent to the 
 death of the insured, both parties being ignorant of said death. Plain- 
 tiff brings a bill against the insurance company, asking the reinstate- 
 ment of the surrendered policy. In the court below, a decree was ren- 
 dered, sustaining a demurrer to the bill and dismissing it. Plaintiff 
 appeals from the decree. 
 
 SterrETT, j, * * * [Quoting from a ptevious opinion in the 
 same case:] 
 
 "The case presented on these facts was that of a contract entered into 
 under the influence of a mutual mistake, and a claim for relief from 
 such contract. The mistake was in relation to the fact of Leisenring's 
 death. Both parties evidently supposed and acted on the supposition 
 that he was alive, and that the annual premiums upon his life, which 
 had become burdensome to Mrs. Riegel, must be continued indefinitely 
 until his death should take place. As it had become difficult for her to 
 pay these premiums, the only way in which she could be relieved from 
 them was to surrender her policy, and accept a paid-up policy for such 
 smaller sum as the premiums already paid would purchase. Rather 
 than take the risk of losing the entire amount of the policy, by her 
 inability to keep up the annual payments, she surrendered her policy 
 for $6,000, and accepted in lieu of it a paid-up policy for $2,500. This 
 was the contract she made while in ignorance of Leisenring's death. 
 At the time she made it she was already relieved from the burden- 
 some premiums, and the entire amount of the policy was honestly due 
 her from the company. What was the effect of the mistake upon 
 her ? Simply to take from her the difference between the two policies, 
 and give her absolutely nothing for it. She surrendered a policy for 
 $6,000, on which the liability of the company was already fixed, and 
 received one for $2,500, to secure relief from a burden already remov- 
 ed. The company parted with nothing. She secured nothing. The 
 whole transaction was a mistake, and, if the decree of the court stands, 
 
292 CONTRACTS (Part 1 
 
 the result will be to take $3,500 from Mrs. Riegel and give it to the 
 insurance company. These facts seem to us to present a clear and a 
 strong case for equitable relief, so strong, indeed, that a mere state- 
 ment of them is the only argument necessary for its support. The 
 duty of a chancellor to relieve in cases of mutual mistake is so well 
 settled that no citation of authorities can be needed. * * * The 
 learned judge who heard this case in the court below, and who is thor- 
 oughly familiar with the principle to which we have referred, seems to 
 have been misled in regard to the facts set up in the bill. * * * " 
 
 The general rule is that an act done or a contract made Under a 
 mistake of a material fact is voidable and relievable in equity. The 
 fact must of course be material to the act or contract; for, though 
 there may be an accidental mistake or ignorance of the faCt, yet, if the 
 act or contract is not materially affected by it, relief will not be granted. 
 Thus, A. buys from B. an estate to which the latter is supposed to have 
 an unquestionable title. It turns out, upon due investigation of the 
 facts unknown at the time to. both parties, that B. has no title; as, if 
 there be a nearer heir than B., wlio was supposed to be dead, but is in 
 fact living. In such a case e^ity would relieve the purchaser and 
 rescind the contract. But suppose A. buys from B. an estate the loca- 
 tion of which was well known to each of them, and they mutually 
 believed it contained 20 acres, when in fact it contained only 19% 
 acres, and the difference would not have varied the purchase in the view 
 of either party; in such a case the mistake would not be ground for 
 rescission of the contract. * * * It makes no difference in applica- 
 tion of the principle that the subject-matter of the contract be known 
 to both parties to be liable to a contingency which may destroy it im- 
 mediately ; for, if the contingency has, unknown to the parties, already 
 happened, the contract will be avoided, as founded on a mutual mistake 
 of a matter constituting the basis of the contract. * * * 
 
 The principle is illustrated by familiar examples, employed by text 
 writers, thus: A. agrees to buy a certain horse from B. It turns out 
 that the horse is dead at the time of the bargain, though neither party 
 was then aware of the fact. The agreement is void. A. agrees to buy 
 a house belonging to B. The house was previously destroyed by fire, 
 but the parties dealt in ignorance of that fact. The contract not being 
 for sale of the land on which the house stood, was not enforceable. 
 So, too. A., being entitled to an estate for the life of B., agreed to sell 
 it to C. B. was dead but both parties were ignorant of the fact. The 
 agreement was avoided. For similar reasons, a life insurance cannot 
 be revived by payment of a premium within the time allowed for that 
 purpose by the original contract, but after the Hfe had dropped, un- 
 known to both insurer and assured, although it was in existence when 
 the premium became due, and although the insurer has waived proof 
 of the party's health, which, by the terms of the renewal, it might have 
 required. The waiver applies to the proof of health, not to the fact of 
 his being alive. * * * Mr. Pollock, in his excellent treatise on the 
 Principles of Contract (page *441), states the general principle thus: 
 "An agreement is void if it relates to a subject-matter (whether a 
 material subject of ownership, or a particular title or right) contem- 
 plated by the parties as existing, but which in fact did not ex- 
 ist." * * * 
 
 It cannot be doubted that in exchanging the old for the new policy 
 both parties acted on the basis that Leisenring was then alive. * * * 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 293 
 
 In view of the undisputed facts as to the acts of both parties, and 
 everything connected with the transaction, it would be wholly unrea- 
 sonable and unwarranted to hold that the parties treated upon the 
 basis that the fact which was the subject of their agreement was 
 doubtful, or that the contract was made "in view of doubtful facts, and 
 because of the doubtful facts." * * * 
 
 It is therefore adjudged that the decree of the court of common pleas 
 be reversed and set aside, and exceptions to master's report dismissed ; 
 and it is now adjudged and decreed that the contract under which said 
 exchange of insurance policies was made be rescinded ; that the paid- 
 up policy for $2,500 be surrendered and canceled ; and that the original 
 policy of insurance be reinstated, as of date of its surrender; and it is 
 further adjudged ahd decreed that the defendant company pay to the 
 plaintiff the sum of $6,000, with interest from October 4, 1889, and 
 also all the costs of this proceeding. 
 
 Paxson, C. J. I dissent, and would affirm the decree, iipon the 
 clear and able opihion of the learned judge below. 
 
 Mitchell, J. I concur with the chief justice in his dissent. 
 
 WOOD V. BOYNTON et al. 
 
 (Supreme Court of Wisconsin. 1885. 64 'Wis. 265, 25 N. W. 42, 
 54 Am. Rep. 610.) 
 
 Taylor, J. This action was brought in the circuit court for Mil- 
 waukee county to recover the possession of an uncut diamond of the 
 alleged value of $1,000. The case was tried in the circuit court, and 
 after hearing all the evidence in the case, the learned circuit judg^ di- 
 rected the jury to find a verdict for the defendants. The plaintiff 
 excepted to such instruction, and, after a verdict was rendered for the 
 defendants, moved for a new trial upon the minutes of the judge. The 
 motion was denied, and the plaintiff duly excepted, and after judgment 
 was entered in favor of the defendants, appealed to this court. The de- 
 fendants are partners in the jewelry business. On the trial it appeared 
 that on and before the twenty-eighth of December, 1883, the plaintiff 
 was the owner of and in the possession of a small stone of the nature 
 and value of which she was ignorant; that on that day she sold it to 
 one of the defendants for the sum of one dollar. Afterwards it was 
 ascertained that the stone was a rough diamond, and of the value of 
 about $700. After hearing this fact the plaintiff tendered the de- 
 fendants the one dollar, and ten cents as interest, and demanded a re- 
 turn of the stone to her. The defehdants refused to deliver it, and 
 therefore she commenced this action. 
 
 The plaintiff testified * * * as follows: * * * "Before I 
 sold the stone I had no knowledge whatever that it was a diamond. I 
 told him that I had been advised that it was probably a topaz, and he 
 said probably it was. * * *" ' She also testified that before this 
 action was commenced she tendered the defendants $1.10, and de- 
 manded the return of the stone, which they refused. * * * The 
 evidence on the part of the defendant is not very different from the 
 version given by the plaintiff, and certainly is not more favorable to 
 the plaintiff. * * *^ 
 
 The only question in the case is whether there was anything in 
 the sale which entitled the vendor (the appellant) to rescind the sale 
 and so revest the title in her. The only reasons we know of for re- 
 
294 CONTRACTS (Part 1 
 
 scinding a sale and revesting the title in the vendor so that he may- 
 maintain an action at law for the recovery of the possession against 
 his vendee are (1) that the vendee was guilty of some fraud in pro- 
 curing a sale to be made to him ; (2) that there was a mistake made by 
 the vendor in delivering an article which was not the article sold, — a 
 mistake in fact as to the identity of the thing sold with the thing de- 
 livered upon the sale. This last is not in reality a rescission of the 
 sale made, as the thing delivered was not the thing sold, and no title 
 ever passed to the vendee by such delivery. 
 
 In this case, upon the plaintiff's own evidence, there can be no just 
 grovind for alleging that she was induced to make the sale she did by 
 any fraud or unfair dealings on the part of Mr. Boynton. Both were 
 entirely ignorant at the time of the character of the stone and of its 
 intrinsic value. Mr. Boynton was not an expert in uncut diamonds, 
 and had made no examination of the stone, except to take it in his 
 hand and look at it before he made the offer of one dollar, which was 
 refused at the time, and afterwards accepted without any comment 
 or further examination made by Mr. Boynton. The appellant had 
 the stone in her possession for a long time, and it appears from her 
 own statement that she had made some inquiry as to its nature and 
 qualities. If she chose to sell it without further investigation as to 
 its intrinsic value to a person who was guilty of no fraud or unfair- 
 ness which induced her to sell it for a small sum, she cannot repudiate 
 the sale because it is afterwards ascertained that she made a bad 
 bargain. * * * There is no pretense of any mistake as to the iden- 
 tity of the thing sold. * * * When this sale was made the value 
 of the thing sold was open to the investigation of both parties, neither 
 knqjving its intrinsic value, and, so far as the evidence in this case 
 shows, both supposed that the price paid was adequate. * * * 
 However unfortunate the plaintiff may have been in selling this val- 
 uable stone for a mere nominal sum, she has failed entirely to make 
 out a case either of fraud or mistake in the sale such as will entitle 
 her to a rescission of such sale so as to recover the property sold in 
 an action at law. 
 
 The judgment of the circuit court is affirmed. 
 
 NEWTON V. TOLLES. 
 
 (Supreme Court of New Hampshire, IS'M). 66 N. H. 336. 19 Atl. 1092, 
 9 L. B. A. 00, 49 Am. St. Rep. 593.) 
 
 Plaintiff made a contract with defendant to purchase a farm, 
 which defendant represented, and which both supposed, contained 200 
 acres, but which in fact contained only 135 acres. Plaintiff made par- 
 tial payments, and took possession, but, discovering the mistake, re- 
 fused to accept the deed, and immediately after its tender brought 
 suit to rescind the contract, offering to account for rent and profits, 
 and make .allowance for such personal property sold with the farm 
 as had been consumed in its management. 
 
 Carpenter, J. There was a mutual mistake in the quantity of land. 
 The defendant understood she was selling, and the plaintiff that he 
 was buying, a farm of 200 acres. It in fact contains only 135 acres. 
 The defendant, believing that the farm contained 200 acres, informed 
 the plaintiff that it did contain that number. The plaintiff relied on 
 her statement. Under the influence of the error "common to both par- 
 
Ch. fi) EFFECT OP MISTAKE, FRAUD, DURESS, ETC. 295 
 
 ties, the transaction was consummated. The mistake was one of fact 
 in a material point affecting the value of the property. * * * A 
 material mistake in the quantity does not, in its effect upon the equita- 
 ble rights of the parties, differ from a like mistake in the character, 
 situation, or title of the bargained property. It is equivalent to a mis- 
 take in the existence of a material part of the subject of the contract. 
 The case is as if before. the contract was executed, and without the 
 knowledge of either party, a parcel containing 65 acres of the 200 con- 
 tracted for had sunk in the sea. ;•= * * It is inequitable, in the high- 
 est degree, that the defendant, by reason of her negligent and erro- 
 neous, though not fraudulent, representation, should make a profit of 
 the sum at which the parties valued 65 acres of land, and that the 
 plaintiff, without fault on his part, should lose that sum. Equity will 
 prevent such a result by rescinding the contract, or decreeing a spe- 
 cific i>erformance with compensation in behalf of the injured party, 
 at his election, or by refusing specific performance on the application 
 of the other party. * * * 
 
 The details of the decree will be settled at the trial term. Decree 
 for the plaintiff. 
 
 STEINMEYEE et al. v. SCITROEPPEL. 
 
 (Supreme Court of Illinois, 1907. 226 111. 9, 80 N. E. 564, 10 L. R. A. 
 [N. S] 114, 117 Am. St. Rep. 224.) 
 
 Action by Henry Steinmeyer and others against John Schroeppel, 
 which was consolidated with a suit by Schroeppel against Henry 
 Steinmeyer and others. From a decree of the Api)ellate Court, re- 
 versing a decree, canceling a contract between the parties, Henry 
 Steinmeyer and others appeal. 
 
 Cartwright, J. * * * The jurisdiction of equity to grant the 
 lemedy of cancellation because of a mistake of fact by one party to 
 a contract is well recognized. Mutual consent is requisite to the cre- 
 ation of a contract, and if there is a mistake of fact by one of the par- 
 ties going to the essence of the contract, no agreement is, in fact, 
 made. * * * If there is apparently a valid contract in writing, but 
 by reason of a mistake of fact by one of the parties, not due to his 
 negligence, the contract is different with respect to the subject-matter 
 or terms from what was intended, equity will give to such party a 
 remedy by cancellation where the parties can be placed in statu quo. 
 The ground for relief is, that by reason of the mistake there was no 
 mutual assent to the terms of the contract. * * * The fact con- 
 cerning which the mistake was made must be material to the trans- 
 action and aft'ect its substance, and the mistake must not result from 
 want of the care and diHgence exercised by persons of reasonable 
 prudence under the same circumstances. * * * in this case the 
 mistake was in the addition of the figures set down by the bookkeep- 
 er. The price of each item was written correctly, but appellants claim- 
 ed that one item of about $400 was placed somewhat to the right, and 
 in adding the column the 4 was counted in the 10-column instead of 
 the 100-column. If that was done, it does not account for the differ- 
 ence of $421. But if it did, it would only show a want of ordinary 
 care and attention. If the figures were not exactly in line, the fact 
 could hardly escape notice by a competent business man giving rea- 
 sonable attention to what he was doing. There was no evidence tend- 
 ing to prove any special circumstances excusing the blunder. 
 
296 CONTRACTS (Part 1 
 
 The case of Board of School Cora'rs v. Bender, 36 Ind. App. 164, 
 72 N. E. 154 (decided by the Appellate Court of Indiana, Division 
 No. 2), relied on by appellants, differs from this in various respects, 
 one of which is that Bender was excusable for the mistake. His com- 
 plaint alleged that he was misinformed by the architect that his bid 
 must be in at or before 4 o'clock, when, in fact, he was allowed until 
 8 o'clock; that in ignorance of the fact and for want of time he was 
 hurried in submitting his bid, and had no opportunity for verification 
 of his estimate, and that under those circumstances he turned two 
 leaves of his estimate book by mistake and omitted an estimate on a 
 large part of the work. The case involved the question whether the 
 bidder had forfeited a sum deposited as a guaranty that he would en- 
 ter into a contract, and when notified that his bid was accepted, having 
 discovered his mistake, he informed the architect and immediately 
 gave notice that he would not enter into the contract. By the terms of 
 the bid it was intended that if the bid was accepted a contract would 
 be made, but the bid was not the contract contemplated by the parties 
 and the bidder never did enter into the contract. The court conclud- 
 ed that the minds of the parties never, in fact, met, because the bidder 
 fell into the error without his fault. In the case of Harran v. Foley, 
 62 Wis. 584, 22 N. W. 837, there was no agreement, for the reason 
 that the minds of the parties never met. The plaintiff claimed to have 
 purchased of the defendant some cattle for $161.50, but the defendant 
 intended to state the price at $261.50. When the defendant was in- 
 formed that the plaintiff understood the price to be $161.50 he re- 
 fused to deliver the cattle and tendered back $20 received on the pur- 
 chase price. No agreement was, in fact, made, since the statement of 
 the price by the seller was clearly a mistake. 
 
 A mistake which will justify relief in equity must affect the sub- 
 stance of the contract, and not a mere incident or the inducement for 
 entering into it. The mistake of the appellants did not relate to the 
 subject-matter of the contract, its location, identity, or amount, and 
 there was neither belief in the existence of a fact which did not ex- 
 ist or ignorance of any fact material to the contract which did exist. 
 The contract was exactly what each party understood it to be and it 
 expressed what was intended by each. If it can be set asixle on ac- 
 count of the error in adding up the amounts representing the selling 
 price, it could be set aside for a mistake in computing the percentage 
 of profits which appellants intended to make, or on account of a mis- 
 take in the cost of the lumber to them, or any other miscalculation on 
 their part. If equity would relieve on account of such a mistake 
 there would be no stability in contracts, and we think the Appellate 
 Court was right in concluding that the mistake was not of such a 
 character as to entitle the appellants to the relief prayed for. 
 
 The judgment of the Appellate Court is affirmed. 
 
 BERKY, DEMOVILLB & CO. v. SOWELI,. 
 (Supreme Court of Alabama, 1882. 72 Ala. 14.) 
 SoMERViLLi;, J. It is a settled principle of equity jurisprudence 
 that where, by mistake or fraud, a deed or other written contract 
 fails to express any material term of the real agreement which the 
 parties mutually intended to make, a court of equity will, on clear and 
 satisfactory proof of such mistake or fraud, reform the instrument, 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 297 
 
 SO as to make it conform to the intention of the parties, and embody 
 the actual or true agreement. * * * The aim of the court, in 
 such cases, is to place the parties, as nearly as possible, in the sit- 
 uation they would have occupied but for the mistake. * * * And 
 this jurisdiction to reform or rectify written instruments may be ex- 
 ercised as well against creditors, and purchasers having actual or 
 constructive notice of the mistake, as between the irrimediate parties 
 themselves. * * * if^ however, the parties cannot be placed in 
 statu quo, or if the mistake cannot be rectified without impairing the 
 vested rights of innocent third parties, having no notice of the mis- 
 take, the aid of equity will be withheld. * * * 
 
 TILLIS V. SMITH. 
 (Supreme Court of Alabama, 1895. 108 Ala. 264, 19 South. 374.) 
 
 Head, J. It is not denied that the instrument whose reformation 
 is sought by the bill misdescribes the lands which the appellees agreed 
 to convey to the appellant, and for the purpose of conveying which 
 they went to his place of business, in the town of Geneva. It is ad- 
 mitted that * * * he was possessed of the corresponding subdivi- 
 sions in section 25, but that he was possessed of the corresponding 
 subdivisions in section 28, constituting his homestead, and upon which 
 the appellant had a first mortgage. In his testimony. Smith says that 
 he had previously mortgaged these lands to appellant, and that he 
 intended to deed the same lands lying in section 28, instead of sec- 
 tion 25. There is therefore no room for doubt or controversy that 
 a mistake was made by the scrivener in respect of the description of 
 the lands, and that, in its present form, the instrument does not ex- 
 press the true intention and meaning of the parties. The jurisdiction 
 of a court of equity to correct such mistakes, when admitted or estab- 
 lished by the necessary measure of proof, is too well settled, and has 
 been too often successfully invoked in this state, to require a citation 
 of the cases to be found in our reports upon this subject. And at 
 this time it is no longer open to debate that refohnation may be had 
 of a conveyance designed to pass the husband's exempt homestead, but 
 which, by mistake, fails to correctly describe it, provided the deed or 
 mortgage is executed and acknowledged by him and wife, in con- 
 formity with the statute governing such cases. * * * 
 
 HEALY V. HEALY. 
 
 (Supreme Court of New Hampshire, 1912. 76 N. H. 504, 85 Atl. 156.) 
 
 Bill for specific performance by John F. Healy and others against 
 Michael Healy and others. The bill was dismissed, and plaintiffs 
 bring exceptions. The plaintiffs are sons and daughters of deceased 
 uncles and aunts, and the defendants are two of the surviving uncles 
 and aunts of John M. Harrington,^ who died in February, 1908, intes- 
 tate. On the petition of the plaintiffs, one of the cousins was appoint- 
 ed administrator of Harrington's estate, notwithstanding the defend- 
 ants objected and petitioned for the appointment of another qualified 
 person. The appointment was made upon the erroneous assumption 
 
298 coNTEACTS (Part 1 
 
 that the cousins of the decedent, as well as the uncle and aunt, partic- 
 ipated in the distribution of the estate. Acting on the same erro- 
 neous assumption, all the parties and another uncle subsequently join- 
 ed in a power of attorney'to the administrator, but in his individual 
 capacity, authorizing him to sell the real estate, and erroneously de- 
 scribing the parties to the power as heirs of Harrington. This power 
 was revoked April 6, 1909, by the defendants. At the date of revo- 
 cation nothing had been done under the power except the employment 
 of an auctioneer whose bill for services, amounting to $10, has been 
 paid by one of the plaintiffs. 
 
 The plaintiffs claim that all the parties to the power of attorney 
 assented to the mistaken view of the law upon which the administra- 
 tor was appointed, and that his power was given to facilitate distri- 
 bution of the estate among the parties. This the defendants deny, 
 claiming that such was not the purpose of the power. This issue has 
 not been tried, the court having ruled that, even if the defendants signed 
 the power of attorney for that purpose, they are not concluded there- 
 by since they acted under a mistaken apprehension of the law, and 
 that they may now controvert it ; that the signing of such power of 
 attorney, under such misapprehension of their legal rights, does not 
 conclude the real owners of the property from now insisting upon a 
 distribution in accordance with the law. The court ordered that the 
 bill be dismissed, and that the nieces and nephews who became par- 
 ties to the power of attorney should be relieved of any obligation in- 
 cident thereto. To the order of dismissal the plaintiffs excepted. 
 
 PfiASLEE, J. The only exception taken is to the order that the bill 
 be dismissed. This order was apparently based upon the ruling that 
 the defendants were entitled to rescind their agreement, and the ques- 
 tion relating to rescission is thus presented. * * * 
 
 That a rescission may be had for a mutual mistcike as to the legal 
 rights of the parties seems to be well settled. In some cases this has 
 been put upon the ground that there was no consideration for the 
 promise, in others that there was a mistake as to the subject-matter, 
 but usually upon the broad principle that justice and equity require 
 such a rule. The dividing line between cases where these considera- 
 tions should control and those which should be governed by the maxim 
 that ignorance of the law excuses no one has not always been clearly 
 defined. Pomeroy describes it thus: "Whenever a person is igno- 
 rant or mistaken with respect to his own antecedent and existing pri- 
 vate legal rights, interests, estates, duties, liabilities, or other relation, 
 either of property, or contract, or personal status, and enters into some 
 transaction the legal scope and operation of which he correctly appre- 
 hends and understands, for the purpose of affecting such assumed 
 rights, interests, or relations, or of carrying out such assumed du- 
 ties or liabilities, equity will grant its relief, defensive or affirmative, 
 treating the mistake as analogous, if not identical with, a mistake of 
 fact." Of^this rule he says: "The number of decisions which sup- 
 port it, and which it explains, is very great." Pom. Eq. Jur. § 849. 
 "Whenever the mistake of law is mutual, and the party jeopardized 
 thereby can be relieved without substantial injustice to the other side, 
 then equity will afford redress, especially if the party to be benefited 
 by the mistake invokes the aid of equity to put him in a position where 
 the mistake will become advantageous to him." Freichnecht v. Meyer, 
 39 N. J. Eq. 551, 561. * * * And in this jurisdiction the fact that 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 299 
 
 a mistake was one of law has not been considered as necessarily a bar 
 to treating it as a ground for granting relief: * * * 
 
 Judged by any of the tests above suggested, these defendants were 
 entitled to withdraw from their agreement. Assuming, as the plain- 
 tiffs claim, that the agreement covers a division of the estate with 
 them, there was no consideration for the promise. The subject-mat- 
 ter — their interest in the estate — had no existence. And they are here 
 seeking relief from a court of equity to the end that they may enforce 
 an equitable bargain. It may be conceded, as the plaintiffs argue, that 
 the rule as to rescission does not apply where the agreement was en- 
 tered into to settle disputed or doubtful claims. The arrangement 
 here made was not in any sense a settlement of a controversy. It was 
 made because all the parties then supposed that the nephews and 
 nieces were entitled to share in the distribution. There was no differ- 
 ence of opinion which was compromised, but simply a mutual mistake 
 as to their rights in the premises. Believing that all were entitled to 
 share in the estate, the parties made this agreement for the convenient 
 disposal of the property. No action has been taken under the agree- 
 ment, save the payment of $10 by one of the plaintiffs. 
 
 By the decree which was entered t](iis is to be returned to him. 
 The contract, if one was made, is still executory. Upon these facts, 
 equity plainly requires the order which was made in the superior 
 court. Exception overruled. 
 
 SECTION 3.— FRAUD 
 
 There are few topics of the law which more frequently engage 
 the attention of the courts than that of fraud. Fraudulent practices 
 protrude themselves into every kind of human relationships. The 
 courts are called upon to define what constitutes fraud and to pre- 
 scribe its legal effects. 
 
 Fraudulent practices are so infinitely varied that the framing of 
 a definition is next to impossible. Under some circumstances a 
 particular group of acts may constitute fraud, while under different 
 circumstances the same acts would not be regarded as fraudulent. 
 What constitutes fraud depends to a considerable extent upon the 
 nature of the suit and the character of the relief sought. The sub- 
 ject of fraud may become involved in one of three ways: (1) As a 
 defense to an action for breach of contract; (2) as a ground for 
 affirmative relief by way of rescission of a contract or of a transfer 
 of property ; and (3) as the ground for affirmative relief for dam- 
 ages in a tort action of deceit. We are interested, primarily, in the 
 subject of fraud as a defense to a contract or as ground for rescind- 
 ing a contract. 
 
 Where fraud is relied upon as a defense to an action for breach of 
 contract, we are concerned with a real contract ; but the breach of 
 the defendant is justified, by proof that the defendant entered into 
 the contract because of the fraud. Sometimes frau4 is of such a 
 character that the courts may fairly say that no contract resulted ; 
 but in the majority of instances the party knowingly entered into 
 
300 coNTKACTS (Part 1 
 
 the contract, but would not have done so, if the fraud had not 
 been practiced upon him. 
 
 Where fraud is relied upon as a ground for seeking affirmative 
 relief against the fraudulent party, the defrauded party is seeking 
 one of two types of relief, and sometimes he seeks both: (1) The 
 defrauded party may desire to have a decree of a court which de- 
 clares that the particular contract is void ; (2) or he may ask that 
 the court grant him a decree which orders the fraudulent party to 
 restore to the defrauded party what he has parted with. Where 
 the defrauded party is asking for a decree that the contract be de- 
 clared null and void because of fraud, the circumstances will be 
 such that the mere fact that the defrauded party will have a good 
 defense if the fraudulent party should sue him will not be an ade- 
 quate remedy. Such situations frequently arise in connection with 
 contracts for the sale of land or 6i deeds to land. Again, the de- 
 frauded party may have already parted with the consideration, in 
 which case it is to his interest to rescind the contract; that is, to 
 treat the contract as if it had never existed and ask for a return cf 
 the consideration. ' 
 
 Where the defrauded party brings a tort action against the fraud- 
 ulent party, the contract is only indirectly involved. The gist of the 
 action is the wrong done to the plaintiff, and for this wrong the 
 plaintiff is asking for damages. Generally speaking, a stronger 
 case of fraud must be made out in the tort action of fraud and 
 deceit than is necessary where fraud is relied upon as a defense, 
 or as a ground for a decree declaring the contract void or for a 
 return of the consideration. 
 
 Fraud has five elements: (1) There must be a false representa- 
 tion of material facts. (2) There must be knowledge, by the party 
 making the assertion, that the facts stated were untrue. (3) The 
 party making the false statement must have had the intention to 
 defraud ; that is, he must have intended that the party to whom the 
 untrue statements were made should act upon them as true. (4) 
 The party to whom the false statements were made must have been 
 ignorant of their falsity; that is, he must have relied upon them 
 as true. (5) The party to whom the statements were made must 
 have sustained damage by reason of his reliance upon the untrue 
 statements. 
 
 At least these five elements are necessary in order to maintain 
 the tort action for fraud and deceit. Where fraud is relied upon as 
 a defense to a contract or as a ground for rescission, it is not nec- 
 essary to prove that the defrauding party intended to defraud. 
 The contract may be rescinded, or the defense of fraud will be suc- 
 cessful, if it be proved that there were misrepresentations of ma- 
 terial facts, although such rnisrepresentations were made inno- 
 cently. 
 
 It is apparent that there may be every manner of controversy on 
 the question whether a particular group of circumstances fulfills 
 all of the requisites of fraud. 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 301 
 
 WILSON V. HUNDLEY. 
 
 (Supreme Court of Appeals of Virginia, 1898. 96 Va. 96, 30 S. E. 492, 
 70 Am. St. Rep. 837.) 
 
 Action by William Wilson, trustee of the Rivermont Company, for 
 the benefit of creditors, against George J. Hundley, to recover unpaid 
 stock subscriptions. Defendant was inducea to subscribe for stock in 
 the corporation on the fraudulent representation that a certain syndi- 
 cate had subscribed for a large amount of the stock, and, when inform- 
 ed that the greater part of such subscription was merely optional, 
 he affirmed the contract. 
 
 RiELY, J. * * * A contract induced by fraud is not void, but 
 voidable at the option of the party injured by the fraud. Upon the 
 discovery of the fraud, he has, as a general rule, the choice of two 
 remedies : He may elect to rescind the contract, if he can restore what 
 he has received in the same state or condition in which he received it, 
 and sue for and recover back the consideration he has paid or given, 
 or, if he has not paid or given anything, repudiate the contract, and 
 rely, when sued, upon the fraud as a complete defense; or he may 
 elect to retain what he has received under the contract, and bring an 
 action to recover damages for the injury he has sustained from the 
 deceit. By adopting the latter course, he, in effect, affirms the contract, 
 but not as made in good faith. He consents to be bound by its provi- 
 sions, but does not thereby release or waive his claim for damages aris- 
 ing from the fraud collateral to the agreement. * * * 
 
 If, however, the party who has been defrauded elect, on the discovery 
 of the fraud, to affirm the contract, his election is final and conclusive. 
 He has but one election to rescind, and, having once elected to affirm 
 the contract, he cannot thereafter disaffirm it, but must abide by the 
 decision he has made. * * * 
 
 In Ormes v. Beadel (1861) 30 Law J. Eq. 1, Lord Campbell said: 
 "No case can be found to establish the doctrine that if a voidable con- 
 tract is voluntarily acted upon, with a knowledge of all the facts, in the 
 hope that it may turn out to the advantage of a party who might have 
 avoided it, he may still avoid it, when, after abiding the event, it has 
 turned out to his disadvantage." * * * 
 
 [Judgment for defendant reversed.] 
 
 DAVIS V. BUTLER. 
 (Supreme Court of California, 1908. 154 Cal. 623, 98 Pac. 1047.) 
 
 Action by H. E. Davis against T. C. Butler. From an order deny- 
 ing a motion for a new trial, defendant appeals. 
 
 Sloss, J. On November 7, 1905, the defendant sold to the plaintiflE 
 250 shares of the capital stock of the Salinas Valley Bottling Company, 
 a corporation. In January, 1906, the plaintiff, claiming that he had 
 been induced to buy the stock by means of fraudulent misrepresenta- 
 tions made to him by the defendant, undertook to rescind the agreement 
 of purchase and sale. The defendant refusing to restore the money 
 and property received as the purchase price, the plaintiff brought this 
 action, praying a decree that the agreement be rescinded, and that de- 
 fendant be required to transfer to plaintiff the property received as the 
 
302 coNTEACTS (Parti 
 
 purchase price of the stock upon plaintiff retransf erring the 250 shares 
 of stock. The plaintiff had judgment in the court below. The defend- 
 ant now appeals from an order denying his motion for a new trial. 
 
 The Salinas Valley Bottling Company was engaged in the business of 
 bottling and selling beer which it purchased in bulk. Four hundred and 
 thirty shares of its stock, of the par value of $10 each, had been issued. 
 The misrepresentations alijeged by plaintiff to have been made by de- 
 fendant had reference to three matters. The complaint averred that 
 the defendant had stated that the indebtedness of the corporation, over 
 and above the money it then had in bank and solvent credits due to it 
 by its patrons, amounted to the sum of $1,530, and no more, whereas 
 in fact such indebtedness amounted to the sum of $2,963.64. He had 
 represented that the corporation was and had been marketing and 
 selling two .car loads of beer per month, whereas in fact it had not been 
 and was not selling more than one car load per month. The third 
 representation relied upon was that the corporation received a net profit 
 of $6.15 per barrel on the beef bottled and marketed by it,-when as a 
 matter of fact said net profit did not exceed $3.35 per barrel. * * * 
 
 A single material misstatement, knowingly made, with intent to in- 
 fluence another into entering into a contract, will, if believed and relied 
 on by that other, afford as complete ground for rescission as if it had 
 been accompanied by a multitude of other false representations. It will 
 hardly be contended that a representation that the indebtedness of the 
 corporation was only $1,530; when in fact it was $2,800, was not ma- 
 terial. There are many corporations having assets and conducting a 
 business of such magnitude that a difference, one way or the other, 
 of a few thousand dollars of indebtedness would not appreciably affect 
 the value of their stock. But. the Salinas Valley Bottling Company 
 had a total outstanding issue of only 430 shares, of the par value of $10 
 each. The sale to plaintiff embraced 250 shares at par. The difference 
 between $1,530 and $2,800, if apportioned among the outstanding 
 shares of stock, amounts to almost $3 for each of the 430 shares. Such 
 a discrepancy, having a close relation to the value of the stock, would 
 certainly be material in a transaction based on a selling price of $10 
 per share. * * * 
 
 The rule that a party may not complain of misrepresentations regard- 
 ing matters which he has investigated, or, having the opportunity so 
 to do, has begun to investigate for himself * * * has no applica- 
 tion here. While the plaintiff, before purchasing, looked over the 
 books of the corporation, the court finds * * * that defendant 
 stated to plaintiff that neither he nor the corporation kept any books of 
 account showing the corporate indebtedness. The plaintiff" was fully 
 justified in relying upon defendant's statements as to such indebted- 
 ness. * * * It is not essential to the right to rescind a contract for 
 the purchase of property that the purchaser should be able to show that 
 the property. purchased was worth less than he paid for it. It is 
 enough that he was induced, by false representations, to buy property 
 which would, if the representations had been true, have been yirorth 
 more than it actually was worth. * * * 
 
 The sale to plaintiff was made on November 7, 1905. The notice of 
 rescission was given on January 11, 1906, and the complaint filed on 
 January 18, 1906. The court found that plaintiff did not delay an un- 
 reasonable time ill electing to rescind the contract after discovery of. 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 303 
 
 the falsity of the defendant's representations. This finding cannot be 
 said to be contrary to the evidence. * * * 
 The order is affirmed. 
 
 MILLER V. SUTLIFF et al. 
 
 (Supreme Court of Illinois, 1909. 241 111. 521, 89 N. B. 651, 
 24 L. R. A. [N. S.] 735.) 
 
 Suit by James B. Miller against Milton Sutliff and others. From a 
 decree dismissing the bill ?or want of equity, on sustaining a demurrer 
 thereto, complainant appeals. 
 
 Cartwright, J. James B. Miller filed his bill of complaint in the 
 circuit court of Peoria county against Milton Sutliff, Dwight R. Chap- 
 man, Moses J. Richards and their unknown heirs, and Augustus E. 
 Scott, praying the court to set aside a deed made by the complainant 
 to Sutliff, Chapman, and Richards of the undivided one-half of the 
 coal and mineral underlying the lands of the complainant, and a deed 
 of the same made to said Augustus E. Scott, and to declare the same 
 void and a cloud upon complainant's title. * * * fhe material 
 facts alleged in the bill and admitted by the demurrer to be true are as 
 follows : 
 
 On October 1, 1869, the complainant was the owner and in posses- 
 sion of 900 acres of land in Peoria county, under which there were 
 -deposits of coal. * * * Qjj ^^A day the complainant, with his 
 wife, executed a deed to Milton Sutliff, Dwight R. Chapman, and 
 Moses J. Richards, three of the defendants, conveying the undivided 
 one-half of all the coal and other minerals under said lands. The 
 deed recited a consideration of $400, and that it was made in pursuance 
 of a contract subsisting by and between the complainant and Chapman 
 and Phillips and by them performed. There was, in fact no consider- 
 ation paid, but the complainant was induced. to make the deed by rep- 
 resentations and promises of said defendaints made first at a meeting 
 at the farm of one of his neighbors, and afterward at a meeting held 
 at a public school house, and finally when the conveyance was made. 
 The representations were that said defendants were the owners of 
 large foundries, smelters, coke ovens, and iron mills near Youngstown, 
 Ohio ; that they were men of large means and resources ; tfiat the sup- 
 ply of coal such as was used in their industries had practically become 
 exhausted at their present location, necessitating a removal of the in- 
 dustries ; and that they would remove the industries to complainant's 
 locality if they could find and obtain in sufficient quantities a suitable 
 kind of coal. These representations were first made to secure the 
 privilege of boring and prospecting for coal, and, after prospecting and 
 making borings, said defendants stated that they had found suitable 
 coal in sufficient quantities, and, if the complainant and his neighbors 
 would convey to them the undivided one-half of the coal and other min- 
 erals underlying their lands, they would immediately remove their 
 plants and industries to the locality, and would employ a great num- 
 ber of men and build a railroad giving facilities for transportation. , 
 They represented to the complainant that, if he would make the con- 
 'veyance, they would locate one of their plants upon his premises and 
 the remainder in the vicinity, and would proceed at once toward open- 
 ing up mines on his land. * * * The complainant relied upon the 
 irepresentations and executed the deed, * * * but said defendants 
 
3tf4 CONTRACTS (Part 1 
 
 did not perform any of their agreements. * * * The complainant 
 has been in possession of the premises ever since, and neither said 
 defendants, nor any one claiming under them, has ever been in posses- 
 sion of the subject-matter of the conveyance. * * * 
 
 In order to constitute fraud in law, a representation must be_ on 
 affirmance of a fact, and not a mere promise or matter of intention. 
 While a statement of a matter in the future, if affirmed as a fact, may 
 amount to a fraudulent misrepresentation, it must amount to an asser- 
 tion of a fact, and not an agreement to do something in the future. 
 * * * If a promise is made to do something in the future and 
 at the time it is not intended to perform the promise, that fact does 
 not constitute a fraud in the law. * * * If an intention not to 
 perform constituted fraud, every transaction might be avoided where 
 the facts justified an inference that a party did not intend to pay the 
 consideration or keep his agreement. A mere breach of a contract 
 does not amount to a fraud, and neither a knowledge of, inability to 
 perform, nor an intention not to do so, would make the transaction 
 fraudulent. The bill in this case states no representation as to any past 
 or existing fact except that the kind of coal used in the plant near 
 Youngstown, Ohio, had become exhausted, necessitating a removal of 
 the plant to a locality where such coal could be found, and that the 
 defendants had a steamer in the Ohio river loaded with iron and ma- 
 chinery for removal, and there is no averment that either of these 
 representations was false. The other averments of the bill amount 
 simply to charges that the defendants to whom the deed was made 
 failed to perform their promises, which constituted the sole considera- 
 tion for the deed. The averments of the bill are not sufficient to 
 charge fraud in obtaining the deed. * * * 
 
 It is not to be inferred that the representations of the three defend- 
 ants as to what they would do, and which constituted the sole consider- 
 ation for the conveyance, gave rise to no right in the complainant or 
 that the right would not "be enforced or relief granted by a court of 
 equity. * * * But the remedy that might be given is not the one 
 sought by this bill. The court correctly decided that the facts al- 
 leged were not sufficient to establish the charge of fraud in obtaining 
 the conveyance or to justify declaring the deed void and removing it 
 as a cloud wpon complainant's title. The decree is affirmed. 
 
 GLOBE MUTUAL LIFE INS. ASS'N v. WAGNER. 
 (Supreme Court of Illinois, 190O. 188 111. 133, 58 N. E. 970, 52 L E A. 649 
 
 80 Am. St. Rep. 169.) 
 
 Appellee, Dora Wagner, recovered a judgment of $250 in a suit 
 in assumpsit in the superior court of Cook county against appellant, 
 the Globe Mutual Life Insurance Association of Chicago, on a policy 
 of insurance issued to her on the life of her son Richard Wagner. 
 The association appealed to the appellate court, where the judgment of 
 the superior court was affirmed, and now prosecutes this further ap- 
 peal. 
 
 WiivKiK, J. The chief ground urged by appellant for a reversal 
 of the judgment of the appellate court is the falsity of the answer to 
 one of the questions appearing in the medical examination of the in- 
 sured. On the back of the application made by appellee, in what pur- 
 ports to be the medical examination of the insured, this question and 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 305 
 
 answer appear: "Q. How many brothers dead? Ans. None." 
 
 * * * It appears from the evidence that a brother of the insured 
 died in London, England, more than four years prior to the date of 
 the application for insurance in this case, but there is no evidence 
 tending to show that the insured ever knew of his brother's death. 
 Appellant asserts, however, that, whether he knew of it or not, the 
 statement that none of his brothers was dead is a warranty, and, be- 
 ing untrue, avoids the policy. Appellee contends that the statement, 
 though false, is not a warranty, but a mere representation, which, 
 unless material, would not avoid the policy. 
 
 In the absence of explicit, unequivocal stipulations requiring such 
 an interpretation, it should not be inferred that the insured or the 
 appellee took a life policy with the distinct understanding that it should 
 be void if any statements made in the medical examination should 
 be false, whether the insured was conscious of the falsity thereof or not. 
 
 * * * Whether or not the deceased knew of the death of his brother 
 at the time of the application for insurance was a question for the 
 jury, and no evidence of such knowledge appears in the record. 
 
 * * * We are satisfied the court below committed no reversible er- 
 ror, and the judgment of that court will be aifirmed. 
 
 CROMPTON V. BEEDLE. 
 
 (Supreme Court of Vermont. 1910. 83 Vt. 287, 75 Atl. 331, 30 T,. E. A. 
 [N. S.] 748, Ann. Cas. 1912A, 399.) 
 
 Bill by Cora E. Crompton against Albert H. Beedle and another, 
 praying for. a reconveyance of land deeded to defendants. Complain- 
 ant tendered defendants the purchase price. 
 
 HasELTOn, J. The oratrix in this cause, a resident of Worcester, 
 Mass., sets out in her bill as amended that, at a time named she was the 
 owner in fee simple of a farm in Randolph in this state; that she 
 purchased the farm for the use of a relative, and had herself never been 
 in Randolph, and had never seen the fann and was ignorant of its true 
 value; that there was and is an undeveloped and valuable granite 
 quarry in and under the pasture of the farm, but that at the time named 
 she had no knowledge of such quarry. She further sets out that at 
 the time in question, which was October 22, 1908, the defendant Beedle, 
 called upon her in Worcester, and stated that he desired to buy the 
 pasture mentioned, and that she told him that she did not know the 
 value of the pasture apart from the farm; that thereupon the defendant 
 Beedle told her that the pasture was poor and of -comparatively little 
 value ; that it adjoined some land that belonged to him, and that the 
 only way of access to the pasture was over his land, and that it annoy- 
 ed him and his family to have his land gone over for such access, and 
 that that was the only reason why he desired to purchase the pasture. 
 * * * 'j'jje oratrix further alleges that the defendants knew of the 
 existence of the granite quarry, and knew that she was ignorant of its 
 existence that the representations made as above stated were false, and 
 were known to the defendants to be false, and were fraudulently made 
 for the purpose of inducing her to sell the farm to the defendants at a 
 price much less than its true value, and for the purpose of inducing her 
 to forbear inquiry as to the existence and value of the granite quarry, 
 B.& B.Bus-Law— 20 
 
306 CONTRACTS (Part 1 
 
 and as to the value of the farm as affected thereby ; that the pasture 
 was not, as represented, of little value, $400, but $15,000. * * _ * 
 
 In an early Pennsylvania case cited by the defendants it is said that 
 ^'concealment on the part of the vendee is a novel objection." But 
 the question presented has, in its various aspects, been discussed for 
 many centuries. Cicero puts the case of one who buys for a trifle gold, 
 which the seller, in his ignorance, supposed to be brass, and he moots 
 similar questions regarding sales of personal property and of real estate 
 as well. But we pass over the discussions of the ethical writers and the 
 civilians, discussions which are in some cases luminous and in others 
 obscure. It has long been settled in common-law jurisdictions that, in 
 general, the mere failure of a buyer to disclose something extrinsic or 
 intrinsic to the thing bought, known to him and not known to the seller, 
 is not in legal sense fraud. * * * jn Laidlaw v. Organ, 2 Wheat. 
 178, 4 L. Ed. 214, it appeared that in Febriiary, 1815, the defendant 
 got, through private sources, news of our Treaty of Peace with Eng- 
 land, of which the plaintiffs were ignorant, and that, without disclos- 
 ing the news, the defendant bought of the plaintiffs 111 hogsheads of 
 tobacco, the price of which was greatly enhanced by news of the 
 peace. It appeared that the plaintiff's inquired, in the course of the 
 transaction, if there was any news calculated to enhance the value of 
 tobacco, and that no reply was made to their inquiry. In the district 
 court it was held, as matter of law, that there could be no recovery. 
 Chief Justice Marshall in delivering the opinion of the Supreme Court 
 said : "The question in this case is whether the intelligence of extrin- 
 sic circumstances which might influence the price of the commodity, 
 and which was exclusively within the knowledge of the vendee, ought 
 to have been communicated by him to the vendor. The court is of 
 opin'on that he was not bound to communicate it. It would be difficult 
 to circumscribe the contrary doctrine within proper limits where the 
 means of intelligence are equally accessible to both parties. But at 
 the same time each party must take care not to say or do anything 
 tending to impose upon the other." In accordance with these views the 
 court held that in the circumstances disclosed it was a question of fact 
 whether any imposition was practiced by the vendee upon the vendor, 
 and so the judgment was reversed and the cause remanded. * * * 
 
 In a case decided a few years later than Laidlaw v. Organ, Eord 
 Eldon, in a carefully considered case, gave expression to the law here 
 appHcable. He said : "If an estate is offered for sale, and I treat for 
 it knowing that there is a mine under it, and the other party makes no 
 inquiry, I am not bound to give him any information of it ; he acts for 
 himself, and exercises his own sense and knowledge. But a very Httle 
 is sufScient to affect the application of that principle. If a word, if a 
 single word, be dropped which tends to mislead the vendor, that princi- 
 ple will not be allowed to operate." Turner v. Harvey, Jacob 169 178 
 In Walters v. Morgan, 3 De G. F. & J. 718, Lord Chancellor' Campbell 
 expressed his full concurrence in the doctrine of Turner v. Harvey 
 and said that, not only a single word, but "a nod or a wink or a shake 
 of the head, or a smile from the purchaser, might defeat the application 
 of the principle that mere reticence on the part of a purchaser does not 
 in law amount to fraud." * * * In Mountain v. Day 91 Minn 
 249, 97 Nl W. 883, the syllabus, by the court, is this : "An action will 
 he for fraudulent representations made by the prospective purchaser 
 of land as to its value and condition; the land being at a distance from 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DUIiESS, ETC. 307 
 
 the place of purchase, and the vendor being ignorant as to its condition 
 
 and value, and relying upon the truthfulness of such representations."' 
 * * * 
 
 Unfairness and fraud may be collected from a variety of circum- 
 stances, and it is ordinarily enough to establish fraud that a vendee has 
 actively attempted to ensnare, and has in fact ensnared, the vendor into 
 the making of an unconscionable contract. Where concealment of an 
 essential thing is effected by an industrious course of misleading and 
 deceptive talk or conduct, there is fraud against which equity will re- 
 lieve. The law distinguishes between passive concealment and active 
 concealment. Where one has full information, and represents that he 
 has, if he discloses a part of his information only, and by words or con- 
 duct leads the one with whom he contracts to believe that he has made 
 a full disclosure, and does this with intent to deceive and overreach 
 and to prevent investigation, he is guilty of fraud against which equity 
 will relieve, if his words and conduct in consequence of reliance upon 
 them bring about the result which he desires. The jurisdiction of 
 courts of equity to relieve against active and effective fraud is so es- 
 sential to the administration of justice therein that such courts, often 
 indeed, to use the language of Chief Justice Crew, as reported by Sir 
 William Jones, will "take hold of a twig or twine thread to uphold it." 
 We have in this state several cases to the effect that, even where there 
 is no confidential relation, one party to a sale may, without direct mis- 
 representation, be guilty of fraud by means of words or acts calculated 
 and intended to produce a false impression, and which do in fact de- 
 ceive and induce the sale. * * * 
 
 The result is that the decree sustaining the demurrer and adjudging 
 the bill insufficient is reversed, and the case is remanded. 
 
 SECTION 4.— DURESS 
 Duress consists in compelling action through fear, as, for exam- 
 ple, where A. says to B., "Sign this note, or I will shoot you." 
 Duress implies coercion, the will of the actor being overcome or di- 
 rected, not because of mistake or fraud or persuasion, but through 
 fear of consequences of not acting as directed. Commonly the 
 threats constituting duress are of physical injury to the person 
 threatened, or of physical injury to some other person, or of injury 
 to or deprivation of the property of the person threatened, or of in- 
 stituting a criminal prosecution against the person threatened, or 
 some other person. The nature and legal consequences of duress 
 are illustrated in the following cases. 
 
 WILIilAMSON-HALSELL-FKAZIER CO. v. ACKERMAN et al. 
 
 (Supreme Court of Kansas, 1908. 77 Kan. 502, 94 Pac. 807, 
 20 L. R. A. [N. S.] 484.) 
 
 Action on three notes and mortgage given by defendant J. J. Acker- 
 man and other defendants to secure the. payment of a defalcation of 
 Ackerman's son. Halsell, a representative of the plaintiff company, 
 came to defendant J. J. Ackerman and informed him that his son 
 John had embezzled about $4,000 of the company's money, thai- he 
 
308 CONTRACTS (Part 1 
 
 (Halsell) had in his pocket a warrant for John's arrest for embezzle- 
 ment, and that there was a deputy sheriff waiting in an adjoining room 
 to serve the warrant, and unless the notes and mortgages were signed 
 the warrant would be served, and John would be convicted and sent 
 to the penitentiary. Judgment below for defendants, and plaintiff 
 brings error. 
 
 Johnston, C. J. * * * The action was not one to determine 
 the guilt or innocence of John ; nor was the matter of his actual guilt 
 an essential feature of the defense of duress. The point for decision 
 was whether the threats of arrest and prosecution of John put the 
 father in fear, and thus overcame his will, and rendered him incom- 
 petent to contract. If there was no free will in the execution of the 
 notes and mortgage, there is no contract, nor any binding obligation. 
 Under the modern theory, duress is to be tested, not by the nature of 
 the acts or threats, but rather by the state of mind of the victim in- 
 duced by such acts and threats. In Galusha v. Sherman, 105 Wis. 
 263, 81 N. W. 495, 47 L. R. A. 417, there is a full discussion of the 
 subject and of the development of the law from the ancient doctrine 
 that duress should be tested by the means used to overcome the per- 
 son threatened to the later and better one of the condition of the mind 
 induced by the threats. It was there said that: "The making of a 
 contract requires the free exercise of the will power of the contracting 
 parties, and the free meeting and blending of their minds. In the ab- 
 sence of that, the essential of a contract is wanting; and, if such ab- 
 sence be produced by the wrongful conduct of one party to Jthe trans- 
 action, or conduct for which he is responsible, whereby the other party, 
 for the time being, through fear, is bereft of his free will power, for 
 the purpose of obtaining the contract, and it is thereby obtained, such 
 contract may be avoided on the ground of duress. There is no legal 
 standard of resistance which a party so circumstanced must exercise 
 at his peril to protect himself. The question in each case is : Was the 
 alleged injured person, by being put in fear by the other party to the 
 transaction for the purpose of obtaining an advantage over him, de- 
 prived of the free exercise of his will power, and was such advantage 
 thereby obtained? If the proposition be determined in the affirmative, 
 no matter what the nature of the threatened injury to such person, 
 or his property, or the person or liberty of his wife or child, the ad- 
 vantage thereby obtained cannot be retained." 
 
 Following the same theory, neither the legality of the threatened ar- 
 rest and prosecution, nor the guilt or innocence of John, was material 
 to the determination of whether there was duress. The conduct of 
 John, whatever it may have been, was no excuse or justification for 
 intimidating and coercing the father to pay John's debt, or to give 
 a mortgage on his home to secure the payment of such debt, or to 
 relieve him from any liability. If it is assumed that John misappro- 
 priated the money of the plaintiff, and was therefore indebted to it for 
 a large sum of money, it nevertheless gave its representatives no right 
 to use, or threaten the use of, the criminal law to make the father 
 pay or secure the debt. It is not an appropriate method for enforcing 
 the payment of the debt by the debtor himself, much less to compel the 
 securing of it by one who was in no sense liable for its payment. 
 * * * '^ ■' 
 
 In Thompson v. Niggley, 53 Kan. 664, 35 Pac. 290, 26 L. R. A. 
 803, the court repudiated the doctrine that duress could not be pred- 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 309 
 
 icated upon a threatened arrest and prosecution for an offense of 
 which the party was in fact guilty, saying: "We are not incHned to 
 encourage a resort to such pressure as was used in this instance to com- 
 pel the settlement of private demands." * * * 
 
 In a very early case the Supreme Court of New Hampshire, in con- 
 sidering what amounted to duress, said: "Where there is an arrest 
 for improper purposes, without just cause, or an arrest for a just cause, 
 but without lawful authority, or an arrest for a just cause, and under 
 lawful authority, for an improper purpose, and the person arrested 
 pays mcmey for his enlargement, he may be considered as having paid 
 the money by duress of imprisonment, and may recover it back in an 
 action for money had and received." Richardson v. Duncan, 3 N. H. 
 508. The Supreme Court of Alabama in a recent case ruled that threats 
 of unlawful imprisonment were not necessary to constitute duress, 
 and that, if there was a liability for arrest and imprisonment, and such 
 liability was used to overcome the will and compel the making of a 
 contract, which would otherwise not have been made, it would amount 
 to duress. * * * 
 
 The important consideration in cases like this one is not whether there 
 was ground for the arrest or imprisonment threatened, but it is rather 
 whether the free will of the party making the contract was constrained 
 by the threats of the other. * * * There is no lack of testimony 
 to show threats of the arrest and prosecution of John, nor that the 
 notes and mortgage were procured through the fear excited by the 
 threats. Joseph J. Ackerman was subject to duress because of the 
 threats directed against a member of his family as much as if they 
 had been directed against himself. * * * 
 
 Finding no error in the record, the judgment will be affirmed. 
 
 FQUXTAIN V. BIGHAM. 
 
 (Supreme Conrt of Pennsylvania, 1912. 235 Pa. 35, 84 Atl. 1.31, 
 Ann. Cas. 1913D, 1185.) 
 
 Action of assumpsit on a bond by Fountain against Mrs. Bigham. 
 From a judgment for plaintiff, defendant appeals. 
 
 Dunn, Son-in-law of Mrs. Bigham, defendant, forged the indorse- 
 ment of Fountain, plaintiff;- on a check, indorsed his own name, and 
 deposited the check and received credit for the amount in his bank 
 account. Dunn was arrested on two informations by Fountain, charg- 
 ing him with obtaining money under false pretenses. Mrs. Bigham, 
 after the arrest of Dunn, signed as surety a bond with warrant of 
 attorney to confess judgment, conditioned for the payment of $2,500 
 in one day after date. Dunn was later acquitted. Judgment was en- 
 tered on the bond next day. After two installments pf interest had 
 been paid on the judgment and default as to'the third installment, ex- 
 ecution was issued. Mrs. Bigham presented her petition to the court 
 below and obtained a rule to stay the writ and opened up the judg- 
 ment. Among the defenses set up was the defense that the bond 
 was executed under the influence of threats and coercion. 
 
 MesTREzaT, J. * * * That a contract obtained by duress or 
 acts of coercion or intimidation may be invalidated is well settled. 
 * * * But, where one has a just claim against another for money 
 
310 CONTRACTS (Part 1 
 
 obtained by the commission of a crime, it is not unlawful for the 
 creditor to threaten to prosecute if the claim is not paid; and a con- 
 tract cannot be avoided which the debtor enters into to secure payment 
 of the claim, unless the creditor attempts by such threat to accomplish 
 an unlawful purpose. In other words, a threat of lawful imprison- 
 ment is not duress, unless it is made for an unlawful purpose, such, 
 for instance, as compelling the satisfaction of a debt by payment in 
 money, or by the execution of an obligation to secure it. If, in con- 
 nection with the threat, it appears that the creditor declared he would 
 prosecute if the claim was not paid, with other evidence showing that 
 his intention was to use the criminal process to collect the debt, or 
 to accomplish any unlawful purpose, a jury might well find that such 
 was the purpose of the creditor in making the threat; and that there- 
 fore it was duress. * * * 
 
 It is, therefore, immaterial whether Fountain, when he made the 
 alleged threat, knew -or did not know that he had a criminal case against 
 Dunn, as he could not lawfully compel the execution of the bond by 
 threats to prosecute, made for such a purpose. In this case, however, 
 Dunn is not contesting the validity of the bond; but the present ap- 
 peal was taken by Mrs. Bigham, his mother-in-law, the surety on the 
 bond. Can she avoid the obligation on the ground of duress exer- 
 cised on Dunn? The general rule undoubtedly is that the defense of 
 duress is open only to the party upon whom it is imposed, and that a 
 third party, who has become surety for the payment of the claim, 
 cannot avail himself of the plea, unless he signed the obligation with- 
 out knowledge of the duress. 
 
 There are certain exceptions to the rule as well established as the 
 rule itself. These exceptions include husband and wife and parent and 
 child, and either may avoid his contract made to relieve the other from 
 duress. The exceptions have been extended to grandmother and 
 grandson, * * * aunt and nephew, * * * sister and brother, 
 * * * father-in-law and son-in-law, * * * and brother and broth- 
 er. * * * The reason for avoiding a contract on the ground of duress, 
 as appears above, is that the condition of mind of the party upon 
 whom the duress is imposed is such as to deprive him of the exercise 
 of his free will. Whatever influence produces such a condition of mind 
 will invalidate a contract executed while the influence prevails. The 
 relations between parent and child and husband and wife are so close 
 and tender that the law recognizes that threats to imprison one will 
 have substantially the same effect on the mind of the other ; and what 
 will deprive the one of the free exercise of his will or judgment will 
 have a like effect on the other. The reason of the rule will extend it 
 to the case of a mother-in-law and son-in-law, where the latter is liv- 
 ing amicably with his wife, and the" two families are on the usual 
 terms of intimacy and friendship. * * * 
 
 We think the learned- court below should have submitted to the 
 jury, with proper instructions, whether, owing to the relationship of 
 the parties and the circumstances disclosed by the testimony, the bond 
 was Mrs. Bigham's voluntary act, or was executed under threats of 
 prosecution of her son-in-law, which deprived her of the exercise of 
 hcT free vifill. * * * The judgment is reversed, with a venire de 
 novo. 
 
Ch. 6) EFFECT OP MISTAKE, FRAUD, DURESS, ETC. 311 
 
 SECTION 5.-^UNDUE INFLUENCE 
 
 DU BOSE V. KELI>. 
 (Supreme Court of South Carolinn, 1911. 90 S. C. 196, 71 S. E. 371.) 
 
 Action to set aside a deed. 
 
 Moore, Special Judge (trial court). * * * The principles of 
 law applicable to the question of undue influence are well settled, and 
 may be thus stated in general terms: Where a deed is procured by 
 undue influence exerted upon the grantor, it will be set aside by a court 
 of equity upon a proper and timely application on the part of the per- 
 son injured or aggrieved thereby; but, in order to avoid the deed upon 
 this ground, there must be shown such an influence exerted upon 
 the grantor as to overbear her will and to make the act of execution 
 not the carrying out of a real purpose or intention of the grantor, but 
 the mere mechanical performance by her of die wish and design of 
 some other person. Neither fair argument, nor mere suggestion, nor 
 even persuasion, unaccompanied by other circumstances to show a 
 substitution of the will or purpose of some other person for that of 
 the grantor, will amount to undue influence. In order to make it un- 
 due, it must appear that the influence exerted was such as to overcome 
 or destroy the free will of the grantor and to make the deed as executed 
 the expression not of his purpose, but that of some other person. 
 * * * Put "the line between due and undue influence, when drawn, 
 must be with full recognition of the liberty due every true owner to 
 obey the voice of justice, the dictates of friendship, of gratitude and 
 of benevolence, as well as the claims of kindred, and when not hindered 
 by personal incapacity, or particular regulations, to dispose of his own 
 property according to his own free choice." Wallace v. Harris, 32 
 Mich. 380. 
 
 It is further an established principle of equity, well founded in right 
 reason, that the acts and contracts of persons who are of weak un- 
 derstanding and who are thereby liable to imposition, and also all con- 
 tracts ,or gifts between persons standing in confidential' relations to- 
 wards each other, will be closely scrutinized by the courts to discover 
 whether or not any undue influence was exerted, or any confidence was 
 betrayed to the prejudice of the weaker party or of the one reposing 
 such trust and confidence. * * * 
 
 Undue influence may be said to consist in any influence which is so 
 far operative as to destroy free agency, so as to compel the person 
 doing the act in question to do the same against his will. It is not 
 material how such control was exerted, whether by physical force, 
 threats, importunities, or any other species of mental or physical coer- 
 cion, provided only it was so exerted as to destroy free agency and to 
 make the act done not a true expression of the will of the person do- 
 ing it, but in truth a carrying out of the purposes of some other per- 
 son against that will. But the undue influence is to be proved and 
 not to be prestimed, unless the relation in which the parties stood with 
 reference to each other is such as to raise a presumption of its exis- 
 tence. Yet, even whece such a presumption arises, it is rebutted by evi- 
 dence showing that everything between the parties was fair, open, 
 voluntary, and well understood. * * * 
 
312 CONTRACTS (Part 1 
 
 Applying the principles stated to the evidence ia the case at bar, 
 we find that the grantor in the deed here under consideration was 
 a feeble old lady, past her four-score years of life, her mind and mem- 
 ory to some extent weakened and impaired by the troubles and afflic- 
 tions of her previous life, and by the burdens of the years resting upon 
 her, entertaining at times delusive momentary beliefs as to the continu- 
 ing existence in her life of her long-dead parents and temporary be- 
 liefs at variance with facts as to then existing weather conditions and 
 as to locality of places. It appears that she had none then standing 
 towards her in the relation of her kindred or dear friends, excepting 
 only the grantee in this deed, who was not her blood, but had long 
 been holding the place of a devoted son, having laid aside a pronjising 
 career in life in order to bestow upon her the skilled attention which 
 his knowledge as a physician enabled him to give. It is shown by 
 the evidence that the grantor was weak in body and doubtless to some 
 extent enfeebled in her general mental powers, but that at the very 
 moment of the execution of the deed she was not laboring under any 
 delusion of mind, and was in fact engaged in the carrying out of a 
 long-cherished purpose to dispose of her property as to insure its 
 devolution upon her grantee. It is true that at or about the time of the 
 signing of the paper in question she expressed sentiments of confidence 
 m the belief that the grantee would continue to care for her during 
 the remainder of her life, and it cannot be doubted that she executed 
 the deed in the faith that he would not permit her to suflfer by rea- 
 son of her act. If he had failed to give her support, aid, and main- 
 tenance, the circumstances and relations of the parties were such as 
 would well have warranted a court of equity in imposing upon the 
 grantee the duty of providing for her support and comfort during 
 the remainder of her life, at her instance and upon her application. 
 But it does not appear that there was any abuse of that trust and 
 confidence nor is there any evidence of a failure by him to discharge 
 any duty in that particular. 
 
 The testimony of the subscribing witnesses and of those present at 
 the time of the signing by the donor is unanimous to the effect that 
 she was then compos mentis ; that she appreciated and understood the 
 force and effect of her act; that she was not hoodwinked or deceived 
 as to the nature of the instrument; and that she acted entirely of 
 her own volition, although upon the suggestion of the grantee in the 
 execution of the instrument. The voluminous mass of the evidence in 
 this case has been searched in vain to discover any testimony of undue 
 influence exerted by the grantee or by any other person, either before 
 or at the time of the execution of this deed, in order to induce the mak- 
 ing thereof. There is not the slightest evidence of even argument or 
 persuasion employed to that end, and the testimony tends to show, knd 
 in my opinion does establish, the fact that the grantor therein had 
 long entertained a fixed purpose to bestow the lands in question upon 
 the grantee as ultimate owner. 
 
 If it be the fact, as I think it is, that the relation of the parties to 
 this transaction and the mental weakness and dependence of the grant- 
 or upon the grantee were such as to impose upon those claiming under 
 the latter the burden of showing that no fraud was practiced nor un- 
 due influence exerted by or on behalf of the beneficiary under this 
 gift, that there was no suppressio- veri nor suggestio falsi operating as 
 an inducement thereto, it is my opinion, after a careful examination 
 
Ch. 6) EFFECT OF MISTAKE, FRAUD, DURESS, ETC. 313 
 
 of the entire record, that this has been affirmatively shown, and that 
 it appears from the evidence that the conveyance was the voluntary act 
 and deed of Susan C. Kell, was wiUingly executed by her in pursuance 
 of a long-cherished intention, was not induced by any suppression or 
 misrepresentation of facts, and that there was no fraud upon the part of 
 the grantee thereof nor abuse of the confidential relations existing be- 
 tween the said grantor and grantee. 
 
 The evidence shows that the act of signing was performed not only 
 understandingly and without reluctance, but also with a desire and 
 purpose on the part of the donor to dispose of her property to the 
 donee named in the deed and for his own ultimate benefit. When the 
 effect of her act was mentioned to her subsequently to such execution 
 of the deed, she expressed satisfaction with her act in so disposing of 
 her property and a continued understanding of the purpose and ef- 
 fect of what she had done. She lived for nearly two months thereafter, 
 and so far as the evidence discloses, although the fact of her having so 
 disposed of practically her entire property was mentioned in her pres- 
 ence and in the absence of the donee, she never at any time, so far 
 as appears, gave expression to any other feeling than that of satis- 
 faction with the deed as effectuating her voluntary purpose and inten- 
 tion. If the transaction had been regarded at the time by the grantor 
 as a business transaction, whereby she was conveying the property to 
 the grantee in consideration of past services alone, or if there were 
 evidence going to show that she viewed it in the light of a commer- 
 cial transaction, then the question sought to be made as to the ade- 
 quacy of the consideration mentioned in the deed would be a mat- 
 ter of serious importance. But as it was evidently understood by her 
 as being a deed of gift, with but slight, if any, reference to pecuniary 
 obligations existing between the parties, the transaction is to be con- 
 sidered as purely a matter of gift, and not of bargain and sale. So 
 considering it, I am of the opinion that the validity of this deed must 
 be sustained, and it is accordingly so adjudged. * * * 
 
 Gary, J. * * * We are satisfied with the circuit judge's find- 
 ings of fact, and the reasons assigned by him for his conclusions of 
 law. Affirmed. 
 
314 CONTRACTS (Parti 
 
 CHAPTER VII 
 ILLEGALITY 
 
 Section 
 
 1. Introduction. 
 
 2. Contracts in R^traint of Trade. 
 
 3. Contracts Limiting the IJability of Bailees and Other Persons. 
 
 4. Gambling Contracts. 
 
 5. Cither Illustrations of Illegal Contracts. 
 
 6. Effect of Illegality. 
 
 7. Sunday Contracts. 
 
 SECTION 1.— INTRODUCTION 
 
 Society, through its legislative and judicial organization, adopts 
 various methods in its endeavor to repress wrong and in its at- 
 tempt to compel the observance of high principles of personal and 
 business ethics. Sometimes an act may be such an atrocious in- 
 vasion of personal or property rights that it calls for the imposition 
 of the most severe penalties. In such a case, the law regards the act 
 as criminal, and, in addition to the liability to respond in dam- 
 ages to the person primarily injured thereby, the law prescribes 
 the punishment of the offender by fine or imprisonment. The com- 
 mission of a tort imposes upon the wrongdoer the duty of making 
 restitution and of paying damages to the person wronged. A breach 
 of contract creates a duty to respond in damages to the injured 
 party and also operates as an excuse to the injured party for his 
 non-performance. The wrong attempted by two or more persons 
 in entering into an illegal contract is sufficiently different from a 
 tort or breach of contract as to call for a somewhat special treat- 
 ment. Generally it cannot be treated as a tort, for there may 
 have been no invasion of the personal or property rights of an- 
 other. Performance of the illegal contract may, of course, result in 
 the commission of a tort, or of a crime, or both, but the execution 
 of the contract itself will not usually constitute a tort or a crime. 
 
 The problem that is most frequently presented concerns the right 
 of one of the parties to the illegal contract to hold the other liable 
 for his breach, or to recover what he has parted with in perform- 
 ance of the illegal contract; that is, generally speaking, there can 
 be no recovery for breach of an illegal contract, nor may one of the 
 parties thereto, who has performed, compel restitution of the con- 
 sideration with which he has parted. However the action may arise, 
 the defendant usually wins, not because of any superior virtue in 
 himself, but because of the general policy of the law not to enforce 
 illegal contracts, nor to attempt to undo what has been done under 
 them. The loss, if any, falls where the acts of the parties them- 
 selves place it. Of course, this policy does not prevent the making 
 of illegal contracts. Still the knowledge that the aid of the court 
 cannot be invoked to aid a party who has sustained a loss arising 
 
Ch. 7) ILLEGALITY 315 
 
 out of the breach of an illegal contract has some tendency to pre- 
 vent the formation of such contracts. For the more serious kinds 
 of illegal contracts, the law, in addition to its withdrawal of all 
 legal remedies, makes the act of entering into the contract or the 
 performance of it, a criminal offense punishable by fine or imprison- 
 ment. 
 
 The above comment concerns the legal effect of illegal contracts. 
 The question remains: What kinds of contracts are illegal? 
 Transactions of this character are of so varied a nature that a defi- 
 nition is scarcely possible. In the last analysis, the question de- 
 pends upon the probable effect of the contract upon society. If it 
 be one which is directed against the maintenance of public author- 
 ity, against public morals, or against the economic welfare of so- 
 ciety, the contract may be treated as illegal because of its harmful 
 • effects. The circumstances under which a contract will be regarded 
 as illegal, and the legal effects thereof, are illustrated in the follow- 
 ing cases. 
 
 SECTION 2.— CONTRACTS IN RESTRAINT OF TRADE 
 
 UNITED STATES v. ADDTSTONE PIPE & STEEL CO. et al. 
 
 (United States Circuit Court of Appeals, Sixth Circuit, 1898. 
 85 Fed. 271, 29 C.' C. A. 141, 46 L. R. A. 122.) 
 
 This was a proceeding in equity, begun by petition filed by the At- 
 torney General, on behalf of the United States, against six corpora- 
 tions engaged in the manufacture of cast-iron pipe, charging them 
 with a combination^ and conspiracy in unlawful restraint of interstate 
 commerce in such pipe, in violation of the so-called "Anti-Trust Law," 
 passed, by Congress July 2, 1890. The petition prayed that all pipe 
 sold and transported from one state to another, under the combination 
 and conspiracy described therein, be forfeited to the petitioner, and 
 be seized and confiscated in the manner provided by law, and that a 
 decree be entered^ dissolving the unlawful conspiracy of defendants, 
 and perpetually enjoining them from operating under the same, and 
 from selling said cast-iron pipe in accordance therewith to be trans- 
 ported from one state into another. Judge Clark, who presided in the 
 Circuit Court, dismissed the petition on the merits. 
 
 Taft, Circuit Judge. The first section of the act of congress enti- 
 tled "An act to protect trade and commerce against unlawful restraints 
 and monopolies," passed July 2, 1890, 26 Stat. 209 (U. S. Comp. St. 
 §§ 8820-8823, 8827-8830), declares illegal "every contract, combina- 
 tion in the form of trust or otherwise or conspiracy in restraint of trade 
 or commerce among the several states or with foreign nations." The 
 second section makes it a misdemeanor for any person to monopolize, 
 or attempt to monopolize, or combine or conspire with others to 
 monopolize, any part of the trade or commerce among the several 
 states. * * * 
 
 It is certain that, if the contract of association which bound the 
 defendants was void and unenforceable at the common law because 
 in restraint of trade, it is within the inhibition of the statute if the 
 trade it restrains was interstate. Contracts that were in unreasonable 
 
316 CONTRACTS (Part 1 
 
 restraint of trade at common law were not unlawful in the sense of 
 being criminal, or giving rise to a civil action for damages in favor 
 of one prejudicially affected thereby, but were simply void, and were 
 not enforced by the courts. * * * The effect of the act of 1890 is 
 to render such contracts unlawful in an affirmative or positive sense, 
 and punishable as a misdemeanor, and to create a right of civil action 
 for damages in favor of those injured thereby, and a civil remedy by 
 injunction in favor of both private persons and the public against the 
 execution of such contracts and the maintenance of such trade re- 
 straints. * * * 
 
 From early times it was the policy of Englishmen to encourage 
 trade in England, and to discourage those voluntary restraints which 
 tradesmen were often induced to impose on themselves by contract. 
 Courts recognized this public policy by refusing to enforce stipula- 
 tions of this character. * * * 
 
 The reasons were stated * * * in Alger v. Thacher, 19 Pick. . 
 (Mass.) 51, 54, 31 Am. Dec. 119, in which the Supreme Judicial Court 
 of Massachusetts said: "The unreasonableness of contracts in re- 
 straint of trade and business is very apparent from several obvious 
 considerations: (1) Such contracts injure the parties making them, 
 because they diminish their means of procuring livelihoods and a 
 competency for their families. They tempt improvident persons, for 
 the sake of present 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 services of men 
 in the employments and capacities in which they may be most useful 
 to the community as well as themselves. (3) They discourage indus- 
 try and enterprise, and diminish the products of ingenuity and skill. 
 (4) They prevent competition and enhance prices.' (5) They expose 
 the public to all the evils of monopoly; and this especially is applica- 
 ble to wealthy companies and large corporations, who have the means, 
 unless restrained by the law, to exclude rivalry, monopolize business, 
 and engross the market. Against evils like these, wise laws protect 
 individuals and the public by declaring all such contracts void." 
 
 The changed conditions under which men have ceased to be so 
 entirely dependent for a livelihood on pursuing one trade, have ren- 
 dered the first and second considerations stated above less important 
 to the community than they were in the seventeenth and eighteenth 
 centuries, but the disposition to use every means to reduce competi- 
 tion and create monopolies has grown so much of late that the fourth 
 and fifth considerations mentioned in Alger v. Thacher have certain- 
 ly lost nothing in weight in the present day, if we may judge from the 
 
 statute here under consideration and similar legislation by the states. 
 * * * 
 
 For the reasons given, then, covenants in partial restraint of trade 
 are generally upheld as valid when they are agreements (1) by the sell- 
 er of property or business not to compete with the buyer in such a 
 way as to derogate from the value of the property or business sold; 
 (2) by a retiring partner not to compete with the firm ; (3) by a part- 
 ner pending the partnership not to do anything to interfere, by com- 
 petition or otherwise, with the business of the firm; (4) by the buy- 
 er of property not to use the same in competition with the business 
 retained by the seller; and (5) by an assistant, servant, or agent not 
 to compete with his master or employer after the expiration of his 
 
Ch. 7) ILLEGALITY 317 
 
 time of service. Before Such agreements are uj)held, however, the 
 court must find that the restraints attempted thereby are reasonably 
 necessary (1, 2, and 3) to the enjoyment by the buyer of the property, 
 good will, or interest in the partnership bought ; or (4) to the legiti- 
 mate ends of the existing partnership; or (5) to the prevention of 
 possible injury to the business of the seller from use by the buyer of 
 the thing sold; or (6) to protection from the danger of loss to the 
 employer's business caused by the unjust use on the part of the em- 
 ploye of the confidential knowledge acquired in such business. * * * 
 It would be stating it too strongly to say that these five classes of 
 covenants in restraint of trade include all of those upheld as valid 
 at the common law; but it would certainly seem to follow from the 
 tests laid down for determining the validity of such an agreement that 
 no conventional restraint of trade can be enforced unless the covenant 
 embodying it is merely ancillary to the main purpose of a lawful con- 
 tract, and necessary to protect the covenantee in the enjoyment of the 
 legitimate fruits of the contract, or to protect him from the dangers 
 of an unjust use of those fruits of the contract, or to protect him 
 
 from the dangers of an unjust use of those fruits by the other party. 
 * * * 
 
 Much has been said in regard to the relaxing of the original strict- 
 ness of the common law in declaring contracts in restraint of trade 
 void as conditions of civilization and public policy have changed, and 
 the argument drawn therefrom is that the law now recognizes that 
 competition may be so ruinous ^s to injure the public, and, therefore, 
 that contracts made with a view to check such ruinous competition 
 and regulate prices, though in restraint of trade, and having no other 
 purpose, will be upheld. We think this conclusion is unwarranted by 
 the authorities when all of them are considered. It is true that cer- 
 tain rules for determining whether a covenant in restraint of trade 
 ancillary to the main purpose of a contract was reasonably adapted 
 and limited to the necessary protection of a party in the carrying out 
 of such purpose have been somewhat modified by modern authori- 
 ties. * * * Recently the limitation that the restraint could not be 
 general or unlimited as to space has been modified in some cases by 
 holding that, if the protection necessary to the covenantee reasonably 
 requires a covenant unrestricted as to space, it will be upheld as 
 valid. * * * 
 
 We have no doubt that the association of the defendants, however 
 reasonable the prices they fixed, however great the competition they 
 had to encounter, and. however great the necessity for curbing them- 
 selves by joint agreement from committing financial suicide by ill- 
 advised competition, was void at common law, because in restraint of 
 trade, and tending to a monopoly. But the facts of the case do not 
 require us to go as far as this, for they show that the attempted justi- 
 fication of this association on the grounds stated is without foundation. 
 
 The defendants, being manufacturers and vendors of cast-iron pipe, 
 entered into a combination to raise the prices for pipe for all the 
 states west and south of New York, Pennsylvania, and Virginia, con- 
 stituting considerably more than three-quarters of the territory of 
 the United States, and significantly called by the associates "pay 
 territory." Their joint annual output was 220,000 tons. The total 
 capacity of all the other cast-iron pipe manufacturers in the pay ter- 
 ritory was 170,500 tons. Of this, 45,000 tons was the capacity of 
 
318 CONTRACTS (Parti 
 
 mills in Tex^as, Colorado, and Oregon, so far removed from that part 
 of the pay territory where the demand was considerable that neces- 
 sary freight rates excluded them from the possibility of competing, 
 and 12,0(X) tons was the possible annual capacity of a mill at St. Louis, 
 which was practically under the same management as that of one of 
 the defendants' mills. Of the remainder of the mills in pay territory 
 and outside of the combination, one was at Columbus, Ohio, two in 
 Northern Ohio, and one in Michigan. Their aggregate possible annual 
 capacity was about one-half the usual annual output of the defend- 
 ants' mills. They were, it will be observed, at the extreme northern 
 end of the pay territory, while the defendants' mills at Cincinnati, 
 Louisville, Chattanooga, and South Pittsburgh, and Anniston, and 
 Bessemer, were grouped much nearer to the center of the pay terri- 
 tory. The freight upon cast-iron pipe amounts to a considerable per- 
 centage of the price at which manufacturers can deliver it at any 
 great distance from the place of manufacture. Within the margin of 
 the freight per ton which Eastern manufacturers would have to pay 
 to deliver pipe in pay territory, the defendants, by controlling two- 
 thirds of the output in pay territory, were practically able to fix 
 ptices. The competition of the Ohio and Michigan mills, of course, 
 somewhat affected their power in this respect in the northern part of 
 the pay territory; but, the further south the place of delivery was 
 to be, the more complete the monopoly over the trade which the de- 
 fendants were able to exercise, within the limit already described. 
 Much evidence is adduced upon affidavit to prove that defendants had 
 no power arbitrarily to fix prices, and that they were always obliged 
 to meet competition. To the extent that they could not impose prices 
 on the public in excess of the cost price of pipe with freight from the 
 Atlantic seaboard added, this is true ; but, within that limit, they could 
 fix prices as they chose. The most cogent evidence that they had this 
 power is the fact, everywhere apparent in the record, that they exer- 
 cised it. * * * The defendants were, by their combination, there- 
 fore able to deprive the public in a large territory of the advantages 
 otherwise accruing to them from the proximity of defendants' pipe 
 factories, and, by keeping prices just low enough to prevent compe- 
 tition by Eastern manufacturers, to compel the public to pay an in- 
 crease over what the price would have been, if fixed by competition be- 
 tween defendants, nearly equal to the advantage in freight rates en- 
 joyed by their committee, and by allowing the highest bidder at the 
 secret "auction pool" to become the lowest bidder of them at the public 
 letting. Now, the restraint thus imposed on themselves was only par- 
 tial. It did not cover the United States. There was not a complete 
 monopoly. It was tempered by the fear of competition, and it affected 
 only a part of the price. But this certainly does not take the contract 
 of association out of the annulling effect of the rule against monopo- 
 lies. * * * 
 
 It has been earnestly pressed upon us that the prices at which the 
 cast-iron pipe was sold in pay territory were reasonable. A great 
 many affidavits of purchasers of pipe in pay territory, all drawn by 
 the same hand or from the same model, are produced, in which the 
 affiants say that, in their opinion, the prices at which pipe has been 
 sold by defendants have been reasonable. We do not think the issue 
 an important one, because, as already stated, we do not think that at 
 ■common law there is any question of reasonableness open to the courts 
 
Ch.7) ILLEGALITY 319 
 
 with reference to such a contract. Its tendency was certainly to give 
 defendants the power to charge unreasonable prices, had they chosen 
 to do so. But, if it were important, we should unhesitatingly find that 
 the prices charged in the instances which were in evidence were un- 
 reasonable. The letters from the manager of the Chattanooga foun- 
 dry written to the other defendants, and discussing the prices fixed 
 by the association, do not leave the slightest doubt upon this point, 
 and outweigh the perfunctory affidavits produced by the defendants. 
 The cost of producing pipe at Chattanooga, together with a reason- 
 able profit, did not exceed $15 a ton. It could have been delivered 
 at Atlanta at $17 to $18 a ton, and yet the lowest price which that 
 foundry was permitted by the rules of the associatioil to bid was 
 $24.25. The same thing was true all through pay territory to a 
 greater or less degree, and especially at "reserved cities." 
 
 Another aspect of this contract of association brings it within the 
 term used in the statute, "a conspiracy in restraint of trade." A 
 conspiracy is a combination of two or more persons to accomplish 
 an unlawful end by lawful means or a lawful end by unlawful means. 
 In the answer of the defendants, it is averred that the chief way in 
 which cast-iron pii>e is sold is by contracts let after competitive bid- 
 ding invited by the intending purchaser. It would have much inter- 
 fered with the smooth working of defendants' association had its ex- 
 istence and purposes become known to the public. A part of the plan 
 was a deliberate attempt to create in the minds of the members of the 
 public inviting bids the belief that competition existed between the 
 defendants. Several of the defendants were required to bid at every 
 letting, and to make their bids at such prices that the one already se- 
 lected to obtain the contract should have the lowest bid. It is well 
 settled that an agreement between intending bidders at a public auc- 
 tion or a public letting not to bid against each other, and thus to pre- 
 vent competition, is a fraud upon the intending vendor or contractor, 
 and the ensuing sale or contract will be set aside. * * * 
 
 For the reasons given, the decree of the circuit court dismissing 
 the bill must be reversed, with instructions to enter a decree for the 
 United States perpetually enjoining the defendants from maintaining 
 the combination in cast-iron pipe described in the bill, and substan- 
 tially admitted in the answer, and from doing any business there- 
 under.^ 
 
 STEAUS et al. v. VICTOR TALKING MACHINE CO. 
 
 (Supreme Court of the United States, 1917. 243 U. S. 490, 37 Sup. Ct. 412, 
 61 L. Ed. 866, L. R. A. 1917E, 1196, Ann. Cas, 1918A, 955.) 
 
 On writ of certiorari to the United States Circuit Court of Appeals 
 for the Second Circuit to review a decree which, on a second appeal, 
 reversed a decree of the District Court of the United States for the 
 Southern District of New York, dismissing the bill in a suit charging 
 the violation of a license restriction made by the owner of a patent. 
 
 Clarke, J. * * * The plaintiff in its bill alleges : That it is a 
 corporation of New Jersey; that for many years it has been manu- 
 facturing sound-reproducing machines embodying various features 
 
 1 Modified- Addystone Pipe & Steel Co. v. United States, 175 U. S. 211, 20 
 Sup. Ct. 96, 44 L. Ed. 136 (1899). 
 
320 CONTRACTS 
 
 (Partl 
 
 covered by patents of which it is the owner, and that, for the purpose 
 of marketing these machines to the best advantage, about August 1, 
 1913, it adopted a form of contract which it calls a "license contract" 
 and a form of notice called a "license notice," under which it alleges 
 all of its macETnes have, since that date, been furnished to dealers and 
 to the public. 
 
 This "license notice," which is attached to each machine and is set 
 out in full in the bill, declares that the machine to which it is attached 
 is manufactured under patents, is licensed for the term of the patent 
 under which it is licensed having the longest time to run, and may be 
 used only with sound records, sound boxes, and needles manufactured 
 by the plaintiff ; that only the right to use the machine "for demonstrat- 
 ing purposes is granted to "distributors" (wholesale dealers), but that 
 these "distributors" may assign a like right "to the public" or to "regu- 
 larly licensed Victor dealers" (retailers) "at the dealer's regular dis- 
 count royalty" ; that the "dealers" may convey the "license to use the 
 machine" ohly when a "royalty" of not less than $200 shall have been 
 paid, and upon the "consideration" that all of the conditions of the 
 "license" shall have been observed ; that the title to the machine shall 
 remain in the plaintiff, which shall have the right to repossess it upon 
 breach of any of the conditions of the notice, by paying to the user 
 the amount paid by him, less 5 per cent, for each year that the machine 
 has been used. The notice in terms reserves the right to the plaintiff to 
 inspect, test, and repair the machine at all times and to instruct the 
 user in its use, "but it assumes no obligation to do so" ; it provides that 
 "any excessive use or violation of the conditions shall be an infringe- 
 ment of plaintiff's patent," and that any erasure or removal of the no- 
 tice will be considered a violation of the license. Finally, it provides 
 that at the expiration of the patent "under which it is licensed" having 
 the longest time to run the machine shall become the property of the 
 licensee provided all the conditions recited in the notice shall have been 
 complied with, and the acceptance of the machine is declared to be "an 
 acceptance of these conditions." 
 
 The contract between the plaintiff and its dealers is not set out in 
 full in the bill, but it is alleged that since August 1st, 1913, the plaintiff 
 has had with each of its 7,000 licensed dealers a written contract in 
 which all the terms of the "license notice'' are in substance repeated, 
 and in addition it is alleged that each dealer, "if he has signed the as- 
 sent thereto," is authorized to dispose of any machines received from 
 "the plaintiff directly or through a paramount distributing dealer," but 
 subject to all of the conditions expressed in the "license notice." It is 
 alleged that this contract contains the provision that "a breach of any 
 of the conditions on the part of a distributor will render him liable, not 
 only for an infringement of the patent, but to an action on the contract 
 or other proper remedy." 
 
 As to the defendants, the bill alleges that they conduct a large mer- 
 cantile business in New York city ; that with full knowledge of the 
 terms of the contract, as described, between the plaintiff and its distrib- 
 utors, and of the "license notice" attached to each machine, the de- 
 fendants, "being members of the general unlicensed public," and having 
 no contract relation with the plaintiff or with any of its licensed dis- 
 tributors or licensed dealers, induced "covertly and on various pre- 
 tenses," one or more of plaintiff's licensed distributors or dealers to 
 violate his or their contracts with the plaintiff, providing that no ma- 
 
Ch. 7) ILLEGALITY . 321 
 
 chines should be delivered to any unlicensed member of the general 
 public until "the full license price" stated in the "license notice" affixed 
 to each machine was paid, and thereby obtained possession of a large 
 number of such machines at much less than the prices stated in the 
 "license notice" ; that under the terms of the said license agreement and 
 notice, they have no title to the same, and that they have sold large 
 numbers thereof to the public, and are proposing and threatening to 
 dispose of the remainder of those which they have acquired to "the 
 unlicensed general public," at much less than the price stated in the 
 notice afl&xed to each machine. 
 
 The prayer is for an injunction restraining the defendants from sell- 
 ing any of the machines, possession of which they have acquired, from 
 other and further violation of plaintiff's rights under its letters patent, 
 and for the usual accounting and for damages. 
 
 The District Court regarded the transaction described in the "license 
 notice" as in substance a sale which exhausted the interest of the plain- 
 tiff in the machine, except as to the right to have it used with records 
 and needles as provided for therein, and this right not being involved 
 in this case, dismissed the bill. * * * 
 
 On appeal, the Circuit Court of Appeals affirmed this judgment and 
 remanded the case, but with instructions to allow the plaintiff to amend 
 its bill "if it be so advised." * * * 
 
 The bill was thereafter so amended as to allege that the defendants 
 had in their possession a large number of machines which they had ob- 
 tained from plaintiff's distributors and dealers at much less in each 
 case than the price stated in the "license notice," and that they were 
 proposing to dispose of these machines tp the "unlicensed general pub- 
 lic" at less than the prices stated in the "license notice," in disregard of 
 plaintiff's rights. 
 
 Again, the District Court, on the same ground as before, sustained a 
 motion to dismiss the bill, but the Circuit Court of Appeals reversed 
 this holding, and the case is here for review on certiorari. 
 
 The abstract of the bill which we have given makes it plain : That 
 whatever rights the plaintiff has against the defendants must be derived 
 from the "license notice" attached to each machine, for no contract 
 rights existed between them, the defendants being only "members of 
 the unlicensed general public"; and that the sole act of infringement 
 charged against the defendants is that they exceeded the terms of the 
 license notice by obtaining machines from the plaintiff's wholesale or 
 retail agents, and by selling them at less than the price fixed by the 
 plaintiff. 
 
 It is apparent from the foregoing statement that we are called upon 
 to determine whether the system adopted by the plaintiff was selected 
 as a means of securing to the owner of the patent that exclusive right 
 to use its invention which is granted through the patent law, or wheth- 
 er, under color of such a purpose, it is a device unlawfully resorted to 
 in an effort to profitably extend the scope of its patent at the expense 
 of the general public. Is it the fact, as is claimed, that this "license 
 notice" of the plaintiff is a means or agency designed in candor and 
 good faith to enable the plaintiff to make only that full, reasonable, 
 and exclusive use of its invention which is contemplated by the patent 
 law, or is it a disguised attempt to control the prices of its machines 
 after they have been sold and paid for? 
 B.& B.Bus.Law— 21 
 
322 CONTRACTS (Part 1 
 
 First of all, it is plainly apparent that this plan of marketing, adopted 
 by the plaintiff^ is, in substance, the one dealt with by this court in Dr. 
 Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, 31 Sup. 
 Ct. 376, 55 Iv. Ed. 502, and in Bauer v. O'Donnell, 229 U. S. 1, 33 
 Sup. Ct. 616, 57 L. Ed. 1041, 50 I..,R. A. (N. S.) 1185, Ann. Cas. 
 1915A, 150, adroitly modified on the one hand to take advantage, if 
 . possible, of distinctions suggested by these decisions, and, on the other 
 hand, to evade certain supposed effects of them. 
 
 If we look through the words and forms with which the plaintiff has 
 most elaborately enveloped its purpose, to the substance and realities 
 of the transaction contemplated, we shall discover several notable and 
 significant features. First, while, as if looking to the future, the 
 notice, in terms, imposes various restrictions as to the "use" of the 
 machines by plaintiff's agents, wholesale and retail, and by the "un- 
 licensed members of the public," for itself, the plaintiff makes sure that 
 the future shall have no risks, for it requires that all that it asks or 
 expects at any time to receive for each machine must be paid in full 
 before it parts with the possession of it. 
 
 Second, while in terms the "use" of each machine is restricted, and 
 forfeiture for failure to strictly comply with the many conditions and 
 requirements of the notice is provided for, this system, elaborate to 
 the extent of confusion, fails utterly to provide for entering any evi- 
 dence of a qualified title in any public office or in any public record, 
 and no requirement is found in it for reporting by users or licensees, 
 who may remove from one place to another, taking the machine with 
 them, as would very certainly be required if the plaintiff intended to 
 enforce the rights so elaborately asserted in this notice — if the system 
 were really a genuine provisioti designed to protect through many years 
 to come the restricted right to "use" and the seemingly qualified title 
 which it purports to grant to dealers and to the public, from being ex- 
 ceeded or departed from. 
 
 Third. The fact that under this system "at different times" "large 
 numbers" of machines, as is alleged in the plaintiff's bill, have been 
 "covertly" sold to the defendants by the plaintiff's wholesale and retail 
 agents at less than the price fixed for them, is persuasive evidence that 
 the transaction is not what it purports on its face to be. If it were a 
 reasonably guarded plan, really intended to keep the plaintiff in touch 
 with each of its machines until the expiration of the patent of latest 
 date, for the purpose of insisting upon its being used in the manner 
 provided for in the "license notice," the plaintiff's prompt and sufficient 
 remedy for such an invasion of its right as is claimed in this case would 
 be found in its sales department, or rather in its "license" department, 
 and not in the courts. That the plaintiff comes into court with a biU to 
 enjoin the defendants from reselling machines secretly sold to them in 
 large numbers by the plaintiff's agents indicates very clearly that at 
 least until the exigency out of which this case grew arose, the scheme 
 was regarded by the plaintiff itself and by its agents simply as one for 
 maintaining prices by holding a patent infringement suit in terrorem 
 over the ignorant and the timid. 
 
 And finally, while the notice permits the use of the machines, which 
 have been fully paid for, by the "unlicensed members of the general 
 public," significantly called in the bill "the ultimate users," until "the 
 expiration of the patent having the longest term to run" (which, under 
 the copy of the notice set out in the bill, would be July 22, 1930) , it 
 
Ch. 7) ILLEGALITY 323 
 
 provides that if the licensee shall not have failed to observe the condi- 
 1;ions of the license, and the Victor Company shall not have previously 
 taken possession of the machine, as in the notice provided, then, per- 
 haps sixteen years or more after he has paid for it, and in all probabil- 
 ity long after it has been worn out or become obsolete and worthless, 
 "it shall become the property of the licensee." 
 
 It thus becomes clear that this "license notice" is not intended as a 
 security for any further payment upon the machine, for the full price, 
 called a "royalty," was paid before the plaintiff parted with the posses- 
 sion of it ; that it is not to be used as a basis for tracing and keeping 
 the plaintiff informed as to the condition or use of the machine, for no 
 report of any character is required from the "ultimate user" after he 
 has paid the stipulated price ; that, notwithstanding its apparently stud- 
 ied avoidance of the use of the word "sale," and its frequent refer- 
 ence to the word "use," the mose obvious requirements for securing a 
 bona fide enforcement of the restrictions of the notice as to "use" are 
 omitted ; and that, even by its own terms, the title tcv the machines ulti- 
 mately vests in the "ultimate users," without further payment or action 
 on their part, except patiently waiting for patents to expire on inven- 
 tions which, so far as this notice shows, may or may not be incorporat- 
 ed in the machine. There remains for this "license notice," so far as 
 we can discover, the function only of fixing and maintaining the price 
 of plaintiff's machines to its agents and to the public, and this, we can- 
 not doubt, is the purpose for which it really was designed. 
 
 Courts would be perversely blind if they failed to look through such 
 an attempt as this "license notice'' thus plainly is to sell property for 
 a full price, and yet to place restraints upon its further alienation, such 
 as have been hateful to the law from Lord Coke's day to ours, because 
 obnoxious to the public interest. The scheme of distribution is not a 
 system designed to secure to the plaintiff and to the public a reasonable 
 use of its machines, within the grant of the patent laws, but is in sub- 
 stance and in fact a mere price-fixing enterprise, which, if given effect, 
 would work great and widespread injustice to innocent purchasers, for 
 it must be recognized that not one purchaser in many would read such 
 a notice, and that not one in a greater number, if he did read it, could 
 understand its involved and intricate phraseology, which bears many 
 evidences of being framed to conceal rather than to make clear its real 
 meaning and purpose. It would be a perversion of terms to call the 
 transaction intended to be embodied in this system of marketing plain- 
 tiff's machines a "license to use the invention." Bauer v. O'Donnell, 
 supra. 
 
 Convinced, as we are, that the purpose and effect of this "license 
 notice" of plaintiff, considered as a part of its scheme for marketing its 
 product, is not to secure to the plaintiff any use of its machines, and as 
 is contemplated by the patent statutes, but that its real and poorly- 
 concealed purpose is to restrict the price of them, after the plaintiff 
 had been paid for them and after they have passed into the possession 
 of dealers' and of the public, we conclude that it falls within the princi- 
 ples of Adams v. Burks, 17 Wall. 453, 456, 21 L,. Ed. 700, 703 ; and of 
 Bauer v. O'Donnell, supra ; that it is, therefore, invalid, and that the 
 District Court properly held that the bill must fail for want of equity. 
 
324 CONTRACTS (Part 1 
 
 SECTION 3.— CONTRACTS LIMITING THE LIABILITY OF 
 BAILEES AND OTHER PERSONS 
 
 INLANB COMPRESS 00. v. SIMMONS. 
 (Supreme Court of Oklahoma, 1916. 59 Okl. 287, 159 Pac. 262.) 
 
 Hooker, c * * * About the only question presented by this 
 appeal is whether the cotton tickets executed by the company and de- 
 livered to the plaintiff at the time the cotton was delivered by him to 
 the company * * * is a legal contract and enforceable in the 
 courts of this state, it being contended by the plaintiff in error that 
 the cotton tickets did constitute a contract, and that under the terms 
 of -the contract it is not liable for loss by damage, fire, flood, or other 
 agencies unless by the willful act or gross negligence. The facts in 
 the instant case show that the plaintiff in error received this cotton 
 for the purpose of compressing the same, for which it received com- 
 pensation, and that the storage of the cotton was an incident of the 
 business in which it was engaged of compressing the same. * * * 
 
 In the case of Union Compress Co. v. Nunnally, 67 Ark. 284, 54 £. 
 W. 872, the Supreme Court of that state said: * * * "When a 
 bailment is reciprocally beneficial to each party, the bailee is answer- 
 able for want of ordinary care." 
 
 Applying the rule to the evidence in the instant case, we are of 
 the opinion that the plaintiff in error was a bailee for hire of the 
 cotton in question, and, as such, was subject to the same responsi- 
 bility and duties; and, for the failure to exercise that degree of care 
 of the property in its possession that the law requires of a bailee for 
 hire, it is responsible for whatever damages that said property suf- 
 fers as the proximate result caused by the failure of the company to 
 exercise such care. That being true, it must have been the duty of the 
 compress company in this case to have exercised reasonable care in 
 the storing of the property of the defendant in error, and for its failure 
 so to do it must be held liable, unless the provision of the cotton tickets, 
 which sought to limit its liability to injuries caused by the willful act 
 or gross negligence of the company, should prevail. 
 
 Section 1109 of the Revised Laws of 1910 provides: "A bailee for 
 hire must use at least ordinary care for the preservation of the thing 
 bailed." The writers on bailments seem to agree that the parties to a 
 bailment contract may regulate the responsibilities of the bailee by spe- 
 cial contract, but it is also universally agreed that the terms which 
 public policy and legislation of the state impose are not to be overleap- 
 ed by contractual relations and, if so, the contract will be disregarded 
 and declared void, and the bailee held in the same manner and to tlie 
 same extent as if such contract never existed. 
 
 The public policy of a state must be determined by reference to its 
 Constitution, the acts of its Legislature, and the judicial decisions 
 of its courts. It is universally agreed and acceded to in this state that 
 common carriers, on account of the relation that they occupy towards 
 the public and the duty that they owe to the public generally, are pro- 
 hibited by law from contracting against their own negligence. The 
 reason for this requirement is apparent, and it would seem that the 
 same cause which prohibits contracts of this character from being 
 
Ch. 7) ILLEGALITY 325 
 
 made by a common carrier would likewise prohibit contracts of like 
 nature from being made by other enterprises which serve the public, 
 and which conduct and carry on such a large and important part of 
 the public business, which business is so essential to the commercial 
 life of the people of the state. The Legislature of this state, by the 
 provision of our statute above quoted, has provided that a bailee for 
 hire must use at least ordinary care for the preservation of the thing 
 bailed, and while this provision of the statute may be considered as a 
 declaration of the general law on the subject of bailment, yet it also 
 indicates the fixed, definite, and declared policy of the state with refer- 
 ence to the degree of care that all bailees for hire must use towards 
 property intrusted to its care. 
 
 In this state cotton occupies such an important relation to the busi- 
 ness life of the people of the state, and cotton compresses perform such 
 an important duty to the general public, that it may be said that courts 
 take judicial knowledge of the fact that compresses are in their nature, 
 or rather in a sense, quasi public institutions. In fact the business of 
 compressing cotton, by reason of its nature, the extent and the neces- 
 sity therefor, is such that the public must use it, and it is of such pub- 
 lic consequence, and affects the community at large to such an extent, 
 that it is a public business, and as such should not be permitted to re- 
 lieve itself from liability by contracts of the kind involved here. It 
 will not suffice to say that this contract was a voluntary contract, and 
 that the defendant in error was compelled to have his cotton com- 
 pressed, for the same objection could be urged with the relation of 
 the public to the railroads, the express companies and to other pub- 
 lic utilities. It is said in volume 6, Corpus Juris, p. 1112, § 44 : "The 
 parties to a bailment may diminish the liability of the bailee by spe- 
 cial contract, the principle being that the bailee may impose whatever 
 terms he chooses if he gives the bailor notice that there are special terms 
 and the means of knowing what they are; and, if the bailor chooses 
 to make the bailment, he is bound by them, provided the contract is 
 not in violation of law or of public policy, and that it stops short of 
 protection in case of fraud or negligence of the bailee." 
 
 While it cannot be contended that the plaintiff in error is a pub- 
 lic warehouseman within the provisions of our statute, yet, as a circum- 
 stance indicating the public policy of this state, it might not be amiss 
 to notice section 8302 of the Revised L,aws of 1909, which prohibits 
 public warehousemen from inserting in the receipt any language limit- 
 ing or modifying the liability or responsibility as imposed by the law of 
 the state. Third volume, Enc. of Law (2d Ed.) p. 750, states the rule 
 as follows : "To what extent a bailee may limit his liability by special 
 contract is not clear. It has been said by good authority that the bailee 
 might contract not to be liable for any degree of negligence not amount- 
 ing to gross neglect, for, the latter being regarded as equivalent of 
 fraud, the law will not tolerate such an indecency, as that a man may 
 contract to be safely dishonest. But negligence in any degree being a 
 wrong, the distinction is not apparent, and the better doctrine supported 
 by authority would seem to be that a bailee cannot stipulate against 
 liability for his own negligence." Lancaster County Nat. Bank v. 
 Smith, 62 Pa. 47. * * * 
 
 We conclude that it would be against public policy in this state to 
 permit the defendant in this case as a bailee for hire to contract in 
 such manner as to relieve it of any responsibility for its own negligence. 
 
326 CONTRACTS (Part 1 
 
 and that, the provision of the receipt issued to the plaintiff in error 
 attempting to reheve the company from any liability on account of dam- 
 age, the result of its negligence is void as against public policy. There- 
 fore the court did not err in instructing the jury to the effect that such 
 provision of the contract would not protect the defendant against its 
 own negligence. 
 
 The judgment of the lower court is affirmed. 
 
 WELD et al. v. POSTAL TEt.EGRAPH CABLE CO. 
 
 (Court of Appeals of New York, 1910. 199 N. Y. 88, 92 N. E. 41.5.) 
 
 Action by Stephen M. Weld and others against the Postal Tele- 
 graph Cable Co'rppany, for damages for loss occasioned by error in 
 the transmission of a telegraph message. 
 
 In submitting the case to the jury the learned trial court held as 
 matter of law that the conditions printed upon the defendant's blank 
 used in sending the message were reasonable, and created a contract 
 which bound the plaintiffs and exempted the defendant from liability 
 for loss occasioned by its slight or ordinary negligence, but that it did 
 not exempt the defendant from the consequences of its gross negli- 
 gence. The court then defined to the jury the legal meaning of gross 
 negligence as distinguished from ordinary negligence, and left it to 
 the jury to say, as a matter of fact, whether, under the evidence ad- 
 duced, the defendant was guilty of gross negligence. The jury ren- 
 dered a verdict in favor of the plaintiffs for $10, (XX), and the judg- 
 ment entered thereon having been unanimously affirmed by the Appel- 
 late Division, the defendant has appealed to this court. 
 
 WbrnbR, J. * * * The action is brought * * * to charge 
 the defendant with the damages sustained by the plaintiffs through 
 the alleged negligence of the former in transmitting a telegraphic 
 message sent by the latter from New York to New Orleans. The 
 message as written by the plaintiffs was: "Ellis N. O. Sell 20 thou- 
 sand Mch. 12.70. Weld" — and as received by the New Orleans rep- 
 resentative of the plaintiffs it had been so changed and transposed as 
 to read: "Sell twenty thousand March 1207. Well." The import 
 of the message as sent was well understood by the plaintiffs, ffieir 
 correspondents, and the operators of the defendant. It contained a 
 direction to sell twenty thousand bales of cotton for March delivery 
 at 12.70 cents per pound, which was understood by all concerned to 
 mean a sale at 12.70 cents or more. The message as received was 
 quite as clearly understood to mean a sale of twenty thousand bales 
 of cotton for March delivery at 12.07 cents or more. The New Or- 
 leans representative of the plaintiffs followed the instructions set 
 forth in the message as received, sold the designated number of bales 
 at various prices below 12.70 cents and when the error was discov- 
 ered by the plaintiffs they directed their representatives to purchase 
 at once 20,000 bales of cotton for March delivery at the best price 
 obtainable. This was done, in the New Orleans market at prices be- 
 low 12.70 but above the prices at which the plaintiffs' representatives 
 had previously sold, and the net result was a loss to the plaintiffs of 
 $27,565. 
 
 As the original message was not "repeated" the learned trial court 
 charged the jury that the conditions printed on the blank or form 
 
Ch. 7) ILPEGALITT 327 
 
 upon which it was sent were binding upon the plaintififs, and absolved 
 the defendant from liabihty for damages unless they were occasioned 
 by the defendant's gross negligence. Under the unanimous affirmance 
 of the Appellate Division of tiie judgment recovered by the plaintiffs, 
 .the defendant's gross negligence must be deemed to have been con- 
 clusively established, and the only question in that behalf which we 
 have power to consider is whether the rule of liability given to the 
 jury by the trial judge- correctly states the law. 
 
 The liability of telegraph companies in respect of the business which 
 they carry on is regulated by two things : (1) By pontract. (2) By the 
 nature of their quasi public employment. In the absence of any spe- 
 cial contract limiting or regulating their liability, they do not insure 
 the safe and accurate transmission of messages, but they are bound 
 to transmit them with a degree of care and diligence adequate to the 
 business which they undertake. The liability which a telegraph com- 
 pany assumes under this general rule, may, however, be limited by 
 special contract, and that is today the universal practice. As it is a 
 business requiring employes of peculiar skill, so it is also subject to 
 atmospheric and physical disturbances which may set at naught the 
 greatest care and skill. It is, therefore, but right that telegraph com- 
 panies should have the power to limit their liability in cases where mis- ' 
 takes occur through no fault on their part, or for such mistakes of 
 their employes as will occur through ordinary negligence in spite of 
 the most stringent regulations or the most vigilant general oversight. 
 But manifestly this power cannot be extended further without placing 
 the public absolutely at the mercy of those engaged jn transmitting 
 telegraphic messages. This is the reason of the rule, long since es- 
 tablished in this state, that individuals and corporations engaged in 
 this quasi public business cannot contract to absolve themselves from 
 liability for their own willful misconduct or gross negligence. They 
 may protect themselves by contractual limitations that are reasonable, 
 but beyond that they may not go. That is the law as laid down by 
 this court in a number of cases. * * * The cases * * * j^gld 
 that a regulation limiting the liability of a telegraph company for a 
 mistake in an "unrepeated" message to the price paid for sending it is 
 reasonable, but that it does not relieve such a company against the 
 consequences of its gross negligence. The charge of the trial court 
 in this respect was, therefore, clearly correct. * * * 
 
 We now turn to a series of requests made by defendant's counsel 
 which we think should have been charged. Defendant's counsel asked 
 the court to charge: "That, if the jury find as a fact that when plain- 
 tiffs sent the message to Ellis & Co. to sell 20,000 bales, March cot- 
 ton, the plaintiffs did not intend to deliver cotton, and that it was the 
 plaintiffs' intention that one party to the sale was to pay to the other 
 only the difference between the prices named and the market price of 
 the cotton at the date fixed for executing the contract, then the whole 
 contract constituted nothing more than a wager, and the plaintiffs 
 are entitled to a verdict for only sixty cents." * * * 
 
 As bearing upon the nature of the transactions between the plain- 
 tiffs and those who dealt with them through Henican, one of the 
 plaintiffs' New Orleans correspondents, Henican testified that there 
 was no delivery of cotton, and that the transactions consisted entirely 
 of a "settlement of differences." This testimony was supplemented 
 by an account of sales, from which the jury might have drawn the 
 
328 CONTRACTS (Part 1 
 
 inference that it was not the intention of the parties to these contracts 
 to sell and deliver actual cotton, but simply to record the market 
 fluctuations upon the basis of which settlements were to be made be- 
 tween the parties. This testimony, although meager and perhaps 
 inconclusive, was hostile to the legal presumption that the transactions . 
 were lawful, and was sufficient to create an issue of fact upon which 
 the defendant had the right to a charge embodying the substance of 
 the requests above quoted. If the transactions between the plaintiffs 
 and their clients or customers were mere wagering contracts, they are 
 void under the statutes of this state and the general law of the land. 
 The generally accepted rule upon this subject can be very simply 
 stated. A man may lawfully sell goods or stocks for future deliv- 
 ery, even though he has none in his possession, if he really intends 
 and, agrees to deliver them at the appointed time. Such a transaction 
 constitutes a valid contract, which is enforceable in the courts. But 
 a man may not, under the guise of such a contract, enter into a naked 
 speculation upon the rise or fall of prices, in which there is to be no 
 delivery of property, and no payment except such as may be neces- 
 sary to provide for differences arising purely from market fluctua- 
 tions. Such a transaction is a mere wager, which is condemned alike 
 by statute and public policy. * * * 
 
 For the failure of the learned trial court to charge in substance as 
 requested upon this branch of the case, the judgment herein must be 
 
 reversed and a new trial granted, with costs to abide the event. 
 * * * 
 
 SECTION 4.— GAMBLING CONTRACTS 
 
 WELD et al. V. POSTAI, TELEGRAPH CABLE CO. 
 (Court of Appeals of New York, 1910. 199 N. Y. 88, 92 N. E. 415.) 
 See ante, p. 326, for a report of the case. 
 
 OLSON V. SAWYER-GOODMAN CO. 
 
 (Supreme Court of Wisconsin, 1901. 110 Wis. 149, 85 N. W. 640 
 53 L. R. A. 648.) 
 
 Bardebn, J. It is admitted that the plaintiff worked 166 days for 
 the defendant at $1 per day. It is also admitted by plaintiff that dur- 
 ing that time he personally received goods and supplies from the com- 
 pany amounting to $12.53, and that the defendant paid his railroad 
 fare home, and for other expenses amounting to $3.35. The defend- 
 ant claims to be entitled to an additional credit of $65.40, arising out 
 of the following circumstances : The defendant kept a supply depart- 
 ment in its camp, under the charge of one Riley, who was also de- 
 fendant's timekeeper and bookkeeper. A number of the men amused 
 themselves playing poker. A banker kept account of the game, and at 
 the end of each game he would report who had lost and won, and the 
 amount. There was no money in the camp with which these balances 
 could be liquidated, so it was agreed between the players that the debts 
 should be paid from the camp store; that is, the winner. could go to 
 
Ch. 7) ILLEGALITY 329 
 
 the store and get goods to the amount he had won, and have it charged 
 to the loser. Instead of drawing goods at the end of each game and 
 squaring accounts, the banker, in the presence of each player, would 
 report the debts and credits to Riley, who kept a private memorandum 
 thereof. If at any time a party who had credit on this account wanted 
 anything, Riley would give it to him from the company's goods, and 
 charge it to some person against whom there was a debt; and, if the 
 amount drawn was greater than the debit against any one loser, it 
 would be distributed among several, and would then be entered on the 
 company's books as goods obtained by the several losers. This ar- 
 rangement was made between the men and Riley before the gcimes 
 commenced in the fall, and was also known to the foreman of the camp. 
 During the winter there was charged against plaintiff on store ac- 
 count $81.38. Of this amount, $12.53 was taken by plaintiff for his 
 personal use, and $7.40 was delivered to winners on the personal orr 
 der of plaintiff. The remainder was for goods turned over to the vari- 
 ous winners pursuant to the original agreement at various times dur- 
 ing the winter, and without any express direction from plaintiff. Riley 
 was one of the gamblers, and, as agent for the defendant, assented to 
 the arrangements before stated. The effect of this agreement was that 
 defendant, by Riley, stood as banker for each man to the amount of 
 wages earned, and agreed. to turn the same over, or such portion as 
 was lost, to the winners at the games. This was to be done pursuant 
 to the arrangement made between the men and Riley before the games 
 were commenced. 
 
 The trial court held that this agreement was illegal and void, as be- 
 ing promotive of gambling, and gave no authority to Riley to deliver 
 goods to winners and charge them to the loser; that, when the men 
 were present and got the goods themselves, they were properly charge- 
 able to them, regardless of what they did with them. Upon this theory 
 the plaintiff was held chargeable with the goods to the amount of $7.40, 
 which were turned over to winners in his presence and under his di- 
 rection. The decision of the trial court seems to have been founded 
 upon a correct appreciation of our statutes condemning gambling, and 
 all agreements and transactions based thereon or growing out of the 
 same. * * * The whole scheme was illegal, void, and contrary 
 to the statutes and to public policy as well. The plan of operations 
 was known to defendant's foreman, and carried on with his knowledge 
 and acquiescence. Except for the agreement as to delivery of goods 
 and the plan of shifting credits, it is not at all likely that the games 
 would have been continued. We are entirely satisfied with the con- 
 clusion of the trial court, and must therefore dfirm the judgment. The 
 court found that plaintiff's wages amounted to $166, and that his to- 
 tal debts were $23.33, and directed judgment for $136.67, — a mistake 
 of $6 against plaintiff . _ Judgment was entered as directed, and the 
 mistake, not being prejudicial to defendant, affords no ground for 
 complaint on its part. The judgment is aifirmed. 
 
330 CONTRACTS (Part 1 
 
 SECTION 5.— OTHER ILLUSTRATIONS OF ILLEGAL 
 CONTRACTS 
 
 DUNTON V. WESTCHESTER FIRE INS. CO. 
 
 (Supreme Judicial Court of Maine, 1908. 104 Me. 372, 71 Atl. 1037, 
 20 L. R. A. [N. S.] 1058.) 
 
 Action by Dunton against an insurance company on a fire insur- 
 ance policy, which provided for arbitration as to amount due, as a 
 condition precedent to the right to maintain an action on the policy. 
 Verdict for plaintiff. Defendant excepts. 
 
 WhitehousB, J. * * * It has been long established by author- 
 ity both in this country and in Englano '•hat if parties stipulate in con- 
 tracts of insurance and other similar contracts to submit to arbitration 
 the question of the amount of damage or any similar matters that do 
 not go to the root of the action, it is entirely competent for them to 
 make such an agreement a condition precedent to the right of action; 
 and if it appears from the express terms of the contract, or from nec- 
 essary implication, that such was the intention, it will be upheld by 
 the courts, and no action can be maintained upon the contract without 
 proof on the part of the plaintiff that he has fulfilled the stipulation in 
 the contract or made all reasonable effort to fulfill it. The effect of 
 such an agreement is not to refer a cause of action, but to provide that 
 a cause of action shall arise as soon as the amount to be paid has been 
 determined, and not before. It does not deprive the courts of their 
 jurisdiction, but simply provides a reasonable method of estimating 
 and ascertaining, the amount of the loss, and leaves the general ques- 
 tion of liability to be determined by the judicial courts. * * * Ex- 
 ceptions overruled. 
 
 LIVINGSTON V. PAGE. 
 
 (Supreme Court of Vermont, 1902. 74 Vt. 356, 52 AO. 965, 59 L. R. A. 386, 
 
 93 Am. St. Rep. 901.) 
 
 Action of assumpsit by James H. Livingston against Carrol S. Page. 
 From a judgment for the defendant, the plaintiff brings exceptions. 
 
 MuNSON, J. At the close of the plaintiff's evidence the defendant 
 moved that a verdict be directed in his favor, on the ground that the 
 contract claimed by the plaintiff was void, as against public policy. 
 The court held the contract void for the reason assigned, and directed 
 a verdict accordingly. The case is here upon the plaintiff's exception 
 to this holding. 
 
 The plaintiff called the defendant as a witness. The evidence con- 
 sisted of certain correspondence had by the parties ; and the testimony 
 of the parties as to the circumstances in which the letters were written, 
 the meaning that was attached to the language used, the matters in- 
 closed for publication by one party and the services rendered by the 
 other, and subsequent transactions bearing upon their understanding 
 of the relations they had sustained. The defendant claimed that no 
 contract with the plaintiff was in fact consrunmated, and that the only 
 contract ever contemplated was one for the publication of extracts 
 from other papers at a legitimate charge for the space actually taken. 
 
Ch. 7) ILLEGALITY 331 
 
 The plaintiff did not claim to recover on this ground, but claimed 
 to recover a reasonable compensation for the support and influence 
 of his paper and his services as its editor. The plaintiff was a Demo- 
 crat, publishing a Democratic paper of independent proclivities. The 
 defendant was a Republican, seeking a nomination to congress from a 
 Republican convention. It appeared from the plaintiff's testimony that 
 he considered defendant's proposal an application for the use and in- 
 fluence of his paper in the nature of a retainer; that he accepted it 
 with the understanding that his paper and iiis services as editor would 
 be at the command of the defendant during the campaign, to be set- 
 tled for at its close; that he was to do all he could to influence the 
 choice of delegates and secure the defendant's nomination; that orig- 
 inal matter was within the sdope of his contract, and that his editorials 
 were written in that view ; that he supported defendant because of this 
 contract and the money he was to get out of it; that he expected to 
 receive a larger compensation if defendant was nominated than he oth- 
 erwise would; that he tried to conceal his relations with the defend- 
 ant from the public, and understood that the defendant was trying 
 to do the same; that he took this course because it would make his 
 efforts in influencing voters in defendant's behalf more successful. 
 
 ^ :Jc :jt 
 
 In Strasburger v. Burk, 13 Am. Law Reg. (N. S.) 607, decided by 
 the city court of Baltimore, the defendant was the keeper of a lager 
 beer saloon, and agreed to give his political influence aild furnish beer 
 and cigars to secure a caucus nomination for the plaintiff's father. 
 The gratuitous furnishing of food or liquor to secure votes at an 
 election was prohibited by the Code, but the only statutory recogni- 
 tion of primary elections was a provision for the preservation of or- 
 der. The court considered that in applying the principles of public 
 policy no distinction could be made between voluntary meetings of 
 this character and elections ordained by law. Mr. McCrary adopts 
 the conclusions of this opinion in his work on Elections, and applies 
 the doctrine to the sale of influence, as well as the sale of votes. Mr. 
 Redfield, in commenting upon the same opinion in 13 Am. Law Reg. 
 (N. S.) at page 610, says that the invalidity of contracts designed to 
 control the freedom of elections results from the principles of common 
 law, and that those relating to caucuses cannot be made an exception 
 on the ground that such Aieetings are not recognized by the statute. 
 We cannot doubt the correctness of this conclusion. The rule would 
 largely fail of its purpose if not so applied. When the voters are un- 
 evenly divided into two parties, the nomination of the stronger organi- 
 zation is usually equivalent to an election. And when party action is 
 less decisive the subsequent efforts of the voters are ordinarily confined 
 to a selection from the candidates regularly presented. The individual 
 voter of a large electorate can seldom give an effective expression to 
 a choice that is not in line with the action of some party convention. 
 To secure a free and exact expression of the sovereign will, there must 
 be a proper selection of candidates, as well as an honest election. If 
 the choice of delegates and the action of 'the nominating convention 
 are improperly determined, the election ballots will fail to express the 
 real judgment of the voters. 
 
 It is not claimed in argument, and no ground occurs to us upon 
 which it could be claimed, that this contract was any the less obnoxious 
 to the law because the purchased influence was to be exerted through the 
 
332 CONTRACTS (Part 1 
 
 columns of the plaintiff's paper. A newspaper is understood to pre- 
 sent the views of some one connected with its management or views 
 deemed consistent with some settled policy, and has a patronage and 
 influence which are due to that understanding. As long as the editorial 
 column is relied upon as a public teacher and adviser, there can be no 
 more dangerous deception than that resulting from the secret pur- 
 chase of its favor. We hold that the contract testified to and relied 
 upon by the plaintiff is contrary to public policy, and therefore void. 
 Judgment affirmed. 
 
 HARBISON V. SHIRLEY et al. 
 
 (Supreme Court of Iowa, 1908. 139 Iowa, 605, 117 N. W. 963, 
 19 L. R. A. [N. S.] 662.) 
 
 Evans, j. * * * The authorities are not altogether in harmony 
 as to the rule which renders a contract void when it is entered into 
 by one of the parties with the intent to violate the law, and where 
 such intent is known or suspected by the other party. The great weight 
 of authority, however, in our opinion is that mere knowledge or sus- 
 picion on the part of the lessor that the lessee intends to violate the 
 law upon the property will not of itself render a contract void. In 
 order to defeat a recovery for rent by the lessor, it must be shown 
 that he participated in some degree, however slight, in the wrongful 
 purpose and intent that the property should be so used. Mere indiffer- 
 ence on his part as to the intended use of the property is not suffi- 
 cient. If the lessor in any way aids the lessee in his unlawful design, 
 such participation will render the contract void. His relation to the 
 unlawful purpose must be in some degree active, rather than merely 
 passive or indifferent. If he does any act in aid of the unlawful pur- 
 pose, however slight, it is sufficient participation on his part to defeat 
 recovery. But, until there be some degree of connivance shown, a con- 
 tract will not be avoided. * * * The law finds itself in close quar- 
 ters at this point, and is confronted with danger at either side. On 
 the one hand, it must needs withhold its sanction from contracts en- 
 tered into for criminal purposes ; and, on the other hand, it ought not 
 to go so far as to offer undue inducement to beneficiaries of con- 
 tracts to taint them with criminality for the very purpose of avoiding 
 liabiUty thereon after receiving the benefits of performance by the 
 bther party, lest the latter evil become greater than the first. While, 
 therefore, it is true that the line of distinction drawn in the authorities 
 above cited is somewhat fine, it is also true that it requires a thin blade 
 to divide the "joints and marrow" of one evi' to be checked and another 
 to be avoided. This court has not heretofore passed , directly upon 
 this question. * * * 
 
 Under the evidence in this case, the most that can be said is that 
 the plaintiff feared or suspected that intoxicating liquors might be 
 sold upon the premises. There is no testimony indicating any con- 
 nivance on his part. The lease expressly forbade the use of the prem- 
 ises for any unlawful purpose. It is urged in argument that this was 
 a mere pretense to cover up the real purpose ; but the evidence does not 
 warrant such contention. The defendant Shirley testified to his con- 
 versation with the plaintiff as follows: "Mr. Harbison said that he 
 did not want anything sold in there that would cause a nuisance. He 
 
Ch. 7) ILLEGALITY 333 
 
 said 'You want it for restaurant purpose. All right, take for restau- 
 rant purposes.' " This oral statement is in harmony with the prohibi- 
 tion of the lease, and indicates no ulterior purpose on the part of the 
 plaintiff. There was no other evidence on the question. The burden 
 was upon the defendants to prove their affirmative defense. They 
 have wholly failed to do so. The trial court directed a verdict for 
 the plaintiff and entered judgment for the amount claimed. 
 The judgment is right, and is affirmed. 
 
 ROGERS V. BLUBNSTBIN. 
 
 (Supreme Court of Georgia, 1905. 124 Ga. 501, 52 S. E. 617 
 3 L. R. A. [N. S.] 213.) 
 
 Action by Laura B. Rogers against S. Bluenstein. Judgment for 
 defendant and plaintiff brings error. 
 
 L,aura B. Rogers brought an action against S. Bluenstein to recover 
 a diamond ring and setting and a diamond pendant and setting. The 
 evidence showed that on June 18, 1902, the plaintiff executed an in- 
 strument in writing by which she conveyed the diamonds to one Carroll 
 D. Judson for the sum of $400. He executed to her on the same day 
 a paper whereby he agreed to sell the diamonds to her on or before 
 October ISth for the sum of $408. 
 
 Lumpkin, J. It is legally possible for one person to buy property 
 from another and agree to resell it to the vendor at a higher price pay- 
 able in future. If Such be the actual transaction, the law will enforce 
 it. The difficulty frequently arising is to determine whether in a given 
 instance the parties intended a sale or a mortgage. * * * jf 
 Bluenstein in fact bought the diamonds from Judson with the assent 
 of Mrs. Rogers, and agreed to sell them to her at an advanced price 
 payable in the future, there would be nothing unlawful about it. If in 
 fact the transaction was one by which Bluenstein loaned Mrs. Rogers a 
 sum of money at a usurious rate of interest, it was illegal, and the 
 title so obtained was tainted with usury. The transaction, being on its 
 face apparently lawful, might, nevertheless, be shown to be a device for 
 concealing usury. But the burden of proving this rested on the party 
 asserting jt. * * * 
 
 There was a considerable amount of evidence tending to show that 
 in fact the title of the defendant was tainted with usury, but it was not 
 free from conflict. In addition to what appeared on the face of the 
 papers, when asked in regard to a loan to the plaintiff, defendant testi- 
 fied : "There was no loan with her. * * * As to how much money 
 I let Mrs. Rogers have, I never had a contract with Mrs. Rogers. The 
 bill of sale shows what I paid Judson. I don't remember exactly — 
 $413, or something. * * * And I gave an option to purchase back 
 on the 14th of February, 1903." If the jury based their verdict on the 
 belief that this was in fact a sale with an agreement to resell, we can- 
 not say that they were without evidence authorizing them to do so. 
 
 The plaintiff in error alleges that the court erred in charging that if 
 the diamonds were conveyed to the defendant as a security for a debt 
 which was tainted with usur)', and not in fact as a sale with the right 
 to repurchase, and if she tendered the defendant the amount of money 
 due upon her contract with' him, and it was refused, she would be en- 
 titled to recover the difference between the amount of her debt at the 
 
334 CONTRACTS (Part 1 
 
 time of the tender and the highest proved v-alue of the property since 
 the date of such payment. It is contended that, if the diamonds were 
 pledged as a security for a loan, the pledgor would be entitled to redeem 
 the property pledged, regardless of the question of usury. If this be/ 
 conceded, there was, nevertheless, no harmful error in the charge. If 
 what transpired between the parties amounted to a pledging of the dia- 
 monds to secure a debt, the amount fixed for their return or reconvey- 
 ance was, without any controversy, greater than the amount advanced 
 with legal interest. The plaintiff contended that there was usury, and 
 in making the tender her attorney calculated the rate which he alleged 
 had been previously charged. We think the charge of the court, if 
 erroneous, could not have injured the plaintiff. 
 Judgment affix-med. All the Justices concuring. 
 
 GRIGSBY V. RUSSELL. 
 
 (Supreme Court of the United States, 1911. 222 U. S. 149. 32 Sup. Ot. 58, 
 56 L. Ed. 133, 36 L. R. A. [N. S.] 642, Ann. Cas. 1913B, 863.) 
 
 Holmes, J. This is a bill of interpleader brought by an insurance 
 company to determine whether a policy of insurance issued to John C. 
 Burchard, now deceased, upon his life, shall be paid to his administra- 
 tors or to an assignee, the company having turned the amount into 
 court. The material facts are that after he had paid two premiums and 
 a third was overdue, Burchard, being in want and needing money for 
 a surgical operation, asked Dr. Grigsby to buy the policy and sold it to 
 him in consideration of one hundred dollars and Grigsby's undertaking 
 to pay the premiums due or to become due ; and that Grigsby had no 
 interest in the life of the assured. The Circuit Court of Appeals in 
 deference to some intimations of this court held the assignment valid 
 only to the extent of the money actually given for it and the premiums 
 subsequently paid. * * * 
 
 Of course the ground suggested for denying the validity of an as- 
 signment to a person having no interest in the life insured is the public 
 policy that refuses to allow insurance to be taken out by such persons 
 in the first place. A contract of insurance upon a life in which the in- 
 sured has no interest is a pure wager that gives the insured a sinister 
 counter interest in having the life come to an end. And although that 
 counter interest always exists, as early was emphasized for England in 
 the famous case of Wainewright (Janus Weathercock), the chance 
 that in some cases it may prove a sufficient motive for crime is greatly 
 enhanced if the whole world of the unscrupulous are free to bet on 
 what life they choose. The very meaning of an insurable interest is 
 an interest in having the life continue and so one that is opposed to 
 crime. And, what perhaps is more importa,nt, the existence of such an 
 interest makes a roughly selected class of persons who by their general 
 relations with the person whose life is insured are less likely than 
 criminals at large to attempt to compass his death. 
 
 But when the question arises upon an assignment it is assumed that 
 the objection to the insurance as a wager is out of the case. In the 
 present instance the policy was perfectly good. There was a faint sug- 
 gestion in argument that it had become void by the failure of Burchard 
 to pay the third premium ad diem, and that when Grigsby paid he was 
 making a new contract. But a condition in a policy that it shall be 
 
Ch. 7) ILLEGALITT S35 
 
 void if premiums are not paid when due, means only that it shall be 
 voidable at the option of the company. * * * The company waiv- 
 ed the breach, if there was one, and the original cpntract with Burchard 
 remained on foot. No question as to the character of that contract is 
 before us. It has been performed and the money is in court. But this 
 being so, not only does the objection to wagers disappear, but also 
 the principle of public policy referred to, at least in its most convinc- 
 ing form. The danger that might arise from a general license to all 
 to insure whom they like does not exist. Obviously it is a very dif- 
 ferent thing from granting such a general license, to allow the holder 
 of a valid insurance upon his own life to transfer it to one whom he, 
 the party most concerned, is not afraid to trust. The law has no 
 universal cynic fear of the temptation opened by a pecuniary benefit 
 accruing upon a death. It shows no prejudice against remainders 
 after life estates, even by the rule in Shelley's Case, 1 Coke, 104. In- 
 deed, the ground of the objection to life insurance without interest in 
 the earlier English cases was not the temptation to murder but the fact 
 that such wagers came to be regarded as a mischievous kind of gam- 
 ing. * * * 
 
 On the other hand, life insurance has become in our days one of 
 the best recognized forms of investments and self-compelled saving. 
 So far as reasonable safety permits, it is desirable to give to life poli- 
 cies the ordinary characteristics of property. This is recognized by the 
 Bankruptcy Law, § 70 (U. S. Comp.St. § 9654), which provides that 
 unless the cash surrender value of a policy like the one before us is 
 secured to the trustee within thirty days after it has been stated the 
 policy shall pass to the trustee as assets. Of course the trustee may 
 have no interest in the bankrupt's life. To deny the right to sell ex- 
 cept to persons having such an interest is to diminish appreciably the 
 value of the contract in the owner's hands. The collateral difficulty 
 that arose from regarding life insurance as a contract of indemnity 
 only, * * * long has disappeared. * * * And cases in which 
 a person haying an interest lends himself to one without any as a cloak 
 to what is in its inception a wager have no similarity to those where an 
 honest contract is sold in good faith. 
 
 Coming to the authorities in this court, it is true that there are inti- 
 mations in favor of the result come to by the Circuit Court of Appeals. 
 But the case in which the strongest of them occur was one of the type 
 just referred to, the policy having been taken out for the purpose of 
 allowing a stranger association to, pay the premiums and receive the 
 greater part of the benefit, and having been assigned to it at once. 
 * * * On the other hand, it has been decided that a valid policy is 
 not avoided by the cessation of the insurable interest, even as against 
 the insurer, unless so provided by the policy itself. * * * It is at 
 least satisfactory to learn from the decision below that in Tennessee, 
 where this assignment was made, although there has been much divi- 
 sion of opinion, the Supreme Court of that State came to the conclu- 
 sion that we adopt, in an unreported case, Lewis v. Edwards, Decem- 
 ber 14, 1903. The law in England and the preponderance of decisions 
 in our state courts are on the same side. * * * 
 
 Decree reversed. 
 
336 CONTRACTS (Part 1 
 
 ROHRBACH) v. GERMANIA FIRE INS. CO. 
 (Court of Appeals of New York, 1875. 62 N. Y. 47, 20 Am. Rep. 451.) 
 
 FoLGBR, J. * * * The general defiflitions of the phrase "in- 
 surable interest," as given in the text-books, are quite vague and 
 not always concordant. See * * * May, Ins. § 76., The last cited 
 author says that an insurable interest sometimes exists where there is 
 not any present property, any jus in re, or jus ad rem, and_ such a 
 connection must be established between the subject-matter insured, 
 and the party in whose behalf the insurance has been effected, as may 
 be sufficient for deducing the existence of a loss to him, from the 
 occurrence of an injury to it, and that the tendency of modem deci- 
 sions is to admit to the protection of the contract, whatever act, event 
 or property, bears such relation to the person seeking insurance, as 
 that it can be said with a reasonable degree of probability, to have a 
 bearing upon his prospective pecuniary condition. While on the 
 Other hand, the statement is, that the interest must be founded on 
 some legal or equitable title ; and if it be inconsistent with the only 
 title which the law can recognize, it will not be deemed an insurable 
 interest. Marsh, Ins., 115. 
 
 But the result of a comparison of the text-writers above cited 
 [eleven writers on insurance] is, that there need not be a legal or 
 equitable title to the property insured. If there be a right in or against 
 the property, which some court will enforce upon the property, a 
 right so closely connected with it, and so much dependent for value 
 upon the continued existence of it alone, as that a loss of the prop- 
 erty will cause pecuniary damage to the holder of the right against 
 it, he has an insurable interest. Thus a mortgagee of real estate, 
 though he hold also the bond of the mortgagor, has an insurable in- 
 terest in the, buildings; while a judgment creditor of the same mort- 
 gagor, his. judgment being a hen upon the same real estate and the 
 same buildings, is said not to have an insurable interest in them. 
 The interest of the first is said to be specific, the interest of the latter 
 general. As a general rule the distinction may be sound. But I think 
 it would be difficult to show an appreciable practical difference in the 
 pecuniary result to the two. If the mortgagor and judgment debtor 
 should die, ,lea;Ving no personal property, and no real estate save that 
 mortgaged, it principally valuable for the buildings upon it, and they 
 should be burned, each must then look to the real estate, the lands 
 alone, for a security for his debt; and if that be irisuflficient, each 
 must with equal certainty suffer a pecuniary disaster, resulting di- 
 rectly from the fire. What legal reason is there why the one may not, 
 
 as well as the other, protect himself by a contract of insurance? 
 * * * 
 
 It is not the name of the right which gives or refuses an itisurable 
 interest; it is the character of the right. A specific lien gives an 
 insurable interest, because a loss of the particular property is at once 
 seen to affect disastrously the specific lienor. But when a right to 
 payment of debt exists, which can be satisfied only from a particular 
 piece of property, is there not the sdnie result from the same cause? 
 If I have a debt against another, and he have but one pieie of prop- 
 erty from which my debt may be made, and he die leaving no per- 
 sonal estate, though in technical language my lien may not be spe- 
 
Ch. 7) ILLEGALITY 337 
 
 cific upon that real estate, it is true in fact that there is a specific piece 
 of property from which alone I may hope to satisfy my lien, and 
 which is alone legally bound to satisfy it, and I am practically just 
 like one to whom that piece of real property has been specifically 
 pledged for a specific debt. If the latter, for that he may suflfer 
 pecuniary loss by the burning of that real property, has such an in- 
 terest as that he may insure against that burning, I have such an 
 interest also, and I, too, may insure. The probability — nay, the pos- 
 sibility of the payment of the plaintiff's debt out of the property of 
 the deceased debtor — rested entirely upon the contingency of this real 
 estate remaining without serious impairment in value. * * * 
 
 In Insurance Co. v. Allen, 43 N. Y. 389-395, 396, 3 Am. Rep. 711, 
 it is said by Allen, J. : "An insurable interest may exist without any 
 estate or interest in the corpus of the thing insured ; " "it was enough 
 that" there be a pecuniary interest in the preservation and protection 
 of the property, and that one "might sustain a loss by its destruc- 
 tion." * * * 
 
 SECTION 6.— EFFECT OF ILLEGALITY 
 
 BASKET et al. v. MOSS. 
 
 (Supreme Court of North Carolina, 1894. 115 N. C. 448, 20 S. E. 733, 
 48 L. R, A. 842, 44 Am. St. Rep. 463.) 
 
 Action to restrain the defendant, W. E. Moss, trustee, from selling 
 certain real estate described in the affidavits. 
 
 The affidavit on which the application was founded, after setting 
 forth that the defendant John R. Moss was postmaster at Henderson 
 on September 1, 1893, and that the full term to which he had been 
 appointed expired March 1, 1894, stated: 
 
 That on or about September 1, 1893, defendant John R. Moss, 
 represented to the plaintiff. Basket, an old man, easily influenced, 
 that he. Moss, could procure for Basket the appointment of postmaster 
 at Henderson as his successor, and represented further to said Basket 
 that if he would secure to him, said John R. Moss, the sum of $952.50 
 (which sum was to be evidenced by the bond of said A. M. Basket) by a 
 deed of trust on his (Basket's) real estate, that he, said John R. Moss, 
 would go to Washington City, see President Cleveland and other au- 
 thorities, resign said office in favor of Basket and surrender the of- 
 fice to him, and secure the appointment of Basket as postmaster in 
 his stead, stating as a further inducement for the execution of said 
 bond and trust deed, that if said Basket should be appointed and hold 
 the office at the expiration of the term of said Moss, Mr. Cleveland 
 would no doubt reappoint him. 
 
 That the said Basket, relying on John R. Moss's representations, 
 executed his bond to J. R. Moss for $972.50, and at the same time 
 executed to W. E. Moss, the other defendant, a trust deed on a tract 
 of 125 acres. 
 
 That said bond and trust deed were executed without consideration, 
 or upon a consideration which was illegal, and that said bond and 
 trust deed are invalid. 
 B.& E.Bus.Law— 22 
 
338 CONTRACTS (Part 1 
 
 That affiant is informed and believes that it was a part of the agrecr 
 ment when said bond and trust deed were executed, that if, upon the 
 visit of John R. Moss to his Excellency, Grover Cleveland, at: Wash- 
 ington, he should fail to have said Basket appointed postmaster as 
 aforesaid, the said bond and trust deed should be cancelled aiid sur- 
 rendered, the said Basket to pay the actual expenses of Moss. 
 
 That no part of the agreement (which affiant claiins was invalid 
 so far as the promising the office of postmaster for A. M. Basket is 
 concerned) has been complied with by said Moss. 
 
 That defendant has indorsed the trust deed as being paid off and 
 satisfied down to $199. 
 
 That, notwithstanding these facts, defendant John R. Moss has 
 caused his codefendant W. E. Moss to advertise the said real proper- 
 ty for sale under said invalid deed, to pay the alleged balance of $199 
 claimed' as due on said invalid bond. 
 
 The defendant prays for a restraining order, etc. 
 
 Clark, J. The public has a right to some better test of the capacity 
 of their servants than the fact that they possess the means of pur- 
 chasing their offices. The Code (section 1871) provides, "All bargains, 
 bonds and assurances made or given for the purchase or sale of any 
 office whatsoever, the sale of which is contrary to law, shall be void." 
 Notwithstanding the office is an office under the United States govern- 
 ment, if an action were brought in our courts to recover upon a bond 
 or mortgage given for such Consideration, our courts would hold it 
 void. Such agreements are void at common law, as well as by stat- 
 ute. So also contracts to procure appointment to office are void, 
 * * * or to resign in another's favor. * * * Public offices are 
 public trusts, and should be conferred solely upon considerations of 
 ability, integrity, fidelity and fitness for the position. Agreements for 
 compensation to procure these tend directly and necessarily to low- 
 er the character of the appointments to the great detriment of the 
 public. Hence such agreements, of whatever nature, have always been 
 held void as being against public policy. * * * Says Ames, C. J., 
 in Eddy v. Capron, 4 R. I. 394, 67 Am. Dec. 541, "By the theory of our 
 government, appointments to office are presumed to be made solely 
 upon the principle detur digniori, and any practice whereby the bare 
 consideration of money is brought to bear in any form upon such ap- 
 pointments to or resignation of office, conflicts with and degrades this 
 great principle. The services performed under such appointments 
 are paid for by salary or fees, presumed to be adjusted at the point 
 of adequate remuneration only. Any premium paid to obtain office 
 interferes with this adjustment and tempts to peculation, overcharges 
 and frauds in the effort to restore the balance thus disturbed." Be- 
 sides, the moral sense revolts at traffic to any extent in the bestowal 
 of public office. It is against good morals as well as against the 
 soundest principles of public policy. If public offices can be sold or 
 procured for money, the purchasers will be sure to reimburse them- 
 selves by dispensing the functions of their offices for pecuniary con- 
 sideration. The law wisely guards against the first step in that di- 
 rection. For that reason, not only the sum agreed to be paid di- 
 rectly to the holder of this office to resign, but the amounts advanced 
 for expenses and compensation of persons to go to Washington to 
 procure the authorities there to accept the resignation of one party 
 and the appointment of the other, are not recoverable. For the same 
 
Ch. 7) ILLEGALITY 330^ 
 
 reason that agreements to pay for lobbying the passage of bills before 
 a legislative body are void, * * * all agreements for expenses and 
 compensation of persons seeking to influence or procure appointments 
 to office are void. * * * Lawson on Contracts, §§ 309, 310. 
 "The courts condemn the very appearance of evil, and it matters 
 not that in a particular case nothing improper was done or expected 
 to be done. It is enough that the employment tends directly to such 
 results." Clippinger v. Hepbaugh, 5 Watts & S. (Pa.) 315, 40 Am. 
 Dec. 519. * * * 
 
 If an action had been brought to recover these sums, or to foreclose 
 a mortgage given to secure payment thereof, the court would dismiss 
 the action. The defendant contends, however, that as he was care- 
 ful to take a mortgage with a power of sale, the courts will not in- 
 terfere by injunction, but will let him proceed to collect his ill-gotten 
 gains. This would simply legalize the practice which is denounced 
 both by statute and common law. Reasons of public policy forbid- 
 ding this species of corruption are too profound and too important 
 to the public welfare to be evaded and nullified by so simple a device. 
 A mortgage given to secure a sum of money upon an agreement 
 against public policy is void. * * * 
 
 Pomeroy, Equity Jurisprudence, §§ 939-942, calls attention to the 
 fact that the rule in pari delicto is often misunderstood, and its ap- 
 plication is properly and correctly that in such cases "potior est con- 
 ditio possidentis" — that is, that the court will permit nothing to be 
 done which will enable a party to collect from the other the fruits of 
 his wrong. When he sues to recover, the law will not give him 
 judgment. When he has shrewdly attempted to evade this by tak- 
 ing a mortgage with a power of sale, the court will by injunction pre- 
 vent his collecting on a mortgage denounced as void by reasons of 
 public policy. In section 941 he says : "Whenever public policy is 
 considered as advanced by allowing either party to sue for relief 
 against the transaction, then relief is given to him. In pursuance of 
 this high principle, and in compliance with the demands of a high 
 public policy, equity may aid a party equally guilty with his oppo- 
 nent, not only by cancelling and ordering the surrender of an execu- 
 tory agreement, but even by setting aside an executed contract, con- 
 veyance or transfer, and decree the recovery back of money paid or 
 property delivered in performance of the agreement." Also, in sec- 
 tion 940, he says that whenever the defensive remedy at law will not 
 be equally certain, perfect and adequate, the equitable remedy will be 
 granted by injunction and the like. "The equitable relief so conferred 
 does not violate the general maxim concerning parties in pari delicto; 
 on the contrary, it carries that maxim into effect." So in the present 
 case the injunction against sale, under the void mortgage taken against 
 public policy, enforces that maxim by prosecuting either party re- 
 covering anything from the other. This is also the well-settled rule in 
 England. In Lloyd v. Gurdon, 2 Swan. 181, L,ord Eldon granted an 
 injunction to restrain the negotiation of bills of exchange which 
 were made void by Statute 9 Anne, c. 14, which is in the very tenor 
 of section 1871 of the Code, applicable to the present transaction. Lord 
 Hardwicke granted the injunctive relief in a similar case. * * * 
 
 In such case, before the Master of the Rolls, Sir John Romilly, 
 where part of the consideration was for money loaned, and part was for 
 an immoral consideration, the whole mortgage was ordered to be can- 
 
340 CONTRACTS (Part 1 
 
 celled, the court declining to pass upon the question whether the mort- 
 gagee could recover at law for the valid part of the consideration — i. e., 
 the money loaned. Willyams v. Bullmore, 33 L. J. R._(Eq.) N. S. 461. 
 In the present case, upon the defendant's own showing $37.50 is the 
 only valid part of the sum attempted to be secured. Whether the mort- 
 gage can be upheld to that extent is not before us, as the plaintiff in his 
 reply expresses his willingness to pay said sum. The plaintiff recover- 
 ing judgment for the cancellation of the mortgage, the defendant should 
 be taxed with the costs. The injunction was properly continued to the 
 hearing. Affirmed. 
 
 Shepherd, C. J. (concurring). I concur in the conclusion of the 
 court that the agreement which the mortgage is given to secure is con- 
 trary to public policy, and therefore illegal, and I am also of the 
 opinion that the injunction should be continued until the final hear- 
 ing. It is alleged that the p|aintiff Joseph Basket has a resulting 
 trust in the land included in the mortgage, and as it does not appear 
 thiat he had any connection with the illegal transaction between A. M. 
 Basket, the mortgagor (the holder of the legal title), and the mortgagee, 
 I see no reason why the equitable aid of the court should not be ex- 
 tended to him. 
 
 I cannot agree, however, in that part of the opinion which declares 
 that A. M. Basket is entitled to equitable relief. "Whenever a con- 
 tract or other transaction is illegal, and the parties thereto are, in 
 contemplation of law, in pari delicto, it is a well-settled rule, subject 
 only to a few exceptions depending upon other considerations of 
 policy, that a court of equity will not aid a particeps criminis, either 
 by enforcing the contract while it is yet executory, or by relieving him 
 against it by setting it aside, or by enabling him to recover the title 
 to property which he has parted with by its means. The principle is 
 thus applied in the same manner when the illegality is merely malum 
 prohibitum, being in contravention of some positive statute, and when 
 it is malum in se, as being contrary to public policy or to good morals. 
 Among the latter class are agreements and transfers, the consideration 
 for which was violative of chastity, compounding of a felony, gam- 
 bling, false swearing, the commission of any crime or breach of good 
 morals." 1 Pom. Eq. 402. 
 
 "Where the party seeking relief is the sole guilty party, or where 
 he has partioipated equally and deliberately in the fraud, or where the 
 agreement which he seeks to set aside is founded in illegality, immoral- 
 ity, or is base and unconscionable on his part — in such cases courts 
 of equity will leave him to the consequences of his own iniquity, and 
 will decline to assist him to escape from the toils which he has studi- 
 ously prepared to entangle others, or whereby he has sought to vio- 
 late with impunity the best interests and morals of social life. * * * 
 Courts of equity could not, without staining the administration of jus- 
 tice, interfere to save the party from the just results of his own mis- 
 conduct, when the failure of success in the scheme would manifestly 
 be the sole cause of his praying relief." 2 Story, Eq. 696. * * * 
 These principles are so well established that it is hardly necessary 
 to produce authority to their support. * * * 
 
 There are, it is true, limitations to the rule, as where parties are 
 not equally in fault, or as in the case of usury, where the borrower 
 is considered as in vinculo or where the security is for past cohabi- 
 tation; and there are cases where, under peculiar circumstances, con- 
 
Ch. 7) ILLEGALITY 341 
 
 siderations of public policy will be best subserved by granting relief. 
 These and other instances will be found in the text-books and notes to 
 which I have referred, and there seems to be some confusion in the 
 decided cases upon the subject. No satisfactory authority, however, 
 can, in my opinion, be found to take the present case out of the general 
 rule. If, as we have seen, the court will not interfere where the 
 consideration is the compounding of a felony for the commission of 
 a crime, it is difficult to understand why it should extend its relief 
 where the consideration is for the commission of the offence alleged 
 in the complaint. Certainly, considerations of public policy are as 
 grave in the former cases as in the latter. Again, it will hardly be 
 contended that the plaintiff A. M. Basket is not equally in fault. 
 Indeed, it appears from the written agreement executed contempora- 
 neously with the mortgage, that he was the moving party in the trans- 
 action. The proposition was made by him, and it is perfectly clear 
 that his guilt is equal if not greater than that of the defendant. Again, 
 if it be conceded that he is entitled to the relief on the ground that 
 part of the contract, the note, is executory, the court would only grant 
 it upon terms, and as the mortgagee has, under the agreement, so cred- 
 ited the note that everything is eliminated except certain expenses 
 and counsel fees, and a pre-existing debt (leaving only a balance of 
 about $200), it would seem very clear that the court, even if it in- 
 terfered, would not place him in any better condition. The expenses 
 and counsel fees were actually expended in furtherance of his own 
 proposition, and it would seem a complete reversal of the maxim "In 
 pari delicto melior est conditio defendentis," to so use the equitable 
 power of the court as to extricate the plaintiff from the position in 
 which he has placed himself, and put the entire expense of carrying out 
 his own proposition upon the shoulders of the defendant. No clearer 
 case can, in my opinion, be conceived for the application of the rule 
 than the present. 
 
 Furthermore, it is a fundamental principle that a court of equity 
 never interferes where there is a complete defence at law. High on 
 Injunction, 473. In the present case it is said that the mortgage is 
 utterly void. If this be so, there is no occasion for equitable relief, 
 not even on the ground that it is necessary to discover and preserve the 
 evidence of its illegality, as the contemporaneous agreement executed 
 by all of the parties is plenary proof of the vitiating element. 2 
 Story, Eq. 700. 
 
 This consideration, as well as the firmly established rule in pari 
 delicto, etc., is also a complete bar to the prayer that the deed be can- 
 celled on the ground that it is a cloud upon plaintiff's title. 2 Story, 
 Eq. 700. Public policy will be far better subserved by leaving the plain- 
 tiff where his illegal conduct has placed him, than by encouraging him 
 in another attempt to violate the law by the assurance that a court of 
 equity will always stand ready to relieve him against the consequences 
 of his unsuccessful experiments. "The suppression of illegal contracts 
 is far more likely in general to be accomplished by leaving the parties 
 without remedy against each other, and by thus introducing a pre- 
 ventive check naturally connected with a want of confidence, and a 
 sole reliance upon personal honor. And so accordingly the modern 
 practice is established." 1 Story, Eq. 298. 
 
 The case of Patterson v. Donner, 48 Cal. 369, cited in the opinion 
 to the effect that a mortgage given to secure money upon an agreement 
 
342 coxTEACTS (Part 1 
 
 against public policy does not divest the title, does not aid the plain- 
 tiff, for, if the title is not divested, there is certainly no occasion for 
 resorting to a court of equity where the illegality is evidenced, as 
 in this case, by the contemporaneous agreement referred to. The case, 
 however, decides the other way. It holds that the title passes, but that 
 the performance of the illegal, condition will not divest the .title of 
 the grantee. The case cited from Indiana is equally inapplicable, as 
 it was an action at law to enforce an illegal executory agreement, and 
 it was of course held that the defendant could plead the illegality of 
 the consideration. The case from Maryland is also inapplicable, as 
 it was an action to foreclose a mortgage given upon an illegal consider- 
 ation, and the court refused relief. It is no authority that the court 
 would have aided the mortgagor had he been seeking a decree for 
 cancellation. The case of Willyams v. Bullmore, 33 L. J. R. (Eq.) 
 N. S. 461, cites no authority. It seems, however, that the mortgagee 
 was seeking foreclosure, and that this action was consolidated with one 
 brought by the mortgagor for cancellation. Under these circumstances 
 there was a decree for cancellation. It is doubtful whether the court 
 would have made such a decree, had not the mortgagee been seeking 
 foreclosure. However this may be, it cannot be regarded as sufficient 
 authority to overturn the well-established rule embodied in the maxim 
 which I have quoted. There is nothing in the reference to Pomeroy's 
 Equity Jurisprudence which at all countenances relief under the cir- 
 cumstances of this case. The defendant has already agreed to terms 
 as favorable as would be imposed by a court of equity. 
 
 I think that A. M.. Basket has no standing in a court of equity, 
 and that, under the circumstances, he is entitled to no relief. To in- 
 terfere in his behalf would be giving aid and comfort to the moving 
 party in this illegal transaction. 
 
 SECTION 7.— SUNDAY CONTRACTS 
 
 EICHuMOND V. MOORE. 
 (Supreme Court of Illinois, 1883. 107 111. 429, 47 Am. Rep. 445.) 
 
 Wai^kER, J. * * * On the trial in the superior court the evi- 
 dence tended to prove the agreement was entered into on Sunday. 
 Defendant, on this evidence, asked the court to hold that the con- 
 tract was prohibited by our statute, and was void, but the superior 
 court refused to so hold, and the principal question discussed by 
 counsel is, whether, under our statute, such a contract is void, or 
 binding on the parties. 
 
 The provision, of our statute which it is claimed renders this con- 
 tract void, is the 261st section of our Criminal Code. The portion of 
 that section claimed to render the contract void, is this: "Whoever 
 disturbs the peace and good order of society by labor (works of ne- 
 cessity and charity excepted) or by amusements or diversion on Sun- 
 day, shall be fined not exceeding $25." It contains other exceptions, of 
 which is this: "Nor to prevent the due exercise of the rights of 
 conscience by whomsoever thinks proper to keep any other day as a 
 Sabbath." The common law did not prohibit the making of such 
 contracts. In Drury v. Defontaine, 1 Taunt. 136, Lord Mansfield, in 
 
Ch. 7) ILLEGALITY 343 
 
 delivering the opinion, said: "It does not appear that the common 
 law ever considered those contracts as void which were made on 
 Sunday." Judgment was accordingly given for the price of a horse 
 sold on that day. * * * fhis is the doctrine of all the cases, Eng^ 
 lish or American, with perhaps no more than one or two exceptions 
 that announce a different doctrine. The doctrine that contracts made 
 on Sunday are void, depends, therefore, alone on statutory, enact- 
 ments, and in the various states of the Union the statutes vary, in 
 language or substance, and the decisions of the different courts have 
 been based on the phraseology of their several statutes. The com- 
 mon law, on the other han^, seems always to have prohibited all ju- 
 dicial proceedings on Sunday. * * * , 
 
 St. 29 Car. II, c. 257, seems to be the basis of the enactments of 
 the various states of the Union. It is this : "That no tradesman, ar- 
 tificer, workman, laborer, or other person whatsoever, shall do or 
 exercise any worldly labor, business or work, on the Lord's day." 
 It contains exceptions, of which are works_ of necessity. A mere 
 glance at that and our statute will show that' they are materially dif- 
 ferent. That prohibits labor and business ; ours only prohibits labor 
 or amusement that disturbs the peace and good order of society. The 
 offense by that statute is the performance of labor or business, and 
 by ours it is the disturbance of the peace and good order of society. 
 The British statute is much more comprehensive in its purp>oses and 
 language than ours. Ours only prohibits labor that disturbs the 
 peace and good order of society, not naming business, whilst the 
 British statute renders the mere act of labor or business penal. * * * 
 
 But even under St. 29 Car. II the British courts have held that the 
 sale of a horse on Sunday, out of the usual course of trade, by the 
 vendor, was not void. * * * So the hiring of a laborer on Sunday 
 by a farmer for a year, was held legal and binding, and conferred a 
 settlement of the laborer in the parish. * * * That a baker might 
 prepare dinners for his customers on Sunday. * * * Thus it is 
 seen that the statute was rigidly construed, and the same is true of 
 most of the statutes of the various states of the Union. Here there 
 was nothing done to disturb the peace and good order of society, 
 which it is the primary purpose of the statute to prevent. Had this 
 contract been made in such a manner as to disturb the peace and 
 good order of society, or any portion of it, then a very different ques- 
 tion would have been presented, but one which need not be discussed 
 here. But there is no evidence that in the slightest degree tends to 
 prove any one was disturbed. * * * 
 
 Judgment [for the plaintiff] affirmed. 
 
344 CONTRACTS (P^rt 1 
 
 CHAPTER VIII 
 CAPACITY 
 
 Bectlon 
 
 1. Introduction. 
 
 2. Disaffirmance. 
 
 3. Eatification. 
 
 4. Contracts for Necessaries. 
 
 SECTION 1.— INTRODUCTION 
 
 There are certain classes of persons who, for one reason or an- 
 other, sustain a different relation to contracts entered into by 
 them from that which usually exists. The problem in this chapter 
 is to ascertain what rights are possessed by such persons. 
 
 There are five classes of persons who do not have full con- 
 tractual capacity ; that is, there are five classes of persons whose 
 rights growing out of contracts are somewhat different from the 
 rights which grow out of contracts generally. These are: (1) 
 Infants; (2) insane persons; (3) intoxicated persons; (4) mar- 
 ried women; and (5) corporations. 
 
 In the case of infants and insane persons, it has been thought that 
 these classes are deserving of a higher degree of protection against 
 the consequences of their acts than is necessary in the case of 
 adults. Statutes usually prescribe the age under which all per- 
 sons are to be deemed infants. The age of twenty-one is commonly 
 provided. In some states girls become of age at eighteen. These 
 age limits are more or less, arbitrary. Minors under the age of 
 twenty-one are, no doubt, in many cases, just as capable of looking 
 after their own affairs as an adult ; but a limit must be fixed some- 
 where, and the age of twenty-one is generally agreed upon as that 
 limit. 
 
 Intoxicated persons are accorded some additional protection, for 
 substantially the same reason that minors are protected. Married 
 women, at common law, were under a disability, not because it 
 was thought that they were entitled to additional protection, but 
 largely because of the notion of legal identity of husband and 
 wife. The incapacity of married women has quite generally been 
 removed by statute so that, as a general proposition, it may to- 
 day be said that married women in all states have full capacity to 
 contract. But in some states there yet remain traces of their for- 
 mer incapacity. 
 
 Corporations do not have full capacity, not because they are en- 
 titled to special protection, but because a corporation has no power 
 to contract, except the power given it by the state creating it. 
 The probabilities are that no corporation has been given freedom 
 to contract to the same extent as that possessed by individuals. 
 Generally we speak of contracts which a particular corporation 
 
Ch. 8) CAPACITY 345 
 
 does not have the power to make as ultra vires contracts ; that is, 
 contracts which are beyond or outside the power given it by the 
 act creating the corporation. The subject of ultra vires contracts 
 will be taken up in the chapters dealing with corporations. 
 
 To return to the inquiry as to the nature of the special rights ac- 
 corded to persons who do not have full contractual capacity, it is 
 more correct to think of these contracts, in the first instance, just 
 as we look upon the contracts of all other persons; that is, an 
 agreement between a minor and an adult, founded upon considera- 
 tion is a contract, just as other like agreements are contracts. Be- 
 ing an adult is not a requisite to the existence of a contract. A 
 minor may sue an adult for breach of contract with the same ef- 
 fect as if he were an adult, and in the same manner, except that 
 the infant must bring his action "by his next friend." 
 
 Incapacity, therefore, is not a circumstance which makes it im- 
 possible for one who is said to be incapacitated from making a con- 
 tract. Incapacity merely confers upon such persons certain weap- 
 ons of defense and of attack that cannot be used in a legal battle 
 between adults. But these weapons of defense and of attack are 
 not acquired until some act has been done. This act is called dis- 
 affirmance. Our first question, therefore, is to ascertain what con- 
 stitutes a disaffirmance and what are its consequences. ' 
 
 It should also be apparent that when a minor becomes of age 
 that he should have the power of making contracts entered into 
 by him while a minor, in all respects the same as if they had been 
 made after he attained his majority. Such an act is called ratifi- 
 cation. Our second question is: What circumstances amount to 
 a ratification? 
 
 Finally, it will be found that there are certain kinds of contracts 
 made by infants that are, in a sense, binding upon the infant; 
 that is, the courts will entertain a suit against an infant and enter 
 a judgment against him for the reasonable value of what he re- 
 ceived. These contracts are for necessaries. The following cases 
 present various problems relating to disaffirmance, ratification, and 
 to contracts for necessaries. 
 
 SECTION 2.— DISAFFIRMANCE 
 
 LEMMON V. BEEMAN. 
 (Supreme Court of Ohio, 18S8. 45 Ohio St. 505, 15 N. E. 476.)i 
 
 William J. Beeman, the plaintiff below, sued the defendant, James 
 F. Lemmon, as administrator, for money paid by him upon the pur- 
 chase of a certain stock of drugs of James Lemmon, the defendant's 
 decedent ; the plaintiflf being a minor at the time of the purchase, and 
 having elected, on becoming of age, to rescind the contract. On the 
 trial of the case, in the common pleas, the defendant excepted to a 
 part of the charge of the court, and took a bill of exceptions, setting 
 
346 CONTEACTS (Part 1 
 
 forth the evidence and the charge to which exception was taken. 
 The judgment was for the plaintiff, and was affirmed in the district 
 court. The part of the charge to which exception was taken is tp the 
 effect that, upon the facts of the case, the plaintiff could recover with- 
 out returning the property. 
 
 MiNSHALL, J. In 1881, Beeman, then a minor, purchased of James 
 Lemmon, then in life, but since deceased, a certain stock of drugs, for 
 which he paid at the time $400, the price agreed on between them. 
 The stock was in a store in the state of Illinois ; and the sale was 
 made by Lemmon, through his agent. Dr. Everett, who some time 
 before had sold the stock to Lemmon, and, as his agent, had con- 
 tinued in possession of the property, and conducted the business for 
 him. In a short time after the sale had been made to Beeman, the 
 goods were taken from him under an execution issued upon a judg- 
 ment against Everett, upon the claim of the creditor of the latter that 
 they belonged to him, and not to Lemmon. Beeman made an. effort 
 to recover the property; and in a short time after he became of age 
 (which was in 1882) disaffirmed the contract, presented a claim to 
 the administrator of Lemmon's estate for the money he had paid -on 
 the purchase, and demanded its return; which was refused and the 
 claim rejected. 
 
 ;No point is made as to the ownership of the goods; it is averred 
 in the petition, and must be taken as the fact, that they belonged to 
 the deceased at the time of the sale to Beeman. Again, there is no 
 room for a claim, nor is it made, that the property purchased was in 
 the nature of necessaries, and the contract, for such reason, incapa- 
 ble of being disaffirmed; nor is it claimed that the decedent or his 
 ■agent was in any way deceived as to the age of Beeman at the time the 
 sale was made. The only question presented upon the record is 
 whether, upon the facts as stated, the minor had the right, on becom- 
 ing of age, to rescind the contract, and recover the consideration he 
 had paid, without returning the property that had been sold and de- 
 livered to him. The true doctrine now seems to be that the contract 
 of an infant is in no case absolutely void. * * * 
 
 An infant may, as a general rule, disaffirm any contract into which 
 he has entered ; but, until he does so, the contract may be said to 
 subsist, capable of being made absolute by affirmance, or void by 
 disaffirmance of a contract by an infant, in the exercise of a right 
 similar to that of rescission in the case of an adult, the ground being 
 minority, independent of questions of fraud or mistake. But, in all 
 else, the general doctrine of rescission, is departed from no further 
 than is necessary to preserve the grounds upon which the privilege 
 is allowed; and is governed by the maxim that infancy is a shield, 
 and not a sword. He is not in all cases, as is an adult; required to 
 restore the opposite party to his former condition; for if he has lost 
 or squandered the property received by him in the transaction that he 
 rescinds, and so is unable to restore it, he may still disaffirm the con- 
 tract and recover back the consideration paid by him without making 
 restitution; for, if it were otherwise, his privilege would be of little 
 avail as shield against the inexperience and improvidence of youth. 
 But when the property received by him from the adult is in his pos- 
 session, or under his control, to permit him to rescind, without re- 
 turning it, or offering to do so, would be to permit him to use his priv- 
 ilege as a sword, rather than as a shield. 
 
Ch. 8) CAPACITY , 347 
 
 This view is supported, not only by reason, but by the greater 
 weight of authority. It was recognized and applied by this court in 
 Cresinger v. Welch's Lessee, 15 Ohio, 156, 45 Am. Dec. 565, decided 
 in 1846. The following is the language used by Mr. Tyler on the 
 subject : "If the contract has been executed by the adult, and the in- 
 fant has the property or consideration received at the time he attains 
 full age, and he then repudiates the transaction, he must return such 
 property or consideration, or its equivalent, to the adult party. If, 
 however, the infant has wasted or squandered the property or con- 
 sideration received during infancy, and on coming of age repudiates 
 the transaction, the adult party is remediless." He then adds that 
 "there are expressions of judges and text writers against this latter 
 proposition, but," he says, "the weight of authority is in harmony with 
 it, and is decidedly in accord with the. general principles of law for 
 the protection of infants." Tyler, Inf. (2d Ed.) 80. * * * 
 
 See, also, the case of Price v. Furman, 27 Vt. 268, 65 Am. Dec. 194, 
 and the notes thereto of Mr. Ewell, in his Leading Cases on Infancy 
 and Coverture, 1 19. After an exhaustive review of the cases, this 
 author says: "The true doctrine, and the one supported by the weight 
 of authority (at least in the United States), would seem to be that 
 when an infant disaffirms his executed contract, after arriving at 
 age, and seeks a recovery of the consideration moving from him, and 
 where the specific consideration received by him remains in his hands, 
 in specie, at the time of disaffirmance, and is capable of return,, it 
 must be returned by him; but if he has, during infancy, wasted, sold, 
 or otherwise disposed of, or ceased to possess the consideration, and 
 has none of it in his hands in kind on arriving at majority, he is not 
 liable therefor, and may disaffirm without tendering or accounting 
 for such consideration." 
 
 This statement of the law, supported, as it is, not only by the great- 
 er weight of authority, but also of reason, meets with our full ap- 
 proval. There is, however, much conflict in the decisions of "the dif- 
 ferent states; greater perhaps than upon any other question connect- 
 ed with the law of infancy ; * * * ^j^j- y^^ deem it unnecessary to 
 attempt to review or discuss them, for the very good reason, that it 
 has been done with thoroughness and ability by the authors just re- 
 ferred to. * * * 
 
 By his disaffirmance, the title has been restored to the estate of 
 the vendor, and the property, or its value, may be recovered by the 
 administrator, if it was wrongfully taken by the sherifiE under the 
 execution against Everett. Judgment affirmed. 
 
 JOHNSON V. NORTHWESTERN MUTUAL LIFE INS. CO. 
 
 (Supreme Court of Minnesota, 1894. 56 Minn. 365, 57 N. W. 934, 59 N. W. 992, 
 26 L. R. A. 187, 45 Am. St. Rep. 473.) 
 
 Buck, J. On the 25th day of October, 1888, the plaintiff, Johnson, 
 .-who was then a minor, seventeen years old, obtained a policy of in- 
 surance on his own life in the Northwestern Mutual Life Insurance 
 Company, this defendant, for the sum of $1,000, in consideration of 
 the payment by him of the premium of $23.29, and the semiannual 
 payment of a like sum to defendant on or before noon of the 25th 
 days of October and April thereafter in each and every year during 
 
348 CONTRACTS (Part 1 
 
 the continuance of the policy, viz. for 20 years. He made eight semi- 
 annual payments amounting to the total sum of $186.32, and im- 
 mediately thereafter plaintiff attained his majority, or full age of twen- 
 ty-one years; and thereupon, on December 21, 1892, he duly served 
 upon said defendant his notice in writing that he had arrived at his 
 majority, and that he elected to avoid the contract of insurance be- 
 tween the defendant and himself, and offered to return said policy to 
 the defendant, and demanded of the defendant that it return to him 
 the moneys which he had paid to the said company, amounting to the 
 sum above named, which the defendant refused to do, whereupon he 
 brought this action to recover of the defendant the amount so paid, 
 upon the ground that he was an infant at the time of the execution 
 of the said contract and during the times when he made the semi- 
 annual payments as herein stated. 
 
 The defendant interposed a demurrer to the plaintiff's complaint upon 
 the ground that the complaint did not state facts sufficient to consti- 
 tute a cause of action. The court below overruled the demurrer, and 
 the defendant appealed to this court. 
 
 In its memorandum the court below gave as its reason for overrul- 
 ing the demurrer that "this contract of insurance was not beneficial 
 to the insured; it was for the benefit of third persons." We do not 
 see how the court fell into such an error, for the plain provisions of 
 the pohcy show clearly that it was for the benefit of the plaintiff, for 
 it expressly provides that at the end of twenty years the policy is pay- 
 able to himself if living, and after ten years he could share the com- 
 pany's surplus, according to usage, at each distribution, until all con- 
 tributions to the 'surplus funds, fotmd in the course of making such 
 contributions to have arisen from the policy, should have been returned. 
 After three or more annual premiums were paid in cash, if he made 
 default in the payment of any preniium on the day it became due, he 
 was entitled to a paid-up nonparticipating policy for as many twentieth 
 parts of the original sum insured as there were complete annual premi- 
 ums so paid. There were also other benefits which he would receive, 
 which we need not further specify particularly. But, notwithstanding 
 the wrong reason given by the trial court for its decision, if the decision 
 was correct, it must stand. 
 
 The question of the proper construction of contracts between an 
 infant and an adult is frequently one of great difficulty. The power 
 which exists upon the part of an infant to insist upon the performance 
 of a contract which is for his benefit and to repudiate one which is 
 against his interest necessarily results in this condition of affairs, and 
 the only method for courts to deal with such questions is to apply so 
 far as possible the legal or equitable rules to each case as it may pre- 
 sent itself for judicial determination. The infirmities which are al- 
 ways attendant upon infancy are so many, and present themselves in 
 so many different phases, that the law must necessarilv throw its pro- 
 tection around them, and allow them to avoid acts which are obvi- 
 ously injurious, and which are brought about by their own imprudent 
 conduct, or by the evil designs of others. But there are contracts made 
 by infants which are valid and binding upon them, such as contracts 
 for necessaries. It is conceded, however, that this contract is not 
 one coming within the term "necessaries," and it must also be conceded 
 that there was no fraud on the part of the defendant whereby the 
 plaintiff was induced to enter into this contract of insurance. Nor does 
 
Ch. 8) CAPACITY 349 
 
 the question of delay on the part of plaintiff in disaffirming this con- 
 tract enter into the case for discussion or for determination. If he 
 had a right to disaffirm the contract at all, it was done promptly, and 
 without delay, after he attained his majority. Was this contract void 
 or voidable? We are of the opinion that it was not void. It was for 
 the benefit of the infant. That is to say, construing it in accordance 
 with the well-understood business principles and practical experience 
 of the age, it should be deemed one beneficial to him. Like all busi- 
 ness ventures, even among adults, it might prove disastrous or it 
 might be of benefit to the plaintiff. It was the ordinary policy of in- 
 surance upon the usual teirms, and in a solvent company. At least no 
 suggestion is made to the contrary. 
 
 It did not obtain the money of the plaintiff, it is true, through de- 
 ceit, fraud, or concealment of any fact, nor in any way impose upon 
 the infant, but it did obtain and receive a fund belonging to him which 
 it was not necessary for him to part with. This was done at a time 
 when the law adjudges him incapable of determining whether it was 
 for his benefit or not. To leave this question of making contracts to 
 the immature judgment of infants who are easily influenced or misled, 
 and frequently to their great injury, and then have the courts con- 
 tinually called upon to decide whether the contract was of such a ben- 
 eficial nature to the inf2mt that it might be enforced against him, would 
 lead to an endless variety of decisions. The interest of the infant 
 will be best subserved by holding such contracts voidable. It is a rule 
 which can be appropriately applied in this case, for the plaintiff has 
 performed all that can be reasonably asked of him to do. We have 
 examined many of the authorities cited by the counsel for the appel- 
 lant in their brief, but we are of the opinion that the rule heretofore 
 laid down in this court is the correct one to follow, and is applicable 
 to this case. (Citing cases.) 
 
 The order appealed from is affirmed. 
 
 On Reargument. 
 
 Mitchell, J. This case was argued and decided at the last term 
 of this court. A reargument was granted for the reasons that al- 
 though the amount was small the legal principles involved were im- 
 portant ; the time permitted for argument under our rules was brief ; 
 the case was decided near the end of the term, without, perhaps, the 
 degree of consideration that its importance demanded ; and, on further 
 reflection, we are not satisfied that our decision was correct. 
 
 The former opinion laid down the following propositions, to which 
 we still adhere: (1) That the contract of insurance was of benefit to 
 the infant himself, and was not a contract for the benefit of third 
 parties. (2) The contract, so far as appears on its face, was the usual 
 and ordinary one for life insurance, on the customary terms, and was a 
 fair and reasonable one, and free from any fraud, unfairness, or undue 
 influence on part of the defendant, unless the contrary is to be pre- 
 sumed from the fact that it was made with the infant. 
 
 It is not correct, however, to say that the plaintiff has received no 
 benefit from the contract, or that the defendant has parted with noth- 
 ing of value under it. True, the plaintiff has received no money, and 
 the defendant has paid none to the plaintiff ; but the life of the former 
 was insured for four years, and if he had died during that time the 
 defendant would have had to pay the amount of the policy to his es- 
 
^50 CONTRACTS (Part 1 
 
 tate. The defendant carried the risk all that time, and this is the 
 essence of the contract of insurance. Neither does it follow that the 
 risk has cost the defendant nothing in money because plaintiff himself 
 was not one of those insured who died. The case is therefore one of 
 a voidable or rescindable contract of an infant, partly performed on 
 both sides, the benefits of which the infant has enjoyed, but which he 
 cannot return, and where there is no charge of fraud, unfairness, or 
 undue influence on the part of the other party, unless, as already sug- 
 gested, it is to be presumed from the fact that the contract was made 
 with an infant. 
 
 The question is : Can the plaintiff recover back what he has paid, 
 assuming that the contract was in all respects fair and reasonable? 
 The opinion heretofore filed held that he can. Without taking time to 
 cite or discuss any of our former decisions, it is sufficient to say that 
 none of them commit this court to such a doctrine. That such a rule 
 goes further than is necessary for the protection of the infant, and 
 v/ould often work gross injustice to those dealing with him, is, to our 
 minds, clear. Suppose a minor engaged in agriculture should hire a 
 man to work on his farm, and pay him reasonable wages for his 
 services. According to this rule the minor might recover back what he 
 paid, although retaining and enjoying the fruits of the other man's 
 labor. Or, again, suppose a man engaged in mercantile business, with 
 a capital of $5,000, should, from time to time, buy and pay for $100,000 
 worth of goods, in the aggregate, which he had sold, and had got his 
 pay. According to this doctrine he could recover back the $100,000 
 which he had paid to the various parties from whom he had bought the 
 goods. Not only would such a rule work great injustice to others, but 
 it would be positively injurious to the infant himself. The policy of 
 tlie law is to shield or protect the infant, and not to debar him from the 
 privilege of contracting. 
 
 But, if the Tviie suggested is to obtain, there is no footing on which 
 an adult can deal with him, except for necessaries. Nobody could or 
 would do any business with him. He could not get his life insured. 
 He could not insure his property against fire. He could not hire serv- 
 ants to till his farm. He could not improve or keep up the land or 
 buildings. In short, however advantageous other contracts might be to 
 him, or however much capital he might have, he could do absolutel}' 
 nothing, except to buy necessaries, because nobody would dare to con- 
 tract with him for anything else. 
 
 The following propositions are well settled, everywhere, as to the re- 
 scindable contracts of an infant, and in that category we include all 
 contracts except for necessaries : 
 
 First. That, in so far as the contract is executory on part of an 
 infant, he may always interpose his infancy as a defense to an action 
 for its enforcement. He can always use his infancy as a shield. 
 
 Second. If the contract has been wholly or partly performed on his 
 part, but is wholly executory on part of the other party, the minor 
 having received no benefits from it, he may recover back what he has 
 paid or parted with. 
 
 Third. Where the contract has been wholly or partly performed on 
 both sides, the infant may always rescind, and recover back what he 
 has paid, upon restoring what he has received. 
 
 Fourth. A minor, on arriving at full age, may avoid a conveyance of 
 his real estate without being required to place the grantee in s-yatu quo, 
 
Ch. 8) CAPACITY 351 
 
 although a different rule has sometimes been adopted by courts of 
 equity when the former infant has applied to them for aid in avoiding 
 his deeds. Whether this distinction between conveyances of real prop- 
 erty and personal contracts is founded on a technical rule, or upon con- 
 siderations of policy growing out of the difference between real and 
 personal property, it is not necessary here to consider. 
 
 Fifth. Where the contract has been wholly or partly performed on 
 both sides, the infant, if he sues to recover back what he has paid, must 
 always restore what he has received, in so far as he still retains it in 
 specie. 
 
 Sixth. The courts will always grant an infant relief where the other 
 party has been guilty of fraud or undue influence. As to what would 
 constitute a sufficient ground for relief under this head, and what relief 
 the courts would grant in such cases, we will refer to hereafter. 
 
 But suppose that the contract is free from all elements of fraud, un- 
 fairness, or overreaching, and the infant has enjoyed the benefits of it, 
 but has spent or disposed of what he has received, or the benefits re- 
 ceived are, as in this case, of such a nature that they cannot be restored. 
 Can he recover back what he has paid? It is well settled in England 
 that he cannot. This was held in the leading case of Holmes v. Blogg, 
 8 Taunt. 508, approved as late as 1890 in Valentini v. Canali, 24 Q. B. 
 Div. 166. Some obiter remarks of the Chief Justice in Holmes v. Blogg, 
 to the effect that an infant could never recover back money voluntarily 
 paid, were too broad, and have often been disapproved — a fact which 
 has sometimes led to the erroneous impression that the case itself has 
 been overruled. Corpe v. Overton, 10 Bing. 252 (decided by the same 
 court), held that the infant might recover back what he had voluntarily 
 paid, but on the ground that the contract in that case remained wholly 
 executory on part of the other party, and hence tlie infant had never 
 enjoyed its benefits. 
 
 In Chitty on Contracts (volume 1, p. 222), the law is stated in ac- 
 cordance with the decision in Holmes v. Blogg. Leake, a most accu- 
 rate writer, in his work on Contracts (page 553), sums up the law to the 
 same effect. In this country. Chancellor Kent (2 Kent, Comm. 240), 
 and Reeves in his work on Domestic Relations (chapters 2 and 3, tit. 
 "Parent and Child"), state the law in exact accordance with the 
 "English rule." Parsons in his work on Contracts (volume 1, p. 322), 
 undoubtedly states the law too broadly, in omitting the qualification, 
 "and enjoys the benefit of it." 
 
 At least a respectable minority of the American decisions are in 
 full accord with what we have termed the "English rule." See, among 
 others, Riley v. Mallory, 33 Conn. 206; Adams v. Beall, 67 Md. 53, 8 
 Atl. 664, 1 Am. St. Rep. 379; Breed v. Judd, 1 Gray (Mass.) 455. But 
 many — perhaps a majority — of the American decisions, apparently 
 thinking that the English rule does not sufficiently protect the infant 
 have modified it ; and some of them seem to have wholly repudiated it, 
 and to hold that although the contract was in all respects fair and rea- 
 sonable, and the infant had enjoyed the benefits of it, yet if the infant 
 had spent or parted with what he had received, or if the benefits of it 
 were of such a nature that they could not be restored, still he might 
 recover back what he had paid. The problem with the courts seems to 
 have been, on the one hand, to protect the infant from the improvidence 
 incident to his youth and inexperience, and how, on the other hand, to 
 compel him to conform to the principles of common honesty. The 
 
352 CONTRACTS (Part 1 
 
 result is that the American authorities— at least the later ones— -have 
 fallen into such a condition of conflict and confusion that it is difficult 
 to draw from them any definite or uniform rule. 
 
 The dissatisfaction with what we have termed the "English rule" 
 seems to be generally based upon the idea that the courts would not 
 grant an infant relief, on the ground of fraud or undue influence, except 
 where they would grant it to an adult on the same grounds, and then 
 only on the same conditions. Many of the cases, we admit, would seem 
 to support this idea. If such were the law, it is obvious that there 
 would be many cases where it would furnish no adequate protection to 
 the infant. Cases may be readily imagined where an infant may have 
 paid for an article several times more than it was worth, or where the 
 contract was of an improvident character, calculated to result in the 
 squandering of his estate, and that fact was known to the other party ; 
 and yet if he was an adult the court would grant him no relief, but 
 leave him to stand the consequences of his own foolish bargain. But to 
 measure the right of an infant in such cases by the same rule that 
 would be applied in the case of an adult would be to fail to give due 
 weight to the disparity between the adult and the infant, or to apply 
 the proper standard of fair dealing due from the former to the latter. 
 Even as between adults, when a transaction is assailed on the ground 
 of fraud, undue influence, etc., their disparity in intelligence and ex- 
 periehce, or in any other respect which gives one an ascendency over 
 the other, or tends to prevent the latter from exercising an intelligent 
 and unbiased judgment, is always a most vital consideration with the 
 courts. Where a contract is improvident and unfair, courts of equity 
 have frequently inferred fraud from the mere disparity of the parties. 
 
 If this is true as to adults, the rule ought certainly to be applied with 
 still greater liberality in favor of infants, whom the law deems so in- 
 competent to care for themselves that it holds- them incapable of bind- 
 ing themselves by contract, except for necessaries. In view of this 
 disparity of the parties, thus recognized by law, every one who assumes 
 to contract with an infant should be held to the utmost good faith and 
 fair dealing. We further think that this disparity is such as to raise 
 a presumption against the fairness of the contract, and to cast upon 
 the other party the burden of proving that it was a fair and reasonable 
 one, and free from any fraud, undue influence or overreaching. 
 
 A similar principle applies to all the relations, where, from disparity 
 of years, intellect, or knowledge, one of the parties to the contract has 
 an ascendency which prevents the other from exercising an unbiased 
 judgnient — as, for example, parent and child, husband and wife, 
 guardian and ward. It is true that the mere fact that a person is 
 dealing with an infant creates no "fiduciary relation" between them, in 
 the proper sense of the term, such as exists between guardian and 
 ward ; but we think that he who deals with an infant should be held to 
 substantially the same standard of fair dealing, and be charged with the 
 burden of proving that the contract was in all respects fair and rea- 
 sonable, and not tainted with any fraud, undue influence, or over- 
 reaching on his part. Of course, in this as in all other cases, the degree 
 of disparity between the parties, in age and mental capacity, would be 
 an important consideration. Moreover, if the contract was not in all 
 respects fair and reasonable, the extent to which the infant should 
 recover would depend on the nature and extent of the element of un- 
 fairness which characterized the transaction. \ 
 
Ch. 8) CAPACITY 353 
 
 If the party dealing with the infant was guilty of actvial fraud or 
 bad faith, we think the infant should be allowed to recover back all he 
 had paid, without making restitution, except, of course, to the extent 
 to which he still retained in specie what he had received. Such a case 
 would be a contract essentially improvident, calculated to facilitate the 
 squandering the infant's estate, and which the other party knew or 
 ought to have known to be such, for to make such a contract at all 
 with an infant would be fraud. But if the contract was free from any 
 fraud or bad faith, and otherwise reasonable, except that the price paid 
 by the infant was in excess of the value of what he received, his re- 
 covery should be limited to the difference between what he paid and 
 what he received. Such cases as Medbury v. Watrous, 7 Hill (N. Y.) 
 110, 16 N. Y. Com. Law, 529, Medbury v. Watson, 6 Mete. (Mass.) 
 246, 39 Am. Dec. 726, Sparman v. Keim, 83 N. Y. 245, and Heath v. 
 Stevens, 48 N. H. 251, really proceed upon this principle, although they 
 may not distinctly announce it. The objections to this rule' are, in our 
 opinion, largely imaginary, for we are confident that in practice it can 
 and will be applied by courts and juries so as to work out substantial 
 justice. 
 
 Our conclusion is that where the personal contract of an infant, 
 beneficial to himself, has been wholly or partly executed on both 
 sides, but the infant has disposed of what he has • received, or the 
 benefits recovered [received] by hifn are such that they cannot be re- 
 stored, he cannot recover back what he has paid, if the contract was 
 a fair and reasonable one, and free from any fraud or bad faith on 
 part of the other party, but that the burden is on the other party to 
 prove that such was the character of the contract; that, if the con- 
 tract involved the element of actual fraud or bad faith, the infant 
 may recover all he paid or parted with, but if the contract involved 
 no such elements, and was otherwise reasonable and fair, except that 
 what the infant paid was in excess of the value of what he received, 
 his recovery should be limited to such excess. It seems to us that this 
 will sufficiently protect the infant, and at the same time do justice to 
 the other party. Of course, in speaking of contracts beneficial to 
 the infant, we refer to those that are deemed such in contemplation 
 of law. 
 
 Applying these rules to the case in hand, we add that life insurance 
 in a solvent company, at the ordinary and usual rates, for an amount 
 reasonably commensurate with the infant's estate, or his financial abil- 
 ity to carry it, is a provident, fair, and reasonable contract, and one 
 which it is entirely prdper for an insurance company to make with 
 him, assuming that it practices no fraud or other unlawful means to 
 secure it; and if such should appear to be the character of this con- 
 tract the plaintiff could not recover the premiums which he has paid 
 in, so far as they were intended to cover the current annual risk as- 
 sumed by the company under its policy. 
 
 But it appears from the face of the policy that these premiums 
 covered something more than this. The policy provides that after 
 payment of three or more annual premiums the insured will be en- 
 titled to a paid-up, nonparticipating policy for as many twentieths 
 of the original sum insured ($1,000) as there have been annual pre- 
 miums so paid. The complaint alleges the payment of four annual 
 premiums. Hence, the plaintiff was entitled, upon surrender of the 
 B.& B.Bus.Law— 23 
 
354 CONTRACTS (Part 1 
 
 original policy, to a paid-up, nonparticipating policy for $200; and 
 it therefore seems to us, that, having elected to rescind, he was entitled 
 to recover back, in any event, the present cash "surrender" value of 
 such a policy. For this reason, as well as that the burden was on the 
 defendant to prove the fair and honest, character of the contract, the 
 demurrer to the complaint was properly overruled. The result ar- 
 rived at in the former opinion was therefore correct, and is adhered 
 to, although on somewhat different grounds. 
 Order affirmed. 
 
 KiCE V. BOYER. 
 (Supreme Court of Indiana, 18S6. 108 Ind. 472, 9 ^\ E. 420, 58 Am. Rep. 53.) 
 
 Elliott, C. J. It is alleged in the complaint of the appellant that 
 the appellee, with intent to defraud the appellant, falsely and fraud- 
 ulently represented that he was 21 years of age; that, relying on this 
 representation, the appellant was induced to sell and deliver to th.e 
 appellee, on one year's credit, a buggy and a set of harness ; that the 
 appellee, in payment for the property, deUvered to appellant, a bug- 
 gy, and executed to him a promissory note, payable one year after 
 date, and also executed a chattel mortgage to secure the payment of 
 the note; that the appellee's representation was untrue; that he had 
 not yet attained the age of 21 years; that, on account of appellee's 
 nonage, the note cannot be enforced ; that the appellee avoided his 
 note and mortgage by a sale of the mortgaged property, and repudi- 
 ates and refuses to be bound by his contract in reference thereto ; that 
 the appellant brings into court the note and mortgage executed to him. 
 and tenders them to the appellee. Prayer for judgment for the value 
 of the property delivered to appellee. To this complaint a demurrer 
 was sustained, and error is assigned on that ruling. 
 
 The appellee's counsel defend the ruling principally upon the 
 ground that the action was prematurely brought, inasmuch as it can- 
 not be determined that any injury will be done the appellant until the 
 expiration of the year fixed for the payment of the property pur- 
 chased of the appellant. We agree with counsel that the contract is 
 voidable, not void, and that the appellee might have performed it 
 notwithstanding his nonage, if he had so elected. * * * 
 
 But this principle is not broad enough to meet the averment of the 
 complaint that the appellee has repudiated his contract, and refuses 
 to be bound by it. As the authorities relied on by counsel do not fully 
 cover the case, further investigation is necessary, and the first step 
 in this investigation is to ascertain and declare the effect of the in- 
 fant's repudiation of his contract. 
 
 In Shrock v. Crowl, 83 Ind. 243, the holding in Mustard v. Wohl- 
 ford, IS Grat. (Va.) 329, 76 Am. Dec. 209, that, where a voidable act 
 of an infant is disaffirmed, it avoids the contract ab initio, is fully ap- 
 proved. If this is the law, then, when the appellee repudiated his con- 
 tract, he destroyed it for all purposes. It no longer bound him, nor 
 could he take any benefit from it. If the contract was destroyed 
 back to the beginning, it ceased to be operative for anybody's benefit. 
 We think the principle of law is correctly stated in the cases to which 
 we have referred, and that the conclusion we have stated is the log- 
 ical, and, indeed, inevitable, sequence of that principle. * * * 
 
 An infant may repudiate a contract respecting personal property, 
 
Ch. 8) CAPACITY 355 
 
 during nonage. * * * The repudiation by the appellee was there- 
 fore a complete avoidance of the contract, effectually putting an end 
 to its existence, both as to him, and as to the adult with whom he 
 contracted. 
 
 It is evident, from what we have said, that the ground taken by 
 the appellee's counsel is not tenable;' for, when their client repudiated 
 the contract, as it is alleged he did do, it ceased to be effective for any 
 purpose. * * * 
 
 Infants are, in many cases, liable for torts committed by them, but 
 they are not liable where the wrong is connected with a contract, and 
 the result of the judgment is to indirectly enforce the contract. Judge 
 Cooley says : "If the wrong grows out of contract relations, and the 
 real injury consists in the non-performance of the contract into which 
 the party wronged has entered with an infant, the law will not permit 
 the fonner to enforce the contract indirectly by counting on the in- 
 fant's neglect to perform it, or omission of duty under it, as a tort." 
 Cooley, Torts, 116. In another place the same author says: "So, if an 
 infant effects a sale by means of deception and fraud, his infancy pro- 
 tects him." Id., 107. Addison, following the English "cases, says an 
 infant is not liable "if the cause of action is grounded on a matter of 
 contract with the infant, and constitutes a breach of contract a^ well 
 as a tort." Addison, Torts, par. 1314. 
 
 Upon this principle it has been held in some of the cases that an 
 infant is not liable for the value of property obtained by means of 
 false representations. * * * It is also generally held that an infant 
 is not estopped by a false representation as to his age ; but this doctrine 
 rests upon the principle that one under the disability of coverture or 
 infancy has no power to remove the disability by a representation. 
 
 * :{: ^ • 
 
 It is evident, from this brief reference to the authorities, that it is 
 not easy to extract a principle that will supply satisfactory reasons for 
 the solution of the difficulty here presented. It is to be expected that 
 we should find, as we do, stubborn conflict in the authorities as to the 
 question here directly presented, namely, whether an action will lie 
 against an infant for falsely representing himself to be of full age. 
 
 * * * 
 
 Our judgment, however, is that, where the infant does fraudulently 
 and falsely represent that he is of- full age, he is liable in an action ex 
 delicto for the injury resulting from his tort. This result does not 
 involve a violation of the principle that an infant is not liable where the 
 consequence would be an indirect enforcement of his contract; for 
 the recovery is not upon the contract, as that is treated as of no ef- 
 fect, nor is he made to pay the contract price of the article purchased 
 by him, as he is only held to answer for the actual loss caused by his 
 fraud. In holding him responsible for the consequences of his wrong, 
 an equitable conclusion is reached, and one which strictly harmonizes 
 with the general doctrine that an infant is liable for his torts. Nor does 
 our conclusion invalidate the doctrine that an infant has no power to 
 deny his disability ; for it concedes this, but affirms that he must an- 
 swer for his positive fraud. 
 
 Our conclusion that an infant is liable in tort for the actual loss 
 resulting from a false and fraudulent representation of his age is well 
 sustained by authority, although, as we have said, there is a fierce con- 
 flict, and it is strongly entrenched in principle. * * * 
 
356 CONTRACTS (Part 1 
 
 Aside from mere personal torts, it is scarcely possible to conceive a 
 tort not in some way connected with a contract, and yet all the au- 
 thorities agree that the liability of infants is not confined to mere per- 
 sonal torts. * * * The cases certainly do agree — ^it is, indeed, 
 difficult, if not impossible, to perceive how it could be otherwise — that, 
 although there may be some connection between the contract and the 
 wrong, the infant may be liable for his tort. It seems to us that the 
 only logical and defensible conclusion is that he is liable, to the extent 
 of the loss actually sustained, for his tort, where a recovery can be 
 had without giving effect to his contract. The test, and the only 
 satisfactory test, is supplied by the answer to the question : Can the in- 
 fant be held liable without directly or indirectly enforcing his promise ? 
 
 There is no enforcement of a promise where an infant, who has been 
 guilty of a positive fraud, is made to answer for the actual loss his 
 wrong has caused to one who has dealt with him in good faith, and has 
 exercised due diligence ; nor does such a rule open the way for design- 
 ing men to take advantage of an infant, for it holds one who con- 
 tracts with an infant to the exercise of good faith and reasonable dil- 
 igence, and does not enable him to make any profit out of the trans- 
 action with the infant, for it allows him only comj>ensation for the 
 actual loss sustained. It does not permit him to make any profit out 
 of an executory contract, but it simply makes good his actual loss. 
 
 It is worthy of observation that, in the cases which hold that an in- 
 fant's representation will not estop him to deny his disability, it is 
 generally declared that he may, nevertheless, be held liable for his 
 tort. It may often happen that the age and appearance of the infant 
 will be such as to preclude a recovery for a fraud, because reasonable 
 diligence, which is exacted in all cases, would warn the plaintiff of the 
 nonage of the defendant. On tl^e other hand, the infant may be in years 
 almost of full age, and in appearance entirely so, and thus deceive the 
 most diligent by his representations. Suppose a minor who is really 
 20 years and 10 months old, but in appearance a man of full age, should 
 obtain goods by falsely and fraudulently representing that he is 21 
 years of age, ought he not, on the plainest principles of natural jus- 
 tice, to be held liable, not on his contract, but for the loss occasioned 
 by his fraud? * * * 
 
 Judgment reversed, with instructions to overrule the demurrer to 
 the complaint. 
 
 SECTION 3.— RATIFICATION 
 
 HOBBS et al v. HINTON FOUNDRr, MACHINE & PLUMBING CO. 
 
 (Supreme Court of Appeals of West Virginia, 1914. 74 W. Va 443 
 82 S. E. 267, Ann. Cas. 1917D, 410.) 
 
 Suit by T. E. Hobbs and others against the Hinton Foundry, Ma- 
 chine & Plumbing Company and others. From a decree for plain- 
 tiffs, defendants appeal. 
 
 Lynch, J. Does one who, while a minor, purchases personal prop- 
 erty, and thereafter and for three months next ensuing his majority 
 uses and operates it in the conduct of a foundry and plumbing busi- 
 ness, taking unto himself the profits, if any, arising therefrom, ad- 
 
Ch. 8) CAPACITY 357 
 
 vertises it for sale, but sells no part of it, pays part of the considera- 
 tion therefor and a rental on a building leased to him by the seller, 
 thereby ratify his contract, and bind himself to pay the residue of the 
 consideration? Or may he, notwithstanding these acts on his part, 
 subsequently disaffirm the contract, and thereby exonerate himself from 
 further liabihty thereon? If so, does his disaffirmance operate to dis- 
 charge the lien of a deed of trust by himself and wife and a brother 
 to secure the payment of the consideration and rental payable under 
 the contract and leasehold? A proper answer to each of these in- 
 quiries determines the issues involved in this cause. 
 
 On April 17, 1911, T. E. Hobbs, then a minor, purchased of the 
 Hinton Foundry, Machine & Plumbing Company its machinery and 
 plumbing outfit. The consideration therefor and the rental on the 
 building in which the property was then located and used, was secured 
 by a deed of trust by plaintiff, his wife (also then a minor), and his 
 brother on the machinery and appliances and on undivided interests in 
 a lot in the town of Hinton; plaintiff alone signing the note thus se- 
 cured. 
 
 From the date of the purchase until September 1, 1911, jplaintiff used 
 the property in the operation of a general foundry and plumbing busi- 
 ness, contracting for work appertaining to such business, and taking 
 to himself the profits, if any, arising from the conduct thereof ; he 
 also paid part of the original purchase price, and the rental as it be- 
 came due, advertised part of the property for sale, but did not sell any 
 of it, and in addition purchased and operated with it other like ma- 
 chinery and appliances. But on September 1, 1911, by notice in writ- 
 ing duly served, he notified defendant of his disaffirmance of the con- 
 tract, offered to return the property purchased of it, and demanded 
 a cancellation of the note and trust deed. 
 
 With few exceptions not necessary to be noted here, the contracts 
 of infants are voidable, and not void. * * * gy^ whether an in- 
 fant should, within a reasonable time after arriving at full age, do some 
 affirmative act indicative of an intention on his part to repudiate, we 
 are not now called upon to decide, because of plaintiff's notice and 
 offer, though whether he acted within a reasonable time does become an 
 important inquiry in connection with the facts recited, which, accord- 
 ing to defendant's contention, operated as a ratification prior to the 
 service of such notice. 
 
 While ratification is, generally speaking, a question of intention, it 
 is not essential that the purpose to ratify shall be expressly declared. 
 It may be, and ordinarily is, inferred from the free and voluntary acts 
 and conduct of the party sought to be charged, although at the time 
 he may not have had in mind any definite idea or purpose of ratifica- 
 tion. 
 
 But, to effectuate a ratification, his acts, words, or conduct must be 
 inconsistent with any other purpose, as where, after arriving at age 
 he retains for an unreasonable length of time the property purchased 
 by him while in infancy, or uses it as his own, or exercises such acts 
 of ownership over it as clearly evinces a purpose to ratify. * * * 
 Whether he acts within a reasonable time after full age, and, if he does, 
 what acts constitute a confirmation of contracts made in infancy, are 
 questions of fact, to be determined in the usual manner either by a 
 jury under proper instruction or by the chancellor when properly 
 submitted to him. * * * 
 
358 X CONTRACTS (Parti 
 
 While much depends upon the promptitude with which acts are per- 
 formed by way of ratification or disaffirmance after attaining his ma- 
 jority no period of time generally applicable in all cases has been, 
 or in the nature of things can ever be, definitely fixed. The acts and 
 conduct relied on for confirmation, and the reasonableness of the time, 
 must be determined from the facts and circumstances of each particu- 
 lar case, for what may be a reasonable time, and what a ratification, 
 under some conditions, may be unreasonable and insufficient under 
 other conditions. 
 
 An infant s contract wholly consummated by him either before or 
 after full legal age requires more prompt action and a less degree of 
 confirmatory conduct than one not fully performed by him, as in this 
 case, for as to plaintiff the contract remains executory, though executed 
 by defendant. A like distinction is noted and upheld between sales 
 to infants and sales by them, and between conveyances of their lands 
 and purchases of land by them. For if, after full age, one, who while 
 a minor sells lands belonging to him, stands by an unreasonable length 
 of' time, and, without notice or warning of an intention to repudiate 
 his contract or deed, sees his vendee make valuable improvements 
 on the land he will thereby estop himself from the assertion of a 
 right to annul the contract or deed and to demand a rescission and 
 reconveyance. * * * 
 
 Did plaintiff act, or fail to act, within a reasonable time after June 
 3, 1911? Or did he, by his acts and conduct thereafter and before 
 notice to the defendant, preclude right to disaffirm? These are ques- 
 tions so inseparable that both may to some extent be properly treated 
 and answered together. In Hook v. Donaldson, 9 Lea (Tenn.) 56, a 
 delay of four years was held unreasonable, while in Gaskins v. Allen, 
 137 N. C. 426, 49 S. E. 919, a delay of three years was deemed rea- 
 sonable. In Green v. Wilding, 59 Iowa, 679, 13 N. W. 761, 44 Am. 
 Rep. 696, and Kline v. Beebe, 6 Conn. 494, a delay of four years was 
 held unreasonable. But payment, four months after full age, of part 
 of the consideration for land purchased while an infant does not alone 
 imply a ratification. Land Co. v. Sandford (Tex. Civ. App.) 24 S. 
 W. 587. Acknowledgment of the validity of the debt and oral promise 
 to pay it are insufficient. Whitney v. Dutch, 14 Mass. 457, 7 Am. Dec. 
 229; Hinely v. Margaritz, 3 Pa. 428; Hatch v. Hatch, 60 Vt. 160, 13 
 Atl. 791. Nor does part payment of the debt alone constitute a legal 
 affirmance. Kendrick v. Neisz, 17 Colo. 508, 30 Pac. 245. See, also, 
 Barnaby v. Barnaby, 1 Pick. (Mass.) 221, where, after majority, he 
 paid rent arrearages previously due. Mere inactivity is insufficient. 
 Thomas v. Pullis, 56 Mo. 211. 
 
 These cases sustain ratification of contracts made in infancy, where, 
 after majority, he continued in the possession, use, and enjoyment and 
 exercising acts of ownership inconsistent with an intention to disaffirm : 
 Boody v. McKenney, 23 Me. 517, where it seems the property was 
 personalty, only a small part of which came into his possession after 
 majority, but which he retained for three years and then sold, the res- 
 idue having been consumed or otherwise disposed of during his minor- 
 ity; Ellis V. Alford, 64 Miss. 8, 1 South. 155, where an infant ex- 
 changed his for other lands which he occupied and used for nine years 
 after full age; Luce v. Jestrab, 12 N. D. 548, 97 N. W. 848', where 
 an infant purchased and for nine months after majority retained pos- 
 session of a team of horses, using them, and twice promised to pay 
 
Ch. 8) CAPACITY 359 
 
 the note executed by him therefor; Lawson v. Lovejoy, 8 Me. (8 
 Greenl.) 405, 23 Am. Dec. 526, where the facts were similar to those 
 in the Luce Case; Robinson v. Hoskins, 17 Ky. (14 Bush) 393, where 
 infant purchased a horse, which, after majority, he sold and appropri- 
 ated to use the proceeds thereof; Boyden v. Boyden, 50 Mass. (9 
 Mete.) -519, where the infant purchased goods (not necessaries) on 
 credit, and retained and used them an unreasonable time (duration not 
 noted), without offer to restore or notice of disaffirmance; Chesire v. 
 Barrett, 4 McCord (S. C.) 241, 17 Am. Dec. 735, where infant pur- 
 chased a horse, and sold it after his majority. A suit for specific per- 
 formance is a ratification. Carrell v. Potter, 23 Mich. 377. 
 
 But while, in case under consideration, the acts on which defendant 
 relies for confirmation consist only in the retention by plaintiff for 
 three months after full age of the property sold to him, and the benefi- 
 cial use and profits derived from it during that period, payment of part 
 of the consideration therefor and of rent accruing under the lease, and 
 offering the property for sale but not selling or otherwise disposing 
 of it, cannot so far operate to defendant's prejudipe as to warrant the 
 conclusion either that plaintiff delayed his disaffirmance an unreason- 
 able length of time, or that his acts authorized the inference of an 
 intention to ratify or amounted to a ratification of the contract, es- 
 pecially since it appears, at least it is not denied or alleged, that plain- 
 tiff offered to restore to defendant the property, which, so far as dis- 
 closed, virtually remains in the same condition as at the date of the 
 contract. And, while by the decree complained of the defendant was 
 required to refund part of the consideration paid to it, plaintiff was vir- 
 tually required to pay defendant the rent due under the leasehold to 
 September 1, 1911, the date of plaintiff's notice of disaffirmance. 
 
 That a contract made by an infant may be repudiated by him after 
 he attains his majority is, of course, elementary. It is not questioned 
 here. Nor is his right to disaffirm within a reasonable time after his 
 majority. Having that right, and exercising it, as he did, within three 
 months from the time he could legally act by way of confirmation or 
 repudiation, we cannot say the time was unreasonably prolonged, or 
 that plaintiff's acts indicated an intention on his part to ratify his pur- 
 chase. This conclusion is reached without any intention to assert or 
 deny the application to the facts of this case of clause 2, § 1, c. 98, 
 Code, cited but not argued. * * * 
 
 Finding no error, we affirm the decree from which defendant has 
 appealed. 
 
 SECTION 4.— CONTRACTS FOR NECESSARIES 
 
 MAULDIN V. SOUTHERN SHORTHAND & BUSINESS UNIVERSITY. 
 (Court of Appeals of Georgia, 1908. 3 Ga. App. 800, 60 S. E. 358.) 
 
 Powell, J. Dora Mauldin, of Tunnell Hill, Ga., a 17 year old girl, 
 an orphan, whose whole estate consisted of about $75, came to At- 
 lanta, and over the objection of her guardian made a contract with the 
 defendant to take a five-months' course in stenography for $35, which 
 at her request her guardian paid out of her moneys in his hands. Being 
 disappointed in her expectations of being lodged and cared for by 
 
360 CONTRACTS (Part 1 
 
 relatives while in Atlanta, she withiii about five days, notified the 
 president of the business school of her inability to take the course, and 
 requested a return of her tuition ; and this he refused. She brought 
 suit. The defendant set up that her contract provided that the tui- 
 tion should not be refunded except in certain providential contingen- 
 cies; and that this contract was for necessaries and therefore bind- 
 ing on her. A jury on the first trial having found in favor of the de- 
 fendant, the Supreme Court granted a new trial because it did not 
 affirmatively appear that the tuition in stenography was a 'necessary 
 thing for her station in life. * * * On the second trial there was 
 a verdict for the plaintiff, but, on a certiorari containing substantial- 
 ly the general grounds, the judge of the superior court ordered a new 
 trial; and to this the plaintiff brings error. 
 
 In our judgment the determination whether the course in shorthand 
 would have been such a necessary thing as to charge the plaintiff 
 with a liability therefor if she had taken it is not in the case. The 
 right to recover from an infant for necessaries does not arise out of 
 the contract between the parties, but from a quasi contractual relation 
 arising by operation of law. Keener on Quasi Contracts, 20. The 
 quality of justice in the law, not the quality of efficacy in the infant's 
 agreement, is the basis of the right of the person who has furnished 
 the necessaries to hold the infant bound therefor. A corollary to the 
 foregoing principle is the well-recognized rule that an infant may re- 
 pudiate an executory contract for necessaries. The case of Jones v. 
 Valentines' School of Telegraphy, 122 Wis. 318, 99 N. W. 1043, is ab- 
 solutely identical in every essential fact and feature with the case at 
 bar. The plaintiff there, an infant, paid for a scholarship in a busi- 
 ness school, but afterward, concluding not to enjoy the privilege, de- 
 manded a return of the money, which was refused, whereupon he sued 
 for it. The court says: "It is elementary law that an infant is 
 bound by implied contract to pay reasonably for necessaries furnish- 
 ed him. The limitations of the rule are plainly indicated by the state- 
 ment of it. In order that the infant may be bound, all the circum- 
 stances must exist essential to raise a promise by implication of law. 
 There must have been furnished him property or something of value, 
 being such as to "administer to his necessities. That obviously ex- 
 cludes the idea of an infant's being liable upon an executory contract 
 to furnish him necessaries, as has been uniformly held. Gregory v 
 Lee, 64 Conn._407, 30 Atl. 53, 25 L. R. A. 618. No liability can be 
 created by an infant for necessaries by express contract. His liability 
 therefor is wholly a creation of law. * * * 
 
 In view of the foregoing, we need not stop to inquire whether an in- 
 fant may bind himself by implied contract to pay for educational 
 training of the kind promised by appellant, under the rule above stated 
 since there is no claim that such training was bestowed upon re- 
 spondent." In Gregory v. Lee, 64 Conn. 407, 30 Atl. 53, 25 L. R. A. 
 618, the infant, being a student of Yale College, made an engage- 
 ment to take lodging from the plaintiff for a year. After holding 
 that the infant's liability for necessaries arises by operation of law 
 and not from any contract he may haye attempted to make, and that, 
 therefore, no executory, contract is enforceable against him, the court 
 applied the law to the case, deciding that "an infant may disaffirm his 
 contract for the lease of a room suitable to his needs and situation in 
 life, and is not liable for the rent of the room alleged to have accrued 
 
Ch. 8) CAPACITY 361 
 
 after such disaffirmance and after he has ceased to occupy -it, although 
 such period was within the period covered by his contract." * * * 
 The case at bar has therefore been contested over the immaterial ques- 
 tion whether tuition in shorthand would have been necessary for the 
 girl in her station of life ; for the principle of law above stated con- 
 cludes the proposition that she should not be held bound on the con- 
 tract in either event. 
 
 There is a suggestion in the argument that the plaintiff's right to 
 recover back the money may be defeated on the theory that she did 
 not pay the defendant the money, but that her guardian paid it, mak- 
 ing the contract his contract. This position is likewise untenable. 
 It is a well-recognized rule that a minor may recover from whomso- 
 ever knowingly received any of his money paid out by his guardian 
 without lawful authority. * * * j^ requires the approval of the 
 ordinary to legalize any encroachment upon the corpus of the ward's 
 estate by a guardian for education or maintenance. * * * No such 
 approval is shown. The verdict in the plaintiff's favor was demand- 
 ed, and the court erred in sustaining the certiorari. 
 
 Judgment reversed. 
 
 The rule relating to necessaries, in so far as it concerns contracts 
 for the sale of personal property, has been codified in the Uniform 
 Sales Act, as follows : 
 
 Section 2. Where necessaries are sold and delivered to an in- 
 fant, or to a person who by reason of mental incapacity or drunk^ 
 enness is incompetent to contract, he must pay a reasonable price 
 therefor. Necessaries in this section means goods suitable to the 
 condition in life of such infant or other person, and to his actual 
 requirements at the time of delivery. 
 
362 C0NTRACT3 (Part 1 
 
 CHAPTER IX 
 CONTRACTS REQUIRED TO BE IN WRITING 
 
 Section 
 
 1. Introduction. 
 
 2. Contracts of Guaranty. 
 
 3. Contracts of Executors and Administrators. 
 
 4. Contracts Made in Consideration of Marriage. 
 
 5. Contracts for the Sale of Lands. 
 
 6. Contracts I^ot to be Performed Within the Space of One Year. 
 
 7. Contracts for the Sale of Personal Property. 
 
 8. Compliance with the Statute. 
 
 9. Effect of ' Non-Compliance with the Statute. 
 
 SECTION 1.— INTRODUCTION 
 
 The Statute of Frauds, originally enacted by the British Parlia- 
 ment in the twenty-ninth year of the reign of Charles II (1677), 
 and subsequently enacted in the American states, provides that 
 certain kinds of contracts must be in writing in order to be enforce- 
 able. There is no general requirement that all contracts must be 
 in writing. In fact, a great many kinds of contracts, perhaps a ma- 
 jority of them, need not be in writing. This statute, which makes 
 the enforceability of certain kinds of contracts depend upon a 
 writing, is called a statute relating to fraud, for the reason that 
 originally it was designed to render ineffective the apparently com- 
 mon practice of testifying falsely to the existence of certain kinds 
 of contracts. Of course, it should be impossible to prove a contract 
 which has no existence. Theoretically, it is impossible. Practi- 
 cally, it is possible, just as it is possible for a person guilty of a 
 crime to be acquitted, or for a person not guilty to be convicted. 
 Courts and juries act upon sworn testimony. Presumably it is 
 true, but it may be untrue. Doubtless, at the time the statute was 
 originally enacted in England, there was a great deal of perjury in 
 actions upon oral contracts. Possibly there was greater likelihood 
 of false testimony in trials involving certain contracts than in those 
 involving others. Presumably the kinds of contracts which, after 
 the passage of the statute, were required to be in writing, com- 
 prised those contracts concerning whose existence and nature per- 
 jury was considered most likely. The statute has come down to 
 the present time practically unchanged. It is possible, of course, 
 so to use the statute as to defeat honest obligations, in which case 
 it becomes an instrument of fraud, rather than an agency to prevent 
 fraud. In spite of the possibility that the Statute ofj'rauds may 
 be used to defeat honest obligations, it is true that a rule which 
 requires persons to put into indisputable form the terms of certain 
 kinds of contracts tends, in the long run, to diminish the amount 
 of litigation. The probabilities are that these general benefits from 
 the Statute of Frauds outweigh the wrongs sometimes resulting. 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WKITIXG 363 
 
 The injustice that would result from the repeal of the statute, we 
 can probably safely say, would be more general and widespread 
 than the injustice now resulting from the operation of the statute 
 in occasional cases. 
 
 There are two distinct kinds of problems arising out of the 
 Statute of Frauds: (1) The problem of interpreting the statute 
 with a view to ascertaining what contracts fall within the classes 
 named in the statute and what contracts fall outside the scope of 
 the terms ; (2) the problem of determining the legal effect of non- 
 compliance with the statute. 
 
 With respect to the first problem, it is apparent that, where a 
 statute attempts to designate certain kinds of contracts and to pre- 
 scribe a certain rule with respect to the classes thus marked off, 
 the language used to describe the classes cannot be so clear as to 
 prevent controversy over the question whether a particular trans- 
 action falls within the statute. This general type of problem per- 
 vades the whole field of the law — the problem of interpretation. 
 If a statute makes the felonious taking and carrying away of the 
 personal property of another larceny, and A., with intent to steal, 
 takes hold of B.'s dog and starts to run away with him, when he 
 finds that the dog is securely chained to a post, we have before us 
 the question of interpreting the words "taking and carrying away." 
 Likewise, with respect to the Statute of Frauds, if the statute ap- 
 plies to all special promises to answer for the debts of others, the 
 question will arise, in a particular case, whether the promisor un- 
 dertook to pay the debt of another or to pay his own debt. 
 
 As to the second problem, we are to determine whether an agree- 
 ment not complying with the requirement of the statute is no con- 
 tract, or is to be treated as an illegal contract, or is to be con- 
 sidered, in some respects, like any other contract, and, in other 
 respects, different from the ordinary contract. 
 
 SECTION 2.— CONTRACTS OF GUARANTY 
 
 NUGENT V. WOLFE. 
 
 (Supreme Court of Pennsylvania, 1886. Ill Pa. 471, 4 Atl. 15, 
 56 Am. Rep. 291.) 
 
 SterreTT, J. If the verbal agreement which plaintiff offered to 
 prove is within the supplement of 1855 to the statute of frauds and 
 perjuries, there was no error in rejecting the testimony, nor in en- 
 tering judgment of nonsuit. The supplement declares: 
 
 "No action shall be brought whereby * * * ^^ charge the de- 
 fendant upon any special promise to answer for the debt or default 
 of another uriless the agreement upon which such action shall be 
 brought, or some memorandum or note thereof, shall be in writing, 
 and signed by the party to be charged therewith, or some other per- 
 son by him authorized." P. L,. 308. 
 
 Plaintiff gave in evidence the record of two judgments in favor of 
 the First National Bank of Ravenna, one dated January, 1876, against 
 
364 CONTRACTS (Part 1 
 
 Powers & Co., and the other March, 1877, against himself as bail for 
 stay of execution on the first-mentioned judgment. He then offered to 
 prove, in substance, that in February, 1876, defendant Wolfe request- 
 ed him to become bail for stay of execution, and, in consideration of 
 his agreeing to do so, promised and undertook to indemnify and save 
 him "harmless from any loss or liability, and from paying anything 
 by reason of his so going security" ; that, relying on said promise and 
 undertaking of defendant, he did become bail for stay of execution 
 on the judgment against Powers & Co. This offer was objected to on 
 the ground that the agreement was not in writing as required by 
 the statute, and the proposed testimony was excluded by the court. 
 In the same connection it was admitted that Powers & Co. became 
 insolvent; that plaintiff was compelled to pay the judgment, then 
 amounting to $1,499.74, and that defendant, though often requested, 
 had not paid any portion thereof. The question thus presented is 
 whether the alleged agreement which plaintiff was not permitted to 
 prove is within the clause of the supplement above quoted. 
 
 The clause in question is copied substantially from the fourth sec- 
 tion of the English statute, 29 Car. II, c. 3, which, with slight changes 
 in phraseology, has been generally adopted in this country. During 
 the more than two centuries since its original enactment the construc- 
 tion of this section, and its application to various forms of contract, 
 have been constantly the subject of contention; and on no question, 
 perhaps, has there been greater diversity and contrariety of judicial 
 decision in this as well as in the parent country. Cases of real or 
 apparent hardship have repeatedly led courts to put a strained and 
 unnatural construction on what appears to be a plain and easily com- 
 prehended act, passed for the purpose of preventing the commission 
 of fraud and perjury. If time would permit, a review of the many 
 conflicting and irreconcilable decisions that from time to time have 
 been rendered, and the refined distinctions upon which they have been 
 based, would be interesting ; but the undertaking .would be too great, 
 and withal not specially profitable. It is very evident the statute was 
 not intended to apply except in cases where, in addition to the prom- 
 isor and promisee, there is also a third party to whose debt or under- 
 taking the agreement of the promisor relates, and not even then un- 
 less the liability of the third party continues. In other words, tlie 
 agreement, to be within the purview of the statute, must in a certain 
 sense be a collateral and not an original undertaking. Independently 
 of the debt or liability of the third party, there must, of course, be a 
 good consideration for the collateral or subordinate agreement; such, 
 for example, as a benefit or advantage to the promisor, or an injury 
 to the promisee. It is difficult, if not impossible, to formulate a rule 
 by which to determine whether a promise relating to the debt or lia- 
 bility of a third person is or is not within the statute ; but, as a general 
 rule, when the leading object of the promise or agreement is to be- 
 come guarantor or surety to the promisee, for a debt for which a third 
 party is and continues to be primarily liable, the agreement, whether 
 made before or after, or at the time with the promise of the principal, 
 is . within the statute, and not binding unless evidenced by writing. 
 On the other hand, when the leading object of the promisor is to sub- 
 serve some interest or purpose of his own, notwithstanding the effect 
 is to pay or discharge the debt of another, his promise is not within 
 the statute. * * * 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 365 
 
 If one says to another, "Deliver goods to A., and I will pay you," 
 the verbal promise is binding, because A., though he receives the goods, 
 is not responsible to the party who furnishes them. But if, instead of 
 saying, "I will pay you," he says, "I will see you paid," or "I will pay 
 you if he does not," or uses words equivalent thereto, showing that the 
 debt is in the first instance the debt of A., the undertaking is collateral, 
 and not valid unless in writing. In these latter cases, the same con- 
 sideration, viz., the consideration of the promise of the principal, is a 
 good consideration for the promise of the surety or collateral prom- 
 isor. The credit is given as well upon the original consideration of the 
 principal as the collateral promise of the surety, and is a good con- 
 sideration for both. * * * 
 
 [Judgment granting nonsuit affirmed.] 
 
 WHITE V. RINTOUL. 
 (Court of Appeals of New York, 18S8. 108 N. Y. 222, 15 N. E. 318.) 
 
 This action was brought upon an alleged verbal promise of defend- 
 ant to pay the amount of two notes owned by plaintiflf and made by 
 the firm of Wheatcroft & Rintoul. 
 
 Finch, J. The doctrine prevailing in this state which serves to 
 distinguish between original and collateral promises in cases arising 
 under the statute of frauds has been reached in three stages. Each 
 was a definite and deliberate advance toward a more faithful obser- 
 vance of the statute, and an abandonment of efforts to narrow the just 
 and natural range of its application. When, by some authorities, it was 
 said that a verbal promise to pay the debt of another was always col- 
 lateral, and invalid if the primary debt continued to exist concurrently 
 with the promise, a simple and easy test was furnished to determine 
 whether the statute did or did not apply. But when that test was dis- 
 carded, and it became the law that a promise to pay another's debt 
 might be original, although that debt subsisted and was in no manner 
 extinguished, the presence of such continued liability raised a cloud 
 of doubt and ambiguity, which perhaps will never be entirely dissi- 
 pated. * * * 
 
 [The cases have] ended in establishing a doctrine in the courts of 
 this state which may be stated with approximate accuracy thus : That 
 where the primary debt subsists and was antecedently contracted, the 
 promise to pay it is original when it is founded on a new consideration 
 moving to the promisor and beneficial to him, and such that the prom- 
 isor thereby comes under an independent duty of payment irrespective 
 of the liability of the principal debtor. * * * 
 
 We are, therefore, to bring the facts of the case to the test of the 
 rule above stated, and in doing so, we are to take them from defend- 
 ant's own lips, to treat as true his representations as detailed by his 
 adversary, and to draw from the evidence every possible inference 
 which is favorable to the plaintiff's case. 
 
 The firm of Wheatcroft & Rintoul, of which defendant was not a 
 member, became indebted to the plaintiff in the amount of two notes, 
 one dated June 1, 1880, and maturing September 4, 1880, and the other 
 dated July 1, 1880, and to become due October 4, 1880. On the 16th 
 of August, 1880, and so before the maturity of either note, the defend- 
 ant requested the plaintiff to forbear any effort at their collection un- 
 til June or July, 1881, promising, if the plaintiff would do so, to pay 
 
366 CONTRACTS (Part 1 
 
 the amount of the notes.. The plaintiff did forbear, and now sues upon 
 the promise. The courts have held many times that a promise upon 
 consideration of forbearance to sue the debtor is not original, and, to 
 be valid, must be in writing. * * * 
 
 One member of the debtor firm was the defendant's son, and that 
 firm was somewhat in debt and not managing the business successfully 
 or satisfactorily. The defendant was a creditor of the firm. He had 
 loaned to them something over $5,000, for which he held as security a 
 chattel mortgage on the fixtures and machinery of the firm. He was, 
 therefore, to some extent at least, a secured creditor. He represented 
 to plaintiff that he had advanced all the money for the business of the 
 firm ; that he was determined to get rid of his son's partner, who was 
 drawing money that was his money ; that the business was not paying, 
 and he wanted to give it up, or he was going to conduct it alone or 
 through his son; that if plaintiff tried to collect his debt he would 
 not be able to get anything ; that there was a chattel mortgage against 
 the property ; that he had furnished money himself for which he had a 
 mortgage, or would get one, and plaintiff could not get anything ; 
 that the only way and the best way would be to give the firm time; 
 that it was late in the season, and by waiting until the next summer 
 they could sell their beer, and that he would pay plaintiff for the 
 two notes. That is plaintiff's account of the conversation given on 
 his direct examination. On his cross-examination he added that de- 
 fendant said he had a claim or a confession or a mortgage or some se- 
 curity for the amount of money due him, and that plaintiff could not 
 get anything anyway, and that the money that was due defendant was 
 the first to be paid out of the firm. Upon the basis of this evidence, 
 the plaintiff contends that the defendant had a direct personal interest 
 in procuring a forbearance to sue the firm, which he explains in his 
 brief by saying "that if the plaintiff pressed the collection of the 
 notes, and did not wait till the then next summer, defendant would 
 lose his money," which had been loaned to the firm. But I do not 
 discover a single fact in the case which tends to any such conclu- 
 sion. * * * 
 
 The motive disclosed was regard for his son, and desire that his 
 business credit should not be damaged by a failure. The purpose for 
 which he sought delay was wholly in the interest of that son, and to 
 enable him to market his beer the next summer, and so procure the 
 means to pay the plaintiff without sacrifice or discredit. The debt of 
 the firm was in no sense defendant's debt. No consideration of benefit 
 moved to him frqm either party, and least of all had there been any 
 new dealing with either which put upon him a duty of payment. Be- 
 fore the promise was made he owed no such duty and came under no 
 such obligation. The doctrine of the court clearly stamps the promise 
 as collateral and void for want of a writing. * * * 
 
 Judgment- reversed. 
 
 LAMKIN V. PALIIEE. 
 (Court of Appeals of Kew York, 1900. 164 X. Y. 201. 58 N. E. 123.) 
 
 Haight, J. This action was brought to recover the sum of $2,150 
 upon an oral promise of the defendant to pay the plaintiff that sum out 
 of the proceeds of the sale of the property of the M. S. Robinson 
 Musee Company. The facts are somewhat complicated, but, for the 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 367 
 
 purpose of raising the questions presented upon this appeal, they may 
 be briefly stated as follows : 
 
 The plaintiff was an employe and stockholder in the M. S. Robinson 
 Musee Company, a corporation operating theaters in the city of Buf- 
 falo and in the city of Rochester. He had loaned to the president of 
 the company, M. S. Robinson, to be used by the company in the op- 
 eration of its theaters, the money in question. The Buffalo theater 
 had been destroyed by fire, and the defendant had become obligated to 
 pay certain indebtedness incurred by the Rochester theater. He had 
 procured from a person in Detroit an offer to purchase from him the 
 Rochester property, and was endeavoring to procure the consent of 
 the stockholders for the sale to him of such theater, to the end that 
 he might accept the offer of the Detroit gentleman and effect a sale 
 to him, and then appropriate the proceeds to the payment of the debts 
 of the Rochester theater which he had become obligated to pay. The 
 defendant, in order to induce the plaintiff to sign the consent, made 
 the agreement upon which this action is founded. The defendant, by 
 his answer, denied many of the allegations of the complaint, and then 
 alleged: "That the agreement referred to in the complaint, if made 
 at all, was made without consideration, and the same, not being in 
 writing, was void by the statute of frauds of the state of New 
 York." * * * 
 
 The plaintiff had furnished money to be used in carrying on the 
 business of the corporation. He was a creditor and had the right to 
 seek indemnity from the assets of the company. The defendant was 
 seeking a transfer of the assets of the company, so that he could con- 
 vert the same into money and pay off the debts that he had become 
 obligated to pay. The plaintiff, by his cortsent, released his right to 
 follow the assets for the satisfaction of his claim, and accepted the 
 promise of the defendant to pay him out of the proceeds of the sale. 
 The contemplated purchaser refused to complete the purchase unless the 
 claim of the plaintiff was settled or his consent to the transfer obtained. 
 The sale was for $12,000. The transaction was, therefore, beneficial 
 to the defendant, for it enabled him to relieve himself of a greater 
 portion of the obligations assumed by him to the other creditors. The 
 question of consideration to support the agreement was not, there- 
 fore dependent solely upon the consent of the plaintiff as stockhold- 
 
 A** »t» -T* 'P 
 
 Judgment [for plaintiff] affirmed. 
 
 SECTION 3.— CONTRACTS OF EXECUTORS AND 
 ADMINISTRATORS 
 
 The Statute of Frauds provides : 
 
 No action shall be brought whereby to charge any executor or 
 administrator upon any special promise to answer damages out of 
 his own estate, unless the agreement upon which such action shall 
 be brought, or some memorandum or note thereof shall be in writ- 
 ing, and signed by the party to be charged therewith or some other 
 person thereunto by him lawfully authorized. 
 
 An executor is nominated by a testator in his will, qualifies as 
 
368 CONTRACTS (Part 1 
 
 executor in the probate court, receives "letters testamentary" from 
 the court, and is then charged with the duty of paying the testa- 
 tor's debts out of the testator's estate and of distributing the re- 
 maining property among the beneficiaries designated in the will, ac- 
 cording to the terms thereof. An administrator occupies the same 
 position with respect to the estate of a deceased person, except as 
 regards the source of his authority. The administrator is appoint- 
 ed by a probate court to administer the estate of a decedent leaving 
 no will. An administrator with the will annexed is appointed by a 
 probate court to act practically as executor, where no executor is 
 nominated in the will, or where the person nominated by the testa- 
 tor fails or refuses to qualify as executor. 
 
 The above section of the Statute of Frauds carries out the general 
 rule that guaranty contracts must be in writing. If, for any rea- 
 son, an executor or an administrator, in the absence of some in- 
 dependent consideration to himself, contracts individually to pay 
 the debt of the decedent whom he represents, such contract must 
 be in writing in order to be enforceable. 
 
 SECTION 4.— CONTRACTS MADE IN CONSIDERATION 
 
 OF MARRIAGE 
 
 The Statute of Frauds provides : 
 
 No action shall be brought to charge any person upon any agree- 
 ment made upon consideration of marriage, unless the agreement 
 upon which such action shall be brought, or some memorandum or 
 note thereof shall be in writing and signed by the party to be charg- 
 ed therewith or some other person thereunto by him lawfully 
 authorized. 
 
 This section has been construed not to require mutual promises 
 to marry to be in writing in order to be enforceable. It is possible 
 to construe this section to apply to mutual promises, to marry, but 
 doubtless the courts, in recognition of the fact that people gen- 
 erally find it more desirable to conduct such negotiations orally, 
 have wisely excluded such contracts from the operation of the 
 statute. The above section of the statute applies to what are some- 
 times called marriage settlement contracts. One of the parties to 
 the contract, or a third party, may, in consideration that two desig- 
 nated persons shall marry, promise to transfer certain property to 
 one of the contracting parties. The fact of marriage may be suffi- 
 cient consideration for this promise, but, in a sense, it is a promise 
 to make a gift upon the happening of a certain contingency. It is 
 the kind of contract, therefore, where false testimony as to the 
 making of such a promise might frequently be made, and it is prob- 
 ably for this reason that it was included among those contracts not 
 enforceable unless in writing. 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 369 
 
 SECTION 5.— CONTRACTS FOR THE SALE OF LANDS 
 
 With reference to contracts for the sale of interests in land, the 
 Statute of Frauds provides: 
 
 No action shall be brought upon any contract or sale of lands, 
 tenements, or hereditaments, or any interest in or concerning them, 
 xmless the agreement upon which such action shall be brought, or 
 some memorandum or note thereof shall be in writing, and signed 
 by the party to be charged therewith or some other person there- 
 unto by him lawfully authorized. 
 
 A discussion of the various interests in land is beyond the scope 
 of this book. It should be apparent, however, that there are many 
 possibilities for dividing the sum total of rights of ownership in 
 land. The highest interest in land is usually called a fee-simple in- 
 terest. It is this interest which is commonly meant when we speak 
 of a person as owning land. It is possible for one to have less than 
 a fee-simplC' title. He may have but a life estate, or a lease for 
 years. The deed, or will, or other instrument which created the 
 interest, may provide that, upon the termination of the life estate, 
 the fee-simple title or some lesser interest shall pass to a third 
 party. This futvire interest is sometimes called a remainder. The 
 interest which the grantor retains after creating an estate in an- 
 other is called a reversion. There are various other kinds of future 
 interests in land. The point here is not, however, to discuss the na- 
 ture of these interests, but simply to note the fact that ownership 
 in land is capable of division into numerous interests of this char- 
 acter. 
 
 There are other types of interests in land. A person may have 
 acquired the right to use another's land in a particular way, as, for 
 example, A. may have the right to drive across B.'s land and to use 
 B.'s private roadway, or A. may have acquired the right to con- 
 struct a drain pipe through B.'s land. These interests are called 
 easements or licenses, depending upon the manner in which they 
 are creat'ed. A. may have the right to take gravel from B.'s gravel 
 bed. This is something more than an easement, because it involves 
 the taking of something of value from B.'s land. Such- a right is 
 called a profit. 
 
 There are several interests in land which owe their origin to the 
 doctrines of that branch of the law which we call equity, as, for 
 example, the interest of the beneficiary of a trust in land, or that 
 of a mortgagee. 
 
 Again it is customary, for some purposes, to regard as part of 
 the land all fixtures attached to the realty, growing trees, and 
 growing crops. The expression "interests in land" is very broad, 
 for it includes a great many groups of rights capable of segregation 
 from the total interest of ownership and of sale to different persons. 
 
 In discussing the transfer of interests in land, there are two 
 things which should be kept quite distinct: (1) The contract 
 B.& B.Btjs.Law— 24 
 
t?70 CONTRACTS (Part 1 
 
 which creates the duty to transfer the interest ; and, (2) the instru- 
 ment which actually transfers the interest. The Statute of Frauds 
 has nothing to do with prescribing the manner in which an interest 
 in land shall be transferred. While we are not directly interested 
 in this subject here, it may be remarked in passing that interests i;n 
 land are commonly transferred either by deed or by will. Inde- 
 pendent rules of law prescribe that deeds and wills must be in writ- 
 ing, and moreover that they shall conform to certain other formal 
 requisites. Statutes of the various states prescribe, generally with 
 considerable detail, the form by which interests in land are to be 
 conveyed, whether by deed or by will. 
 
 We are here interested, however, in the contract which ante- 
 dates the execution and delivery of the deed, and we find that such 
 ■contracts must be in wqting in order to be enforceable. Short 
 term leases are, in most states, expressly exempted from the opera- 
 tion of the statute, which makes it possible to make a valid oral 
 lease in many states for a period of one year, and in. some states 
 for a period as long as three years. The following cases will give 
 some idea of a few of the questions that have arisen involving the 
 interpretation of this section. 
 
 MOORE V. SMALL. 
 (Supreme C!ourt of Pennsylvania, 1852. 19 Pa. 461.) 
 
 Woodward, J. The statute of frauds and perjuries, regarded as 
 a rule of property, is simple and intelligible. Every mind is capable 
 of understanding that contracts about land, if more is meant than a 
 three years' lease, must be in writing. This rule is as apprehensible 
 and appreciable by the common mind as those other statutory rules 
 which make twenty-one years' adverse possession of land, title thereto ; 
 bar actions on simple contracts after six years' delay; require judg- 
 ments to be revived once in five years; and liens of mechanics and 
 material men to be entered within six months after the contract ex- 
 ecuted. 
 
 And what rule is more reasonable ? Land is the most important and 
 valuable kind of property. Or if it be not, there is no other stake for 
 which men will play so desperately. In men and nations there is an 
 insatiable appetite for lands, for the defence or acquisition of which 
 money and even blood sometimes are poured out like water. The evi- 
 dence of land title ought to be as sure as human ingenuity can make 
 it. But if left in parol, nothing is more uncertain, whilst the tempta- 
 tions to perjury are proportioned to the magnitude of the inter- 
 est. * * * 
 
 WETOPSKT V. NEW HAVEiN GAS LIGHT CO. 
 
 (Supreme Court of Errors of Connecticut, 1914. 88 Conn 1 90 Atl 30 
 Ann. Cas. 1916D, 96S.) ' ' ' 
 
 Action by Sylvester Wetopsky against the New Haven Gaslight 
 Company. From a judgment as of nonsuit, plaintifif appeals. 
 
 The complaint alleges that the defendant sold a dwelling house to 
 the plaintiff (who then owned a lot on the opposite side of the street 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 371 
 
 to which he intended to remove it), for a good and valuable consid- 
 eration then paid; that the defendant had knowledge of the purpose 
 for which the plaintiff purchased the house; and that the defendant 
 afterwards refused to permit the plaintiff to remo\'e or take posses- 
 sion of the house or to deliver the same to him. * * * 
 
 Thayer, j. * * * f^^ plaintiff claims that the sale of a house 
 to be immediately removed from the land on which it stands, and to- 
 which it is affixed, is a sale of personal property, and not of an in- 
 terest in real estate, and so is not within the section of the statute of 
 frauds which prevents the maintenance of an action upon agreements 
 for the sale of real estate, unless the same shall be in writing. * * * 
 
 Williston says : "If the contract is to sell and deliver a house, even 
 though the house is, at the time, affixed to the realty, it is a contract 
 for the sale of goods, for the parties contract to buy and sell a house 
 separated from the realty and moved from its foundations. On the 
 other hand, if the parties attempt to make a present transfer of a 
 building or materials fixed in a building, it is evident that they are 
 attempting to make a sale of realty, even though it is also agreed that 
 the subject-matter of the sale shall be severed in a short time." Wil- 
 liston on Sales, § 66. The Supreme Court of Massachusetts, speaking 
 in a case where the contract related to growing trees, said: "It may 
 be difficult in many cases to determine, from the terms of the con- 
 tract, whether the parties intend to grant a present estate in the trees 
 while growing or only a right, either definite or unlimited as to time, 
 to enter and cut with title to the property when it becomes a chattel. 
 If the former be the true construction, then it comes within the stat- 
 ute, and must be in writing; if the latter, then, though wholly oral, 
 it may be enforced." White v. Foster, 102 Mass. 375, 378. There is 
 great conflict in the decisions, but this is the rule in England and in 
 many 'of our sister states. * =i= * We think, notwithstanding the 
 numerous opposing authorities, that this is the better rule. 
 
 Counsel for the defendant attempted to distinguish cases of contract 
 to sell millstones or other fixtures attached to the realty and belonging 
 to the owner thereof, * * * or a case of contract to sell the boards 
 and brick of which a building is comiX)sed, where the vendee is to re- 
 move the millstones in the one case and to tear down the building and 
 remove the materials of which it is constructed in the other, from a 
 contract to sell an entire building to be severed and removed by. the 
 vendee. We see no difference in principle between the cases. * * * 
 
 Where the intent to sell a building as a chattel is thus apparent from 
 the contract and circumstances attending it, the severance may be 
 made by the vendee. * * * The fact that the vendee is to remove 
 the building is important only as bearing upon the intent of the par- 
 ties in determining whether the title to the building is to pass at once 
 or only after severance from the realty. When the parties to the 
 contract have in contemplation the sale of a building or a tree as a 
 chattel, when it shall be detached from the land, there is no good rea- 
 son why a court should not give effect to the contract as the parties 
 understood and intended it. In such a case neither party intends that 
 any interest in the real estate shall pass. The very purpose of the 
 contract may be to rid the land of such tree or building. Until de- 
 tached from the land, the thing contracted to be sold would remain a 
 part of the realty, and a conveyance of the realty to a third party 
 would carry it to the purchaser. 
 
372 CONTRACTS (Part 1 
 
 The implied license to enter and sever the chattel, if this was to be 
 done by the vendee, would be revoked by such conveyance of the land, 
 and the vendee's remedy must be against the vendor for breach of 
 the contract. 
 
 Growing crops, fructus industriales, are an exception to the rule, 
 and tnay be sold and the title pass to the purchaser before severance 
 from the soil. * * * 
 
 The plaintiff was entitled to show that the contract was as he claim- 
 ed for the sale of the house as a chattel after severance from the soil, 
 and there was error in excluding the evidence offered for this purpose. 
 
 There is error; the judgment is set aside; and a new trial ordered. 
 
 MirXER V. BALL. 
 (Court of Appeals of New Tork, 1876. 64 N. T. 287.) 
 
 Appeal from judgment of the General Term of the Supreme Court 
 in the Third Judicial Department, affirming a judgnient in favor of 
 plaintiff. This action was brought to compel a specific performance 
 of an alleged parol contract for the sale of land. 
 
 The referee found in substance the following facts : That in the fall 
 of 1863, Robert Miller, agent of plaintiff, without disclosing his agency, 
 made a verbal contract with Philip Potter, defendant's agent, for the 
 purchase of fifty acres of land at three dollars per acre, which he 
 agreed to pay on deliveiy of a warranty deed, Potter agreeing to have 
 a survey made and to procure the deed. This land was subsequently 
 surveyed and its metes and bounds fixed. Defendant, upon receipt of 
 the survey bill, executed a warranty deed of the premises to Robert 
 Miller. The consideration was stated therein to be $100, and there was 
 a reservation of mines and minerals, and the right to use and occupy 
 all streams for logging and milling purposes. The deed was delivered 
 by Potter to Robert Miller, who delivered it to plaintiff, who objected 
 to the statement of consideration and to the reservations and returned 
 it to Robert, who returned it to Potter, who agreed to have it corrected 
 and returned. The deed was sent back to defendant, who, after prom- 
 ising several times to fix the matter satisfactorily, in April, 1867, re- 
 fused to execute a deed unless paid two dollars more per acre. Plain- 
 tiff tendered a deed and demanded that defendant execute the same, 
 which he refused. The referee also found as follows : "The land in 
 question is situated about two and a-half miles from a highway in one 
 direction, and about five miles in another, and was a wild, uncultivat- 
 ed lot, and of no practical value for cultivation until cleared, nor for 
 any purpose without means of access to it by teams. In November, 
 1864, the plaintiff entered upon the lot, cut and constructed a road 
 thereto across the adjoining lands of other parties, under a parol license 
 from the owners, to construct, occupy and use the same, said road con- 
 necting with roads which the plaintiff also made upon the lot in ques- 
 tion. He underbrushed and cut up fallen trees, preparatory to clearing 
 about a quarter of an acre of land ; built a bough shanty, and since that 
 time and down to the commencement of this action, on the 12th day of 
 April, 1867, he continued in the occupancy of the said lot, cutting trees 
 and timber upon it, and paying the taxes thereon, and also continued to 
 labor upon and improve the roads upon the lot and those connecting 
 the same with the public highway. 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 373 
 
 Earl, J. We will assume, for the present purpose, that there was 
 not a sufficient note or memorandum of the agreement between the 
 parties to satisfy the requirement of the statute of frauds, and we 
 still reach a conclusion adverse to the appellant. * * * 
 
 It is not always easy to determine whether there has been sufficient 
 part performance of a parol agreement for the sale of land, in the sense 
 of courts of equity, to free it from the operation of the statute of 
 frauds. The general rule is that nothing is to be considered as a part 
 performance which does not put the party into a situation which is a 
 fraud upon him, unless the agreement is fully performed. * * * 
 The principle upon which courts of equity hold that part performance 
 is sufficient is that a party who has permitted another to perform acts 
 on the faith of an agreement shall not be allowed to insist that the 
 agreement is invalid because it was not in writing, and that he is en- 
 titled to treat those acts as if the agreement in compliance with which 
 they were performed had not been made; in other words, upon the 
 ground of fraud, in refusing to execute the parol agreement after a 
 part performance thereof by the other party, and when he caimot be 
 placed in the same situation that he was in before such part perform- 
 ance by him. Taking possession under a parol agreement, with the 
 consent of the vendor, accompanied with other acts which cannot be 
 recalled so as to place the party taking possession in the same situa- 
 tion that he was in before, has always been held to take such agreement 
 out of the operation of the statute. * * * 
 
 The payment of the consideration alone, in a case where its recovery 
 in an action at law would fully indemnify the party paying, would not 
 be a sufficient part performance within the rule under consideration, 
 and neither would mere possession be, without any other circumstance 
 of hardship or fraud. But payment of the consideration and posses- 
 sion under the agreement, or by the consent of the vendor, are facts 
 which may be considered with other facts upon the question of part 
 performance. Here the whole consideration-money was paid, and the 
 plaintiff took all the possession of such a lot which is ordinarily practi- 
 cable. He built roads to it and upon it ; built a shanty and made some 
 clearing. His improvements thus made were probably equal in cost to 
 the consideration paid for the lot, and that cost would be lost to him 
 unless the defendant be compelled to perform his agreement. He paid 
 the taxes, and the money thus paid he cannot recover back. I am 
 therefore of opinion that enough was done by the plaintiff to bring his 
 case within the equitable rule as to part performance. 
 
 But before acts, otherwise sufficient for part performance, can have 
 the effect within the rule, they must have been done in pursuance or 
 fulfillment of the parol agreement, or in just reliance thereon. They 
 must have been done with a view to the agreement, and be referable 
 exclusively thereto. * * * In the respects here mentioned, plaintiff's 
 acts were sufficient. The plaintiff paid the entire consideration under 
 the agreement. * * * 
 
 Judgment affirmed. 
 
374 CONTRACTS (Part 1 
 
 SECTION 6.— CONTRACTS NOT TO BE PERFORMED 
 WITHIN THE SPACE OF ONE YEAR 
 
 The section of the Statute of Frauds here involved provides as 
 follows : 
 
 No action shall be brought upon any agreement that is not to 
 be performed within the space of one year from the making there- 
 of, unless the agreement upon which such action shjill be brought, 
 or some memorandum or note thereof shall be in writing, and 
 signed by the party to be charged therewith or some other per- 
 son thereunto by him lawfully authorized. 
 
 DOYI^ V. rHXON. 
 
 (Supreme Judicial Court of Massacliusetts, 1867. 97 Mass. 208, 
 93 Am. Dec. 80.) 
 
 Defendant sold his grocery business to plaintiff, and agreed not to go 
 into the grocery business in the same village within the next five years. 
 Defendant contends that this agreement is within the statute of frauds. 
 The trial judge ruled that the agreement was not within the statute. 
 Defendant excepts to this ruling. 
 
 Gray, J. It is well settled that an oral agreement which accord- 
 ing to the expression and contemplation of the parties may or may not 
 be fully performed within a year is not within that clause of the 
 statute of frauds, which requires any "agreement not to be performed 
 within one year from the making thereof" to be in writing in order 
 to maintain an action. An agreement therefore which will be com- 
 pletely performed according to its terms and intention if either party 
 should die within the year is not within the statute. Thus in Peters v, 
 Westborough, 19 Pick. 364, 31 Am. Dec. 142, it was held that an 
 agreement to support a child until a certain age at which the child 
 would not arrive for several years was not within the statute, because 
 it depended upon the contingency of the child's life, and, if the child 
 should die within one year would be wholly performed. On the 
 other hand, if the agreement cannot be completely performed within 
 a year, the fact that it may be terminated, or further performance ex- 
 cused or rendered impossible, by the death of the promisor or of anoth- 
 er person within a year, is not sufficient to take it out of the statute. 
 It was therefore held in Hill v. Hooper, 1 Gray, 131, that an agree- 
 ment to employ a boy for five Years and to pay his father certain sums 
 at stated periods during that time was within the statute ; for although 
 by the death of the boy the services which were the consideration of 
 the promise would cease, and the promise therefore be determined, 
 it would certainly not be completely performed. So if the death of 
 the promisor within the year would merely prevent full performance 
 of the agreement, it is within the statute ; but if his death would leave 
 the agreement completely performed and its purpose fully carried out, 
 it is not. It has accordingly been repeatedly held by this court that 
 an agreement not hereafter to carry on a certain business at a particu- 
 lar place was not within the statute, because, being only a personal 
 engagement to forbear doing certain acts, not stipulating 'for any- 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 375 
 
 thing beyond the promisor's life, and imposing no duties upon his 
 legal representatives, it would be fully performed within the year. 
 * * * An agreement not to engage in a certain kind of business 
 at a particular place for a specified number of years is within the same 
 principle; for whether a man agrees not to do a thing for his life, 
 or never to do it, or only not to do it for a certain number of years, 
 it is in either form an agreement by which he does not promise that 
 anything shall be done after his death, and the performance of which 
 is therefore completed with hi%life. An agreement to do a thing for 
 a certain time may perhaps biiid the promisor's representatives, and at 
 any rate is not performed if he dies within that time. But a mere 
 agreement that he will himself refrain from doing a certain thing is 
 fully performed if he keeps it so long as he is capable of doing or 
 refraining. The agreement of the defendant not to go into business 
 again in Chicopee for five years was therefore not within the statute 
 of frauds. * * * 
 Exceptions overruled. 
 
 O'DONNELL v. DAILY NEWS CO. OP MINNFAPOT.IS. 
 (Supreme Court of Minnesota, 1912. 119 Minn. 378, 138 N. W. 677.) 
 
 Philip E. Brown, J. This is an action for damages for breach of 
 an alleged contract for the plaintiff's employment as advertising man- 
 ager for the defendant, the Minneapolis Daily News. * * * 
 
 Was the contract within the statute of frauds, as being a contract 
 not to be performed within one year from the making thereof? In 
 its ultimate analysis, however, the question here is: What must be 
 deemed to-be the date contemplated by the contract for the commence- 
 ment of its performance? For it is settled that a contract for services, 
 which by its terms shows that it is not to be performed or is inca- 
 p'able of performance within one year from the making thereof, is 
 within the statute, * * * while a contract for one year's services 
 commencing on the date of the contract is not within the statute. 
 
 Does, then, the contract here involved show that it was not to be 
 performed or was incapable of performance within orte year from the 
 date on which it was made, January 31, 1910? The plaintiff contends 
 that it does not so appear, insisting that it must be deemed to be for 
 one year's services, beginning January 31st, and ending on the same 
 date in the following year. The defendant, on the other hand, contends 
 that the contract was for services beginning February 7th. As be- 
 tween these two contentions, we hold with the defendant. * * * 
 February 7th was the date in the minds of the parties throughout the 
 negotiations, and such date was expressly incorporated in the con- 
 tract by the telegrams and the letter above quoted. It was the date 
 fixed as giving the plaintiff a reasonable time in which to reach Minne- 
 apolis from his home in another state, and the distance he would have 
 to travel in order to reach Minneapolis precluded the possibility of 
 his actually beginning work in that city on the date of his telegram 
 of acceptance. 
 
 Undoubtedly the parties could have contracted that the plaintiff's 
 services, and his pay, should be deemed to begin January 31st ; but they 
 did not do this. Nor did they leave the date undetermined. They fix- 
 
376 CONTRACTS (Part 1 
 
 ed Febrtiary 7th as the date when the plaintiff should come and take 
 the position contracted for. * * * if nothing whatever had been 
 said about when the plaintiff was to report for work, there_ might be 
 room for the plaintiff's contention that a contract is, if possible, to be , 
 construed so as to keep it out of the operation of the statute of frauds, 
 and that where no other date is specified the date of the contract will 
 be presumed to be the date for the commencement of its performance ; 
 but where, as in this case, the contract indicates the date when the 
 services are to begin such contentions are irrelevant. * * * And 
 it makes no difference that the year is exceeded by only a week. "An 
 hour more than the time specified is in law as fatal to the contract as 
 though it were two, five, or a hundred years." * * * 
 
 The contract in this case being, as we have held above, one which 
 contemplated that its performance should commence in futuro, and 
 that the services contracted for should continue for one year from the 
 commencement thereof, it follows that, in the absence of writing suffi- 
 cient to satisfy the statute of frauds, the plaintiff was not entitled in 
 any event to a more favorable judgment than he obtained. 
 
 Judgment affirmed. 
 
 SECTION 7.— CONTRACTS FOR THE SALE OF PERSONAL 
 
 PROPERTY ' 
 
 The English Statute of Frauds prescribed that all contracts for 
 the sale of goods of the value of £10, in order to be enforceable, 
 must be in writing, unless the buyer has made a partial payment or 
 accepted and received the goods. This section has been re-enacted 
 in most, but not all, of the states in this country. The section was 
 commonly made to apply to contracts where the value of the prop- 
 erty was $50 or over. There is some variation as to the amount 
 Jn the various states. The Uniform Sales Act, which has codified 
 most of the common law relating to contracts for the sale of 
 goods, contains a section which is a restatement of that section 
 of the statute of frauds dealing with sales of personal property. 
 
 This section reads as follows : 
 
 Section 4. i(l) A contract to sell or a sale of any goods or 
 choses in action of the value of five hundred dollars or upwards 
 shall not be enforceable by action unless the buyer shall accept 
 part of the goods or choses in action so contracted to be sold, or 
 sold, cUid actually received the same, or give something in earnest 
 to bind the contract, or in part payment, or unless some note or 
 memorandum in writing of the contract or sale be signed by the 
 party to be charged or his agent in that behalf. 
 
 (2) The provisions of this section apply to every such contract 
 or sale notwithstanding that the goods may be intended to be de- 
 livered at some future time or may not, at the time of such con- 
 tract or sale, be actually made, procured or provided or fit or ready 
 for delivery, or some act may be requisite for the making or com- 
 pleting thereof, or rendering the same fit for delivery; but if the 
 goods are to be manufactured by the seller especially for the buyer 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 377 
 
 and are not suitable for sale to others in the ordinary course of the 
 seller's business, the provisions of this section shall not apply. 
 
 (3) There is an acceptance of goods within the meaning of this 
 section, when the buyer, either before or after delivery of the goods, 
 expresses, by words or conduct, his assent to becoming the owner 
 of those specific goods. 
 
 GODDARD V. BINNBT. 
 
 (Supreme Judicial Court of Massachusetts, 1874. 115 Mass. 450. 
 15 Am. Rep. 112.) 
 
 The plaintiff, a carriage manufacturer in Boston, testified that the 
 defendant came to his place of business in April, 1872, and directed the 
 plaintiff to make for him a buggy, and the plaintiff entered the order 
 in his order book; the defendant gave directions that the color of the 
 lining should be drab, and the outside seat of cane, and as to the 
 painting, and also that the buggy was to have on it his monogram and 
 initials. The sum of $675 was agreed as the price. It was to be done 
 in or about four months. The plaintiff immediately began work upon 
 the buggy and made every part, it being painted, lined, and with the 
 initials, as ordered. By the fire of November 9, 1872, this buggy and 
 all the property on the plaintiff's premises were destroyed. Plaintiff 
 sues defendant for the price. Upon the evidence, the presiding judge 
 directed a verdict for the defendant. 
 
 Ames, J. Whether an agreement like that described in this report 
 should be considered as a contract for the sale of goods, within the 
 meaning of the statute of frauds, or a contract for labor, services and 
 materials, and therefore not within that statute, is a question upon 
 which there is a conflict of authority. According to a long course of 
 decisions in New York, and in some other states of the Union, an 
 agreement for the sale of any commodity not in existence at the time, 
 but which the vendor is to manufacture or put in a condition to be 
 delivered ( such as flour from wheat not yet ground, or nails to be made 
 from iron in the vendor's hands), is not a contract of sale within the 
 meaning of the statute. * * * jjj J^ngland, on the other hand, the 
 tendency of the recent decisions is to treat all contracts of such a kind 
 intended to result in a sale, as substantially contracts for the sale of 
 chattels ; and the decision in Lee v. Griffin, 1 B. & S. 272, goes so far 
 as to hold that a contract to make and fit a set of artificial teeth for a 
 patient is essentially a contract for the sale of goods, and therefore is 
 subject to the provisions of the statute. * * * 
 
 In this commonwealth, a rule avoiding both of these extremes was 
 established in Mixer v. Howarth, 21 Pick. 205, 32 Am. Dec. 256, and 
 has been recognized and affirmed in repeated decisions of more recent 
 date. The effect of these decisions we understand to be this, namely, 
 that a contract for the sale of articles then existing, or such as the 
 vendor in the ordinary course of his business manufactures or pro- 
 cures for the general market, whether on hand at the time or not, is a 
 contract for the sale of goods, to which the statute applies. But on the 
 other hand, if the goods are to be manufactured especially for the pur- 
 chaser, and upon his special order, and not for the general market, the 
 case is not within the statute. * * * "The distinction," says Chief 
 Justice Shaw, in Lamb v. Crafts, 12 Mete. 353, "we believe is now well 
 
378 ■ CONTRACTS ~ (Parti 
 
 understood. When a person stipulates for the future sale of articles, 
 which he is habitually making, and which, at the time, are not made or 
 finished, it is essentially a contract of sale, and not a contract for 
 labor ; otherwise, when the article is made pursuant to the agreement." 
 In Gardner v. Joy, 9 Mete. 177, a contract to buy a certain number of 
 boxes of candles at a fixed rate per pound, which the vendor said he 
 would manufacture and deliver in about three months, was held to be 
 a contract of sale and within the statute. * * * In this case, the 
 carriage was not only built for the defendant, but in conformity in some 
 respects with his directions, and at his request was marked with his 
 initials. It was neither intended nor adapted for the general market. 
 * * * We must therefore hold that the statute of frauds does not 
 apply to the contract which the plaintiff is seeking to enforce in this 
 action. * * * Judgment entered for the plaintiff. 
 
 WEEKS V. CEIE et al. 
 
 (Supreme Judicial Court of Maine, 190O. 94 Me. 458, 48 All. 107, 
 80 Am. St. Rep. 410.) 
 
 Assumpsit to recover damages for nondelivery of a quantity of fish, 
 which the plaintiff alleged he purchased of the defendants under an 
 oral contract. The defendants denied the contract, and invoked the 
 statute of frauds. The verdict was for plaintiff, and damages assessed 
 at $128.70. * * * 
 
 Savage, J. At the trial of this case the plaintiff claimed, and in- 
 troduced evidence tending to show, that the defendants in November, 
 1898, orally agreed to sell him from three to five hundred drums of 
 hake at $1.65 per kentle, to be delivered at Rockland when called for by 
 him, and at the same interview agreed to sell him ten barrels of split 
 herring at $4.25 per barrel, to be delivered in Rockland by next boat 
 from Criebaven, which would be within one week ; that he (the plain- 
 tiff) orally agreed with the defendants to purchase the hake and the 
 herring upon these terms. It was admitted by the defendants that they 
 sold the herring to the plaintiff as claimed, and that they were delivered 
 according to the agreement, and paid for by the plaintiff. The plaintiff 
 in' January, 1899, demanded 300 drums of hake to be delivered in ac- 
 cordance with the alleged agreement, but the defendants refused to 
 deliver them ; and to recover damages for that alleged breach of con- 
 tract this action was brought. 
 
 The defendants denied that they agreed to sell any hake to the plain- 
 tiff. But the jury, under instructions to which no exceptions were 
 taken, have found they did make such a contract. In this contingency 
 the defendants claim that, if any such contract of sale was made, it 
 was oral merely, and, being for more than $30, it was invalid under 
 the statute of frauds. The case shows that no memorandum was 
 made, and nothing was given in earnest to bind the bargain ; and the 
 defendants claim that no part of the goods sold were accepted and re- 
 ceived by the purchaser, so as to bind the defendants to deliver the 
 hake. This last proposition is controverted by the plaintiff, and here- 
 on, as will be seen, the case hinges. * * * 
 
 The plaintiff, however, contends that the contracts for the hake and 
 the herring constituted in fact but one entire contract for hake and 
 herring, and that his acceptance and receipt of the herring, a part of the 
 
Ch. 9) CONTRACTS EEQTJIRED TO BE IN WKITING 379 
 
 merchandise contracted for, took the sale out of the statute as to the 
 whole. * * * 
 
 Now, if there were two separate contracts of sale, one for the herring 
 and one for the hake, it is clear that the acceptance and receipt of the 
 herring did not take the contract for the hake out of the statute, for an 
 acceptance under one contract cannot make another contract valid. 
 But if there was in fact only one contract, for both herring and hake, 
 negotiated for, it may be, successively, a delivery followed by an ac- . 
 ceptance and receipt of the herring did take the hake out of the stat- 
 
 UtC Ns S)! ij: 
 
 The application of the statute of frauds in case of the purchase of a 
 number of articles at the same transaction may depend upon whether 
 there is one contract or more. The mere fact that a separate price is 
 agreed upon for each article, or even that each article is laid aside as 
 purchased, makes no difference, so long as the different purchases are 
 so connected in time or place, or in the conduct of the parties, that the 
 whole may be fairly considered as one transaction. * * * Such is 
 the common case of a number of articles purchased at private sale of 
 a shopman, for instance, at the same time, though at separate prices. 
 * * * The same doctrine was applied in a case where the parties 
 made bargains for the purchase and sale of several lots of timber at 
 different places, some miles apart ; the bargains being made at the dif- 
 ferent places and at separate prices, but all on the same day. * * * 
 Such purchases may be regarded as entire, though composed of sep- 
 arate parts. But whether such negotiations for separate articles result 
 in one entire contract for the whole, or whether the contract for each 
 remains separate and distinct, may depend upon many circumstances. 
 It raises a question of fact properly to be passed upon by a jury. Were 
 the transactions near in time or place or similar in circumstances? 
 What was the conduct of the parties? Was the seller a merchant en- 
 gaged in the regular course of his business in his shop or store ? What 
 was the language used ? What are the proper inferences to be drawn as 
 to the intention of the parties? The answers to these and other like 
 questions solve the problem. If the circumstances are such as to lead 
 to a reasonable supposition that the parties intended that the whole 
 series of transactions should Constitute one trade, they may be regard- 
 ed as one entire contract ; otherwise, not. 
 
 Now, in the case at bar, the jury were instructed, in effect, that, if 
 the two contracts for sale were made at the same interview, that would 
 be sufficient. We think this ruling was erroneous. Even if there were 
 no other facts or circumstances to be considered, which is hardly sup- 
 posable, it cannot be said, as a matter of law, that the mere fact that 
 the negotiations for the herring and the hake were made at the same in- 
 terview resulted in a single contract. They may have constituted one 
 contract only, and they may not. If not, then the hake were not taken 
 out of the statute by the acceptance of the herring. Whether the nego- 
 tiations constituted one contract or more was a question of fact, and 
 should have been submitted to the jury. 
 
 Exceptions sustained. 
 
380 CONTRACTS (Part 1 
 
 SECTION 8.— COMPLIANCE WITH THE STATUTE 
 
 CASTLE V. SWIFT & C!0. 
 (Court of Appeals of Maryland, 1918. 132 Md. 631, 104 Atl. 187.) 
 
 Pattison, J. The action in this case was brought by the appellee, 
 Swift & Co., to recover the loss sustained by it in the resale of eggs 
 claimed to have been sold by it to the appellant, Frederick C. Castle, 
 and which he refused to take under such alleged sale. This appeal 
 presents the question whether, under the statute known as the "Sales 
 Act," there was a sale of the eggs by the appellee to the appellant that 
 can be legally enforced. 
 
 J. Frederick Conrad, salesman for Swift & Co., testified that on 
 Friday night, November 24, 1916, the defendant, a dealer in butter and 
 eggs in the city of Baltimore, called the plaintiff over the phone at its 
 Eutaw Market, Baltimore, Md-, and asked the price of eggs. Wit- 
 ness quoted them to him at 37 cents per dozen, whereupon tibe defend- 
 ant first offered 36 cents, but finally offered to purchase 200 cases and 
 to pay therefor 36% cents per dozen, if, as stated by the witness, "I 
 would put them in our upstairs butter cooler, and he would order 
 them out as he needed them." The eggs were to be placed in the but- 
 ter cooler to save him the cost of storage. This offer was accepted, 
 but, as Saturday was "a half holiday," the eggs were not put aside for 
 the defendant until Monday, when, as requested by him, they were 
 put in the butter cooler and designated as his eggs. On Tuesday 
 morning the eggs were billed to him. On Wednesday morning the 
 defendant again called the plaintiff over the phone, and Conrad, who 
 answered the phone, was told by him that "the egg deal was off." 
 Castle assigned as a reason therefor that the plaintiff's Pratt Street 
 Market, as well as another dealer, had offered eggs to him at a lower 
 price. The plaintiff refused to treat the deal as off, and upon the 
 defendant's refusal to take the eggs and to comply with the terms of 
 said agreement, they were resold by the plaintiff; the sum received 
 therefor being less than the amount at which they had been sold to the 
 defendant at such alleged sale. * * * 
 
 It is conceded that there was nothing given in earnest to bind the 
 contract, or in part payment of the purchase money for the eggs said 
 to have been bought by the defendant, and that there was no note or 
 memorandum in writing of the contract or sale signed as required by 
 the statute; consequently, in order to hold the contract or sale bind- 
 ing and enforceable against the defendant, the alleged buyer, it must 
 be shown that he accepted at least a part of the eggs contracted to be 
 sold or sold, and that he actually received the same. Therefore in this 
 case we are concerned only in the meaning of the statute in respect to 
 the provisions requiring acceptance and receipt by the buyer of the 
 goods sold. 
 
 It is clear that the terms of the statute require two distinct acts on 
 the part of the vendee; he must accept, and he must' actually receive, 
 a part of the goods, in order to render the contract binding on him. 
 There may be an actual receipt without any acceptance, and there may 
 be an acceptance without any receipt. An acceptance niay precede 
 or follow the receipt, or it may be contemporaneous therewith; and 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 381 
 
 at times even a receipt may be evidence of acceptance, but it is not 
 the same thing. * * * As defined by the statute (section 25) there 
 is an acceptance of the goods "when the buyer, either before or after 
 delivery of the goods, expresses by words or conduct his assent to 
 become the owner of those specific goods." By section 69 of the same 
 article he "is deemed to have accepted the goods when he intimates to 
 the seller that he has accepted them." 
 
 In Williston on Sales, § 483, it is said: "The ways of manifesting 
 acceptance may be reduced to the three enumerated in the section of 
 the Sales Act under consideration, namely: (1) Intimation of accept- 
 ance. (2) Exercising acts of owner^ip. (3) Retaining the goods. 
 Under the first head will be included both cases where the buyer re- 
 ceives goods and expresses his acceptance of them, and also cases 
 where by the terms of the bargain the buyer agreed to accept goods, 
 whether specified at the time of the bargain or to be afterwards se- 
 lected by the seller, without inspection." 
 
 All cases admit that the term "actually receive," found in the stat- 
 ute, means the acquisition of possession by the buyer, and whatever 
 difficulties exist in regard to its meaning are largely due to the inher- 
 ent difficulty of determining what is, in fact, possession. This court, 
 however, has said, speaking through Judge Alvey, that : "The receipt 
 of part of the goods is the taking possession of them. When the sell- 
 er gives to the buyer the actual control of the goods, and the buyer 
 accepts such control, he has actually received them." Hewes & Co. 
 v. Jordan, 39 Md. 472, 17 Am. Rep. 578. 
 
 It is said, however, upon good authority, that goods may be received 
 by the buyer within the meaning of the statute, and yet allowed to re- 
 main in the hands of the vendor, if it be shown that the seller has 
 ceased to hold in the character of unpaid vendor and holds wholly as 
 bailee for the buyer. Williston on Sales, § 91, and the numerous 
 cases cited in note thereto. 
 
 In this case we think there is evidence of both acceptance and ac- 
 tual receipt of the goods, which should be submitted as a question of 
 fact to the jury under proper instructions of the court; thus we find 
 no error in the ruling of the court in its rejection of the defendant's 
 first prayer, asking that the case be taken from the jury. 
 
 But the court in our opinion erred in granting the plaintiff's prayer, 
 in which it is said that, if it be disclosed by the evidence that the defend- 
 ant purchased the eggs at the price .named, and the same were to be 
 placed in the butter cooler to save him storage, and that upon the eggs 
 being placed therein and an invoice sent to him he was to pay for the 
 eggs, then the placing of the eggs in the butter cooler under such 
 circumstances vested the title to said eggs -in the defendant. This 
 prayer fails to recognize, or at least within sufficient clearness, the 
 essential requirements of the actual receipt of the goods by the buy- 
 er and the intention of the parties as to the same. It was not only 
 necessary to find that the eggs were placed in the butter cooler, but 
 it was also to be found that by so doing the unrestricted control of 
 the eggs passed to the buyer, and that such was the intention of the 
 parties. * * * 
 
 Because of the error of the court in granting the plaintiff's prayer, 
 the judgment of the court below will be reversed. * * * 
 
382 CONTRACTS (Part 1 
 
 DRIGGS V. BTJSH et al. 
 
 (Supreme Court of Michigan, 190S. 152 Mich. 53, 115 N. W. 986, 
 15 L. B. A. [N. S.] 654, 125 Am. St. Kep. 389, 15 Ann. Gas. 30.) 
 
 Action by Hue H. Driggs against Levi Bush and another. Judgment 
 for plaintiff, and defendants bring error. 
 
 Montgomery, J. The plaintiff is a buyer of hay, and through his 
 agents, Homer B. McWilliams and John Van Horn, made a contract 
 with the defendants, who own and operate two farms in Van Buren 
 county, and who were the joinf' owners of the hay crop thereon, for 
 -the purchase of 24 tons of hay or more at the option of the defend- 
 ants. The contract was by parol, and, as appears by the testimony 
 offered on behalf of the plaintiff, was as follows: "Mr. Dean said: 
 ^I want $10 a ton and you bale the hay.' We finally bought all of 
 the hay for $10 a ton, and we to do the baling, and we were to take 
 the hay the first cars we could get at Gobleville after the hay was 
 baled." * * * After the contract was made, the plaintiff sent bal- 
 ers to the premises of the defendants who baled the hay, the defend- 
 ants being present and assisting in the work. The price paid for bal- 
 ing the hay was $1.10 per ton, or $33.55, that being the regular price 
 for such services. The defendants subsequently refused performance 
 of the contract, and this action was brought to recover damages for 
 the breach. Plaintiff was permitted to recover below the difference be- 
 tween the purchase price of the hay and its actual market price at 
 the date when delivery was contemplated. Defendants bring error, and 
 contend that the contract was void under the statute of frauds, and 
 has never been validated and this presents the principal question for 
 our consideration. * * * 
 
 It is strenuously insisted that there was no such delivery or accept- 
 ance, and plaintiff's counsel do not seek to maintain that there was. 
 Without passing directly upon the question, therefore, in this case, 
 we may assume that there was no such completed delivery as the 
 statute requires, and that the defendants still retained the title to 
 the property after the same was baled. * * * The question oc- 
 curs, therefore, whether the expenditure of $1.10 per ton upon this 
 hay, which remained the property of the defendants, which expenditure 
 was received and accepted by them, and was made in pursuance of the 
 contract between the parties, was "such a part payment as answered the 
 requirements of the statute. It is contended that the thing in iearnest 
 must be actually paid, and received by the seller. This we fully ac- 
 cept. But there can be no doubt in this case that the service of bal- 
 ing this hay was receivefd and accepted by these defendants, and if 
 this was done at a time while the hay remained their property, and 
 such service was received in pursuance of the contract made between 
 the parties, we can conceive of no valid objection to treating this as 
 a part payment of the consideration which was to pass from Ae plain- 
 tiff to the defendants at a time prior to the passing of the title of the 
 hay to plaintiff. * * * It is not necessary that the payment made 
 upon the contract be in money. * * * 
 
 In the present case, any work done upon the hay in baHng the same, 
 passed a present benefit from the purchaser to the seller, and as it 
 was done in pursuance of the contract, it could be nothing else than 
 payment upon the contract. None of these cases, therefore, militate 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITINO 38S 
 
 against the conclusion which we announce, that this contract was vah- 
 dated by the receipt of the benefit of baHng the hay in pursuance of 
 the contract. * * * 
 Judgment affirmed. 
 
 ULLSPEEGER v. MEYER. 
 
 (Supreme Court of Illinois, 1005. 217 111. 262, 75 N. E. 482, 2 L. R. A. 
 ['N. S.] 221, 3 Ann. Cas. 1032.) 
 
 Ricks, J. * * * From the reading of the sections of the stat- 
 ute it will be seen that it is only necessary that some memorandum or 
 note be made of the contract and signed by the party to be charged 
 therewith. "The statute does not require that the contract itself shall 
 be reduced to writing. It is sufficient if there be a memorandum of 
 the contract in writing signed by the party to be charged or by some 
 one by him duly authorized. * * * No particular form of lan- 
 guage is necessary to constitute the memorandum requisite to satisfy 
 the requirements of the statute. An admission in writing of the bar- 
 gain having been made, although it may not furnish exclusive evi- 
 dence of the contract, as a final agreement would do, or an offer in 
 writing so stating the proposal that its mere acceptance would fix 
 the terms of the bargain, will, if accepted, satisfy the statute, and the 
 acceptance of the offer in writing may be shown by parol. * * * 
 
 The authorities are agreed that if the memorandum shall contain 
 on its face the names of the. parties vendor and vendee, a sufficiently 
 clear and explicit description of the thing, interest, or property as will 
 be capable of identification, together with the terms and conditions 
 of the contract, and signed by the party to be charged, it will be 
 sufficient upon which to predicate a decree for specific performance. 
 * * * The contract or memorandum set up in the bill while in the 
 nature of a receipt, clearly evidences a sale of the property therein de- 
 scribed as having taken place from appellee to appellant, and ac- 
 knowledges that $100 has been paid upon the purchase price of $14,000 
 by appellant. Appellant is named as the purchaser, and the text of the 
 writing clearly designates appellee as the vendor by whom the writing 
 is signed; so that it will be seen that the contract or writing relied 
 upon contains all that is required by the statute, and more, as the stat- 
 ute does not require that the consideration shall be stated in the writ- 
 ing but authorizes it to be establislied by parol. 
 
 It is insisted that there is no time specified for the completion of 
 the contract, and that therefore the contract is not complete. Un- 
 der such a contract the law would imply that it was to be performed 
 within a reasonable time after entering into the same, and what would 
 be a reasonable time would be a matter of proof under all the condi- 
 tions and circumstances that might surround the case. * * * 
 
 It is urged that this contract lacks in the material element of mutu- 
 ality. The particular ground upon which this contention is based is 
 thai, the contract is signed by appellee only. * * * We are unable 
 to understand why the mere written option signed by the vendor shall 
 bind him by the verbal acceptance of the vendee and his offer to per- 
 form be held to be a mutual and binding contract within the statute 
 of frauds, and the contract of sale acknowledging the receipt of part 
 payment, signed by the vendor, shall be held void for want of mutual- 
 
384 CONTRACTS (Part 1 
 
 ity upon the alleged ground that the vendee has not bound himself to 
 perform by some writing. We are aware that there is a diversity of 
 opinion and a contrariety of holdings by the courts of last resort m 
 the various states upon this subject; but a careful review of the 
 authorities leads us to conclude that a contract otherwise clear and ex- 
 plicit is sufficient to meet the requirements of the statute of frauds, 
 if signed by the vendor. In 29 Am. & Eng. Enc. Law (2d Ed.) the 
 subject under consideration is extensively discussed and the atithori- 
 ties touching it reviewed, and the conclusion there announced is (page 
 858) : "The weight of authority is that the statute is satisfied if the 
 memorandum be signed by the parties sought to be charged alone, or, 
 in other words, by the party defendant in an action brought to en- 
 force the contract, whether he be vendor or vendee. In the case of a 
 contract for the sale of lands, the vendor is usually the person to be 
 charged, and a memorandum signed by him alone is valid. The party 
 not signing the memorandum is not bound unless, as held by some au- 
 thorities, he has accepted the same as a valid, subsisting contract. 
 Want of mutuality arising from the failure of both parties to sign 
 cannot be successfully pleaded as a defense by the party who did sign, 
 as the act of filing a bill for specific performance binds the plaintiff and 
 renders the contract mutual." A reference to the authorities there cit- 
 ed shows that the rule thus obtains in England and in the majority of 
 the United States. Speaking of this rule, Mr. Pomeroy, in his work 
 on Specific Performance (section 75), in part says : "It may, perhaps, 
 be sustained iipon the following grounds: The statute of frauds does 
 not reach the substanc'e of contracts and 'render them valid or invalid. 
 It simply furnishes a rule of evidence. Whenever, therefore, any 
 agreement is enforced against a defendant who has signed it by a 
 plaintiff who has not, it cannot be said that the agreement, so far as 
 it purports to bind the plaintiff, is a nullity. In the suit against him 
 the statute does jio more than require a certain kind of proof in case he 
 avails himself of it as a defense. The defense, however, is wholly a 
 personal one, and if he neglects to set it up the agreement would be 
 established against him, notwithstanding the statute. For these rea- 
 sons it cannot be said that a memorandum signed by one party alone 
 is so completely wanting in mutuality that no action upon it can be 
 sustained." * * * 
 
 SECTION 9.— EFFECT OF NON-COMPLIANCE WITH 
 THE STATUTE 
 
 BIRD et.al. v. MUNROE. 
 (Supreme Judicial Court of JMaine, 1877. 66 Me. 337, 22 Am. Rep. 571.) 
 
 Peters, J. On March 2, 1874, at Rockland, in this state, the de- 
 fendant contracted verbally with the plaintiffs for the purchase of 
 a quantity of ice, to be delivered (by immediate shipments) to the de- 
 fendant in New York. On March 10, 1874, or thereabouts, the de- 
 fendant, by his want of readiness to receive a portion of the ice as 
 he had agreed to, temporarily prevented the plaintiffs from perform- 
 ing the contract on their part according to the preparations made by 
 them for the purpose. On March 24, 1874, the parties, then in New 
 
Ch. 9) CONTRACTS REQUIRED TO BE IN WRITING 385 
 
 York, put their previous verbal contract into writing, antedating it as 
 an original contract made at Rockland on March 2, 1874. On the 
 same day (March 24), by consent of the defendant, the plaintiffs sold 
 the same ice to another party, reserving their claim against the de- 
 fendant for the damages sustained by them by the breach of the con- 
 tract by the defendant on March 10th or about that time. This 
 action was commenced on April 11, 1874, counting on the contract 
 as made on March 2, and declaring for damages sustained by the 
 breach of contract on March 10, or thereabouts and prior to March 
 24, 18/^4. Several objections are set up against the plaintiffs' right to 
 recover. * * * 
 
 Then, the defendant next contends that, even if the writing signed 
 by the parties was intended by them to operate retroactively as of 
 the first named date, as a matter of law, it cannot be permitted to 
 have that effect and meet the requirements of the statute of frauds. 
 The position of the defendant is, that all which took place between 
 the parties before the 24th of March was of the nature of negotiation 
 and proposition only; and that there was no valid contract, such as 
 is called for by the statute of frauds, before that day ; and that the 
 action is not maintainable, becatise the breach of contract is alleged to 
 have occurred before that time. The plaintiffs, on the other hand, 
 contend that the real contract was made verbally on the 2d of March, 
 and that the written instrument is sufficient proof to make the verbal 
 contract a vaHd one as of that date (March 2), although the written 
 proof was not made out until twenty-two days after that tiine. Was 
 the valid contract, therefore, made on March 2d or March 24th? 
 The poiht raised is, whether, in view of the statute of frauds, the 
 writing in this case shall be considered as constituting the contract 
 itself or at any rate any substantial portion of it, or whether it may 
 be regarded as merely the necessary legal evidence by means of which 
 the prior unwritten contract may be proved. In other words, is the 
 writing the contract, or only evidence of it; we incline to the latter 
 view. * * * Such a construction of the statute upholds contracts 
 according to the intention of parties thereto, while it, at the same 
 time, fully subserves all the purposes for which the statute was cre- 
 ated. It must be borne in mind that verbal bargains for the sale of 
 personal property are good at common law. Nor are they made ille- 
 gal by the statute. Parties can execute them if they mutually please 
 to do so. The object of the statute is to prevent perjury and fraud. 
 Of course, perjury and fraud cannot be wholly prevented; but as 
 said by Bigelow, J., in Marsh et al. v. Hyde, 3 Gray (Mass.) 331, "a 
 memorandum in writing will be as effectual against perjury, although 
 signed subsequently to the making of a verbal contract, as if it had 
 been executed at the moment when the parties consummated their 
 agreement by word of mouth." We think it would be more so. A 
 person would be likely to commit himself in writing with more care 
 and caution after time to take a second thought. The locus poeniten- 
 tise remains to him. 
 
 By no means are we to be understood as saying that all written in- 
 struments will satisfy the statute, by having the effect to make the 
 contracts described in them vaHd from the first verbal inception. 
 That must depend upon circumstances. In many, and perhaps, most 
 instances, such a version of the transaction would not agree with the 
 B.& B.Bus.Law— 25 
 
386 CONTRACTS (Part 1 
 
 actual understanding of the parties. In many cases, undoubtedly, the 
 written instrument is per se the contract of the parties. * * * 
 
 There are few decisions that bear directly upon the precise point 
 which this case presents to us. From the nature of things, a state of 
 facts involving the question would seldom exist. But we regard the 
 case of Townsend v. Hargraves, 118 Mass. 325, as representing the 
 principle very pointedly. It was there held that the statute of frauds 
 affects the remedy only and not the validity of the contract ; and that 
 where there has been a completed oral contract of sale of goods, the 
 acceptance and receipt of part of the goods by the purchaser takes the 
 case out of the statute, although such acceptance and receipt are after 
 the rest of the goods are destroyed by fire while in the hands of the 
 seller or his agent. The date of the agreement rather than the date 
 of the part acceptance was treated as the time when the contract 
 was made; and the risk of the loss of the goods was cast upon the 
 buyer. We are not aware of any case where the question has been 
 directly adjudicated adversely to these cases. * * * 
 
 But there are a great many cases where, in construing the statute of 
 frauds, the force and effect of the decisions go to sustain the view we 
 take of this question, by the very strongest implication: Such as: 
 that the statute does not apply where the contract has been executed 
 on both sides; * * * ^-j^^^ j,q person can take advantage of the 
 statute but the parties to the contract, and their privies; * * * 
 that the memorandum may be made by a broker, or by an auctioneer; 
 that a sale of personal property is valid when there has been a de- 
 livery and acceptance of part, although the part be accepted several 
 hours after the sale, * * * or several days after, * *, * or 
 ever so long after ; that a creditor, receiving payments from his debt- 
 or without any direction as to their application, may apply them to a 
 debt on which the statute of frauds does not allow an action to be 
 maintained ; * * * that a contract made in France, and valid there 
 without a writing, could not be enforced in England without one, 
 upon the ground that the statute related to the mode of procedure and 
 not to the validity of the contract, Leroux v. Brown, 12 C. B. 801, but 
 this case has been questioned somewhat ; that a witness may be guilty 
 of perjury who swore falsely to a fact which may not be competent ev- 
 idence by the statute of frauds, but which becomes material because 
 not objected to by the party against whom it was offered and receiv- 
 ed; * * * that an agent who signs a memorandum need not have 
 his authority at the time the contract is entered into, if his act is oral- 
 ly ratified afterwards; * * * that the identical agreement need 
 not be signed, and that it is sufficient if it is acknowledged by any 
 other instrument duly signed; * * * that the recognition of the 
 contract may be contained in a letter, or in several letters, if so con- 
 nected by "written links" as to form sufficient evidence of the con- 
 tract; that the letters may be addressed to a third person; that an 
 agent may write his own name instead of that of the principal if in- 
 tending to bind his principal by it ; * * * that a proposal in writ- 
 ing, if accepted by the other party by parol, is a sufficient memoran- 
 dum; * * * that where one party is bound by a note or memo- 
 randum the other party may be bound if he admits the writing by an- 
 other writing by him subsequently signed ; that the written contract 
 may be rescinded by parol, although many decisions are opposed to 
 this proposition; * * * that equity will interfere to prevent a 
 
Ch. 9) CONTRACTS UEQtIIRED TO BE IN WRITING 387 
 
 party making the statute an instrument of fraud; * * * that a 
 contract verbally made may be maintained for certain purposes, not- 
 withstanding the statute; that a person who pays his money under it 
 cannot recover it back if the other side is willing to perform, and he 
 can recover if performance is refused ; * * * that a respondent in 
 equity waives the statute as a defense unless set up in plea or an- 
 swer ; * * * that it must be specially pleaded in an action at law ; 
 * * * that the defendant may waive the protection of the statute 
 and admit verbal evidence and become bound by it. * * * 
 
 It is clear from the foregoing cases, as well as from many more 
 that might be cited, that the statute does not forbid paid contracts, but 
 only precludes the bringing of actions to enforce them. As said in 
 Thornton v. Kempster, 5 Taunt. 786, 788, "the statute of frauds 
 throws a difficulty in the way of the evidence." * * * Jervis, C. 
 J., said, "The effect of the section is not to avoid the contract, but 
 to bar the remedy upon it, unless there be writing." * * * 
 
 But the defendant contends that this course of reasoning would 
 make a memorandum sufficient if made after action brought, and 
 that the authorities do not agree to that proposition. Therfe has 
 been some judicial inclination to favor the doctrine to that extent 
 even, and there may be some logic in it. Still the current of decision 
 requires that the writing must exist before action brought. And the 
 reason for the requirement does not militate against the idea that a 
 memorandum is only evidence of the contract. There is no actionable 
 contract before memorandum obtained. The contract cannot be sued 
 until it has been legally verified by writing; until then there is no 
 cause of action, although there is a contract. The writing is a con- 
 dition precedent to the right to sue. Willes, J., perhaps correctly de- 
 scribes it in Gibson v. Holland, L. R. 1 C. P. 1, when he says, "the 
 memorandum is in some way to stand in the place of a contract." 
 He adds : "The courts have considered the intention of the legislature 
 to be of a mixed character; to prevent persons from having actions 
 brought against them so long as no written evidence was existing when 
 the action was instituted." * * * j^ ^jjg \^^^ ^^^^ j^ js gaj^j; 
 "Strictly speaking, the statute does not make the contract void, ex- 
 cept for the purpose of sustaining an action upon it, to enforce it." 
 
 Action to stand for trial. 
 
388 CONTRACTS (Part 1 
 
 CHAPTER X 
 REMEDIES 
 
 Section 
 
 1. Introduction. 
 
 2. Measure of Damages. 
 
 3. Rescission. 
 
 4. Judgments and Executions, 
 
 5. Garnishment. 
 
 6. Attachment of Property. 
 
 7. Specific Performance. 
 
 8. Injunction. 
 
 9. Enforcement of Decrees hy Attachment for Contempt 
 
 10. Bankruptcy. 
 
 11. Receiverships. 
 
 SECTION 1.— INTRODUCTION 
 
 In, the preceding chapters we have dealt at some length with 
 contractual legal relations. We have noted the origin, nature and 
 scope of legal rights and legal duties. In the chapter on Perform- 
 ance we had occasion to observe, in detail, the circumstances under 
 which the law regards a contractual duty as violated. Our inquiry, 
 then, primarily, was to determine what constitutes a breach of con- 
 tract and to ascertain the circumstances under which the other 
 party might successfully sue the party in default. Our inquiry 
 stopped upon the discovery of the existence or non-existence of this 
 right to succeed in such an action and of the reasons which im- 
 pelled the court so to decide. Our primary question was : "May 
 this plaintiff recover anything?" not, "How much or what may he 
 recover." 
 
 In this chapter our attention is directed more pointedly toward 
 the nature and operation of the remedy, rather than to the ques- 
 tion : "Is the plaintiff entitled to any relief at all ?" In the follow- 
 ing cases and discussion we are assuming, usually, that the plaintiff 
 is entitled to some relief under the rules of the substantive law of 
 contracts. It is our purpose to find out what the court actually 
 will do to help the plaintiff out of his difficulty. Our problem di- 
 vides itself into two parts: (1) What is it that the court may 
 decide that the plaintiff is entitled to receive? Will the court or- 
 der the defendant actually to perform certain personal services for 
 the plaintiff, or to refrain from doing certain acts which cause 
 damage to the plaintiff? In its broad aspect, therefore, the ques- 
 tion is: What will the court order the defendant to do? (2) The 
 second question, arises after the court has decided what the defend- 
 ant should do and has ordered him to comply with its mandate. 
 Suppose the defendant is no more inclined to obey the positive di- 
 rection of the court than he was to do his duty before the action 
 was brought against him. What will the court then do? There 
 exists quite a range of possibilities. It is possible to put the de- 
 
Ch. 10) , REMEDIES 389 
 
 fendant in jail until he decides to obey. The court may order 
 some of his property sold and the proceeds turned over to the plain- 
 tiff. The court might even, in some cases, permit the plaintiff to 
 do something which in the absence of the court's order would be 
 a wrongful act. In the last analysis most legal remedies resolve 
 themselves finally into one of two kinds of acts ; either the doing 
 of something to one's person, such as imprisoning him, or in the 
 doing of something to his property, such as selling it or destroying 
 it. The "following sections, therefore, seek to call attention to the 
 nature of the weapons which the courts may employ to compel 
 obedience to their mandates and to the circumstances under which 
 each may properly and effectively be used. 
 
 SECTION 2.— MEASURE OF DAMAGES 
 
 The principles which fix the amourit of money recoverable for 
 breach of contract are of equal importance with the principles which 
 determine the existence of liability. If a person has in fact been 
 caused a loss of $2,000 by reason of a breach of contract, from his 
 standpoint there should be a recovery of $2,000. Many times, 
 perhaps in a majority of cases, a successful plaintiff does obtain a 
 judgment for an amount sufficient to reimburse him for his actual 
 loss. But often this will not be true. There are cases where the 
 loss to the plaintiff is definitely determined ; but the circumstances 
 may be such that it would not be just to compel the defendant to 
 pay the full amount of plaintiff's loss. The law attempts, therefore, 
 to fix the amount of recoverable damages, after a careful consid- 
 eration of the interests of both plaintiff and defendant. The fol- 
 lowing cases do very little toward developing the rules of dam- 
 ages, but they inay serve to indicate the point of view from which 
 the situation is approached. 
 
 HADI.KY el al. y. BAXENDALE et al. 
 (Court of Exchequer, 1S54. 9 Exch. 341, 5 Eug. Rul. Cas. 502.) 
 
 The plaintiffs carried on an extensive business as millers at Glouces- 
 ter, and on the 11th of May, their mill was stopped by a breakage of 
 the crank shaft, by which the mill was worked. The steam engine 
 was manufactured by Messrs. Joyce & Co., the engineers, at Greenwich, 
 and it became necessary to send the shaft as a pattern for a new one 
 to Greenwich. The fracture was discovered on the 12th, and on the, 
 13th the plaintiffs sent one of their servants to the office of the de- 
 fendants, who are the well-known carriers trading under the name of 
 Pickford & Co., for the purpose of having the shaft carried to Green- 
 wich. The plaintiffs' servant told the clerk that the mill was stopped, 
 and that the shaft must be sent immediately; and in answer to the 
 inquiry when the shaft would be taken the answer was that if it was 
 sent up by twelve o'clock any day it would be delivered at Greenwich 
 on the following day. On the following day the shaft was taken by 
 the defendants, before noon, for the purpose of being conveyed to 
 
390 cbNTEACTS (Part 1 
 
 Greenwich, and the sum of 12. 4s. was paid for its carriage for the 
 whole distance. At the same time the defendants' clerk was told that 
 a special entry, if required, should be made, to hasten its delivery. 
 The delivery of the shaft at Greenwich was delayed by some neglect, 
 and the consequence was that the plaintiffs did not receive the new 
 shaft for several days after they would otherwise have done, and the 
 working of their mill was thereby delayed, and they thereby lost the 
 profits they would otherwise have received. 
 
 On the part of the defendants it was objected that these .damages 
 were too remote, and that the defendants were not Hable with respect 
 to them. The learned judge left the case generally to the jury, who 
 found a verdict with £25 damages beyond the amount paid into court 
 by defendant, which was £25. 
 
 Alderson, B. We think that there ought to be a new trial in this 
 case; but in so doing we deem it to be expedient and necessary to 
 state explicitly the rule which the judge, at the next trial, ought, in 
 our opinion, to direct the jury to be governed by when they estimate 
 the damages. 
 
 It is, indeed, of the last importance that we should do this ; for, if 
 the jury are left without any definite rule to guide them, it will, in 
 such cases as these, manifestly lead to the greatest injustice. * * * 
 "There are certain established rules," this court says, in Alder v. 
 Keighley, 15 M. & W. 117, "according to which the jury ought to find." 
 And the court in that case adds : "And here there is a clear rule that 
 the amount which would have been received if the contract had been 
 kept is the measure of damages if the contract is broken." Now, we 
 think the proper rule in such a case as the present is this : Where two 
 parties have made a contract which one of them has broken, the dam- 
 ages which the other party ought to receive in respect of such breach 
 of contract should be such as may fairly and reasonably be considered 
 either arising naturally^i. e., according to the usual course of things,, 
 from such breach of contract itself — or such as may reasonably be 
 supposed to have been in the contemplation of both parties at the 
 time they made the contract, as the probable result of the breach of 
 it. Now, if the special circumstances under which the contract was 
 actually made were communicated by the plaintiffs to the defendants, 
 and thus known to both parties, the damages resulting from the breach 
 of such a contract, which they would reasonably contemplate, would 
 be the amount of injury which would ordinarily follow from a breach 
 of contr.act under these special circumstances so known and communi- 
 cated. But, on the other hand, if these special circumstances were 
 wholly unknown to the party breaking the contract, he, at the most, 
 could only be supposed to have had in his contemplation the amount 
 of injury which would arise generally, and in the great multitude of 
 cases not affected by any special circumstances, from such a breach 
 of contract. For, had the special circumstances been known, the par- 
 ties might have specially provided for the breach of contract by spe- 
 cial terms as to the damages in that case; and of this advanta<^e it 
 would be very unjust to deprive them. 
 
 Now, the above principles are those by which we think the jury 
 ought to be guided in estimating the damages arising out of any 
 breach of contract. It is said that other cases, such as breaches of 
 contract in the nonpayment of money, or in the not making a good 
 
Ch. 10) REMEDIES 391 
 
 title to land, are to be treated as exceptions from this, and as governed 
 by a conventional rule. But as, in such cases, both parties must be 
 supposed to be cognizant of that well-known rule, these cases may, 
 we think, be more properly classed under the rule above enunciated as 
 to cases under known special circumstances, because there both parties 
 may reasonably be presumed to contemplate the estimation of the 
 amount of damages according to the conventional rule. Now, in the 
 present case, if we are to apply the principles above laid down, we find 
 that the only circumstances here communicated by the plaintiffs to the 
 defendants at the time the contract was made were that the article to 
 be carried was the broken shaft of a mill, and that the plaintiffs were 
 millers of that mill. 
 
 But how do these circumstances show reasonably that the profits of 
 the mill must be stopped by an unr°asonable delay in the delivery of 
 the broken shaft by the carrier to the third person? Suppose the 
 plaintiffs had another shaft in their possession, put up or putting up 
 at the time, and tha,t they only wished to send back the broken shaft 
 to the engineer who made it, it is clear that this would be quite con- 
 sistent with the above circumstances, and yet the unreasonable delay 
 in the delivery would have no effect upon the intermediate profits of 
 the mill. Or, again, suppose that, at the time of the delivery to the 
 carrier, the machinery of the mill had been in other respects defective, 
 then, also, the same results would follow. Here it is true that the 
 shaft was actually sent back to serve as a model for a new one, and that 
 the want of a new one was the only cause of the stoppage of the mill, 
 and that the loss of profits really arose from not sending down the new 
 shaft in proper time, and that this arose from the delay in delivering 
 the broken one to serve as a model. But it is obvious that in the great 
 multitude of cases of millers sending off broken shafts to third per- 
 sons by a carrier under ordinary circumstances, such consequences 
 would not, in all probability, have occurred ; and these special circiim- 
 stances were here never communicated by the plaintiffs to the defend- 
 ants. 
 
 It follows, therefore, that the loss of profits here cannot reasonably 
 be considered such a consequence of the breach of contract as could 
 have been fairly and reasonably contemplated by both the parties when 
 they made this contract. For such loss would neither have flowed 
 naturally from the breach of this contract in the great multitude of 
 such cases occurring under ordinary circumstances, nor were the 
 special circumstances, which, perhaps, would have made it a reasonable 
 and natural consequence of such breach of contract, communicated 
 to or known by the defendants. The judge ought, therefore, to have 
 told the jury that upon the facts then before them they ought not to 
 take the loss of profits into consideration at all in estimating the dam- 
 ages. There must therefore be a new trial in this case. 
 
 MILLER V. TRUSTEES OP MARINERS' CHURCH. 
 (Supreme Judicial Court of Maine, 1830. 7 Greenl. 51, 20 Am. Dee. 341.) 
 
 Assumpsit for the contract price of a quantity of stone, which plain- 
 tiffs contracted to supply to defendants at Portland by a certain date. 
 The stones were not finished until about four months after the date 
 specified. Defendants claim the right to offset damage occasioned 
 
392 CONTRACTS (Part 1 
 
 by the delay. The lower court instructed the jury that defendants 
 would be entitled to" no more damages than they had or would have 
 sustained if, when the time of delivery had expired, they had stopped 
 the receiving of any more from the plaintiffs, and had proceeded, with 
 due diligence, to furnish themselves elsewhere. 
 
 Weston, J. * * * If the party injured has it in his power to 
 take measures by which his loss may be less aggravated, this will be 
 expected of him. Thus in a contract of assurance, where the assured 
 may be entitled to recover for a total loss, he, or the master employed 
 by him, becomes the agent of the assurer to save and turn to the best 
 account such of the property assured as can be preserved. 
 
 The purchaser of perishable goods at auction fails to complete his 
 contract. What shall be done? Shall the auctioneer leave the goods 
 to perish, and throw the entire loss upon the purchaser? That would 
 be to aggravate it unreasonably and unnecessarily. It is his duty to 
 sell them a second time, and, if they bring less, he may recover the 
 difference, with commissions and other expenses of resale, from the 
 first purchaser. 
 
 If the party entitled to the benefit of a contract can protect himself 
 from a loss arising from a breach at a trifling expense, or with rea- 
 sonable exertions, he fails in social duty if he omits to do so, regardless 
 of the increased amount of damages for which he may intend to' hold 
 the other contracting party liable. "Qui non prohibet, cum prohibere 
 possit, jubet." And he who has it in his power to prevent an injury 
 to his neighbor, and does not exercise it, is often in a moral, if not in 
 a legal point of view, accountable for it. The law will not permit him 
 to throw a loss, resulting from a damage to himself, upon another, 
 arising from causes for which the latter may be responsible, which the 
 party sustaining the damage might, by common prudence, have prevent- 
 ed. For example ; a party contracts for a quantity of bricks to build 
 a house, to be delivered at a given time; and engages masons and 
 carpenters to go on with the work. The bricks are not delivered. If 
 other bricks of an equal quality, and for the stipulated price, can be at 
 once purchased on the spot, it would be unreasonable, by neglecting to 
 make the purchase, to claim and receive of the delinquent party dam- 
 ages for the workmen, and the amount of rent which might be obtained 
 for the house if it had been built. The party who is not chargeable 
 with a violation of his contract should do the best he can in such cases, 
 and, for any avoidable loss occasioned by the failure of the other, he 
 is justly entitled to a liberal and complete indemnity. * * * 
 
 Judgment affirmed. 
 
 GALLAGHER v. JONES. 
 
 (Supreme Court ol the Unitecl States. 1889. 129 U. S. 193, 9 Sup. Ct. 3.3.5, 
 
 32 L. Ed. 658.) 
 
 Bradley, J. This is a suit brought by Jones, a stock-broker, against 
 his customer for the balance of account alleged to be due to the plain- 
 tiff arising out of advances of money, and purchases and sales made, 
 and commissions. * * * 
 
 The defendant set up the following counterclaims, to wit : (1) That 
 on the 13th day of November, 1878, being at Virginia City, he order- ^ 
 the plaintiff, (at Salt Lake City,) by telegraphic dispatch, to sell certain 
 mining stocks then in his hands as defendant's agent,' to wit: 320 
 
Ch. 10) REMEDIES 393 
 
 shares of "Justice" stock, worth $9 per share ; 50 shares of "Alta" 
 stock, worth $8 per share; 200 shares of "Tip Top" stock, worth $L60 
 per share; and to invest the proceeds in "North Bonanza" stock — 
 another mining stock on the same board, which the defendant had been 
 investigating. That the plaintiff received this dispatch in ample time 
 to make the transaction, as directed, on that day, but refused and neg- 
 lected to do so ; and that the defendant relied on its being done, and 
 agreed with another party to sell the stock he had ordered purchased. 
 That the plaintiff did not give notice to the defendant of his refusal 
 to comply with said order until several days afterwards, and then by 
 letter. That afterwards, and without any orders so to do, the plaintiff 
 sold the "Alta" stock at $7.75 per share; the "Justice" at $4.40 per 
 share ; and the "Tip Top" at $1.25 per share ; making a net loss to de- ■ 
 fendant of $1,200; and that the "North Bonanza" stock was not worth 
 more than $2 per share on that day, and within five days thereafter it 
 advanced to $5.60 per share, which the defendant would have real- 
 ized if the plaintiff had complied with his order, — whereby the defend- 
 ant lost the sum of $6,125. * * * 
 
 [The trial court entered judgment for the plaintiff and disallowed 
 the defendant's counterclaim upon the theory that the difference be- 
 tween the values of the stocks at the time the order was made and at 
 the time they were afterwards sold is immaterial in this action.] 
 
 In this, we think, the court was in error. A broker is but an agent, 
 and is bound to follow the directions of his principal, or give notice 
 that he declmes to continue the agency. In the absence of a special 
 agreement to the contrary, it is the principal's judg^nent, and not his, 
 that is to control in the purchase and sale of stocks. The latter did not 
 ask for any further advances by the order in question ; he only directed 
 a conversion or change of one stock into another. The plaintiff should 
 have given prompt notice that he objected, and declined to make the 
 change. Telegraphic communication was used by the defendant, and 
 no reason appears why the plaintiff could not have used the same. The 
 delay caused by using the mail alone was inexcusable under. the cir- 
 cumstances. The plaintiff charged ample compensation for his serv- 
 ices, and was bound to act faithfully, fairly, and promptly. We think 
 that he was liable for all the damages which the defendant sustained 
 by his refusal to change the stocks, both for the loss on the sales of the 
 "Justice," "Alta," and "Tip Top," and the loss occasioned by not pur- 
 chasing the "North Bonanza." The report of the referee, being made 
 in conformity with the decision of the supreme court, does not show 
 sufficient facts to determine the amount of loss in these respects. If 
 the answer states the facts truly, the loss on the failure to sell the old 
 stocks was over $2,000 ; and it appears from the report that the North 
 Bonanza could have been purchased at $2 to $2.50 per share on the 
 13th of November, and sold for $5 to $5.50 within a few days, — show- 
 ing a loss of $3 per slxare ; and as the proceeds of the other stocks, 
 if they had been sold as directed, would have been sufficient to pur- 
 chase 1,600 to 2,000 shares of North Bonanza, the loss on this ac- 
 count must have been more than $5,000. But the want of a sufficient 
 finding of facts necessitates a new trial. * * * 
 
 It has been assumed, in the consideration of the ca?e, that the meas- 
 ure of damages in stock transactions of this kind is the highest in- 
 termediate value reached by the stock between the time of the wrongful 
 act complained of and a reasonable time thereafter, to be allowed 
 
394 CONTRACTS (Part 1 
 
 to the party injured to place himself in the position he would have been 
 in had not his rights been violated. This rule is most frequently exem- 
 plified in the wrongful conversion by one person of stocks belonging to 
 another. To allow merely their value at the time of conversion would, 
 in most cases, afford a very inadequate remedy, and, in the case of a 
 broker, holding the stocks of his principal, it would afford no remedy 
 at all. The effect would be to give to the broker the control of the 
 stock, subject only to nominal damages. The real injury sustained by 
 the principal consists not merely in the assumption of control over the 
 stock, but in the sale of it at an unfavorable time, and for an unfavor- 
 able price. Other goods wrongfully converted are generally supposed 
 to have a fixed market value at which they can be replaced at any time ; 
 and hence, with regard to them, the ordinary measure of damages is 
 their value at the time of conversion, or, in case of sale and purchase, 
 at the time fixed for their delivery. But the application of this rule to 
 stocks would, as before said, be very inadequate and unjust. The rule 
 of highest intermediate value, as applied to stock transactions, has been 
 adopted in England, and in several of the states in this country ; while 
 in some others it has not obtained. The form and extent of the rule 
 have been the subject of much discussion and conflict of opinion. 
 * * * Perhaps more transactions of this kind arise in the state 
 of New York than in all other parts of the country. The rule of high- 
 est intermediate value up to the time of trial formerly prevailed in 
 that state, and may be found laid down in Romaine v. Van Allen, 26 
 N. Y. 309, and Markham v. Jaudon, 41 N: Y. 235, and other cases, 
 although the rigid application of the rule was deprecated by the New 
 York superior court in an able opinion by Judge Duer, in Suydam v. 
 Jenkins, 5 N. Y. Super. Ct. 614. The hardship which arose from es- 
 timating the damages by the highest price up to the time of trial, which 
 might be years after the transaction occurred, was often so great that 
 the court of appeals of New York was constrained to introduce a 
 material modification in the form of the rule, and to hold the true 
 and just measure of damages in these cases to be the highest interme- 
 diate value of the stock between the time of its conversion and a rea- 
 sonable time after the owner has received notice of it to enable him 
 to replace the stock. This modification of the rule was very ably en- 
 forced in an opinion of the court of appeals delivered by Judge Rapallo 
 in the case of Baker V. Drake, 53 N. Y. 211, 13 Am. Rep. 507. * * * 
 On the whole, it seems to us that the New York rule, as finally set- 
 tled by tlie court of appeals, has the most reasons in its favor, and we 
 adopt it as a correct view of the law. 
 
 The judgment is reversed, and the cause remanded to the Supreme 
 Court of Utah, with instructions to enter judgment in conformity 
 with this opinion. 
 
 We have seen that the courts have certain fairly definite rules f of 
 determining the amount of damages to be assessed in compensation 
 for the loss occasioned by the breach of a contract. However, in 
 order to make judicial inquiry as to the amount of damages unnec- 
 essary, the partnes sometimes place in their contract a stipulation 
 that, in the event of a breach of the contract by one of the parties, 
 he shall pay a certain sum as liquidated damages. 
 
 "Where a sum named is construed by a court as being liquidated 
 
Ch, 10) REMEDIES 395 
 
 damages, such sum is the amount of recovery for a breach. A pen- 
 alty, which differs in its nature very widely from liquidated dam- 
 ages, is a sum named in a contract, to be paid by a defaulting party 
 as punishment for his breach. Unlike liquidated damages, a pen- 
 alty is not regarded as constituting an agreed measure of compen- 
 sation ; it is considered as a punishment agreed upon beforehand. 
 The practical purpose of the parties in naming such a sum, is to 
 make the agreement for the penalty a kind of security for the per- 
 formance of the contract. If their purpose is to make a penal sum 
 absolutely due in toto in case of breach, their purpose will not be 
 given effect ; a sum which would, on principles to be stated here- 
 after, be unreasonable and unconscionable, will not be in any way 
 determinative of the amount to be assessed for a breach. A court 
 does not feel itself compelled to regard a penalty as being either 
 the maximum or minimum amount to be assessed for a breach, 
 where the penalty is named in a mere contract, although it is re- 
 garded as the maximum of liability, where it is named in a penal 
 bond. Where a sum named in a contract is construed by a court 
 as being a penalty, it cannot be collected in full as a stated com- 
 pensation ; only damages for the actual loss occasioned by the 
 default will be assessed, whether such damages be greater or less 
 than the penalty named. Where a penalty is named in either a 
 statutory undertaking or a penal bond, the sum so named is the 
 limit of recovery ; and, while a lesser amount may be recovered on 
 the bond, a greater cannot be." ^ 
 
 There is some conflict on various questions connected with liqui- 
 dated damages; but, in general, the following rules are followed: 
 
 "An intention to liquidate the damages is controlling. In seeking 
 to ascertain the real intent, the courts lean strongly towards a con- 
 struction that the sum fixed is a penalty, rather than liquidated dam- 
 ages. The language of the parties is not conclusive, and will be 
 strictly construed. 
 
 "Where the stipulated sum is wholly collateral to the object of 
 the contract, and is evidently inserted in terrorem as security for 
 performance, it will be construed to be a penalty. 
 
 "Where the stipulated sum is to be paid on the non-payment of 
 a less amount, or on failure to do something of less value, it will 
 generally be construed to be a penalty. • 
 
 "Where the stipulated sum is to be paid on breach of a contract 
 of such a nature that the damages arising from a breach may be 
 either much greater or much less than the sum fixed, it will be 
 construed to be a penalty. 
 
 "Where the stipulated sum is to be paid on the breach of a con- 
 tract of such a nature that the damages resulting from a breach 
 would be uncertain, and incapable or difficult of being estimated 
 by any definite standard, it will generally be construed to be liqui- 
 dated damages, if reasonable in amount. 
 
 1 Bauer on Damages, § .33. 
 
396 CONTRACTS (Part 1 
 
 "Where the stipulated sum is to be paid on the breach of a con- 
 tract of such a nature that the damages arising from a breach are 
 capable of exact measurement by a definite standard, the sum fixed, 
 if materially variant from the actual damages, will usually be re- 
 garded as a penalty ; but where such sum is fixed to cover contem- 
 plated consequential losses, not recoverable un.der legal rules, and 
 is not more thain a reasonable compensation therefor, it may be 
 sustained as liquidated damages. 
 
 "Where the contract provides that a certain sum, deposited to se- 
 cure performance, shall be forfeited for nonperformance, the sum 
 deposited, if reasonable in amount, will be construed to be liqui- 
 dated damages. 
 
 "Where the stipulated sum is to be paid on any breach of a con- 
 tract containing several stipulations of widely different degrees of 
 importance, it is usually held to be a penalty. 
 
 "A sum stipulated to be paid upon a breach of contract cannot be 
 recovered as liquidated damages upon a partial breach, where the 
 other party has accepted part performance. 
 
 "A sum stipulated to be paid in evasion of the usury laws will 
 be regarded as a penalty." * 
 
 JAQUITH V. HUDSON. 
 (Supreme Court of Michigan, 3858. 5 Mich. 123.) 
 
 Christiancy, J. * * * The real question in this class of cases 
 will be found to be, not what the parties intended, but whether the 
 sum is, in fact, in the nature of a penalty; and this is to be deter- 
 mined by the magnitude of the sum, in connection with the subject- 
 matter, and not at all by the words or the understanding of the par- 
 ties. The intention of the parties cannot alter it. While courts of 
 law gave the penalty of the bond, the parties intended the payment of 
 the penalty as much as they now intend the payment of stipulated 
 damages; it must therefore, we think, be very obvious that the ac- 
 tual intention of the parties, in this class of cases, and relating to this 
 point, is wholly immaterial ; and though the, courts have very gen- 
 erally professed to base their decisions upon the intention of the 
 parties, that intention is not, and can not, be made the real basis of 
 these decisions. * * * 
 
 In this class of cases, where the law permits the parties to ascer- 
 tain and fix the amount of damages in the contract, the first inquiry 
 obviously is. Whether they have done so in fact? And here, the in- 
 tention of the parties is the governing consideration; and in ascer- 
 taining this intention, no merely technical effect will be given to the 
 particular words relating to the sum, but the entire contract, the sub- 
 ject-matter and often the situation of the parties with respect to each 
 other and to the subject-matter, will be considered. * * * 
 
 2 Hale on Damages (2cl Ed.) §§ 51-60. 
 
Ch. 10) REMEDIES 397 
 
 UNITED STATES v. BETHLEHEM STEEL CO. 
 
 (Supreme Court of the United States, 1907. 205 U. S. 105, 27 Sup. Ct. 450, 
 
 51 L. Ed. 731.) 
 
 Peckham, J. * * * The courts at one time seemed to be quite 
 strong in their, views, and would scarcely admit that there ever was a 
 valid contract providing for liquidated damages. Their tendency was 
 to construe the language as a penalty, so that nothing but the actual 
 damages sustained by the party aggrieved could be recovered. Sub- 
 sequently the courts became more tolerant of such provisions, and 
 have now become strongly inclined to allow parties to make their own 
 contracts and to carry out their intentions, even when it would result 
 in the recovery of liquidated damages, upon proof of the violation of 
 the contract, and without proof of the damages actually sustained. 
 * * * The question always is : What did the parties intend by the 
 language used? When such intention is ascertained, it is ordinarily 
 the duty of the court to carry it out. * * * 
 
 KEEBLE V. KEEBLE. 
 (Supreme Court of Alabama. 1SS8. 85 Ala. 552, 5 South. 149.) 
 
 Plaintiff and defendant's testator had been in partnership in the 
 mercantile business. Plaintiff sold out to defendant's testator, but 
 was employed by the latter as business manager. The terms of the 
 employment imposed on plaintiff the obligation wholly to abstain from 
 the use of intoxicating liquors, and, in "the event he should become in- 
 toxicated, that he should pay, "as liquidated damages," the sum of 
 $1,000. The plea alleged that plaintiff violated his promise to keep 
 sober, and thereby became bound to pay to defendant's testator said 
 sum of $1,000, which sum was offered as a set-off to plaintiff's de- 
 mand. 
 
 SoMERViLLE, J. * * * The appellant violated his promise by 
 becoming intoxicated, and remained so for a long time, and acted 
 rudely and insultingly towards the customers and employes of the 
 testator, and otherwise deported himself, by reason of intoxication, 
 in such manner as to do injury to the business. It is not denied by 
 appellant's counsel that this is a total breach of the promise to keep 
 sober; nor is it argued that the damage resulting from the violation 
 of such a promise can be ascertained with any degree of certainty; 
 nor even that the amount agreed to be paid as liquidated damages, in 
 the event of a breach, is disproportionate to the damages which may 
 have been actually sustained in this case. But the contention seems 
 to be that, inasmuch as it was possible for a breach to occur with no 
 actual damages other than nominal, the amount agreed to be paid 
 should be construed to be a penalty. * * * jj. jg argued, in other 
 words, that becoming intoxicated in private, while off duty, would 
 be a violation of thte contract, but would be attended with no actual 
 damage to the business of R. C. Keeble & Co. * * * There are but 
 few agreements of this kind where the stipulation is to do or not do 
 a particular act, in which the damages may not, according to circum- 
 stances, vary, on a sliding scale, from nominal damages to a consid- 
 erable sum. One may sell out the goodwill of his business in a given 
 l^ality, and agree to abstain from its further prosecution, or, in the 
 
398 CONTRACTS (Part 1 
 
 event of his breach of his agreement, to pay a certain sum as liquidat- 
 ed damages; as, for example, not to practice one's profession as a 
 physician or lawyer, not to run a steamboat on a certain river or to 
 carry on the hotel business in a particular town, not to re-establish a 
 newspaper for a given period, or to carry on a particular branch of 
 business within a certain distance from a named city. 
 
 In all such cases, as often decided, it is competent for the parties 
 to stipulate for the payment of a gross sum by way of liquidated dam- 
 ages for the violation of the agreement, and for the very reason that 
 such damages are uncertain, fluctuating, and incapable of easy ascer- 
 tainment. * * * It is clear that each of these various agreements 
 may be violated by a substantial breach, and yet no damages might 
 accrue except such as are nominal. The obligor may practice med- 
 icine, and possibly never interfere with the practice of the other con- 
 tracting party, or law, without having a paying client; or he may 
 run a steam-boat without a passenger; or an hotel without a guest; 
 or cany on a newspaper without the least injury to any competitor. 
 But the law will not enter upon an investigation as to the quantum of 
 damages in such cases. -This is the very matter settled by the agree- 
 ment of the parties. If the act agreed not to be done is one from 
 which, in the ordinary course of events, damages, incapable of as- 
 certainment save by conjecture, are liable naturally to follow, some- 
 times more and sometimes less, according to the aggravation of the 
 act, the court will not, stop to investigate the extent of the grievance 
 complained of as a total breach, but will accept the sum agreed on as 
 a proper and just measurement, by way of liquidated damages, tm- 
 less the real intention of the parties * * * designed it as a penalty. 
 We may add, moreover, that no one can accurately estimate the 
 physiological relation between private and public drunkenness, nor 
 the causal connection between intoxication one time and a score of 
 times. The latter, in each instance, may follow from the former, 
 and the one may naturally lead to the other. There would seem to be 
 nothing harsh or unreasonable in stipulating against the very source 
 
 and beginning of the more aggravated evil sought to be avoided. 
 * * * 
 
 [Judgment allowing defendant's set-off affirmed.] 
 
 SECTION 3.— RESCISSION 
 
 When a party has materially broken his contract, the injured 
 party may sue the party in default and recover damages for the 
 breach of contract. This is a suit upon the contract. The plaintiff 
 will obtain a judgment for money damages, presumably sufficient in 
 amount to equal what the plaintiff would have gained had the con- 
 tract been performed. Where the suit is for specific performance 
 of the contract, a successful complainant obtains, literally, what he 
 was entitled to under the contract. In contrast with these reme- 
 dies, -which seek to put the plaintiff in the same position he would 
 have occupied had the contract been performed by the defendant, 
 the remedy of rescission, on the other hand, seeks to put the 
 plaintiff in the same position which he occupied before he entered 
 iilto the contract ; that is, the remedy of rescission enables a plaio- 
 
Ch. 10) REMEDIES 899 
 
 tiff to recover what he parted with. The remedy of rescission does 
 not entitle the plaintiff to damages in addition to the remedy of 
 obtaining restitution. Sometimes the term "rescission" is used to 
 describe the election of the plaintiff to hold the party in default for 
 breach of contract, but its narrower meaning is confined to that 
 stated above. 
 
 EAFTERY v. WORU> FILM CORPORATION. 
 
 (Supreme Court of New York, Appellate Division, 1917. 180 App. Dlv. 475, 
 
 167 N. T. Supp. 1027.) 
 
 Action by George A. Raftery against the World Film Corporation. 
 From an interlocutory judgment, directing an accounting, and direct- 
 ing a return to plaintiff of 26 films of a motion picture known as "The 
 Head Hunters" defendant appeals. 
 
 Smith, J. Upon February 13, 1915, the Seattle Film Company, In- 
 corporated, the plaintiff's assignor, entered intp a contract widi the 
 World Film Corporation, the defendant in this action, called in the 
 contract the "distributor." The general provisions of the contract were 
 that the defendant, the distributor, should distribute and have produced 
 the motion pictures representing the Head Hunters in the various 
 theaters controlled by the defendant, which were 26 in number. The 
 film was the property of the plaintiff's assignor. Under the contract 
 26 positive prints, so called, were delivered to the defendant for the 
 purpose of the production, upon the express covenant of the defend- 
 ant to return these prints to the producer at the expiration of the 
 contract. * * ** It was further provided that the distributor should 
 upon Tuesday of each week pay to the producer tlie said 50 per cent. 
 of the gross cash receipts over and above the amount so provided to 
 be retained during the week ending nine days prior to the date of pay- 
 ment, and at the time of each payment to the producer the distributor 
 was to submit to the producer a statement showing such gross receipts, 
 and the .producer should have the privilege once a month at a rea- 
 sonable time to inspect the accounts of the distributor relative to such 
 gross cash receipts. 
 
 The trial court has found that the distributor did not turn over to 
 the producer one-half of the gross receipts as required by the contract, 
 did not render to the said company just, true, and accurate statements 
 of the rentals received, but, on the contrary, it rendered the said Se- 
 attle Company, the producer, week by week, false, untrue, and fraud- 
 ulent statements of the rentals received by it and of the leases by it, 
 and of the expenses incurred by it. * * * 'pjjg ^j-j^j court has fur- 
 ther foimd that the defendant has retained possession of and still has 
 the 26 sets of films of positive prints of said production known as 
 "The Head Hunters," although the defendant by the eighth clause of 
 the aforesaid contract of February 13, 1915, contracted and agreed to 
 return the said prints upon the termination of the contract, which oc- 
 curred on the 15th day of August, 1916. * * * 
 
 The defendant offered no evidence on its own behalf, and now stands 
 upon the specific objection that the plaintiff at no time had, and does 
 not now have, any right to ask the interposition of a court of equity, 
 and for that reason insists that the complaint should have been dis- 
 missed in accordance with its motion made at the trial. There are, I 
 think, two questions of law involved: First, was the defendant's of- 
 
400 CONTRACTS (Part 1 
 
 fense, in giving false statements of its receipts and refusing to allow 
 the plaintifif to examine its books to verify the statements given, suffi- 
 ciently grave to authorize the plaintiff at the time the action was 
 brought, to rescind the contract ; secondly, assuming that the right of 
 rescission then existed, had the plaintiff an adequate remedy at law? 
 
 First. The Seattle Film Company was at the time this action was 
 commenced authorized to rescind the contract by the defendant's will- 
 ful and fraudulent breach of the contract in failing to make true re- 
 ports of th€ proceeds of the production and refusing the plaintiff an 
 opportunity to inspect the books of the company. The authorities in 
 this state bearing upon the right of a party to a contract to rescind 
 for breach of the contract * * * are not plentiful, as it does not 
 appear -that the question has many times arisen. The rule in England 
 has been ultra strict in holding that the breach of the contract must 
 amount practically to a repudiation or an abandonment of the contract 
 in order to authorize a rescission. 
 
 Frofessor WilHston, one of the most eminent authorities in this 
 country vipon the Law of Contracts, has an article in 14 Harvard Law 
 Review, p. 318 et seq., in which this question is discussed, in which it 
 is shown that the law as applied in the United States is materially 
 different from that as applied in England. In speaking of the English 
 rule as stated. Professor WilHston says : "This doctrine, though per- 
 haps it is that of the English law to-day, must he regarded as errone- 
 ous in principle and unfortunate in practice. It seems to be based 
 in large part on the notion that, in order to justify such a rescission 
 of thei contract, mutual assent of the parties must 'Ue. established — an 
 offer by the party in default accepted by the other party. In almost 
 anv case this can be established only by resorting to the baldest fic- 
 tion." . . .'. 
 
 Professor WilHston, in speaking of the American rule, then says: 
 "In truth rescission, is imposed in invitum by the law at the option of 
 the injured party, and it should be, and in general is, allowed, not 
 only for repudiation or total inability, but also for any breacH of con- 
 tract of so material and substantial a nature as should constitute a de- 
 fense to an action brought by the party in default for a refusal to pro- 
 ceed with the contract." * * * 
 
 To this proposition many cases are cited in the United States court 
 and in many states of the Union. The leading authority in New York 
 state is the Case of Callanan v. K., A. C. & L. C. R. R. Co., reported 
 in 199. N. Y. 269, 92 N. E. 747. That was a case brought in equity 
 to rescind a contract for breach of a condition subsequent. Judge 
 Vann, writing for the court, in speaking of the holding of the referee, 
 said : " * * * There is no hard and fast rule on the subject of 
 rescission, for the right usually depends on the circumstances of the 
 particular case. It is permitted for failure of consideration, fraud in 
 making the contract, for inability to perform it after it is made, for 
 repudiation of the contract or an essential part thereof, and for such a 
 breach as substantially defeats its purpose. It is not permitted for a 
 slight, casual, or technical breach, but, as a general rule, only for such 
 as are material and wihful, or, if not willful, so substantial and funda- 
 mental as to strongly tend to defeat the object of the parties in mak- 
 ing the contract. Failure to perform in every respect is not essential. 
 
Ch. 10) EEMEDIES 401 
 
 but a failure which leaves the subject of the contract substantially dif- 
 ferent from what was contracted for is sufficient." 
 
 Within the strict letter of the rule thus laid down the plaintiff has, 
 in my judgment, shown a right of rescission. The consideration of 
 the contract was the payment of 50 per cent, of the gross proceeds 
 after certain deductions. Inasmuch as the defendant was giving the 
 production through its different agencies, the amount of those pro- 
 ceeds was known only to the defendant. It was therefore deemed nec- 
 essary to stipulate that the defendant should make weekly reports of 
 the gross receipts, and should allow the plaintiff access to its books, 
 that their . accuracy might be tested. The giving of false and untrue 
 reports of the proceeds, and the refusal of the defendant to allow the 
 plaintiff acqess to its books as stipulated, were clearly "material and 
 willful" breaches and "repudiation of the contract or an essential part 
 thereof." and also such a "breach as substantially defeats its purpose." 
 It would seem from this authority that the breach must be funda- 
 mental, if it be not willful ; but, if willful, then a breach in any ma- 
 terial stipulation constitutes ground for rescission. That the breach 
 must be of a material provision is undoubted, but that false reports 
 upon which payments are made under the contract and a refusal to 
 allow a verification of those reports constitute a breach of a material 
 stipulation in the contract, is too plain for controversy. * * * 
 
 The judgment should therefore be affirmed. * * * 
 
 SECTION 4.— JUDGMENTS AND EXECUTIONS 
 
 In the broadest sense of the term, a judgment is the formal dec- 
 laration by a court that the plaintiff either is or is not entitled to 
 the relief sought by him. The evidence of the judgment will be 
 found usually in a book, called the docket, kept b}- the judge or 
 by a clerk of the court. The judgment may be entered either with 
 or without a trial. Judgment may be entered against a defendant 
 because of his failure to appear in court either in person or by 
 counsel. Such a judgment is usually called a judgment by default. 
 So, also, may a judgment be entered against the plaintiff and in 
 favor of the defendant because of a like failure on the part of the 
 plaintiff to appear at times designated in court orders for his ap- 
 pearance. Such a judgment is usually called a dismissal for want 
 of prosecution. The judgment may be entered against either of the 
 litigants as the result of argument on propositions of law, as for 
 example upon a demurrer. A judgment may be entered after a 
 trial, either before the judge alone, or before the judge with a jury. 
 A finding of facts by a judge, or a finding of facts by a jury, called 
 a verdict, is to be distinguished sharply from a judgment, in that 
 the finding of ultimate facts in and of itself does not produce the 
 legal effect which is produced by the formal entry of judgment. 
 
 Judgments may be classified in several ways. It is convenient 
 to group them according to the legal effect upon the relations of 
 the parties to the litigation. Looked upon in this way, judgments 
 B.& B.Btts.Law— 26 
 
402 CONTRACTS (Part 1 
 
 may be classified as follows: (1) Judgments for money; (2) 
 judgments for the restitution of specific property or which other- 
 wise affect specific property; (3) judgments ordering the perform- 
 ance of specific acts by the defendant; (4) judgments which dis- 
 solve certain legal relations then existing between the parties. 
 This list is not entirely exhaustive, but they include and describe 
 the distinctive aspects of most forms of judicial relief. 
 
 Perhaps in a majority of actions the plaintiff is seeking a judg- 
 ment for money damages. This is illustrated by the ordinary ac- 
 tions for breach of contract and for tort. Judgments for the restitu- 
 tion of property are entered when the defendant is unlawfully with- 
 holding possession thereof from the plaintiff. The property so 
 held may be personal property or real property. In suits for spe- 
 cific performance the judgment, or decree as it is usually called, 
 takes the form of an order from the court, directed to the defend- 
 ant, to perform the act specified, such as that a deed be executed 
 and delivered by the defendant to the plaintiff. The decree may 
 order the defendant to refrain from acting, as, for example, that the 
 defendant, who has contracted not to engage in a certain business 
 within specified territory, should cease his violation of this promise. 
 The decree may order the defendant to cease the commission of a 
 tort, as, for example, that the defendant shall take steps to prevent 
 the continuance of a nuisance in the vicinity of plaintiff's residence. 
 Such an order is commonly called an injunction. 
 
 There are several types of cases where the judgmeilt of the court 
 will take the form merely of putting an end to existing legal re- 
 lations between the parties. Such a judgment is more commonly 
 called a decree. For example, a decree of divorce destroys the 
 rights, duties, powers, and privileges incident to the marriage re- 
 lation. A decree dissolving a partnership has a similar effect. In 
 suits to remove a cloud from title to land, the decree will declare 
 certain adverse claims to be non-existent. A court may in certain 
 cases decree the dissolution of a corporation. An injunction may 
 be incorporated in the decree in order to make it effective. 
 
 The principal legal effect of a judgment for money is that, usu- 
 ally, the entry of the judgment operates to confer upon the owner 
 of the judgment a lien upon the real property owned by the judg- 
 ment debtor within the jurisdiction of the court. Such a lien is 
 similar to a mortgage, in that the property upon which the lien was 
 impressed by the judgment may be sold under appropriate process 
 to satisfy the claim evidenced by the judgment. Sometimes the 
 judgment does not operate to create a lien upon property, the 
 statute providing that some act must be done before the lien at- 
 taches, such as recording the judgment in a designated office or the 
 taking out of a formal execution. This aspect of the legal effect of 
 a judgment is, therefore, to confer upon the judgment creditor the 
 power to have the judgment debtor's property sold to satisfy the 
 debt. 
 
Ch. 10) REMEDIES 403 
 
 The term "execution" is used to describe one of the formal docu- 
 ments, which is issued from the office of the clerk of the court, and 
 under the authority and direction of the court, directed to the 
 sheriff of the county, the bailiff of the court, or constable, command- 
 ing him to serve the same upon the judgment debtor and to de- 
 mand payment of the debt. This document is the source of the 
 power of the sheriff or other officer to sell the judgment debtor's 
 property. Frequently this document and the service thereof upon 
 the judgment debtor will not, in and of itself, bring about a judicial 
 sale. Generally another document will be issued, usually from the 
 sheriff's office, which is called a levy; the judgment creditor hav- 
 ing specified therein certain property which he declares to be owned 
 by the judgment debtor. The /levy directs the sheriff to proceed, in 
 accordance with the statute, to sell the property therein designated. 
 Usually a short period of time must elapse between the issuance of 
 the levy and the date set for the sale. This period may vary from a 
 few days to three or four weeks or even more. Statutes generally 
 require, as a condition precedent to the holding of a valid judicial 
 sale, that the time and place of such sale be advertised in the papers 
 and notices posted up in certain public places within the county or 
 district wherein the sale is to occur. The effect of the sale will be to 
 pass a good title to the purchaser, but there is usually a period al- 
 lowed by statute within which time the judgment debtor may de- 
 mand a re-transfer of the property from the purchaser at the sale, 
 upon payment. of the amount for which the property sold and the 
 court costs. This period is called a period of redemption. 
 
 The nature of the other types of judgments or decrees, and the 
 methods of their enforcement, are illustrated in the following sec- 
 tions. 
 
 SECTION 5.— GARNISHMENT 
 
 Oftentimes a judgment debtor has no real or personal property 
 which may be seized on execution and sold to satisfy the judg- 
 ment. Such judgment debtor, however, may have claims for money 
 against other persons. A claim for money against a third party is 
 a right possessing value, but it is not of such a nature as to be 
 capable of seizure under ordinary judicial. process, such as an execu- 
 tion. To meet this situation statutes prescribe a procedure, gen- 
 erally known as a "garnishment proceeding," under which it is 
 possible for the judgment creditor to obtain another judgment 
 against the person who owes money to the judgment debtor. The 
 person who owes money to the judgment debtor is called the 
 "garnishee." A successful garnishment suit will therefore result in 
 an order by the court directed to the garnishee, commanding him to 
 pay the sum which he owes to his creditor, to the plaintiff in the 
 garnishment suit. 
 
404 CONTRACTS (Part 1 
 
 HALL V. KANSAS CITY TERRA GOTTA CO. et al. 
 
 (Supreme Court of Kansas, 1916. 97 Kan. 103, 154 Pae. 210, L. R. A. 1916D, 
 361, Ann. Cas. 1918D, 605.) 
 
 Action by W. C. Hall against the Kansas City Terra Cotta Com- 
 pany, wherein the Southwest National Bank of Kansas City, Mo., 
 was impleaded. From a judgment for plaintiff, interpleader ap- 
 peals. * * * 
 
 Dawson, J. The plaintiff, W. C. Hall, commenced this action on 
 October 12, 1912, against the Kansas City Terra Cotta Company to 
 recover on the defendant's promissory note, and on the same day 
 caused garnishment proceedmgs to be served on Albert Neville, a 
 Coffeyville contractor. Neville, the garnishee, answered and alleged 
 that on July 26, 1912, he had entered into a written contract with 
 the defendant, the Kansas City Terra Cotta Company, for certain 
 materials to be delivered to him at Coffeyville on or before Septem- 
 ber 20, 1912. Other allegations covered failure of the Terra Cotta 
 Company to comply in full with its contract, consequent damages to 
 garnishee, including freight bills which he was compelled to pay for 
 the defendant, etc. He also pleaded that on November 16, 1912, he 
 had been notified by the Southwest National Bank of Kansas City that 
 the claim of the Terra Cotta Company had been assigned to it on 
 September 16, 1912, and advising him that all the proceeds of his con- 
 tract should be paid to the bank. He also prayed that the bank 
 should be impleaded and required to set up its rights, and that he be 
 protected. 
 
 By leave of court, the bank filed its answer and cross-petition, and 
 by agreement of parties, and with the approval of the court, Neville, 
 the garnishee, was permitted to pay into court a sum of money and 
 was discharged. This action thereupon proceeded between the plain- 
 tiff and the interpleading bank. * * * 
 
 The district court found that the Terra Cotta Company was in- 
 debted to the bank, and that for the purpose of securing the same and 
 to procure a further loan, which was then made, the contract be- 
 tween Neville and the Terra Cotta Company was assigned and de- 
 livered to the bank on September 16, 1912; that the bank did not 
 notify Neville until about a month after this action and garnishment 
 were begun. * * * 
 
 The general rule is that garnishment, like other proceedings in 
 invitum, only affects the actual property, money, credits, and effects 
 of the debtor in the hands of the garnishee, and the rule relating to 
 bona fide holders or purchasers without notice has no application. 
 * * * 
 
 In 20 Cyc. 1012, it is said: "Where the principal defendant has 
 made a valid assignment of the garnishee's indebtedness, or convey- 
 ance of the property in his possession belonging to such defendant, 
 before the service of the summons upon the garnishee, the latter can- 
 not be charged on account of such debt or property." 
 
 "The above rule is especially applicable to bills of exchange, prom- 
 issory notes, and other evidences of indebtedness, and where such 
 paper is assigned or transferred in good faith before the drawer, 
 maker or indorser' thereof is served in garnishment proceedings by a 
 creditor of the payee, or of the last holder thereof, the rights of the 
 
Ch. 10) REMEDIES 405 
 
 assignee or transferee are not affected by such proceedings." Page 
 1013. 
 
 "In the absence of statutory provision prescribing the mode of 
 assignment, no particular mode or form is necessary to effect a vaUd 
 assignment of property, claims, or debts so as to defeat garnishment 
 proceedings by a creditor of the assignor. If the intent of the parties 
 to effect an assignment be clearly estabhshed, that is sufficient, and 
 the assignment may be in the form of an agreement or order or any 
 other instrument which the parties may see fit to use for that pur- 
 pose. * * * The rule is sometimes broadly stated that an assign- 
 ment is not complete so as to defeat proceedings in garnishment until 
 the garnishee is notified thereof; however, this I'ule seems to be sub- 
 ject to limitations; thus as between assignor and assignee, it is not 
 necessary to the validity of an assignment that the garnishee be noti- 
 fied thereof ; and the assignment will likewise be complete as against 
 creditors of the assignor instituting garnishment proceedings after 
 assignment and before notice of the assignment to the garnishee, pro- 
 vided that notice of the assignment be given to the garnishee in time 
 to permit him to disclose the assignment in his answer to the gar- 
 nishee process." Pages 1016, 1017. 
 
 The district court treated the assignment of the contract between 
 the Terra Cotta Company and Neville as a chattel mortgage. If it 
 were treated as a mortgage of the contract, then the possession of 
 the contract by the bank would obviate all necessity for its registra- 
 tion. Nothing is more common than the advancement of funds to 
 contractors and manufacturers, and while banks with proper pru- 
 dence usually take more tangible security than the potential and possi- 
 ble future profits of the pending contracts of the borrowers, yet there 
 is no impropriety in taking an assignment of the latter also ; nor does 
 the statute require such assignments to be recorded. 
 
 When the borrower thus assigns his contract or the possible prof- 
 its of his contract in good faith, such assignments should be respected. 
 Nor can a later garnishing creditor justly complain. The garnishment 
 process only reaches the property, assets, and credits of the debtor, 
 and not that of which the debtor was formerly the owner, nor that 
 which he has lawfully assigned to a third party. This view seems to 
 be amply sustained by the authorities. * * * 
 
 In the case at bar, the debt due from Neville to the Terra Cotta 
 Company for- goods sold and delivered and resting for evidence on a 
 written contract, was assigned to the bank, and such assignment must 
 likewise be valid though made only by mere delivery of the contract. 
 
 But in our opinion the assignment was neither a chattel mortgage 
 nor a pledge. It was simply what it purported to be — an assignment 
 of a sum or sums of money due and to become due. There was 
 nothing about the transaction which was unusual or against public 
 policy. This general subject is one which might well be regulated by 
 statute, but so far it has been left free to develop in the usual course 
 of modern business. * * * 
 
 We do not think the fact that the Terra Cotta Company was made 
 the agent of the bank to collect the proceeds of the contract can 
 affect the validity of the assignment. Neither can the later modi- 
 fication of the contract by remitting $330 of the contract price. That 
 deduction in plain terms recognized that "this money is subject to the 
 
406 CONTRACTS (Part 1 
 
 order of the court." Recurring to the proposition first laid down, 
 that the garnishing creditor can reach only the property of the de- 
 fendant in the hands of its debtor, the plaintiff could not reach or 
 attach that which had already passed by lawful assignment, and this 
 necessitates a reversal of the judgment with instructions to render 
 judgment for the interpleader. All the Justices concurring. 
 
 SECTION 6.— ATTACHMENT OF PROPERTY 
 
 The general policy of the law is not to permit a plaintiff to ob- 
 tain any hold on the defendant's property until a judgment has 
 been entered against him. This rule is obviously just, because un- 
 til final jiidgment it is not known whether the plaintiff's claim 
 against the defendant is true in law and fact. It would not be 
 just to the defendant, therefore, to allow the plaintiff to seize the 
 defendant's property and to hold it during the time the action was 
 pending. But there are some special cases where the plaintiff's in- 
 terests overbalance the interests of the defendant in this respect, 
 and accordingly the plaintiff is permitted to have the property kept 
 by an officer of the court from the time the action is commenced. 
 Such a proceeding- is know^n as an "attachment proceeding." The 
 circumstances under which a plaintiff is allowed to attach the 
 property of the defendant differ somewhat in the various states. 
 Generally, however, non-residence of the defendant or some kind 
 of fraudulent conduct by him will be ground for attachment. The 
 proceeding, being one which confers upon the plaintiff an extraor- 
 dinary privilege, the plaintiff must give some counter protection 
 to the defendant. This is secured by requiiring the plaintiff to give 
 a bond, which must be approved by the court. 
 
 wt;are commission CO. v. DEULEY et al. 
 (Supreme Court of Illinois, 1895. 156 111. 25, 41 N. E. 48, 30 L. E. A. 465.) 
 
 Attachment by the Weare Commission Company against William M. 
 Druley and Albert A. Druley. Plaintiff obtained judgment for its 
 debt, but the attachment was dissolved. This judgment was affirmed 
 by the Appellate Court, and the plaintiff appeals. 
 
 Bailey, J. On the 3d day of September, 1890, the Weare Commis- 
 sion Company commenced its suit in assumpsit, by attachment, as 
 against William M. Druley and Albert A. Druley. The grounds for 
 the attachment, as stated in the affidavit, were : (1) That the defend- 
 ants had, within two years then last passed, fraudulently conveyed or 
 assigned their effects, or part thereof, so as to hinder and delay their 
 creditors; (2) that they had, within two years last past, fraudulently 
 concealed or disposed of their property so as to hinder and delay their 
 creditors ; and (3) that they were about fraudulently to conceal or dis- 
 pose of their property or effects so as to hinder and delay their credi- 
 tors. * * * 
 
 The principal controversy, as presented here, turns upon the pro- 
 priety of the peremptory instruction to the jury to find the issues 
 
Ch. 10) REMEDIES 407 
 
 upon the attachment affidavit for the defendant. If that instruction, 
 and the consequent verdict and judgment, are sustained, it is mani- 
 festly immaterial whether the court erred in refusing to quash the at- 
 tachment on motion of Albert A. Druley, or on the subsequent motion 
 of the administratrix. * * * 
 
 Some time about the year 1885, Jesse Druley, William M. Druley's 
 father, sold a farm in McLean county, and of the proceeds loaned 
 to William M. Druley, or put into his business, about $18,000. Wil- 
 liam M. Druley afterwards advanced to his father and mother various 
 sums of money, and about March 10, 1887, a settlement was had be- 
 tween them, at which it was found that William M. Druley was in- 
 debted to his father in the sum of $10,000. For this sum William M. 
 Druley, with his father's consent, executed his promissory note, dated 
 March 10, 1887, payable to Jane Druley, his mother, five yeafs after 
 date, with interest at the rate of 6 per cent per annum, payable quar- 
 terly. This note remaining wholly unpaid, William M. Druley, some 
 weeks prior to his death, but whether in payment of or as security for 
 the note is left by the evidence somewhat in doubt, signed and acknowl- 
 edged a deed conveying the two-acre tract of land upon which the 
 attachment writ was afterwards levied to Jesse Druley, his father, in 
 trust for Jane Druley, his mother. 
 
 This deed was executed as the result of considerable negotiations 
 between William M. Druley and an attorney representing Jesse and 
 Jane Druley, such negotiation resulting in an agreement that the deed 
 should be executed, but that, if William M. Druley recovered from his 
 illness, he should have the land back, or that the deed should be return- 
 ed to him. The deed, after it was signed and acknowledged, remain- 
 ed in the possession of the grantor about two weeks, and he then 
 handed it to his brother, Edwin P. Druley, who was attending and 
 taking care of him in his illness, saying to him that he should take it, 
 and carry it in his pocket, and that if he, the grantor, got well, he 
 should return it to him, but that, if he did not, he should put it on 
 record. On the 2d day of September, 1890, Edwin P. Druley, having 
 learned that the firm of Druley Bros, was about to fail, or supposing 
 that it had failed, put the deed on record, and about six weeks after- 
 wards he got it from the recorder's office, and delivered it to his fa- 
 ther and mother. This deed, and the circumstances attending its exe- 
 cution, constituted the only evidence given by the plaintiff in support 
 of the grounds for an attachment alleged in its attachment affidavit. 
 
 It is urged, and with some show of reason, that the deed was never 
 delivered so as to become effectual as a conveyance. The contention 
 is that Edwin P. Druley took and held the deed merely as agent of the 
 grantor, and that by delivering it to him with instructions to keep 
 it in his pocket, and return it to the grantor in case of his recovery, 
 and to record it only in case 6f his death, the grantor did not, and did 
 not intend to, absolutely yield dominion over it, but that it remained, 
 down to the time of his death, subject to his control, and liable to be 
 recalled by him at any time; and it would seem that, if the deed 
 was never delivered, it has no tendency to prove the charge of fraud 
 made by the attachment affidavit. But, without determining the ques- 
 tion of delivery, we prefer to place our decision upon another ground. 
 
 Even if the deed is to be regarded as having been effectually deliv- 
 ered, it must be conceded that there is no evidence of express fraud, or 
 what is usually termed "fraud in fact." " There is no evidence of 
 
408 CONTRACTS (Part 1 
 
 any actual intention on the part of the grantor to hinder or delay 
 his creditors. But the evidence tends to show that the deed, though 
 absolute on its face, was intended by the partie.s as a mortgage to 
 secure the $10,000 note given by the grantor to his mother, and the 
 rule is supported by many authorities that a conveyance of lands, 
 absolute on its face, but intended as a mortgage or security for a 
 debt, is fraudulent and void as against existing creditors, although 
 there may have been no actual intent to defraud. * * * 
 
 The question thus arises whether, under our statute, an attach- 
 ment will issue where the fraud charged is a legal or constructive 
 fraud only, as contradistinguished from express or intentional fraud, 
 usually denominated "fraud in fact." This question, so far as we 
 are advised, has never been decided by this court, but it has received 
 consideration by the Appellate Courts in several cases, and in each 
 case it has been decided in the negative. It first arose in the Sec- 
 ond district, in Shove v. Farwell, 9 111. App. 256, and there the court 
 said: "The law does not allow a creditor to ignore the process of 
 the common law in the collection of his debt, and resort to a sum- 
 mary seizure of the debtor's property upon mesne process, from the 
 fact, alone, that the debtor has, within two years, sold his property, 
 or any part of it, or has secured some other creditor by mortgaging or 
 pledging it, even though the attaching creditor should be hindered 
 or delayed in the collection of a just debt. . Another element must 
 exist in the transaction, the fraud of the debtor, and, in our opin- 
 ion, the statute contemplates that this fraud shall be one of fact, as 
 contradistinguished from a legal or constructive fraud. If a man has 
 shown himself to be dishonest by making a conveyance of his prop- 
 erty, designing thereby to delay and hinder his creditors, and such 
 effect is produced, then, for the space of two years, the statute per- 
 mits the creditor to treat him as one who may repeat the fraud, and 
 authorizes its prevention by a seizure of his property upon mesne pro- 
 cess, and hold it to answer any judgment that may be rendered in the 
 action." 
 
 The same question arose in the same district in First National Bank 
 V. Kurtz, 22 111. App. 213, where the same conclusion was again an- 
 nounced. =!= * * In Spencer v. Deagle, 34 Mo. 455, an attachment 
 writ was issued under a statute apparently identical with ours, and 
 it was held to be error for the court to refuse to instruct the jury that, 
 to render the deed of trust there in question fraudulent as to the de- 
 fendant's creditors, it must appear that it was executed for that pur- 
 pose ; that it was not enough that the effect of the deed was to delay 
 his creditors, but it must have been executed with that purpose and 
 intent. 
 
 While some decisions, perhaps, may be found in other states sup- 
 porting the contrary view, we are disposed to think that the interpre- 
 tation put upon our statute by the Appellate Court is the correct one. 
 It seems to be the policy of our attachment law to give creditors the 
 right to seize the property of their debtors on original or mesne pro- 
 cess, and hold it for the satisfaction of such judgments as may be 
 subsequently recovered, in those cases where the situation or conduct 
 of the debtors is or has been such as to raise a reasonable apprehension 
 that the ordinary common-law processes of the court will be thwarted, 
 and thus rendered unavailing. 
 
Ch. 10) REMEDIES 409 
 
 The Revised Statutes of 1845 authorized attachments for only the 
 first five of the nine causes for attachment specified in our present 
 attachment act, viz.: (1) Where the debtor is not a resident of the 
 state ; (2) vi^here he conceals himself, or stands in defiance of an officer, 
 so that process cannot be served upon him ; (3) where he has depart- 
 ed from the state with the intention of having his effects removed 
 from the state; (4) where he is about to remove from the state with 
 the intention of having his effects removed from the state ; and (5) 
 where he is about to remove his property from the state, to the injury 
 of the creditor suing. Rev. St. 1881, p. 123. Here the writ was given 
 only where the debtor was already a nonresident, and so beyond the 
 reach of the ordinary processes of the law, or where there was an af- 
 firmative intention and design on his part to place his person and 
 property, or his property alone, beyond the reach of those processes. 
 The writ was given for the purpose of seizing the property so as to 
 forestall its threatened removal, and to hold it as security for the judg- 
 ment to be recovered. 
 
 It cannot be doubted, we think, that when the statute was so amend- 
 ed as to add the three causes for attachment set up in this case, the leg- 
 islature was acting in furtherance of the same general intention ex- 
 pressed in the original act. 
 
 The writ was not given for the purpose of enabling the creditor to 
 attack a transaction which is only constructively fraudulent, but to 
 enable him to seize the property of his debtor in cases where fraud 
 has been committed or contemplated of such character as to raise a 
 reasonable apprehension that by further fraudulent acts the debtor 
 will put his property and effects beyond the reach of legal process. 
 But such apprehension does not arise from the commission of a mere 
 legal or constructive fraud. There evil intention, moral turpitiidej^ 
 and actual dishonesty are wanting. Equity, it is true, will set such 
 transactions aside, in a proper proceeding, at the instance of creditors ; 
 but no inference arises that the debtor will attempt, by any dishonest 
 disposition of his property, to interfere with his creditors in the as- 
 sertion of their just rights. We are of the opinion, then, that grant- 
 ing writs of attachment in cases where only legal or constructive fraud 
 is shown is outside of the general scheme and purpose of the attach- 
 ment law. 
 
 It is apparent that any other construction of the statute would of- 
 ten lead to cons.equences extremely oppressive. Thus a sale of goods 
 where possession has not actually been delivered to the purchaser, 
 though valid as between the parties, is constructively fraudulent as 
 to the creditors of the seller, and the goods may be seized by them on 
 execution as his goods, however honest he may have been in the trans- 
 action. In contemplation of law he has made, or attempted to make, 
 a disposition of his property which is constructively fraudulent, and, 
 if attachments may issue for constructive frauds, he has thereby sub- 
 jected himself, however innocent he may have been, to all such attach- 
 ment writs as his creditors may see fit to sue out against his property 
 for the period of two years. So, if a debtor, in perfect good faith, 
 executes a chattel mortgage to secure an honest debt, but fails to 
 have it executed, acknowledged, and recorded in all respects as re- 
 quired by the statute, the transaction is constructively fraudulent and 
 void, as against his creditors. But can it be said that he thereby 
 subjects himself, for a period of two years, to attachments by any of 
 
410 CONTRACTS (Part 1 
 
 his creditors? Other similar illustrations without number will suggest 
 themselves. , 
 
 In view of these various considerations, it seems to us to be very 
 clear that the legislature, in authorizing writs, of attachment in cases 
 where the debtor has fraudulently assigned his property so as to 
 hinder or delay his creditors, could have had in mind only such convey- 
 ances or assignments as are fraudulent in fact, and that it was not 
 their intention to grant this writ where the debtor acts honestly, and 
 with no fraudulent purpose or design. It follows that the instruction 
 to the jury to find the issues upon the attachment affidavit for the de- 
 fendant was properly given. * * * 
 
 Judgment affirmed. 
 
 SECTION 7.— SPECIFIC PERFORMANCE 
 In the ordinary case, where the defendant has broken his con- 
 tract the plaintiff is allowed to recover a judgment for money dam- 
 ages. This remedy may be described as one of substitutional re- 
 dress. The law does noty in these cases, aid the plaintiff by com- 
 pelling or by attempting to compel the defendant to do what he 
 promised to do. Of course, where the defendant has promised to 
 pay money to the plaintiff a judgment in plaintiff's favor does give 
 him exactly what he bargained for. But where the defendant has 
 promised to sell the plaintiff certain described property or to per- 
 form certain services for the plaintiff, an action by the latter will 
 usually be for the purpose of obtaining a judgment for money. 
 The court substitutes money for that which, under the contract, the 
 plaintiff was entitled to receive. 
 
 There are some cases when a judgment for money damages is a 
 poor substitute for that which defendant promised, or, as the law 
 usually puts it, a judgment for money damages is not an adequate 
 remedy. When such a situation is presented the court will order 
 the defendant specifically to perform his promise; hence the rem- 
 edy of specific redress, or, as it is usually called, specific perform- 
 ance. Of course, the above fact that a court orders a defendant to 
 perform his contract, in itself carries no great assurance that the 
 court's mandate will be obeyed. So the inquiry into the nature of 
 the remedy of specific performance involves the further inquiry 
 as to the judicial methods for compelling obedience. There are two 
 such methods: (1) Where the act to be done is of such a nature 
 that it may be perJEormed by an officer of the court a direction to 
 such officer to perform such act will be given. This is illustrated in 
 the case where the defendant has promised to execute and deliver 
 a deed to certain land to the plaintiff. The court, by having the 
 deed executed and delivered by some officer, may then give the 
 same legal effect to such execution and delivery as though the acts 
 had been done by the defendant himself. (2) Where the promised 
 acts are numerous, or ' difficult, and sometimes even where the 
 duty is merely to pay money, the court may hold that the refusal of 
 the defendant to comply with its decree shall result in imprison- 
 ment. The important question to decide, therefore, is : What are 
 
Ch. 10) REMEDIES 411 
 
 the circumstances under which a court will decree specific perform- 
 ance? The remedy is a severe one, and obviously, is not available, 
 except upon a definite showing that the remedy of money dam- 
 ages is inadequate. 
 
 In the cases on this topic it appears that the remedy of specific 
 performance, and also of injunction are "equitable remedies." 
 There is a great deal of discussion as to the circumstances under 
 which "equity will decree specific performance" or grant an "in- 
 junction." This is because, historically, the courts, in the early 
 days, during the eleventh, twelfth, thirteenth, and fourteenth cen- 
 turies, in England, did not grant such remedies. Not only at this 
 time were there deficiencies in legal remedies, but the substantive 
 law itself was not developing to meet the demands of the people. 
 Accordingly a change took place as the result of special petitions 
 to the king. The kiflg's chancellor occupied a position which logi- 
 cally tended to make of him a special judicial officer. In time the 
 chancellor became the head of an established court where the de- 
 cisions were somewhat at variance with the rules of the courts of 
 the older judicial system. Remedies were granted by the chancel- 
 lor, or by the Court of Chancery, as it came to be called, which 
 were not granted by the other courts, the courts of common law. 
 The Court of Chancery sought to "do equity" between the parties. 
 This development involved the assumption that the cases which 
 came to the Court of Chancery would not have been decided equi- 
 tably had they come before the courts of common law. 
 
 In a great many cases, no doubt, this was true. The natural 
 tendency of a judicial system, in certain periods of its development, 
 is to contract rather than to expand; that is, a change in legal 
 doctrine, to meet new social, economic, and political conditions in 
 society, is difficult of accomplishment. There is an attempt made, 
 by the enforcement of settled principles of law, to force society to 
 ■conduct its affairs in precisely the same way that similar affairs 
 had been conducted by the same or other society in an earlier stage 
 of its history. Often, of course, change is accomplished gradually 
 through the medium of existing judicial machinery; but some- 
 times it is brought about by the introduction of some entirely new 
 organization. This was the case in the development of that portion 
 of existing law which is called "equity." Historically, these doc- 
 trines were formulated and applied by the English Court of Chan- 
 cery. 
 
 Changes of somewhat analogous nature are of present-day oc- 
 currence. In recent years many states in this country have organiz- 
 ed special tribunals, to which is assigned jurisdiction over certain 
 special types of controversies. For example, most states have pub- 
 lic service and industrial commissions. These commissions fix 
 rates and standards of service and adjudicate the rights and lia- 
 bilities of employers with respect to injuries to employees under 
 workmen's compensation acts. Even the practice of persons con- 
 victed of crime in appealing to the governor for executive clem- 
 
412 CONTRACTS (Part 1 
 
 ency is also illustrative of the broad truth that judicial doctrines 
 do not, in all cases, function as many people think they should 
 function, and that change in, or relief from, the strict application of 
 the formulated rules of law is often accomplished by creating new- 
 machinery, judicial, administrative, or executive, which establishes 
 new principles and new remedies and applies them by a procedure 
 somewhat at variance with the doctrines and methods of procedure 
 of existing judicial bodies. 
 
 The history of the development of equitable doctrines is a long 
 one. For a long time separate tribunals applied these newer prin- 
 ciples of equity. Qenerally, to-day, a court which possesses com- 
 mon-law jurisdiction will also possess jurisdiction in equity. But 
 in many states, even to-day, procedure in a cause of equitable 
 cognizance is somewhat different from the procedure in common- 
 law causes, and everywhere account must be taken of the peculiar 
 origin and development of the doctrines of equity. 
 
 PADDOCK V. DAVENPORT. 
 (Supreme Court of North Carolina, 1890. 107 N. 0. 710, 12 S. E. 464.) 
 Shepherd, j. * * * The true principle upon which specific per- 
 formance is decreed does not rest simply upon a mere arbitrary dis- 
 tinction as to different species of property, but it is founded upon the 
 inadequacy of the legal remedy by way of pecuniary damages. This 
 principle is acted upon (1) where there is a peculiar value attached to 
 the subject of the contract which is not compensable in damages. The 
 law assumes land to be of this character "simply because," says Pear- 
 son, J., in Kitchen v. Herring, 42 N. C. 191, "it is land — a favorite and 
 favored subject in England, and every country of Anglo-Saxon origin." 
 The law also attaches a peculiar value to ancient family pictures, title 
 deeds, valuable paintings, articles of unusual beauty, rarity, and dis- 
 tinction, such as objects of vertu. A horn which, time out of rnind, 
 had gone along with an estate, and an old silver patera, bearing a 
 Greek inscription and dedicated, to Hercules, were held to be proper 
 subjects of specific performance. These, said Lord Eldon, turned upon 
 the pretium affectionis, which could not be estimated in damages. So, 
 for a faithful family slave, endeared by a long course of service or 
 early association. Chief Justice Taylor remarked that "no damages 
 can compensate, for there is no standard by which the price of affec- 
 tion could be adjusted, and no scale to graduate the feelings of the 
 heart." Williams v. Howard, 7 N. C. 80. 
 
 The principle is also applied (2) where the damages at law are so 
 uncertain and unascertainable, owing to the nature of the property 
 or the circumstances of the case, that a specific performance is indis- 
 pensable to justice. Such was formerly held as to the shares in a 
 railway company, which differ, says the court in Ashe v. Johnson's 
 Adm'r, 55 N. C. 149, from the funded debt of the government, in not 
 always being in the market and having a specific value ; also a patent 
 (Corbin v. Tracy, 34 Conn. 325), a contract to insure (Carpenter v. 
 Insurance Co., 4 Sandf.'Ch. [N. Y.] 408), and like cases. The gen- 
 eral principle everywhere recognized, however, is that, except in cases 
 falling within the foregoing principles, a court of equity will not de- 
 
Ch. 10) REMEDIES 413 
 
 cree the specific performance of contracts for personal property ; "for," 
 remarks, Pearson, J., in Kitchen v. Herring, supra, "if, with money, 
 an article of the same description can be bought, * * * the remedy 
 at law is adequate." * * * 
 
 Applying these principles to the facts alleged in the complaint, it 
 must follow, we think, that this is not a case which calls for the exer- 
 cise of the equitable power of the court. The trees were purchased 
 with a view to their severance from the soil, and thus being con- 
 verted into personal property. It is not shown that they have any 
 peculiar value to the plaintiff, nor does there appear any circumstances 
 from which it may be inferred that the breach of the contract may not 
 be readily compensated for in damages. Neither is it shown that 
 other trees may not be purchased, but it is simply alleged that they 
 are scarce at the contract price. The simple fact that they are near a 
 water-course does not alter the case, for the convenience of transporta- 
 tion are elements which may be considered in the estimation of the 
 damages. Neither is the circumstance that the plaintiff purchased "a 
 few trees of like kind" in the vicinity sufficient to warrant the eq- 
 uitable intervention of the court. We can very easily conceive of cases 
 in which contracts of this nature may be specifically enforced, but we 
 can see nothing in this complaint which calls for such extraordinary re- 
 lief. The ruling of the court as to this branch of the case is sus- 
 tained. * * * I 
 
 FIRST NAT. BANK OF HASTINGS r. CORPORATION SECURITIES CO. 
 .(Supreme Court of Minnesota, 1915. 128 Minn. 341, 150 N. W. 1084.) 
 
 Philip E. Brown, J. Action to enforce specific performance of 
 an agreement to buy shares of stock. * * * fhe cause was tried, 
 and findings made fqr plaintiff. Defendant appealed from an order 
 denying a new trial. 
 
 Defendant * * * insists it was error to grant specific perform- 
 ance, because plaintiff had an adequate remedy at law. * * * The 
 power of a court of equity, upon a proper showing, to grant relief 
 in such cases is now universally conceded, and in 50 L. R. A. 501, 
 note, the present state of the law in this regard is well stated, as fol- 
 lows : "The general rule in this country is that a contract for the 
 sale of corporate stock will not be specifically enforced, where the stock 
 can be purchased on the market, and its value can be readily ascer- 
 tained, unless there is some special reason for the purchaser's obtain- 
 ing the same, but where the shares are limited and not easily obtaina- 
 ble, or where their value cannot be readily ascertained, the contract 
 will be enforced. The tendency seems to be towards a more liberal 
 allowance of the remedy. In England it seems to be allowed almost 
 as a matter of course, except in case of government stocks, in which 
 case it has generally been refused." * * * 
 
 The inquiry, then, is whether the court's determination that the value 
 of the stock was not readily ascertainable was unsupported by the 
 evidence, and we cannot so hold. Crocker, S. D., where the bank is- 
 suing the stock was located, had about 150 inhabitants. Another bank, 
 having twice as much business, was also located there. A large part 
 of the surrounding country was suitable and used for grazing pur- 
 poses only. Part of the tributary population consisted of a "drifting 
 class," thus making bank loans and discounts extra hazardous. The 
 
414 CONTRACTS (Part 1 
 
 bank was organized in 1907, its capital being $10,000. Defendant and 
 its officers held a majority of its stock, which was not listed in com- 
 mercial reports,' and only two or three sales thereof were ever made; 
 ' these being between officers of the company or local people. The 
 bank never paid a dividend. Its books showed a surplus of $4,619 
 on April 27, 1911, which was reduced to $3,473 on August 1, 1911, and 
 the profits for the year preceding December, 1911, were $589. While, 
 therefore, there was some testimony to the contrary, it is patent under 
 all the circumstances disclosed that the establishment of the value of 
 the stock would involve, not only the obviously difficult task of prov- 
 ing the value of the bank's assets, but also a speculative forecast upon 
 its prospects; so that it is doubtful whether any basis could be laid 
 upon which to found a reasonable approximation of market value. At 
 least, such could not be done without imposing an unwarranted bur- 
 den on plaintiff. 
 
 We discover nothing inequitable in the relief granted, and find no 
 reversible error. 
 
 M. M. & D. D. BROWN v. WESTERN MARYLAND RT. CO. 
 
 (Supreme Court of Appeals of West Virginia, 1919. 84 W. Va. 271, 
 99 S. E. 457, 4 A. I.. R. 522.) 
 
 Lynch, J. Judged by the prayer of the bill, dismissed on demurrer, 
 ,of which action plaintiffs complain, the chief objects of this suit were 
 to obtain a mandatory injunction to require defendant, by way of 
 enforcement of an oral contract, to extend one of its yard side tracks 
 about 800 feet, the cost and expense of which plaintiffs contracted to 
 pay upon the conditions hereafter noted, and to furnish the railroad 
 ties necessary therefor; to enjoin defendant from carrying into ex- 
 ecution its announced purpose to cause the removal of lumber stacked 
 on its property with defendant's consent and approval pursuant to 
 such contract; and for general relief. The court justified its decree 
 upon the ground that equity will not entertain jurisdiction to enforce 
 the specific execution of a contract for the performance of work the 
 supervision of which requires the exercise of professional skill and 
 judgment. Thus there is presented the one main question whether a 
 court of equity can and should require defendant to extend its side 
 track, which it contracted to do, where plaintiffs, acting in good faith, 
 with the consent and upon the direction of defendant's agents, have 
 in part done what the contract authorized them to do. * * * 
 
 It is further contended that this contract is not one which equity 
 will enforce specifically owing to the amount of court supervision 
 which will be necessary, and for the further reason that the remedy 
 at law is adequate. A railroad contract stands on no higher plane 
 than the contract of any other corporation or individual, and the 
 same principles apply to and govern all of them alike. There is this 
 qualification to be made, however, where the specific performance 
 of a railroad contract is sought: Equity may decline to exercise its 
 coercive power in that respect if to do so will injuriously affect the 
 performance by the railroad of its full public duties. *. * * But 
 where the public rights will not be injured, a railroad company is sub- 
 ject to the same duty respecting its contracts as any other company 
 or an individual. 
 
 Underlying every contract is the fundamental conception of ex- 
 change, one contracting party offering to exchange services or com- 
 
Ch. 10) REMEDIES 415 
 
 modities which he possesses or can control in return for services or 
 commodities not within his possession or control, but which he de- 
 sires. At the time of entering upon the agreement each expects to 
 receive and render performance according to its express terms, and 
 the contract can never be fully satisfied unless its execution is of that 
 character. Frequently, however, the circumstances are such that 
 performance in kind is excused, and this is especially true when, with 
 an award of damages, the disappointed party can easily obtain on 
 the market or elsewhere the same or a substantially similar commodi- 
 ty or service that he contracted for. But when the remedy at law is 
 not thus adequate, equity has full jurisdiction, and in its discretion 
 may exert its inherent power to compel performance of the obligation 
 on the part of the delinquent obligor. The normal end or termination 
 of every contract is performance in accordance with the agreement, 
 and such a consummation should be the presumptive one; resort to 
 the legal remedy being had only when the circumstances are such 
 that it is better to compel the obligee to accept damages in lieu of what 
 he contracted for than to compel specific performance. Lightly to 
 permit a contracting party to disregard his, obligation and compel the 
 obligee to accept, not the thing contracted for, but money damages, 
 is to place a premium upon contractual insincerity. Especially is this 
 true where one party has fully performed his part of the agreement. 
 Vice Chancellor Sir James Bacon, in Greene v. West Cheshire Ry. 
 Co., L. R., 13 Eq. 44, 50, well expresses a reasonable view of such a 
 situation in decreeing specific performance of a contract to construct 
 and maintain a railroad siding of specified length. * * * 
 
 In this country the authorities generally have reached the same con- 
 clusion with- respect to contracts for sidings or spur tracks. Taylor 
 V. Florida, etc., Ry. Co., 54 Fla. 635, 45 South. 574, 16 L. R. A. (N. 
 S.) 307, 127 Am. St. Rep. 155, 14 Ann. Cas. 472. * * * A similar 
 result has been reached during more recent years in contracts for the 
 operation of trains. The editor of recent editions of Pomeroy's Eq- 
 uity Jurisprudence, and of the treatise on Specific Performance in 
 36 Cyc, says at page 587 of the latter work: "Beginning with the 
 year 1890, contracts involving the operation of railroads, often of the 
 utmost complexity and extending over long terms of years, or per- 
 petually, have been enforced specifically." 
 
 The authorities in this state relative to the specific performance 
 of railroad contracts are indicative of the trend of courts of equity 
 toward greater latitude in enforcing construction contracts where 
 the only reason urged against them is the necessity of court super- 
 vision. * * * 
 
 It is true, many of the cases cited involve contracts entered into by 
 the railroad company in consideration of the conveyance by the plain- 
 tiff of a right of way through his land. The consideration here is 
 of a different nature, but of equal dignity. Besides, the extent of the 
 duty created by a contract is not determined by the kind of consider- 
 ation on which it is based. It is sufficient if the consideration is such 
 as the law deems valuable without regard to its nature or character. 
 
 * * =1: 
 
 Superfluous, perhaps, is the observation that we are now only test- 
 ing the sufficiency of the bill on demurrer, and while we think the bill 
 presents on its face a cause for relief, the case may, when fully ma- 
 tured for final hearing upon bill, answer, and proof, show plaintiff 
 
416 
 
 CONTRACTS (Part 1 
 
 not to be entitled to any relief. In the meantime, however, the status 
 quo should be maintained, and to this end we reverse the decree, over- 
 rule the demurrer, reinstate the injunction, and remand the cause. 
 
 SECTION 8.— INJUNCTION 
 
 What was said with respect to the origin and development of the 
 equitable remedy of specific performance may also be said with 
 respect to the equitable remedy of injunction. The remedy of 
 injunction is by no means confined to actions upon contracts. 
 Where this remedy is invoked in contract actions, the plaintiff is 
 asking for a decree that the defendant shall not break a particular 
 promise or promises in the contract. In its operation an injunction 
 is, therefore, much like a decree of specific performance. Still there 
 is some difference between a decree ordering the defendant to 
 perform an act and one ordering him not to do an act. The remedy 
 of injunction in contract actions is most frequently sought where 
 the defendant has covenanted not to do a certain thing, as, for 
 example, a vendor of a business may agree not to engage in busi- 
 ness within a specified district for a specified time. In many cases a 
 .breach of such a promise as this will be enjoined. Of course, the 
 effect of ordering a person to cease business operations will nec- 
 essarily result in his doing many affirmative acts, still such a decree 
 does not burden the court with the task of supervising the work 
 to such an extent as would be true if the court undertook specifi- 
 cally to enforce contracts for personal service. Just as in consid- 
 ering specific performance, the larger question concerning the 
 remedy of injunction is: "What are the circumstances under 
 which the courts will grant the remedy?" They will not do so 
 when the remedy of money damages is deemed adequate. 
 
 The equitable remedy of injunction, as suggested above, is avail- 
 able in many suits not directly involving contracts. In fact, this 
 remedy is perhaps more often sought to prevent commission of 
 torts than to restrain breaches of contracts, especiallv to prevent 
 torts that would work an irreparable injury to property. Mainte- 
 nance of nuisances, for example, is frequently enjoined. Of very 
 great present-day importance is the use of injunction in labor dis- 
 putes. The application for an injunction in such cases is predicated 
 upon the contention that the actual or threatened conduct of the de- 
 fendants will amount to a tort causing irreparable injury to the 
 plaintiff, either with respect to his property, to his privilege of en- 
 tering freely into business relations with other persons, or to his 
 legal right to the performance of his existing contracts with other 
 persons. The remedy of injunction is also available to prevent the 
 violation of certain statutes, as, for example, to bring about ces- 
 sation of such practices of large industrial combinations as are un- 
 lawful under anti-trust acts. 
 
Ch. 10) EEMEDIES 417 
 
 The case following illustrates one type of situation where an 
 injunction is sought to restrain the breach of a negative covenant 
 in a contract. 
 
 PHILADELPHIA BALL CLUB, Limited, v. LAJOIB et al. 
 
 (Supreme Court of Pennsylvania, 1902. 202 Pa. 210, 5i Atl. 073, 
 5S L. B. A. 227, 90 Am. St. Kep. 627.) 
 
 Potter, J. The defendant in this case contracted to serve the 
 plaintiff as a baseball player for a stipulated time. During that pe- 
 riod he was not to play for any other club. He violated his agree- 
 ment, however,tduring the term of his engagement, and, in disregard 
 of his contract, arranged to play for another and a rival organization. 
 The plaintiff, by means of this bill, sought to restrain him during 
 the period covered by the contract. The court below refused an in- 
 junction, holding that to warrant the interference prayed for "the 
 defendant's services must be unique, extraordinary, and of such a 
 character as to render it impossible to replace him ; so that his breach 
 of contract would result in irreparable loss to the plaintiff." In the 
 view of the court, the defendant's qualifications did not measure up 
 to this high standard. The trial court was also of opinion that the 
 contract was lacking in mutuality, for the reason that it gave plaintiff 
 an option to discharge defendant on 10 days' notice, without a re- 
 ciprocal right on the part of the defendant. 
 
 The learned judge who filed the opinion in the court below, with 
 great industry and painstaking care, collected and reviewed the Eng- 
 lish and American decisions bearing upon the question involved, and 
 makes apparent the wide divergence of opinion which has prevailed. 
 We think, however, that in refusing relief unless the defendant's serv- 
 ices were shown to be of such a character as to render it impossible 
 to replace him he has taken extreme ground. It seems to us that a 
 more just and equitable rule is laid down in Pom. Spec. Perf. p. 31, 
 where the principle is thus declared : "Where one person agrees to 
 render personal services to another, which require and presuppose a 
 special knowledge, skill, and ability in the employe so that in case of a 
 default the same service could not easily be obtained from others, al- 
 though the affirmative specific performance of the contract is beyond 
 the power of the court, its performance will be negatively enforced 
 by enjoining its breach. * * * The damages for breach of such 
 contract cannot be estimated with any certainty, and the employer can- 
 not by means of any damages purchase the same service in the labor 
 market." * * * 
 
 The court below finds from the testimony that "the defendant is ' 
 an expert baseball player in any position; that he has a great repu- 
 tation as a second baseman ; that his place would be hard to fill with 
 as good a player; that his withdrawal from the team would weaken 
 it, as would the withdrawsfl of any good player, and would probably 
 make a difference in the size of the audiences attending the game." 
 We think that, in thus stating it, he puts it very mildly, and that the 
 evidence would warrant a stronger finding as to the ability of the 
 defendant, as an expert ball player. * * * Lajoie is well known, 
 and has great reputation among the patrons of the sport, for ability 
 in the position which he filled, and was thus a most attractive draw- 
 B.& B.Bus.Law— 27 
 
418 CONTRACTS (Part 1 
 
 ing card for the public. He may not be the sun in the baseball firma- 
 ment, but he is certainly a bright particular star! We feel, there- 
 fore, that the evidence in this case justifies the conclusion that the 
 services of the defendant are of such a unique character, and display 
 such a special knowledge, skill, and ability, as renders them of pe- 
 culiar value to the plaintiff, and so difficult of substitution that their 
 loss will produce "irreparable injury," in the legal significance of 
 that term, to the plaintiff. The action of the defendant in violating 
 his contract is a breach of good faith, for which there would be no 
 adequate redress at law, and the case, therefore, properly calls for 
 the aid of equity in negatively enforcing the performance of the con- 
 tract by enjoining its breach. 
 
 ■ But the court below was also of the opinion that the coptract was 
 lacking in mutuality of remedy, and considered that as a controlling 
 reason for the refusal of an injunction. * * * 
 
 The term "mutuality" or "lack of mutuality" does not always con- 
 vey a clear and definite meaning. As was said in Grove v. Hodges, 55 
 Pa. 516: "The legal principle that contracts must be mutual does not 
 mean that in every case each party must have the same remedy for a 
 breach by the other." In the contract now before us the defendant 
 agreed to furnish his skilled professional services to the plaintiff for a 
 period which might be extended over three years by proper notice 
 given before the close of each current year. Upon the other hand, the 
 plaintiff retained the right to terminate the contract upon 10 days' 
 notice and the payment of salary for that time and the expenses 
 of defendant in getting to. his home. But the fact of this concession 
 to the plaintiff is, distinctly pointed out as part of the consideration 
 for the large salary paid to the defendant, and is emphasized as such; 
 and owing to the peculiar nature of the services demanded by the 
 business, and the high degree of efficiency which must be maintained, 
 the stipulation is not unreasonable. Particularly is this true when it 
 is remembered that the plaintiff has played for years under substan- 
 tially the same regulations. 
 
 We are not persuaded that the terms of this contract manifest any 
 lack of mutuality in remedy. Each party has the possibility of en- 
 forcing all the rights stipulated for in the agreement. It is true that 
 the terms make it possible for the plaintiff to put an end to the con- 
 tract in a space of time much less than the period during which the 
 defendant has agreed to supply his personal services; but mere dif- 
 ference in the rights stipulated for does not destroy mutuality of 
 remedy. * * * 
 
 The defendant sold to the plaintiff, for a valuable consideration, 
 the exclusive right to his professional services for a stipulated period, 
 unless sooner surrendered by the plaintiff, which could only be after 
 due and reasonable notice and payment of salary and expenses until 
 the expiration. Why should not a court of equity protect such an 
 agreement until it is terminated? The ceurt cannot compel the de- 
 fendant to play for the plaintiff, but it can restrain him from playing 
 for another club in violation of his agreement. No reason is given 
 why this should not be done, except that presented by the argument, 
 that the right given to the plaintiff to terminate the contract upon 10 
 days' notice destroys the mutuality of the remedy. But to this it may 
 be answered that, as already stated, the defendant has the possibility 
 
Ch. 10) REMEDIES 419 
 
 of enforcing all the i-is;hts for which he stipulated in the agreement, 
 which is all that he can reasonably ask. * * * 
 
 The specifications of error are sustained, and the decree of the 
 court below is reversed, and the bill is reinstated. * * * 
 
 SECTION 9.— ENFORCEMENT OF DECREES BY ATTACH- 
 MENT FOR CONTEMPT 
 
 O'BRIEflSr V. PEOPLE ex rel. KELLOGG SWITCHBOARD & SUPPLY CO. 
 
 (Supreme Coiu^t of Illinois, 1905. 216 HI. 354, 75 N. E. 108, 
 108 Am. St. Rep. 219, 3 Ann. Cas. 966.) 
 
 Proceedings for contempt by the People, on the relation of the 
 Kellogg Switchboard & Supply Company, against John O'Brien, Thom- 
 as Queenan, Lee S. Fisher, Jacob Christensen, and Albert Mashek. 
 From judgments sentencing defendants to various penalties, affirmed 
 by the Appellate Court, they bring error. 
 
 On May 25, 1903, the Kellogg Switchboard & Supply Company, a 
 corporation organized under the laws of the state of Illinois, and en- 
 gaged in the business of manufacturing and selling telephones, switch- 
 boards, and electrical supplies, with its principal office in Chicago, filed 
 its bill for ah injunction in the superior court of Cook county against 
 certain parties named therein as defendants, and prayed for an injunc- 
 tion restraining said defendants from doing certain things mentioned 
 in said bill. A preliminary injunction was issued, which restrained the 
 defendants and their confederates from in any manner interfering 
 with the business of the said Kellogg Switchboard & Supply Com- 
 pany. 
 
 On June 3, 1903, the complainant filed a petition in the superior 
 court, which petition stated that persons named therein, since the is- 
 suing of said injunction, had been picketing and patrolling complain- 
 ant's place of business, stopping persons on their way to take employ- 
 ment with complainant, and had been endeavoring, by threats, in- 
 timidation, and persuasion, to compel complainant's employes to leave 
 its service, and to prevent persons from seeking employment with 
 complainant, and that the persons named therein had congregated on 
 the streets and approaches to the complainant's factory in order to ac- 
 complish these purposes. At a hearing on the petition and affidavits, 
 on June 15, 1903, the court found that Jacob Christensen, S. E. Doty, 
 Charles Heinig, Andrew Emerson, Fred Waggoner, Albert Marshek, 
 and others were guilty of violating the injunction order, and they were 
 each fined the sum of $10. 
 
 On July 14, 1903, the complainant filed still another petition. The 
 court found that George Christensen, Albert Mashek, Lee S. Fisher, 
 John Brent, Charles Evans, and John O'Brien had violated said writ 
 of injunction, and ordered that Lee S. Fisher be fined $100, that George 
 Christensen be committed to the county jail for 30 days, that John 
 O'Brien be committed to the county jail for 10 days, that Albert Mashek 
 be committed to the county jail for 60 days, that Charles Evans be 
 fined $25, that John Brent be fined $25, and that R. S. Schoenbacker 
 be discharged. 
 
420 CONTRACTS ' (Parti 
 
 Wilkin, J. * * * It is a well-known rule of law that, in pro- 
 ceedings for contempt in failing to obey an order of court, the re- 
 spondent may question the order which he is charged with refusing 
 to obey only in so far as he can show it to be absolutely void, and can- 
 not be heard to say that it is merely erroneous, however flagrant it may 
 appear to be. The judgments of courts cannot be attacked collaterally 
 for mere irregularities. Therefore plaintiffs in error cannot question 
 in this proceeding the sufKciency of the bill upon which the writ of 
 injunction was granted. Courts of chancery have within themselves 
 full power and authority to enforce their official mandates in a sum- 
 mary and effective manner. To say otherwise, would render them 
 powerless and inefficient. 
 
 It is again insisted with much earnestness that this proceeding is 
 criminal in its nature, and therefore the defendants below were en- 
 titled to be discharged upon their sworn answer, and, if their answer 
 was not sufficient, they could only be punished after they had been 
 tried and convicted by jury. Proceedings for contempt of court are 
 of two classes: those which are criminal in their nature, and those 
 which are designated as purely civil remedies. When the contempt 
 consists of something done or omitted in the presence of the court 
 tending to impede or interrupt its proceedings or lessen its dignity, 
 or out of its presence in disregard or abuse of its process, the proceed- 
 ing is punitive or criminal, and the penalty is inflicted by way of punish- 
 ment for the wrongful act, and to vindicate the authority and dignity 
 of the people as represented by their judicial tribunals. In such cases 
 the application for attachment may be made in the original cause, yet 
 the contempt proceeding will be a distinct case, criminal in its nature. 
 Cases of this kind are clearly distinguished from cases where the 
 parties to a civil suit, having the right to demand that the other party 
 do some act for their benefit, obtain an order from a proper court 
 commanding the act to be done, and, upon refusal, the court, by way 
 of executing its orders, proceeds as for contempt, for the purpose of 
 advancing the civil remedy of the other party to the suit. In this 
 class of cases, while the authority of the court will be incidentally vin- 
 dicated, its power has been called into exercise for the benefit of a pri- 
 vate litigant, and not in the public interest, merely. If imprisonment 
 is ordered, it is not as a punishment, but to the end that the other 
 party to the suit may obtain a remedy for the advancement of his own 
 
 private interest and rights which he could not otherwise maintain. 
 
 * * * 
 
 Upon this bill being filed, a writ of injunction was ordered for the 
 purpose of protecting the company against the unlawful acts of cer- 
 tain persons; and when the injunction was issued, and the plaintiffs 
 in error were attached for contempt of court, it was primarily because 
 they were injuring the business of the Kellogg Company, and the 
 punishment was inflicted to prevent such injury. While it is true that 
 the dignity of the law and the order of the judicial tribunal have been 
 violated, this was merely incidental to the rights of private individ- 
 uals. The proceeding for the attachment was civil, and in no sense 
 criminal. The rule is that, when the defendant is attached for con- 
 tempt of court .for a criminal offense and files a sworn answer, that 
 answer, if sufficient to purge ^<m of the alleged contempt, may be 
 taken as true and the defendant discharged. But this rule applies only 
 where the proceeding is brought to vindicate the law or the dignity of 
 
Ch. 10) REMEDIES 421 
 
 the court, and does not apply to acts treated as contempts, for the 
 enforcement of orders and decrees as a part of the remedy sought 
 to be enforced. * * * 
 
 It is, however, contended that, even though they were not entitled 
 to be discharged upon their sworn answers, they still had the constitu- 
 tional right to a trial by jury, and could not be legally deprived of 
 their liberty or property without such a trial. Upon the filing of the 
 petitions for contempt and the appearance of the defendants thereto, 
 the court proceeded in the summary to hear the case upon .the petitions, 
 answers, and affidavits filed by the respective parties. In 1893 the leg- 
 islature of this state passed an act providing for a trial by jury in all 
 cases where a judgment was to be satisfied by imprisonment. Laws 
 1893, p. 96. In the case of Barclay v. Barclay, 184 111. 471, 56 N. E. 
 821, we decided tliat this act did not apply to the case of proceedings 
 for contempt of court, where it was sought to coerce defendant into 
 the performance of the duty which the court had ordered him to per- 
 form. * * * These authorities are decisive of the question here 
 raised, and hold that the defendants in such a proceeding as this are not 
 entitled to a trial by jury. * * * 
 
 We have endeavored to give the material questions raised and dis- 
 cussed in the argument due consideration, and have reached the con- 
 clusion that the judgments of the superior court were properly affirmed 
 by the Appellate Court. The judgment of the latter court will ac- 
 cordingly be affirmed. 
 
 SECTION 10.— BANKRUPTCY 
 
 Section 8 of article 1 of the Constitution of the United States 
 confers upon Congress power to establish uniform laws on the 
 subject of bankruptcies throughout the United States. Under this 
 grant of power Congress enacted the first National Bankruptcy Act 
 in 1800, but this act was repealed in 1803. The second National 
 Bankruptcy Act was passed in 1841, but, like its predecessor, it 
 was repealed two years later. Again, in 1867, a National Bank- 
 ruptcy Ac^ was passed, which act remained in force until its repeal 
 in 1878. The present National Bankruptcy Act (U. S. Comp. St. 
 §§ 9585-9656) was passed in 1898. Several amendments thereto 
 have been adopted since its original enactment. 
 
 The primary purpose of a bankruptcy act is to provide the ma- 
 chinery, administrative as well as judicial, for the expeditious and 
 economical collection of the assets of an insolvent person and for 
 the equitable distribution thereof among his creditors. The act 
 is passed largely in the interests of the creditors, although, under 
 the present act the bankrupt usually obtains the benefit of a dis- 
 charge from most of his legal obligations. In the absence of such 
 a system as that provided for by the Bankruptcy Act, creditors 
 must prosecute independent suits against their common debtor. 
 The prosecution of such actions results in needless expense. More- 
 over, the property of the judgment debtor will not be distributed 
 proportionately among the creditors, because the extent of their 
 several rights generally will be fixed as of the date of the entry of 
 
422 CONTRACTS (Part i 
 
 their respective judgments. Some creditors are, therefore, likely to 
 be paid in full, while other creditors will receive nothing. Under a 
 system of bankruptcy legislation, all of the property of the bank- 
 rupt is placed beyond the reach of all courts except the bankruptcy 
 tribunal, the title thereto vested in a trustee, upon whom is im- 
 posed the general dtity of distributing it, or the proceeds arising 
 from its sale, among the creditors in proportion to the amount of 
 their respective claims. After the filing of a petition in bank- 
 ruptcy, the custody of the property of the bankrupt vests in the 
 federal court having jurisdiction of the cause. 
 
 In the following very brief resume of some of the more promi- 
 nent features of thefoperation of the Bankruptcy Act, we-are con- 
 terned with three general questions: (1) What persons may be 
 adjudicated bankrupts? (2) Under what circumstances may these 
 persons be adjudicated bankrupts? (3) What is the nature and 
 extent of the rights of the trustee, who is charged with the duties 
 of administering the bankrupt estate, in the property of the bank- 
 rupt, and what are his duties with respect to its distributon among 
 
 creditors? 
 
 (1) WHO MAT BE BANKRUPTS? 
 
 With respect to the persons who may become bankrupts, the act 
 draws some distinctions between voluntary bankrupts, that is, 
 those persons Who, upon their own petition, ask to be adjudicated 
 bankrupts, and involuntary bankrupts, namely, those persons who 
 have been proceeded against by creditors. Section 4 provides, 
 with four exceptions, that any person may be adjudicated a volun- 
 tary bankrupt. Section 1, clause 19, defines the word "person" to 
 include corporations and partnerships. The four exceptions to 
 the rule that any person may be adjudicated a voluntary bankrupt 
 are municipal, railroad, insurance, and banking corporations. No- 
 tice that the exception concerns corporations engaged in these en- 
 terprises, and does not include partnerships engaged in the private 
 enterprises named. There is no provision with reference to the 
 amount of debts which one must owe before one may file a peti- 
 tion in voluntary bankruptcy, and, indeed, there is no requirement 
 that such person be insolvent, although as a practical matter a per- 
 son would rarely seek an adjudication in voluntary bankruptcy un- 
 less he were insolvent. 
 
 Not every person who is privileged to obtain an adjudication 
 in bankruptcy upon his own voluntary petition may be proceeded 
 against by his creditors upon their petition in involuntary bank- 
 ruptcy. With reference to the persons who may be adjudicated 
 involuntary bankrupts the act contains provision with respect to 
 three classes of persons: (1) Natural persons; (2) unincorpo- 
 rated companies; and (3) corporations. Section 4 provides that 
 "any natural person * * * niay be adjudged an involuntary 
 bankrupt." To this rule, then, are two exceptions ; the same sec- 
 tion providing that wage-earners and persons engaged chiefly in 
 
Ch. 10) REMEDIES 423 
 
 farming or the tillage of the soil cannot be adjudicated involuntary 
 ba-nkrupts. Who are wage-earners? Who are farmers? When 
 will a person be engaged chiefly in farming or in the tillage of the 
 soil? Section 1, clause 27, defines a wage-earner as "an individual 
 who works for wages, salary, or hire, at a rate of compensation 
 not exceeding one thousand five hundred dollars per year." This 
 definition is but a partial definition of the term "wage-earner," for 
 there are many persons who earn less than $1,500 per year who 
 could not properly be regarded as wage-earners. Would a school- 
 teacher earning less than $1,500 per year be a wage-earner, within 
 the meaning of this section? Is a lawyer, physician, broker, or a 
 preacher a wage-earner, within the meaning of this section ? What 
 should the test be?* 
 
 With respect to the second exception, may one be a tiller of the 
 soil without being a farmer? Is a stock raiser a farmer? Would 
 one be a farmer who was engaged in raising fruit? Where land 
 has been rented to a tenant, who cultivates it, is the owner a farm- 
 er by reason of his receiving an income from the land? A. owns a 
 tract of land and keeps a large herd ' of dairy cows. He raises 
 very little of his feed. Is he a farmer? A. owns a tract of land, and 
 employs B. to cultivate the land, to raise and care for the crops. 
 A. does no work on the land. B. is paid by the month. Is A. a 
 farmer? Is B. a farmer? Occasionally questions of this nature 
 are presented to the courts. The questions may be further compli- 
 cated by the requirement that, in order to be exempt from involun- 
 tary bankruptcy, one must be chiefly, but not entirely, engaged in 
 farming or tillage of the soil.* 
 
 With respect to unincorporated associations, section 4 provides 
 that "any unincorporated company" may be adjudicated an involun- 
 tary bankrupt. Section 5 further provides that "a partnership, 
 during the continuance of the partnership business, or after its 
 dissolution and before the final settlement thereof, may be ad- 
 judged a bankrupt." ® The expression, "any unincorporated com- 
 pany," while broad enough to include all partnerships, was inserted 
 probably for the purpose of including within the scope of involun- 
 tary bankruptcy associations other than partnerships. Apparent- 
 ly, therefore, the expression would include associations although 
 not established and conducted for profit. 
 
 Not all corporations may be adjudged involuntary bankrupts. 
 In the first place, section 4 provides that oply those corporations 
 which are "moneyed, business, or commercial corporations" are 
 subject to involuntary bankruptcy. These three words, "moneyed," 
 "business," and "commercial," indicate rather clearly that Congress 
 
 3 See Pirst National Bank of Wilkes-Barre v. Bai'num (D. O.) 160 Fed. 
 245 (190S). 
 
 4 See Bank of Dearborn v. JIatney (D. C.) 132 Fed. 75 (1S04). 
 
 5 A leading case on the subject of partnership hankniptcv is Francis v. 
 McNeal, 228 U. S. 695, .33 Sup. Ct. 701, 57 L. Ed. 1029, L. K. A. 1915E, 706 
 (1913). 
 
424 CONTRACTS (Part 1 
 
 intended. to subject all corporations which were organized and 
 conducted for pecuniary profit to the liability of being proceeded 
 against in involuntary bankruptcy, and that all corporations or- 
 ganized not for pecuniary profit, such as religious organizations, 
 social clubs, fraternities, and the like, should be exempt from 
 these provisions. Of course, these organizations may avail them- 
 selves of the provisions relating to voluntary bankruptcy, and it 
 would seem that, if they are not incorporated, they could be pro- 
 ceeded against by creditors. In the second place. Congress has 
 provided, in section 4, that four classes of corporations, although 
 organized for pecuniary profit, cannot be adjudicated involuntary 
 bankrupts — "municipal, railroad, insurance, or banking corpora- 
 tions." Special statutory procedures, or ordinary receiverships as 
 worked out by courts of equity, are better suited to the purposes of 
 liquidating or reorganizing railroad, insurance, and banking cor- 
 porations ; hence they are excluded from the operation of the Bank- 
 ruptcy Act. There is reason to believe that, in addition to rail- 
 roads, public service corpojations generally should not be subject 
 to the provisions of the Bankruptcy Act. 
 
 (2) CIBOUMSTANCES UNDER WHICH PERSONS SUBJECT TO BANK- 
 RUPTCY MAT BE ADJUDICATED BANKRUPT 
 
 Any person, except the four classes of corporations mentioned 
 above, is entitled to the provisions of the act relating to volun- 
 tary bankruptcy. There is no requirement that such persons be 
 insolvent or possess assets.® 
 
 Persons subject to involuntary bankruptcy may be adjudicated 
 bankrupt upon proof of the following facts: ' (1) That the person 
 proceeded against owes debts to the amount of $1,000 or over ; (2i 
 that such person has committed an act of bankruptcy within a pe- 
 riod of time specified in the act. There is the further requirement 
 that there must be three or more creditors joining in the petition 
 who have provable claims against the bankrupt which amount in 
 the aggregate, in excess of the value of securities held by them, if 
 a:ny, to $500 or over, or, if all of the creditors of such person are 
 less than twelve in number, then one of such creditors whose claim 
 equals such amount may file a petition.* 
 
 We may pass over, without discussion, the requirement that the 
 bankrupt must owe debts of $1,000 or over, except to note the pos- 
 sibility of controversy over the question what constitutes a debt. 
 Does the term "debt" include unliquidated claims arising from 
 breaches of contracts or from the commission of torts? Are con- 
 tingent claims, such as the obligation of an indorser of a nego- 
 tiable instrument, to be regarded as debts?* 
 
 The requirement that the,bankrupt must have committed what is 
 
 -^ In re Schwaninger (D. C.) 144 Fed. 555 (1906). 
 
 7 Section 3. 
 
 8 Section 59(b). 
 
 See discussion in Chapter V, Section 5, as to tlie meaning of the term 
 "debt," as used in tlie sections relating to discbai-ge. 
 
Ch. 10) REMEDIES 425 
 
 called an act of bankruptcy, as a prerequisite to his adjudication, 
 is the provision which covers the greater amount of litigation. It 
 is generally true that a person must be insolvent before his credi- 
 tors may proceed against him in involuntary bankruptcy. Never- 
 theless, the Bankruptcy Act does not lay down the rule that all 
 persons when insolvent may be adjudged involuntary bankrupts, 
 nor in any case is it possible to obtain an adjudication solely upon 
 proof that the person proceeded against was insolvent. A scheme 
 of bankruptcy legislation which permitted creditors to proceed 
 against a debtor upon proof of his insolvency alone probably would 
 work very well, but it would not be so desirable as the method 
 which has been worked out in our present act. Instead of pro- 
 viding that a person may be adjudged an invbluntary bankrupt 
 upon proof of his insolvency, the act provides that the petitioning 
 creditors must allege and prove that the alleged bankrupt com- 
 mitted some specific act, called an act of bankruptcy, which act) 
 in one way or another, affords a rather clear proof that his liabili- 
 ties then exceed his assets, or that his liabilities are very likely to 
 exceed his assets in a relatively short time. , From a practical stand- 
 point, in the great majority of cases, insolvency is the real basis for 
 the proceeding. 
 
 Section 3 defines five specific acts of bankruptcy, although the 
 fourth clause, as numbered in the act, in reality, enumerates three 
 separate acts of bankruptcy. These acts of bankruptcy may be 
 referred to generally as: (1) Fraudulent conveyances; (2) pref- 
 erential transfers ; (3) preferences obtained through legal proceed- 
 ings; (4) (a) general assignments; (b) application for a receiv- 
 er, while insolvent; (c) appointment of a receiver because of in- 
 solvency; (5) admission in writing of one's inability to pay debts. 
 
 The first act of bankruptcy is defined as follows : Acts of bank- 
 ruptcy by a person shall consist of his having conveyed, trans- 
 ferred, concealed or removed, or permitted to be concealed or re- 
 moved, any part of his property with intent to hinder, delay or 
 defraud his creditors, or any of them. 
 
 This section is based upon a statute which, independent of our 
 bankruptcy legislation, is in force generally throughout the United 
 States and is a substantial re-enactment of the English act passed 
 during the reign of Elizabeth. The statute is commonly referred 
 to as the Statute of Elizabeth. The effect, in general, of the act is 
 to make void, as to creditors and sometimes as to subsequent pur- 
 chasers, conveyances of property which are defined by the act as 
 fraudulent. Under this state legislation a creditor of a fraudulent 
 grantor may treat a fraudulent conveyance by his debtor as if such 
 conveyance had not been made; that is, the creditor may have the 
 property thus fraudulently conveyed sold under judicial process 
 to satisfy his judgment. The claims of the grantee, if he were not 
 a bona fide purchaser for value, would be treated as non-existent. 
 Congress has, therefore, simply provided, generally, that those 
 conveyances which are fraudulent under the various state statutes 
 
426 CONTRACTS (Part 1 
 
 which re-enact the Statute of Elizabeth, shall also amount to 
 acts of bankruptcy. The principal difficulty which arises in con- 
 nection with the interpretation of a fraudulent conveyance act is to 
 determine what constitutes an intent to defraud. A discussion of 
 this question would carry us beyond the scope of this section, but a 
 few of the more common situations may here be noted very 
 briefly. 
 
 It is pbssible for one to make a transfer of his property with in- 
 tent to defraud although such transfer is for value, even for full 
 value. A transfer of property in consideration of a covenant by 
 the grantee to support the grantor for life is not an uncommon 
 transaction and such transfer, when accompanied by the requisite 
 intent to defraud, has been held void under the statute. The more 
 common transaction concerns gifts of property. If A. is insolvent, 
 or threatened with insolvency, he may decide to attempt to put his 
 property beyond the reach of his creditors. Accordingly he may 
 transfer by way of gift the bulk of his estate to a relative; or he 
 may ostensibly transfer his property by way of gift, although ac- 
 tually there may be a secret agreement on the part of the grantee 
 to re-transfer the property just as soon as the financial storm blows 
 over; or it is possible that, while the transfer, as far as legal 
 foi'm is concerned, has been made (as, for example, to the grantor's 
 wife), the property is for all practical purposes owned and con- 
 trolled by the grantor. 
 
 The problem with which the courts are concerned in applying the 
 statute of fraudulent conveyances to transactions of this character 
 is to determine the circumstances under which it is proper to de- 
 cide that the transfer was made with an intent to defraud. With 
 respect to gifts of property, the courts hold that, if the donor, 
 after the gift, has retained an amount of property insufficient to 
 meet his debts, the transfer is void ; that is, proof that the gift lett 
 the donor insolvent will be taken as the equivalent, in legal effect, 
 of affirmative proof of an intent to defraud. Since the donee, ob- 
 viously, is not a bona fide purchaser for value, creditors of the in- 
 solvent donor need not prove that the transferee had knowledge 
 of the fraudulent character of the transfer. Retention of possession 
 after sale is likewise held by some courts to be conclusive proof 
 of intent to defraud, but by other courts such act of retention of 
 possession is but prima facie evidence of intent to defraud. 
 
 The rights of subsequent creditors to attack a fraudulent con- 
 veyance are not the same in all jurisdictions. In some states, sub- 
 sequent creditors may set aside a conveyance only upon proof of 
 fraud by the grantor to defraud subsequent creditors. In other 
 states, the rule is that, if a conveyance may be set aside by a 
 prior creditor, any subsequent creditor may set it aside, provided 
 there still exists some prior creditor who has not been paid. Still 
 •other states hold that if a conveyance is fraudulent in fact — that is, 
 not deemed fraudulent under the rules that a gift by an insolvent 
 arid a retention of possession after sale are fraudulent as' a matter 
 
Ch. 10) REMEDIES 427 
 
 of law — any creditor, prior or subsequent, may set the convey- 
 ance aside. 
 
 The above brief comment was made to give some indication of 
 tlie types of specific acts which constitute the first act of bank- 
 ruptcy. Two important statements remain to be made with refer- 
 ence to fraudulelit conveyances as acts of bankruptcy: (1) It is 
 to be noticed that in the definition of a fraudulent conveyance in 
 section 3 (a), as above quoted, the condition of insolvency is not 
 made an element. But section 3 (c) makes the absence of insol- 
 vency a defense to an involuntary proceeding predicated upon the 
 first act of bankruptcy. But this provision does not apply to any 
 other act of bankruptcy.^* (2) It is to be emphasized that proof 
 of the commission of the first act of bankruptcy does not necessi- 
 tate proof that the transferee of the fraudulent conveyance is not a 
 bona fide purchaser. It makes no difference whether such trans- 
 feree is a bona fide purchaser. The proof is made out by the credi- 
 tors' showing (a) that a transfer was made; (b) that it was made 
 with intent to defraud ; and (c) upon the failure of the defendant 
 to establish his solvency at the time of the filing of the petition 
 against him. One may commit the first named act of bankruptcy, 
 although it may be impossible for the trustee in bankruptcy to 
 recover the property for the benefit of creditors. This will always 
 occur when the transferee was a bona fide purchaser for value. 
 
 The second named act of bankruptcy is a preferential transfer. 
 It is defined in section 3 (a) (2) as follows : Acts of bankruptcy by 
 a person shall consist of his having transferred, while insolvent, 
 any portion of his property to one or more of his creditors with 
 intent to prefer such creditors over his other creditors. It is to 
 be noticed that this section places the burden of proving the con- 
 dition of insolvency of the bankrupt upon the petitioning creditors, 
 while, under the first act of bankruptcy, no such burden rests upon 
 the petitioning creditors. The act places the burden upon the 
 bankrupt to prove that he was solvent if he seeks to defeat the 
 proceeding upon this ground. Under the second act of bankruptcy, 
 failure of the creditors to prove insolvency will defeat the petition. 
 
 The second act of bankruptcy is like the first act of bankruptcy in 
 that each deals with transfers of property, but there are im- 
 portant differences. The first act of bankruptcy does not deal ex- 
 clusively with transfers, but also with concealments, of property. 
 The second act of bankruptcy concerns transfers only. The trans- 
 fer or concealment which is an element of the first act of bank- 
 ruptcy must be made with intent to defraud. The transfer which 
 constitutes the second act of bankruptcy must be made, not with 
 an intent to defraud, but with an intent to prefer. "This raises the 
 question: What is a preference? 
 
 Section 60 (a) defines a preference as follows : A person shall 
 be dpemed to have given a preference if, being insolvent, he has 
 
 10 West Co. V. Lea, 174 U. S. 590, 19 Sup, Ct. 836, 4.3 L. Ed. 1098 (1899). 
 
428 CONTRACTS (Part 1 
 
 * * * made a transfer of any of his property, and the effect of 
 the enforcement of such * * * transfer will be to enable any 
 one of his creditors to obtain a greater percentage of his debt than 
 any other of such creditors of the same class. The definition of 
 a bare preference does not include the element of an intent to bring 
 about the result described in the definition, but the second act of 
 bankruptcy consists" in making a preference with intent to do so. 
 The broad distinction between a fraudulent conveyance and that 
 kind of a preference which constitutes the second act of bankruptcy 
 is not so much in the eiifect which the transfer has vipon creditors, 
 because in many cases the effect will be the same, but rather in the 
 nature of the intent which accompanies the transfers. An intent 
 to defraud, except where such intent is found in the act of reten- 
 tion of possession after sale and in gifts by insolvent persons,' is an 
 affirmative, a positive desire to prevent creditors from obtaining 
 payment of the money due them by making the transfer. An in- 
 tent to prefer consists in the desire to treat the creditor preferred 
 better than the transferor can treat other creditors. He may 
 make a preference and still remain an honest man. 
 
 An insolvent person may not desire to prevent a single creditor 
 from collecting his money. He may even desire most heartily to 
 pay all of them in full. He may have some money, and he may 
 really feel that he ought to pay his grocer rather than to divide the 
 amount among all of his creditors. Accordingly he may prefer his 
 grocer. A preference, therefore, is not a fraudulent conveyance; 
 but, when it is made with an intent to bring about this result, it 
 does constitute an act of bankruptcy. Notice, further, that a pref- 
 erence consists in paying a debt. A purchase of property for 
 cash by an insolvent is not a preference given to the seller. If A., 
 being insolvent, has $100, and with this money buys property of this 
 value, no preference results, because his estate has not been di- 
 minished. A preference is the payment of an antecedent debt, 
 usually a debt which came into existence as the result of a pur- 
 chase of goods on credit. This rule that payments on cash sales 
 do not operate as preferences is carried farther, and made to in- 
 clude payments on a running account, where new sales succeed 
 payments and the net result is to increase the value of the es- 
 tate." This rule is of considerable importance to dealers who 
 have had frequent dealings with the bankrupt, consisting in sales 
 of property to the bankrupt at different times and the receipt from 
 him of numerous payments on account, for the trustee in bank- 
 ruptcy will not be able to recover the payments as he may many 
 preferences. 
 
 The third act of bankruptcy is also a preference, but it differs 
 from the kind of preference just discussed, in that it does not nec- 
 essarily arise from a voluntary act of the person who made it. 
 
 11 Jaquith v. Alden, 189 U. S. 78, 23 Sup, Ct. 649, 47 L. Ed. 717 (1903). 
 
Ch. 10) REMEDIES 429 
 
 Section 3 (a) (3) defines this act of bankruptcy as follows : Acts 
 of bankruptcy by a person shall consist of his having * * * 
 suffered or permitted, while insolvent, any creditor to obtain a 
 preference through legal proceedings, and not having at least five 
 days before a sale or final disposition of any property affected by 
 such preference vacated or discharged such preference. Section 
 60 (a) defines what shall constitute a preference in this situation as 
 follows : A person shall be deemed to have given a preference if, 
 being insolvent, he has, * * * procured or suffered a judg- 
 ment to be entered against himself in favor of any person * * « 
 and the effect of the enforcement of such judgment * * * will 
 be to enable any one of his creditors to obtain a greater percentage 
 of his debt than any other creditor of the same class. 
 
 This act of bankruptcy is like the second act of bankruptcy, in 
 that the effect of the act upon creditors is the same ; and they are 
 also alike, in that, in each, insolvency is an element, and the bur- 
 den of establishing its existence is upon the petitioning creditors in 
 both cases. But there are two important differences with respect to 
 the nature of the act or acts which bring the common result into 
 existence: (1) The second act of bankruptcy involves a volun- 
 tary transfer of property. The third act of bankruptcy does not 
 necessitate the voluntary action of the bankrupt. Creditors may 
 force an insolvent person to commit the third act by obtaining a 
 judgment against him, levying upon his property, ordering a sale 
 thereof, and waiting for the time specified in the section to elapse. 
 (2) Intent is an element of the second act of bankruptcy, while in- 
 tent is not an element of the third act. 
 
 The use of the words "suffered or permitted," etc., may seem to 
 indicate that to constitute the third act of bankruptcy the alleged 
 bankrupt must consent to the entry of the judgment; but this is 
 not the interpretation which has been placed upon these words. 
 Within the meaning of this section, one may suffer or permit a 
 judgment to be entered against one, although one may have done 
 everything within one's power to prevent it. This interpretation 
 leads to this important distinction between the second and third 
 acts of bankruptcy: Proof of the commission of the second act 
 of bankruptcy must include proof of intent to prefer, while proof of 
 the third act of bankruptcy does not require proof of an intent to 
 prefer.^* In a great many cases, therefore, it will be much easier 
 for creditors to obtain an adjudication in bankruptcy by forcing 
 their debtor to commit the third act of bankruptcy than for them to 
 rely upon the first or second acts ; for the proof will be more easily 
 made. It is sometimes very difficult to prove an intent. 
 
 It should be noticed that the third act of bankruptcy is not com- 
 mitted at the moment a judgment is obtained against an insolvent 
 person. If creditors proceeded no further than to obtain judgment, 
 
 12 Wilson Brothers v. Nelson, 183 V. S. 191, 22 Sup. Ct. 74, 46 L. Ed. 147 
 (1901) ; Citizens' Banking Co. v. Eavenna National Bank of Ravenna, Ohio, 
 234 U. S. 360, 34 Sup. Ct. 806, 58 L. Ed. 1352 (1914). 
 
430 CONTRACTS (Part 1 
 
 the, judgment debtor never would commit the third act of bank- 
 ruptcy. The judgment creditor rnust go further and take put an ex- 
 ecution upon the judgment. Following tjiat he must levy upon 
 specific property of the judgment debtor and then obtain an order 
 for the judicial sale of such property on a day eertafn. Even then 
 the third act of bankruptcy has not been committed, for this sec- 
 tion provides that the act is not complete until "at least five days 
 before a sale or final disposition of any property affected by such 
 preference." The judgment creditor is not required to wait until 
 the sale actually occurs, but he must wait until five days before 
 the day arrives on which the judicial sale is to, take place. 
 
 The fourth class of acts of bankruptcy, consisting of three inde- 
 pendent acts, is defined in section 3 (a) (4), as follows : Acts of 
 bankruptcy by a person shall consist of his haying * * * made 
 a general assignment for the benefit of his creditors, or, being 
 insolvent, applied for a receiver or trustee for his property or be- 
 cause of insolvency a receiver or trustee has been put in charge 
 of his property under the laws of a State, of a Territory, or of the 
 United States. 
 
 A general assignment for the benefit of creditors is a transfer 
 by the assignor, usually of all of the transferor's property to a 
 person called the assignee, who accepts the same and agrees to 
 care for and dispose of the property as directed, usually in a formal 
 document. State statutes sometimes regulate general assignments 
 for the benefit of creditors. A general assignment is usually the 
 result of insolvency, the debtor adopting this procedure for set- 
 tling with his creditors. While, as a matter of fact, a general 
 assignment will rarely be executed by a person unless he is in- 
 solvent, the Bankruptcy Act, in declaring, that the execution of 
 a general assignment shall constitute an act of bankruptcy, does 
 not require petitioning creditors to prove that the assignor was 
 insolvent, nor is solvency a defense to a petition which sets out 
 this act of bankruptcy.^* 
 
 The remaining acts of bankruptcy specified in section 3 (a) (4),. 
 on the other hand, do involve insolvency. In the first, if a person 
 is in fact insolvent and applies for a receiver on any ground, such 
 act constitutes an act of bankruptcy. Under the last clause of this 
 subsection, the condition of insolvency is involved but in a some- 
 what different way. If the appointment of a receiver was because 
 of insolvency, then and only then is this act of bankruptcy com- 
 mitted. Receivers may be appointed for many reasons other than, 
 because of insolvency. It is only when the appointment of the re- 
 ceiver is because of insolvency that the court having jurisdiction, 
 of the property may be ousted and the administration of the es- 
 tate, transferred to the federal courts." 
 
 The fifth. and last act of bankruptcy iscomrnitted when a person 
 
 13 West Co. V. Lea, 174 U. S. 590, 19 Sup. Ct. S36. 43 h. Ed. 1098 (1899) 
 i*In re Spalding, 139 Fed. 244, 71 0. C. A. 370 (1905). ' "■■ '■ 
 
Ch. 10) EEMBDIES 431 
 
 has "admitted in writing hiS inability to pay his debts and his will- 
 ingness to be adjudged a bankrupt on that ground." This is really 
 a substitute for voluntary bankruptcy. There may be situations 
 where, for purely sentimental reasons, one may prefer to be adjudi- 
 cated an involuntary bankrupt rather than to file a voluntary pe- 
 tition. In such a tfase it would likely not be difficult for such per- 
 son to induce three of his creditors to file an involuntary petition, 
 where they are given, as in this instance, all the proof necessary 
 to an adjudication. The fifth act of bankruptcy also has this 
 practical effect : Where one obtains a discharge from his provable 
 debts in a voluntary proceeding, section 14 (b) (5) provides that a 
 person will not be entitled to a discharge if "in voluntary proceed- 
 ings [he has] been granted a discharge in bankruptcy within six 
 years." There is no provision which prevents a bankrupt adjudi- 
 cated in an involuntary proceeding from obtaining a discharge just 
 as often as he is adjudicated. It would seem, therefore, that if one 
 is adjudicated on the fifth act of bankruptcy, as a practical mat- 
 ter, he may avoid the provision limiting discharges in voluntary 
 proceedings to once in six years. 
 
 A good deal has been said above concerning insolvency. There 
 are at least two conditions of affairs with which the law is con- 
 cerned, each of which is called insolvency ; but they are not alike. 
 For example, in the law of sales, as now defined in the Sales Act, 
 section 76 : A. person is insolvent within the meaning of this act 
 who either has ceased to pay his debts in the ordinary course of 
 business or cannot pay his debts as they fall due, w^hether he has 
 committed an act of bankruptcy or not, and whether he is insolvent 
 within the meaning of the federal bankruptcy law or not. The 
 Bankruptcy Act (section 1, clause 15) gives this definition: A 
 person shall be deemed insolvent within the provisions of this act 
 whenever the aggregate of his property, exclusive of any property 
 which he may have conveyed, transferred, concealed or removed, 
 or permitted to be concealed or removed, vsdth intent to defraud, 
 hinder or delay his creditors, shall not, at a fair valuation, be suffi- 
 cient in amount to pay his debts.^^ Insolvency in bankruptcy 
 proceedings means, therefore, an excess of liabilities over assets, 
 while in the law of sales and in some other branches of the law in- 
 solvency, in addition to this condition, includes within its meaning 
 any actual suspension of payments in the ordinary course of busi- 
 ness. The bankruptcy definition is obviously more favorable to 
 the debtor. 
 
 In the preceding discussion of the several acts of bankruptcy, 
 our attention has been directed to the nature of the act and to the 
 circumstances surrounding its commission. There is also a time 
 element to be considered. Not every act which satisfies the re- 
 quirements heretofore outlined will be sufficient to obtain an ad- 
 judication in bankruptcy, but only those acts which were com- 
 
 i»In re Hines, (D. C.) 144 Fed. 142 (1906). 
 
432 CONTRACTS (Part 1 
 
 mitted within a certain specified time. This period of time is 
 four months; that is, an act which falls within the definitions 
 above stated will be an act of bankruptcy for a period of four 
 months but after that period has elapsed the act loses its force as 
 an act of bankruptcy. With respect to this matter, section 3 (b) 
 provides as follows : A petition may be file^ against a person 
 who is insolvent and who has committed an act of bankruptcy 
 within four months after the commission of such act. If this 
 were the only provision on this matter, however, it would be pos- 
 sible for a person to render ineffective the provisions of the Bank- 
 ruptcy Act in many cases where it is not now possible. To illus- 
 trate: Statutes of the various states provide generally that the 
 rights of grantees and mortgagees of land under deeds and mort- 
 gages will not be complete and indefeasible as against the claims 
 of judgment creditors and subsequent bona fide purchasers from 
 the grantor unless such deed or mortgage is recorded. If a person, 
 desiring to make a fraudulent conveyance or a preference of his 
 land, and also desiring to avoid a bankruptcy proceeding, executed 
 the transfer and induced the grantee not to record the deed or 
 mortgage until after the four months' period from the date of the 
 transfer had expired, he would then be able to defeat a petition in 
 bankruptcy filed against him. v 
 
 In order to prevent this and other frauds upon the Bankruptcy 
 Act itself, the act provides that the four months' period will not 
 begin to run from the date of the delivery of the deed or mortgage 
 if it is necessary to record it, and that such period will not begin 
 to run until the date of actual recording. This provision thus re- 
 moves the motive for withholding instruments from record; and 
 also the act provides that where required in any sense, that the 
 four months' period will not begin to run until the transferee has 
 obtained actual possession. This prevents a person from avoiding 
 a proceeding in bankruptcy by making a transfer and retaining 
 possession of the property thus transferred until after the four 
 months' period has expired. The language of the act, in section 
 3 (b), is as follows : A petition may be filed against a person who 
 is insolvent and who has committed an act of bankruptcy within 
 four months after the commission of such act. Such time shall not 
 expire until four months after the date of the recording or register- 
 ing of the transfer or assignment when the act consists in having 
 made a transfer of any of his property with intent to hinder, delay 
 or defraud his creditors or for the purpose of giving a preference 
 as hereinbefore provided, or a general assignment for the benefit 
 of his creditors, if by law such recording or registering is required 
 or peitnitted, or, if it is not, from the date when the beneficiary 
 takes notorious, exclusive, or continuous possession of the prop- 
 erty unless the petitioning creditors have received actual notice of 
 such transfer or assignment. 
 
 The question that presents difficulty here is to determine when 
 recording is required or permitted within the meaning of thg act. 
 
Ch. 10) REMEDIES 433 
 
 The lower federal courts have not been in agreement upon their 
 interpretation of these words. The interpretation has been settled 
 by the Supreme Court of the United States to this extent: That 
 the words "required or permitted" refer to a statute which makes 
 the recording of an instrument a condition precedent to the pro- 
 tection of the grantee or mortgagee against the claims of creditors 
 and not subsequent purchasers. If a statute merely requires or 
 permits recording to make the transfer good against subsequent 
 purchasers, that is not the kind of a statute which requires or per- 
 mits recording within the meaning of the section above quoted.^® 
 A difficult question is also presented when the recording of an 
 instrument conveying or mortgaging the property occurred be- 
 fore the four months' period next prior to the filing of the petition, 
 but the act of taking possession occurred within the four months' 
 period. This often happens where there has been a mortgage in 
 terms covering after-acquired property. Whether the act of tak- 
 ing possession or the execution of the instrument is the act of 
 bankruptcy depends upon the view of the state courts where the 
 instrument was executed as to the legal effect of the instrument; 
 that is, a state court is privileged to hold that the act of taking pos- 
 session under a prior mortgage is not a transfer; that the real 
 legal transfer occurred as of the date of the execution and delivery 
 of the instrument." 
 
 OS) ADMINISTRATIOX OF THE ESTATE 
 The steps taken in a bankruptcy proceeding under the pro- 
 visions commented upon above are all preliminary to that which 
 follows, namely, the administration of the bankrupt's estate. The 
 procedure which has been outlined terminated in the entry of the 
 order of adjudication. Thereafter, iq, the fullest sense of the term, 
 the person proceeded against is a bankrupt. The adjudication 
 works a revoliition in the relations which the bankrupt thereto- 
 fore sustained with respect to his property and with respect to 
 his creditors. The rights of his creditors likewise have under- 
 gone vital changes. The powers of all courts, other than the 
 court possessing jurisdiction over the estate, are, for most pur- 
 poses, destroyed. After the first meeting of creditors, at which the 
 trustee is usually elected, the real administration of the estate be- 
 gins. By the expression "the administration of an estate" is 
 meant the assumption, performance, and discharge of all the duties 
 pertaining to the collection of the bankrupt's property, to its sale, 
 and to the distribution of the proceeds arising therefrom among 
 creditors. Two general lines of work are involved : (1) The trus- 
 tee must obtain control over all property owned by the bankrupt, 
 
 le Carev v. Donohue, 240 U. S. 430, 36 Sup. Ct. 386, 60 K Ed. 726, L. R. A. 
 1917A, 295 (1916). 
 
 17 Thompson v. Fairbanks, 196 V. S. 516, 25 Sup. Ct. 306, 49 L. Ed. 577 
 (1905). 
 
 B.&B.BUS.LAW— 28 
 
idi CONTRACTS (Part 1 
 
 and must recover all sums of money due the bankrupt. (2)' The' 
 trustee milst see to it that such property is made to yield the high- 
 est possible return, a.nd that it is distributed in accordance with 
 the provisions of the bankrupt act among the various classes of 
 ■creditors. Of course, all of these acts must be done under the 
 supervision and by the authority of the federal court, or, as is 
 commonly the case, under the immediate control of an officer of 
 the federal court called the referee in bankruptcy. 
 
 A casual survey of the work which must be accomplished by the 
 trustee might indicate that the legSl problems connected therewith 
 ■would be relatively simple and perhaps few in number. Such is 
 not necessarily the case. There are many bankruptcy proceedings 
 which are rushed through with but little' difficulty, but there are 
 others where the legal aspects become numerous and very involved. 
 Note the situation which may be presented: A large business 
 '.enterprise is' suddenly stopped in the administration of its affairs. 
 AH the legal ties which connected the owner to all other persons 
 with respect to the properties are cut, or, if not completely severed, 
 they are materially altered. An attempt is then made to introduce 
 another person, the trustee, not only into the position which the 
 bankrupt occupied, but also, to some extent, into the position oc- 
 cupied by creditors. All of the elaborate provisions of the Bank- 
 ruptcy Act are simply devices for bringing about such a condition 
 of affairs that the ultimate ends of the proceeding may be realized. 
 If a bankrupt owed only simple contract debts, and his property 
 was not incumbered, and if he had not theretofore made fraudulent 
 conveyances or preferential transfers, and if he had no incomplete 
 business transactions outstanding, settlement of the estate would 
 be relatively easy. But this situation is not always present. The 
 bankrupt's property may be mortgaged. He may have borrowed 
 money and pledged property as security. He may have various 
 kinds of sureties. He may have been fighting bankruptcy for some 
 time, and accordingly may have made many preferential transfers 
 and even fraudulent conveyances. Various creditors may have ob- 
 tained judgments against him, and the proceedings thereunder 
 may be in various stages of development. Innumerable incom- 
 plete transactions, of purchases and of sales of property, may be 
 discovered by the trustee. The properties, the creditors, and vari- 
 ous business transactions still pending, may be scattered over 
 many states. There can be little doubt, therefore, but that the 
 settlement of some bankrupt estates may not only call for a high 
 order of business judgment, but also for a knowledge of a wide 
 range of the law in some of its most intricate phases. Very little 
 may here be attempted in discussing the problems that may arise 
 during the administration of a bankrupt estate. A few of the more 
 prominent points, however, will be treated. 
 
 The position of the trustee with respect to the administration of 
 the bankrupt estate may be dealt with conveniently under three 
 Jieads: (a) Methods of obtaining control over the bankrupt's 
 
Ch. 10) EBMEDIES 435 
 
 property; (b) extent of the right of the trustee to recover prop- 
 erty which may be, wholly or partially, under the control of other 
 persons; (c) payment of claims, 
 
 (a) TITLE TO BANKRUPT'S I'ROPERTY A^ESTS IN THE TRUSTEE 
 
 In order to confer upon the trustee the power to control and 
 to dispose of all of the bankrupt's property, the Bankruptcy Act- 
 operates to take the ownership of the property from the bankrupt 
 and vests it in the trustee. Section 70 provides as follows: (a) 
 The trustee of the estate of a bankrupt, upon his appointment and 
 qualification, and his successor or successors, if he shall have one 
 or more, upon his or their appointment and qualification, shall in 
 turn be vested by operation of law with the title of the bankrupt, 
 as of the date he was adjudged a bankrupt, except in so far as it is 
 to property which is exempt, to all (1) documents relating to his 
 property; (2) interests in patents, patent rights, copyrights, and 
 trade marks; (3) powers which he might have exercised for his 
 own benefit, but not those which he might have exercised for some 
 other person; (4) property transferred by him in fraud of his 
 creditors; (5) property which prior to the filing of the petition 
 he could by any means have transferred or which might have been 
 levied upon and sold under judicial process against him: Pro- 
 vided, that when any bankrupt shall have any insurance policy 
 which has a cash surrender value payable to himself, his estate, or 
 personal representatives, he may, within thirty days after the cash 
 surrender value has been ascertained and stated to the trustee by 
 the company issuing the same, pay or secure to the trustee the sum 
 so ascertained and stated, and continue to hold, own, and carry 
 such policy free from the claims of the creditors participating in 
 the distribution of his estate under the bankruptcy proceedings, 
 otherwise the policy shall pass to the trustee as assets; and (6) 
 rights of action arising upon contracts or from the unlawful tak- 
 ing or detention of, or injury to, his property. 
 
 It is necessary, of course, that the statute shall fix the precise 
 moment at which title to the bankrupt's property shall vest in the 
 trustee, and the date fixed is the date on which the court enters the 
 order of adjudication. However, at that moment there will never 
 be a trustee in bankruptcy who can take title, because the trustee 
 will not be appointed until the first meeting of creditors, which 
 meeting will not occur until several days later. Accordingly, it is. 
 held that, after adjudication and until the trustee is appointed and 
 qualified, the bankrupt still retains the title, although it is a title 
 held in trust for creditors." 
 
 The remaining portion of the section specifies in detail certain 
 kinds of property and then employs clauses of sweeping character 
 for the purpose of including all other kinds of valuable things and 
 vesting the title thereto in the trustee. Clause 5 is the principal 
 
 18 Johnson v. Collier, 222 U. S. 53S, 32 Sup. Ct. 104, 50 L. Ed. 306 (1911). 
 
436 CONTRACTS (Part 1 
 
 one. Instead of attempting to enumerate all of the various kinds of 
 property and of interests in property, Congress selected language 
 here which already had a definite meaning in the law. It is per- 
 fectly obvious that courts frequently have been called upon to 
 decide what kinds of interests in property could be transferred and 
 what kinds of interests could be sold by judicial process. Gen- 
 erally, but not always, any interest capable of transfer was like- 
 wise capable of sale under execution but not always under com- 
 mon law execution. The two phrases taken together are probably 
 as all-inclusive and as satisfactory from a standpoint of policy as 
 could well be devised. The use of these clauses makes it unneces- 
 sary to specify the numerous kinds of divided interests in property, 
 as, for example, the respective interests of mortgagor and mort- 
 gagee, pledgor and pledgee, bailor and bailee, the interests of ten- 
 ants in common, future interests in property, etc. There are some 
 kinds of future interests, or rather possibilities, that are so con- 
 tingent that they are not transferable, nor may they be levied 
 upon. Such interests, of course, would not pass to the trustee. 
 The clause, however, may be taken as including practically every 
 interest relating to property which one deems valuable from a 
 business standpoint. It is not to be supposed that the clause is so 
 definite in meaning that no controversy .arises in regard to its in- 
 terpretation, for frequently such questions are presented. For 
 example, the question whether a seat in a stock exchange was 
 property within the meaning of this section was carried to the 
 Supreme Court of the United States for settlement, and it was de- 
 cided that such a right was property and that such right passed to 
 the trustee.^* And there are many other questions of like diffi- 
 culty that have arisen. It follows, also, that the trustee will not 
 take title to property held by the bankrupt as trustee for other 
 persons.** 
 
 Where the bankrupt does not have complete ownership in prop- 
 erty, persons who possess interests in it are, of course, protected 
 to the extent of their respective rights. Third parties who hold 
 liens upon the bankrupt's property are protected under some cir- 
 cumstances. Section 67 (d) provides : Liens given or accepted in 
 good faith and not in contemplation of or in fraud upon this act, 
 and for a present consideration, which have been recorded accord- 
 ing to law, if record thereof was necessary in order to import no- 
 tice, shall, to the extent of such present consideration only, not be 
 affected by this act. 
 
 Section 70 (a), clause 6, includes valuable rights that are not 
 true' rights with respect to property. For the most part they are 
 contract rights. It is under this clause that the trustee proceeds 
 to collect debts due the bankrupt. Notice that the clause gives 
 to the trustee the right to recover for some, but not all, kinds of 
 
 i» Page V. Edmunds, 187 TJ. S. 596, 23 Sup. Ct. 200, 47 L. Ed. 318 (1903) 
 2 In re Coffin, 152 Fed. 381, 81 C. C. A. 507 (1907). 
 
Ch. 10) EEMEDIES 437 
 
 torts. The right to sue for damages to the person does not pass 
 to the trustee. 
 
 Clause 4 confers upon the trustee a right which was not pos- 
 sessed by the bankrupt. While a fraudulent conveyance may be 
 treated as if it had not been made by creditors of the fraudulent 
 grantor as against all persons not innocent purchasers, the fraudu- 
 lent grantor cannot recover his property. Clause. 4, therefore, 
 gives to the trustee rights with respect to fraudulent conveyances 
 which creditors possessed under state statutes. Section 70 (e) 
 further amplifies this provision as follows : The trustee may avoid 
 any transfer by the bankrupt of his property which any creditor 
 of such bankrupt might have avoided, and may recover the prop- 
 erty so transferred, or its value, from the person to whom it was 
 transferred, unless he was a bona fide holder for value prior to the 
 date of adjudication. 
 
 The title acquired by the trustee is not only the title possessed 
 by the bankrupt, but his rights are farther extended by the pro- 
 visions of section 47 (a) (2) as follows: * * * And such 
 trustees, as to all property in the custody or coming into the cus- 
 tody of the bankruptcy court, shall be deemed vested with all the 
 rights, remedies, and powers of a creditor holding a lien by legal 
 or equitable proceedings thereon; and also, as to all property not 
 in the custody of the bankruptcy court, shall be deemed vested 
 with all the rights, remedies, and powers of a judgment creditor 
 holding an execution duly returned unsatisfied. 
 
 (b) RECOVERY OF PROPERTY AND DISSOLUTION OF LIENS 
 There are three general situations where legal proceedings are 
 likely to be necessary in order to recover possession of property 
 or to remove attaching liens: (1) Fraudulent conveyances; (2) 
 preferences; (3) liens other than those' which operate as prefer- 
 ences. The trustee is not empowered to recover all property fraud- 
 ulently conveyed nor all preferences. Nor may the trustee take 
 property of the bankrupt free from all liens. The general principle 
 is that all bona fide purchasers of property fraudulently conveyed, 
 and of property transferred as preferences and bona fide holders 
 of liens may retain their interests free from the claims of the trus- 
 tee, even when such interests were acquired within the four 
 months' period, and all such transferees who were not bona fide 
 purchasers will lose their interests if acquired within the four 
 months' period, but if such interests arose before the four months' 
 period began to run the trustee cannot recover such interests even 
 though the holders thereof were not bona fide purchasers. Inter- 
 ests acquired bona fide during the four months' period are pro- 
 tected. Interests acquired not bona fide during the four months' 
 period may be dissolved by action of the trustee. Interests ac- 
 quired not bona fide before the commencement of the four months' 
 period cannot be recovered by the trustee. These results are ac- 
 complished by the following sections : 
 
438 coxTRACTS (Part 1 
 
 Section 67 (e) : That all conveyances, transfers, assignments, 
 or incumbrances of his property, or any part thereof, made or 
 given by a person adjudged a bankrupt under the provisions of 
 this Act subsequent to the passage ol this Act and within four 
 months prior to the filing of the petition, with the intent and pur- 
 pose on his part to hinder, delay, or defraud his creditors, or any 
 of them, shall be null and void as against the creditors of such 
 debtor, except as to purchasers in. good faith and for a present 
 fair consideration ; and all property of the debtor conveyed, trans- 
 ferred, assigned, or encumbered as aforesaid shall, if he be adjudg- 
 ed a bankrupt, and the same is not exempt from execution and lia- 
 bility for debts by the law of his domicile, be and remain a part of 
 the assets and estate of the bankrupt and shall pass to his said 
 trustee, whose duty it shall be to recover and reclaim the same by 
 legal proceedings or otherwise for the benefit of the creditors. 
 And all conveyances, transfers, or incumbrances of his property 
 made by a debtor at any time within four months prior to the fil- 
 ing of the petition against him, and while insolvent, which are 
 held null and void as against the creditors of such debtor by the 
 laws of the State, Territory, or District in which such property is 
 situate, shall be deemed null and void under this Act against the 
 creditors of such debtor if he be adjudged a bankrupt, and such 
 propdtty shall pass to the assignee and be by him reclaimed and 
 recovered for the benefit of the creditors of the bimkrupt. 
 
 Section 60 (b) : If a bankrupt shall have procured or suffered 
 a judgment to be entered against him in favor of any person or 
 have made a transfer of any of his property, and, if at the time of 
 the transfer, or of the entry of the judgment, or of the recording or 
 registering of the transfer if by law recording or registering thereof 
 is required, and being within four months before the filing of the 
 petition in bankrupitcy or after the filiiig thereof and before the 
 adjudication, the bankrupt be insolvent and the judgment or trans- 
 fer then operate as a preference, and the person receiving it or 
 to be benefited thereby, oi: his agent acting therein, shall then 
 have reasonable cause to believe that the enforcement of such 
 judgment or transfer would effect a preference, it shall be voidable 
 by the trustee and he may recover the property or its value from 
 such person." 
 
 Section 67 (f) : That all levies, judgments, attachments, or oth- 
 er liens, obtained through legal proceedings against a person who 
 is linsolvent, at any time within four months prior to the filing of 
 a petition in bankruptcy against him, shall be deemed null and 
 void in case he is adjudged a bankrupt, and the property affected 
 by the levy, judgment, attachment, or other lien shall be deemed 
 wholly discharged and released from the same, and shall pass to 
 the trustee as a part of the estate of the bankrupt, unless the court 
 shall, on due notice, order that the right undei* such levy, judgment, 
 attachment, or other lien shall be preserved for the benefit of the 
 estate ; and thereupon the same may pass to and shall be preserved 
 
Ch. 10) REMEDIES 439 
 
 by the trustee for the benefit of the estate as aforesaid. And the 
 court may order such conveyance as shall be necessary to carry the 
 purposes of this section into effect : Provided, that nothing herein 
 contained shall have the effect to destroy or impair the title ob- 
 tained by such levy, judgment, attachment, or other lien, of a bona 
 fide purchaser for value who shall have acquired the same without 
 notice or reasonable cause for inquiry. 
 
 (c) PAYMENT OF CLAIMS 
 
 The nature and extent of the rights and powers of the trustee 
 with respect to the bankrupt's property have been outlined in the 
 above paragraphs. When these rights have been exercised to their 
 fullest extent, the trustee then has in his possession all of the prop- 
 erty to which creditors may look as a source of payment. By rea- 
 son of the title to such property which the law vests in him, the 
 trustee has a complete power of disposition of the property, sub- 
 ject only to the approval of the court. We have yet remaining 
 for consideration the question of the duty of the trustee with re- 
 spect to the payment of claims. 
 
 Provable claims are divided into three classes: (1) Claims hav- 
 ing a priority ; (2) secured claims ; (3) unsecured claims. Claims 
 entitled to priority of payment are specified in section 64 as fol- 
 lows: 
 
 (a) The court shall order the trustee to pay all taxes legally 
 due and owing by the bankrupt to the United States, state, county, 
 district, or municipality in advance of the payment of dividends to 
 creditors, and upon filing the receipts of the proper public officers 
 for such payment he shall be credited with the amount thereof, and 
 in case any question arises as to the amoimt or legality of any 
 such tax the same shall be heard and determined by the court. 
 
 (b) The debts to have priority, except as herein provided, and 
 to be paid in full out of the bankrupt estates, and the order of 
 payment shall be (1) the actual and necessary cost of preserving 
 the estate subsequent to filing the petition; (2) the filing fees 
 paid by creditors in involuntary cases, and, where property of the 
 bankrupt, transferred or concealed by him either before or after 
 the filing of. the petition, shall have been recovered for the benefit 
 of the estate of the bankrupt by the efforts and at the expense of 
 one or more creditors, the reasonable expenses of such recovery; 
 (3) the cost of administration, including the fees and mileage pay- 
 able to witnesses as now or hereafter provided by the laws of the 
 United States, and one reasonable attorney's fee, for the profes- 
 sional services actually rendered, irrespective of the number of 
 attorneys employed, to the petitioning creditors in involuntary 
 cases to the bankrupt in involuntary cases while performing the 
 duties herein prescribed, and to the bankrupt in' voluntary 
 cases, as the court may allow; (4) wages due workmen, clerks, 
 traveling or city salesmen, or servants which have been earned 
 
440 CONTRACTS (Part 1 
 
 within three months before the date of the commencement of 
 proceedings, not to exceed three hundred dollars to each claimant; 
 and (5) debts owing to any person who by the laws of the states 
 or the United States is entitled to priority. 
 
 A secured creditor is one who, either directly or indirectly, has a 
 right with respect to specific property belonging to the bankrupt,, 
 either by way of mortgage, pledge or other lien. If such right was 
 acquired by the secured creditor bona fide or if in any event it 
 was acquired before the four months' period commenced to run, 
 such creditor will be paid the value of this right and as to the bal- 
 ance of his claim, he will share pro rata with unsecured credi- 
 tors. Section 57 (h) provides : • The value of securities held by 
 secured creditors shall be determined by conveirting the same into 
 money according to the terms of the agreement pxirsuant to which 
 such securities were delivered to such creditors or by such credi- 
 tors and the trustee, by agreement, arbitration, compromise, or liti- 
 gation, as the court may direct, and the amount of such value shall 
 be credited upon such claims, and a dividend shall be paid only 
 on the unpaid balance. 
 
 After secured creditors have been paid, the value of their se- 
 curities they and all general creditors are paid pro rata out of the 
 remaining assets of the estate. Creditors are allowed one year 
 subsequent to the date of the adjudication within which claims 
 must be filed. Creditors who have received preferences, fraudu- 
 lent conveyances and liens which, under sections previously dis- 
 cussed, may be avoided by the trustee, must, under section 57 (g) 
 surrender such rights as a condition precedent to their right to 
 receive dividends from the estate. If such preferences, convey- 
 ances and liens are not recoverable by the trustee, because the 
 claimant is a bona fide purchaser or has acquired -such interests 
 before the beginning of the four months' period, they need not 
 surrender such rights, but may participate with all other creditors 
 for the full amount of their respective claims. If a creditor of a 
 bankrupt whose claim is secured by the individual undertaking of 
 another person does not prove his claim, the surety is given the 
 right by section 57 (i) to prove in the name of the creditor. 
 
 SECTION 11.— RECEIVERSHIPS 
 
 A receiver is a person appointed by a court, upon whom are con- 
 ferred certain rights and duties with respect to property which is 
 the subject of litigation. His chief duty is to preserve such 
 property from loss pending the outcome of the suit. There ex- 
 ists, obviously, a great variety of situations where two or more 
 parties are interested in the same property. When these interests 
 become shdrply antagonistic, and litigation between the contending 
 claimants results, the property may be so situated that the very 
 fact of its being the subject of a judicial proceeding will make its 
 
Ch. 10) REMEDIES 441 
 
 protection by a disinterested party necessary. The possibility of a 
 fraudulent disposition of the property during the pendency of 
 the suit often serves as a ground for the appointment of a receiver. 
 So also, in the absence of a possible fraudulent disposition of the 
 properties involved, the fact that they are being employed in some 
 productive enterprise will be sufficient to warrant the appointment 
 of a receiver. The mere fact that the property affected by the liti- 
 gation is yielding income may make it advisable that a receiver be 
 appointed and directed to care for the principal and income until 
 the controversy is terminated. Broadly speaking, therefore, the 
 court will appoint a receiver to assume the possession of prop- 
 erty over which the court has acquired jurisdiction whenever, as 
 a business proposition, it seems necessary or desirable to do so, in 
 order to insure its preservation and proper employment during the 
 time that the litigation is pending. 
 
 It thus appears that the application for the appointment of a 
 receiver generally will not be an independent suit, for it is not the 
 ultimate remedy sought by the complainant. The appointment of 
 the receiver, for the most part, is incidental to some other relief 
 sought. Accordingly, in suits to foreclose mortgages, or by bene- 
 ficiaries of a trust against the trustee, by stockholders against 
 directors or against third parties in the name of the corporation, 
 by creditors to reach equitable assets of their debtor, or in con- 
 nection with the settlement of decedents' estates, in bankruptcy 
 proceedings after the filing of the petition and before the appoint- 
 ment and qualification of the trustee, receivers may be appointed 
 by the court to assume control over the property which is involved 
 in the action. The remedy, perhaps, is most frequently invoked 
 by creditors, but it is not exclusively a creditors' remedy. 
 
 We shall not attempt to survey the extent of a receiver's powers, 
 rights, and duties with respect to the property entrusted to his 
 care, or to define his relations toward the parties involved and to 
 the court. It is sufficient to observe that the receiver assumes 
 possession of the property and is directed to manage and protect it, 
 and to perform any other acts which the court may deem necessary 
 to protect the interests of all parties concerned. A receiver does 
 not usually, take title to the property, as does a trustee in bank- 
 ruptcy. Generally the position of the receiver is not defined so 
 particularly as that of a trustee in bankruptcy. There is but one 
 kind of trustee in bankruptcy, and, in every bankruptcy proceeding, 
 the ultimate end sought is substantially like that of every other 
 bankruptcy proceeding. This is not the case with respect to re- 
 ceivers. There are various kinds of receivers, and the suits in 
 connection with which their appointment may be had may be wide- 
 ly variant in the ultimate relief sought. Courts possessing the 
 jurisdiction of courts of equity have worked out a fairly well de- 
 fined system of rules with respect to receiverships. Statutes 
 which deal with special matters very commonly contain provisions 
 with reference to the appointment of receivers. The position of a 
 
442 CONTRACTS (Part 1 
 
 receiver appointed under a special statute, in some respects, would 
 differ from that of a receiver appointed under the general jurisdic- 
 tion of courts of equity. But in all cases the receiver is chiefly the 
 business representative of the court, and is usually selected for that 
 position because of his known capacity in dealing with business 
 situations like that then before the court 
 
 One of the most important uses of a receivership proceeding is 
 in connection with the foreclosure of corporate mortgages and 
 the reorganization of corporations through judicial proceedings. 
 It is in this respect that a receivership bears closer resemblance 
 to a bankruptcy proceeding than is true in other cases of apr 
 pointments of receivers. There is this important distinction: A 
 bankruptcy proceeding more frequently results in an actual and 
 permanent suspension of the business of the bankrupt concern, 
 and its tangible properties are sold for what they will bring on 
 the market. In a reorganization proceeding, usually associated 
 with the foreclosure of mortgages or other suits instituted by 
 creditors, the primary object is to preserve the business as a going 
 concern, and to this end all of the various steps in the proceeding 
 are directed. The bankruptcy proceeding is chiefly relied upon 
 and is better suited to the winding up of an insolvent business, 
 which is involved in such financial straits that it has passed be- 
 yond the point of successful reorganization. A receivership pro- 
 ceeding, on the other hand, as an incident to creditors' suits, by 
 reason of its flexibility, is more suited to the reorganization of 
 the business enterprise than a proceeding in bankruptcy. The re- 
 ceivership proceeding, in its relation to the procedure of reorgani- 
 zation of going business concerns will be ta^ken up in more detail 
 in connection with our study of the law of corporations in Part 6. 
 
Ch. 11) SPECIAL TYPES OP C0NTRACT3 443 
 
 CHAPTER XI 
 SPECIAL TYPES OF CONTRACTS 
 
 Section 
 
 1. Introduction. 
 
 2. Bailments. 
 
 S. The Contract of Carriage. 
 
 4. The Contract of Pledge. 
 
 5. The Contract of Suretyship. 
 
 SESCTION 1.— INTRODUCTION 
 
 In this chapter a few cases have been inserted dealing with cer- 
 tain special types of contracts. It is not to be understood, how- 
 ever, that the contracts of bailment and of suretyship are so far 
 special that they are governed by rules of law different from the 
 rules applicable to contracts generally. The general principles of 
 the law of contracts which we have already stated do apply to 
 these contracts. But there are some special circumstances which 
 must be taken into consideration. The contract of bailment, for 
 example, involves a transfer of possession of personal property 
 from the bailor to the bailee. The law of property, therefore, 
 contributes something to the sum total of legal relations between 
 the parties. An owner of property or a party in rightful posses- 
 sion thereof possesses a great many rights, privileges, and powers 
 with respect to such property which are not dependent upon con- 
 tract. Parties may add to or subtract from these relations. The 
 situation, therefore, between a bailor and bailee, is a composite one, 
 created out of the law of property and of contracts. Similarly, 
 with respect to the contract of suretyships, the surety has loaned 
 his credit to another person. He has assumed a duty to discharge 
 that which, from a business standpoint, is purely a duty of another 
 person. The law must take this aspect of the transaction into 
 consideration. There is every reason to suppose that a person 
 who has assumed the obligation of discharging another person's 
 duty would be entitled to greater consideration than the princi- 
 pal debtor. This the law does accord to him. The business situ- 
 ation creates a legal situation, which does not find its counter- 
 part in contracts which arise out of other kinds of transactions. 
 In this sense the contract of suretyship is a special type of contract. 
 In working out the relations of the parties, the doctrines first rec- 
 ognized by courts of equity play a more active part than they do in 
 many other kinds of contracts. The purpose, therefore, in giving 
 independent treatment to these important types of commercial 
 contracts, is to ascertain the nature and extent of the rights and 
 duties of the parties thereto. Such rights and duties are rarely de- 
 
444 CONTRACTS (Part 1 
 
 fined in the formal contract, but they have been developed by a 
 course of judicial decisions, as resulting from promises implied in 
 fact or in law. 
 
 SECTION 2.— BAILMENTS 
 
 A bailment is a transaction involving the transfer of possession 
 of personal property by one party, called the bailor, to another 
 party, called the bailee. Bailments are usually classified according 
 to the primary object for which the bailment was created. Ac- 
 cordingly, we may have (1) a bailment for the benefit of the bailor; 
 (2) a bailment for the benefit of the bailee; (3) a bailment for the 
 benefit of both parties. One object of such a classification of bailr 
 ments is to make possible a distinction between the degree of care 
 which a bailee in each type of case owes with respect to the care 
 of the property. It is obvious that, if A. borrows B.'s umbrella, A. 
 should exercise a higher degree of care than he should where B. 
 obtains A.'s permission to leave his umbrella in A.'s store. The 
 cases following point out some of the distinctive aspects of a bail- 
 ment, and discuss the extent of the duty of the bailee with respect 
 to the care of the property. 
 
 BRETZ T. DIEHLE et al. 
 
 (Supreme Court of Pennsvlvanla, 1888. 117 Pa. 589, 11 Atl. 893, 
 2 Am. St. Kep. 706). 
 
 Clark, J. The defendants in this case are judgment creditors of 
 William D. Newman, a miller operating a steam flouring mill in the 
 town of Bedford. Having issued executions, they levied on some 80 
 or 90 barrels of flour and some bran, found on the floor of Newman's 
 mill. The plaintiffs claimed the property levied upon, alleging that 
 it was the product of grain by them delivered to and held by New- 
 man as their bailee. * * * The plaintiffs, who are farmers resid- 
 ing in the vicinity of Bedford, brought their grain to this mill. No 
 special contract or arrangement was made with the miller by any of 
 the plaintiffs when they delivered their wheat ; but in accordance with 
 the practice of the mill in all cases, except where wheat was at once 
 paid for, a receipt or memorandum, was given in the following form : 
 
 "Crystal Mills, Bedford, Pa., September 12, 1884. 
 Received from D. W. Lea Price. Am't. 
 
 Four hundred and fifty-five 14-60 bushels wheat 45o 14 
 
 " rye 
 
 " corn 
 
 Two hundred and fifty-five 12-32 " oats 255.12 
 
 " buckwheat 
 
 "For use of self. W. D. Newman." 
 
 The mill was not arranged to keep the several lots of grain in sep- 
 arate parcels. It was so constructed that all the grain delivered into 
 it was hoisted to the second floor, emptied into a sink on the first 
 floor, and from thence carried by elevators into a bin on the third 
 floor, where, at times, there was a large accumulated mass of wheat. 
 Newman also purchased wheat in considerable quantities, from time 
 to time, which was delivered into the mill, and disposed of as the 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 445 
 
 other wheat. This promiscuous commingling of the grain into a com- 
 mon mass was in accordance with the known usage of the mill, which 
 was supplied for grinding from the mass of the wheat, without any 
 discrimination as to the several lots or parcels in which it was receiv- 
 ed. The miller was, of course, under no obligation to restore to the 
 plaintiffs the specific or identical wheat which he received, nor the 
 product of it in flour ; indeed, this, owing to the manner in which the 
 business was conducted, was practically impossible. 
 
 The fundamental distinction between a bailment and a sale is that 
 in the former the subject of the contract, although in an altered form, 
 is to be restored to the owner, while in the latter there is no obligation 
 to return the specific article; the party receiving it is at liberty to 
 return some other thing of equal value in place of it. In the one case, 
 the title is not changed; in the other, it is — the parties standing in 
 the relation of debtor and creditor. Thus, in Norton v. Woodruff, 2 
 N. Y. 153, a miller agreed to take certain wheat and to give one bar- 
 rel of superfine flour for every four 36-60 bushels thereof ; the flour 
 to be delivered at a fixed time, or as much sooner as he could make 
 it. As the miller's contract was satisfied by a delivery of flour from 
 any wheat, the transaction was held to be a sale. But in Mallory v. 
 Willis, 4 N. Y. 76, wheat was delivered under a contract "to be man- 
 ufactured into flour," and one b^rel of the flour was to be delivered 
 for every four 15-60 bushels of wheat. This transaction was by 
 the same court held to be a bailment. If a party, having charge of 
 the property of others, so confounded it with his own that the line of 
 distinction cannot be traced, all the inconvenience of the confusion 
 is thrown upon the party who produces it. Where, however, the own- 
 er's consent to have 'their wheat mixed in a common mass, each re- 
 mains the owner of his share in the common stock. If the wheat is 
 delivered in pursuance of a contract of bailment, the mere fact that 
 it is mixed with a mass of like quality, with the knowledge of the de- 
 positor or bailor, does not convert that into a sale which was originally 
 a bailment, and the bailee of the whole mass, of course, has no great- 
 er control of the mass than if the share of each were kept separate. If 
 the commingled mass has been delivered on simple storage, each is en- 
 titled on demand to receive his share ; if for conversion into flour, to 
 his proper proportion of the product. * * * 
 
 It makes no difference that the bailee had in like manner contrib- 
 uted to the mass of his own wheat, for, although the absolute owner 
 of his own share, he still stands as a bailee to the others, and he can- 
 not abstract more than that share from the common stock, without 
 a breach of the bailment, which will subject him, not only to a civil 
 suit, but also to a criminal prosecution. But where * * * the un- 
 derstanding of the parties was that the person receiving the grain 
 might take from it, or from the flour, at his pleasure, and appropriate 
 the same to his own use, on the condition of his procuring other wheat 
 to supply its place, the dominion over the property passes to the de- 
 pository, and the transaction is a sale, and not a bailment. In Lyon 
 V. Lenon, 106 Ind. 567, 7 N. E. 311, the distinction is thus stated: 
 "If the dealer has the right at his pleasure, either to ship and sell the 
 same, on his own account and pay the market price on demand, or 
 retain and re-deliver the wheat, or other wheat, in the place of it, the 
 transaction is a sale. It is only when the bailor retains the right from 
 the beginning to elect whether he will demand the re-dehvery of his 
 
446 CONTRACTS (Part 1 
 
 ^property, or other of like quality and grade, that the contract will be 
 considered one of bailment. If he surrenders to the other the right of 
 election, it will be considered a sale, with an option on the part of the 
 purchaser to pay either in money or property as stipulated. The dis- 
 tinction is, can the depositor, by his contract, compel a delivery of 
 wheit, whether the dealer is willing or not? If he can, the trans- 
 action is a bailment. If the dealer has the option to pay for it in 
 money or other wheat, it is a sale." This distinction is drawn, of 
 course, with reference to cases where grain is deposited in a mass, 
 as in grain elevators, etc. There are cases in which the doctrine of 
 bailment has been carried much beyond the rule recognized in the 
 cases we have cited. * * * 
 
 But in the case at bar we are not called upon to say what would 
 be the effect upon the transaction if Newman had authority, in the 
 regular course of dealing, to ship or sell the wheat of his customers 
 on his own account. Undoubtedly he had a right to sell of the grain 
 or flour to the extent of his own share, that is to say, what he con- 
 tributed to the common stock and the tolls to which he was entitled. 
 But the jury has found that he had no authority whatever to sell or 
 to abstract from the common stock beyond the amount to which he 
 was himself entitled. In the general charge, and also in the answers 
 to the points submitted, the learned court instructed the jurors, in the 
 clearest manner, that if they should find from the evidence that New- 
 man, by the nature of his dealings with the several plaintiffs, had ac- 
 quired such dominion over their wheat as authorized him, at his 
 pleasure, not only to grind it into flour, but also to sell the same for 
 his own use, the transaction must necessarily fee treated as a sale; 
 and that, in that event, the plaintiff could not recover. This instruc- 
 tion was repeated with marked emphasis several times during the 
 progress of the charge, and it seems quite impossible that the jury 
 could have labored under any misapprehension as to the nature of 
 the inquiry they were to make. The verdict of the jury was for the 
 plaintiff, and we must assume the facts which, it is plain, the jury in 
 arriving at such a verdict must have found, viz., that Newman had 
 no authority to sell the grain delivered into his mill under the arrange- 
 ment with the plaintiffs ; that is to say, their share of the common 
 stock, nor the flour which was the product thereof. It was the plain 
 duty of Newman, however, to see to it that at all times the mill con- 
 tained wheat or flour sufficient in amount to answer all demands un- 
 der the bailment. Failing in this, he wds derelict in duty, and liable 
 under the law for the appropriation and conversion into his own use 
 of property which did not belong to him. * * * 
 
 The learned court defined a bailment and a sale, marking the dis- 
 tinguishing features of each, and as the nature of the transaction de- 
 pended, not wholly upon the written receipt, but in part on verbal 
 evidence as to the method of conducting the business, the question 
 was undoubtedly one proper to be submitted to the jury. The court 
 instructed the jury, that if certain facts existed the transaction was 
 a sale, otherwise it was but a bailment. And the question was prop- 
 er for the jury whether or not, under the instructions of the court, 
 according to the facts as the jury might find them, the transaction was 
 a bailment or a sale. 
 
 On a careful review of the whole case, we find no error, and the 
 ju-dgment is affirmed. 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 447 
 
 PRESTON V. PRATHBR. 
 
 (Supreme Court of the United States, 1891. 137 U. S. 604, 11 Sup. Ct. 162, 
 
 34 li. Ed. 788.) 
 
 Field, J. By the defendants it was contended below in substance, 
 and the contention is renewed here, that the bonds being placed with 
 them on special deposit for safe-keeping, without any reward, prom- 
 ised or implied, they were gratuitous bailees, and were not chargeable 
 for the loss of the bonds, unless the same resulted from their gross 
 negligence, and they deny that any such negligence is imputable tO' 
 them. 
 
 On the other hand, the plaintiffs contended below, and repeat their 
 contention here, that, assuming that the defendants were in fact simply 
 gratuitous bailees when the bonds were deposited with them, they still 
 neglected to keep them with the care which such bailees are bound to 
 give for the protection of property placed in their custody, and fvirther, 
 that subsequently the character of the bailment was changed to one for 
 the mutual benefit of the parties. * * * 
 
 Undoubtedly, if the bonds were received by the defendants for safe- 
 keeping, without compensation to them, in any form, but exclusively for 
 the benefit of the plaintiffs, the only obligation resting upon them was 
 to exercise over the bonds such reasonable care as men of common pru- 
 dence would usually bestow for the protection of their own property of 
 a similar character. No one taking upon himself a duty for another 
 without consideration is bound, either in law or morals, to do -more 
 than a man of that character would do generally for himself under 
 Hke conditions. The exercise of reasonable care is in all such cases 
 the dictate of good faith. An utter disregard of the property of the 
 bailor would be an act of bad faith to him. But what will constitute 
 such reasonable care will vary with the nature, value and situation of 
 the property, the general protection afforded by the police of the com- 
 munity against violence and crime, and the bearing of surrounding 
 circumstances upon its security. The care usually and generally 
 deemed necessary in the community for the security of similar prop- 
 erty, under like conditions, would be required of the bailee in such 
 cases, but nothing more. The general doctrine, as stated by text- 
 writers and in judicial decisions, is that gratuitous bailees of another's 
 property are not responsible for its loss unless guilty of gross negli- 
 gence in its keeping. But gross negligence in such cases is nothing 
 more than a failure to bestow the care which the property in its situ- 
 ation demands ; the omission of the reasonable care required is the 
 negligence which creates the liability; and whether this existed is 
 a question of fact for the jury to determine, or by the court where a 
 jury is waived. * * * The doctrine of exemption from liability in 
 such cases was at one time carried so far as to shield the bailees from 
 the fraudulent acts of their own employes and officers, though their 
 employment embraced a supervision of the property; such acts not 
 being deemed within the scope of their employment. 
 
 Thus in Foster v. Essex Bank, 17 Mass. 479, 9 Am. Dec. 168, the 
 bank was, in such a case, exonerated from liability for the property 
 intrusted to it, which had been fraudulently appropriated by its cashier, 
 the Supreme Judicial Court of Massachusetts holding that he had 
 acted without the scope of his authority, and, therefore, the bank was 
 
448 CONTRACTS (Part 1 
 
 not liable for his acts any more tiian it would have been for the acts 
 of a mere stranger. * * * 
 
 As stated above, the reasonable care which persons should take of 
 property intrusted to them for safe-keeping without reward will neces- 
 sarily vary with its nature, value and situation, and the bearing of 
 surrounding circumstances upon its security. The business of the 
 bailee will necessarily have some effect upon the nature of the care 
 required of him, as, for example, in the case of bankers and banking 
 institutions, having special arrangements, by vaults and other guards, 
 to protect property in their custody. Persons therefore depositing 
 valuable articles with them, expect that such measures will be taken 
 as will ordinarily secure the property from burglars outside and from 
 thieves within, and that whenever ground for suspicion arises an ex- 
 amination will be made by them to see that it has not been abstracted 
 or tampered with ; and also that they will employ fit men, both in abil- 
 ity and integrity, for the discharge of their duties, and remove those 
 employed whenever found wanting in either of these particulars. An 
 omission of such measures would in most cases be deemed culpable 
 negligence, so gross as to amount to a breach of good faith, and con- 
 stitute a fraud upon the depositor. 
 
 It was this view of the duty of the defendants in this case, who 
 were engaged in business as bankers, and the evidence of their neglect, 
 upon being notified of the speculations in stocks of their assistant 
 cashier, who stole the bonds, to make the necessary examination re- 
 specting the securities deposited with them, or to remove the speculat- 
 ing cashier, which led the court to its conclusion that they were guilty 
 of gross negligence. It was shown that about a year before the assist- 
 ant cashier absconded the defendant Kean, who was the chief officer 
 of the banking institution, was informed that there was some one in 
 the bank speculating on the Board of Trade at Chicago. Thereupon 
 Kean made a quiet investigation, and the facts discovered by him 
 pointed to Ker, whom he accused of speculating. Ker replied that he 
 had made a few transactions, but was doing nothing then and did not 
 propose to do anything more, and that he was then about a thousand 
 dollars ahead, all told. It was not known that Ker had any other 
 property besides his salary. His position as assistant cashier gave him 
 access to the funds as well as the securities of the bank, and he was aft- 
 erwards kept in his position without any effort being made on the part 
 of the defendants to verify the truth of his statement, or whether he 
 had attempted to appropriate to his own use the property of others. 
 
 Again, about two months before Ker absconded, one of the defend- 
 ants, residing at Detroit, received an anonymous communication, stat- 
 ing that some one connected with the bank in Chicago w^s speculat- 
 ing on the Board of Trade. He thereupon wrote to the bank, calling 
 attention to the reported speculation of some of its employees, and 
 suggesting inquiry and a careful examination of its securities of all 
 kinds. On receipt of this communication Kean told Ker what he had 
 heard, and asked if he had again been speculating on the Board of 
 Trade. Ker replied that he had made some deals for friends in Can- 
 ada, but the transactions were ended. The defendants then entered 
 upon an examination of their books and securities, but made no effort 
 to ascertain whether the special deposits had been disturbed. Upon 
 this subject the court below, in giving its decision (Prather v. Kean, 
 29 Fed-. 498) , after observing that the defendants knew that Ker had 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 449 
 
 been engaged in business which was hazardous and that his means 
 were scant, and after commenting upon the demoralizing effect of 
 speculating in stocks and grain, as seen in the numerous speculations, 
 embezzlements, forgeries and thefts plainly traceable to that cause, 
 and the free access by Ker to j^luable securities, which were trans- 
 ferable by delivery, easily abstracted and converted, and yet his being 
 allowed to retain his position without any effort to see that he had 
 not converted to his own use the property of others, or that his state- 
 . ments were correct, held that it was gross negligence in the defendants 
 not to discharge him or place him in some position of less responsi- 
 bility. In this conclusion we fully concur. 
 
 The second position of the plaintiffs is also well taken, that, as- 
 suming the defendants were gratuitous bailees at the time the bonds 
 were plated with them, the character of the bailmient was subsequently 
 changed to one for the mutual benefit of the parties. It appears from 
 the findings that the plaintiffs, subsequently to their deposit, had re- 
 peatedly asked for a discount of their notes by the defendants, offer- 
 ing the latter the bonds deposited with them as collateral, and that such 
 discounts were made. When the notes thus secured were paid, and the 
 defendants called upon the plaintiffs to know what they should do 
 with the bonds, they were informed tliat they were to hold them for the 
 plaintiffs' use as previously. The plaintiffs had already written to the 
 defendants that they desired to keep the bonds for an emergency, and 
 also that they wished at times to overdraw their account, and that they 
 would consider the bonds as security for such overdrafts. From these 
 facts the court was of opinion that the bonds were held by the defend- 
 ants as collateral to meet any sums which the plaintiffs might over- 
 draw; and the accounts show that they did subsequently overdraw in 
 numerous instances. 
 
 The deposit, by its change from a gratuitous bailment to a security 
 for loans, became a bailment for the mutual benefit of both parties, that 
 is to say, both were interested in the transactions. For the bailor it 
 obtained the loans, and to that extent was to his advantage ; and to the 
 bailee it secured the payment of the loans, and that was to his ad- 
 vantage also. The bailee was therefore required, for the protection 
 of the bonds, to give such care as a prudent owner would extend to 
 his own property of a similar kind, being in that respect under an ob- 
 ligation of a more stringent character than that of a gratuitous bailee, 
 but differing from him in that he thereby became liable for the loss 
 of the property if caused by his neglect, though not amounting to gross 
 negligence. * * * 
 
 It follows, therefore, that whether we regard the defendants as 
 gratuitous bailees in the first instance, or as afterwards becoming 
 bailees for the mutual benefit of both parties, they were liable for the 
 loss of the bonds deposited with them. And the measure of the re- 
 covery was the value of the bonds at the time they were stolen. 
 
 Judgment affirmed. 
 B.& B. Bus. Law— 29 
 
450 CONTRACTS (Part 1 
 
 RUBIN V. HUHN, 
 
 (Supreme Judicial Court of Massachusetts, 1918. 229 Mass. 126, 
 118 N. B. 290, 4 A. L. R. 1190.) 
 
 Action by Myer Rubin against Samuel I. Huhn. There was a find- 
 ing for plaintiif, and the case was reported to the appellate division of 
 the municipal court of the city of Boston, which dismissed the report, 
 and defendant appeals. 
 
 Pierce, J. The defendant assumed at most the obligation of a 
 gratuitous bailee when, in the lobby of a theater crowded with peo- 
 ple, he received from one Wyner a pair of diamond earrings in a box 
 and at the request of Wyner then and there undertook to inspect, 
 examine and appraise them without reward. * * * The duty 
 which the law imposes on gratuitous 'bailees is that the bailee shall act 
 in good faith ; that is, shall use the degree of care in the performance 
 of the undertaking which is measured by the carefulness which the 
 depository uses toward his own property of similar kind under like 
 circumstances. * * * 
 
 In an action of contract or of tort for breach of duty imposed by 
 law, the mere fact "that the defendant dropped one of the earrings and 
 it was lost," is not sufficient evidence of his gross negligence to war- 
 rant a finding for the plaintiflE. The ruling of the judge "that the de- 
 fendant, in handling and dealing with the earrings did not exercise 
 such care as a reasonably prudent man would have exercised under 
 the circumstances," imposed upon the defendant, a gratuitous bailee, 
 a standard of care which measures the duty of a bailee for hire. This 
 was manifest error. * * * 
 
 It follows that the order of the municipal court, "Report dismissed," 
 must be affirmed. * * * 
 
 BECK V. WILKINS-RICKS 00. 
 
 (Supreme Court of North Carolina, 1920. 179 N. C. 231, 102 S. E. 313, 
 
 9 A. L. R. 554.) 
 
 Action for damages for the destruction of an automobile while in 
 the defendant's garage for repairs. The plaintiff took his car to the 
 garage for certain minor repairs. During the night the building was 
 destroyed by fire and the car with it. At close of plaintiff's evidence 
 the court sustained a motion for judgment as of nonsuit, and the plain- 
 tiff excepted and appealed. 
 
 CiyARK, C. J. The defendant as bailee assumed liability of ordi- 
 nary care for the safe-keeping and the return of the machine to the 
 bailor in good condition. The bailee did not assume liabiHty as in- 
 surer, and therefore did not become liable for the return of the prop- 
 erty in good condition if he observed the ordinary care devolved upon 
 him by reason of the bailment. If the machine had been injured or 
 stolen or destroyed by fire while in his custody, the defendant would 
 not be liable if such care had been observed. On the other hand, the 
 mere fact that the property had been destroyed by fire or stolen did 
 not absolve him from responsibility, any more than he would have 
 been absolved if it had been injured in his custody, unless he had 
 shown that he had used the care required of him by virtue of his bail- 
 ment. The burden of proving negligence was on the plaintiff, and this 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 451 
 
 burden does not shift ; but when it was shoWn, or admitted, that the 
 machine was not returned by reason of its being destroyed or stolen, 
 or that it was returned in injured condition, it was the duty of the 
 defendant to "go forward" with proof to show that it had used proper 
 care in the bailment. Therefore it was error for the court to with- 
 draw the case from the jury and thus to hold, as a matter of law, that 
 the defendant had exercised proper care. * * * 
 
 It is sufficient to say * * * that the failure of the bailee to 
 return the property, with the admission that it has been burned, 
 made out a prima facie case, which devolved upon the defendant the 
 duty of going forward with proof that it had discharged its duty of 
 proper care while intrusted with the custody of the plaintiff's automo- 
 bile. Upon the evidence, this was the proper subject of inquiry which 
 the plaintiff was entitled to have investigated by the jury. 
 
 The judgment of nonsuit is reversed. * * * 
 
 SECTION 3.— THE CONTRACT OF CARRIAGE 
 
 The contract between shipper and carrier is a bailment with the 
 added obligation upon the bailee to transport and deliver the prop- 
 erty bailed. Carriers are of two kinds, common carriers and pri- 
 vate carriers. A common carrier is a carrier either of goods or pas- 
 sengers, or both, who holds himself out as one engaged in the 
 business of furnishing transportation for all those who may request 
 such service. A common carrier serves the public generally. The 
 common instances of common carriers are the railroads, the street 
 railways, steamship lines, express companies, and fast freight lines. 
 
 The contract of the common carrier to transport goods differs 
 from the contract of the private carrier in that, for reasons of pub- 
 lic policy, certain obligations have been imposed by law upon the 
 common carrier, irrespective of the carrier's assent, which are not 
 imposed upon the private carrier. Stated in its broadest form, the 
 common carrier is an insurer for the safe and expeditious trans- 
 portation of the goods which it has received for carriage ; that is, 
 the common carrier will be liable for loss or damage to the goods 
 whether the loss or damage was caused by its negligence or not. 
 This is virtually the imposition of an absolute liability. There are, 
 however, certain common-law exceptions to this rule of absolute 
 liability. These exceptions are taken up in the cases following. 
 After noting the common-law exceptions it will be found in the 
 cases, that the liability of the common carriers as a matter of 
 practice has been cut down still further by contract between ship- 
 per and carrier. The question as to the extent of the common 
 carrier's liability then narrows itself down to the inquiry as to 
 the legality of these limitations of liability. 
 
 This inquiry has two aspects: First, to what extent may the 
 liability of the common carriers be limited under common law prin- 
 ciples? Second, to what extent have statutes of the various states 
 and of Congress changed these common law principles?. It scarce- 
 ly needs to be mentioned that the body of law usually referred to 
 
452 CONTRACTS (Part 1 
 
 as the law of carriers, is very extensive, and, while its content is in 
 large measure made up of rules developfed by the application of 
 general principles of the law of contract and of torts, knowledge of 
 its subject-matter could not be gained without a study of tlie cases 
 which have arisen in this field. The few cases here presented 
 merely call attention to some of the more important aspects of the 
 contract between shipper and carrier. 
 
 SEABOARD AIR LINE RY. v. MULLIN. 
 
 (Supreme Court of Florida, 1915. 70 Fin. 450, 70 South. 467, L. R. A. 1916D, 
 982, Ann. Cas. 1918A, 576.) 
 
 Whitfield, J. An action was brought by MuUin against the car- 
 rier to recover damages for the loss of freight injured by a flood in 
 transit. There was judgment for the plaintiff, and the defendant took 
 writ of error. * * * 
 
 A carload of household goods being transported in interstate com- 
 merce from Ocala, Fla., to Youngstown, Ohio, was negligently de- 
 layed en route before it reached Atlanta, Ga. After leaving Atlanta 
 and before reaching destination the goods were injured by an un- 
 precedented flood — an act of God — which could not reasonably have 
 been foreseen when the negligent delay occurred. If there had been 
 no delay in the transportation before reaching Atlanta, the shipment 
 might have been completed without injury from the flood. 
 
 The liability of a common carrier of goods is that of an insurer; 
 and in cases of loss of or injury to goods intrusted to it for trans- 
 portation no excuse avails the carrier, except that such loss or injury 
 was caused by the act of God, or by the public enemies of the state or 
 by the sole fault of the shipper or his agent. 1 Moore on Carriers, 
 306. * * * 
 
 Where in the course of transportation goods are injured by an 
 unprecedented flood and there is no negligence on the part of the 
 common carrier in taking care of the goods or otherwise, the loss 
 is attributable to the flood as an act of God, and the carrier is not 
 liable. * * * But where the flood should have been anticipated 
 in time to save the goods, or the carrier was negligent in not protect- 
 ■ ing the goods, or exposed the goods to the flood, or tortiously with- 
 held the goods, or so deviated from the proper route as to amount to 
 a conversion of the goods, or the negligence of the carrier contributes 
 directly to the injury, or the carrier fails to provide reasonably ade- 
 quate and safe facilities which directly contributed to the injury, the 
 carrier is liable. [Citing cases.] 
 
 In Read v. Spaulding, 30 N. Y. 360, 86 Am. Dec. 426, Green- 
 Wheeler Shoe Co. V. Chicago, R. I. & P. R. Co., 130 Iowa, 123, 106 
 N. W. 498, 5 L. R. A. (N. S.) 882, 8 Ann. Cas. 45, * * * and 
 other somewhat similar cases, the courts hold that when there is a 
 negligent delay by a common carrier in transporting goods, and sub- 
 sequently before reaching destination the goods are injured by an 
 act of God that could not reasonably have been foreseen at the time of 
 the negligent delay, the carrier is liable. * * * Such holdings are 
 presumably predicated upon the theory that the delay is a concurring 
 and proximate cause of the loss or injury, or that because of the delay 
 the law enlarges the liability of the common carrier by withdrawing the 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 453 
 
 exemption from liability that usually exists when goods in transit are 
 injured by an act of God. 
 
 The United States Supreme Court and the courts of El number 
 of the states hold that a delay in transportation which places the 
 shipment in the track of an unprecedented flood is a remote and not 
 a proximate cause of an injury to the shipment by the flood, and 
 the carrier is not liable merely because of the delay. Such courts 
 base the exemption of the carrier from liability upon the ground that 
 the delay was too remote and that the proximate cause of the injury, 
 to wit, the destructive act of God, could not have been foreseen and 
 provided against as a probable result of the negligent delay. In this 
 view the carrier is held not liable even though the injury would not 
 have occurred but for the previous delay in transportation which caus- 
 ed the shipment to be in the track of the flood. * * * 
 
 Actionable negligence exists when a loss or injury to one with- 
 out fault results directly from another's mere negligence, or when the 
 loss or injury sustained by one is such as results in ordinary natural 
 sequence from the negligence, or such as naturally and ordinarily 
 should have been regarded as a probable, not as a merely possible, 
 result of the simple negligence of another. Conversely, when the loss 
 or injury is not a direct result of the mere negligence, and the loss 
 or injury is not a natural ordinary sequence or such as naturally and 
 ordinarily should have been regarded as a probable, and not a merely 
 possible, result of the simple negligence, the negligence is not action- 
 able. * * * If an independent efficient cause intervenes between 
 the negligence and the injury, and the original negligence does not 
 directly contribute to the force or effectiveness of the intervening cause, 
 the original negligence is not regarded as a proximate cause of the 
 injury, even though the injury might not have occurred but for the 
 original negligence. A proximate cause stands next in causal rela- 
 tion to the effect. * * * A proximate cause produces the result 
 in continuous sequence, and without which the result would not have 
 occurred. * * * In this case the carrier was merely negligent in 
 delaying the shipment, there being no conversion in law or deviation 
 from the proper route or malconduct or lack of reasonably adequate 
 and safe facilities. There was subsequent to the delay "no negligence 
 which in any manner contributed to the loss or damage," as is expressly 
 stipulated. An assumption that the goods- would not have been in- 
 jured had the carrier not negligently delayed the shipment en route 
 before the flood happened will not conclusively show liability of the 
 carrier, since the negligent delay did not directly cause or contribute 
 to the injury and had no causal relation to, and did not contribute to, 
 the injury or to the effectiveness of the flood, the direct cause of the 
 injury, and any character of injury to the shipment from an unprece- 
 dented flood could not reasonably be regarded as being an ordinary 
 natural sequence or as naturally and ordinarily a probable result of 
 the merely negligent delay during a period when there was nothing to 
 foretell an unusual flood on the route. * * * 
 
 The Interstate Commerce Act does not render carriers liable for 
 injuries to shipments that are caused by an act of God. * * * 
 The delay in transportation prior to the injury was "caused by" the 
 defendant, but the injury to the goods, was "caused by" an unprece- 
 dented flood — an act of God — the preceding negligence of the carrier 
 
454 coNTiiACTS (Part 1 
 
 in delaying the shipment having merely a casual relation and not a 
 causal relation to the act of God and the injury. 
 The judgment is reversed. 
 
 ALASKA COAST CO. v. ALASKA BARGE CO. 
 
 (Supreme Court of Washington, 1914. 79 Wash. 216, 140 Pac. 334, 
 L. R. A. 1915C, 423.) 
 
 GosE, J. This is an action upon a charter party for damages sus- 
 tained to a steamboat, it being alleged that the charterer breached its 
 contract in faiHng to return the boat in good condition. 
 
 The appellant, being the owner of the steamship Jeannie, chartered 
 it to the respondent for voyages from Puget Sound to ports in south- 
 eastern Alaska. * * * 
 
 After the Jeannie was turned over to the respondent, it struck some 
 unknown, submerged object in Frederick Sound in Alaskan waters, 
 threw a propeller blade, and otherwise damaged the ship. The ship 
 was returned to appellant in damaged condition, and this action is 
 brought to recover the amount of such damages. * * * 
 
 The first question to be considered is : Was the accident which caused 
 the damage an "act of God"? * * * 
 
 The facts touching the cause of the accident are these: The chief 
 engineer testified : "I know she struck something hard, something sub- 
 merged, and broke one of the blades, and put everything out of line. 
 * * * She gave a sudden stop and then started off. * * * 
 Struck something submerged. I don't know whether it was a log 
 or a chunk of ice, or it might have been a rock." The master of the 
 ship testified that the accident happened in the middle of Frederick 
 Sound, 3 miles from land, in about 125 fathoms of water, in clear 
 weather, with the sea "smooth as glass." He further said: "I felt 
 a jar, but you can feel a jar when a ship loses a blade. It might be 
 a submerged body ; it probably was ; I don't know. I want to say 
 that I don't know. I just felt the jar." The accident happened in 
 the month of September, in the daytime. It was stipulated that the 
 chief mate would, if called as a witness, testify that he was watch offi- 
 cer on the bridge at the time of the accident, and that he did not see 
 or hear of any floating objects at or near that time. The testimony 
 does not show whether icebergs were to be anticipated at the time 
 and place of the accident. 
 
 This is far from showing that the act could not have happened by 
 the intervention of man. It leaves the cause of the accident to specu- 
 lation. The most that can be said is that it may have been caused by. 
 the act of man. We are not required to adopt the strict rule laid 
 down by Judge Shipman and quoted in the excerpt from The Majestic, 
 viz., that, if it were possible that the injury was caused by the act 
 of man, the respondent should be held. Under the authorities, it is 
 at least required to show by a preponderance of the evidence that an 
 "act of God" was the cause of the injury. In this it has signally 
 failed. * ** 
 
 The case will be remanded, with directions to the trial court to ascer^ 
 tain the damage and enter judgment for the amount thereof. * * * 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 455 
 
 MORRISON & CO., Umited, v. SHAAV, SAVILL & ALBION CO., Limited. 
 (Commercial Court, 1916. [1916] 1 K. B. Div. 747.) 
 
 The action was brought to recover the sum of £4013. 19s. 7d., the 
 agreed value of 158 bales of dumped greasy wool shipped at Napier, 
 New Zealand, in the defendants' steamship Tokomaru, for carriage 
 to London under two bills of lading. 
 
 Bailhache, J. The defendants' steamship Tokomaru, bound from 
 New Zealand to London with a valuable cargo on board, was making 
 for the port of Havre on January 30, 1915. She was within seven or 
 eight miles of the coast and some twelve or thirteen miles from Havre, 
 when at about 9 o'clock in the morning she was torpedoed by the Ger- 
 man submarine U21 and sank with her cargo. Amongst the cargo were 
 158 bales of greasy wool belonging to the plaintiffs, who held two 
 bills of lading covering this shipment at Napier in New Zealand. 
 Both bills of lading are in the same form and both are dated Novem- 
 ber 19, 1914. The agreed value of the wool is i4013. 19s. 7d., and 
 the plaintiffs sue the defendants for this sum upon the simple and, as 
 they allege, sufficient ground that the wool was lost while the Toko- 
 maru was deviating, from her voyage to London. 
 
 The defendants deny that there was any deviation. They assert 
 that the Tokomaru was intending to call at Havre to discharge a par- 
 cel of frozen meat, and that her so doing was within the liberties re- 
 served to them by the bills of lading held by the plaintiffs. Alter- 
 natively, and while admitting that deviation destroys the bill of lading 
 exceptions, they say that they were common carriers, with the com- 
 mon-law exceptions of act of God and the king's enemies, and that 
 they are thus protected; and they further say that the deviation was 
 not the cause of the loss. It is between these conflicting contentions 
 that I have to decide. * * * 
 
 The real question is : Were the defendants entitled to call there un- 
 der the terms pf their bill of lading? In deciding this question I 
 must bear in mind that deviation has always been looked upon as a 
 grave breach of contract. * * * In my judgment the Tokomaru 
 was not justified, to quote their own words, "in deviating from our 
 ordinary route without specific provision being made for it in the bill 
 of lading." That sentence exactly expresses my view. In my judg- 
 ment, when the route and ports of call of a line of steamships have 
 become stereotyped; mere general words in their own bill of lading 
 giving liberty to call at intermediate ports will not justify their calling 
 at some entirely fresh intermediate port. 'The truth is the defend- 
 ants were tempted by a high rate of freight to run risks which they 
 recognized as possible, but regarded as improbable. Unfortunately the 
 improbable happened. 
 
 The remaining points may be dealt with briefly. The effect of devi- 
 ation is to displace the contract of carriage during and after devia- 
 tion. * * * From the point of deviation, at any rate, the ship- 
 owner becomes at best a common carrier. 'The defendants say that 
 he is a common carrier with the common-law exceptions of act of 
 God and king's enemies in his favour. Let me assume that, of what 
 use are those exceptions to the defendants in this case? As I under- 
 stand it the law stands thus. When a ship deviates and loss of or 
 damage to cargo occurs, either by act of God or, as here, by the 
 
456 CONTRACTS (Part 1 
 
 king's enemies, it 4s not open to her owners to set up either exception. 
 Those exceptions apply and apply only to a carrier who is perform- 
 ing his contract, and never to a carrier who is breaking it, unless he 
 can show that the loss or damage must have occurred in any event. 
 
 * * * The most that can be said is that the Tokomaru might have 
 been torpedoed if she had continued on her course to London, and 
 that avails the defendants nothing. The only case that occurs to me 
 as likely to arise in practice in which a shipowner can hope to escape 
 liability for damage to or loss of goods during or after deviation is 
 when the goods perish from inherent vice and would have so perished 
 without deviation. * * * 
 
 The defendants lastly say that the deviation was not the cause of 
 the loss, and that the plaintiflfs cannot recover because they cannot 
 show that the natural and probable result of deviating to Havre was 
 that the Tokomaru would be torpedoed. This seems to me rank her- 
 esy. A shipowner is an insurer of the goods he carries, subject, if 
 there is a special contract, to the contractual exceptions, and subject, 
 if there is no special contract, to the common law exceptions of act 
 of God, the king's enemies, and inherent vice. If the goods are lost 
 while in his ship it is not for the goods owner, in the first instance, 
 to prove anything but the loss. The shipowner, if he denies liability, 
 must then set up the particular exception upon which he relies and 
 bring himself within it. 
 
 Here the exception is the king's enemies, but the defendants are 
 in the difficulty pointed out by L^rd Watson in Hamilton, Fraser & 
 Co. V. Pandorf & Co. (1887) 12 App. Cas. 518, 526, where he said: 
 "When a shipowner * * * claims the benefit of the exception, 
 the court will, if necessary, go behind the proximate cause of dam- 
 age, for the purpose of ascertaining whether that cause was brought 
 into operation by the negligent act or default of the shipowner or of 
 those for whom he is responsible." This is equally true whether the 
 exception be contractual or implied by law. Deviation leaves a ship- 
 owner defenceless in the face of such a loss as occurted in this case. 
 
 * * * 
 
 I have to add that throughout this judgment whenever I have spoken 
 of "deviation" I must be taken to mean wrongful deviation. 
 My judgment is for the plaintiffs for £4013. 19s. 7d. and costs. 
 
 FAUOriER V. WILSON. 
 
 (Supreme Court of New Hamppliire, 1895. 68 N. H. 338, 38 Atl. 1002, 
 39 I.. R. A. 431.) 
 
 The defendant was engaged in the business of trucking goods for 
 hire from the railway freight station in Manchester to different stores 
 in the city. On one of the warmest days in the summer of 1891, he 
 transported a hogshead of molasses from the freight station to the 
 plaintiff's store, on Elm street, a distance of a little over half a mile. 
 By reason of the fermentation of the molasses, the hogshead burst 
 while being unloaded. The plaintiff's loss was not caused by any want 
 of ordinary care on the part of the defendant. 
 
 Chase, J. * * * [Even] if the defendant was a common carrier, 
 he is not liable for the plaintiff's loss, since it happened from the oper- 
 ation of natural laws, which a common carrier does not insure against. 
 
Ch. 11) ' SPECIAL TYPES OF CONTRACTS 457 
 
 * * * In Farrar v. Adams, 1 Bull. N. P. 69, it is said that "i-f an 
 action were brought against a carrier for negligently driving his cart, 
 so that a pipe of wine was burst, and was lost, it would be good evi- 
 dence for the defendant that the wine was upon the ferment, and, 
 when the pipe burst, he was driving gently." It being found that the 
 plaintiff's loss was not due to any want of ordinary care on the part 
 of the defendant, there must be judgment for the defendant. * * * 
 
 McCarthy et ai. v. lotjisvillb & n. e. co. 
 
 (Supreme Court of Alabama, 1893. 102 Ala. 193, 14 South. 370, 
 48 Am. St. Rep. 29.) 
 
 Action by McCarthy & Baldwin against the Louisville & Nashville 
 Railroad Company for failure to deliver a consignment of terra cotta 
 tiling in good condition. From a judgment for defendant, plaintiffs 
 appeal. 
 
 McCLEivtAN, J. * * * In October, 1890, the Pioneer Fireproof 
 Construction Company delivered to the Chicago, Burlington & Quincy 
 Railroad Company at Ottawa, 111., four car loads of terra cotta for cai'- 
 riage, and consigned to plaintiffs at Birmingham, Ala. The defendant 
 was also a common carrier operating a connecting line of railway on 
 the route from Ottawa to Birmingham, and as such received the con- 
 signment from the initial carrier, "and undertook to deliver the same 
 to plaintiffs at Birmingham for a reward." This undertaking was not 
 performed, the complaint avers, but, to the contrary, the defendant "did 
 not deliver all of said goods to them (the plaintiffs), and did not de- 
 liver said goods to the plaintiffs in good or proper condition, or in the 
 condition they were in when shipped and consigned to plaintiffs, but 
 that said goods when delivered were badly broken and injured, and a 
 large part thereof rendered wholly unfit for use." T)ie damage to 
 the goods is laid at $400, which the complaint seeks to recover. 
 
 It is manifest that the case made by the averment of these facts 
 tendered no issue of negligence vel non on the part of the defendant. 
 The contract averred is an unconditional common-law contract of 
 carriage without reservations or exceptions. By its terms the defend- 
 ant insured ihe safe delivery of the goods to the consignee, and as- 
 sumed liability for any loss or injury resulting from any cause except 
 such as afforded the carrier a defense at common law. The strictest 
 proof of all possible care on the part of the carrier in the transporta- 
 tion and delivery of the goods would have been no defense, and, of 
 course, proof of the carrier's negligence was in no wise essential to a 
 recovery. The defenses which a carrier under such a contract may in- 
 terpose to an action for failure to deliver in good condition are com- 
 monly mentioned as two only, namely, that the loss or injury was 
 due either to the act of God, or to the act of a public enemy. But 
 there is in reality a third, resting on the fault of the owner of the goods 
 or his agent. This latter defense, while the fault involved in it may 
 consist merely of negligence imputable to the plaintiffs, is in no sense, 
 and bears little analogy to, the defense of contributory negligence 
 available in actions against common carriers of passengers, some- 
 times in actions against carriers of live stock, and even, it may be, in 
 actions against carriers of goods— inanimate things — under contracts 
 of affreightment which -limit liability to loss or injury occasioned by 
 the carrier's negligence. Nowhere in, the books can any reference be 
 
458 CONTRACTS (Parti 
 
 found to the defense of contributory negligence against the common- 
 law liability of common carriers of goods ; and, in the nature of things, 
 there can be no such defense, to speak with any approach to legal ac- 
 curacy. * * * fiig j-uig governing this class of cases cannot be 
 more perspicuously stated, perhaps, than by comparing it with and dif- 
 ferentiating it from the doctrine which obtains in respect of causes of 
 action resting primarily on defendant's negligence in the carriage _of 
 persons. In these latter cases the contributory negligence of the plain- 
 tiff neutralizes and renders innocuous the causal negligence of the de- 
 fendant, and destroys a cause of action resting upon it. But in the 
 other class of cases — that to which the case at bar belongs — ^negligence 
 upon either hand is regarded from an entirely different standpoint, and 
 accorded an entirely different and contrary effect and operation, so to 
 speak, on the rights of the parties. The unaided, uncontributed-to 
 negligence of the plaintiff producing the injury is a defense ; but where 
 there is negligence also on the part of the defendant, without which, 
 notwithstanding plaintiff's fault, the injury would not have happened, 
 this fault of the defendant neutralizes and eviscerates the negligence 
 of the plaintiff as a ground of defense. In the one case, plaintiff's 
 contributory negligence destroys the cause of action ; in the other, de- 
 fendant's concurring negligence destroys the defense. 
 
 The evidence tended to show that the goods for injury to which this 
 action is prosecuted were improperly and negligently packed or loaded 
 by the consignor who sold the goods to plaintiffs, and it afforded an in- 
 ference, or rather, room for an inference, that but for this fault of the 
 seller and consignor, the injury would not have occurred. But, though 
 the jury had found in line with this tendency of the evidence, and de- 
 duced the conclusion therefrom that plaintiffs, or those for whose acts 
 or omissions in the premises plaintiffs were responsible, were at fault, 
 and that such fault had a causal connection with the injury, it was 
 yet their duty to indulge the presumption that the defendant was also 
 negligent in and about the transportation and delivery of the goods. 
 and that this negligence aided plaintiffs' negligence to the result com- 
 plained of, there being no evidence whatever on the part of the defend- 
 ant, upon whom the burden in this regard rested, nor, indeed, any 
 averment, to the contrary. It follows, on this state of 'case, the evi- 
 dence without conflict showing the injury, and the defendant having 
 failed both in averment and proof to bring itself within the exception 
 under which it in some measure attempted to shield itself from lia- 
 bility, that the jury should have been instructed, as requested in writ- 
 ing, to find for the plaintiffs if they believed the evidence. * * * 
 
 Reversed and remanded. 
 
 ADAMS EXPRESS CO. v. OEONINGER. \ 
 
 (Supreme Court of the United States, 1913. 226 U. S. 491, 33 Sup. Ct. 148, 
 57 L. Ed. 314, 44 L. R. A. [N. S.] 257.) 
 
 This was an action in the circuit court of Kenton county, Kentucky, 
 against the Express Company to recover the full market value of a 
 small package containing a diamond ring which was delivered by the 
 plaintiff below to the Express Company at its office in Cincinnati, 
 Ohio, consigned to J. W. Clendenning at Augusta, Georgia. The 
 package was never delivered. 
 
 The Express Company made defense by aftswer. The plaintiff de- 
 murred to the answer as not containing a defense, which demurrer 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 459 
 
 was sustained. The company declined to further plead, whereupon 
 the circuit court gave judgment for the sum of $137.52, being the 
 full value of the ring and interest. 
 
 LuRTON, J. The answer relies upon the act of Congress of June 
 29, 1906, being an act to amend the Interstate Commerce Act of 1887, 
 as the only regulation applicable to an interstate shipment ; and avers 
 that the limitation of value, declared in its bill of lading, was valid 
 and obligatory under that act. This defeijse was denied. This con- 
 stitutes the federal question and gives this court jurisdiction. 
 
 Under the law of Kentucky this contract, limiting the plaintiff's 
 recovery to the agreed or declared value, was invalid, and the shipper 
 was entitled to recover the actual value, "unless sufficient facts are 
 shown, independently of the special contract, to avoid the contract for 
 fraud or to create an estoppel at common law." 
 
 The original Interstate Commerce Act of February 4, 1887, 24 
 Stat. 379, c. 104, was extensively amended by the act of June 29, 1906, 
 34 Stat. 584, c. 3591 (U. S. Comp. St. §§ 8604a, 8604aa). We may 
 pass by many of the changes and amendments made by the latter act 
 as not decisive, and come at once to the far more important amend- 
 ment made in section 20, an amendment bearing directly upon the 
 carrier's liability or obligation under interstate contracts of shipment, 
 and generally referred to as the Carmack Amendment. * * * 
 
 This amendment came under consideration in Atlantic Coast Line 
 V. Riverside Mills, 219 U. S. 186, 31 Sup. Ct. 164, 55 L. Ed. 167, 31 
 L. R. A. (N. S.) 7, but the opinion and judgment were confined to that 
 provision of the act which made the initial carrier liable for a loss 
 iipon the line of a connecting carrier, the property having been re- 
 ceived under a bill of lading which confined the liability of the initial 
 carrier to loss occurring upon its own line. 
 
 The significant and dominating features of that amendment are 
 these : 
 
 First. It affirmatively requires the initial carrier to issue "a re- 
 ceipt or bill of lading therefor," when it receives "property for trans- 
 portation from a point in one state to a point in another." 
 
 Second. Such initial carrier is made "liable to the lawful holder 
 thereof for any loss, damage, or injury to such property caused by it." 
 
 Third. It is. also made liable for any loss, damage, or injury to 
 such property caused by "any common carrier, railroad or transpor- 
 tation company to which such property may be delivered or over 
 whose line or lines such property may pass." 
 
 Fourth. It affirmatively declares that "no contract, receipt, rule or 
 regulation shall exempt such common carrier, railroad, or transporta- 
 tion company from the liability hereby imposed." 
 
 Prior to that amendment the rule of carrier's liability, for an in- 
 terstate shipment of property, as enforced in both federal and state 
 courts, was either that of the general common law as declared by this 
 court and enforced in the federal courts throughout the United States, 
 Hart V. Pennsylvania Railroad, 112 U. S. 331, 5 Sup. Ct. 151, 28 L. 
 Ed. 717; or that determined by the supposed public policy of a par- 
 ticular state, Pennsylvania Railroad v. Hughes, 191 U. S. 477, 24 
 Sup. Ct. 132, 48 L. Ed. 268; or that prescribed by statute law of a 
 particular state, Chicago, etc., Railroad v. Solan, 169 U. S. 133, 18 
 Sup. Ct. 239, 42 L. Ed. 688. 
 
460 CONTRACTS (Part 1 
 
 • Neither uniformity of obligation nor of liability was possible until 
 Congress should deal with the subject. The situation was well de- 
 picted by the Supreme Court of Georgia in Southern Pacific Co. v. 
 Crenshaw, 5 Ga. App. 675, 687, 63 S. E. 865, where the court said: 
 
 "Some states allowed carriers to exempt themselves from all or a 
 part of the common-law liability, by rule, regulation, or contract; 
 others did not. The federal courts sitting in the various states were 
 following the local rule, a carrier being held liable in one court when 
 under the same state of facts he would be exempt from liability in 
 another; hence this branch of interstate commerce was being sub- 
 jected to such a diversity of legislative and judicial holding that it 
 was practically impossible for a shipper engaged in a business that 
 extended beyond the confines of his own state, or for a carrier whose 
 lines were extensive, to know without considerable investigation and 
 trouble, and even then oftentimes with but little certainty, what would 
 be the carrier's actual responsibility as to goods delivered to it for 
 transportation from one state to another. The congressional action 
 has made an end to this diversity ; for the national law is_ paramount 
 and supersedes all state laws as to the rights and liabilities and ex- 
 emptions created by such transaction. This was doubtless the pur- 
 pose of the law ; and this purpose will be effectuated, and not impair- 
 ed or destroyed by the state court's obeying and enforcing the provi- 
 sions of the federal statute where applicable to the fact in such cases 
 as shall come before them." 
 
 That, the legislation supersedes all the regulations and policies of 
 a particular state upon the same subject results from its general char- 
 acter. It embraces the subject of the liability of the carrier under a 
 bill of lading which he must issue and limits his power to exempt him- 
 self by rule, regulation or contract. Almost every detail of the sub- 
 ject is covered so completely that there can be no rational doubt but 
 that Congress intended to take possession of the subject and super- 
 sede all state regulation with reference to it. Only the silence of 
 Congress authorized the exercise of the police power of the state upon 
 the subject of such contracts. But when Congress acted in such a 
 way as to manifest a purpose to exercise its conceded authority, the 
 regulating power of the State ceased to exist. * * * 
 
 What is the liability imposed upon the carrier? It is a liability 
 to any holder of the bill of lading which the primary carrier is re- 
 quired to issue "for any loss, damage or injury to such property 
 caused by it," or by any connecting carrier to whom the goods are 
 delivered. The suggestion that an absolute liability exists for every 
 loss, damage or injury, from any and every cause, would be to make 
 such a carrier an absolute insurer and liable for unavoidable loss or 
 damage though due to uncontrollable forces. That this was the intent 
 of Congress is not conceivable. To give such emphasis to the wor,ds, 
 "any loss or damage," would be to ignore the qualifying words, "caus- 
 ed by it." The liabiHty thus imposed is limited to "any loss, injury or 
 damage caused by it or a succeeding carrier to whom the property may 
 be delivered," and plainly implies a liability for some default in its 
 common law duty as a common carrier. * * * 
 
 We come now to the question of the validity of the provision in 
 the receipt or bill of lading limiting liability to the agreed value of 
 fifty dollars, as shown therein. This limiting clause is in these Wcwds : 
 
 "In consideration of the rate charged for carrying said property. 
 
Ch. 11) SPECIAL TYPES OP CONTRACTS 4C1 
 
 which is regulated by the value thereof and is based upon a valua- 
 tion of not exceeding fifty dollars unless a greater value is declared, 
 the shipper agrees that the value of said property is not more than 
 fifty dollars, unless a greater value is stated herein, and that the com- 
 pany shall not be liable in any event for more than the value so stated, 
 nor for more than fifty dollars if no value is stated herein." 
 
 The answer states that the schedules which the express company 
 had filed with the Interstate Commerce Commission showed rates 
 based upon valuations; and that the lawful and established rate for 
 such a shipment as that made by the plaintiff from Cincinnati to Au- 
 gusta, having a value not in excess of fifty dollars, was twenty-five 
 cents, while for the same package if its value had been declared to be 
 one hundred and twenty-five dollars, the amount for which the plain- 
 tiff sues as the actual value, the lawful charge according to the rate 
 filed and published would have been fifty-five cents. It is further 
 averred that the package was sealed, and its contents and actual value 
 unknown to the defendant's agent. 
 
 That no inquiry was made as to the actual value is not vital to the 
 fairness of the agreement in this case. The receipt which was ac- 
 cepted showed that the charge was based upon a valuation of fifty 
 dollars unless a greater value should be stated therein. The knowl- 
 edge of the shipper that the rate was based upon the value is to be 
 presumed from the terms of the bill of lading and of the published 
 schedules filed with the Commission. That presumption is strength- 
 ened by the fact that across the top of this bill of lading there was 
 this statement in bold type : "This company's charge is based upon the 
 value of the property, which must be declared by the shipper." 
 
 That a common carrier cannot exempt himself from liability for his 
 own negligence or that of his servants is elementary. * * * The 
 rule of the common law did not limit his liability to loss and dam- 
 age due to his own negligence, or that of his servants. That rule 
 went beyond this and he was liable for any loss or damage which re- 
 sulted from human agency, or any cause not the act of God or the 
 public enemy. But the rigor of this liability might be modified 
 through any fair, reasonable and just agreement with the shipper 
 which did not include exemption against the negligence of the carrier 
 or his servants. The inherent right to receive a compensation com- 
 mensurate with the risk involved the right to protect himself from 
 fraud and imposition by reasonable rules and regulations, and the right 
 to agree upon a rate proportionate to the value of the property trans- 
 ported. 
 
 It has therefore become an established rule of the common law as 
 declared by this court in many cases that such a carrier may by a 
 fair, open, just and reasonable agreement limit the amount recovera- 
 ble by a shipper in case of loss or damage to an agreed valtie made for 
 the purpose of obtaining the lower of two or more rates of charges 
 proportioned to the amount of the risk. * * * 
 
 That such a carrier might fix his charges somewhat in proportion 
 to the value of the property is quite as reasonable and just as a rate 
 measured by the character of the shipment. The principle is that the 
 charge should bear some reasonable relation to the responsibility, and 
 that the care to be exercised shall be in some degree measured by the 
 bulk, weight, character and value of the property carried. 
 
 Neither is it conformable to plain principles of justice that a ship- 
 
462 CONTRACTS (Part 1 
 
 per may understate the value of his property for the purpose of reduc- 
 ing the rate, and then recover a larger value in case of loss. Nor 
 does a limitation based upon an agreed value for the purpose of ad- 
 justing the rate conflict with any sound principle of public policy. 
 The reason for the legality of such agreements is' well stated in Hart 
 V. Pennsylvania Railroad, supra: 
 
 "The Hmitation as to value has no tendency to exempt from lia- 
 bility for negligence. It does not induce want of care. It exacts 
 from the carrier the measure of care due to the value agreed on. 
 The carrier is bound to respond in that value for negligence. The 
 compensation for carriage is based on that value. The shipper is 
 estopped from saying that the value is greater. The articles have no 
 greater value, for the purposes of the contract of transportation, be- 
 tween the parties to that contract. The carrier must respond for neg- 
 ligence up to that value. It is just and reasonable that such a con- 
 tract, fairly entered into, and where there is no deceit practiced on 
 the shipper, should be upheld. There is no violation of public policy. 
 On the contrary, it would be unjust and unreasonable, and would be 
 repugnant to the soundest principles of fair dealing and of the free- 
 dom of contracting, and thus in conflict with public policy, if a ship- 
 per should be allowed to reap the benefit of the contract if there is 
 no loss, and to repudiate it in case of loss." 
 
 The statutory liability, aside from responsibility for the default 
 of a connecting carrier in the route, is not beyond the liability imposed 
 by the common law as that body of law applicable to carriers has 
 been interpreted by this court as well as many courts of the States. 
 * * * The exemption forbidden is, as stated in Bernard v. Adams 
 Express Co., 205 Mass. 254, 259, 91 N. E. 325, 327, 28 L. R. A. (N. 
 S.) 293, 18 Ann. Cas. 351, "a statutory declaration that a contract 
 of exemption from liability for negligence is against public piolicy and 
 void." This is no more than this court, as well as other covirts ad- 
 ministering the same general common law, have many times declared. 
 In the same case, just such a stipulation as that here involved was 
 upheld, the court saying: 
 
 "But such a contract as we are considering in this case is not an 
 exemption from liability for negligence in the management of prop- 
 erty, within the meaning of the statute. It is a contract as to what the 
 property is, in reference to its value. The purpose of it is not to 
 change the nature of the undertaking of the common carrier, or limit 
 his obligation in the care and management of that which is entrusted 
 to him. It is to describe and define the subject matter of the contract, 
 so far as the parties care to define it, for the purpose of showing of 
 what value that is which comes into the carrier's possession, and for 
 which he must account in the performance of his duty as a carrier. 
 It is not in any proper sense a contract exempting him from liability 
 for the loss, damage or injuiy to the property, as the shipper describes 
 it in stating its value for the purpose of determining for what the 
 carrier shall be accountable upon his undertaking, and what price the 
 shipper shall pay for the service and for the risk of loss which the 
 carrier assumes." 
 
 In Greenwald v. Barrett, 199 N. Y. 170, 92 N. E. 218, 35 L. R. 
 A. (N. S.) 971, the same conclusion was reached as to the nature of 
 the liability imposed and the purport of the exemption forbidden, the 
 court, among other things, saying: 
 
^"- 11) SPECIAL TYPES OF CONTRACTS 463 
 
 'The langHiage of the enactment does not disclose any intent to 
 abrogate the right of common carriers to regulate their charges for 
 carnage by the value of the goods or to agree with the shipper upon a 
 valuation of the property carried. It has been the uniform practice of 
 transportation companies in this country to make their charges de- 
 pendent upon the value of the property carried and the propriety of 
 this practice and the legality of contracts signed by the shipper agree- 
 ing upon a valuation of the property were distinctly upheld by the 
 Supreme Court of the United States in Hart v. Penn. R. R. Co., 112 
 U. S. 331, 341, 5 Sup. Ct. 151, 28 L. Ed. 717." * * * 
 
 That a carrier rate may be graduated by value and that a stipula- 
 tion limiting recovery to an agreed value made to adjust the rate is 
 recognized by the Interstate Commerce Commission, see In re Re- 
 leased Rates, 13 Interst. Com. Com'n R. 550. 
 
 We therefore reach the conclusion that the provision of the act 
 forbidding exemptions from liability imposed by the act is not violated 
 by the contract here in question. 
 
 The demurrer to the answer of the defendant below should have 
 been overruled. 
 
 For this reason the judgment is reversed, with direction to overrule 
 the demurrer, and for such proceedings as are not inconsistent with 
 this opinion. 
 
 In re CUMMINS AMENDMENT. 
 (Interstate Commerce Commission, 1915. 33 Interst. Com. Com'n R. 682.) 
 
 By thb Commission. For many j^ears, if not, indeed, from the 
 origin of railroad transportation in this country, common carriers by 
 railroad have sought, by provisions in shipping contracts, bills of 
 lading, tariff publications, etc., to limit their common-law liability, 
 not only as insurers against loss or damage to property received by 
 them for transportation, but also as tort-feasors for loss or damage 
 caused by their negligence. * * * 
 
 By adoption of the "Carmack Amendment" (U. S. Comp. St. §§ 
 8604a, 8604aa), so called, to the Act to Regulate Commerce, approved 
 June 29, 1906, the Congress provided that a common carrier receiving 
 property for transportation from a point in one state to a point in an- 
 other state should issue a receipt or bill of lading therefor and be liable 
 to the lawful holder thereof for any loss, damage, or injury to such 
 property caused by it or by any common carrier to which such property 
 might be delivered, or over whose lines such property might pass, and 
 declared that no contract, receipt, rule, or regulation should exempt 
 such common carrier from the liability thereby imposed. It was pro- 
 vided that nothing in that amendment should deprive any holder of 
 such receipt or bill of lading of any remedy or right of action which he 
 had at that time under existing law. 
 
 Since that time, beginning in 1913, with Adams Express Co. v. 
 Croninger, 226 U. S. 491, 33 Sup. Ct. 148, 57 L. Ed. 314, 44 L. R. A. 
 (N. S.) 257, the Supreme Court of the United States has decided in 
 a number of cases, all of which followed Hart v. P. R. R., 112 U. S. 
 331, 5 Sup. Ct. 151, 28 L,. Ed. 717, that where the shipper has his choice 
 of two rates, the higher carrying unlimited carrier's liability, and in "a 
 fair, just, and reasonable agreement" declares or agrees that the value 
 
464 CONTRACTS (Parti 
 
 of his shipment is a certain sum and thereby secures a reduced trans- 
 portation rate, he is bound by that declaration or agreement, estopped 
 from claiming or recovering more than that value in case of loss of or 
 damage to the property, and conclusively presumed to have known 
 the governing tariff. 
 
 On March 4, 1915, * * * the [first] Cummins Amendment was 
 approved. * * * It is perfectly plain that the purpose of this law 
 is, except as otherwise provided therein, to invalidate all limitations 
 of carrier's liability for loss, damage, or injury to property transported 
 caused by the initial carrier or by another carrier to which it may be 
 delivered or which may participate in transporting it. * * * 
 
 The so-called uniform bill of lading, which has been in use in offi- 
 cial and Western Classification territories, contains, and has contained, 
 a provision that claims for loss or damage must be presented to the 
 carrier within four months, but until the Croninger Case, supra, was 
 decided by the Supreme Court, no effort was made by the carriers 
 generally to enforce or to observe that provision. After the Cron- 
 inger Case was decided the carriers adopted an entirely different 
 course and took the position that this provision was in the bill of lad- 
 ing, the terms of the bill of lading were in the rate schedules, and 
 therefore it was unlawful to depart from that requirement. This 
 created a general controversy, and the sudden change from igporing 
 a rule to literally enforcing it necessarily created multitudes of un- 
 just discriminations. The question was presented to and considered 
 by the Commission, and as the fair and only means of composing the 
 situation and avoiding endless controversy and litigation, the Commis- 
 sion issued its report. In the Matter of Bills of Lading, 29 Interst. 
 Com. Com'n R. 417. 
 
 The Cummins Amendment makes it unlawful for the carrier to fix 
 
 a period for giving notice of claims shorter than niiiety days, for the 
 
 filing of claims shorter than four months, and for the institution of 
 
 suits shorter than two years. The law does not indicate the time or 
 
 date from which these several periods of time shall be computed. 
 * * * 
 
 It is to be remembered that the Cummins Amendment is not a sep- 
 arate statute, but is an amendment to the act. It must, therefore, be 
 construed as a part of, and in connection with other portions of the 
 act, and in such a way as to give effect to the whole statute. There 
 does not seem to be any indication of legislative intent to change any 
 provision of the act other than that part known as the Carmack Amend- 
 ment. * * * 
 
 The legislation is aimed at specified contracts and declares them to 
 be unlawful. The lawful rates on file at this time, therefore, are the 
 rates providing for the limited liability. The Cummins Amendment, 
 by making contracts limiting liability for loss caused by the carriers 
 unlawful, does not destroy these rates, but they remain in effect and are 
 lawfully applicable, for the 10 per cent, increased rates are merely 
 additional and can not stand in and of themselves. 
 
 Applying correct rules of interpretation, the Cummins Amendment 
 does not automatically bring into effect the increased rates named in 
 the classifications and tariff publications as applicable to shipments 
 which are not made subject to the terms of the uniform or carrier's 
 bill of lading. 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 465 
 
 May the carriers lawfully provide in their tariffs and rate schedules 
 that their liability shall be for the full value of the property at the time 
 and place of shipment? * * * 
 
 The Cummins Amendment clearly places upon the carriers liability 
 for the full actual loss, damage, or injury to the property transported 
 which is caused by them, and it makes unlawful any limitation of that 
 liability, or of the amount of recovery thereunder, in any receipt, bill 
 of lading, contract, rule, regulation, or tariff filed with this Commis- 
 sion, without respect to the manner or form in which such limitation 
 is sought to be made. The loss or damage must, apparently, be either 
 as of the time and place of shipment, time and place of loss or dam- 
 age, or time and place of destination. Where rates are lawfully de- 
 pendent upon declared values, the property, of which the value of the 
 property may constitute an element, and such classification is neces- 
 sarily as of the time and place of shipment. It is therefore believed 
 tliat the liability of the carrier may be limited to the full value of the 
 property so classified and established as of the time and place of ship- 
 ment. 
 
 Does the amendment to the act apply to export and import shipments 
 to and from foreign countries not adjacent to the United States? 
 
 This must be answered in the negative, in view of the fact that, 
 while specifically stating that its terms shall apply to property received 
 for transportation from certain points to certain other points, it makes 
 no reference to shipments from a point in the United States to a point 
 in a nonadjacent foreign country, or from a nonadjacent foreign 
 country to a point in the United States. 
 
 In the proviso, "that if the goods are hidden from view by wrap- 
 ping, boxing, or other means, and the carrier is not notified as to the 
 character of the goods," what is the proper interpretation to be placed 
 upon the words "and the carrier is not notified as to the character of 
 the goods" ? * * * 
 
 The word "character" as here used clearly relates primarily to value, 
 or to those qualities affecting value, and when the entire proviso is 
 considered the meaning seems to be that if the qualities affecting value 
 of the goods are hidden from the carrier's view, or are not known to 
 the carrier, the proviso applies. * * * 
 
 When the goods are not hidden from view, and the carrier is ad- 
 vised as to their character, all contracts or agreements purporting to 
 limit the liability of the carrier for loss or damage caused by it are 
 made void. A carrier, after the Cummins Amendment goes into effect, 
 may not contract to limit its liability for loss or damage caused by it 
 to the property. There is, however, no inhibition as to the limitation 
 of the liability of a carrier for losses not caused by it or a succeeding 
 carrier to which the property may be delivered. The amendment 
 has expressly reapplied the linlitation of the prior act with respect 
 to loss or damage caused by the carriers chargeable therewith. It 
 follows, therefore, that the interpretation applied to the act before 
 it was amended is equally applicable to the amendment in so far as the 
 latter affects the right of a carrier to establish rates conditional upon 
 the shipper's assumption of the entire risk of loss attributable to 
 causes beyond the carrier's control. From this it follows that under 
 the amendment a contract or a tariff may lawfully limit to a reason- 
 able maximum the liability of a carrier for losses which it does not 
 B.& B.Birs.LAW— 30 
 
466 CONTRACTS (Part 1 
 
 cause. It follows further that the rates provided by such tariff may be 
 proportionate to the risk assumed. 
 
 This provision of the statute as to goods concealed from view and 
 of the character of which the carrier is not advised clearly prescribes 
 the right of carriers under the direction or approval of the Commis- 
 sion to provide for a graduation of rates in accordance with the de- 
 clared value of the property transported. The liability provided by 
 the rates so established by the Commission is applicable no less to 
 instances of loss or damage chargeable to the negligence of the carrier 
 than to those occasioned by causes beyond the carrier's control. But 
 the carriers may not contract to limit their liability for loss, damage, 
 or injury caused by them to property the character of which is mani- 
 fested by the shipment itself or otherwise disclosed. 
 
 In this connection it has been suggested that the carrier might pro- 
 ,vide that in the event the shipper refused to declare the value the 
 higher rates would apply. This suggestion cannot be approved. If 
 the rate is lawfully conditioned upon the value as declared by the 
 shipper, it is as much the shipper's duty to declare the true value of 
 the shipment as it is his duty to declare the name of a commodity 
 tendered for shipment as to which there are no different rates. 
 
 It is important to keep ,in mind that the carriers are not prohibited 
 from making different rates dependent upon the value of different 
 grades of a given commodity ; that, except as covered by the Cummins 
 amendment ; and that if, in any instance, the shipper declares the value 
 to be less than the true value in order to get a lower rate than that 
 to which he would otherwise be entitled, he violates, and is subject to 
 the penalty prescribed in, section 10 of the act. The carrier would 
 also be subject to the same penalty in such a case if,' having knowledge 
 that the value represented is not the true value, it nevertheless accepts 
 the shipper's representation as to value for the purpose of applying 
 the rate. 
 
 Do the terms of the Cummins Amendment apply to the transpor- 
 tation of baggage? This must apparently be answered in the affirma- 
 tive. Transportation of baggage is a part of the contract for trans- 
 portation of the passenger. * * * 
 
 The necessity for revision of the bills of lading, live stock contracts, 
 and other similar contracts of carriage, as well as of certain parts of the 
 carriers' classifications and rate schedules, is manifest. * * * 
 
 If, in a proper manner and a proper proceeding, it shall be made to 
 appear that, with regard to any commodity or commodities, the exist- 
 ing rates do not afford the carriers proper compensation for the serv- 
 ices they perform and the risk which is imposed upon them, it could 
 hardly be denied that the rates on such commodities might properly 
 be increased in a sufficient amount to properly compensate the car- 
 riers for their added risk and liability.- Where rates are lawfully based 
 upon declared values the difference in rates should be no more than 
 fairly and reasonably represents the added insurance. * * * 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 46T 
 
 SECTION 4.— THE CONTRACT OF PLEDGE 
 
 HATyL V. PAGE. 
 (Supreme Court of Georgia, 1848. 4 Ga. 428, 48 Am. Dec. 235.) 
 
 NiSBET, J. It appears by the record, that the defendant, acting as 
 agent for the plaintiff below, sold certain goods for his principal, and 
 at the same time a small amount of goods of his own; and took in 
 payment for the whole, a note upon six months' time. The plaintiff 
 brought trover for the note. * * * 
 
 On the day that the goods were delivered to the defendant, the plain- 
 tiff received from him two notes, as collateral security, for the pay- 
 ment of the price of them. One of these notes, one hundred and thirty- 
 five dollars in amount, was paid to him. The payment was after this 
 suit w^s commenced, and subsequent to the service of a process of gar- 
 nishment upon the plaintiff, sued out at the instance of other creditors 
 of the defendant. Upon the motion for a new trial, it was claimed that 
 the verdict was erroneous, in this : That this sum of one hundred and 
 thirty-five dollars was not allowed as a credit to the defendant. The 
 court, upon this point, ruled "that by the evidence this sum was held 
 subject to summons of garnishment at the instance of Hall's (the de- 
 fendant's) creditors. It is very certain that either Hall or his creditors 
 haA'e a right to that money. Both cannot have it, and Page (the plain- 
 tiff) cannot be delayed in his suit until the controversy between Hall 
 and his creditors shall be ended. The jury, therefore, properly refused 
 to abate Page's damages for that sum." The opinion of the court thus 
 expressed, is excepted to. We cannot assent to the doctrine, that 
 collateral securities, pledged bona fide for the payment of a debt with- 
 out any trust reserved, belongs to the pledgor or his creditors; that 
 is to say, that they belong to him or them, in any sense, which will 
 defeat the pledgee's right to them, or which is the same thing, to 
 money raised on them as security for his debt. That right is para- 
 mount to the rights of other creditors, and is good against the pledgor 
 himself, until the debt is paid. The pendency of a garnishment makes 
 no difference. The pendency of this suit assumes that the debt is 
 due. If this action can be sustained — if that assumption be true — 
 upon the trial, it was competent for the court to appropriate the money 
 received on the collaterals, to the plaintiff, and of course to credit the 
 defendant. It ought to have been so appropriated. There was no ne- 
 cessity to await an issue on the garnishment. The court, on the trial , 
 of this suit, had jurisdiction of the matter. It did, in fact, exercise 
 that jurisdicton by determining that this money belonged to the de- 
 fendant or his creditors. If it belonged to the defendant, it was 
 pledged to pay this very debt. The creditors of the defendant had no 
 rights in it, until the pledgee is paid. There could, therefore, be no 
 controversy about it, between the defendant and the creditors, until 
 the debt of the plaintiff is paid. But the debt, by the record, is not 
 paid. The very question is: Shall it be now paid, to the extent of 
 the money in hand? The plaintiff is not delayed at all. He is ex- 
 pedited; ,for a judgment that this money be allowed/as a credit to the 
 defendant, is an instantaneous payment to him. An appropriation in 
 this way to the plaintiff would protect him on the trial of the garnish- 
 
468 CONTRACTS (Part 1 
 
 merit. Whether appropriated or not, his rights in this money are para- 
 mount to those of the garnishing creditors. There is nothing in this 
 record, it may be proper to remark, which impeaches the fairness of 
 this pledge. It is not obnoxious to the act of 1818, or any other law 
 of the state. Upon the traverse of the plaintiff's answer to the gar- 
 nishment (he answering truly, as this record discloses the facts), I ap- 
 prehend that thp garnishing creditors could not get a judgment against 
 the plaintiff, until they had first proven that his debt was paid. In 
 that event, it is true, these collaterals and this money would belong 
 to the defendant or his creditors. But only in that event. 
 
 We examine this doctrine a little. We say that the deposit of these 
 notes in the hands of the plaintiff, as collateral security for this debt, 
 is a pawn or pledge. A pledge is a bailment of personal property as 
 security for some debt or engagement. Story on Bailm. § 286. Or- 
 dinarily goods and chattels are the subject of pledges; but money, 
 debts, negotiable instruments, choses in action, etc., may by the com- 
 mon law be delivered in pledge. * * * 
 
 What are the rights of the pledgee in the thing pledged generally? 
 In virtue of the pawn, he acquires a special property in the thing, and 
 is entitled to the exclusive possession of it, during the time, and for 
 the objects for which it is pledged. The right of possession is exclu- 
 sive — that is, it is good against all the world, for the purpose for 
 which it is pledged — in this case, that purpose is the payment of a 
 debt. For that purpose, the right to the thing is perfect. It yields to 
 no other right which did not attach upon it, in the shape of a lien, prior 
 pledge, or some claim existing prior to the pledge, and good in law. 
 It is perfect against the pledgor. For if he wrongfully get posses- 
 sion, a suit in favor of the pawnee will lie against him for the thing, 
 or for damages. He can bring an action for it, also against a stranger, 
 or an action against the stranger for damages. * * * 
 
 He has also a right to sell the pledge, where there has been a de- 
 fault in the pledgor ; if there is no stipulated time when the debt shall 
 be paid, the pawnee may sell upon demand and notice. * * * jje 
 may file a bill in equity for foreclosure and sale, or upon demand and 
 notice proceed to sell, ex mero motu, at his election. * * * These 
 are the principal rights of the pawnee. What, specially, are the rights 
 of the pawnee of negotiable securities? He may recover and receive 
 the money due thereon; he may bring suit upon them in his own 
 name. * * * ' He may sell them, and if he sells to a bona fide 
 purchaser, the latter acquires an absolute property, if he buys without 
 notice. * * * 
 
 •_ It is not necessary to pursue this subject in detail. The pawnee 
 is entitled to receive the money due on his collateral securities, and 
 to hold it against his pawner and all the world, until he is paid. When 
 a pledge is made for the benefit of the pledgee and a third person, 
 who is also a creditor, and the fund raised is insufficient to pay both^ 
 the pledgee, being a creditor in possession, is entitled to preference. 
 * * * If this is true as to other creditors, when there is a stipula- 
 tion in their behalf, a fortiori, it is true as to creditors generally, as 
 to whom there is no stipulation. The rights of the holder of negotia- 
 ble instruments as collateral securities, in them, were considered by 
 this court in the case of Bond v. Central Bank, 2 Ga. 106, and in Gib- 
 son V. Conner, 3 Ga. 52, 53. In the latter cast we say : "The trans- 
 ferror parts with, and the transferee acquires, the legal title to the 
 
Cll- 11) SPECIAL TYPES OF CONTRACTS 469 
 
 negotiable paper thus transferred — the latter may sue on it in his own 
 name, and although the original debt is not extinguished, the creditor 
 has the right to apply the proceeds of the securities, when realized, to 
 its extinction — nay, he is bound to do it, and whatever he does realize 
 on them is a payment pro tanto." If it be the right of the pledgee 
 to apply money collected on the securities, it is the right of the pledgor 
 to consider money thus in hand as a payment. If such is the law of the 
 case, he (the defendant) is entitled, the case being made, to have it 
 so declared, and to have a credit on the original debt. This the court 
 ought to do, if for no other reason than to avoid litigation. As before 
 stated, the court had jurisdiction, in this case, of this subject-matter, 
 and we think it erred in not ruling that this money was by law to be 
 appropriated to the plaintiff's debt, and as a consequence, that the 
 defendant was entitled to a credit for the amount of it. 
 Upon these grounds we remand the case. 
 
 SECTION 5.— THE CONTRACT OF SURETYSHIP 
 
 A surety is one who is under contract to pay the debt of another. 
 The contract assumes various forms. At the time of a sale of 
 goods by C. to D., S. may promise to pay if D. does not. Or D. 
 may give his note for the purchase price to C, S. signing as in- 
 dorser, or S. may sign as a joint maker with D. In all these cases, 
 if S. assumed his obligation to enable D. to obtain credit with C, 
 S. is a surety for D., the principal debtor. The liability of S. to C. 
 is not identical in the three cases supposed, for in one case he has 
 assumed a collateral or secondary obligation on a simple contract, 
 in another he is secondarily liable on a negotiable instrument, and 
 in the last case he is primarily liable on a negotiable instrument. 
 But in many respects S. sustains the same relation to C. and D. in 
 all three cases, as well as in other cases where the contract of 
 suretyship assumes other forms. 
 
 The law of suretyship, or of principal and surety, is usually 
 treated as a branch of the law separate and distinct from the gen- 
 eral law of contracts. However, the relation of S. to C. and D. 
 is contractual, and accordingly these general principles of the 
 law of contract are applicable. In addition, we find that a number 
 of principles of law developed by courts of equity materially affect 
 the legal relations of the parties. We are here interested in noting, 
 very briefly, indeed, some of the more important rights of the 
 surety. Looking at the subject from the standpoint of the law of 
 contracts, the problem in the main is to ascertain the terms of the 
 contract. As will appear, some of the most important terms and 
 conditions in the contract of suretyship are implied, either in fact 
 or in law. 
 
470 CONTRACTS (Part 1 
 
 BOATMEN'S SAVINGS BANK v. JOHNSON et al. 
 (St. liOuis Court ol Appeals, Missouri, 1887. 24 Mo. App. 316.) 
 
 Thompson, J. The single question presented by this record is 
 whether an indorser or surety is released by a composition agreement 
 between the holder of the obligation and the maker, acceptor, or other 
 principal debtor, which composition, in express terms, reserves every 
 right and remedy which the holder, or obligee, has against other per- 
 sons. The question must be answered, upon authority, that such agree- 
 ment does not discharge the indorser or surety. 
 
 Two principles are universally conceded in respect of the rights 
 of sureties, and are not disputed by the parties to this proceeding : (1) 
 That a valid agreement between a creditor and his principal debtor, 
 whereby the creditor, in consideration of the payment of a part of the 
 debt, discharges the principal debtor, will, without more, operate to 
 discharge a surety. (2) That an agreement between a creditor and 
 his principal debtor, whereby the creditor agrees, for a consideration, 
 to extend the time of payment, will, without more, operate to dis- 
 charge a surety. But it is an exception to the former of these rules, 
 equally well settled, that such an agreement will not operate to dis- 
 charge a surety where the agreement itself contains an express reser- 
 vation of the remedies of the creditor against sureties, or against all 
 persons other than the principal debtor, who may be liable. * * * 
 
 It is an equally well-settled exception to the second of these rules that 
 such an agreement will not operate to discharge a surety, where the 
 agreement itself contains an express reservation of the remedies of 
 the creditor against sureties, or against all persons other than the 
 principal debtor who may be liable. * * * These two exceptions 
 to the two rules above stated rest upon the same principle. They are 
 grounded upon the principle that, where a contract expressly reserves 
 the remedy of the creditor against other persons (which includes sure- 
 ties), the sureties are in no way prejudiced by the agreement. By 
 entering into such an agreement, the principal debtor impliedly consents 
 that whatever remedies his sureties have against him shall remain 
 open to them. They are thereafter at liberty to pay the debt at once, 
 and proceed immediately against their principal f of reimbursement. 
 An examination of many decisions shows that the principles which 
 support these two exceptions to the respective rules above stated are 
 precisely the same. Courts adopt the same mode of reasoning in the 
 two cases, and cite interchangeably decisions where the agreement was ' 
 for a discharge of the principal debtor, and where it was merely for 
 an extension of time to him. 
 
 This principle has been applied in a number of cases where the 
 agreement was merely that the creditor would not sue the principal 
 debtor within a stated period of time. * * * jj^ ^j^ggg caggg, where 
 there is a reservation of the remedies of the creditor against all other 
 persons, or against sureties, the reasons upon which the courts refuse 
 to discharge the sureties, are twofold: (1) The reason above stated,' 
 that the agreement in no way prejudices the surety as to any remedy 
 which he may have against his principal. (2) The additional reason 
 that a covenant not to sue cannot be pleaded in bar of an action, in 
 case it is brought in violation of the covenant, the courts proceeding 
 upon the refinement that such a covenant affords merely the ground of 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 471 
 
 an action for damages. This distinction was noticed by our Supreme 
 Court in Rucker v. Robinson, 38 Mo. 154, 90 Am. Dec. 412. 
 
 Whether it is well or ill founded, we need not now consider. As- 
 suming that it is well founded, the defendant's position is not helped, 
 because, in the cases where the agreement was merely an agreement 
 not to sue, the courts have universally rested their decisions as well 
 upon the reason that the sureties were not prejudiced by the agreement, 
 and hence not discharged, as upon the reason that the agreement did 
 not prevent the creditor from suing the principal debtor at any time. 
 An examination of numerous cases convinces us that, with one or 
 two isolated exceptions, they afford no ground for raising the distinc- 
 tion, which has been attempted in this case, between agreements not 
 to sue and agreements to discharge the principal debtor entirely, re- 
 serving rights against all other persons. * * * 
 
 We find, then, that the exception to the general rule, which sup- 
 ports the plaintiff's claim in this case, has been thoroughly settled in 
 England, and in this country, by the most authoritative courts; and 
 as we have no jurisdiction to change the law, we must hold that the 
 circuit court erred in the view that the defendant was not liable, and 
 in nonsuiting the plaintiff. * * * 
 
 The judgment will be reversed, and the case remanded. * * * 
 
 UTTERSON V. ELMORE et al. 
 (Sprinsfield Court of Appeals, Missouri, 1911. 154 Mo. App. 646, 136 S. W. 9.) 
 
 Gray, J. This is a suit brought by the plaintiff against D. R. El- 
 more & Son, and Sam Jones and M. Beckman, for $321.71. In July, 
 1908, the plaintiff made a contract with said Elmore & Son to build a 
 residence for him. At the time the contract was made, a bond was 
 executed by the contractors to the plaintiff, with the defendant Jones 
 and Beckman as sureties, in the sum of $1,000, for the completion of 
 the building according to plans and specifications. The contractors 
 failed to complete the building -according to the contract or the plans 
 and specifications, and also failed to pay bills for material, so that the 
 plaintiff, in addition to the contract price, was compelled to pay 
 the above sum. 
 
 This suit was instituted against the contractors and the sureties. 
 The cause was tried before the court without a jury, resulting in a 
 judgment in favor of the plaintiff and against the contractors for 
 $259.45, but in favor of the sureties. The plaintiff appealed from 
 that judgment to this court, and the only question for decision here 
 is whether the trial court was right in excusing the sureties on the 
 bond. 
 
 The written contract for the completion of the building, entered 
 into between the plaintiff and the contractors, expressly authorized 
 changes in the work and in the plans and specifications. The bond, 
 however, was conditioned for the performance of the contract, but 
 read as follows : "If the said D. R. Elmore & Son shall duly perform 
 said contract by completing the building as described by the plans and 
 specifications and deliver it up free from liens or claims then this 
 obligation shall be void." The contract provided the work should be 
 done within a specified time and a penalty of a certain amount per 
 day was added for the failure so to do. The plans and specifications 
 
472 CONTRACTS (Part 1 
 
 made no provision for any changes, and contained no clause requiring 
 the work to be done within a specified time, or a penalty for failure 
 to do so. The sureties claim that without their consent the plaintiff 
 and the contractors made alterations and changes in the building, and 
 on account thereof they were released. 
 
 The only testimony relating to the changes .was given by the plain- 
 tiff. He testified that the doors were made six inches larger than 
 called for in the plans, and he paid the contractors therefor $2.50; 
 that another change was made in a door, and he paid therefor ^0 
 cents; that a change was made in the way of attaching rafters, re- 
 sulting in extra plastering, amounting. to $17.75; that a change was 
 made in the balcony, by leaving out one window and moving one, and 
 that he paid the contractors extra therefor the sum of $18; that shin- 
 gles were substituted for ridge poles at the extra expense of $2.25. 
 He also testified to a number of other changes made under an agree- 
 ment between himself and the contractors without the consent of the 
 sureties, but that said changes in no wise increased the cost of the 
 building. 
 
 Had the bond been conditioned that the contractors should con- 
 struct the building according to the contract, then the changes made 
 under an agreement between the plaintiff and the contractors would 
 not release the sureties. The contract expressly provided that chang- 
 es might be made, and where the contract so reads and the bond .is 
 conditioned for its faithful performance, then the surety is liable, not- 
 withstanding the changes. * * * The bond in this case does not 
 provide for the completion of the contract by the contractors in 
 all its details. It simply provides for the completion of the contract 
 "by corhpleting the building as described by the plans and specifica- 
 tions." 
 
 It must be accepted as the settled law of this state that there is no 
 implied obligation on the part of a surety that he has undertaken more 
 or other than that expressed in his contract, and it is only to the ex- 
 tent and in the manner and under the circumstances pointed out that 
 he is bound. * * * It is also well settled that any substantial 
 change made in the contract by the principal and the contractor, with- 
 out the consent of the surety, will release the latter regardless wheth- 
 er the alterations were injurious or beneficial to the surety. * * * 
 
 In this case the sureties' undertaking, when strictly construed, only 
 required the performance of the contract to the extent of complet- 
 ing the building according to the plans and specifications. Their liabil- 
 ity, therefore, is not to be measured by obligations requiring the com- 
 pletion of the building according to a contract in which are provisions 
 for changes and alterations. * * * 
 
 The second count of plaintiff's petition is based upon the fact that 
 the contractors did not complete the building within the time specified 
 in the contract. The contract provided liquidated damages of $3 per 
 day for each day the work remained incomplete after the time specified 
 for its completion in the contract. At the beginning of the trial the 
 defendants objected to the introduction of testimony on said count, for 
 the reason that it did not state a cause of action against the sureties. 
 The court sustained the objection as to the sureties, and plaintiff ac- 
 quiesced in such ruling by making no point thereon in his motion for 
 new trial. 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 473 
 
 As we have stated, the condition of the bond was not for the full 
 performance of the contract in every particular, and therefore the 
 sureties were not liable for the failure to perform that part of the 
 contract. This part of the opinion is written solely for the purpose 
 of illustrating the other issue in the case. Inasmuch as the bond is 
 not conditioned for the performance of all the terms of the cqntract, 
 the liability of the sureties must be limited to the parts of the contract 
 mentioned and described in the bond, to wit, by completing the build- 
 ing as described by the plans and specifications. 
 
 The contention of appellant is that the changes were so immaterial 
 that they should be ignored. There is much merit in this contention. 
 If we were free from controlling decisions in this state, we might 
 adopt appellant's view. But in Beers v. Wold, 116 Mo. 179, 22 S. 
 W. 620, the contract price for the work was over $31,000. The real 
 expense and cost of changes amounted to a little over $221. The 
 contention was that they were so immaterial that they should be ig- 
 nored. The Supreme Court, speaking through Black, J., said: "Can 
 it be said these changes, taken as a whole, were so small that the 
 law will take no notice of them ? We think not. No case to which we 
 are cited will justify any such conclusion. To a suit to recover the 
 expense brought about by these alterations, it would be no answer to 
 say that they were immaterial. These changes destroyed the identity 
 of the contract, and that is sufficient to discharge the sureties." This 
 case is in point, and we are bound by it. 
 
 In addition to the changes heretofore enumerated and which were 
 made at an increased cost, there were numerous changes made by 
 agreement between the plaintiff and the contractors. Some of them in 
 no manner affected the actual cost of the building, and a number of 
 them decreased the cost thereof. But when all the alterations are 
 taken together, they substantially changed the contract, and under the 
 rule in this state that the surety has the right to stand on the very 
 letter of his contract, and that any material change in the same, with- 
 out his consent, releases him, we are of the opinion that the trial court 
 did not err in holding the sureties were not liable in this case, and the 
 judgment will be affirmed. * * * > 
 
 BLANCHARD v. BLANCHABD. 
 
 (Court of Appeals of New York, 3911. 201 N. Y. 134, 94 N. E. 630, 
 37 L. K. A. [N. S.] 783.) 
 
 Action by Esther F. Blanchard, as administratrix of the estate of 
 Flint Blanchard, deceased, against Amos F. Blanchard. Appeal by 
 defendant from judgment in favor of plaintiff. 
 
 Collin, J. The defendant on May 12, 1900, made his negotiable 
 promissory note for $1,100.15, payable with interest to the order of 
 Flint Blanchard and to mature August 12, 1900. Flint Blanchard 
 indorsed it for the accommodation of the defendant, who then deliv- 
 ered it to and received thereupon from Daniel Griswold the sum of 
 $1,100.15. Flint Blanchard on July 9, 1900,' waived demand of pay- 
 ment and notice of the nonpayment thereof. The defendant made no 
 payment upon the note. Flint Blanchard made two small payments 
 thereon, and after his death, February 17, 1906, and plaintiff's appoint- 
 ment, March 5, 1906, plaintiff paid February 19, 1907, to Griswold 
 upon his demand $1,101.50, the amount unpaid thereon; the statute 
 
474 CONTEACTS (Part 1 
 
 of limitations being then invocable by the defendant, but not by the 
 plaintiff, because the 18 months next succeeding the death of Flint 
 Blanchard were not a part of the time limited for the cominencement 
 of ■ an action upon his indorsement against his administratrix. Code 
 Civ. Proc. § 403. The action, commenced October 8, 1907, rests upon 
 the payment of moneys for the use of the defendant and the contract, 
 implied by law, of the defendant to repay them. The defendant's 
 counsel takes the position that the making, indorsement, and delivery 
 of the note created an express contract between the defendant and 
 Flint Blanchard, which was not annulled or changed through the pay- 
 ments to Griswold, the existence of which prohibits or bars an im- 
 plication, and plaintiff is confined to an action upon the note, to which 
 the statute of limitations is a perfect defense, and that the conse- 
 quent loss of plaintiff is the result of the failure of her intestate and 
 herself to take up and sue the note within the six years from Au- 
 gust 12, 1906. 
 
 The doctrine of implied contract is firmly placed in our system of 
 jurisprudence. With whatever reason or logic it and the legal fic- 
 tion which it in part, at least, is may be characterized as a mythical 
 creation or an usurpation, it is too inveterate and useful to be eithei 
 shattered or discarded; nor are we called upon to justify its exist- 
 ence by writing of the beneficial part it has worked in the historical 
 development of the taw. The law is practical and has as a purpose 
 to adjudge, through just and general principles and continuity, the ac- 
 tual disputes growing out of the conduct and transactions of those 
 under its jurisdiction. If it is not in all respects logical and conform- 
 able to pure reason, no more are the conduct and transactions which 
 are the causes of those disputes. 
 
 This action is ex contractu and has no support other than a con- 
 tract to be by the law implied from the facts and conditions estab- 
 lished herein. In case the law refuses to declare the contract, the 
 action fails. The note of the defendant must be eHminated as the 
 basis of a recovery. Under the facts, does the law imply a contract 
 on the part of the defendant to pay the plaintiff the amounts paid by 
 herself and her intestate by reason of his indorsement? 
 
 Those payments were not voluntary. As to Griswold, the indorse- 
 ment was the agreement of Flint that on due presentment the note 
 should be paid according to its tenor, and that, if it were dishonored 
 and the necessary proceedings on dishonor were duly taken he would 
 pay the amount thereof to the holder, * * * which at the time of 
 the payments had become certain and obUgatory. * * * 
 
 The relation_ as to the debt between the defendant and Flint, in 
 so far as it is involved in this action, was that of principal and sure- 
 ty. * * * The defendant, when he procured the indorsement, im- 
 pliedly engaged that he would indemnify Flint and reimburse him in 
 case he was not compelled to pay. This engagement was not created 
 by the note. * * * The failure of the defendant to pay the note 
 did not constitute a cause of action in favor of Flint against the de- 
 fendant, but a payment by Flint did. A cause of action accrued when 
 he paid, and the statute of limitations then began to run. Each of 
 the payments made by FHnt or the plaintiff was within the six years 
 next before the commencement of the suit, and was not barred by the 
 statute of limitations. * * * 
 
 The judgment should be affirmed, with costs. 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 475 
 
 GIESEKE V. JOHNSON., 
 , (Supreme Court of Indiana, 1888. 115 Ind. 308, 17 N. E. 573.) 
 
 ZoLLARS, J. J. H. Gieseke and appellee executed a promissory 
 note to the First National Bank of Vincennes in which was a stipula- 
 tion for the payment of attorney's fees for collection. 
 
 Although not shown upon the face of the note, appellee was surety 
 for Giesekp. Before the maturity of the note Gieseke died, and ap- 
 pellant was appointed administrator of his estate. After the maturity 
 of the note appellee paid it, but paid no attorney's fees. Subsequent- 
 ly he filed his claim against the estate of Gieseke, stating therein the 
 amount thus paid, setting out a copy of the note, and claiming attor- 
 ney's fees for its collection. The court below allowed the claim, and 
 included in its judgment $15 as such attorney's fees. 
 
 Is appellee entitled to recover such attorney's fees? That is the 
 only question for decision here. 
 
 We are satisfied that he is not. One sufficient reason why he is not 
 is that he is entitled to recover" the amount paid to the bank, with in- 
 terest, and no more. His right of action is for indemnity only, and 
 rests upon an implied promise on the part of the principal. Hence it 
 is that a surety cannot maintain an action against his principal until 
 he has paid something, and then only for the amount paid, with in- 
 terest. In this state the rate of such interest is regulated by statute. 
 * * * 
 
 By the terms of the note the makers agreed to pay to the bank rea- 
 sonable attorney's fees for its collection; but the principal maker of 
 the note did not thereby agree to pay to appellee, as his surety, such 
 attorney's fees, nor any other amount. As already stated, the rights 
 of the surety and the obligation of the principal, as between them- 
 selves, in a case like this, rests upon an implied promise on the part 
 of the principal maker which arises under the law for the indemnity 
 of the surety. 
 
 The action by appellee, the surety, against the principal maker, is 
 not upon the note, but upon the implied promise of indemnity. And 
 hence it is that his right of action is not limited by the statute of lim- 
 itations applicable to the note, but by the statute of limitations applica- 
 ble to accounts and contracts not in writing, which, in this state, is 
 six years. * * * 
 
 Upon any view that may be taken of the case, the attorney's fee 
 should not have been allowed, and to that extent the judgment is too 
 large. * * * 
 
 BINGHAM V. MEIABS et al. 
 
 (Supreme Court of North Dakota, 1894. 4 N. D. 437, 61 N. W. 808, 
 27 L. R. A. 257.) , 
 
 Corliss, J. The defendants were sureties on an undertaking given 
 on appeal to this court from a judgment. Their only defense to this 
 action against thefn on the undertaking is that the principal on whose 
 behalf they signed the undertaking assigned to the plaintiff, as col- 
 lateral to the claim on which such judgment was rendered, certain 
 promissory notes secured by real estate mortgages, and that such col- 
 lateral security is suificient to pay such judgment and all expenses; 
 that they have notified the plaintiff that he must resort to such coUater- 
 
476 CONTRACTS (Part 1 
 
 al to collect his claim, but that he has failed to do so. Under the cir- 
 cumstances of this case, these facts do not constitute a defense. The 
 general rule is that the surety has no right to insist that the creditor 
 shall first proceed against the principal debtor, or any security which 
 such debtor may have given him. Upon default the surety may at once 
 be sued. 1 Brandt, Sur. § 97. It is true that in cases characterized by 
 exceptional features, equity may compel the creditor to resort first to 
 the property of the principal debtor where this will occasion no in- 
 convenience or delay to the creditor. * * * But the facts of this 
 litigation do not call for the application of this rule. * * * 
 [Judgment for plaintiff affirmed.] 
 
 ^ On Rehearing, 1895. 
 
 The earnestness with which counsel for defendants have pressed 
 upon us their application for rehearing constrains us to go more fully 
 into the discussion of the exceedingly interesting question presented on 
 this appeal. In their main features, the English common law and the 
 Roman civil law differed radically from each other touching the right 
 of the surety to require the creditor to proceed against the principal 
 debtor or the security coercing payment by the surety. In the earlier 
 period of Roman jurisprudence, the right of the surety to compel the 
 creditors to resort first to the principal to collect his demand appears 
 to have been well established;, but the rule was gradually departed 
 from. Justinian, however, restored it, and from his time the doctrine 
 was universally recognized throughout the empire. It has been in- 
 corporated in the jurisprudence of many of the nations of Europe. 
 * * * But it never secured a footing in England. There the con- 
 trary doctrine has prevailed from the earliest times. The common- 
 law rule is that the surety must pay and seek reimbursement from the 
 principal or out of the securities the latter has given the creditor. This 
 was always the rule in courts of law. But in equity and in bankruptcy 
 proceedings a rule somewhat analogous to that of the civil law grew 
 up. This rule, however, was less sweeping in its effects upon the 
 creditor than the rule promulgated by Justinian. It more carefully 
 guarded his rights from prejudice. The English law regarded the 
 promise of the surety as am absolute promise, unless it was in terms 
 conditional. The surety was under the same obligation as the princi- 
 pal to pay the debt. The courts of law therefore ignored the equities 
 between the principal and the surety when the creditor was seeking 
 to collect his claim of the latter. 
 
 In equity, also, the promise of the surety was looked upon as an 
 unconditional promise ; but equity, unlike the law, would not under all 
 circumstances, refuse to consider the rights of the surety in his rela- 
 tion to the principal ; and whenever a case arose, special in its charac- 
 ter, calling for the aid of equity to protect the surety from injury, that 
 court, true to its traditions and its fundamental principles, extended 
 relief to the surety, whenever it could do so without, on the other hand, 
 affecting the right of the creditor to the payment of his debt according 
 to the terms of his contract. But in all such cases equity required that 
 the creditor should be saved from delay, from expense, and from all 
 risk. * * * When the object of the surety's appeal to equity was to 
 compel the creditor to exhaust the collaterals in his hands before pro- 
 ceeding against the surety, the foundation of equitable relief was the 
 inability of the surety himself to enforce such collateral after paying 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 477 
 
 the debt, or the possibility that the creditor by some act had impaired 
 its value or destroyed its legality. The mere fact that the creditor 
 held security for the debt did not entitle the surety to appeal to equity 
 for a decree that the creditor look first to such security for his pay. 
 In such a case the surety could protect himself by paying the claim, 
 and being subrogated to the creditor's rights to the security. But if, 
 after payment by him, he could not enforce such security, or if grave 
 doubt existed as to its legality because of some act of the creditor with 
 respect to it, then a special case was presented, necessitating the in- 
 terference of equity to prevent injustice to the surety. * * * 
 
 The general rule that some peculiar equity must exist in favor of 
 the surety — that the case must be an exceptional one to entitle the 
 surety to relief — applies as fully when the surety is seeking to compel 
 the creditor to first sue the principal as when he is insisting that the 
 creditor shall first exhaust the security he holds. These rules of the 
 common law constitute the law of this state, so far as they have not 
 been changed by statute. We will shortly come to that subject. Now, 
 it is obvious that defendants' answer discloses no special equity in 
 their favor. The security which they ask' the court to compel the 
 creditor to exhaust they can secure absolute control of by themselves 
 paying the claim they owe. As between the creditor to whom a debt 
 is owing and the surety who owes it, equity very properly declares that 
 the creditor ought not to be compelled to enforce, for the benefit of the 
 surety, the security he holds, but that the surety himself should pay the 
 debt, and enforce such security for his own benefit. * * * 
 
 The rehearing is denied. The judgment is affirmed. All concur. 
 
 FREW V. SCOULAR. 
 
 (Supreme Court of Nebraska, 1917. 101 Keb. 131, 162 N. W. 496, 
 L. R. A. 1917F, 1065.) 
 
 Rose, J. This is an action for contribution between sureties. 
 * * * The bond matured May 15, 1894, and was secured by a mort- 
 gage on land in Scotland, where all the parties resided except de- 
 fendant, a resident of Nebraska. * * * It is alleged further that 
 the laws of Scotland do not bar an action on the bond for 40 years. 
 The suit is brought against George Scoular to compel contribution 
 in the sum of $2,999, his alleged liability as one of three solvent sure- 
 ties. Defendant pleaded that he signed the bond in Nebraska, that he 
 was then, and has since been, a resident thereof, and that the action 
 is barred here by the statute of limitations^a five-year period. * * * 
 
 Should defendant's plea of the statute of limitations be sustained? 
 The question may be stated thus: May a surety in whose favor the 
 Statute of limitations has not run, who has done nothing to suspend 
 its operation and who has been compelled to pay the debt of his prin- 
 cipal, exact contribution from a cosurety in another state, though un- 
 der the laws thereof the creditor's claim against the latter was barred 
 when the principal's debt was paid? While the decisions appear to 
 be in conflict, the better reason and the weight of authority seem to 
 support the rule requiring contribution. * * * 
 
 In Camp v. Bostwick, 20 Ohio St. 337, 5 A^n. Rep. 669, it was con- 
 tended, as in the present case, that, since the statute of limitations had 
 barred an action by the creditor against the defendant before the plain- 
 tiff paid the debt, defendant received no benefit from such payment and 
 
478 CONTRACTS (Part 1 
 
 ■vvas not liable for contribution. In answer to this argument the court 
 said : 
 
 "If the right of a cosurety to claim contribution rested upon the 
 doctrine of subi-ogation to the rights of the creditor, the proposition 
 might be true. The doctrine of subrogation has its origin in the re- 
 lation of principal and surety, whereby a surety who' pays the debt 
 of his principal, is in equity, substituted in the place of the creditor, 
 and is entitled to all the rights which the creditor may have against his 
 principal. But the doctrine of contribution has its origin in the re- 
 lation of cosureties or other joint promisors in the same degree of 
 obligation. It is not founded upon the contract of suretyship. * * * 
 It is an equity which springs up at the time the relation of cosureties 
 is entered into, and ripens into a cause of action when one surety pays 
 more than his proportion of the debt. * * * From this relation 
 the common law implies a promise to contribute in case of unequal 
 payments by cosureties. But equity resorts to no such fiction. It 
 equalizes burdens and recognizes and enforces the reasonable expec- 
 tations of cosureties because it is just and right in good morals, and 
 not because of any supposed promise between them. This equity, hav- 
 ing once arisen between cosureties, this reasonable expectation that 
 each will bear his share of the burden is, as it were a vested right in 
 each, and remains for his protection until he is released from all his 
 liability in excess of his ratable share of the burden. Neither the 
 creditor, the principal, the statute of limitations, nor the death of a 
 party, can take it away." * * * 
 
 The question is not whether the statute of limitations runs against 
 a surety's c^aim for contribution, but when does the cause of action 
 for contribution accrue ? Ordinarily the statute of limitations does not 
 commence to run until the cause of action accrues. The right of a 
 surety to contribution does not arise until he has paid more than his 
 proportion of the debt or until his liability has been determined by 
 judgment. * * * 
 
 "In considering the questions involved, it should be borne in mind 
 that this is an action for contribution. Contribution does not rest 
 upon contract, but on the broad equitable principle that equality is 
 equity. Justice and fair dealing demand that where one or more par- 
 ties sign the same obligation and become equally obligated in pre- 
 <;isely the 'same degree thereby, and stand upon the same footing as 
 to their liabilities thereunder, one of the number shall not be com- 
 pelled to assume thfe whole burden for his associates, but may compel 
 them to share equally with him any loss that may occur as the result 
 of their joint liability. In actions for contribution, therefore, the 
 principle seems now to be well established that parol evidence is ad- 
 missible to show the true relations existing between the several par- 
 ties bound by a written obligation. * * * Such evidence is not of- 
 fered to contradict or vary the contract contained in the writing, but 
 simply to show the actual relations subsisting between the joint mak- 
 ers of the note and the real nature of the contract between them. Such 
 facts are not a part of the contract and do not affect its terms, but are 
 wholly collateral to it. To support his claim for contribution, there- 
 fore, the plaintiff clearly' had the right to show his true relations to 
 the note, and this without regard to the knowledge of the defendant " 
 Bulkeley v. House, 62 Conn. 459, 26 Atl. 352, 21 L,. R. A. 247. 
 
 If defendant was not one of the sureties, he is nol^ liable for con- 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 479 
 
 tribution. The trial court therefore erred in excluding evidence on 
 this issue. 
 
 It follows that the judgment is reversed, and the cause remanded 
 for further proceedings. 
 
 ASSETS REALIZATION OO. v. AMERICAN BONDING CO. OF 
 BALTIMORE et al. 
 
 (Supreme Court of Ohio, 391 3. 88 Ohio St. 216. 102 N. E. 719, 
 Ann. Cas. 1915A, 1194.) 
 
 Newman, J. * * * It is well settled that, where one of two or 
 more sureties for the same obligation has paid more than his share of 
 the debt, he is entitled to contribution from his co-sureties to reim- 
 burse him for the excess paid over his share in order to equalize the 
 common burden. Numerous authorities have been cited in support 
 of this proposition, but it is to be observed that they speak of a com- 
 mon burden, and it is where parties are bound to discharge a common 
 obligation that they are to be treated as cosureties. It is uniformly 
 held, as we understand it, that the relation of cosuretyship exists only 
 where there is a right of contribution. In the case under considera- 
 tion this right is wanting. Not one of the bonding companies was 
 bound to equalize the loss with the others in case of default. When 
 one company paid its portion of the loss (the portion fixed by its bond), 
 no claim arose in its favor against any of the other companies and no 
 further demand could be made against it. Its obligation was fully dis- 
 charged and the liability terminated. 
 
 Our attention has been directed to many cases and we shall refer 
 briefly to a few of them bearing upon the question under considera- 
 tion. * * * 
 
 In B. & O. R. Co. V. Walker, 45 Ohio St. 588, 16 N. E. 481, the 
 court quotes from 2 Wait's Actions & Def . 288, as follows : "The doc- 
 trine of contribution rests upon the broad principle of justice that, 
 where one has discharged a debt or obligation which others were equal- 
 ly bound with him to discharge and thus removed a common burden, 
 the others who have received a benefit ought in conscience to refund 
 to him a ratable proportion. It depends rather upon principles of 
 equity than upon contract." 
 
 It seems, then, that the test of cosuretyship is, as stated by counsel, 
 common liability upon the same obligation. In the case at hand there 
 was no common liability. Each surety by its bond obligated itself for 
 a fixed portion of the debt. The authorities uniformly hold that the 
 doctrine of contribution has its origin in the relation of cosureties and 
 is not founded upon the contract of suretyship; that it is an equity 
 which springs up at the time the relation of cosureties is entered into 
 and ripens into a cause of action when one surety pays more than his 
 portion of the debt. It equaUzes burdens and recognizes and enforces 
 the reasonable expectations of cosureties, because it is just and right 
 in good morals, and not because of any supposed promise between 
 them. This equity having once arisen between cosureties, this reason- 
 able expectation that each will bear his share of the burden is, as it 
 were a vested right in each and remains for his protection until he is 
 released of all his liability in excess of his ratable share of the bur- 
 den. * * * 
 
480 CONTRACTS (Part 1 
 
 The bonding companies in this case did not obligate themselves to 
 discharge the whole debt of the depositary in case of default but an 
 aliquot part thereof. There was no common burden to discharge. 
 Therefore there was no such thing as equalizing the discharge. There 
 was no such thing as one of the companies performing the duty of all 
 the companies or the payment of the whole debt ; but, to repeat, when 
 one of the companies paid its portion, that was a termination of its 
 liability, and no right arose in its favor against any of the other com- 
 panies. * * * 
 
 "WASCO COUNTX V. NEW ENGLAND EQUITABLE INS. CO et al. 
 
 (Supreme Court of Oregon, 1918. 88 Or. 465, 172 Pac. 126, L. E. A. 1918D, 
 732, Ann. Ca.s. 1918E, 656.) 
 
 Action by the County of Wasco against the New England Equitable 
 Insurance Company and others, wherein the named defendant and the 
 French & Co. Bank were interpleaded. From a decree in favor of the 
 bank, the named defendant appeals; 
 
 Wasco county brought this suit in interpleader so that the court could 
 decide whether the sum of $920 held by the county should be paid to 
 the New England Equitable Insurance Company, a corporation, here- 
 inafter referred to as the bank. 
 
 On June 14, 1915, Henry Cromer entered into a contract to con- 
 struct a certain highway for the county. A bond, signed by the con- 
 tractor as principal and the insurance company as surety, was delivered 
 to the county, as required by chapter 142, Laws 1913, and was filed 
 in the ofSce of the county clerk on June 17, 1915. The contract, obli- 
 gated the contractor, as required by statute, to pay all persons supply- 
 ing labor or material for the prosecution of the work, chapter 61, 
 Eaws 1913. The written contract also provided that " * * * the 
 partial payments under this contract and the final payment thereon 
 shall be as provided by" chapter 142, Laws 1913. The bond was given 
 to secure the performance of the contract and payment to all persons 
 supplying labor or material for the prosecution of the work provided 
 for in the contract. Cromer entered upon tlie performance of the con- 
 tract and constructed a portion of the highway. Monthly estimates 
 were made of the work done by Cromer, and the county paid him 
 75 per cent, of the amount earned, as shown by such estimates, and 
 retained the remaining 25 per cent., as stipulated by the written con- 
 tract between Cromer and the county and as required by chapter 142, 
 Laws 1913, then in force. Cromer continued in the performance of 
 his contract until about September 10, 1915, when he was obliged to 
 quit because his equipment had been attached by creditors. A volun- 
 tary petition in bankruptcy was filed by Cromer on October 7, 1915, 
 and he was subsequently adjudged a bankrupt. Negotiations between 
 the county and the insurance company resulted in an agreement, on 
 October 25, 1915, terminating the contract with Cromer and releasing 
 the insurance company from its obligation to complete the highway 
 upon payment by it of all the outstanding labor and material claims 
 against the contractor. The insurance company paid claims made 
 against Cromer, and approved by him, totaling $3,907.22. 
 
 On August 5, 1915, the bank loaned $200 to Cromer and took his 
 promissory note for that amount, and at the same time Cromer signed 
 and delivered to the bank an order, directing the county to " * * * 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 481 
 
 pay to French & Co., bankers, all money due on August estimate for 
 work done on the J. T. Harper road contract. Please also pay all 
 retained percentage upon completion of contract." T^he order was 
 presented to the county and filed in the office of the county clerk on 
 August 6, 1915. Cromer borrowed an additional $800 from the bank 
 on August 11, 1915, upon his note for that amount. Cromer "got this 
 money from French & Co. on the representations that it was to pay 
 bills for labor and material for the construction of the road." The 
 money loaned to the contractor upon the two notes was placed to his 
 credit in the bank, and was checked out by him for labor performed up- 
 on and material furnished for the road. When the $200 note was given, 
 it was understood between the bank and Cromer that he was "to have 
 $800 more" ; and the order upon the county "was given to reimburse 
 them (the bank) for the money gotten on both of these notes." When 
 Cromer discontinued work the county had in its hands the sum of $920 
 which it had retained out of the monthly estimates made during the 
 progress of the work. The complaint filed by the county was accom- 
 panied with a tender of $920 to the clerk of tiie court. The insurance 
 company and the bank each answered, and each asserted the right to 
 receive the money. The decree of the court was for the bank and the 
 insurance company appealed. 
 
 Harris, j. * * * The question for decisions is whether the 
 insurance company or the bank is entitled to receive the $920 which 
 the county had reserved from the monthly estimates. The insurance 
 company resorts to the doctrine of subrogation to support its claim, 
 while the bank contends that countervailing equities .preclude the ap- 
 plication of the rule of subrogation. Subrogation is hot a matter of 
 strict right, nor does it necessarily rest on contract, but it is purely eq- 
 uitable in its nature; and, since it is a creature of equity, it will not 
 be enforced where it will work injustice to the rights of those having 
 equal equities. * * * In Spencer on Suretyship, § 133, the au- 
 thor says: "The right of subrogation may be generally described -as 
 the equity by which a person who is secondarily liable for a debt and 
 has paid the same is put in the place of the creditor so as to entitle 
 him to make use of all the securities and remedies possessed by the 
 creditor, in order to enforce the right of exoneration or indemnifica- 
 tion as against the principal debtor." 
 
 A clear enunciation of the nature of subrogation appears in the much- 
 quoted opinion delivered by Chancellor Johnson in Gadsden v. Brown, 
 Speers' Eq. (S. C.) 3^, where it is said that : "The doctrine of subro- 
 gation is a pure unmixed equity, having its foundation in the princi- 
 ples of natural justice, and from its very nature never could have been 
 intended for the relief of those who were in a condition in which they 
 were at liberty to elect whether they would or would not be bound; 
 and, as far as I have been enabled to learn its history, it never has been 
 so applied. If one with the perfect knowledge of the facts will part 
 with his money, or bind himself by his contract, in a sufficient con- 
 sideration, any rule of law which would restore him his money or 
 absolve him from his contract, would subvert the rules of social or- 
 der. It has been directed in its application exclusively to the relief 
 of those that were already bound, who could not but choose to abide 
 the penalty. Sureties, for example, who have before become bound 
 are amongst the especial objects of its care. Thus, if a surety pays 
 B.& B.Btrs.l4AW— 31 
 
482 CONTRACTS (Part 1 
 
 the debt of his principal, he is entitled to stand in the place of the 
 creditor, and to have the benefit of all securities, fiinds, liens, and eq- 
 uities, to which the creditor was entitled." 
 
 While in some of its phases the doctrine of subrogation seems to 
 have been expanded in recent years, it is not now necessary, nor would 
 it be proper in the instant case, to attempt to fix the exact limits of 
 its application, but it is sufficient to say that, as between the insurance 
 company, the contractor, and the county, the surety is in a position to 
 claim the benefits of subrogation because it has paid debts due to third 
 persons, and when paying such debts it acted on compulsion and not 
 as a mere volunteer. * * * 
 
 The fact that the insurance company is a compensated surety does 
 not affect its right to claim the benefits of subrogation. It is true 
 that the rule of strictissimi juris, which is generally available to those 
 who are sureties without compensation, is usually relaxed when ap- 
 plied to a paid surety. In this jurisdiction the rule is that a hired 
 surety must show that his rights have been injuriously affected before 
 he can defeat his contract of suretyship. * * * ^ court of eq- 
 uity grants the right of subrogation because the surety has paid the 
 debt of the principal, and the right of subrogation is not dependent 
 upon whether the surety was or was not paid to sign the bond. It 
 is enough that the surety was obliged to pay and did pay the debt. 
 
 The bank relies upon the rule that subrogation will not be allowed 
 where it will work injustice to the rights of those havmg equal equities. 
 * * * The bank contends that the written order signed by Cromer, 
 directing the county to pay to the bank all money due on the August 
 estimate and "all retained percentage," operated as an equitable as- 
 signment of the fund, and entitles the bank to be paid in full out of 
 the fund to the exclusion of the surety and all general creditors of 
 the contractor. * * * T^g money which Cromer borrowed from 
 the bank was actually used to pay for labor and material furnished 
 during the prosecution of the work ; and the bank contends that the 
 surety received the benefit of the bank's money, and that therefore 
 it would be inequitable to permit the surety to be subrogated to the 
 rights of the county, and thus permit the surety to reap where the bank 
 has sown. All parties would probably concede that the insurance com- 
 pany would be entitled to claim the benefits of subrogation in the ab- 
 sence of the bank, and hence the question for decision is whether the 
 written order, plus the fact that the money which was loaned upon 
 the faith of the written order was actually used to pay for labor per- 
 formed upon and material furnished for the work, wrought such an 
 equitable assignment of the fund as to preclude the surety from claim- 
 mg the benefits of subrogation. The inquiry naturally involves an 
 examination of the relative rights of the parties to the fund and a 
 consideration of the fundamental reasons upon which those rights are 
 based. 
 
 By his written contract Cromer agreed to pay all claims for labor 
 and material furnished during the prosecution of the work, and also 
 to complete the road. By its bond the surety obligated itself to pay 
 all labor and material claims not paid by Cromer, and to complete the 
 contract if Cromer did not. The law required this bond to be given, 
 and directed that it should contain these provisions. The written con- 
 
Ch. 11) SPECIAL TYPES OF CONTRACTS 483 
 
 tract also provided for monthly estimates of the work, and that 75 
 per cent, of the amount earned each month should be paid to Cromer, 
 while the remaining 25 per cent, should be retained by the county 
 "until the completion and acceptance of said work" ; and the law also 
 required this provision to be written into the contract. Chapter 142, 
 Laws 1913. Since the bank was bound to know the law, it is deemed 
 to have known that the contract with Cromer provided that 25 per 
 cent, of each monthly estimate should be reserved by the county, that 
 a bond was given, and that the bond obligated the surety to pay all 
 claims for labor and material. Moreover, the bank did in truth know 
 that the county had retained, and would continue to retain, a percentage 
 of each monthly estimate because the very language of the written 
 order imports such knowledge. It must be remembered, too, that the 
 money in controversy includes nothing but the 25 per cent, reserved 
 out of the monthly estimates. 
 
 The percentage reserved by the county out of each monthly esti- 
 mate served to secure the county against any loss it might sustain 
 on account of the nonperformance of the contract ; and when Cromer 
 abandoned his contract the county had a right to hold this fund to 
 secure itself against any damages that might have resulted from a 
 nonperformance of the contract by Cromer. * * * The right of 
 the county to retain a specified percentage dates from the time the con- 
 tract was entered into, and it must be conceded that, until the claims 
 for labor and material are paid, the county's right to the fund is su- 
 perior to that of the bank, claiming by an equitable assignment from 
 the contractor. , , 
 
 When the insurance company fulfilled its obligations and paid the 
 debts incurred by Cromer for labor and material, it was entitled to 
 call upon a court of equity and be subrogated to the rights which the 
 county could have asserted against the fund. * * * The fight of 
 subrogation dates back to the time when the insurance company en- 
 tered into the contract of suretyship. * * * jf j-he right of the 
 county to hold and to apply the moneys is superior to the claim of the 
 bank, and if by paying the claims for labor and material the surety 
 is subrogated to the right of the county, as of the date of the con- 
 tract of suretyship, it necessarily and inevitably follows that the right 
 asserted by the surety is superior to the claim made by the bank. 
 * * * 
 
 When the bank loaned its money it knew that before Cromer en- 
 tered upon the performance of his contract he had given a bond 
 signed by a surety, and that the law required the county to reserve 25 
 per cent, of each monthly estimate. From the date of the contract 
 of suretyship the bank was bound to know that the insurance com- 
 pany had an equity in the funds to be reserved; and when the bank 
 loaned its money it did something that it was not obUged to do, and it 
 must be deemed to have acted with a full knowledge of the right 
 of the surety. The contractor and the bank could not create a Ken in 
 favor of the bank upon the reserved fund and make it paramount to 
 a prior and then existing lien of the surety. * * * 
 
 It follows that the insurance company is entitled to be subrogated 
 to the right of the county. The decree of the circuit court is reversed, 
 and a decree will be entered, awarding the $920 to the insurance com- 
 pany. * * * 
 
PART II 
 AGENCY 
 
 Chapter 
 
 Introduction. 
 I. Source and Scope of the Agent's Power. 
 II. Relations of the Principal and Third Persons. 
 III. Termination of the Relation. 
 IV. Relations of the Principal and Agent. 
 V. Relations of the Agent and Third Persons. 
 
 INTRODUCTION 
 
 The law of agency deals with the problems which arise out of the 
 business relationship of employer and employee. The terms "em- 
 ployer" and "employee" are used loosely to describe various rela- 
 tionships, some of which are differently constituted, have different' 
 objects, and produce different results. To illustrate: (1) One 
 may employ a laborer to mow one's lawn, a chauffeur to care for 
 one's automobile, or a delivery boy to deliver goods. (2) One 
 may employ a landscape gardener to lay out a garden, an operator 
 of a garage to keep and repair a car, or a transfer company to 
 move household goods. (3) A. may employ B. to purchase goods 
 for him from C, or to act as a general manager of his store. (4) 
 Or one may employ a telegraph company to deliver a message to 
 another, containing an offer to buy goods from the person to whom 
 the message was sent. All of these situations have some elements 
 in common. In general, they may all be called relationships of em- 
 ployer and employee, but in some respects there are differences. 
 
 Employments listed under groups (1) and (2) possess this com- 
 mon aspect: That in none of them is it likely that the perform- 
 ance of the assigned duties will result in bringing the employer 
 into new contractual relations with any third party. But there 
 is this important difference between the cases referred to in (1) and 
 (2) : In the first class of cases the employer possesses the right 
 to direct the manner of executing the work to a greater extent 
 than is true in cases of the second class. A. has a greater measure 
 of control over his own personal chauffeur than he does over the 
 driver of a Yellow taxicab. This difference in the facts produces 
 different legal results. For example, the owner of the car will be 
 liable for torts committed by his chauffeur while acting within the 
 course of his employment, but the employer will not, as a general 
 rule, be liable for the torts committed by the driver of the taxicab. 
 The relation of employer and employee which falls within the first 
 group is more narrowly designated as that of master and servant, 
 while in the second group the relation is that of employer and in- 
 dependent contractor. 
 
 B.& B.Btjs.Law (484) 
 
INTRODUCTION 485 
 
 Employments falling within classes (3) and (4) have this in 
 common : The act of the employer may result in creating new con- 
 tractual relations between the employer and the employee. In 
 this respect employments in groups (3) and (4) differ from the em- 
 ployments in groups (1) and (2). Employments in groups (3) 
 and (4) are dissimilar, in that in group (3) the employer has the 
 right to control the employee's manner of performing his duty to a 
 much greater extent than he does in the case referred to in group 
 (4). Accordingly, employments in group (3) produce the relation- 
 ship of principal and agent. No special terms are used to describe 
 the relationship between the parties to the type of contract set 
 forth in group (4). The telegraph company could be called an 
 independent contractor and the sendor of the message the em- 
 ployer. 
 
 It is not to be inferred that we have one set of legal principles 
 applicable to masters and servants and another set of principles 
 applicable to employers and independent contractors. Many doc- 
 trines apply equally to both relations. But in the master and serv- 
 ant relationship the parties are in a fiduciary relation, which creates 
 duties not present in the other cases. So, also, with respect to the 
 relation of principal and agent, as compared with other employ- 
 ments, such as that of a telegraph company to transmit and de- 
 liver a telegram, many rules of law are alike applicable to both; 
 but, again, there is a fiduciary relation between the principal and 
 agent, which is the basis for rights and duties not found in the 
 other^^case. Also the employee's dealings with the third parties will 
 not produce the same legal consequences. 
 
 The cases in the following five chapters do not deal with the two 
 kinds of relations which have been described as those of employer 
 and independent contractor. Indeed, there is no necessity for so 
 doing, because all we have here is a simple contract between two 
 persons, of whom one has agreed to perform personal services in 
 return for some consideration from the other party — usually mon- 
 ey. The law of contracts governs the formation of the contract, 
 fixes its rights and duties, defines what constitutes a breach, etc. 
 In other words, it is merely one type of a simple contract, and ac- 
 cordingly is governed by the law of simple contracts. 
 
 The cases in the following chapters in Part II deal with the re- 
 lations of principal and agent and master and servant. These two 
 relations have this important element in common: There is a 
 fiduciary relation between the parties; that is, the employer, 
 whether he has employed another to mow his lawn or to go out and 
 buy goods for him, has necessarily reposed in the employee a cer- 
 tain trust and confidence. He has intrusted him with the perform- 
 ance of certain acts. Obviously this very fact will operate as. a 
 source of correlative rights and duties, which are not expressly 
 agreed upon by the parties, but imposed upon them by law. 
 Perhaps' many of such rights and duties may properly be regard- 
 ed as originating in mutual promises implied in fact, but at any 
 
486 AGENCY (Part 2 
 
 rate many of them are not made the subject of actual discussion 
 by the parties. There is no particular necessity or advantage in 
 attempting to distinguish between the relations of master arid 
 servant and those of principal and agent. In fact, it is doubtful 
 whether a real distinction in legal effect can be drawn. It is some- 
 times said that a servant does not make contracts, but performs 
 menial work, while an agent makes contracts for his principal, and 
 is therefore on a more dignified plane. This would place architects, 
 engineers, and others similarly employed, as regards many of their 
 duties, on a lower plane than that occupied by the waiter in the 
 restaurant, who is the medium through which his employer makes 
 contracts with the patrons of the cafe. 
 
 The use of the expressions "master and servant" and "principal 
 and agent" is often convenient, but any attempted distinctions of 
 this sort, when drawn for the purpose of discovering or produc- 
 ing different legal effects from specified acts, is largely unprofita- 
 ble. There is a difference, of course, in employing one to spade 
 one's garden and employing another to buy goods for one on cred- 
 it. So, also, is there a difference between pine trees and mahogany 
 trees. But both kinds of trees are used in the manufacture of furni- 
 ture, and when the trees or the furniture are sold the resulting con- 
 tracts are governed by the same rules of law. The rights, duties, 
 and powers of the bell boy are fixed by the same principles that 
 define the like relations of the general manager to the corpoi^ation 
 which employs him and to third parties with whom he comes in 
 contact. 
 
 Coming now, more specifically, to the questions with which we 
 shall be concerned in the following chapters, it is apparent that 
 we have three sets of relations with which to deal: (1) The re- 
 lations between the employer and third parties, which come into 
 existence as a result of the employment; (2) the relations be- 
 tween the employer and the employee; and (3) the relations be- 
 tween the employee and third persons, with whom he has come in 
 contact because of his employment. 
 
 When will an act done by the employee, whether called an agent 
 or a servant, bring into existence correlative rights and duties be- 
 tween the employer and third persons? Where the employee is 
 hired to spade the garden, the chance of his having any dealings 
 with third parties is not great ; but it is possible that he may over- 
 turn the sod on a neighbor's lot. If he does so, by accident or oth- 
 erwise, will his employer be liable? Stated broadly, under what 
 circumstances may an employee render his employer liable for torts 
 committed by him? Again, when the employer has sent his em- 
 ployee out to sell or buy goods for him, under what circumstances 
 will the act of the employee result in a contract between the em- 
 ployer and the third party? This is the question raised in Chap- 
 ter I; that is, in this chapter we shall be seeking for the rules 
 of law which indicate the source and extent of an agent's power 
 to bind his principal on a contract. 
 
INTRODUCTION 487 
 
 The cases in this topic contain a great deal of discussion as to 
 the agent's authority. This is not the entire question. A contract 
 between the principal and third party will result from an act of the 
 agent when, and only when, the agent possessed power to enter 
 into it. Authority is one source of power, but it is not the only 
 source. Authority is the power which the principal, either express- 
 ly or by implication of fact, confers upon the agent. But some- 
 times the law provides that an agent will possess power to bind his 
 principal, not only when the principal did not in fact confer au- 
 thority upon the agent to do the specific act, but actually instruct- 
 ed him not to do so. The terminology which one meets in this line 
 of cases tends to complicate the problem, and tends to exaggerate 
 the difficulty in the real situation. The courts discuss express au- 
 thority, implied authority, apparent authority, ostensible authority, 
 incidental authority, authority by necessity, authority arising from 
 custom and usage, and authority arising from estoppel. Some- 
 times the term "power" is used interchangeably with the term 
 "authority." It seems preferable to use the word "power" to de- 
 scribe the agent's relation to his principal, whenever by his own 
 voluntary act he may create, alter, or extinguish his principal's 
 relation to a third party. The term is broad enough, therefore, to 
 describe the creation, modification, or extinguishment of contract 
 relations between the principal and a third party, and also it will 
 include the imposition of a legal liability upon the principal arising 
 from the commission of some torts by the agent. 
 
 There are only two real sources of power: (1) The power 
 which arises from the principal's consent; and (2) the power 
 which arises by operation of law, in the absence of the principal's 
 consent. Consent, of course, does not necessarily mean actual 
 mental consent. The law looks for facts. When discovered, if to 
 the court it appears that the facts justify the inference that the 
 principal gave consent, the power is said to exist in the agent. 
 Express power would be based upon the actual words spoken or 
 written by the principal to the agent. Implied power would be 
 based, not on language, but on conduct. Wlien P. employs A. 
 to act as general manager of his store, it is. often said that A. is 
 thereby given apparent authority to do what general managers of 
 similar stores are accustomed to do. This is true. But this ap- 
 parent authority is real power. It is not absolutely necessary to 
 employ, the word "apparent." By appointing A. as a general man- 
 ager, P. confers power upon A., the source of which is the consent 
 of P., and the limits of the power are fixed by resort to custom and 
 usage. P. knows these usages, or, if in fact he does not know 
 them, justice demands that his rights and duties be fixed just as if 
 he were aware of their existence. 
 
 To put the matter in another way, the extent of the agent's pow- 
 er will be ascertained by a process of interpreting the words, "A., 
 I appoint you as general manager of my store." This will be ac- 
 complished by resort to custom and usage, to the conduct of the 
 
488 AGENCY (Part 2 
 
 principal and the agent, and to the course of dealing between them. 
 Incidental authority and authority arising from necessity, upon 
 analysis, will usually appear to rest upon the consent of the prin- 
 cipal; the nature and extent of such authority being fixed by a 
 similar process of interpretation of the words or the conduct by 
 the principal and the agent. 
 
 The term "ostensible authority" is frequently used as synony- 
 mous with "estoppel." An estoppel is a rule of law which, when 
 applied, prevents a person from telling the truth. Usually, of 
 course, one's rights and duties should be fixed only after a discov- 
 ery and a utilization of the truth. But sometimes, if all truth were 
 taken into consideration, injustice would result. If P. says to A., 
 "Act as general manager of my store, but do not buy goods on 
 credit from X.," and A. accepts and buys goods on the credit of 
 P. from X., there will be many cases where P. would be estopped 
 from stating that he did not confer power on A. to enter in{o such 
 a contract. With reference to the source and scope of authority, 
 the principal point to note is that, whatever terms may be used in 
 describing the situation, an agent's power originates and is bound- 
 ed by the consent of the principal, or it originates without his con- 
 sent, even in actual opposition to his intention, solely because the 
 law deems it just to do so. The most important series of problems, 
 therefore, is to determine the circumstances uiftier which con- 
 tractual rights and duties will be created between the principal and 
 a third party, by reason of the act of the agent. The first three 
 chapters deal with various phases of this problem. 
 
 Two problems remain : (1) That which concerns itself with the 
 relations between the principal and agent; (2) that which deals 
 with the relations between the agent and third persons. In both 
 we are dealing with rights and duties which arise from contract, 
 and which arise by operation of law in the absence of contract. 
 The relation between principal and agent is largely contractual, 
 but may exist where many of the important features of an ordinary 
 contract are wanting. The relation of principal and agent' has 
 been defined as follows: 
 
 "Agency is a consensual relationship in which one (the agent) 
 holds in trust for and subject to the control of another (the princi- 
 pal) a power to affect certain legal relations of that other." ^ 
 
 'The relations between the agent and third party will usually be 
 those which are imposed by the law, irrespective of contract ; but, 
 in some instances, there will result true contractual relations be- 
 tween the agent and third party with whom he has dealt. 
 
 1 Professor Warren A. Seavey, The Rationale of Agency, 29 Tale Law 
 Journal, 859 (1920). 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENT'S POWER 489 
 
 CHAPTER I 
 SOURCE AND SCOPE OF THE AGENT'S POWER 
 
 Section 
 
 1. Powers Arising from Express, Implied, and Incidental Authority, Neces- 
 
 sity and Estoppel, Considered Generally. 
 
 2. Illustrations. 
 
 SECTION 1.— POWERS ARISING FROM EXPRESS, 
 IMPLIED, AND INCIDENTAL AUTHORITY 
 NECESSITY AND ESTOPPEL, CON- 
 SIDERED GENERALLY 
 
 ST. LOUIS GUNNING ADVERTISING CO. v. WAJNAMAKER & BROWN. 
 (St. Louis Court of Appeals, Jlissouri, 1905. 115 Mo. App. 2T8, 90 S. W. 737.) 
 
 Action by the St. Louis Gunning Advertising Company against 
 Wanamaker & Brown. From a judgment in favor of plaintiff, de- 
 fendant appeals. 
 
 GooDE, J. This is an action to recover rentals alleged to be due for 
 six months' advertising on billboards at different stations in the city 
 of St. Louis. Both plaintiff and defendant are incorporated com- 
 panies, the former engaged in business in the city of St. Louis and 
 the latter in Philadelphia. The advertisements were ordered by a 
 written contract signed: "Wanamaker & Brown, A. Lurie, Selling 
 Agent." The defense is that Lurie had no authority to bind the de- 
 fendant. Plaintiff relies on both an original authority to Lurie, and, 
 in default of such authority, ratification by the defendant. The ad- 
 vertisements were painted and displayed at the different stations in 
 accordance with the contract, and the aggregate rentals of $.S0 a 
 month, for six months, were earned. Lurie formerly represented the 
 defendant, a merchant tailor, in Kansas City. He opened a store of 
 the same sort at Tenth and Olive streets, in St. Louis, in the early 
 part of 1903, under an arrangement by which he was to bear the rent 
 and other expenses. The defendant furnished Lurie with some $600 
 worth of goods for display purposes and samples; he giving a bond 
 to indemnify defendant against loss from having furnished tjie goods. 
 Lurie took orders for men's clothing, and the suits were manufac- 
 tured in Philadelphia and shipped from there to St. Louis for deliv- 
 ery to customers. He was charged for clothing shipped to him, wheth- 
 er accepted or rejected by the customer, arid his profit was the differ- 
 ence between the price he paid and what he got. He was carried on 
 the books of the company as an agent, and the stationery used by him 
 ran in the name of Wanamaker & Brown. 
 
 A sign hung above the store containing the name of Wanamaker 
 & Brown ; but there is a dispute as to whether the words "A. Lurie, 
 Selling Agent," were on it. Defendant knew the sign, whichever way 
 it read, was there, as it had a photograph of the store showing the 
 sign. Lurie was entirely in charge of the St. Louis business and gave 
 the order to the plaintiff for the advertisements which constitute the 
 subject-matter of this action. The order was given July 16, 1903, 
 and on November 20, 1903, before the expiration of the term for 
 
490 AGENCY ^ (Part 2 
 
 which the signs were ordered, and when three months' rent was due, 
 plaintiff wrote to Wanamaker & Brown in Philadelphia, stating that 
 Lurie, as defendant's representative had ordered the bulletin board 
 advertisements for six months, what rent was due, and that he had 
 not made payment, but, in excuse, said Ke had received no check from 
 the home office. In the letter plaintiff requested the defendant to take 
 the matter up, and have at least a partial payment made. The de- 
 fendant wrote to Lurie on the subject, protesting against the expense, 
 but did not write the plaintiff in answer to its letter, though an an- 
 swer was requested. * * . * Defendant wrote Lurie the following 
 letter: "November 25, 1903. Mr. A. Luri'e, St. Louis, Mo.— Dear 
 Sir: We have had so much trouble with the business in St. Louis 
 that we have finally lost all patience and shall discontinue any con- 
 nection forthwith. The last thing to come to our notice is the con- 
 tract made for six months' billboard advertising and the concern has 
 appealed to us for payment. * * * We have placed the settlement 
 of all matters with the attorneys who will hand you this letter. * * * 
 Yours truly, Wanamaker & Brown." * * * 
 
 A verdict for $300 was returned in favor of the plaintiff, and, 
 judgment having been entered on it, the defendant appealed. * * * 
 
 The silence of a principal, after receiving notice that his agent 
 has assumed to bind him by an unauthorized act, may be a fact to 
 be weighed on the issue of whether the principal ratified the act, or 
 may raise a presumption that he ratified it, according to circumstances. 
 If the controversy between the agent and the third party is completed 
 before the principal is notified, so that no detriment can result to the 
 third party from the silence of the principal, his failure to repudiate 
 the act is evidence, to be considered with other facts in the case, that 
 he adopted it as his own or ratified it. * * * But if the transac- 
 tion is still in progress, and the silence of the principal after notice 
 induces the party dealing with the agent to pursue a course which 
 would be detrimental to him, if the principal is not held bound, a rat- 
 ification of the vmauthorized act will be presumed. This result will 
 obtain when the person dealt with is induced to alter in any way his 
 position to his detriment, as by parting with money or property on 
 the assumption that the agent's act was valid, or omitting to take 
 steps against the agent, or otherwise to improve his position. * *■ * 
 An examination of numerous cases has shown that in every instance 
 wherein the presumption of ratification was raised because of a prin- 
 cipal's silence some change in the position of the parties concerned 
 occurred subsequent to notice to the principal which would have re- 
 sulted in injustice to the party dealt with by the agent if the principal 
 had been excused on the score of want of authority in the agent. We 
 cite illustrative decisions on the point. * * * 
 
 The real ground on which the principal is held liable under such 
 circumstances is that of estoppel, though it is often said that the 
 principal ratified what was done by his agent by remaining silent. 
 * * * In its genuine sense ratification depends on intention. It is 
 the voluntary assumption, on full information, of any unauthorized act 
 or agreement by the party in whose behalf it was done or made. The 
 intention to ratify may be manifested by express words or by con- 
 duct. Either may establish that the principal elected to adopt the 
 act or agreement as his own ; and the election once made with knowl- 
 edge of the facts becomes irrevocable. Besides a true ratification in- 
 
Ch. 1) SOURCE AND SCOPE OF THE AGEXT's POWER 491 
 
 tentionally made, the law recognizes a constructive one where none 
 was intended. The latter sort of ratification is a legal presumption, 
 raised against tlie principal because he has behaved in such a way that 
 the party dealt with by the agent would be injured if the transaction 
 was repudiated. It is really an equitable estoppel, and is r^ulated 
 by the law of estoppel. The estoppel may arise from the fact that the 
 principal was silent when he ought to have declared his intention not 
 to be bound by the agent's act, provided, as said above, his silence leads 
 the party dealt with to alter his position for the worse. This is identi- 
 cal with the principles governing estoppel by acquiescence in instances 
 not involving the relation of principal and agent. The question often 
 arises directly between an agent and his principal in cases where the 
 latter tries to hold the former responsible for acting without author- 
 ity. In such litigation, if the principal does not promptly repudiate the 
 transaction, but waits until doing so will cause loss to the agent, or 
 until it appears that the transaction will cause loss, instead of profit, 
 to himself, he will be estopped to deny responsibility. A large class 
 of cases which frequently present the matter for decision is where a 
 broker or commission merchant has bought or sold property for a 
 principal contrary to instructions. In such instances the principal 
 is not permitted to remain silent after notice in order to watch the 
 course of the market and determine whether he will adopt or repudiate 
 the deal according as it may prove profitable or the reverse. * * * 
 In the present case it is certain the advertising to November 20th 
 was not done by plaintiff in reliance on defendant's failure to answer 
 the letter of that date; and hence defendant's silence is not ground 
 to estop it from denying liability for installments of rent which had 
 accrued previously. In other words, the presumption that it ratified 
 the contract Lurie made with plaintiff ought not to be raised merely 
 from its silence when notified of the contract. But it is estopped to 
 disclaim liability for the rent of the bulletin boards accruing subse- 
 quent to the date it had notice. Plaintiff requested a reply to its let- 
 ter, and, in view of the fact that Lurie was conducting business in de- 
 fendant's name, a reply should have been made. In commercial affairs 
 prompt answers to such notifications are rather s|:rictly insisted on by 
 the law. Plaintiff supposed it had a contract with defendant and was 
 furnishing the advertising service on that supposition. Hence the 
 presumption is fair that, if defendant had repudiated the contract, 
 plaintiff would have terminated the service at once. The advertising 
 tended to increase defendant's sales, and was beneficial to it, as well 
 as to Lurie. Therefore defendant was interested in its continuance. 
 * * * 
 
 The proposition is advanced by plaintiff's counsel that the defend- 
 ant is liable because Lurie's contract for advertising fell within the 
 scope of his authority as selling agent, and the trial court should have 
 been directed a verdict for their client on that ground. * * * it 
 must be kept in mind that in what is said concerning the apparent 
 powers pertaining to Lurie as agent we mean such powers or author- 
 ity as would have appeared to belong to him if, in fact, he had been 
 appointed agent by the defendant — such authority as a man would 
 seem to possess if designated as selling or sales agent and placed in 
 charge of a stock of merchandise for the purpose of selling. * * * 
 The facts on which hangs the answer to this question stand undisputed, 
 and are these: The defendant's main business office or establishment 
 
492 AGENCY (Part 2 
 
 is in Philadelphia. The evidence goes to show defendant is a tailor- 
 ing concern of prestige and reputation. It had intrusted Lurie with 
 a considerable stock of goods suitable to be manufactured into men's 
 clothing. He was commissioned to open an establishment in defend- 
 ant's name, in a large city, and procure orders for tailor-made gar- 
 ments by showing the goods in his custody and ostensibly selling cloth 
 off the bolts. The garments were manufactured in defendant's Phila- 
 delphia establishment according to orders and measurements taken by 
 Lurie in St. L,ouis and transmitted, but the impression gathered from 
 the evidence is that this fact was not known to the customers, nor in- 
 tended to be. Lurie was permitted to display defendant's name on 
 signs and stationery, with his own name beneath, and followed by the 
 title "Selling Agent." That the character of his agency was special, 
 and not general, was denoted by his title of selling or sales agent, and 
 as such plaintiff dealt with him. Those are the facts on which the 
 authority in him to make the contract for advertising in defendant's 
 name is affirmed and denied. To the public eye the business Lurie 
 conducted must have appeared to belong to the defendant, and to be 
 a branch establishment under the management of an employe. The 
 title by which that employe was designated signified that he was not a 
 vice principal or general manager, but one appointed to perform a par- 
 ticular duty and therefore of restricted powers, among which the 
 primary power was to make sales. The public had the right to assume 
 he was authorized to sell — to take and fill orders for men's garments ; 
 for that act was within the main purpose of his commission as signi- 
 fied by the title "selling agent." He had no express power to incur 
 expense in defendant's name for advertising, either on bulletin boards 
 or in other modes. This does not mean that he had neither real nor 
 apparent power to do so; but simply that the power was not ex- 
 pressed in the words of his commission. The power was not explicitly 
 conferred. Whether or not it was implicitly conferred, or whether, in 
 view of the character and circumstances of the agency, it appeared to 
 have been conferred, we must determine. 
 
 It has proved difficult, and, we may say, impossible, to reach a con- 
 fident conclusion on these points, which, as will appear below, we 
 deem to converge into a single point when narrowly scrutinized. The 
 books teem with adjudications about what acts of various sorts agents 
 may or may not do beyond the express words of their commissions; 
 but no case very analogous to this one has been found in an exhaustive 
 search for precedent. Therefore we have been compelled to resort to 
 elementary principles and rules. But among the general rules by 
 which the authority of agents is controlled are two that, in their strug- 
 gle for enforcement, conflict in close cases; and which of the two 
 ought to control the decision in this controversy, as likely in many 
 others, is hard to say. One rule seeks to protect principals against 
 wrongful assumptions of authority by agents ; and to do this gives spe- 
 cial weight to the doctrine that a man has the right to extend or to 
 restrict the powers of his agent as his judgment dictates. The other 
 rule seeks to protect the public against losses due to the appearance 
 of power in ^n agent ; and therefore emphasizes the thaxim that where 
 one of two persons, both free from a fraudulent motive, must lose in 
 consequence of the act of one of them, he whose innocent act entailed 
 the loss must bear it. 
 
Ch. 1) SOURCE AND SCOPE OF THE AQBNT's POWER 493 
 
 This principle lies at the root of most of the rules concerning the 
 apparent authority of agents. Story on Agency, § 127, and note. The 
 perplexity in particular cases, and in this one, is to know whether the 
 third party, by failing to inquire as far as prudence demanded con- 
 cerning the agent's authority to" do the contested act, brought about a 
 situation from which the loss must occur, or whether the situation 
 was due to the principal's having unwittingly lent to his agent the 
 semblance of right to do the act. That problem arises when there is 
 no doubt that the authority the agent assumed to have was never in- 
 tentionally conferred on him. But it is by no means always easy to say 
 whether or not the authority for a given act was conferred^ either by 
 design or inadvertence. It is usually plain that it was or was not 
 within the language of the agent's commission ; the language being un- 
 disputed. In the present case it is plain that express authority to 
 advertise was not given; for no authority but to sell was expressed. 
 But it is not, for that reason, plain that Lurie was not authorized to 
 advertise as a measure essential to the performance of the duty to 
 sell; no positive restriction against advertising having been imposed 
 on him. As intimated above, real authority may be implicitly, as well 
 as explicitly, contained in a commission. Hence it is to be ascertained 
 if Lurie was impliedly commissioned to contract for advertising or 
 appeared to be. 
 
 Text-writers are accustomed to enumerate categorically the sources 
 of an agent's authority ; and it will be useful to examine those sources 
 for light on the point in hand. Putting aside authority expressly 
 vested, which Lurie lacked, authority by ratification which has been 
 considered above, and that springing from the right to assume powers 
 to avoid loss in an emergency, which is not germane to the facts, there 
 remain the authority derived from custom or general usage, that de- 
 rived from a principal's conduct in permitting an agent to act outside 
 the scope of his commission as expressed in the language used, and 
 that authority called "incidental," which accompanies express author- 
 ity. One ground of liability on the part of a principal which is akin 
 to, or a corollary of, the two sources of authority last stated, may 
 be found in the following rule recognized by the books : Where a man 
 has' placed an agent in such a position that a person of ordinary pru- 
 dence, conversant with the usages of the business and the nature of the 
 particular business, is led to believe the agent has a certain authority, 
 and, without negligence, deals with him on that assumption, the prin- 
 cipal is estopped to repudiate the agent's act or agreement. * * * 
 
 No proof was adduced in the present case to show what are the cus- 
 tomary powers of agents like Lurie, and we know not that there is 
 a custom attaching any power to them. Neither was there proof that 
 the defendant had recognized contracts made by him in its name, 
 or tolerated a course of business which would entitle the plaintiff to 
 beheve in his right to make the contract in issue. If defendant had 
 done what gave plaintiff the right to presume in favor of Lurie's au- 
 thority, so as to estop it from denying responsibility, it is because his 
 being in charge of an establishment conducted by him as sales agent, 
 in defendant's name, would so naturally raise the belief in a prudent 
 mind that he was authorized to make the agreement in dispute that, 
 according to the law of estoppel, the defendant ought to be held. If 
 defendant is exonerated, it is beciuse the words "selling agent" were 
 
494 AGENCY (Part 2, 
 
 such notice to plaintiff of the limit of Lurie'g authority that it was put 
 on inquiry, and contracted at its peril if it failed to inquire. *• * * 
 
 But, aside from this matter of estqppel, Lurie may have had actual 
 authority for the contract, because to advertise was necessary in order 
 to sell. The law presumes a principal intends to vest an agent with. 
 power to do auxiliary acts which are essential to the discharge of the 
 agency, unless they are forbidden. And even when they are forbidden,, 
 but the party dealt with was unaware of the fact, the same presumption 
 arises. Though all apparent authority is actual authority in legal ef- 
 fect, sometimes it is real as proceeding from the intention of the prin- 
 cipal, and sometimes fictitious as legally presumed. Now, wlxen the 
 validity of an agent's agreement or act is drawn into question and 
 depends on an incidental authority, the rule that he may do all things, 
 necessary to accomplish the purposes of the agency, and the rule that 
 the principal is bound by an estoppel if he has attached such cir- 
 cumstances to the agency as to induce reliance on the agent's power to 
 agree or act in a matter, would seem to converge and be, in effect, only 
 different methods of giving effect to one principle, to wit, that an in- 
 cidental authority must spring from necessity. In other words, third 
 parties will not be held justified in assuming power in a special agent 
 to do a given act as incidental to his agency, unless the act is neces- 
 sary to the execution of the appointment. Does this rule mean that 
 the thing done must have been absolutely indispensable or appropriate, 
 or merely convenient? If it is indispensable, in what respect? In- 
 dispensable in order to start the busiriess of the agency or to make it 
 a success? And who shall decide upon the necessity — ^the court or 
 the jury? Is it an issue of law or of fact? 
 
 As to the first question, we find a diversity of rules, or, at least of 
 statements. It has been declared to be the duty of third persons deal- 
 ing with a.n agent, when the nature of thcvagency is known (i. e., that 
 it is special), to ascertain the extent of the authority the agent may 
 exercise ; and that the principal will not be bound by any act not war^ 
 ranted expressly by, or fairly and necessarily implied from, the terms 
 of the authority delegated. * * * Advertising is an appropriate 
 means for attracting custom and making sales ; and, if the authorities 
 just cited state the rule accurately for special agents, undoubtedly 
 Lurie had the power to incur moderate charges for advertising. But 
 to bind a principal by any contract made by a special agent, which a 
 court or jury may deem appropriate to the purpose of the appointment, 
 would encroach greatly on the doctrine that holding an agent out as, 
 special warns the public to inquire concerning the scope of his au- 
 thority. Much of the protection to principals afforded by that doc- 
 trine would be lost, and lax deaUngs with agents by third parties en- 
 couraged. Under the guise of powers appropriate to the chief duty 
 of an agent, principals could be involved in contracts and enterprises, 
 foreign to their intention, and which they never authorized. It is a 
 reasonable view that a special commission, such as Lurie held, is given, 
 in order to retain in the principal control over the business or trans- 
 action confided to the ,agent, except in so far as the latter is empowered 
 to act either by the terms of his commission or usage or necessity. In 
 our judgment it is best to be conservative in making one person re- 
 sponsible for what another does. Much injustice results daily from 
 unduly extending such responsibility, botli^m cases of principals and. 
 agents and masters and servants. It is true that the business of this. 
 
Ch. 1) SOURCE AND SCOPE OP THE AGENT'S POWEE 495 
 
 age requires manifold agencies unknown to the past ; and true that the 
 transaction of affairs with the celerity demanded by the spirit of the 
 times requires that principals, especially incorporated companies, 
 should be bound by the doings and agreements of their agents more 
 than they formerly were. But it is true, tpo, that the facilities for as- 
 certaining the authority conferred on agents have been vastly increased. 
 Where once a slow mail might be weeks or months in bringing an an- 
 swer to an inquiry, now the railroad or telegraph will bring it in a 
 few hours or minutes. There seems to be no good reason for relax- 
 ing the rules on this subject, whose justice has been proved by long 
 experience. 
 
 The few cases we have found, which treat of the powers of an agent 
 in charge of goods, have justified incurring expense for the principal 
 only when it was absolutely necessary, as opposed to expedient, to do 
 •so, like renting a storeroom or borrowing money to pay freight on the 
 goods so as to get them from a carrier. * * * fj^g word "neces- 
 sary," in common usage, connotes different degrees of necessity. * * * 
 It sometimes means indispensable; at others, needful, requisite, inci- 
 dental or conducive. * * * In its primary sense it signifies a thing 
 or act without which some other thing or act cannot exist or be done. 
 * * * Lurie's authority was special. Now, as Lurie was not given 
 lentire control over the particular business, but only the right to do spe- 
 cific acts (make sales), he was a special agent. * * * Therefore the 
 natural inference is that as to policies and expedients to promote the 
 business, but not indispensable to its successful management, and about 
 the wisdom of which opinions might differ, the defendant intended to 
 reserve the decision to itself; and for that reason gave Lurie a title 
 which denoted restricted authority. Hence our opinion is that the 
 word "necessary," as applied to determine in this case the agent's pow- 
 er to do an incidental act, should be held to mean an act or measure 
 requisite to enable him to discharge his main duty — something more 
 urgently required than is signified by the words "appropriate," "suit- 
 able," or "expedient." It should not be held to mean an act without 
 which the agent could not move at all toward achieving the main ob- 
 ject of the agency ; or without which, at a given stage, efforts to per- 
 form must absolutely cease ; but one requisite for the achievement of 
 it according to the desire and intention of the principal — an act nec- 
 essary in the sense that the main scope and object of the agency must 
 fail unless it is done. We speak, of course, in view of the fact that 
 no usage on the subject is shown. We think an instruction in the pres- 
 ent case defining the word in the sense we have indicated would be 
 correct. The tailoring business can be carried on without extensive 
 advertising on bulletin boards, or otherwise; but advertising is used 
 as a means to increase business in cities where competition is keen. It 
 is a good means to build up custom and sometimes may be necessary, 
 according to the meaning of the word we have pointed out as the 
 proper one to adopt in the present case, though not necessary in the 
 sense that the business is absolutely impracticable without it. * * * 
 
 Text-writers give long schedules of acts which the courts have de- 
 cided agents may do or not as incident to their duty; such as, the 
 incidental powers of cashiers, adjusters of insurance losses, factors, 
 managers of plantations, superintendents of mines, and other kinds of 
 agents. Most of these adjudications turn on usage having vested the 
 agent with the right he exercised. No doubt around many agencies 
 
496 AGENCY (Part 2 
 
 which are of wide and ancient vogue, for in^stance bank cashiers, cus- 
 tom has so firrnly crystallized many acts as incidentally authorized tliat 
 the courts are justified in judicially noticing and enforcing the cus- 
 tom. As said, the existence of the usage is a qtiestion of fact, and its 
 effect on a contested transaction a question of law! * * * 
 
 It appears to accord with\tjie definition of apparent authority com- 
 monly given in text-books that it is such authority as a reasonably 
 prudent man, using diligence and discretion, in view of the principal's 
 conduct, would naturally suppose the agent to possess. Much of the 
 apparent authority of an agent, whether asserted as incidental, or on 
 usage, or on the agent's previous course of dealing rests on the princi- 
 ples of the doctrine of estoppel. The question is rather what third 
 persons had the right to believe concerning the agent's powers than 
 , what powers the principal intended to confer. * * * 
 
 To give effect in the present case to sound principles, we think the 
 jury should be instructed that before they can hold the defendant liable 
 on the ground that Lurie had authority, as an incident of his duties as 
 selling agent, to contract in defendant's, name for advertising, they 
 must find the advertising was reasonable in amount and necessary, in 
 view of all the circumstances in which L,urie was placed, and not mere- 
 ly appropriate or useful, and that, if they so find, the plaintiff was jus- 
 tified in relying on Lurie's apparent authority to contract for it, unless 
 plaintiff had knowledge that he did not possess the authority,, or the 
 facts were such that a prudent man, in the exercise of ordinary dili- 
 gence, would not have relied on his apparent authority. 
 
 The judgment is reversed, and the cause remanded. 
 
 SECTION 2.— ILLUSTRATIONS 
 
 FABEE-MUSSEK CO. v. WILLIAM E. DEB CLAY MFG. CO. 
 (Supreme Court of Illinois, 1920. 291 111. 240, 126 N. E. 186.) 
 
 Carter, J. Appellant, the Faber-Musser Company, a corporation 
 engaged in business at Peoria, 111., brought suit in assumpsit in the 
 circuit court of Sangamon county against appellee, the William E. 
 Dee Clay Manufacturing Company, an Illinois corporation, whose 
 factory is located at Mecca, Ind., to recover $20,000 damages, for failure 
 to deliver fire brick contracted for by appellant from appellee through 
 appellee's agent, Matthew M. Dee. * * * At the close of appel^ 
 lant's case the court gave a peremptory instruction directing a verdict 
 for appellee. * * * The cause is brought here by appeal. 
 
 The evidence shows that appellant is a dealer in building materials 
 and that appellee is a manufacturer of fire brick and clay products. 
 Appellee maintains an office at Springfield, 111. (the only office it has 
 in this state), which is in charge of its agent, Matthew M. Dee. The 
 contract sued on consists of an order and letter attached thereto, bear- 
 ing date May 14, 1917, addressed to appellee and signed by appellant. 
 Opposite the signature of appellant to the order appears : "Accepted 
 — Wm. E. Dee Clay Mfg. Co.* per Matthew M. Dee." The evidence 
 shows that Matthew M. Dee was, and had been for several years, in 
 charge of the office of appellee at Springfield. As we understand the 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENt's POWER 497 
 
 record, the evidence shows that the signs on this office indicated that 
 it was the sales office of appellee. * * * 
 
 , The evidence also tends to show that the Springfield agent of ap- 
 pellee had frequently solicited orders from appellant, but that prior 
 to May 14, 1917, he had been unable to obtain any order ; that on April 
 18, 1917, the appellant wrote a letter to William E. Dee at Spring- 
 field asking him to quote prices on fire brick ; that Matthew M. Dee, 
 the agent then in charge of the Springfield office, complied with the 
 request and quoted prices by a letter written on stationery bearing the 
 printed letter head above set forth, designating the Springfield office as 
 the Western sales office ; that on May 14, 1917, in response to a tele- 
 phone call from appellant, Matthew M. Dee went to Peoria and the 
 order in question was then prepared in duplicate; that on the dupli- 
 cate copy retained by appellant appear the words : "Accepted — ^Wm. 
 E. Dee Clay Mfg. Co., per Matthew M. Dee." * * * May 16, 
 1917, appellee, by letter from its principal office in Indiana, refused to 
 accept the order. * * * 
 
 Appellant argues that appellee held Matthew M. Dee' out to the world 
 as its agent, and that as such agent he was authorized to make con- 
 tracts such as the one sued on. * * * The law is well settled that 
 a principal is bound equally by the authority which he actually gives 
 his agent and by that which by his own acts he appears to give. 
 
 * * * "A general agent, unless he acts under a special and limit- 
 ed authority, impliedly has power to bind his principal by whatever is 
 usual and proper to effect such a purpose as is the subject of his em- 
 ployment, and in the absence of known limitations third persons dealing 
 with such a general agent have a right to act on the presumption that 
 the scope and character of the business he is employed to transact meas- 
 ures the extent of his authority, and to hold the principal responsible 
 for the agent's acts within such authority." 2 Corpus Juris, 581. 
 See, to the same effect, 21 R. C. L. 854. * * * 
 
 The evidence shows, without contradiction, that appellee is an Illi- 
 nois corporation; that since its organization the only office it has had 
 in Illinois is the Springfield office, and that Matthew M. Dee, the agent 
 who took this order, has been in entire charge of that office for' seven 
 or eight years. The evidence of William E. Dee, the president of the 
 appellee corporation, is to the effect that his brother, Matthew M. Dee, 
 was a traveling salesman, whg|e duty it was to solicit orders for ap- 
 pellee with his authority, limt|ed to the approval and acceptance by 
 appellee at its principal office in Indiana. It would be a somewhat un- 
 usual proceeding, for a state to require that every corporation organ- 
 ized in the state for pecuniary profit should have a principal office in 
 some county in the state, and yet to assume that such office could be a 
 principal office and not have, some one in charge who could bind the 
 corporation in business matters. A person of ordinary prudence, con- 
 versant with business usages and the nature of business affairs, it 
 would seem, would be justified in presuming that a person in charge 
 of such principal office in this state would be authorized to bind the 
 company in any business transaction within the scope of its ordinary 
 business. 
 
 There can be no question that Matthew M. Dee accepted the order. 
 
 * * * There is no question on this record as to the agency of Mat- 
 thew M. Dee for the appellee company. The only question in that re- 
 
 B.& B.BUS.LAW— 32 
 
498 AGENCY (Parts 
 
 •spect is as to the extent of his agency, and under the authorities just 
 cited the letter heads used by appellee's agent at the Springfield office 
 
 were admissible in evidence to show the extent of such agency. 
 
 * * * 
 
 We think the evidence in this record was of such a nature on the 
 -question of the extent of Matthew M. Dee's agency that the contract 
 here under consideration should have been submitted to the jury and 
 that the trial court erred in giving a peremptory instruction to find for 
 appellee. * * * 
 
 The judgments of the appellate and circuit courts will be reversed, 
 and the cause remanded to the circuit court for further proceedings 
 in harmony with the views herein stated. 
 
 GORE V. CANADA LIFE ASSURANCE CO. 
 (Supreme Court of Michigan, 1898. 119 Mich. 136, 77 N. W. 650.) 
 
 Action by Henry H. Gore against the Canada Life Assurance Com- 
 :pany. There was a judgment for plaintiff, and defendant brings error. 
 
 Hooker, J. The plaintiff brought an action against the defendant, 
 and recovered a judgment for a balance claimed to be due him for 
 commissions upon insurance premiums obtained from policies writ- 
 ten for defendant's patrons upon his solicitation. The defendant has 
 brought the case to this court by writ of error. 
 
 At the threshold of the case is the question whether the plaintiff 
 sustained contract relations with the defendant. -His claim is that 
 he was employed on behalf of the defendant by one Glass, with the 
 subsequent approval of Bucknell, who was called the "manager of 
 the Michigan branch." The defendant asserts that it made a contract 
 -with some men named Cox, living in London, Ontario, by which they 
 had control of its business in Michigan and some other states, upon 
 a commission of SO per cent, upon new business, they to employ and 
 pay their own subordinates; and that they established a branch of- 
 fice fqr Michigan, which they maintained under the charge of Buck- 
 nell, who was called "manager of the Michigan branch of the Canada 
 Life Assurance Company," who was paid by a share of the commis- 
 sion on Michigan business and an allowance made by the Coxes. It 
 is claimed that Glass was engaged by tljem upon similar terms ; that 
 ihe was designated "inspector of agencM" ; that he was not authoriz- 
 ed to employ any agents for the company, but was at liberty to divide 
 his own commissions, as he pleased, with any whom he should see 
 ifit to engage to help him. * * * 
 
 [After reviewing certain evidence, the court continued :] We think 
 it evident that the arrangement made with the Coxes, and through 
 them with others, did not contemplate authority to pledge the credit 
 of the company in the employment of agents, and that neither Cox 
 nor Bucknell understood that he had such authority. Glass, who was 
 (employed as superintendent, or inspector of agencies, or, as he says, 
 given exclusive right to work the south half of Michigan, had no 
 ■greater authority. We think, therefore, that the plaintiff's claim must 
 fall, unless it can be said that he had a legal right to understand that 
 !he was to look to the defendant for his pay by reason of its holding 
 ■out Bucknell and Glass as its agents with authority to bind it in such 
 matters. 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENt's POWER 499 
 
 The plaintiff, Gore, testified that he entered the employment of the 
 defendant upon terms made by Mr. Glass, whose position was inspec- 
 tor of agencies. On being asked to state his arrangements with Mr. 
 Glass, he said : "Mr. Glass, when I first arranged with him, told me 
 that forty per cent, was the amount paid all agents. I was to solicit 
 insurance and whenever it was necessary I was to call upon him to 
 go with me, to assist in closing up any insurance I might get in pro- 
 cess of working. I was to work in Detroit. He told me a written 
 contract was not necessary.'' On cross-examination he said: "I did 
 not know anything about his arrangements with the company, e;x- 
 cept such as he had told me. It was later that I made a contract with 
 him, and then I came to Detroit. The day I reached Detroit I talked 
 it over with Mr. Glass. * * * He said he was the authorized agent 
 of the company, and I was to work for the Canada Life, and I could 
 advertise as such. * * * ^g jQjjg ^g Glass was there, I was with 
 him. It was as late as May any way, and I think quite a little after 
 that. * * * J ^^g jjQt under Bucknell until Glass left." 
 
 There are two theories upon which the plaintiff might recover his 
 compensation from the company: First, that Glass actually had au- 
 thority to make a contract that it should pay him; and, second, that 
 the company's conduct was such as to justify his belief that Glass 
 had such authority, though in fact he was not' authorized to do so. 
 Under the uncontradicted testimony we must say that the company 
 never authorized Glass to make such a contract. If the plaintiff is 
 to recover, it must be by reason of a holding out bv the company of 
 Glass as having such authority. To sustain the theory, the agreement 
 of Glass has no force. It was admissible for the single purpose of 
 showing the plaintiff's understanding upon the subject, but it was no 
 direct evidence of authority. Mechem, Ag. § 276. "Persons dealing 
 with agents must ascertain their authority. In approaching the con- 
 sideration of the inquiry whether an assumed authority exists in a 
 given case, there are certain fundamental principles which must not 
 be lost sight of. Among these are, as has been seen, that the law in- 
 dulges in no bare presumptions that an agency exists ; it must be 
 proved or presumed from facts ; that the agent cannot establish his 
 own authority, either by his representations or by assuming to exer- 
 cise it; that an authority cannot be established by mere rumor or 
 general reputation; that even a general authority is not an unlimited^ 
 one, and that every authority must find its ultimate source in some 
 act of the principal. Persons dealing with an assumed agent, there- 
 fore, whether the assumed agency be a general or a special one, are 
 bound at their peril to ascertain not only the fact of the agency, but 
 the extent of the authority; and, in case either is controverted, the 
 burden of proof is upon them to establish it." There was nothing in 
 Glass' relation to the company which gave the plaintiff to understand- 
 that he had such authority. Glass says that he was an inspector of 
 agencies. Plaintiff's counsel says that he was superintendent of agen- 
 cies. There is nothing in the testimony to show that an inspector or 
 superintendent of ag-encies was given such authority, and there is no 
 such legal presumption. If, as the word imports,, his business was 
 to superinteiid or inspect the woyk of agents, it does not- imply the 
 right to appoint agents, and make contracts with them upon behalf 
 of the company. So that at the time he made the contract with Glass 
 
500 AGENCY (Part 2 
 
 he had no right to assume that Glass had such authority from anything 
 except the statements and acts of Glass. * * * 
 
 The claim is made that Bucknell was held out as a general ag:ent, 
 and therefore that Gore had a right to assume that he was authorized 
 to employ him, or ratify the act of Glass. Bucknell had charge of 
 the Michigan branch or office for Cox, who had a contract to work 
 the territory. The Coxes were the ones who were held out as general 
 agents, if there were any general agents, and we do not find anything 
 showing that Bucknell was a general agent, of the company. Gore 
 himself testified that he did not know what his arrangement was. 
 There is nothing to show that he was misinformed by the company, 
 or that he even tried to ascertain. He may, perhaps, have knojvn that 
 the circulars of the company contained his name as manager of the 
 Michigan branch, but that is all. We do not intend that it shall be 
 understood that we are of the opinion that a general agency, so called, 
 necessarily carries with it the authority to appoint special agents for 
 the company. Manifestly, any agency, general or special, is no more 
 than the principal chooses to make it, unless he undertakes to limit 
 the effect of the power which others have a right to suppose he has 
 conferred, when he will be estopped to deny such power. * * * 
 
 Bucknell was advertised as manager of the Michigan branch, and 
 neither Glass nor Bucknell, nor even the Coxes themselves, had au- 
 thority to issue a policy, but merely to obtain and submit applications 
 to the head office, as the witnesses call it, of the company. The true 
 test after all, is not a real or imaginary distinction between the gen- 
 eral or special agents. It is a question whether the agent, general or 
 si)ecial as the case may be, has acted within the apparent scope of the 
 authority confided. * * * There is no testimony in this case that 
 warrants the conclusion that Bucknell had general authority to ap- 
 point agents and conduct defendant's business in Michigan. * * * 
 He was manager of the Michigan branch, but that does not justify a 
 guess by court or jury that binding the company by the appointment 
 of agents for it was within the general scope of the authority actually 
 given him. In 1 Pars. Cont. p. 43, it is said: "We think the distinc- 
 tion between a general agency and a special agent useful, and suf- 
 ficiently definite for practical purposes, although it may have been 
 pressed too far and relied upon too much in determining the responsi- 
 bility of a principal for the acts of an agent. It may, indeed, be said 
 that every agency is, under one aspect, special, and under another, 
 general. No agent has authority to be in all respects and for all pur- 
 poses an alter ego of his principal, binding him by whatevef the agent 
 may do in reference to any subject whatever ; and therefore the agen- 
 cy must be special so far as it is limited by place or time, or the extent 
 or character of the work to be done. On the other hand, every agen- 
 cy must be so far general that it must cover not merely. the precise 
 thing to be done, but whatever usually and rationally belongs to the 
 doing of it. Of late years, courts seem more disposed to regard this 
 distinction, and the rules founded upon it, as altogether subordinate to 
 that principle which may be called the foundation of the law of agen- 
 cy, namely, that a principal is responsible, either when he has given to 
 an agent sufficient authority, or when he justifies a party dealing with 
 his agent in believing that he has given to this agent this authority." 
 We cannot say that this evidence tends to prove that tlie appointment 
 of agents usually and rationally belongs to the doing of the business 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENT's POWER 501 
 
 confided to Bucknell, &nd we certainly cannot say it as a matter of 
 law. * * * 
 
 The judgment is reversed, and a new trial ordered. 
 
 BRAGEJR V. LEIVT et al. 
 (Court of Appeals of Maryland, 1914. .122 Md. 554, 90 Atl. 102.) 
 
 Action by Adolph Levy and another, copartners trading as Levy & 
 Markowitz, against Albert A. Brager. From a judgment for plain- 
 tiffs, defendant appeals. 
 
 Thomas, J. This suit was brought on the common counts in as- 
 sumpsit to recover the contract price of goods claimed to have been 
 sold by the appellees to the appellant. The defendant (appellant) plead- 
 ed the general issue plea, and the trial in the court below resulted in 
 a judgment for the plaintiffs, from which the defendant has appealed. 
 
 The evidence shows that the defendant conducted a large depart- 
 ment store in Baltimore city, and, in the conduct of that business, 
 employed a "buyer" for each department of the store. One of the 
 duties of the "buyer" was to make out orders for goods required in 
 his department and submit them to the manager or proprietor for 
 his approval or confirmation. The "buyer" was not authorized to 
 purchase goods, but his authority in that connection was limited to 
 selecting and making out the orders for the goods needed in his depart- 
 ment and submitting them to the manager or proprietor, for his ap- 
 proval and signature. * * * 
 
 In May, 1911, the defendant employed William S. Winstein as "buy- 
 er" for the boys' and children's clothing department of his store, and 
 he was given one of the order books referred to, and used it in making 
 out orders for goods needed in his department. The plaintiffs, who 
 were engaged in business in New York, knew Winstein, and in May, 
 1911, wrote their agent and traveling salesman, Samuel Markowitz, to 
 go to see Winstein. Markowitz had never sold goods to or had any 
 dealings with the defendant, and had never sold goods in Baltimore. 
 He went to the defendant's store to see Winstein on the 31st of May, 
 1911, and he states that Winstein introduced him to Carey, the assist- 
 ant "buyer" for the department in which Winstein was engaged, and 
 told him that Carey was the "head man." Later on the same day Win- 
 stein and Carey met him by appointment at the Howard House, where 
 he exhibited to them his samples, and Winstein gave him a written 
 order for goods amounting to $1,098, to be shipped to the defendant 
 September 1, 1911. * * * On September 2, 1911, the plaintiffs 
 shipped to the defendant a part of the goods ordered by Winstein, 
 to the amount of $893.50. When they arrived in Baltimore the de- 
 fendant refused to accept them. * * * ' 
 
 The evidence further shows that the order given by Winstein to 
 Markowitz was never signed or approved by the manager or the de- 
 fendant, and that neither of them knew that the order had been given 
 until after the goods arrived. * * * 
 
 As we have said, the evidence shows that Winstein, who gave the 
 order for the goods, was not authorized by the defendant to purchase 
 them. * * * The appellees contend, however, that the mere fact 
 that he was called "buyer" for the department in which he was em- 
 ployed was sufficient to warrant the plaintiffs or their agent in assum- 
 
502 AGENCY (Part 2 
 
 ing that he had full authority to order the goods, and that the defend- 
 ant cannot rely upon any limitations upon his authority of which the 
 plaintiffs were not advised. * * * If Winstein had, in fact, been 
 employed as "buyer" for the defendant, with authority to purchase 
 goods for the defendant, or if there had been any transactions be- 
 tween the .plaintiffs and the defendant as would have justified the as- 
 sumption by the plaintiffs that he was authorized to purchase on ac- 
 count of the defendant, the principle relied upon by the appdlees would 
 undoubtedly apply, and the plaintiffs would not be bound by any secret 
 instructions of the defendant to his agent. 
 
 But we know of no case holding that the mere fact that an employe 
 is called a "buyer" clothes him with power to bind his principal by 
 contracts wholly without the scope of his employment. The well- 
 recognized doctrine that a general authority to an agent cannot be Hm- 
 ited by private instructions not known to third persons dealing with him 
 certainly cannot be applied to a case where no such general authority 
 exists. 
 
 The general rule is that the power of an agent to bind his principal 
 rests upon the authority conferred upon him by the principal, and per- 
 sons dealing with an alleged agent are put upon inquiry as to the 
 extent of his authority. The rule as to the apparent scope of an agent's 
 authority is well stated in 31 Cyc. 1331, where it is said: "While as 
 between the principal and the agent the scope of the latter's authority 
 is that authority which is actually conferred upon him by his principal, 
 which may be limited by secret instructions and restrictions, such in- 
 structions and restrictions do not affect third persons ignorant thereof ; 
 and as between the principal and third persons the mutual rights and 
 liabilities are governed by the apparent scope of the agent's authority, 
 which is that authority which the principal has held the agent out as 
 possessing or which he has permitted the agent to represent that he 
 possesses and which the principal is estopped to deny. The apparent 
 authority so far as third persons are concerned is the real authority, 
 and when a third person has ascertained the apparent authority with 
 which the principal has clothed the agent, he is under no further obli- 
 gation to inquire into the agent's actual authority. The authority must, 
 however, have been actually apparent to the third person who, in or- 
 der to avail himself of his rights thereunder, must have dealt with the 
 agent in reliance thereon, in good faith, and in the exercise of reason- 
 able prudence, in which case the principal will be bound by the acts of 
 the agent performed in the usual and customary mode of doing such 
 business, although he may have acted in violation of private instruc- 
 tions, for such acts are within the apparent scope of his authority. 
 * * * 
 
 Although these rules are firmly established, their application to a 
 particular case is extremely difficult. The liability of the principal is 
 determined in any particular case, however, not merely by what was 
 the apparent authority of the agent, but by what authority the third 
 person, exercising reasonable care and prudence, was justified in be- 
 lieving that the principal had under the circumstances conferred upon 
 his agent." Applying this statement of the rule to the case under con- 
 sideration, the evidence shows that the principal had done nothing to 
 clothe Winstein with the apparent authority to purchase goods on his 
 account, and that the plaintiffs and their agent, without any inquiry 
 as to the extent of his authority, and in entire disregard of the es- 
 
Ch. 1) SOURCE AND SCOPE OF THE AGBNT's POWER 503 
 
 tablished usage and custom among department stores in Baltimore city, 
 relied exclusively upon the bare fact that he was called the "buyer" for 
 the department in which he was engaged. To hold a principal re- 
 sponsible for purchases made by an agent who was never authorized 
 or permitted to make them, and where such purchases are wholly 
 without the scope of his employment, would place every man in busi- 
 ness at the mercy of his employes. ' * * * 
 
 Judgment reversed, with costs to the appellant without awarding a 
 new trial. 
 
 EXCHANGE BANK v. THKOWER. 
 (Supreme Court of Georgia, 190.3. 118 Ga. 433, 45 S. E. 316.) 
 
 Action by the Exchange Bank against M. L. Thrower. Judgment 
 for defendant, and plaintiff brings error. 
 
 Prince was the agent of the Manhattan Insurance Company for 
 Georgia and Alabama. Brinsfield was his cashier. Two New York 
 drafts, payable to James T. Prince, Manager, were indorsed by the 
 latter, "James T. Prince, Manager, by Kelly Brinsfield, Cashier," and 
 cashed by Thrower, who deposited the same with the Exchange Bank 
 of Atlanta to his credit. The drafts were paid, and Prince having de- 
 nied the authority of the cashier to indorse, the bank refunded to him 
 the proceeds, on his agreement to indemnify it in case of its failure 
 to recover the same from Thrower. The bank sued for the recovery 
 of the money, and the question involved here is as to the cashier's au- 
 thority to indorse in blank and to collect the drafts. 
 
 lyAMAR, J. Authority to borrow money is among tlie most dangerous 
 powers which a principal can confer upon an agent. Whoever lends 
 to one claiming the right to make or indorse negotiable paper in the 
 name of another does so in the face of all the danger signals of busi- 
 ness. He need not lend or discount until assured beyond doubt that the 
 principal has in fact appointed an agent who by the stroke of a pen 
 may wipe out his present fortune, and bind his future earnings. The 
 very nature of the act is a warning, and if the lender parts with his 
 money, he does so at his own peril. If the power was not in fact con- 
 ferred, he must bear the loss occasioned by his own folly. A power 
 so perilous is not to be implied from acts which in other matters less 
 hazardous might create an agency. It must be conferred in express 
 terms or be necessarily and inevitably inferable from the very nature 
 of the agency actually created. So strict is the rule that it will not 
 be presumed even from an appointment of one as general agent, unless 
 the character of the business or the duties of the agent are of such a 
 nature that he was bound to borrow in order to carry out his instruc- 
 tions and the duties of the office. * * * 
 
 While the agent here was given the rather high title of "cashier," 
 that, of itself, did not clothe him with the powers which might have 
 been exercised by an officer bearing that title if employed by a bank. 
 In view of the reluctance with which the law presumes the existence 
 of the power to borrow, this title will be considered to indicate that he 
 was a cash keeper, rather than a cash borrower. Nor will the fact that 
 he was authorized to fill out the blank, and ^indorse drafts with a rub- 
 ber stamp reading, "Pay to the order of the Third National Bank for 
 
 deposit. James T. Prince, Manager, by Cashier," be treated 
 
 as authority to indorse in blank. On the contrary, the character of 
 
504 ' AGENCY (Part 2 
 
 the stamp itself indicated that the principal only authorized a restrict- 
 ed indorsement for the mere purpose of allowing the bank, rather than 
 the agent, to collect. It does not import a general authority to in- 
 dorse, nor does possession of the draft indicate that the agent had the 
 right to discouny:he draft or collect the proceeds. 
 
 The stringent rules of agency are intended to protect a principal 
 against unauthorized acts, but not to shield one who has in fact confer- 
 red such authority, or ratified his conduct. Here- the plaintiff denied 
 that any authority had been given further than that implied in con- 
 ferring the title "cashier," and the right to use the stamp above copied. 
 It denied that Prince had knowledge of the conduct on the part of 
 Brinsfield, or that he in any manner ratified the indorsements or col- 
 lections which were shown to have been made by him. The testimony 
 for the defendant was to the contrary, and was to the effect that the 
 trouble was not so much a want of authority to indorse, as the im- 
 proper use Brinsfield made of the money after it was collected; that 
 he was a general agent, indorsing drafts, handling the cash, paying 
 out money, occasionally drawing checks, and in full and complete 
 charge of the business during the frequent and necessary absences of 
 the principal; that he had discounted another draft with Thrower 
 some months before, for $394, which was paid without objection; that 
 on these and other like drafts, indorsed in the same way, of which 
 Prince denied knowledge, Brinsfield had collected some $8,500, which 
 he had appropriated to his own use; that he originally wrote the in- 
 dorsements in his own handwriting before the stamp above referred 
 to was prepared ; and that there were other stamps in the office used by 
 him, on which the words "for deposit" were wantiiig, apparently con- 
 templating that he had authority to indorse in; blank and to collect. 
 The evidence, while conflicting, was sufficient to sustain the verdict for 
 the defendant. We have no power to interfere where the judge of the 
 lower court has re-examined the evidence on the motion for a new 
 trial, and by his refusal to set it aside expressed himself as fully satis- 
 fied with the verdict. 
 
 Judgment affirmed. 
 
 CHARLES MOB CO. v. J. H. LOOUE CO. 
 (Appellate Court of Illinois, First District, 1903. 108 111. App. 128.) 
 
 Ball, P. J. October 18, 1901, Logue, the president of appellee, 
 gave a diamond to one Stein, to show to a prospective customer. It 
 was not given Stein to sell. He was to return it at 2 p. m. of the 
 same day, as another customer had the refusal of it. Instead of car- 
 rying out this agreement Stein pawned the stone to appellant for $100. 
 Logue made demand on appellant for its return. The latter refused 
 to comply unless the sum it had loaned upon the diamond was repaid. 
 Thereupon appellee brought replevin, and recovered a judgment for 
 $160, from which judgment this appeal was taken. * * * 
 
 It is an elementary rule of the law of personal property that no man 
 can be deprived of it without his consent, or by operation of law. 
 Another fundamental rule is that no one can sell a right which he 
 does not have ; that the purchaser takes nothing more than the rights 
 of his vendor. With us the exceptions to this last rule arise only 
 where the property' is money or negotiable paper. In all other cases 
 the purchaser cannot retain the property as against the owner unless 
 it appear that the seller, by sale and delivery to him, though induced 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENT's POWER 505 
 
 by fraudulent pretenses, had the indicia of title. Possession of per- 
 sonal property is indicative of title, but it is not title ; and that alone 
 will not protect the purchaser from the effects of a demand by the 
 real owner. * * * 
 The judgment of the circuit court is affirmed. 
 
 SMITH PREMIER TYPEWRITER CO. v. NATIONAL HARTEL LIGHT 00. 
 (Supreme Court of New York, Appellate Term, 1911. 72 Misc. Rep. 405, 
 
 130 N. Y. Supp. 136.) 
 
 Seabury, J. This action was brought to recover $100 alleged to be 
 the agreed price of a typewriter sold and delivered to the defendant 
 corporation. The evidence is insufficient to establish that the defend- 
 ant purchased or ratified the alleged purchase of the typewriter. It 
 appears from the record that the defendant had in its employ a book- 
 keeper. On November 10, 1910, the defendant's bookkeeper, under 
 the express direction of an officer of the defendant, signed an order 
 for one typewriter. This typewriter was delivered and paid for. On 
 December 1, 1910, the same bookkeeper signed a second order for an 
 additional typewriter. The typewriter was delivered to the defend- 
 ant. Upon receiving the typewriter, the defendant promptly re- 
 pudiated the order given by the bookkeeper, and requested the plain- 
 tiff to remove the typewriter from the defendant's place of business. 
 
 The record affirmatively shows that the bookkeeper had no actual 
 authority to make the purchase. While it is true that authority of an 
 assumed agent to make a purchase will be implied, where the alleged 
 principal has repeatedly recognized and approved of similar acts, still 
 a single act done under express" authority is insufficient to justify the 
 inference that the assumed agent has the apparent authority to sub- 
 ject the alleged principal to liability upon subsequent purchases made 
 without actual authority. * * * As the bookkeeper was without 
 actual or apparent authority to make the purchase, the defendant was 
 not bound by his act in attempting so to do. * * * 
 
 [Judgment reversed ; new trial granted.] 
 
 McCULLOTJGH v. HITCHCOCK. 
 (Supreme Coui-t of Errors of Connecticut, 1899. 71 Conn. 401, 42 Atl. 8].) 
 
 Suit for specific performance by Mary J. McCuUough against Mel- 
 ville C. Hitchcock. There was decree for defendant, and plaintiff 
 appeals. 
 
 Upon the trial of the cause, the plaintiff, to prove the averment of 
 her complaint, offered in evidence a certain letter, as follows (it was 
 admitted that the defendant was the owner of the land, and that An- 
 derson & Mead were real estate agents or brokers) : 
 
 "Ansonia, Conn., Nov. 23, 1896. Messrs. Anderson & Mead, 
 Bridgeport, Conn. — Gentlemen : I have a building lot on William St.', 
 E. D., that I would like to sell, if I can do so at any advantage. It 
 is located next to the residence of S. W. Hubbell, 268 Wm. St. As 
 I am not a resident of Bpt., I do not know the value of said lot ; but 
 could you not look at the lot, and give me an idea of its value, and, if 
 possible, find a purchaser for same ? Yours, truly, M. C. Hitchcock." 
 
 "For lot next to 268 William St. Anderson & Mead, per T." 
 
 Andrews, C. J. * * * Anderson & Mead had no authority to 
 
506 AGENCY (Part 2 
 
 make a written contract binding on the defendant to convey the land 
 in question, unless it can be found in the letter of November 23, 1896. 
 That letter does not, in terms, purport to give any such authority. 
 The contention of the plaintiff is that such authority is implied from 
 the request in the letter to find a purchaser; that it is a custom of the 
 real-estate business that a broker authorized to find a purchaser for 
 lands may sign a binding contract for the sale of that land. We do 
 not understand any such custom to exist in this state. A custom can 
 exist only as a matter of fact. * * * 
 
 There is no finding that any such custom prevails in Connecticut, 
 and there is no case cited which recognizes any such rule. A real- 
 estate broker or agent is one who negotiates the sales of real prop- 
 erty. His business, generally speaking, is only to find a purchaser 
 who is willing to buy the land upon the terms fixed by the owner. He 
 has no authority to bind the principal by signing a contract of sale. 
 A sale of real estate involves the adjustment of many matters besides 
 the fixing of the price. The delivery of the possession has to be set- 
 tled; generally the title has to be examined; and the conveyance, 
 with its covenants, is to be agreed upon and executed by the owner. 
 All of these things require conferences, and time for completion. 
 These are for the determination of the owner, and do not pertain to 
 the duties, and are not within the authority, of a real-estate agent. 
 For these obvious reasons, and others which might be suggested, it is 
 a wise provision of the law which withholds from such an agent, as 
 we think it does, any implied authority to sign a contract of sale in 
 behalf of his principal. * * * 
 
 There is no error. The other judges concurred. 
 
 PICKERT V. MARSTON et, al. 
 
 (Supreme Court of Wisconsin, 1887. 68 Wis. 465, 32 N. W. 550, 
 60 Am. Rep. 876.) 
 
 Cassoday, J. The evidence is undisputed that the fish were in 
 good condition when shipped to the defendants from Boston, and 
 worthless when they reached the defendants at La Crosse. The de- 
 fendants made the contract of purchase at La Crosse with the plain- 
 tiff's traveling salesman, who resided at Chicago. There was evi- 
 dence tending to prove that the fish shipped were not the fish order- 
 ed ; and also that, by the terms of the contract, the fish ordered were 
 guarantied by the traveling salesman to reach the defendants in La 
 Crosse in good merchantable condition. The evidence on the part 
 of the plaintiff was to the effect that the traveling salesman had no au- 
 thority, to make such guaranty, nor any assurance as to the condition 
 in which the fish should be on reaching La Crosse ; and that he so in- 
 formed the defendants about a month prior to the taking of the order 
 in question. The issue made does not arise between the principal and 
 agent, but between the principal and the defendants who made the 
 contract of purchase with the agent. The agency, and the right to 
 contract for the sale, are admitted. But the authority to make the 
 guaranty or warranty is denied. Beyond question, an agent may bind 
 his principal, if he does not exceed the power with which he is os- 
 tensibly invested, notwithstanding he has secret instructions from his 
 principal to the contrary. * * * 
 
 Assuming that the traveling salesman had no actual authority to 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENT'S TOWER 507 
 
 make such guaranty or warranty of the fish, then it became important 
 to determine whether his authority to sell, or contract for the sale, 
 clothed him with an implied authority to make such guaranty or war- 
 ranty. "The general rule is, as to all _ contracts, including sales," 
 said a late learned author, "that the agent is authorized to do whatever 
 is usual to carry out the object of his agency, and it is a question for 
 the jury to determine what is usual. If, in the sale of the goods con- 
 fided to him, it is usual in the market to give a warranty, the agent 
 may give that warranty in order to effect a sale." 2 Benj. Sales, 
 (4th Amer. Ed.) § 945, p. 824. * * * 
 
 Thus, in Dingle v. Hare, supra [97 E. C. L. 145] Erie, C. J., ob- 
 served: "The strong presumption is that, when a principal author- 
 izes an agent to sell goods for him, he authorizes him to give all such 
 warranties as are usually given in the particular trade or business ; " 
 and Byles, J., added: "An agent to sell has a general authority to 
 do all that is usual and necessary in the course of such employment." 
 So in Smith v. Tracy, supra [36 N. Y. 79], Porter, J., speaking for 
 the court, said : "The rule applicable to such a case is stated with 
 discrimination and accuracy in our leading text-book (Parsons) on 
 the law of contracts : 'An agent employed to sell, without express 
 power to warrant, cannot give a warranty which shall bind the princi- 
 pal, unless the sale is one which is usually attended with warranty.' " 
 
 Here the plaintiff offered to prove, by different witnesses having 
 the requisite knowledge, ' the general custom of the trade, as known 
 and universally followed by dealers in fish, as to their being warranted 
 or guarantied against spoiling or turning red in transit; but it was 
 ■excluded, and, as we think, erroneously, under the rules of law above 
 stated. It would seem, however, that, to be binding upon the de- 
 fendants, such custom should be known to them, or exist in their 
 section of the country. Thus, in Graves v. Legg, supra [2 Hurl & N. 
 210], it was said by Cockburn, C. J.: "The only question is, wheth- 
 er, when a merchant residing in London contracts with a Liverpool 
 merchant in Liverpool, he is bound by the usage of trade at Liverpool. 
 We think that, as he employed an agent at Liverpool to make a con- 
 tract there, it must be taken to have been made with all the incidents 
 of a contract entered into at Liverpool, and one is that notice to the 
 buyer's agent is notice to the principal." 
 
 The judgment [for plaintiff] is reversed, and the cause is remanded 
 for a new trial. 
 
 SOHXJI.rTZ V. GRIFFIN. 
 
 (Court of Appeals of New York, 1890. 121 N. X. 20i, 24 N. E. 480, 
 18 Am. St. Eep. 825.) 
 
 AndeEavs, J. * * * The rule that an agent to sell personal prop- 
 erty has implied power to warrant, in the absence of any restriction, 
 where sale with warranty is usual and customary in similar cases,, 
 was declared in Nelson v. Cowing, 6 Hill, 336, substantially overruling 
 Gibson v. Colt, 7 Johns. 390. There seems to be no well-founded dis- 
 tinction between real and personal property, requiring a different con- 
 struction of an agency for sale in the two cases. The great prepon- 
 derance of authority now is that a power, without restriction, to sell 
 and convey real estate gives authority to the agent to deliver deeds 
 with general warranty binding on the principal, where, under the cir- 
 cumstances, this is the common and usual mode of assurance. * * * 
 
508 AGENCT (Parts 
 
 HAHNENFELD v. WOLFF. 
 
 (Common Pleas of New Tork City and County, 1895. 15 Msc. Hep. 133, 
 36 N. Y. Supp. 473.) 
 
 BiscHoPP, J. It was conceded by the defendant that the sale was 
 made to him through the instrumentality of one Grimshaw, and it 
 conclusively appeared from the invoice in defendant's possession, and 
 produced by him, upon which the alleged payments to Grimshaw were 
 receipted for by the latter, that the defendant, before such payments, 
 knew the plaintiff, and not Grimshaw, to be his vendor. Grimshaw 
 was employed by the plaintiff to solicit orders from customers, and 
 did not appear to have been intrusted with the possession of the whole 
 or any part of die merchandise sold. Under these circumstances the 
 payments to Grimshaw were made by the defendant at his peril of the 
 former's want of authority. It is well settled that an agent to solicit 
 orders merely, or to sell goods, who has not the possession of the 
 goods, has no implied or apparent authority to receive payment. * * * 
 
 Judgnient reversed, and new trial ordered. 
 
 PAYNE V. POTTEiR. 
 (Supreme Court of Iowa, 1859. 9 Iowa, 549.) 
 
 Replevin for a horse. Judgment for plaintiff, and defendant appeals. 
 
 Stockton, J. The first assignment of error is upon the charge of 
 the court. The rule of law is tibat no man is bound by the act of an- 
 other, without or beyond his consent ; and where an agent acts under 
 a special or express authority, whether written or verbal, the party 
 dealing with him is bound to know at his peril what the power of the 
 agent is, and to understand its legal effect; and if the agent exceed 
 the boundary of his legal power, the act, as concerns the principal, 
 is void. * * * The power must be pursued with legal strictness, and 
 the agent can neither go beyond nor beside it. The act must be legally 
 identical with that authorized to be done or the principal is not bound. 
 * * * So it is held that an agent to whom a horse is given to sell 
 for the principal, cannot deliver him in payment of his own debt, and 
 the owner may recover the horse from a purchaser to whom he has 
 been so delivered. * * * 
 
 And it is held that a special authority or direction to sell, does not 
 authorize a sale on credit, unless commercial custom has given rise to 
 such an understanding in some particular business. The question 
 whether in such case a discretion to sell on credit is given, must de- 
 pend on the authority in the particular case. In May v. Mitchell, 5 
 Humph. (Tenn.) 365, a principal delivered to an agent three muleS to 
 be taken to the southern market, and to be sold, for the best price that 
 he could get, and the proceeds to be returned ; the agent took them to 
 the south and sold them on credit, and the purchaser proved insolvent ; 
 it was held that the agent was vested with a discretionary power to sell 
 upon the best terms that could be procured according to the course of 
 trade in that part of the country to which the mules were carried, and 
 as this was proved to be on credit, the agent was held not to be liable 
 to the principal. 
 
 Every general power necessarily implies the grant of every matter 
 necessary to its complete execution. * * * Jn the absence of special 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENt's POWER 509 
 
 instruction to the contrary, and in the absence of such prescription as 
 to the manner of doing the act, as implies an exclusion of any other 
 manner, an authority or direction to do an act, or accomplish a particu- 
 lar end, implies and carries with it authority, to vise the necessary means 
 and inducements, and to execute the usual legal and appropriate meas- 
 ures proper to perform it. And not only are the means necessary and 
 proper for the accomplishment of the end included in the authority, 
 but, also, all the various means which are justified or allowed by the 
 usages of trade. Thus (says Judge Story) if an agent is authorized 
 to sell goods, this will be construed to authorize the sale to be made on 
 credit as well as for cash, if this course is justified by the usages of 
 trade, and the credit is not beyond the usual period. Story on Agency, 
 §60. 
 
 "W'e think it results from the rules laid down that the burden lay 
 upon the defendant to show that the sale by the agent on credit was 
 justified by the usages of trade, and that the credit given was not 
 unreasonable. Without such proof the authority of the agent could 
 not be construed into an authority to sell for cash ; and in this view 
 
 there was no error in the charge of the court to defendant's prejudice. 
 
 ^ ^ ^ , 
 
 Judgment reversed. 
 
 GAGE V. CALLANAN. 
 
 (Supreme Court of New York, Special Term, 1908. 57 Misc. Rep. 479, 
 109 N. T. Supp. 844.) 
 
 KblloGG, J. A chauffeur of the defendant, in driving the defend- 
 ant's car from Troy to Whitehall, broke down at Saratoga, and pro- 
 cured the plaintiff to make temporary repairs thereon. In leaving the 
 shop he told employes of the plaintiff to come and get the car if he 
 broke down again, and to make all necessary repairs thereon to place 
 it in first-class condition. He did so break down. He then sent a mes- 
 sage to the plaintiff to come and get the car and repair it as above men- 
 tioned. The plaintiff took the car to his shop. Before repairing it he 
 wrote the defendant several letters at his home address, telling him 
 what had been done, and asking if he should carry out the instructions 
 of the chauffeur. He received no reply whatever. He then proceeded 
 to repair the car. These facts are abundantly established by the proof. 
 
 Evidently the chauffeur had no implied or apparent authority to or- 
 der permanent repairs, or any repairs other than such as were neces- 
 sary to enable him to proceed upon his journey. This was evident to 
 the plaintiff himself ; for he placed no reliance upon the word of the 
 chauffeur, writing the owner himself for instructions. The owner ig- 
 nored his letters. Clearly the plaintiff was in no way deceived as to 
 the chauffeur's authority. Clearly he knew that he had no authority 
 to order the repairs in question. The case, therefore, is precisely as 
 if the chauffeur had not given the orders in question, merely leaving the 
 car in plaintiff's shop for safe-keeping. If the plaintiff had then sug- 
 gested repairs to the defendant, and received no response to his sug- 
 gestion, he could not then have made repairs except at his own cost 
 and risk. So in this case. The plaintiff is, therefore, not entitled to 
 recover his repair bill. 
 
 It is otherwise as to his bill for storage. The chauffeur had the 
 right to place the broken-down car in the plaintiff's custody for safe- 
 
310 - AGENCY (Parts 
 
 keeping. The defendant was informed that he had done so. He did 
 not interfere with the 'plaintiff 's custody of the car, but left it with him 
 for a long period of time. He certainly is liable for the keep of the car. 
 The plaintiff has placed the value of the car's storage af $537.50. I 
 think this sum, although undisputed, is excessive. The sum of $250 
 would amply repay the plaintiff. Judgment is accordingly ordered in 
 -the plaintiff's favor for $250 and costs. 
 
 BANK OF BATAVIA v. NEW YORK, L. E. & W. R. CO. 
 
 (Court of Appeals of New Xork, 1887. 106 N. Y. 195, 12 N. E. 433, 
 60 Am. Rep. 440.) 
 
 Finch, J. It is a settled doctrine of the law of agency in this state 
 that, where the principal has clothed his agent with power to do an 
 act upon the existence of some extrinsic fact necessarily and peculiarly 
 within the knowledge of the agent, and of the existence of which the 
 act of executing the power is itself a representation, a third person 
 dealing with such agent in entire good faith, pursuant to the apparent 
 power, may rely upon the representation, and the principal is estopped 
 from denying its truth, to his prejudice. * * * A. discussion of 
 that doctrine is no longer needed or permissible in this court, since it 
 has survived an inquiry of the most exhaustive character, and an as- 
 sault remarkable for its' persistence and vigor. If there be any ex- 
 ception to the rule within our jurisdiction, it arises in the case of 
 municipal corporations whose structure and functions are sometimes 
 claimed to justify a more restricted liability. The application of this 
 rule to the case at bar has determined it in favor of the plaintiff, and 
 we approve of that conclusion* 
 
 One Weiss was the local freight agent of the defendant corpora- 
 tion at Batavia, whose duty and authority it was to receive and for- 
 ward freight over the defendant's road, giving a bill of lading there- 
 for specifying the terms of the shipment, but having no right to issue 
 such bills except upon the actual receipt of the property for transporta- 
 tion. He issued bills of lading for 60 barrels of beans to one Wil- 
 liams, describing them as received to be forwarded to one Comstock 
 as consignee, but adding, with reference to the packages, that their 
 contents were unknown. Williams drew a draft on the consignee, and 
 procured the money upon it of the plaintiff by transferring the bills 
 of lading to secure its ultimate payment. It turned out that no barrels 
 of beans were shipped by Williams, or delivered .to the defendant, and 
 the bills of lading were the product of a conspiracy between him and 
 Weiss to defraud the plaintiff or such others as could be induced to 
 advance their money upon the faith of the false bills. * * * 
 
 The bills were made for the precise purpose, so far as the agent 
 and Williams were concerned, of deceiving the bank by their repre- 
 sentations, and every bill issued not stamped was issued with the ex- 
 pectation of the principal that it would be transferred and used in 
 the ordinary channels of business, and be relied upon as evidence of 
 ownership or security for advances. Those thus trusting to it and 
 affected by it are not accidentally injured, but have done what they 
 who issued the bill had every reason to expect. ■ Considerations of this 
 character provide the basis of an equitable estoppel, without reference 
 to negotiability or directness of representation. 
 
Ch. 1) SOURCE AND SCOPE OP THE AGBNT's POWER 511 
 
 It is obvious, also, upon the case as presented, that the fact or con- 
 dition essential to the authority of the agent to issue the bills of lading 
 was one unknown to tlie bank, and peculiarly within the knowledge 
 of the agent and his principal. If the rule compelled the transferee 
 to incur the peril of the existence or absence of the essential fact, it 
 would practically end the large volume of business founded upon 
 transfers of bills of lading. Of whom shall the lender inquire? And 
 how ascertain the fact? Naturally he would go to the freight agent 
 who had already falsely declared in writing that the property had 
 been received. Is he any more authorized to make the verbal rep- 
 resentation than the written one? Must the lender get permission 
 to go through the freight-house or exaniine the books? If the prop- 
 erty is grain, it may not be easy to identify; and the books, if dis- 
 closed, are the work of the same freight agent. It seems very clear 
 that the vital fact of the shipment is one peculiarly within the knowl- 
 edge of the carrier and his agent, and quite certain to be unknown to 
 the transferee of the bill of lading, except as he relies upon the rep- 
 resentation of the freight agent. * * * 
 
 The judgment should be affirmed, with costs.* 
 
 NATIONAL, BANK OF COMMEEOB v. CHICAGO, B. & N. R. CO. 
 
 (Supreme Court of Minnesota, 1890. 44 Minn. 224, 46 N. W. 342, 560, 
 9 L. K. A. 263, 20 Am. St. Rep. 566.) 
 
 MiTCHELi-, J. * * * A carrier, in issuing a bill of lading for 
 property delivered to him for transportation, does not warrant the 
 title of the shipper. But what is the rule where no property was ever 
 delivered at all for transportation, and the agent of the carrier, either 
 fraudulently or through mistake or negligence, issues a false bill-ef 
 lading, which passes into the hands of a bona fide consignee or in- 
 dorsee for value? There is an unbroken line of authorities in Eng- 
 land that, even as against a bona fide consignee or indorsee for value, 
 the carrier is not estopped by the statements of the bill of lading, is- 
 sued by his agent, from showing that no goods were in fact received 
 for transportation. * * * It is also the settled doctrine of the 
 federal courts. * * * The text-writers all agree that the over- 
 whelming weight of authority is on this side. * * * The reason- 
 ing by which this doctrine is usually supported is that a bill of lading 
 is not negotiable in the sense in which a bill of exchange or promis- 
 sory note is negotiable, where the purchaser need not look beyond 
 the instrument itself ; that so far as it is a receipt for goods it is sus- 
 ceptible of explanation or contradiction, the same as any other receipt ; 
 that the whole question is one of the law of agency ; that it is not with- 
 in the scope of the authority of the shipping agent to issue bills of 
 lading where no property is in fact received for transportation ; that 
 the extent of his authority, either real or apparent, is to issue bills of 
 lading for freight actually received; that his real and apparent au- 
 
 2 The rule of this case has been codified in section 22 of the Federal Bills 
 of Lading Act of 1916 (U. S. Comp. St. § 8604kk), and in section 23 of the 
 Uniform Bills of Ladipg Act. The Uniform Bills of Lading Act has been 
 adopted in Arizona, California, Connecticut, Idaho, Illinois, Iowa, Louisiana, 
 Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hamp- 
 shire, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Vei- 
 mont, Washington, Wisconsin, Alaska, and the Philippine Islands. 
 
512 AGENCY (Part 2 
 
 thority — i. e., the power with which his principal has clothed him in 
 the character in \Vhi.ch he is held out to the world — is the same, viz., 
 to give bills of lading for goods received for transportatiori ; and that 
 this limitation upon his authority is known to the commercial world, 
 and therefore any person purchasing a bill of lading issued by the 
 agent of a carrier acts at his own risk as respects the existence of the 
 fact (the receipt of the goods) upon which alone the agent has au- 
 thority to issue the bill, the rule being that, if the authority of an agent 
 is known to be open for exercise only in a certain event, or upon 'the 
 happening of a certain contingency, or the performance of a certain 
 condition, the 'occurrence of the event, or the happening of the con- 
 tingency, or the performance of the condition, must be ascertained by 
 him who would avail himself of the results ensuing from the exer- 
 cise of the authority. An examination of the authorities also shows 
 that they apply the same principle whether the bill of lading was issued 
 fraudulently and collusively or merely by mistake. The only states 
 that we have found in which a contrary rule has been adopted are 
 New York, Kansas, Nebraska, apparently Illinois, and perhaps Penn- 
 sylvania. * * * 
 
 ROHBP,OUGH V. UNITED STATES BXPEESS CO. 
 
 (Supreme Court of Appeals of West Virginia, 1901. 50 W. Va. 148, 
 40 S. E. 398, 88 Am. St. Rep. 849.) 
 
 Action by A. F. Rohrbough against the United States Express Com- 
 pany. Judgment for plaintiff, and defendant brings error. 
 
 PoFFENBARGER, J. This is an action brought by A. F. Rohrbough 
 against the Utiited States Express Company before a justice of the 
 peace of Barbour county in July, 1898, for the recovery of $200, the 
 amount of four $50 express money orders alleged to haVe been is- 
 sued by said company at its office in Belington, in said county, and $5 
 protest fees on the same. * * * 
 
 The evidence shows that the express company had its office in the 
 railway station building at Belington, and J. V. L. Thrall was the agent 
 of said company, and also of the Adams Express Company and of the 
 Baltimore & Ohio Railroad Company and the West Virginia Central 
 & Pittsburg Railroad Company. There were three other men working 
 
 in the office, Darl Elliott, J. M. Parsons, and Scroll. Scroll was a 
 
 telegraph operator employed by the West Virginia Central & Pittsburg 
 Railroad Company, and "a general helper in the office," and attended to 
 the express business for Thrall. He issued money orders, and signed 
 Thrall's name to them, in the space provided on the orders for counter- 
 signing them. The instructions and rules of the company required the 
 agent, in countersigning money orders, to subscribe his name person- 
 ally ; but in this instance Thrall had permitted Scroll to attend to the 
 business for probably a year, and to sign his name. The evidence does 
 not show that the company had any knowledge of the fact that its 
 business was being so transacted at that place. On the 10th day of 
 June, 1898, the plaintiff deposited $200 at the office at Belington, and 
 took the four money orders in question in lieu thereof, intending to 
 send them to the bank at Grafton. Scroll received the money and is- 
 sued the orders, signing Thrall's name. Whether Scroll ever put the 
 money into the safe or the money drawer of the company is not known, 
 but on the next day he disappeared, and the money in question, as 
 
Ch. 1) SOURCE AND SCOPE OF THE AGBNT's POWER 513 
 
 well as considerable other money obtained in the same way, disap- 
 peared also. It seems that he reported about the time he left that the 
 office had been robbed. The rate of charges printed on each money 
 order was 18 cents, making 72 cents on the four orders in question. 
 This Scroll did not collect, and Rohrbough says he had frequently 
 purchased money orders there, and that Scroll had never charged him 
 any fees on them. 
 
 Upon this state of facts, the defendant insists that it is not liable for 
 the amount claimed upon the orders, and relies upon the principles of 
 law holding that power conferred upon an agent is based upon the 
 special confidence or trust which the principal has in the power or 
 authority, express or implied, cannot be delegated by the agent, so as 
 to bind the principal. * * * ^ further contention is that, because 
 tlie fees were not charged and collected, the act of Scroll in issuing 
 the orders was not the act of Thrall, the agent, or the act of the com- 
 pany, even if Thrall could have delegated his authority, and also that 
 the express company is not responsible for the appearance of author- 
 ity on the part of Scroll caused by Thrall permitting him to attend to 
 his business, for the reason that the company had no notice of the 
 fdct that he was so acting. * * * 
 
 In determining whether there is sufficient evidence to sustain the 
 finding and judgment, it becomes necessary to ascertain the general 
 principles of law governing cases of this kind. "An agent who has a 
 bare power or authority must execute it himself, and can delegate his 
 authority to no other." 1 Am. & Eng. Enc. I<aw, 368. But there is 
 another principle of law laid down in Titus v. Railroad Co., 46 N. J. 
 Law, 398, which allows some latitude to agents of that class, and ma- 
 terially qualifies and restricts the general proposition. Where a known 
 usage of trade justifies, or necessity requires, the employment of sub- 
 agents, such agents may be employed, but only to perform ministerial 
 acts. The agent himself must determine by his own judgment and dis- 
 cretion what should be done, and he may then authorize persons to car- 
 ry into effect the purposes of his employment. He cannot, however, 
 turn his principal's business over to the judgment and discretion of 
 another, and bind his principal by the acts and conduct of the latter. 
 "The agent is bound to follow faithfully the instruction of his princi- 
 pal, and act within the scope of his authority." 1 Am. & Eng. Enc. 
 Law, 369. But this rule has its qualification, also. "Where a devia- 
 tion from the strict performance of his authority is due to necessity 
 or unforeseen emergencies, which are themselves not due to the agent's 
 default," the rule must yield. ' And "where the agent is commissioned 
 to do any act, nothing being said as to the mode of performance, he 
 will have an impHed power to perform his duties in accordance with 
 any recognized usage or mode of dealing." 1 Am. & Eng. Enc. Law, 
 370, 371. 
 
 This court lays down the following proposition with reference to 
 insurance agents, whose duties are very similar to those of express 
 companies, in point 7 of the svUabus in Deitz v. Insurance Co., 33 W. 
 Va. 526, 11 S. E. 50, 25 Am. St. Rep. 908: "No insurance agent can 
 be expected by his company to attend to all the details of his business 
 in person. The company must and should be construed to anticipate 
 the employment of clerks to attend to the office when the agent is ab- 
 sent or sick. When the agent's clerk is authorized and intrusted to 
 B.& B.Bus.Law— 33 
 
514 AGENCY (Part 2 
 
 examine property and write out a policy thereon, his contract and 
 knowledge are the contract and knowledge of the agent, and any ac- 
 cidental mistake which he may make is the mistake of the agent, and 
 will be corrected in a court of law in an action on the policy." A 
 general proposition of law laid down in 1 Am. & Eng. Enc. Law (2d 
 Ed.) 978, and well supported by decided cases, is that "when an agent 
 is engaged to perform acts of a purely ministerial or mechanical char- 
 acter, or acts which do not call for the exercise of judgment, dis- 
 cretion, or skill, in respect to acts other than such as are ministerial, 
 he may authorize another to perform them." At page 978 it is said: 
 "The same principle is applicable in cases of agents empowered to exe- 
 cute bills of exchange, to sign subscription papers, to sign insurance 
 policies, to contract risks, to deliver policies and renewals, to collect 
 premiums, and to give security therefor." This is supported by Sayre 
 V. Nichols, 7 Cal. 535, 68 Am. Dec. 280; Lingenfelter v. Insurance Co., 
 19 Mo. App. 252. In the latter case the court decided that: "An 
 agent has no power to delegate his agency to another, or to sublet it. 
 But he may employ clerks and subagents, whose acts, if done in his 
 name and recognized by him either specially or according to his usual 
 mode of dealing with them, will be regarded as his acts, and as such 
 binding on the principal." The transaction out of which this case 
 grows is more in the nature of banking business than express busi- 
 ness, although it is extensively done by express companies. * * * 
 
 The express company had another agent, whose duty it was to travel 
 over a certain territory, and inspect all the offices of the company in 
 said territory, and check up the books and accounts of the agents. 
 This man had from time to time inspected the Belington office. He 
 must have known that Thrall, being the agent of another express 
 company and two railroad companies, and having three other persons 
 in the office, would find it necessary to intrust the transaction of more 
 or less of the business to persons other than himself. The employment 
 of clerks and assistants under such conditions and circumstances is 
 usual, and seems to be necessary. Scroll was acting in the presence 
 and under the very eye of the duly-appointed agent. He was in the 
 office of the agent, transacting the business of the company. He did 
 this for a year or more. Thrall himself doing very little of the business. 
 In obtaining the four money orders in question, Rohrbough simply 
 transacted business in that office as he had done on several prior occa- 
 sions. Aside from the fact that he paid no fees, as he ought to have 
 done, and as he must have known he should have done, there is nothing 
 in the circumstances and facts of the case calculated to suggest to him 
 that there was anything irregular or unusual in the mode of trans- 
 acting business in that office. It is true that the company reposed its 
 confidence and trust in Thrall, the agent, and had nothing to do direct- 
 ly with Scroll, but the agent in charge of the office of the company 
 permitted these orders to go out in exchange for Rohrbough's money. 
 Thrall had not abandoned the office or his agency. He was still in 
 charge, and to all appearances the business of the company was con- 
 ducted in obedience to his judgment, discretion, and control, but exe- 
 cuted in its detailsin a ministerial way by an assistant, just as is usual 
 in any other office in which considerable business is done. 
 
 The order says on its face that it must be countersigned by the agent, 
 but not that he shall sign his name personally. That direction is con- 
 tained in a set of rules furnished the agents by the company, which 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENT's POWER 515 
 
 are not made public, and of which parties deaHng with them have no 
 notice. Moreover, theV Irelate not to what the agents may do but how 
 they may execute their powers. If they related to the extent of the pow^ 
 ers or authority of the agent to contract, the question would be a more 
 serious one. The company had put Thrall in control of its business, 
 and held him out to the public as its agent, clothed with all the au- 
 thority usually pertaining to such agencies, and without notifying the 
 public in any way that it required him to personally sign his name to 
 the orders; and Rohrbough had no notice of the requirement. "A 
 principal is bound by the acts of the agent, whether general or special, 
 within the authority he has actually given him, which includes not only 
 the precise act which he expressly authorizes him to do, but also what- 
 ever usually belongs to the doing of it, or is necessary to its perform- 
 ance. Beyond that, he is bound by the acts of the agent within the 
 apparent authority which the principal himself knowingly permits the 
 agent to assume, or which he holds the agent out to the public as pos-. 
 sessing." 1 Am. & Eng. Enc. Eaw (2d Ed.) 988. The company did 
 not specifically hold Thrall out to the public as having authority to 
 allow another person to sign his name to the orders ; but it did so hold 
 him out as having authority to issue the orders, and that includes coun- 
 tersigning them, and did not make public the specific instruction to 
 personally sign them. If an agent disregards specific instructions as 
 to the mode of executing his powers, his acts are nevetheless binding 
 upon his principal, as regards third parties having no notice of such 
 instructions. 1 Am. & Eng. Enc. Eaw (2d Ed.) 994. * * * So, 
 if the case turned solely upon the failure of Thrall to personally sign 
 the orders, and his permitting Scroll to sign his name and to do the 
 other ministerial acts of receiving the money and issuing the orders, 
 the case would be for the plaintiff. 
 
 There are, however, other facts to be considered. Rohrbough says 
 Scroll charged him no fees on the money orders, and that he had been 
 in the habit of obtaining them at that office from Scroll without pay- 
 ing fees. * * * The evidence shows that it was apparent to Rohr- 
 baugh that the agent had no authority to make such a contract on be- 
 half of his principal. * * * jf Rohrbough had not been a party to 
 the transaction, and had not known that the agent was acting in excess 
 of his powers, he might hold the company responsible to him. But 
 he was a party to it, and did know of the failure of the agent to act 
 within the limits of his powers. * * * Rohrbough had knowledge 
 of conduct on the part of Scroll which was well calculated to arouse a 
 suspicion on the part of any ordinarily prudent man, and sufficient 
 to deter him from transacting any business with him. He must have 
 regarded as unusual, and as importing infidelity to the company, the 
 conduct of Scroll in coming to him repeatedly and soliciting him to 
 turn over money to him in exchange for orders of the company, with- 
 out requiring payment of the ordinary charges thereon. * * * 
 
 The judgment must be reversed, and judgment for the defendant 
 must be entered. 
 
 PLANKINTON PACKIOSTG 00. v. BERRY. 
 (Supreme Court of Michigan, 191T. 199 Mich. 212, 165 N. W. 676.) , 
 It is sought to recover the price of two shipments of meat, consign- 
 ed by plaintiff to defendant upon the order of one Roy Berry. The 
 goods were invoiced at $193.13. 
 
516 AGENCY (Part 2 
 
 Plaintiff is a corporation, conducting a wholesale meat business at 
 Milwaukee, Wis, In May, 1914, defendant's son, Roy Berry, bought 
 out a retail meat business in Petoskey, which he conducted frpm that 
 time until early in October of the same year, when he failed. About 
 the time the market was opened, the defendant, Alice Berry, a resi- 
 dent of Petoskey, gave her son $200 to put into the business. He was 
 then about 31 years of age, and was not residing with his mother, but 
 was married and maintaining a home of his own. Upon receiving the 
 $200, he at once opened a checking account with a local bank under 
 the designation of "Alice Berry, Shop Account." Defendant did not 
 know of this arrangement in advancer but, immediately after opening 
 the account, Roy told her what he had done, and explained that it 
 would be necessary for her to sign the checks. To her inquiry why 
 he had put the account in her name, he merely replied: "Well, it's 
 all right ; you can check it out." And she let it stand that way with- 
 out protest. 
 
 Within a few days defendant began to receive letters bearing the 
 return card of various wholesale meat firms. She testificjii that she 
 did not open these letters, but sent for her son and asked for an ex- 
 planation, saying it did not look right for letters to come in her name 
 from meat firms, and that he replied : "That is all right. Don't wor- 
 ry about that at all. That money was in your name and you have 
 to sign those checks. Now that is all there is to it. There is nothing 
 out of the way with it." 
 
 She claims that nothing further was said about the matter, and that 
 she continued to turn Over to him all letters from meat firms that came 
 addressed to her, without opening them and without further inquiry. 
 The checks on the bank account were, according to defendant's testi- 
 mony, signed by her in blank and delivered to her son. She claims she 
 did not know the amounts of the checks, nor to whom they were to 
 be made payable. She admits that the canceled checks were returned 
 to her by the bank, but states that she burned them without examining 
 them to see how they had been filled out. 
 
 Plaintiff's salesman, William Schrader, called at the meat market 
 every week and took orders for meat, and the goods ordered through 
 him were shipped by plaintiff, consigned and invoiced to Alice Berry, 
 and were obtained from the carriers by Roy Berry. Mr. Schrader 
 collected each week from Roy Berry the amount due for goods re- 
 ceived by him the preceding week, as per terms of the orders, and the 
 payments were made by checks signed "Alice Berry, Shop Account," 
 and delivered to Schrader by Roy Berry. Mr. Schrader testified that 
 occasionally the check was not ready when he came, and that he would 
 wait while Roy went over to his mother's to get a check signed. De- 
 fendant claims she had no knowledge that any goods were being pur- 
 chased in her name or upon her credit, nor that Roy Berry was deal- 
 ing with plaintiff. 
 
 Before the account was opened with Mrs. Berry, plaintiff, through 
 its credit manager, made the usual investigations as to the identity 
 and responsibility of defendant, and upon the basis of the informa- 
 tion obtained extended credit to her, and to her alone. Neither prior 
 to nor during the continuance of these dealings did plaintiff ever in- 
 quire of defendant herself as. to the authority of Roy Berry to order 
 goods shipped in her name and upon her credit. Mr. Schrader testi- 
 fied he never saw Mrs. Berry nor had any conversation, writing, or 
 
Ch. 1) SOURCE AND SCOPE OP THE AGENT's POWER 517 
 
 correspondence with her, though she continued to reside in Petoskey 
 during the entire period of these transactions. All goods ordered by 
 Roy Berry of plaintiff were paid for, except those which came in the 
 two shipments in question, which, together, represent the last order 
 Berry gave. When Schrader arrived in Petoskey the week after this 
 order was given, he found that Berry had failed and that the market 
 was closed. This was in the early part of October, 1914. He saw 
 Berry, however, and asked him on several occasions to pay for these 
 goods, and Berry said that he would take care of it. 
 
 Suit was brought by plaintiff against Alice Berry before a justice 
 of the peace, who rendered judgment in favor of defendant, and 
 upon appeal the trial in the circuit court, without a jury, resulted in 
 a like judgment. 
 
 KuHN, C. J. * * * This case was tried before the court, and the 
 learned trial judge at the conclusion of the hearing made written find- 
 ings of fact and of his conclusions of law. * * * 
 
 The judge made the following finding: "There is no evidence in 
 this case of anything said or done by defendant, with knowledge on 
 her part that plaintiff might be led to rely thereon, tending to show 
 that Roy Berry had authority to buy any goods in her name or upon 
 her credit." 
 
 With this conclusion we cannot agree, because we are of the opin- 
 ion that this record discloses that the defendant, by her course of 
 conduct, permitted it to appear that her son was her agent for the 
 purpose of conducting this business, and, because of her conduct in 
 relation thereto, she is estopped to deny such agency to the injury of 
 the plaintiff, who in good faith and, as we believe, in the exercise of 
 reasonable prudence, dealt with the agent on the faith of such ap- 
 pearances. The issuing by her of the blank checks over a period of 
 several months, the receipt of letters from the 'meat packers, the 
 knowledge that the checks were to be used, and were used, in the 
 business of the meat market, and the failure of the defendant to ex- 
 amine the letters or the paid and canceled checks as returned to her 
 by the bank, was such a course of conduct on her part, in our opin- 
 ion, as to force the legal conclusion that her authority to her son to 
 act for her as agent would be conclusively presumed so far as it may 
 be necessary to protect the rights of the plaintiff, who relied thereon 
 in good faith and in the exercise of reasonable prudence. 
 
 The general rule is thus stated by Mr. Mechem, in his work on 
 Agency, in discussing this question, paragraph 246, where it is said: 
 "Gathering together all of these elem.ents, it may be stated as a gen- 
 eral rule that whenever a person has held out another as his agent 
 authorized to act for him in a given capacity, or has knowingly and 
 without dissent permitted such other to act as his agent in that capac- 
 ity, or where his habits and course of dealing have been such as to 
 reasonably warrant the presumption that such other was his agent au- 
 thorized to act in that capacity— whether it be in a single transaction 
 or in a series of transactions — his authority to such other to so act 
 for him in that capacity will be conclusively presumed to have been 
 given, so far as it may be necessary to protect the rights of third per- 
 sons who have relied thereon in good faith and in the exercise of rea- 
 sonable prudence; and he will not be permitted to deny that such 
 other was his agent authorized to do the act he assumed to do, pro- 
 
518 AGENCY (Part 2 
 
 vided that such act was within the real or apparent scope of the pre- 
 sumed authority." * * * 
 
 Upon this record the circuit judge should have entered a judgment 
 for the plaintiff for the amount of its claim. The case will be re- 
 versed, and a new trial granted, with costs to the appellant. 
 
 WHEELEK V. McGUIRE et al. 
 (Supreme Court of Alabama, 1888. 86 Ala. 398, 5 South. 190, 2 L. R. A. 808.) 
 
 Action by McGuire, Scroggins & Co. against Joseph Wheeler, to re- 
 cover for goods sold. Verdict was rendered for plaintiffs, and de- 
 fendant appeals. 
 
 Clopton, J. Appellees seek to recover the price of certain goods, 
 which they allege were sold and delivered to appellant through T. A. 
 Tatham, as his agent. The agency was not disputed, but defendant 
 contends that Tatham was in his employ merely as a' clerk, and was 
 not authorized to purchase goods on a credit and bind him. The plain- 
 tiffs contend that Tatham was a general agent, having authority to 
 transact all of defendant's mercantile business, or was held out by 
 defendant, or permitted to hold himself out, as such, so as to justify 
 the belief that he was clothed with the powers of a general agent. 
 The question mainly controverted by the parties relates to the charac- 
 ter of the agency and the extent of his authority. 
 
 The general rule is that one who deals with an agent is bound to 
 ascertain the nature and extent of his authority, but in the applica- 
 tion of the rule a distinction is observed between general and special 
 agencies. The power to do everything necessary to its accomplishment 
 may be included in a particular agency, so that private instructions 
 as to the particular, mode of execution, which are not intended to be 
 communicated and are not communicated to the party with whom the 
 agent may deal, will not be regarded as limitations on his power. But 
 with this qualification a special authority must be strictly pursued. A 
 general agent may exceed his express authority, and the principal, 
 nevertheless, be bound. The scope and character of the business 
 which he is empowered to transact is, as to third persons, the extent 
 and measure of his authority. By his appointment the principal is 
 regarded as saying to the public that he has the authority to transact 
 the business in the usual and customary modes. Secret limitations 
 on his power, or private instructions as to the mode of transacting 
 the business, will not affect the rights of third persons who have no 
 notice of such limitations or instructions. 
 
 When a general agent transacts the business intrusted to him with- 
 in the usual and ordinary scope of such business, he acts within the 
 extent of his authority, and the principal is bound, provided the party 
 dealing with the agent acts in good faith, and is not guilty of negli- 
 gence which proximately contributes to the loss. * * * Third per- 
 sons, dealing with a person as a general agent, are not acquitted of all 
 duty to inquire and ascertain the character and extent of his agency ; 
 but if on inquiry ascertained to be general, actually or apparently, 
 they are not bound to inquire whether there are secret limitations or 
 private instructions, unless they have knowledge of facts which should 
 put them on such inquiry. As to these issues, the burden is on the 
 plaintiffs to establish by proof that Tatham was the general agent of 
 defendant, or that the latter, by acts, conduct, or negligence, justified 
 
Ch. 1) SOURCE AND SCOPE OF THE AGENT's POWER 519 
 
 the belief that he had authority to purchase goods on credit for the 
 store. If these issues be found in favor of plaintiffs, no subsequent 
 misconduct of the agent, misappropriating the goods or otherwise, will 
 affect their rights. 
 
 After having given a general charge, which in the main is in accord 
 with the foregoing principles, the court instructed the jury, at the 
 instance of the plaintiffs, that if defendant employed Tatham, and put 
 him in charge of his retail store at Wheeler's Station, to conduct his 
 mercantile business, and placed money to his credit in Louisville, Ky.. 
 and Nashville, Tenn., and authorized him to use this money, and also 
 that taken in from cash sales, to replenish the stock, and instructed 
 him not to purchase on credit, he was, as to innocent third persons, 
 the general agent of defendant in that business, and had authority to 
 do whatever was usual or customary in conducting the same; and if 
 plaintiffs sold to Tatham, as such agent, the goods for the price of 
 which this suit is brought, their verdict must be for plaintiffs, unless 
 they had notice that Tatham's authority was limited to purchases for 
 cash. In considering the correctness of the instruction, any evidence, 
 if there be such, tending to show that Tatham was apparently clothed 
 with the powers of a general agent, cannot be taken into consideration. 
 The proposition of the charge is that as to third persons the facts re- 
 cited therein, of themselves, without the aid of extrinsic facts and cir- 
 cumstances, constituted Tatham a general agent, possessing authority 
 to purchase goods on credit. In other words, he was a general agent 
 as to plaintiffs, though they may have known the terms of his em- 
 ployment, including the deposit of money with which to purchase 
 goods, except the instruction not to purchase on credit. 
 
 The most general jXDwers that may be conferred on an agent are 
 necessarily limited to the bvtsiness or purpose for which the agency is 
 created. The terms of the employment of Tatham, "in charge of his 
 retail store at Wheeler's Station to conduct his mercantile business," 
 in connection with the limitations on his authority to purchase, limit 
 his powers as a general agent to the transaction of the local mercan- 
 tile business of defendant. In the matter of buying goods, his power 
 was expressly restricted to the use of money specially deposited for 
 that purpose, and to cash receipts. In appointing Tatham his agent, 
 defendant withheld power to buy and pledge his credit under any cir- 
 cumstances. By the terms of the commission, Tatham may be re- 
 garded a general agent to conduct the local business of the store, with 
 special powers to purchase. To construe it otherwise would be to 
 establish a rule that a merchant who furnishes his clerk with funds 
 to purchase goods and make immediate payment clothes him with 
 power to buy on his principal's credit, and that persons dealing with 
 him are relieved of the obligation to ascertain the nature and extent 
 of his warrant of authority. This would press too far the applica- 
 tion of the doctrine of general agency. * * * 
 
 [For this and other reasons, the judgment was reversfed, and the 
 cause remanded for a new trial.] 
 
520 AGENCY (Part 2 
 
 CHAPTER II 
 EELATIONS OF THE PRINCIPAL AND THIRD PERSONS 
 
 Section 
 
 1. Eights and Liabilities of the Disclosed Prindpal. 
 
 2. Eights and Liabilities of the Undisclosed Principal, 
 
 3. Eatification. 
 
 4. Master's Liability for Torts of the Servant. 
 
 SECTION 1.— RIGHTS AND LIABILrTlES OF THE 
 DISCLOSED PRINCIPAL 
 
 It appears from the preceding chapter that, if an agent enters 
 into a contract with a third party in the name of his principal and 
 with power to do so, either as a result of authority granted to 
 .him by the principal or because the law, under the circumstances, 
 attaches a liability upon him in the absence of a direct grant of au- 
 thority, the resulting contract is between the principal and the 
 third party. The rights and duties of the principal and the third 
 party, in this event, are of the same nature as they would have 
 been, had the parties entered into a contract without the inter- 
 vention of the agent. No cases are here inserted to illustrate fur- 
 ther this fundamental principle of the law of agency. The first 
 series of cases is concerned with the question : In what form must 
 an agent sign his principal's name to a contract or other written 
 instrument in order to bind the principal, and in order to avoid his 
 own personal liability on such contract? We are assuming a case 
 where the agent possesses the requisite power to bind his principal, 
 and the remaining question is: Did the agent enter into the con- 
 tract in behalf of his principal, or did he execute the contract in his 
 own behalf? 
 
 The last case in the section discusses a situation which has an 
 important bearing upon the principal's liability. Frequently one's 
 rights and duties, particularly with respect to property, are affected 
 by the knowledge or lack of knowledge of some fact. In the event 
 that the agent possesses the knowledge which is material in a given 
 transaction, are the principal's rights to be affected, just as though 
 he, individually, possessed such knowledge? Is notice to an agent 
 notice to the principal? 
 
 SIMONDS et al. v. HEAED et al. 
 
 (Supreme Judicial Court of Massachusetts, 1839. 23 Pick. 120, 
 34 Am. Dec. 41.) 
 
 This was assumpsit upon a contract in writing, dated May 4, 1837, 
 between the plaintiffs and the defendants, for the construction of the 
 abutments of a bridge by the plaintififs. 
 
 The introductory part of the contract was in the following words : 
 "Agreement between Horace Heard, Eli Sherman and Newell Heard 
 [the defendants], committee of the town of Wayland, on the one part, 
 and William Simonds and John Chaplin [the plaintiffs], on the other 
 
Ch. 2) RELATIONS OF TUB PRINCIPAL AND THIRD PERSONS 521 
 
 part;" and after a specific description of the work to be done, the 
 contract . proceeded as follows: "Said Simonds and Chaplin hereby 
 warrant the above walls to stand firmly and in good order for one 
 year from the completing of the same, and are to take as much of the 
 old bridge as they need for platform for said walls and also all the 
 wall near there. Said committee are to pay said Simonds and Chap- 
 lin the sum of three hundred and seventy-five dollars, when said work 
 is completed, provided said Simonds and Chaplin give a sufficient bond 
 with sureties for the warranty as expressed within." The contract 
 was' signed by the defendants with their own names, simply, and by 
 the plaintiffs. 
 
 Shaw, C. J. Two points were made for the defendants in the pres- 
 ent case: First, that the defendants having acted as a committee of 
 the town of Wayland, in making the contract with the plaintiffs, and 
 that, in relation to the erection of a bridge, in which they had no per- 
 sonal concern, but which was the concern of the town, and being duly 
 authorized by the town to act in their behalf, were not personally 
 liable to an action on the contract; and, secondly, that the work had 
 not been executed according to contract. 
 
 The latter was submitted to the jury as a question of fact, who 
 found for the plaintiffs, that the contract had been duly executed on 
 their part. The other is a question of law, and turns upon the con- 
 struction of the contract, which is set forth in the case. ,It has been 
 fully argued, and many authorities are cited on both sides. 
 
 The question, whether a contract made by persons acting, or pro- 
 fessing to act, as agents for others, binds their principals, or themselves, 
 or both, is often one of great difficulty. The cases run so closely into 
 each other that whether a particular contract falls within one or the 
 other of these lines it is not easy to determine. 
 
 Some rules are well settled ; as, where an agent acts within the scope 
 of his authority, and professes to act in the name and behalf of his 
 principal, he is not personally liable! So, one standing and acting in 
 a public capacity, who makes a contract in behalf of the public, is 
 not personally Hable. * * * But this rule is not applicable to the 
 present case, it not being a contract in behalf of the public, but, at 
 most, of a corporation capable of making contracts and liable to an 
 action on its contracts. * * * We think also that it is manifest, 
 from the subject-matter of the contract, and from their describing 
 themselves as a committee, that they were acting under some authority 
 from the town. 
 
 But without going into all the distinctions on this very prolific sub- 
 ject, there is one rule, well established by authorities, and defined with 
 a good degree of certainty, which is applicable to this case. It is 
 this, that although an agent is duly authorized, and although he might 
 avoid personal liability by acting in the name and behalf of his prin- 
 cipal, still, if by the terms of his contract he binds himself personally, 
 and engages expressly in his own name to pay, or perform other ob- 
 ligations, he is responsible, though he describe himself as agent. 
 
 * * * Where one, as president of an incorporated company, hav- 
 ing -authority to make notes, signed a promissory note by which he 
 promised to pay, it was held that: he was Hable, upon the personal 
 engagement and promise to pay, though he described himself as pres- 
 ident of such company, and that it was not the note of the company. 
 
 * * * A known agent of a country bank, drawing a bill and di- 
 
522 AGENCY (Part 2 
 
 recting the drawees to place the amount to the account of such bankj 
 was helil personally liable. * * * In a more recent case, where 
 the solicitors to the assignees of a bankrupt, gave an agreement to 
 this effect, "We, as solicitors, etc., do hereby undertake to pay," it was 
 held, that they were persona:lly bound. Burrell v. Jones, 3 Barn. & 
 Aid. 47. ' In this case Mr. Justice Bayley says: "It is clear that an 
 agent may so contract as to make himself personally liable, and I 
 think the words here used; 'we undertake,' are sufficient to place the 
 defendants in that situation." Norton v. Herron, 1 Carr. & Payne, 
 648; Eaton T. Bell, 5 Barn. & Aid. 34. 
 
 In examining this contract, the court are of opinion that it falls 
 clearly within this rule. The introductory part is an agreement "be- 
 tween Horace Heard, Eii Sherman and Newell Heard, committee of 
 the town of Wayland, on the one part, and William Simonds and John 
 Chapin, on the other part"; and after a specific description of the 
 work to be done, the contract on the part of the defendants is this: 
 "Said committee are to pay said Simonds and Chapin the sum of three 
 hundred and seventy-five dollars, when said work is completed," etc. 
 
 Two things are here observable. The first is, that they do not pro- 
 fess to act in the name or behalf of the town, otherwise than as such 
 an intention may be implied from describing themselves as a commit- 
 tee. But such description, although it may have some weight, is far 
 from being conclusive, and in many of the cases cited, a similar des- 
 ignation was used, which was held to be a mere descriptio personarum, 
 and designed to show for whose account the contract was made, and 
 to whose account the amount paid under such contract should be 
 chatged. The second and more decisive circumstance respecting this 
 contract is, that here is an express undertaking on the part of the 
 committee to pay. "Said committee are to pay said Simonds and 
 Chapin," etc. Having described themselves as a committee, this un- 
 dertaking is as strong and direct as if the names had been repeated, 
 and Heard, Sherman, and Heard had promised to pay. 
 
 The court are therefore of opinion that, by the terms of this con- 
 tract, the committee intended to bind themselves, and did become per- 
 sonally responsible, and that the action is well brought against them. 
 * * * 
 
 Judgment on the verdict for the plaintiffs. 
 
 AVERY et al. v. DOUGHERTY. 
 (Supreme Court of Indiana, 18S5. 102 Ind. 443, 2 N. E. 123, 52 Am. Rep. 680.) 
 
 ElIvIOTT, J. In the promissory notes upon which the complaint of 
 the appellee is founded, the description of the payee is Oliver R. Dough- 
 erty. The answer to the complaint is in two paragraphs, but, as they 
 are substantially the same, it is only necessary to give a synopsis of' 
 one of them. It is alleged that the sole consideration of the notes was 
 the execution of a lease by the plaintiff to the defendants Monroe and 
 Madison Avery. * * * 
 
 The introductory clause of the lease reads thus : "This agreement, 
 made this 25th day of December, 1880, between Randolph Marshall, 
 agent of Oliver Dougherty, guardian of his minor children, and Madi- 
 son Avery a,nd Monroe Avery," and the instrument is signed, "Ran- 
 dolph V. Marshall, Agent of O. R. Dougherty." 
 
 The appellee's counsel assert that the lease is executed by Marshall, 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 523 
 
 and not by Dougherty, and that the allegation that it was executed 
 by the latter js overthrown by the -exhibit. * * * It is also true 
 that mere descriptive words are regarded as simply describing the per- 
 son. * * * The rule is firmly ingrafted in our law, but it is not 
 easy to find any real ground for it in this country, where there are no 
 titles, designating rank or condition in life. In England there was 
 reason for the rule; here there is none. The better doctrine would 
 be that the words annexed to the name may be explained by extrinsic 
 evidence; but the rule has been too long and too firmly settled to be 
 shaken now. While accepting the general rule to be that stated, the 
 American authorities agree that, if the contract itself shows that the 
 words were not used as merely descriptive of the person, they will 
 not be so regarded, but will be assigned their real meaning. In the 
 instrument before us it clearly appears that Marshall was the agent 
 of the lessor, and acted as such, for we find this recited: "That the 
 said Marshall, agent as aforesaid, has rented to Madison and Monroe 
 Avery." There are other provisions in the instrument clearly show- 
 ing that Marshall executed the lease as the agent of Dougherty, and 
 we have no doubt that it should be treated as having been executed by 
 him, and that the improper description of the lessor in the introductory 
 clause of the lease must be attributed to the unskillfulness of the 
 draftsman of the instrument. * * * 
 Judgment affirmed. 
 
 WHITNEY V. WYMA:n^ et al. 
 (Supreme Court of the United States, 1879. 101 U. S. 392, 25 L. Ed. 1050.) 
 
 SwAYNE, J. This action was brought to recover the value of cer- 
 tain machinery manufactured by the plaintiff in error, which he al- 
 leged he had sold and delivered to the defendants. The defendants 
 insisted that they had contracted for and received the machinery in 
 behalf of a corporation of which they were officers, and that hence they 
 were not personally liable. The plaintiff lived in Massachusetts and 
 the defendants in Michigan. 
 
 The latter addressed a letter to the former, which was as follows : 
 
 "Grand Haven, Feby. 1, 1869. 
 "Baxter Whitney, Esq., Winchenden, Mass. : 
 
 "Sir: Our company being so far organized, by direction of the 
 officers, we now order from you, inanufactured and shipped, at as early 
 date as possible — for the manufacture of the Mellish fruit basket — 1 
 large rounding lathe, 1 quart do. do., 2 lathes for peach basket bottoms, 
 3 do. do. quart do. do., pint do. do. Also the necessary small fixtures 
 for clasping, etc. of which Mr. Whitney is advised, and will give you 
 more definite order. Charles Wyman, 
 
 "Edward P. Ferry, 
 "Carlton L. Storrs, 
 "Prudential Committee Grand Haven Fruit Basket Co." 
 To which the plaintiff replied : 
 
 "Winchenden, Mass., Feb. 10, 1869. 
 "Grand Haven Fruit Basket Company: 
 
 "Gentlemen: Yours of the 1st inst. is received, in which you order 
 machinery for fruit baskets, etc. I had already anticipated your order 
 by commencing on the machinery on Mr. Whitney's verbal order, and 
 I am now driving it with all the force I can get on it. 
 
 "Yours respectfully, Baxter D. Whitney." 
 
524 AGENCY (Part 2 
 
 * * * The plaintiff charged the defendants individually on his 
 books for the machinery. His draft [on the defendants] was protest- 
 ed. * * * 
 
 The machinery was delivered at Grand Haven, and the freight was 
 paid by Edward P. Ferry as the treasurer of the corporation. The 
 draft of Baxter was protested, because it was addressed to the drawees 
 individually. They claimed that he had no right so to draw on them. 
 * * * 
 
 The court instructed the jury, in substance, that the letter of the 
 prudential committee of February 1, 1870, bound the corporation and 
 not the defendants, if there was then a corporation and the defendants 
 were authorized by it to give the order. * * * The plaintiff ex- 
 cepted to these instructions. * * * The jury found for the de- 
 fendants. 
 
 Where the question of agency in making a contract arises, there is 
 a broad line of distinction between instruments under seal and stipu- 
 lations in writing not under seal, or by parol. In the former case the 
 contract must be in the name of the principal, must be under seal, and 
 must purport to be his deed and not the deed of the agent covenanting 
 for him. * * * 
 
 In the latter case the question is always one of intent ; and the court, 
 being untrammeled by any other consideration, is bound to give it 
 effect. As the meaning of the law-maker is the law, so the, meaning 
 of the contracting parties is the agreement. Words are merely the 
 symbols they employ to manifest their purpose that it may be carried 
 into execution. If the contract be unsealed and the meaning clear, 
 it matters not how it is phrased nor how it is signed, whether by the 
 agent for the principal or with the name of the principal by the agent 
 or otherwise. 
 
 The intent developed is alone material, and when that is ascertained 
 it is conclusive. Where the principal is disclosed, and the agent is 
 known to be acting as such, the latter cannot be made personally liable 
 unless he agreed to be so. 
 
 Looking at the letter of the defendants of the first of February, 1869, 
 and the answer of the plaintiff of the 10th of that month, we cannot 
 doubt as to the understanding and meaning of both parties with re- 
 spect to the point in question. 
 
 The former advised the latter of the progress made in organizing the 
 corporation; that the order was given by the direction of its officers, 
 and the letter is signed by the writers as the "Prudential Committee 
 of the Grand Haven Fruit Basket Co.," which was the, name in full 
 of the corporation. The plaintiff addressed his reply to the "Grand 
 Haven Fruit Basket Co.," thus using the name of the corporation as 
 the party with whom he knew he was dealing, and omitting the names 
 of the defendants, and their designation as a committee, according to 
 the style they gave themselves in their letter. 
 
 It seems to us entirely clear that both parties understood and meant 
 that the contract was to be and, in fact, was with the corporation, and 
 not with the defendants individually. * * * The record shows 
 clearly that the plaintiff was not entitled to recover, and that the ver- 
 dict and judgment are right. * * * 
 
 The judgment of the Circuit Court is affirmed. 
 
Ch. 2) RELATIONS OF THE PEINCIPAL AND THIRD PERSONS 525 
 
 SMITH et al. v. ALEXANDER. 
 (Supreme Court of Missouri, 1860. 31 Mo. 193.) 
 
 EwiNG, J. This was an action on the following instrument : "$500. 
 St. Louis, Mo., July 22, 1855. Ninety days after date, I promise to 
 pay to the order of Messrs. Smith & Co. five hundred dollars, for value 
 received, negotiable and payable without defalcation or discount. 
 [Signed] J. H. Alexander,: Treas'r Ohio & Miss. R. R. Co." " 
 
 On the trial, the plaintiff having read the note jn evidence, the de- 
 fendant introduced testimony showing that he was the treasurer of 
 the Ohio & Mississippi Railroad, and tending to prove that the note 
 sued on was given by him in liquidation of an indebtedness due to the 
 plaintiffs from that company, and that defendant received no consid- 
 eration for the giving of said note. The ruling of the court was ex- 
 cepted to by the plaintiff in admitting this evidence, as also in giving 
 and refusing instructions. 
 
 The general rule usually laid down respecting sealed contract is 
 not applicable in its full extent to written contracts not under seal. 
 In reference to these, it is said to be clear from the authorities that it 
 is not indispensable, in order to bind the principal, that such a con- 
 tract should be executed in the name and as the act of the principal. 
 It will be sufficient if upon the whole instrument it can be gathered, 
 from the terms thereof, that the party describes himself and acts as 
 agent and intends thereby to bind the principal and not to bind him- 
 self. Story, Ag. § 160. 
 
 And in reference to corporations (as to which the tendency of mod- 
 ern decisions, it would seem, is to relax somewhat the strict rules on 
 this subject) it is said that if, from the contract itself, or from this 
 coupled with the conduct of the parties thereto, it appears that credit 
 was given, not to the agent, but to the corporation, and it appears to 
 have been the intent of the parties that the corporation should be bound, 
 the corporation is alone liable, irrespective of the particular form of 
 the contract. 
 
 Owing to the great diversity in the form of the instruments involv- 
 ing questions of this character, the adjudged cases furnish no general 
 rule more definite than that referred to ; and many of them have little 
 applicability to other cases except in their general principles. In some 
 of the authorities cited, the execution of the instrument in the form of 
 that before us has been held the individual obligation of the person 
 signing it, and not that of the individual or company indicated by thf 
 addition to the signature, such addition being regarded merely as de- 
 scriptio personarum, while in others it has been held sufficient on its 
 face to avoid personal liability. Although it would appear to be by no 
 means settled that such a mode of execution — ^the mere addition of 
 the official character to the name — is tantamount to a disclaimer of 
 personal responsibility, it is deemed such an indication of the rep- 
 resentative character as to warrant a resort to parol evidence, not of 
 course to contradict or vary the writing, but to explain it. The pur- 
 pose of introducing parol evidence in such cases is to prove extrinsic 
 circumstances, by which the respective liability of the principal and 
 agent may be determined, such as to which the consideration passed 
 and credit was given, the agent's authority, etc. When the names of 
 both principal and agent appear on the instrument, and the contract. 
 
526 AGENCY (Pa]-t3 
 
 though in the name of the agent, discloses a reference to the business of 
 the principal, so that the instrument as it stands is consistent with ei- 
 ther view of its heing the engagement of the principal or of the agent, 
 parol evidence is admissible in a suit against the agent to charge him 
 by showing either that credit was given to him or that he.had not au- 
 thority to bind the principal, or to discharge him by proving that the 
 consideration passed directly to his principal, etc. 1 Amer. Lead. Case, 
 453, and authorities there cited. 
 
 Justice Johnson, in Mechanics' Bank v. Bank of Columbia, 5 Wheat. 
 336, 5 L. Ed. 100, says it is enough for the purpose of the defendant 
 to establish that there existed on the face of the paper circumstances 
 from which it might reasonably be inferred that the transaction was 
 either an individual or a corporate one, in which case it becomes in- 
 dispensable to resort to extrinsic evidence to remove the doubt. In 
 that case parol evidence was admitted to prove that character or ca- 
 pacity in which the check was drawn ; and the only evidence on its 
 face of its being a corporate transaction was the corporate name in the 
 caption. A mere addition to the name of the party signing a contract 
 cannot be regarded as a certain indicium that it was made on behalf 
 of another. Where, however, it is doubtful from the face of the con- 
 tract whether it was intended to operate as a personal engagement of 
 the party signing it, or to impose an obligation on some third person 
 as his principal, parol evidence is admissible to show the true charac- 
 ter of the transaction. * * * 
 
 In this view of the case, we see no error in giving the instruction 
 asked by the defendant and refusing those asked by the plaintiff. 
 
 Judgment affirmed. * * * 
 
 HALL & BROWN WOODWORKING MACHINE CO. v. HALEY 
 FURNITURE & MFG. CO. et al. 
 
 (Supreme Court of Alabama, 1911. 174 Ala. 190, 5G South. 726, 
 L. R. A. 1918B, 924.) 
 
 SoMERViLLE, J. This is an action of detinue by the appellant 
 against the Haley Furniture & Manufacturing Company, and W. T. 
 Archer, assignee. The appellee duly intervened as claimant of the 
 property sued for, filing his affidavit of claim, and the appropriate 
 issue was made up, and the trial proceeded thereon. The affidavit 
 did not state the nature of the right of the claimant as required by 
 Code, §• 6043. * * * 
 
 The subject-matter of the suit is a lot of machinery sold by the 
 plaintiff to said Haley Company in February, 1906, and delivered in 
 April following, except one item which reached the consignee as late 
 as about June 12th. Only about one-third of the purchase money was 
 to be paid on delivery, and to secure the payment of the balance the 
 vendor retained the title and possessory right in itself until the price 
 of. the machinery was fully paid, as shown by the written contract 
 and notes in evidence. This written contract was filed for record on 
 August 3, ,1906, and in the meantime, on June 18, 1906, the claim- 
 ant Sheffield Company (now appellee) loaned to the defendant Haley 
 Company $6,000, the latter executing to the fonner as security there- 
 for a mortgage deed conveying certain property in the city of Sheffield 
 described as- "all of block numbered four hundred and forty-eight 
 (448) together with all buildings and improvements thereon, and all 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 527 
 
 ipachinery and appliances thereat, together with the appurtenances." 
 It does not appear that this mortgage has ever been foreclosed. 
 
 The tendency of the testimony of the two witnesses, C. L. Haley 
 and J. J. Challen, introduced by the plaintiff, was to show that in the 
 loan transaction of June 18th, in which the Haley Company secured 
 the loan of $6,000 from the Sheffield Trust Company, the Trust Com- 
 pany was represented by one J. W. Worthington, who was a director 
 and stockholder, but not an officer, in said Trust Company ; that said 
 Worthington was at the same time president of the Sheffield National 
 Bank; that said witnesses, who were respectively president and sec- 
 retary and treasurer of the Haley Company, negotiated with said 
 Worthington in the months of January, February, March, and April, 
 1906, for the purpose of getting a loan for the Haley Company ; that 
 Worthington promised to get such a loan for them, and stated that he 
 would secure it from a trust company about to be organized; that 
 during these negotiations in January and February it was explained 
 to Worthington that the loan was to be used in the purchase of the 
 machinery in controversy; that the contract of sale between the 
 plaintiff and said Haley Company, one of the terms of which provided 
 for the reservation of the title and right of possession until the pur- 
 chase money was paid, was exhibited to Worthington and its terms 
 gone over with him, and then left with him for several days for his in- 
 spection; that the Sheffield Trust Company was not organized and 
 had no existence until May 26, 1906; and that no conversations with 
 Worthington, nor information to him as to the status of the title to 
 the machinery occurred on or after May 26, nor any later than March, 
 1906. For the claimant, all of ihe testimony as to information given 
 him concerning plaintiff's claim to the machinery is vigorously denied 
 by Worthington, as well as any' knowledge whatever on his part of 
 such a claim, either before or during his agency. * * * 
 
 On motion of the claimant, the trial court excluded all the testi- 
 mony of the two witnesses Haley and Challen as to conversations and 
 transactions between them and J. W. Worthington relative to the 
 property sued for, and relative to their negotiations with him for a 
 loan from the claimant company; the ground of objection being, sub- 
 stantially, that any notice to Worthington of plaintiff's claim, before 
 the organization of the claimant company,- and hence before his agen- 
 cy for it began, was not notice to the claimant, nor binding on it. The 
 question presented by this ruling is the vital question in the case. 
 
 By a long line of decisions, this court is thoroughly committed to 
 the rule that knowledge acquired by an agent prior to his agency, or 
 in regard to matters outside the line of his duty, or while pursuing 
 his own or some other person's business, is not notice to Eis principal 
 of such fact or facts, and is not binding upon him. * * * 
 
 The fundamental requirement is that such knowledge on the part 
 of an agent to bind his principal "must be limited to such knowledge 
 or information as comes to the agent in transacting the business of 
 his principal." Central of Ga. Ry. Co. v. Joseph, 125 Ala. 319, 28 
 South. 37. This is a simple rule, easy of application, and just in its 
 results. _ _ ■ 
 
 Where the agent's knowledge is of this character, it is construc- 
 tive notice to the principal entirely regardless of the principal's ac- 
 tu^ knowledge. * * * This is usually explained by saying that the 
 law conclusively presumes that the agent has in fact comniunicated 
 
528 AGENCY (Part 2 
 
 his knowledge to his principal. We think, however, that the better 
 and more logical explanation is that with respect to the given trans- 
 action; the agent is in law identified with his principal; that knowl- 
 edge that comes to the agent, while acting in such matter for his 
 principal, would have come to the principal had he been acting for 
 himself; and that, as a rule of policy and justice, he must be equal- 
 ly charged therewith. * * * 
 
 But on either theory, the rule is not a rule of evidence merely, as 
 is sometimes declared, but a rule of substantive law. The Alabama 
 rule, as above defined, is not in accord with the weight of authority 
 in other jurisdictions, as pointed out by Mr. Freeman in his valuable 
 note to Trentor v. Pothen, 46 Minn. 298, 49 N. W. 129, 24 Am. St. 
 Rep. 228-233, where the cases on both sides are collected and dis- 
 cussed; and as shown by Mr. Pomeroy in his third edition of Equity 
 Jurisprudence (volume 2, § 672, and notes). It appears from these 
 authorities that the more generally accepted rule is that the agent's 
 knowledge, though acquired previously to his agency, if retained by 
 him and carried with him into the subsequent business which he trans- 
 acts for his new principal, is notice to the latter whether communicat- 
 ed to him or not. 
 
 This rule we regard as both illogical and unjust — a criticism which is 
 fully vindicated by a consideration of the numerous and unpractical 
 qualifications and exceptions which courts expounding the rule have 
 been compelled to adopt. In this connection we note Mr. Pomeroy's 
 observation that "several of the ablest English judges have, in recent 
 cases, expressed a decided opinion against the rule itself, and while 
 considering themselves bound by it, as far as it is settled, have wished 
 that it should be abrogated by the Legislature." 2 Pom. Eq. Jur. (3d 
 Ed.) § 672, note 1. We adhere to the rule as settled by our own cases 
 cited above. * * * 
 
 Constructive notice to the principal through the actual knowledge 
 of the agent is not a rule of evidence, but one of substantive law. 
 Given notice to or knowledge of the agent, received while so acting, 
 and the principal is conclusively bound by it; not because he ever 
 knows it in fact, because his actual knowledge is utterly immaterial; 
 but because as to the thing the agent is doing the agent is in law the 
 principal, and the principal is in law the agent. Their legal identity 
 is complete. Nor can it matter, in this aspect of the rule, whether 
 the agent has, or has not, private reasons or interests which make it 
 likely or even certain that he will not inform his principal, as correct- 
 ly ruled in First Nat. Bank v. Allen, 100 Ala. 476, 14 South. 335, 27 
 L. R. A. 426, 46 Am. St. Rep. 80. 
 
 On the other hand, the actual knowledge of the principal, when ma- 
 terial, may be proved like any other fact. It is the duty of an agent 
 to inform his principal of every material fact within his knowledge, 
 no matter when acquired, bearing upon the subject-matter of his 
 agency, which may affect the interests of his principal with respect 
 thereto; and it will be presumed that he has discharged this duty. 
 * * * Here we have a true rule of evidence — a presumption of law 
 that a duty has been discharged, from which follows the further pre- 
 sumption that the principal has acquired the knowledge of his agent. 
 But this presumption like others of a similar nature, is disputable, and 
 not conclusive. Unless rebutted, it is sufficient to fasten upon the 
 principal, not an unreal constructive, notice which is incontestable, but 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 529 
 
 simply an implied actual notice which is contestable. A failure to 
 distinguish between these entirely distinct principles has, in our judg- 
 ment, produced most of the confusion and contrariety of judicial 
 opinion which seems to have always attended the consideration of 
 this subject by the courts. See the cases cited in 31 Cyc. 1594, note 
 50. * * * 
 
 The rule of implied notice, as above stated, unless there is direct 
 evidence showing that the imputed knowledge was present in the 
 agent's mind during his agency, must obviously depend upon the an- 
 terior presumption of fact that the knowledge in question has thus 
 persisted in his memory, so as to be available for communication sea- 
 sonably to his principal. 
 
 The law does not presume that a fact once known is never forgot- 
 ten, for this is contrary to all human experience. Nor is the remote- 
 ness or lateness of its acquisition as knowledge by the agent in all 
 cases the most important consideration, for all experience teaches that 
 much that we learned in the remote past ineradicably persists in our 
 memories, while unimportant events of yesterday have been already 
 forgotten. This particular issue then rests in inference, and is for the 
 jury to determine. 
 
 If the jury find that the knowledge was present in the agent's mind 
 during the execution of the agency, then they must find as matter of 
 law that the principal was duly informed, unless they are reasonably 
 satisfied to the contrary from other evidence before them. We do 
 not mean to say that the agent's prior knowledge may not be so remote 
 in point of time, or so lacking in clearness or apparent importance, as 
 to justify the trial court in presuming, prima facie, that it has been 
 forgotten. * * * 
 
 The information acquired by Worthington from the witnesses Haley 
 and Challen, being acquired prior to the period of his agency for 
 claimant, did not operate as constructive notice of it. But their tes- 
 timony in this regard was admissible in evidence for the purpose of 
 showing actual knowledge of plaintiff's claim on the part of the claim- 
 ant corporation, under the principles above declared; and its exclu- 
 sion was error prejudicial to appellant. 
 
 Other assignments of error need not be noticed, as the questions 
 presented will hardly recur upon another trial. 
 
 Reversed and remanded. * * * 
 
 SECTION 2.— RIGHTS AND LIABILITIES OF THE 
 UNDISCLOSED PRINCIPAL 
 
 LINDQTjIST v. DICKSON. 
 
 (Supreme Court of Minnesota, 1906. 98 Minn. 369, 107 N. W. 958, 6 L. R. A. 
 [N. S.] 729, 8 Ann. Gas. 1024.) 
 
 Action by August Lindquist against Ella M. Dickson. There was 
 a verdict for plaintiff, and from an order denying motion for a new 
 trial, defendant appeals. 
 
 Start, C. J. Action to recover from the defendant, as an undis- 
 closed principal, for labor and material performed and furnished by 
 B.& B.Btts.Law— 34 
 
530 AGENCY (Part 2 
 
 the plaintiff in decorating and repairing her house, pursuant to an 
 alleged contract made for her by' her husband, Joseph M; Dickson. 
 The complaint alleged, in effect, that at the time the contract was 
 entered into with the husband he was in fact acting as agent for his 
 wife, the defendant, but he failed to disclose to the plaintiff the fact 
 of such agency, or the fact that she was the real party in interest and 
 owned the house, the decorating and improvement of which was the 
 subject-matter of the contract; that the plaintiff performed the contract 
 on his part; that he was not paid therefor; and that he commenced an 
 action against the husband to recover the balance due him on the 
 ■contract, and on August 29, 1904, he recovered judgment against him 
 for the sum of $273.68, no part of which has been paid ; and further 
 that thereafter (in the month of October, 1904) the plaintiff learned for 
 the first time that the defendant was the real party in interest, and that 
 the contract was made for her by her husband as her agent. This 
 action was commenced in the month of June, 1905. * * * The trial 
 resulted in a verdict in favor of the plaintiff for the amount stated, and 
 the defendant appealed from an order denying her motion for a new 
 trial. * * * 
 
 It is not controverted that the plaintiff, at the time the contract 
 was made, understood that the house he was to decorate and improve 
 l)elonged to the husband, and that he was dealing with him as prin- 
 cipal, and further that he recovered judgment against the alleged agent 
 upon the same claim which is the basis of this action, in ignorance of 
 such alleged agency. It is the contention of the defendant that such 
 judgment is a bar to this action. The general rule is that, where a 
 simple contract, by parol or writing, is made by an authorized agent 
 without disclosing his principal, and the other contracting' party subse- 
 quently discovers the real party, he may abandon his right to look 
 to the agent personally and resort to the principal. * * * gut 
 whether the creditor can proceed against the undiscovered principal, 
 after he has obtained a judgment on his claim against the agent, is a 
 question as to which the adjudged cases are conflicting. In the case 
 of Kingsley v. Davis, 104 Mass. 178, the creditor, after being fully 
 informed that the party with whom he made the contract was acting 
 for an undiscovered principal, brought an action against the agent and 
 recovered judgment for his claim. Afterwards he brought an action 
 against the principal to recover for the same claim, and the court held 
 that the action against the principal could not be maintained for the 
 reason that : "The general principle is undisputed that, when a person 
 ■contracts with another who is in fact an agent of an undiscovered prin- 
 cipal, he may upon the discovery of the principal resort to him or 
 to the agent with whom he dealt at his election. But if, 'after having 
 come to a knowledge of all the facts, he elects to hold the agent, he 
 cannot resort to the principal." In Beymer v. Bonsall, 79 Pa. 298, it 
 was held that nothing short of satisfaction of the judgment against the 
 agent would discharge the principal. 
 
 The case of Kingsley v. Davis suggests the true basis for solving 
 the question. It is a question of election. Election implies full knowl- 
 edge of the facts necessary to enable a party to make an intelligent and 
 deliberate choice. * * * We therefore hold upon principle, and 
 what seems to be the weight o'f judicial opinion, that: If a person con- 
 tracts with another, who is in fact an agent of an undisclosed princi- 
 pal, and, after learning all the facts, brings an action on the contract 
 
Ch. 2) EELATIONS OF THE PRINCIPAL AND THIRD PERSONS 531 
 
 and recovers judgment against the agent, such judgment will be a 
 
 bar to an action against the principal. But an unsatisfied judgment 
 
 against the agent is not a bar to an action against the undiscovered 
 
 principal when discovered, if the plaintiff was ignorant of the facts 
 
 as to the agency when he prosecuted his action against the agent. 
 * * * 
 
 Order affirmed. 
 
 VAN DYKE V. VAN DYKE. 
 (Supreme Court of Georgia, 1905. 123 Ga. 6S6, 51 S. E. 5S2, 3 Ann. Cas. 978.) 
 
 Mary J. Van Dyke brought suit against Alice M. Van Dyke, alleg- 
 ing in brief as follows: The defendant is indebted to the plaintiff in 
 the sum of $1,440, besides interest, which indebtedness was created 
 as follows : On April 25, 1899, E. A. Van Dyke, the husband of the 
 defendant, who the plaintiff knew had been the owner of 32 shares of 
 the capital stock of the Merchants' National Bank, of St. Paul, Minn., 
 came to the plaintiff, and informed her that the stock had been as- 
 sessed 45 per cent, of its face value, and that it was necessary, in or- 
 der to prevent it from being sold, to pay the assessment, and that he 
 should send to the bank at once the amount of the assessment, and 
 requested plaintiff to lend him the sum for that purpose. Plaintiff 
 loaned him the amount, and the money was used in paying off and 
 discharging the assessment of the stock. The stock was in fact then 
 standing on the books of the bank in the name of the defendant. It 
 was afterwards sold, and the proceeds were sent by a check payable 
 to the order of defendant, and were used, as defendant claims, by her, 
 to the extent of $1,440, in paying for certain improvements on land 
 which she claims to own. At the time the loan was made the plaintiff 
 did not know that the stock stood in the name of the defendant, but 
 believed that it belonged to her husband. Believing him to be the 
 true owner, she took from him a note for the amount of the loan. 
 A copy of the note is attached to the declaration. She has since learned 
 that at the time she made the loan Van Dyke was acting as agent for 
 his wife in borrowing the sum to pay off the assessment on the stock. 
 Plaintiff elects to proceed against the defendant as the undisclosed 
 principal for whom the money was borrowed. By reason of the facts 
 aforesaid "defendant became liable to plaintiff in the sum of $1,440 
 besides interest." * * * 
 
 On motion the court dismissed the action on two grounds: First, 
 that the declaration set out no cause of action, for the reason that the 
 allegations disclosed that it was based on a contract under seal, and 
 in such a case the law would not permit the plaintiff to proceed against 
 the undisclosed principal when discovered; and, second, that the al- 
 legations of the petition disclosed that the plaintiff parted with her 
 money on an express contract under seal, and no action can be main- 
 tained against the defendant for money had and received. The plain- 
 tiff excepted. 
 
 Lumpkin, j_ * * * The general rule with reference to holding 
 an undisclosed principal liable upon the contract of his agent is thus 
 stated in Civ. Code 1895, § 3024: "If an agent fails to disclose his 
 principal, yet, when discovered, the person dealing with the agent 
 may go directly upon the principal, under the contract, unless the prin- 
 cipal shall have previously accounted and settled with the agent." This 
 
532 AGENCY (Part 21 
 
 is a codification of the law as it stood prior to the original Code of 
 1863, and is not an innovation resulting from legislative enactment. In 
 Lenney v. Finley, 118 Ga. 718, 45 S. E. 593, it was held that: "The 
 rule that an undisclosed principal shall stand liable for the contract of 
 his agent does not apply when the contract is under seal. Accordingly, 
 a lease under seal, executed by an agent as lessee in his individual 
 name, and which does not purport to be executed on behalf of the 
 principal, is not binding upon the latter, ahhough it appears from ex- 
 trinsic evidence that the lessee was the general agent .to conduct a 
 business for his principal, and that the premises were leased to be 
 used in such business." We are asked to review and reverse this 
 decision, but the court declines to change the ruling* then made. An 
 examination of the authorities cited in the opinion will show that it 
 was not without foundation. * * * In 1 Am. & Eng. Enc. L. (2d 
 Ed.) 1141, it is said: "It has been laid down as a common-law doc- 
 trine that, when a contract is made by an instrument under seal, no 
 one but a party to the instrument is liable to be sued upon it, and 
 therefore, if made by an agent or attorney, it must be in the name of 
 the principal, in order that he may be a party, because otherwise he 
 is not bound by it. * * * Some of the later decisions, however, 
 qualify this doctrine by holding that when a sealed contract has been 
 executed in such form that it is in law the contract of the agent, and 
 not of the principal, but the principal's interest in the contract appears 
 upon its face, and he has received the benefit of the performance by 
 the other party, and has ratified and confirmed it by acts in pais, and 
 the contract is one which would have been valid without a seal, the 
 instrument will be binding on the principal." * * * Some courts 
 hold that negotiable instruments do not fall within the general rule, 
 and that an imnamed principal cannot be sued on them. See Clark 
 on Contracts, § 275, p. 519 and notes. 
 
 It is contended that the rule applies only to instruments which were 
 specialties at common law, as to which a seal was necessary ; and that 
 in cases where the instrument would be valid without a seal the ad- 
 dition of a seal would not bring it within the rule. There are some 
 authorities holding or tending to hold this to be the rule. See Stowell 
 V. Eldred, 39 Wis. 614; Wagoner v. Watts, 44 N. J. Law, 126; 
 Shuetze v. Bailey, 40 Mo. 69, 75. The distinction drawn in this line 
 of authorities, however, has not been followed in Georgia. * * * 
 From what has been said it follows the plaintiff could not have re- 
 covered against the defendant on the note given by the husband of 
 the latter. 
 
 It is contended, however, that, whether the plaintiff can recover on 
 the note or not, she has a cause of action against the defendant aside 
 from the note, under the facts alleged. The case of Farrar v. Lee, 
 10 App. Div. 130, 41 N. Y. Supp. 672, was very similar to that now 
 under consideration. It is there said: "That the liability rested en- 
 tirely upon the bond, in which any preliminary contract was merged ; 
 that, as the bond was signed by Tanner [the agent] in his own name, 
 and not as agent for Lee [the principal], it was not competent to trans- 
 fer by parol evidence, or in any other way, from Tanner to Lee, the 
 obligation which Tanner had assumed personally;" In the case cf 
 Lenney v. Finley, supra, it was contended that, if the concealed prin- 
 cipal was not liable on the contract of lease by reason of its being un- 
 der seal, nevertheless, having occupied the premises and used them. 
 
Ch. 2) KBLATIONS OF THE PRINCIPAL AND THIRD PERSONS 533 
 
 for the purpose of conducting business, she was liable to the plaintiff. 
 This contention was denied by the court. * * * 
 
 Under the allegations of the petition the trial court committed no 
 error in sustaining the demurrer. 
 
 Judgment affirmed. 
 
 FEADLBY v. HITLANB. 
 
 (United States Circuit Court, Southern District of New York, 1888. 
 37 Fed. 49, 2 L. K. A. 749.) 
 
 Libel by one Fradley against Hyland for supplies furnished one 
 Gibson, respondent's agent in charge of a canal boat. Decree for 
 libelant as to the first cause of action, and respondent appeals. 
 
 Wallace, J. The libel sets forth two causes of action for sup- 
 plies purchased by one Gibson. * * * fhe facts which appear in 
 evidence are these : During the period in which the supplies were 
 purchased, one Gibson, who was the owner, and was managing certain 
 canal boats of his own, was employed by the appellant, to manage 
 certain canal boats for the latter. Gibson was to obtain enjployment 
 for the boats, and return the net earnings monthly to appellant, after 
 paying for all repairs and supplies, and deducting his own commis- 
 sions. His instructions were not to obtain supplies upon credit, but, 
 if not in funds from the earnings, to call upon the appellant. Month- 
 ly settlements of account took place between Gibson and the appel- 
 lant, in which Gibson was allowed all items for supplies paid or con- 
 tracted for by him against the earnings of the boats, and a considera- 
 ble fund was always left in his hands by the appellant. Gibson ceased 
 to act as appellant's agent September 1, 1886. The supplies were 
 sold to him prior to that time. The libelant supposed that Gibson was 
 the owner of all the boats he was managing, and dealt with him as 
 such, selling him supplies for all indiscriminately, charging the price 
 to him, and taking his notes from time to time, or those of one Isham, 
 his clerk. The claim to recover the part of these supplies used on 
 appellant's boats is the first cause of action set forth in the libel. 
 * * * 
 
 As to the first cause of action no question is made by the appellant 
 that it is not of admiralty cognizance, but he insists that he is not 
 liable as a principal for the supplies sold to his agent by the libelant, 
 under the circumstances of the case. The general rule is familiar that, 
 when goods are bought by an agent, who does not at the time dis- 
 close that he is acting as agent, the seller, although he has relied solely 
 upon the agent's credit, may, upon discovering the principal, resort to 
 the latter for payment. But the rule which allows the seller to have 
 recourse against an undisclosed principal is subject to the qualifica- 
 tion stated by Lord Mansfield in Railton v. Hodgson, 4 Taunt. 576, 
 ani by Tenterden, C. J., and Bayley, J., in Thomson v. Davenport, 
 9 Barn. & C. 78. As stated by Mr. Justice Bayley, it is "that the 
 principal shall not be prejudiced by being made personally liable if 
 the justice of the case is that he should not be personally liable. If 
 the principal has paid the agent, or if the state of accounts between 
 the agent here and the principal would make it unjust that the seller 
 should call on the principal, the fact of payment or such a state of 
 accounts would be an answer to the action brought by the seller, 
 where he has looked to the responsibility of the agent." The prin- 
 cipal must respond to and may avail himself of a contract made with 
 
534 AGENCY (Part 2 
 
 another by an undisclosed agent. When he seeks to enforce a bar- 
 gain or purchase made by his agent the rule of law is that, if the 
 agent contracted as for himself, the principal can only claim subject 
 to all equities of the seller against the agent. In the language of 
 Parke, B. : "He must take the contract subject to all equities, in the 
 same way as if the agent were the sole principal" (Beckham v. Drake, 
 9 Mees. & W. 98), and accordingly subject to any right of set-off on 
 the part of the seller (Borries v. Bank, 29 L. T. N, S. 689). 
 
 Thus the rights of the principal to enforce and his liability upon, 
 a contract of sale or purchase made by his agent, without disclosing 
 the fact of the agency, are precisely co-extensive, as regards the oth- 
 er contracting party, if the limitation of his liability is accurately 
 stated in the earlier cases. The qualification of the principal's liability 
 to respond to his agent's contract, as stated in the earlier authorities 
 mentioned, was narrowed by the interpretation adopted in Heald v. 
 Kenworthy, 10 Exch. 739, to the effect that the principal is not dis- 
 charged from full responsibility unless he has been led by the conduct 
 of the seller to make payment to or settle with the agent ; and the doc- 
 trine of this case has been reiterated in many subsequent cases, both 
 in England and in this country, where the agent did not contract as 
 for himself, but as a broker, or otherwise as representing an undis- 
 closed principal. One of the more recent English cases of this class 
 is Davison v. Donaldson, 9 Q. B. Div. 623. But, as is shown in Arm- 
 strong V. Stokes, L. R. 7 Q. B. 599, the version of Heald v. Kenwor- 
 thy, while a correct interpretation of the rule of the principal's lia- 
 bility, when applied to cases in which the seller deals with the agent 
 relying upon the existence of an undisclosed principal, is not to be 
 applied in those in which the seller has given credit solely to the agent, 
 supposing him to be the principal. This case decides that the prin- 
 cipal is not liable if he has in good faith paid the agent at a time when 
 the seller still gave credit to the agent, and knew of no one else. See, 
 also, Irvine v. Watson, 5 Q. B. Div. 102. 
 
 Under such circumstances it is immaterial that the principal has not 
 been misled by the seller's conduct or laches into paying or settling 
 with his agent. It is enough to absolve him from liability that he has 
 in good faith paid or settled with his agent. In that case the court 
 was dealing with a contract made by an agent which was within the 
 scope of the authority conferred on him, but which was nevertheless 
 made by the agent as though he were acting for himself as princi- 
 pal. In the present case Gibson had no authority at all to make a pur- 
 chase upon the credit of the appellant. But as it appears that appel- 
 lant, in the monthly settlements of account with Gibson, allowed him 
 out of the earnings charges for supplies for which the latter had not 
 actually paid, he must be deemed to have authorized Gibson to pur- 
 chase supplies for him upon Gibson's own credit, Under the circum- 
 stances, if Gibson had purchased supplies, purporting to act as an 
 agent of appellant in doing so, appellant, by consenting to their being 
 used for his benefit, and by allowing the price in his settlements with 
 Gibson, would have been liable to those who sold to him upon the the- 
 ory of ratification. But, as Gibson did not assume to act as agent in 
 making the purchases, there is no basis for applying the doctrine of 
 ratification. 
 
 Very different considerations govern the case in which an agent 
 who assumes to represent an undisclosed principal buys of a seller 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 535 
 
 upon credit, and one in which the agent assumes to be acting for 
 himself, and the seller deals with him, and gives him exclusive cred- 
 it, supposing him to be the only principal. In the first, if the agent 
 has authority, express or implied, to buy upon credit for the princi- 
 pal, or ostensible authority to do so, upon which the seller relies, then, 
 by the familiar rules of law, the contract is the contract of the prin- 
 cipal, and is none the less so because the name of the principal does 
 not happen to have been disclosed. The principal is bound by the 
 acts of his agent within the scope of his real or apparent authority; 
 and the seller understands that, even though he may hold the agent 
 personally responsible, he may also resort to the undisclosed principal. 
 But in the other, as the seller does not rely upon any ostensible au- 
 thority of the one with whom he contracts to represent a third person, 
 he can only resort to the third person as principal, and charge him as 
 such, when the purchase is made by one having lawful authority to 
 bind the third person. It is immaterial, in such a case, whether the 
 contract is made by an ageint who is employed, in a continuous employ- 
 ment or in a single transaction, by a principal, or whether he is one 
 who may be deemed a general, instead of a special agent. "When the 
 agency is not held out by the principal by any acts or declarations or 
 implications to be general in regard to the particular act or business, 
 it must from necessity be construed according to its real nature and 
 extent; and the other party must act at his own peril, and is bound 
 to inquire into the nature and extent of the authority actually con- 
 ferred. In such a case there is no ground to contend that the principal 
 ought to be bound by the acts of the agent beyond what he has ap- 
 parently authorized, because he has not misled the confidence of the 
 other party who has dealt with the agent." Story, Ag. § 133. 
 
 It is therefore difficult to understand how, as an original proposi- 
 tion, it could be reasonably maintained that there is any liability on 
 the part of one who has employed another to manage his interests in a 
 business, or series of transactions, in which, as an incident, purchases 
 of goods are to be made, has given him instructions not to purchase 
 on credit, and has supplied him with funds to purchase for cash, to 
 a seller who has \ sold to the person employed upon credit, and dealt 
 with him as the only principal. * * * Of course he would be liable, 
 ' and the instructions not to buy on credit would go for nothing, if he 
 did not supply the agent with funds to pay for the necessary goods, 
 because in that case the agent would have implied authority to buy 
 them on credit. So, also, in a case which may be supposed, where a 
 principal knows, or ought to know, that the agent is buying on credit 
 in his own name, yet the principal takes all the income of* the business 
 without making any provision for payment to those who have trusted 
 the agent, the principal would be liable, because in such a case his con- 
 duct would be inconsistent with good faith, and he ought not to be 
 permitted to avail himself of the benefits without incurring full re- 
 sponsibility for the agent's acts. But it is probably too late to con- 
 sider the questions thus suggested upon principle; and it may be ac- 
 cepted as law that the seller, under the circumstances of a case like 
 the present, upon discovery of the principal, can resort to and recover 
 of him, if he has not bona fide paid the agent in the meantime, or 
 has not made such a change in the state of the account between the 
 agent and himself that he would suffer loss if he should be compelled 
 to pay the seller. Story, Ag. § 291 ; * * * Laing v. Butler, 37 
 
536 AGENCY (Part 2 
 
 Hun, 144. In the case last cited the court used, this language,: 
 "Where the piirchase has been madp by the agent upon credit au- 
 thorized by the principal, but without disclosing his name, and pay- 
 ment is subsequently made by the principal to the agent in good faith 
 before the agency is disclosed to the seller, then the principal would 
 not be liable." 
 
 According to these authorities, if it should be conceded that the 
 facts in the present case warrant the inference that the appellant gave 
 Gibson authority to bUy either upon his own credit or upon the credit 
 of the appellant, the libelant cannot recover. It certainly is not ma- 
 terial that the appellant did not pay Gibson, or make any settlement 
 with him, on account of the libelant's demands specifically. It is 
 enough that he did settle with Gibson for, and allowed him to retain 
 in his hands sufficient moneys to pay, all outstanding liabilities con- 
 tracted by him for the appellant's benefit, including the demands of 
 the libelant. At the time of the last settlement the appellant had paid 
 the libelant's demands and all outstanding liabilities contracted by Gib- 
 son as between Gibson and himself, and this was before the libelant 
 knew any principal in the purchases other than, Gibson hinjself. 
 
 The libel is dismissed, with the costs of this court and of the Dis- 
 trict Court. 
 
 HUBBARD V. TEN BROOK. 
 
 (Supreme Court of Pennsylvania, 1889. 124 Pa. 291, 16 Atl. 817, 
 2 L. R. A. 823, 10 Am. St. Rep. 585,) 
 
 MlTCHELiy, J. * * * The agency, though stated in the objection- 
 able form of an inference from the previously recited evidence is 
 clearly intended to be averred, and may fairly be so treated. Taking 
 the statement, therefore, in its plain intent, it sets out that plaintiff sold 
 and delivered a quantity of hams to one Sides, who was conducting a 
 grocery business in his own name, but with the property and as the 
 agent of defendants. The defendants filed an affidavit of defense, and 
 a supplementary one, the substance of which is that "'Sides was not 
 the agent of defendants to purchase from plaintiffs, or any one else," 
 and that he "was employed as salesman only by said defendants, with- 
 out any authority whatever to act for or bind defendants for the pur- 
 chase of any goods or merchandise upon credit of the said defend- 
 ants." We have thus the question presented whether an agent may 
 be put forward to conduct a separate business in his own name, and 
 the principal escape liability by a secret limitation on the agent's au- 
 thority to purchase. The answer is not at all doubtful. A man con- 
 ducting an apparently prosperous and profitable, business obtains credit 
 thereby, and his creditors have a right to suppose that his profits go 
 into his assets for their protection in case of a pinch or an unfavora- 
 ble turn in the business. To allow an undisclosed principal to absorb 
 the profits, and then, when the pinch comes, to escape responsibility 
 on the ground of orders to his agent not to buy on credit, would be a 
 plain fraud on the public. No exact precedent has been cited. None 
 is needed. 
 
 The rule so vigorously contended for by the plaintiff in error, that 
 those dealing with an agent are bound to look to his authority, is freely 
 conceded; but this case falls within the equally established rule that 
 those clothing an agent with apparent authority are, as to parties deal- 
 
Ch. 2) ekijAtions of the principal and third persons 537 
 
 ing on the faith of such authority, conclusively estopped from deny- 
 ing: it. The affidavits set up no available defense, and the judgment is 
 affirmed. 
 
 SECTION 3.— RATIFICATION 
 
 DEMPSEY V. CHAMBERS. 
 
 (Supreme Judicial Court of Massachusetts, 1891. 154 Mass. 330, 
 28 N. E. 279, 18 L,. R. A. 219, 26 Am. St. Rep. 249.) 
 
 Holmes, J. This is an action of tort to recover damages for the 
 breaking of a plate-glass window. The glass was broken by the neg- 
 ligence of one McCuUock while delivering some coal which had been 
 ordered of the defendant by the plaintiff. It is found as a fact that 
 McCullock was not the defendant's servant when he broke the win- 
 dow, but that the "delivery of the coal by [him] was ratified by the de- 
 fendant, and that such ratification made McCullock in law the agent 
 and servant of the defendant in the delivery of the coal." On this 
 finding the court ruled "that the defendant, by his ratification of the 
 delivery of the coal by McCullock, became responsible for his negli- 
 gence in the delivery of the coal." The defendant excepted to this 
 ruling, and to nothing else. We must assume that the finding was war- 
 ranted by the evidence, a majority of the court being of the opinion 
 that the bill of exceptions does not purport to set forth all the evi- 
 dence on which the finding was made. Therefore the only question 
 before us is as to the correctness of the ruling just stated. 
 
 If we were contriving a new code to-day we might hesitate to say 
 that a man could make himself a party to a bare tort in any case merely 
 by assenting to it after it had been committed. But we are not at lib- 
 erty to refuse to carry out to its consequences any principle which we 
 believe to have been part of the common law simply because the grounds 
 of policy on which it must be justified seem to us to be hard to find 
 and probably to have belonged to a different state of society. 
 
 It is hard to explain why a master is liable to the extent that he is 
 for the negligent acts of one who at the time really is his servant, act- 
 ing within the general scope of his employment. Probably master and 
 servant are "feigned to be all one person" by a fiction which is an 
 echo of the patria potestas and of the English frankpledge. * * * 
 Possibly the doctrine of ratification is another aspect of the same tra- 
 dition. The requirement that the act should be done in the name of 
 the ratifying party looks that way. * * * 
 
 The earliest instances of liability by way of ratification in the Eng- 
 lish law, so far as we have noticed, were where a man retained prop- 
 erty acquired through the wrongful act of another. * * * g^t in 
 these cases the defendant's assent was treated as relating back to 
 the original act, and at an early date the doctrine of relation was 
 carried so far as to hold that, where a trespass would have been justi- 
 fied if it had been done by the authority by which it purported to have 
 been done, a subsequent ratification might also justify it. * * * 
 
 If we assume that an alleged principal, by adopting an act which was 
 unlawful when done can make it lawful, it follows that he adopts it at 
 his peril, and is liable if it should turn out that his previous command 
 would not have justified the act. It never has been doubted that a 
 
538 AGENCY (Part 2 
 
 man's subsequent agreement to a trespass done in his name and for his 
 
 benefit amounts to a command so far as to make him answerable. 
 * * * 
 
 Doubts have been expressed, which we need not consider, whether 
 this doctrine appHed to a case of a bare personal tort. * * * jf 
 a man assaulted another in the street out of his own head, it would 
 seem rather strong to say that if he merely called himself my serv- 
 ant, and I afterwards assented, without more, our mere words would 
 make me a party to the assault, although in such cases the canon law 
 excommunicated the principal if the assault was upon a clerk. * * * 
 Perhaps the application of the doctrine would be avoided on the ground 
 
 that the facts did not show an act done for the defendant's bene- 
 gj._ * * * 
 
 But the language generally used by judges and text- writers, and 
 such decisions as we have been able to find, is broad enough to cover 
 a case like the present, when the ratification is established. * * * 
 
 The question remains whether the ratification is established. As 
 we understand the bill of exceptions, McCullock took on himself to 
 deliver the defendant's coal for his benefit, and as his servant, and the 
 defendant afterwards assertted to McCuUock's assumption. The rati- 
 fication was not directed specifically to McCullock's trespass, and that 
 act was not for the defendsint's benefit, if taken by itself, but it was 
 so connected with McCullock's employment that the defendant would 
 have been liable as master if McCullock really had been his servant 
 when delivering the coal. We have found hardly anything in the 
 books dealing with the precise case, but we are of opinion that con- 
 sistency with the whole course of authority requires us to hold that 
 the defendant's ratification of the employment established the rela- 
 tion of master and servant from the beginning, with all its incidents, in- 
 cluding the anomalous liability for his negligent acts. * * * The 
 ratification goes to the relation, and establishes it ab initio. The rela- 
 tion existing, the master is answerable for torts which he has not 
 ratified specifically, just as he is for those which he has not com- 
 manded, and as he may be for those which he has expressly forbid- 
 den. * * * 
 
 For these reasons, in the opinion of a majority of the court, the 
 exceptions must be overruled. 
 
 EOSEBERKY et al. v. HART-PAER CO. 
 (Supreme Court of Minnesota, 1920. 176 N. W. 175, 145 Minn. 142.) 
 
 Action by W. A. Roseberry and E. A. Bjork, copartners doing 
 business under the name and style of Roseberry & Bjork, against the 
 Hart-Parr Company. Verdict for plaintiffs, motion for new trial 
 denied, and defendant appeals. Order affirmed. 
 
 Lees, C. In September, 1917, plaintiffs signed an order for the 
 purchase from defendant of an oil tractor. They claim that it was 
 represented to them that the factory or wholesale price of the tractor 
 was $2,915. This was the price specified in the order, and it was to 
 be paid by the execution of three notes of $800 each and by the deliv- 
 ery of a Universal tractor, valued at $515, which plaintiffs owned. In 
 obtaining the order, defendant was represented by its agents, Mjoen 
 and Schweich. The order was accepted, the notes executed, and the 
 Universal tractor delivered and the tractor ordered was shipped to 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 539 
 
 plaintiffs who paid the freight charges, amounting to $124. In April, 
 1918, one of the notes being overdue and unpaid, it was agreed that 
 plaintiffs should return the tractor and that defendant should sell it 
 and credit them on their notes with the amount received. This agree- 
 ment was carried out; the tractor being resold for $1,750. In Jan- 
 uary, 1919, plaintiffs learned of facts which led them to believe that 
 the factory price of the tractor when they ordered it was $1,750 in- 
 stead of $2,915, and in February they brought this action, demand- 
 ing judgment for the unpaid balance of their notes together with $515 
 for their old tractor and $124 freight paid on the new one, or, in 
 lieu thereof, judgment for the return and cancellation of the notes 
 and for $639 and interest. 
 
 The complaint alleged that to induce plaintiffs to sign the or- 
 der, defendant's agents falsely represented that the factory price of 
 the tractor was $2,915; that the representation was made with intent 
 to deceive plaintiffs ; that they believed it to be true and were thereby 
 induced to make the purchase; and that in fact such price was only 
 $1,750. There was a trial by jury, and plaintiffs had a verdict for 
 the full amount of their claim. A motion for a new trial was denied, 
 and defendant appeals. * * * 
 
 Plaintiffs ■ were allowed, over defendant's objection, to testify that 
 they were induced to sign the order because Mjoen told them he would 
 sell them the tractor at the wholesale or factory price and save them 
 the dealer's commission, and that such price was $2,915. The second 
 contention is that the court erred in receiving this testimony in view 
 of the following provisions contained in the order ; " * * * ]\jo 
 employe of Hart-Parr Company unless authorized in writing from 
 party duly empowered to delegate such authority, has any authority 
 to bind the company by any statement, act, or agreement." * * * 
 
 It is claimed that it precludes plaintiffs from asserting that defend- 
 ant was bound by the alleged misrepresentation because they had no- 
 tice that defendant would not recognize or be bound by any state- 
 ments made by its agents unless they were printed in the order blank 
 it supplied or were authorized in writing by the company. This con- 
 tention runs counter to a settled principle of the law of agency. It is 
 this : When a principal retains the benefits of a contract obtained for 
 him by his agent, he cannot repudiate the acts of the agent which in- 
 duced the other party to the contract to enter into it on the ground that 
 such acts were unauthorized. Defendant is here insisting that it has 
 the right to retain plaintiffs' notes and the Universal tractor. It may 
 be granted that in the first instance it neither authorized nor knew of 
 the representations made by its agents, but when this action was 
 brought and it asserted a right to the fruits of their acts, even though 
 they were done without authority, it assumed the same responsibility 
 for them as though they had been authorized and were within its 
 Icnowledge originally. This court has stated the rule substantially as 
 follows: One who adopts the unauthorized act of another done in 
 Tiis behalf and receives the benefits thereof is held to adopt and ratify 
 the "instrumentalities by which such benefits were obtained. By ac- 
 cepting a contract procured by the fraud of his agent, even though 
 the agent acted contrary to his authority, he takes the contract with 
 whatever taint attached to its origin. * * * 
 
 The claim that, if the alleged misrepresentation may be shown, a 
 pew term is added to the order, in violation of the pagol evidence rule, 
 
540 AGENCY (Part 2 
 
 cannot be sustained. Parol evidence is always admissible to show 
 that a party to a contract was induced to enter into it through fraudu- 
 lent representations. The purpose of such evidence is to show that the 
 contract was procured by fraud and impeach its validity as a whole, 
 and not to change or modify its terms. * * * We hold that the 
 testimony under consideration was properly received and that defend- 
 ant was not entitled to a dismissal at the close of plaintiff's case. 
 * * * 
 
 Finding no error in the record the order denying a new trial is af- 
 firmed. 
 
 BAILEY et al. v. PARDEID6E et al. 
 (Supreme Court ol Illinois, 1890. 134 111. 188, 27 N. E. 89.) 
 
 Assumpsit by Joel J. Bailey & Co. against C. W. & E. Pardridge, 
 for goods sold to defendants for plaintiffs by one Holmes, a salesman 
 for plaintiffs. Defendants obtained judgment, which was affirmed by 
 the appellate court. Plaintiffs bring. error. 
 
 Craig, J. The question presented by this record is one not entire- 
 ly free from difficulty. As to the main features of the case there is no 
 substantial controversy in regard to the facts. Holmes had posses- 
 sion of the samples, and claimed authority to sell and receive the 
 pay therefor. The defendants purchased the samples, paid Holmes 
 for them by check, payable to Joel J. Bailey & Co. or bearer, and he 
 delivered the goods. So far as appears, defendants acted in perfect 
 good faith, relying upon the representations of Holmes. * * * 
 But it may be said that Holmes was not empowered by plaintiffs to sell 
 the goods; that he merely held the samples as. a means to solicit or- 
 ders. A sufficient answer to this position is that the acts of plaintiffs 
 since the sale may be regarded as a ratification. Where the owner, 
 where goods have been sold without authority, sues the purchaser for 
 the amount of .the contract price for which the goods were sold, the 
 sale, although unauthorized, will be regarded as ratified. * * * 
 
 In the case under consideration, as soon as plaintiffs learned of the 
 sale they made out a bill according to the contract price, presented it 
 to the defendants, and demanded payment for the goods. This was 
 followed by the present action of assumpsit to collect the amount 
 for which the goods were sold. If, therefore, Holmes made the sale 
 without direct authority, these acts of the plaintiffs, after full knowl- 
 edge of the sale, may be treated as a ratification of the sale made by 
 Holmes. The case then stands in this position: Holmes had pos- 
 session of the goods, claiming the right to sell. He called on the de- 
 fendants, and they bought the goods. He delivered the goods, collect- 
 ed the pay, and gave defendants a receipt acknowledging full pay- 
 ment. Plaintiffs first deny authority to sell, but by their acts concede 
 the power of sale, but they deny authority to collect the pay for the 
 goods. This they cannot do. The power of sale, or the sale without 
 authority, subsequently ratified, carried with it the implied power to 
 receive payment. Had the sale been repudiated by the plaintiffs, and 
 an action brought to recover the goods, a different question would 
 arise ; but that course was not pursued. * * * 
 
 The judgment of appellate court will be affirmed. 
 
Ch. ?) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 541 
 
 HENRY et al. v. HEEB. 
 
 (Supreme Court of Indiana, 1888. 114 Ind. 275, 16 N. E. 606, 
 5 Am. St. Rep. 613.) 
 
 Mitchell, C. J. This was a suit by Nicholas Heeb against Henry 
 Heeb, John F. Schonert, and James D. Henry, to recover the amount 
 of two promissory notes signed by Heeb and Schonert, who were part- 
 ners, as principals, and by James D. Henry, as surety. The con- 
 troversy is between the plaintiff and the appellant, Henry, and relates 
 exclusively to the note described in the second paragraph of the com- 
 plaint, the execution of which Henry denied under oath. To the de- 
 nial of the latter the plaintiff replied, in substance, that the defendant, 
 after having obtained full knowledge that the plaintiff held the note in 
 controversy ratified and confirmed the same, and promised to pay it, 
 and accepted a chattel mortgage covering the partnership property of 
 Heeb & Schonert, the principal debtors, as indemnity against any lia- 
 bility which might exist on account of his having become surety on the 
 note. This was held to be a sufficient reply. * * * Relevant to the 
 issue made by the plea of non est factum, and the reply thereto, and 
 to the evidence pertaining to that feature of the case, the court in- 
 structed the jury, in substance, that if the appellant, after having ob- 
 tained full knowledge upon the subject of whether or not he executed 
 the note, ratified and confirmed the same, and promised to pay it, he 
 would be liable for the amoimt thereof. The judgment was favorable 
 to the plaintiff below. * * * 
 
 It does not appear that the promise of the appellant induced the 
 plaintiff to change his position in any manner, or that, in reliance there- 
 on, he surrendered any right or benefit whatever. There is, therefore, 
 no element of estoppel in the case as presented in the pleading or in- 
 struction of the court. The appellant contends that a person whose 
 name has been forged to a note cannot ratify or adopt the criminal act 
 so as to become bound, unless facts have intervened which create an 
 estoppel, and preclude him from setting up as a defense that his sig- 
 nature is not genuine. There appears to be an irreconcilable conflict 
 in the decisions of the courts of last "resort on this question. Thus, in 
 Wellington v. Jackson, 121 Mass. 157, the supreme judicial court of 
 Massachusetts, following its earlier decisions, held that one whose 
 signature had been forged to a promissory note, who, yet with knowl- 
 edge of all the circumstances, and intending to be bound by it, ac- 
 knowledged the signature, and thus assumed the note as his own, was 
 bound to the same extent as if the note had been signed by him origi- 
 nally, without regard to the question whether or not the acknowledg- 
 ment amounted to an estoppel in pais. * * * There are other cases 
 which, while seeming to lend support to the doctrine that a forged 
 signature may be ratified, nevertheless turn upon the proposition that 
 the holder of the note had in some way acted in reliance upon the 
 promise or admission of the person whose name appeared on the note, 
 or that the latter had received or participated in the consideration for 
 which the note had been given, and was therefore estopped to deny the 
 genuineness of his signature. Still other decisions depend upon prin- 
 ciples which distinguish them from cases involving the doctrine of 
 ratification or adoption of forged instruments purely. Bank v. Keene, 
 53 Me. 103 ; * * * Livings v. Wiler, 32 111. 387 ; Bank v. War- 
 ren, 15 N. Y. 577. * •* * 
 
542 AGENCY (Parts 
 
 It is a well-established rule of law that if one not assuming to act 
 for himself does an act for or in the name of another, upon an assump- 
 tion of authority to act as the agent of the latter, even though without 
 any precedent authority whatever, if the person in whose name the act 
 was performed subsequently ratifies or adopts what has been so done, 
 the ratification relates back and supplies original authority to do the 
 act. In such a case the principal is bound to the same extent as if 
 th6 act had been done in the first instance by his previous authority; 
 and this is so whether the act be detrimental to the principal or to his 
 advantage, or whether it be founded in tort or contract. The reason 
 is that there was an open assumption to act as the agent of the party 
 who-^ubsequently adopted the act. The agency having been knowingly 
 ratified, the ratification becomes equivalent to original authority. 
 * * * So, if a contract be voidable on account of fraud practiced 
 on one party, or if, for any reason, it might be avoided, yet if the party 
 having the right to avoid the contract, being fully informed, deliber- 
 ately confirms or ratifies it, even though this be done without a new 
 consideration, and after acts have been done which would have re- 
 leased the person affected, the party thus ratifying is thereby preclud- 
 ed from obtaining the relief he otherwise might have had. * * * 
 
 The ratification or adoption of a forged instrument, or of a con- 
 tract which is prohibited by law, or made in violation of a criminal 
 statute, involves altogether different principles. One who commits 
 the crime of forgery by signing the name of another to a promissory 
 note does not assume to act as the agent of the person whose name is 
 forged. Upon principle, there would seem to be no room to apply the 
 doctrine of ratification or adoption of the act in such a case. Where 
 the act done constitutes a crime, and is committed Vithout any pre- 
 tense of authority, it is difficult to understand how one who is in a 
 sense the victim of the criminal act may adopt or ratify it, so as to 
 become bound by a contract to Vifhich he is to all intents and purposes 
 a stranger, and which, as to him, was conceived in a crime, and is to- 
 tally without consideration. As has been well said, it is impossible, 
 in such a case, to attribute any motive to the ratifying party but that 
 •of concealing the crime, and suppressing the prosecution; "for 
 why should a man pay money without consideration when he him- 
 self had been wronged, unless constrained by desire to shield the guil- 
 ty party?" The distinction made in many well-considered cases seems 
 to be this : Where the act of signing constitutes the crime of forgery, 
 while the person whose name has been forged may be estopped by his 
 admissions, upon which others may have changed their relations, from 
 pleading the truth of the matter, to their detriment, the act from 
 which the crime springs cannot, upon consideration of public policy, be 
 ratified without a new consideration to support it. * * * in case 
 of a known or conceded forgery, we are unable to discover any princi- 
 ple upon which a subsequent promise by the person whose name was 
 forged can be held binding, in the absence of an estoppel in pais, or 
 without a new consideration for the promise. * * * 
 
 The ratification which the law interdicts, relates only to such acts 
 as clearly appear to have been done in violation of a criminal stat- 
 ute; the motive of the ratifying party being, presumably, the con- 
 cealment of the crime, or the suppression of its prosecution. Where, 
 however, as in the present case, the act ratified is of an ambiguous 
 character, and may as well be attributed to a mistaken assumption 
 
Ch. 2) RELATIONS OF THE PEINCIPAL AND THIRD PERSONS 543 
 
 of authority, as to a purpose to commit a crime, public policy does 
 not prohibit the adoption or ratification of the act. Nor can it be said 
 to be without consideration, especially where, as in the present case, 
 indemnity has been acceptedt These conclusions lead to an affirm- 
 ance of the judgment. * * * 
 
 KEIGKLBY, MAXSTED & CO. v. DURANT. 
 
 (House of Ix)rds, 1901. [1901] App. Gas. 240, 70 L. J. K. B. [N. S.] 662, 
 84 L. T. psf. S.] 777, 17 Times L. R, 527, 1 B. K. C. 351.) 
 
 Lord Davey. My Lords, the facts necessary to raise the question 
 of law on which the learned judges have differed may be thus stated : 
 Roberts made a contract in his own name to purchase a large quantity 
 of wheat from Durant & Company, the present respondents. Roberts 
 bought on his own account, and without any authority from the ap- 
 pellants to buy the wheat on joint account with them, but (it may be 
 assumed for the purpose of the present judgment) intending that the 
 appellants should have the benefit of the contract on joint account with 
 himself, if they chose to accept it, and hoping and expecting that they 
 would do so. The appellants did afterwards agree with Roberts to 
 take to the purchase on joint account with him. Roberts was unable 
 to fulfill his contract, and thereupon the respondent sued the appel- 
 lants, as undisclosed principals. At the close of the plaintiffs' case the 
 learned counsel for the appellants submitted that there was no case, 
 and, after some argument. Day, J., gave judgment for the appellants, 
 holding that there had been a failure to prove any ratification by them 
 — meaning, as appears from what he had previously said, that no rati- 
 fication was legally possible in the circumstances. 
 
 The question of law, therefore, is whether a contract made by a 
 man purjx>rting and professing to act on his own behalf alone, and not 
 on behalf of a principal, but having an undisclosed intention to give 
 the benefit of the contract to a third party, can be ratified by that 
 third party, so as to render him able to sue or liable to be sued on 
 the contract. In the course of his judgment Collins, L. J., says that 
 the point has never been actually decided, though he admits there are 
 numerous dicta upon it which have become the foundation of state- 
 ments in text-books more or less adverse to the present respondent's 
 contention, and he says that the question must now be determined on 
 principle. * * * 
 
 Lord Macnaghten. * * * As a general rule, only persons 
 who are parties to a contract, acting either by themselves or by an 
 authorized agent, can sue or be sued on the contract. A stranger can- 
 not enforce the contract, nor can it be enforced against a stranger. 
 That is the rule ; but there are exceptions. The most remarkable ex- 
 ception, I think, results from the doctrine of ratification as established 
 in English law. That doctrine is thus stated by Tindal, C. J., in Wil- 
 son V. Tumman (1843) 6 Mann. & G. at p. 242, 6 Scott, N. R. 894, 1 
 Dowl. & L. 513, 12 L. J. C. P. N. S. 306: "That an act done, for an- 
 other, by a person, not assuming to act for himself, but for such 
 other person, though without any precedent authority whatever, be- 
 comes the act of the principal, if subsequently ratified by him, is the 
 known and well-established rule of law. In that case the principal is 
 bound by the act, whether it be for his detriment or his advantage, and 
 
544 Agency (Part 2 
 
 whether it be founded on a tort or on a contract, to the same effect as 
 by, and with all the consequences which follow from, the same act done 
 by his previous authority." And so by a wholesome and convenient 
 fiction, a person ratifying the act of another, who, without authority, 
 has made a contract openly and avowedly on his behalf, is deemed 
 to be, though in fact he was not, a party to the contract. Does the 
 fiction cover the case of a person who makes no avowal at all, but 
 assumes to act for himself and no one else? If Tindal, C. J.'s state- 
 ment of the law is accurate, it would seem to exclude the case of a 
 person who may intend to act for another, but at the same time keeps 
 his intention locked up in his own breast; for it cannot be said that 
 a person who so conducts himself does assume to act for anybody but 
 himself. But ought the doctrine of ratification to be extended to such 
 a case? On principle I should say certainly not. It is, I think, a 
 well established principle in English law that civil obligations are 
 not to be created by, or. founded upon undisclosed intentions. That 
 is a very old principle. * * * 
 
 Lord Robertson. * * * With the Master of the Rolls, and 
 in his words, I hold that, "unless thfe contract made by the unauthor- 
 ized agent purports or professes * * * ^q have been entered into 
 on behalf of another * * * then that contract made by the un- 
 authorized agent was not capable of being ratified by a stranger to it." 
 To speak of the "purporting or professinig" as if this were one condi- 
 tion, more or less, or ratification, seems to me to be rather an under- 
 statement. All are agreed that there must be some special relation be- 
 tween the ratifier and the contract other than and antecedent to his 
 claiming the contract. To hold otherwise would be to admit extrava- 
 gant results. It seems to me that the whole hypothesis of ratification 
 is, that the ultimate ratifier is already in appearance the contractor, and 
 that by ratifying he holds as done for him what already bore, pur- 
 ported or professed to be done for him. * . * * Whether the un- 
 authorized agent be marked out as an agent by what he says, or by 
 what he wears, is, of course, a mere matter of circumstance and of 
 evidence ; but an agent he must be known to be, and as agent he must 
 act. * * * 
 
 Lord Lindley. * * * The explanation of the doctrine that an 
 undisclosed principal can sue and be sued on a contract made in the 
 name of another person with his authority is, that the contract is in 
 truth, although not in form, that of the undisclosed principal himself. 
 Both the principal and the authority exist when the contract is made ; 
 and the person who makes it for him is only the instrument by which 
 the principal acts. In allowing him to sue and be sued upon it, effect 
 is given, so far as he is concerned, to what is true in fact, although that 
 truth may not have been known to the other contracting party. 
 
 The reasons upon which a real principal not disclosed can sue or be 
 sued on a contract made on his behalf by an agent acting with his 
 authority have no application to contracts made by one person for 
 another, but without any authority from him. Some other reason 
 must be found to permit a person to sue or be sued upon a contract 
 not entered into by him through an agent or otherwise. 
 
 The principle relied on, and the only principle which by our law 
 can be invoked with any chance of success, is that known as ratifica- 
 tion, by which an approval of what has been done is sometimes treated 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 545 
 
 as equivalent to a previous authority to do it. The mere statement of 
 the general nature of what is meant by ratification shows that it rests 
 on a fiction. Where a man acts -with an authority conferred upon him, 
 no fiction is introduced; .but where a man acts without authority and 
 an authority is imputed to him a fiction is introduced, and care must 
 be taken not to treat this fiction as fact. * * * 
 
 The doctrine of ratification as hitherto applied in this country to 
 contracts has always, I believe, in fact given effect in substance to 
 the real intentions of both contracting parties at the time of the con- 
 tract, as shown by their language or conduct. It has never yet been 
 extended to other cases. The decision appealed from extends it very 
 
 materially, and I can find no warrant or necessity for the extension. 
 
 * * * 
 
 Order appealed from reversed, and judgment of Day, J., restored, 
 with costs here and below. * * * 
 
 KLINE BKOS. & OO. v. ROYAL INS. CO., Limited. 
 
 (United States Circuit Court, Southern District of New York, 1911. 
 192 Fed. 378.) 
 
 Hand, District Judge. These are four actions upon fire insurance 
 policies issued by four different companies. * * * There seems 
 to be no escape from the conclusion that by his contract with the de- 
 fendants Mcintosh did not bind the corporation to pay the premium. 
 Furthermore, the board of directors never learned of the policies un- 
 til after the fire, and did not therefore ratify them up to that time. 
 At least, there is no evidence upon that question, and the burden rests 
 with the plaintiff. As I view it, no subsequent ratification was possi- 
 ble. After the fire Mcintosh tendered the premium, and after that 
 the defendants repudiated any liability. 
 
 The facts, therefore, raise two questions: First, whether a third 
 party who has made a contract with an unauthorized agent on behalf 
 of his principal is bound before the principal has ratified; and sec- 
 ond, if not, whether the occurrence of a fire before the unauthorized 
 application for the policy has been ratified prevents its future ratifi- 
 cation so as to bind the company. Upon the first question, there is 
 no doubt some division of authority. In England the law now is that 
 the third party may not withdraw, provided the principal ratifies the 
 contract in season. Bolton Partners v. Lambert, 41 Ch. D. 295 ; In re 
 Tiedemann (1899) 2 Q. B. D. 66. * * * On the other hand, in Wis- 
 consin (Dodge V. Hopkins, 14 Wis. 630; Atlee v. Bartholomew et al., 
 69 Wis. 43, 33 N. W. 110, 5 Am. St. Rep. 103), and apparently in Illi- 
 nois (Cowan V. Curran, 216 111. 598, 75 N. E. 322), the whole unauthor- 
 ized contract seems to amount only to an offer by the third person, which 
 must be accepted de novo by the principal, a rule certainly at variance 
 with the well-established law that an uncommunicated ratification by 
 the principal will bind him. The English case proceeds on the civil- 
 law maxim, "Omnis ratihabitio retrotrahitur," though it by no means 
 follows, because a ratification relates back when once a valid contract 
 is made, that the third party is bound meanwhile, and may not with- 
 draw while the principal remains unbound. 
 
 Now, relation back is in the sense here used a fiction, and certainly 
 B.& B.BUS.LAW— 35 
 
546 AGENCY (Part 2 
 
 should not be extended to cover unjust cases, of which this is one, 
 as I shall show. In so far as by the maxim it is only meant to say 
 that a ratification carries with it by implication the intention of the 
 principal that the contract shall in fact date from the time when it 
 was made between the agent and the third party, it is unobjectionable 
 in principle, and accords with the facts ; but, if taken in the sense that 
 the law will regard both parties as bound, from the date of the con- 
 tract, it merely misstates the facts, because, by hypothesis, the prin- 
 cipal is not bound before ratification. All that the law can do is to 
 hold the third party bound from the outset, and that by the" mere 
 force of authority. It certainly serves no useful purpose to cloak that 
 authority in a phrase which misstates the truth in Latin, unless it 
 Accords with the principles of the law of contracts, or at least produces 
 just results at the expense of those principles. 
 
 Upon principle the doctrine does not appear to be correct, and it 
 has been criticised by text-writers. Wambaugh, 9 Harv. L. R. 60; 
 31 Cyc. 1291. The contract of insurance is bilateral, and, until the 
 principal ratifies, he is by hypothesis under no obligation to pay the 
 premium. If so, there is until then no consideration to support the 
 counter promise of the third person, for 3 consideration implies a 
 legal obligation, and his promise ought not in principle to bind him, 
 being indeed nudum pactum. Second. The result is unfair to the 
 third party, since it permits the principal to speculate on the value of 
 the contract, while he himself remains unbound. If it proves advan- 
 tageous, he may ratify. If not, he may repudiate. There is no just 
 ground for giving him such an advantage over the third party merely 
 because of an unknown defect in the agent's powers. In view of the 
 dearth of authority in this country and especially of any decisions 
 binding upon me, I do not think that I should follow the rule in Bolton 
 v. Lambert, supra, but rather what I cannot but believe to be the result 
 necess.ary under the principles of the laws of contract. * * * 
 
 The next question is whether, if the contract was not binding upon 
 either party until Mcintosh tendered the premium, the occurrence of 
 the fire terminated that possibility. * * * There is no difference 
 of judicial opinion so far as I can find upon the proposition that the 
 insurer is not bound, where the insured at the time of the binding 
 of the bargain had learned that the loss has happened or the risk 
 has changed since the original application. The only difference be- 
 tween those cases and the case at bar is this : That here the insurer like- 
 wise knew that the loss had occurred, and nevertheless did not with- 
 draw from the contract. This fact would perhaps be irrelevant in any 
 case, even if the insurer did not formally withdraw his offer upon learn- 
 ing of the loss, for it might be held that to withdraw it after a loss 
 has occurred would be an idle ceremony ; but that question is not up 
 at present, because the defendants had no knowledge that Mcintosh 
 had not bound the plaintiff to pay the premium, and that their own 
 undertaking had therefore been without consideration from the out- 
 set. They certainly dealt with him in good faith, and were not called 
 upon to disaffirm a contract which, so far as they knew, was binding 
 upon them. If, however, it be once admitted that it was not binding 
 upon them until ratified, it could not be ratified or accepted by paying 
 a premium after the risk had ceased and the fundamental condition 
 of the promise no longer existed. This would be quite obvious had 
 the offer never been accepted at all, before the loss, but, if the policy 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 547 
 
 was not binding while unratified, the situation was the same as though 
 the offer had nevef been accepted. * * * 
 [Verdict directed for defendants.] 
 
 SECTION 4.— MASTER'S LIABILITY FOR TORTS OF THE 
 
 SERVANT 
 
 KIXGAN & CO. V. SILVERS et al. 
 (Appellate Court of Indiana, 1894. 13 Ind. App. 80, 3T N. E. 413.) 
 
 Appeal from a judgment for defendant in an action on a prom- 
 issory note bearing interest at 8 per cent., "after maturity." The note 
 was procured by plaintiff's traveling salesman, one Nichols, who, with- 
 out the consent or knowledge of defendants, altered "it by striking 
 out the words "after maturity" and inserting words so as to make it 
 bear 8 per cent, interest "from date." Plaintiffs never approved the 
 alteration, and now sue upon the note as originally made. It was no 
 part of the duty of Nichols to make settlements, nor to take notes, but 
 in this instance he had been instructed by plaintiffs to procure from 
 defendants a note to cover their indebtedness to plaintiffs, and to 
 transmit the sarhe to his principals. 
 
 LoTz, J. [after stating the facts, and pointing out the general prin- 
 ciple that public policy demands that a material alteration of a writ- 
 ten instrument shall destroy it so as to prevent a recovery upon it]. 
 The change in the note was not made by the plaintiff's order or direc- 
 tion, but it intrusted certain business to another as its agent, and such 
 person made the alteration. If the alteration was made by the agent 
 while in the transaction of the principal's business, and in the scope 
 of his authority, then the act of the agent is the act of the principal ; 
 "Qui facit per alium facit per se." The solution of this case depends 
 upon the relation existing between Nichols and the plaintiff at the time 
 the alteration was made. If he was the plaintiff's agent, and the act 
 was within the scope of his authority, then his act must be deemed the 
 act of the plaintifi', and the law is with the defendants. If his posi- 
 tion was that of a mere stranger to the note, then the law is with the 
 plaintiff. * * * 
 
 The appellees further insist that Xichols was the agent of the payee 
 in making the alteration ; that he was acting in the line of his agency, 
 and under color of his employment ; that his wrongful act is imputable 
 to his principal. In support of this position appellees' learned coun- 
 sel say this upon the legal maxim, " 'Whatever a man sui juris may 
 do of himself, he may do by another,' and, as a correlative, whatever 
 is done by such other in the course of his employment is deemed to be 
 done by the party himself. On this principle, the liability of one per- 
 son for the acts of another who is employed in the capacity of an 
 agent is extended to the wrongful and tortious acts of the latter com- 
 mitted in the line and under color of the agency, although such un- 
 lawful acts were not contemplated by the employment, and were done 
 by the agent in good faith, and by mistake. In other words, where a 
 principal directs an act to be done by an agent in a lawful manner, but 
 the agent errs in the mode of executing his authority to the prejudice 
 
MS AGENCY (Part 2 
 
 of another person, the principal will be held responsible." This is 
 a correct statement of tlie law. * * * 
 
 At the time Nichols made the alteration of the note, was he the 
 agent or servant of the plaintiff in respect to his duties pertaining to 
 said note? It is averred that he was the traveling salesman, but that 
 he was not a general agent, and had no authority to make settlements 
 or take notes on plaintiff's account, nor was that any part of his du- 
 ties ; that, being about to go to Lebanon in the course of his duties as 
 such traveling salesman, the ^laintiff instructed him t6 procure for 
 plaintiff from the defendants i. note on account of an indebtedness due 
 from them to the plaintiff. But the averments of the complaint neg- 
 ativing the fact of agency will not control if it appear from all the 
 averments that the legal relation of agency exists. The same person 
 may be a special agent for the same principal in several different mat- 
 ters. Nichols was the agent of the plaintiff to sell goods. He was 
 also its agent to procure the note. We are here concerned with the 
 latter agency only. Did his relation as agent cease when he obtained 
 the note, or did it continue until the note was delivered to the plain- 
 tiff? If the agency ceased when the note was obtained by him, what 
 relation did he sustain to the plaintiff in the interval of time between 
 the delivery to him and the delivery to the plaintiff? * * * When 
 Nichols was engaged in treating with the . defendants concerning the 
 note, he was an agent. When the note was delivered to him, it was 
 in law delivered to the plaintiff, and he ceased to treat or deal with 
 the defendants. All his duties concerning the note then related to the 
 plaintiff. It was his duty to carry and deliver it to the plaintiff. In 
 doing this he owed no duty to the defendants. He ceased to be an 
 agent, because he was not required to deal further with third parties. 
 He was then a mere servant of the plaintiff, charged with the duty 
 of faithfully carrying and delivering the note to his master. When 
 Nichols made the alteration in the note he was the servant, and not the 
 agent, of the plaintiff. * * * 
 
 Upon what principle is the master liable for the wrongful acts of his 
 servant? This inquiry carries us back to the very dawn of jurispru- 
 dence. The modern idea of law is that it consists of those rules of 
 conduct prescribed and enforced by the sovereign power of the state. 
 But, as Mr. Justice Stephen truly remarks : "It is not till a very late 
 stage of its history that law is regarded as a series of- commands is- 
 sued by the sovereign power of the state." As a matter of historical 
 fact, ancient laws were not commands. They were not issued by 
 political superiors, nor were they enforced by punishment or other- 
 wise. "They were merely customs sanctioned by usage, voluntarily 
 observed with that strong devotion to usage which always character- 
 izes uncivilized nations." Vengeance on the part of the person in- 
 jured is the foundation of all legal redress. The early history of all 
 political societies shows the same system of private revenge and per- 
 sonal redress for injuries. Each person avenged, in whatever man- 
 ner he deemed right, the injuries done him. The tribal customs not 
 only sanctioned his doing so, but perhaps required him to do so. If 
 he failed to avenge an injury or wrong, he was brought under the ban 
 of public contumely. The spirit of retaliation is deeply rooted in hu- 
 man nature. Retribution in kind is the first impulse of the savage 
 mind on sustaining an injury. An eye for an eye, a tooth for a tooth ; 
 whoso sheddeth man's blood, by man shall his blood be shed — was the 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 549 
 
 rule of all early and savage communities. If one man killed another, 
 custom permitted, and perhaps required, that the blood relatives of 
 the deceased should avenge his death by killing the slayer. 
 
 The Romans were the most civilized of all the ancient peoples. 
 Their laws form the basis of all modern jurisprudence. Moyle, in 
 speaking of the Roman law, well says : "Before the establishment of 
 a regular judicature, the injured person, with his kinsmen or de- 
 pendents, made a foray against the wrongdoer, and swept away his 
 cattle, and with them perhaps his wife and children ; or he threatened 
 him with supernatural penalties by 'fasting' upon him, as in the east, 
 even at the present day; or, finally, he reduced his adversary to serv- 
 itude, or took his life." 1 Moyle, Just. Inst. p. 614. The family or 
 tribe of the person who had committed an offense might escape the 
 vengeance of their adversaries by delivering up or surrendering the 
 offending member. As society slowly and gradually emerged from 
 this depth of barbarism, a custom arose by which the person who in- 
 flicted the injury might buy off the vengeance .of the injured. If the 
 parties could not agree on the amount to be paid, the tribal assembly 
 fixed it. These tribal assemblies, met for the purpose of fixing the 
 price of vengeance, are the prototypes of modern courts. The idea 
 that a society or the state was injured by a wrong inflicted upon one 
 of its members or upon his property was of much later growth. If 
 a man's slave inflicted an injury upon another, the injured party was 
 entitled to wreak his vengeance upon the immediate cause of the in- 
 jury. This same principle extended to animals and inanimate objects. 
 But the master or owner might buy off the vengeance of the injured 
 person by a money consideration, and thereby save the life of his 
 slave or injury to his property. 
 
 This digression into the history of law may seem inappropriate to 
 the decision of this case, but a knowledge of the history of that branch 
 of law with which any principle is connected is often necessary before 
 the true bearings and the limits of its application can be fully deter- 
 mined. Principles which have originated from certain causes are 
 sometimes misapplied simply because there is a similarity in the 'facts 
 of two different cases, and sometimes the true principle is overlooked 
 or forgotten, and a new one invented, to explain rules which from a 
 historical standpoint are well established. The law is sometimes said 
 to be the perfection of human reason, and it is further said that when 
 the reason fails the law fails. But these expressions, when applied 
 to certain conditions, are often mere platitudes. The law does not al- 
 ways proceed logically, for "the life of the law has not been logic; 
 it has been experience. * * * Many things which we take for 
 granted have had to be laboriously brought out or thought out in times 
 past." Holmes, Com. Law, p. 1. 
 
 The principle involved in this case is that of the master's liability 
 for the tort of his servant. Let us take a common illustration : The 
 driver of a grocer's cart negligently runs over another in the street, 
 the person injured being without fault. The grocer is liable for the 
 negligence of his servant, the driver. But why, or upon what prin- 
 ciple? It is sometimes said that the reason for the master's liability 
 in such cases is his negligence in employing an, unskillful servant. If 
 this were really the true reason, the logical result would be that, if the 
 master was guilty of no negligence in employing the servant, he would 
 not be liable. This, however, we know does not follow. It is no de- 
 
550 AGENCY (Part 2 
 
 fense that the master used the greatest care in employing his servant. 
 Again, suppose an engineer or servant of a railroad company willfully 
 run a train of cars over another person, we know the company is lia- 
 ble for the wrongful act of its servant, and that it is no excuse for 
 the company to say it did not authorize the act, and that it was done 
 without the knowledge or consent of the company, or against its ex- 
 press will or order. It is difficult to understand this principle of lia- 
 bility unless we approach it from the side of history. It is, in reality, 
 a survival of the ancient doctrine that the master or owner was liable 
 for the act of his slave, and for injuries committed by animals in his 
 possession. The ancient idea was that the family of the master, in- 
 cluding his slaves, his animals, and all other property; was a unity; 
 and that the personality of the master affected all of his property; 
 that, as he was entitled to all the benefits of ownership, he must accept 
 the consequences flowing from injuries caused by his property. He 
 might buy off the vengeance of the injured person, or he might ap- 
 pease it by surrendering the offending property to the person aggriev- 
 ed. In Roman law there was a class of actions known as "noxal ac- 
 tions," which provided for this vicarious liability. The defendant 
 had the option of surrendering the delinquent, instead of paying dam- 
 ages. 
 
 In ancient times the masses were slaves ; in modern times the mass- 
 es are freemen. When slaves became freemen, the master was shorn 
 of his power to surrender the delinquent servant; but he still contin- 
 ues to be liable for the acts of this servant done in the line of the em- 
 ployment. This principle of liability originates in slavery, and in the 
 power and domain that the master exercised over the members of his 
 family. But it may be said that, as the master has ceased to have 
 any property in his servants, and as he is shorn of his power to sur- 
 render a delinquent, the reason for the rule fails, and that the law 
 must fall within the reason, and that this would result in exonerating 
 the master from all liability in all such cases. It is true that the pow- 
 er of surrendering the delinquent has ceased, but it is not true that the 
 personality of the master has ceased to affect his servants. The will of 
 the master dominates any given enterprise. He calls to his aid serv- 
 ants and appliances. The servant surrenders his time, and in a meas- 
 ure permits the will of the master to dominate and control his actions. 
 He is the instrument of his master in accomplishing certain ends. The 
 servant is placed in the position and given the opportunity to commit 
 the wrong by the will of the master. In a qualified sense, the servant 
 is the representative of. the master. Without the controlling, dominat- 
 ing influence of the master's will, there is but the remotest probability 
 that the servant would have been placed in the position or given the 
 opportunity to commit the particular wrong. Anciently, the liability 
 of the master was not hmited by the duties imposed upon his slave. 
 When a servant became a freeman he was no lortger a member of the 
 master's family, and he could not properly be said to be the represen- 
 tative of his master, except in the line of the employment. Modern 
 jurisprudence properly and justly limits the liability of the master to 
 the acts of his servant done within the scope of his employment. 
 There is still substantial and just grounds for the principle that the 
 master is liable for the wrongful acts of his servant. No liability aris- 
 es against the master for the wrongful acts of his servant unless the 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 551 
 
 servant has perpetrated an injury either upon the person or property 
 of another. * * * 
 
 [Judgment for defendants reversed.] 
 
 JENSEN V. BARBOUR. 
 (Supreme Court of Montana, 1895. 15 Mont. 582, 39 Pae. 906.) 
 
 De Witt, J. Plaintiff's complaint is for damages for personal in- 
 juries sustained while riding on defendant's horse street car. The dis- 
 trict court upon the trial directed the jury to find for the defendant. 
 Plaintiff appeals from the judgment, assigning error in that order. 
 
 * * * There was evidence that the plaintiff, a boy five years of age, 
 was riding on the front platform of the horse car, with the knowledge 
 of the driver, and that the car struck a stone, and jolted the plaintiff 
 off, and ran over him, inflicting the injuries complained of. * * * 
 
 The question presented is whether the person immediately causing 
 the injury to plaintiff stood in the relation of a servant of defendant, 
 or whether he was the servant of an independent contractor, for 
 whose acts of negligence the defendant was not liable. The defendant 
 was the owner of a street-car franchise in the city of Great Falls. He 
 had built a car track extending over six or seven blocks, and had one 
 or two cars on the track. Defendant lived in Helena. J. O. Gregg, 
 of Great Falls, was his agent, acting for him in relation to this street- 
 car franchise, track, and cars. Gregg was also one of the owners of 
 the railway. Defendant, Barbour, was trustee of the railway. He was 
 sued apparently as trustee, and also personally. It seems that the 
 railway people were not operating their line very extensively, for Mr. 
 Gregg testified that he, as agent for the trustee, hired one Vaughn to 
 run the car one trip a day. Gregg says that the contract with Vaughn 
 was that he was to be paid so much money per month to haul the car 
 over the line once a day each way, and to furnish a driver. In pur- 
 suance to this arrangement Vaughn furnished the driver, and ^yas 
 moving the car along the track at the time the plaintiff was injured.* 
 
 Defendant contended that by virtue of this employment Vaughn 
 wan as independent contractor, and that defendant was not liable for 
 the negligence of Vaughn's driver. Mr. Gregg, however, testified that 
 there was nothing as to collecting fares in this contract with Vaughn. 
 In fact fares were not collected. * * * The track and rolling stock 
 were not delivered into the possession of Vaughn at all. He did noth- 
 ing more than to haul the car the one trip a day. Mr. Gregg further 
 testified: * * * "I had no direct control over the drivers, but I 
 ordered Mr. Vaughn to see that the drivers kept the boys away. I 
 was trying to protect the property. I had driven the plaintiff off the 
 cars several times. The contract with Vaughn was that I was to pay 
 him so much money a month to haul the car over the line each way 
 once a day, and furnish a driver. I had nothing to do with the draw- 
 ing of the car backward and forward, or directing the manner in which 
 it should be done. I sometimes spoke to Vaughn about matters con- 
 cerning the protecting of the property and driving the boys off. 
 
 * * *" Under these facts the district court held that Vaughn was 
 an independent contractor, and that the defendant was not hable for 
 his negligence. 
 
 To draw the distinction between independent contractors and serv- 
 ants is often difficult, and the rules which courts have undertaken to 
 
552 ' AGENCY (Part 2 
 
 lay down on this subject are not always simple of application. A rule 
 as often quoted as any is stated in the syllabus of the case of Bibb's 
 Adm'r v. Railroad Co., 87 Va. 711, 14 S. E. 163, after an able review 
 of the authorities, as follows: "Independent contractor is one who 
 renders service in the course of an occupation, and represents the 
 will of his employer only as to the result of his work, and not as to the 
 means whereby it is accomplished, and is usually paid by the job." 
 Brackett v. Lubke, 4 Allen (Mass.) 138, 81- Am. Dec. 694, is also a 
 leading case. The opinion states as follows: "The distinction on 
 which all the cases turn is this : If the peirson employed to do the 
 work carries on an independent employment, land acts in pursuance of 
 a contract with his employer by which he has agreed to do the work 
 on certain specified terms, in a particular manner, and for a stipulated 
 price, then the employer is not liable. The relation of master and serv- 
 ant does not subsist between the parties, but only that of contractor 
 and contractee. The power of directing and controlling the work is 
 parted with by the employer, and given to the contractor. But, on 
 the other hand, if the work is done under a general employment, and 
 is to be performed for a reasonable compensation, or for a stipulated 
 price, the employer remains liable, because he retains the right arid 
 power of directing and controlling the time and manner of executing 
 the work, or of refraining from doing it, if he deems it necessary or 
 expedient. This distinction is recognized in the cases adjudged by this 
 court. * * *" 
 
 The respondent argues that Vaughn represented the will of his em- 
 ployer only as to the result of his work, and not as to the manner of its 
 performance; that is to say, that Vaughn contracted to deliver to his 
 employer the result of putting the car over the track once a day by his 
 own methods. But so it might be argued that one's coachman con- 
 tracts to produce the result of conveying his master from his house 
 to his office, or wherever he may wish to go ; or one's cook contracts to 
 produce the result of placing before his master his daily food. But 
 such is not the sense in which the word "result" is used in the rule. 
 We think the word "result," as so used, means a production or product 
 of some sort, and not a service. One may contract to produce a house, 
 a ship or a locomotive and such house, or ship or locomotive produced 
 is the "result." Such "results" produced are often, and probably gen- 
 erally, by independent contractors. But we do not think that plowing 
 a field, mowing a lawn, driving a carriage or a horse. car for one trip 
 or for many trips a day is a "result" in the sense that the word is used 
 in the rule. Such acts do not result in a product. They are simply a 
 service. * * * jt would perhaps be difficult to draw a clear, dis- 
 tinction, between the relations which Mr. Gregg held to the railway 
 property and the drivers, and that of any person admittedly having 
 supervision over them. No superintendent assumes control over every 
 minute detail of an employe's work. In all work which demands suf- 
 ficient intelligence to require a man instead of a machine, the man 
 must be left to direct his own movements to some extent. But it is 
 clear, from our review of Mr. Gregg's testimony, that he did not con- 
 sider the driver of the car as the servant of a contractor independent 
 of the railway people. * * * ]y[j._ Gregg qualified his statement 
 somewhat by an attempt to disclaim any supervision of the actual mov- 
 ing of the car, but we think that his testimony as a whole did not 
 place Vaughn in the position of an independent contractor. 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 553 
 
 After stating any rule which is to determine whether one is an inde- 
 pendent contractor or a servant, it is very easy, by a little casuistry, 
 to construe any person who performs a service to be an independent 
 contractor. We have endeavored to point out such dangers. We think 
 that the district court fell into just such a mistake. If Vaughn, in 
 this case, is an independent contractor, a very few steps further in 
 the same direction of construction would make all servants independent 
 contractors. We are wholly satisfied that Vaughn was not an in- 
 dependent contractor, but, on the contrary, stood in the relation of an 
 employe for wages of defendant in this case. The judgment is there- 
 fore reversed, and the case is remanded for a new trial. 
 
 STONE V. HIIXS. 
 
 (Supreme Court of Errors of Connecticut, 1877. 45 Conn. 44, 
 29 Am. Rep. 635.) 
 
 Trespass on the case, for an injury by reason of the negligence of 
 the defendants' servant. The defendants were operating a paper-milt 
 in the town of Glastonbury and had in their employment one Sniith, 
 as a driver of their team. On that day they directed him to carry a 
 load of paper from the mill and deliver it to one Taylor at a point in 
 the Same town four and a half miles distant, and to return from thence 
 by way of Nipsic with a load of wood. On reaching Taylor's, the 
 latter requested Smith to deliver the paper at the warehouse of Tracy 
 & Co. in Hartford, four and one-half miles distant from Taylor's, 
 and to go from thence to a railway freight station in the city and get 
 some freight belonging to Taylor and transport the same to his place. 
 Smith acceded to Taylor's request, and while he was in the station, 
 paying Taylor's freight bill, the horses, which he had negligently left 
 unhitched and unattended, being frightened by a passing train, ran 
 up the street and against the plaintiff's wagon, and injured it to the 
 extent of $18.42, besides making it necessary for him to spend $6 in 
 addition for the use of another wagon. 
 
 Pardbe, J. The rule is that for all acts done by a servant in obedi- 
 ence to the express orders or directions of the master, or in the exe- 
 cution of the master's business, within the scope of his employment, 
 and for acts in any sense warranted by the express or implied author- 
 ity conferred upon him, considering the nature of the services requir- 
 ed, the instructions given and the circumstances under which the act 
 is done, the master is responsible ; for acts which are not within these 
 conditions the servant alone is responsible. We cite a few from the 
 many cases in which the rule has been judicially illustrated and applied. 
 
 In Mitchell v. Crassweller, 13 C. B. 237, the defendant's carman 
 having finished the business of the day returned to their shop in Wel- 
 beck street with their horse and cart, and obtained the key of the 
 stable, which was close at hand; but instead of going there at once 
 and putting up the horse, as was his duty, he drove to Euston square, 
 and on his way back negligently drove over the plaintiff ; and it was 
 held that the carman was not at the time engaged in his master's busi- 
 ness so as to make him liable. Maule, J., said : "At the time of the 
 accident the servant was not going a roundabout way to the stable, 
 and as one of the cases expresses it, making a detour. He was not 
 engaged in the business of his employer. But in violation of his duty, 
 so far from doing what he was employed to do, he did something to- 
 
554 AGENCY (Part 2 
 
 tally inconsistent with his duty, a thing having no connection what- 
 ever with his employer's service. The servant only is liable and not 
 the employer. All the cases are reconcilable with that. The master 
 is liable even though the servant in the performance of his duty is 
 guilty of a deviation or failure to perform it in the strictest and most 
 convenient manner. But when the servant, instead of doing that which 
 he is employed to do, does seme thing which he is not employed to do 
 at all, the master cannot be said to do it by his servant, and therefore 
 is not responsible for the negligence of the servant in doing it." In 
 Storey v. Ashton, L. R., 4 Q. B. 476, the defendant intrusted his serv- 
 ant with his horse and cart for the day, and when his work was end- 
 ed and it was his duty to drive home, he, for a purpose of his own 
 and without authority express or implied from his master, drove in 
 an entirely different direction and by his carelessness injured the plain- 
 tiff. The court held that the master was not liable. 
 
 In Sleath v. Wilson, 9 C. & P. 607, Erskine, J., said in his charge to 
 the jury: "But whenever the master has intrusted the servant with 
 the control of the carriage, it is no answer that the servant acted im- 
 properly in the management of it. * * * The master, in such a 
 case, will be liable, and the ground is, that he has put it in the serv- 
 ant's power to mismanage the carriage by intrusting him with it." 
 In Storey v. Ashton, Cockburn, C. J., said : "I think the judgment of 
 Maule and Cresswell, JJ., in Mitchell v. Crassweller, expresses the 
 true view of the law, and the view which we ought to abide by; and 
 that we cannot adopt the view of Erskine, J., in Sleath v. Wilson, 
 that it is because the master has intrusted the servant with the con- 
 trol of the horses and cart that the master is responsible. The true 
 rule is that the master is only responsible so long as the servant can 
 be said to be doing the act, in the doing of which he is guilty of neg- 
 ligence, in the course of his employment as servant. I am very far 
 from saying, if the servant when going on his master's business took 
 a somewhat longer road, that owing to this deviation he would cease 
 to be in the employment of the master, so as to divest the latter of all 
 liability; in such cases it is a question of degree as to how far the 
 deviation could be considered a separate journey. Such a considera- 
 tion is not applicable to the present case, because here the carman 
 started on an entirely new and independent journey, which had noth- 
 ing at all to do with his employment. It is true that in Mitchell v. 
 Crassweller the servant had got nearly if not quite home, while, in 
 the present case, the carman was a quarter of amile from home ; but 
 still he started on what may be considered a new journey entirely for 
 his own business, as distinct from that of his master; and it would 
 be going too far to say that under such circumstances the master was 
 liable." In the same case, Mellor, J., said: "But here, though the 
 carman started on his master's business, and had delivered the wine 
 and collected the empty bottles, when he had got within a quarter of 
 a mile from the defendant's office he proceeded in a directly opposite 
 direction, arid as soon as he started in that direction he was doing 
 nothing for his master; on the contrary, every step he drove was 
 away from his duty." In Gormack v. Digby, Ir. Rep. (9 Com. Law 
 Series) 557, a servant had leave from his master to go for the day 
 to a neighboring town to transact business of his own, and borrowed 
 his master's horse and cart for the purpose ; he afterward proposed, 
 and the master assented, that he should bring home some meat from 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 555 
 
 the town for the master; by neghgent driving he injured the plaintiff. 
 Held, in an action against the master for the negligence of the servant, 
 that the court could not hold as matter of law, upon the evidence, that 
 the master was responsible for the negligence of the servant. 
 
 In Lamb v. Palk, 9 C. & P. 629, where a servant^ driving his mas- 
 ter's horse got off the carriage and took hold of a horse standing be- 
 fore a van and caused the van to move so as to make room for the 
 carriage to pass, whereby a packing case fell from the van and broke 
 the thills of the plaintiff's gig, it was held that the master was not 
 hable for the injury. In Woodman v. Joiner, 10 Jur. (N. S.) 852, the 
 plaintiff permitted the defendant to use his shed temporarily as a car- 
 penter's shop, and the defendant's workman in lighting his pipe set 
 the shed on fire; the court held that the defendant was not liable in 
 an action for negligence, saying, "We have had much doubt upon this 
 question, but have all arrived at the conclusion that there is no lia- 
 bility. If the servant had been guilty of any negligence relating to 
 his employment, it may be that the defendant would have been liable." 
 In Campbell v. City of Providence, 9 R. I. 262, the defendant, a hack- 
 owner, employed a person as a day driver. He used the hack at night 
 without the master's consent or knowledge. Held, that the master 
 could not be held responsible for an omission on the part of the driver 
 to comply with the terms of a city ordinance during the time of such 
 unauthorized use of the hack. * * * 
 
 In the case before us the servant left the employers' premises under 
 precise instructions as to the place to which their team was to be 
 driven and as to the merchandise to be transported ; and under in- 
 structions equally precise as to the route to be taken in returning, and 
 as to what he should bring home. These, therefore, covered the en- 
 tire period of his contemplated absence; nothing was left to his op- 
 tion or discretion; nothing. to chance; and in fact the deviation was 
 not occasioned or even suggested by any unforeseen event in connection 
 with the employers' business ; the record shows no obligation, express 
 or implied, upon them to deliver the paper elsewhere than in North 
 Glastonbury, nor that the journey thence to Hartford, even if suc- 
 cessfully accomplished, would have been for their advantage or profit ; 
 it was not connected with, did not grow out of, did not contribute to, 
 the successful completion of their business. When, therefore, the 
 servant accepted instructions from Taylor and became a carrier of 
 merchandise for him to and from a railroad station in an adjoining 
 town, he temporarily threw off his employers' authority, abandoned, 
 their business and left their service. They are not responsible for 
 his negligence on this occasion. There is error in the judgment com- 
 plained of. 
 
 STAPI.ETON V. INDEPENDENT BREWING CO. 
 
 (Supreme Court of Michigan, 1917. 198 Mich. 170, 164 N. W. 520, 
 L. E. A. 1918A, 916.) 
 
 Moore, J. This suit arises as a result of an automobile accident. 
 The suit was commenced in the justice court to recover the sum of 
 $375 for damages done, as a result of the accident to a wagon and 
 team of horses belonging to plaintiff. The automobile which caused 
 the accident was owned by the defendant, but at the time of the ac- 
 cident above referred to it had loaned it to the Detroit Axle Company 
 to be- used in the Detroit Axle Company's business, and at this par-! 
 
556 AGENCY (Part2 
 
 ticular time the automobile was being driven by an employe of the 
 Detroit Axle Company. * * * 
 
 Counsel for appellant say there is but one question presented for 
 determination — i. e. : "If an employe of the Detroit Axle Company 
 engaged in that company's business, negligently operates an automobile 
 owned by another party, is the owner of that automobile liable where 
 there is no relation of master and servant," but where the automobile 
 is so used with the consent of the "owner? 
 
 The question involves a construction of section 29 of Act JSTo. 302 
 of the Public Acts of ,1915. The portion of that section necessary to 
 an understanding of this case reads as follows : ■ 
 
 "Sec. 29. Civil Actions. Nothing in this act shall be construed to 
 curtail or abridge the right of any person to prosecute a civil action for 
 damages by reason of injuries to person or property resulting from 
 the negligence of the owner or operator or his agent, employe or serv- 
 ant, of any such motor vehicle, or resulting from the negligent use of 
 the highway by them or any of them. The owner of a motor vehicle 
 shall be liable for any injury occasioned by the negligent operation 
 of such motor vehicle, whether such negligence consists in violation 
 of the provisions of the statutes of this state or in the failure to 
 observe such ordinary care in such operation as the rules of the com- 
 mon law require: Provided, that the owner shall not be liable unless 
 said motor vehicle is being driven by the express or implied consent 
 or knowledge of such owner." * * * 
 
 It is true that the automobile has become so perfected that it may 
 not be classed as a "dangerous instrumentality" when intelligently 
 managed. It will not shy, balk, back up, or run away when properly 
 directed, but may do all of these when managed by an inexperienced, 
 incompetent, or reckless driver. When in thS control of such a one 
 it becomes an exceedingly destructive agency as the daily toll of lives 
 and the many injuries to persons chronicled by the newspapers at- 
 tests. If the owner of such agency consents to turn it over to the 
 control of an incompetent or reckless chauffeur he is not deprived of 
 any legal right by holding him liable for its negligent operation when 
 in such control and a greater degree of safety to the general public 
 is likely to follow. 
 
 The present statute, while safeguarding the rights of persons hav- 
 ing occasion to use the streets, does not unreasonably infringe upon 
 the lights of those able to own automobiles. The owner of an automo- 
 bile is supposed to know, and should know, about the qualifications 
 of the persons he allows to use his car, to drive his automobile, and 
 if he has doubts of the competency or carefulness of the driver he 
 should refuse to give his consent to the use by him of the machine. 
 The statute is within the police power of the state. 
 
 Judgment is affirmed, with costs to the plaintiff. 
 
 GBRSTEIN V. C. F. ADAMS CO. 
 (Supreme Court of Wisconsin, 1919. 169 Wis. 504, 173 N. W. 209.) 
 
 Action by Gertrude Gerstein against the C. F. Adams Company. 
 Judgment for plaintiff, and defendant appeals. 
 
 This action was commenced in the civil court for Milwaukee county 
 to recover damages for assault and battery, A general verdict was 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 557 
 
 rendered in favor of the plaintiff assessing damages at $685. An ap- 
 peal was taken to the circuit court, where the judgment of the civil 
 court was affirmed. Defendant appealed to this court. 
 
 Kerwin, J. The evidence in this case tends to show the employes 
 of the defendant, at the' time of the alleged injury, were attempting 
 to collect the balance due on a clock sold and delivered by defendant to 
 plaintiff; that said employes forcibly took the clock from the home 
 of plaintiff, and in so doing committed an assault and battery upon her, 
 kicking and severely injuring her; that they forcibly took possession 
 of the clock after plaintiff had failed to pay the balance due. Said 
 employes denied that they assaulted or beat plaintiff or used any force 
 in taking the clock. Plaintiff testified that at the time in question she 
 was alone, and that the employes of the defendant came to her home 
 and demanded all the money due on the clock. She said she owed $3 
 and would pay 50 cents and the balance later, but one of the employes 
 said, "No; I have to have all the money." Then they entered the 
 room where the clock was and immediately took it, and she tried to 
 stop them, and they struck her, and she fell. They ran away, taking 
 the clock with them, and she lay on the floor half an hour and could 
 not get up. She bought the clock on the installment plan. 
 
 The evidence is practically undisputed that the clock was taken by 
 the employes of the defendant while engaged in the course of their 
 employment; hence their employer, the defendant here, was liable 
 for the negligent or wrongful act of his servants committed while en- 
 deavoring to perform a duty delegated to them by the master notwith- 
 standing the method adopted by the servants may not have been au- 
 thorized, and even may have been prohibited, by the master. * * * 
 
 Judgment affirmed. 
 
 PIEI/D et al. v. KANE. 
 (Appellate Court of IlUnols, First District, 1901. 99 111. App. 1.) 
 
 This suit was brought in trespass by appellee to recover damages for 
 a false arrest of the appellee by appellants. The evidence discloses 
 that appellee had been for a long time a customer of the appellants, 
 and that she had a credit or "charge" account with appellants; that 
 at the time in question she visited the store of appellants and after 
 examining certain wares upon the third floor, started away from the 
 store, having made no purchase. She took the elevator, and upon 
 reaching the main floor left the building. After she was upon the 
 street Mr. Claribut, an employe of appellants, whose duties were those 
 of usher on the third floor of the store, followed her, placed his hand 
 upon her arm, and caused her to return to the store with him, where 
 she was taken into a room and interviewed by others of appellants' 
 employes. Appellee testified that Claribut opened her cloak and put his 
 hand into her pocket, and that he stated to Mr. Weber, another of ap- 
 pellants' employes, "This lady has stolen a candlestick." Claribut tes- 
 tified to actions of appellee while in the store, which evidently aroused 
 his suspicion, and that he followed her out of the building and asked 
 her "if she hadn't got something there that didn't belong to her," to 
 which appellee replied that he had made a mistake, and that he there- 
 upon requested her to step into the store with him. He testified that 
 in conducting appellee back into the store he had put his hand vmder 
 her arm, "just as I would escort any lady." He denied that he or any 
 
558 AGENCY (Part 2 
 
 other person had searched appellee. Appellee testified that Claribut 
 "grabbed her by the shoulder" when takiiig her back to the store. 
 
 No article belonging to appellants was discovered in the possession 
 of appellee, and it was not contended upon the trial that she had in 
 fact taken anything. The appellants pleaded the general issue. The 
 Jssues were submitted to a jury, and they found appellants; guilty and 
 assessed appellee's damages at $475. From judgment upon that ver- 
 • diet this appeal is prosecuted. 
 
 Sears, J. [after finding that there were present the essential ele- 
 ments of a wrongful arrest and detention]. Greater difficulty is to be 
 found in the second question presented, viz., as to whether appellg-nts 
 are liable for this conduct of their employe. The learned counsel for 
 the appellants cites and relies upon the decision of the New York 
 court in Mali v. Lord, 39 N. Y. 381, 100 Am. Dec. 448. The opinion 
 in that case proceeds upon the theory that a principal can not ini- 
 pliedly and without express direction authorize another to do that as 
 agent which the principal could not himself lawfully do. The decision 
 supports the contention of counsel. For here the appellants did not, 
 in express terms, authorize Claribut to detain appellee nor could it 
 be said that appellants themselves might, under the facts of this case, 
 lawfully detain her. The same reasoning would exonerate the prin- 
 cipal from liability in. every case where an agent made a wrongful 
 arrest without express direction from the principal. We are of opin- 
 ion that the basis of the decision is not sound, and that it lacks the 
 support of the weight of authority in this country. * * * 
 
 In the case under consideration Claribut was employed in a man- 
 ner ^ which made it his duty to protect his employer's wares against 
 thieves. That he might lawfully stop a thief who was carrying off 
 any of those wares," can scarcely be questioned. This authority is to 
 be implied from the nature of his employment. If the authority to 
 detain one who actually was carrying away the goods of the master 
 is iipplied; and the act of the agent is in that respect the act of the 
 master, then when the agent wrongfully exercises this implied au- 
 thority by detaining one under suspicion of guilt who is in fact in- 
 nocent, it would seem as clearly to be the act of the master done by the 
 servant, wrongfully, to be sure, yet in the exercise of the implied 
 authority. , 
 
 .The fact that the exercise of the implied authority was wrongful, 
 dttfes not of itself exclude a liability of the master. The criterion is, 
 \^as the act within the general scope of the implied authority conferred 
 on the agent. If so, the wrongful exercise of it, although not ex- 
 pi'essly directed by or contemplated by the master, will yet render the 
 master liable. In Arasmith v. Temple, 11 111. App. 39,- this court 
 said :' "That a master is liable for a trespass committed by his servant 
 bona fide as such and in the line of his employment, although willful 
 on' the part of the servant, has been often declared by the Supreme 
 Court oi this state. * * * The act of the servant' within the scope 
 of his authority, with all its characteristics, whether of willfulness, 
 negligence or unskillfulness, is deemed to be the act of the master. 
 And everything done bjr \he servant bona fide as such and in the line 
 of his eimployment, is within the scope of his authority. The master's 
 direction to do it is impliedly or conclusively presumed from the re- 
 lation existifig' between them. * * * ' Having set the servant to work 
 about his own business with the right to direct and control him as to 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 559 
 
 the manner of doing it, he ought to answer to others for whatever in- 
 jury they suffer by reason of what he so does or of the manner in 
 which he does it ; and equally so whether it be willful or only careless 
 or unskillful." * * * 
 
 Authorities which do not follow the reasoning of the Mali Case, 
 but proceed upon a different and opposite interpretation of the law, 
 are found in Staples v. Schmid, 18 R. I. 224, 26 Atl. 193, 19 L. R. 
 A. 824; Mallach v. Ridley, 47 Hun, 638, 9 N. Y. Supp. 922; Rounds 
 V. D. & L. W. R. Co., 64 N. Y. 129, 21 Am. Rep. 597. In Staples v. 
 Schmid, supra, the Rhode Island court held a shopkeeper liable for a 
 wrongful arrest of a customer by an employe of the shopkeeper, al- 
 though there was no express direction by the principal, and the only 
 authority of the agent to act in the matter for the principal was the 
 implied authority arising from his duty to protect his employer's 
 property. The court said: 
 
 "It is quite true that the master would have no right to arrest and 
 search an innocent person ; but it is equally true that he would have 
 the right to detain a thief and to recapture his property from him. 
 The case therefore was one where the act, aside from any excessive 
 force, might be lawful or unlawful, according to whether the supposed 
 circumstances were real or unreal. The servant was left in a situa- 
 tion where he was obliged to determine the fact and where his duty to 
 his master depended upon his decision. The decision was his, as the 
 substitute of the master, and the act was one intended by him to be 
 for his master's benefit and which his duty required if the facts were 
 as supposed. Hence, as to third persons, it was the master's act. 
 The criterion of the master's liability can never be whether the act 
 would have been lawful for the master to have done in the circum- 
 stances as they actually existed. It remains to apply these princi- 
 ples to the case at bar. The servant in this case was left with an as- 
 sistant in charge of his master's store. His ordinary duties undoubt- 
 edly were to show goods and to sell them to customers. It was, how- 
 ever, equally his duty to protect his master's property from pilfering. 
 The acts complained of were evidently done with that intention. The 
 arrest was for the purpose of searching for and recovering the mas- 
 ter's property, not with the object of punishing crime against the pub- 
 lic. The establishment was not a railroad station where the multi- 
 plicity of employes confines each one to a narrow round of duties, where 
 special officers are stationed to preserve order and detain criminals, 
 nor a large dry goods emporium where detectives and watchmen are 
 employed to guard against thieves. The servant here was salesman 
 and custodian in one. Whatever the master might do in the protection 
 of his property, he expected his servant to do in his absence. If the 
 servant had seen the plaintiff take up and secrete the package of spoons 
 in question and had allowed her to walk away with them unmolested, 
 could any one say that he had not been derelict in his duty to his 
 master? If in the performance of this duty he mistook the occasion 
 for it, or exceeded his powers or employed an improper degree of 
 compulsion, the mistake and the excess must be answered for by the 
 master." 
 
 We are of opinion that if it was properly determined that the 
 implied authority of Claribut included the protecting of the wares of 
 appellants against thieves, then the wrongful act of Claribut in detain- 
 ing appellee upon an unfounded suspicion that she had committed a 
 
560 AGENCY - (Part 2 
 
 theft, was the act of appellants. Whether the implied authority of 
 the usher included such protection of the appellants' property, was, 
 upon the facts here, a question for the jury, and we are not prepared 
 to hold that the conclusion expressed in the general verdict is against 
 the weight of the evidence. * * * 
 
 Claribut was usher upon the floor where the appellee was suspected 
 of having committed a theft. As such, his plain duty was to protect 
 his employer's wares there. It does not appear that there was any 
 other employe of appellants upon that floor whose specific duty it was 
 to act in the matter, and to whom Claribut should have reported the 
 circumstances before acting. If the suspicions of Claribut had been 
 well founded, it would have been a useless thing to have gone in 
 search of a detective while a theft was being committed in his pres- 
 ence, and if the culprit in such case had escaped through his inatten- 
 tion he would have been derelict in his duty. In the Rhode Island 
 case the court held the shopkeeper to respond for actual damages only. 
 No question arises in the case under consideration as to any such 
 limitation of the recovery, as no complaint is made that the damages 
 awarded are excessive. * * * 
 
 The judgment is affirmed. 
 
 MERCHANTS' NAT. BANK OF SAVANNAH v. GUILMARTm. 
 (Supreme Court of Georgia, 1892. 88 Ga. 797, 15 S. E. 831, 17 L. E. A. 322.) 
 
 Action by L. J. Guilmartin against the Merchants' National Bank 
 of Savannah to recover for the loss of a special deposit of valuables 
 feloniously appropriated by defendant's cashier. Judgment for plain- 
 tiff. Defendant brings error. 
 
 Ltjmpkin, J. The main question raised in the record is whether a 
 bank, which, through the cashier, received from one of its customers 
 a special deposit of valuable securities, to be kept simply for the de- 
 positor's accommodation, and returned to him on demand, shall be 
 held liable for the felonious appropriation of the securities by the 
 cashier to his own use, he taking them while they were in the bank. 
 The answer to this question depends on the nature of the duty as- 
 sumed by the bank with respect to the deposit. Such a deposit be- 
 longs to the class of bailments termed "gratuitous," and the test of the 
 bailee's liability on a loss of the property is to inquire whether he 
 exercised the full amount of diligence which the law exacts as the 
 measure of his duty in keeping the property. Each kind of bailment 
 imposes on the bailee the obligation to use a degree of care commen- 
 surate to some extent with his interest in the transaction. If the bail- 
 ment is for the benefit exclusively of the bailee, he must use extraor- 
 dinary care ; if for the mutual beftefit of the parties, ordinary care ; 
 and if for the exclusive benefit of the bailor, slight care will suffice. 
 Thus the essence of a contract of bailment on the part of the bailee 
 is for diligence of the required degree, and when he has used such dili- 
 gence his contract is performed, and he discharged, although the prop- 
 erty may be lost during his custody of it. Accordingly we find the au- 
 thorities holding that the bank is not liable for the loss of a special 
 deposit, to keep which it receives no compensation, by the theft of 
 its cashier or other servant, provided it has not been guilty of gross 
 negligence in any respect. * * * The bank may be guilty of n^- 
 
Ch. 2) RELATIONS OF THE PRINCIPAL AND THIRD PERSONS 561 
 
 ligence, and liable accordingly, in employing or retaining an unfit per- 
 son in the position of cashier. But when it does its full duty in select- 
 ing a proper person, and in not disregarding indications of dishonesty 
 which ought to arouse suspicion and investigation, then it is not re- 
 sponsible to one who has obtained from it the favor of barely keep- 
 ing specific property without recompense, though the cashier steal the 
 property so put in his charge. The law, as disclosed by the authorities, 
 seems to consider that, in the case of a gratuitous special deposit, there 
 is consideration enough in the bare custody of the property to insure 
 its being kept without gross negligence, but not enough to bind the bank 
 as an absolute insurer of its servant's honesty. 
 
 But it has been strongly urged that the bank, as master, is liable 
 for the fraud of the cashier, its servant, in the course of its business. 
 This is the point of most difficulty. Every bailee is bound to exer- 
 cise good faith, and abstain from fraud, in keeping the property. Bad 
 faith is at least as bad as gross negligence, and entails as much liability. 
 The application of this is easy where the very person to whom the 
 property was intrusted is guilty of the fraud. But suppose the mas- 
 ter, being the bailee, is personally blameless, and his servant is the 
 guilty one, shall the master be held liable ? At common law there was 
 once some authority that the master was not liable for the unauthor- 
 ized willful tort, which of course included fraud, of his servant. 
 
 But the better view is that the master is liable for every tort by the 
 servant which is within his authority, or is committed in the prosecu- 
 tion and within the scope of the business. It is often hard to draw the 
 line between torts within and torts without the master's business. On 
 the question now to be decided the cases hold that the act of , the cashier, 
 by which he appropriates exclusively to himself a gratuitous special 
 deposit in the bank, is not an act done in the bank's business, and 
 within the scope of his employment. The custody of the deposit im- 
 plies no act to be done, but only a mere continuance of possession 
 until a return of the property is demanded. The cashier had nothing 
 to do about it except suiifer it to remain in a safe place of deposit. 
 Consequently, in taking it to himself, he is said to "step aside" from 
 his employment to do an act for his personal gain, regardless of the 
 business for which he was engaged. Such an act is lacking both in the 
 rendition of, and in the intent to render, any service to the employer. 
 The cashier does not, as a matter of fact, act with the bank's author- 
 •ity, and, furthermore, does not essay, or even profess, to act in its 
 behalf. He represents nobody but himself. He throws ofiE all alle- 
 giance to his master and takes the part of a common enemy to all con- 
 cerned. He becomes the same as a stranger from without, who by rob- 
 bery, burglary, or stealth deprives the bank of a special deposit; and 
 the authorities hold that the bank is not chargeable with such a loss, 
 in the absence of gross negligence, but is liable if grossly negligent. 
 Such a fraud, by a well-selected servant, duly supervised, is not to be 
 imputed to the bank as its own fraud. The bank cannot be said to have 
 stolen when there is on its own part no participation in the theft, no ap- 
 propriation, and no intent to appropriate the property. Of course, if 
 the bank derive profit or benefit from its servant's speculation, it is 
 liable. * * * The common law appears to be that a master gener- 
 ally is not liable for the servant's fraud or willful tort unless he is 
 acting at the time by the master's express authority or in the conduct 
 B.& B.BTJS.LAW— 36 
 
-562 AGfBNOT (Part 2 
 
 of his business; that is to say, at his actual or implied instance. The 
 servant must, in the wrongful act, be acting or intending to act m 
 behalf of the master, and in the course of his employment. 
 Judgment reversed. 
 
 MICK V. EOYAL EXCHANGE ASSURANCE. 
 
 ' (Court of Errors and Appeals of New Jersey, 1914. 87 N. J. Law, 607, 
 91 Atl. 102, 52 L. R. A. [N. S.] 1074.) 
 
 Parker, J. The question to be determined is whether the forfeiture 
 clause in a standardized fire insurance policy, making it void "in case 
 of any fraud or false swearing by the insured touching any matter 
 relating to this insurance or the subject thereof, whether before or after 
 a loss," is under any circumstances available to the company after a 
 loss, when there is fraud in the claim committed by an agent of the in- 
 sured without specific knowledge thereof or assent thereto by the insur- 
 ed himself, and, if so, whether the circumstances of this case are such 
 as to make the forfeiture applicable. * * * 
 
 The responsibility of an innocent principal for the fraud of an agent 
 lias been one of the vexed questions of the law. That an innocent prin- 
 cipal cannot, as a general proposition, be permitted to benefit by the 
 fraud of his agent, has been settled in this court. It seems to be 
 settled that a principal is not Uable in tort for deceit, upon fraudulent 
 representations made by his agent without his knowledge or consent ; 
 * * * the remedy in such case resting on a rescission of the con- 
 tract. But this seems to relate mainly to the form of the remedy. In 
 many cases the controlling factor was the extent of the agent's au- 
 thority; and such authority was held to have been exceeded in sucli 
 cases as National Iron Armor Co. v. Bruner, 19 N. J. Eq. 331 ; Ken- 
 nedy V. Parke, 17 N. J. Eq. 415. While in others, the scope of the 
 authority was held to cover the fraudulent acts and the principal had 
 to suffer. * * * Naturally, when an agent intrusted with powers 
 to deal with a particular subject matter misuses those powers so as 
 to deal unlawfully, and the principal is sought to be held responsible, 
 the plea is that the powers are exceeded, and the unlawful acts are 
 not within the scope of the agency. But, as was said by Mr. Justice 
 Willes in the leading case of Barwick v. English Joint Stock Bank, 
 L. R. 2 Exch. 259, 36 E. J. Exch. 147, 12 E. R. C. 298; "In all these 
 cases it may be said, as it was said here, that the master had not author- * 
 ized the particular act, but he has placed the agent in his place to do 
 that class of acts, and he must be answerable for the manner in which 
 that agent has conducted himself in doing the business which it was 
 the act of his master to place him in.'' 
 
 That case was quite generally considered to limit the responsibility 
 •of the principal for fraudulent acts of the agent to those committed for 
 the benefit of the principal; but this misapprehension is set right by 
 the House of Eords in the recent case of Lloyd v. Grace, Smith & Co., 
 1912 A. C. 176, where a solicitor was held accountable for the fraudu- 
 lent procurement of a transfer of property from a client by the so- 
 licitor's managing clerk, though the solicitor in no way benefited or 
 could benefit thereby, knowing nothing of the transaction. The rule is 
 laid down that, irrespective of the question of benefit, the principal is 
 liable for the fraud of the agent acting within the scope of his au- 
 thority. These, and other Englislj cases, are cited with approval, and 
 
Ch. 2) EELATIONS OF THE PRINCIPAL AND THIRD PERSONS 503 
 
 the general question discussed by Mr. Justice Kalisch, speaking for 
 this court in Corona Kid Co. v. Lichtman, 84 N. J. Law, 363, 86 Atl. 
 3/1. In this state we have decided, it is true, that in such case an ac- 
 tion of deceit will not lie against the innocent principal; but those 
 decisons go to the form of the remedy and not to the denial of relief. 
 That fraud of an agent within the scope of his employment will in- 
 validate a contract so procured by him for liis principal, may be con- 
 sidered settled and is not disputed here. * * * 
 
 RHODA V. ANXIS. 
 (Supreme Judicial Court of Maine, 1883. 75 Jle. IT, 46 Am. Rep. 354.) 
 
 Danforth, J. This is an action to recover damages for deceit in 
 the sale of a farm. The representations complained of were made by 
 the defendant's son acting in her behalf. The jury were instructed 
 that the "defendant was responsible for all the acts and representations 
 of her agent in making the sale." This instruction does not make her 
 responsible for the acts or representations of any person who was 
 not her agent, or for such as were not made in furtherance of the 
 sale, or to accomplish that end. These things were first to be found by 
 the jury under proper instructions as to the law. We must then as- 
 sume that the son had authority as agent for his mother to make a sale 
 of the farm, that the representations, so far as they were submitted 
 to the jury, were made by him as a part of the negotiation for the 
 • purpose of bringing about the sale, that by means of them it was 
 brought about, the conveyance was made, and that the defendant re- 
 ceived the proceeds of the sale. In fact, all these things are conceded. 
 The verdict affirms the fraudulent character of the representations, 
 and that in making them the agent acted within the scope of his au- 
 thority. This would seem to bring the case within the well established 
 law, that the principal is responsible for such acts of his agent as are 
 done within the scope of his authority, to do the principal act. 
 
 In fact, this principle of law is conceded in this case, but it is de- 
 nied that the defendant is liable in this form of action. It is said that 
 being personally innocent of the fraud, she cannot be convicted of that 
 which has been committed by another with no authority from her, 
 except that which results from his agency. This may be true in a crim- 
 inal prosecution, but not in a civil action. If she is liable that liability 
 must be ascertained in the proper form of action. Here is no con- 
 tract of any kind, express or implied, between the parties which can 
 afford any remedy for the injury of which the plaintiff complains. He 
 claims that a wrong, for which the defendant is responsible, has been 
 done him. For that wrong he seeks a remedy. What remedy can he 
 have except an action of tort? The counsel says two. He may re- 
 scind the contract, and recover back the consideration paid, or in an 
 action for money had and received, recover the profits accruing from 
 the fraud. But neither of these may be adequate to his injury. If 
 he rescinds the contracts he may perhaps lose all the consideration 
 paid, and it would be difficult, if not impossible, to ascertain the 
 amount received on account of the fraud, if that should be held to dif- 
 fer from the amount of damages recoverable in this form of action. 
 But how does this change of form relieve the defendant's feelings or 
 reputation? In either case the action is founded upon a fraud, and 
 
564 AGENCY , (Part 2 
 
 one which must be proved. In either case it is not her own fraud but 
 that of another for whose doings she is legally, though perhaps not 
 morally, responsible. 
 
 The counsel relies largely, if not entirely, upon the English cases to 
 support his views and some of them do so. But an examination of 
 them will show that they are conflicting, many of them decidedly sus- 
 taining the instruction given to the jury in this case. It will however 
 be noticed that in the most, if not all of them, the form of the action 
 is not considered material. The object is to limit the extent of the lia- 
 biUty to the advantages received from the fraud, applying a somewhat 
 different test to the amount of damages to be recovered. 
 
 The American cases are more uniform, and sustain the instruction 
 complained of, both as to the form of action and extent of liability. 
 Bigelow on page 23, says : "In America it has generally been held 
 that an action of deceit may be maintained against the principal; but 
 the cases are at variance as to the ground of liability." As are the 
 cases, so we find the text-books uniform in sustaining the liability of 
 the principal in actions of tort for the wrongful acts of the agent done 
 within the scope of his authority, even though the principal himself 
 is innocent. * * * 
 
 As already seen all the cases, both here and in England, hold the 
 principal liable for the fraud of the agent to some extent when he has 
 adopted the contract into which that fraud has entered, and if liable, 
 we see no good reason why that liability should not be co-extensive 
 with the injury in accordance with the great weight of authority. If 
 he would avoid this he may, as undoubtedly the law would authorize ^ 
 him to do, repudiate the contract, and restore to the injured party 
 what has been taken from him. But in this case no such offer has 
 been made, but defendant still holding the fruits of what the jury have 
 pronounced a fraud, denies any liability on her part. * * * 
 
 Exceptions overruled. 
 
Ch. 3) TERMINATION OF THE RELATION 565 
 
 CHAPTER III 
 TERMINATION OF THE RELATION 
 
 Section 
 
 1. What Constitutes a Termination of the Relation? 
 
 2. Irrevocable Powers. 
 
 3. EfEect of Terminating the Relation. 
 
 SECTION 1.— WHAT CONSTITUTES A TERMINATION 
 OF THE RELATION? 
 
 AHERN V. BAKER. 
 (Supreme Court of Minnesota. 1S85. 34 Minn. 98, 24 N. W. 341.) 
 
 Vanderburgh, J. The defendant, on the ninth day of September, 
 1884, specially authorized one Wheeler, as his agent, to sell the real 
 property in controversy, and to execute a contract for the sale of the 
 same. He in like manner on the same day empowered one Fairchild 
 to sell the same land ; the authority of the agent in each instance being 
 limited to the particular transaction named. On the same day, Wheeler 
 effected a sale of the land, which was consummated by a conveyance. 
 Subsequently, on the tenth day of September, Fairchild, as agent for 
 defendant, and having no notice of the previous sale made by Wheeler, 
 also contracted to sell the same land to this plaintiff, who, upon de- 
 fendant's refusal to perform on his part, brings this action for dam- 
 ages for breach of the contract. 
 
 This is a case of special agency, and there is nothing in the case go- 
 ing to show that the plaintiff would be estopped from setting up a 
 revocation of the agency prior to the sale by Fairchild. A revocation 
 may be shown by the death of the principal, the destruction of the 
 subject-matter, or the determination of his estate by a sale, as well 
 as by express notice. The plaintiff [defendant?] had a right to em- 
 ploy several agents, and the act of one in making a sale would pre- 
 clude the others without any notice, unless the nature of his contract 
 with them required it. In dealing with the agent the plaintiff took 
 the risk of the revocation of his agency. * * * 
 
 Order affirmed, and case remanded. 
 
 CLAFLIN et al. v. LENHEIM. 
 (Court of Appeals of New York, 1876. 66 N. T. 301.) 
 
 Rapallo, J. The plaintiffs seek to recover in this action the price 
 of certain merchandise which they allege that they sold and delivered 
 to the defendant, through his brother H. S. Lenheim, as his agent. 
 
 To establish the agency, they proved that this brother of the defend- 
 ant had, for several years prior to July, 1867, conducted the business 
 of a store at Meadville, Pennsylvania, in the name of the defendant, 
 and had been in the habit of purchasing goods for that store from 
 
566 AGENCY . (Part 2 
 
 the plaintiffs. These purchases were all made in the name and* on the 
 credit of the defendant, and the bills thereof were rendered' to and 
 paid by him. 
 
 The defendant concedes, in his testimony, that previous to a fire 
 which took place in July, 1867, in the store at Meadville, his brother 
 was authorized by him to make purchases and carry on that store in 
 his (the defendant's) name, but contends that after the fire he termi- 
 nated such authority. The purchases for which this action was brought 
 were made by the brother, for the Meadville store, in November and 
 December, 1869, in the name of the defendant. The plaintiffs claim 
 that they had no notice of the revocation of the agency, and sold on 
 the credit of the defendant. 
 
 The last bill paid by the defendant for goods sold for the Mead- 
 ville store, was for upwards of $8,000, and was paid in August, 1867. 
 It was for goods sold before the fire. There was a difficulty between 
 the plaintiffs and the defendant about this bill. An action was brought 
 upon it and an attachment issued against the property of the defend- 
 ant, and he was required to pay the costs of these proceedings, which 
 he did in August, 1867. The defendant had for several years previ- 
 ously carried on another store at Great Bend, Pennsylvania, and had 
 been in the habit of purchasmg goods from the plaintiffs for that 
 store; but after this difficulty he suspended all his dealings with the 
 plaintiffs until the month of October, 1869, when he resumed his busi- 
 ness relations with them by the purchase of goods, personally, for the 
 store at Great Bend. In the following months of November and De- 
 cember, 1869, the brother made the purchases now in controversy, in 
 the name of the defendant, for the Meadville store. 
 
 The defendant gave evidence on the trial tending to show actual no- 
 tice to the plaintiffs of the revocation of the agency, after the fire of 
 July, 1867. It was conceded that the plaintiffs had notice of the 
 burning of the store at Meadville, but the evidence of notice of the 
 revocation of the agency was controverted. 
 
 The court submitted to the jury the questiofi whether the plain- 
 tiffs had notice of the revocation, but charged that if the jury came 
 to the conclusion "that the circumstances of the case were such, in- 
 dependently of the question of notice, that in fair dealing between 
 man and man plaintiffs should have inquired by telegraph or by letter 
 of the defendant at Great Bend whether he continued the Meadville 
 store, and whether the brother continued to have authority to buy 
 goods in his name, that will end the recovery in this case," and, fur- 
 ther, that if the jury came to the conclusion "that no notice in fact 
 was given and that the circumstances were such as to put the plaintiffs 
 fairly upon inquiry as to whether that business was continued by 
 the defendant "and the brother had authority to continue it by making 
 these purchases, that ends the responsibility on the part of the de- 
 fendant." Exceptions were duly taken to the portions of the charge 
 above quoted. 
 
 It is a familiar principle of law that when one has constituted and 
 accredited another his agent to carry on a business, the authority of 
 the agent to bind his principal continues, even after an actual revoca- 
 tion, until notice of the revocation is given, and, as to persons who 
 have been accustomed to deal with such agent, until notice of the revo- 
 cation is brought home to them. The case of such an agency is analo- 
 gous to that of a partnership, and the notice of revocation of the agency 
 
Ch. 3) TERMINATION OP THE RELATION . 567 
 
 is governed by the same rules as notice of the dissolution of a part- 
 nership. As to persons who have been previously in the habit of 
 dealing with the firm, it is requisite that actual notice should be 
 brought home to the creditor, or at least, that the credit should have 
 been given under circumstances from which notice can be inferred. 
 Where the circumstances are controverted, or where notice is sought 
 to be inferred, as a fact, from circumstances, the question is for the 
 jury; they must determine, as a question of fact, whether the party 
 claiming against the partnership or the principal, did have notice of 
 the dissolution or revocation; and there being some evidence of the 
 fact of notice, the court, in the present case, properly submitted to 
 the jury this question of fact. " 
 
 But the court submitted to the jury the further question whether, 
 independently of the question of notice in fact, the circumstances were 
 such as to put the plaintiffs on inquiry as to whether the authority 
 of the Jigent continued, and charged them that if they were, the plain- 
 tiffs were charged with notice of the facts which the inquiry would 
 have disclosed. I'n other words, the question was submitted to the 
 jury whether, although the plaintiffs had no notice in fact, they had 
 constructive notice of the revocation of the agency. 
 
 Assuming that the doctrine of constructive notice is applicable to 
 cases of this description, what circumstances amount to constructive 
 notice is a question of law. Where the facts are in dispute, a mixed 
 question of law and fact is presented, and then of course the question 
 is to be determined by the jury, under instructions by the court, as 
 to the effect of the circumstances which they may find to have ex- 
 isted. But the question whether circumstances which are undisputed, 
 or are found by the jury, are sufficient to put a party on inquiry and 
 thus charge him with constructive notice, is not for the jury but for 
 the court. 
 
 In this case, throwing out of view the evidence bearing upon the 
 question of actual notice, there was no controversy about the facts. 
 These were, that the store at Meadville was burnt in July, 1867, and 
 the plaintiffs knew of the fire; that the plaintiffs brought an action 
 and issued an attachment against the defendant for the bill then due 
 for goods furnished to the store at Meadville ; that this claim and the 
 costs of the proceedings were paid by the defendant in August, 1867, 
 and the defendant thereafter suspended all dealings with the plain- 
 tiffs until October, 1869, when he resumed them, and that in Novem- 
 ber, 1869, the brother resumed his purchases for the Meadville store, 
 from the plaintiffs on credit, in the name of the defendant. Whether 
 these circumstances were sufficient to put the plaintiffs on inquiry, or 
 in other words, whether they amounted to constructive notice of the 
 fact which an inquiry would have disclosed, viz. the revocation of the 
 agency, was a question of_ the law, to be determined by the court, 
 and it was error to submit it to the jury. * * * 
 
 This error, however, would not be ground for reversing the judg- 
 ment if it appeared that the court would have been justified in hold- 
 ing, as a matter of law, that the circumstances were sufficient to put 
 the plaintiffs on inquiry, and we must, therefore, examine that ques- 
 tion. 
 
 The mere fact that the store at Meadville was burnt did not indicate . 
 that the defendant intended to discontinue business there; and if busi-. 
 ness had been promptly resumed and purchases for that store renewed 
 
568 AGENCY (Part 2 
 
 by the defendant's brother, there could have been no reason, in the 
 absence of any notice from the defendant, to suppose that the agency 
 had been discontinued. The principal feature in the case is the delay 
 of two years and upwards between the fire and the resumption of 
 purchases, by the defendant's brother, for the Meadville store. But, . 
 under the circumstances, this delay might well have been attributed by 
 the plaintifiFs to the difficulty between them and the defendant, in July 
 and August, 1867, which resulted in the defendant suspending all deal- 
 ings with the plaintiffs, notwithstanding that he continued his business 
 at Great Bend. And when the defendant, in 1869, resumed his deal- 
 ings with the plaintiffs, withaut giving them notice of any change in 
 his business arrangements witli his brother, at Meadville, the plaintiffs 
 were warranted in believing that the suspension of the dealings of the 
 brother was attributable to the same cause which had deterred the de- 
 fendant himself from making purchases; and when, immediately 
 after the defendant himself resumed dealings, the brother applied to 
 make purchases as before, for. the Meadville store, the plaintiffs would 
 not, naturally, attribute the suspension of dealings 'for that store, in 
 the meantime, to a revocation of the agency, nor suspect that the 
 brother was committing a fraud. We must) in considering the por- 
 tion of the charge excepted to, assume, as we have assumed, that no 
 notice was given by the defendant to the plaintiffs that he had dis- 
 continued his business at Meadville or revoked the authority of his 
 brother, and that the plaintiffs knew nothing of it, for the charge ex- 
 pressly submits the question of constructive notice, independently of 
 the question of notice in fact, and expressly states that the jury are 
 to pass upon it an case they find that there was no notice in fact. 
 
 We think that the circumstances existing at the time of the sale 
 of the goods in question were not sufficient to constitute constructive 
 notice of the revocation of the agency, and that the case should have 
 been submitted to the jury only upon the question of notice in fact. 
 In this there is no hardship upon the defendant; it was his duty, 
 after he had accredited his brother for a series of years as authorized 
 to deal in his name and on his responsibility, when he terminated that 
 authority, to notify all parties who had been in the habit of dealing 
 with his agent, as the plaintiffs had been to his knowledge. This was 
 an act easily performed and "would have been a perfect protection to 
 him and prevented the plaintiffs from being deceived. Justice to par- 
 ties dealing with agents requires that the rule requiring notice in 
 such cases should not be departed from on slight grounds, or dubious 
 or equivocal circumstances substituted in place of notice. If notice 
 was not in fact given, and loss happens to the defendant, it is at- 
 tributable to his neglect of a most usual and necessary precaution. 
 
 The jury may have been satisfied that notice was given, but under 
 the charge they may have rendered their verdict solely on the ground 
 of constructive notice ; the judgment must, therefore, be reversed and 
 a new trial ordered, with costs to abide the event. 
 
 Judgment reversed. 
 
Ch. 3) TERMINATION OF THE RELATION 569 
 
 BURCH V. AMERICUS GJROCERY CO. 
 
 (Supreme Court of Georgia, 1906. 123^ Ga. 153, 53 S. E. 1008.) 
 
 Action by the Americus Grocery Company against J. B. Burch. 
 Judgment for plaintiff. Defendant hring^ error. 
 
 Evans, J. The Americus Grocery Cc|npany sued J. B. Burch for 
 a balance alleged to be due on open accodnt. The only item in dispute 
 was one of May 8, 1903, for a certain cliantity of tobacco. The de- 
 fendant contended that this item was phrchased by his clerk, Mike 
 Burch, after he had left his employment, fend that he neither authoriz- 
 ed, nor ratified the purchase nor receivet the tobacco. On the other 
 hand, the plaintiff insisted that Mike Burcm was the general agent of the 
 defendant in the management of his store, and as such, on previous 
 occasions, had ordered goods of plaintiff on defendant's account, and 
 that the plaintiff, without notice that Mike Burch was no longer em- 
 ployed by the defendant, took the order in the defendant's name and 
 shipped the goods to the defendant, as was usual in the past transac- 
 tions. * * * When the merchandise, to recover the price of which 
 the present action was brought, was ordered of the plaintiff by Mike 
 Burch, he was not in the employment of the defendant, and had not 
 been for two months past. Neither the plaintiff company nor its 
 "drummer" was aware at the time of receiving the order that Mike 
 Burch was no longer in the service of the defendant. * * * Upon 
 these facts the jury returned a verdict in favor of the plaintiff for the 
 value of the goods, which verdict the trial judge refused to set aside 
 on motion for a new trial. * * * 
 
 It is a general rule of law, therefore, upon which there seems to be 
 no conflict of authorities, that all acts of a general agent within the 
 scope of his authority, as respects third persons, will be binding on the 
 principal, even though done after revocation, unless notice of such 
 revocation has been given to those persons who have had dealings with 
 and who are apt to have other dealings with the agent upon the 
 strength of his former authority." 1 Clark & Skyles on Agency, § 
 173 (b). * * * The term "actual notice" is intended to be under- 
 stood in its strictly legal, technical sense, and is not to be confounded 
 with actual knowledge, which, as was pointed out in Clarke v. Ingram, 
 107 Ga. 570, 33 S. E. 802, is by no means a synonymous or inter- 
 changeable term. "Notice is actual when one either has knowledge of 
 a fact or is conscious of having the means of knowledge, although he 
 may not use them." It may be either "express notice," or si'fnply "im- 
 plied notice" ; notice communicated by direct and positive informa- 
 tion from persons cognizant of the fact, or notice such as "arises when 
 the party to be charged is shown to have had knowledge of such facts 
 and circumstances as would lead him, by the exercise of due diligence, 
 to a knowledge of the principal fact." 1 Parsons on Contracts (9th 
 Ed.) 71. . , 
 
 In the present case no express notice was shown, and the controlling 
 issue was whether or not the plaintiff had "implied notice" that there 
 had been a revocation of the agency, within the meaning of Civ. Code 
 1895, §• 3933, which declares that : "Notice sufficient to excite atten- 
 tion and put a party on inquiry is notice of everything to which it is 
 afterwards found such inquiry might have led. Ignorance of a fact, 
 due to negligence, is equivalent to knowledge in fixing the rights of 
 parties." The only circumstance upon which the defendant could 
 
570 - . AGENCY (Part 2 
 
 rely as suggesting the necessity of making inquiry whether the agen- 
 cy had been terminated was that the order for the goods was given to 
 the plaintiff's salesman three miles from the defendant's store, where 
 the agent had been employed. The defendant was engaged in the saw- 
 mill business, and his "commissary" was run in connection with that 
 business, as an adjunct to it, and not as a wholly independent enterprise. 
 When the order for the goods was taken, Mike Burch, who still as- 
 sumed to act as the defendant's agent, was superintending the erection 
 of a sawmill. That it did not belong to the defendant or was not to 
 be used in connection with his business was not self-apparent, nor was 
 the fact that Mike Burch was not at the time engaged in his custom- 
 ary duties at the commissary calculated to put the plaintiff's salesman 
 on notice that he had left the service of the defendant. Moreover, 
 the salesman had first driven by the store of the defendant and in- 
 quired for Mike Burch, who had theretofore been in charge of it. In- 
 stead of being notified that Mike Burch was no longer in the defend- 
 ant's employ, the salesman was told where Mike Burch could be 
 found. Under these circumstances it is not strange that the salesman 
 should assume that the employes at the store of the defendant under- 
 stood that he had called on business, as theretofore, and wished to see 
 the defendant's representative, nor is it remarkable that, after being 
 informed as to his whereabouts but given no intimation that he was 
 no longer the defendant's agent, the drummer should entertain no 
 doubt as to the continuance of the general agency. 
 
 The jury, after considering all the facts and circumstances brought 
 to light at the trial, found agamst the contention of the defendant that 
 due caution and prudence on the part of the plaintiff's drummer ought 
 to have suggested to him the propriety of making inquiry, if he did 
 not divine the truth. The burden of proof was upon the defendant 
 to establish his defense that the plaintiff was affected with implied 
 notice. * * * The plaintiff being a creditor of the defendant and 
 having had numerous business transactions with his accredited agent 
 was entitled to receive a formal notification from him of the termina- 
 tion of the agency, or the legal equivalent of such a notification. The 
 plaintiff could not in good faith remain passive, so long as the defend- 
 ant failed in his legal duty to take active measures to impart notice. 
 * * * The defendant was admittedly at fault, having failed to take 
 any steps to give notice to the plaintiff, whereas the plaintiff had not 
 omitted to perform any legal duty owing to the defendant, and the 
 plaintiff's drummer admittedly acted in entire good faith. The jury 
 took the view that the plaintiff should not be called on to suffer the 
 loss. "In this there is no hardship upon the defendant," as was point- 
 ed out by Rapallo, J., in Claflin v. Lenheim, 66 N. Y. 301, who added 
 that it was the defendant's duty, "after he had accredited his brother 
 for a series of years as authorized to deal in his name and on his re- 
 sponsibility, when he terminated that authority, to notify all parties 
 who had been in the habit of dealing with his agent, as the plaintiffs 
 had been to his knowledge. This was an act easily performed, and 
 would have been a perfect protection to him and prevented the plain- 
 tiffs from being deceived. Justice to parties dealing with agents re- 
 quires that the rule requiring notice in such cases should not be de- 
 parted from on slight grounds, or dubious or equivocal circumstances- 
 substituted in place of notice. If notice was not in fact given, and loss- 
 happens to the defendant, it is attributable to his neglect of a most 
 
Ch. 3) TERMINATION OF THE RELATION ' 571 
 
 usual and necessary precaution." The verdict of the jury appears 
 to be in accord both with the strict law and the common justice of the 
 case, and it should not be set aside unless the court below committed 
 sorne error which was obviously calculated to bring about a result 
 which would not otherwise have been probable. * * * 
 Judgment affirmed. 
 
 CLAYTON V. MBRRETT et al. 
 .(Supreme Court of Mississippi, 1876. 52 Miss. S53.) 
 
 ^ Chalmers, J. Leroy M. Wiley, a resident of Georgia, intrusted to 
 his agent, James Drane, of Choctaw county. Miss., a note against G. 
 B. & T. D. Merrett, and with it a deed to be delivered to them on pay- 
 ment of the note. Drane placed the note in the hands of Tucker & 
 Green, attorneys, for collection. The attorneys filed a bill and ob- 
 tained decree for sale of the land, and the same was sold by the com- 
 missioner appointed for that purpose by the chancery court. The Mer- 
 retts bought at the sale, paid the purchase money directly to the at- 
 torneys. Tucker & Green, and withdrew the deed, which had been pre- 
 viously tendered and filed with the bill, and the same recorded. James 
 Drane having died during the pendency of the sui,t. Tucker & Green 
 paid over the money which they received to his executrix. 
 
 After all these transactions had occurred, it was discovered for the 
 first time that Leroy M. Wiley had died before the institution of 
 the suit in his name, and nearly two years before the payment of the 
 money. Some time thereafter appellant, Clayton, administered upon 
 his estate in this state (where the deceased owned other claims and 
 owed some debts), and filed his bill against the Merretts to compel them 
 to pay again the amount due on the land. The bill sets forth the 
 above facts, and is aided by an agreement of counsel, in which it is 
 admitted that neither Drane nor Tucker & Green nor the Merretts 
 knew of Wiley's death at the time of payment by the latter. 
 
 Two principal points are raised by the demurrer: 1st. The six 
 years statute of limitations. 2d. That the payment being made in ig- 
 norance by all parties of the death of Wiley, is ^ood. * * * 
 
 Upon the second point it is admitted that the former legal proceed- 
 ings, having been commenced and prosecuted in Wiley's name after 
 his death, are void, and that the deed abstracted from the papers, and 
 recorded, conveyed no title; but it is contended that the payment of 
 the money was good, because made in ignorance that the death of the 
 principal had revoked the agency. 
 
 There are several cases which seem to hold that although, as a gen- 
 eral principle, death revokes an agency and renders null every act of 
 the agent thereafter performed, yet that where a payment has been 
 made in ignorance of the death, such payment will be good. The 
 leading case so holding is that of Cassiday v. McKenzie, 4 Watts & 
 S. (Pa.) 282, 39 Am. Dec. 76, where, in an elaborate opinion, this 
 view is broadly announced. It is referred to, and seems to have been 
 followed, in the case of Dick, Ex'r, v. Page et al., 17 Mo. 234, 57 Am. 
 Dec. 267; but in this latter case it appeared that the estate of the 
 deceased principal had received the benefit of the money paid, and 
 therefore the representative of the estate might well have been held 
 to be estopped from suing for it again. * * * In Stout v. Iberry, 
 10 M. & W. 1, a wife purchased provisions on the husband's credit, 
 
572 AGENCY (Part 2 
 
 during his absence,, and, as was afterwards developed, after his death. 
 In an action to hold her personally liable for the goods it was held 
 that she originally had full authority to contract the debt in her hus- 
 band's name ; that she was guilty of no wrong and suppressed no in- 
 formation in doing so; that the person supplying her took equally 
 with herself the chance of the continued life of the absent husband; 
 that his death, being the act of God, should work her no harm, and 
 she was therefore acquitted of the debt. It seems to have been con- 
 ceded that the estate of the husband was not bound, and the result 
 would appear to be that the unfortunate tradesman lost his , debt alto- 
 gether. 
 
 These cases, in so far, at least, as they announce the doctrine under 
 discussion, are exceptional. The Pennsylvania case, supra, is be- 
 lieved to stand almost, if not quite, alone in announcing the principle 
 in its broadest scope. The overwhelming weight of authority is to 
 the effect that the death of the principal operates as an instantaneous 
 revocation of the agency where it is a naked power, unaccompanied 
 with an interest, and that every act of the agent thereafter performed 
 is null so far as the estate of the principal is concerned. This rule 
 frequently operates very unjustly and produces very great hardship. 
 A party dealing with an insolvent agent, upon the faith of his well- 
 known authority from a wealthy and distant principal, is suddenly 
 confronted with the fact that the authority had ceased, by the death 
 of the principal, one day or perhaps one hour before his transaction 
 occurred. Impressed with the hardship of such' a case, the civil law 
 adopts the rule contended for in the case at bar, and renders valid 
 a contract executed or payment made under such circumstances. 
 
 The Scotch law. is said to be similar. Judge Story regrets that this 
 beneficent rule does not prevail under the common law, and insinu- 
 ates a doubt as to whether that system is altogether liable to the re- 
 proach which he seems to think that the opposite doctrine casts upon 
 it. Story on Agency, § 495, and notes. It will be observed, however, 
 that the distinction which he undertakes to draw, in his desire to rid 
 the common law of what he regards as a defect, is only the case of an 
 agency coupled with an interest, as to which it is well settled that the 
 act of the agent, performed in ignorance, and sometimes even with 
 full knowledge, of the death of the principal, is binding. 
 
 Several states of the Union, among which are said to be Maryland 
 and Georgia, have by statute adopted the rule of the civil law on this 
 subject. 2 Kent's Com. 646, note. 
 
 However wise such legislation may seem to be, and however great 
 the injustice produced in particular cases by the contrary doctrine, 
 undoubtedly the common law rule is that death revokes the agency and 
 nullifies all acts thereafter performed. This doctrine rests upon the 
 obvious principle that as a dead man can do no act for himself, so 
 no man can do an act for him. When, therefore, the agent under- 
 takes to act in his name, he is acting for a being not in existence. To 
 hold his act valid is not to bind the dead man, but to bind his heirs 
 and representatives, who are thus held liable for the acts of one whom 
 they never appointed, and whom perhaps they would be unwilling to 
 trust. Whether a system of jurisprudence which would accomplish 
 this result would be found in the long run less productive of injustice 
 than our present rule may well be doubted. At all events we are satis- 
 fied that such is not now the law. * * * 
 
Ch. 3) TERMINATION OF THE RELATION 573 
 
 We would remark tliat the case at bar is not one where the death of 
 the principal occurred within a few hours or days before the payment, 
 but that nearly two years intervened between the two events. If the 
 principle is the same, it does not, at least, present a case where it was 
 physically impossible for the debtor to know that the power of the 
 agent had been terminated by the death of the principal. 
 
 The views of the court below seem not to have been in accordance 
 with the views here announced, and were therefore erroneous. We 
 observe, however, that complainant, Clayton, who is the administra- 
 tor of Wiley, fails to make the heirs of his intestate defendants to the 
 bill. This should have been done, inasmuch as the legal title to the 
 land was in them. No objection to this was urged either in the court 
 below or in this court, but the absence of a necessary party renders it 
 impossible to proceed with the bill in its present aspect. 
 
 So much of the decree of the court below as "sustains -the demurrer 
 is, therefore, affirmed ; so much of it as dismisses the bill is reversed, 
 and the cause is retained, and remanded with leave to complainant to 
 amend his bill within ninety days, or such further time as to the chan- 
 cellor may seem proper, * * * ^t which the bill, if not amended, 
 shall stand dismissed. 
 
 SECTION 2.— IRREVOCABLE POWERS 
 
 TERWILLIGER v. ONTARIO, C. & S. R. CXD. 
 (Court of Appeals of New York, 1S96. 149 N. Y. 86, 43 N. E. 432.) 
 
 The action was brought to recover the purchase price of 1,224 rail- 
 road ties, alleged in the complaint to have been sold and delivered by 
 the defendant in the months of February and March, 1890, for the 
 price of $602.55. The answer, among other things, alleges that the 
 plaintiff, for a good and valuable consideration, authorized one Wheeler 
 to sell the ties to the defendant, and to receive the pay therefor for 
 his own use, and that thereafter Wheeler sold the ties to the defendant, 
 and that the defendant paid him therefor in full. The issues were 
 referred to a referee for trial. 
 
 Andrews, C. J. The principal question on this appeal arises on 
 the exception by the defendant to the refusal of the referee to make 
 any finding upon the question whether the plaintiff, in the summer 
 of 1889, authorized Wheeler to sell the ties to the defendant, and apply 
 the proceeds of the sale in payment for the timber which had been 
 cut by the plaintiff, without authority, from Wheeler's lands. The 
 evidence upon this question was conflicting. The defense rested sub- 
 stantially upon the assertion that such authority was given ; that it 
 was executed by a sale and delivery of the ties thereunder by Wheeler 
 to the defendant; and that, the defendant having subsequently paid 
 Wheeler therefor, the debt was discharged. The refusal of the referee 
 to pass upon the question of Wheeler's original authority was put upon 
 the ground that, assuming it_ to have been given, it was subsequently 
 revoked by the act of the plaintiff in himself selling and delivering the 
 ties to the defendant. It became, therefore, as the referee held, an 
 immaterial issue, which, if found in favor of the defendant, would not 
 affect the result, since, by the general rule, an authority once given, if 
 
574 AGENCY (Part 2 
 
 revoked before execution, except where an element of estoppel inter- 
 venes, is the same as to third persons as though it had never existed. 
 The' primary question presented by this ruling of the referee involves 
 an inquiry into the nature of the authority given by the plaintiff to 
 Wheeler. It is to be conceded, for the purpose of this appeal, that 
 Wheeler possessed the authority which the -evidence on the part of the 
 defendant tended to establish, and that it was conferred for the pur- 
 poses which, by direct evidence or by fair inference, can be collected 
 from the evidence most favorable to the defendant. If the author- 
 ity conferred on Wheeler was a mere naked authority, by which we 
 understand an authority in the execution of which the agent has no 
 ■other interest than that which springs from his employment as agent 
 and his right to earn his compensation, then, according to the gen- 
 eral rule, it was, while executory, revocable at any time, at the pleas- 
 ure of the plaintiff. In case of a naked power, the authority of the 
 agent, derivative, and not original, ceases when the principal, for what- 
 €yer reason, withdraws the delegation and terminates the agency. 
 There is a qualification of the rule where the agent has entered upon 
 the execution of the authority before revocation, and has so bound him- 
 self that a retraction of the authority would subject him to liability. 
 In such cases the principal cannot revoke the authority as to the part 
 of the transaction remaining unexecuted, at least not without indem- 
 nifying the agent. * * * ' 
 
 But an authority may be irrevocable by reason of its purpose and 
 the circumstances attending its creation. The cases of an authority 
 coupled with an interest are of this character. What constitutes an 
 authority coupled with an interest was considered in one of the mas- 
 terly judgments of Chief Justice Marshall, in Hunt v. Rousmanier, 
 8 Wheat. 174, 5 L. Ed. 589. In that case the owner of an interest 
 in a certain vessel, then at sea, to secure a loan of money, executed 
 to the lender contemporaneously with the loan a power of attorney 
 authorizing him to sell the borrower's interest in the vessel, which 
 power, by its terms, was to become void on payment of the loan. The 
 iDorrower died before payment, and the question was presented wheth- 
 er his death operated to revoke the power. It was decided that the 
 power was revoked by the death of the grantor. The general doc- 
 trine that a power must be exercised in the name of the principal, 
 and does not survive his death, was held to be applicable. But the 
 ■court, in the decision of the question, proceeded to consider the ex- 
 ception to the rule in cases where the power was coupled with an in- 
 terest, and to define the meaning of that phrase. In a luminous state- 
 ment the Chief Justice confined the scope of the exception to cases 
 where, together with the power, there was vested in the donee an 
 estate, right, or interest in the subject of the power, as distinguished 
 from an interest in the proceeds of the power when exercised. In 
 the former case he declared that the power would not be extinguished 
 by the death of the creator of the power, because it attached to the 
 estate of the donee in the subject of the power, and was capable of 
 execution in his own name after the death of the principal, unlike 
 cases where the power was unconnected with any interest in the thing 
 itself, and the only interest was in the execution of the power. The 
 distinction between the cases of a power given for the purpose of a 
 power given for the same purpose, but supplemented by a transfer 
 of an interest, seems technical ; but in the latter case it at least pre- 
 
Ch. 3) TERMINATION OF THE RELATION 575- 
 
 serves the substance and effectuates the intent, while it obviates in. 
 the particular case the general doctrine that a power is determined, 
 by the death of the creator of the power. In Watson v. King, 4 Camp. 
 272, Lord Ellenborough, in a case very similar to that of Hunt v. 
 Rousmanier, also held that a power of attorney to a creditor to sell 
 a vessel was revoked by the death of the principal, and upon the 
 same ground, namely, that it could not thereafter be executed in his 
 name. The same point was ruled in equity in Lepard v. Vernon, 2' 
 Ves. & B. 51, where it was held that a power given to a creditor to 
 receive a debt, expressly for the purpose of liquidating the claim, un- 
 accompanied, however, by any assignment of the debt, was revoked 
 by the death of the principal. Knapp v. Alvord, 10 Paige, 205, 40' 
 Am. Dec. 241, is an illustration of a power coupled with an interest. 
 There a power of attorney to sell a stock of goods and apply the pro- 
 ceeds upon liabilities incurred and to be incurred by the donee of the 
 ^power was given, accompanied by the possession of the goods, and it 
 was held that it was not revoked by the death of the principal, be- 
 cause it was a power CQUpled with an interest. The fact that the pos- 
 session of the goods accompanied the power was the controlling point 
 in the decision. 
 
 Testamentary powers, from their nature, necessarily survive the 
 death of the testator. They usually accompany some estate given by 
 the will to the donee of the power, or are regarded as trusts, which, 
 if accepted, the donee is in conscience bound to execute. * * * 
 There are other familiar cases of irrevocable powers, because coupled 
 with an interest, such as powers of sale accompanying mortgages, or 
 powers to do other acts affecting real or personal property, to make 
 effectual an interest or right in the subject of the power vested in the 
 donee, and to which the power is auxiliary. Powers of this character 
 are neither revocable by .the grantor of the pawer, nor are they re- 
 voked by his death. * * * Chief Justice Marshall's definition of 
 a power coupled with an interest has been generally accepted in this 
 country, but in some cases his classification "has not been accurately ob- 
 served. See Hutchins v. Hebbard, 34 N. Y. 24. Indeed, the English 
 courts give a wider meaning to the phrase than in the close definition 
 of Chief Justice Marshall. In Watson v. King, supra, Lord Ellen- 
 borough speaks of the power in that case as a power coupled with an 
 interest, and in Smart v. Sandars, 5 C. B. 895, Wilde, C. J., refer- 
 ring to the authorities, said : "The result seems to be that, where an 
 agreement is entered into on a sufficient consideration, whereby an 
 authority is given for the purpose of securing some benefit to the donee 
 of the authority, such an authority is irrevocable. This is what is 
 usually meant by an authority coupled with an interest." The dis- 
 tinction between the English and American cases is rather in words 
 than substance. Upon the same facts the decisions in both judica- 
 tures are the same. Both in Hunt v. Rousmanier and Watson v. King 
 the death of the principal was^held to revoke the power, although in 
 one case it was regarded as a power coupled with an interest, and 
 in the other that it was not. 
 
 But there are classes of powers which are irrevocable by the act 
 of the principal, although they do not come within Chief Justice Mar- 
 shall's definition of powers coupled with an interest. This is clearly 
 recognized by that eminent judge in the case to which reference has 
 
576 AGENCY (Part 2 
 
 been made. After stating the general rule that a power may at any 
 time be revoked by the party conferring it, he says : "But this general 
 rule, which results from the nature of the act, has sustained some 
 modification. Where a letter of attorney forms part of a conti-act, 
 and is security for money, or for the performance of any act which 
 is deemed valuable, it is generally made irrevocable in terms, or, if not 
 so, is deemed irrevocable in law;" and he proceeds to state that the 
 power to sell the vessel by Rousmanier in that case could not have been 
 revoked by him during his life, but, not being a power coupled with 
 an interest, it was revoked by his death. Kent uses similar language. 
 He says (2 Kent, Comm. 644) : "But where it [power of attorney] 
 constitutes part of a security for money, or is necessary to give effect 
 to such security, or where it is given for a valuable consideration, it is 
 not revocable by the party himself, though it is necessarily .revoked 
 by his death." And Story, in his work on Bailments, § 209, says: 
 "But if it is given as part of a security, as if a letter of attorney is 
 given to collect a debt as a security for money advanced, it is irrevoca- 
 ble by, the party." This doctrine has support in adjudged cases. 
 * * * 
 
 In the cases referred to, the authority was conferred by .formal 
 written powers of attorney. But, unless an authority given is for the 
 performance of some act which by statute or by the common law the 
 agent cannot perform in the name of his principal unless thereunto au- 
 thorized in writing, we can perceive no legal distinction in the applica- 
 tion of the doctrine between formal written power and an informal 
 oral authority. * * * Unless there was a consideration for the au- 
 thority conferred on Wheeler to sell the ties and apply the proceeds 
 on his claim, it is plain that it was not irrevocable. * * * With- 
 out going into particulars, it is sufficient to say that the evidence given 
 on the part of the defendant would, in our opinion, justify an infer- 
 ence that Wheeler accepted the arrangement proposed by the plain- 
 tiff, and forbore the pursuit of his lumber or its proceeds, in reliance 
 upon the authority given him by the plaintiff to sell the ties, and ap- 
 ply the proceeds on his claim. 
 
 The ppsition of an agent holding an irrevocable power for the sale 
 of chattels, not connected with possession of the property or any in- 
 terest in the nature of a title, general or special, in the subject of 
 the power, is peculiar. * * * -phe fact that possession does not go 
 with the power subjects the holder of the power to the risk that the 
 purpose of the power may be frustrated by a transfer by the owner of 
 the chattels to a purchaser in good faith for value without notice. 
 It will be for the court pr jury on a new trial to determine, upon the 
 facts found, whether there was any valid consideration within the 
 law applicable to executory contracts to uphold the authority. If such 
 consideration existed, then we are of the opinion that the authority was 
 irrevocable, and that the payment by the defendant to Wheeler, under 
 the contract made with him, was binding upon the plaintiff. In our 
 opinion, the referee erred in refusing to find upon the question of au- 
 thority in Wheeler to sell the ties and apply the proceeds on his claim. 
 If no such authority existed, there is no defense to the action. If 
 it was given, but was not based upon any consideration which the 
 law deems sufficient to uphold an executory contract, then we are of 
 opinion that it was revocable, and that it was a question of fact upon 
 
Ch. 3) TERMINATION OF THE RELATION 577 
 
 the evidence whether there was an actual revocation before the defend- 
 ant paid Wheeler. The judgment should be reversed, and a new trial 
 ordered. * * * 
 
 SECTION 3.— EFFECT OF TERMINATING THE 
 RELATION 
 
 ATLANTIC COAST EEAI.TY CO. v. TOWNSEND. 
 (Supreme Court of Appeals of Virginia, 1919. 124 Va. 490, 98 S. E. 684.) 
 
 Plaintiff, a land brokerage concern, secured of defendant's testa- 
 tor the exclusive right, for a year, to sell certain lands of testator, un- 
 der an agreement whereby the lands were to be divided into small lots 
 and the company to receive $40,000 out of the proceeds of sale. Tes- 
 tator made a sale of the land himself before the end of the year, and 
 claimed that this worked a revocation of plaintiff's agency. The 
 company brings action for damages for breach of the contract. Judg- 
 ment sustaining demurrer to declaration. Plaintiff brings a writ of 
 error. 
 
 KeIvIvY, J. * * * No question as to rights of third persons is 
 here involved, and there is no claim that' the agency was, in a techni- 
 cal sense, coupled with an interest. Under the facts as alleged in the 
 declaration, it is not denied, and it is clear, that the defendant not 
 only had. the power to revoke, but did in fact effectually revoke, the 
 agent's authority, by mak:ing, on his own behalf and independent of 
 the agency, a sale of the subject-matter of the contract. * * * It 
 by no means follows that such a revocation can be made by the prin- 
 cipal as a matter of right and without liability to his agent. The lat- 
 ter question depends upon the character and terms of the agent's 
 contract. Quoting again from 2 C. J. at page 533, the following gen- 
 eral and comprehensive statement is peculiarly germane in thig con- 
 nection: "As between principal and agent, the right to terminate the 
 agency depends upon the ordinary principles of contract, and is gov- 
 erned by the same rules as apply to any other contract of employ- 
 ment. Although, as has been stated, a principal has the undoubted 
 power, so far as the agency is executory, to revoke the agent's au- 
 rhority, it by no means follows that he has always a right to do so, 
 since the contract of agency may provide otherwise. Accordingly, if 
 he revokes the agency in violation of the contract, he becomes liable 
 to the agent for the damages caused thereby, although it should be 
 observed in this connection that the agent is limited to his action for 
 damages; the courts will not specifically enforce the contract against 
 the principal. But if the contract of agency contains no terms indi- 
 cating the creation of an agency for a definite period, or if the contract 
 is not supported by a sufficient consideration, it is terminable at will, 
 and the principal by revoking the authority incurs no liability to the 
 agent, unless the agent has entered upon performance of the contract 
 so that a revocation of his authority will work him legal injury." 
 * * * 
 
 It follows from these authorities, to which many more might be 
 added, that, when an agency is not such as to constitute what in legal 
 B.& B.BUS.LAW— 37 
 
578 AGENCY (Part 2 
 
 parlance is called a power coupled with an interest, and no third par- 
 ty's rights are involved, the agency, so long as it remains unexecuted, 
 may be effectually revoked at the will of the principal, but that a 
 wrongful revocation will nevertheless render him liable in damages 
 to his agent. In other words, the agency may always be revoked, 
 but the contract of employment will not necessarily be thereby rescind- 
 ed. * * =(^ 
 
 In the instant case we are of opinion that a valuable consideration 
 for the agreement itself, as distinguished from the mere chance of 
 the agent to earn a commission or compensation, was sufficiently al- 
 leged in the declarations ; and, while the agency was not coupled with 
 such an interest as to make it irrevocable, the contract which created 
 it was a mutual agreement between competent parties for a lawful 
 purpose and upon a valuable consideration, with the result that neither 
 party could violate it without becoming responsible to the other for 
 the breach. * * * 
 
 Reversed. 
 
 SHEAHAN V. NATIONAL S. S. CO. 
 
 (United States Circuit Court of Appeals, Second Circuit, 1S98. 87 Fed. 167, 
 
 30 C. C. A. 593.) 
 
 Judgment for defendant, and plaintiff sued out this, writ of error. 
 
 Per Curiam. This is an action to recover damages for breach of 
 contract. The plaintiff was the sole witness, and the only contract 
 with defendant which his testimony tended to establish was one made 
 in 1867, whereby defendant employed him as its agent to sell tickets 
 on commission, with no limitation as to time or provision requiring 
 notice of termination. After he had continued in such employment 
 about nine years, defendant abruptly terminated the contract. In the 
 absence of^any provision requiring notice as a condition precedent to 
 termination, or of any clause fixing a term of employment, defendant 
 was entitled to dismiss its agent at pleasure, without thereby giving 
 plaintiff a cause of action for damages sustained by reason of such 
 discharge. The judgment of the circuit court is affii^med. 
 
Ch. i) EELATIOXS OF THE PRINCIPAL AND AGENT 579 
 
 CHAPTER IV 
 RELATIONS OF THE PRINCIPAL AND AGENT 
 
 Section 
 
 1. Bights of the Principal Against the Agent. 
 
 2. Eights of the Agent Against the Principal. 
 
 SECTION 1.— RIGHTS OF THE PRINCIPAL AGAINST 
 
 THE AGENT 
 
 THOMAS V. BEAVBR DAM MFG. CO. 
 
 (Supreme Court of Wisconsin, 1914. 157 Wis. 42T, 147 N. W. 364, 
 Ann. Cas. 1916A, 1020.) 
 
 Action to recover on a contract of employment. Plaintiff claimed 
 he was employed by defendant for one year at a salary of twelve 
 hundred dollars, payable in monthly installments of one hundred dol- 
 lars, and that before expiration of such period he was discharged 
 without cause and sues for damages to the extent of the wages he might 
 otherwise have earned. 
 
 There was evidence tending to prove that plaintiff did not devote all 
 his time to the performance of his duties; that he was unnecessarily 
 absent therefrom one or two days a week on several occasions, and 
 that once he was absent for some three weeks and made no account 
 thereof to defendant. There was also evidence tending to prove that 
 plaintiff charged as exj>enses $2 per day, regularly, when away from 
 home, whether he spent this amount or not and sometimes when he 
 did not spend anything. There was also evidence tending to prove 
 that he disobeyed instructions on several occasions. 
 
 There was further evidence that defendant notified plaintiff by 
 letter that his contract would expire by a particular date mentioned, 
 because the corporation had concluded to change its mode of selling, 
 to which plaintiff replied that he should decline to accept a discharge 
 except upon the conditions mentioned in the contract, to which de- 
 fendant replied that, for plaintiff's benefit, he would be retained thir- 
 ty days longer, if he so desired, but that at the end of that time his 
 services would be dispensed with, adding: "If it will be any relief 
 to you we will notify you to the effect that you have proved incompe- 
 tent to handle our line, and furthermore that you have had certain 
 instructions that you have not followed out as per our instructions. 
 We hope this will be sufficient notice." At the close of the evidence 
 the court directed a verdict for plaintiff because of there not being 
 any satisfactory evidence of conduct on plaintiff's part warranting 
 his discharge, and because he was not in fact discharged for bad con- 
 duct. 
 
 Marshall, J. If when respondent was discharged there existed 
 an uncondoned justification therefor, i-egardless of whether it was 
 then known to appellant, or whether the reason assigned for such dis- 
 charge was sufficient, the trial court erred in holding that appellant 
 
580 AGENCY (Part 2 
 
 was precluded by the first or any notice of discharge from providing 
 an existing ground not therein referred to. * * * 
 
 Under the terms of the contract appellant, acting in good faith and 
 within the terms of its contract, had a right to determine for itself 
 whether any of the, stip,ulated grounds for discharging .respondent 
 existed. There being at the best for respondent, evidence tending to 
 prove incompetency and several substantial violations of contract du- 
 ty, the trial court erred in directing a verdict in respondent's favor. 
 
 Any inexcusable substantial violation by an employee of instruc- 
 tions, or neglect of duty of a substantial character, or any misconduct 
 inconsistent with the relations of master and servant and which might 
 injuriously afifect the former's business, regardless of any express 
 agreement on the subject, constitutes good ground for discharging 
 the employee.. 
 
 What constitutes sufficient ground for discharging an employee 
 is matter of law unless provided for in the contract of employment; 
 but, where the facts are in dispute, the case, under proper instruc- 
 tions, should be submitted to the jury. 
 
 It is considered here that the case was not so clearly in favor of 
 appellant as to require condemnation of the refusal to direct a verdict 
 iij its favor, since before the commencement of the action, it duly 
 tendered respondent the amount due him for the time he served and 
 kept the tender good; but that appellant's rights were entirely mis- 
 conceived in directing the verdict for respondent. 
 
 The judgment is reversed, and cause remanded for a new trial. 
 
 SailTH V. HEEKING-HALI^MARVIN SAFE CO. 
 (Supreme Court of New York, Appellate Term, 1909. 115 N. Y. Supp. 204.) 
 
 Action by Abram V. Smith agaimst the Herring-Hall-Marvin Safe 
 Company. From a judgment for plaintiff, defendant appeals. 
 
 GiivDERSLEEvE, P, J. * * * Plaintiff swears that he was hired 
 to act as sales manager at defendant's office. No. 400 Broadway, New 
 York City; that he sometimes went on a trip previous to November 
 12, 1907, and always had his traveling expenses paid ; that, when or- 
 dered to Philadelphia, he called at defendant's office and expressed 
 his willingness to go if the defendant would pay his expenses, which 
 defendant's officers declined to do; that defendant's officer finally 
 gave him a ticket one way, and he went to Philadelphia; that "they 
 (defendant's officers) would not tell me what they wanted of me in 
 Philadelphia, and not finding what was required, and as they would 
 not pay my expenses^ over there, I came back to New York." 
 
 On November 18, 1907, upon his return from Philadelphia, plaintiflE 
 wrote to defendant's president as follows : "Your letter of November 
 12th, ordering me to report to Mr. Green, 627 Chestnut St., Phila- 
 delphia, on the 14th, received. On the statement by Mr. W. H. Smith, 
 executive secretary, that no hotel expenses would be allowed me, but 
 that I must pay same, I desire to say that my contract with the com- 
 pany was for specific duties in New York, which I am now and have 
 been willing to perform to the end of my contract, January 1, 1908, 
 and that I respectfully decline to comply with the order." 
 
 Upon receipt of this letter the defendant's executive secretary wrote 
 to plaintiff as follows: "We are in receipt of your letter of the 18th 
 inst., and note that you decline to comply with our order to report at 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 581 
 
 our Philadelphia office for services at that point. Inasmuch as you 
 refuse to obey our instructions, we consider ourselves released, effec- 
 tive this date, from further payment on your contract." * * * 
 
 If the orders of defendant were unreasonable, the plaintiff could 
 refuse to obey them, without subjecting himself to dismissal upon legal 
 grounds, and the question of unreasonableness depended upon the 
 circumstances of the case. Wood's Master & Servant (2d Ed.) p. 
 227. The general rule is that a master has the right to give reasona- 
 ble orders to a servant, even though the master knows that the work 
 required is distasteful to the servant, and even though the master 
 gives the order with the expectation that the servant will leave the 
 employment rather than obey, as the motive of the master is unim- 
 portant, and the servant is bound to obey all reasonable orders, even 
 if given in bad faith, while he is not bound to obey unreasonable or- 
 ders, even when given in good faith. * * * 
 
 Plaintiff began his employment, as we have seen, as manager of the 
 New York office, and, although he made trips for defendant to other 
 cities from time to time, it was on the understanding that his expenses 
 should be paid, which was done, notwithstanding the silence of the 
 contract in this respect. Defendant refused to pay plaintiff's expens- 
 es in Philadelphia. Plaintiff also swears that he is married and has 
 a family, with whom he resides at his "beautiful home" at Ridgefield 
 Park, N. J., near New York, and that he never would have agreed to 
 any proposition tp go away for any length of time from his home; 
 but there is nothing to show notice of this situation to defendant. 
 Under these circumstances, can it be said that it was unreasonable for 
 defendant to order plaintiff to report to the Philadelphia office? How 
 long he was to remain in that city, under the said order, does not ap- 
 pear. Although plaintiff claims himself that he was hired as manager 
 of defendant's New York office, when defendant offered evidence to 
 show a general or frequent custom in the trade to transfer such agents 
 from one city to another, the court ruled out such testimony. Evi- 
 dence of such a custom would seem to have a direct bearing upon 
 the question of the reasonableness of the order in question. It seems 
 to us that the judgment should be reversed. 
 
 Judgment reversed, and new trial ordered. 
 
 Dayton, J. (dissenting). It cannot be said that the contract was 
 definite as to place of employment or duties to be performed. The 
 evidence is that plaintiff resided with his family near New York City. 
 It is not, therefore, probable that he accepted an employment which 
 required a change of residence. 
 
 I vote for an affirmance, with costs. 
 
 CITY OF EAST GRAND FORKS v. STEELE et al. 
 
 (Supreme Court of Minnesota, 1913. 121 Mnn. 296, 141 N. W. 181, 45 L. R. A. 
 [N. S.] 205, Ann. Cas. 19140, 720.) 
 
 Taylor, C. The complaint, in form, sets forth four causes of ac- 
 tion. The trial court sustained a demurrer to the first cause of action, 
 and overruled demurrers to each of the other three. Both parties ap- 
 peal. 
 
 The following brief outline of the facts alleged in the complaint wjll 
 serve to indicate the questions presented : 
 
582 AGENCY (Part 2 
 
 The defendants, represehting themselves to be expert accountants, 
 and able to detect any irregularities in the transactions of the city 
 pfficers, contracted with the city to investigate and audit the books, 
 accounts, and financial transactions of the city and of its officers for 
 the year 1908, and especially the books, accounts, and financial trans- 
 actions of the city clerk, for the sum of $150. The city clerk, in addi- 
 tion to his ordinary duties as clerk, was also employed to collect mon- 
 ey due the city for electric lights, water and sewer assessments, and li- 
 cense fees, and had given a surety bond to secure the faithful perform- 
 ance of these additional duties. The investigation of these collections, 
 and of whether they had been properly accounted for, was included 
 in the duties of the defendants. They made the investigation and 
 audit, and in February, 1909, reported to the city that all books and 
 accounts had been correctly kept and all funds properly accounted for. 
 Plaintiff, believing they had made a correct report and had properly 
 performed their work, paid them the full contract price therefor. 
 
 In December, 1909, defendants again contracted with the city to make 
 a similar investigation and audit, concerning both the years 1908 and 
 1909, for the sum of $500. They made such investigation and audit, 
 and reported the result thereof. Plaintiff, still believing that they had 
 made a correct report and had properly performed their work, paid 
 them the full contract price for this second audit. In fact, the clerk 
 had embezzled the sum of $1,984.26 during the year 1908, and the 
 further sum of $5,339 during the year 1909, and prior to the investiga- 
 tion made by the defendants. The defendants failed to discover and 
 disclose these defalcations, by reason of incompetence and negligence. 
 They were discovered and disclosed by an investigation made by the 
 state examiner immediately after defendants had completed their sec- 
 ond audit. If in making their first audit defendants had discovered 
 and reported the defalcation then existing, it could have been recov- 
 ered from the surety company, and the clerk would have been re- 
 moved from office, and his subsequent embezzlement could not have 
 occurred. The surety company became insolvent before the investi- 
 gation made by the state examiner, and the amount of the defalcations 
 of the clerk has been wholly lost to the city. 
 
 The plaintiff seeks to recover the following items, and states each as 
 a separate cause of action : ( 1 ) The sum of $5,339, embezzled by 
 the clerk after the first audit and before the second audit. (2) The 
 sum of $1,984.26, embezzled by the clerk prior to the first audit. (3) 
 The compensation paid the defendants for making the first audit.. (4) 
 
 The compensation paid the defendants for making the second audit. 
 
 * * * 
 
 The damages claimed on account of the losses resulting from the 
 defalcations of the clerk and the insolvency of his surety are too re- 
 mote to be recovered, without showing the existence of special cir- 
 cumstances, known to defendants,- from which they ought to have 
 known that such losses were likely to result from a failure to disclose 
 the true condition of affairs. Such losses are neither the natural nor 
 the proximate consequences of the failure of defendants to make a 
 proper audit. Neither are any facts shown from which it may be in- 
 ferred that a loss from either of these causes was or ought to have 
 been contemplated, when the contract was made, as likely to result 
 from a breach of duty on the part of defendants. * * * 
 
 There may be circumstances under which the negligence of an expert 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 583 
 
 accountant may make him liable for losses, as where he is employed 
 to determine the amoimt that should be exacted from a surety for the 
 default of his principal ; but the 4^cts alleged in the complaint do not 
 bring this case within any such rule. 
 
 Defendants represented themselves as expert accountants, which im- 
 plied that they were skilled in that class of work. In accepting em- 
 ployment as expert accountants, they undertook, and the plaintiff had 
 the right to expect, that in the performance of their duties they would 
 exercise the average ability and skill of those engaged in that branch 
 of skilled labor. They were employed to ascertain, among other things, 
 whether any irregularities had occurred in the financial transactions 
 of the city clerk, and, if so, the nature and extent of such irregularities. 
 If, from want of proper skill, or from negligence, they did not disclose 
 the true situation, they failed to perform the duty which they had as- 
 sumed, and failed to earn the compensation which plaintiff had agreed 
 to pay them for the proper performance of such duty. 
 
 The work of an expert accountant is of such technical character and 
 requires such peculiar skill that the ordinary person cannot be ex- 
 pected to know whether he performs his duties properly or otherwise, 
 but must rely upon his report as to the thoroughness and accuracy of 
 his work. The full contract price having been paid in the belief, in- 
 duced by defendants' report, that such report disclosed fully and ac- 
 curately the condition of the city's accounts, the city is entitled to re- 
 cover back the amounts so paid, upon proving that, through the in- 
 competence or the negligence of defendants, the report was in sub- 
 stance misleading and false. 
 
 The order sustaining the demurrer to the first cause of action is 
 afBrmed. The order overruling the demurrer to the second cause of 
 action is reversed. The orders overruling the demurrers to the third 
 and fourth causes of action are affirmed. 
 
 G. A. KELLY PLOW CO. v. LONDON. 
 
 (Court of Civil Appeals of Texas, 1910. 59 Tex. Civ. App. 208, 
 125 S. W. 9T4.) 
 
 Action by R. W. London against the G. A. Kelly Plow Company. 
 From a judgment for plaintiff, defendant appeals. 
 
 Hodges, J. This suit was instituted in the court below by the ap- 
 pellee against the appellant to recover damages for the breach of a 
 contract. * * * The material facts * * * show that the appe- 
 lant is a private corporation engaged in the business of manufactur- 
 ing and selling plows and other farming implements, with its place of 
 business and principal office at Longview, Tex. Some time prior to 
 February, 1907, G. A. Kelly, the president of the company, who had 
 been actively engaged in the management of its affairs, desired to re- 
 tire, and turned over the business almost entirely to R. M. Kelly, his 
 son, who was at the time secretary and treasurer. * * * R. M. 
 Kelly had known the appellee for about 10 years prior to the time 
 when they began their negotiations which resulted in the contract re- 
 ferred to in the pleadings. * * * After several meetings, in a 
 conversation concerning the details of which there is some conflict in 
 the testimony, a written contract was entered into, by which London 
 was employed by the appellant as sales manager for five years at a 
 salary of $333.33 per month, payable monthly. * * * After the 
 
584 AGENCY (Part 2 
 
 execution of this contract, London entered upon the duties of his po- 
 sition and continued therein till August 6, 1907, at which time he 
 claimed that he was injured in a wiftck on a Texas & Pacific Railway 
 train while going from Dallas to Longview. From that time until 
 October 4th he did not perform any services for the appellant. On 
 the latter date he made a settlement with the railway company in 
 which he was paid $4,100 compensation for injuries which he claimed 
 had been received in the wreck referred to. He then returned to 
 work for the appellant, and continued in its service till he was dis- 
 charged April 4, 1908. 
 
 The two principal witnesses concerning the making of the contract 
 were R. M. Kelly and the appellee. There is much conflict between 
 them as to the details of the conversations which they had at differ- 
 ent times before the making of the contract. The effect of the tes- 
 timony of Kelly was that at the first meeting between him and London 
 before making the contract the latter represented to him that he was 
 then getting $250 per month from the Parlin & Orendorff Implement 
 Company, but would accept the position offered for $300 per month. 
 Witness further stated that he afterwards met London in Dallas, and 
 was there told by him that Mr. Robinson, the local manager for the 
 Parlin & Orendorff Implement Company "was all broken up and 
 torn to pieces" about his (London's) leaving; and that London told 
 him that Robinson had told him (London) that he would meet any 
 price that the Kelly Plow Company could afford to pay him;, that, if 
 it offered him $3,600, he would meet that ; if it offered him_ $4,000 he 
 would meet that, and, if that was not satisfactory he (London) could 
 go to the bookkeeper and tell him what would be satisfactory, and 
 that it would be all right with him (Robinson). Kelly says this led 
 him to believe that London was an exceedingly valuable man in that 
 line of business, and that Robinson had implicit confidence in him, that 
 he had formed a very high opinion of London and believed everything 
 the latter told him. He further testified that London * * * stated 
 to him (Kelly) that, when he went back to the Parlin & Orendorff 
 Implement service from the Studebaker Company he received a tele- 
 gram from W. H. Parlin, of Canton, Ohio, the president of the im- 
 plement company, congratulating him on returning to the service of 
 the company, and that the telegram closed as follows : "I hope noth- 
 ing will allow you to leave our service again." * * * 
 
 Kelly further testified that on August 6, 1907, London claimed that 
 He received injuries in a wreck on the Texas & Pacific Railway; that 
 he saw him examined, but could not see anything wrong. He then 
 began to make an investigation about the matter and also about the sal- 
 ary. * * * He went to Dallas in October, some time during the Fair, 
 and called to see Mr. Robinson of the Parlin & Orendorff Implement 
 Company, asked Robinson what salary London was getting at the 
 time he employed him prior to that time, and was told that it was $200 
 a month. * * * He says that, when London returned to work, he 
 never told him he had settled his claim with the railway, or intimated 
 that he had any claim against the railway company; that, when he 
 reported for work, he looked as well as ever. * * * 
 
 W. M. Robinson, the manager of the Parlin & Orendorff Imple- 
 ment Company, testified that London was in the employ of the Parlin 
 & Orendorff Implement Company at a salary of $200 per month; 
 that his contract was to work by the year at a salary of $2,400 per 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 585 
 
 year to be paid monthly at $200 per month, and that he was not to 
 receive any additional compensation; that some time about March 
 or April, 1907, London told hiip that the Kelly Plow Company had 
 oflfered him a salary of $3,600 per annum, and he told the appellee 
 that it was a larger amount than he could afford to pay, and that, if 
 he could make the arrangement he (Robinson) was not disposed to 
 stand in his way, and advised him to accept the position. 
 
 As to the fraud which it is alleged the appellee perpetrated upon 
 the railway company in procuring a settlement by which he was paid 
 $4,100 as compensation for injuries claimed, appellant offered testi- 
 mony tending to show that the shock to the coach in which the appellee 
 was at the time riding was so slight that no injury could have result- 
 ed ; that an observation of the physical condition of the appellee after 
 the wreck failed to disclose any evidences of the injuries he claimed. 
 There was also testimony of doctors who had made an examination 
 of London to the effect that, if he was injured at all, it was only in a 
 slight degree. Considered in its entirety, the evidence offered by ap- 
 pellant upon this phase of the defense tended to show that London's 
 injuries were simulated, and that he had by dishonorable means, false 
 statements and misrepresentations perpetrated a fraud upon the rail- 
 way company for the purpose of obtaining money. As opposed to 
 this, there was testimony on the part of the appellee tending to show 
 that his injuries were real, and that he h^d made no false represen- 
 tations to the company and had not been guilty of any of the miscon- 
 duct charged. 
 
 Upon a trial before a jury a verdict was rendered in favor of the 
 appellee for the sum of $3,000. * * * 
 
 The uncontroverted evidence shows that by the terms of his con- 
 tract with the appellant London was to take charge of the sales de- 
 partment of the business of the G. A. Kelly Plow Company; that he 
 assumed supervision of all the traveling salesmen employed, had the 
 right to fix prices of the product placed upon the market, and to make 
 special prices in competitive territory, passed upon the contracts of 
 sale when made, and was vested with such full authority and discre- 
 tion as might make him the representative of his employer in that 
 department of the service. This necessarily placed him in a position 
 of trust and confidence, and one of much importance to the appellant. 
 The jury might very properly have inferred that such employment 
 would carry with it implicit reliance by the principal, not only upon 
 the competency of the agent, but upon his honesty and integrity as 
 well. They might have concluded that this reliance was one of the 
 essentials without which the functions assumed by the agent could 
 not be adequately and satisfactorily performed. * * * 
 
 The argument of the appellee proceeds upon the theory that the 
 materiality of the misrepresentations and fraud charged must be 
 tested by their immediate effect upon, and relation to, the subject- 
 matter of the contract, the business of the appellant. We are unable 
 to appreciate the force of that argument as applied to the facts of this 
 case. Here' the question is, Has the agent shown himself unworthy 
 of the confidence and trust which his position implies should be re- 
 posed in him? and not as to whether he has been guilty of any breach 
 of his contract, or has adopted a course of conduct that will injuri- 
 ously affect the business of his principal in the future. If the differ- 
 ent acts of deception, misrepresentation, and fraud charged in the 
 
586 AGENCY (Part 2 
 
 answer of the appellant be true, then we cannot say that a jury would 
 not be justified in concluding that they were inconsistent with the re- 
 lations London sustained by his contract. Every one who seeks and 
 obtains employment in positions of trust and confidence impliedly 
 warrants that he is an honest man, and the employer has the right to 
 expect the possession of that personal integrity that will not lead to 
 disappointment if he relies implicitly upon the honor and fidelity of 
 his employee. 
 
 When the principal discovers that his agent or the master his 
 servant is lacking in those moral qualities that he had a right to ex- 
 pect and rely upon in making the particular contract, in other words, 
 ascertains that his employee is not an honest man and cannot be 
 trusted — why should he not have the right to discharge? If he may 
 discharge for incompetency, either physical or mental, why should 
 he not have the same right when moral unfitness is shown, where moral 
 qualifications form an important consideration in making the contract? 
 We see no good reason why an employer should not be permitted to 
 rid himself of a dishonest and corrupt employee upon a discovery of 
 that fact, without waiting till he has himself been victimized by such 
 corruption and dishonesty. He would have the right to assume that a 
 man who would deliberately make a false statement about one matter 
 would be equally perfidious about another; that a man who would 
 willfully and knowingly perpetrate a fraud upon one party for the 
 sole purpose of obtaining money would, when to his interest to do so, 
 defraud his employer also. Hence, the materiality of the facts plead- 
 ed in this case must be tested by their effect upon the appellee as 
 tending to show a degree of moral depravity inconsistent with the f)0- 
 sition he held in the service of the appellant. It was for that reason 
 unimportant that the false statements and misconduct alleged related 
 to matters in no way connected with the subject-matter of the con- 
 tract, or did not amount to a breach of duty toward the employer. 
 No agent occupying a position of trust and confidence can say that his 
 principal had no right to assume that he was honest and truthful, or 
 that his lack of personal integrity furnished no just grounds for a 
 discharge. * * * 
 
 No man is compelled to be dishonest or to be guilty of fraudulent 
 conduct. Neither should any other be compelled to continue such a 
 person in a position of trust simply because he took him for a man 
 of integrity and gave him employment. It is no answer to say that 
 an employer should first acquaint himself with the character of his 
 agent. It would ill become any man to say that another should not 
 have trusted him. * * * 
 
 The judgment of the district court is reversed, and the cause re- 
 manded. 
 
 ESSEX TRUST CO. v. ENWRIGHT et al. 
 
 (Supreme Judicial Court of Massachusetts, I&IS. 214 Mass. 507, 102 N. E. 441, 
 47 L. R. A. [N. S.] 567.) 
 
 This is a bill in which the plaintiff seeks to have the defendant en- 
 joined from interfering with the possession held by it and by the Lynn 
 Publishing Company of the premises occupied by the Essex Trust 
 Company or the Publishing Company in Lynn, and from instituting 
 any proceedings for their eviction ; and it further seeks to have the 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 587 
 
 defendant enjoined from transferring a lease of said premises given 
 to him by the International Trust Company, and prays that defendant 
 may be decreed to hold said lease as "constructive trustee" for the ben- 
 efit of the Essex Trust Company or the Lynn Publishing Company, 
 and that he be ordered to assign said lease to the plaintiff to hold as 
 trustee. 
 
 LoRiNG, J. The question on which the decision in this case de- 
 pends is this ; In case a reporter on a newspaper in the course or by 
 reason of his employment learns that the premises on which the busi- 
 ness of publishing the paper is conducted are of peculiar value to 
 his employer or one carrying on his business, has he the right with 
 out his employer's knowledge to take a lease of the premises and hold 
 them as his own to the injury of his employer's property? * * * 
 
 The doctrine invoked by the plaintiff in this suit had its origin in 
 two decisions by Lord Eldon. In Yovatt v. Winward, 1 Jac. & W. 
 394, the defendant (formerly employed as a clerk by the plaintiff, who 
 was a veterinary surgeon) was enjoined from using medicines com- 
 pounded from the plaintiff's recipes which he (the defendant) had sur- 
 reptitiously copied while in the plaintiff's employ. In Abernethy v. 
 Hutchinson, 3 L. J. (O. S.) Ch. 209, the publication in the Lancet of 
 lectures on surgery delivered by the plaintiff at St. Bartholomew's 
 Hospital, which the defendants had obtained from the students at- 
 tending the lectures, was enjoined. * * * 
 
 Since then the doctrine has been applied in England in a number 
 of cases. In Helmore v. Smith, 30 Ch. D. 449, a clerk was committed 
 for contempt on its being shown that he had taken a copy of the cus- 
 tomers of a business conducted by a receiver appointed by the court 
 and that he had solicited their custom for a competing business which 
 he had set up for himself. A similar decision as to the use of a list 
 of the plaintiff's customers surreptitiously copied by a clerk was made 
 in Robb V. Green, [1895] 2 O. B. 1. In Merryweather v. Moore, [1892] 
 2 Ch. 518, a clerk was enjoined from communicating to a subsequent 
 employer the details of machinery manufactured by his former em- 
 ployer, the plaintiff; and in Lamb v. Evans, [1893] 1 Ch. 218, the de- 
 fendants who were employed to secure advertisements for the plain- 
 tiff's Trades Directory, and who by the terms of their employment 
 furnished at their own expense the blocks and materials necessary for 
 producing the advertisements, were enjoined from using the blocks 
 and materials so obtained in aid of a competing directory. In the 
 latest of these cases, Kirchner v. Gruban, [1909] 1 Ch. 413, 422, Eve, 
 J., states the doctrine of these cases in these words: "I think it is 
 abundantly clear upon the authority of Robb v. Green, [1895] 2 Q. B. 
 1, that the real principle upon which the employee is restrained from 
 making use of confidential information which he has gained in the 
 employment of some other person is that there is in the contract of 
 service subsisting between the employer and employee an implied con- 
 tract on the part of the employee that he will not, after the service is 
 determined, use information which he has gained while the service 
 has been subsisting, to the detriment of his former employer." 
 
 This doctrine was applied by this court in Peabody v. Norfolk, 98 
 Mass. 452, 96 Am. Dec. 664. In that case the plaintiff having inventeti 
 a process of manufacturing gunny cloth from jute butts had built 
 a factory where gunny cloth had been so manufactured. The defend- 
 ant Norfolk had been employed, by him as an' engineer in his factory. 
 
588 AGENCY (Part 2 
 
 and had agreed not to disclose to others the construction o£ the ma- 
 chinery. On leaving the plaintiff's employ Norfolk imparted the na- 
 ture of the machinery to one Cook, who knew of Norfolk's agreement. 
 Both were enjoined. * * * 
 
 The plaintiff is entitled to a decree directing the defendant to as- 
 sign to the plaintiff the lease obtained by him on being paid the rent, 
 if any, paid by him under it and to its costs. 
 
 NALTNBE. et al. v. DOLAN. 
 (Supreme Court of Indiana, 1886. 108 Ind. 500, 8 N. B. 289, 58 Am. Rep. 61.) 
 
 Mitchell, j. * * * Dolan, who at the time the suit was com- 
 menced lived in Illinois, owed Naltner $600 then due. The appellants, 
 as attorneys, had in their hands for collection a claim in favor of 
 Dolan against the Indiana, Bloomington & Western Railway Company, 
 which Dolan, on the thirteenth day of September, 1882, transferred, 
 for value, to Montague. On February 24, 1883, the day on which 
 the attachment suit was commenced, appellants received from the 
 clerk of the United States district court for the district of Indiana 
 checks for something over $80,000, which was in payment of claims 
 against the Indiana, Bloomington & Western Railway Company ; which 
 payment was made to them in behalf of Dolan and many other of 
 their clients. Dolan's claim against the company was $600. Upon 
 receiving the check they deposited it with the Indiana Banking Com- 
 pany, which was then in good standing, the deposit being to the credit 
 of themselves, in their firm name. The money thus received belonged 
 to some hundreds of their clients, and the computation of interest, and 
 the dividend to each of his share, required several days of continu- 
 ous work before distribution could be made. The appellants were 
 lawyers, partners, actively engaged in practice. They had an ac- 
 count at the bank in question, in which all money collected for and 
 belonging to their various clients were deposited and checked out in 
 the firm name, but such moneys were not mingled with their own. 
 
 Before they had time or opportunity to pay out the money in con- 
 troversy, the appellants were garnished at the suit of Naltner. They 
 received notice of the assignment to Montague, February 28, 1883, 
 four days after the suit was commenced. Montague, within a few 
 months after giving notice of his claim, and while the proceedings in 
 garnishment were pending, made demand on the garnishee defendant 
 for the money remaining in their hands which were derived from the 
 Dolan claim. On the ninth day of August, 1883, the Indiana Banking 
 Company, having until that time continued in good standing and cred' 
 it, failed. A receiver was appointed for the bank, August 13, 1883. 
 The appellants brought the certificate of the receiver of the bank for 
 the money in dispute into court, and offered to surrender it to the 
 person entitled, as the court should direct. The amount remaining in 
 their hands, in the manner above stated, was $445.69. Conclusions 
 of law were stated favorable to a recovery by Montague against the 
 appellants of the amount thus remaining in their hands. 
 
 Do the facts found warrant the conclusion of law stated? Money 
 belonging to a client, having been received by the attorneys in payment 
 of a claim left with them for collection, the transmission of such money 
 having been arrested by garnishee process before an opportunity for 
 transmitting it occurred, the question is, having acted in the utmost 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 589 
 
 good faith, and without any suggestion of fault or neglect, are the 
 attorneys responsible for the continued solvency of the bank in which 
 such funds were deposited in their own name, but not mingled with 
 their own funds, notwithstanding the bank was in good credit when the 
 deposit was made? 
 
 The receipt of money by an attorney, tinder the circumstances dis- 
 closed in this case, does not pro facto create the technical relation of 
 debtor and creditor between the attorney and client. It is because 
 it does not that a suit cannot be maintained by the latter against the 
 former without first making a demand. Money so collected belongs 
 to the client. The attorney occupies towards it the relation of a trus- 
 tee, so long as he chooses to treat and preserve the fund as a trust 
 fund. The circumstances under which he will be liable for its loss 
 are precisely those which govern in the case of any other trustee. 
 While it is preserved in its trust character, if he exercises the same 
 caution in respect to depositing it, if a deposit becomes necessary or 
 proper, as a prudent man would in regard to his own money, and a 
 loss happens, he will be excused. * * * 
 
 The authorities, however, distinguish between cases in which the 
 deposit was made in such a manner as to preserve its trust character 
 on the books of the bank in which the fund was deposited, and those 
 in which the owner of the fund might be put to the trouble of prov- 
 ing, by extraneous evidence, that the fund was not the individual 
 money of his trustee. Whenever a trustee, unless properly authorized 
 to do so, puts the fund in such shape as to invest himself with a legal 
 title to it, the cestui que trust has his election either to treat the 
 fund, according to the appearance of things, as the property of the 
 trustee, and regard the latter as his debtor, or he may demand that 
 the title be transferred to him. If a deposit is made in such manner 
 as, on the face of the books of the bank in which the deposit is made, 
 to authorize the trustee, his assignee or legal representative, to claim 
 if as the fund of the depositor, the cestui que trust has the option to 
 do likewise. * * * 
 
 In case it becomes the duty of an agent or trustee to deposit money 
 belonging to his principal, he can escape the risk only by making the 
 deposit in his principal's name, or by so distinguishing it on the books 
 of the bank as to indicate, in some way, that it is the principal's money. 
 If he deposit in his own name, he will not, in case of loss, be permit- 
 ted to throw such loss on his principal. In such a case the good faith 
 or intention of the trustee is in no way involved. Haying, for his 
 personal convenience, or from whatever motive, deposited the money 
 in his own name, thereby vesting himself with a legal title, it follows, 
 as a necessary consequence, when loss occurs, he will not be permitted 
 to say, as against his cestui que trust, that the fact is not as he volun- 
 tarily made it appear. 
 
 What the legal or equitable rights of the real owner of the fund 
 would be in such a case, as against the bank, or as against attaching 
 creditors of the depositor, has been the subject of much discussion 
 and of isome diversity of opinion. * * * 
 
 Whatever diversity of opinion may be found in respect to the rights 
 of the bank, 6r other creditors of the depositor, the authorities agree 
 that a trustee who either invests or deposits trust money in his own 
 name, without in some way desig;nating'it as trust property, will, be 
 responsible fof any loss that may occur to the fund while so' invested 
 
590 AGENCY (Part 2 
 
 or deposited. Having put the owner of the fund to the hazard of; los- 
 ing it, or of maintaining its trust character by such proof aliunde as 
 may be available to him, the trustee thereby gives the former the privi-, 
 lege of treating the latter as his debtor, or of supplying the proof, or 
 accepting his admission of the facts, at his option. 
 
 Applying the principles stated to the facts found, the conclusion 
 follows that the appellants assumed the risk that the bank in which 
 the fund was deposited in their name, and from which it could only' 
 have been drawn by their check, would be able to respond with the 
 money when their check for' it should be presented. The fact that 
 none but money belonging to clients was deposited in the account in 
 which the fund in question was placed does not alter the case. The 
 controlling consideration is that it was deposited to the credit of the 
 firm, without anything to designate or preserve its trust character. 
 They took and retained the legal title to the deposit in themselves. 
 In the event of a controversy, the character of the fund would have 
 depended wholly on extraneous proof. This being so, the owner had 
 the right to elect to stand upon the title to the deposit as he found it. 
 Having so elected, there is no rule of law which authorizes any in- 
 quiry into the motives for so taking the title, short of an express or 
 implied direction from the owner of the fund. 
 
 The judgment [for plaintiff] is affirmed, with costs. 
 
 HOLMMS V. OILMAN et al. 
 
 (Court of Appeals of New York, 1893. 138 N. Y. 369, 34 N. E. 205, 
 20 I.. R. A. 566, Si Am. St. Rep. 463.) 
 
 This is an appeal by the plaintiff from an order of the general term 
 of the supreme court of the first department, which reversed upon the 
 facts as well, as the law so much of a judgment entered upon the re- 
 port" of a referee as was in favor of the plaintiff, and granted a new 
 trial- of the issues involved before another referee. The action was 
 brought for the purpose of having an account taken of all of certain 
 moneys alleged to have been wrongfully abstracted from a partner- 
 ship by one Arthur C. Oilman, who was one of the partners, and in- 
 vested by him in certain policies of insurance in favor of his wife and 
 children. The complaint asked also that the amount of the insurance 
 money collected on such policies might be impressed with a trust in 
 favor of the plaintiff, who was one of the partners in such firm, and 
 the assignee of the other members excepting Oilman, and that the de- 
 fendant the Union Trust Company (with which the moneys collected 
 on the insurance policies had been deposited) might be directed to pay: 
 such moneys over fo the plaintiff. ' Other relief was asked which was- 
 appropriate to the case stated in the complaint. The answer denied the. 
 chief allegations contained in such complaint, and upon the issues- 
 thus raised the parties proceeded to trial before a referee. The fol- 
 lowing are the material facts : 
 
 In December, ,1880, Arthur G. Oilman became a member of the firm 
 of J. H. L,abaree & Co., dealers in teas and coffees in New York City,- 
 and continued such, member until his death, which occurred sudden- 
 ly on the: 15th of December, 1890. During all this time he was a trust- 
 ed member of the firm, and practically had exclusive :charge of its of- 
 fice affairs, which included ihe management of the firm .bank accpunt 
 and the making of all notes and pthej paper issued in ttie business o£ 
 
Ch. 4) EELATIOXS OF THE PRINCIPAL AND AGENT 591 
 
 the firm". For several years prior to his death he had prepared semi- 
 annual statements purporting to show the financial condition of the 
 firm, and these statements he had rendered to its different members. 
 The last one had been rendered as of the date December 1, 1890, and 
 showed the firm with assets exceeding liability by nearly the amount 
 of $200,000. This statement was received by the plaintiff (who resided 
 in Cincinnati) about December 11, 1890. For some reason, which is 
 not made plain by the proof, and soon after the above date, the members 
 of the firm commenced an examination as to its condition, and the ex- 
 amination was not concluded until after Oilman's death, when it was 
 discovered that the firm was insolvent by more than $36,000. Further 
 investigation brought to light the fact that Oilman, commencing in the 
 year 1882, and continuing down to his death, had wrongfully and 
 fraudulently taken from the assets of the firm large sums of money, 
 which he had wrongfully appropriated to his own use. By reason of 
 this dishonest conduct on the part of Oilman the firm was, in Decem- 
 ber, 1890, insolvent, instead of having a surplus of nearly $200,000, and 
 it was done by means of false entries in the books of the firm, spread 
 over the period of about eight years. There were found among his 
 papers in the safe at the office of the firm four policies of insurance 
 upon his life; one for $5,000 issued and dated March 9, 1880, and 
 three other policies, aggregating $45,000, and issued between the 
 dates April, 1884, and January, 1888; also two certificates of his 
 membership in a benefit association, one dated in August, 1881, and the 
 other in January, 1885. Each of the four policies was issued on Oil- 
 man's application, made in the name of his wife, and each was in 
 terms payable to her. The certificates were also issued on his ap- 
 plication, signed by him, in which he stated he desired his death loss 
 to be paid to his wife. It does not appear that any of the premiums 
 upon any of the policies were paid by Mrs. Oilman, or with funds 
 provided by her, or that she had any knowledge of the existence of the 
 policies prior to her husband's death. All of the premiums on the 
 above mentioned policies, aggregating about $4,000 were paid by Oil- 
 man out of the firm funds, and the premiums which fell due after the 
 year 1882 on the above mentioned $5,000 policy were also paid from 
 such funds. * * * 
 
 The policies of insurance having been collected and paid into the 
 trust company, the plaintiff and the defendant Mrs. Oilman each 
 claimed the right to recover the whole sum, amounting to over $56,- 
 000. The referee awarded the above mentioned $5,000 policy which 
 was dated and issued in March, 1880, to the defendant, subject to 
 the lien of about $1,000 of premiums becoming due subsequent to 1882, 
 and paid by Oilman out of the funds of the firm. The policy itself 
 -was taken out prior to any conversion of firm funds, and the premiums 
 thereon prior to 1882 were paid by Oilman out of his own funds. The 
 j)olicies aggregating $45,000 were obtained and maintained as the 
 referee finds, from the funds of the firm, which the evidence traces 
 and identifies as thus invested. The referee, therefore, awarded all 
 the moneys collected on those three policies to the plaintiff. He award- 
 ed to the defendant, Mrs. Oilman, the amounts of the two certificates 
 -of insurance in the benefit associations, on the ground that the plain- 
 tiff had failed to show that they had been either procured or maintain- 
 •ed from the funds of the firm. The defendant Mrs. Oilman appealed 
 from this judgment entered upon the report of the referee to the gen- 
 
592 AGENCY (Part 2 
 
 eral term where the judgment was reversed, and a new trial gpanted.as 
 to the amount awarded to the plaintiff. * * * 
 
 Peckham, J. * * * The claim of the, plaintiff to recover the 
 moneys arising from the payments of these policies is based upon the 
 principle which allows a cestui que trust to follow trust funds, and to 
 appropriate to himself the property into which such funds have been 
 changed, together with the increased value of such property provided 
 the trust fund can be clearly ascertained, traced and identified, and 
 provided the rights of bona fide purchasers for value without notice 
 do not intervene. The right has its basis in the right of property, 
 and the court proceeds on the principle that the title has not been 
 affected by the change made of the trust funds,, and the cestui que 
 trust has his option to claim the property and its increased value as 
 representing his original fund. The right to follow and appropriate 
 ceases only when the means of ascertainment fail. It is a question of 
 title. * * * It is somewhat akin to the principle decided in Sils- 
 bury V. McCoon, 3 N. Y. 379, 53 Am. Dec. 307, where corn was 
 wrongfully taken from its owner, and converted into whisky. The 
 court held the property was not changed in the hands of the wrongdoer, 
 and the whisky belonged to the owner of the original material, no mat- 
 ter how much it had been increased in value. The case of Pennell v. 
 Deffell, 53 Eng. Ch. 372, 388, 389, discusses the principle as thus stated, 
 and agrees to it. That a partner occupies a fiduciary position with 
 regard to his copartners and the funds of the firm, and will not be per- 
 mitted to make a personal profit out of the use of such funds, is, I 
 think, clearly established. Although partners do not in the strict sense 
 of the term, occupy the position of trustees towards each other and 
 towards the firm funds, yet the position is one of a fiduciary nature, 
 calHng for the maintenance and exercise of the greatest good faith 
 between them. Such a relationship authorizes the same remedy on be- 
 half of the wronged partner as would exist against a trustee, strictly 
 so called on behalf of a cestui que trust. * * * The right to fol- 
 low the funds springs from the fiduciary nature of Oilman's position 
 with regard to them. 
 
 These general positions are noli really denied by the defendant. It 
 is claimed, however, that the tracing and identification of the funds 
 have not been sufficiently proved in fact, and it is also urged that 
 there has been an actual mingling of firm funds with the private funds 
 of Oilman in the purchase and maintenance of the policies. I have 
 looked carefully through the evidence upon these questions of fact, 
 and I think the findings of the referee are fully sustained and that no 
 exception can prevail on such grounds. If these preliminary questions 
 be decided against him the counsel for defendant then urges that the 
 rule clearly is if the trust fund has become mingled with money or 
 property of the trustees or others, equity impresses the proceeds with 
 a trust to an amount equal to the original trust fund and interest, and 
 will go no further. He then claims that the firm funds which went to 
 the purchase of the policies and the payment of the annual premiums 
 were mingled with the property right of the wife, called her "insur- 
 able interest" in her husband's life, and so the policies were not wholly 
 the result of the use of those firm funds and therefore the plaintiff 
 can have only a lien on the policies or the moneys arising from their 
 •payment, to the amount of the premiums paid with the firm funds, and 
 the interest thereon. This is really the chief question in the case. 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 593 
 
 _ Where moneys have been misapplied, and have been used as a por- 
 tion of a larger amount, which has been invested in other property, the 
 property thus acquired does not, as a whole, belong to the owner of 
 the moneys misapplied. It does not belong to him because it has not 
 been purchased or acquired wholly with his money or funds, and hence 
 it is that such property is held charged with a lien at least, to the amount 
 of the trust funds invested in it. It is not necessary to here decide it, 
 because we take another view of the facts, but I am not all prepared 
 to admit that under no circumstances is the cestui que trust entitled 
 to recover back anything more than the amount of his property and 
 interest, where there has been a mingling of funds. In case the trustee 
 took a thousand dollars of trust funds and five hundred of his own, 
 and purchased property, which advanced in value to twice its original 
 sum, I have seen no case where the point has been determined that the 
 whole increased value belongs to the trustee and that only the original 
 sum wrongfully taken and interest, can be given to the cestui que trust, 
 although it was by reason of the wrongful use of the trust ftmds that 
 the trustee was enabled to realize such value. If, in such case, the 
 cestui que trust were not allowed to at least participate proportionately 
 in this increased value, it would appear to be a violation of the princi- 
 ple that the trustees cannot ever be permitted to make a profit out of the 
 use of the trust funds. It seems to me to be a case for the application 
 of the doctrine that the parties became co-owners of the property at the 
 option of the cestui qui trust, in the proportion which their various 
 contributions bore to the sum total invested. In this case, however, 
 the defendant is enabled to claim a mingling of funds and property 
 only by treating the right of a wife to insure the life of her husband 
 for her benefit as a species of property which has been mingled with 
 the funds of the firm, the result of the combination being the procure- 
 ment of the policies. 
 
 We do not regard this right as property in any such light as to 
 bring the case within the principle of the authorities upon the subject 
 of a mingling of funds in the purchase or acquisition of other proper- 
 ty. The right of a wife to insure the life of her husband for her own 
 benefit is not property. It is more in the nature of a power or a privi- 
 lege to make a valid contract. It is a status and not a property right. 
 The common law upon motives of public policy held that there must 
 be what was termed an "insurable interest" in the life which was in- 
 sured, or else the policy was a dangerous kind of a wager, and there- 
 fore void. To take a policy out of such a class it was necessary to 
 show that the insured had some interest in the continuance of the life 
 of the cestui que vie. Who had such an interest as to give a right of 
 insurance was frequently a matter of some discussion and of possible 
 doubt. It may not even now perhaps be said that the precise nature, 
 character, and extent of the interest in another's life, which shall ren- 
 der that life insurable, have been formally and plainly laid down. It 
 is said by the federal supreme court that one essential is that the pol- 
 icy shall be obtained in good faith, and not for the purpose of specu- 
 lating upon the hazard of a life in which the insured has no interest. 
 Connecticut Mutual Life Insurance Co. v. Schaefer, 94 U. S. 457, 460, 
 24 L,. Ed. 251, 253. An interest which is insurable must be an interest 
 in favor of the continuance of the life, and not an interest in its loss 
 or destruction. * * * 
 B.& B.Bus.Law— 38 
 
"594 AGENCY (Part 2 
 
 Whether at common law or under the provisions of our statute the 
 procurement of poHcies of insurance in the wife's name, under the; 
 facts developed in this case, does not prevent the cestui que trust from 
 following and claiming the trust funds or their proceeds, if the pro- 
 ceeds of these policies had been greater than the whole amount of the 
 indebtedness of the husband to the cestui que trust, arising out of the 
 husband's breach of trust, we do not decide what might in equity be 
 the different rights of the wife and such cestui que trust in the bal- 
 ance, or whether any different rule could be logically' applied. The 
 husband in this case converted over $200,000 of what stood in the na- 
 ture of a trust fund, and the plaintiff recovers only a little over one- 
 fourth thereof in case the judgment on the referee's report be affirmed. 
 We simply decide the case now before us. As to other questions dis- 
 cussed in the defendant's brief, we have carefully considered them, and 
 we think there was no error in the result arrived at by the referee. 
 
 The order of the general term is therefore reversed and the judg- 
 ment entered upon the report of the referee is affirmed, with the costs 
 to the plaintiff at general term and in this court. All concur. Judg- 
 -ment accordingly. 
 
 FIRST NAT. BANK OF PAWNEE CITY v. SPRAGTJE. 
 
 (Supreme Court of Nebraska, 1892. 34 Neb. 318, 51 N. W. 846, 15 L. R. A. 498, 
 
 33 Am. St. Rep. 644.) 
 
 Action by H. W. Sprague against the First National Bank of 
 Pawnee City to recover the proceeds of a certain draft. Verdict and 
 judgment for plaintiff. New trial denied. Defendant brings error. 
 
 Post, J. On the 3d day of February, 1888, at Pawnee City, in 
 this state, the defendant in error drew a sight draft on Davis & Wedd, 
 residing at Canon City, Colo., of which the following is a copy: 
 "$85.75. First National Bank, Pawnee City, Neb., Feb. 3, 1888. 
 Pay to the order of First National Bank of Pawnee City, Neb., eighty- 
 five and 75-100 dollars, with exchange and collection charges; value 
 received; and charge the same to account of H. W. SpraguE. To 
 Mess. Davis & Wedd, Canon City, Colo. No. C. 5238." The said 
 draft was by the drawer left with the plaintiff in error at its banking 
 house in Pawnee City for collection, and by it forwarded for collec- 
 tion to the exchange Bank of Canon City, Colo., and by the latter 
 collected in full from the drawees. The last-named bank failed, with- 
 out having remitted the proceeds of said draft; and no part thereof 
 has been paid, either to the plaintiff or the defendant in error. There 
 is no controversy with reference to the facts on this branch of the 
 case. Defendant in error was a customer of the bank, and was in 
 the habit of shipping butter to parties at distant points, and making 
 sight drafts therefor, payable to its order, credit being given him for 
 the proceeds thereof when collected. It further appears that defend- 
 ant in error was permitted by the bank to overdraw his account by 
 reason of such collections. It does not appear that plaintiff in error 
 was in the habit of making any charge for collecting said drafts. 
 * * * There is no pretense that the bank in this case was guilty of 
 Tiegligence in forwarding the draft, in the selection of its correspond- 
 ent, or in giving instructions to the latter with reference to the collec- 
 tion, or remittance of the money when collected. 
 
 The only question for consideration is whether the plaintiff in er- 
 ror, in view of the facts stated, is answerable for the default of the 
 
Ch..4) EELATIOXS OF THE PRINCIPAL AND AGENT 595 
 
 bank at Canon City. The court, on its own motion, gave the following 
 instruction: "The court instructs the jury that when a home bank re- 
 ceives for collection merely a draft drawn upon a person residing in 
 another place, which draft, from tlie nature of the business and gen- 
 eral usage in such cases, will have to be transmitted for collection to 
 some correspondent bank at the place where the debtor resides, and 
 for the collection of which draft the home bank will receive only the 
 customary exchange, in the absence of any express agreement between 
 the parties to the contrary, the home bank, if it exercises due and oV- 
 dinary care in selecting such correspondent bank, and transmits such 
 draft for collection to such correspondent bank, will not be liable for 
 the default or failure of such correspondent bank to remit moneys 
 collected by it upon such draft." If this instruction correctly states 
 the law applicable to the case, the motion for a new trial should have 
 been sustained. The courts, as well as text-writers, differ widely up- 
 on the question presented. It is held by the courts of the United 
 States, New York, New^Jersey, Ohio, Indiana, Minnesota, and perhaps 
 others, following the English cases, that where a note or bill is re- 
 ceived for collection by a bank, and by it transmitted to a correspond- 
 ent at a distance for presentment and demand, the latter is the agent 
 of the transmitting bank only, which will be liable for the defaults 
 of its correspondent. * * * fhe leading case holding this is Allen 
 V. Bank, 22 Wend. 215, 34 Am. Dec. 289, in which, by a vote of 14 to 
 10 senators, the opinion of Chancellor Walworth in the same case was 
 overruled, and which has since then, been followed and approved by 
 the Court of Appeals in numerous cases. It will be observed, too, that 
 when this rule was adopted by the Supreme Court of the United States 
 (Hoover v. Wise, 91 U. S. 308, 23 L,. Ed. 392), dissenting opinions 
 were filed by Justices Miller, Clifford, and Bradley. Mr. Freeman,, 
 in a note to Allen v. Bank, 34 Am. Dec. 315, while expressing a pref- 
 erence for the rule above stated, says : "The prejxinderance of au- 
 thority is against the principal case and in favor of the rule that the 
 liability of a bank taking a note or bill for collection, which is paya- 
 ble at a distance, extends merely to the selection of a suitable and com- 
 petent agent at the place of payment, and to the transmission of the- 
 paper to such agent with proper instructions, and that the correspond- 
 ing bank is the agent, not of the transmitting bank, but of the holder, 
 so that the transmitting bank is not liable for the default of the cor- 
 respondent where due care has been used in selecting such correspond- 
 ent." * * * A discussion of the reasons which have so often been 
 advanced by courts in support of the opposing views of the question 
 involved will not be profitable in this connection. In our opinion, the 
 rule stated in the instruction given by the court and set out above is. 
 not only in accord with the weight of authority, but is sustained by 
 reasons sounder in themselves, and more in consonance with the prin- 
 ciples which underlie and determine the relations of principal and 
 agent. 
 
 This is believed to be a typical case, and to be fairly illustrative of 
 the method of making collections through the agency of banks in this 
 country at this time. Whatever may have been the reasons arising 
 out of the business methods existing at the time Allen v. Bank was 
 decided for the rule adopted therein, the reason for such a rule is 
 wanting in view of the present changed conditions. Banks, as a gen- 
 eral rule, have now no facilities for making collections at distant: 
 
596 AGENCY (Part 2 
 
 points, not enjoyed by the business public at large. Formerly they 
 may have enjoyed a monopoly of information relative to location, 
 names, and credit of banks at distant or remote points. To-day, how- 
 ever, business men, by means of the information derived from the 
 press and the numerous directories at their command, may collect their 
 bills through the medium of banks at the place of payment as cheap- 
 ly, safely, and expeditiously as their local bank. It is more conven- 
 ient, and therefore more frequent, for customers to deposit drafts and 
 acceptance with their home banks for collection, paying therefor the 
 cost of exchange only. In this case, for instance, the bank not only 
 made the collections for defendant in error without charge, but allow- 
 ed him to overdraw on account thereof, thus realizing on his paper at 
 once. As said by. Chancellor Walworth in Allen v. Bank, there is, 
 in cases like this, no consideration sufficient to support an undertaking 
 by a bank to answer for the default of a correspondent where it has, 
 without fraud or negligence, in proper time forwarded the paper to a 
 reputable correspondent, with proper instructions, and when the loss 
 is not occasioned by the act or omission of any of its immediate agents 
 or servants. 
 
 The theory of those cases which hold the remitting bank liable in 
 such cases is that the advantage of exchange between different points 
 is a sufficient inducement for banks to assume the liability sought to 
 be imposed. This may be conceded, so far as the inconvenience and 
 costs of collection is concerned, but to us it seems wholly inadequate 
 as a consideration for an implied undertaking to insure against loss 
 on account of the fraud or insolvency of a correspondent. The Su- 
 preme Court of Tennessee, in Louisville Bank v. First Nat. Bank, 8 
 Baxt. 101, 35 Am. Rep. 691, after a thorough examination of the cases 
 on the subject, summarizes as follows: "The more reasonable and 
 just construction of the undertaking of the bank in which the bill is 
 deposited for collection is that, when the bill is payable at' another 
 and_ distant place, the bank so receiving the bill discharges itself of 
 liability by transmitting the same, in due time to a suitable and reputa- 
 ble bank or other agent at the place of payment; and in such case it 
 is manifest that a sub-agent must be employed; and the assent of the 
 principal is implied, as it cannot be said that the receiving bank was ex- 
 pected or bound to send one of its own officers to the distant point of 
 payment for the purpose of personally attending to the collection for 
 the very inadequate compensation usually paid to banks for such 
 service." To the views thus expressed we give our unqualified assent. 
 The motion for a new trial should have been sustained. 
 
 The judgment of the district court is reversed, and the case remand- 
 ed for further proceedings by the district cotirt. The other judges 
 concur. 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 597 
 
 SECTION 2.— RIGHTS OF THE AGENT AGAINST THE 
 
 PRINCIPAL 
 
 FOX V. RYAN. 
 (Supreme Court of Illinois, 1909. 240 111. 391, 88 N. E. 974.) 
 
 Action by John F. Fox against Patrick Ryan. Plaintiff had judg- 
 ment, and defendant appeals. 
 
 Farmer, C. J. This is an action of assumpsit begun in the superior 
 court of Cook county to recover $4,000 commissions claimed by ap- 
 pellee, plaintiff below, to be due him for services as a broker in effect- 
 ing a sale of mining stock for appellant. The declaration contained 
 
 the common counts only, to which the general issue was pleaded. 
 * * * 
 
 The second proposition asked by the appellant was that merely pro- 
 curuig a person to enter into a contract for the purchase of property 
 does not entitle a broker to commissions unless such person was ready 
 willing, and able to make the payments, including deferred payments, 
 named in the contract. The court modified this proposition by adding, 
 "unless the defendant accepted the purchaser." The proposition as 
 modified was correct. Where a broker is employed to sell property 
 by the owner, if he produces a purchaser within the time limited by his 
 authority who is ready, willing, and able to purchase the property 
 upon the terms proposed by the seller, he is entitled to his commis- 
 sions, even though the seller refuses to perform the contract on his 
 part. In such case, however, it is necessary for the broker to prove 
 the readiness, willingness, and ability of the purchaser to take the 
 property on the terms proposed. But, where the seller accepts the 
 purchaser and enters into a valid contract of sale with him, the bro- 
 ker's commission is earned whether the purchaser subsequently fails 
 to perform his contract and makes -the payments agreed upon or 
 not. There are cases in other states holding otherwise, but in Wilson 
 V. Mason, 158 111. 304, 311, 42 N. E. 134, 136, 49 Am. St. Rep. 162, 
 this court refused to follow those cases, denominating them as ex- 
 treme and exceptional. * * * 
 
 Judgment affirmed. 
 
 CLARK V. HOVBY. 
 
 (Supreme Judicial Court of Massachusetts, 1914. 217 Mass. 485, 
 105 N. E. 222.) 
 
 RuGG, C. J. This is an action to recover for services as a real es- 
 tate broker. The plaintiff was employed by the defendant to sell cer- 
 tain real estate, and he procured a purchaser who executed a contract 
 for sale of it with the defendant. Simultaneously with this contract 
 the following agreement was entered into between the plaintiff and 
 liie defendant : "It is agreed by and between Ewen A. Clark, broker, 
 and Freeland E. Hovey, owner, that concerning the agreement for 
 sale of property # 2 and # 6 Cambridge street, Boston, from Hovey 
 to Jeremiah Green, for the sum of $60,000, that said Clark agrees to 
 accept the sum of $500 in full payment of commission and for his full 
 compensation in the matter, and said Hovey agrees to pay said sum. 
 
598 AGENCY • (Parf2 
 
 It is further agreed by both parties that this $500 shall not be paid 
 from the first $5,000 paid Hovey, of which $500 has been paid to-day, 
 but shall be paid by Hovey. to Clark from the first $500 received by 
 Hovey from Green after the $5,000 has been paid. In other words, 
 Clark will not make any claim for commission unless Hovey receives 
 more than $5,000 in cash from the sale." 
 
 The contract for sale was never carried out because the defendant 
 could not give a good title by reason of certain restrictions. The ques- 
 tion is whether, under these circumstances, the plaintiff is entitled to 
 his commission. 
 
 The rights of the parties depend upon the terms of their agreement, 
 which is in writing and not ambiguous. It fixes the price which the 
 plaintiff was to receive. It stipulates in unequivocal words that the 
 compensation shall not be paid by the defendant until after he has re- 
 ceived $5,000 on account of the sale. As matter of construction, this 
 means that it is a condition to his being able to recover any commis- 
 sion 'that the defendant shall have received $5,000 in cash from the 
 sale. Its effect is not, as in some of the cases relied on by the plairitiff, 
 to fix a time beyond which the broker shall not be called upon to wait 
 for his pay, but it establishes a moment before the arrival of which 
 he cannot ask for his compensation. There is nothing in the record 
 to indicate that the employer of the broker has failed through any 
 volition of his own to carry out the contract. 
 
 The written agreement between the. parties supersedes the ordinary 
 rule that the broker has earned his commission when he has procured 
 the execution of a valid agreement for sale. It follows that the judg- 
 ment of the lower court was wrong. * * * 
 
 Judgment for the defendant. 
 
 I.ABINSKS V. HOLST. 
 (Supreme Court of New York, Appellate Term, 1903. 84 N. T. Supp. 991.) 
 
 Blanchard, J. The plaintiff was employed by one Greenstein as 
 a bookkeeper, and he brought this action against the defendant to 
 recover $100 for commissions which he claims to have earned by 
 having induced his employer, Greenstein, to enter into two contracts 
 with the defendant. The court below found in his favor, and the de- 
 fendant appeals. 
 
 A reversal of the judgment is asked on several grounds, but only 
 one need be considered. The appellant contends that the plaintiff is 
 not entitled to the commissions for the reason that said commissions 
 would be in derogation of his employer's interest. This contention is 
 supported by abundant authority. The plaintiff had no right, while 
 in the employment of Greenstein, to use his influence to induce his 
 employer to make any contract in which the plaintiff had a persondiT 
 interest, without first fully disclosing the fact of such interest to his 
 employer, * * * ^nd the evidence that the plaintiff's employer had 
 knowledge of such personal interest of the plaintiff must be clear and' 
 convincing. Greenstein denied positively that he had such knowledge. 
 If the commissions are due and payable at all, Greenstein would seem 
 to be entitled to them, and not the plaintiff. Howe v. Savory, 49 Barb. 
 403, affirmed 51 N. Y. 631. 
 
 The judgment appealed from should be reversed, and a new trial 
 ordered. * * * 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 599 
 
 LOCKWOOD et al. v. ROBBINS. 
 (Supreme C!ourt of Indiana, 1890. 125 Ind. 398, 25 N. B. 455.) 
 
 Mitchell, J. Leon Robbins filed a claim for three years and six 
 months' work and labor against the estate of Alonzo Lockwood, de- 
 ceased. * * * The material facts as returned in a special verdict 
 were that the plaintiff, a minor about 12 years old, without father or 
 other guardian, entered the decedent's service in 1876, and continued 
 therein until March, 1880, during which tinie he performed service 
 for the latter at his instance and request, of the value, after deducting 
 board, clothing, washing, and mending furnished by the decedent, of 
 $80. The services were not performed under any contract between 
 the plaintiff and decedent, nor between the latter and any other per- 
 son authorized to contract for the plaintiff. 
 
 Upon the facts found, the court very properly entered judgment 
 for the plaintiff. It does not appear that the plaintiff was taken into 
 the decedent's family and cared for and treated as a member thereof. 
 On the contrary, he entered his service and performed labor at the de- 
 cedent's instance and request, and, although there was no special con- 
 tract for remuneration, the law raises an implied obligation to pay 
 what the services were reasonably worth. - * * * Where one is 
 taken into the family of another, and is regarded and treated in every 
 respect as a member of the household, then, even though there may 
 be no ties of blood, there is no implied obligation to pay for services 
 rendered on the one hand, nor for board furnished on the other. 
 * * * The present is, however, not such a case. 
 
 The judgment is affirmed, with costs. 
 
 McMULLAN v. DICKINSON CO. 
 
 (Supreme Court of Minnesota, 1895. 60 Minn. 156, 62 N. W. 120, 
 27 L,. E. A. 409, 51 Am. St. Rep. 511.) 
 
 Canty, J. On the 25th of February, 1892, the plaintiff entered 
 into a written agreement with the defendant corporation, whereby it 
 agreed to employ him as its assistant manager, from and after that 
 date, as long as he should own in his own name 50 shares of the 
 capital stock of said corporation, fully paid up, and the business of 
 said corporation shall be continued, not exceeding the term of the 
 existence of said corporation, and pay him for such services the sum 
 .of $1,500 per annum, payable monthly during that time, and whereby 
 he agreed to perform said services during that time. He has ever 
 since owned, as provided, the 50 shares of said stock, and performed 
 said services ever since that time until the 28th of October, 1893, when 
 he was discharged and dismissed by the defendant without cause. He 
 alleges these facts in his complaint in this action, and also alleges 
 that he has been ever since he was so dismissed, and is now, ready 
 and willing to perform said services as so agreed upon, and that there 
 is now due him the sum of $125 for each of the months of March 
 and April, 1894, and prays judgment for the sum of $250. The de- 
 fendant in its answer, for a second defense, alleges that on March 2, 
 1894, plaintiff commenced a similar action to this for the recovery of 
 the sum of $512, for the period of time from his said discharge to 
 the 1st of March, 1894, alleging the same facts and the same breach, 
 
600 AGENCY ' (Part' 2 
 
 and that on April 16, 1894, he recovered judgment in that action 
 against this defendant for that sum and costs, and this is pleaded in 
 bar of the present action. The plaintiff demurred to this defense, and 
 from an order sustaining the demurrer the defendant appeals. 
 
 The plaintiff brought each action for installments of wages claimed 
 to be due, on the theory of constructive service. The doctrine of croh- 
 structive service was first laid down by Lord EUeriborough in Gandell 
 V. Pontigny, 4 Camp. 375, and this case was followed in England and 
 this country for a long time (Wood, Mast. & Serv. 254), and is still 
 upheld' by several courts (Isaacs v. Davies, 68 Ga. 169 ; Armfield v. 
 Nash, 31 Miss. 361 ; Strauss v. Meertief, 64 Ala. 299, 38 Am. Rep. 
 8). It has been repudiated by the courts of England (Goodman v. Po- 
 cock, 15 Adol. & E. [N. S.] 574; Wood, Mast. & Serv. 254), and by 
 many of the courts in this country (Id. ; and notes to Decamp v. Hewitt, 
 43 Am. Dec. 204), as unsound and inconsistent with itself, as it as- 
 sumes that the discharged servant has since his discharge remained 
 ready, willing, and able to perform the services for which he was hired, 
 while sound principles require him to seek employment elsewhere, and 
 thereby mitigate the damages caused by his discharge. His remedy 
 is for damages for breach of the contract, and not for wages for its 
 performance. But the courts, which deny his right to recover wages 
 as for constructive service, have denied him any remedy except one 
 for damages, which, if seemingly more logical in theory, is most ab- 
 surd in its practical results. These courts give him no remedy ex- 
 cept the one which is given for the recovery of loss of profits for the 
 breach of other contracts, and hold that the contract is entire, even 
 though the wages are payable in installments, and that he exhausts his 
 remedy by an action for a part of such damages, no matter how long 
 the contract would have run if it had not been broken. * * * No 
 one action to recover all the damages for such a breach of such a 
 contract can furnish any adequate remedy, or do anything like sub- 
 stantial justice between the parties. ' 
 
 By its charter the life of this corporation is thirty years. If the ac- 
 tion is commenced immediately after the breach, how can prospective 
 damages be assessed for this thirty years, or for even one year? To 
 presume that the discharged servant will not be able for a large part 
 of that time to obtain other employment, and award him large dam- 
 ages, might be grossly unjust to the defendant. Again, the servant 
 is entitled to actual indemnity, not to such speculative indemnity as 
 must necessarily be given by awarding him prospective damages. His 
 contract was not a speculative one, and, the law should not make it. 
 such. That men can and do find employment is the general rule, and 
 enforced idleness the exception. It should not be presumed in advance 
 that the exceptional will occur. This is not in conflict with the rule 
 that, in an action for retrospective damages for such a breach, the 
 burden is on the defendant to show that the discharged servant could 
 have found employment. In that case, as in others, reasonable dili- 
 gence will be -presumed. When it appears that he has not found em- 
 ployment or been employed, there is no presumption that it was his 
 fault, and, under such circumstances, it will be presumed that the ex- 
 ceptional has happened. But to presume that the exceptional will hap- 
 pen is very different. In an action for such a breach of a contract for 
 services, prospective damages beyond the day of trial are too con- 
 tingent and uncertain, and cannot be assessed. * * * Then, if the 
 
Ch. 4) RJDLATIONS OF THE PKINCIPAIi AND AGENT 601 
 
 discharged servant can have but one action, it is necessary for him to 
 starve and wait as long as possible before commencing it. If he waits 
 longer than six years after the breach, the statute of limitations will 
 have run, and he will lose his wholis claim. If he brings his action 
 within the six years, he will lose his claim for the balance of the time 
 after the day of trial. Under this rule, the measure of damages for 
 the breach of a 30 year contract is no greater than for the breach of 
 a 6 or 7 year contract. Such a remedy is a travesty on justice. Al- 
 though the servant has stipulated for a weekly, monthly, or quarterly 
 income, it assumes that he can live for years without any income, 
 after which time he will cease to live or need income. The fallacy lies 
 in assiuning that, on the breach of the contract, loss of wages is analo- 
 gous to loss of profits, and that the same rule of damages applies, while 
 in fact the cases are wholly dissimilar, and there is scarcely a parallel 
 between them. In the one case the liability is absolute; in the other 
 it is contingent. * * * 
 
 It is our opinion that the servant wrongfully discharged is entitled 
 to indemnity for loss of wages, and for the full measure of this in- 
 demnity the master is clearly liable. This liability accrues by install- 
 ments on successive contingencies. Each contingency consists in the 
 failure of the servant without his fault to earn, during the installment 
 period named in the contract, the amount of wages which he would 
 have earned if the contract had been performed, and the master is 
 liable for the deficiency. This rule of damages is not consistent with 
 the doctrine of constructive service, but it is the rule which has usu- 
 ally been applied by the courts which adopted that doctrine. Under 
 that doctrine the master should be held liable to the discharged serv- 
 ant for wages as if earned, while in fact he is held only for indemnity 
 for loss of wages. The fiction of constructive service is false and 
 illogical, but the measure of damages given under that fiction is correct 
 and logical. It is simply a case of a wrong reason given for a correct 
 rule. Instead of rejecting the false reason and retaining the correct 
 rule, many courts have rejected both the rule and the reason. In our 
 opinion, this rule of damages should be retained; but the true ground 
 on which it is based is not that of constructive service, but the liability 
 of the master to indemnify the discharged servant, not to pay him 
 wages, and this indemnity accrues by installments. The original breach 
 is not total, but the failure to pay the successive installments consti- 
 tutes successive breaches. Since the days of Lord Ellenborough this 
 class of cases has been in some courts an exception to the rule that 
 there can be but one action for damages for the breach of a contract, 
 and there are strong reasons why it should be an exception. Because 
 the discharged servant may, if he so elects, bring successive actions 
 for the installments of indemnity as they accrue, it does not follow 
 that he cannot elect to consider the breach total, and bring one action 
 for all his damages, and recover all of the same accruing up to the 
 time of trial. * * * But the wrongdoer can have no. such election. 
 He should not be allowed to take advantage of his own wrong, and, 
 for the purpose of preventing the use of any adequate remedy and 
 defeating any adequate recovery, to insist that his own breach is total. 
 The order appealed from should be affirmed. So ordered. 
 
602 AGENCY (Part 2 
 
 BACOJf V. FOURTH NAT. BANK. ' 
 (City Court of New York, Trial Term, 1889. 9 N. Y. Supp. 435.) 
 
 McAdam, C. J. The fees paid to the attorneys in Boston were ex- 
 pended under circumstances from which the law implies a request to 
 pay for them on the part of the plaintiff. Legal advice and services 
 may be as necessary to protect the property as the aid of a physician 
 or surgeon is to protect life. Neither may prove serviceable in some 
 cases, in others extremely so, depending in a measure on results. 
 Prudence requires their employment in all cases wherein property or 
 life is imperiled. It would be negeligence not to to employ profes- 
 sional aid in cases requiring it. The result does not determine the 
 propriety of the employment. The condition of things at the time 
 must decide that. A party who acts according to the best lights that 
 can be obtained at the moment is not negligent, but discreet. It is ele- 
 mentary that an agent is not permitted to reap any of the profits of 
 his agency properly belonging to his principal; so, on the other hand, 
 he is entitled to be indemnified against all losses which have been in- 
 nocently sustained by him on the same account. * * * fhe naked 
 depositary ought neither to be injured nor benefited in any respect 
 by the tr.ust undertaken by him. In an emergency he has an implied 
 authority to incur expenses on behalf of the owner for the preserva- 
 tion of the property. * * * 
 
 It is a familiar rule that an agent has the duty of taking such steps 
 as are reasonably necessary for the protection of his principal's in- 
 terests, and for the preservation of his principal's property, and that, 
 having made outlays for that purpose, he is entitled to reimbursements 
 at the hands of his principal. * * * The reason of the rule is 
 that a request on the part of the principal is inferred where the ad- 
 vances are made in the regular course of business, or even on the spur 
 of some pressing urgency not provided for by any rule, since the em- 
 ployer may fairly be taken to have authorized the employed to make 
 the expenditure under any circumstances that a prudent man would 
 conceive necessary for the safeguard of his interest. * * * jjj 
 Harter v. Blanchard, 64 Barb. 617, the rule was applied to the case 
 of a horse which, while in the bailee's possession, had his leg broken; 
 and it was held that the bailee had, from the nature of the case, an 
 implied authority to contract in behalf of the bailor with a competent 
 farrier for the care of the animal. Indeed, this just rule of implied 
 authority and indemnity pervades the law of principal and agent, 
 and of bailments as well. The expenditure made by the Maverick Na- 
 tional Bank was the proper exercise by it of the discretion conferred 
 by the nature of the transaction. It was reasonable in amount, the 
 services rendered were necessary, and there is no principle of justice 
 that requires that it should lose the amount so paid. The expenditure 
 was to protect the plaintiff's interest in the property; was made for 
 his sole benefit, at a place far distant from his residence, and impliedly 
 at his request. The expenditure, being a proper one, was legally au- 
 thorized, and is a good counterclaim against the plaintiff '; and, the cause 
 of action for the balance of his demand having been legally discharged 
 by payment into court, it follows that there must be judgment for the 
 defendant, with costs from the time of such payment. * * * 
 
Gh. 4) RELATIONS OF THE PRINCIPAL AND AGENT 603 
 
 NEW YORK CENT. R. CO. v. WHITE. 
 
 (Supreme Court of the United States, 1917. 243 U. S. 188, 37 Sup. Ct. 247, 
 61 L. Ed. 667, L. R. A. 1917D, 1, Ann. Oas. 1917D, 629.) 
 
 PiTNKY, J. A proceeding was commenced by defendant in error be- 
 fore the Workmen's Compensation Commission of the State of New 
 York, established by the Workmen's Compensation Law of that state, 
 to recover compensation from the New York Central & Hudson River 
 Railroad Company for the death of her husband, Jacob White, who lost 
 his life September 2, 1914, through an accidental injury arising out of 
 and in the course of his employment under that company. The Com- 
 mission awarded compensation in accordance with the terms of the 
 law; its award was affirmed, without opinion, by the Appellate Divi- 
 sion of the Supreme Court for the Third Judicial Department, whose 
 order was affirmed by the Court of Appeals without opinion. * * * 
 
 We turn to the constitutional question. The Workmen's Compen- 
 sation Law of New York establishes forty-two groups of hazardous 
 employments, defines "employee" as a person engaged in one of these 
 employments upon the premises, or at the plant, or in the course of 
 his employment away from the plant of his employer, but excluding 
 farm laborers and domestic servants; defines "employment" as in- 
 cluding employment only in a trade, business, or occupation carried 
 on by the employer for pecuniary gain, "injury" and "personal injury' 
 as meaning only accidental injuries arising out of and in the course 
 of employment, and such disease or infection as naturally and un- 
 avoidably may result therefrom; and requires every employer subject 
 to its provisions to pay or provide compensation according to a pre- 
 scribed schedule for the disability or death of his employee resulting 
 from an accidental personal injury arising out of and in the course of 
 the employment, without regard to fault as a cause, except where the 
 injury is occasioned by the wilful intention of the injured employee 
 to bring about the injury or death of himself or of another, or where 
 it results solely from the intoxication of the injured employee while 
 on duty, in which cases neither the injured employee nor any depend- 
 ent shall receive compensation. By section 11 the prescribed liability 
 is made exclusive, except that, if an employer fail to secure the pay- 
 ment of compensation as provided in section 50, an injured employee, 
 or his legal representative, in case death results from the injury, may, 
 at his option, elect to claim compensation under the act, or to maintain 
 an action in the courts for damages, and in such an action it shall not 
 be necessary to plead or prove freedom from contributory negligence, 
 nor may the defendant plead as a defense that the injury was caused 
 by the negligence of a fellow servant, that the employee assumed the 
 risk of his employment, or that the injury was due to contributory neg- 
 ligence. 
 
 Compensation under the act is not regulated by the measure of dam- 
 ages applied in negligence suits, but, in addition to providing medical, 
 surgical, or other like treatment, it is based solely on loss of earning 
 power, being graduated according to the average weekly wages of the 
 injured employee and the character and duration of the disability, 
 whether partial or total, temporary or permanent; while in case the 
 injury causes death, the compensation is known as a death benefit, and 
 includes funeral expenses, not exceeding $100, payments to the sur- 
 viving wife (or dependent husband) during widowhood (or dependent 
 
604 AGENCY (Part 2 
 
 widowerhood) of a percentage of the average wages of the deceased, 
 and if there be a surviving child or children under the age of eighteen 
 years an additional percentage of such wages for each child until that 
 age is reached. There' are provisions invalidating agreements by 
 employees to waive the right to compensation, prohibiting any assign- 
 ment, release, or commutation of claims for compensation or benefits 
 except as provided by the act, exempting them from the claims of 
 creditors, and requiring that the compensation and benefits shall be paid 
 only to employees or their dependents. Provision is made for the es- 
 tablishment of a Workmen's Compensation Commission with adminis- 
 trative and judicial functions, including authority to pass upon claims 
 to compensation on notice to the parties interested. The award or dd- 
 cision of the Commission is made subject to an appeal, on questions 
 of law only, to the Appellate Division of the Supreme Court for the 
 Third Department, with .an ultimate appeal to the Court of Appeals 
 in cases where such an appeal would lie in civil actions. A fund is 
 created, known as "the state insurance fund," for the purpose of in- 
 suring employers against liability under the law, and assuring to the 
 persons entitled the compensation thereby provided. The fund is made 
 up primarily of premiums received from employers, at rates fixed by 
 the Commission in view of the hazards of the different classes of em- 
 ployment, and the premiums are to be based upon the total pay roll 
 and number of employees in each class at the lowest rate consistent 
 with the maintenance of a solvent state insurance fund and the cre- 
 ation of a reasonable surplus and reserve. 
 
 Elaborate provisions are laid down for the administration of this 
 fund. By section 50, each employer is required to secure compensation 
 to his employees in one of the following ways: (1) By insuring and 
 keeping insured the pajment of such compensation in the state fund; 
 or (2) through any stock corporation or mutual association author- 
 ized to transact the business of workmen's compensation insurance in 
 the state; or (3) "by furnishing satisfactory proof to the Commis- 
 sion of his financial ability to pay such compensation for himself, in 
 which case the Commission may, in its discretion, require the deposit 
 with the Commission of securities of the kind prescribed in section 13 
 of the Insurance Law, in an amount to be determined by the Commis- 
 sion, to secure his liability to pay the compensation provided in this 
 chapter." If an employer fails to comply with this section, he is made 
 liable to a penalty in an amount equal to the pro rata premium that 
 would have been payable for insurance in the state fund during the 
 period of noncompliance; besides which, his injured employees or 
 their dependents are at liberty to maintain an action for damages in 
 the courts, as prescribed by section 11. 
 
 In a previous year, the legislature enacted a compulsory compensa- 
 tion law applicable to a limited number of specially hazardous, employ- 
 ments, and requiring the employer to pay compensation without re- 
 gard to fault. * * * This was held by the Court of Appeals in Ives 
 V. South Buffalo R. Co., 201 N. Y. 271, 94 N. E. 431, 34 L. R. A. (N 
 S.) 162, Ann. Cas. 1912B, 156, 1 N. C. C. A. 517, to be invahd because 
 m conflict with the due process of law provisions of the state Consti- 
 tution and of the Fourteenth Amendment. Thereafter, and in the year 
 
 1913, a constitutional amendment was adopted, effective TanuarV 1. 
 
 1914. * * * • J J > 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 605 
 
 In December, 1913, the Legislature enacted the law now under con- 
 sideration. * * * The scheme of the act is so wide a departure from 
 common-law standards respecting the responsibility of employer to 
 employee that doubts naturally have been raised respecting its consti- 
 tutional validity. The adverse considerations urged or suggested in 
 this case and in kindred cases submitted at the same time are; (a) 
 That the employer's property is taken without due process of law, be- 
 cause he is subjected to a liability for compensation without regard 
 to any neglect or default on his part or on the part of any other person 
 for whom he is responsible, and in spite of the fact that the injury 
 may be solely attributable to the fault of the employee; (b) that the 
 employee's rights are interfered with, in that he is prevented from 
 having compensation for injuries arising from the employer's fault 
 commensurate with the damages actually sustained, and is limited to 
 the measure of compensation prescribed by the act ; and ( c) that both 
 employer and employee are deprived of their liberty to acquire proper- 
 ty by being prevented from making such agreement as they choose re- 
 specting the terms of the employment. 
 
 In support of the legislation, it is said that the whole common-law 
 doctrine of employer's liability for negligence, with its defenses of con- 
 tributory negligence, fellow servant's negligence, and assumption of 
 risk, is based upon fictions, and is inapplicable to modem conditions 
 of employment ; that in the highly organized and hazardous industries 
 of the present day the causes of accident are often so obscure and com- 
 plex that in a material proportion of cases it is impossible by any meth- 
 od correctly to ascertain the facts necessary to form an accurate judg- 
 ment, and in a still larger proportion the expense and delay required 
 for such ascertainment amount in effect to a defeat of justice; that, 
 under the present system, the injured workman is left to bear the 
 greater part of industrial accident loss, which, because of his limited 
 income, he is unable to sustain, so that he and those dependent upon 
 him are overcome by poverty and frequently become a burden upon 
 public or private charity; and that Htigation is unduly costly and te- 
 dious, encouraging corrupt practices and arousing antagonisms be- 
 tween employers and employees. 
 
 In considering the constitutional question, it is necessary to view 
 the rnatter from the standpoint of the employee as well as from that 
 of the employer. For, while plaintiff in error is an employer, and 
 cannot succeed without showing that its rights as such are infringed, 
 * * * yet, as pointed out by the Court of Appeals in the Jensen 
 Case (215 N. Y. 526, 109 N. E. 600, L. H. A. 1916A, 403, Ann. Cas. 
 1916B, 276), the exemption from further liability is an essential part 
 of the scheme, so that the statute, if invalid as against the employee, 
 is invalid as against the employer. 
 
 The close relation of the rules governing responsibility as between 
 employer and employee to the fundamental rights of liberty and prop- 
 erty is, of course, recognized. But those rules, as guides of conduct, 
 are not beyond alteration by legislation in the public interest. No 
 person has a vested interest in any rule of law, entitling him to insist 
 that it shall remain unchanged for his benefit. * * * The common 
 law bases the employer's liability for injuries to the employee upon 
 the ground of negligence; but negligence is merely the disregard of 
 some duty imposed by law ; and the nature and extent of the duty may 
 be modified by legislation, with corresponding change in the test of 
 
-606 AGENCY (Part 2 
 
 negligence. Indeed, liability may be imposed for the consequences of 
 a failure to comply with a statutory duty, irrespective of negligence 
 
 in the ordinary sense; safety appliance acts being a familiar instance. 
 
 ^ * * 
 
 The fault may be that of the employer himself, or — most frequently 
 — that of another for whose conduct he is made responsible according 
 to the maxim respondeat superior. In the latter case the employer 
 may be entirely blameless, may have exercised the utmost human fore- 
 sight to safeguard the employee; yet, if the alter ego, while acting 
 within the scope of his duties, be negligent — in disobedience, it may 
 be, of the employer's positive and specific command — the employer is 
 answerable for the consequences. It cannot be that the rule embodied 
 in the maxim is unalterable by legislation. 
 
 The immunity of the employer from responsibility to an employee 
 for the negligence of a fellow employee is of comparatively recent 
 origin, it being the product of the judicial conception that the prob- 
 ability of a fellow workman's negligence is one of the natural and or- 
 dinary risks of the occupation, assumed by the employee and pre- 
 sumably taken into account in the fixing of his wages. The earliest 
 reported cases are Murray v. South Carolina R. Co. (1841) 1 McMul. 
 L. 385, 398, 36 Am. Dec. 268; Farwell v. Boston & W. R. Corp. 
 (1842) 4 Mete. (Mass.) 49, 57, 38 Am. Dec. 339, 15 Am. Neg. Cas. 
 407; Hutchinson v. York, N. & B. R. Co. (1850) L. R. 5 Exch. 343, 
 351, 19 L. J. Exch. N. S. 296, 299,. 14 Jur. 837, 840, 6 Eng. Ry. & 
 C. Cas. 580. * * * The doctrine has prevailed generally throughout 
 the United States, but with material diflFerences in different jurisdic- 
 tions respecting who should be deemed a fellow servant and who a 
 vice principal or alter ego of the master, turning sometimes ujxin re- 
 fined distinctions as to grades and departments in the employment. 
 * * * It needs no argument to show that such a rule is subject to 
 modification or abrogation by a state upon proper occasion. 
 
 The same may be said with respect to the general doctrine of as- 
 sumption of risk. By the common law the employee assumes the risks 
 -normally incident to the occupation in which he voluntarily engages; 
 other and extraordinary risks and those due to the employer's negli- 
 gence he does not assume until made aware of them, or until they be- 
 come so obvious that an ordinarily prudent man would observe and ap- 
 preciate them; in either of which cases he does assume them, if he 
 continues in the employment without obtaining from the employer an 
 assurance that the matter will be remedied.; but if he receive such an 
 assurance, then, pending performance of the promise, the employee 
 does not, in ordinary cases, assume the special risk. * * * Plainly, 
 these rules, as guides of conduct and tests of liability, ai-e subject to 
 change in the exercise of the sovereign authority of the state. 
 
 So, also, with respect to contributory negligence. Aside from in- 
 juries intentionally self-inflicted, for which the statute under consid- 
 eration affords no compensation, it is plain that the rules of law upon 
 the subject, in their bearing upon the employer's responsibility, are 
 subject to legislative change; for Contributory negligence, again, in- 
 volves a default in some duty resting on the employee, and his duties 
 are subject to modification. 
 
 It may be 'added, by way of reminder, that the entire matter of lia- 
 bility for death caused by wrongful act, both within and without the 
 relation of employer and employee, is a modern statutory innovation. 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 607 
 
 in which the states differ as to who may sue, for whose benefit, and 
 the measure of damages. 
 
 But it is not necessary to extend the discussion. This court re- 
 peatedly has upheld the authority of the states to establish by legis- 
 lation departures from the fellow-servant rule and other common-law 
 rules affecting the employer's liability for personal injuries to the 
 employee. * * * 
 
 The statute under consideration sets aside one body of rules only to 
 establish another system in its place. If the employee is no longer able 
 to recover as much as before in case of being injured through the em- 
 ployer's negligence, he is entitled to moderate compensation in all 
 cases of injury, and has a certain and speedy remedy without the diffi- 
 culty and expense of establishing negligence or proving the amount 
 of the damages. Instead of assuming the entire consequences of alL 
 ordinary risks of the occupation, he assumes the consequences, in ex- 
 cess of the scheduled compensation, of risks ordinary and extraordi- 
 nary. On the other hand, if the employer is left without defense re- 
 specting the question of fault, he at the same time is assured that the 
 recovery is limited, and that it goes directly to the relief of the des- 
 ignated beneficiary. * * * 
 
 The act evidently is intended as a just settlement of a difficult prob- 
 lem, affecting one of the most important of social relations, and it is 
 to be judged in its entirety. We have said enough to demonstrate that,, 
 in such an adjustment, the particular rules of the common law affect- 
 ing the subject matter are not placed by the Fourteenth Amendment 
 beyond the reach of the lawmaking power of the state; and thus we 
 are brought to the question whether the method of compensation that 
 is established as a substitute transcends the limits of permissible state 
 action. 
 
 • We will consider, first, the scheme of compensation, deferring for 
 the present the question of the manner in which the employer is re- 
 quired to secure payment. 
 
 Briefly, the statute imposes liability upon the employer to make 
 compensation for disability or death of the employee resulting from 
 accidental personal injury arising out of and in the course of the em- 
 ployment, without regard to fault as a cause except where the injury 
 or death is occasioned by the employee's wilful intention to produce 
 it, or where the injury results solely from his intoxication while on 
 duty; it graduates the compensation for disability according to a pre- 
 scribed scale based upon the loss of earning power, having regard to 
 the previous wage and character and duration of the disability; and 
 measures the death benefits according to the dependency of the sur- 
 viving wife, husband, or infant children. Perhaps we should add that 
 it has no retrospective effect, and applies only to cases arising some 
 months after its passage. 
 
 Of course, we cannot ignore the question whether the new arrange- 
 ment is arbitrary and unreasonable, from the standpoint of natural 
 justice. Respecting this, it is important fo be observed that the act 
 applies only to disabling or fatal personal injuries received in the 
 course of hazardous employment in gainful occupation. Reduced to 
 its ele'ments, the situation to be dealt with is this : Employer and em- 
 ployee, by mutual consent, engage in a common operation intended 
 to be advantageous to both; the employee is to contribute his person- 
 al services, and for these is to receive wages, and, ordinarily, nothing 
 
608 AGENCY (Part 2 
 
 more; the employer is to furnish plant, facilities, organization, capi- 
 tal, credit, is to control and manage th^ operation, paying the wages 
 and other expenses, disposing of the product at such prices as he can 
 obtain, taking all the profits, if any there be, and, of necessity, bear- 
 ing the entire losses. In the nature of things, there is more or less. of 
 a probability that the employee may lose his life through some acci- 
 dental injury arising out of the employment, leaving his widow or 
 children deprived of their natural support; or that he may sustain an 
 injury not mortal, but resulting in his total or partial disablement, 
 temporary or permanent, with corresponding impairment of earning 
 capacity. The physical suffering must be borne by the employee 
 alone ; the laws of nature prevent this from being evaded or shifted 
 to another, and the statute makes no attempt to afford an equivalent in 
 compensation. But, besides, there is the loss of earning power — a 
 loss of that which stands to the employee as his capital in trade. This 
 is a loss arising out of the business, and, however it may be charged 
 up, is an expense of the operation, as truly as the cost of repairing 
 broken machinery or any other expense that ordinarily is paid by the 
 employer. 
 
 Who is to bear the charge? It is plain that, on grounds of natural 
 justice, it is not unreasonable for the state, while relieving the em- 
 ployer from responsibility for damages measured by common-law 
 standards and payable in cases where he or those for whose conduct 
 he is answerable are found to be at fault, to require him to contribute 
 a reasonable amount, and according to a reasonable and definite scale, 
 by way of compensation for the loss of earning power incurred in 
 the common enterprise, irrespective cf the question of negligence, in- 
 stead of leaving the entire loss to rest where it may chance to fall — 
 that is, upon the injured employee or his dependents. Nor can it be 
 deemed arbitrary and unreasonable, from the standpoint of the em- 
 ployee's interest, to supplant a system under which he assumed the 
 entire risk of injury in ordinary cases, and in others had a right to 
 recover an amount more or less speculative upon proving facts of 
 negligence that often were difficult to prove, and substitute a system 
 under which, in all ordinary cases of accidental injury, he is sure of 
 a definite and easily ascertained compensation, not being obliged to 
 assume the entire loss in any case, but in all cases assuming any loss 
 beyond the prescribed scale. 
 
 Much emphasis is laid upon the criticism that the act creates lia- 
 bility without fault. This is sufficiently answered by what has been 
 said, but we may add that liability without fault is not a novelty in 
 the law. The common-law liability of the carrier, of the innkeeper, 
 or him who employed fire or other dangerous agency or harbored a 
 mischievous animal, was not dependent altogether' vtpon questions of 
 fault or negligence. Statutes imposing liability without fault have 
 been sustained. * * * 
 
 The provision for compulsory compensation, in the act under con- 
 sideration, cannot be deemed to be an arbitrary and unreasonable ap- 
 plication of the principle, so as to amount to a deprivation of the em- 
 ployer's property without due process of law. The pecuniary loss 
 resulting from the employee's death or disablement must fall some- 
 where. It results from something done in the course of an operation 
 from which the employer expects to derive a profit. In excluding the 
 qu-^stion of fault as a cause of the injury, the act in effect disregards 
 
Ch. 4) RELATIONS OF THE PRINCIPAL AND AGENT 609 
 
 the proximate cause and looks to one more remote — the primary cause, 
 as it may be deemed — and that is, the employment itself. For this, 
 both parties are responsible, since they voluntarily engage in it as co- 
 adventurers, with personal injury to the employee as a probable and 
 foreseen result. In ignoring any possible negligence Of the. employee 
 producing or contributing to the injury, the lawmaker reasonably may 
 have been influenced by the belief that, in modern industry, the ut- 
 most diligence in the employer's service is in some degree inconsistent 
 with adequate care on the part of the employee for his own safety;' 
 that the more intently he devotes himself to the work, the less he can 
 take precautions for his own security. And it is evident that the con- 
 .''equences of a disabling or fatal injury are precisely the same to the 
 parties immediately affected, and to the community, whether the proxi- 
 mate cause be culpable or innocent. Viewing the entire matter, it 
 cannot be pronounced arbitrary and unreasonable for the state to im- 
 pose upon the employer the absolute duty of making a moderate and 
 definite compensation in mon^y to every disabled employee, or, in case 
 of his death, to those who were entitled to look to him for support 
 in lieu of the comriion-law liability confined to cases of negligence. 
 
 This, of course, is not to say that any scale of compensation, how- 
 ever insignificant, on the one hand, or onerous, on the other, would be 
 supportable. In this case, no criticism is made on the ground that 
 the compensation prescribed by the statute in question is unreasonable 
 in amount, either in general or in the particular case. Any question 
 of that kind may be met when it arises. 
 
 But, it is said, the statute strikes at the fundamentals of constitution- 
 al freedom of contract. * * * We recognize that the legislation 
 under review does measurably limit the freedom of employer and 
 employee to agree respecting the terras of employment, and that it can- 
 not be supported except on the ground that it is a reasonable exercise 
 of the police power of the state. In our opinion it is fairly supporta- 
 ble upon that ground. And for this reason: The subject matter in 
 respect of which freedom of contract is restricted is the matter of com- 
 pensation for human life or limb lost or disability incurred in the 
 course of hazardous employment, and the public has a direct interest 
 in this as affecting the common welfare. * * * 
 
 We have not overlooked the criticism that the act imposes no rule 
 of conduct upon the employer with respect to the conditions of labor 
 in the various industries embraced within its terms, prescribes no duty 
 with regard to where the workmen shall work, the character of the 
 machinery, tools, or appliances, the rules or regulations to be' estab- 
 lished, or the safety devices to be maintained. This statute does not 
 concern itself with measures of prevention, which presumably are em- 
 braced in other laws. But the interest of the public is not confined 
 to these. One of the grounds of its concern with the continued life 
 and earning power of the individual is its interest in the prevention of 
 pauperism, with its concomitants of vice and crime. And, in our opin- ~ 
 ion, laws regulating the responsibility of employers for the injury or 
 death of employees, arising out of the employment,- bear so close a 
 relation to the protection of the. lives and safety of those concerned 
 that they properly may be regarded as coming within the category of 
 police regulations. * * * 
 B.&B.Bus.Law— 39 
 
010 AGENCY (Part 2 
 
 No question is made but that the procedural provisions of the act are 
 amply adequate to afford the notice and opportunity to be heard re- 
 quired by die Fourteenth Amendment. The denial of a trial by jury 
 is not inconsistent with "due process." * * * 
 
 The objection under the "equal protection" clause is not pressed. 
 The only apparent basis for it is in the exclusion of farm laborers and 
 domestic servants from the scheme. But, manifestly, this cannot be 
 judicially decjared to be an arbitrary classification, since it reasonably 
 ■may be considered that the risks inherent in these occupations are 
 exceptionally patent, simple, and familiar. * * * 
 
 We conclude that the prescribed scheme of compulsory 'compensa- 
 tion is not repugnant to the provisions of the Fourteenth Amendment, 
 and are .brought to consider, next, the manner in which the employer 
 is required to secure payment of the compensation. By section 50, 
 this may be done in one of three ways: (a) State insurance; (b) in- 
 surance with an authorized insurance corporation or association; or 
 (c) by a deposit of securities. The record shows that the predecessor 
 of plaintiff in error chose the third method, and with the sanction of 
 the Commission, deposited securities to the amount of $300,000, under 
 section 50, and $30,000 in cash as a deposit to secure prompt and con- 
 venient payment, under section 25, with an agreement to make a fur- 
 ther deposit if required. This was accompanied with a reservation of 
 all contentions as to the invalidity of the act, and had not the effect of 
 preventing plaintiff in error from raising the questions we have dis- 
 cussed. 
 
 The system of compulsory compensation having been found to be 
 within the power of the state, it is within the limits of permissible reg- 
 ulation, in aid of the system, to require the employer to furnish satis- 
 factory proof of his financial ability to pay the compensation, and to 
 deposit a reasonable amount of securities for that purpose. The third 
 clause of section SO has not been, and presumably will not be, con- 
 strued so as to give an unbridled discretion to the Commission ; nor is 
 it to be presumed that solvent employers will be prevented from becom- 
 ing self-insurers on reasonable terms. No question is made but that 
 the terms imposed upon this railroad company were reasonable in view 
 of the magnitude of its operations, the number of its employees, and 
 the amount of its pay roll (about $50,000,000 annually); hence no 
 criticism of the practical effect of the third clause is suggested. 
 
 This being so, it is obvious that this case presents no question as to 
 whether the state might, consistently with the Fourteenth Amendment, 
 compel employers to effect insurance according to either of the plans 
 mentioned in the first and second clauses. There, is no such compul- 
 sion, since self-insurance under the third clause presumably is open 
 to all employers on reasonable terms that it is within the power of the 
 state to impose. Regarded as optional arrangements, for acceptance 
 or rejection by employers unwilling to comply with that clause, the 
 plans of insurance are unexceptionable from the constitutional stand- 
 point. Manifestly, the employee is not injuriously affected in a con- 
 stitutional sense by the provisions giving to the employer an option 
 to secure payment of the compensation in either of the modes pre- 
 scribed, for there is no presumption that either will prove inadequate 
 to safeguard the employee's interests. 
 
 Judgment affirmed. 
 
Ch. 5) EBLATIOXS OF THE AGENT AND THIRD PERSONS 611 
 
 CHAPTER V 
 RELATIONS OF THE AGENT AND THIRD PERSONS 
 
 Section 
 
 1. Eights of the Agent Against Third Persons. 
 
 2. Rights of Third Persons Against the Agent. 
 
 SECTION 1.— RIGHTS OF THE AGENT AGAINST THIRD 
 
 PERSONS 
 
 ROWE V. RAND. 
 (Supreme Court of Indiana, 1887. Ill Ind. 206, 12 N. B. 377.) 
 NiBLACK, J. * * * j\(j agent may sue in his own name — First, 
 when the contract is in writing, and is expressly made with him, al- 
 though he may have been known to act as agent; secondly, when the 
 agent is the oriy known or ostensible principal, and is therefore, in 
 contemplation of law, the real contracting party; thirdly, when, by 
 the usage of trade, he is authorized to act as owner, or as a principal 
 contracting party, notwithstanding his well-known position as agent 
 only. But this right of an agent to bring an action in certain cases in 
 his own name is subordinate to the rights of the principal, who may, 
 unless in particular cases where the agent has a lien or some other 
 vested right, bring suit himself, and thus suspend or extinguish the 
 right of the agent. * * * 
 
 NAMQLIT WORSTED CO. v. WHITMAN et al. 
 
 < United States Circuit Court of Appeals, First Circuit, 1915. 221 Fed. 49, 
 
 136 C. C. A. 575.) 
 
 Action by William Whitman and others against the Namquit Wor- 
 sted Company. Judgment for plaintiff, and defendant brings error. 
 
 The action was on a contract for the sale of "50,000 lbs. 3-grade 
 white worsted yarn for delivery during Oct., Nov., and Dec, '09." 
 
 Putnam, Circuit Judge. This case was submitted to the District 
 Court with the statutory waiver of a jury. The plaintiffs, now the 
 defendants in error, executed the contract sued on in their own names. 
 The real principal whom they represented was the Arlington Mills. 
 The evidence shows that the plaintiffs were selling agents of all its 
 product, and, of course, they were entitled to their commission on 
 the transaction. 
 
 By the settled rules of the English courts, which have been adopted 
 in the United States, the plaintiffs were entitled to sue in their own 
 names, both because they executed the contract in their own names, 
 and because they had an interest in the contract to the extent of their 
 commission. The rule is exceptional, as stated in Chitty on Contracts 
 (11th Am. Ed.) pp. 316, 317, and also as stated more fully in Mechem 
 on Agency (2d Ed.) § 2024. In the notes to the latter there is a list 
 of cases showing that the rule has been fully adopted by the courts in 
 
C12 AGENCY (Part 2 
 
 the United States. As it appears in the authorities cited, the suit 
 brought in the name of an agent covers the interests of both agent and 
 principal; and the form of proceedings is anomalous, as shown by 
 Mechem, and also in Colburn v. Phillips, 15 Gray (Mass.) 64, 66. On 
 the latter account, the practice shows that the pleadings which were 
 made in this case are sufficient ; and we add no comment in reference 
 to them. 
 
 Where there are so many errors assigned in comparison with the 
 substantial matters in question as we find here, each will, as usual, be 
 treated briefly. The first point made by the plaintiff in error is based 
 on the proposition that there is no evidence that the plaintiffs were 
 agents of the Arlington Mills. The court found that J. H. Merrill, 
 who signed the contract with the plaintiffs, "was duly authorized to 
 sign, and did sign, on behalf of the Namquit Worsted Company." 
 The contract itself which Merrill signed used the words, "from Arling- 
 ton Mills," and the court found that the parties had previously ex- 
 ecuted contracts similar to this one, and had had extensive dealings 
 of a similar character. We think, therefore, there can be" no doubt 
 that the Namquit Company assumed and understood that the contract 
 was for the benefit of the Arlington Mills. 
 
 The point is also made that the damage alleged was not capable of 
 being estirnated under the contract and the testimony; but, in view 
 of the fact that the court adopted the lowest scale of damages sug- 
 gested in the: case, there is no difficulty on this point. Nor do we 
 find any difficulty in the other matter of fact which was made an ele- 
 ment in the errors assigned that a certain approval of the plaintiffs was 
 lacking. * * * 
 
 The judgment of the District Court is affirmed, with interest; and 
 the costs of appeal are allowedto the defendants in error. * * * 
 
 MISSOURI PAC. RY. CO. t. PERU-VAN ZANDT IMPLEMENT CO. 
 
 (Supreme Court of Kansas, 1906. 73 Kan. 295, 85 Pac. 408, 6 L. R. A. 
 [N. S.] 1058, 117 Am. St. Rep. 468, 9 Ann. Gas. 790.) 
 
 Action by the Peru-Van Zandt Implement Company against the 
 Missouri Pacific Railway Company. Judgment for plaintiff. De- 
 fendant brings error. 
 
 The Port Huron Engine & Thresher Company, of Port Huron, 
 Mich., manufactures threshing machines and sells them throughout 
 the country through local agents. The plaintiff, defendant in error, 
 is its ^gent at Hutchinson, Kan. By the contract of agency, it is the 
 duty of the Peru-Van Zandt Implement Company, to advertise, in- 
 troduce, and sell the machines to those desiring to purchase, and, when 
 a sale is made, an order is taken from the purchaser, in writing, di- 
 recting the Port Huron Company to ship the machinery desired, stat- 
 ing price, manner of payment, and other particulars constituting the 
 conditions of sale, which order is signed by the purchaser and de- 
 livered to the local agent. This order is forwarded to the Port Huron 
 Company by the agent making the sale. Upon this order the machin- 
 ery is shipped by the designated route and consigned to the local agent. 
 It is the duty of the agent to receive the machinery and hold posses- 
 sion thereof until payment is made or secured as stipulated in the or- 
 der of the buyer. In completing the sale the agent takes in payment 
 
Ch. 5) RELATIONS OF THE AGENT AND THIRD PERSONS G13 
 
 cash, notes, -mortgages, or other security as directed, but delivers the 
 machinery only after the sale has been approved by the Port Huron 
 Company. Until such approval and delivery, the title to the machin- 
 ery does not pass from the seller. The Peru- Van Zandt Company re- 
 ceives for its services in making such sales a commission of 40 per 
 cent, of the selling price. * * * fhe Peru-Van Zandt Company, 
 under this employment, sold two machines for the aggregate sum of 
 $920, and took from the purchasers written orders therefor, which 
 were duly forwarded to the Port Huron Company. Upon receipt of 
 the orders, the machines were shipped over the road of the plaintiff 
 in error, consigned to the Peru- Van Zandt Implement Company, at 
 Larned, Kan., with stopover to partly unload at Seward, Kan., being 
 the points where the purchasers lived. The bill of lading contained 
 nothing to indicate the relation existing between the consignor, the 
 Port Huron Company, and the consignee, whether that of vendor and 
 vendee, or principal and agent. The machines were shipped June 12, 
 1903, and in ordinary course would have arrived at destination within 
 10 days, but on account of negligent delays they did not arrive until 
 some time in the month of August, long after the threshing season had 
 closed and the sale contracts had, for that reason, been canceled. By 
 the contract of shipment, the freight was payable before the delivery 
 of machinery to consignee. The consignee declined to pay the freight, 
 claiming that the damages suffered on account of delay far exceeded 
 the amount of the freight bill. The carrier refused to deliver the 
 goods until the freight was paid. Thereupon the defendant in error 
 demanded that the machinery be delivered to it without payment of 
 freight, and, upon refusal, commenced this suit. The demand was 
 made in the name of the Port Huron Company, by the Peru- Van Zandt 
 Company as agent. The petition alleges that the plaintiff is the agent 
 and factor of the Port Huron Company, and avers the facts consti- 
 tuting their relationship, substantially as hereinbefore set forth. In 
 the first cause of action the plaintiff asks judgment for the amount 
 of commission lost by it, and in the second cause of action it demanded 
 judgment for the value of the machines. The carrier retained, and 
 still keeps, possession of the machines. The plaintiff recovered judg- 
 ment for the price for which the machines were sold. Plaintiff in er- 
 ror brings the case here for review. 
 
 Graves, J. * * * It is insisted that the plaintiff has no interest 
 in the machinery in controversy, and, therefore, cannot maintain an 
 action for its conversion. * * * There is considerable confusion 
 among the authorities as to whether the consignee or consignor is 
 the proper party plaintiff in an action against a carrier, but the rule 
 that a suit for the conversion of goods must be brought by the owner, 
 or one having a beneficial interest in the property converted, seems 
 to be fairly well established. Hutchinson on Carriers, §§ 731-734. 
 * * * The consignee is always presumed to possess the necessary 
 ownership, until the contrary is shown. * * * The ownership need 
 not be extensive. An agent, factor, broker, bailee or other person 
 having rights in the property to be protected, may maintain an action, 
 and recover both for himself and the general owner. * * * 
 
 We think the plaintiff in this case had sufficient interest in the 
 property to enable it to maintain this action. In Railroad v. Mower 
 Co., 76 Me. 251, a case very similar to this, the court said: "Ordi- 
 narily, when a plaintiff sustains his action, it is presumed that the 
 
614 AGENCY (Part 2 
 
 whole amount of damages recovered will belong to him. In fact, the 
 injury to him or to his property is the measure of his damages. But, 
 while this is the general rule, there are exceptions, not to the extent 
 or measure of damages, but to the interest the plaintiff may have in 
 them. It is true that an action cannot be maintained unless the plain- 
 tiff has an interest in the subject-matter of the suit, but he may do so 
 when he is not interested to the full extent of the damages to be re- 
 covered. Such are the familiar cases of injury to property in which 
 there is a general and special owner, as bailor and bailee, consignor 
 and consignee, principal and factor. * * * In the case of Express 
 Co. V. Armstead, 50 Ala. 352, it is said: "Tlie consignee of goods 
 has a right to sue for their loss by the carrier, notwithstanding an- 
 other party may be the owner of them. The obligation is to deliver to 
 him. Generally the property vests in him by the mere delivery to 
 the carrier. Although the absolute or general owner of personal prop- 
 erty may support an action for any injury thereto, if he have the 
 right of immediate possession, this does not necessarily divest the 
 right of the consignee to sue, notwithstanding he has never had the 
 actual possession." 
 
 A judgment in favor of the plaintiff can work no harm, as it is a 
 bar to an action for the same injury by the Port Huron Company. 
 
 * * * The plaintiff holds in trust for the Port Huron Company, 
 whatever remains of the amount recovered, after payment of its com- 
 mission. A consignee has a right to withhold freight bill when its 
 damages exceed that amount, and in such a case the refusal of the 
 carrier to deliver the goods until the freight is paid amounts to a con- 
 version. * * * 
 
 No error appearing, the judgment of the district court is affirmed. 
 
 * * * 
 
 MOEAN V. DUNPHT. 
 
 (Supreme Judicial Court of Massachusetts, 1901. 177 .Mass. 485, 59 X. E. 125, 
 52 L. R. A. 115, S3 Am. St. Rep. 289.) 
 
 Action by one Moran against one Dunphy, in which plaintiff sought 
 to recover of defendant for making statements to one Cowan, by 
 whom plaintiff was employed, of such a character that Cowan dis- 
 charged the plaintiff. The superior court sustained defendant's de- 
 murrer, and plaintiff appealed. 
 
 Holmes, C. J. * * * We cannot admit a doubt that maliciously 
 and without justifiable cause to induce a third person to end his em- 
 ployment of the plaintiff, whether the inducement be false slanders or 
 successful persuasion, is an actionable tort. * * * 
 
 We apprehend that there no longer is any difficulty in recognizing 
 that a right to be protected from malicious interference may be incir 
 dent to a right arising out of a contract, although a contract, so far 
 as performance is concerned, imposes a duty only on the promisor. 
 Again, in the case of a contract of employment, even when the em- 
 ployment is at will, the fact that the employer is free from liability for 
 discharging the plaintiff does not carry with it immunity to the de- 
 fendant who has controlled the employer's action to the plaintiff's 
 harm. The notion that the employer's immunity must be a noncon- 
 ductor, so far as any remoter liability was concerned, troubled some 
 of the judges in Allen v. Flood [1898] App. Cas. 1, but is disposed 
 of for this commonwealth by the cases cited. * * * go, again, it 
 
Ch, 5^ RELATIONS OF THE AGENT AND THIRD PERSONS 615 
 
 may be taken to be settled by Plant v. Woods, 176 Mass. 492, 501, 
 502, 57 N. E. 1011, 51 L. R. A. 339, 79 Am. St. Rep. 30, that motives 
 may determine the question of liability; that, while intentional in- 
 terference of the kind supposed may be privileged if for certain pur- 
 poses, yet, if due only to malevolence, it must be answered for. On 
 that point the judges were of one mind. * * * Finally, we see no 
 sound distinction between persuading by malevolent advice and ac- 
 complishing the same result by falsehood or putting in fear. In all 
 cases the employer is controlled through motives created by the de- 
 fendant for the unprivileged purpose. It appears to us not to matter 
 which motive is relied upon. If accomplishing the end by one of them 
 is a wrong to the plaintiff, accomplishing it by either of the others 
 must be equally a wrong. 
 
 It follows from what we have said that we are of opinion that both 
 counts of the declaration disclose a good cause of action. * * * 
 
 Demurrer * * * overruled. 
 
 SECTION 2.— RIGHTS OF THIRD PERSONS AGAINST 
 
 THE AGENT 
 
 FARMERS' CO-OPERATIVE TRUST CO. v. FLOYD. 
 
 . (Supreme Court of Ohio, 1S90. 47 Ohio St. 52.o, 26 N. E. 110, 12 L. B. A. 346, 
 
 21 Am. St. Rep. S46.) 
 
 Williams, j. * * * The courts of this country and of Eng- 
 land, with few exceptions, adhere to the doctrine so clearly laid down 
 by Mr. Justice Story in his Commentaries on the Law of Agency, where 
 it is said : 
 
 "Wherever a party undertakes to do any act as the agent of an- 
 other, if he do not possess any authority from the principal there- 
 for, or if he exceeds the authority delegated to him, he will be per- 
 sonally responsible therefor to the person with whom he is dealing 
 for or on account of his principal. There can be no doubt that this 
 is, and ought to be, the rule of law in the case of a fraudulent rep- 
 resentation made by the agent, that he has due authority to act for 
 the principal; for it is an intentional deceit. The same rule may 
 justly apply where the agent has no such authority, and he knows it, 
 and he nevertheless undertakes to act for the principal, although he in- 
 tends no fraud. But another case may be put, which may seem to ad- 
 mit of more doubt; and that is, where the party undertakes to act 
 as an agent for the principal, bona fide, believing that he has due au- 
 thority, but in point of fact he has no authority, and therefore he acts 
 under an innocent mistake. In this last case, however, the agent is 
 held by law to be equally as responsible as he is in the two former cases, 
 although he is guilty of no intentional fraud or moral turpitude. 
 
 "This whole doctrine proceeds upon a plain principle of justice; for 
 every person so acting for another, by a natural, if not by a necessary, 
 implication, holds himself out as having competent authority to do the 
 act; and he thereby draws the other party into a reciprocal engage- 
 ment. * * * If he has no such authority, and acts bona fide, still 
 he does a wrong to the other pai-ty; and if that wrong produces an 
 injury to the latter, owing to his confidence in the truth of an ex- 
 
016 AGENCT (Part 2 
 
 press or implied assertion of authority by the agent, it is perfectly 
 just that he who makes such an assertion should be personally responsi- 
 ble for the consequences, rather than that the injury should be borne 
 by the other party, who has been misled by it. Indeed, it is a plain 
 principle of equity, as well as of law, that where one of two innocent 
 persons must suffer a loss, he ought to bear it who has been the sole 
 means of producing it, by inducing the other to place a false confidence 
 in his acts, and to repose upon the truth of his statements." Story, 
 Ag. § 264. Jn the note to this section many cases which sustain the 
 text are cited. And in the notes to Thomson v. Davenport, in 2 Smith, 
 Lead. Cas. pt. 1, commencing on page 408 of the eighth edition, a 
 number of the cases on the same subject are collected. In addition to 
 those, other cases might be referred to, among them the following: 
 Walker v. Bank, 9 N. Y. 582; White v. Madison, 26 N. Y. 117; 
 Weare v. Gove, 44 N. H. 196. In the last case cited above it is held, 
 that "although no fraud or wrongful motive can be imputed to the 
 agent, still his act is an affirmation that he has authority to make the 
 contract, and he may justly be held responsible for the- truth of it; 
 and it is no more than reasonable that he should suffer the conse- 
 quences of his mistake rather than the party who is misled by it, be- 
 cause, before holding himself out as such agent, it is his duty to ascer- 
 tain whether his claim so to act is well founded or not ; and he surely 
 cannot be heard to complain that others have confided in his assertion 
 of authority, and upon the strength of it have entered into reciprocal 
 engagements with him. Even if wholly innocent of any wrongful pur- 
 pose, his case falls within the famiHar principle that when one of two 
 innocent persons must suffer a loss it ought to be borne by him who 
 has been the means of causing it, by inducing the other to confide in 
 the truth of his representations." 
 
 While, however, the authorities generally agree that where a person, 
 not having in fact authority to make a contract as agent, yet does so 
 under the bona fide belief that such authority is vested in him, is never- 
 theless personally responsible to those who contract with him in ig- 
 norance of his want of authority, a diversity of opinion is found in the 
 cases in regard to the exact nature of the liability, and the character 
 of the action by which it may be enforced. In Jenkins v. Hutchinson, 
 13 Adol. & E. (N. S.) 746, it is intimated by Erie, J., that an action 
 of deceit would lie in such cases, notwithstanding the good faith of the 
 agent, and some authorities may be found to that effect. Another 
 class of cases hold that the liability is upon the contract ; but it is be- 
 lieved that whether the agent is so liable depends upon the intention 
 of the parties as discovered from the contract itself; and on this ques- 
 tion the form of the agreement and the mode of signature may be quite 
 conclusive. The rule, as stated in Story on Agency, is that an agent 
 cannot be sued on the very instrument itself, as a contracting party, 
 unless there be apt words to charge him. Section 264a. Still another 
 class of cases establish the rule, which we are inclined to adopt,, that 
 in cases like the one we are considering the agent is liable upon his 
 imoHed promise that he possesses the authority he assumes to have. 
 2 Smith, Lead. Cas. (8th Ed.) pt. 1, p. 408, and cases there cited; 
 Lewis v. Nicholson, 83 E. C. L. 512. In White v. Madison, supra, in 
 a learned opinion, it is held that the liability of the agent in such cases 
 rests upon the ground that he warrants his authority, and not that 
 the contract is to be deemed his own. * * * 
 
Ch. 5) RELATIONS OF THE AGENT AND THIRD PERSONS 617 
 
 THILMAXY V. IOWA PAPER BAG CO. et ai. 
 
 (Supreme Court of Iowa, 1890. 108 Iowa, 357, 79 N. W. 261, 
 75 Am. St. Eep. 259.) 
 
 Action to recover the purchase price of a car load of paper shipped 
 to the Iowa Paper Bag Company. Defendant Daggett having signed 
 the Iowa National Bank's letter of guaranty of the bag company's ob- 
 ligations on account of the paper, was made a defendant in this case. 
 From a judgment dismissing plaintiff's petition, he appeals. 
 
 Deem^R, J. * * * -y^e novy turn to the main point in the case, 
 and first to the proposition that defendant Daggett is liable because 
 of the form of the guaranty. It is signed, "Iowa National Bank, by 
 William Daggett, V. P." , Clearly, this is an obligation of the com- 
 pany; and the form of the signature just as clearly indicates that Dag- 
 gett signed it in a representative capacity, and not as an individual. 
 To hold that the contract binds Daggett personally, we must eliminate 
 the preposition "by" and hold that the initials "V. P." are "descriptio 
 personae." This we cannot do, as it is not our province to make con- 
 tracts for parties. The use of the pronouns "we" and "our" in the 
 letter of guaranty is of no significance. They are often used in re- 
 ferring to a corporation as a collection of individuals. There is no 
 question in our minds but that all parties to this contract regarded it 
 as the obligation of the bank, and not of the defendant Daggett in his 
 individual capacity ; and as this is the proper legal construction of the 
 instrument, nothing further heed be said on the first proposition urged 
 by appellant's counsel. 
 
 As to the second proposition, the rule has been broadly stated over 
 and over again that when an agent contracts in excess of his author- 
 ity, or acts without authority, or assumes to have authority when he 
 has none, or for any reason fails to bind his principal he is himself 
 bound. * * * That this is the general rule must be conceded, and 
 as applied to the facts of the cited cases, it is correct. But, like nearly 
 every other general rule, it is subject to exceptions, some of which 
 we will notice. 
 
 The reasons generally given for the rule are : (1) That as the agent 
 assumes to represent a principal, he cannot be heard to say that he 
 had no authority, or that there was in fact no principal to be bound ; 
 for if he assumes to represent another, he impliedly warrants that there 
 is such another, and that he has authority to represent him. If, then, 
 there is no principal, or the agent has no authority to act for him, 
 an action will lie for deceit or misrepresentation. (2) The law as- 
 sumes that the contract was intended to bind some one, and if the 
 principal is not bound, the contract must be that of the agent. This 
 last rule is generally applied to executed contracts. In such cases ac- 
 tion will lie for benefits received by the agent. Some cases go to the 
 extent of rejecting all parts of the contract relating to the obligation 
 of the principal, and then treat it as the personal contract of the agent. 
 * * * A third reason for the rule is that the agent impliedly war- 
 rants his authority to act for his principal, and if he has no such 
 power, an action lies for breach of warranty. Now, it is apparent 
 that if the party with whom the agent contracts has notice of the 
 facts relating to the authority of the agent, and is as fully advised as 
 to his authority as the agent himself, there can be no action for de- 
 ceit. And so the text-writers have generally stated this as an excep- 
 
618 AGENCY (Part 2 
 
 tion to the general rule. Mechem on Agency, at sections 545 and 
 546, thus states the law : 
 
 "Sec. 545. * * * Of course, if the other party knew, or by 
 the exercise of reasonable care might have discovered, the want of 
 authority, he cannot recover. This implied warranty by the agent of 
 his authority must ordinarily be limited to its existence as a matter 
 of fact, and not be held to include a warranty of its adequacy or suf- 
 ficiency in point of law. 
 
 "Sec. 546. Where, however, the agent, acting in good faith, fully 
 discloses to' the other party at the time all the facts and circumstances 
 touching the authority under which he assumes to act, 'so that the 
 other party, from such information or otherwise, is fully informed as 
 to the existence and extent of his authority, he cannot be held liable. 
 It is material, in these cases, that the party claiming a want of author- 
 ity in the agent should be ignorant of the truth touching the agency. 
 If he has full knowledge of the facts, or of such facts as are sufficient 
 to put him upon inquiry, and he. fails to avail himself of such knowl- 
 edge, or of the means of knowledge reasonably accessible to him, he 
 cannot say that he was misled simply on the ground that the other 
 assumed to act as agent without authority. Of course, if the agent 
 conceals or misrepresents material facts to the detriment of the other 
 party, he cannot claim exemption." 
 
 Judge Story, in his valuable work on Agency, section 265, says: 
 "This doctrine, however, as to the liability of the agent, where he con- 
 tracts in the name and for the benefit of the principal, without hav- 
 ing due authority, is founded upon the supposition that the want of 
 authority is unknown to the other party, or, if known, that the agent 
 undertakes to guarantee a ratification of the act by the principal. But 
 circumstances may arise in which the agent would not or might not 
 be held to be personally liable, if he acted without authority, if that 
 want of authority was known to both parties or unknown to both 
 parties." 
 
 Abundant authorities are cited by each author in support of these 
 propositions. The same thought is equally applicable to the third rea- 
 son above given for the general rule. And it may be further said that 
 the implied warranty of the agent does not relate to the power of the 
 principal to enter into the particular contract. He simply covenants 
 that he has authority to act for his principal, not that the act of the 
 principal is legal and binding. Hence, it has been justly said that the 
 contract must be one which the law would enforce against the prin- 
 cipal, if it had been authorized by him, else the anomaly would exist 
 of giving a right of action against an assumed agept for an unau- 
 thorized representation of his power to make the contract, when a 
 breach of the contract itself, if it had been authorized, would have 
 furnished no ground of action against the principal. * * * 
 
 In the case now under consideration the defendant Daggett made 
 no representations as to his authority save that contained in the letter 
 itself. He is guilty of no actionable deceit, unless it be found in the 
 fact that he signed the letter of guaranty as vice-president, and thus 
 represented that he had authority to represent his bank. He had this 
 authority, if any officer of a national bank has it, for no question is 
 made as to his authority to represent the bank in the making of any 
 contract it is authorized to execute. The action is not, then, based upon 
 any misrepresentation as to his authority, but upon the invalidity of 
 
Ch. 5) RELATIONS OF THE AGENT AND THIRD PJ:iiSONS 619 
 
 the contract itself as between plaintiff and the bank. There was no 
 actionable deceit, for the plaintiff is presumed to know as much about 
 the powers of national banks as the defendant. There is, as we have 
 said, no implied warranty by an agent that his principal has authority 
 to make the contract. As a rule, that is a question of law, of which 
 each party has equal knowledge. In the case against the bank we 
 held that national banks have no authority to enter into such contracts, 
 and as the plaintiff has no right of action against the bank upon a 
 contract of guaranty, such as the one in suit, no recovery should be 
 permitfed against the agent; for this would hold every agent to a 
 warranty of legality of his principal's contracts. As we have seen, 
 this is not the obligation of the agent. The second reason sometimes 
 given for the general rule of liability of the agent does not appear 
 to us to be sound. By the application of this principle a new contract 
 is made for the parties. An engagement is created which the parties 
 did not intend to assum'e, and the decided weight of authority is against 
 such rule. * * * 
 
 We do not think that Daggett, the agent, is personally liable under 
 the facts disclosed, and the judg^ient is affirmed. 
 
 CLARK et al. v. O'EOURKE. 
 
 (Supreme Court of Jlieliigan, 1896. Ill Mich. 108. 69 X. W. 147, 
 66 Am. St. Rep. 389.) , 
 
 Assumpsit by Clark, Farnham & Co., a partnership, against C. 
 O'Rourke and others, who were the building committee of an unincor- 
 porated church association, for lumber furnished for the erection of 
 a church. The lumber was charged to the church association. De^ 
 fendants contended that credit had been extended to the association 
 and to defendants personally, and that plaintiffs had agreed to look 
 for their pay to funds to be raised by church subscriptions, donations, 
 and fairs. Judgment for plaintiffs. Defendants bring writ of error. 
 
 Grant, J. The church organization had no legal existence. It 
 could neither sue nor be sued. The members of the society were not 
 partners. Those of the society who were actually instrumental in in- 
 curring the liabilities for it are liable as either principals, or agents 
 having no legal principal behind them. Members of the society who 
 either authorized or ratified the transactions are liable, while those who 
 did not are exempt from liability. * * * 
 
 The testimony does not justify the conclusion that the plaintiffs 
 agreed to trust to the proceeds of fairs, etc., for their pay. * * * 
 Neither can we accede to the proposition that there was evidence 
 tending legitimately to show that the credit was given to this unin- 
 corporated and irresponsible society. It was natural that plaintiffs 
 should enter the account upon their books as they did, but a jury 
 would not be justified in drawing the conclusion from this alone that 
 they agreed to look to such members of this society as they might 
 be able to show authorized or ratified the purchase from them. In 
 both reason and atithority, this is of no particular significance. The 
 alleged principal was a myth, and the entry means no more than that 
 the credit was given to those forming the association, or to those who 
 stood sponsors for it, and were conducting its business and obtaining 
 the credit. * * * These defendants were the active managers, and, 
 with the other two members of the ^committee, were in sole charge of 
 
620 AGENCY (Part 2 
 
 the work, and, under the law and the facts, were properly held re- 
 sponsible. The law does not, under such circumstances, leave the 
 creditors to search out the individual members of the society who have 
 authorized the transaction, but holds those liable who have dealt with 
 the creditors in the capacity of agents or principals. * * * 
 The judgment is affirmed. 
 
 LEE V. MATHEWS. 
 (Supreme Court of Alabama, 1846. 10 Ala. 682, 44 Am. Dec. 498.) 
 
 Trover for the value of slaves. By a deed of marriage settlement, 
 the slaves were conveyed to a trustee for the benefit of Mrs. Battle. 
 Battle and wife, removing from North Carolina, to Alabama, took the 
 slaves with them. A sheriff sold the slaves as the property of Battle. 
 Defendant, acting as agent of Rebecca Shamburger, bought the slaves 
 at sheriff's sale. The slaves were delivered to defendant soon after 
 the sale. Judgment below for defendant. Plaintiff brings writ of er- 
 ror. 
 
 Ormond, J. * * * f hg slaves being conveyed by the antenuptial 
 contract, to the trustee, for the sole and separate use of the wife, no 
 inference can arise from the fact, that they were in the joint posses- 
 sion of herself and her husband; such must of necessity be the case, 
 when the husband resides under the same roof with his wife. * * * 
 From these considerations, it appears, that the slaves were not subject 
 to sale, as the property of Battle, and it follows, that the purchaser 
 is liable to the trustee, in an action of trover for the value. 
 
 It is further argued that this action cannot be maintained against 
 the- present defendant, because in the purchase of the slaves he acted 
 as the agent of Mrs. Shamburger, disclosed his agency at the time, 
 and took the bill of sale in her name, and did not retain the possession 
 but for a short period as such agent, the slaves having been delivered 
 up to his principal, long before this suit was brought. Our first im- 
 pression was, that the defendant, having acted merely as the agent 
 of another person, and having parted with the possession before he 
 received notice of the title of the plaintiff, was not responsible in this 
 action, but that the suit must be brought against the principal. Sub- 
 sequent reflection has satisfied us that we were mistaken, and that the 
 principle upon which we relied, does not govern such cases as this. 
 
 The general rule of law, that agents properly- authorizied, acting for 
 a known principal, without any personal undertaking, are not indi- 
 vidually responsible, does not apply to torts, because no one can law- 
 fully command another to commit a wrong. It is also clear, that 
 every unlawful interrtleddling with the goods of another is a conver- 
 sion ; and it is no answer to the true owner, that the person so receiv- 
 ing the goods, was ignorant of his title, or that he received them for 
 the use or benefit of another. The taking, or receiving of them, be- 
 ing a conversion, his subsequent disposition of them, will not exonerate 
 him from liability. It is equally certain, that the title of the true own- 
 er cannot be divested, without his consent, the only exception to this 
 rule being, that of a purchase in market overt, which has no application 
 here. These principles are fully asserted in the cases of Perkins v 
 Smith, 1 Wils. 328, and Stephens v. Elwall, 4 Man. & Sel. 259. 
 
 In both these cases the action was brought against a servant, who 
 had received the goods of a bankrupt for his employer, and had parted 
 
Ch. 5) RELATIONS OF THE AGENT AND THIRD PERSONS 621 
 
 with them before the action was brought. In the last cited case, the 
 act of bankruptcy was secret, and the defendant merely received the 
 goods from another agent of the principal, who purchased them after 
 a secret act of bankruptcy, and had transmitted them to his principal 
 in the United States, before any demand was made of him, or he was 
 apprised of the facts of the case; yet he was held liable to the as- 
 signee of the bankrupt. Lord Ellenborough, in giving the opinion of 
 the court, thus expounds the law: "The only question is, whether 
 this is a conversion of the clerk, which was undoubtedly so in the 
 master. The clerk acted under an unavoidable ignorance, and for his 
 master's benefit, when he sent the goods to his master ; but neverthe- 
 less, his acts may amount to a conversion, for a person is guilty of a 
 conversion who intermeddles with my property, and disposes of it; 
 and it is no answer, that he acted under authority from another, who 
 had himself no authority to dispose of it. And the court is governed 
 by the principle of law, and not by the hardship of any particular case." 
 Although, therefore, this may appear to be a hard case, it is perfectly 
 clear the defendant, in receiving the slaves, was guilty of a conversion, 
 although he was ignorant of the title of the plaintiff, and was acting 
 merely as the agent of another, and consequently liable to be sued in 
 this form of action. * * * 
 
 Let the judgment be reversed, and the cause remanded for further 
 proceedings. 
 
 ILLINOIS CENT. E. CO. et al. v. COLET. 
 
 (Court of Appeals of Kentucky, 1905. 121 Ky. 38.5, 89 S. W. 234, 
 1 L. R. A. [N. S.] 370.) 
 
 Action by Mary Coley against' the Illinois Central Railroad Com- 
 pany and another. From a judgment for plaintiff, defendants appeal. 
 
 HoBSON, C. J. On August 7, 1902, appellee, Mary Coley, then 
 Mary Koerner, was being driven in a spring wagon across the Ten- 
 nessee street crossing of the Illinois Central Railroad in Paducah. 
 The wagon was struck by a backing engine on the railroad. Two 
 of the occupants of the wagon were thrown out and killed, and Mary 
 Coley sustained painful and serious injuries, to recover for which she 
 filed this action against the railroad company and the engineer in 
 charge of the engine. * * * 
 
 If Kotheimer [the engineer, a defendant] negligently ran the en- 
 gine against the wagon in which appellee was riding, and hurt her, he 
 is liable to her for her injuries. The fact that he did not own the en- 
 gine, or that he was operating it in the service of the railroad company, 
 makes him none the less liable for his personal wrong. If, in operating 
 the engine, he was acting as the agent of the railroad company, and 
 his act was its act, then it is also responsible to her upon the principle 
 that he who does an act by another does it himself. If both he and it 
 are liable for the wrong, they were both wrongdoers, and, being wrong- 
 doers, may be sued jointly. A person injured in this state is not 
 required to bring separate actions against the wrongdoers, but he may 
 sue any or all of them at his election, the jury may find separate ver- 
 dicts, and he may recover against some and not against others. * * * 
 
 Judgment affirmed. 
 
622 AGEXCY (Part 2 
 
 BAIRD T. SHIPilAN. 
 
 (Supreme Court of Illinois, 1890. 132 111. 16, 23 ^^. E. 3S4, 7 L. R. A. 128, 
 22 Am. St. Rep. 504.) 
 
 Per Curiam. The following opinion of the appellate court fully 
 presents the question arising upon this record: 
 
 Garnbtt, p. J. This is an appeal from a judgment for damages, 
 founded on the alleged negligence of appellants, by which the death of 
 Joseph Garnett, appellee's intestate, is said to have been caused. The 
 place where the injury happened was in a barn situated on premises 
 on Michigan avenue, in Chicago, belonging to Aaron C. Goodman, 
 ■who was then, and for several years before had been, a resident of 
 Hartford, Conn. Appellants were his agents for renting the premises 
 during the years 1884 and 1885, and during both years were carrying 
 on the real estate business in Chicago. On the trial, evidence was 
 given tending to show that they had in fact complete control of the 
 premises, with the residence and barn thereon, repairing the same, in 
 their discretion; and there was no proof that in such matters they 
 received any directions from the owner. The property was rented by 
 appellants to Errima R. Wheeler and A. R. Tillman from April 1, 
 1884, to April 30, 1885, and to Emma R. Wheeler from May 1, 1885, 
 to April 30, 1886. Both leases were in writing, and by the terms of 
 each lease the tenants covenanted to keep the premises in good repair. 
 The tenant in the last lease rented the premises to Nellie E. Pierce, 
 who occupied the same from April 28 to September, 1885. The evi- 
 dence tends to prove that when the lease was made to Emma R. 
 Wheeler the large carriage door to the barn was in a very insecure-, 
 condition, and that appellants, through one Warner, the manager of 
 their renting department, verbally agreed with Mrs. Wheeler to put 
 the premises in thorough repair. Nothing was done to improve the 
 condition of the door; and on June 12, 1885, while the deceased, an 
 expressman by occupation, was engaged in delivering a load of kind- 
 ling in the barn for one of the parties living in the house, the door, 
 weighing about 400 pounds, fell from its fastenings, and injured him 
 to such an extent that he died the next day. 
 
 "Appellants make two points: (1) That the verdict is clearly 
 against the weight of the evidence; (2) that they were the agents of 
 the owner, (Goodman,) and liable to him only for any negligence at- 
 tributable to them. There is nothing more than the ordinary conflict 
 of evidence found in such cases, presenting a question of fact for the 
 jury ; and the finding must be respected by this court, in deference to 
 the well-settled rule. 
 
 "The other point is not so easily disposed of. An agent is liable 
 to his principal only for mere breach of his contract with his prin- 
 cipal; but "he must have due regard to the rights and safety of third 
 persons. He cannot in all cases find shelter behind his principal. 
 H, in the course of his agency he is intrusted with the operation of a 
 dangerous machine, to guard himself from personal liability, he must 
 use proper care in its management and supervision, so that others, in 
 the use of ordinary care, will not sufifer in life, limb, or property. 
 * * * It is not his. contract with the principal which exposes him 
 to, or protects him from, liability to third persons, but his common- 
 law obligation to so use that which he controls as not to injure another. 
 That obligation is neither increased nor diminished by his entrance 
 
Gh. 5) RELATIONS OF THE AGENT AND THIRD PERSONS 623 
 
 upon the duties of agency ; nor can its breach be excused by the plea 
 that his principal is chargeable. * * * jf the agent once actually 
 undertakes and enters upon the execution of a particular work, it is 
 his duty to use reasonable care in the manner of executing it, so as 
 not to cause any injury to third persons which may be the natural 
 consequence of his acts ; and he cannot escape this duty by abandon- 
 ing its execution midway, and leaving things in a dangerous condition, 
 by reason of his having so left them without proper safeguards. 
 
 * * * A number of authorities charged the agent, in such cases, on 
 the ground of misfeasance, as distinguished from nonfeasance. Me- 
 chem, in his work on Agency, § 572, says : 'Some confusion has crept 
 into certain cases from a failure to observe clearly the distinction be- 
 tween nonfejLsance and misfeasance. As has been seen, the agent is 
 not liable to strangers for injuries sustained by them, because he did 
 not undertake the performance of some duty which he owed to his 
 principal, and imposed upon him by his relation, which is nonfeasance. 
 Misfeasance may involve, also, to some extent, the idea of not doing, 
 as where the agent, while engaged in the performance of his under- 
 taking, does not do something which it was his duty to do under the 
 circumstances — does not take that precaution, does not exercise that 
 care, which a due regard for the rights of others requires. All this is 
 not doing; but it is not the not doing of that which is imposed upon 
 
 . the agent merely fay virtue of his relation, but of that which is imposed 
 upon him by law, as a responsible individual, in common with all other 
 members of society. It is. the same not doing which constitutes ac- 
 tionable negligence in any relation.' * * * 
 
 "The rule * * * is sufficient to charge appellants with damages, 
 under the circumstances disclosed in this record. They had the same 
 control of the premises in question as the owner would have had if 
 he had resided in Chicago, and attended to his own leasing and re- 
 pairing. In that respect, appellants remained in control of the prem- 
 ises until the door fell upon the deceased. There was no interruption 
 of the causal relation between them and the injured man. They were, 
 in fact, for the time being, substituted in the place of the owner, so far 
 as the control and management of the property was concerned. The 
 principle that makes an independent contractor, to whose control prem- 
 ises upon which he is working are surrendered, liable for damages 
 to strangers caused by his negligence, although he is at the time doing 
 the work under contract with the owner, * * * would seem to be 
 sufficient to hold appellants. * * * When appellants rented the 
 premises to Mrs. Wheeler in the dangerous condition shown by the 
 evidence, they voluntarily set in motion an agency which, in the ordi- 
 nary and natural course of events, would expose persons entering the 
 harn to personal injury. Use of the barn, for the purpose for which it 
 was used when the deceased came to his death, was one of its ordinary 
 and appropriate uses, and might, by ordinary foresight, have been 
 anticipated. If the insecure condition of the door fastening had aris- 
 en after the letting to Mrs. Wheeler, a different question would be 
 presented; but, as it existed before and at the time of the letting, the 
 owner or persons in control are chargeable with the consequences. 
 
 * * * Neither error is well assigned, and the judgment is affirmed." 
 We fully concur in the legal proposition asserted in the foregoing 
 
 opinion, and deem it unnecessary to add to what is therein said in 
 support of that proposition. The judgment is affirmed. 
 
624 AGENCY (Part 2 
 
 LANDELL V. L.YBRAND et al. 
 
 (Supreme Court of Pennsylvunia, 1919. 264 Pa. 406, 107 Atl. 783, 
 8 A. L. R. 461.) 
 
 Trespass by Edwin A. Landell, Jr., against William M. Lybrand 
 and others, copartners trading as Lybrand, Ross Bros. & Montgom- 
 ery. From a judgment for defendants, plaintiff appeals. 
 
 Per Curiam. Appellees, defendants below, are certified public ac- 
 countants, and, as such, audited the books and accounts of the Em- 
 ployers' Indemnity Company for the year 1911. The appellant, plain- 
 tiff below, averred in his statement of claim that he had been induced 
 to buy 11 shares of the capital stock of that company, at the price of 
 $200 per share, on the strength of the report made by the appellees as 
 to its assets and liabilities at the close of the year 1911; the report 
 having been shown to him by some one who suggested that he purchase 
 the stock. A further averment was that the report was false and un- 
 true, that the stock pi:rchased by him on the strength of it is value- 
 less, and for the loss he sustained he averred the defendants were lia- 
 ble. To enforce this liability an action in trespass was brought 
 against them. In their affidavit of defeiise they averred that the 
 statement of claim disclosed no cause of action, and asked that this 
 be disposed of by the court below as a matter of law. * * * It 
 was so disposed of by the court below in entering judgment for the 
 defendants. 
 
 There were • no contractual relations between the plaintiff and de- 
 fendants, and, if there is any liability from them to him, it must arise 
 out of some breach of duty, for there is no averment that they made 
 the report with intent to deceive him. The averment in the statement 
 of claim is that the defendants were careless and negligent in malcing 
 their report ; but the plaintiff was a stranger to them and to it, and, as 
 no duty rested upon them to him, they cannot be guilty of any negli- 
 gence of which he can complain. * * * This was the correct view 
 of the court below, and the judgment is accordingly affirmed. 
 
 FOLWELL V. MILLER et al. 
 
 ^United States Circuit Court of Appeals, Second Circuit, 1906. 145 Fed. 495, 
 75 C. C. A. 489, 10 L. R. A. [N. S.] 332, 7 Ann. Cas. 455.) 
 
 Wallace, Circuit Judge. The trial judge in the court below direct- 
 ed ^ verdict for the defendant, upon the ground that it appeared by 
 the evidence thai' the defendant had not participated in the publication 
 of the libel which was the subject of the action. The principal as- 
 signment of error challenges the correctness of this ruling. 
 
 The facts proved upon the trial were these: The libel was pub- 
 lished in the New York Times, a newspaper owned by a corporation 
 in which the defendant was the principal stockholder, and of which 
 he was the president. The defendant was also at the time editor in 
 chief of the newspaper, having general supervision of the editorial 
 and news departments; but the news department was under the im- 
 mediate charge of a subordinate editor. The libel consisted of a news 
 item, which was received by the news editor during the night of April 
 5th, and was published in the issue which went to press on the morn- 
 ing of April 6th. The defendant was absent during the period cov- 
 
Ch. 5) RELATIONS OF THE AGENT AND THIRD PERSONS 625 
 
 ered by the reception and the pubHcation of the libel from the editorial 
 rooms and the building in which the newspaper was printed, and had 
 no knowledge of the publication until a subsequent day. 
 
 That the defendant was not liable merely because he was president 
 of the corporation and a stockholder is a proposition which does not 
 require extended discussion. The president of the corporation is an 
 agent of very extensive, but not unlimited, powers. He is not personally 
 liable because of his official capacity, any more than are the directors 
 or stockholders, for torts committed by the corporation, in the ab- 
 sense of personal participation in the tortious act. As an agent he is 
 not liable for the acts of misfeasance or nonfeasance of his subor- 
 dinate agents or employees. * * * 
 
 Whether the defendant was liable because of his relation to the 
 newspaper as editor in chief, notwithstanding the libel was published 
 without his knowledge or complicity, is a more debatable question. If 
 that relation is one in which the editor is merely an agent and the 
 proprietor is the principal, and the liability of the editor is to be tested 
 by the ordinary rules of the law of principal and agent, it is plain, as 
 has been already stated, that he would not be liable for any tortious act 
 committed without his privity by another agent of the principal, 
 whether such other agent be one of higher or lower grade. On the 
 other hand, if the liability of the editor is coextensive with that of the 
 proprietor, it is not affected or qualified by the circumstance that the 
 publication was made without any personal participation on his part. 
 It has long been the settled rule that when a libel is published in a 
 newspaper the fact alone is sufficient evidence to charge the proprietor 
 with the guilt of its publication, and he is not permitted to show in 
 exculpation that he was not privy nor assenting to, nor encouraging, 
 the publication. Although it may have been published, contrary to his 
 express orders, by a servarjt, if this was in the usual course of the 
 servant's employment, the proprietor is liable. * * * j^ j^^g never 
 been distinctly decided that the liability of the editor is coextensive 
 with that of the proprietor. 
 
 Some of the text-writers indulge in general statements which imply 
 that the liability is coextensive, but the authorities which they cite do 
 not justify the implication. The only carefully considered adjudication 
 upon the point which we have been able to find is Smith v. Utley, 92 
 Wis. 133, 65 N. W. 744, 35 L. R. A. 620, In that case the court de- 
 clared: "That the managing editor of a newspaper is equally liable 
 with the proprietor and publisher for the consequences in a civil ac- 
 tion for the publication of the libelous article ; and this is so whether 
 he knew of the publication or not, for it is his business to know, and 
 mere want of knowledge constitutes no defense." * * * 
 
 Notwithstanding these adjudications, we are not convinced that the 
 editor's liability is commensurate with that of the proprietor. Of 
 course, he is liable equally with the proprietor when he has personally 
 assisted in any rnanner in the preparation, revision, or otherwise of 
 the publication of the libel. There is doubtless a presumption of fact 
 that the managing editor has supervised the contents of the news- 
 paper, and performed the duties of his office in that behalf. So doubt- 
 less when it appears that he has actually done so, the fact that he has 
 omitted to notice some of the contents will not relieve him from the 
 consequences of his participation. But when it appears affirmatively 
 B.& B.Bus.Law— iO 
 
626 AGENCY (Part 2 
 
 that he was not on duty during any part of the time between the recep- 
 tion of the Hbelous matter by the newspaper and the publication, and 
 could not have had any actual part in composing or publishing, we 
 think he cannot be held liable without disregarding the settled rule of 
 law by which no man is bound for the tortious act of another over 
 whom he has not a master's power of control. The action of libel is 
 not based upon neglect of duty,' but is for a positive tort; and there 
 is no reason upon which an editor, any more than any other individual, 
 can be held responsible for such a tort when it appears that he was 
 actually innocent of all complicity in it. * * * 
 
 The owner of the newspaper is liable for whatever may be published 
 in it, because all those who are engaged in preparing and publishing it 
 are his servants, and the publication is an act within the scope of their 
 employment. It is therefore deemed the act of the owner himself, and, 
 although done without his knowledge, or contrary to his express in- 
 structions, he must bear the consequences. The same principle ap- 
 plies to every tort committed by a servant in the course of his em- 
 ployment, whether it is a mere neglect or a tort of a willful and mali- 
 cious quality. The editor, however, exercises a delegated authority 
 for the owner, and consequently is but an agent of the owner, even 
 though he be the editor in chief. His subordinates are not his agents 
 or servants, because the power to select them and discharge them be- 
 longs to the owner, and they are not under his control when that 
 power resides in a higher agent, notwithstanding he is permitted to 
 control them when the owner does not see fit to intervene. It is im- 
 possible to differentiate the relation of an editor and proprietor from 
 that of an agent and principal. We conclude that the trial judge cor- 
 rectly ruled that the defendant was not liable for the act of his sub- 
 ordinate under the circumstances of this case. * * * 
 
 RAT COUNTY SAVINGS BANK v. HUTTON. 
 (Supreme Court of Missouri, 1909. 224 Mo. 42, 123 S. W. 47.) 
 
 L,AMM, J. Suit for fraud and deceit. Defendant was vice president 
 of a corporation known as ''Strahorn-Hutton-Evans Commission Com- 
 pany." It will be called the "company." Plaintiff will be called the 
 "bank." The bqnk bought at a discount from the company a note 
 known as the "Huntley note," for which it paid $5,856.49. Failing 
 to collect from the, payors or the indorser (the company), the bank 
 sues to recover that sum from defendant. A jury being waived, the 
 court gave judgment for $6,882.07, filing the following memoran- 
 dum : "While a decision for the plaintiff in this case must necessarily 
 result in great hardship to the defendant, yet it is the duty of the court 
 to declare the law as announced by the Supreme Court of the state, 
 and under the facts and the law as thus declared the judgment must 
 be for the plaintiff." From that judgment, defendant appeals. 
 
 The pith of the petition is that the bank was doing a general bank- 
 ing business at Richmond ; that the company had an office in Kansas 
 City, Kan., under the control of defendant, one of its executive offi- 
 cers; that the company on May 26, 1903, "was in a failing condition, 
 all of which was well known to said T. S. Hutton" ; that in Septem- 
 ber, 1901, William M. and Kate Huntley were the owners of 1,180 
 head of cattle ranging near Rush Springs, Ind. T., and executed a 
 
Ch. 5) RELATIONS OF THE AGENT AND THIRD PERSONS 627 
 
 chattel mortgage on them to secure to the company their notes ag- 
 gregating about $20,000 ; that subsequently such shipments were made 
 
 of said cattle to the company that "on the day of December, 
 
 1902" the cattle were reduced to 545 head; that on said day in De- 
 cember the company took possession of said remnant and sold them 
 to one Peery, who, in turn, executed a chattel mortgage on certain 
 cattle, including said remnant, to secure his note to the company for 
 $12,041.65; that all security was thereby withdrawn from the Hunt- 
 ley chattel mortgage; that the Huntleys were then and are now in- 
 solvent; that afterwards, on the 29th of April, 1903, said company 
 "by direction of the defendant, well knowing that the security orig- 
 inally giVen by the chattel mortgage * * * was no longer avail- 
 able and had been exhausted either by sale, death, theft, or by stray- 
 ing of cattle away, and with intent to cheat and defraud, did procure 
 from William M. Huntley, acting for himself and as agent for Kate 
 Huntley, their certain promissory note" a renev/al note ; that "defend- 
 ant, for the purpose of selling said renewal note to plaintiff, falsely 
 and fraudulently represented * * * that said note was secured on 
 1,180 head of cattle" by its form of chattel mortgage, "and falsely 
 and fraudulently pretended that said cattle were then at or near Rush 
 Springs, Ind. T., and subject to said mortgage, all uf which was un- 
 true." These false and fraudulent representatibns are alleged to have 
 been made by a letter of date May 26, 1903. The recitals in the note 
 are then set forth ; one of them being : "That this note is given in re- 
 newal of unpaid indebtedness, secured by a chattel mortgage on 1,180 
 head of cattle, given by (Kate Huntley, by W. M. Huntley, agent, 
 and W. M. Huntley) to Strahorn-Hutton-Evans Commission Com- 
 pany, date September 21, 1902, filed for record at Ardmore, I. Ty., on 
 27th day of September, 1901." In connection with that recital in 
 the note inclosed with defendant's letter, it is charged * * * that 
 the letter states as follows : "You will note that all these are renew- 
 als except one note, for which ample provision is made in our form 
 of mortgage, and all this paper will be met promptly at its maturity."' 
 It is next charged that by such statement in said letter "defendant 
 fraudulently intended to cause plaintiff to believe and did cause plain- 
 tiff to believe that said note was a renewal of unpaid indebtedness" se- 
 cured on the 1,180 cattle, as recited in said note. It is next alleged 
 that the bank relied on such fraudulent and false representations, pre- 
 tenses, and statements contained in said note "and set forth in said 
 letter," and, believing the same to be true, bought said note "at the 
 request of defendant and at his request paid" said sum therefor; 
 that shortly thereafter the company "proved to be insolvent, and was 
 at the time of said purchase and now is insolvent, which fact was and; 
 is well known to defendant." The answer was a general denial. 
 * * * 
 
 If Hutton is liable, it is on the wording of his letter of May 26, 
 1903, as vice president, and not because of any other specification 
 of fraud in the petition. 
 
 There is a promise in that letter to the effect that all the paper 
 inclosed for discount would be met promptly at maturity. Something 
 is made of that phrase by respondent's counsel. It is suggested as an 
 element in the fraud, or, if not an element, at least a bit of color paint- 
 ing the fraud a darker hue. But we know of no principle of law mak^ 
 ing a promise to pay a debt when due or an assertion that a debt will 
 
628 AGENCY (Part 2 
 
 be paid promptly when due an actionable element in fraud. Frauds, 
 either in civil or criminal law, are not based on prognostications. Who 
 may know what a day will bring forth ? No man stands condemned in 
 the law because hope springs in his breast, or because out of the full- 
 ness of his heart his mouth speaketh in that regard. Therefore the 
 law does not interdict prophesying the expression of sanguine business 
 hopes and beliefs in events to come. The suggestion in hand comes 
 with ill grace from the plaintiff. It jauntily took gainful chances, rest- 
 ing in futuro, somewhat on the very edge of conservative banking; 
 for it not only dealt in cattle paper, but in a sense it dealt in paper cat- 
 tle — "sight unseen" — cattle roaming in unknown far-away pastures, 
 purporting to be owned by men unknown to the bank. Prelirhinary to 
 investing it clapped an eye on no hoof of cattle, but its course of deal- 
 ing with the company must be held to have rested largely on the rela- 
 tion of indorser and indorsee. It took paper expecting the indorser 
 would protect it in the first instance at least. * * * 
 
 Finally, we come to this proposition : Is defendant personally liable 
 because of the statement in the letter that, "You will note that all 
 these are renewals except one note, for which ample provision is made 
 in our form of mortgage" ? Counsel argue that taking that statement 
 in the letter in connection with the narration in the Huntley note in- 
 closed a case is made. We do not think so. This because: (a) The 
 petition counts on fraud and deceit. In that form of action the scien- 
 ter is an indispensable element. The petition therefore alleges guilty 
 knowledge in Hutton — ^knowledge that the narrations in the Huntley 
 note were false — and an averment is made that his letter of May 25th, 
 1903, was intended to make and did make those false narrations ef- 
 fective. As we have seen there was an utter failure of proof on the 
 scienter strictly speaking, (b) But counsel say (and this proposition 
 may be conceded to them) that there may be such recklessness in stat- 
 ing facts as takes the place of actual guilty knowledge, stands as and 
 for a technical scienter, and amounts to fraud and deceit. In this be- 
 half they argue that the narrations in the Huntley note, coupled with 
 the statement in the letter, amount to an assertion that the enclosed 
 note was actually secured by 1,180 cattle at the very time, and that, 
 conceding Hutton was ignorant of the facts, yet his statement of fact, 
 as a fact, being itself false, amounts to proof of the allegation that he 
 "falsely and fraudulently represented the said note was secured on 1,- 
 180 head of cattle," and "falsely and fraudulently pretended that said 
 cattle were then at or near Rush Springs, Ind. T., and subject to said 
 mortgage." 
 
 Attending to this view of the case, what does the letter itself say? 
 The alleged poisonous words are : "You will note that all these are 
 renewals, except one note, for which ample provision is made in our 
 form of mortgage." As a preliminary remark, it is proper to say that 
 we should solve all doubts in favor of good faith, and not wring a 
 fraudulent meaning from the words by enlarging the meaning by an 
 interpretation either too loose or too bland. Now, the notes inclosed 
 in the letter, save one, were "renewals." Hence there was neither 
 false suggestion nor suppressio veri in using that term. The words 
 "for which" refer back to the word "renewals." Hence those words 
 may, v/ithout alteration in sense, be amplified into "for which re- 
 newals." What kind of provision was made? The answer is: "Am- 
 ple provision." Where was ample provision made? The answer is: 
 
Ch. 5) RELATIONS OF THE AGENT AND THIRD PERSON'S 629 
 
 "In our form of mortgage." What does "provision" mean except a 
 clause contractual in character or dealing with the subject-matter (i. 
 e., renewals) ? In the connection it is used, "ample" means full, com- 
 plete, sufficient. So that on just analysis the language of the letter 
 must be held to mean: "All these notes (save one) are renewal notes, 
 for which renewals there is a full mortgage clause or provision inserted 
 in the form of chattel mortgages used by this company" — which is no 
 more and no less than to say that the company's form of mortgage is 
 so written as to contemplate and provide for renewal notes. The sum 
 of it all being as said, we find the record discloses that the mortgage 
 had such provision. Therefore, taken by or large, the language com- 
 plained of in the letter was literally true. As we have seen, then, the 
 words of the letter do not import that the very note inclosed was at 
 the very time the note was sent in to the bank secured on 1,180 head 
 of cattle at or near Rush Springs, I.- T., and subject to the mortgage, 
 as alleged in the petition and as argued here. 
 
 But learned counsel for respondent argue, as said, that the narra- 
 tions of the letter must be read in connection with the narrations of 
 the inclosed Huntley note, and that, read together, they assert that 
 the Huntley renewal note was secured b^ that number of cattle then 
 at the above point in the Indian Territory and subject to the mortgage. 
 The first question to settle in this view of the case is whether the 
 representation made by the Huntleys in their note is a representation 
 by Hutton. Is it the law that when' the president of a bank signs a let- 
 ter prepared, say, by the cashier, and incloses in the letter a bundle 
 of instruments or documents furnished by the cashier to be sent as 
 an inclosure with the letter, that the president makes all the recitations 
 in these documents and instruments his own by merely inclosing them 
 with his letter? And this, too, to fasten actual fraud upon him? If 
 we take that view of it, an agent of a corporation assumes a liability 
 and responsibility hitherto unhinted at and undreamed of in the phi- 
 losophy of the law. We deem the proposition unsound on its face ; for 
 the law must comport with reason. To know the law one must know 
 the reason of the law, and what says our Lord Coke? "He who 
 knoweth the law, and knoweth not the reason thereof, soon forgetteth 
 his superfluous learning." * * * If we were to hold (which we 
 shall not, in this form of action counting on actual fraud) that Hutton 
 was charged with notice of what the books showed had become of the 
 whole 1,180 cattle, yet that does not fasten such recklessness upon him 
 as would amount to proof of the scienter and therefore of fraud. It 
 would be a novel proposition in ethics and a most anxious and vexing 
 precedent in commercial law to hold that Hutton, ignorant of the facts 
 and innocent of wrongful intention, could be held so reckless as to be 
 guilty of fraud in stating what he personally did not know to be true, 
 when, in the usual course of the company's business, a trusted employee 
 (presumably familiar with all the facts) prepared a statement for him 
 to sign and which he did sign in good faith relying on such employee. 
 
 We shall not swell this opinion by extended excerpts from decided 
 cases, but content ourselves with quoting from the syllabus of a lead- 
 ing case decided in the House of L,ords, and which, as pointed out 
 bv learned counsel, met the approval of this court in Bank v. Byers, 
 139 Mo. 653, 41 S. W. 32.S. The case referred to is Derry et al. v. 
 Peek, 14 App. Cas. (L. Rep.) 337. The syllabi correctly formulate the 
 propositions ruled and are apposite and lucid statements of acceptable 
 
630 ■ AGENCY (Part 2 
 
 law — in part reading as follows : "In an action of deceit the plaintiff 
 must prove actual fraud. Fraud is proved when it is shown that a 
 false representation has been made knowingly, or without belief in 
 its truth, or recklessly, without caring_ whether it be true or false. A 
 false statement, made through carelessness and without reasonable 
 ground for believing it to be true, may be evidence of fraud, but it 
 does not necessarily amount to fraud. Such a statement, if made in 
 the honest belief that it is true, is not fraudulent, and does not render 
 the person making it liable to an action of deceit." The doctrine of 
 the Derry Case accords with the doctrines of this court. * * * And, 
 applying that doctrine to the facts here, we must acquit defendant of 
 actual fraud or of such recklessness in statement as supplies proof of 
 the scienter and amount to such fraud. Says Bleckley, J., in Hull 
 V. Myers, 90 Ga. 677, 16 S. E. 654 : "Good sense, good morality, and 
 good law are one and the same so long as they are not sundered vio- 
 lently by legislation or ignorantly by judicial error." And in our opin- 
 ion it is good sense, good morality, and good law to rule as announced. 
 It is settled law that an agent, such as Hutton was, is not liable to 
 third persons for mere negligence in nonfeasance. In such cases the 
 rule is: Let the master answer (respondeat superior). But no agent 
 masquerading under the cloak of a corporate name may escape lia- 
 bility for an actual fraud working an injury to a third person. The 
 general rule is that in matters ex contractu a third person dealing with 
 the known agent of another, whether that other be a person or a cor- 
 poration is deemed to deal (not on the credit of the agent, but) on 
 that of the principal. If that rule does not obtain iff a given case, it 
 is because fraud avoids the rule, and thereby the door to liability 
 swings wide open to an action ex delicto. Now, fraud is commonly 
 deeply hid away. Often it can only be got at by inference. It is 
 scarcely ever proved by admissions ; for it blows no trumpet. One 
 cannot put his finger on it and say, "L,o, here it is !"" or "There it 
 is!" — palpable to the touch. But' it is got at by following its tracks 
 from results back to the inception of the affair or from the inception 
 of the affair forward to results. Nevetheless actual fraud is malevo- 
 lent and willful act. The difficulty of proving it does not dispense with 
 the necessity of the proof. It must not be deduced from mere sus- 
 picion. It is not proved by insinuation and innuendo. It i& never 
 given body and form by mere presumptions. So that, where one of 
 two views are open, as in the case at bar, the- one noble and the other 
 ignoble, courts of justice out of tenderness to humanity will not belittle 
 mankind by taking the ignoble rather than the noble view. Applying 
 that doctrine to this case it is clear the judgment against the defend- 
 ant is wrong. * * * 
 
PART III 
 
 NEGOTIABLE INSTRUMENTS 
 
 Chapter 
 
 Introduction. 
 I. Formal Eequisites. 
 II. Kight of the Holder to Complete, to Sue Upon, and to Negotiate the 
 Instrument. / 
 
 III. Who are Holders in Due Course. 
 
 IV. Eights of the Holder Against the Maker and Acceptor. 
 
 V. Rights of the Holder Against Indorsers and the Drawer, 
 VI. Presentment, Notices of Dishonor, and Protest. 
 VII. Discharge. 
 
 INTRODUCTION 
 
 The commercial world is familiar with a number of instruments 
 of credit, which are usually negotiable : Promissory notes ; bills 
 of exchange; certificates of deposit; corporate bonds; checks; 
 drafts ; trade acceptances ; bank acceptances ; certain types of 
 bills of lading; warehouse receipts, etc. Not all of such instru- 
 ments possess the characteristic of negotiability, but generally 
 such instruments are negotiable. 
 
 All of these instruments may be classified into one of two 
 groups : Notes and bills of exchange.' The distinguishing char- 
 acteristic is that, on a note there are. two parties, the maker and 
 the payee, while on a bill of exchange there are three parties, the 
 drawer, the drawee, and the payee. 
 
 It is important to understand and to keep in mind throughout 
 the study of negotiable instruments the primary pvirpose which is 
 sought to be accomplished by their use. The leading object is to 
 give to certain kinds of obligations, evidenced by a writing, at- 
 tributes and characteristics which will make these instruments 
 perform the function of money. Negotiable instruments are used 
 instead of money. It is absolutely necessary to do so, because 
 there is an insufficient supply of money in the country to supply 
 the needs of business. A comparison of bank clearings with the 
 figtires showing the volume of gold, silver, and paper money in 
 circulation, shows emphatically that a great bulk of business trans- 
 actions is carried through by means of credit instruments. Very 
 few purchases are actually paid for in money. Throughout the 
 study of the law of negotiable instruments we must therefore 
 keep in mind the fact that these instruments are called upon to 
 do the work of money. If that point is noted, it will explain many 
 detailed rules, which otherwise might seem purely arbitrary 
 
 It has been said that negotiable instruments are used in place 
 of money. It is perfectly apparent, of course, that the personal 
 obligation of any individual is not as valuable as gold and silver 
 coin, or the various issues of paper money. The promise of A. 
 to pay a specified sum of money is not as valuable as the promise 
 of the United States government to pay the same amount of mon- 
 B.&B.Bus.Law (631) 
 
632 NEGOTIABLE INSTRUMENTS (Part 3 
 
 ey. The law of negotiable iustruments, does not attempt the im- 
 possible task of making the obligation of a person who signs a 
 note or bill of exchange as valuable as a gold certificate, but there 
 are a great many things which the law can do to induce people 
 to take negotiable instruments instead of money. 
 
 At this point it is well to recall some of the principles of the 
 la\^ of sirnple contracts. We saw in our study of contracts that 
 there are a great many kinds of cases where one person may think 
 that he has a right to recover a sum of money from another per- 
 son, but where the law denies him a right of recovery. . It may be 
 because there was no valid offer in the first place. It may be be- 
 cause there was no acceptance of a valid offer. It may be that 
 there was no consideration to support the promises which result- 
 ed from the acceptance of an offer. It may be that, although in 
 the beginning there was an enforceable contract between the par- 
 ties, the obligor subsequently discharged his obligation by pay- 
 ment or otherwise. We also examined a number of cases where, 
 in the beginning, there was a binding contract, but where the 
 obligee's right to demand performance by the obligor was depend- 
 ent upon the obligee's performing his obligation. In such a case' 
 the obligor's promise was simply conditioned upon the perform- 
 ance of a promise by the obligee. Again, we found cases where 
 the obligee had obtained the promise of the obligor by fraudulent 
 representations. 
 
 With all of these phases of the law in mind, we then took up 
 the study of the assignability of contract rights, and we found 
 that the obligee could, in many instances, but not in others, sell 
 his right to a third party. Such a transaction is called an assign- 
 ment. As a general principle, it appeared that the assignee of 
 such chose in action acquired no rights which were superior to 
 those possessed by his assignor. To put the proposition in other 
 words, we discovered that the obligor, if he had any of the de- 
 fenses, such as want of consideration, failure of consideration, 
 payment, fraud, or prior breach of contract, could, when he was 
 sued by the assignee, set up any of these defenses. The assignee 
 could recover from the obligor only when the assignor could have 
 recovered from the obligor. 
 
 We have now approached a little nearer to the law of negotiable 
 instruments. It is apparent that a business man would not be 
 willing to take the note or check or other bill of exchange from 
 the payee, or from one to whom the payee had sold the instru- 
 ment, if he incurred all of the risk that an assignee of an ordinary 
 chose in action incurs. A business man, if he is taking the obli- 
 gation of a third party whom he does not know, would want to 
 feel at least that there was no question but that that individual 
 owed the amount of money which was called for by the instru- 
 ment. He may be willing to take the risk of that person's sol- 
 vency, but he would like to be free from afl of the ordinary de- 
 fenses which are available in suits on simple contracts. And so 
 
INTRODUCTION 633 
 
 the law of negotiable instruments has taken an entirely different 
 view of the rights of the person who purchases the obligation of 
 a third party. 
 
 The most .fundamental doctrine in the whole law of negotiable 
 instruments is the proposition that the purchaser of a negotiable 
 instrument before it is due, .who has no knowledge of the existence 
 of a defense between the original parties, takes it free from all 
 these defenses. Except in a very few cases, such as forgery of 
 the maker's or drawer's name, the bona fide purchaser before 
 maturity can rest assured that the instrument evidences the un- 
 questioned legal obligation of the parties whose names appear 
 thereon. The only risk the purchaser takes is that the parties are 
 insolvent. The elimination of all these personal defenses goes a 
 long way toward making commercial instruments as valuable as 
 money. Having regard for the enormous volume of business done, 
 the risk of insolvency is relatively small. In this way, therefore, 
 the law has singled out certain kinds of choses in action which we 
 call negotiable instruments, and has given to them attributes 
 which are not common to ordinary choses in action. The effect 
 is to make them much more desirable and valuable than they 
 otherwise would be. There are a great many rules in the law 
 of negotiable instruments, but most of them are subordinate to 
 this one doctrine, or they are the natural outgrowth of its appli- 
 cation to varied situations. 
 
 The above statement explains in general what we mean by the 
 term "negotiable," and we find that in its most important sense 
 the term "negotiable" means the attribute or quality of assign- 
 ability free from equities or defenses. There are two ideas here : 
 First, the idea that the owner of a negotiable instrument has the 
 power to sell it. The second idea brings out the legal effect of 
 such sale, that the purchaser takes it free from the ordinary de- 
 fenses which exist between the original parties. The term "nego- 
 tiable" also carries with it the idea that it is assignable in a par- 
 ticular way, viz. by indorsement, or in some cases by delivery. 
 The law has simply prescribed a number of ways by which an 
 owner may dispossess himself of title and vest that title in an- 
 other. The different methods of indorsement and the legal effect 
 of each will be developed in the cases. It is simply necessary at 
 this point to call to mind the fact that the term "negotiable" car- 
 ries with it the notion that the instrument so described is assign- 
 able by indorsement. 
 
 We shall also come to find out that, when a person brings a suit 
 upon an instrument which is described as negotiable, the law rais- 
 es a presumption that the instrument evidences a then existing 
 legal obligation. The importance of this rule of presumption is 
 that the plaintiff is under no obligation to introduce any evidence 
 to support his right to sue upon the instrument, other than the 
 bare introduction in evidence of the instrument which is the sub- 
 ject of the action. When a person brings an action for breach of 
 
634 KEGOTIABLE INSTEUMBNTS (Part 3 
 
 an ordinary simple contract, the plaintiff is required to introduce 
 affirmative proof that there was an offer, that it was accepted, that 
 there was consideration, that he performed his part of the con- 
 tract, and that the defendant did not perform. In a suit upon a 
 negotiable instrument, the plaintiff, in the first instance, is not 
 required to do this. The plaintiff makes out his case by merely 
 introducing the note in evidence. Eventually, of course, he may 
 be required to introduce testimony to rebut what the defendant 
 has put in the way of defense, but he is not required to do so in 
 the first instance. 
 
 The law of negotiable instruments has had a history somewhat 
 different from' the history of other branches of the law. If we go 
 back to the period of English history from the time of William 
 the Conqueror on down to the beginning of the seventeenth cen- 
 tury, we shall not find in the law of that period anything which 
 resembles what we to-day know as the law of negotiable instru- 
 ments. For reasons not necessary to recount here, the law per- 
 taining to contracts and the methods of enforcing them v/as ap- 
 parently not suitable for the needs of business. And so we find a 
 special branch of law called the Law Merchant. Perhaps it is not 
 correct to speak of it as law at all. We do find a great number 
 of commercial practices, customs, and understandings recognized 
 by merchants of that time, in accordance with which they con- 
 ducted their business. Furthermore, we find that these under- 
 standings were enforced by special courts. These courts were 
 not parts of the judicial system of England, but were special tri- 
 bunals organized and presided over by merchants themselves. Not 
 only do we find these special merchants' courts in England, but also 
 on the continent of Europe. To the customs and practices of the 
 merchants during this early period has been applied the term 
 "Law Merchant." In the Law Merchant we find the roots of the 
 law of negotiable instruments as we know it to-day. The Law 
 Merchant, however, dealt with many matters other than practices 
 concerning bills of exchange, but we are interested in it here only 
 in so far as it is necessary to note the origin of the law of Nego- 
 tiable Instruments. 
 
 From the beginning of the seventeenth century on down until 
 the middle of the eighteenth century, a development in the Law 
 Merchant occurred. The special courts disappeared and we find 
 the common-law courts of England performing the functions 
 theretofore performed by the special courts. The customs of the 
 merchants did not become laws of England. Instead, we find that 
 when one merchant sued another merchant in the common-law 
 courts the parties were allowed to prove that they were mer- 
 chants', and then they were allowed to prove the mercantile cus- 
 tom in accordance with which merchants had theretofore acted. 
 When such customs and rules were proved to exist, the common- 
 law courts would adjudicate the rights of these parties upon the 
 basis of the Law Merchant and not upon the rules of the common 
 
INTRODUCTION 635 
 
 law. Oftentimes to-day the parties to a suit are allowed to prove 
 the existence of a custom, and when so proved the courts will 
 hold that the parties evidently entered into their transaction in the 
 light of this particular custom, and in this way the custom be- 
 comes an effective and binding rule of law, at least, as far as that 
 case is concerned. It was the same with respect to the rules of 
 the Law Merchant during the period of which we are now speak- 
 ing. The parties were allowed to prove the custom and as such 
 it governed the transaction. 
 
 From the time of Lord Mansfield, about the middle of the eight- 
 eenth century, on down, extending over considerable periods of 
 time, a further development in the Law Merchant occurred. In- 
 stead of enforcing mercantile custom merely as a custom, the cus- 
 tom became a binding rule of law. It was due, very largely, to 
 the commanding influence of Lord Mansfield that the customs of 
 merchants were thus incorporated into the great body of the com- 
 mon law. It must not be understood, however, that the customs 
 of the merchants worked their way into the common-law system 
 without change. These customs had to adjust themselves to an 
 already existing legal system. A great many changes were 
 brought about as a result of the introduction of these new rules. 
 From this point, the middle of the eighteenth century, on down 
 until nearly the close of the nineteenth century the development 
 of the law of negotiable instruments was similar to that which 
 occurred in other branches of the law; i. e., by judicial decisions. 
 
 Near the close of the nineteenth century a further development 
 occurred. At this time the law of negotiable instruments, in Eng- 
 land as in the United States, was to be found almost entirely in 
 the decisions of the courts. There were hundreds of such deci- 
 sions. Access to this body of the law was possible only for those 
 who were trained in the methods of finding it. It was therefore 
 thought desirable to collect the rules from the numerous cases and 
 to put them into the form of a statute so that the general prin- 
 ciples of the law might be more readily available. Accordingly a 
 statute was drawn and enacted by the British Parliament in 1882. 
 Shortly after this event the movement for codification of certain 
 branches of the law became an active one in the United States. 
 Under the auspices of the American Bar Association, there was 
 organized the body of Commissioners on Uniform State Laws. 
 This Commission was charged with the duty of ascertaining what 
 branches of the law should be reduced to statutory form and of 
 drafting the acts. It was thought that the enactment, into the 
 form of a statute, of certain portions of the law would bring about 
 substantial uniformity throughout the sejveral states and that 
 there would be some gain in simplicity of statement and in ren- 
 dering the general principles more accessible. One of the first 
 subjects approached by the Commissioners on Uniform State 
 Laws was that of negotiable instruments. Having the model of 
 the English Bills of Exchange Act of 1882 before them an act was 
 
636 NEGOTIABLE INSTRUMENTS (Part 3 
 
 drawn up which was called the Negotiable Instruments Law. 
 The act, finally approved by the Commissioners on Uniform State 
 Laws, was recommended for passage to the several states in 1896. 
 
 At the present time (1921) the act has been adopted in all of the 
 .states of the Union except Georgia. The Negotiable Instruments 
 Law should not, therefore, be thought of as something new, which 
 came into existence at the date of its passage in a particular state. 
 In the main, the rules of law which theretofore existed in judicial 
 decisions were not changed, but were simply restated in statutory 
 form. In a number of instances, however, prior to the act, con- 
 flicts in the decisions had developed on particular points. For 
 example, some states held that if a completed instrument, payable 
 to bearer was stolen before delivery, it would not be a valid con- 
 tract in the hands of an innocent holder. But in other states the 
 courts held that such an instrument could be enforced by the inno- 
 cent holder. Throughout the whole law, wherever conflicts of de- 
 cisions had developed, the Commissioners on Uniform State Laws 
 adopted what in their opinion was the better rule. In a partic- 
 ular state, therefore, the adoption of the Negotiable Instruments 
 Law may have had the effect of changing some existing rules, 
 though perhaps not many. 
 
 The development which is going on to-day is the interpretation 
 of the numerous sections of the act by judicial decisions, and we 
 shall find in our study of the cases that there is still, some con- 
 flict in the decisions of the courts. It is impossible, of course, to 
 have absolute uniformity, because individuals, even courts, will 
 not always attach the same meaning to words and phrases that 
 other individuals and other courts do. The most that can be hoped 
 for is uniformity in general principles and this has been attained 
 to a considerable degree. Nevertheless, for the individual who 
 has a particular lawsuit upon a particular bill or note, it is of con- 
 siderable importance to him to know how the courts of his state 
 will interpret the law with respect to this instrument, and also 
 to know that other courts in other states may decide differently 
 with respect to the same instrument under the same set of facts. 
 
 The study of the law of negotiable instruments is not altogeth- 
 er easy. The first difficulty is a difficulty which is not peculiar to 
 the law of negotiable instruments, viz. the natural inherent diffi- 
 culty in applying language to varying states of fact. For example, 
 when a rule of law states that an instrument to be negotiable must 
 contain an unconditional promise or order to pay a sum certain in 
 money, each word in the definition contains the germ of an infinite 
 number of lawsuits. In ordinary discourse it is not necessary 
 that words be used with technical accuracy at all times, and even 
 if we do not, no great harm results, but whenever a suit is brought 
 upon an instrument, the situation is quite different. In such case 
 the court is called upon to state with considerable exactness what 
 sorts of transactions fall within or without certain specified words, 
 phrases or statements of general principle. 
 
INTRODUCTION 637 
 
 The other difficulty in the study of the law of negotiable in- 
 struments arises from the fact that there are several parties whose 
 names appear on such instruments. Unless one is careful to note 
 the relation of the plaintiff and of the defendant with respect to 
 the paper the case will not be understood. It is very important 
 at the outset, to make certain who the plaintiff is, whether he is 
 maker of a note, drawer of a bill of exchange, drawee or payee or 
 indorser, and, likewise to determine who the defendant is. In this 
 connection it might be well to recall the various parties to nego- 
 tiable paper and the names which are commonly employed to de- 
 scribe them. In a promissory note the promisor is called the 
 meiker. His name will usually appear in the lower right hand cor- 
 ner. The party to whom he owes the money and to whom the 
 instrument was delivered is the payee. His name appears, usually, 
 in the center- of the instrument on the blank line there provided. 
 When the payee sells the instrument to a third party, the payee 
 generally must indorse the instrument. The payee by such act 
 dos not cease to be a payee, but in addition he becomes an in- 
 dorser. The party to whom he sold the note is then called an in- 
 dorsee. On the face of a bill of exchange there are always three 
 parties. The person who draws it, that is the person who issues 
 the order to another to pay money for him, is called the drawer. 
 The person who was ordered by the drawer to pay money for the 
 drawer is called the drawee. The drawer's name usually appears 
 in the lower right hand corner, the drawee's name sometimes ap- 
 pears in the lower left hand corner, sometimes at the top of the 
 instrument. The party to whom the instrument is made payable, 
 is called the payee. Sometimes a bill of exchange is drawn not 
 for immediate payment but for acceptance, the time of payment 
 being postponed. In such a case as this, the person upon whom 
 the bill has been drawn is called the drawee, at least he is so 
 called until the time he agrees in due form to pay the bill. After 
 that time the drawee becomes an acceptor. The acceptor of a bill 
 of exchange occupies the same position with respect to the in- 
 strument that is occupied by the maker of a note. We are deal- 
 ing therefore, with makers of notes, jpayees of notes and payees 
 of bills of exchange, indorsers of notes, indorsers of bills of ex- 
 change, indorsees of notes, indorsees of bills of exchange, and, 
 drawers and drawees of bills of exchange. 
 
 It appears, therefore, that, in the main, the law of negotiable 
 instruments is a part of the general law of contracts. The larger 
 problems in this branch of the law, Are to determine, in the light 
 of the uses to which negotiable instruments are put: (1) What 
 kinds of instruments may properly be called negotiable ; (2) what 
 are the rights and liabilities of the parties to negotiable instru- 
 ments in the various situations which may be presented. The first 
 chapter is devoted to the first question, the remaining chapters 
 are concerned with the second. 
 
>638 NEGOTIABLE INSTRUMENTS (Part 3 
 
 «' CHAPTER I 
 
 FORMAL REQUISITES 
 
 Section 
 
 1. Introduction. 
 
 2. Writing and Signature. 
 
 3. Necessity for a ■ Promise or Order. 
 
 4. The -Promise or Order Must be Unconditional, 
 
 5. Time of Payment Must be Certain. 
 
 6. The Instrument Must be Payable in Money. 
 
 7. The Sum to be Paid Must be Certain. 
 
 8. The Instrument Must be Payable to Order or Bearer. 
 
 9. Provisions Not AfEecting Negotiability. 
 
 10. Designation of Parties to Negotiable Instruments. 
 
 11. Date of the Instrument. 
 
 12. Interpretation of Ambiguous Instruments. 
 
 13. Consideration. 
 
 14. Delivery. 
 
 SECTION 1.— INTRODUCTION 
 
 We have already noted that negotiable instruments possess 
 •certain characteristics which do not attach to ordinary claims for 
 money. The purchaser of such an instrument may acquire rights 
 -against the maker, acceptor, or indorsers which were not pos- 
 sessed by the seller. It is perfectly clear, therefore, that if the ne- 
 gotiable instrument creates rights fundamentally different from 
 the rights created by non-negotiable claims the law must define 
 with considerable exactness what kinds of claims are to be treated 
 .-as negotiable. This point deserves considerable emphasis. It is 
 the function of the courts and legislatures to draw the line be- 
 tween negotiable contracts and non-negotiable contracts so dis- 
 tinctly that one will be able to note the fact at a glance. Of course 
 this is an ideal not capable of actual realization but nevertheless 
 the law attempts to draw the line sharply and distinctly. The 
 twilight zone between negotiable and non-negotiable instruments 
 must be made as narrow as possible. 
 
 As far as the general definition of a negotiable instrument is con- 
 cerned, it is simple; but the application of the general principles 
 to varied states of fact causes considerable difficulty. It makes 
 a great deal of difference to the parties whether the instrument is 
 -negotiable or not. If the instrument is non-negotiable, defenses 
 available to the maker may be successfully interposed against the 
 purchaser from the original payee. 
 
 There is a natural tendency to think that any instrument is ne- 
 gotiable if it appears that the parties have made use of some print- 
 ed form of a note, check, or other bill of exchange. Perhaps most 
 of such forms are negotiable, but many of them are not. On the 
 other hand, one may execute and deliver a negotiable instrument 
 and not know that one is doing so. A debtor, in writing a letter 
 to his creditor, may inadvertently, perhaps, employ the language 
 
Ch. 1) FORMAL REQUISITES 639' 
 
 which converts his letter into a negotiable instrument. Some- 
 times documents of considerable length are made use of in con- 
 nection with some business transaction which at first sight ap- 
 pear to be simple contracts but there may be contained therein 
 the necessary language to make the instrument negotiable. 
 
 What, then, is the definition of a negotiable instrument? To 
 put the question in other words: What language must appear 
 on the instrument if it is to have the characteristics of negotia- 
 bility? What language must not be inserted in the instrument? 
 What language may be incorporated therein without affecting ne- 
 gotiability? The answers to these questions will not be taken up 
 in just this order, but the sections of the Negotiable Instruments 
 lyaw and the cases following may be looked at from these three 
 points of view. The specific requirements of negotiability repre- 
 sent attempts to carry out into details the broad requisite of cer- 
 tainty. 
 
 SECTION 2.— WRITING AND SIGNATURE 
 
 The Negotiable Instruments Law provides: 
 
 Section 1, subsec. 1. That an instrument to be negotiable must 
 be in writing and signed by the maker or drawer. 
 
 Section 132. The acceptance must be in writing and signed by 
 the drayvee. 
 
 Obviously there must be such a requirement as that here speci- 
 fied. May the writing be in pencil, or by rubber stamp? It has 
 been held that'such is a writing. What is a signature? The sign- 
 ing of one's name, yes. But what is his name? Suppose a man 
 by the name of John Smith signs a note with the name George 
 Edwards. May John Smith be sued? Yes, because, for the pur- 
 pose of this instrument, his signature is that of George Edwards. 
 Suppose John Smith signs, in the space provided for the signa- 
 ture, the number 123; is John Smith bound? Other cases may be 
 presented, but such questions rarely arise. Does the word "sig- 
 nature" carry with it the requirement that it shall appear in any 
 particular place, such as the lower right-hand corner? If he signs 
 his name at the top, or on the back, has he signed the instrument? 
 
 SECTION 3.— NECESSITY FOR A PROMISE OR ORDER 
 
 N. I. L., Section 1, subsec. 2. An instrument to be negotiable 
 must contain * * * a promise or order. 
 
 What is a promise? What is an order? A debtor hands to his 
 creditor a paper bearing his signature on which is written "I owe 
 you, A. B., $100." Is this a promise? No; because the debtor has 
 simply acknowledged that he owes a debt but he has not prom- 
 ised to pay it. Suppose the instrument read: "I owe you, A. B., 
 $100, due on demand." Is this a promise? The debtor has not 
 
640 NEGOTIABLE INSTRUMENTS (Part 3 
 
 used the -yvord "promise;" but has he not used language the equiva-' 
 lent of the word "promise"? Probably so, because the words "due 
 on demand" carry with them by implication the meaning that if 
 the creditor does demand, the debtor will pay ; therefore, the debtor 
 has promised. What is the principle involved? Suppose an in- 
 strument contains these words: "Please let the bearer have 
 $100." Is this an order? Hardly; it is more like a request for 
 a loan of money. "Please pay A. $100." Is this an order ? Yes ; 
 because the word "pay" is imperative and it is an order although 
 modified by the use of respectful language. 
 
 SECTION 4.— THE PROMISE OR ORDER MUST BE 
 UNCONDITIONAIv 
 
 We come now to one of the most important and at the same time 
 one of the troublesome questions connected with our study of 
 formal requirements of negotiable instruments. When is a promise 
 or order unconditional? Before the enactment of the Negotiable 
 Instruments Law, the courts were confronted with this question 
 with considerable frequency. The Negotiable Instruments Law 
 attempted a definition, and it will be our purpose in the cases 
 which follow to discover what promises have been held to be con- 
 ditional and 'what promises are regarded by the courts as uncondi- 
 tional. The sections of the Negotiable Instruments Law bearing 
 on this question are as follows : 
 
 Section 1, subsec. 2. An instrument to be negotiable must 
 contain an unconditional promise or order to pay a sum certain in 
 money. 
 
 Section 3. An unqualified order or promise to pay is uncondi- 
 tional within the meaning of this Act though coupled with: (1) 
 An indication of a particular fund out of which reimbursement is 
 to be made, or a particular account to be debited with the amount ; 
 or (2) a statement of the transaction which gives rise to the in- 
 strument. But an order or promise to pay out of a particular fund 
 is not unconditional. 
 
 It will be noticed that Section 3 does not lay down rules sep- 
 arate and distinct from the rule of Section 1, subsection 2. Section 
 3 merely defines more particularly what constitutes a conditional 
 promise or order under certain circumstances. 
 
 FIRST NAT. BAXK v. LIGHTNER. 
 
 (Supreme Court of Kansas, 190r>. 74 Kan. 736, 88 Pac. 59 8 L R A 
 [N. S.] 231, 118 Am. St. Rep. 353, 11 Ann. Cas. 596.) " ' ' 
 
 The First National Bank of Hutchinson brought this action against 
 George W. Lightner on a check and an order, of which the latter reads 
 as follows: 
 
Ch. 1) FORMAL REQUISITES 641 
 
 "Hutchinson, Kansas, Aug. 10, 1903. 
 "G. W. Ughtner, Oflferle, Kansas — Dear Sir: Pay to the order 
 of the First National Bank of Hutchinson, Kansas, on account of con- 
 tract between you and the Snyder Planing Mill Co. $1,500. 
 
 "The Snyder Planing Mill Co., 
 
 "Per J. F. Donnell, Treas. 
 "Accepted. G. W. I^ightner." 
 
 Defendant contended that said orders were rionnegotiable, and were 
 subject to the same defenses in the hands of the First National Bank 
 of Hutchinson, Kan., as if they had remained in the hands of the 
 Stiyder Planing Mill Company. 
 
 Porter, J. The main controversy is whether the orders given by 
 the planing mill company to the bank, and accepted by defendant, are 
 negotiable instruments. * * * Each of them, therefore, possesses 
 all the essential elements of a bill of exchange unless the words quoted 
 make them payable out of a particular fund and conditionally so that 
 the acceptance is thereby qualified. The law is well settled that a bill 
 or note is not negotiable if made payable out of a particular fund. 
 * * * But a distinction is recognized where the instrument is simply 
 chargeable to a particular account. In such a case it is beyond ques- 
 tion negotiable; payment is not made to depend upon the sufficiency 
 of the fund mentioned, and it is mentioned only for the purpose of in- 
 forming the drawee as to his means of reimbursement. * * * 
 
 The test in every case is' said to be : "Does the instrument carry 
 the general personal credit of the drawer or maker, or only the credit 
 of a particular fund ?" * * * A promise to pay a certain sum "out 
 of my next quarter's mail pay, which becomes due January 1, 1883," 
 was held in Nichols v. Ruggles, 76 Me. 25, to be an absolute promise 
 to pay a certain sum of money. In Haussoullier v. Hartsinck, 7 T. 
 R. (Durnford & East), 733, it was held that an instrument promising 
 to pay a certain sum "being a portion of a value, as under deposit in 
 security for the payment hereof," was a promissory note payable at 
 all events. In Pierson v. Dunlop, 2 Cowp. 571, an order which was 
 to be charged "to freight" was held negotiable. A note expressed to 
 be in payment of certain tracts of land was held negotiable. Bank v. 
 Michael, 96 N. C. 53, 1 S. E. 855. Likewise a note which stated that 
 it was given in consideration of certain personal property, the title of 
 which was not to pass unless the note was paid. Chicago Railway 
 Co. V. Merchants' Bank, 136 U. S. 268, 10 Sup. Ct. 999, 34 L. Ed. 
 349. * * * In Corbett v. Clark and another, 45 Wis. 403, 30 Am. 
 Rep. 763, an order to pay a certain sum "and take the same out of 
 our share of the grain," referring to grain harvested or growing on 
 certain farms, accepted by the drawee, was said to be a valid bill of 
 exchange, and the order and acceptance absolute, the words above 
 quoted merely indicating the means of disbursement. In Redman v. 
 Adams, 51 Me. 429, a bill directing the drawee to charge the amount 
 against the drawer's . share of fish caught on a certain schooner is 
 held valid and negotiable. One of the leading cases is Macleed v. 
 Snee, 2 Strange, 765. There a bill of exchange was dated May 25th 
 for the payment of a certain sum one month after date, "as my quar- 
 terly half-pay to be due from 24th of June to 27th of September next, 
 by advance." This was held a negotiable bill of exchange. In Spur- 
 gin V. McPheeters, 42 Ind. 527, an instrument in the following form 
 B.& B.Bus.Law— 11 
 
642 NEGOTIABLE INSTRUMENTS (Part 3 
 
 was said to possess all the requisites of a bill of exchange : "Green- 
 castle, Ind., Aug. 22d, 1870. Mr. D. M. Spurgin— Sir, please pay to 
 Jesse McPheeters, or order, the sum of one hundred and nineteen 
 dollars on said bill of 1% in. lumber, and oblige the firm of Geo. W. 
 Hinton & Co." 
 
 In Whitney v. Eliot National Bank, 137 Mass. 351, 50 Am. Rep. 
 316, the drafts or bills of exchange were in the ordinary form except 
 that they contained the direction to "charge the same to account of 
 250 bbls. meal ex schooner Aurora Borealis." The court said : "This 
 direction to charge the amount of the bills to a particular account, 
 we think, does not make them payable conditionally, or out of a par- 
 ticular fund ; they are still payable absolutely, and are negotiable, and 
 do not constitute an assignment of a particular fund, or of a part of 
 a particular fund. * * * " 
 
 Our negotiable instrument law * * * jg merely declaratory of 
 the common law upon the subject. * * * Plaintiff and defendant 
 agree upon the abstract proposition of law involved in the contro- 
 versy. Counsel for defendant concedes that an instrument, negotia- 
 ble in itself, is not changed in character, or rendered nonnegotiable 
 "by a recital of the consideration or a direction as to how the drawee 
 shall reimburse himself" ; but insists that the insertion of the words 
 "on account of" has the same effect as the words "out ef the proceeds 
 of." The controversy is thus narrowed down to whether the words 
 "on account of contract between you and the Snyder Planing Mill Co." 
 amount to a direction to pay out of a particular fund, or, on the other 
 hand, are to be considered as simply indicating the fund from which 
 the drawee, L,ightner, might reimburse himself. Many of the cases at- 
 tach but little importance to the words "account of,'' and give the same 
 effect to them as to the words "out of." 7 Cyc. 579. * * * We are 
 of the opinion that these orders cannot be construed as drawn upon 
 a particular fund. Beyond question, there are many authorities which 
 hold similar expressions to indicate an intention to charge a particular 
 fund. * * * Averett's Adm'r v. Booker, 15 Grat. (Va.) 163, 76 
 Am. Dec. 203; Rice v. Porter's Adm'rs, 16 N. J. Law, 440; 7 Cyc. 
 578 (b). 
 
 The weight of authority and reason supports the proposition that 
 the words amount to no more than an indication of the fund from 
 which the drawee is to reimburse himself. The words used are sub- 
 stantially the same as though the orders read "and charge to account 
 of^ contract with Snyder Planing Mill Company," or "credit to ac- 
 count of contract," etc. * * * 
 
 In our view they were negotiable and the language, moreover, not 
 even ambiguous. It follows that defendant was not entitled to recoup 
 his damages for the failure to complete the barn ; and the findings of 
 the court, therefore, require a judgment for plaintiff for the amount 
 due upon the order. 
 
 NATIONAL BANK OF NEWBURY v. WENTWORTH. 
 (Supreme Judicial Court of Massachusetts, 1914. 218 Mass. 30, 105 N. B. 626.) 
 BralEy, J. * * * The plaintiff bank is the indoi'see, and the 
 presiding judge was warranted upon the evidence in finding that it is 
 a holder in due course unless the words written by the defendant on 
 the face of each note, "value received as per contract," make his 
 
Ch. 1) FORMAL REQUISITES 643 
 
 promise as maker conditional, upon tlie performance by the payee of 
 the preceding contract between them appearing in the record, for 
 the sale and shipment of lumber. * * * u the words had been, 
 "subject to the contract for lumber," or even "subject to the contract," 
 the principle invoked would have been applicable. The notes would 
 not have been the defendant's unconditional promise to pay a definite 
 sum. * * * 
 
 But while the defendant doubtless intended to guard against the 
 payment of money for which in the future he did not receive an equiv- 
 alent, * * * the language used does not affect the payment of the 
 amounts shown by the notes. By their position, the words well might 
 lead the plaintiff who is not charged with actual notice to understand 
 that they were not to be disconnected and applied to an independent 
 outstanding agreement by which the promise was to be modified or 
 restricted, but they referred solely to the consideration for which the 
 notes were given. * *- * \\[q are unable consequently to distin- 
 guish the case at bar from Taylor v. Curry, 109 Mass. 36, 12 Am. 
 Rep. 661, where the phrase relied on to destroy negotiability was, "for 
 value received on policy No. 33,386." It was said by Mr. Chief Jus- 
 tice Chapman in delivering the opinion of the court: "The words 
 * * * do not express any contingency as to the payment of the 
 notes, or refer to any fund out of which they are to be paid, but a.p- 
 pear to refer to the consideration for which they are given. Such a 
 reference may be for mere convenience, or for any other reason, but it 
 cannot be interpreted as a modification of the promise." * * * 
 
 By the terms of the report judgment is to be entered for the plaintiff 
 for the amount of each note with interest from maturity, and costs. 
 
 FIRST NAT. BANK OF SNOHOMISH v. SULLIVAN et al. 
 
 (Supreme Court of Washington, 3911. 66 Wash. 375, 119 Pac. 820, 
 Ann. Gas. 1913C, 930.) 
 
 Ellis, J. * * * The only question presented for our consid- 
 eration is that of the negotiability or nonnegotiability of the note. 
 * * * The note here in question obviously conforms to this defini- 
 tion, unless it is made conditional as to amount or uncertain as to 
 time by the following sentence: "This note is given to take up the 
 freight and rehandling of N. P. car 43607 and proceeds from resale of 1 
 said car shall apply on this note." It is clear that the note, exclusive 
 of this sentence, is not obnoxious to the definition in either of these ' 
 particulars. * * * They do not stipulate either expressly or by 
 any implication, necessary or otherwise, that the note shall be payable 
 only out of the proceeds, of the resale of the car of shingles. Nor do 
 they make the payment contingent upon or subject to a resale. There 
 is no provision that demand shall be postponed to a resale. This note 
 like every other written instrument must be construed as a whole so 
 as' to give effect to every part of it if possible. This can only be done 
 by holding the whole amount due and payable on demand, and that the 
 proceeds of the sale of the shingles in case of a resale before demand 
 .shall be applied on the amount, but, in case of resale after demand, 
 the proceeds shall go to reimburse pro tanto the makers of the note. 
 This gives eft'ect to every word in the note, and makes it an absolute 
 
644 NEGOTIABLE INSTRUMENTS (Part 3 
 
 promise to pay on demand with the designation of a fund to reim- 
 burse the maker for such payment. * * * 
 
 The third section of the negotiable instrument act * * * defines 
 an unconditional promise as follows : "An unqualified order or promise 
 to pay is unconditional within the meaning of this act, though coupled 
 with (1) an indication of a particular fund out of which reimburse- 
 ment is to be made, or a particular account to be debited with the 
 amount ; or (2) a statement of the transaction which gives rise to the 
 instrument. But an order or promise to pay only out of a particular 
 fund is not unconditional." This section is held but declaratory of the 
 common law. * * * 
 
 The reference to the consideration of the note and the direction to 
 apply the proceeds of the resale of the shingles thereon must therefore 
 be construed in the same manner, and^asHaving the same effect as un- 
 der the law merchant at common law. The true test in every case is 
 and was at common law, Does the general credit of the maker accom- 
 pany the instrument? If it does, the note is negotiable; otherwise it 
 is not. * * * In an early case, HaussouUier v. Hartsiijck, 7 Durn- 
 ford & East's Reports, p. 733, decided by the Court of King's Bench 
 in 1798, the note read as follows : "No. 300. Original Security Bank 
 London No. 300. 35 Cornhill. This 7th day of September 1797. £25. 
 On the 19th day of November next and after that date on demand 
 
 we promise to pay to or bearer £25, being a portion of a value 
 
 as under deposited in security for the payment hereof, according to the 
 receipt in our hands. Hartsinck and Co." The ground of defense 
 was the same as here, and is reported as follows : "'That the notes were 
 not payable at all events, but payable out of a particular fund alluded 
 to in the notes, in case that fund should be sufficient. That the sum 
 secured by one of them was described as 'a portion of a value as,' etc., 
 in terms pointing out the fund out of which it was to be paid. That 
 the payee was, of course, to resort to that fund, and not to the makers 
 at all events." "But," continues the report; "the court said they were 
 clearly of opinion that, though as between the original parties to the 
 transaction the payment of the notes was to be carried to a particular 
 amount, the defendants were liable on these notes which were payable 
 at all events." 
 
 It cannot fail to be noted that the language used in the note in 
 that case was much more capable of the construction contended for 
 than that of the note before us. In Walker v. Woolen, 54 Ind. 164, 
 23 Am. Rep. 639, a note reading "six months after date, or before, if 
 made out of the sale of Drake's horse hay-fork and hay carrier, I 
 promise to pay," etc., was held to be an absolute proniise to pay, and 
 the note was held negotiable. * * * The negotiability of notes and 
 drafts is favored in law, and, whenever the promise can be held un- 
 conditional without doing violence to the ordinary meaning of the lan- 
 guage used, it will be so held. * * * Following the decisive trend 
 of authority, both ancient and modern, we hold the note here in ques- 
 tion a negotiable instrument. 
 
 The judgment is affirmed. 
 
Ch. 1) FORMAL REQUISITES 645 
 
 SIEGEti et al. V. CHICAGO TRUST & SAV. BANK. 
 
 (Supreme Court of Illinois, 1890. 131 111. 569, 23 N. E. 417, 7 L. R. A. 537, 
 
 19 Am. St. Rep. 51.) 
 
 Assumpsit by the Chicago Trust & Savings Banl< against Siegel, 
 Cooper & Co. Judgment for plaintiff affirmed by the appellate court. 
 Defendants appeal. 
 
 Shope, C. J. This was an action of assumpsit, by appellee against 
 appellants, upon the following instrument: "Form B. Dalziel's Rail- 
 way Advertising. $300.00. Chicago, March 5, 1887. On July 1st, 
 1887, we promise to pay D. Dalziel, or order, the sum of three hun- 
 dred dollars, for the privilege of one framed advertising sign, size 
 
 X , in one end of each of 159 street-cars of the North 
 
 Chicago City Railway Co. for a term of three months from May 15, 
 
 1887. No. . Siegel, Cooper & Co." — which was indorsed by 
 
 Dalziel, the payee, to appellants, for value, on the day of its execu- 
 tion. 
 
 The first question presented is, is this instrument negotiable? And 
 this question has been answered affirmatively by the circuit and ap- 
 pellate courts. The appellate court having affirmed the judgment in 
 favor of the plaintiff, the case is brought here by appeal, upon cer- 
 tificate of importance, granted by that court. It appears that, before 
 the time when the privilege of advertising was to commence, Dalziel 
 forfeited any right he may have acquired to use the cars in the man- 
 ner indicated, and the privilege specified never was furnished appel- 
 lant; and it is insisted that the instrument is a simple contract only, 
 and that therefore the same defense, failure of consideration, is avail- 
 able against the indorsees of the paper for value and before due, as 
 might be interposed against such paper in the hands of the payee. It 
 is also insisted that the instrument shows on its face that payment de- 
 pended upon a condition precedent to be performed by the payee, and 
 therefore the indorsees took it with notice, and, by the failure of the 
 payee to perform the condition, no right of recovery exists in the in- 
 dorsees. 
 
 It is not contended that the indorsees had any other notice than that 
 contained in the instrument itself ; and it ;s apparent that at the time 
 of its indorsement, which was the day of its execution, no right to 
 the consideration had accrued to the maker. It is a promise to pay 
 a certain sum of money at a day certain, for a consideration there- 
 after to be rendered, and depends for its validity upon the implied 
 promise of the payee to furnish the consideration at the fime and in 
 the manner stipulated. That is, it is a promise to pay a sum certain 
 on a particular day, in consideration of the promise of the payee to 
 do and perform on his part. A promise is a valuable consideration 
 for a promise. 
 
 But the question remains whether the statement, or the recital of 
 the consideration, on the face of the instrument, impairs its negotia- 
 bility, and in this instance amounted to a condition precedent. The 
 mere fact that the consideration for which a note is given is recited 
 in it, although it may appear thereby that it was given for or in 
 consideration of an executory contract or promise on the part of the 
 payee, will not destroy its negotiability, unless it appears through the 
 recital that it qualifies the promise to pay, and renders it conditional 
 
646 NEGOTIABLE INSTRUMENTS (Part 3 
 
 or uncertain, either as to the time of payment or the sum to be paid." 
 * * * The most that can be said of a recital in the instrument it- 
 self of the consideration upon which it rests is that the indorsee, tak- 
 ing it before maturity, is chargeable with notice of the recital. Such 
 recital, however, is not sufficient of itself to advise him that there was, 
 or would necessarily be, a failure of consideration, but that, if at the 
 time of the indorsement the consideration has in fact failed, the recital 
 might be sufficient to put him upon inquiry, and, in connection with 
 other facts, amount to notice. * * * ^he case at bar does not, 
 however, fall within the rule just stated; for the assignment was made 
 the same day the note was made, arid by the terms of the recital it 
 was apparent the payee was required to do no act till the 15th of May 
 following, an interval of 70 days. * * * 
 
 If therefore, it be conceded, as it must, that a condition inserted in 
 a promissory note postponing the day of payment until the happen- 
 ing of some uncertain or contingent event will destroy its negotiability, 
 and render the instrument a mere agreement, yet, under the author- 
 ities, if by the instrument the maker promises to pay a sum certain, 
 at a day certain, to a certain person, or his order^ such instrument 
 must be regarded as negotiable although it also contains a recital of 
 the consideration upon which it is based, and although it further ap- 
 pear that such consideration, if executory, may not have been per- 
 formed. Here the money was payable absolutely on the 1st day of 
 July, 1887, a time when the contract for the advertising could not 
 have been complete. If the instrument had remained the property of 
 the payee, and upon its maturity suit had been brought, it is clear that 
 no plea of partial failure of consideration could have been sustained, 
 for the reason that the entire term had not then expired, and for the 
 reason that the promise of the makers was based upon the promise of 
 the payee to perform his undertaking at a time subsequent to the day 
 fixed for payment. No analysis of the instrument itself is necessary. 
 The most careful examination of it will fail to disclose a condition 
 precedent to the payment of the money at the time stipulated; Nor is 
 there anything in the recital of the consideration to put the indorsees 
 upon inquiry at the time indorsement was made. Indeed, it is clear 
 that at that time no inquiry would have led to notice that Dalziel would 
 fail to comply with his contract on the 15th of May thereafter, when 
 the term was to commence. All that the recitals would give notice 
 of was that the note was given in consideration of an agreement on 
 the part of the payee that the privilege of advertisement named should 
 be enjoyed by the makers for three months from May 15, 1887. 
 Giving to the language employed its broadest possible meaning, it can- 
 not be construed as notice to the indorsees of the future breach of 
 the contract by Dalziel. The presumption of law would be that the 
 contract would be carried out in good faith, and the consideration per- 
 formed as stipulated. The makers had put their promissory note into 
 the hands of Dalziel upon an expressed consideration which they were 
 thereafter to receive, and for the performance of which they had seen 
 fit to rely upon the undertaking of Dalziel; and we are aware of no 
 rule by which they can hold these indorsees for value, before due and 
 before the time of performance was to begin, chargeable with notice 
 that the promise upon which the makers relied would not be kept and 
 performed. * * * 
 
 The judgment of the appellate court will be affirmed. 
 
Ch. 1) FORMAL REQUISITES 647 
 
 FLEMING V. SHERWOOD. 
 
 (Supreme Court of North Dakota, 1912. 24 N. D. 144, 139 N. W. 101, 
 4.3 L. R. A. [N. S.] 945.) 
 
 Early in May, 1908, one H. Q. Turner, a collecting agent for Fetzer 
 & Co., telephoned from Fargo to defendant, a farmer at Verona, that 
 m settling up the Fetzer & Co. business in North Dakota he had two 
 drills which he proposed to sell the defendant for $50. It was 
 agreed that the drills should be delivered to the defendant at Verona, 
 N. D., in the June, following. A note dated May 12, 1908, was sent 
 by Turner to the defendant and was signed by the defendant and re- 
 turned by mail. The note was as follows: "October 1st after date 
 I promise to pay to Fetzer & Co. or order, fifty and no/ 100 dollars 
 with interest at seven per cent, per annum from maturity until paid, 
 with all attorneys fees for collection of this note unless not collectible 
 by law. Value received, waiving all right of valuation or appraise- 
 ment law, homestead or other exemption as to this debt. Payee's 
 ownership of goods account of which this note is given, the account 
 thereof and contract condition of original sale are not affected by ac- 
 cepting this note until receipt of full amount due thereon." This note 
 was on June 9, 1908, sold to the plaintiff, who testifies that at such 
 time he had no knowledge of any defenses thereto. The evidence 
 showed that Fetzer & Co. did not ship the drills to defendant at any 
 time, nor did the defendant ever -receive such property. The jury 
 thereupon rendered a verdict in favor of the defendant, judg- 
 ment was rendered in favor of the defendant. Plaintiff appeals. 
 
 Bruce, j. * * * The principal error is that alleged to have been 
 committed by the trial court in holding that the note in controversy 
 was not negotiable. * * * 
 
 We are of the opinion that the note was not negotiable. The ques- 
 tion before us is an exceedingly difficult on'eTo~3eEefrriTne, as are usual- 
 ly all questions which involve a construction of the statutes. In con- 
 sidering the same we must bear in mind that we are construing the 
 provisions of the so-called Uniform Negotiable Instruments Act, and 
 not of the former statutes of this state nor of the law merchant. We 
 must, however, consider, to a greater or less degree, these former 
 statutes and the law merchant, as their provisions and interpretation 
 are all that we have to go by in construing many of the doubtful pro- 
 visions of the codified, uniform law. We, in fact, have been able to 
 find no cases since the adoption of the uniform act in this state which 
 have directly passed upon the question before us. * * * 
 
 The specific question which we are called upon to decide is whether 
 the special clause in the instrument before us to the effect that "payee's 
 ownership of goods account of which this note is given, the account 
 thereof and contract condition of original sale are not affected by ac- 
 cepting this note until the receipt of the full amount due thereon," 
 has the effect of neutralizing the otherwise positive agreement to 
 pay and of destroying the negotiability of the instrument. The Uni- 
 form Negotiable Instruments Act * * * provides, among other 
 things, that "an instrument to be negotiable * * * (2) must con- 
 tain an unconditional promise or order to pay a certain sum in mon- 
 gy_>' * =c * 'pjjjg latter provision, however, is qualified by section 
 3, which provides, * * * that "an unqualified order or promise 
 to pay is unconditional within the meaning of this chapter though 
 
648 NEGOTIABLE INSTRUMENTS (Part 3 
 
 coupled with * * * a statement of the transaction which gives 
 rise to the instrument." The question, then, before us resolves it- 
 self into the question whether the promise to pay is unconditional. 
 
 There is a conflict in the authorities under the law merchant, and 
 under the statutes which were based upon it, as to the effect of a 
 reservation of title in the vendor of goods which is noted on the face 
 of the instrument. Some of the cases make the distinction turn upon 
 the fact of possession. Some hold that where the right of possession 
 is in the vendee, and the seller has merely a naked title subject to the 
 interest of the buyer, while the buyer has the right of possession and 
 the contingent right to a title which would vest absolutely on the pay- 
 ment of the agreed price without further act on the part of the seller, 
 the transaction is a security transaction and not a conditional sale, 
 and that the note is none the less negotiable. They hold, however, 
 that where the possession is retained by the seller until the full pay- 
 ment of the purchase price, as well as the title, the note is not negotia- 
 ble, since the agreement to pay is conditioned upon the fact of delivery, 
 which is within the control of the vendor, and who, on the failure to 
 pay at maturity, might cancel the agreement and retain the property. 
 They, in short, hold that in such cases there is no positive agreement 
 to pay, but rather that the transfer of title and possession and pay- 
 ment shall be simultaneous acts. Some reach this conclusion even 
 where the possession is in the vendee, holding that the transfer of ti- 
 tle is contingent upon payment and the promise to pay is therefore 
 conditional. Others hold that the reservation of title in an instrument 
 incorporates into the same a dual contract, and for this reason renders 
 it nonnegotiable. Others still hold that the reservation of title, even 
 though coupled, with possession or the right to retake possession even 
 after delivery if the vendor feels himself insecure, and this whether 
 before or after the time when the payment has become due, does not 
 have the effect of rendering the instrument nonnegotiable, provided 
 that the promise to pay is in itself unconditional. There can be no 
 doubt, however, that the weight of authority under the law merchant 
 and the former statutes is against the negotiability of a note which 
 upon its face retains title in the vendor, and this whether the posses- 
 sion is retained by the vendor or not; 7 Cyc. 581 ; Sloan v. McCarty, 
 134 Mass. 245. * * * 
 
 A much stronger case, of course, for nonnegotiability, is presented 
 where both the title and the right of possession are reserved in the 
 vendor, and this seems to be the case with the note before us. It is to 
 be noted that the reservation in the instrument is a reservation to the 
 vendor of the "ownership" of the goods. * * * We thus find a 
 note before us which reserves in the vendor the right to use and pos- 
 sess. The term, in fact, is broader than either the term "title" or 
 "possession," and includes both. "The owner of property is one who 
 has dominion of a thing, real or personal, corporeal or incorporeal, 
 which he has a right to enjoy and to do with as he pleases, either to 
 ■ spoil or destroy it as far as the law permits, unless he is prevented by 
 some agreement or covenant which restrains his right." * * * We 
 thus have in the case at bar a promissory note which reserves to the 
 vendor the right to the possession of the goods, as well as the title, 
 and which also is open to the charge of -uncertainty in that it refers 
 to the terms and conditions of a contract, the exact nature of which is 
 undisclosed. Even under the most liberal rule, such a contract or 
 
Ch. 1) FORMAL KEQTJISITES 649 
 
 note does not evidence an unconditional promise to pay, and, though 
 the evidence discloses that there was a parol agreement that delivery 
 of the goods should be made, the written note negatives this agree- 
 ment, and the facts disclose that no such delivery was ever made. 
 
 We realize that * * * the Negotiable Instruments Act provides 
 that an unqualified order or promise to pay is unconditional within the 
 meaning of the chapter though coupled with "a statement of the trans- 
 action which gives rise to the instrument." We have in this case, 
 however, something more than the statement of the transaction. In 
 fact, there is no statement of the transaction at all. We have a "ref- 
 erence" to a transaction and to a contract which may be entirely in- 
 consistent with an unconditional promise to pay, and an express agree- 
 ment of reservation of ownership which in itself makes the agree- 
 ment to pay conditional. The contract disclosed is that of a conditional 
 sale, and not of a security transaction. Whether even a security trans- 
 action was intended to be permitted by the statute is a matter which is 
 of no little doubt. Those interested in the preparation of the original 
 Uniform Act certainly were in doubt on the question. See Brannan's 
 Negotiable Instruments Law, p. 6 [3d Ed., p. 17] . We may certainly 
 rest assured that a reservation of ownership was never intended by 
 the Legislature. Not only are we led to this conclusion from an ex- 
 amination of the authorities, but from a perusal of the act itself. If 
 such reservation was intended to be permitted, why did the act * * * 
 specially provide that an authorized sale of collaterals should not af- 
 fect the negotiability of the instrument, and say nothing of the reserva- 
 tion of title or ownership, , or the right of possession of the principal 
 article sold. Those who adopted the instrument could not have been 
 blind to the state of the law upon the question — to the fact that even 
 upon the question of the reservation of title there was a conflict in the 
 authorities, and that there were no authorities in favor of the as- 
 sumption of negotiability where both the title and the entire right of 
 possession were reserved. A few words might have settled the con- 
 troversy in favor of the negotiability, but they were not spoken. Nu- 
 merous other mooted questions were settled by the act, among them 
 the effect of a provision for payment out of a specified fund, the au- 
 thorization of a confession of judgment, etc., all of which were moot- 
 ed under the law merchant and the former statutes. The silence of 
 the Legislature on the question involved in this case is to us almost, 
 if not entirely, conclusive. * * * 
 
 Judgment affirmed. 
 
 WELCH et al. v. OWENBY. 
 (Supreme Court of Oklahoma, 1918. 175 Pae. 746.) 
 
 Pryor, C. This is an action brought by C. A. Owenby against 
 Harry Welch, M. Van Matre, and J. N. Moore, on a promissory 
 note in the sum of $600. The defense to the note was that the exe- 
 cution of the same was procured by fraud and deceit. At the close of 
 the evidence the trial judge directed the jury to return a verdict for 
 the plaintiff which the jury did, and judgment was rendered thereon. 
 From this judgment defendants appeal. 
 
 The plaintiff became the holder of the note in due course before 
 maturity, for a valuable consideration, and without notice of any de- 
 fenses or equities. The defendants admit that the correctness of the 
 
650 NEGOTIABLE INSTRUMENTS " (Part 3 
 
 judgment of the trial court depends upon whether or not the note is 
 
 negotiable. The note is as follows : 
 
 "$600.00 Ft. Smith, Ark., Sept. 20, 1911. 
 
 "On or before the 1st day of October, 1914, for value received, the 
 undersigned promise to pay to Ark. Valley Breeding Co. or order six 
 hundred 00/100 dollars with 8 per cent, interest per annum from 
 date until paid, negotiable and payable at Little Rock, Ark. ; it being 
 given for Percheron stallion named Robert, No. 40681, with the un- 
 derstanding and agreement between the maker of this note and Ark. 
 Valley Breeding Co., that the above described property is and shall 
 remain in said Ark. Valley Breeding Co., with full power of disposi- 
 tion without notice, in such manner as he may see fit, until paid for. 
 This note is the first of a series of three, and if default is made in 
 the payment of one, then all shall become due and payable at once. 
 
 "P. O.— Keota, Okl. [Signed] Harry W. Welch. 
 
 "M. Van Matre. 
 "J. N. Moore. 
 ' "T. D. Smith." 
 
 Indorsed: "Ark. Valley Breeding Co., W. H. McMurray, Sec't." 
 
 It will be observed that this note is certain as to amount, date of 
 maturity, and the promise to pay is unconditional; that it is a per- 
 fect negotiable instrument in every particular, unless the subjoined 
 statement that the note is given for stallion which is delivered to the 
 maker of the note with the understanding that the stallion shall re- 
 main the property of the payee with full power to dispose of the same, 
 until the note is paid, renders it nonnegotiable. There is nothing in 
 this subjoined statement that makes any of the provisions of the note 
 conditionail or qualifies them ; it is just a mere statement of what the 
 note is given for and' the security for the payment of the note. There 
 is nothing in the statement which accelerates or retards the maturity 
 of the note. 
 
 This note was executed after the taking effect of the Negotiable In- 
 struments statute. Section 4053, Revised Laws of Oklahoma of 1910, 
 provides that promise to pay is unconditional, though coupled with 
 a statement of the transaction which gives rise to the instrument. 
 * * * In the case of Chicago Ry. Equipment Co. v. Merchants' 
 Bank, 136 U. S. 268, 10 Sup. Ct. 999, 34 L. Ed. 349, the Supreme 
 Court of the United States, in holding that a subjoined statement in 
 a promissory note similar to the one in the note under consideration 
 would not affect its negotiability, used the following language: 
 " * * * The agreement by which the vendor retains the title, and 
 by which the notes are secured on the cars, is collateral to the notes, 
 and does not affect their negotiability. It does not qualify the promise 
 to pay at the time fixed, any more than would be done by an agree- 
 ment, of the same kind, embodied in a separate instrument, in the form 
 of a mortgage. * * * " 
 
 In the light of the statute and the foregoing authorities, the sub- 
 joined statement in said note did not render said note conditional or 
 uncertain as to any of the essentials of a negotiable instrument. * * * 
 The court therefore committed no prejudicial error in holding that the 
 defenses interposed were not good against said note in the hands of 
 an innocent purchaser. 
 
 The judgment of the trial court therefore should be affirmed. 
 
Ch. 1) FORMAL REQUISITES 651 
 
 FARMERS' NAT. BANK OF TECXJMSEII v. McCALL. 
 
 (Supreme Court of Oklahoma, 1910. 25 Okl. 600, 106 Pae. 866, 
 26 I/. R. A. [N. S.] 217.) 
 
 Williams, J. The following questions are raised by this record: 
 
 (1) Was the note of December 19, 1905, which is claimed to have 
 been secured by the mortgage on the wagon and two mules, negotia- 
 ble in character and entitled to all the privileges and exemptions of 
 negotiable paper? [The note contained the following clause: "Ad- 
 ditional security wagon and two mules."] 
 
 It was uniformly held by the Supreme Court of the territory of 
 Oklahoma that a note containing a stipulation for the payment of an 
 attorney's fee is not negotiable. * * * The rule, however, has been 
 changed by statute, which, however, does not apply to this case. 
 * * * In the case at bar the note on its face is negotiable, but it 
 is insisted by the defendant in error that the mortgage securing pay- 
 ment of same provides for an attorney's fee in the event of foreclo- 
 sure and that such provision also shall be construed as included in 
 the note, thereby rendering it nonnegotiable. There is a conflict of 
 authority on this question. The great weight seems, however, to be 
 against the contention of defendant in error, supporting the rule that 
 a covenant or mortgage which is framed purely for the purpose of 
 security and for enforcement of which resort could be had only to the 
 property mortgaged and not a part of any debt b}- virtue of the note, 
 but on account of the terms of the mortgage, the terms and conditions 
 thereof being limited to providing security for the indebtedness, does 
 not affect the negotiability of the note. Thorp v. Mindeman, 123 Wis. 
 149, 101 N. W. 417, 68 L. R. A. 146, 107 Am. St. Rep. 1003. * * * 
 The highest court of California * * * holds that such stipulation 
 in a mortgage to secure a note negotiable on its face renders the same 
 nonnegotiable. Meyer v. Weber, 133 Cal. 681, 65 Pac. 1110. In this 
 case, however, the decision was rendered by a divided court, four 
 members supporting and three dissenting. In Michigan, the adjudi- 
 cations are not in harmony. In Missouri, North Dakota, Pennsylvania, 
 and Wisconsin the governing rule is contrary to that of California, and 
 harmonizes with the case of Thorp v. Mindeman. * * * The Kan- 
 sas decisions also seem to be in harmony with them. However, when 
 the provisions of the mortgage by direct stipulation in the note are 
 made a part thereof, the same in that event may be rendered non- 
 negotiable. But that is not now before this court. * * * The ad- 
 judications of the highest court in Nebraska also seem to be in accord- 
 ance with the rule announced above as appearing to be supported by the 
 weight of authority. * * ■ * 
 
 It is further insisted, however, that section 793, Wilson's Rev. & Ann. 
 St. Okl. 1903, which provides, "Several contracts relating to the sam'e 
 matters, between the same parties, and made as parts of substantially 
 one transaction, are to be taken together," concludes this question in 
 favor of the defendant in error. This section was borrowed by the 
 lawmakers of the territory of Oklahoma from the statutes of Dakota 
 Territory. The same statute was retained in force in the state of 
 North Dakota. In the case of First National Bank of St. Thomas v. 
 Flath, 10 N. D. 281, 86 N. W. 867, * * * this section was con- 
 strued and held to constitute a rule of interpretation merely and united 
 several contracts into a single contract only for such purposes, and that 
 
652 NEGOTIABLE INSTRDMBNT8 (Part 3 
 
 a real estate mortgage and the notes secured thereby did not constitute 
 a single contract, but remained as separate contracts, except for the 
 purposes of interpretation. No authority is cited by the defendant in 
 error construing such provision otherwise. We necessarily conclude 
 that the stipulation in the mortgage regarding attorney's fees does not 
 render the note of December 19th nonnegotiable. * * * 
 
 BATCHELDER v. OOUNOIIi GROVE WATER CO. 
 (Court of .Appeals of New York, 3892. 131 N. Y. 42, 29 N. E. 801.) 
 
 Action on certain bonds by Benjamin F. Batchelder against the 
 Council Grove Water Company. From a judgment whereby it was 
 adjudged that plaintiff was not entitled to recover the principal of 
 said bonds, plaintiff appeals. 
 
 RuGER, C. J. This action was brought in September, 1889, to re- 
 cover the principal and interest of three several mortgage bonds for 
 $1,000 each, payable July 1, 1912. It is therefore apparent that the 
 action, except on the coupons for interest, was prematurely brought, 
 unless there are other circumstances appearing in the case, showing that 
 an earlier day for the payment of the bonds had been provided. It 
 is claimed that these circumstances appear from a clause in the bond, 
 reading as follows: "In case of default in the payment of any of 
 the interest coupons attached to this bond in the manner provided in 
 the trust deed and mortgage hereinafter mentioned, then, and in that 
 case, the principal sum of this bond shall become due in the rn anTier 
 _and jadth_the_.eifect provided in the said trust deed or mortgage?' De- 
 fault having been made in the payment of the, coupons, the plaintiff 
 claims that the bond became absolutely due, and entitled him to en- 
 force its payment in any way available to any holder of a past-due 
 obligation. This claim would, undoubtedly, be sustainable, provided 
 the bond had stopped with the words, "the principal sum shall become 
 due"; but it did not, in fact, stop there, but continued with the fol- 
 lowing qualification of the previous sentence : "In the manner and with 
 the effect provided in the said trust deed or mortgage." 
 
 It therefore becomes necessary to refer to the trust deed or mort- 
 gage to determine the extent and character of the qualifications, for 
 it cannot be disputed but that this clause made the provisions of the 
 trust deed an essential part of the contract between the bondholder and 
 his obligor. The clause in the trust deed to which the bond referred 
 reads as follows : "If default be made by the said party of the first 
 part in any half year's interest on any of said bonds, and the war- 
 rants or coupons for such interest shall have been presented and its 
 payment demanded, and such default shall have continued for six 
 months after such demand, without the consent of the holders of such 
 coupon or bond, then and thereupon the principal of all of said bonds 
 hereby secured shall be and become immediately due and payable, any- 
 thing in such bonds to the contrary notwithstanding, and tiie said party 
 of the second part may so declare the same, and notify the party of 
 the first part thereof, and upon the written request of the holders of 
 a majority of the said bonds then outstanding shall proceed to collect 
 both principal and interest of all such bonds outstanding by foreclo- 
 sure and sale of said property, or otherwise, as herein provided." This 
 
Ch. 1) FORMAL REQUISITES 653 
 
 clause plainly limits the efifect of the provision making the principal of 
 the boni3s due upon "the failure to pay semiannual interest, and it pre- 
 scribes the manner in which such a breach of the contract shall be 
 made available. It authorizes the trustee, upon the request of a ma- 
 jority of the bondholders, to foreclose the mortgage and distribute 
 the proceeds realized thereby equally among the bondholders. 
 
 By prescribing the effect which the clause shall have on the contract, 
 and the particular manner in which a default in the payment of in- 
 terest shall be availed of, it impliedly excludes all other methods, and 
 confines the bondholder to the remedies expressly authorized. If the 
 method provided by the mortgage be pursued, it subjects the action 
 to be -taken by the bondholders to the will of a majority, and insures 
 that course of action, with respect to the property of the debtor, which 
 will inure to the best interest of the bondholders as a class. This pre- 
 vents individual bondholders from pursuing an individual course of 
 action, and thus harassing their common debtor, and jeopardizing the 
 fund provided for the common benefit. The manifest equity and jus- 
 tice of such a proceeding indicates the intent of the parties in drafting 
 the form of the bond. The plaintiff's right of action is based solely 
 upon the language of his contract, and, if he does not make out a right 
 to recover by virtue of its terms, his action must necessarily fail. 
 
 We think that the reasonable construction of the contract requires 
 us to hold that the principal sum of the mortgage debt, upon the fail- 
 ure to pay interest thereon, was not in ^dfed tp he. made payable ex- 
 cept i n the maxm&r specifically provided by the terms of die mort- 
 gageT"^ * * Any other holding would authorize the individual 
 bondholders to pursue the company and strip it of its present funds 
 and rights of action, and destroy its capacity to carry on its business, 
 and thereby protect its creditors. It is not reasonable to suppose that 
 the bondholders, as a class, intended to make a contract which should 
 lead to that result. It was, of course, correct for the trial court to 
 authorize judgment to be given for the past-due coupons, as, by the 
 express terms of the contract, as manifested by the mortgage, bond, and 
 coupon, the interest was made payable unconditionally on a specified 
 day ; and this was entirely consistent with the holding that the princi- 
 pal sum was not due, because, by ^he terms of the contract, it was not 
 made unconditionally payable on the happening of the event mentioned. 
 
 It follows, from these views, that the judgment below should be 
 affirmed. * * * 
 
 The conflict of authority as regards the interpretation of the 
 term "condition" concerns two distinct matters: (1) There is an 
 absence of entire unanimity of opinion as to what words will have 
 the effect of rendering a promise in an instrument expressly con- 
 ditional. (2) There is a more serious conflict on the question 
 whether the term "condition" is to be so interpreted as to include 
 conditions implied in law as well as express conditions or wheth- 
 er its meaning is to be confined exclusively to express conditions. 
 With respect to the first, all courts would agree that a promise 
 reading, "I promise to pay P. or order $100 upon condition that P. 
 performs a contract this day entered into by the maker and the 
 payee," would be a conditional promise and the instrument would 
 
654 NEGOTIABLE INSTRUMENTS (Part 3 
 
 accordingly be nonnegotiable. In place of the expression "upon 
 condition that," if there be substituted the phrase "subject to," 
 the same result would be reached. If, instead of the words "sub- 
 ject to," there be used the words "as per" there would be some 
 disagreement as to whether these words should be given the same 
 effect as the words "upon condition that" or "subject to." Most 
 courts would hold that the words "as per" are not the legal equiva- 
 lent of the words "upon condition that" or "subject to." This 
 type of conflict of authority is not, however, a serious matter, nor 
 can it be entirely removed ; for the question as to what words 
 are to be treated as synonymous with other words is one upon 
 which there is likely to continue a justifiable difference of opinion. 
 
 The conflict of authority which is chiefly featured in the pre- 
 ceding cases is of a more serious nature because it is the result 
 of a difference of opinion as to which of two possible fundamental 
 theories is applicable to the situation. Some courts proceed upon 
 the theory that the only way in which a promise or order in an 
 instrument may be rendered conditional is by the insertion, in 
 such promise or order, of words which expressly qualify the prom- 
 ise. Other courts proceed upon the theory that such promise or 
 order may be rendered conditional by implication, that is, by re- 
 sort to the doctrine of conditions implied in law. The typical sit- 
 uation arises when the instrument contains a recital of the con- 
 tract, mortgage, pledge or other transaction or of language which 
 refers to some extrinsic agreement, which gave rise to the execu- 
 tion and delivery of the instrument. It is to be remembered that 
 the words, "I promise to pay P. or order," etc., or the words, "Pay 
 P. or order," etc., appearing on an instrument, constitute a prom- 
 ise or an order which is wholly separate and distinct from any 
 other promise- appearing on the same or other instrument, al- 
 though the promisee may be the same in each. For convenience, 
 the former may be called the c,ommercial specialty promise or or- 
 der. The other will usually be simple contractual promises or 
 prornises contained in a mortgage, pledge, or other agreement, or 
 will consist of some language referring to such extrinsic instru- 
 ments. 
 
 The courts that proceed upon the theory that the commercial 
 specialty promise or order may be rendered conditional by a con- 
 dition implied in law arrive at this result apparently in the fol- 
 lowing manner, to illustrate : M. executes and delivers his prom- 
 issory note to P. The commercial specialty promise reads: "I 
 promise to pay P. or order, $100," there being no language con- 
 nected with this promise which in any sense expressly qualifies the 
 duty therein evidenced. The same instrument, let us suppose, 
 contains a recital of an executory contract between the maker and 
 the payee, and also contains an assertion that the note grew out 
 of this contract transaction. Looking at the simple contract alone,, 
 if it be found that under the law of simple contracts, there exists 
 therein any condition, either express or implied in law, precedent 
 
Ch. 1) FORMAL REQUISITES 655 
 
 or subsequent to the duty of M. to perform his simple contract ob- 
 ligation, it is possible to urge that this condition will also operate 
 to qualify the commercial specialty promise. This result can be 
 reached only by holding that the commercial specialty promise 
 may be rendered conditional by the application of the doctrine of 
 conditions implied in law. And this is true even in a case where 
 the recital of the simple contract shows that there is an express 
 condition precedent or subsequent to the duty of M. to perform his 
 simple contract obligation. In such a situation the maker, M., has 
 simply made two promises to pay that which, from a business point 
 of view, is a single debt. The fact that he has expressly condi- 
 tioned one of these promises — -the simple contract promise — does 
 not thereby evidence an intention to condition the commercial 
 specialty promise. In fact, the contrary inference is the more rea- 
 sonable. 
 
 It is believed that the better theory is that a condition implied 
 in law should not render the commercial specialty promise or or- 
 der conditional ; that the only way to condition such a promise or 
 order is by the definite incorporation, in the commercial specialty 
 promise, of appropriate language which is sufficient to create an 
 express condition precedent or subsequent to the duty of the ihaker 
 or drawee to pay. Such a rule will be commercially more desirable, 
 because a purchaser may then be able to decide more readily wheth- 
 er the instrument offered to him is, or is not, negotiable. If com- 
 mercial instruments are to be rendered conditional by every kind 
 of conditions implied in law, the free circulation of commercial 
 paper is clogged beyond a point which is desirable or necessary. 
 Moreover, the interpretation here indicated tends to bring this 
 portion of the law into greater harmony with the rule that a pur- 
 chaser for value before maturity of a negotiable instrument will 
 take free from personal defenses and equities of ownership unless 
 he takes in bad faith. The same considerations of commercial 
 expediency underlie both rules. One who purchases an instru- 
 ment which is conditioned only by implication of law is not in 
 the situation analogous to that of a purchaser in bad faith. A pur- 
 chaser of an instrument conditioned only by implication is in sub- 
 stantially the same position, as far as operative facts are concerned, 
 as a purchaser of an unquestioned negotiable instrument with con- 
 structive notice of outstanding equities and defenses. The pur- 
 chaser with constructive notice is not deemed to be a purchaser 
 in bad faith. On parity of reasoning, one who purchases an instru- 
 ment which contains a promise or order conditioned only, by im- 
 plication arising from real conditions in a different contract, mort- 
 gage, or other transaction, should take the instrument as it ap- 
 pears to be — as an unconditional promise or order. 
 
656 NEGOTIABLE INSTRUMENTS (Part 3 
 
 SECTION- 5.— TIME OF PAYMENT MUST BE CERTAIN 
 
 Commercial paper would not be suitable for circulation if the 
 holder is unable to ascertain at what time the right to demand 
 payment is to arise. The law, therefore, requires certainty in the 
 time of payment. But what degree of certainty will satisfy this 
 ' requirement? This question is one of considerable difficulty. Be- 
 fore the adoption of the Negotiable Instruments Law, the test of 
 certainty was not clearly worked out; nor has the present statute 
 done very much toward solving some of these questions. 
 
 There are four possible ways of fixing maturity: (1) By desig- 
 nating a future day ; e. g., June 1, 1935. (2) By giving an option 
 to the holder to demand payment at any time. (3) By giving an 
 option to the obligor — maker, acceptor, etc. — to pay when he sees 
 fit. (4) By declaring that the instrument shall mature upon the 
 happening of some event over which neither of the parties has 
 any control. Combinations of these various methods of fixing a 
 time of maturity may be made. , An instrument may bear a fixed 
 maturity, subject to an earlier payment (a) at the option of the 
 maker; (b) at the option of the holder; (c) upon the performance 
 of a specified act by the maker or upon the occurrence of some 
 extrinsic event. 
 
 The sections of the Negotiable Instruments Law involved are 
 as follows: 
 
 Section 1, subsec. 3. An instrument to be negotiable must be 
 payable on demand or at a fixed or determinable future time. 
 
 Section 7. An instrimient is payable on demand: (1) When it 
 is expressed to be payable on demand, or at sight, or on presenta- 
 tion; or (2) in which no time of payment is expressed; (3) where 
 an instrument is issued, accepted, or indorsed when overdue, it is, 
 as regards the person so issuing, accepting, or indorsing it, payable 
 on demand. 
 
 Section 4. An instrument is payable at a determinable future 
 time within the meaning of the act, which is expressed to be pay- 
 able: (1) At a fixed period after date or sight; or (2) on or be^ 
 fore a fixed or determinable future time specified therein; or (3) 
 on or at a fixed period after the occurrence of a specified event, 
 which is certain to happen, though the time of happening be un- 
 certain. An instrument payable upon a contingency is not nego- 
 tiable and the happening of the event does not cure the defect. 
 
 By implication, the following section is involved: 
 
 Section 2. The sum payable is a sum certain within the mean- 
 ing of this act, although it is to be paid * * * (2) by stated 
 installments ; or (3) by stated installments, with a provision that 
 upon default in payment of any installment or of interest the whole 
 shall become due. 
 
 Before passing to a consideration of the cases, it may be well 
 to note here that we are now discussing a series of situations anal- 
 
Ch. 1) FORMAL REQUISITES 657 
 
 ogous to, but essentially different from, the problems taken up un- 
 der the head of conditional promises. A promise to pay upon con- 
 dition is different from an Unconditional promise to pay at some 
 indeterminate future time. It is important to note this because the 
 requirement of certainty in the time of payment adds another ele- 
 ment. Proof that the promise is unconditional is not. sufficient. 
 The proof must go further and show that this unconditional prom- 
 ise is payable at some fixed or determinable future time. 
 
 Section 7 of the Negotiable Instruments Law, above quoted, 
 shows that there are two general situations where an instrument 
 is payable on demand; i. e., where the instrument is made ex- 
 pressly payable on demand, and where by implication the instru- 
 ment is payable on demand. Where the words "payable on de- 
 mand," ''payable at sight," or "payable on presentation" are used 
 the instrument is expressly made payable on demand. It is per- 
 haps more common to find the words "on demand" in promissory 
 notes, and the words "at sight" in bills of exchange. No doubt 
 other words could be used which would have the same legal ef- 
 fect as those which are here referred to. 
 
 An instrument will be deemed payable on demand wherever 
 there is no language used thereon which deals with the matter 
 of the time of payment. A fair interpretation of such an instru- 
 ment is that it was intended to confer upon the holder the right 
 to demand payment at any time. So the law provides that where 
 no time of payment is expressed the instrument is payable on de- 
 mand. A check furnishes a common illustration. 
 
 It appears from an examination of sections 4 and 2, that there 
 are two general situations which satisfy the requirement that the 
 instrument be payable at a fixed or determinable future time:. (1) 
 Where the instrument has but one date of maturity and that date 
 is fixed, either (a) by designating it in the usual way by the date 
 of month and year, or (b) by fixing it with reference to some 
 event which is bound to happen, though the time of happening is 
 uncertain; or (2) when the instrument bears two possible dates 
 of maturity, the one, usually the later one, being fixed in accord- 
 ance with rule (1) (a) or (b) the other or earlier date of maturity 
 being fixed by the performance of some act by the holder, or by 
 maker, or, by the occurrence of some specified event which is not 
 wholly within the control of either party. 
 
 To restate the situation, we have two general questions: (1) 
 When is an unconditional promise or order payable on demand? 
 (2) When is an unconditional promise or order payable at a de- 
 terminable future time? No independent consideration of ques- 
 tion 1 need be given, for this question is sufficiently adverted to in 
 the cases following which deal primarily with situations involving 
 the second question. The principal difficulty arises when the 
 question presented is: What constitutes a determinable future 
 time? This question is involved in the two situations noted above: 
 B.& B. Bus. Law— 42 
 
658 NEGOTIABLE INSTRUMENTS (Part 3 
 
 (a) Where there is but one maturity and this maturity is fixed 
 by reference to a specified date or to an event which is bound to 
 happen; (b) where ther.e are two dates of maturity, the one fixed 
 by the designation of a specified date or an event bound to happen 
 but subject to acceleration into an earlier maturity upon the ex- 
 ercise of an option by the holder to demand payment, or of an 
 option in the obligor to pay before the fixed date, or upon the oc- 
 currence of some event which is not wholly within the control of 
 either the holder or the obligor named in the instrument. In short : 
 (1) When is an event bound to happen, within the meaning of 
 the rule requiring certainty in the time of payment? (2) When 
 will the performance of an act referred to in an acceleration clause 
 be deemed to be at option of the holder or of the obligor, as dis- 
 tinguished from the occurrence of some contingent event which 
 is not within the control of either the holder or the obligor? It 
 may be remarked that the kst sentence of section 4, subsection 3, 
 which reads: "An instrument payable upon a contingency is not 
 negotiable, and the happening of the event does not cure the de- 
 fect" — in reality adds nothing to the foregoing affirmative require- 
 ments with respect to certainty in the time of payment. 
 
 McCLEXATHAN v. DAVIS. 
 
 (Supreme Court of Illinois, 1909. 243 111. 87, 90 N. B. 265, 
 27 L. R. A. [N. S.] 1017.) 
 
 Action by C. V. McClenathan against Emmons Davis and another. 
 A judgment for plaintiff was affirmed by the Appellate Court for the 
 Third District, and defendant Davis appeals. 
 
 Farmer, C. J. This is an action of assumpsit, brought by appellee, 
 as indorsee, against appellant, Emmons , Davis, as maker, and Eliza- 
 beth Gamble, as indorser and guarantor, of the following written in- 
 strument : 
 
 "For value received I promise to pay Elizabeth Gamble, or order, the 
 sum of fifteen hundixd dollars in twelve months after I shall become 
 the legal owner of one hundred and fifteen acres of land conveyed to 
 me by my father, H. V. Davis, reserving to him, H. V. Davis, a life 
 estate in said land, by which at his death I am to become possessed of 
 and the owner in fee of said one hundred and fifteen acres, situated 
 in the southeast corner of section 30, in township 18 north, range 11 
 east of the third P. M., Champaign county, Illinois. 
 
 "Emmons Davis. 
 
 "March 6, 1894. 
 
 "Witness : Thomas J. Smith. 
 
 "Indorsed and payment guaranteed. 
 
 "Elizabeth Gamble." 
 
 * * * Appellant's contention is that the instrument sued on is 
 not a promissory note, because it is not payable at a specified time 
 which must certainly arrive, but is payable upon a contingency, which 
 may or may not happen. The contingency upon which it is argued 
 the payment depends is the actual ownership and possession of the 
 land by appellant, and it is said this may never happen, because it may 
 
Ch. 1) FORMAL REQUISITES 659- 
 
 be that the grantor in the deed had no title to the land, or that appellant 
 might fail to record his deed, and the grantor make another deed to 
 an innocent purchaser, or that appellant might before the death of nis 
 father have joined with him in a conveyance to a third person, there- 
 by destroying appellant's estate and interest in the land before the 
 life estate of his father was terminated. We think there is no merit 
 in this position of appellant. It is not claimed that there is any basis 
 for the contention that it might possibly turn out appellant's father had 
 no title to the land conveyed, and as to the other alleged contingencies 
 it was in the power of appellant to prevent them happening. Besides, 
 we do not consider them contingencies, within the meaning of the law, 
 that could affect the certainty of the time for the payment of the in- 
 strument sued on. Properly analyzed and understood, that instrument 
 recites that H. V. Davis had conveyed to appellant 115 acres of land, 
 reserving a life estate therein; that appellant was to become the own-- 
 er in fee and possessed of said land upon his father's death, and he 
 promised to pay Elizabeth Gamble $1,500 within 12 months after he 
 became such owner of said land — i. e., within 12 months after his 
 father's death. The payment was not dependent upon a contingency 
 that rhight never happen. The death of H. V. Davis would entitle ap- 
 pellant to the possession of the land, and his death was certain to hap- 
 pen. * * * 
 
 Judgment affirmed. 
 
 SACKETT V. PALMIER. 
 (Supren\e Court of New York, 18.57. 25 Barb. 179.) 
 
 This action was brought upon an instrument in the following words : 
 "$550. Ninety days after the dissolution of the copartnership between 
 Nelson Chapin, of the party of the first part, in said copartnership, 
 and J. F. Palmer, of the party of the second part in said copartnership, 
 and the settling of the books of the said firm, I, in behalf of the party 
 of the second part, promise to pay to the said Nelson Chapin, of the 
 party of the first part, five hundred and fifty dollars ; the interest to 
 be paid annually by the aforesaid J. F. Palmer, of the party of the- 
 second part, in the aforesaid copartnership. 
 
 "[Signed] Nelson Palmer." 
 
 Johnson, J. The instrument on which the action is brought is noi 
 a promissory note. It is payable ninety days after the happening of 
 two events, one of which may never happen. ***!(; jg not shown 
 by the evidence how long the partnership was to continue by the 
 agreement of the partners. It was certain, however, that there would' 
 at some time be a dissolution, by the death of one of the partners, if 
 not otherwise. That event was sufficiently certain. But the settling 
 of the books of the firm was an event which might never happen. It 
 would not inevitably happen. It might, and probably would, after a 
 dissolution, in due course of law. But that is not enough; if it might 
 not happen, the instrument is not a promissory note. * * * 
 
 The defendant is therefore entitled to judgment upon the case. 
 
660 NEGOTIABLE INSTRUMENTS (Part 3 
 
 JOSEPH V. CATRON. 
 
 (Supreme Court of New Mexico, 1905. 13 N. M. 202, 81 Pac. 439, 
 1 L. R. A. [N. S.] 1120.) 
 
 Action by Thomas B. Catron against Antonio Joseph. Judgment for 
 plaintiff. Defendant brings error. 
 
 Pope, J. * * * 'j'jig contract here sued on * * * is as fol- 
 lows : "Fernando de Taos, 'New Mexico, November 22, 1873. Upon 
 the confirmation by the Congress of the United States of that certain 
 land grant known as the Caiion de Chama, otherwise called San Joa- 
 quin del Rio de Chama Grant, I promise to pay Mr. Samuel Ellison 
 or order the sum of Five Hundred Dollars in current funds of the 
 United States. Antonio Joseph. Frederick MuUer." * * * 
 
 We come now to consider the third proposition, to which the briefs 
 of counsel and the oral argument have been mainly directed. Is the in- 
 strument here sued on a negotiable instrument? If it is such an in- 
 strument, then it is presumed to have been given upon valuable con- 
 sideration, and, having been acquired before maturity by a bona fide 
 purchaser for value, could not be subject to any defenses existing be- 
 tween the original parties of which plaintiff had no notice. If, on the 
 other hand, the instrument was not negotiable, very different questions 
 supervene. 
 
 The rule is recognized by each of the parties that, in order to con- 
 stitute a negotiable instrument, the fact of the maturity of the instru- 
 ment at some time must be morally assured; it must be certain to 
 accrue. * * * The cases bearing upon this precise point are not 
 numerous, and those cited by the parties in their briefs are, as a rule, 
 not in point, for the obvious reason that death is an absolute certainty, 
 and a note contingent upon death is thus contingent upon something 
 which is bound to occur. Equally as apart from this proposition are 
 the cases relied upon by plaintiff known as the "Southern War cases," 
 involving questions as to the negotiability of notes payable within a 
 certain time after the cessation of war between the Confederate States 
 and the United States of America, or the establishment of peace be- 
 tween those then contending portions of our reunited nation. Such 
 obligations were likewise contingent upon an event which was morally 
 certain to happen. In human experience, no war has ever existed 
 which has not come to an end, and none can be conceived of that will 
 not have at some time a termination. * * * g^t does the confirma- 
 tion of a land grant by Congress stand upon the same basis? 
 
 It is urged by the plaintiff that it does, for the reason pointed out 
 in one or two English cases of great antiquity. The first of these is 
 the case of Andrews v. Franklin, 1 Strange, 22, wherein the condi- 
 tion of the note was "payable two months after a certain ship of His 
 Majesty's service should be paid off." This note was objected to as 
 depending upon a contingency which might never happen, hut the court 
 held otherwise upon the ground that the "paying off of a ship" is a thing 
 of public nature. Also there is cited the case of Evans v. Underwood, 
 1 Wils. 262, wherein a note was held' negotiable, the terms of which 
 were, "I promise to pay to George Pratt or order eight pounds, upon 
 the receipt of his, the said George Pratt's wages due from His Majes- 
 ty's ship, the Suffolk." In that case the court contented itself with cit- 
 ing and following the case of Andrews v. Franklin. We have been 
 referred to no American cases in which the doctrine of Andrews v. 
 
Ch. 1) FORMAL REQUISITES 661 
 
 Franklin has been followed or, indeed, countenanced. * * * On 
 the other hand, wherever these two cases have been cited by the text- 
 writers or the reports, it has been to question their soundness. In- 
 deed, doubts have even been expressed as to whether Andrews v. 
 Franklin was ever actually decided, and Evans v. Underwood has 
 been particularly criticised upon the ground that, while the paying 
 off of a public ship may be a moral certainty, it is by no means to be 
 considered equally certain that a particular person will receive wages 
 therefrom. * * * 
 
 But indulging to these two cases the high respect which must be 
 accorded them, both because of their age and the high character of 
 the English tribunal enunciating them, we are of opinion that they do 
 Hot lead to the conclusion that the confirmation of a land grant by Con- 
 gress is a moral certainty. The United States has never become bound 
 by treaty nor by international law to the confirmation of all private 
 land claims in the territory of New Mexico, nor for the confirmation 
 of all claims which may be asserted by interested parties to be land 
 grants. The extent to which the nation went in the treaty of Guad- 
 alupe Hidalgo was to pledge itself that, in the territories conveyed by 
 the treaty, property of every kind should be inviolably respected. This 
 was simply a declaration of international morals. But the manner of 
 that recognition in the case of an imperfect grant — and plaintiff, in his 
 brief, concedes and contends that this was such — was exclusively for 
 Congress to determine. * * * The presence of these possibilities 
 establishes that at the time this obligation was made a confirmation 
 was not bound to occur ; it was not a moral certainty ; the instrument 
 was not payable at a time fixed,' beyond peradventure ; the instrument 
 was not negotiable. *' * * 
 
 The case will be reversed and remanded for further proceedings in 
 accordance with this opinion. 
 
 NATIONAL BANK OF COMMERCE v. KENNEY et al. 
 (Supreme Court of Texas, 1904. 98 Tex. 293, 83 S. W. 368.) 
 
 Gaines, C. J. * * * The question * * * presents itself, is 
 the note in question a negotiable promissory note? The Court of. 
 Civil Appeals held that it was not. In this ruling, however, we do 
 not concur. The ground upon which it is claimed that the note is 
 nonnegotiable is that the time of its payment is uncertain. This claim 
 is predicated upon the following provision in the note : "The makers 
 and endorsers hereof hereby severally waive protest, demand and no- 
 tice of protest, and non-payment in case this note is not paid at ma- 
 turity, and agree to all extensions and partial payments before or 
 after maturity without prejudice to holder." If, as is argued, the 
 effect of the stipulation is to give the right to the maker without the 
 consent of the holder, or to the holder without the consent of the 
 maker, to appoint another day of payment and thereby extend the 
 time, it may be that it would render the instrument not negotiable. 
 But we do not thinkr it capable of that construction. It does not say 
 that either the holder or the maker may extend the note. It merely 
 makes a provision in case the time of payment may be extended. 
 How extended? It seems tQ us the extension meant is that which 
 .takes place when the debtor and creditor make an agreement upon a 
 
662 NEGOTIABLE INSTRUMENTS (Part 3 
 
 valuable consideration for the payment of the debt on some day sub- 
 sequent to that previously stipulated. The obvious purpose of the 
 provision, taken as a whole, was jmerely to relieve the holder of the 
 paper from the burdens made necessary by the rigid requirements of 
 the mercantile law in order to secure the continued liability of the in- 
 dorsers and sureties upon the paper. Therefore what was meant by 
 the stipulation as to the extension of time was simply that, in case the 
 holder and the maker should agree upon an extension, the sureties 
 and indorsers should not be discharged. The holder and maker of 
 any note may at any time agree upon an extension ; therefore the fact 
 that they may have that right does not affect the negotiability of the 
 paper. It is usually said that, in order to make an instrument negotia- 
 ble under the law merchant, the time of payment must be certain. But 
 a note payable "on or before" a certain date is negotiable. The maker 
 of such a note has the right to pay before the day named, but the hold- 
 er cannot demand payment before that day. So, in that case, the time 
 at which the maker may elect to pay is uncertain, but the time at 
 which the holder may demand payment is certain. It follows that, if 
 the holder has the absolute right to demand payment at a certain day, 
 the note is negotiable. This is but an illustration of what we under- 
 stand to be the general rule. There being nothing in the stipulation 
 under consideration which gave any one the right to demand of the 
 holder of the note an extension of the time of payment, we think the 
 time at which he could demand payment was fixed, and that therefore 
 it was a negotiable note. * * * 
 
 HOLLIDAY STATE BANK v. HOFFMAN. 
 
 (Supreme Court of Kansas, 1911. 85 Kan. 71, 116 Pac. 239, 35 L. E. A. 
 [N. S.] 390, Ann. Cas. 1912D, 1.) 
 
 Porter, J. The bank brought this action on a promissory note 
 given by C. B. Hoffman to the Merchants' Refrigerating Company 
 for shares of its capital stock. Hoffman admitted the execution of the 
 note and alleged a total failure of consideration. On the trial he in- 
 troduced evidence tending to show that the stock for which the note 
 was given was valueless, and that he was induced to purchase the same 
 by the false and fraudulent representations of J. E. Brady, president 
 of and acting for the refrigerating company. The plaintiff introduced 
 evidence tending to show that it purchased the note in due course, 
 without notice of defenses. At the close of the evidence, the court 
 directed a verdict for the plaintiff for the amount of the note, with 
 interest. The defendant appeals. 
 
 The case turns upon the question whether the note is negotiable. 
 
 It reads as follows: "$4,500.00. No. . Kansas City, Mo., 
 
 Sept. 18th, 190 — . Due , Six months after date for value re- 
 ceived I promise to pay to the order of Merchants' Refrigerating 
 Company, Kansas City, Missouri, forty five hundred and no/100 
 dollars at the office of the Merchants' Refrigerating Company, Kan- 
 sas City, Mo., with interest from maturity until paid at the rate of 
 six per cent, per annum. To secure the payment of this note and of 
 any and all other indebtedness which I now owe to the holder hereof, 
 or may owe him at any time before the payment of this note I have 
 hereto attached, as collateral security the following: Stock certificate 
 
Ch. 1) FORMAL REQUISITES 663 
 
 No. 137 of the capital stock of the Merchants' Refrigerating Compa- 
 ny, calling for 50 shares of the stock; par value $5,000. The above 
 collateral has a market value of $6,250.00. If, in the judgment of the 
 holder of this note, said collateral depre'tiates in value, the undersigned 
 agrees to deliver when demanded additional security to the satisfac- 
 tion of said holder; otherwise this note shall mature at once. Any 
 assignment or transfer of this note, or obligations herein provided 
 for, shall carry with it the said collateral securities and all rights under 
 this agreement. And I hereby authorize the holder hereof on default 
 of this note, or any part thereof, according to the terms hereof, to 
 sell said collateral or any part thereof, at public or private sale and 
 with or without notice, and by such sale the pledgor's right of redemp- 
 tion shall be extinguished. C. B. Hoffman." * * * 
 
 The defendant contends that * * * the note is nonnegotiable 
 for three reasons: (1) It is not for a sum certain; (2) it is not due at 
 a fixed or determinable future time; (3) it contains promises to do 
 acts in addition to the payment of money. * * * 
 
 In our opinion the most serious objection to the form of the note, /\ 
 the particular provision which most clearly destroys the negotiable \ 
 character of the instrument, is the agreement as to matters other than , 
 the payment of money. This is the stipulation by which the maker 
 agrees to deliver, when demanded, additional collateral security to the 
 satisfaction of the holder, in default of which the note shall mature at ( 
 once. It would hardly be different if the note recited that it was se- j 
 cured by a chattel mortgage upon certain live stock, and contained an j 
 agreement that in case their value should depreciate, and the holder [ 
 should deem the security insufficient, the maker would, on demand, ex- j 
 ecute and deliver to the holder a mortgage upon certain real estate for / 
 such amount as would satisfy the holder, and that otherwise the note ' 
 should mature at once. * * * 
 
 The negotiable instruments law, which is merely declaratory of the 
 mercantile law on the subject, contains a provision which, as we con- 
 strue it, makes the note in the instant case npnnegotiable. Section 
 5258 of the General Statutes of 1909 reads: "An instrument which 
 contains an order or promise to do any act in addition to the payment 
 of money is not negotiable." The section then enumerates certain 
 things which are not to be regarded as falling within the inhibition. 
 None of these exceptions cover such a promise as the one under con- 
 sideration. 
 
 The note is nonnegotiable for the further reason that the same pro- 
 vision renders doubtful and uncertain the time at which it shall be- 
 come due. If the maker shall fail when demanded to furnish addition- 
 al security to the satisfaction of the holder, the note shall mature at 
 once. It is argued that this is no different in principle from the pro- 
 vision that default in the payment of any installment shall accelerate 
 the maturity of the note, and cases are cited in which we have held 
 that a similar provision will not render the note nonnegotiable. 
 
 * * * 
 
 * * * The negotiable instruments law itself expressly declares 
 that a negotiable instrument may contain provisions of this kind. 
 
 * * * The distinction between such a stipulation and the one in 
 question lies in the fact that in the one instance the maturity is accel- 
 erated by the default of the maker alone, and the default is to consist 
 in his failure to pay jnoney. Here the maturity of the note is to be 
 
664 NEGOTIABLE INSTRUMENTS (Part 3 
 
 accelerated by the failure of the maker to do something in addition 
 to the payment of money, and both contingencies are made to depend 
 upon something over which he has not the absolute control. It is 
 within the power of the holder, by refusing assent to what the maker 
 has done, arbitrarily to make the note due at any time between the 
 date of its execution and six months thereafter. If the holder is not 
 satisfied with the additional security, the note matures at once, and 
 thus the time at which it may mature would depend upon the time at 
 which the holder declared himself dissatisfied with the security de- 
 livered by the maker. The efifect of this stipulation is to leave the time 
 when payable uncertain and indefinite. * * * 
 
 The law of commercial paper, like all other substantive law. is the 
 creature of growth. Founded on the custom and usages of merchants, 
 it is the combined result of reason and experience! slowly modified by 
 the necessities and changes in commercial affairs. The methods of 
 modern business and the interests of maker and holder alike require 
 the deposit of collateral securities, with the power in the holder to 
 sell the same at maturity. * * * The statute (negotiable instruments 
 act) provides that an instrument otherwise negotiable is not aflfected 
 by a provision which "(2) authorizes a confession of judgment if the 
 instrument be not paid at maturity; or (3) waives the benefit of any 
 law intended for the advantage or protection of the obligor." 
 
 In former opinions this court has frequently referred to the con- 
 flict of authority in the decisions respecting the effect of collateral 
 provisions of this character in promissory notes and bills of exchange. 
 * * * The adoption in recent years of the negotiable instrurrftents 
 law by so many of the states was in response to the general desire 
 for uniformity in respect to commercial papet". The application, how- 
 ever, by the courts of legal principles to particular facts has not reach- 
 ed scientific exactness, and never will. It is hardly to be expected, 
 therefore, that the courts of the different states which have adopted 
 the act will always agree in the construction and application of its 
 provisions. Actual uniformity in the law of negotiable instruments 
 will remain a dream more or less iridescent; substantial uniformity is 
 all that can be hoped for. The conclusions we have reached with re- 
 spect to the instrument in question are in harmony with the former 
 decisions of this court and accord with our view of the proper con- 
 struction to be given to the language of the statute. 
 
 The trial court erred in holding the instrument negotiable and in 
 directing a verdict. The judgment will therefore be reversed. * * * 
 
 FINLEY V. SMITH, Banking Com'r. 
 
 (Court of Appeals of Kentucky, 1915. 165 Ky. 445, 177 S. W. 262, 
 L. R. A. 1915F, 777.) 
 
 Carroll, j. * * * The remaining question is : Was this note 
 a negotiable instrument within the meaning of the Negotiable Instru- 
 ments Law? * * * 
 
 Looking to these pertinent sections 1, 2 and 5, for the description 
 of a negotiable instrument, the argument is made that this note is not 
 a negotiable instrurrient, because, in addition to containing an uncon- 
 ditional promise to pay the $2,500 four months after date to the Madi- 
 sonville Savings Bank, it contains the further promise that, if the 
 collateral deposited as security for the payment of the note should 
 
Ch. 1) FORMAL REQUISITES 665 
 
 depreciate in value, the maker "will deposite and pledge with said bank 
 such additional , security as it may from time to time requi»e, and in 
 default of such deposit * * * this note, at the option of the bank, 
 shall become due and payable." 
 
 Accordingly, it is said that the promise to pledge, if required, ad- 
 ditional security, and the condition that the note should become due 
 upon the failure to pledge additional security demanded, take it out 
 of the class of negotiable instruments, because it is provided in sec- 
 tion 5, supra, that: "An instrunient which contains an order or prom- 
 ise to do an act in addition to the payment of money is not negotia- 
 ble." 
 
 It will be observed that the note is, in the first plaqe, an uncondi- 
 tional promise to pay, at a fixed time, a certain sum of money, to the 
 order of a specified person. So that the qualities of the paper to 
 which attention is drawn as rendering it nonnegotiable are to be found 
 in the. clauses following what we may call the terms of the note proper. 
 This arrangement, however, of the matter contained in the paper, does 
 not affect the question raised, because the whole of the paper must be 
 considered in ascertaining its character as a negotiable or nonnegotia- 
 ble instrument. * * * 
 
 It will be observed that under section 2 the fact that a note is pay- 
 able in stated installments, with a provision that upon default in the 
 payment of any installments the whole should become due, does not 
 affect its negotiable character. It will also be noticed that section 5 
 provides that the negotiable character of a note is unaffected by a pro- 
 vision authorizing the sale of collateral security, or a provision that 
 gives the holder an election to require something to be done in lieu 
 of the payment of money. So that the only provision in this note that 
 can be said not to be expressly authorized by the Negotiable Instrument 
 Law is the clause pledging the maker to deposit on demand additiorj^l 
 security under penalty of precipitating the maturity of the paper. 
 
 We may therefore limit the inquiry involving the negotiable char- 
 acter of this paper to the consideration of two questions : (1) The 
 promise of the maker to pledge, if required, additional security; and 
 (2) the provision that the failure to do this should, at the option of 
 the holder, accelerate the maturity of the paper. This brings before 
 us for decision new questions in the construction of the Negotiable 
 Instrument Law, and it is rather unfortunate that the decisions of other 
 courts of last resort, to which these questions have been submitted, are 
 not harmonious. The purpose of the author of this law was to secure 
 uniform legislation throughout the United States, on the subject of 
 commercial paper, so that a person in any one state might, by. ex- 
 amining the law on this subject in his own state, be advised as to the 
 condition of the like law in other states. And, so far as legislation is 
 concerned, it may be said that the desired end to be secured by uni- 
 form legislation has been accomplished. But uniform legislation on 
 any subject necessarily loses much of its value and usefulness unless 
 it is followed by uniform construction by the courts to which the 
 legislation is submitted for construction. 
 
 This uniformity of construction, however desirable, is scarcely pos- 
 sible of attainment, because a court of last resort, when new questions 
 involving the construction of statutes are presented, will very reason- 
 ably and naturally adopt that construction that it conceives to be, prop- 
 er, while another court of last resort in considering the same question 
 
6C6 NEGOTIABLE INSTRUMENTS (Part 3 
 
 of construction might with the same honesty of purpose reach an en- 
 tirely different conclusion. This condition is forcibly illustrated in 
 the conflicting views of the courts upon the particular question now 
 before us. For example, the Supreme Court of Kansas, in the case 
 of HolHday State Bank v. Hoffman, 85 Kan. 71, 116 Pac. 239, 35 
 L. R. A. (N. S.) 390, Ann. Cas. 1912D, 1, held that an otherwise ne- 
 gotiable note, with collateral security attached, which provided that, 
 "if in the judgment of the holder of this note said collateral depreci- 
 ates in value, the undersigned agrees to deliver when demanded ad- 
 ditional security to the satisfaction of -said holder; otherwise this note 
 shall mature at once," was rendered nonnegotiable by this additional 
 promise, and -for the further reason, as stated by the- court, that the 
 time of the maturity of the note was rendered doubtful and uncertain 
 by the provision that upon the failure of the payee to deliver the ad- 
 ditional security the note, at the option of the holder, should mature 
 at once. 
 
 On the other hand, the United States Circuit Court of Appeals 
 for the Seventh Circuit, in Kennedy v. Broderick, 216 Fed. 137, 132 
 C. C. A. 381, L. R. A. 1915B, 472, ruled that a condition in a note 
 that, "if in the judgment of the holder of this note said collateral de- 
 preciates in value, the undersigned agrees tO deliver when demanded 
 additional security to the satisfaction of said holder; otherwise this 
 note shall mature at once" — did not affect its negotiable quality. 
 
 Without citation of further authority, we are inclined to adopt the 
 view that the conditions relied on as destroying the negotiable char- 
 acter of this note do not accomphsh that purpose. The essential things 
 pointed out 'in section 1 of the act are: (1) That the instrument must 
 be in writing, signed by the maker; (2) must contain an uncondi- 
 tional promise to pay a sum certain in money; (3) must be payable 
 on demand or at a fixed future time; (4) must be payable to the 
 order of a specified person or to bearer. And the independent promise 
 in this note pledging the holder upon demand to put up additional col- 
 lateral did not substantially affect any of these requirements. The 
 promise to strengthen the collateral under penalty of the note matur- 
 ing at once did not change the date of its maturity any more than would 
 the provision in a note payable in installments that upon default in 
 the payment of the installment the whole should become due. 
 :' We think the promise to do an act in addition to the payment of 
 ,' money that will render the note not negotiable must be a promise that 
 conflicts with some one of the essential characteristics of a negotiable 
 note; or, as applied to the case in hand, it must be a promise to do 
 something that would affect the unconditional promise contained in 
 the body of the instrument as the time fixed for its maturity. The Ne- 
 gotiable Instrument Law, in section 2, permits a note to be made pay- 
 able in installments with a provision that upon default in the payment 
 of any installment the whole shall become due. Under this provision^ 
 if any installment of a note payable in inst3.11ments at a fixed time is 
 not paid, this delinquency precipitates the maturity of the note and 
 thereby changes the time fixed for its maturity as certainly as does the 
 stipulation that, if the value of the collateral is impaired, other col- 
 lateral should be supplied or else the note will become due. 
 
 It is quite usual to pledge collateral as security for the payment of 
 a negotiable note, and we do not think that any narrow construction 
 
Ch. 1) FORMAL REQUISITES 667 
 
 of the law should be adopted that would have the effect of impairing 
 the value of this kind of security or that would deny to the holder the 
 right to insist that, if the value of the collateral deposited should be- 
 come impaired, the maker must strengthen it or else precipitate the 
 maturity of the paper. This condition in the note is merely supple- 
 mentary to the fixed and controlling promises and is really nothing 
 more than additional security for the payment of the instrument. Tt 
 is not, strictly speaking, "an order or promise to do an act in addition 
 to the payrqent of money," but is rather an order or promise to do an 
 act that will better secure the promise to pay the money stipulated at 
 the time fixed in the note. If this condition or promise would disturb 
 the negotiability of commercial paper, the effect would necessarily be 
 to lessen the value of -collateral as security, because holders of paper 
 would not be disposed to accept collateral, much of which has a fluctu- 
 ating value, if they were denied the right to insist that its value should 
 he maintained in an amount sufficient to serve the purpose for which 
 i-t was accepted. 
 
 Being of the opinion that the instrument sued on was negotiable pa- 
 per, the judgment is reversed, with directions for a new trial in con- 
 formity with this opinion. 
 
 NICKELL V. BEADSHAW et al. 
 (Supreme Court of Oregon, 1919. 94 Or. 580, 183 Pac. 12, 11 A. L. R. 62.3.) 
 
 Belle Nickell brought this action against R. H. Bradshaw, as the 
 maker, and against Effie May Terrill, as an indorser, of a promissory 
 note.- Involuntary judgment of nonsuit, against Belle Nickell. The 
 plaintiff appealed. 
 
 On August 9, 1910, R. H. Bradshaw delivered to Effie May Terrill 
 his promissory note which reads as follows : 
 
 $2,000. Medford, Oregon, Aug. 9th, 1910. 
 
 "Five years from date without grace, I promise to pay to the order 
 of Effie May Terrill for value received, with interest from date, pay- 
 able annually at the rate of 6 per cent, per annum, until paid, principal 
 and interest payable in U. S. gold coin, at Farmers' & Fruit Growers' 
 Bank of Medford, Oregon ; and in case suit or action is instituted to 
 collect this note or any portion thereof, I promise to pay such addition- 
 al sum of money as the court may adjudge reasonable as attorney's 
 fees in such suit or action. R. H. Bradshaw. 
 
 "Due if ranch is sold or mortgaged." 
 
 Harris, J. * * * It is contended that the note sued upon is a 
 nonnegotiable instrument. This contention proceeds upon the theory 
 that the words, "due if ranch is sold or mortgaged," made the time of 
 payment so uncertain that it cannot be said that the note was payable 
 ^'at a fixed or determinable future time." * * * - 
 
 The three sections of our Code to which attention has been directed 
 correspond with sections 184, 1, and 4 of the Uniform Negotiable In- 
 struments Law which has been adopted by all the states of the Union 
 except Georgia and Texas. * * * jf the words, "due if ranch is 
 sold or mortgaged," are omitted from the instrument, it concededly be- 
 comes ^ negotiable promissory note within the meaning of section 6017, 
 E. O. L., because it contains a promise to pay "five years from date," 
 which is, speaking as of the date of the note, a fixed future time. If, 
 
668 NEGOTIABLE INSTRUMENTS (Part 3 
 
 on the other hand, the words, "five years from date," are erased, the 
 paper is admittedly transformed into a nonnegotiable instrument, be- 
 cause it then becomes payable "if ranch is sold or mortgaged," which, 
 if standing alone and viewed by itself, was at the time of the execution 
 of the instrument a "contingency" within the meaning of section 5837, 
 L,. O. Iv. We are not permitted, however, to cancel any word found in 
 the instrument, and hence the whole of the paper must be considered 
 in determining whether the instrument is or is not negotiable. Fin- 
 ley V. .Smith, 165 Ky. 445, 177 S. W. 262, L. R. A. 1915», 177, 780. 
 It will be observed that the writing does not in express terms say that 
 the debt becomes due if the ranch is sold or mortgaged, before "five 
 years from date," and yet such is the obvious intent and meaning of 
 the whole writing. The debt becomes due at all events "five years 
 from date," and the debt cannot extend beyond that fixed, certain, and 
 definite period because the moment the five-year period ends the debt 
 is due and any other interpretation of the writing would completely 
 nullify the words "five years from date" ; but, if the ranch is sold of 
 mortgaged prior to the expiration of that fixed future time, then the 
 promisor agrees to pay the debt at the time of such sale or mortgage. 
 
 ^ ^ ^ 
 
 The words, "due if ranch is sold or mortgaged," do not extend the 
 date of payment, but upon the contrary they serve only to accelerate 
 the maturity of the debt. Stated broadly, the overwhelming weight 
 of authority is to the effect that, where a note is made payable on a 
 definite day and also contains a conditional promise to pay at an earlier 
 time, the instrument is not rendered nonnegotiable by the acceleration 
 clause. * * * The books, contain a variety of cases involving ac- 
 celeration clauses. More common illustrations are found ij} instru- 
 ments which provide that a default in the payment of interest or in 
 the payment of an installment shall mature the debt. Other familiar 
 examples are furnished by adjudications where a series of notes have 
 been given for a single debt with a provision in each note tiiat default 
 in the payment of any one shall mature all the unpaid notes. While 
 nearly all the courts have decided that a default in the payment of in- 
 terest or in the payment of an installment or a failure to pay one of a 
 series of notes is such an acceleration clause as does not destroy the 
 negotiability of an instrument, yet there are recorded instances where 
 courts have held that acceleration clauses of the kind mentioned im- 
 pair the negotiability of the instruments otherwise negotiable. 
 
 As alreadv stated, the general principle has been firmly established, 
 in despite of occasional dissenting voices, that an acceleration clause 
 does not necessarily destroy the negotiability of an instrument. The 
 chief difficulty, however, is encountered whenever an attempt is made 
 to formulate a rule by which to determine the validity of all accelera- 
 tion provisions; and it is probably impossible to formulate, even in 
 the most general language, any rule which will include all acceleration 
 provisions that have been held sufficient, and at the same time serve 
 as a safe and certain guide in all jurisdictions. This difficulty is nei- 
 ther greater nor less now than it was previous to the adoption of the ne- 
 gotiable instruments law. For example, there is a class of cases deal- 
 ing with instruments having provisions to the effect that if at any time 
 the holder of the note deems himself insecure he may declare the debt 
 due ; or to the effect that the holder may, if he deems himself insecure. 
 
Ch. 1) FORMAL REQUISITES 669 
 
 call upon the maker for additional security when the value of the se- 
 curity given at the time of the execution of the writing becomes impair- 
 ed, and if the maker fails to respond with additional security the holder 
 may declare the debt due. 
 
 The adjudications assignable to this class are divided in their views; 
 but the majority of the cases decided under the provisions of the ne- 
 gotiable instruments law, as well as the majority of those decided in 
 jurisdictions where the negotiable instruments law had not yet been 
 adopted, have ruled that this kind of a condition in an acceleration 
 clause renders the instrument nonnegotiable. * * * Holliday State 
 Bank v. Hoflfman, 85 Kan. 71, 116 Pac. 239, 35 L. R. A. (N. S.) 390, 
 Ann. Cas. 1912D, l. * * * Contra: Empire National Bank v. 
 High Grade Oil Refining Co., 260 Pa. 255, 103 Atl. 602; Finley v. 
 Smith, 165 Ky. 445, 177 S. W. 262, L. R. A. 1915F, 777. * * _ * 
 The cases holding that an instrument is not negotiable if it contains 
 a clause giving the holder the right to declare the debt due if he deems 
 himself insecure are based primarily upon the objection that the date 
 of maturity is placed wholly under the control of the holder, is com- 
 pletely dependent upon his whim or caprice, and is independent of any 
 act done or omitted by the maker ; and, if there is the further stipula- 
 tion that the maker will furnish added security when called upon, 
 then there is, of course, an affirmative promise of the maker to do 
 an act in addition to his promise to pay money. * * * 
 
 It is apparent from what has already been said that some jurisdic- 
 tions go further than others in their approval of acceleration clauses ; 
 and consequently a rule containing language as broad as the rule in 
 some jurisdictions would be too broad for others, and a formula which 
 is only broad enough for the latter would not be broad enough for the 
 former. In this jurisdiction the holding in Reynolds v. Vint, 73 Or. 
 528, 144 Pac. 526, and in Western Farquhar Mach. Co. v. Burnett, 82 
 Or. 174, 161 Pac. 384, condemns acceleration clauses which are en- 
 tirely under the control of the holder and completely dependent upon 
 his whim or caprice independent of any act of the maker; but, since 
 neither of those decisions condemns all acceleration clauses, we have 
 no hesitancy in declaring that we prefer to keep company with the 
 majority of the other jurisdictions by giving approval to certain 
 kinds of acceleration clauses. 
 
 What we deem to be the better rule is best expressed by language 
 found in Ernst v. Steckman, 74 Pa. 13, 15 Am. Rep. 542, where a note, 
 payable "twelve months after date (or before, if made out of the sale 
 of W. S. Coffman's Improved Broadcast Seeding Machine)," was held 
 to be negotiable. In • concluding the opinion (he court there said: 
 "The principle to be deduced from the authorities is this : To con- 
 stitute a negotiable promissory note, the time, or the event, for its ulti- 
 mate payment, must be fixed and certain; yet it may be made subject 
 to contingencies, upon the happening of which, prior to the time of its 
 absolute payment, it shall become due. The contingency depends upon 
 some act done or omitted to be done by the maker, or upon the occur- 
 rence of some event indicated in the note; and not upon any act of the 
 payee or holder, whereby the note may become due at an earlier day." 
 * * * 
 
 The respondent has argued that the debt represented by the note 
 automatically became due when the conveyance was made to Frederick 
 
670 NEGOTIABLE INSTRUMENTS (Pai't 3 
 
 T. Lewis on January 18, 1913; but the answer is that the: thoroughly- 
 established and indeed almost universal, if not the universal, rule is 
 that the acceleration clause is not self-executing, but it merely confers 
 an option upon the holder to treat the debt as due. * * * 
 
 To summarize the situation with respect to the requirement of 
 certainty in the time of payment, the actual state of the law is 
 open to a double criticism. In the first place, it muy well be urged 
 that section 4, subsection 3, is too great a relaxation of the require- 
 ment of certainty in the time of payment. This section has merely 
 codified existing law. Even if the case of an instrument made 
 payable within a specified time after the death of a designated per- 
 son be regarded as sufficiently certain — and the policy of this rule 
 may be doubted — still the opportunity thus afforded to hold that 
 other events such as the arrival of a ship or the maturing of a crop 
 operate as continual temptations to override the requirement of 
 certainty in the time of payment. As has been well said by Pro- 
 fessor Chafee,'^ with reference to this class of commercial instru- 
 ments, " * * * the obligors on the instrument ought to know 
 the time of payment definitely, so that the primary party may have 
 funds ready as tlie day approaches, and the secondary parties rriay 
 watch him and protect themselves if he appears unprepared to 
 pay. Good business policy requires that men shall foresee the 
 maturity of their obligations and adjust their affairs accordingly. 
 Because of these specific objections, the paper is unsuited to rapid 
 circulation in the legitimate money market." 
 
 A second criticism may be directed at the view that an instru- 
 ment bearing a fixed maturity but subject to acceleration into an 
 earlier maturity upon the happening of some event, in form_ ex- 
 trinsic, but in reality conferring an option on the holder to de- 
 mand payment, is payable at an uncertain time. Where the instru- 
 ment is made to mature before the fixed date (a) when the holder 
 deems himself insecure, or (b) when the obligor does any act cal- 
 culated to impair the security, or (c) upon the depreciation of col- 
 lateral deposited by the obligor with the holder, the event is not 
 so far contingent as to require the holding that the time of pay- 
 ment is uncertain. ' In legal effect the instrument is payable at 
 the fixed date but subject to earlier maturity at the option of the 
 holder. As far as the holder is concerned, the instrument is de- 
 mand paper. Of course an instrument which bore a fixed date of 
 maturity, but was subject to an earlier maturity upon the happen- 
 ing of some event wholly contingent, as for example, an instrument 
 payable at a fixed date but subject to an earlier payment if the 
 price of cotton on the exchange dropped below a specified figure, 
 may be regarded as uncertain in the time of payment) though even 
 here it is possible to take the view that the existence of the fixed 
 
 1 Acceleration Provisions In Time Paper, 32 Harvard Law Review, 754. 
 
Ch. 1) FORMAL REQUISITES 671 
 
 date saves the instrument from the perils of uncertainty. In- 
 deed, under the Negotiable Instruments Law as in force in Wis- 
 consin, such an instrument would be negotiable. The Wisconsin 
 statute contains the following clause which is not found in the 
 Uniform Act: "An instrument is payable at a determinable fu- 
 ture time, within the meaning of this act which is expressed to be 
 payable at a fixed period after date or sight, though payable before 
 then on a contingency." 
 
 Professor Chafee, in the same article, has suggested the follow- 
 ing rules with respect to acceleration provisions: 
 
 I. An instrument with an acceleration provision in order to be 
 negotiable must conform to the following requirement: The ulti- 
 mate time of payment must be obvious from the bare inspection 
 of the instrument; and payment can be accelerated only by the 
 performance of an act regularly incident to the collection of the 
 paper. 
 
 II. The ultimate time of payment is the maturity of the instru- 
 ment for all purposes with respect to persons who have not re- 
 ceived notice that the fact which was to accelerate payment has 
 occurred. 
 
 III. The time fixed by the acceleration provision is the maturity 
 of the instrument for all purposes with respect to persons who 
 have received notice that the fact which was to accelerate payment 
 has occurred. 
 
 SECTION 6.— THE INSTRUMENT MUST BE PAYABLE 
 
 IN MONEY 
 
 N. I. L., Section 1, subsec. 2. An instrument to be negotiable 
 must contain an unconditional promise or order to pay a sum cer- 
 tain in money. 
 
 N. I. L., Section 132. The acceptance of a bill must not express 
 that the drawee will perform his promise by any other means than 
 the payment of money. 
 
 N. I. L., Section 6, subsec. S. The validity and negotiable char- 
 acter of an instrument are not affected by the fact that it desig- 
 nates a particular kind of current money in which payment is to 
 be made. 
 
 What is money? Until recently this question was frequently 
 litigated, and its solution occasioned considerable difficulty. The 
 Courts were by no means agreed as to what kinds of media of 
 exchange were to be included in the term "money." To-day the 
 question is of much less practical importance; but it still exists, 
 and, inasmuch as the Negotiable Instruments Law has not at- 
 tempted a definition, the old question is occasionally presented. 
 
 How may the question be presented? Suppose we take the 
 case of a promissory note. The promise therein may read: (1) 
 I promise to pay A. or order one hundred bushels of wheat, or (2) 
 one hundred dollars, or (3) one hundred dollars in current funds 
 
672 NEGOTIABLE INSTRUMENTS (Part 3 
 
 or in currency, or (4) particular kind of media in circulation, such 
 as national bank notes. Federal Reserve notes, gold certificates. 
 Federal Reserve Bank notes, gold coin, United States notes, Lib- 
 erty bonds, or (5) one hundred dollars in British po"unds sterling, 
 or (6) one hundred British pounds sterling. Do any or all of these 
 things fall within the meaning of the word "money" ? Where the 
 instrument is payable in dollars, the problem is easy, for whatever 
 constitutes a dollar will be money, and the instn.iment will be ne- 
 gotiable, although it may not be clear what sort of media of 
 exchange may be validly tendered in satisfaction of the debt. In 
 that question we are not interested here. We are interested only 
 in determining what language used in description of a particular 
 kind of medium,of exchange when expressly incorporated in the in- 
 strument will have the effect of taking away the important char- 
 acteristics of negotiability. 
 
 The cases which gave rise to the greatest difficulty were those 
 where the instrument provided that the debt evidenced thereby 
 was to be paid in currency, or current funds or in some specified 
 kind of circulating media such as national bank notes. Professor 
 Greely, in reviewing these early cases, has said :' "Prior to fed- 
 eral legislation virtually prohibiting the issue of state bank notes, 
 much litigation arose involving the negotiability of instruments 
 payable in 'current funds,' 'current bank notes,' 'currency,' etc. 
 At that time the money in actual use was, in many places, state 
 bank notes which were depreciated, and had largely or completely 
 displaced legal tender. When instruments were drawn payable 
 in 'current funds' or 'currency' the question whether (a) they 
 were payable in the local depreciated currency, or in legal tender, 
 or in legal tender and bank notes circulating at par therewith, and 
 (b) whether thej'^ were negotiable or not, were important and diffi- 
 cult. Different rules were laid down in different jurisdictions. In 
 Illinois it was held that such instruments were payable only- in 
 legal tender or funds circulating at par therewith, and not in the 
 depreciated local currency. That so regarded, the instruments 
 were negotiable. In Iowa it was held that instruments so payable 
 were prima facie payable in the depreciated local currency, and 
 were not negotiable (not being payable in money), but became 
 negotiable if it were shown by evidence that the word 'currency' 
 or 'current funds' actually designated legal tender or funds the 
 practical equivalent thereof. In some states such instruments 
 were held to be payable in the local depreciated money, and not 
 in legal tender or its equivalent and so regarded, were by some 
 courts held to be negotiable and by others not. The tendency of 
 the authorities was to regard as negotiable, paper payable in legal 
 tender or in funds passing current at par therewith." 
 
 Where an instrument is payable in currency, the word "cur- 
 rency" may mean legal tender only or it may include other media 
 of exchange circulating at par therewith., A court may hold that 
 
 2 TJniform Negotiable Instruments Law, 10 Illinois Law Review, 267. 
 
Ch.'l) FORMAL REQUISITES 673 
 
 nothing is money unless it is legal tender, or a court may hold 
 that any medium of exchange is money which, although it is not 
 legal tender, circulates at par with legal tender. Most courts 
 held that in order for circulating media to constitute money they 
 must be legal tender. With respect to this controversy Professor 
 Oliphant concludes that "anything which for a substantial 
 period of time and throughout any important commercial 
 community is by general consent used and treated in common pay- 
 ments as cash in the ordinary course and transaction of business 
 is money." ^ Professor Oliphant aptly observes that any other 
 rule would result in the extraordinary situation that a repeal of 
 our legal tender laws would leave us without negotiable instru- 
 ments. 
 
 Professor Brannan has argued that the section should be amend- 
 ed by providing that instruments payable in currency, current 
 funds and the like should be deemed negotiable and that these 
 added words should be defined in the act to mean legal tender and 
 circulating media circulating at par therewith.* 
 
 The following cases illustrate various situations that involve 
 the sections above quoted. 
 
 EOBEETS V. SMITH et al. 
 
 (Supreme Court of Vermont, 1886. 58 Vt. 492, 4 Atl. 709, 
 56 Am. Rep. 567.) 
 
 VeazEy, J. Although it has long been settled in this state that a 
 written contract having the usual form of a promissory note, but pay- 
 able in some specific article, may be treated as a promissory note as 
 to the form of declaring upon it, and the necessity of proof of consid- 
 eration, and in some other respects, * * * yet such an instrument 
 is not negotiable because not payable in money. * * * The instru- 
 ment declared upon was not even a promise to pay a given sum in 
 specific articles, but only to pay "one ounce of gold." It stands, for 
 consideration, upon the question of the sufficiency of the declaration, 
 under the demurrer thereto, as though it were a promise to pay one 
 bushel of wheat. This suit is by a purchaser from the payee. The 
 plaintiff cannot stand upon the first count, as the instrument declared 
 upon is not negotiable, and no promise by the defendant to the plain- 
 tiff is alleged. * * * 
 
 It is but a promise to pay, that is, deliver, a certain article of mer- 
 chandise definite in amount. Because gold enters into the composition 
 of money we cannot assume that "an ounce of gold" is money, or that 
 it has a &ted and unvarying value. The contract in question lacks, not 
 only the \}Uality of negotiability, but certainty and precision as to the 
 amount to be paid. Upon failure to perform, there would be no defi- 
 nite specified sum due, as in case of a promissory note. The declara- 
 tion is drawn upon the theory that the instrument was a promissory 
 
 3 The Theory of Money in the Law of Commercial Instruments, 29 Yale 
 Law Journal, 606. 
 
 * Some Necessary Amendments of the Negotiable Instruments Law, 26 
 Harvard Law Keview, 493. 
 B.& B.Bus.Law^S 
 
674 NEGOTIABLE INSTRUMENTS (Part 3 
 
 note except in respect to negotiability. No value is alleged in the 
 thing promised. The pleader claims to be entitled to the value of a 
 commodity, without alleging it has any value. It is plainly impossible 
 to apply to this paper a form of declaration adapted solely toa prom- 
 issory note. Although it has form of a promissory note, it is not 
 such. * * * It must be treated as a simple contract for the deliv- 
 ery of merchandise. As a declaration upon such a contract it is want- 
 ing in proper averments as to consideration, as to value, and as to 
 breach and damages. * "^ "^ 
 Judgment reversed. 
 
 * * 
 
 MILMKAN V. SECURITY TRUST CO. 
 (Supreme Court of Indiana, 1918. 187 Ind. 307, 118 N. E. 568.) 
 TowNSEND, J. * * * Appellant's eighth paragraph of answer is, 
 in substance, that appellee at the time of the purchase of said note ex- 
 ecuted in payment therefor a certificate of deposit, as follows : 
 
 "Security Trust Compaxiy. 
 "Certificate of Deposit. No. 2341. 
 
 "Indianapolis, Ind., Dec. 4th, 1912. _ 
 "American Standard Life Assurance Co. has deposited with this 
 company five thousand dollars payable to the order of same, in cur- 
 rent funds on the return of this 'certificate properly indorsed. June 
 1st, 1913. With interest at two per cent, per annum for the time 
 specified only. Not subject to check. 
 
 "Countersigned: R. A. Young, Secretary. 
 "Bert McBride, President." 
 
 Then this paragraph is, in substance, that the note was dishonored 
 at maturity, that appellee had notice of the dishonor, and that appel- 
 lee with such notice paid the certificate. If the certificate is not ne- 
 gotiable, the paragraph is bad. 
 
 ApE>ellant contends that this certificate is not negotiable because it 
 is payable in "current funds." One of the elements of negotiability is 
 that an instrument be payable in money, and the question is whether 
 "current funds" means money. There is some confusion in the deci- 
 sions of this court on this point. In the case of Drake v. Markle, 
 21 Ind. 433, 83 Am. Dec. 358, a certificate of deposit payable "in cur- 
 rency" was held to be payable in money and negotiable. Although no 
 particular stress seems to have been laid upon the point of its being 
 payable in "currency," yet the court sets out the instrument and seems 
 to have had this question in view. In the case of the National Bank, 
 etc., V. Ringel, 51 Ind. 393, this court held that a certificate of deposit 
 payable "in current funds" was not negotiable because it lacked one of 
 the essentials not being payable in money. 
 
 Beginning with the issue of United States Treasury not^^ declared 
 to have the quality of legal tender, it has been the practice of drawers 
 of bills of exchange and makers of promissory notes to indicate pay- 
 ment in gold or silver or such notes, and from that time the terms "cur- 
 rent funds" and "currency" have been used to designate any of these, 
 all being current and declared by statute to be legal tender. The bet- 
 ter rule now seems to be that instruments of the kind in question, pay- 
 able in "current funds" or in "currency," are payable in money. * * * 
 
 We therefore hold that this certificate of deposit is payable in 
 money, and is negotiable as an inland bill of exchange. * * * 
 
Ch. 1) FORMAL REQUISITES 675 
 
 EASTMAX V. SUNSET PARK LAND CO. et al. 
 
 (District Court of Appeal, Second District, California, 1917. 35 Cal. App. 62S, 
 
 170 Pac. 642.) 
 
 CoNREY, P. J. The plaintiff, being the owner of a promissory note 
 made by the defendant Sunset Park Land Company in favor of, de- 
 fendant T. G. Rickman, brought this action and obtained judgment, 
 from which the Sunset Park Land Company appeals. It is admitted 
 that the judgment should be sustained if the note was a negotiable in- 
 strument. Appellant contends that the note was not a negotiable in- 
 strument because by its terms it was made payable "in United States 
 gold coinj! — ^ * * 
 
 We are of the opinion that a note which is made payable in United 
 States gold coin is a note payable in money- enly, notwithstanding the 
 fact that the note prescribes a particular kind of money. * * * We 
 think that the note in question was a negotiable instrument, and there- 
 fore the judgment is affirmed. 
 
 BROWN et al. v. PERERA. 
 (Supreme Court of New York, Aiipellate Division, 1918. 176 N. T. Supp. 215.) 
 
 The following is the opinion of LEventritt, referee, in the court 
 below : 
 
 The plaintiff composing the firm of Redmond & Co., bankers in the 
 city of New York, bring this action for the alleged conversion by 
 the defendant of foreign moneys bought and received by him from the 
 plaintiffs' defaulting employe and agent. 
 
 In the years 1913 and 1914 the plaintiffs were conducting a foreign 
 • exchange department as a branch of their business. In that depart- 
 ment the moneys of various foreign governments were bought and 
 sold. One Thomas Piptpne, the defaulting agent, was the manager of 
 that department. The foreign moneys on hand were in his personal 
 custody, and his authority to sell such moneys was unrestricted. 
 * * * Early in the year 1913 Piptone, who was known to the de- 
 fendant as the manager of the plaintiffs' foreign exchange department, 
 informed the defendant that he, Piptone, was starting a specie business 
 for the plaintiffs, and was receiving from customers foreign moneys 
 to sell at the best market rates. Thereafter, in the course of that year 
 and in the first half of 1914, Piptone several times a month brought to 
 the defendant's place of business foreign moneys for sale, and usually 
 received cash in payment therefor^ * * * The moneys sold on 
 these nine occasions embraced issues of Italy, Germany, Austria-Hun- 
 gary, France, Switzerland, and Belgium, of the value of upwards of 
 $24,(XX). It is for the conversion of these moneys that the action was 
 brought. They belonged to the plaintiffs, and Piptone never accounted 
 for any of the proceeds, but appropriated them. He has been convict- 
 ed of the larceny of moneys sold in one of those transactions. * * * 
 
 As to the foreign moneys purchased by the defendant in the nine 
 transactions, some of the essential elements of a conversion are pres- 
 ent. From the circumstance that checks for purchase money to the 
 order of Pagano were requested on these nine occasions, it is reasona- 
 bly clear that in each instance Piptone was acting with the preconceiv- 
 ed intent to appropriate the proceeds, and hence was guilty of embez- 
 
676 NEGOTIABLE INSTRUMENTS (Part 3 
 
 zling the foreign moneys. Therefore whatever title the defendant had 
 was obtained from a thief. Furthermore, the defendant has disposed 
 of those moneys and thereby converted them, unless his title was good. 
 The point has been raised that there was no sufficient demand upon 
 the defendant for the restoration of the moneys to support an action 
 for conversion, but as the defendant had placed it beyond his power 
 to comply, the omission to demand is no obstacle to the maintenance of 
 the action. Pease v. Smith, 61 N, Y. 477; Ochs v. Pohly, 87 App. 
 Div. 92, 84 N. Y. Supp. 1. * * * There is no evidence, or even a 
 suggestion, that the defendant's title was affected by knowledge or no- 
 tice that the moneys he received had been stolen. The plaintiffs' 
 claim must therefore rest upon the proposition that the defendant, 
 having purchased from a thief, obtained no title. That would be so 
 if foreign money is, in legal contemplation, a mere commodity or arti- 
 cle of merchandise. The contrary would be true if such money has 
 the qualities of transferability possessed by the circulating medium of 
 the United States. The whole question is whether foreign money, ac- 
 quired under the circumstances here existing, must be treated as a 
 commodity merely, the title to which did not pass from the owner, or 
 is money, title to which was acquired by the innocent holder, even 
 though he purchased it from one who had no title. 
 
 Upon a historical and practical consideration of the subject, it ap- 
 pears that foreign money is not ipso f^cto a mere cominodity. Such 
 moneys have circulated as an actual medium of exchange in this and 
 other countries, both with and without special statutory sanqtion. The 
 United , States Constitution, art. 1, § 8, cl. 5, confers authority on 
 Congi;ess "to coin money, , regulate the value thereof,, and of foreign 
 coin. * * * " Various European coins had circulated freely as a 
 medium of exchange in the colonies. The framers, of the Constitu- 
 tion contemplated that the coins of certain European governments 
 would constitute a necessary part of the current moneys of this coun- 
 try. Accordingly, , by chapter -5 of the act of February 9, 179:? (1 
 Stat. 300), Congress made the gold coins oi Great Britain, France, 
 Spain, Portugal, and the silver coins of France and Spain, a legal 
 tender at fixed valuations, and this law, as renewed from time to time, 
 remained in force until repealed by the act of February 21, 1857 (11 
 Stat. 163, c. 56). Foreign coins are thus moneys of the Constitution, 
 and are accorded more positive recognition by that instrument than 
 the paper issues of this government. Such coins had a general cir- 
 culation for a long period of our history, , sornetimes under adverse 
 conditions. In the argument of the Legal Tender Cases, 12 Wall. 475, 
 20 L. Ed. at pa,ge 294, this statement was made : "Your honors will' 
 recollect how often in the days of the Spanish piece for 121/2 cents, 
 we accepted 12 cents instead and took Spanish quarters with holes 
 drilled through them equally with perfect coin." It is interesting to 
 find that Canada has no gold coinage, and has made the gold coins of 
 the- United States and of England legal tender to ill amounts. Muhle- 
 man's. Monetary Systems of the World, p. 147. 
 
 No one would deny that, if foreign money is a legal tender, it pos- 
 sesses all the attributes of money. Is it relegated to the status of 
 merchandise merely by reason of the taking away of the legal tender 
 quality? Much of the money of this country does not possess that 
 quality except for certain purposes or in limited amounts, and yet 
 the title to such moneys would be indisputable in the hands of one 
 
Ch. 1) FORMAL REQUISITES 677 
 
 who took them in good faith and for value, in any legitimate transac- 
 tion and to any amount. The American trade dollar for many years 
 prior to 1887, when its coinage was prohibited, was not a legal tender, 
 though it must have possessed the attributes of money in the transac- 
 tions in which it was intended to be used. Foreign moneys, as well 
 as domestic moneys, which are both legal tender, may, of course, be 
 treated as money by voluntary agreement. Near the border line be- 
 tween two nations, the moneys of both circulate with almost equal 
 freedom. Canadian coins are extensively circulated as a medium of 
 exchange in the northern portion of our border states. In many parts 
 of Canada the paper and silver moneys of the United States, as well as 
 gold, are readily accepted. Certain European moneys, as the franc, are 
 frequently received as a medium of exchange in countries other than 
 that in which they are issued. It would be a startling proposition to 
 hold that in all such cases the foreign money is a mere commodity 
 which may be recovered by the owner from the innocent holder. The 
 evidence shows that' in the city of New York some of the department 
 stores receive, at certain rates in payment for goods, European mon- 
 eys, such as are involved in this case, and give change in American 
 money. The extent to which foreign money may circulate as a medium 
 of exchange varies according to circumstances, and depends upon the 
 needs of commerce, familiarity with the value of the money, and the 
 certainty that it can be disposed of at the same value at which it is 
 received. The circulation of money is nothing more than the aggre- 
 gate of the transactions in which the individuals have been and are 
 willing to receive that money. The legal attributes of the money can 
 hctrdly be made to depend upon the number of these transactions. 
 Even money of the country may not circulate. At one period in our 
 history, when the value of gold as compared with silver materially ex- 
 ceeded the established ratio of coinage, gold disappeared from circula- 
 tion, and "the country retained, instead, only silver and gold coins of 
 those countries whose gold coinage bore a true relation to the existing 
 value of gold and silver." Argument in Legal Tender Cases, 12 Wall. 
 457, 20 L. Ed. 293. 
 
 The plaintiffs, however, contend that in no event is the defendant 
 protected, because he was the purchaser of the foreign money at a 
 price paid in American money, and that in such transactions the for- 
 eign money is the subject of purchase and sale, and not the medium 
 with which the purchase and sale is effected. This statement has a 
 certain plausibility, but the transaction actually is the exchange of the 
 foreign money for the domestic at a certain rate. The foreign money 
 is received as a representative of value just as the domestic money is 
 paid as a representative of value. The fact that one kind of money 
 may be sold and purchased in terms of another kind of money is not 
 of controlling significance. * * * 
 
 The foregoing general considerations indicate, to my mind, that 
 foreign money in its nature and inherent qualities is not different from 
 domestic money. Whether it is received under sanction of a legal 
 tender statute, or in border transactions, or by certain merchants in 
 accordance with a special practice, or by money changers in exchange 
 for American money at prevailing rates, it is received, not as an arti- 
 cle useful or valuable in itself, but merely as a token or representative 
 of value issued by a responsible government. 
 
 The legal principles and precedents governing this subject may now 
 
678 NEGOTIABLE INSTRUMENTS (Part 3 
 
 be considered. The foreign moneys here involved were, with an insig- 
 nificant exception, paper bills. All of the moneys of Austria-Hungary 
 and Belgium received by the defendant, valued at $596.85, were, in 
 form, promises to pay to bearer. The plaintiffs therefore concede, 
 and the authorities clearly establish, that these moneys are within the 
 protection of Negotiable Instruments Law, * * * and so cannot 
 be the basis of recovery in this action. The evidence also shows that 
 an indeterminable portion of the money's of other governments were 
 negotiable instruments in form. In this state of ,the proof, these other 
 moneys cannot be treated as subject to the law governing negotiable 
 instruments. They cannot be regarded as promises to pay money, and 
 the question therefore is whether, under principles of law outside of 
 the law of negotiable instruments, they possess the negotiable quality. 
 The rule that the owner of personal property cannot be divested of 
 title without his consent has been established from the earliest. period 
 of the common law. Also of ancient origin and equally familiar is 
 the exception to that rule that good title to money,- and bills and notes 
 payable to bearer, is acquired by a bona fide transferee even from i 
 thief. The principle embodied in this exception was established by 
 the old custom of merchants, which "before the end of the thirteenth 
 century was already conceived as a body of rules which stood apart 
 from the common law." Pollock & Maitland's History of English 
 Law (2d Ed.) vol. 1, p. 467. At that stage these rules were applied 
 merely as the general custom of commercial transactions and had to 
 be specifically pleaded, but later they became a part of the common 
 law. 'ts ♦ sji 
 
 There are two noteworthy features of the law merchant. First, it 
 was not limited to the law of bills and notes, as may sometimes be 
 supposed, but embraced a large body of rules governing commercial 
 deaUngs. Thus Christian, in his note to 1 Blackstone's Commentaries, 
 72, quoted in 1 Cranch (U. S. Appendix, note A, p. 373), says that 
 "the law mercatoria, or custom of merchants * * * described only 
 a great division of the law of England," and includes "the laws re- 
 lating to bills of exchange, insurance and all mercantile contracts." 
 And Sir Matthew Hale, in his History of the Common Law of Eng- 
 land (3d Ed.) p. 25, speaks of the lex mercatoria as a branch of the 
 law, "applied under its proper rules to the business of trade and com- 
 merce." The second feature is that the rules of the law merchant were 
 international in conception, governing transactions between the mer- 
 chants and traders of different countries. In Pollock & Maitland's 
 History of English Law (2d Ed.) vol. 1, p. 467, it is stated: "These 
 rules are not conceived to be purely English law; they are, we may 
 say, ius gentium, known to merchants throughout Christendom, and 
 could we now recover them we might find some which had their origin 
 on the coasts of the Mediterranean." And in De La Chaumette v. 
 Bank of England, 2 Barn. & Ad. 385, Lord Tenderden refers to "the 
 custom of merchants, which was part of the common law introduced 
 into this country in consequence of the practice in other countries." 
 The international character of the law merchant is emphasized by the 
 fact that foreign bills of exchange had a 'secure standing under the 
 rules long before inland bills were recognized. In Bromwich v. Lord 
 (1696) 2 Lutwyche, 1585, Chief Justice Treby said that "bills oi ex- 
 change at first were extended only to merchant strangers trading with 
 
Ch. 1) FORMAL REQUISITES 679 
 
 English merchants, arid afterwards to inland bills between merchants 
 trading one with another here in England." 
 
 In this system of rules, which sprung into existence and has been 
 perpetuated for the sole purpose of facilitating trade and rendering 
 commercial transactions certain arid secure, we may naturally expect 
 to find that the very corner stone of the structure is the rule which 
 guarantees the untrammeled transferability of money. That such is 
 the case is shown by many authorities, both ancient and modern. A 
 few representative cases may be cited: In Crawford v. Royal Bank 
 (1749) reported in Ross on Bills and Promissory Notes, 229, the ac- 
 tion was to recover a lost or stolen note for pounds sterling, which 
 was identified in the hands of a bona fide holder for value. The de- 
 fendant successfully contended "that such is the nature of money 
 and bank notes, which serve the purpose of money, that a bona fide 
 purchaser or possessor is not subjected to a rei vindicatio, because 
 such a claim would be an impediment to commerce." The court said 
 they were unanimous on two points: "That money is not subject to 
 any vitium reale, and that it cannot be vindicated from a bona fide pos- 
 sessor, however clear the proof of the theft may be. Second. That 
 bank books serving the purposes of money must be entitled to .the 
 same privileges." In Moss v. Hancock, [1899] 2 Q. B. 3, Judge Chan- 
 nell said: "Now all the considerations which could have induced the 
 Legislature to protect holders of stolen negotiable instruments must 
 apply equally to stolen money taken bona fide. In fact, it is because 
 bills of exchange, etc., are like currency that they are negotiable." 
 In Merchants' Loan & Trust Co. v. Lamson, 90 111. App. 18, the court 
 said : "The rule is applied to commercial paper, but the same rule aj)- 
 plies with even greater force to currency. Indeed the rule as applied 
 to negotiable paper is derived from and based upon the English rule 
 as originally applied to coin or other forms of currency. The excep- 
 tion to the general rule of the common law that the purchaser of a chat- 
 tel can acquire no better title than the vendor, was first applied to 
 rrioney, i. e., currency, and then extended to negotiable paper." In 
 Depew V. Robards, 17 Mo. 580, the court said : "At ah early period of 
 our commercial law, it was held that money and bills payable to bear- 
 er, though stolen, could not be recovered after they had been passed 
 away to a bona fide holder, and this by reason of the course of trade 
 which creates a property in the holder. They pass by delivery only, 
 and are considered as cash, and the possession of a bona fide holder 
 always carries with it the property. This rule is founded on the ne- 
 cessity of sustaining the credit of that which is used as a medium of 
 exchange in commercial transactions." The language of these cases 
 and many others that might be cited conclusively shows that under 
 the law merchant bills and notes were given the quality of negotiabil- 
 ity simply because they represented money and answered a similar 
 purpose in commerce. But the free and safe transferability of money 
 was fundamental. Commercial paper shone, as it were, by reflected 
 light, and derived its negotiable qualities from its similarity to the 
 money in which it was payable. Hence it is that bills and notes paya- 
 ble in anything but money are not negotiable. In Bouvier's Institutes 
 (vol. 1, p. 458) the author states the well-established rule that a bill of 
 exchange "must not be for the payment of merchEfndise, or of other 
 things than such as are considered as money." And in Jamieson v. 
 
680 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Farr, 2 N. C. 182, the court said : "Bonds for specific articles could 
 never answer the purposes of trade, not being the representatives of 
 any certain value as money is. * * * For these reasons the law 
 has never made bonds for specific articles negotiable, but only bills, 
 notes and bonds for money." 
 
 Froni these principles it would necessarily follow that if the money 
 of foreign governments was considered as having the qualities of 
 merchandise and not the qualities of money, a bill or note payable in 
 foreign money would not be negotiable. The rule is well settled, how- 
 ever, that a bill Or note payable in specific foreign money is negotiable. 
 Mr. Chitty, in his work on Bills and Notes, at page 160, lays down 
 the rule that a bill of exchange may be payable in "the money of any 
 country." Judge Story, in his work on Promissory Notes, '§ 17, says : 
 "But, provided the note be for the payment of money only, it is wholly 
 immaterial in the currency of what country it may be payable. It 
 may be payable in the money or currency of England or France or 
 Spain or Holland or Italy, or of any other country." In Daniel on 
 Negotiable Instruments it is said that "it is not necessary that the mon- 
 ey should be that current in the place of payment or where the bill is 
 drawn; it may be in the money of any country whatever.". * * * 
 
 This rule that paper payable in foreign money is negotiable cannot 
 be understood or justified except upon the assumption that the foreign 
 money itself possesses like qualities of negotiability. The law mer- 
 chant would never have conferred upon the paper promise or direc- 
 tion to pay a higher commercial dignity and security than is possessed 
 by the thing in which the paper is payable. Incidentally, in answer to 
 the plaintiff's contention that foreign moneys must be treated as a 
 commodity when purchased with money of the realm, it is to be ob- 
 served that bills and notes payable in foreign money are negotiable, 
 even though the subject of purchase and sale is domestic money. 
 
 Going a step further, we find that English bank notes, which were 
 treated as money, were held to be negotiable both in that and other 
 countries so as to confer an indefeasible title on the innocent holder. 
 In Miller v. Race, 1 Burrow, 456, in which it was held that an Eng- 
 lish bank note, though stolen, became the property of an innocent 
 holder. Lord Mansfield said: "The whole fallacy of the argument 
 (to the contrary) lies in comparing bank notes to what they do not 
 resemble and what they should not be compared with, viz. to goods or 
 to securities or documents for debts. Now they are not goods or se- 
 curities, nor are they so esteemed, but are treated as money or cash 
 in the ordinary course and transaction of business by the general con- 
 sent of mankind, which gives them the credit and currency of money 
 in all intents and purposes. * * * The bank note is constantly and 
 universally, both at home and abroad, treated as money, as cash and 
 paid and received as cash, and it is necessary for the purpose of com- 
 merce that their currency should be established and secured." De La 
 Chaumette v. Bank of England, 2 Barn. & Ad. 38S, was an action of 
 trover involving the title to a bank note which had been stolen and 
 afterwards came into the hands of a money changer of Paris for 
 value and without notice. It was held that the purchaser acquired a 
 good title. The decision was based upon St. 3 and 4 Anne, which 
 made "all notes" 'negotiable ; but that is immaterial, as the statute was 
 probably only declaratory of the law merchant (1 Cranch, U. S., Ap- 
 pendix, note A, p. 418), and in any event became a part of the com- 
 
Ch.l) FORMAL REQUISITES 681 
 
 mon law. I<ord Tenderiien said: "A note payable to bearer, there- 
 fore, is transferable abroad just as an English bill of exchange drawn 
 in England and remitted to a foreign country would be. It may be 
 that great injury has been suffered of late by the facility enjoyed of 
 sending stolen notes abroad ; but, on the other hand, the negotiability 
 of English notes in foreign countries is a great convenience, as it saves 
 the necessity of carrying abroad specie.", 
 
 While in this case the court treated the note as a negotiable instru- 
 ment, it is evident that the court would unhesitatingly have reached 
 the same conclusiori hadthe note been treated as money. In Par- 
 sons on Notes and Bills (vol- 2, p. 355) the author quotes Lord Ten- 
 derden as saying on an earlier consideration of thp same case: "We 
 are to take care that we do not prevent the circulation of the Bank 
 of England notes in foreign countries. It would be very inconvenient 
 to merchants and travelers if we should do that." Raphiel v. Bank 
 of England, 17 C. B. 161, was another case in which the title of a 
 money broker of Paris to a stolen Bank of England note, acquired 
 innocently and for value, was upheld. Hrom these cases it is perfect- 
 ly clear that the English judges accepted as fundamental the proposi- 
 tion that one who in good faith, received English money abroad acquir- 
 ed an indefea.=;ible title. Nor is authority in this state lacking. In 
 Steinhart v. Boker, 34 Barb. 436, it was held that one to whom stolen 
 Bank of England notes were paid by a thief in discharge of a debt 
 took good title if ignorant of the theft, and was not bound, to inquire 
 into the title of the one frorn whom he received them, Whether the 
 court regarded the notes as money or as promissory notes cannot be 
 material, because under the law merchant, as has been seen, paper is 
 only negotiable because it is supposed to answer the same purpose in 
 commerce as the money in which it is payable. 
 
 In view of the international origin of the law merchant and its pri- 
 mary purpose to facilitate and safeguard commercial transactions, it 
 is hardly conceivable that the notion could ever have found accept- 
 ance that money becomes a mere personal, chattel as soon as it passes 
 beyond the domain of the country issujng it. Merchants, traders, and 
 travelers naturally, in many instances, took the moneys of their coun- 
 tries into foreign lands. There such moneys might be acceptable to 
 those with whom they dealt, or, if not, could be exchanged for do- 
 mestic currency through the money changer. Glimpses of the extent 
 to which moneys of England were employed in foreign countries may 
 be found in the decided cases. In De La Chaumette v. Bank of Eng- 
 land, supra,, the following facts were stated : "It was the practice for 
 persons traveling from this country into France to take, for the pur- 
 pose of paying their expenses, bank notes, and for persons residing 
 or domiciled in France to receive the same in payment. * * * it 
 was also the usual practice in Paris for bankers or other persons to 
 make remittances from . Paris to persons residing in England in Eng- 
 Hch money and bank notes, and for the purpose of making such re- 
 mittances to purchase of the money changers in Paris at the rate of 
 exchange between Paris and London for the time being English money 
 and bank notes." The exchange of moneys was an extensive business 
 in earlier as well as modern times, and was one of the necessities of 
 commerce. In Malynes' Work on the Lex Mercatoria, published in 
 1622, are found elaborate tables, setting forth, the values in English 
 money of the moneys of a large number of foreign nations. At the 
 
682 . NEGOTIABLE INSTRUMENTS (Part 3 
 
 present time in the city of New York alone dealings in foreign mon- 
 eys amount to many millions yearly. It will readily be seen to what 
 extent transactions between the citizens of different countries would 
 be hampered if the title to foreign money were subject to the rules 
 governing chattels. The money changer would have to take such 
 money subject to any defect of title, and so would the merchant or 
 tourist who received it from the money changer; There is not in any 
 treatise or decided case on the law merchant, so far as I have been 
 able to discover, a suggestion that any distinction exists in respect 
 to negotiability between domestic and foreign moneys. It is highly 
 significant as reflecting an ancient and uninterrupted custom that in 
 this city, as the evidence shows, dealers in foreign moneys and mer- 
 chants who accept it in payment for goods receive it from a stranger 
 as readily as from a known customer and without any concern as to 
 the title. 
 
 Two decisions, mainly relied on by the plaintiffs, require brief no- 
 tice. One is Chapman y. Cole, 12 Gray (Mass.) 141, 71 Am. Dec. 739. 
 The action was conversion for a gold coin, known and current in 
 California as "Moffatt's Issue." The plaintiff had passed the coin by 
 mistake for a half dollar to a person who passed it on by like mistake 
 to the defendant. The court held that the plaintiff was entitled to re- 
 cover because the gold piece was not money and was subject to the 
 rules of law governing chattels. Evidently this coin was nothing inore 
 than a piece of ^old coined by a man named Moffatt. It was used a^ 
 currency in a certain locality because the people had confidence in 
 the maker and accepted his name as a certificate of the quantity and 
 quality of the metal. It was not issued by any competent governmen- 
 tal authority. The law merchant, with all its solicitude for the securi- 
 ty of commercial transactions, has never gone so far as to extend the 
 qualities of negotiability to coins manufactured by individuals. A bill 
 or note payable in "Moffatt's Issue" would obviously not be negotiable. 
 This decision therefore does not in any way militate against the views 
 herein expressed. 
 
 The other case is Moss v. Hancock, [1899] 2 Q. B. 3, wherein it was 
 held that a £5 gold piece, coin of the realm, that had been stolen and 
 sold by the thief to a dealer in curiosities, could be recovered by the 
 owner. Apparently the gold piece was rare and of more than its nom- 
 inal value, and the decision turned upon tlie question whether the 
 defendant had received the coin as money or currency or as an arti- 
 cle valuable in itself. As Judge Darling expressed the question, "I 
 ask myself was this gold piece passed on its character as coin of cur- 
 rency, or was it rather the subject of a Sale as an article of virtu?" 
 He came to the conclusion that it was "the subject of a sale as a medal 
 might have been to a dealer in old and curious things." And Judge 
 Channell thought that the coin had been "dealt with as if it were a 
 medal, or ancient coin, or other curiosity." The decision was evidently 
 correct in principle, as applied either to domestic or foreign moneys, 
 but it does not control the present case, where the moneys purchased 
 by the defendant were received by him simply as representative of 
 the values expressed thereon and in their character as moneys of the 
 governments which issued them. 
 
 The conclusion that the defendant obtained good title to these mon- 
 eys is certainly in accordance with the equities of the case. The plain- 
 tiffs intrusted these moneys to their manager, gave him authority to 
 
Ch. 1) FORMAL KEQTIISITES 683 
 
 remove them from the premises and sell them wherever the best price 
 could be obtained. They maintained no supervision over him. While 
 the case may not technically be governed by the principle that as be- 
 tween two innocent parties the loss must fall upon the one whose con- 
 duct made the loss possible, it certainly comes within the spirit of that 
 rule. Freudenheim v. Gutter, 201 N. Y. 94, 94 N. E. 640 ; Knox v. 
 Eden Musee Co:, 148 N. Y. 453, 42 N. E. 988, 31 E. R. A. 719, 51 
 Am. St. Rep. 700. 
 
 Judgment should be rendered for the defendant. 
 
 Per Curiam. Judgment affirmed, with costs. 
 
 HEBBLETHiWAITE v. FLINT et al. 
 
 (Supreme Court of New York. Appellate Division, 1918. 185 App. Div. 249. 
 
 173 N. Y. Supp. 81.) 
 
 Putnam, J. * * * On July 2, 1898, the plaintiff had borrowed 
 of defendants 56 contos of reis Brazilian, "payable at the rate of ex- 
 change of yy-2 pence per milreis,'' for which he gave his demand note, 
 made and delivered at Manaos. * * * It is contended that this 
 note was not negotiable, because payable "in foreign currency of fluc- 
 tuating value in the United States." Our Negotiable Instruments Law 
 * * * declares that the negotiable character of such an instrument 
 is not affected by the fact that it "designates a particular kind of cur- 
 rent money in which payment is to be made." Here the note was made 
 in Brazil, payable in its national currency, which was stabilized by a 
 specific rate of exchange into British sterling. It was negotiable by 
 the law merchant.. * * * 
 
 If this note be held not negotiable, a personal demand on plaintiff 
 would be necessary. * * * 
 
 It would seem to follow from the preceding section that, if an 
 instrument contained a promise or order to do an act in addition 
 to the payment of money, the promise as a whole would not be to 
 pay in money, and that therefore the instrument would be non- 
 negotiable. Nevertheless section 5 provides: 
 
 An instrument which contains an order or promise to do any 
 act in addition to the payment of money is not negotiable. 
 
 OOOLIDGE & McOIvAINE v. SAITTMABSH et al. 
 (Supreme Court of Wa.shington, 1917. 96 Wash. 541, 165 Pac. 508.) 
 
 Per Curiam. The plaintiff CooHdge & McClaine, a corporation, as 
 holder of a promissory note and mortgage executed by Robert S. Salt- 
 marsh and Margaret Saltmarsh, brought an action against them to 
 foreclose the same, making a party defendant also William McCowat, 
 who held a subsequent mortgage covering the same land. The court 
 rendered decree foreclosing the Coolidge & McClaine mortgage.' On 
 issues raised between the Saltmarshes and McCowat on the latter's 
 note and mortgage whiclPhe held by transfer from the oiriginal payee, 
 the court held that the note was a nonnegotiable one and therefore 
 
684 NEGOTIABLE INSTRUMENTS (Part 3 
 
 subject, in the hands of McCowat as assignee, to all the defenses which 
 the makers had against the original payee. The defendant McCowat 
 appeals. 
 
 The attorneys for both appellant and respondents agree that th e on ly 
 jSSuejn_the_£ase,is-the-negotiability of the note, it having been estab- 
 lished that it was procured by fraud On the part of D. Ryrie, the orig- 
 inal payee, from whom it had been purchased by appellant. * * * 
 
 The Negotiable Instruments Act (Rem. Code, § 3392) declares that 
 an instrument "must contain an unconditional promise or order to pay 
 a sum certain in money" in order to be negotiable. The note in ques- 
 tion, in addition to being for a sum named, also contains a promise 
 to pay any ta xes assessed upon the note or Tipon the mortgage secuf- 
 'Tnrtr WeTield, in Bright v. Offield, 81 Wash. 442, 143 Pac. 159,. 
 that such a provision in the note renders it nonnegotiabje. In that case 
 there was involved a provision in the note for payment of taxes, which 
 constituted an implied rather than a direct promise by the maker to 
 pay them. The court there said: "Since the amount of these taxes, 
 rates, and assessments is uncertain, the amount of recovery would be 
 uncertain. This provision, therefore, renders the note not merely an 
 unconditional promise to pay a sum certain but also, in necessary 
 effect, a conditional promise to pay an uncertain sum." 
 
 The f act^ as urged by appellant, that there was no law in force in this 
 state for the taxation of notes and mortgages, would not detract from 
 the effect of the rule. There always remains a possibility during the 
 life of such contracts that, they ipay be subjected to the liability of tax- 
 ation, and a promise in the note to pay any taxes thereon would leave 
 the amount to be paid indeterminate and open to conjectuire upon the 
 contingency of future legislation. * * * 
 
 The finding and conclusion of the court as to the nonnegotiable char- 
 acter of the note in controversy is in accord with the case cited, and, 
 as the case is controlling, the judgment will stand affirmed. 
 
 HOLLIDAT STATE BANK v. HOFFMAN. 
 
 (Supreme Court of Kans?is, 1911. 85 Kan. 71, 116 Pac. 239, 
 35 L. R. A. [N. S.] 390, Ann. Cas. 1912D, 1.) 
 
 See, ante, p. 6^2, for a report ,of the case. 
 
 FINLEY V. SMITH, Banking Com'r. 
 
 (Court of Appe?ils of KentvoUy, 1915. 165 Ky. 445, 177 S. W. 262, 
 L. 11. A. 1915F, »777.) ' ' " 
 
 See ante, p. 664, for a report of the case. 
 
 SECTION 7.— THE SUM TO BE PAID MUST BE CERTAIN 
 
 TTh^ Negotiable Instruments L,aw provides: 
 
 Section 1, subsec. 2. An instrument to be negotiable must con- 
 tain an unconditional promise or order to pay a sum certain in 
 money. 
 
Ch. 1) FORMAL REQUISITES 6S5 
 
 Section 2. The sum payable is a sum certain within the mean- 
 ing of this act, although it is to be paid: (1) With interest; or 
 (2) By stated installments; or (3) By stated installments with a 
 provision that upon default in payment of any installment, or of 
 interest the whole shall become due ; or (4) With exchange wheth- 
 er at a fixed rate or at the current rate ; or (5) With costs of col- 
 lection or an attorney's fee, in case payment was not made at ma- 
 turity. 
 
 McCORNICK V. SWEM et al. 
 (Supreme Court of Utah, 1909. 36 Utah, 6, 102 Pac. 626, 20 Ann. Cas. 1368.) 
 
 Action by W. S. McCornick, doing business as McCornick & Co. 
 against J. M. Swem and another. From a judgment for plaintiff, de- 
 fendants appeal. 
 
 Frick, J. Respondent, in his complaint, in substance, alleged : That 
 on the 1st day of September, 1904, appellants, at Salt Lake City, Utah, 
 executed and delivered their certain promissory note for the sum of 
 $1,167, payable in four months from said date, to the order of the 
 Northern Light Mining & Milling, Company, a corporation, at McCor- 
 nick & Co.'s Bank, in Salt Lake City, with interest at 10 per cent, per 
 annum. The note also contained the following provision: "In case 
 this note is collected by an attorney, either with or without suit, we 
 hereby agree to pay dollars attorney fee." It was further al- 
 leged: "That, immediately upon the execution and delivery of said 
 note, the same was, before maturity, for a valuable consideration, and 
 in good faith, purchased by this plaintiff (respondent) from the payee 
 thereof, which payee duly indorsed and delivered the same, and plain- 
 tiff is now and ever since has been the owner and holder of the same." 
 That no part of the principal or interest of said note has been paid ex- 
 cept the sum of $791.22. That $100 is a reasonable attorney's fee. 
 * * * 
 
 Appellants' counsel further insists that the note in question was non- 
 negotiable upon its face because, if it provided for an attorney's fee 
 at all, it was for an indefinite and uncertain sum, and hence destroyed 
 the certainty required in negotiable instruments. Before the adoption 
 of the so-called "negotiable instruments law," the authorities upon this 
 question were in hopeless conflict with, perhaps, the greater number 
 of cases in favor of holding promissory notes containing attorney's fee 
 clauses as negotiable. Since the adoption of that law by a large num- 
 ber of states, including Utah, the holdings have become more uniform, 
 and it is now generally held that d provision in a promissory note that 
 the maker thereof will pay a specific amount named, or a certain per 
 cent, of the amount due, or a reasonable amount, as an attorney's fee, 
 does not affect either the certainty or the negotiability of the instru- 
 ment. 
 
 The further contention is made that the provision in the note, in the 
 form in which it was executed, was, in legal effect, an agreement not 
 to pay an attorney's fee ; but, if this is not its effect, then in view that 
 the note did not specify any amount, nor in terms provide for a rea- 
 sonable sum as an attorney's fee, that this was the same as if no pro- 
 vision to pay an attorney's fee had been incorporated into the liote. 
 Counsel have not cited any cases either for or against this proposi- 
 
686 NEGOTIABLE INSTRUMENTS (Part 3 
 
 tion. As an original proposition, and in view, that in cases like the 
 one at bar an attorney's fee is recoverable only by virtue of some agree- 
 ment, there seems considerable force to the contention made by coun- 
 sel. . We have devoted considerable time in making, a somevvhat thor- 
 ough research of both text-books, and reports, but have been unable 
 to find either text-writer or case which sustains counsel's contention. 
 Upon the other hand, we have found cases in which it is held that, 
 where the amount is left blank in an attorney's fee clause, it is tanta- 
 mount to a promise to pay a reasonable sum as an attorney's fee. 
 
 We feel constrained to follow the cases in which it is so held. 
 * * * In case the amount is not expressly agreed upon, it is the 
 duty of the court to limit the fees to a fair Snd reasonable sum, in 
 view of all the circumstances. It has frequently been held that, even 
 when the amount has-been agreed upon, it is nevertheless subject to 
 control by the courts; and therefore, if it appears to the court that 
 the amount agreed upon is unfair, unjust, or unreasonable, the court 
 should permit a recovery only for what is reasonable under all the 
 circumstances the same as where no amount has been agreed upon. It 
 seems to us, however, and quite a number of the courts so hold, that 
 prima facie the amount agreed upon should be assumed as the proper 
 fee to be allowed, and unless it is clearly obvious to the court, or is 
 made to appear, that the amount stipulated for is unjust, oppressive, 
 or unreasonable, in view of alb the circumstances of the case, the 
 stipulated amount should be allowed. * * * 
 
 The judgment is affirmed. 
 
 UNION NAT. BANK v. MAYFJELD et al. 
 (Supreme Court of Oklahoma, 1917. 169 Pac. 626.) 
 
 .RuMMONS, C f * * The sole question involved in this appeal is 
 the negotiability of the promissory note sued upon by plaintiff. The 
 only provision in the note necessary to be considered in determining 
 this question is as follows: "With interest at the rate of 9 per cent, 
 per annum, payable annually from date until due: Provided, how- 
 ever, if the note is paid on or before maturity, interest shall be only 7 
 per cent." 
 
 . Plaintiff relies for a reversal of this cause upon the case of Security 
 Trust & Savings Bank v. Gleichmann, SOOkl. 441, 150 Pac. 908, L. R, 
 A. 1915F, 1203. The opinion in that case was written by Commis- 
 sioner Devereux, following Savings Bank v. Landis, 37 Okl. .S30, 132 
 Pac. 1101, and overruling Randolph v. Hudson, 12 Okl. 516, 74 Pac. 
 946, and Bracken v. Fidelity Trust Co., 42 Okl. 118, 141 Pac. 6. I,. R. 
 A. 191SB, 1216. In the case cited it is held that "a note dated May I, 
 1905, which provides, 'with interest from date if not paid when due,' 
 is a negotiable instrument." In Randolph v. Hudson, supra, it is held 
 that a note reading " '30 days after date I promise to pay to the order 
 of J. H. Thomas $275.00, with interest at the rate of 12 per cent, from 
 datet,if not paid, at maturity,' was, not negotiable." In Citizens' Sav- 
 ings Bank v. Landis, supra, it was held that a note reading "December 
 1, 1907, after date, for value received, we jointly and severally promise 
 to pay McLaughlin. Brothers or order $1,200.00 at the Walters Nation- 
 al Bank, of Walters, Oklahoma, with interest at 6 per cent, per an- 
 num, before maturity, and, thereafter at lO.per cent, per annurn until 
 
Ch. 1) FORMAL REQUISITES 687 
 
 paid, interest payable annually," was a negotiable instrument. In 
 Bracken v. Fidelity Trust Co., supra, it was held that a note, contain- 
 ing the following provisions : "With interest at 6 per cent, per annum 
 before maturity and thereafter with interest at 10 per cent, per annum 
 until paid. Interest payable with note" was nonnegotiable. Since the 
 handing down of the opinion in the case of Security Trust & Savings 
 Bank v. Gleichmann, this court has held in an opinion written by Com- 
 missioner Bleakmore, following Farmers' Loan & Trust Co. v. McCoy, 
 32 Okl. 277, 122 Pac. 125, 40 L. R. A. (N. S.) 177, that a note payable 
 in installments, containing a stipulation that if paid within 15 days 
 from date a discount of 6 per cent, would be allowed was uncertain 
 as to the amount necessary to satisfy it at the time of its execution, 
 and therefore was not negotiable. First National Bank of Iowa City 
 V. Watson, 56 Okl. 495, 155 Pac. 1152. 
 
 This case is the only one of the cases cited interpreting a promis- 
 sory note executed since the adoption of the Uhiform Negotiable In- 
 struments Act. It is, however, in direct conflict with the case of Se- 
 curity Trust & Savings Bank v. Gleichmann, supra, and in harmony 
 with the opinion of Randolph v. Hudson, supra. In the body of the 
 opinion it is said : "The sum payable — that is, the amount for which, 
 by the terms of the instrument, the maker became liable, and which he 
 might tender and pay in full satisfaction of his obligation — was, at 
 the date thereof, to a certain extent dependent upon his will ; he had 
 the right to pay a greater or less sum than the principal ; he could, if 
 he saw fit, within the prescribed period, discharge his debt at 94 per 
 cent, or thereafter pay 100 per cent, on the dollar. Under such con- 
 dition, the sum payable was, at the time of the execution of the in- 
 strument, clearly indefinite and uncertain. Unless the rule of the law 
 of merchant which obtained in this jurisdiction with respect to the 
 certainty required in the sum payable in a negotiable instrument has 
 been changed by the statute, supra, such rule still governs, and the note 
 in question is nonnegotiable. In our opinion, it is obvious that the stat- 
 utory provisions above quoted do not purport to prescribe a rule in this 
 regard different from that recognized by the courts of this state be- 
 fore their enactment, in a case where a promissory note provided for 
 the discount of a principal sum otherwise payable, if at the option of 
 the maker, payment is made before maturity." 
 
 In the instant case the same criticism of the note sued on occurs as in \ 
 the case last quoted.' The sum to be paid upon the instrument was at I 
 the option of the maker. If he chose to pay it on or before maturity, 
 the interest upon the principal was to be computed at the rate of 7 
 per cent. If he neglected to pay until after maturity, the interest was 
 to be computed at 9 per cent. So that it would be impossible for any 
 one to compute with certainty the amount due upon this note at any 
 date in the future. We think the writer of the opinion in the case of 
 Security Trust & Savings Bank v. Gleichmann, supra, fell into error 
 in applying the rule laid down in Savings Bank v. Landis, supra, to 
 the note in controversy in his case. In the case of Savings Bank v. 
 Landis, supra, there was no uncertainty as to the amount due accord- 
 ing to the terms of the note. It was provided that the note should 
 bear interest at 6 per cent, before maturity, and thereafter at the rate . 
 of 10 per cent. From the face of the note there could be computed 
 with certainty the amount that would be due thereon at any time in the 
 future; so there was no uncertainty as to the sum payable. In the 
 
688 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Security Trust :& Savings Bank Case, however, if the note was paid 
 at maturity it bore no interest. A failure to pay at maturity made it 
 bear interest from its date six months prior to maturity. The sum 
 payable, therefore, became indefinite and uncertain, and depended upon 
 the option of the maker. , . [ ■- ,, 
 
 One of the requisites of negotiability under the Uniform Negotiable 
 Instruments Act is that the instrument must contain an ;unGonditioned 
 promise or order to pay a sum certain in mOney, W^ think that the 
 note in the instant case fails to comply with the provision of the act 
 as to the interest to be paidj nor does it fall within ,any of the excep- 
 tions containedi in sections 4052, 4055, 4Q56, Revised I<aws 1910, su- 
 pra [Negotiable Instruments Law, §§ 2, 5, and 6]. We feel convinced 
 that the rule laid down in First National Bank of Iowa City v. Watson, 
 supra, is a correct interpretation of our Negotiable Instruments Act, 
 and we therefore follow the rule announced in that case. The case of 
 Security Trust & Savings Bank v. Gleichmann, supra, so far as the 
 rule announced in the sixth syllabus in that case, and so far as the same 
 overrules the case of Randolph v. Hudson, supra, is overruled. 
 
 The judgment of the court below should be affirmed. , 
 
 SECTION 8.— THE INSTRUMENT MUST BE PAYABLE 
 TO ORDER OR BEARER 
 
 Previous sections have shown that an instrument to be nego- 
 tiable (1) must contain a written promise or order; (2) that the 
 promise or order must be unconditional; (3) that the uncondi- 
 tional promise or order must be payable at a fixed or determinable 
 future time; (4) that the promise or order must be to pay in 
 money; (5) that the sum to be paid must be certain.' There is 
 the further requirement that the instrument must be payable to 
 order or to bearer. 
 
 Section 1, subsec. 4. An instrument to be negotiable must be 
 payable to order or to bearer. Negotiable instruments are usually 
 drawn payable to a designated person or order, or sirnply to 
 bearer. , As a matter of safety these words should always be used. 
 But the act does not require that these specific words alone must 
 be used, for Section 10 provides : The instrument need not follow 
 the language of this act, but any terms are sufficient which clearly 
 indicate an intention to conform to the requirements hereof. 
 
 Instruments payable to order or to bearer are alike only in that 
 either of these words satisfy the requirements that the instrument 
 to be negotiable must contain words of negotiability. In other 
 respects different legal effects are produced. In general, it may 
 be said that an instrument payable to order must be indorsed be- 
 fore it may be negotiated, while an instrument payable to bearer is 
 negotiable by delivery without indorsement. These differences 
 will be further discussed in Chapter II. 
 
Ch. 1) FORMAL REQUISITES 689 
 
 FORREST V. SAFETY BANKING & TRUST 00. 
 (United States Circuit Court, 1909. 174 Fed. 345.) 
 
 J. B. McPhbrson, District Judge. This suit is brought upon a cer- 
 tificate of deposit issued by the defendant in the following words: 
 "No. 1853. Philadelphia, Janry. 2, 1909. $3,000.00. 
 
 "Peter F. Fallon has deposited in the Safety Banking & Trust Com- 
 pany three thousand dollars to the credit of hipiself payable in cur- 
 rent funds on return of this certificate properly indorsed on July 1, 
 1909. Interest 31/2 per cent, per annum. 
 
 "H. J. Colver, Cashier. H. L. Rock, Secty. 
 
 "This certificate of deposit is not subject to check and is only pay- 
 able at maturity." 
 
 The certificate was properly indorsed in blank by Fallon, and passed 
 into the possession and apparent ownership of J. J. West not long 
 after its date. In March, 1909, West transferred it by delivery to the 
 plaintiff, William S. Forrest, for a valuable consideration * * * 
 in payment of his own debt. Payment having been refused at maturity, 
 Forrest sued in his own name, and the principal question for decision 
 is whether the action is properly brought in that foi-m. 
 
 The answer must be in the affirmative if the certificate is a negotiable 
 instrument, and to this point, therefore, the inquiry should be directed. 
 It is undoubtedly true that, if the decisions in Pennsylvania are to gov- 
 ern, this court must hold that the plaintiff cannot sue in his own name. 
 * * * 
 
 The question, however, may for the moment be considered as one of 
 general commercial law, and in that region, as is well known, a fed- 
 eral court is not bound by the decisions of a particular state, but may 
 follow its own opinion, or an adverse current of authority elsewhere. 
 
 In 5 Cyc, at page 520, the result of the authorities is summarized 
 as follows : "Whether a certificate of deposit is a note or merely a re- 
 ceipt for money has long puzzled the courts. Such certificate, however, 
 if containing proper words to express that intention, is negotiable in 
 the usual manner by indorsement, and although not negotiable in fact, 
 if negotiable in form, it may be assigned. Moreover, where they are 
 negotiable, their transfer is governed by the rules that apply to prom- 
 issory notes, as is also the liability of the parties thereon." * * * 
 The present certificate is in effect payable to Fallon or his order, for 
 this is necessarily implied by the phrase "properly indorsed." 
 
 As it seems to me, these authorities conclusively establish the right 
 of the plaintiff to maintain this suit in his own name, if the question is 
 to be decided as one of general commercial law. The defendant con- 
 tends, however, that the Negotiable Instruments Act of Pennsylvania, 
 passed in 1901 (P. 1,. 194), decides the point against such right, and 
 that this court is bound to follow the statute. Certificates of deposit 
 are not referred to in the act by name, and I have been referred to no 
 decision of the Supreme Court of Pennsylvania that construes the 
 statute upon any question now relevant. If, therefore, the act applies 
 to the present controversy, I think that the defendant's position may be 
 disposed of in a few words. * * * Believing, therefore, that the 
 Negotiable Instruments Act, which is intended to bring about the uni- 
 form treatment of legal questions in a most important branch of com- 
 B.& B.Btts.Law. — i4 
 
'690 NEGOTIABLE INSTRUMENTS (Part 3 
 
 mercial law, should receive a construction that is in harmony with 
 a widely prevailing view (where such a construction is possible), and 
 having been pointed to nothing in the statute that requires me to hold 
 that certificates of deposit are not included within its description. of 
 negotiable instruments, I conclude ■ that the instrument sued on is ne- 
 gotiable under the act, and that the action was properly brought in 
 the name of the holder. * * * 
 
 The Negotiable Instruments Law contains two additional sec- 
 tions in explanation of the circumstances under. which an instru- 
 ment is to be deemed payable to order or to bearer. 
 
 Section 8. The instrument is payable to order where it is drawn 
 payable to the order of a specified person or to him or his order. 
 It may be drawn payable to the order of (1) a payee who is not 
 maker, drawer, or drawee; or (2) the drawer or maker; or (3) 
 the drawee; or (4) two or more payees jointly; or (5) one or 
 more of several payees ; or (6) the holder of an office for the time 
 Ijeing. 
 
 Section 184. Where a note is drawn to the maker's own order, 
 it is not complete until indorsed by him. 
 
 The first clause makes it clear that it is immaterial whether the 
 instrument reads "payable to the order of P.," or "pay P. or order." 
 Subsections 1, 2 and 3 assert propositions obviously true. It 
 should be noted, however, where an instrument is drawn payable 
 to the order of the maker or drawer, that it must also be indorsed 
 by the drawer and delivered before any rights can be acquired 
 thereunder. Subsections 4 and 5 provide that there may be more 
 than one payee; in the one case, where the payees have a joint 
 interest, and, in the other, where there is no joint interest — i. e., a 
 case of alternative payees. Before the act some courts held that 
 an instrument payable to payees in the alternative was not ne- 
 :gotiable because it was uncertain as to who the payee was. Like- 
 wise, subsection 6 changed the law of many states wherein it was 
 held that if an instrument were made payable to such a person as 
 at the time of maturity should hold a certain office the instrument 
 was non-negotiable because the payee was not designated with 
 reasonable certainty. Such an instrument is now negotiable. 
 
 The Negotiable Instruments Law provides: 
 
 Section 9. The instrument is payable to bearer (1) when it is 
 expressed to be so payable; (2) when it is payable to a person 
 named therein or bearer, or, (3) when it is payable to the order 
 of a fictitious or non-existing person and such fact was known to 
 the person making it so payable, (4) when the name of the payee 
 does not purport to be the name of any person, or (5) when the 
 only or last indorsement is an indorsement in blank. 
 
 When the instrument reads, "pay bearer," or if, instead of using 
 the word "bearer," some word of similar import is used, the instru- 
 ment is payable to bearer. This is the simplest case. 
 
C^l^- 1) FORMAL EEQUISITBS 691 
 
 The second clause declares that an instrument which is expressed 
 to be payable to "P. or bearer," is payable to bearer. The inser- 
 tion of the payee's name does not change the status of the instru- 
 ment. P.'s interest in the instrument arises not from the fact 
 that his name appears therein but because he is the bearer. Be- 
 fore the act, some cases held that because there was a named 
 payee therein, such fact destroyed the effect of the word "bearer"' 
 and that the instrument was not payable to bearer. This rule has 
 been changed by the Negotiable Instruments Law. 
 
 The third clause opens up a number of situations which involve 
 certain principles of the Law of Negotiable Instruments which 
 we have not taken up. The consideration of this section will be 
 postponed to a later chapter. All that need be borne in mind here 
 is that in this case where the instrument declares that it is payable 
 to a named payee specified therein or to his order, the law regards 
 the instrument not as payable to some person or order, but, on 
 the contrary, treats the instrument just as though it read, payable 
 to bearer. The real difficulty arises when we attempt to ascertain 
 the circumstances under which the payee will be deemed to be a 
 fictitious or non-existing payee, and, when we attempt to find out 
 what person must know that fact. The situations where this sec- 
 tion is involved will be taken up in chapter V. 
 
 Clause 4 provides that an instrument, in legal effect, is payable 
 to bearer, although the words "or order" appear therein, if the 
 name of the payee does not purport to be the name of any person. 
 
 It is sometimes convenient to draw instruments, particularly 
 checks, payable to some particular account, such as to "cash," "to 
 draft," "to bills payable" and the like. These words appear in the 
 space provided for the name of the payee. S.uppose a check is 
 drawn payable "to cash or bearer." Obviously this instrument 
 is payable to bearer because it is expressly so payable. But- 
 suppose the check is payable to "cash or order," how is such an in- 
 strument to be construed? Here we have no payee who is capable 
 of indorsing and therefore if the instrument is to be regarded as 
 a negotiable instrument the words "or order" must be given a legal 
 effect different from that which they normally have. Any other 
 construction would make it impossible for an instrument payable 
 "to cash or order" to circulate. For these reasons the law provides 
 that where the payee does not purport to be the name of any per- 
 son, such an instrument is payable to bearer. 
 
 Suppose an instrument is payable to "the person who lives at 
 126 West Main street," in a specified city, or "to the Chamber of 
 Commerce" — which, let us assume, is an unincorporated associa- 
 tion—are these two instruments payable to bearer because the 
 payee does not purport to be the name of any person? This lan- 
 guage, while it does not specify the name of a particular person, 
 does sufficiently describe the payees so that they may be identi- 
 fied within the meaning of the last clause of section 8, subsection 
 6, which provides that, where the instrument is payable to order 
 
692 NEGOTIABLE INSTRUMENTS (Part 3 
 
 the payee must be named or otherwise indicated with reasonable 
 certainty. Any instrument which indicates the payee with rea- 
 sonable certainty cannot be regarded as payable to a payee which 
 does not purport to be the narne of any person. It is only where 
 the language used in the space provided for the name of the payee 
 cannot be construed as indicating a particular payee that section 
 9, subsection 4, discussed, applies. 
 
 CL.EARX V. DE BECK PLATE GLASS CO. 
 
 (Supreme Court of New York, Appellate Term, 1907. 5'4 Misc. Rep. 537, 
 lOi N. Y. Supp. 831.) 
 
 Action by Frances A. Cleary against the De Beck Plate Glass Com- 
 pany. From a judgment for plaintiff, defendant appeals. 
 
 Gii/DBRSLEEVE, P. J. Plaintiff sued to recover on a check payable 
 to the order of "Cash," signed * * * by A. M. De Beck, as presi- 
 dent, of the defendant company. Upon the trial the plaintiff's at- 
 torney produced the check. It was admitted as evidence without ob- 
 jection. * * * It was also shown that the check had been presented 
 to the bank upon which it was drawn on several occasions, and pay- 
 ment demanded and refused. The answer of defendant was a general 
 denial. No evidence other than the production. of the check was giv- 
 en by the plaintiff as to its ownership. This constituted prima facie 
 evidence of the plaintiff's ownership. * * * How or in what man- 
 ner the plaintiff became possessed of the check does not appear. 
 * * * Payment of the check by the defendaiit under the circum- 
 stances disclosed by the testimony here is ample protection to it. 
 
 Judgment affirmed. ' 
 
 SECTION 9:— PROVISIONS NOT AFFECTING NEGO- 
 TIABILITY 
 
 The Negotiable Instruments Law contains a few provisions 
 which expressly permit the incorporation of certain kinds of 
 clauses in the instrument without destroying its negotiability. 
 The act does expressly provide that omissions of certain clauses 
 shall not affect negotiability. The clauses which may be inserted 
 without affecting negotiability relate to the rights of the holder 
 with respect to the collection of the debt. These rights are alike 
 in that they are acquired by contract, the evidence of which ap- 
 pears on the instrument. They are unlike in that two of them 
 confer upon the holder rights with respect to the manner of ob- 
 taining payment of the debt which, in the absence of said con- 
 tract would not have been conferred upon him by the law. The 
 remaining two special rights conferred upon the holder arise from 
 an express waiver by the obligor on the instrument of rights which, 
 under the law, he has already possessed. 
 
 Section 5, subsection 1. The negotiable character of an instru- 
 
Ch. 1) FORMAL REQUISITES 693 
 
 ment otherwise negotiable is- not affected by a provision which 
 authorizes the sale of collateral securities in case the instrument 
 be not paid at maturity. 
 
 VALLEY NAT. BANK OF CHAMBERSBURG v. CROWEI/L. 
 
 (Supreme Court of Pennsylvania, 1892. 148 Pa. 284, 23 Atl. 1068, 
 33 Am. St. Rep. 824.) 
 
 Per. Curiam. The onl)' question in this case was whether the note 
 in controversy was negotiable. It is in the usual form of negotiable 
 paper, but it is contended that its negotiability is destroyed by reason 
 of the following provision contained therein: "Having deposited' 
 herewith a like amount of Crowell Company mortgage bonds as col- 
 lateral security, which we authorize the holder of this note, upon the 
 non-performance of this promise at maturity, to sell either at broker's 
 board, or at a public or private sale, without demanding payment of 
 this note Or the debt due theredii, and without further notice, and ap- 
 ply the proceeds, or as much thereof as may be necessary, to the pay- 
 ment of this note and all necessary charges, holding us, as makers and 
 indorsers, responsible for any deficiency." 
 
 We find nothing in this to destroy the negotiability of the note. The 
 mere giving of collateral security with a promissory note does not 
 destroy its negotiability. In the case at hand the amount of the note 
 is not uncertain, nor is there any question about the time of payment. 
 And the payment is not made dependent upon any condition what- 
 ever. The agreement, that if the collateral proves insufficient for the 
 payment of the note, and all necessary expenses and charges, the mak- 
 ers will be responsible for any deficiency, neither increases nor de- 
 creases the responsibility of the makers. It merely requires them to do 
 what the law would compel them to do without such an agreement. 
 
 Section 5, subsection 4. The negotiable character of an instru- 
 ment otherwise negotiable is not aifected by a provision which 
 gives the holder an election to require something to be done in 
 lieu of payment of money. 
 
 PRATT V. HIGGINSON et aL 
 
 (Supreme Judicial Court of Massachusetts, 1918. 230 Mass. 256, 
 119 N; E. 661, 1 A. L. R. 714.) 
 
 BralEy, J. The plaintiff, the owner of a 4 per cent, coupon bond 
 of the United States of the par value of $l,000_Bay_able_to bearer, and 
 of a 4 per cent, convertible gold bond of~the American Telegraph & 
 Telephone Company of the par value of $1,000 payable to the Old 
 Colony Trust Company, trustee, or to bearer, deposited the bonds in 
 a safe deposit box from which they~were purloined by one Bassett, 
 who passed them over to one Small for the purpose of having them 
 sold. The bonds were delivered by Small to the defendants, a firm 
 of bankers arid brokers, by whom they were sold in the ordinary course 
 of business, and after deducting the customary commission, and the 
 stamp tax, remitted the balance to Small, who after taking out his 
 
694 NEGOTIABLE INSTRUMENTS (Part 3 
 
 compensation paid the remainder to Bassett. The -plaintiff upon dis- 
 covery notified the defendants of the theft, and then brought this ac- 
 tion to recover the value of the bonds. * * * 
 
 The question for decision therefore is whether the defendants who 
 received and sold the bonds and accounted for the proceeds to the ap- 
 parent owner, without notice of any infirmity in.tiie title, or of any 
 circumstances which should have put them upon inquiry, can be held 
 responsible in damages by the true owner for conversion. The de- 
 ■iendants undoubtedly exercised dominion over the bond.s by converting 
 them into money. If the property had consisted of chattels or non- 
 negotiable documents of which certificates of stock are an example, 
 the plaintiff's title would not have been divested by a sale even to a 
 purchaser for value and in good faith. * * * But to this rule 
 tfiere is a well-recognized exception where the property consists of 
 negotiable securities. * * * fjig provision shown by the word 
 "convertible," that the holder at maturity will receive the face of the 
 bond in moiiey, or at his option an equivalent in stock of the corpora- 
 tion does not destroy negotiability. It is a negotiable instrument with- 
 in the ffleamng of R. L. c. 73, § 22, subsec. 4, and section 18 [Negotia- 
 ble Instruments Law, § 5, subsec. 4, and section l],'and possesses the 
 essential attributes of commercial paper, for the conversion of which 
 the defendants on the record cannot be charged. * * * 
 
 We are accordingly of opinion that judgment should be entered for 
 the defendants. * * * 
 
 Section 5, subsection 3. The negotiable character of an instru- 
 ment otherwise negotiable is not affected by a provision which 
 waives the benefit of any law intended for the advantage or pro- 
 tection of the obligor. 
 
 This section preserves the negotiability of an instrument, even 
 though it contains a clause in which the maker waives the rights 
 which he may have under certain laws. There are many rights 
 which are the subject of waiver. For example, statutes usually 
 provide that a certain amount of property ,shall be exempt from 
 sale on execution. One exemption law for the benefit of the indi- 
 vidual himself as distinguished from his family, may be waived. 
 Special defenses of a surety are also the subject of waiver. The 
 right to due presentment and to receive notice of dishonor may 
 be waived. There are any number of rights which conceivably 
 may be the subject of waiver in negotiable instruments. This pro- 
 vision does not provide that all such waivers will be legal. It is 
 deemed to be against public policy to permit a person to be bound 
 by his agreement waiving certain kinds of rights which the law 
 gives him. The waiver, whether enforceable or not, will not de- 
 stroy negotiability. ' i 
 
 Section 5, subsection 2. The negptiabfe character of an instru- 
 ment otherwise negotiable is not affected by a provision which au- 
 thorizes a confession of judgment if the instrument be not paid 
 at maturity. 
 
Ch. 1) FORMAL REQUISITES 695 
 
 ■ A word in explanation of the judgment note may be added. A 
 j'udgment has the effect of determining finally that the defendant 
 owes the plaintiff the sum of money specified in the judgment. 
 The judgment also operates as a lien on the debtor's land, and as 
 a lien on personal property as soon as the execution is placed in 
 the hands of the sheriff for service. 
 
 The law requires that a person cannot be proceeded against un- 
 less he is notified by summons. Usually the summons must be 
 personally served upon the defendant. If he cannot be found, the 
 action will be ineffective. A creditor, therefore, although legally 
 entitled, will not always be able to obtain a judgment. Even in 
 a case where the debtor may be found and served with notice of 
 the pending action, considerable time may elapse before the judg- 
 ment is obtained. Usually the law provides that the defendant 
 shall have from three to ten, twenty or thirty days before he is 
 required to answer the plaintiff's declaration. After this comes 
 the trial, and if the business of the court is heavy it may not be 
 possible to have the case heard for weeks, months, and occasion- 
 ally a trial may not be had for one or two years. The plaintiff, 
 therefore, is required to wait for this long period before he obtains 
 his judgment. Anything may happen in the meantime. The de- 
 fendant may lose all of his property by speculation, concealment, 
 or otherwise, so that when the judgment is obtained it will be 
 worth nothing. 
 
 The foregoing was inserted for the purpose of emphasizing the 
 importance of the confession of judgment clause in promissory 
 notes: The effect of the clause is a waiver of the debtor's right to 
 be personally served with summons and of the right to a trial. To 
 illustrate : If A. holds a note signed by M. as maker, which con- 
 tains a confession of judgment clause, instead of instituting a suit 
 against M. in the ordinary way and waiting for a trial, A. will 
 simply hand the note to some attorney who will as it were, admit 
 in writing, on behalf of the maker, that the debt is due — notice 
 that the clause may expressly empower any attorney to do this — 
 and another attorney, in behalf of the holder, will take the note be- 
 fore some judge, even though such judge may not then be holding 
 court, and the judge, thereupon, will enter judgment on the note. 
 The entire process will require less than half an hour, whereas 
 without such clause a judgment could not be obtained for weeks 
 or months. Immediately following the entry of the judgment, 
 property owned by the maker may be levied upon and sold to sat- 
 isfy the judgment, or his wages or bank account or other debts 
 may be garnished. It is still possible for the judgment creditor 
 to have the judgment vacated upon his filing an affidavit showing 
 a defense. The trial will then proceed as in the ordinary case. 
 But in the meantime the judgment will still constitute a lien on 
 the defendant's property. 
 
 The provision of the Negotiable Instruments Law merely pro- 
 vides that if such a clause be insetted in the note that such clause 
 
696 NEGOTIABLE INSTRUMENTS (Part 3 
 
 does not render the instrument non-negotiable. That is, the priv- 
 ilege conferred upon the holder, of converting a negotiable instru- 
 ment into a judgment does not destroy negotiability. 
 
 This provision of the Negotiable Instruments Law does not de- 
 clare that a confession of judgment clause shall be legal. A court 
 is still left free to hold that because of the hardships upon the 
 defendant such a clause is to be deempd against public policy 
 and therefore unenforceable, and some states do, so hold. 
 
 If the clause on an instrument bearing a fixed maturity author- 
 izes confession of judgment at any time after date, it has^ been 
 held that the instrument is non-negotiable because uncertain in the 
 time of payment. The sections of the Negotiable Instruments 
 Law do not absolutely require such holding; for, in effect, the in- 
 strument is one with a fixed maturity subject to acceleration at 
 the option of the holder and could be held negotiable under Sec- 
 tion 4(2) providing that "an instrument is payable at a dctepminate 
 future time which is expressed to be payable on or before a fixed 
 or determinable future time specified therein." 
 
 Section 6 (3). The validity and negotiable charactet of an in- 
 strument is not affected by th« fact that it does not specify the 
 place where it is drawn or the place where it is payable, or (4) bears 
 a seal. 
 
 SECTION 10.— DESIGNATION OF PARTIES TO NEGO- 
 TIABLE INSTRUMENTS 
 
 There are three possible parties to a note: The maker; the 
 payee ; and the indorsers. 
 
 N. I. L., Section 184. A negotiable promissory note within the 
 meaning of this act is an unconditional promise in writing made 
 by one person to another signed by the maker engaging to pay on 
 demand, or at fixed or determinable future time, a sum certain in 
 money to order or to bearer. Where a note is drawn to the mak- 
 er's own order, it is not complete until indorsed by him. 
 
 On a bill of exchange there are four possible parties : The draw- 
 er ; the drawee ; the payee ; and the indorsers. 
 
 N. I. L., Section 126. A bill of exchange is an unconditional or- 
 der in writing addressed by one person to another, signed by the 
 person giving it, requiring the person to whom it is addressed to 
 pay on demand or at a fixed or determinable future time a sum 
 certain in money to order or to bearer. 
 
 N. I. L., Section 185. A check is a bill of exchange drawn on a 
 bank payable on demand. Except as herein otherwise provided, 
 the provisions of this act applicable to a bill of exchange payable 
 on demand apply to a check. 
 
 N. I. L., Section 87. Where the instrument is made payable at 
 a bank it is equivalent to an order to the bank to pay the same for 
 the account of the principal debtor thereon. 
 "The drawee becomes an acceptor after acceptance. There may 
 
Ch. 1) FORMAL EBQUISITES 697 
 
 be an acceptor who is not the drawee. Such an acceptor is called 
 an "acceptor for honor". The practice of accepting for honor is 
 rarely resorted to. The following sections of the act prescribe the 
 circumstances under which a person will be deemed to be a party 
 to a negotiable instrument. The nature and extent of the rights 
 and liability of the various parties is the subject matter of suc- 
 ceeding chapters. We are interested here only in formal require- 
 ments. When will a person be regarded as a maker, drawer, payee, 
 drawee, acceptor, or indorser of an instrument? 
 
 (a) OBLIGORS GENERALLY 
 
 Section 18. No person is liable on the instrument whose signa- 
 ture does not appear thereon, except as herein otherwise expressly 
 provided. But one who signs in a trade or assumed name will be 
 liable to the same extent as if he had signed in his own name. 
 
 Section 17, subsection 7. Where an instrument containing the 
 words, "I promise to pay," is signed by two or more persons, they 
 are deemed to be jointly and severally liable thereon. 
 
 Section 19. The signature of any party may be made by a duly 
 authorized agent. No particvdar form of appointment is neces- 
 sary for this purpose ; and the authority of the agent may be es- 
 tablished as in other cases of agency. 
 
 Section 20. Where the instrument contains or a person adds 
 to his signature words indicating that he signs for or on behalf of 
 a principal, or in a representative capacity, he is not liable on the 
 instrument if he was duly authorized; but the mere addition of 
 words describing him as an agent, or as filling a representative 
 character, without disclosing his principal, does not exempt him 
 from personal liability. 
 
 Section 21. A signature by "procuration" operates as notice 
 that the agent has but a limited authority to sign, and the prin- 
 cipal is bound only in case the agent in so signing acted within the 
 actual limits of his authority. 
 
 DANIEL V. BUTTNER et al. 
 (Supreme Court of Washington, 1905. 38 Wash. 556, 80 Pac. 811.) 
 
 Hadley, J. This suit was brought to recover of the defendants, 
 Buttner and Glidden, for ah alleged personal liability upon a written 
 instrument of which the following is a copy: "German American In- 
 vestment Co. Inc. No. 409. $600.00. Seattle, Wash., Feb. 8, 1902. 
 Received from Herman Daniel $600.00 (Six Hundred Dollars) which 
 we promise to pay six (6) months after date with interest at the rate 
 of eight (8) per cent, per annum. Wm. H. Buttner, President. H. M. 
 Glidden, Secy." * * * _ 
 
 We have somewhat extensively discussed the question of liability 
 arising out of the fraud, inasmuch as the transcript, statement of 
 facts, and briefs are largely devoted to that subject. But, aside from 
 that, we think the judgment of the court was right upon another 
 ground which is urged by respondent. It will be observed by refer- 
 
698 NEGOTIABLE INSTRUMENTS (Part 3 
 
 ence to the note that, while the signatures are each followed by words 
 indicating a representative character, yet no principal is disclosed. 
 The words "German American Investment Co., Inc.," at the top 
 constitute no material part of the instrument. The original is before 
 us, and it shows that the above, words. were merely lithographed upon 
 a blank form of receipt which was used as a paper upon which to write 
 the note. Appellant's name is followed by the following, "Secy." 
 Assuming that the letters designate him in the representative character 
 of secretary, yet they disclose no pdlic ipal. What purports to be the 
 seal of the German American InvestmenTGompany is impressed upon 
 the paper, but by no reference is it made a part of the note itself. There 
 are no apt words used in the note showing that the corporation is ob- 
 ligated. Therefore, although appellant's signature is followed by an 
 abbreviated word indicating a representative capacity, yet, no obligated 
 principal being discosed, he cannot escape personal liability under sec- 
 tion 20 of our Negotiable Instruments L,aw. ^^ * * The signatures 
 to this instrument come squarely within the terms of the above section, 
 and the signers are personally liable. 
 
 For all the foregoing reasons we think the judgment [for plaintiff]" 
 of the lower court was right, and it is affirmed. 
 
 JUMP V. SPARLING. 
 
 (Supreme Judicial Court of Massachusetts, 1914. 218 Mass. 324, 
 105 N. E. 878.) 
 
 Action by Edwin R. Jump, trustee in bankruptcy, of David F. Burns, 
 against John H. Sparling. From an order of the appellate division of 
 the municipal court of the City of Boston dismissing a report by the 
 trial justice, plaintiff appeals. 
 
 RuGG, C. J. This is an action upon a promissory note of the tenor 
 following : 
 "$596.20. Boston, Nov. 19th, 1908. 
 
 "On demand after date we promise to pay to the order of David F. 
 Burns five hundred and ninety-six 20-100 dollars. Payable at State 
 Street Trust. Co., Boston, Mass. 
 
 "Value received with interest. 
 
 "J. H. SparHng, Treas. Stratton Engine Co. 
 "David F. Burns, Pres. Stratton Engine Co." 
 
 The plaintiff is the trustee in bankruptcy of the payee. Oral evi- 
 dence was received to the effect that both Burns and the defendant 
 signed the note in their respective capacities as officers of the Stratton 
 Engine Company. * * * 
 
 Under the law previous to the enictriient of the Negotiable Instru- 
 ments Act, the defendant corporation would not have been, held on 
 this note. It would have been not the note of the corporation, but sim- 
 ply the individual note of the two individuals who signed. * * * ^ 
 change in the law in this respect has been wrought by that act. [Court 
 quotes section 20.] 
 
 These words plainly imply that if the person signing a promissory 
 note adds to his signature words describing himself an agent or as 
 occupying some representative position which at the same time dis- 
 closes the name of the principal, he shall be exempted from personal 
 
Ch. 1) FORMAL REQUISITES 699 
 
 liability, while if he omits the name of the principal, although adding 
 words of agency, he will be held liablie personally and the words of 
 agency will be treated simply as descriptio personae. In this respect 
 the common-law rule of this commonwealth whereby agents bind them- 
 selves by a form of signing a note such as the one at bar, even though 
 acting with authority, * * * is abrogated. The agent now relieves 
 himself from liability by a forrn of srgiTature whereby he is described as 
 agent of a disclosed principal. * * * Where a trustee executes a 
 note in his trust capacity he is liable personally. Of course, if one 
 signs as agent when he is not, he is liable as principal. 
 
 Although the law on this point in other jurisdictions before the pas- 
 sage of the negotiable instruments act may have differed from that of 
 this commonwealth, the result here reached appears to be in harmony, 
 with the rule now generally prevailing under that act. * * * 
 
 The plaintiff as trustee in bankruptcy has no greater rights in this 
 respect than the bankrupt himself had. * * * 
 
 Order dismissing report affirmed. 
 
 (b) PAYEE 
 
 Section 8, subsection 6. Where the instrument is payable to 
 order the payee must be named or otherwise indicated with rea- 
 sonable certainty. 
 
 Section 42. "Where an instrument is drawn or indorsed to a 
 person as "cashier" or other fiscal officer of a bank or corporation, 
 it is deemed prima facie to be payable to the bank or corporation 
 of which he is such officer, and may be negotiated by either the 
 indorsement of the bank or corporation, or the indorsement of the 
 •officer. 
 
 (c) DRAWEE 
 
 Section 1, subsection 5. Where the instrument is addressed to 
 a drawee he must be named or otherwise indicated therein with 
 reasonable certainty. 
 
 • Section 128. A bill may be addressed to' two or more drawees 
 jointly, whether they are partners or not; but not to two or more 
 drawees in the alternative or in succession. 
 
 Section 131. The drawer of a bill and any indorser may insert 
 thereon the name of a person to whom the holder may resort in 
 case of need, that is to say, in case the bill is dishonored by non- 
 acceptance or non-payment. Such a person is called the referee in 
 case of need. It is in the option of the holder to resort to the 
 referee in case of need or not, as he may see fit. 
 
 The practice of inserting the name of a referee in case of need 
 is uncommon in this country. 
 
 Section 130. Where in a bill drawer and drawee are the same 
 person, or where the drawer is a fictitious person, or a person not 
 having capacity to contract, the holder may treat the instrument, 
 at his option, either as a bill of exchange or a promissory note. 
 
700 NEGOTIABLE INSTRUMENTS (Part 3 
 
 (d) ACCEPTOR 
 
 The person upon whom a bill has been drawn, until acceptance, 
 is called the drawee ; after acceptance it is proper to refer to such 
 party as the acceptor. We are interested here in noting the cir- 
 cumstances under which one's status will change from that of a 
 drawee to that of an acceptor. The term "acceptance" is used to 
 describe the act by which the drawee becomes bound to. the hold- 
 er to pay the amount called for by the bill. The acceptance is an 
 operative fact which produces certain legal effects upon the rela- 
 tions of the acceptor and the drawer, of the acceptor and the hold- 
 er, and of the holder and the drawer and indorsers. We are not 
 here interested in the nature and scope of the various legal effects 
 of an acceptance. We are concerned only with the question : what 
 evidentiary facts are sufficient to constitute an acceptance. It 
 should be apparent, that, while these matters relate to the form 
 of the instrument the rules to be taken up do not prescribe requi- 
 sites for negotiability. The instrument, when it leaves the hands 
 of the party executing it either is or is not then negotiable. Noth- 
 ing that may happen subsequently will change its status. The ac- 
 ceptance may occur prior or subsequent to the execution and de- 
 livery of the instrument. The group of facts constituting the ac- 
 ceptance operates merely to affect the legal relations of the va- 
 rious parties to the bill but does not determine or affect nego- 
 tiability. 
 
 The following sections of the Negotiable Instruments Law are 
 involved : 
 
 Section 132. The acceptance of a bill is the signification by the 
 drawee of his assent to the order of the drawer. The acceptance 
 must be in writing and signed by the drawee. It must not express 
 that the drawee will perform his promise by any other means than 
 the payment of money. 
 
 Section 191. "Acceptance" means an acceptance complete^} by 
 delivery or notification. 
 
 Section 133. The holder of a bill presenting the same for ac- 
 ceptance may require that the acceptance be written on the bill, 
 and, if such request is refused may treat the bill as dishonored. 
 
 Section 134. Where an acceptance is written on paper other 
 than the bill itself, it does not bind the acceptor except in favor of 
 a person to whom it is shown and who, on the faith thereof, re- 
 ceives the bill for value. 
 
 Section 135. An unconditional promise in writing to accept a 
 bill before it is drawn is deemed an actual acceptance in favor of 
 every person who, upon the faith thereof, receives the bill for 
 value. 
 
 Section 138. A bill may be accepted before it has been signed 
 by the drawer, or while otherwise incomplete, or when it is over- 
 due, or after it has been dishonored by a previous refusal to ac- 
 cept, or by nonpayment. But when a bill payable after sight is 
 
Ch. 1) FORMAL REQUISITES 701 
 
 dishonored by non-acceptance and the drawee subsequently ac- 
 cepts it, the holder, in tie absence of any different agreement, is 
 entitled to have the bill accepted as of the date of the first pre- 
 sentment. 
 
 Section 187. Where a check is certified by the bank on which 
 it is drawn, the certification is equivalent to an acceptance. 
 
 Section 136. The drawee is allowed twenty-four hours after 
 presentment, in which' to decide whether or not he will accept the 
 bill; but the acceptance, if given, dates as of the day of presenta- 
 tion. 
 
 Section 137. Where a drawee to whom a bill is delivered for 
 acceptance destroys the same, or refuses within twenty-four hours 
 after such delivery, or within such other period as the holder may 
 allow, to return the bill accepted or nonaccepted to the holder, he 
 will be deemed to have accepted the same. 
 
 Section 139. An acceptance is either general or qualified. A 
 general acceptance assents without qualification to the order of 
 the drawer. A qualified acceptance in express terms varies the- ef- 
 fect of the bill as drawn. 
 
 Section 140. An acceptance to pay at a particular place is a 
 general acceptance, unless it expressly states that the bill is to be 
 paid there only jmd not elsewhere. 
 
 Section 141. An acceptance is qualified, which is 
 
 (1) Conditional, that is to say, which makes pa3mient by the 
 acceptor dependent on the fulfillment of the condition therein 
 stated ; 
 
 (2) Partial, that is to say, an acceptance to pay part only of the 
 amount for which the bill is drawn ; 
 
 (3) Local, that is -to say, an acceptance to pay only at a par- 
 ticular place; 
 
 (4) Qualified as to time; 
 
 (5) The acceptance of some one or more of the drawees, but 
 not of all. 
 
 Section 161. Where a bill of exchange has been protested for 
 dishonor by non-acceptance, or protested for better security, and 
 is not overdue, any person not being a party already liable thereon 
 may, with the consent of the holder, intervene and accept the bill 
 supra protest for the honor of any party liable thereon, or for the 
 honor of the person for whose account the bill is drawn. The ac- 
 ceptance for honor may be for part only of the sum for which the 
 bill is drawn; and where there has been an acceptance for one 
 party, there may be a further acceptance by a different person for 
 the honor of another party. 
 
 Section 162. An acceptance for honor supra protest must be in 
 writing, and indicate that it is an acceptance for honor, and must 
 be signed by the acceptor for honor. 
 
 Section 163. Where an acceptance for honor does not express- 
 ly state for whose honor it is made, it is deemed to be an accept- 
 ance for the honor of the drawer. 
 
702 NEGOTIABLE INSTEUMBNTS (Part 3 
 
 Section 178. Where a bill is drawn in a set each part of the set 
 being numbered and containing a reference to the Other parts, 
 the whole of the parts constitutes one bill. 
 
 COIXJORD V. BANCO DE TAIHAULIPAS. 
 
 (Supreme Court, Appellate Division, 1918. 181 App. Div. 295, 
 168 N. Y. Supp. 710.) 
 
 Action by Alan H. Colcord against the Banco de Tamaulipas. From 
 an order overruling demurrers to the complaint, de fendant..appeal s. 
 
 DowLiNG, J. The facts upon which the two causes~bf action here- 
 in are based are set forth in the complaint as follows : The First State 
 Bank & Trust Company (assignor of the claim in question to plaintiff) 
 is a banking corporation organized under the laws of the state oLTex- 
 as, and having its principal place of business at Laredo, Tex. It is 
 hereinafter referred to as the State B ank. Defendant is ajjanking 
 corporation organized under the laws of~the Republic of STexico, and 
 having its principal place- of business at Tampico in the state of Tam- 
 aulipas, Republic of Mexico. On February 28, 1914, C. Barreda, as 
 municipal president of the city of Nuevo Laredo, a municipality in 
 the Republic of Mexico, made a certain draft or bill of exchange in 
 writing. This (as well as all the other writings hereinafter referred 
 to) was in the Spanish language, and translated into English read: 
 
 "$5,000.00 (Mexican dollars). 
 
 "G. Laredo, Tamaulipas, Feb. 28, 1914. 
 
 "At three days' sight pay by this bill of exchange, in this city, to the 
 order of the First State Bank of Laredo, Texas, the sum of five thous- 
 and Mexican dollars. Value which you will charge with or without 
 notice to account of C. Barreda, Municipal President. 
 
 "To the Bank of Tamaulipas, Tampico, Tampa^. 
 
 "[Indorsement:] [Seal./]. Municipal Government Constitutional 
 of Laredo, Tamaulipas. 
 
 "[Written:] G. Laredo Tampas, Feb. 28, 1914. C. Barreda. 
 
 "[50 cent Mexican stamp affixed.]" 
 
 Said draft wa s prfisented^tojAe _S.tale_.Baiilj_i2£_2lJixhase, which 
 thereupon sentTRe-foikrwiffg telegram to defendant: 
 
 "Laredo, Texas, March 3, 1914. 
 "Bank of Tamaulipas, Tampico, Tamps., Mex. : 
 
 "Please telegraph us immediately if you will pay a draft signed C. 
 Barreda, Municipal President Nuevo Laredo, for five thousand Mex- 
 ican dollars. First State Bank & Trust Co." 
 
 To this defendant replied as follows : 
 
 "Tampico, Mexico, March 5, 1915. 
 "First State Bank & Trust Co., Laredo, Texas : 
 
 "Draft C. Barreda, Municipal President Nuevo Laredo, for five 
 thottsand Mexican dollarsisgoocL Banco de Tamaulipas." 
 
 On the same day defendant wrote the State Bank as follows : 
 
 "Tampico, Tam., Mex., March 5, 1915. 
 "First State Bank & Trust Co., Laredo, Texas— Dear Sirs : On this 
 date and through the same method we have answered your telegram 
 
Ch. 1) FORMAL REQUISITES 70S 
 
 relative to Dr. C. Barreda's draft for five thousand Mexican tdollars,. 
 which we confirm as per inclosed transcript. 
 
 "Yours truly, Banco de Tamaulipas. 
 
 "P. Assemat, Mgr. J. J. Dias, Cashier." 
 
 The. transcript inclosed was as follows : 
 
 "Transcript of the telegram which the Banco de Tamaulipas ad- 
 dresses to First State Bank & Trust Co., L,aredo, Texas, on March 5, 
 1914. _ 'Draft C. Barreda, Mayor of New Laredo, for five thousand 
 dollars is good.' " 
 
 The §tatg^a^^relying_iipon the-faTth-of^he-corxespondence^quated,. 
 bougji t' the draf t, m question, paying 5,000 Mexican dollars therefor, 
 and after indorsing it, so as to make it payable to any bank, banker,, 
 or trust tompany, tran^nittgd-the draft, so indorsed, to defendant, 
 and duly presented it and^EmandejT payment. Thereafter defendant 
 telegraphed to the State Bank : 
 
 "Tampico, March 19, 1914. 
 
 "We return remittance 9336 because it is not correct. We are 
 writing. Banco de Tamaulipas." 
 
 The letter which followed was in these terms: 
 
 "Tampico, Tam., Mex., March 19, 1914. 
 
 "First State Bank & Trust Co., Laredo, Texas— Dear Sirs: We 
 confirm our telegram of even date as per inclosed copy. Accordingly 
 we return your remittance No. 9336 for its lacking of two signatures, 
 to wit: Faustino Garza's as finance commissioner and the signature of 
 Dr. Adolfo Salinas Puga as health commissioner of Nuevo Laredo. 
 It also lacks the official seal of the municipal corporation. Once the 
 above requisites having been fulfilled, we will-have no objection to hon- 
 oring the remittance herewith returned. We have charged you with 
 $5.54 for telegram expenses. We are yours respectfully, 
 
 "Banco de Tamaulipas, 
 
 "P. Assemat, Manager. J. J. Diaz, Cashier." 
 
 Inclosed therewith was a copy of said telegram of March 19. 1914. 
 The State Bank prQCurejLthf-gjgning of the draf t by the two officials 
 referred to m the latter, and alsothe affixiiig"bTTFe s eal of the 'munici- 
 pal corporation thereto, and m this condition it was returned to de- 
 fendant and again duly presented for payment. The defendant re- 
 tained tbe_ draft in its possession fromJMarch 24, Jl^FF, to De cember 8 ^ 
 1914rT^ecing rep eated demafufs' to p ay^the s ame "Between "March 2^ 
 19l47and Ocfober'31, 1914, on which latter date it retused payment, 
 and still refuses to^ayjhe same. It is alleged that when said draft 
 was accepted, and''^wien it was presented for payment, Ihe drawer 
 thereof had deposited with the defendant funds sufficient to pay the 
 same, and which had been so deposited for that purpose. 
 
 The, first caose-eJ-a:etten-is-^ased-ea-4b£__t heory tha t defendant's 
 telegram of March 5th cpnstituted_aa_acceptaiicejof the dFaft in ques- 
 tioiTtnTdTtet-deiEntlaiirwasTEerefore liable to pay the same. ~ I do not 
 believe that defendant's telegram of March 5th can be interpreted to 
 be an acceptance of the draft in question, nor as a promise to accept 
 the same. The State Bank telegraphed defendant an explicit question 
 as to whether defendant would pay a certain described draft. Defend- 
 ant did. not reply to this question directly, nor does it appear that it 
 was under any duty or obligation so to do. The State Bank did not 
 say in its telegram that it was about to buy the draft upon the faith of 
 
704 NEGOTIABLE INSTRUMENTS ^ (Part 3 
 
 defendant's reply. Defendant replied only that the dra ft was go fld, 
 which reasonably meafitTjfily^Thaf C. FaTmiar-as-Tntmi^al president 
 of Nuevo Laredo, then had on deposit with defendant at least the sum 
 of five thousand Mexican dollars, but gave the State Bank no right to 
 assume that defendant would hold the funds to meet the draft, or 
 would itself accept or pay the draft. On the contrary, the ,verx_form 
 _Df-thej::SEly, not answering directly the question as to whethei: defend- 
 ant would pay the draft, was suffjc ient to put the State. Bank on its 
 
 " :pli( " " 
 
 guard, and cause it to either require an explicit answer from defend- 
 ant~a§T;o whether it would accept and pay the draft, or to proceed fur- 
 ther at its own risk. The defendant had no control over the State 
 Bank's transactions with Barreda, and it was the business of the State 
 Bank to protect itself in its dealings with him, and to make certain 
 that the draft would be accepted by defendant before it parted with 
 its money on the faith of the draft. 
 
 An acceptance is a contract, and there are no words used by defend- 
 ant in the telegram which can be interpreted to mean that it agreed 
 to accept the draft. In First National Bank of Atchison v. Commer- 
 cial Bank, 74 Kan. 606, 87 Pac. 746, 8 L. R. A. (N. S.) 1148, 118 Am. 
 St. Rep. 340, 11 Ann. Cas. 281, an acceptance was sought to be based 
 upon the following telegrams passing between the parties : 
 
 "Adrian, Mich., October 15, 1903. 
 "First National Bank, Atchison, Kan. : 
 
 "Is J. F. Donald's check on you $350 good? Commercial Savings 
 Bank." 
 
 "Atchison, Kan., October 15, 1903. 
 "Commercial Savings Bank, Adrian, Mich. : 
 "J. F. Donald's check "is good for sum named. 
 
 "First National Bank." 
 
 In that case Donald was a depositor in the Kansas bank and drew a 
 check upon it for $350 to a payee who indorsed and delivered it to a 
 third party, who in turn indorsed and delivered it to the Michigan 
 bank. Donald stopped payment on the check before it was presented 
 for payment, and the Michigan bank sued the Kansas bank for the 
 face of the check and interest, claiming it had been accepted in writing, 
 and that it haid been purchased for value on the faith of such accept- 
 ance. The court held that the drawee of a check could not be held 
 liable upon a claimed contract of acceptance, external to the bill, vmless 
 the language used clearly and unequivocally imported an absolute 
 promise, and that the response that a check was "good for sum named" 
 was not such a promise. * * * 
 
 So, also, in Kahn>. Walton, 46 Ohio St. 195, 20 N. E. 203, it was 
 held that, while an affirmative answer by the bank to a general in- 
 quiry whether checks of a person named for a specified sum are good 
 is information that such person has on deposit, subject to check, money 
 to that amount, it does not constitute an acceptance or certification of, 
 or otherwise create an obligation on the bank to pay, checks which 
 the inquirer may then hold. The telegraphed query in that case was, 
 "Are M. A. Walton's checks for $2,000 good?" to which the bank 
 answered, "Yes, sir." In the course of its opinion the court said : "It 
 is manifest there was no acceptance or certification of the checks in 
 question in this case. The telegraphic correspondence between the 
 bank and Kahn's agent amounted to no more than an assurance that 
 
Ch. 1) FOEMAL REQUISITES 705 
 
 valid checks to the amount stated, drawn by Walton, or that might 
 be drawn by him, were then good. jv[o particular checks were men- 
 tioned in the inquiry, nor any intimation given that the inquirer had 
 received, or was about to receive, such checks ; nor had the bank any 
 means of identifying the checks to which the inquiry related. Its tele- 
 gram, therefore, did not commit the bank to the payment of any par- 
 ticular check. At most, it was information that Walton had, at its 
 date, money on deposit to the amount stated, subject to checkn" * * * 
 
 In Myers v. Union National Bank, 27 111. App. 254, the query tele- 
 graphed to the defendant bank was, "Will drafts for $3,800 made by 
 J. R. Snyder on you be paid, if presented Monday?" to which the 
 reply was sent, "Drafts named are good now." The funds of the 
 drawer having been paid out to meet other checks, it was sought to 
 hold the defendant for the drafts in question as upon a virtual ac- 
 ceptance for certification. The defendant was held not to be hable, 
 as it had not accepted the drafts. The court said: "An acceptance 
 is a contract, and does not differ from other contracts in the essential 
 requirement of a meeting of minds. Abank i s not bo und_tQ_ajc£eBt 
 bv teleg ragithg_checkso£ drafts of its "g eposit ors, although iriposses- 
 _jIoii-a|jundsla ^ay. Its duty m such cases is to accepTa draft, or pay 
 a check7 only'ra'presentment. One relying on a telegram as an ac- 
 ceptance should see to it that the language used will, at least, fairly bear 
 the meaning." * * * 
 
 These cases support the general rule as laid down in Daniel on Ne- 
 gotiable Instruments (6th Ed.) vol. 1, p. 600: "There is no doubt that, 
 in the absence of statutory interdiction, an^acce^tancg may lae upon a 
 se^ratepaper,- as in a letter, for instance, as well as upon the bill it- 
 self?"~The drawee cannot be held liable upon a contract of acceptance 
 external to the bill, unless the language used clearly and unequivocally 
 imports an absolute promise to pay. Thus a written promise to accept 
 an existing bill, or 'that it shall meet with due honor,' or that the drawee 
 'will accept or certainly pay it,' or any other equivalent language, has 
 been held to amount to acceptance. But if the language be equivocal — 
 if it be merely stated, 'Your bill shall have attention' — it is not suffi- 
 cient." 
 
 The Negotiable Instruments I^aw of New York * * * provides 
 that : "Where an acceptance is written on a paper other than the bill 
 itself, it does not bind the acceptor, except in favor of a person to 
 whom it is shown and who, on the faith thereof, receives the bill for 
 value." 
 
 It follows as the result of the reasoning of the foregoing cases that 
 the State Bank had no right_to_r ely on defendant's te legram that the 
 drafTwas goodjnj^^hasing it, but should nave msistecl~on a direct 
 aiisWer'to~a~qTleition wliether defendanFwould accepFoFpay the draft. 
 '~T5trtr-ftaving done so, and defendant not having said in its telegram that 
 it would either accept or pay the draft, the latter is not liable. The 
 case of Garrettson v. Bank (C. C.) 39 Fed. 163, 7 L,. R. A. 428, is not 
 controlling here, for in that case the question was, "Will you pay James 
 Tate's check on you twenty-two thousand dollars? Answer," and 
 the reply was, "James Tate is good. Send on your paper." In its 
 opinion the court laid stress on the last words, "Send on your paiper," 
 as clearly implying that it was to be sent on for payment and not 
 B.& B.Bus.Law— 45 
 
706 NEGOTIABLE INSTRUMENTS (Part'3 
 
 merely for acceptance. No such words were used in the case at bar. 
 The dem urrer to the, first cause of action should have been sustained. 
 
 The^iecon d cause of acli on * * * proceeds TiponTlieTheory that 
 the telegTSnTof March SSi was not an acceptance, but an agreement 
 to accept, for the breach of which defendant is equally liable. For the 
 reasons heretofore assigned^^I do not believe the telegram inguestion 
 was an agreement to accept, any more than it was an-a'c^^nceT In 
 "so" far "as-pJaintiff pleads upon the alleged telegram as an agreement to 
 accept, I believe the complaint is demurrable. Plaintiff does not set 
 forth any acts done by his assignor, liability assumed by it, or moneys 
 paid out by it, after the receipt of the defendant's letter of March 19th, 
 nor does he seek to predicate any liability thereupon. Had the State 
 Bank^gaid out its moneys., only aiter the receipt of^a^Tetfer, a very 
 ^e^^questipn would have been presented. * "^ ^/Tor all these 
 reasons, the demurrer to the second cause of action should also have 
 been sustained. * * * 
 
 The order appealed from will be reversed. * * * and the demur- 
 rers to the first and second causes of action sustained. * * * 
 
 Pagh, J. (dissenting). The sufficiency of the allegations of the first 
 cavise~of~action depeffds upon whether the exchange of telegrams of 
 March 3d and 5th constitutes an acceptance of the draft, so that the 
 defendant became primarily liable thereon. In my opinion it does. If 
 the draft had been presented to the defendant, and some one duly au- 
 thorized had written "Good" upon the face thereof a nd signed the 
 name of the "HelE endant, there co uld be no doub t but that this would be 
 equivalent to an acceptance oFa~negotiable bill of exchange in favor 
 of the holder for the amount specified therein. * * * The accept- 
 ance, to be binding in favor of a holder who has parted with value 
 upon the faith thereof, does not have to be upon the instrument itself. 
 The Negotiable Instruments Law provides : "Sec. 134. Acceptance 
 by Separate Instrument. Where ah acceptance is written on a paper 
 other than the bill itself, it does not bind the acceptor except in favor 
 of a person to whom it is shown and who, on the faith thereof, receives 
 the bill for value." 
 
 A teleg rara,_satisfiesjdie_ requirem ents of the statute; it is a writing, 
 and the methoS^oTTfsTransmission, whether by mail or telegraph, is 
 immaterial.—* * * The telegram was understood to b£ an accept- 
 ance, and, relying thereon, plaintiff's assignor discounted it. Fairly 
 construed, I do not believe that the telegram of the defendant merely 
 meant that C. Barreda, as municipal president of Nuevo Laredo then 
 had on deposit with defendant at least the sum of five thousand Mex- 
 ican dollars. The inquiry of plaintiff's assignor was: "Please tele- 
 graph us immediately if you will pay a draft signed C. Barreda, Mu- 
 nicipal President Nuevo Laredo, for five thousand Mexican dollars." 
 
 This was not an inquiry as to the validity of the draft or as to the 
 sufficiency of the account of the depositor. It was an explicit request 
 for an acceptance of a specified draft f or~T" definite anioUiit i'^^TThe 
 answer rettirned was such that, had it been placed on the draft, it 
 would have constituted an acceptance. In my opinion it should be so 
 construed. * * * 
 
 The opinion in the Circuit Court of Appeals in North Atchison 
 Bank v. Garrettson, 51 Fed. 168, 2 C. C. A. 145, did not lay stress on 
 the words "Send on your paper." That court said: "The question 
 put to the bank, and to which an answer was requested, was not 
 
Ch. 1) FORMAL REQUISITEa 707 
 
 whether Tate was good, but whether the bank would pay his check 
 for a given sum." . It_cana Qt be su p£osed that the bank intended to 
 return an ambiguous answer, for tliepiirpose of misleading the party 
 asRing tire question, and therefore, if the answer had been limited to 
 the words, "Tate is good," there would have been ground for holding 
 that the bank thereby intended an affirmative answer to the categori- 
 cal question put to it; but all doubt is put at rest by the remaining 
 •words of the answer, "Send on your paper." * * * 
 
 Where, in the case at bar, the defendant replied that, "Draft C. 
 Barreda, Municipal President Nuevo Laredo for five thousand Mex- 
 ican dollars is good," the plaintiff's assignor was justified in believing 
 that the defendant meant that if ^tKe" plaintiH's assignor sent in the 
 draft it would pay it, and where on the faith of that promise the plain- 
 tiff's assignor purchased the draft, the defendant became liable for 
 the payment of the draft. 
 
 The second cause of action sufficiently states a promise of accept- 
 ance, not alone from the facts above mentioned, but also from the later 
 occurrence. When the draft was presented to the defendant bank, it 
 returned it, explaining that there were two signatures and the official 
 seal of the municipality lacking. The letter further said: "Once the 
 above requisites having been fulfilled, we will have no objection to 
 honoring the remittance herewith returned." 
 
 This letter is evidence that the defendant considered itself bound by 
 the telegram of March 5th. The plaintiff's assignor secured the two 
 sigfnatures and the municipal seal and returned the same. It is urged 
 that there is no consideration for this promise, as the plaintiff's as- 
 signor had already paid the money for the draft. . In my opinion the 
 p^j^ffvrrfiarirg pf thfi-powlijinn imposed was .a sufficient consideration 
 for the agreement to accept. 
 
 The fact that a draft is discounted before acceptance does not 
 render the acceptance without consideration. "It is the settled law 
 of this state that the right of the holder of the draft against the ac- 
 ceptor is not affected by the mere fact that he discounted the draft be- 
 fore acceptance." IseHn v. Chemical Bank, 16 Misc. Rep. 437, 438, 
 40 N. Y. Supp. 388, 389. * * * 
 
 In my opinion, the order overruling the demurrers to both causes of 
 action should be affirmed. 
 
 ST. LOTJIS & SOUTHWESTERN RY. CO. v. JAINIES. 
 
 (Supreme Court of Arkan.sas, 1906. 78 Ark. 490, 95 S. W. 804, 
 8 Ann. Gas. 611.) 
 
 Action by J. B. James against the St. Louis & Southwestern Rail- 
 way Company. From a judgment for plaintiff, defendant appeals. 
 Affirmed in part, and reversed in part. 
 
 RiDDiCK, J. This is an action by J. B. James against the St. Louis 
 & Southwestern Railway Company_^to-r€eov£r. damages on account of 
 thfe failure of the company to repair a building used as a resfaiirant 
 ■gFraitway eatmg Fouse, and which he had leased fFofn the defendant, 
 and also for f ailurejo .pay_board f£r certain of its employes. * * * 
 The company aT^oTasreed^ffiithJi im that it would pavalTboard orders 
 given hyjts_piTLployes_when^_to quote the lan giiagp of thej-nntrart, "it 
 -gpi3Egfs^hat_ deductio n~can be made out of the wages due them." 
 
708 KEGOTIABLB INSTRUMENTS (Part 3 
 
 On the trial before a jury the jury returned a verdict, in favor of the 
 plaintiff for $35 on board orders, and for $147 for other damages. 
 
 As to the $147 for damages for the failure of the company to re- 
 pair building, we think the evidence is sufficient to support the ver- 
 dict. * * * 
 
 As to the orders given by employes of the company on it in payment 
 foPRTeals or board due by them to the plaintiff, the testimony shows 
 that it was the custom of the company, when the company was due the 
 employes an amount equal to or greater than the nrdersj tn charge j he 
 order to the employe and account to the plaintiff for the amount of 
 UTe order. If nothing was due_the employ "e,TRFArderswerg_ieturned 
 Jo^J:he_plaintiff unless the. employe was stilHn..the_^eryi£g_of"the corri- 
 pany, in which event the orders were sometimes retained with the view 
 of collecting them from future wages of the employe. It does not ap- 
 pear that any objection to such retention of the orders was made by 
 James, and as it was done in his interest he probably did not object 
 to it. But, in instructing the jury on this point, the c ourt told them 
 that the com£anv _was liab le for the amount of such orders if it kept 
 ■^^517 "unaccounted for, an unreasonaFIe length of time without noti- 
 fying the plaintiff of any reason why they coulJ not Xe paid." Now 
 c^ounsgl_f or plaintiff, .contends that these orders, being drawn for a 
 specified sum, were Ijills of exchange within the meaning of our stat- 
 ute, * * * and th^^j,, failure. to, jreturn the same made the compa- 
 ny liable under the following section, to wit: "Every person upon 
 whom a bill of exchange is drawn, and to whom the same may be de- 
 livered for acceptance, who shall destroy such bill, or refuse within 
 .twenty-four hours after such delivery, or within such times as the 
 holder may allow, to return the bill, accepted or nonaccepted, to the 
 / holder, shall be deemed to have accepted the same." * * * 
 
 It will be noticed tha t to make the c o mpany liable under this section 
 it must be shown that tKe orders ,:Kex.e.jl£atEQjed, or that there was a 
 refusal to return the same. A mere , neglect orTfjuluTe to ^refurn "does 
 not constitute an'accgptance under this statute. Statutes similar to 
 this are found in niany of the states, and it has been held by courts 
 in several of those states that the refa aaLcientioned in the statute "re- 
 fers to something of a tortious character, impTying' an unauthorized 
 conversion of the bill by the drawee." * * * Matteson v. Moulton, 
 79 N. Y. 627. * * * As it isno t showii_ that an^_d£mani for the 
 return of these orders lia3~Ever~BeSr made on the company, or that it 
 had eveF"refused to return the 6rders,,_svedo not think this, s tatute has 
 .any_application in this case LeavingouTThe statute, it cannot be 
 said that a failure to return a bill of exchange constitutes an accept- 
 ance in this state, for our statute expressly requires that an acceptance, 
 to bind the acceptor, shall be in writing. * * * j^ the absence of 
 any demand or request for a return, it is clear that a mere failure to 
 retur n does not "in this state bind the drawee as acceptofl * * *" 
 
 The' evidence~SlTOW€d'T;lrat it was the custom of the company to re- 
 turn the orders which it did not intend to pay, and the failure of the 
 company to return an order was no doubt a circumstance tending more 
 or less to show that the employe by whom it was drawn had money in 
 the hands of the company with which to pay it, and that the company 
 intended to pay it. But this was not conclusive, and the company had 
 ^Agjught-lcushaw^that the failure to return was^dye to othefTeasofis. 
 The failure to retum~may have been "clue to oversigKtT and the plain- 
 
Ch. 1) FORMAL REQUISITES 709 
 
 tiff may have suffered no injury from such failure. We are there- 
 fore of the opinion that the court erred in instructing the jury over 
 the objection of defendant that as a matter of law the company was 
 liable if it kept the orders an unreasonable time without notifying 
 plaintiff of its reasons for not paying them. 
 
 The result is that in our opinion the judgment should be affirmed 
 as to the $147 allowed for repairs, but reversed as to $35 allowed for 
 board, and remanded for a new trial on that cause of action. 
 
 (e) INDORSEE 
 
 Section 17, subsection 6. Where a signature is so placed upon 
 an instniment that it is not clear in what capacity the person mak- 
 ing the same intended to sign he is deemed to be an indorser. 
 
 Section 31. An indorsement must be written on the instrument 
 itself or upon a paper attached thereto. The signature of the in- 
 dorser, without additional words, is a sufficient indorsement. 
 
 Section 63. A person placing his signature upon an instrument 
 otherwise than as maker, drawer or acceptor, is deemed to be an 
 indorser, unless he clearly indicates by appropriate words his in- 
 tention to be bound in some other capacity. 
 
 MANGOLD & GDANDT BANK v. UTTERBACK. 
 
 (Supreme Court of Oklahoma, 1916. 54 Okl. 655, 160 Pac. 713, 
 L. E. A. 1917B, 364.) 
 
 Mathews, C. In October, 1910, the defendant purchased from the 
 Denver-Laramie Realty Company certain shares of stock in said com- 
 pany and executed his note to said company in payment for same. On 
 August 14, 1911, the note was renewed, and afterwards transferred 
 to Sie plaintiff in error. A copy of the note with indorsements is as 
 follows : 
 "$1,000.00. Denver, Colorado, August 14, 1911. 
 
 "December 14, 1911, after date, I promise to pay to the order of 
 Denver-Laramie Realty Company one thousand & no/ 100 Dollars, for 
 value received. Payable at First State Bank of Binger, Okl., with 
 interest at seven per cent., from maturity. 
 
 "[Signed] W. T. Utterback." 
 Indorsed on back : 
 "Payment Guaranteed. 'Prote st waived . 
 
 - ~~^he Denver-Laramie Realty Co., - 
 "By A. J. Spengel, Treasurer. 
 "Northwestern Land & Iron Co., 
 "By A. J. Spengel, Treasurer." 
 On October 10, 1912, suit was instituted on said note. * * * 
 The defendant answered by general denial, admitted the execution of 
 the note, and alleged that the note was given for certain shares of stock 
 in the Denver-Laramie Realty Company, but claimed that he was in- 
 duced to sign the same through certain" false and fraudulent repre- 
 sentations upon the part of said company. Trial was had to a jury. 
 
710 NEGOTIABLE INSTRUMENTS (Part 3 
 
 verdict was returned for defendant, and plaintiff prosecutes this ap- 
 peal. * * * 
 
 The defendant advances the following argument against the forego- 
 ing contention of plaintiff : "While the note is negotiable in form, the 
 indorsement is in no sense a commercial indorsement. It is a guar- 
 anty of payment pure and simple ; that is, the words, 'Payment guar- 
 anteed. Protest waived,' followed by the signatures of the two com- 
 panies, mean that the companies guarantee the payment of the note 
 and waive the protest thereof. The indorsement, amounting to a 
 guaranty of payment, gives the plaintiff in error no standing as a bona 
 fide holder of the note, but it holds the same subject to all defenses 
 which would be available as against the original payee." 
 
 If plaintiff's contention is correct that the said indorsement upon 
 the note was a commercial indorsement, there being no allegations in 
 the answer that defendant had notice of the alleged infirmity of the 
 note, then plaintiff was entitled to judgment upon the pleadings. 
 
 In arriving at a decision on this point we are confronted with a 
 chaotic conflict of opinions thereon, and, ^s far as our investigation 
 has led us, we find that the courts of but few, if any, of the states have 
 been consistent in declaring on this proposition, and our own court is 
 in conflict thereon. * * * An instructive note to the case of Hen- 
 drix V. Bauhard, Ann. Cas. 1913D, 688, after giving a list of the states, 
 including both Oklahoma and Kansas, which hold that a signed guar- 
 anty on the back of a note makes the guarantor liable as an indorser, 
 states that the great weight of authority supports that view. In the 
 case last cited there was written on the back of the note, "For value re- 
 ceived we hereby warrant the makers of this note financially good on 
 execution," which was followed by the signatures of the payees, and it 
 was there held, if the note was negotiated before maturity to a bona 
 fide purchaser for value, he would be protected from any defense the 
 maker might have againsl the payees. 
 
 The leading case holding to this view is a North Dakota case, Dun- 
 ham V. Peterson, 5 N. D. 414, 67 N. W. 293, 36 L. R. A. 232, 57 Am. 
 St. Rep. 556, and there the subject is also treated with an extended note 
 which declares that the numerical weight of authorities support the 
 decision in Dunham v. Peterson. The indorsement on the note in the 
 Punham Case was as follows: "For value received^_Ji$reby:_guar- 
 antee the within nQte^ wai.viilg_notice of _pxQ±£stu-and''demand." Be- 
 -neath this guaranty the payee signed his name. The court held there- 
 in that, when the payee of a negotiable promissory note transfers it 
 by indorsing thereon a guaranty of payment, the purchaser is an in- 
 dorsee within the rule protecting an innocent purchaser of such paper 
 for value before maturity against defenses good between the original 
 parties. * * * 
 
 " The case of Pattillo v. Alexander, 96 Ga. 60, 22 S. E. 646, 29 L. R. 
 A. 616, is an exhaustive and well-considered one on the point under 
 discussion, and, after reviewing the authorities thereon at great length, 
 concludes that a guaranty written on the back of a negotiable promis- 
 sory note followed~by~the signature of the payee ordinarily amounts 
 to a commercial indorsement. * * * We are not unmindful of the 
 fact that the case of Ireland v. Floyd, 42 Okl. 609, 142 Pac. 401, L. R. 
 A. 1915C, 661, is supported by a respectable line of authorities. 
 * * * But we think the better reasoning and greater weight of au- 
 thority is with the case of McNary et al. v. Farmers' Nat. Bank, 33 
 
Ch. 1) FORMAL EEQUISITB8 711 
 
 Okl. 1, 124 Pac. 286, 41 L. R. A. (N. S.) 1009, Ann. Cas. 1914B, 248. 
 But, even if the case of Ireland v. Floyd, supra, was not opposed by 
 the case of McNary v. Farmers' Nat. Bank, supra, and by tiie weight 
 of authority from other states, we are inclined to the view that it is 
 in conflict with the Negotiable Instruments Law of this state, adopted 
 in 1909. 
 
 Section 17 * * * so far as applicable, is as follows: "Where 
 the language of the instrument is ambiguous, or there are omissions 
 therein, the following rules of construction apply: * * * Sixth. 
 Where a signature is so placed upon the instrument that it is not clear 
 in what capacity the person making the same intended to sign, he is! 
 to be deemed an indorser." * * * 1 
 
 Section 63 : "A person placing his signature upon an instrument! 
 otherwise than as maker, drawer or acceptor is deemed to be an in- \ 
 dorser, unless he clearly indicates by appropriate words his intention 1 
 to be bound in some other capacity." 
 
 It will be observed from section 63 that the tendency of the law, 
 when the status of a party who places his name dpon the back of a 
 negotiable instrument is under consideration, is to resolve all doubtful 
 cases towards holding the same to be a commercial indorsement in 
 due course. This rule is founded upon commercial necessity. The un- 
 shackeled circulation of negotiable notes is a matter of great impor- 
 tance. The different forms of commercial instruments take the place of 
 money. To require each assignee, before accepting them, to inquire 
 into and investigate every circumstance bearing upon the original ex- 
 ecution and to take cognizance of all the equities between the original 
 parties, would utterly destroy their commercial value and seriously 
 impede business transactions. 
 
 A simple indorsement by the payee of his name upon a note serves 
 the double purpose both of transferring the title to the holder and of 
 charging the payee with the obligation to pay it in event the maker 
 upon presentation declines to honor it. But before the liability can be 
 fixed against the indorser there must be : First, a demand made upon 
 the maker of the note for payment; and, second, in case the same is 
 not paid, notice must be given the indorser. The rule seems to be that 
 a general guaranty is in law a general indorsement of the instrument, 
 with a waiver of the condition precedent of a notice of nonpayment 
 by the drawers. * * * 
 
 There is no contention but that in the case at bar the defendant is > 
 at least a guarantor. If he be a guarantor only, then he is not entitled 
 to the legal rights of an indorser to be served with notice of nonpay- 
 ment. Yet we find written upon the back of the instrument in con- 
 troversy the very significant words 'jProtest_waived." Why waive a 
 right that the party did not have ? It must be presumed that the par- 
 ties did not intend to do a useless and unnecessary act when these 
 words were written upon the back of the instrument, and the reasona- 
 ble construction is that by the entire indorsement he became an indorser 
 with the enlarged liability of being legally held to payment without 
 notice of the dishonor of the note. Further, no one can fairly say 
 that the intention of defendant not to be bound is clearly indicated 
 from the words written upon the back of the instrument in contro- 
 versy ; in fact, the indication points the other way. 
 
 It will be admitted that, where the payee in a note makes a written 
 assignment of. the same on the back of the note, followed by his sig- 
 
712 NEGOTIABLE INSTRUMENTS (Part 3 
 
 nature, he can with much better logic argue that such an act should 
 be construed as an assignment only, and not a commercial indorsement, 
 than can one who makes a guaranty in a similar way; yet in the recent 
 case of Famsworth v. Burdick, 94 Kan. 749, 147 Pac. 863, under the 
 same Negotiable Instruments Law as our own, the Kansas court held : 
 "Under the Negotiable Instruments Law * * * a writing in these 
 words, 'I hereby assign this note over to E. H. Parnsworth, * * * ' 
 signed by the payee, on the back of a negotiable promissory note, is an 
 indorsement of the note." 
 
 Therefore holding, as we do, that the defendant was an indorser 
 of the note in controversy, * * * and the plaintiff having alleged 
 that the note was indorsed to it before maturity, for a valuable consid- 
 eration, in due course of business, and a copy of said note having been 
 attached to its petition showing the indorsement, and 'the indorsement 
 having not been denied under oath, it follows that plaintiff was enti- 
 tled to judgment on the pleadings. * * * 
 
 CLARK V. THOMPSON et al. 
 (Supreme Court of Alabama, 1915. 194 Ala. 504, 69 South. 925.) 
 
 SoMERviLLE, J. Complainant files her bill for the cancellation of a 
 certain mortgage executed by herself and her husband on her realty 
 to secure their joint negotiable note. * * * The bill of complaint 
 was dismissed on the theory that the respondent was a purchaser for 
 value in due course of the note and mortgage, without notice of the 
 infirmity charged. 
 
 Respondent bought the note and mortgage from the payee, W. A. 
 Thompson; the note being payable to Thompson, or order. In order 
 to free the note of the defense available to complainant against the 
 payee, it was necessary for respondent to acquire it in due course by 
 indorsement, as prescribed by the Negotiable Instruments Law. 
 * * * "The indorsement must be written on the instrument itself 
 or upon a paper attached thereto." * * * This is but a statutory 
 affirmation of the rule of the old law merchant, which allowed in- 
 dorsements to be made upon an "allonge"; that is, upon a slip of 
 paper tacked or pasted on to the instrument so as to become a part 
 q£ I^_ * * * But the use of the allonge was allowable only when 
 the back of the instrument itself was so covered with previous indorse- 
 ments that convenience or necessity required additional space for fur- 
 ther indorsements. * * * Section [31 of the Act] sanctions the 
 use of the allonge, but certainly it was not intended to establish the 
 loose and undesirable practice of making regular indorsements of com- 
 mercial paper by a writing on the back of any other paper or docu- 
 ment to which it might be temporarily attached, as by pinning, and, 
 more especially, when there is ample space for indorsement on the 
 back of the instrument itself. 
 
 In a case like this, arising under the law merchant, the Supreme 
 Court of Nebraska has reached a like conclusion.- Said the court: 
 "Webster defines the word 'allonge' to mean 'a paper attached to a 
 bill of exchange for receiving indorsements too numerous to be writ- 
 ten on the bill itself.' In the case at bar the mortgage and note were 
 not attached or fastened together; and, had they been, as there was 
 plenty of room remaining blank on the back of the note for indorse- 
 
Ch. 1) FORMAL REQUISITES 713 
 
 ment thereon, it would be a forced and inadmissible construction to 
 treat the mortgage as an allonge of the note." Doll v. Hollenback, 19 
 Neb. 639, 643, 28 N. W. 286, 288. 
 
 An exhaustive discussion of the subject, with citation of many au- 
 thorities, will be found in the case of Bishop v. Chase, 156 Mo. 158, 
 56 S. W. 1080, 79 Am. St. Rep. 515, cited in 1 Words and Phrases, 
 First Series, 343. It was there held that a written transfer of a note, 
 made on a separate paper to which it was pinned, there being room 
 on the back -of the note itself for the transfer, vyas an assignment 
 merely, and not a, commercial indorsement. 
 
 In the instant case, whether the note was pinned to the mortgage 
 ot not, we are constrained to treat its transfer, in the manner shown, 
 as a common-law assignment merely, and to hold that respondent was 
 not a holder in due course. It must be noted, however, that the evi- 
 dence does not show that the note was pinned to the mortgage when 
 they were transferred to respondent, fbut only when they were deliv- 
 ered to the payee nearly a year before; and we could not presume 
 that such a superficial fastening, evidently for temporary convenience 
 only, still existed at the date of the ti-ansfer. 
 
 It results that the decree of the chancery court must be reversed, 
 and a decree will be here rendered granting to complainant the special 
 relief prayed for in the bill of complaint. 
 
 SECTION 11.— DATE OF THE INSTRUMENT 
 
 Section 11. Where the instrument or an acceptance or any in- 
 dorsement thereon is dated, such date is deemed prima facie to be 
 the true date of the making, drawing, acceptance, or indorsement as 
 the case may be. 
 
 Section 12. The instrument is not invalid for the reason only 
 that it is antedated or postdated, provided this is not done for an 
 illegal or fraudulent purpose. The person to whom an instrument 
 so dated is delivered acquires the title thereto as of the date of de- 
 livery. 
 
 Section 17, subsection 3. Where the instrument is not dated, 
 it will be considered to be dated as of the time it was issued. 
 
 Section 6, subsection 1. The validity and negotiable character 
 of an instnunent are not affected by the fact that it is not dated.' 
 
 Section 13. Where an instrument expressed to be payable at 
 a fixed period after date is issued undated, or where the accept- 
 ance of an instrument payable at a fixed period after sight is un- 
 dated, any holder may insert therein the true date of issue or ac- 
 ceptance, and the instrument shall be payable accordingly. The 
 insertion of a wrong date does not avoid the instrument in the 
 hands of a holder in due course; but as to hun, the date so insert- 
 ed is to be regJirded as the true date. 
 
714 NEGOTIABLE INSTRUMENTS (Part 3 
 
 SECTION 12.— INTERPRETATION OF AMBIGUOUS 
 INSTRUMENTS 
 
 Section 17. Where the language of the instrument is ambigu- 
 ous or there are omissions therein, the following rules of construc- 
 tion apply: 
 
 (1) Where the sum payable is expressed in words and also in 
 figures and there is a discrepancy between the two, the sum de- 
 noted by the words is the sum payable; but if the words are am- 
 biguous or uncertain, reference may be had to the figures to fix 
 the amount; 
 
 (4) Where there is a conflict between the written and printed 
 provisions of the instrument, the written provisions prevail; 
 
 (2) Where the instrument provides for the payment of interest, 
 without specifying the date from which interest is to run, the in- 
 terest runs from the date of the instrument, and if the instrument 
 is undated, from the issue thereof; 
 
 (5) Where the instrument is so ambiguous that there is doubt 
 whether it is a bill or note the holder may treat it as either at his 
 election. 
 
 SECTION 13.— CONSIDERATION 
 
 A negotiable instrument evidences , a particular kind of con- 
 tract. All contracts, not governed by the common-law rules ap- 
 plicable to sealed instruments, must be supported by consideration. 
 A negotiable instrument is no exception to the rule. Only those 
 operative facts which constitute consideration in the law of simple 
 contracts will constitute consideration for a negotiable contract. 
 There are some features of the rule requiring consideration for ne- 
 gotiable instruments which are different from the corresponding 
 rule in simple contracts. As a general rule, in a suit upon a sim- 
 ple contract the party alleging its existence must affirmatively 
 prove that the agreement was supported by consideration. In a 
 suit upon a negotiable contract, the party relying upon it as a 
 grqund of action does not sustain the burden of proving consid- 
 eration. With respect to this feature the Negotiable Instruments 
 Law provides: 
 
 Section 24. Every negotiable instrument is deemed prima facie 
 to have been issued for a valuable consideration; and every per- 
 son whose signature appears thereon to have become a party 
 thereto for value. 
 
 Section 28. Absence or failure of consideration is matter of de- 
 fense as against any person not a holder in due course ; and par- 
 tial failure of consideration is a defense pro tanto, whether the fail- 
 ure is an ascertained and liquidated amount or otherwise. 
 
Ch. 1) FORMAL KEQUISITEa 715 
 
 SHAFI'EK V. BOND. 
 (Court of Appeals of Maryland, 1917. 129 Md. 648, 99 Atl. 973.) 
 
 Boyd, C. J. George M. Bond, the appellee, sued E. Whyland Shaf- 
 fer, the appellant, on the common counts and a special one on a prom- 
 issory note purporting to be dated January 2, 1915, payable to the 
 order of the appellee on demand for $4,250, with interest, at the Cit- 
 izens' National Bank of Laurel, Md. The defendant pleaded the 
 general issue, pleas of never promised as alleged and never indebted as 
 alleged, and, issue having been joined, a trial was had, resulting in a 
 verdict in favor of the plaintiff for $4,578.30, being the amount of 
 the note with interest. From a judgment entered on that verdict this 
 appeal was taken. * * * 
 
 The defendant's first prayer as offered was as follows: "The de- 
 fendant prays the court to instruct the jury that, if the jury find from 
 the evidence in the case that there was no consideration moving from 
 the plaintiff to the defendant for the note, which is the cause of the 
 action in this case, then their verdict must be for the defendant." 
 
 The court modified that by adding to it, "but the burden of the 
 proaf is on the defendant to show want of consideration," and grant- 
 ed that prayer as modified, to which modification an exception was 
 taken. The defendant's fifth prayer, which was rejected, asked the 
 court "to instruct the jury that, under the pleadings and evidence in 
 this case, the burden of the proof is upon the plaintiff to show that he 
 gave value for the note the cause of action herein sued on." 
 
 Those rulings present the important question in the case, namely, 
 upon which side was the burden in reference to the alleged want of 
 consideration, under the circumstances. The Negotiable Instruments 
 Act was passed in this state in 1898, being chapter 119 of the acts of 
 assembly of that year, and now included in article 13 of the Annotated 
 Code. Section 43 of that article provides that: "Every negotiable 
 instrument is deemed prima facie to have been issued for a valuable 
 consideration; and every person whose signature appears thereon to 
 have become a party thereto for value." And section 47 is: "Ab- 
 sence or failure of consideration is matter of defense as against any 
 person not a holder in due course ; and partial failure of considera- 
 tion is a defense pro tanto, whether the failure is an ascertained and 
 liquidated amount or otherwise." * * * 
 
 The appellant cited McCosker v. Banks, 84 Md. 292, 35 Atl. 935, to 
 show that, where there is fraud or illegality in the inception of the 
 note, the burden of proof is upon the holder to show that he is a bona 
 fide holder for value. * * * After stating the law of this state as 
 to the legal presumption that the plaintiffs became holders for value 
 before maturity, etc., the court said : "But if the defendant shows by 
 such proof as may be properly left to the jury to consider, that the 
 instrument was procured by fraud, or was fraudulent in its inception, 
 or that the consideration was illegal, or that it had been lost or stolen 
 before it came to the possession of the holder, the burden of proof is 
 changed, and it is then incumbent upon the plaintiff to show that he 
 acquired the note bona fide for value, in the usual course of business, 
 before maturity," etc. * * * 
 
 The reason for the rule, as quoted above, does not apply to an orig- 
 inal party to a suit ; the onus put on the plaintiff in such case is only 
 
716 NEGOTIABLE INSTRUMENTS (Part 3 
 
 to show that he is a bona fide holder for value, etc., not that there was 
 no fraud, that the consideration was illegal in 'the inception of the note, 
 etc. It is only when fraud is shown on the part" of the payee or some 
 one other than himself that the indorsee is called upon to prove that 
 he was not aware of it in that class of case, and then by reason of 
 the presumption which is raised as stated above. * * * ' 
 
 In 8 C. J. § 1299, p. 994, it is said : "It is a general rule, supported 
 by a multitude "of decisions, that the burden of proof is on defendant 
 to establish a defense of want, failure, or illegality of considerations. 
 These decisions, while for the most part apparently without qualifica- 
 tion on their face, are subject to explanation, at least according to the 
 rules laid down in many jurisdictions, by adding that what is meant is 
 that defendant must producie some evidence to overcome the presump- 
 tion of consideration arising from the production of the instrument, in 
 order to shift to plaintiff the necessity for proving facts relating to 
 the consideration. In other words, the rule, at least in most of the 
 states, is that, although a bill or a note imports in itself a considera- 
 tion, yet when the evidence has been introduced to rebut the presump- 
 tion of consideration, the burden shifts to plaintiff to show by a pre- 
 ponderance of the evidence that there was a consideration; and this 
 is so even where the instrument on its face recites a consideratioft as 
 by the use of the wqrds 'value received,' but it has been held that 
 
 the rule does not apply to a defense of a failure of consideration." 
 * * * 
 
 It must be admitted that 8 C. J. 994, 3 R. C. L. 928, and 4 Am. & 
 Eng. Ency. of Law, 200, cited above, seem to adopt the rule contend- 
 ed for by the appellant, but it will be observed that 8 C. J. begins by 
 saying that : "It is the general rule, supported by a multitude of de- 
 cisions, that the burden is on defendant to establish a defense of want, 
 failure, or illegality of consideration." And there are cited in the 
 notes what may very properly be called "a multitude of decisions." 
 The author concludes that, "at least according to the rules laid down 
 in many jurisdictions," it is only meant to say that the defendant is 
 called upon to produce some evidence to overcome the presumption 
 of consideration arising from the production of the instrument, and 
 that when that is done the burden shifts to the plaintiff. While that 
 is undoubtedly correct as to a number of courts, it is by no means so 
 with all of those cited in the notes. * * * 
 
 _ In 3 R. C. L. 928, it is said : "Nevertheless in a number of juris- 
 dictions it is asserted to be the rule that the defense of a want of 
 consideration fot a bill or note is an affirmative defense, and that, as 
 a bill or note imports on its face a valuable consideration, the burden 
 of establishing that there was no consideration falls upbn the party 
 pleading that defense, or at any rate when the paper, in accordance with 
 commercial usage, specifies a consideration." 
 
 It is also true that in a number of the states where there are courts 
 of the highest standing the rule contended for by the appelknt has 
 been adopted. * * * McKenzie v. Oregon Imp. Co., 5 Wash 409 
 31 Pac. 748, and Preas v. Vollintine, 53 Wash. 137, 101 Pac. 706, are 
 very emphatic in favor of the appellee's contention, and criticize some 
 of the' cases holdiiig the opposite view. The cases in the note in 18 
 Ann. Cas. 204, cited as sustaining the appellee's' position, are from 
 the reports of Alabama, Arkansas, California, District of Columbia, 
 Georgia, Illinois; Iowa, Kansas, Kentucky, I^ouisiana, Mississippi, Mis- 
 
Ch. 1) FORMAL REQUISITES 717 
 
 souri. New York, Ohio, Oklahoma, Oregon, South Carolina, South 
 Dakota, Texas, and Washington. * * * 
 
 Apparently the majority of courts in this country have adopted the 
 view contended for by the appellee, but it would prolong this opinion 
 (already longer than we intended) to an unreasonable extent if we 
 attempt to call attention to all of the cases cited which, adopting the 
 view of the one side or the other, can be distinguished or shown not to 
 be applicable to the precise questions before us. Some of those we have 
 cited may be subject to that criticism. 
 
 So far as the defense of failure of consideration is concerned, 
 * * * it is an affirmative defense, and must be proven by the de- 
 fendant and sustained by him throughout, if he relies on it. * * * 
 
 If, then, the defendant in a suit on a negotiable promissory note, 
 which is admitted to bear his signature, attempts to escape payment of 
 it by alleging fraud, or what is equivalent to fraud without the use of 
 the term, in order to show want of consideration for the note, he 
 ought not to complain if he has the burden of establishing it by a pre- 
 ponderance of proof, such burden continuing to the end of the case. 
 
 ^ :ii ^ 
 
 We are of the opinion that the better rule is to hold that the burden 
 is generally on the maker to show a want of consideration to a prom- 
 issory note in a suit between him and the payee. There may be cir- 
 cumstances which justify an exception to such a general rule. Some- 
 times the facts may be so peculiarly within the control of the plaintiff 
 as to place the burden on him, or there inay be some other reason 
 for making an exception, but it seems to us that it is the wiser rule 
 to adopt, in order to make negotiable instruments effective and of the 
 value they are supposed to be. When the maker signs a negotiable in- 
 strument, it is presumed to be for value, and, without meaning that 
 that is necessary, this one states on its face it is for "value received." 
 In business transactions notes are often taken in order to settle all 
 questions about the amount of liability, etc., and to put them in such 
 shape that they will speak for themselves, in case of the death of debtor 
 or creditor, and yet, if the burden is put upon the payee to sustain 
 the consideration, simply because the maker denies it, they are in 
 fact of little more use between the parties than an open account would 
 be. The creditor may destroy his checks or other evidence, if he has 
 any, tending to prove consideration for a note which has been in ex- 
 istence for some time, or has been renewed from time to time, and 
 if he has done so, then the fact that a negotiable promissory note im- 
 ports consideration and the prima facie presumption that there was 
 value are of little benefit, if the debtor can by offering some evidence 
 that there was no consideration cast the burden on the plaintiff. It 
 is, of course, wise not to make a note or a bill of exchange conclusive 
 of a valid consideration, but the burden should at least be on the one 
 setting up a want of consideration, and that burden should not be 
 shifted, but should rest on him to the end of the case. * * * 
 
 Judgment affirmed. * * * 
 
 In applying the doctrine of consideration to negotiable instru- 
 ments there are some special situations which may be noted 
 briefly. As between maker and payee of a negotiable note no 
 
718 ■ NEGOTIABLE INSTRUMENTS (Part 3 
 
 difficulty is presented. The payee, may recover on the instrument 
 unless the maker affirmatively proves the absence of consideration. 
 Suppose the payee makes a gift of the instrument to A., may A. 
 recover? Certainly not, as against the payee indorser because 
 the payee can show no consideration between them. But may A., 
 the donee, recover from the maker? If this were a case of an at- 
 tempted assignment by way of gift of a chose in, action not evi- 
 denced by a specialty, the answer probably would be no, because 
 such a right — not being capable of actual or constructive deliv- 
 ery, gifts by will excepted — is not the subject of a gift inter vivos. 
 But where we are dealing with a special contract, such as a ne- 
 gotiable instrument, the written evidence of the contract assimi- 
 lates some of the attributes of tangible property, to the extent that 
 some of the principles of the law of tangible property become ap- 
 plicable. Therefore, a negotiable instrument which evidences a 
 contract between two persons which is supported by considera- 
 tion becomes capable of actual delivery and, therefore, the subject 
 of a valid gift. This result is stated in the following language of 
 the act: ' 
 
 Section 26. Where value has at any time been given for the in- 
 strvunent, the holder is deemed a holder for value in respect to 
 all parties who become such prior to that time. 
 
 Section 25. Value is any consideration sufficient to support a 
 simple contract. An antecedent or pre-existing debt constitutes 
 v^lue; and is deemed such whether the instrument is payable on 
 demand or at a future time. 
 
 , Section 27. Where the holder has a lien on the instrument, aris- 
 ing either from contract or by iinplication of law, he is deemed a 
 holder for value to the extent of his lien. 
 
 It wijl be noticed that section 26 employs the word "value" in- 
 stead of "consideration" and that sections 25 and 27 define "value" 
 to be (1) any operative facts which constitute consideration; (2) 
 ,'aily operative facts showing a transfer for a pre-existing debt or 
 which give rise to a lien on the instrument transferred, whether 
 such facts constitute consideration or not. The legal effect Of 
 sections 25 and 27, in all respects is not clear. The difficulty 
 arises from the fact that these sections must be applied to two 
 general situations which are different: (1) We have the situa- 
 tion where the holder, whether payee or some subsequent indorsee, 
 is attempting to recover from some prior party irrespective of his 
 being a holder in due course. (2) We have the situation where a 
 holder is attempting to recover from a prior party who had a de- 
 fense good as against the party with whom he dealt, and the 
 holder is seeking to recover free from this defense. That is, the 
 holder is asserting his right to recover as a holder in due course. 
 We are not here concerned with the circumstances under which a 
 holder of a negotiable instrument will be a holder in due course 
 and as to the nature of his rights against prior parties, except to 
 
Ch. 1) FORMAL REQUISITES 719 
 
 note this fact : A holder, to be a holder in due course, must not 
 only be a taker before maturity in good faith and without knowl- 
 edge of defenses, but he must have given value. When the word 
 "value" is used in this latter sense, it is not synonymous with the 
 word "consideration." The rule requiring consideration as a con- 
 dition precedent to the enforceability of mutual promises, is wholly 
 distinct from the independent rule requiring the giving of value as 
 a condition precedent to the right to hold prior parties to a nego- 
 tiable instrument free from defenses which such parties had as 
 against holders not in due course. 
 
 The rules requiring consideration in contracts and the rule re- 
 quiring the giving of value in order to constitute one a holder in 
 due course have been kept distinct unless section 25 has made 
 them identical. It may be said that any group of facts which con- 
 stitute consideration will also constitute the giving of value, but 
 under common law rules one may give value without parting with 
 consideration. If section 25 Has made these two rules identical 
 then if A. signs a note of M. subsequent to its execution and de- 
 livery to P., he will be bound to P., even though there was no 
 consideration between P. and A. at the time he signed. This 
 would make inapplicable the rule that past consideration is not 
 sufficient to support a promise. It is possible, but not likely, that 
 the courts will so interpret section 25. We have seen, therefore, 
 that a holder may recover from his immediate transferor only when 
 there is consideration between them. If the holder did not part 
 with consideration, he may still recover from any prior party 
 who, for a consideration, was bound to any prior party. 
 
 The application of the doctrine of consideration as between the 
 parties to a bill of exchange presents some special situations which 
 may be noted briefly. Suppose M. draws his check on the D. bank, 
 payable to P. or order, and delivers the same to P., by way of gift, 
 what relations are created? If the bank dishonors the instrument, 
 P.~ cannot recover from M., because there is no consideration be- 
 tween them. Even where D. has by contract with M. bound itself 
 to honor M.'s checks, and wrongfully dishonors the instrument, 
 P. still is unable to recover from M. If the drawee bank D. does 
 pay the check, D. may charge M.'s account. The act of payment 
 by the drawee, D., was simply in performance of its contract duty 
 to M. The same result would follow if, instead of paying the 
 amount of the check to P., the drawee, D., certified the check ; that 
 is, promised to pay it upon demand of the holder. There need be 
 no consideration for this promise between D. and P., because D.'s 
 duty does not arise from thp apparently gratuitous act of prom- 
 ising to pay P., but arises from a contract between D. and M. If 
 there were no contract between M. and D., and D. certified the 
 check, P., being a donee, D. could successfully set up absence of 
 consideration as a defense, for here there is no consideration be- 
 tween any of the parties to the instrument. In other words, the 
 
720 NEGOTIABLE INSTRUMENTS (Part 3 
 
 law requires that there be consideration between at leafet two of 
 the parties but it is not necessary that there be consideration be- 
 tween all parties. 
 
 One very common transaction which concerns negotiable instru- 
 ments involves the assumption by one party of :the duty to dis- 
 charge it to the holder, where such party is but lending his credit 
 to the principal debtor thereon. Such a person is called, generally, 
 a surety. A surety on a negotiable instrument is usually called an 
 accommodation party. All accommodation parties are sureties but 
 not all sureties are accommodation parties. Obviously, there may 
 be, sureties on contracts other than on negotiable instruments. 
 The principles which were adverted to in chapter XI of Contracts, 
 dealing with the rights and liabilities of sujeties generally, are 
 likewise applicable to accommodation parties. The status of an 
 accommodation party is not determined by the position of his name 
 on the instrument. He may be a maker, drawer, acceptor, or an in- 
 dorser., Hig status is determined liy his relation to some other 
 party to the instrument — the principal debtor. Similarly, the prin- 
 cipal debtor may occupy any position on the instrument. The sec- 
 tion of the Negotiable Instruments Law following, in the main, as- 
 sents -a proposition which is self-evident from the cases in chap- 
 ter II of Contracts dealing with the matter of consideration. 
 
 Section 29. An accommodation party is one who has signed the 
 instrument as maker, drawer, acceptor or indorser without receiv- 
 ing value therefor, and for the purpose of lending his name to some 
 other perSjOn. Such a person is liable on the instrument to a holder 
 for value, notwithstanding such holder at the time of taking the 
 instrument knew him to be only an accommodation party. 
 
 There is one special situation involving the liability of accommo- 
 dation parties which has given rise to a conflict of authority which 
 has not been definitely settled by the above section. If the instru- 
 ment is issued by the' accommodated party, for the first time after 
 maturity, may the party who then gives value hold the accommo- 
 dation party ; i. e., the surety? It has been held that the accommo- 
 dation party is liable in this case.® This holding is contrary to the 
 weight of authority before the act, and it has been argued that this 
 decision is not justified by the statute, but that, if it is, the act 
 should be amended, so as to conform the weight of authority be- 
 fore the act* 
 
 SECTION 14.— DELIVERY 
 
 An instrument may be in form negotiable, it may be executed 
 upon consideration, and it may even be in the hands of the payee, 
 but these facts may occur under circumstances where, it will fail 
 
 S Marling T. Jpnes, 138 Wis. 82, 119 iST. W. 9^1, 131 Am. St. Rep. 996 (1909). 
 Brannan, Some Neoessarj!' Amendments of the Negotiable Instruments 
 Law, 26 Harvard Law Review, 494. 
 
Ch. 1) FORMAL REQUISITES 721 
 
 to be an enforceable contract because of the absence of one further 
 requisite — i. e., delivery. It is to be noted that the written evi- 
 dence of a negotiable contract is, in a fairly real sense, regarded 
 as the thing of value in itself, much the same as a gold or silver cer- 
 tificate or national bank note is regarded as a thing of value. It 
 is, in part, for this reason that the law requires, as a condition pre- 
 cedent to the enforceability of the contract, that there be a delivery 
 of the instrument. To illustrate: If M. purchases goods from P., 
 and executes a note payable to P.'s order, but does not deliver it, 
 and thereupon P. by force or other unauthorized means obtains 
 physical possession of the note, the defense of no delivery could 
 be successfully interpreted, although M. might be held liable on the 
 simple contract of sale which gave rise to the instrument. This 
 rule and its corollaries are expressed in the following sections of 
 the Negotiable Instruments Law: 
 
 Section 16. Every contract on a negotiable instrument is in- 
 complete and revocable until delivery of the instrument for the 
 purpose of giving effect thereto. As between immediate parties, 
 and as regards a remote party other than a holder in due course, 
 the delivery, in order to be effectual, must be made either by or un- 
 der the authority of the party making, drawing, accepting or in- 
 dorsing, as the case may be ; and in such case the delivery may be 
 shown to have been conditiona,!, or for a special purpose only, and 
 not for the purpose of transferring the property in the instrument. 
 * * * And where the instnunent is no longer in the possession 
 of a party whose signature appears thereon, a valid and intentional 
 delivery by him is presumed until the contrary is proved. 
 
 Section 15. Where an incomplete instrument has not been de- 
 livered it will not, if completed and negotiated, without authority, 
 be a valid contract in the hands of any holder, as against any per- 
 son whose signature was placed thereon before delivery. 
 
 That portion of section 16 which deals with the right of the 
 holder in due course to hold a party on a negotiable instrument 
 from whom there had been no valid delivery, was omitted here for 
 this question is taken up in chapter IV. Likewise with respect to 
 section 15, the rights of the holder in due course of a negotiable 
 instrument which originally was incomplete and was not deliver- 
 ed, is taken up in chapter IV. 
 
 Section 191, clause 6, defines delivery as follows: "Delivery" 
 means transfer of possession, actual or constructive, from one per- 
 son to another. The requirement of delivery always involves an 
 intention to vest in the party to whom the instrument is made pay- 
 able, the rights of a holder, and usually involves some physical act 
 which outwardly manifests this intention. The problem is there- 
 fore, to determine what circumstances are sufificient to establish 
 the existence of the requisite intent and act. 
 B.& B.Btrs.LiAW— 46 
 
'722 NEGOTIABLE INSTRUMENTS (Part 3 
 
 PAULSON et al. v. BOYD et al. 
 (Supreme Court of Wisconsin, 1908. 137 Wis. 241, 118 N. W. 841.) 
 
 This is an action upon a promissory note by the receivers of the Se- 
 curity Savings Bank, Incorporated, against the maker of the note and 
 the former owner of the note as indorser. L. T. Boyd is the maker 
 of the note, and J. S. EHis is the payee and indorser. It appears from 
 the evidence of Boyd and Ellis that the note was given to Ellis by Boyd 
 as a part of a transaction concerning the sale of some mining stock. 
 Boyd was to give his note to Ellis for $2,500, the purchase price of 
 the stock. The note, dated October 17, 1902, was for six months, and 
 was to be renewed twice for the same length of time. The testimony 
 of Boyd as to the terms of the parol agreement is admitted by Ellis to 
 be correct; and the agreement, in effect, is embodied in Boyd's evi- 
 dence, set out in the record as follows: "Shortly prior, to the date of 
 the first note, he persuaded me as a good friend of his to go into this 
 ■ deal with him and take some of his mining stock. I told him then that 
 I had no money, and that I was in debt and couldn't afford to take the 
 chance. He said he wouldn't urge me to do this if he didn't know all 
 about it. I stated that I didn't have any money to buy it with, and he 
 said, 'That doesn't make any difference' and he said, 'I will carry it 
 with the bank, I will carry it 18 months if you will pay the interest.' 
 Then I said: 'Suppose at the end of 18 months, I can't pay it?' He 
 said : 'Then I will take it off your hands ; but I am sure that you 
 Avill have realized enough on it to pay it, and make a good profit.' I 
 said, 'I don't see any reason why you should do that for me' ; and he 
 said, 'I know you have been up against it pretty hard, and I would Hke 
 to see you make some money,' and I said, 'That is very friendly of you, 
 and I will accept the offer,' and in that case I took the stock condition- 
 ally, and signed the note which he was to renew twice, and at the ex- 
 piration of the 18 months, if I didn't want the stock, he would take it 
 off my hands." There was no actual delivery of the certificates of 
 stock by Ellis to Boyd. At the time of this agreement Ellis conducted 
 a private banking business under the name "Security Savings Bank." 
 
 Pursuant to the provisions of chapter 234, p. 351, Laws 1903, the 
 Security Savings Bank was incorporated for the purpose of succeed- 
 ing to the business and assets of the private bank of the same name 
 previously conducted and managed by J. S. Ellis. The new bank 
 was incorporated August 21, 1903; the incorporators and stockholders 
 being Ellis and his relatives. At the stockholders' meeting the record 
 shows the following : "On motion it was ordered that the board of di- 
 rectors be and are directed to assume the liabilities of the private bank 
 heretofore known as the Security Savings Bank of Ashland, Wiscon- 
 siii, in consideration of the transfer of the assets of said bank to their 
 corporation." At the directors' meeting J. S. Ellis was elected presi- 
 dent, E. H. Ellis, his brother, vice president, and Ellis Kennedy, a 
 nephew and former employe of the president, was elected cashier. 
 Under the agreement between Boyd and Ellis, three notes were given 
 by Boyd to Ellis and deposited by Ellis at the bank. All were payable 
 to the order of Ellis. Two of them were made before the incorpora- 
 tion of the bank, and one, the note in suit, thereafter. In each instance 
 Boyd and Ellis conducted these transactions. The note in suit was re- 
 ceived by Ellis as president and turned over to the cashier with instruc- 
 tions. The mining stock was always in the possession of Ellis and the 
 
Ch. 1) FORMAL REQUISITES 723: 
 
 transfer of the stock on the books of the corporation was not made 
 until after the execution of the last note. The certificate of stock then 
 made out was sent to Ellis and held by him. Boyd offered to transfer 
 any interest in the shares of mining stock to v/hich the agreement be- 
 tween him and Ellis referred,. and renewed this offer at the trial. 
 
 SiEBECKER, J. At the trial the defendant Boyd relied upon an agree- 
 ment between him and Ellis, the payee in the note given by the defend- 
 ant. The transaction between the defendant and Ellis for the pur- 
 chase of mining stock is admitted by Ellis to have constituted the 
 agreement for which the notes were given. The primary question is : 
 What was the parol agreement between these parties? The evidence 
 of it is not voluminous or contradictory, and is, in effect, that Ellis 
 undertook to assist Boyd in securing the advantages of an interest in 
 a mine, if it should prove a profitable enterprise at the expiration of 
 18 months. To accomplish this, Boyd contracted for the purchase of 
 some mining stock from Ellis at an agreed price of $2,500 upon the 
 following arrangement : Since Boyd had no available means to make 
 such a purchase, Ellis made him an offer for such purchase, under 
 which Boyd was to give him a note for the amount, which Ellis was 
 to carry and renew for 18 months. If the stock had not then realized 
 enough to pay the purchase price, and Boyd did not then want the 
 stock, then Ellis was to take it off his hands, and cancel the note. The 
 stock realized nothing, and Boyd insists that, under the parol agree- 
 ment with Ellis at and before the dehvery to Ellis of the first note, the 
 notes never went into effect as completed contracts. He contends that 
 he was to have the right at the expiration of 18 months to elect whether 
 he wanted the stock. 
 
 We are of the opinion that the facts sustain this claim and show such 
 an agreement between the parties. An examination of the evidence, 
 in view of the relations oi the parties and the considerations which in- 
 duced him to make and deliver the note, leads us to the conclusion 
 that it was not intended and agreed by them that the note should be 
 a present binding agreement, but that it was delivered to Ellis upon 
 the condition that, if Boyd paid interest on the sum for 18 months, 
 EUis was to renev/ the notes, as agreed, and, if at the expiration of 
 that time Boyd did not want the stock, the agreement to purchase was 
 to be terminated at Boyd's election, and the note canceled. * * * 
 Such oral agreements are not contradictory of the written instrument. ' 
 This rule was declared and fully discussed in the recent case in this 
 court of Hodge v. Smith, 130 Wis. 326, 110 N. W. 192, where it was 
 held : "It is familiar law, notwithstanding some conflict in the author- 
 ities, that a person may manually deliver an instrument, though it be 
 in the form of commercial paper, to another, on its face containing 
 a binding obligation in praesenti of such person to such other, with a 
 contemporaneous verbal agreement that it shall not take effect until 
 the happening of some specified event, and that the paper, as between 
 the parties, will have no validity as a binding contract till the condi- 
 tion shall have been satisfied ; and that proof of such condition does 
 not violate the rule that a written instrument cannot be varied by a 
 contemporaneous parol agreement; that such evidence only goes to 
 show that the instrument never had vitality as a contract" — citing 
 cases. It is there also held that this principle is recognized in the ne- 
 gotiable instrument law, section 16. * * * 
 
 Can defendant assert this defense to the note in the hands of the 
 
724 NEGOTIABLE INSTRUMENTS (Part 3 
 
 new bank? This must be answered in the affirmative in view of the 
 circumstances of the transfer of the assets from the private to the 
 new bank. 
 
 Timlin, J. (dissenting). * * * The majority of the court seem 
 to have overlooked the force and significance of this undisputed evi- 
 dence regarding the dehvery of the note in suit. * * * The agree- 
 ment to pay interest and the payment of interest, the agreement to re- 
 new, and the renewals pursuant to that agreement are consistent only 
 with absolute delivery. The agreement that the payee should carry the 
 note at the bank even where the payee owned the carrying bank means 
 that the note was considered by the parties to have been delivered. 
 All of these are inconsistent with nondelivery or with conditional de- 
 livery. Again, in the light of' the additional testimony above quoted 
 interpreted in harmony with the pleading, the whole testimony of 
 Boyd is plainly to the effect that it was orally agreed that he should 
 give his note for $2,500 for certain shares of mining stock to be held 
 by the seller as collateral security to that note, that the note was to 
 run six months and to be twice renewed, Boyd to pay interest thereon 
 and to have the right to avail himself of any rise in the price of the 
 stock in the meantime, but if he did not during or at the end of the 18 
 months avail himself of this right to take the shares, Ellis was to take 
 or keep the stock and cancel or discharge the note. There is here no 
 evidence of nondelivery or of conditional delivery, but rather evidence 
 showing delivery coupled with an oral agreement that the note should 
 be discharged or paid in a certain manner differing from that specified 
 in the instrument itself. * * * i have no doubt the oral contract be- 
 tween Boyd and Ellis collateral to this note was founded upon a val- 
 uable consideration and enforceable by Boyd against Ellis. It was a 
 sale of the shares to Boyd with an agreement to repurchase at the end 
 of the 18 months at the same price at the option of Boyd. * * * 
 
Ch. 2) RIGHT OF HOLDER TO COMPLETE, SUB, AND NEGOTIATE 725 
 
 CHAPTER II 
 
 RIGHT OF THE HOLDER TO COMPLETE, TO SUE UPON. 
 AND TO NEGOTIATE THE INSTRUMENT 
 
 Section 
 
 1. Introduction. 
 
 2. Completion of the Instrument. 
 
 3. Right to Sue Prior Parties. 
 
 4. What Constitutes a Negotiation. 
 
 5. Negotiation by Special indorsement. 
 
 6. Negotiation by Blank Indorsement. 
 
 7. Negotiation by Restrictive Indorsement. 
 
 8. Negotiation by Qualified Indorsement. 
 
 9. Negotiation by Conditional, Indorsement. 
 
 10. Transfer of Unindorsed Paper Payable to the Order of the Transferor. 
 
 11. Surrender to the Drawee. 
 
 12. Other Formal Requisites and Aspects of Negotiation. 
 
 SECTION 1.— INTRODUCTION 
 
 The particular rights of the "holder of a negotiable instrument 
 with which we are concerned in this chapter are those rights 
 which are common to holders in due course and to holders not in 
 due course. The special rights of the holder in due course consti- 
 tute the subject-matter of succeeding chapters. The Negotiable 
 Instruments Law contains provisions relating to three special 
 rights which are taken up in this chapter: (1) The privilege of 
 the holder to fill in blanks ; (2) the right of the holder to demand 
 payment of prior parties; (3) the power of the holder to transfer 
 the instrument. 
 
 The circumstances which make one a holder are thus prescribed 
 in the act : 
 
 Section 191, clause 7. "Holder" means the payee or indorsee 
 of a bill or note who is in possession of it, or the bearer thereof. 
 
 Section 191, clause 4. "Bearer" means the person in possession 
 of a bill or note which is payable to bearer. 
 
 vSECTlON 2.— COMPLETION OF THE INSTRUMENT 
 
 Section 13. Where an instrument expressed to be payable at a 
 fixed period after date is issued undated, or where the acceptance 
 of an instrument payable at a fixed period after sight is undated, 
 any holder may insert therein the true date of issue or acceptance, 
 and the instrument shall be payable accordingly. 
 
 Section 14. Where the instrument is wanting in any material 
 particular, the person in possession thereof has a prima facie au- 
 thority to complete it by filling up the blanks therein. And a sig- 
 nature on a blank paper delivered by the person making the signa- 
 ture in order that the paper may be converted into a negotiable in- 
 strument operates as a prima facie authority to fill it up as such for 
 
726 NEGOTIABLE INSTRUMENTS ' (Part 3 
 
 any amount. In order, however, that any such instrument when 
 completed may be enforced against any person who becomes a 
 party thereto prior to its completion, it must be filled up strictly in 
 accordance with the authority given and within a reasonable time. 
 
 The clauses in sections 13 and 14 dealing :with the rights of the 
 holder in due course of instrurhents originally issued in blank and 
 subsequently filled up in excess of authority have here been omit- 
 ted, as these provisions concern the subject-matter of chapters IV 
 and V. It is to be noted that the privilege of the holder to fill in 
 blanks, such as to the amount, interest rate, place of payment, at- 
 torney fees, the name of the payee, etc., is conditional upon his 
 having completed the instrument (1) strictly in accordance with 
 the authority given, and (2) within a reasonable time. If either 
 of these two elements is wanting, the act will then operate as a 
 material alteration, which avoids the instrument in the hands of 
 all holders other than holders in due course. The particular diffi- 
 culty will be to determine when authority has been given to fill up 
 blanks. Such authority may be shown by oral testimony of the 
 granting of express authority, whether by words or conduct; but 
 whether the authority may legitimately be inferred 'exclusively 
 from the fact that the instrument was issued in blank is not clear. 
 
 Certainly the bare issuance of an instrument containing blanks 
 as to certain features which commonly are filled up would not in 
 itself be sufficient in all cases to confer authority to fill them up. 
 For example, a blank as to the rate of interest could not be filled 
 up merely because there appeared on the instrument such a blank. 
 Containing no express provision \yith respect to the interest rate, 
 the instrument should be interpreted as stipulating for the legal 
 rate. The act of inserting another rate would be a material altera- 
 tion. There may be a special problem as regards the right to fill in 
 the name of the payee in order paper, arising from the fact that sec- 
 tion 8 (6) provides that "where the instrument is payable to order 
 the payee must be named or otherwise indicated therein with rea- 
 sonable certainty." If this provision should be interpreted as 
 meaning that the paper must be so designated at the time of issu- 
 ance, then the holder would have no right to fill in the name of 
 the payee, even if given express authority to do so. Even if this 
 interpretation were adopted, a court of equity would probably re- 
 form the instrument in accordance with the express authority 
 given. 
 
 SECTION 3.— RIGHT TO SUE PRIOR PARTIES 
 
 Section 51. The holder of a negotiable instrument may sue 
 thereon in his own name; and payment to him in due course dis- 
 charges the instrument. 
 
 The first clause of this section makes it clear that the rule of the 
 comrnon law that an assignee of a chose in action must sue in 
 
Ch. 2) RIGHT OF HOLDER TO COMPLETE, SUB, AND NEGOTIATE 727 
 
 the name of his assignor is not applicable to holders of negotiable 
 instruments. A special indorsee may sue in his own name, and also 
 a holder under a blank indorsement or a holder of an instrument 
 on its face payable to bearer. The definition, in section 191, clause 
 4, of a bearer as being the person in possession of a bill or note 
 which is payable to bearer, if interpreted in its widest sense, would 
 permit a thief or finder of bearer paper to recover upon it. This 
 section would probably not be so interpreted. Even if it be con- 
 tended that a thief has legal title, it could still be held that all 
 remedies for the enforcement of his legal title have been destroyed 
 by his wrongful act. The status of an illegal contract furnishes an 
 analogy. In such cases there is a contract between the parties, 
 but, being illegal, no remedies are available for its enforcement. 
 The case of a finder is more difficult. He is not a wrongdoer ; still 
 his attempt to enforce the instrument may be taken as evidence to 
 convert the proceeds to his own use, sufficient to defeat his action 
 on the instrument, except where such action by the finder is nec- 
 essary to protect the interests of the unknown owner, as perhaps 
 might be the case where the statute of limitations was about to 
 run on the instrument. Certainly the finder would not be per- 
 mitted to sue against the active opposition of the true owner, who 
 had intervened to protect his rights. To have the right to sue, it 
 is not necessary that the plaintiff be the beneficial owner. If he 
 has been given power to sue by the owner, that fact is sufi^cient. 
 Payment to a thief or finder of bearer paper by an obligor, who 
 had no knowledge that the party demanding payment was a thief 
 or finder, would, however, discharge the obligation. 
 
 LANCASTER v. BALTZELL. 
 (Supreme Court of Maryland, 1836. 7 Gill & J. 468, 28 Am. Dee. 2.33.) 
 
 Buchanan, C. J. A bill or note, payable to order, can only be trans- 
 ferred by indorsement ; and as an action against the acceptor or draw- 
 er can only be sustained by one who has legal title, which cannot be 
 derived through the medium of forgery, it is incumbent on the plain- 
 tiff in such an action to show his interest in the bill or note, which 
 must be done by proving that it was indorsed by the person to whom, 
 or to whose order, it was made payable. 
 
 This is an action by the second indorsee against the maker of a 
 promissory note, payable to the payee or order, which was resisted 
 at the trial on the ground that the first indorsement, purporting to be i 
 by the payee, was__a_forgery, of wEicir]pfooI~was offered by the de- ' 
 fendant. On 'tHepart ot the plaintiffs, it was proved that the de- ; 
 fendant, on being called on by their counsel, after the indorsement to '• 
 them, to pay the note, examined it, and aaLdit^wj£.right, and he would ' 
 settle it with them. Upon which the court instructed the Jury that, iT 
 they believed the defendant, when the note was presented to him by 
 the counsel of the plaintiffs, had examined the indorsements, and said 
 it was right, the plaintiflEs were entitled to recover, although they might 
 beheve the indorsement of the payee's name had been forged, and not- 
 withstanding that acknowledgment had been made, after the trans- 
 
728 NEGOTIABLE INSTEUMENTS (Part 3 
 
 fer of the note by these indorsements to thein, on an exception to which 
 instruction the case is brought up. ;, 
 
 Apart from the alleged conversation between the 'defendant and 
 the counsel of the plaintiffs, it is very clear that the plaintiffs are not 
 entitled to recover, if the first indorsement in the name of the payee 
 of the note was forged, as the title was not and could not thereby be 
 transferred, but continued in the payee, who, on obtaining possession 
 of the note, might sue upon it, and recover against the maker, not- 
 withstanding he should have paid it to him, into whose hands it came, 
 through the medium of the forgery; for, besides that, in such case 
 the payee has not parted with his title, the payee of a note, whose 
 name is forged, knows nothing of it, and the maker, before he pays it 
 to the holder as indorsee,, should Ipok carefully to ;the indorsements, 
 and, if one is to suffer, the loss should fall on him who is most in fault, 
 or most negligent. 
 
 The only question, then, in this case is whether, if, after the in- 
 dorsements had been made, the defendant, on the note being present- 
 ed to him, by the counsel of the plaintiffs, examined the indorsements 
 and said it was right, that makes_any_ difference? And we think it 
 does, not- By saying so, he gave no credit to the Tiote^' and did not 
 th'ereby induce the plaintiffs to take it. That had been done before, 
 and not on the faith of what he said. The plaintiffs might before they 
 took the note, have inquired whether the first indorsement was by the 
 payee or not, and, not having done so, they must abide by the conse- 
 quence, and cannot throw the loss upon the defendant, who had done 
 nothing to mislead them or induce them to take the note, and who, if 
 -made to pay the amount in this action, may be made to pay it over 
 again by the payee, whose right remains unimpaired. 
 
 It is not like the case of a drawee of a bill, who, if on being asked if 
 the acceptance is in his handwriting, says that it is and that it will 
 be duly paid, cannot afterwards set up as a defense the forgery of 
 his name ; because by saying so he had accredited the bill and induced 
 another to take it, which being his own fault, the loss ought to fall on 
 him, and not on another, who has been induced to take the bill on the 
 faith of his assurance. 
 
 Judgment reversed. 
 
 GREENE V. McAULE;T. 
 (Supreme Ctonrt of Kansas, 1905. 70 Kan. 601, 79 Pac. 133, 68 L. E, A. 308.) 
 
 Action by, F. F. Greene against A. T..McAuley. Judgment for de- 
 fendant, and plaintiff brings error. 
 
 Mason, J. F. F. Greene sued A. T. McAuley upon two notes, for 
 $130 each, executed by McAuley to H. E. Stearns, and assigned in 
 writing by Stearns to the plaintiff. Defendant admitted the execution 
 and assignment of the notes, but in his answer aJleged that they be- 
 longed to Mrs. Laura Sims Thomas, and that plaintiff did not own 
 them, and had no right to maintain an action upon them. The case 
 was submitted to a jury upon the issue of the ownership of the notes, 
 and a verdict was given for the defendant. A judgment followed, 
 from which the plaintiff prosecutes error. The principal, and in- 
 deed the only substantial, question involved is whether the evidence 
 given in behalf of the defendant had any tendency to establish a de- 
 fense. 
 
Ch. 2) EIGHT OF HOLDER TO COMPLETE, SUE, AND NEGOTIATE 729 
 
 The plaintiff, while denying that any person except himself had 
 any interest whatever in the notes, contends that the case is controlled 
 by the principle that an action upon a note may be maintained by one 
 who holds the legal title, although without beneficial interest, and that, 
 as he had possession of the notes, and they were assigned to him by 
 the payee, he was entitled to enforce their payment, whatever claim 
 any third person might have had against him with reference to them. 
 The defendant claims that the principle invoked does not apply to the 
 facts of the case. * * * 
 
 The question presented, therefore, is this : Assuming that Mrs. 
 Thomas' statements are true, and that Greene, after promising that 
 he would get the notes from Stearns and give them to her, procured 
 Stearns to assign them to himself, and then wrongfully kept them, hav- 
 ing obtained them from Stearns in lieu of the payment of rent which 
 was owing for the use of land belonging to Mrs. Thomas, but which 
 had been made payable to Greene in order to secure him against a lia- 
 bility from which he had now been released, do these facts constitute 
 a defense in an action brought against the maker of the' notes by 
 Greene, not only without the consent, but against the objection, of Mrs. 
 Thomas ? 
 
 In jurisdictions where, as in Kansas, * * * the holder of the 
 naked legal title to a promissory note may sue upon it, even although 
 he may be under obligation to account to some third person for the 
 entire proceeds, it is often said that in such an action the defendant 
 cannot challenge the plaintiff's right to maintain it, except by a show- 
 ing of bad faith in the transaction. Dyer v. Sebrell, 135 Cal. 597, 67 
 Pac. 1036, and cases cited ; City Bank of New Haven v. Perkins, 29 
 N. Y. 554, 86 A'm. Dec. 332. But in the decisions there is a some- 
 what singular lack of explanation or illustration as to just what might 
 be considered bad faith, in this connection. Doubtless the phrase is 
 sometimes used with reference to a merely colorable transfer of title 
 by the real owner to a stranger, had for the purpose of embarrassing 
 the maker of the note in his defense. * * * In 2 Daniel on Ne- 
 gotiable Instruments, 1191, it is said: "If it were shown that the ' 
 plaintiff, upon suing upon a note payable to bearer or indorsed in 
 blank, has no interest in it, and, in addition, that he is suing against 
 the will of the party beneficially interested, he could not recover, as ' 
 his conduct would be in bad faith." In support of this statement the 
 author cites Towne v. Wason, 128 Mass. 517, the syllabus to which 
 reads : "It is a _gQod defense to a promissor ynote that the plaintiff, 
 although in the possession bOhe note, has^^Jnterest in it, and is 
 prosecuting the action, not for the benefiT of the person beneficially 
 interested, but against his objection." Butjn that c ase the defense 
 made was that the plaintiff had wrongfully, ancTwithout the consent of 
 the owner, obtained possession of the note, sued on, which was in- 
 dorsed in blank ; that he had no title to it, and never had had any ; 
 and that he was not authorized to sue in behalf of the owner — :in ef- 
 fect,JliaHie4iad_stQlen the note. Andthe ground of the decision was 
 that under the facts stated the plaintiff had no authority to receive 
 payment of the note, and a payment to him would not have released the 
 maker. And this suggests what we conceive to be the true rule, of 
 general, if not universal, application — that, so far as affects the ques- 
 tion of the right of the plaintiff to maintain the action, the only inquiry 
 open to the defendant is whether the plaintiff has such title to the 
 
730 NEGOTIABLE INSTRUMENTS , (Part 3 
 
 note that a payment made to him would be a complete protection to 
 /defendant from any further liability. * * * 
 
 Applying the test suggested to the present case, the question is: 
 Would McAuley have been completely protected in making payment 
 of the notes to Greene? True, according to the contentions of defend- 
 ant, when Greene settled with Mrs. Thomas, he agreed to procure the 
 notes from Stearns and turn them over to her, and nothing was said 
 as to his taking an assignment to himself rather than to Mrs. Thom- 
 as. Yet the case is not the same, for instance, as if an agent, com- 
 missioned to buy negotiable paper for his principal, had wrongfully 
 taken title in his own name. For here it required no authority from 
 Mrs. Thomas, to be given at the time of the settlement, for Greene to 
 collect the rent from Stearns, or for Stearns to pay Greene. Stearns, 
 having originally contracted to pay Greene, and not having contracted 
 to pay any one else, might have paid him in cash or by any other 
 method satisfactory to Greene. In fact, he settled his debt by as- 
 signing the McAuley notes to Greene — the person to whom, so far as 
 he knew 6r had occasion to inquire, he was indebted. The fact that 
 1 the notes here sued upon were given by McAuley to Stearns for the 
 I rent of Mrs. Thomas' land is merely incidental, and has no bearing up- 
 j on the decision of the controversy. They might be regarded as having 
 been given for any other consideration without affecting the rights of 
 the parties. Greene obtained them in exchange for, or in satisfaction 
 of, a claim of which Mrs. Thomas was the beneficial owner, having 
 been enabled to do so by her voluntarily allowing such claim to be 
 made payable to him. She never acquired possession of, or legal title 
 to, these notes. The effect of the tranjiaction, from her standpoint, 
 was merely to charge Greene as trustees for her benefit with respect 
 to tKemT The Btuation presented is closely analogous to that which 
 would have arisen if Mrs. Thomas had assigned and delivered notes 
 originally payable to herself to Greene as collateral security, and he 
 had retained them, after the full satisfaction of the principal obliga- 
 tion, to secure which they had been transferred to him. * * * 
 
 The peculiar feature of the present case is that theequitable owner 
 objects to the holder of the notes exercising_fuiib&t-ayjtrol over tliem, 
 ~an3~hrs~possesslon as to her is wrongful. Of course, the holder of a 
 note unlawfully acquired has no authority to receive payment, or to 
 sue upon it, even although it should bear a genuine indorsement tij him- 
 self. This might happen, for example, if one holding a note made 
 payable to himself were to sell and deliver it without further assign- 
 ment, and were then to regain its possession by theft. In such a case 
 he would have neither legal ownership nor rightful possession. A 
 payment made to him would afford no protection, and a showing of 
 the facts would constitute a good defense to an action brought by 
 him. ^But where one has rightfully obtained possession of a note, and 
 thejegal title is_actually vested in him, although he may be under an 
 obligatioh'to'transfer it to another, so long as these conditions exist, 
 and no effective measures are taken by the equitable owner to enforce 
 his rights, the payee is justified in dealing with the holder, and a pay- 
 ment made to him is a bar to any further demand. This would apply 
 where the pledgee of paper deposited with him as collateral security 
 retains it after the satisfaction of the debl; secured, and it applies here. 
 McAuley would have been completely protected "by a payment to 
 Greene, who therefore had capacity to maintain the action. 
 
Ch. 2) EIGHT OF HOLDER TO COMPLETE, SUE, AND NEGOTIATE 731 
 
 Just how, in such cases, the interests of other claimants than the 
 holder of the paper involved may be safeguarded, is not a matter for 
 present determination. It has been held that, where an action is. 
 brought by the holder of the legal title to a note, any one beneficially 
 interested in the proceeds may intervene for his own protection. 
 * * * But we are not- required to decide whether Mrs. Thomas 
 might have intervened in the present case. There was no necessity 
 for settling in this proceeding any dispute between her and the plain- 
 tiff, for their rights with respect to each other remain unaffected by its 
 result. * * * 
 
 The plaintiff was equally entitled to recover the full amount due 
 upon the notes, whether he owned them absolutely, or was required to 
 account for their proceeds as a trustee. * * * 
 
 The judgment will be reversed, and the cause remanded, with direc- 
 tions to enter judgment for the plaintiff as prayed for in his petition. 
 
 SECTION 4.— WHAT CONSTITUTES A NEGOTIATION 
 
 We are interested here in noting the various methods of nego- 
 tiating an instrument. Looking at the subject of negotiation from 
 the standpoint of the holder, the question is as to the power which 
 the holder possesses in this regard. He may part with his entire 
 interest or he may part with but a portion of his interest. The 
 holder may part with his complete interest in more than one way, 
 and thereby produce different legal effects as regards the rights of 
 subsequent parties. We shall, therefore, be required to look at the 
 transactions both from the standpoint of the party negotiating and 
 the party to whom it is negotiated. 
 
 Section 30. An instrument is negotiated when it is transferred 
 from one person to another in such manner as to constitute the 
 transferee the holder thereof. If payable to bearer it is negotiated 
 by delivery ; if payable to order it is negotiated by the indorsement 
 of the holder completed by delivery. 
 
 Section 191, clause 6. "Delivery" means transfer of possession, 
 actual or constructive, from one person to another. 
 
 Section 191, clause 10. "Issue" means the first delivery of the 
 instrument complete in form, to a person who takes it as a holder. 
 
 Section 191, clause 8. "Indorsement" means an indorsement 
 completed by delivery. 
 
 Section 33. An indorsement may be either special or in blank; 
 and it may be either restrictive or qualified, or conditional. 
 
 FAENSWORTH v. BURDICK et al. 
 (Supreme Court of Kansas, 1915. 94 Kan. 749, 147 Pac. 863.) 
 
 Marshall, J. This is an action to recover on a promissory note. 
 Judgment was rendered in favor of the plaintiff. The defendants 
 appeal. 
 
 The defendants, Wm, S. Burdick and A. M. Ewing, in consideration 
 for a tract of land in Mercer county. Mo., gave a stock of goods in 
 
732 NEGOTIABLE INSTRUMENTS (Part 3 
 
 lola, Kan., a negotiable promissory note for the sum of $500, signed 
 by all the defendants, and assumed an incumbrance on the land for 
 the sum of $890. The trade was made with, and the note given to, 
 J. A. Wheeler, who negotiated the note to the plaintiff by writing on 
 the back thereof, "I here by assine this note over to E. H. Farnsworth 
 this the Nov. 1st, 1910," signed it, and delivered it to the plaintiff. 
 The plaintiff became the holder of the note before it was due, without 
 any notice that it had been previously dishonored. He took it in good 
 faith, and for value. At the time it was negotiated to him, he had 
 no notice of any infirmity in the note or defect in the title of J. A. 
 Wheeler. The note is complete and regular on its face. The defense 
 is failure of consideration for the note. Is this defense good? 
 
 Prior to the passage of the Negotiable Instruments Law, * * * 
 this court, in Hatch v. Barrett, 34 Kan. 223, 8 Pac. 129, said: "A 
 writing upon the back of a promissory note, transferred before maturity, 
 , in these words : ' * * * j^ James C. Rogers, do hereby assign the 
 / within note to Charles B. Hatch, of Osage county, Kansas. Said as- 
 signment is made without recourse on me, either in law or equity. 
 J. C. Rogers. Signed in the presence of H. F. Raymond, clerk county 
 court, Washington county, Arkansas' — is not an indorsement in a 
 commercial sense, and will not cut off the defenses of the maker." 
 
 This principle was followed in * * * Briggs v. Latham, 36 Kan. 
 
 . 255, 13 Pac. 393, 59 Am. Rep. 546. At the time these decisions were 
 
 I |-endered, the weight of authority in this country was that such a 
 
 writing on the back of a note was an indorsement, which cut off the 
 
 I Equities and defenses of the maker, available against the payee. 
 
 , The Negotiable Instruments Law reduces to a certainty many 
 things that prior to that date were in confusion. This law contains 
 several definitions. One is that " 'delivery' means transfer of posses- 
 sion, actual or constructive, from one person to another." Another 
 is, " 'holder' means the payee or indorsee of a bill or note, who is in 
 possession of it, or the bearer thereof." Still another is, " 'indorse- 
 ment' means an indorsement completed by delivery." * * * 
 
 Section 30 reads in part: "An instrument is negotiated when it 
 is transferred from one person to another in such manner as to con- 
 stitute the transferee the holder th,ereof." 
 
 The note sued on was negotiated T>vithin the meaning of this section. 
 It was transferred from Wheeler to Farnsworth, and he became the 
 holder thereof. * * * 
 
 The indorsement in this case is special, in that it specifies the per- 
 son to whom the note is made payable. It is absolute and unrestrictive. 
 It is not a qualified indorsement, unless the use of the word "assign" 
 
 makes it a qualified indorsement. It is not a conditional indorsement. 
 * * * 
 
 Section 63 reads : "A person placing his signature upon an in- 
 strument otherwise than as maker, drawer or acceptor is deemed to 
 be an indorser, unless he clearly indicates by appropriate words his 
 intention to be bound in some other capacity." 
 
 When Wheeler placed his name on this note, he did not do it as' 
 maker, drawer, or acceptor, and is therefore deemed to be an indorser, 
 unless the word "assign," used by him, indicates "his intention to be 
 bound in some other capacity." The authorities seem to be in utter 
 and hopeless confusion concerning the effect of the transfer of a ne-- 
 gotiable instrument by words like those used here. This confusion 
 
Ch. 2) EIGHT OF HOLDER TO COMPLETE, SUE, AND NEGOTIATE 733 
 
 existed prior to the passage of the uniform Negotiable Instruments 
 Law, and still exists. The weight of authority was, and is, that this 
 is a commercial indorsement. We are of the opinion that the "assign- 
 ment" of this note is an indorsement thereof, under the Negotiable 
 Instruments I^aw ; that Farnsworth is a holder in due course ; and 
 that the makers of the note cannot set up the defenses against the note 
 that could have been set up against it in the hands of Wheeler. This 
 disposes of the case, and compels an affirmance of the judgment. 
 
 SECTION 5.— NEGOTIATION BY SPECIAL INDORSEMENT 
 
 Negotiable Instruments Law, Section 34. A special indorse- 
 ment specifies the person to whom or to whose order, the instru- 
 ment is to be payable; and the indorsement of such indorsee is 
 necessary to the further negotiation of the instrument. 
 
 To illustrate: If M. executes and delivers his note payable to 
 P. or order, and P. indorses: "Pay A. [Signed] P." — and delivers 
 to A., the indorsement ' is special. The indorsement, "Pay A." 
 has the same effect as though it read, "Pay A. or order." As ex- 
 pressly provided in section 34, the indorsement of A. is necessary 
 to the further negotiation of the bill. The instrument cannot be 
 negotiated by mere delivery. If A.'s indorsement is placed on 
 the instrument without his authority and the instrument trans- 
 ferred to an innocent party, such person would acquire no interest 
 in the instrument against the special indorsee or any party prior to 
 him. One cannot gain title to an instrument through a forged 
 in,dorsement as expressly provided in section 23 as follows : 
 
 Where a signature is forged or made without authority of the 
 person whose signature it purports to be, it is wholly inoperative, 
 and no right to retain the instrument, or to give a discharge there- 
 for, or to enforce payment thereof against any party thereto, can be 
 acquired through or under such signature, unless the party against 
 whom it is sought to enforce such right, is precluded from setting 
 up the forgery or want of authority. 
 
 FIRST NAT. BANK OF SHENANDOAH, IOWA, v. KELGORD. 
 (Supreme Court of Nebraska, 1912. 91 Neb. 178, 135 N. "W. 548.) 
 
 LETTON, J. This is an action upon a promissory note made by the 
 defendant payable to the order of "Wonder Stock Powder Company." 
 The petitioner alleges that one James J. Doty is the owner and pro- 
 prietor of "Wonder Stock Powder Company," and that the plaintiff 
 before maturity and in the usual course of business purchased the note 
 for a valuable consideration. * * * fhe cause was tried to a 
 jury which returned a verdict for the defendant. 
 
 The note in question is made payable to "Wonder Stock Powder 
 Company." It is indorsed in blank, "James J. Doty, Prop." This 
 indorsement is clearly insufficient under section 30 of the negotiable 
 instruments act * * * to constitute the plaintiff a holder in due 
 course of business. The only evidence as to the relation of Doty to 
 
734 NEGOTIABLE INSTRUMENTS ^ (Part 3 
 
 the concern is that of Albert A. Reed, who purchased the note for 
 the plaintiff. He testifies that he purchased it with 59 others from 
 Mr. Doty, and that Doty is sole proprietor of the "Wonder Stock 
 Powder Company. "^_ItJs_not shown whether the Wo nder Stock^ ow- 
 der Company is a corporation of which Doty owns all the stock, or 
 whether it is a trade-name used by Doty in his individual business. 
 
 tl; lie :(: 
 
 The purchase and delivery of the note transferred the title to plain- 
 tiff, but there being, so far as the evidence shows, no indorsement by 
 the payee, the transfer could not vest plaintiff with the privileges of 
 -a. holder in due course, and the note was subject to the same defenses 
 as might be set up against the original payee. 
 
 Judgment affirmed. 
 
 SECTION 6.— NEGOTIATION BY BLANK INDORSEMENT 
 
 N. I. L., Section 34. An indorsement in blank specifies no in- 
 dorsee, and an instrument so indorsed is payable to bearer, and 
 may be negotiated by delivery. 
 
 The blank indorsement consists simply in the signature of the 
 holder accompanied by delivery. Thereafter the instrument may 
 "be negotiated by delivery without indorsement. It is quite com- 
 mon for the holder, who transfers an instrument which is in such 
 form that it may be negotiated by delivery, to indorse the same. 
 When this is done, it is not for the purpose of enabling the trans- 
 feror to obtain title to the instrument, but is done for purposes 
 quite different. The indorsement imposes upon the indorser a 
 liability to pay the instrument to the holder in the event that the 
 party primarily liable thereon fails to pay at maturity. If the hold- 
 er did not indorse, his liability as a transferor by delivery would 
 extend no further than a warranty that the instrument was genu- 
 ine, that he had title to it, that all prior parties had capacity to con- 
 tract, and that he had no knowledge of any fact which, would im- 
 pair the validity of the instrument or render it valueless, and such 
 liability would extend no further than his immediate indorsee. 
 The effect of the indorsement would be to impose upon the in- 
 dorser a liability to pay if the instrument were not paid at maturity, 
 provided there was a due presentment and due notice of dishonor 
 given. The liability of indor&ers is discussed in detail in a later 
 chapter. The point is merely adverted to here to show that, while 
 an indorsement is not necessary for the transfer of title to a nego- 
 tiable instrument, which is either payable to bearer on its face or 
 became payable to bearer through a blank indorsement, oftentimes 
 an indorsement will be necessary in order to induce the transferee 
 to take the paper. 
 
 It should be realized that, if a person has in his possession an 
 instrument in form transferable by delivery, there is always some 
 risk that he may lose title thereto through loss or theft of the in- 
 strument. The innocent purchaser from a thief or finder of bearer 
 paper obtains title. This is not so where the innocent purchaser 
 
Ch. 2) RIGHT OF HOLDER TO COMPLBTBj SUB, AND NEGOTIATE 735 
 
 took the instrument under the forged indorsement of a special in- 
 dorsee of paper on its face payable to order. In order to guard 
 against the loss of title through the loss or theft of the instrument 
 while in form negotiable by delivery, and for other purposes, the 
 law allows the holder to convert the blank indorsement into a 
 special indorsement by writing his name above the blank indorse- 
 ment following the words "Pay to." This is accomplished by sec- 
 tion 35 : 
 
 The holder may convert a blank indorsement into a special in- 
 dorsement by writing over the signature of the indorser in blank 
 any contract consistent with the character of the indorsement. 
 
 We have one special problem relating to special and blank in- 
 dorsements which is of considerable importance. Suppose an in- 
 strument bears both a special indorsement and a blank indorse- 
 ment, which indorsement controls? If an instrument is made pay- 
 able to bearer on its face, and some holder negotiates by special in- 
 dorsement, does the special indorsement control? We have al- 
 ready noted that the effect of a blank indorsement is to convert the 
 paper into bearer paper. Suppose a blank indorsement is fol- 
 lowed by a special indorsement; does the special indorsement have 
 the effect of reconverting the instrument to order paper, so that 
 the indorsement of the special indorsee is necessary to the further 
 negotiation of the instrument? In short, we have two questions : 
 (1) Does a special indorsement control a prior indorsement in 
 blank? (2) Does a special indorsement control the method of ne- 
 gotiation of an instrument which on its face is payable to bearer? 
 
 Unfortunately the Negotiable Instruments Law is not clear on 
 these questions. Before the act a subsequent special indorsement 
 did not control paper which was bearer paper on its face, 
 nor did it control a prior blank indorsement. If it were once bearer 
 paper, it was always thereafter bearer paper. Under the act, the 
 law probably is that an instrument which is payable to bearer on 
 its face cannot be controlled by a subsequent special indorsement, 
 but that an instrument which on its face is payable to the order of 
 a named payee, and became payable to bearer through a blank in- 
 dorsement, is controlled by a subsequent special indorsement. The 
 sections of the act involved are as follows : 
 
 Section 9 (5). The instrument is payable to bearer when the 
 only or last indorsement is an indorsement in blank. 
 
 This section, standing alone, would clearly change the common- 
 law rule, and the last indorsement in all cases would control. If 
 the iHstrument were payable to bearer on its face, a special indorse- 
 ment would prevent further negotiation by delivery merely. Also 
 if the instrument became payable to bearer for the first time by a 
 blank indorsement, a subsequent special indorsement would con- 
 trol, and the instrument could be further negotiated only by the in- 
 dorsement of the special indorsee. 
 
 But there are two other sections of the act involved which affect 
 the result: 
 
736 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Section 48. The holder may at any time strike out any indorse- 
 ment which is not necessary to his title. The indorser whose in- 
 dorsement is struck out, and all indorsers subsequent to him, are 
 thereby relieved from liability on the instrument. 
 
 -If this section means that the transferee by delivery only, from 
 a special indorsee, may strike out the special indorsement and rely 
 upon any prior blank indorsement, then the subsequent special in- 
 dorsement will not control. This interpretation is not reasonable, 
 however, because the only kind of indorsement which may be 
 strickeh out is that kind of indorsement which is not necessary to 
 the holder's title. The very question we are trying to solve is : 
 What indorsements are necessary to one's title? Section 48, there- 
 fore, does not aid us in answering the questions raised above. 
 
 Section 40 has a more direct bearing on these problems. This 
 section provides: 
 
 Where an instrument, payable to bearer, is indorsed specially, 
 it may nevertheless be further negotiated by delivery; but the 
 person indorsing specially is liable as indorser to only such hold- 
 ers as make title through his indorsement. 
 
 We are interested here only in the first clause. This states that 
 an instrument if payable to bearer is indorsed specially, it may 
 nevertheless be further negotiated by delivery. This states a rule 
 just the opposite from that laid down in section 9 (5). Under 
 section 9 (5) the last indorsement controls. If this is a special 
 indorsement, it would control a prior blank indorsement. Under 
 section 40 the subsequent special indorsement does not control a 
 prior blank indorsement, nor does it control the manner of nego- 
 tiating an instrument payable to bearer on its face. 
 
 If one section is not to be regarded as completely neutralizing 
 the effect of the other, the most reasonable way out of the diffi- 
 culty is to divide all negotiable instruments into two classes: (1) 
 Those which on their face are payable to the order of a named 
 payee; and (2) those which on their face are payable, either to 
 bearer, or to a named payee or bearer. Then let section 9 (5) 
 apply only to instruments in the first class, and regdrd section 40 
 as applicable only to instruments in the second class. The courts 
 have not yet passed upon this question, but, if this be the correct 
 solution, our conclusions are: (1) That an instrument payable to 
 bearer on its face will always be payable to bearer. A subsequent 
 special indorsement will not control. (2) That an instrument 
 payable on its face to the order of a named payee, if subsequently 
 it becomes payable to bearer by virtue of a blank indorsem'ent, a 
 subsequent special indorsement will control the prior indorsement 
 in blank, and the instrument may be further negotiated only by the 
 indorsement of the special indorsee. 
 
Ch. 2) RIGHT OF HOLDER TO COMPLETE, SUB, AND NEGOTIATE 737 
 
 DAVIS V. FIRST NAT. BANK OF BLAKELY. 
 
 (Supreme Court of Alabama, 1915. 192 Ala. 8, 68 South. 261.) 
 
 Anderson, C. J. The note sued upon was executed by B. F. W. 
 Davis and was made payable to himself or order and was indorsed 
 by said Davis in blank before it fell into the hands of the plaintiff. 
 Therefore, as the last, and in fact onlyj indorsement was in blank, 
 the note was, wherrarquired by the plaintiff, payable to bearer. * * * 
 This being the case, it was negotiated to the plaintiff and its predeces- 
 sor by a delivery thereof. * * * The trial court did not err in hold- 
 ing that plaintiff was the legal holder of the note and could maintain a 
 suit upon same, although not indorsed by the party from whom it pur- 
 chased same. 
 ■ The judgment of the circuit court is affirmed. 
 
 SECTION 7.— NEGOTIATION BY RESTRICTIVE 
 INDORSEMENT 
 
 N. I. L,., Section 36. An indorsement is restrictive, which either 
 (1) prohibits the further negotiation of the instrument; or (2) 
 constitutes the indorsee the agent of the indorser; or (3) vests 
 the title in the indorsee in trust for or to the use of some other 
 person. But the mere absence of words implying power to nego- 
 tiate does not make an indorsement restrictive. 
 
 Section 37. A restrictive indorsement confers upon the indorsee 
 the right (1) to receive payment of the instrument; (2) to bring 
 any action thereon that the indorser could bring; (3) to transfer 
 his rights as such indorsee, where the form of the indorsement au- 
 thorizes him to do so. But all subsequent indorsees acquire only 
 the title of the first indorsee under the restrictive indorsement. 
 
 An owner of a negotiable instrument may sometimes desire to 
 part with its possession and to vest in the transferee certain spe- 
 cial rights, but reserving to himself the real beneficial ownership. 
 If a special or blank indorsement were employed in such case, the 
 indorser incurs the risk that .the instrument may get into the hands 
 of a purchaser who has no knowledge of the special purpose for 
 which the transfer was made. Since the holder under a blank 
 indorsement, or the special indorsee under a special indorsement, 
 has it within his power to negotiate to a third party free from the 
 restrictions imposed by the owner, the only method by which a 
 negotiation for a special purpose may safely be made is to provide 
 expressly on the instrument the special purposes for which the 
 transfer is made. Such an indorsement is a restrictive indorse- 
 ment. There are no particular words which must be used in order 
 to manifest the intention to part with but a limited right, but any 
 words will be sufficient if they unequivocally indicate that a spe- 
 cial interest only was transferred. The most distinctive feature of 
 the most common form of a restrictive indorsement is that it con- 
 B.& B.BUS.LAW— 4T 
 
738 NEGOTIABLE INSTRUMENTS (Part 3 
 
 sists in language which manifests the intention of the owner to 
 retain the beneficial interest in the instrument, and to transfer to 
 the restrictive indorsee the power to collect and to sue upon the 
 instrument. Such an indorsee becomes thereby a trustee of a 
 chose in action, and an agent for the owner. His rights and lia- 
 bilities are then determined by the law of trusts and agency. The 
 question with which the following case is concerned is: What 
 words accompanying the signature of the holder will operate as a 
 restrictive indorsement? 
 
 NATIONAL BANK OF COMSIERCE v. BOSSEMEYEK et al. 
 
 (Supreme Court of Nebraska, 1917. .101 Neb. 96, 162 N. W. 503, 
 L. 'R. A. 1917E, 374.) 
 
 Action by the National Bank of Commerce against Ernest Bosse- 
 meyer and Frank Bossemej'er, doing business under the firm name and 
 style of Bossemeyer Bros. Judgment for defendants, and plaintiff 
 appeals. 
 
 IvETTON, J. On January 3, 1911, defendants, who are grain dealers 
 at Superior, Neb., drew a sight draft upon a firm in New Mexico for 
 $729, and attached a bill of lading for a car of grain consigned to the 
 order of the drawer. They deposited the draft in the First National 
 Bank of Superior (hereinafter termed "the Superior bank"), which 
 gave them credit for the amount upon their checking account. This 
 was done in accordance with a custom whereby defendants deposited 
 such drafts with bills of lading attached and were given credit, with 
 the understanding that if the draft was not paid it should be protested, 
 and its amount, with protest fees, should be charged back ; that if in- 
 terest was charged to the bank by the correspondent the interest should 
 be charged to the account of drawer. Before the draft was deposited, 
 by mutual agreement the custom was changed and such dishonored 
 drafts were not charged back, but defendants, upon being notified of 
 their return, would give a check to the bank to cover the amount of 
 the draft and protest fees. This was the custom in Superior between 
 banks and grain dealers generally. 
 
 The Superior bank sent the draft and bill of lading to plaintiff, its 
 correspondent bank in Lincoln, which credited it with the amount and 
 forwarded the draft and bill of lading to New Mexico through its 
 regular correspondents. The draft bore upon its face the following: 
 "Protest and return immediatelyTwtEirair'papeFs "Attached, if not paid 
 upon presentation." The indorsement by the Superior bank is as fol- 
 lows : IlEayi^ny bank jpr_banker, , AlLpre^icms-iiidorsernents guaran- 
 ;t£ed/' Before the draft reached New Mexico the Superior banlThad 
 suspended payments and been taken in charge by the Comptroller of 
 the Currency. Defenda nts notified the dra wee no t_l o pay th edraft, 
 caused the car to be delivered,' arid collected the amount dUeTrom 
 him. The draft- was protested and reluni£d4o_£laintifif. The action 
 was brought against the drawers by plaintiff aFa hoTSer for value, as 
 defined in section 5344, Rev. St. 1913. Five similar transactions are 
 alleged as causes of action in the petition. 
 
 Several defenses are set up: (1) That the drafts were deposited 
 with the Superior bank for collection only, to the knowledge of plain- 
 tiff, and were received by plaintiff from that bank for collection. (2) 
 
Ch. 2) RIGHT OF HOLDER TO COMPLETE, SUE, AND NEGOTIATE 739 
 
 That since the Superior bank charged interest until the collection was 
 made, and charged the drafts back if not paid, it was not an owner or 
 Tiolder in due course, and the same relation as to the drafts being de- 
 posited for collection existed between the Superior bank and plaintiff. 
 (3) That at the time the drafts were received the Superior bank was 
 insolvent, which was known to plaintiff and to the officers of the Su- 
 perior bank, but unknown to defendants, and that when these condi- 
 tions became known defendants rescinded the transaction. The action 
 was tried to the court without a jury, which found generally for the 
 
 defendants and rendered judgment of dismissal. Plaintiff appeals'. 
 
 * * * 
 
 The question for determination is whether the draft was received 
 by the plaintiff ' for collection, the title and ownership remaining in 
 the Superior bank, or, did plaintiff become a holder in due course by 
 the indorsement and receipt of the draft and the crediting of the Su- 
 perior bank with the amount thereof? Defendant_corit£tidaJJiatJ:he 
 indors^iient__is_ restrictive, and shows thaTlEe^ title did not pass; that 
 smce the custom was that intefesflEould~5e"cHargear between the date 
 of tlie receipt of the paper and the receipt of the money in payment 
 thereof, and because if not paid it was the custom to charge the amount 
 ■and protest fees back to the account of the Superior bank, the draft 
 was taken for collection only. 
 
 Is the indorsement restricti-ve ? Whatever may have been held be- 
 fore tlie enactment of the Negotiable Instruments Act, it is clear that 
 this question must be determined by the provisions of that statute. 
 
 it: * * 
 
 There is nothing on the face of this indorsement which prohibits the 
 further negotiation of the instrument or constitutes the indorsee the 
 agent of the indorser, or vests title in the indorsee in trust for the use 
 of some other person, and hence, by the most elementary principles 
 of statutory construction, the plain meaning of the language must be 
 observed, and it must be held that the indorsement was not restrictive. 
 
 In Bank of Indian Territory v. First Nat. Bank, 109 Mo. App. 665, 
 83 S. W. 537, a case which was decided before the Negotiable Instru- 
 ments Act went into effect in that state, it was held, without any dis- 
 cussion of the reasons, that an indorsement such as this was a re- 
 strictive indorsement. In three cases decided in that state after the 
 act was in force ( National Bank of Rolla v. First Nat. Bank, 141 Mo. 
 App. 719, 125 S. W. 513; National Bank of Commerce v. Mechanics' 
 American Nat. Bank, 148 Mo. App. 1, 127 S. W. 429 ; Citizens' Trust 
 Co. V. Ward, 195 Mo. App. 223, 190 S. W. 364) the same ruling was 
 made ; but in none of these cases was the language of the statute con- 
 sidered, and the holding is placed upon the authority of the first case, 
 which, as we have seen, was decided before the act took effect. These 
 cases are not authority upon the proposition as to whether such an in- 
 dorsement is restrictive under the provisions of the act. Furthermore, 
 any bank receiving a draft with such an indorsement has the right to 
 again indorse it in blank or payable to any particular bank or person. 
 This, of course, it would have no power to do if the indorsement was 
 restrictive. If, however, the words "for credit," "for account," "for 
 collection and return," had been added, the character of the indorse- ] 
 ment would have been changed entirely, and it would have been re-' 
 strictive, showing upon its face that the indorsee bank took it only as 
 a collecting agent, and not as a holder for value. * * * 
 
740 NEGOTIABLE INSTRUMENTS (Part S 
 
 In First Nat. Bank of Belmont v. First Nat. Bank of Barnesville, 58 
 Ohio St. 207, 50. N. E. 723, 41 L. R. A. 584, 65 Am. St. Rep. 748, it 
 is pointed out that the practice of indorsing checks "for collection," 
 "for account" had become almost universal, but when it was decided 
 
 I by the Supreme Courts of New York and Missouri that the drawee 
 bank could not recover back money paid upon a forged draft in the 
 one case from a collecting bank, or in the other from the bank owning 
 the draft, "it startled the banks located in large cities, and awakened 
 them to the dangers attending the payment of such drafts or bills, and 
 the result was that in the year 1896, the clearing house in the city of 
 New York adopted a rule to the effect that its members should not 
 send through the exchanges any paper having any qualified or re- 
 strictive indorsements, such as 'for collection,' or 'for account of,' un- 
 
 , less all indorsements were guaranteed by the bank sending such paper. 
 This action was soon followed by the clearing houses in other cities, 
 and in some of them all indorsements are required to be either in 
 
 blank, or 'pay to or order.' By this action of the clearing 
 
 houses, indorsements 'for collection' or 'for account of have fallen 
 into disuse, and the .banking business of the country is now done, al- 
 most universally, upon unrestricted indorsements." We conclude then 
 that the indorsement by the Superior bank was general, and not re- 
 strictive. 
 
 Does the fact that, if protested, the' Lincoln bank was entitled to 
 charge back the amount of the draft and protest fees constitute it 
 merely an agent for collection and not a holder in due course ? While 
 there is some conflict in the authorities, the better view is that the de- 
 posit of a check or draft in a bank with a general indorsement and the 
 giving of credit for its amount by the bank to the depositor, in the ab- 
 sense of other evidence as to the intention of the parties, passes the 
 title to the bank, and makes it a holder for value, entitled to recourse 
 on prior indorsers upon the protest of the paper. In other words, when 
 «uch a state of facts is proved there is a prima facie case made that 
 the title has passed, and the fact that it, the receiving bank, may charge 
 back a protested draft does not affect the relation. In Higgins v. 
 Hayden, S3 Neb. 61, 73 N. W. 280, before the enactment of the Ne- 
 gotiable Instruments Act, it was held that a bill of exchange drawn 
 to the order of a bank by its customer, the amount of which was 
 placed to his credit, and on which he drew, and the bank paid checks, 
 became the property of the bank, such conduct being inconsistent with 
 the theory of a bailment for collection. * * * 
 /^ That credit to the drawer was entered by the Superior bank in a 
 
 /passbook in which was printed, "This bank in receiving out of town 
 checks and other collection acts only as your agent and does not as- 
 sume any responsibility beyond due diligence on its part," cannot af- 
 fect the right of the plaintiff to recover in this case. The fact that 
 the drawers put the paper in circulation, and that the Superior bank 
 was thus able to negotiate it as its owner and holder, received full 
 credit for it, the plaintiff bank having no knowledge of any infirmity, 
 makes it a holder for value as defined in section 5233, Rev. St. 1913. 
 
 The Minnesota case (In re State Bank, 56 Minn. 119, 57 N. W. 
 336, 45 Am. St. Rep. 454) is not in conflict with these views, since in 
 that case the controversy was between the original parties, and not 
 between a holder for value without notice and the drawer, and such 
 was the relation between the parties in the other cases cited in which 
 
Ch. 2) EIGHT OP HOLDER TO COMPLETE, SUE, AND NEGOTIATE 741 
 
 a printed notice was on the passbook. * * * The fact that a custom 
 between banks and grain dealers is that when any draft bearing a gen- 
 eral indorsement was unpaid it was protested and either charged back 
 or paid by the drawer is an argument in favor of the plaintiff's posi- 
 tion and not in favor of the defendant because such a custom clearly 
 recognizes the liability of the drawer to pay a dishonored draft to the 
 indorsee who has failed to collect the same. Even though by the cus- 
 tom between the drawer and the Superior bank, the drafts were taken 
 only for collection, there is absolutely no proof in the record that the 
 plaintiff had any knowledge whatever of this state of affairs. It re- 
 ceived the draft with the general indorsement and credited the Su- 
 perior bank with the amount in its deposit account which was drawn 
 upon from day to day. 
 
 Under section 5379, Rev. St. 1913 : "The drawer by drawing the 
 instrument admits the existence of the payee and his then capacity 
 to indorse; and engages that on due presentment the instrument will 
 be accepted or paid, or both, according to its tenor, and that if it be 
 dishonored, and the necessary proceedings on dishonor be duly taken, 
 he will pay the amount thereof to the holder, or to any subsequent 
 indorser who may be compelled to pay it. But the drawer may insert 
 in the instrument an express stipulation negativing or limiting his 
 own liability to the holder." The benefit of this Hability in case of dis- 
 honor was transferred to plaintiff by the general indorsement. When 
 the Superior bank closed its doors, its assets became the property of 
 the receiver for the purpose of liquidating its affairs. The rights of 
 its receiver against the plaintiff or plaintiff's right to apply the fund in 
 its hands to the payment of the debt of the Superior bank are not in- 
 volved in this case, since the receiver is not a party to the suit and the 
 case must be determined without regard to this fund. That the bank 
 was in fact insolvent at the time of the deposit, under the circum- 
 stances of this case, does not seem to be material: First, because 
 plaintiff bank took the draft in good faith for value without notice or 
 knowledge of any infirmity in the title; and, second, because the 
 drawers between the time of the deposit of the first drafts and the clos- 
 ing of the bank drew out over $4,000 more than the credit given and 
 within a few hundred dollars of the total amount deposited within this 
 period, leaving the account of the drawers substantially as it was be- 
 fore the drafts were deposited. 
 
 Under the provisions of the' Negotiable Instruments Act and the 
 evidence in the case the defendants are liable as drawers for the full 
 amount of the drafts and protest fees. 
 
 The judgment of the district court is reversed, and the cause re- 
 manded, with directions to enter judgment for the amount due. 
 
 SECTION 8.— NEGOTIATION BY QUALIFIED 
 INDORSEMENT 
 
 N. I. L., Section 38. A qualified indorsement constitutes the in- 
 dorser a mere assignor of the title to the instrument. It may be 
 made by adding to the indorser's signature the words "without 
 recourse" or any words of similar import. Such an indorsement 
 does not impair the negotiable character of the instrument. 
 
742 NEGOTIABLE INSTRUMENTS (Part 3 
 
 The indorsement here referred to is commonly called the in- 
 dorsement "without recourse." In form it consists in adding the 
 words "without recourse," or words of similar import, either to 
 a blank or special indorsement. The effect of the indorsement 
 "without recourse" is to limit the liability of the indorser. The 
 extent to which the liability is so limited is a subject in which we 
 are not here interested. This matter will be taken up in the 
 chapter dealing with the liability of indorsers. 
 
 At this point we are interested in the indorsement "without re- 
 course," only in so far as it is necessary to note, first, that it may 
 be added to a blank or to a special indorsement and that the ad- 
 dition does not affect the manner of negotiating the instrument, 
 for the last sentence of this section states that such an indorse- 
 ment does not impair the negotiable character of the instrument. 
 If the words were added to a blank indorsement the instrument is 
 still negotiated by delivery. If added to a special indorsement the 
 instrument is negotiated only by the indorsement of the special in- 
 dorsee. The transferee under either indorsement gets the title 
 just the same as though the words "without recourse" has been 
 omitted, nor do these words prevent such an indorser from being 
 a holder in due course. 
 
 SECTION 9.— NEGOTIATION BY CONDITIONAL 
 INDORSEMENT 
 
 N. I. L., Section 39. Where an indorsement is conditional, a 
 party required to pay the instrument may disregard the condi- 
 tion, and make payment to the indorser or his trcmsferee, whether 
 the condition has been fulfilled or not. But any person to whom 
 an instrument so indorsed is negotiated will hold the same, or 
 the proceeds thereof, subject to the rights of the person indorsing 
 conditionally. 
 
 In form the conditional indorsement is a special indorsement 
 with an added term, illustrated as follows: PayiA., upon condi- 
 tion that (here stating the condition upon which payment is to be 
 made to A.). From a practical standpoint this indorsement is 
 of little importance. It is seldom used. It is to be noted that the 
 condition does not affect the rights of a party who is bound to pay 
 the instrument for he is allowed to disregard the condition and to 
 pay the holder whether the condition has happened or not. The 
 indorsement affects only the rights of the party to whom pay- 
 ment was made. If the condition has not happened, the party 
 receiving payment will hold the money virtually in trust for the 
 conditional indorser. 
 
Ch. 2) RIGHT OF HOLDER TCf COMPLETE, SUB, AND NEGOTIATE 743 
 
 SECTION lO.-^TRANSFER OF UNINDORSED PAPER 
 
 PAYABLE TO THE ORDER OF THE 
 
 TRANSFEROR 
 
 N. I. L,., Section 49. Where the holder of an instrument pay- 
 able to his order transfers it for value without indorsing it, the 
 transfer vests in the transferee such title as the transferor had 
 therein, and the transferee acquires in addition, the right to have 
 the indorsement of the transferor. But for the purpose of deter- 
 mining whether the transferee is a holder in due course, the nego- 
 tiation takes effect as of the time when the indorsement is actually 
 made. 
 
 It has heretofore been stated that where the instrument is not in 
 form payable to bearer, it cannot be negotiated except by the 
 indorsement of the holder. While this is strictly true the rule does 
 not prevent a disposition of the instrument in some way other 
 than by negotiation. The instrument may still be transferred with- 
 out the indorsement of the special indorsee. There is no one 
 word that describes the status of such a transferee. He cannot 
 rightly be called an indorsee, but he may be referred to as a trans- 
 feree of unindorsed paper payable to the order of the transferor. 
 In many respects such a transferee is in just as good a position 
 as an indorsee occupies, but in some important situations his po- 
 sition is not so strong. Section 49 gives to the transferee of the 
 unindorsed paper the same rights as the transferor had, but no 
 greater rights. The indorsee, if a purchaser for value in good 
 faith before maturity, will be able to enforce the instrumentfree 
 from most of the defenses which the maker had against the party 
 with whom he dealt. Moreover, the transferee of unindorsed 
 paper will have greater difficulty in proving his right to the in- 
 strument than the indorsee would have because there is nothing on 
 the instrument which indicates that the party in possession is the 
 owner. This section will be referred to again in the chapter deal- 
 ing with the holder in due course. In the case following, is the 
 court correct in saying that the transferee could acquire only an 
 "equitable title," in the light of the language of section 49 which 
 declares that "the transfer vests in the transferee such title as the 
 transferor had therein"? 
 
 CAPITOL HILL STATE BANK v. RAWLINS NAT. BANK OF RAWLINS. 
 
 (Supreme Court of Wyoming, 1916. 24 Wyo. 423, 160 Pac. 117, 
 11 A. L. R. 937.) 
 
 Potter, C. J. * * * However, it is well settled that a negotia- 
 ble instrument payable to order may be ►trauafsrrC-d-l'y- the payee or 
 holde r wi thout-in.do£S.em^i-t, though in such case the transferee takes 
 only the title and right of the one so transferring it, and does not be- 
 come the holder in due course, but has only the equitable instead of 
 the legal title. * * * And this principle is recognized by the Ne- 
 
744 NEGOTIABLE INSTRUMENTS (Part 3 
 
 gotiable Instruments Law. * * * Therefore, if_thej3laintiff, had 
 ^hown a transfer of the certificate to it by the payee, although with- 
 out indorsement, it would have been entitled to recover, in the absence 
 of evidence showing a good defense as against the payee, or that 
 would otherwise interfere with such recovery. But mere possession 
 is insufficient to show such a transfer. * * ^ 
 
 We are aware that there is a direct conflict in the decisions on the 
 question of the sufficiency of mere possession to show equitable owner- 
 ship, so as to authorize a recovery against the maker by one other than 
 the payee or special indorsee. The view is maintained in a few ju- 
 risdictions that possession is alone sufficient for that purpose, unless 
 the presumption of ownership therefrom is rebutted by proof. It is 
 so held in North Carolina, while conceding that the mere introduction 
 of a note! in evidence does not prove the payee's indorsement. * * * 
 
 But the clear weight of authority and the better reasoning, in our 
 opinion, sustains the rule that mere possgssion of_^ such a n instrum ent 
 ■ unindor sed is jiot^ sufficient or "priina; facie_evidence of even.th e equi- 
 tabl gjjtle. * * =r Such possession does not prove or tend to prove 
 the transfer of a note payable to order and not shown to have Been 
 indorsed by the payee. The fact necessary to the equitable title, in 
 such case, is a transfer by the payee or the person to whose order the 
 instrument has been made payable. Such proof is generally at least 
 within the power of the person seeking to recover upon the instrument, 
 if it has been so transferred, while the other party might be wholly 
 without knowledge or information concerning the matter. The pre- 
 sumption of delivery from possession is proper and reasonable where 
 the instrument is payable to bearer; but we see no good reason for 
 giving effect to such presumption where the instrument is payable to 
 order and not indorsed, so as to overcome the usual and primary pre- 
 sumption, in such case, that the instrument remains the property of 
 the person to whose order it is made payable. 
 
 Holding, therefore, that the proof was insufficient to entitle the 
 plaintiff to recover, the judgment will be affirmed. 
 
 SECTION 11.— SURRENDER TO THE DRAWEE 
 
 It should be apparent that the act of the holder of a check or 
 other bill of exchange', in surrendering the same to the drawee and 
 receiving payment, is a transaction essentially and materially dif- 
 ferent from that of selling the instrument, and yet there is some 
 (confusion on this matter. An instrument, when transferred to a 
 purchaser, is still alive. An instrument surrendered to a drawee 
 for payment is thereafter, for most purposes, a dead bill. The 
 surrender of an instrument to the drawee is not a sale. It is quite 
 important to note this fact, for the rights and duties of the two 
 parties concerned are very different in these two cases. "In the 
 first place, since the surrender of a bill to the drawee is not a 
 sale, the transfer is in no sense a negotiation of the instrument. 
 Therefore no indorsement is necessary to entitle the holder to 
 receive payment. A holder, even a special indorsee, is entitled to 
 demand payment from the drawee and to refuse to indorse. If the 
 
Ch. 2) RIGHT OF HOLDER TO COMPLETE, SUE, AND NEGOTIATE 745 
 
 drawee refuses to pay unless the holder indorses, the drawee there- 
 by breaks his contract with the drawer, and the instrument is 
 dishonored. If the instrument is a check, and the drawee_bank 
 refuses{o_£a3r^unles£T^^peciarj^njd^eeIijid tli£_£Xleilt J)f 
 
 tHe2dama^^~which the drawer^nqt Jhe holder-rrmay recover froih 
 the drawee may be considerable. It is a common practice for the 
 Eol3er, upon presenting the instrument to the drawee, to sign his 
 name on the back of the instrument. If the holder does sign his *' 
 name upon delivery of the instrument to the drawee, such act is 
 not an indorsement. It is a mere receipt for money. 
 
 Another important effect, arising from the fact that a transfer to 
 the drawee is not a negotiation, is that such.. transfe ror as sumes 
 no liability as an indorser to the drawee. Occasionally we find 
 statements to the effectTKaf'THe transferor to the drawee thereby 
 assumes a liability as an indorser to the drawee, but these state- 
 ments are not correct. No doubt, a transferor to the drawee could 
 enter into a special contract, under which he might warrant to the 
 drawee that certain things are true, for example, that the instru- 
 ment was not forged ; but the point made here is that no such \ 
 liability rests on the transferor to the drawee, arising from the 
 fact that at the time he received payment he signed a receipt for 
 the money on the back of the instrument then surrendered to the 
 drawee. 
 
 It is, of course, possible for a drawee to purchase the bill. Such 
 a case could arise, where the drawee took a time bill of exchange 
 before maturity. This transaction might be either a purchase or a 
 payment of the bill. If the evidence showed an intent to pur- 
 chase, the above discussion would not be applicable to the situa- 
 tion. 
 
 NATIONAL BANK OP COMMERCE OF LINCOLN v. FARMERS' & 
 MERCHANTS' BANK OF LINCOLN. 
 
 (Supreme Court of Nebraska, 1910. 87 Neb. 841, 128 N. W. 522.) 
 
 FawcETT, J. * * * What is meant by "negotiating" an instru- 
 ment? * * * Counsel answer that question by quoting section 30 
 of article 3 of the Negotiable Instruments Law, * * * as follows : 
 "An instrument is negotiated when it is transferred from one person 
 to another in such manner as to constitute the transferee the holder 
 thereof." * * * "The power to 'negotiate' a bill or note is the , 
 power to indorse and deliver it to another; so that the right of action ' 
 thereon shall pass to the indorsee or holder. 'Negotiation' means the 
 act by which a bill of exchange or promissory note is put into circu- 
 lation by being passed by one of the original parties to another per- 
 son." If A. gives B. a check on C. Bank, and B. presents the check 
 at the counter of C, no negotiation is necessary or had. He simply 
 demands and receives payment ; but if B. goes to D. store and buys a 
 bill of goods, and teriders the indorsed check in payment, he negotiates 
 the check. The difference is clear and well defined. The presentation 
 by d5ie»dant-Qt_the_check in controversy for payment "was not a 
 "n^otiafioii" of^the check' within the meaning of the statute quoted. 
 
746 NEGOTIABLE INSTRUMENTS (Part 3 
 
 // Nor do we think that the payment by a bank of a check drawn upon 
 it constitutes such bank a "holder" within the meaning of the stat- 
 ute. * * * When a check is presented to the bank upon which it 
 is drawn, and is paid by such bank, judi_pajanent_discharges the in- 
 strument, * * * and the bank is not thereafterT'within the mean- 
 ing of the statute, a "holder" of such check. * * * 
 
 ANONYMOUS. , 
 
 (Ohio Common Pleas, 1882. 26 Albany Law J. 61.) 
 
 The suit was by the holder against the drawer of a check. The 
 check was payable to order, duly indorsed in' blank, and transferred 
 to the plaintiff. On presentation the bank, draweejdemandedjbat_the 
 /holder shoul d also indorse it. This he refused to do, anHtiiereupon 
 ha3Tft5"checE^oteste3^ and brought this suit. Judge Jones holds that 
 the bank had no right to make such requirements, although it was 
 proved that such was the local custom, and holds that the check was 
 properly dishonored. 
 
 JoNBS, J. A bank is ordinarily presumed to know the signatures 
 of its own customers and depositors ; but it will not be seriously 
 doubted that when a check is drawn on a bank, which is a stranger to 
 the payee and his signature, the bank is entitled to a reasonabl e tim e 
 inwhiclxJo-ascertain the genuineness of theTn3orsement,_"before pay^ 
 ing a check payable to his or'der, and" irTdeed^some. of the authorities 
 seem jto_ justify a bank or banker in calling upon the_hold£Lof_juch 
 a bill or check, when it is reasonable to,_do so* to Turnish^xaoi that 
 the indorsement is the genuine one of __the payee ;"'iut_Jn^ this case 
 neither.Df -these ^Bings was_requir.ed. or jaajjed. There was no demand 
 'iby'The bank for proof of the signature, nor for a reasonable delay 
 to satisfy itself of the genuineness of the indorsement; but there was 
 simply an absolute refusal to pay, unless the person who presented 
 the check would indorse it. That this refusal to pay without such in- 
 dorsement is not justified by commercial law is, we think, perfectly 
 clear; it is an attejnptjojinutjhe negotiability of such paper, and to 
 fix terms and conditions for its payment not warranted by the law 
 or by the drawer of the check, and to which neither he nor the holder 
 is obliged to submit. The implicit contract of a bank with its cus- 
 tomers is to pay their checks according to the law merchant. 
 
 SECTION 12.— OTHER FORMAL REQUISITES AND 
 ASPECTS OF NEGOTIATION 
 
 N. I. L., Section 31. The indorsement must be written on the 
 instrument or upon a paper attached thereto. The signature of 
 the indorser, without additional words, is a sufficient indorsement. 
 
 N. I. L., Section 32. The indorsement must be an indorsement 
 of the entire instrument. An indorsement, • which purports to 
 transfer to the indorsee a part only of the amount payable, or 
 which purports to transfer the instrument to two or more indorsees 
 severally does not operate as a negotiation of the instrument. But 
 
Ch. 2) RIGHT OF HOLDER TO COMPLETE, SUE, AND NEGOTIATE 747 
 
 where the instrument has been paid in part, it may be indorsed as 
 to the residue. 
 
 N. I. L., Section 41. Where an instrument is payable to the or- 
 der of two or more payees or indorsees who are not partners, all 
 must indorse, unless the one indorsing has authority to indorse 
 for the others. 
 
 N. I. L., Section 42. Where an instrument is drawn or indors- 
 ed to a person as "cashier" or other fiscal officer of a bank or cor- 
 poration, it is deemed prima facie to be payable to the bank or 
 corporation of which he is such officer, and may be negotiated by 
 either the indorsement of the bank or corporation, or the indorse- 
 ment of the officer. 
 
 N. I. L., Section 43. Where the name of a payee or indorsee is 
 wrongly designated or misspelled, he may indorse the instnmient 
 as therein described, adding, if he thinks fit, his proper signature. 
 
 N. I. L., Section 44. Where any person is under obligation to 
 indorse in a representative capacity, he may indorse in such terms 
 as to negative personal liability. 
 
 N. I. L., Section 45. Except where an indorsement bears date 
 after the maturity of the instrument, every negotiation is deemed 
 prima facie to have been effected before the instrument was over- 
 due. 
 
 N. I. L., Section 46. Except where the contrary appears every 
 indorsement is presumed prima facie to have been made at place 
 where the instrument is dated. 
 
 N. I. L., Section 47. An instrument negotiable in its origin con- 
 tinues to be negotiable until it has been restrictively indorsed or 
 discharged by pa3mient or otherwise. 
 
 N. I. L., Section 22. The indorsement or assignment of the in- 
 strument by a corporation or by an infant passes the property 
 therein, notwithstanding that from want of capacity the corpora- 
 tion or infant may incur no liability thereon. 
 
 N. I. L., Section 50. Where an instrument is negotiated back 
 to a prior party, such party may, subject to the provisions of this 
 act^ reissue and further negotiate the same. But he is not entitled 
 to enforce payment thereof against any intervening party to whom 
 he was personally liable. 
 
748 NEGOTIABLE INSTRUMENTS ' (Part 3 
 
 CHAPTER III 
 WHO ARE HOLDERS IN DUE COURSE 
 
 Section 
 
 1. Introduction. 
 
 2. Must be a Purchaser for Value. 
 
 3. Must be a Purchaser Before Maturity. 
 
 4. Must be a Purchaser in Good Faith. 
 
 5. Payee may be a Holder in Due Course. 
 
 6. Transferee from a Holder in Due Course is a Holder in Due Course. 
 
 7. Rights of the Reacquirer. 
 
 8. Rights of a Transferee from a Holder in Due Course of Unindorsed Pa- 
 
 per Payable to the Order of the Transferor. 
 
 SECTION 1.— INTRODUCTION 
 
 A party in physical possession of a negotiable instrument may 
 occupy one of two positions: (1) He may have no title to the in- 
 strument; (2) he may have possession and title to the instrument. 
 In the first case the party in possession is not a holder. His pos- 
 session may be rightful or wrongful. There are various subordi- 
 nate positions which may be held by a person who has no title to 
 the instrument but does have physical possession. So, also, in case 
 (2), the holder of the title to the instrument may occupy one of 
 several positions. The holder may have the title in trust for a 
 former owner or for a third party. He may have the title accom- 
 panied by the same rights, no more, and no less, than his predeces- 
 sor in title had, or he may have the title under circumstances where 
 his rights against prior parties are superior to those possessed by 
 former owners of the instrument. The term "holder in due course" 
 is used to describe a holder of the title who does have rights 
 against prior parties which may be greatly superior to those of 
 former owners who are not holders in due course. The present 
 chapter is devoted to the consideration of the circumstances un- 
 der which a holder is to be deemed a holder in due course. The 
 chapters following will show to what extent the rights of the 
 holder in due course are superior to the rights of holders not in 
 due course. 
 
 SECTION 2.— MUST BE A PURCHASER FOR VALUE 
 
 Section 52 (3). A holder in due course is a holder that took it 
 for value. 
 
 Section 25. Value is any consideration sufficient to support a 
 simple contract. An antecedent or pre-existing debt constitutes 
 value; and is deemed such whether the instrument is payable on 
 demand or at a future time. 
 
 Section 191, clause 12. "Value" means valuable consideration. 
 
 Section 24. Every negotiable instrument is deemed prima facie 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 749 
 
 to have been issued for a valuable consideration ; and every person 
 whose signature appears thereon to have become a party there- 
 to for value. 
 
 Section 27. Where the holder has a lien on the instrument, 
 arising either from contract or by implication of law, he is deen;i- 
 ed a holder for value to the extent of his lien. 
 
 Section 26. Where value has at any time been given for the 
 instrimient, the holder is deemed a holder for value in respect to 
 all parties who became such prior to that time. 
 
 The problem of the interpretation of these sections is substan- 
 tially the same as that presented in any transaction involving the 
 application of the rules relating to the common-law requirement 
 of consideration in simple contracts. There are a few special situ- 
 ations to be noticed. 
 
 Before the Negotiable Instruments Law, there was a conflict of 
 authority as to whether a transferee of negotiable paper in payment 
 of a pre-existing debt was a purchaser for value. There was the 
 same conflict in the case where the transferee took, not in pay- 
 ment of a pre-existing debt, but by way of collateral security for 
 the pre-existing debt. Section 25 adopts what was the weight of 
 authority on this question, but, it is to be noticed, the section 
 makes no mention of the case where the transferee took by way of 
 collateral security. In Illinois the section was so worded that a 
 transferee, who took the instrument either in satisfaction or as se- 
 curity for an antecedent or pre-existing debt, was a transferee for 
 value. But all courts, except those of New York, which had occa- 
 sion to interpret section 25, have held that a transferee by way of 
 collateral security is a holder for value. Recently the New York 
 Court of Appeals said in a very strong dictum that these earlier inter- 
 pretations were incorrect. Following is an extract from this decision : 
 
 KELSO & CO. V. ELLIS et al. 
 (Court of Appeals of New Tork, 1918. 224 N. Y. 528, 121 N. B. 364.) 
 
 Pound, j. * * * Unquestionably, upon the evidence, plaintiff 
 was a holder for value. Prior to the passage of the Negotiable In- 
 struments Law, and from the time of the decision of Coddington v. 
 Bay, 20 Johns. 637, 11 Am. Dec. 342, it was the law of this state that, 
 in order to constitute one a holder for value as indorsee of negotiable 
 paper, it was necessary that he should part with some present consid- 
 eration and that mere credit given on an antecedent debt was not such 
 a consideration; but JJie-JJegQtiable Inst rument s Law * * * pro- 
 vides that "an antecedent or pre-existmg debt constitutes value" and 
 thus brings the law of this state into harmony with that of the United 
 States Supreme Court. Swift v. Tyson, 16 Pet. 1, 10 L. Ed. 865, held 
 that the transfer of negotiable paper by indorsement to a creditor be- 
 fore maturity, merely as security for an antecedent debt or in payment 
 thereof, is a transfer for value. The conflicting doctrines of the two 
 leading cases were for many years the subject of earnest discussion 
 in the courts, and the lack of a uniform rule on the subject caused no 
 
750 NEGOTIABLE INSTRUMENTS (Part S 
 
 little confusion. The New York rule was so well established that the 
 inertia of Coddington v. Bay carried it along for some distance be- 
 fore the external force of the Negotiable Instruments Law 'acted up- 
 on it. Sutherland v. Mead, 80 App. Div. 103, 107, 80 N. Y. Supp. 
 504; Roseman v. Mahony, 86 App. Div. 377, 378, 83 N. Y. Supp. 
 749; Crawford's Annotated Neg. Inst. Law, p. 63. Even in this court 
 a dictum in Bank of America v. Waydell, 187 N. Y. 115, 120, 79 N. 
 E. 857, reveals the habit of bench and bar to look to cases rather than 
 statutes for principles of commercial law until attention is sharply di- 
 rected, to the extent that the movement for uniformity of laws through 
 legislation has been successful in New York and many other states. 
 But it is perfectly clear that for the sake of uniformity New York 
 has abrogated the rule which had been in force since the year 1822. 
 Melton V. Pensacola Bank & Trust Co., 190 Fed. 126, 132, 111 C. C. 
 A. 166. Coddington v. Bay and section [25] of the Negotiable Instru- 
 ments Law are irreconcilable in the mind of any candid student of the 
 decisions in this and other jurisdictions. 
 
 LASSAS V. McCARTT. 
 (Supreme Court of Oregon, in06. 47 Or. 474, 84 Pac. 76.) 
 
 This is a suit by George Lassas against Lettie McCarty to foreclose 
 a mortgage. The complaint states that the defendant, on November 
 21, 1900, gave to one G. L. Webb her promissory note for the sum of 
 $1,500, payable in one year, with interest thereon at the rate of 8 per 
 cent', per annum, and to secure the payment thereof she at the same 
 time executed to him a mortgage of certain real property in Baker 
 county, which mortgage was duly recorded. Various assignments of 
 the note and mortgage, are set out, and it is alleged that on July 2, 
 1901, the plaintiff for a valuable consideration became the owner and 
 holder thereof, and that no part of the debt so secured has ever been 
 paid. 
 
 Moore, J. * * * This brings us to a consideration of the ques- 
 tion whether or not plaintiff secured the title to the note and mortgage 
 under such circumstances as to render him an innocent purchaser 
 thereof for a valuable consideration and without notice of the imposi- 
 tion practiced upon the defendant. An examination of plaintiff's tes- 
 timony shows that he purchased the note before maturity, paying there- 
 for $1,000, which was two-thirds of its face value, without knowledge 
 of any fact that would tend to render the negotiable instrument in- 
 valid. It is argued by defendant's counsel that the sum paid for the 
 note imparts notice of its infirmity, and hence plaintiff was not an 
 innocent purchaser thereof. * * * Whatever the rule may be in 
 other jurisdictions, it is settled in this state by statute, enacted prior 
 to the giving of the note and mortgage, that the holder of a negotiable 
 instrument in due course may enforce payment for the full amount 
 thereof against all parties liable thereon. * * * 
 
Ch. 3) WHO AIIE HOLDERS IN DUB COURSE! 751 
 
 CITIZENS' STATE BANK v. COWLES. 
 
 (Court of Appeals of New York, 1905. 180 N. Y. 346, 73 N. E. 33, 
 105 Am. St. Rep. 765.) 
 
 Werner, J. The action is upon a check dated June 1, 1900, drawn 
 by the defendant upon the First National Bank of Port Chester, N. Y., 
 to the order of W. W. Miller & Sons, for $600. The check was giv- 
 en in payment for a team of horses purchased by the defendant from 
 the Millers under a written guaranty of soundness and condition, the 
 alleged breach of which is now sought to be interposed as a defense. 
 
 The horses were delivered shortly after midnight on the 2d day of 
 June, and later in the morning it was discovered th^t one of them was 
 ill from pneumonia, as a result of which it died within about nine days. 
 On Monday, the 4th of June, which was the first business day after 
 the giving of the check, the defendant's son notified the bank to stop 
 payment on the check, and then communicated by telephone with one 
 of the payees, advising him of the sickness of one of the horses, and 
 of the fact that payment of the check had been stopped. 
 
 The payees indorsed the check to one George M. Hoffman, the presi- 
 dent of the plaintiff bank, and mailed it to him at Little River, Kan., 
 but whether it was so mailed before or after the notification as to the 
 illness of the horse does not appear. Hoffman received the check on 
 the 8th day of June, indorsed it, and within two or three hours depos- 
 ited it with the plaintiff, which credited the amount thereof to Hoif- 
 man's account, indorsed the check to the National Bank of Kansas 
 City, Mo., and sent it to that bank for collection. What was done with 
 the check after that does not appear, except as it may be inferred from 
 the fact that it was received by the First National Bank of Port Chester 
 {on which bank it was drawn) on the 14th of June, where it was pro- 
 tested, and marked "Payment stopped." 
 
 One of the issues tendered by the defendant's answer was that the 
 plaintiff was not an innocent holder of the check for value. Upon ■ 
 the trial the plaintiff made out its case by introducing the check in 
 evidence, and relying upon the presumptions in support of negotiable 
 paper. * * * The defendant then introduced evidence bearing upon 
 the breach of warranty or failure of consideration in the sale of the 
 "horses. 
 
 It is obvious that if the evidence would support the inference that 
 the plaintiff did not buy the check, but simply gave Hoffman credit 
 for the amount upon its books, then plaintiff is not a holder of the 
 check in due course, within the "law merchant," as that term is now 
 defined in the negotiable instruments law, so as to render its title su- 
 perior to the defenses which the drawer of the check may have against 
 the payees. Under the negotiable instruments law four elements must 
 concur to constitute such a title : (1) The instrument must be com- 
 plete and regular on its face; (2) the holder must receive it before it 
 is overdue, and without notice that it has been previously dishonored, 
 if that is the fact; (3) it must have been taken in good faith and for 
 value ; (4) it must have been taken without notice of any infirmity in 
 the instrument or defect in the title of the person negotiating it. Neg. 
 Instruments Law, § 91 (Laws 1897, p. 732, c. 612). If the plaintiff 
 had not actually parted with value before it received notice of the dis- 
 lionor of this check, it is apparent that at least one of these elements 
 
752 NEGOTIABLE INSTRUMENTS (Part 3 
 
 is lacking in the plaintiff's title. The authorities hold that the mere 
 crgditing_ta_a_xieEositbr's account, on the books of a bank, of the 
 amount of a checK""drawn'upoti' another bank, where the depositoi-'s 
 account continues to be sufficient to pay the check in case it is dishon- 
 ored, does not constitute the bank a hojder in due course. =1; * f 
 
 Tne view^of the evidence most favorable to the defendant would, 
 we think, have justified a jury in finding that the amount of the check 
 had simply been credited to Hoffman's account, and that no money 
 was paid to him by the plaintiff upon the check before the latter had 
 notice of its dishonor. 
 
 The judgments of the courts below should be reversed, and a new 
 trial granted, with costs to abide the event. 
 
 MERCHANTS' NAT. BANK OP ST. PAUL v. SANTA MARIA SUGAR CO. 
 
 (Supreme Court of New Yorlt, Appellate Division, 1914. 162 App. Div. 248, 
 
 147 N. Y. Supp. 498.) 
 
 Action by the Merchants' National Bank of St. Paul against the 
 Santa Maria Sugar Company. From a judgment dismissing the com- 
 plaint, plaintiff appeals. 
 
 Clarke, J. The action was to recover $2,340 on the following 
 paper executed by defendant and delivered to the Americon Hoist & 
 Derrick Company of St. Paul: 
 
 "I shall pay to the order of the American Hoist & Derrick Company 
 on the 30th day of August, 1911, in the city of New York, the sum 
 of two thousand three hundred and forty ($2,340) dollars currency, 
 for amount of the second installment agreed on of a crane of their 
 manufacture purchased on this date, according to specifications of 
 their representative, Mr. H. S. Johannsen. 
 
 "Dated, Ingenio, Santa Maria, August 30, 1910. 
 
 "[Signed] Santa Maria Sugar Company, Bernard Pons. 
 
 "For $2,340.00 Cy. together with interest at 6^0 per annum to Au- 
 gust 30, 1911." 
 
 The complaint alleged that thereafter and before its maturity, to 
 wit, on or about March 29, 1911, said American Hoist & Derrick 
 Company indorsed and delivered said note to the plaintiff for value. 
 * * * In its decision the court made findings of fact as follows: 
 
 That before maturity, and on or about the 29th of March, 1911, 
 the American Hoist & Derrick Company discounted said note with the 
 .above-named plaintiff. 
 
 ■'' That the plaintiff credited the American Hoist & Derrick Company, 
 which maintained a regular drawing account with the plaintiff, with 
 $2,427.36, the value of said note. 
 
 That immediately after the discounting of said note the balance on 
 hand to the credit of the American Hoist & Derrick Company was 
 $22,661.13, and that between the date of the discounting of said note, 
 which was March 29, 1911, and the time when the plaintiff was noti- 
 fied by the defendant of the latter's objection to the note, which was 
 some time, shortly after April 26, 1911, the American Hoist & Derrick 
 Company deposited the sum of $129,547.60 with the plaintiff and with- 
 drew from the plaintiff day by day such sums as to make the total of 
 $110,999.58. 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 753 
 
 That during said period the smallest balance on hand at the bank 
 to the credit of the American Hoist & Derrick Company was $6,294.04 
 on April 18, 1911. * * * 
 
 That at maturity said note was duly presented for payment to the 
 defendant and payment thereof demanded, but no part thereof was 
 paid. 
 
 That the plaintiff at the time it discounted said note had no knowl- 
 edge or suspicion of any defect or infirmity in the note and had no 
 such knowledge or suspicion until its receipt of defendant's letter 
 dated Santa Maria, April 26, 1911. 
 
 And as conclusions of law: That the said instrument is a negotia- 
 ble promissory note. That the plaintiff herein is not a bona fide 
 holder' for value without notice. * * * 
 
 The main question involved upon this appeal does not seem to have 
 been directly passed upon in this state. * * * 
 
 "The Trial Term found that until one month after plaintiff had 
 discounted the instrument it had no knowledge or suspicion of any 
 infirmity therein or equities Existing. The question therefore is wheth- 
 er by discounting the note and by the subsequent transactions on the 
 account it can be considered that value passed therefor. Of coursey) 
 the mere discounting of the note and placing the amount of said dis-| 
 count to the credit of the holder would not then . have constituted a " 
 transfer for value, because the bank would, under those circumstances, 
 have parted with nothing, there would have been a mere bookkeeping 
 entry. * * * But if the sum had subsequently been checked out, 
 then value would have passed. 
 
 The respondent claims that the bank always had on account a sum 
 in excess of the amount of this note. The lowest balance on any day 
 during the period was upwards of $6,000. But the appellant claims 
 that the rule of law is, "The first money in is the first money out," 
 that the first items on the debit side are charged against the first items 
 on the credit side. It paid out continually, and the only reason that 
 it had a balance at the end of the period was by reason of a continual 
 flow of deposits; but' those subsequent deposits went to meet subse- 
 quent drawings. This credit was exhausted long before the period 
 expired. 
 
 In Fox v. Bank of Kansas City, 30 Kan. 441, 1 Pac. 789, * * * 
 Mr. Justice Brewer said: "The general rule as to the application of 
 payments, there being no special facts to interfere, is that the first 
 payments go to the oldest debts; so all the money drawn out by the 
 Emporia Bank, in the absence of some special facts, was a payment 
 by the plaintiff of the oldest deposits and discounts; and when, at 
 the close of February 21st, the balance due February 15th had been 
 fully checked out, the plaintiff had paid for every deposit and dis- 
 count made by the Emporia Bank prior to February 15th. * * * " 
 
 I am of the opinion that, as there is no controlling authority in this 
 state to the cohtrary, we should agree with the well-reasoned opinion 
 of Mr. Justice Brewer, supra, followed as it has been in five other 
 states and apply the rule recognized in National Park Bank v. Sea- 
 board Bank, 114 N. Y. 28-35, 20 N. E. 632, 11 Am. St. Rep. 612, 
 that the first debits are to be charged against the first credits. It fol- 
 lows therefore, upon the facts as found, that the bank was a bona 
 fide holder for value. The second and third conclusions of law should 
 B.* B.Bus.Law— 48 
 
754 NEGOTIABLE INSTRUMENTS (Part 3 
 
 be reversed and a finding made in lieu thereof that the plaintiflf is a 
 bona fide holder of the note for value without notice, and, in accordance 
 with the stipulation, judgment should be entered for the plaintiflf upon 
 the note with costs. 
 
 The judgment appealed from should therefore be reversed, and 
 judgment for the plaintiff entered as indicated, with costs to the ap' 
 pellant. * * * 
 
 The effect of section 24 is merely to relieve the holder from 
 proving, in the first instance, that he is a purchaser. The party 
 sued must prove that the holder was not a purchaser — i. e., that 
 he did not give value : otherwise, it will be presumed that the 
 bolder gave value. 
 
 The effect of section 27 is to prevent a pledgee or any othar 
 "holder who has a lien on the instrument from acquiring an interest 
 in the instrument greater than the an#unt of thj_debt secured. 
 If P. owes A.- $100, and P. transfers to A. a ne^tiable note exe- 
 cuted by M. for $150, to secure the payment of the $100 debt, A. 
 is given only a $100 interest in the instrument. This does not 
 mean that in all cases A. will be prevented from recovering $150 
 in the event that A. sues M. For example, if the circumstances 
 were such that P. could have recovered $150 from M., then A., 
 although he holds this $150 note as collateral security for $100, 
 may recover $150 from^M. But, under section 27, it is clear that 
 $100 only of this sum will belong to A. The balance of $50 will 
 be held by A. in trust for P., which amoupt P. could recover from 
 A. If, however, M. had some defense as against P., such as want 
 or failure of consideration, or of fraud, or payment before maturity, 
 then A., in suing M., could not recover more than $tOO, the amount 
 of the debt, assuming that A., in all other respects was a holder in 
 due course. Obviously, if A. had taken the note in payment of 
 P.'s debt to A., instead of as collateral security for the debt, A. 
 could then recover the full amount of the instrument, $150. 
 
 Section 26 permits a donee of the instrument to recover if any 
 prior party parted with value. This section was discussed in 
 'Chapter I. 
 
 SECTION 3.— MUST BE A PURCHASER BEFORE 
 MATURITY 
 
 The theory underlying the rule that a holder, in order to be a 
 holder in due course, must have purchased the instrument before 
 maturity, is substantially the same as that which underlies the rule 
 that the holder in due course must be one who takes in good faith. 
 The theory is that, if an instrument is not taken up at maturity, 
 the inference is that the person primarily liable for its payment, 
 who failed to take it out of circulation at maturity, did so because 
 he had a good defense. The presumption is that every one will 
 
Ch. 3) WHO ARE HOLDERS IN DUB COURSE 755 
 
 take up his commercial paper on the day of maturity. The com- 
 mercial world deals in paper upon this assumption. Of course, 
 many negotiable instruments which represent bona fide debts are 
 not always taken up on the day they fall due. Nevertheless the 
 rvile that a holder, in order to be a holder in due course, must have 
 bought the instrument, once part of the broader rule that he must 
 take in good faith, is now crystallized into an independent rule, 
 having little to do with good faith. If an indorsee bought one 
 day after maturity, he could not be a holder in due course. 
 
 The rule being well established and now codified, the only 
 difficulty arises in its application to varied states of fact. We 
 have three situations, which must be dealt with separately: (1) 
 Where the instrument bore a fixed date of maturity. (2) Where 
 the instrument was payable on demand. (3) Where the instru- 
 ment had a fixed date of maturity, but subject to acceleration 
 into an earlier maturity upon the happening of some specified act 
 or event. 
 
 The sections of the Negotiable Instruments Law that bear on 
 these questions are as follows : 
 
 Section 52 (2). A holder in due course is a holder who has 
 taken the instrument before it was overdue. 
 
 Section 13. Where an instrument expressed to be payable at a 
 fixed period after date is issued undated, or where the acceptance 
 of an instrument payable at a fixed period after sight is undated, 
 any holder may insert therein the time, date of issue or accept- 
 ance, and the instrument shall be payable accordingly. The in- 
 sertion of a wrong date does not avoid the instrument in the hands 
 of a holder in due course ; but as to him the date so inserted is to 
 be regarded as the true date. 
 
 Sectiion 85. Every negotiable instrument is payable at the time 
 fixed therein without gra6e. When the day of maturity falls on 
 Sunday, or a holiday, the instrument is payable on the next suc- 
 ceeding business day. Instruments falling due on Saturday are 
 to be presented for payment on the next succeeding business day, 
 except that instruments payable on demand may, at the option of 
 the holder, be presented for payment before twelve o'clock noon 
 on Saturday where that entire day is not a holiday. 
 
 Section 53. Where an instriunent payable on demand is nego- 
 tiated an unreasonable length of time after issue the holder is not 
 deemed a holder in due course. 
 
 Section 193. In determining what is a "reasonable time" or 
 an "unreasonable time" regard is to be had to the nature of the 
 instrument, the usage of trade or business (if any) with respect to 
 such instruments and the facts of the particular case. 
 
 Section 86. Where the instrument is payable at a fixed period 
 after date, after sight, or after the happening of a specified event, 
 the time of payment is determined by excluding the day from 
 which the time is to begin to run and by including the date of 
 payment. 
 
756 . NEGOTIABLE INSTRUMENTS (Part 3 
 
 Section 52 (2). A holder in due course is a holder who has tak- 
 en the instrument before it was overdue and without notice that 
 it had been previously dishonored, if such was the fact. 
 
 Section 117. An omission to give notice of dishonor by non- 
 acceptance does not prejudice the rights of a holder in due course 
 subsequent to the omission. 
 
 As regards the situation where the instrument has a fixed date 
 of maturity, the purchaser will be able to ascertain from the face 
 of the paper whether the date of maturity has arrived. Of course, 
 he will run the- risk that the date has been altered. If the date 
 has been erased and a later date inserted, the purchaser's rights 
 will be determined by the date which the instrument originally 
 bore. An alteration of the date is a material alteration. A per- 
 son buying the instrument after the actual date of maturity, but 
 before the arrival of the altered date, will not be a holder in due 
 course. He is a taker after maturity. 
 
 Most of the difficulty in the application of the rule that a holder 
 in due course must be one who bought before maturity arises in 
 connection with demand paper and paper which has a fixed date 
 of maturity, but subject to eiarlier payment upon the happening of 
 a specified act or event. As regards demand paper, we 'note that 
 one who purchases it before the lapse of a reasonable time from 
 date of issue will be regarded as a purchaser before maturity. 
 What is a reasonable time? Section 193 provides that three things 
 must be taken into consideration: (1) The nature of the instru- 
 ment; (2) the usage of trade; and (3) the facts of the particular 
 case. 
 
 Since the nature of the instrument must be taken into consider- 
 ation, we should expect to find that what constituted a reasonable 
 time would differ, according as the instrument was a demand note, 
 a demand bill of exchange, or a check. Generally speaking, the 
 time within which one might safely buy a check would be shorter 
 than in either of the other two cases. A demand note would have 
 a longer life, and probably a demand bill of exchange would have 
 a longer life than a demand note; at least it would seem that a 
 foreign bill of exchange could freely circulate longer than a de- 
 mand note. A certificate of deposit would have a still longer life. 
 
 Demand instruments are due at the moment of issue. The stat- 
 ute of limitations as a general rule begins to run from date. Still 
 the law does not regard such an instrument as due as soon as is- 
 sued, within the meaning of the rule that a holder in due course 
 must be one whb takes before maturity. If it did, demand instru- 
 ments would not readily circulate. But as a matter of fact they 
 are intended to circulate for a while, and the question is: How 
 long? The inherent difficulty in being able to ascertain within 
 any degree of certainty what a reasonable time is has led a few 
 states to define by statute what shall constitute a reasonable time. 
 Generally the matter is left open. 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 757 
 
 The statutory direction to look at usages of trade in determining 
 what shall constitute a reasonable time is most important. Banks 
 sometimes establish a custom to hold demand notes for a specified 
 period of time. This period is not always the same. The period 
 will vary with the community and with general credit conditions. 
 Sometimes demand paper is held by banks on the general under- 
 standing that demand will not be made for six months. Sometimes 
 the period is three months. In certain kinds of transactions the 
 period is much shorter. The point is, however, that if a custom 
 has developed in a community to such an extent as to be fairly 
 well known, the period of time which demand paper is thus held 
 will fix the time within which it is safe for one to buy demand 
 paper. 
 
 The facts of the particular case must also be taken into consider- 
 ation, and such facts might even control presumptions arising from 
 the character of • the paper and from observing business usage. 
 Stipulations in regard to interest would be important. Notations 
 of partial payments and of interest payments on the instrument 
 would be important in this connection. The field of inquiry is 
 obviously quite broad. The following cases illustrate the appli- 
 cation of the rule. 
 
 ESTES V. LOVERING SHOE OO. 
 
 (Supreme Court of Minnesota, 1894. 59 Minn. 504, 61 N. W. 674, 
 50 Am. St. Rep. 424.) 
 
 Collins, J. * * * It is argued by counsel for appellant that 
 these checks were stale and overdrc-when transferred to the plaintiff, 
 and are therefore subject to any equitable defense which might have 
 been available so long as they remained in the hands of the payee; 
 but the decided weight of authority is opposed to this claim. It is 
 to be borne in mind that no question as to the discharge of an indorser 
 by delay in presentation, or by the failure of the bank on which the 
 checks were drawn in the meantime, arises hei^; but the attack is 
 made by the maker solely upon the consideration. As before stated, 
 the checks were^drawn and dated October 26th, at St. Paul, and 
 were caslied_abouI3ve[days Jater_ Csix days, at most) in Denver, JC^qIo., 
 and there~wef e no^circumstances, except the period of time which had 
 passed, and the^tacTtHarfhe pay'ee'was attempting to cash the checks 
 at a point some distance from the city in which they were drawn, to 
 put plaintifif on his guard. In these days of large business enterprises 
 and extraordinary facilities for traveling there was nothing suspicious 
 in the fact that the checks were presented at a city distant from that 
 in which they were drawn and made payable; and, as to the time, 
 the rule is well settled that a holder who in good faith and for valued 
 takes a check several days after it is drawn, receives it without being 
 subject to defenses of which he had no notice before or at the time his 
 title accrues. * * * 
 
758 J NEGOTIABLE INSTRUMENTS (Part 3 
 
 MOREX V. WAKEFIELD et al. ■ ^ 
 (Supreme Court of Vermont, 1868. 41 Vt. 24, 98 Am. Dec. 562.) 
 
 PiERPOiNT, C. J. This action is brought by the plaintiff as the in- 
 dorsee of a promissory note, given by the defendanttoT'. D. & H. 
 SrHIEfTBr bearer, payable on demand with interest, dated the 13th day 
 of July, 1865, and sold and indorsed to the plaintiff by the payees in 
 the fore part of May, 1866. It is conceded that this note was given 
 for intoxicating liquor bought by the maker, of the payees, to be sold 
 iri"violafion of law, and under such circumstances that, as between the 
 original parties to it, it could not be enforced. 
 
 . The plaintiff claims to recover on the ground that he is an innocent 
 holder for value, ignorant of the consideration for which it was givT 
 en, and that he took it in the due course of business, while it was cur- 
 rent and before it was due. 
 
 The first question that naturally suggests itself is whether the plain- 
 tiff did in fact take this note while current and before it was due. 
 If he did not, the other questions which have been discussed, become 
 immaterial, as no question is made by the plaintiff but that, if he took 
 the note when past due, he took it subject to all defenses that would 
 have been available if the suit had been by the original payees. 
 
 The note was payable on demand with interest, and was taken by the 
 plaintiff_of the payees about ten months after it was executed. ^Was 
 the note then past due? 
 
 We do not now consider this an open question in this state ; certain- 
 ly not, so far as defenses by the maker are concerned. This precise 
 question arose in Camp v. Scott, 14 Vt. 387. In that case the court 
 held that a note payable on demand with interest, and negotiated two 
 months after its date, was negotiated when it was past due, and held 
 the maker liable as the trustee of the original payee, although, as the 
 law then stood in this state, no maker of a negotiable note could be 
 made liable as trustee of the payee, until the note had become due in 
 his hands unnegotiated. We think this case must be controlled by 
 that. * * * 
 
 Judgment of the county court reversed, and judgment for the de- 
 fendant for his cost.' 
 
 WEBER V. HIRSCH et al. 
 (Supreme Court of New York, Appellate Term, 1917. 163 N. T. Supp. 1086.) 
 
 Action by I. Newton Weber against Oscar A. Hirsch and AL 
 Schwartz. Judgment for plaintiff in part, and he appeals. 
 
 MuLLAN, J. Plaintiff, having sued on defendant's demand note, 
 indorsed to him by the payee for value and without notice^ of ariy 
 equities, appeals from a judgment in his favor for the amount of the 
 note less the amount of a debt due to defendant by the payee. The 
 learned trial justice allowed the offset upon the theory that plaintiff 
 was not a holder in due course, because of an unreasonable delay in 
 negotiation. 
 
 Whether a delay is unreasonable or not depends upon the particular 
 facts in each case. Here the facts are not in dispute. Plaintiff was 
 a brother-in-law of the payee, and knew that the defendant and the 
 payee were in business together. The note was indgxsed to plaintiff 
 three months and_six_days after it was made. We seeJHereIlio"cir-~ 
 
Ch. 3) WHO ARE HOLDERS IN DUB COURSE 759 
 
 cumstance just ifying a sus picion i n the mind of the holder, or indicat- 
 ing that~the-dSiay inTiegotiation was "for an unreasonable length of 
 time after the issue of the note," within the meaning of section 4 of 
 the Negotiable Instruments Law. 
 
 Judgment modified, by increasing the amount thereof to $380.07, 
 with interest from November 30, 1915, and appropriate costs in the 
 court below, and, as so modified, affirmed. 
 
 The third case, above mentioned, where the instrument has a 
 fixed date of maturity, but is subject to acceleration into an earlier 
 maturity is one in which there is some conflict of authority as re- 
 gards its negotiability, a situation which will be most unfortunate, 
 if the conflict becomes widespread, because the use of this kind of 
 instrument is becoming very common. The problem is simply 
 this: A note will contain a fixed date of maturity, and will also 
 contain a clause authorizing the holder to confess judgment at any 
 time after date, or to declare the note due upon default of interest 
 payments or of installments of principal, or to declare the note 
 due upon the depreciation of collateral put up by the maker to 
 secure payment of the note, or upon the maker's failure to deposit 
 additional collateral. We have already discussed at some length 
 the question as to whether such an instrument is negotiable, and 
 we have found that there is considerable conflict among ^e au- 
 thorities — some holding that the time of payment is uncertain ; others 
 holding that it is certain. Assuming that the instrument is held 
 to be; negotiable — and this must be the situation before our ques- 
 tion arises — is a purchaser of such an instrument after the event 
 has happened but before the .fixed date arrives, a purchaser before 
 maturity? If the stipulation is treated as giving an option only to the 
 holder to declare the note due, and he has not yet done so, there is 
 no difficulty in holding that a purchaser is a purchaser before maturity. 
 But if the holder has demanded payment, and payment has been re- 
 fused, and the holder has then negotiated the instrument to the pres- 
 ent holder, is the latter a purchaser before maturity? Again, suppose 
 the stipulation be treated, not as giving to the holder an option to 
 declare the note due, but as actually maturing the instrument upon the 
 happening of the event. Here it is more difficult to hold that a pur- 
 chaser after this date, but before the date arrives, is a purchaser before 
 maturity. Of course, the holder may not know that the event has 
 happened, but it would be possible to require him to ascertain at 
 his peril whether it had happened or not. 
 
 GILLETTE et al. v. HODGE et al. 
 
 (United States Circuit Court of Appeals, Eighth Circuit, 1909. 170 Fed. 313, 
 
 95 C. C. A. 205.) 
 
 Amidon, District Judge. This was an action brought by Hodge 
 Bros., the defendants in error, against the plaintiffs in error, on three 
 promissory notes, dated April 13, 1903, payable to Robert Burgess & 
 
760 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Son, or order, respectively, July 1, 1904, 1905, and 1906, with interest 
 payable annually. The notes contained a provision that default in the 
 payment of interest should cause the whole note to beconie imme- 
 diately due. The plaindjfi_jare_^private-baiilcers, who discoun ted the 
 notes ^t the rate of 10 per xent. on Tun e 2. igCRnra Ssmg the proceeds 
 
 To the "credit xyi the payees, who afterwards drew the same in full. 
 The answer interposes two defenses : First, that the notes were given 
 as the purchase price of a stallion, and that the horse failed to com- 
 ply with the warranties made by the vendors; second, that the notes 
 were handed to the payees by the defendants upon an express agree- 
 ment that they should not be treated as delivered until the signature 
 of four other persons named in the answer should be obtained, and 
 that, unless such signatures should be obtained, the notes should be 
 of no effect. To make these defenses available, the defendan ts first 
 sought to show-that Jlie.jnote5_were dishonored at thejime triSy "were 
 
 ■"ScquifeJIby the plaintiffs. Their main reliance~tor establishing^ this 
 fact' ri the prdvisidh in the notes that they should become immediately 
 due if there was default in the payment of interest. Theffrst^year's 
 interest was due April 13, 1904. This installment of mterest was, 
 
 —therefore, past due on June 2d, wh en plaintiffs acquired the notes ; 
 and it is trrged TEafThis fact, when combined with the clause of the 
 note just referred to, caused the notes to mature April 13th, and that 
 they were, therefore, dishonored at the time of the indorsement. The 
 difficulty with this contention is that the provision of the notes upon 
 which it is based is not self -executory. It si mply gave _to the holder 
 an optfin to declare the notes due for default in the payrneiTt''onn- 
 lerestT TlTef€~is'"si3ffTeXonHictliryud'rcial decisions as to the effect of 
 such a provision (Hodge Bros. v. Wallace, 129 Wis. 84, 108 N. W. 
 212, 116 Am. St.. Rep. 938); but it was expressly ruled by the Su- 
 preme Court of the United States in the case of Chicago Railroad 
 Equipment Co. v. Merchants' National Bank, 136 U. S. 268, 10 Sup. 
 Ct. 999, 34 L. Ed. 349, that a similar provision did not of itself cause 
 the notes to mature upon default in the payment of interest. * * * 
 On quite elementary principles, the judgment in this case was right, 
 and should be affirmed. 
 
 CITIZEGSrS' NAT. BANK OF GLENWOOD SPRINGS v. FIRST NAT. BANK 
 OF PORTLAND, OREGON. 
 
 (Supreme Court of Colorado, 1919. 66 Colo. 426, 182 Pac. 12, S A. L. R. 587.) 
 
 Denison, J. * * * No transaction between the acceptor and 
 holder of a negotiable instrument can advance its maturity as against 
 a subsequent holder in due course, even though it was negotiated after 
 such transaction. If it could, the safety of negotiable paper would be 
 destroyed, and the law merchant nullified. When a certified check is 
 presented for payment, the debtor bank, if it has a defense against 
 the holder, can protect itself by marking the face of the paper, so as 
 to destroy its negotiability. * * * 
 
 It is believed that, in any and all cases where the fixed date of 
 maturity has not yet arrived, a purchaser before the fixed date 
 should be regarded as a purchaser before, maturity. This seems 
 to have been provided for in one case in the Negotiable Instru- 
 
Ch. 3) ' WHO ARE HOLDERS IN DUB COURSE 761 
 
 ments Law, and by analogy should be extended to all other cases. 
 Section 52 provides that a holder in due course is one who takes 
 the instrument before it is overdue and without notice that it had 
 previously been dishonored, if such was the fact, and section 117 
 provides that the omission to give notice of dishonor by non- 
 acceptance does not prejudice the rights of a holder in due course. 
 These sections refer to the case of a time bill of exchange which 
 was in fact presented for acceptance before the date fixed for pay- 
 ment. Other sections of the act make this a dishonor of the in- 
 strument. It is then due and the holder may sue upon it. But 
 the effect of sections 52 and 117 apparently enables a purchaser of 
 such instrument after dishonor by non-acceptance and before the 
 arrival of the fixed date of maturity to be a holder in due course. 
 This rule should be applied in all cases where the instrument has 
 matured as the result of the operation of an acceleration clause 
 before the fixed date of maturity arrives. 
 
 SECTION 4.— MUST BE A PURCHASER IN GOOD FAITH 
 
 In any case where it becomes important for the holder of a ne- 
 gotiable instrument, in his suit thereon against the maker, drawer, 
 or acceptor, to establish his position as that of a holder in due 
 course, the object of the plaintiff is to be thereby enabled to shut 
 out defenses which the defendant had against the party with whom 
 he dealt. If there are no such defenses, it is immaterial whether 
 the plaintiff is a holder in due course or not. If there are de- 
 fenses, such as lack or failure of consideration, fraud, or payment 
 before maturity, the plaintiff will be able to recover from the 
 defendant only in the event that he is a holder in due course. It 
 is perfectly apparent, therefore, that the holder acquires this ex- 
 traordinary right to compel a person to pay a sum of money un- 
 der these circumstances, only because the holder is an innocent 
 purchaser. If the holder has knowledge of this defense, there is no 
 reason why he should be given this preferred position. The law 
 therefore properly provides that, unless the purchaser was a pur- 
 chaser in good faith, he will not be a holder in due course. Sev- 
 eral sections of the Negotiable Instruments Law deal with the re- 
 quirement of good faith. 
 
 Section 52. A holder in due course is a holder who has taken 
 the instrument (1) complete and regular on its face and (3) in 
 good faith; and section 52 (4) that at the time it was negotiated 
 to him he had no notice of any infirmity in the instrument or defect 
 in the title of the person negotiating it. 
 
 Section 56. To constitute notice of an infirmity in the instru- 
 ment or defect in the title of the person negotiating the same, the 
 person to whom it is negotiated must have had actual knowledge 
 of the infirmity or defect or knowledge of such facts that his ac- 
 tion in taking the instrument amounted to bad faith. 
 
 Section 55. The title of a person who negotiates an instrument 
 
762 NEGOTIABLE INSTRUMENTS (Part S 
 
 is defective within the meaning of this act when he obtained the 
 instrument, or any signature thereto, by fraud, duress, or force 
 and fear, or other unlawful means, or for an illegal considera- 
 tion, or where he negotiates it in breach of faith, or under such 
 circumstances as to amount to fraud. 
 
 Section 54. Where the transferee receives notice of any infirm- 
 ity in the instrument or defect in the title of the person nego- 
 tiating the same before he has paid the full amount agreed to 
 be paid therefor, he will be deemed a holder in due course, only to 
 the extent of the amoiuit theretofore paid by him. 
 
 Section 59. Every holder is deemed prima facie to be a holder 
 in due course; but when it is shown that the title of any person 
 who has negotiated the instrument was defective, the burden is on 
 the holder to prove that he or some person under ■whom he claims 
 acquired the title as a holder in due course. But the last mention- 
 ed rule does not apply in favor of a party who became bound on 
 the instrimient prior to the acquisition of such defective title. 
 
 It is to be noticed that a holder, in order to be holder in due 
 course, must have acquired title to the instrument without knowl- 
 edge of two varieties of facts: (1) Infirmities in the instrument; 
 and (2) defects in title. These two expressions : Infirmities in 
 the instrument and defects in title have a more or less overlap- 
 ping meaning, but it is necessary to note that there are two very 
 different kinds of i-ights possessed by other persons, which the 
 holder must be unaware of if he is to be holder in due course. We 
 may more accurately refer to these rights of third parties as (1) 
 equities of defense and (2) equities of ownership. The expres- 
 sion "infirmity in the instrument" is used to describe equities of 
 defense, while the expression "defects in title" describes a kind 
 of title which is not perfect, a situation which obviously gives 
 rise to an equity of ownership in some other person. To illustrate 
 the distinction between equities of defense and equities of owner- 
 ship : If P. obtains M.'s note by fraud, or without consideration 
 and P negotiates to A., M.'s equity against P. is an equity of de- 
 fense — an infirmity in the instrument. P.'s title is not defective. 
 On the other hand, if P. obtains M.'s note for a consideration and 
 there is no fraud — that is, obtains the instrument under circum- 
 stances where M. really is indebted to P. in the sum specified — we 
 have a case where there cannot be any infirmity in the instrument, 
 any equity of defense. But there may arise a claim of ownership 
 which will render the title of a subsequent holder defective. Sup- 
 pose P. intrusts this note to A. for a special purpose, perhaps with 
 directions to deposit it to P.'s account. Suppose, further, that the 
 instrument, at the time it left P.'s hands, was in such form that 
 it could be negotiated by delivery, that is, was then payable to 
 bearer, either because originally made payable to P. or bearer, or 
 because of the blank indorsement of P. If the note were payable 
 to P.'s order. A., by virtue of his possession of a negotiable instru- 
 ment payable to bearer has the legal power to pass a good title to 
 
Ch. 3.) WHO ARE HOLDERS IN DUE COURSE 763 
 
 an innocent purchaser, but since his possession was for a special 
 purpose, he violates a contract duty in doing so. If A., therefore, 
 violates his trust and negotiates to B., there is an outstanding 
 claim of ownership, an equity of ownership, in P., and A. has the 
 defective title. This is the transaction described in the last clause 
 of section 55. Similarly the title of a thief or finder of bearer 
 paper is likewise defective. The person who lost it or from whom 
 it was stolen has the equity of ownership. At this point it should 
 be recalled that if the person intrusted with the instrument for 
 the special purpose, or the thief or the finder, had possession of 
 paper then payable to the order of the payee or of some special in- 
 dorsee, such party in possession does not even have a defective 
 title. He has no title at all. He has no power to negotiate. 
 If the indorsement of the payee or special indorsee be forged, no 
 title passes to the transferee. Such a transferee, no matter how 
 innocent, cannot be a holder in due course. He is not even a 
 holder. He is merely a person who has physical possession of a 
 piece of paper evidencing a series of contracts which is owned by 
 the person whose name was forged who in law is still the holder. 
 
 Section 55 makes mention of another kind of defect of title; 
 that is, another situation out of which may arise an equity of own- 
 ership. The first clause of the section states that a title is de- 
 fective when he, the party who sold the instrument to the person 
 now claiming to be a holder in due course (l?t us call him A.), 
 obtained the instrument by fraud, duress, or force or fear, or 
 other unlawful means. In the case above discussed the instru- 
 ment was assumed to have been acquired by A. (1) by the volun- 
 tary act of P., the owner; (2) by finding; (3) by larceny. In 
 each case, his title was defective. We also find, from the first part 
 of section 55 that A.'s title will be defective if A. acquires the in- 
 strument by fraud, etc., practiced by him upon P. 
 
 In speaking of defective titles, we should keep in mind the vari- 
 ous ways in which they are created. Wherever we find a defec-. 
 tive title in one person, there is some other person who has the 
 equity of ovm.ership. And it is the equity of ownership to which 
 the holder in due course is not subject. 
 
 To summarize: The holder in due course takes free from two 
 kinds of equities : Equities of defense ; and equities of ownership. 
 
 We shall later see that a holder not in due course will take 
 free from some kinds of equities of ownership, but that he cannot 
 take free from equities of defense. 
 
 A great deal of litigation over negotiable instruments raises 
 questions relating to bad faith. If the instrument were procured 
 by the payee from the maker by fraud, or without consideration, 
 or under circumstances revealing some other personal defense, it 
 is almost certain that the payee will negotiate the instrument to a 
 holder in due course, for that is the only opportunity he has of ' 
 forcing collection. It will be to the interest of the payee to nego- 
 tiate to one who was absolutely bona fide, but it often happens 
 
764 NEGOTIABLE INSTRUMENTS (Part 3 
 
 that the indorsee from the payee is so related in business with the 
 payee that he does have some intimation of the existence of the 
 defense ; but, as the cases show, the maker must be able to charge 
 the holder with considerable knowledge of the situation before 
 he is deemed to be a purchaser in bad faith. 
 
 LUTTON V. BAKER. 
 (Supreme Court of Iowa, 1919. 187 Iowa, 753, 174 N. W. 599, 6 A. L. R. 1696.) 
 
 The plaintiff asserts that he is an "innocent p,urchaser" of a note 
 made by Baker to Le Grand and that he is entitled to have a lien es- 
 tablished to secure payment of said note. The trial court gave him 
 judgment against Baker and established the lien as prayed. Baker 
 appeals. 
 
 Salinger, J. * * * It is assigned the court erred in holding 
 that the note sued on could be enforced notwithstanding failure to at- 
 
 / tach revenue stamps as required by act of Congress * * * in force 
 at the time. * * * The appellee responds * * * that there is 
 no evidence that the failure to stamp was due to fraudulent intent ; and 
 that in the absence of such intent — inter partes, at least — ^uch failure 
 is of no materiality. That does not quite meet the case. The appellee 
 asserts himself to be an innocent purchaser for value and has the bur- 
 den of proof on that allegation. The defendant expressly denied that 
 plaintiff was such purchaser, and his argument is that when a note 
 which the revenue l^ws require to be stamped is not stamped it ought 
 not be held "compk-te-and regular on its face." * * * Indeed, 
 the note set oTit in the abstfacfSoesTiot purport to be stamped. And, 
 so, the <^1iyer_^USt ha-ve-k«nwn_that thp^tarnji Igwjr^d been disre- 
 garded. And the sole question is the effect of such knowledge. Sec- 
 
 ~tion'3D50a52, Code Supplement 1913, defines a holder in due course to 
 be, among other things, one who has taken an instrument which "is 
 complete and regular upon its face." We held in the case of In re 
 Philpott's Estate, 169 Iowa, 555, 151 N. W. 825, Ann. Cas. 19I7B, 839, 
 that a note payable "on or before four after date" is not "com- 
 plete and regular on its face," is not negotiable, and he who takes the 
 same is not a "holder in due course." We now hold that a note which 
 lacks the stamping required by law is not "complete and regular on its 
 face," and that therefore .plairitiiLis^notjJiQlikrJa-jdue, course, and 
 must meet any defense that is good against the payee who transferred 
 to plaintiff. 
 
 Tlie defendant maker does interpose defenses which, if proved, will 
 defeat the payee who transferred to plaintiff. One of them is that 
 when the note was signed he and L,e Grand also signed a contract that 
 no payment should be made unless Le Grand first performed certain 
 things that he agreed to perform. Assume that all defenses but thit, 
 last one have not been established. That will not destroy this last de- 
 fense if that be proved. Is it proved? The testimony, including that of 
 Humphrey, a witness for plaintiff, clearly establishes that such a con- 
 tract was made. The evidence that it was never performed or offered 
 
 •to be performed is undisputed. If L,e Grand had not sold the note, this 
 defense would prevent his collecting the note. As said, this plaintiff is 
 in no better position than Le Grand. If this were all, it was error 
 to give judgment against Baker. * * * 
 
Ch. 3) WHO ARE HOLDERS IN DUB COURSE 765 
 
 The decree below will be reversed. The trial court is directed to dis- 
 miss the petition and enter judgment for costs in favor of appellant 
 Louis Baker. , 
 
 ELIAS V. WHITNEY. 
 
 (Supreme Court of New York, Appellate Term, 1906. 50 Misc. Rep. 326, 
 
 98 N. Y. Supp. 667.) 
 
 Truax, J. * * * The evidencfe showed that the check in suit had 
 been changed before it reached the plaintiff, and that ^mere inspection 
 (ȣ ^e ch eck showed such change. There is no evidence showing that 
 thedeteiidant aufhOTtzed-oFasserited to the alteration, but the appel- 
 lant says that he is "a holder in due course," and not a party to the 
 alteration, and that, under section 205 of the negotiable instruments 
 law (Laws 1897, p. 745, c. 612), he may enforce payment on the check, 
 according to its original tenor. Section 91, p. 732, of the negotiable 
 instruments law, states what constitutes a holder in due course. Ac- 
 cording to that section, a holder in due course is a holder who has 
 taken an instrument that is complete and regular on its face. This in- 
 strument was not complete^and~TegulaF'on'itS"face at the time plaintiff 
 took it. As we have stated before, _a_mereins2eetion of the instru- 
 ment showed its defect, and therefore, under subdivision 41 of the 
 negotiable instruments law, plaintiff had notice of an infirmity in the. 
 instrument at the time he took it. 
 
 [Order setting aside verdict for plaintiff is affirmed.] 
 
 COLE V. HARRISON. 
 
 (Supreme Court of New York, Appellate Division, 1915. 167 App. Div. 336, 
 • 153 N. Y. Supp. 200.) 
 
 DowLiNG, J. The action is brought upon a promissory note made 
 by defendant to the order of Donald McLean, dated February 20, 1911, 
 for the sum of $15,000 payable at the National Park Bank three 
 months after date, with interest, and indorsed by Donald McLean, 
 and by him transferred to plaintiff. It appears that the defendant 
 was a client of McLean, who had originally obtained from her cer- 
 tain promissory notes signed by her to pay a balance due on an in- 
 vestment in what is called the "Minwax" business, purchased by her 
 from Clifford L. Miller & Co; in January, 1910. These notes were dis- 
 counted at the National Park Bank, and new notes were obtained from 
 her from time to time by McLean ; each set of notes being used os- 
 tensibly to take up prior obligations, the latter, however, never being 
 returned to her. Finally, in February, 1911, the defendant's son be- 
 ing very ill, she signed at McLean's request four more notes, as those 
 then in the bank were due, and though she at first refused, she finally 
 signed these four note5inblank^_on McLean's xepresentation that he 
 ^as t o use thern to pa^;;te;7^alance due on the Minwax transaction. 
 Wher^deRvered^the- notes bore only the defendant's sighafiire and the 
 ordinary printed matter. One of these notes was filled in by McLean 
 with the date February 20, 1911, the amount $15,000, the payee him- 
 self, the place where payable the National Park Bank, the time of 
 maturity three months, and the addition of the words "with interest" 
 and as .filledi n wa§ _thereafteiLiadorsed by McLea.n to the plaintiff, 
 and is the note sued upon? ■ The defendant never gave McLean au- 
 
766 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Ihority to fill out the note in the form in which it was finally trans- 
 ferred, nor to transfer it to the plaintiff. ' 
 
 The plaintiff testified that he had many times loaned money to Mc- 
 Lean, who was also his attorney, and that McL,ean had told him he 
 was in trouble with a woman client of his, whose money he had taken 
 and invested in the Minwax Company, and who threatened, unless she 
 •was paid back her money, to begin disbarment proceedings against him. 
 Nothing was said between them about the note in suit. On March 
 2, 1911, plaintiff finally agreed to loan McLean $15,000 to enable him 
 to pay off this client, who was pressing him for her money, and on 
 March 4th plaintiff gave his check to McLean, to the latter's order, 
 in the sum of $15,000 drawn on the Brooklyn Trust Company, which 
 was duly deposited by McLean for collection and the proceeds re- 
 ceived by him through the National Park Bank of New York. Plain- 
 tiff testifies that on March 2d he promised McLean, by telephone, 
 that he would send him the amount of this loan on the 4th, and that 
 he did send his check for $15,000 on the morning of March 4th, 
 whereupon McLean sent him the note in suit, together with two in- 
 
 j'surance policies, in the sum of $10,000 and $5,000, respectively. He 
 say;s-that~he had_always received colla teral security on the other loans 
 M had made to McLean, andl:BaI heJexpeetM-SUch_seciirity upon this 
 loan of $15,000, although nojhijigjvas said_aboiit_the_need ofsecurity, 
 
 • and he had no knOwle^e^ what the nature thereof woul3^e until he 
 received McLean's letter. Plaintiff says that the note and the two in- 
 surance policies were inclosed in the letter from McLean which is in 
 evidence, marked Marph 2d ; but the letter itself contains no refer- 
 ence of any kind to the inclosure of a note and refers only to "two 
 policies." It is to be noted, also, that the letter is dated March 2d; 
 whereas the loan was not made until March 4th, and plaintiff claims 
 he received the letter after the loan was made" on that date. No ex- 
 planation is given as to why the letter contains no reference to the 
 note. The assignment of the policies bore date of March 2d, the same 
 as the letter. Plaintiff' says that the omission of any reference to 
 the $15,000 note did not strike him as strange. When^tke note became 
 due, it was not presented for payment, and no instructionT had been 
 left by plaintiff with his representative in this country to present the 
 same for payment,-but simply instructions as to what was to be done in 
 regard to the deposit of the partial payment, which had been prom- 
 ised by McLean to be made when the note was due. 
 
 Plaintiff never sued McLean upon the note, and no demand was ever 
 made upon defendant for payment until plaintiff's attorney wrote her 
 on December 23, 1913, nearly three years after the maturity of the 
 note. Plaintiff admits that he did not inquire of McLean who the 
 maker of the note was when he received it, and, though the note was 
 
 : signed "I. S. Harrison," and he noticed when he_recejyed the note 
 that the-tjod3r6f it was in McLean's Jiandwritingjie asked iao questions 
 -of afiy kiffd'about the note. There was no evidence offered tending 
 to contradict plaintiff's version of the transaction. Under these 
 circumstances it would seem that, although the plaintiff was not entitled 
 to the direction of a verdict in his favor, yet the findingiofthe jury 
 agairist.him w-as against the weight of the evidencgT"** * ~~- 
 
 What constitutes good faith upon the part of a holder of a nego- 
 tiable paper has been defined by the Court of Appeals in the following 
 language: "He is not bound at his peril to be on the alert for cir- 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 767 
 
 cumstances which might possibly excite the suspicion of wary vigil- 
 ance; he does not owe to the party who puts the paper afloat the duty 
 of active inquiry in order to avert the imputation of bad faith. The 
 rights of the holder are to be determined by the simple test of honesty 
 ^ndgood faith, and not by a speculative issue as to his diligence or 
 negligence. TKeh6rdef's_ rights cannot be. defeated without proof of 
 actual notice of the^efect_in title or bad faith on his part evidenced 
 by circumstances. Though he'rnay have been negligent in taking the 
 paper, and omitted precautions which a prudent man would have 
 taken, nevertheless, unless he acted mala fide, his title according to 
 settled doctrine, will prevail." Cheever v. Pittsburg Ry. Co., 150 N. 
 Y. 59, 44 N. E. 701, 34 L. R. A. 69, 55 Am. St. Rep. 646. 
 
 Had plaintiff simply produced his check to the order of McLean for 
 the full amount of the note, in the absence of any proof of knowledge 
 on his part of the circumstances under which the note was given, and 
 its diversion by McLean, or knowledge by him of facts making his 
 action amount to bad faith, he would have been entitled to recover. 
 But there are circumstances attending the transaction which, as they 
 depend for their effect and bearing thereupon solely on the plaintiif's 
 testimony, left his^ credibility as to thosematters_a_guestion for the 
 determination oT thyjur y. Anioiig- these circumstances were the fact 
 .ffiat^M2£ean,_j:o plainfifTs knowledge, was financially embarrassed, 
 and was threatened with disbarment proceedings by a client of his, 
 whose mon^^'wasTraimed to have been misapplied ; that this client was 
 a woman; th_atjth£-not«-4endered plaintiff was apparently signed in a 
 wo man's han dwriting; that the body of the instrument was all filled 
 in to pla intiffs knowledge, in McLean's handwriting; that the letter 
 cJaimed~to have inclosed the note, and the policies contained no refer- 
 ence "to the note; that plaintiff made no inquiry of any kind as to tjie 
 transactidri, or McLean's acquisition of the note ; and that no demand 
 w as made u pon defendant Jor payment. of the note until a period of 
 nearly three years had elapsed. And yet, while3ll.these_details cofn- 
 bined._were_sufficient to raise an issue of fact as to plaintiff's good 
 fait ^ in the tr ansaction, they were not enough to justify a verdict 
 fotJEg^^3£±endanf^~since something more than mere suspicion is requir- 
 edtoprove bad faith on the~part of the holder of the note. 
 
 The judgment and order appealed from wilf therefore be reversed,, 
 and a new trial ordered, with costs to the appellant to abide the event. 
 
 WALTERS V. BOOK. 
 (Supreme Court of North Dakota, 190S. 18 N. D. 45, 115 N. W. 511.) 
 
 Action by A. N. Walters against Jacob Rock. Judgment for de- 
 fendant, and plaintiff appeals. 
 
 Morgan, C. J. Action on a promissory note by an indorsee claim- 
 ingto be a purchaser in due course.' 'The answer alleges that the note 
 was procured 'through fraudulent representations on the part of the 
 payee, and that the plaintiff took said note with knowledge of the 
 fraud by which it was executed and delivered. The jury found in 
 favor of the defendant. A motion for a new trial was made and de- 
 nied. Plaintiff appeals from the order denying a new trial. The as- 
 signments are numerous ; but the one principally relied on is that the 
 evidence is insufficient to justify the verdict. 
 
768 NEGOTIABLE INSTRUMENTS (Part 3 
 
 The original payee of the note was one Dr. Rea, of MinneapoUs, 
 who traveled as a specialist in curing various diseases. The defend- 
 ant consulted him at Moorhead, Minn., and was informed that he was 
 afflicted with a cancer, and the doctor agreed to cure him for $250. 
 The defendant had only $25 in money, but gave his note for $250 and 
 paid him $25 in cash, which was immediately indorsed as a payment 
 on the note. The doctor then treated him by injecting some prep- 
 aration into the alleged cancerous growth and agreed to send him some 
 more medicine by express. In a very few days the medicine came 
 by express, but the defendant refused to accept it for the reason that 
 it had been consigned C. O. D. and required a payment of $101.50 
 before the express company could deliver it to him. The defendant 
 then consulted a local physician, who cured him in about one week. 
 ThesE^arelhe iacts as related by the defendant, and must have been 
 found to be true by the jury in view of the verdict in his favor. Ac- 
 cepting the same as true, we think that the allegation of fraud in the 
 inception of_the note was sustciined. ' The'promise to cure the^e^f end- 
 ant must have been made without any intention of performing it. Un- 
 der our statute the making of such a promise constitutes fraud. * * * 
 
 The evidence also amply sustains the fact that the doctor was not 
 acting jn good faith in his representations. He did not send the rhedi- 
 cines in accdirdance with his agreement, but sent them by express with 
 intent to force a payment of $100 not due before the medicines could 
 be used. He .goldthe note very soon after the refusal to pay the $100 
 to the plaintiff! Whether the plaintiff is an indorsee in due course is 
 a question in dispute between the parties. The plaintiff claims that 
 the note duly indorsed was delivered to him on June 6th, and he there- 
 after paid $202.50 therefor, having purchased on a 10 per cent, dis- 
 count. He does not claim to have paid for it on that day, and first 
 says that he does not know the day when he paid for it. He states 
 that he paid for it later, when he made a, "settlement" with "the doc- 
 to!Hfer- -gome other notes. The evidence -shows"fhat the plaintiff was 
 accustomed to buy notes from the doctor xegularly, and had been ac- 
 customed to "do' so Td fThree ye ars, and that he had some trouble in 
 collecting some of them because the parties "diBT^ot want to pay them." 
 He does not specifically remember the reasons why the makers refused 
 to pay the notes, but Icnows that he has a considerable number of 
 these notes now on hand, past due and uncollected. He made no 
 inquiry concerning the financial resp^sibility of the defendant before 
 "purchasing the note, unless from tlie doctor. 
 
 The defendant was a stranger to him. He immediately placed the 
 note in the hands of an agency for collection, although it was not yet 
 due. He knew that the doctor was accustomed to travel throughout 
 the country in his professional capacity, and took notes in payment of 
 services performed. He says further: ,"I did not know of any dispute 
 or_defense of the note at the time I purchased Tt.' I did not inquire." 
 He nowhere states that he bought the note in good faith. He does not 
 jtate that he had no notice of defenses at the.tjme he paid for the 
 note. It will be noted that it was bought and delivered to him on 
 June 6th. He claims that he paid for it later when a "settlement" was 
 made for this liote and others. On this question he testifies: "O. 
 At the time that you bought this note in suit from Dr. Rea, did you buy 
 any others from him? A. I don't remember. Q. But at the time you 
 settled with him for this note you settled for several others at the 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 769 
 
 same time, did you not? A. Very likely so. Q. Do you remember 
 when you paid for the note ? A. I do not." On redirect examination, 
 in response to leading questions, he says that he is positive that the 
 "settlement" was made prior to July 15th, which would be about 
 three weeks before the note became due. Dr. Rea was also a witness, 
 and on the question of the negotiation of the note testified simply that 
 the "note was sold before maturity on June 6th." Nothing was stated 
 by him about the time of payment nor how paid. 
 
 On this testimony we are urged to declare that the verdict is not 
 sustained by the evidence, and that it is uncontradicted that the plain- 
 tiff was an innocent purchaser. After carefully reading all of the 
 testimony of the plaintiff we find it evasive, contradictory, and of an 
 unsatisfactory character to prove facts entirely within the knowledge 
 of himself and Dr. Rea. Th^ere is not even an attempt to show that 
 there w as no notice of defenses_ on the day that he claims to have paid 
 fqr:JLh £note. TfTTe then had notice of defenses to the note, he would 
 not be an mnocent purchaser. * * * 
 
 The plaintiff's contention, therefore, is that he is a bona fide holder 
 by virtue of purchase and payment before day of maturity. Payment 
 of value on a purchase before maturity is prima facie evidence that 
 the purchase is in due course. Wethinkjhat the record shows facts 
 sufficient to s ustain the verdict that plaintiff did not purchase in good 
 fiitb- Conceding" that payment was made before maturity, we are 
 convinced that the jury had sufficient facts before them to warrant 
 the inference therefrom that plaintiff did not buy the note in good 
 faith as contemplated by the statute and the law merchant. A pur- 
 chase in due course means a purchase before maturity for value, with- 
 out notice, and in good faith. Plaintiff^ had Jnandled Eh*. Rea's notes 
 before as an employe of a collectionTirm, and^Tiad purchased a large 
 number of fiis notes before. Many of these notes were still uncollect- 
 ed and past due. As to some of these notes payment had been re- 
 fused. He immediately placed the notes in other hands for collection 
 after their purchase. He had no knowledge, and is not certain wheth- 
 er he made any inquiry, as to the financial responsibility of the mak- 
 er. He and Dr. Rea were well acquainted and intimate in business re- 
 lations. Litigation had grown out of some of these purchases, of 
 notes from Dr. Rea. 
 
 In Knowlton v. Schultz, 6 N. D. 417, 71 N. W. 550, Judge Corliss 
 said: "It may be true in this case that the plaintiff bought before 
 maturity for value, and without notice of any defense; and yet he 
 may not be a purchaser in good faith. He may, when he bought, have 
 had knowledge of facts which excited in his mind such suspicions as 
 to the paper that he .feared to rnake an investigation lest it would dis- 
 close a defense, andTHeTeJore he carefully shut his eyes and bought 
 in the dark. In such a case he would ..not be a purchaser ,in good 
 faith" — citing cases. "In this case the plamtitt is careful not to state 
 that he bought in good faith, nor does he offer any explanation of the 
 circumstances surrounding the purchase. * * * The plaintiff, 
 having the burden of proof, has failed to sustain it by positive evidence. 
 The inference of his good faith to be drawn from the other facts 
 sworn to by him is by no means strong, and the case discloses several 
 circumstances which cast grave doubt upon the fact of his good faith 
 in the transaction." In the case at bar we find the same circumstances 
 B.& B.Btjs.Law— 49 
 
770 NEGOTIABLE INSTRUMENTS (Part 3 
 
 practically as in that case and others that tend to show bad faith in 
 not making inquiry concerning the title to the note in question. The 
 evidence of want of notice of defective title at the time the money is 
 claimed to have been paid i& very unsatisfactory. * * * 
 • The plaintiff also had positive knowledge of the fact that payment 
 was refused on many of Dr. Rea's notes. It savors of a purpose to 
 avoid inquiry amounting in law to bad faith. The rule is stated by 
 Joyce on Defenses to Commercial Paper as follows in section 475: 
 "But, if the acts of the holder of the paper in obtaining the paper con- 
 stitute bad faith, he will not be entitled to protection as a bona fide 
 holder. It may, therefore, be stated as a rule that suspicious circum- 
 stances alone, even though sufficient to put an ordinarily prudent per- 
 son on inquiry, will not, in the absence of bad faith or a willful dis- 
 regard of the facts showing an infirmity of the paper, destroy the title 
 of a taker of negotiable paper as that of a bona fide holder." * * * 
 The circumstances shown by the record, taken all together, are sufficient 
 to overcome the prima facie presumption of good faith raised by 
 proof of purchase for value before maturity. It is well settled in this 
 state that, when it is shown that there was fraud"m the inception of a 
 note, the burden rests upon the purchaser to establish that he pur- 
 chased the same in due course and in good faith. 
 The order appealed from is affirmed. 
 
 HARTINGTON NAT. BANK v. BBESLIN et al. 
 
 (Supreme Ck)urt of Nebraska, 1910. 88 Neb. 47, 128 N. W. 659, 31 L. R. A. 
 [N. S.] 130, Ann. Cas. 1912B, 1008.) 
 
 Rose, J. This is a suit on a promissory note for $400, dated June 
 18, 1907, and due six months hence. W. J. Breslin and John Wiebel- 
 haus were makers and the Hartington National Bank was the payee 
 and holder. The summons was not served on Breslin and the con- 
 troversy is between the bank as" plaintiff and Wiebelhaus as defendant. 
 From a judgment on the verdict of a jury for the full amount of 
 plaintifif's claim, defendant has appealed. 
 
 The substance of the defense pleaded is: Defendant and Breslin 
 signed"The note, but left a blank for the name of the payee. It was 
 agreed between them that the note should be used by Breslin in pur- 
 chasing a meat market at Fordyce from the owner whose name was 
 at the time unknown but which afterward was found to be Jacob 
 Hauri. In the event of a purchase Hauri's name was to be inserted 
 in the blank, but otherwise the note was to be returned to defendant. 
 The insertion of the name of the bank, as pay££jscas_Dot_authorized by 
 defendant and ,he never consented thereto. The proof of these facts 
 is uncontradicted. * * * 
 
 When the note was delivered to plaintiff it was a perfect instrument, 
 with the exception of a blank' for the name of the payee. It had not 
 been altered and bore on its face no intimation of the agreements 
 pleaded as a defense. * * * Afterward plaintiff inserted its own 
 name in the blank as payee, having had no actual notice of the al- 
 leged agreements between the makers. 
 
 Plaintiff contends that defendant made no defense to the note and 
 that on the undisputed evidence the judgment rendered was proper. 
 This position seems to be correct, if the controversy is to be determined 
 without regard to the Negotiable Instruments Law of 1905. * * * 
 
Ch. 3) WHO ARE HOLDERS IN DDE COURSE 771 
 
 According to the rules of the law merchant, when defendant signed 
 the note without restriction, leaving a blank for the name of the 
 payee, and intrusted it to his comaker, he gave to a bona fide holder 
 implied authority to fill the blank and perfect the instrument. * * * 
 Under the law merchant a bona fide holder was permitted to insert 
 his name ina bfeik left for the name of the payee. * * * On the 
 rec6f3 "presented there can be no doubt that in taking the note the 
 bank acted honestly, relying upon a well-established custom. * * * 
 This rule should be applied in the present case unless it has been 
 changed by statute. Before the note was signed, however, the negoti- 
 able instruments law was passed and by it the transaction in contro- 
 versy must be tested. Generally this act retains the rules of the law 
 merchant, and its purpose, as suggested by its title, is "to establish a 
 law uniform with Ae laws of other states." While England, and most 
 of the states of this country, have been consistent in making such stat- 
 utes uniform, an examination of the holdings of the courts in which 
 those acts have been construed indicates a diversity of opinion. The 
 view, however, that the provisions of section 14 of the Nebraska ne- 
 gotiable instruments act, which is invoked by defendant herein, change 
 the rules of the law merchant in material respects appears to be unani- 
 
 mous. 
 
 * * * 
 
 Section 14 provides : "Where the instrument is wanting in any ma- 
 terial particular, the person m possession thereof has a prima facie au- 
 thority to complete it by filling up the blanks therein. And a signature 
 on a blank paper delivered by the person making the signature in or- 
 der that the paper may be converted into a negotiable instrument op- 
 erates as a prima facie authority to fill it up as such for any amount. 
 In order, however, that any such instrument when completed may be 
 enforced against any person who became a party thereto prior to its 
 completion, it must be filled up strictly in accordance with the author- 
 ity given and within a reasonable time. But if any such instrument 
 after completion is negotiated to a holder in due course, it is valid 
 and effectual for all purposes in his hands, and he may enforce it as if 
 it had been filled up strictly in accordance with the authority given and 
 within a reasonable time." * * * 
 
 Within the meaning of this language, ^defendant became a party 
 to the note "prior to its completion," and therefore in order that it may 
 be enforced against" him ffie blank "must be filled up strictly in accord- 
 ance with the authority given." * * * That defendant gave plain- 
 tiff no authority to fill the blank with its own name is shown by un- 
 contradicted testimony. The verdict against him, therefore, is not sus- 
 tained by sufficient evidence — a question raised in both courts by an 
 assignment of error. For this reason the enforcement of the statute 
 requires a reversal, which is ordered. 
 
 ROCHESTER & C. TURNPIKE ROAD OO. v. PAVIOUR. 
 
 (Court of Appeals of New York, 1900. 164 N. T. 281, 58 N. E. 114, 
 52 L. R. A. 790.) 
 
 Action by the Rochester & Charlotte Turnpike Road Company 
 against Robert S. Paviour. From a judgment of the Appellate Di- 
 vision, affirming a judgment in favor of plaintifif, defendant appeals. 
 
 In 1896 the plaintifif, a domestic turnpike corporation, operated a 
 
772 NEGOTIABLE INSTRUMENTS (Part 3 
 
 turnpike which extended from the city of Rochester to the village of 
 Charlotte, and one Marsenus H. Briggs was, and for several years had 
 been, its treasurer. In June, 1896, the defendant, who resided at 
 Rochester, received a letter from Mrs. O. S. Warren, of Silver City, 
 N. M., inclosing four fire insurance policies, and requesting him to 
 collect the premiums upon the same. Said policies were issued by 
 various companies, through Mrs. Warren as their agent, to Walter 
 B. Duffy, a prominent business man of Rochester, upon buildings sit- 
 uated in Pyramid, N. M. For several years Mrs. Warren had for- 
 warded similar policies on this property to the defendant, who had col- 
 lected the premiums for her, and remitted the same, after deducting 
 the amount agreed upon for his compensation. It was his habit to de- 
 
 _lh^er_^ie_£olicies_to M r. „JBriggs,. .wh.o paid^ him~theT5remiumsThereoh, 
 sometimes m cash and sometimes by the check "of Mr. Duffy or of 
 George C. Buell, another prominent business man of Rochester, but 
 never with the check of the plaintiff. The defradant did not know 
 who was liable for the premiurns ^xcept as' lie learnedrTT from the pol- 
 icies, ^Hmt dfd not expressly appear what relation Mr. Briggs sus- 
 tained to the owner of the property insured. Upon the receipt of said 
 letter in June, 1896, the defendant, according to his custom, delivered 
 the policies to Mr. Briggs, and in July two other poUcies upon the same 
 property were received from Mrs. Warren, which he also delivered to 
 Mr. Briggs, who was a man of repute and a member of a prominent 
 law firm in Rochester. The premiums were not paid at the time ei- 
 ther set of policies was delivered; but, after payment had been de- 
 manded several times by the defendant, ^riggs gave_him a check on 
 accountj_dated June 17, 1896, drawn upon the Central BanK"of Roches- 
 
 ~tef7payable_to the order of the defendant, for $150, signed, "Rochester 
 -fe-eharTotte Turnpike Road Co. ^M^IL ^ggs.' Treas." On the'24th 
 of July following, Briggs gave the3eten3ant a check, similar in all 
 respects, except that it was for the sum of $300, and subsequently he 
 paid the balance of the premiums from his own funds. The defend- 
 ant deposited these checks in the Traders' Bank of Rochester, where, 
 he did his banking business, procured drafts for the amount going to 
 Mrs. Warren, and sent them to her. The chec ks, were paid upon pres- 
 entation in the ordinary course of business ffomlnoneys belonging to 
 the plaintiff on deposit in the Central Bank. This action was brought 
 to recover the amount paid by means of these" checks as money of the 
 
 "plSmtiffreceived by the defendant to its use. The plaintiff had no in- 
 terest in the policies, and no business relations with the defendant, and 
 was indebted neither to him nor to Briggs, who used the checks with- 
 out authority, and thus embezzled the money drawn thereby. At the 
 close of the evidence the court directed a verdict for the plaintiff. 
 
 Vann, J. By delivering the policies to Briggs without collecting the 
 premiums at the time, the defendant apparently gave credit for the 
 same, and thus made the debt his own. At all events, he subsequently 
 treated it as a debt owing by Briggs to himself, the same as he had 
 similar claims under like circumstances in previous years. Briggs had 
 no authority, either actual or apparent, to give the checks of the plain- 
 tiff in payment of his own debt or that of a third person. If the de- 
 fendant knew or believed, or had good reason to believe, that, in giv- 
 ing the checks,' Briggs was appropriating the money of the plaintiff to 
 the payment, of his own debt, or one that he treated as his own, he had 
 no right to accept them without inquiry. While he was not bound to 
 
Ch. 3) WHO ARE HOLDERS IN DUB COURSE 778 
 
 be on the watch for facts which would put a very cautious man on 
 his guard, he was bound to act in good faith. * * * Even if his 
 actual, good faith is not questioned, if the facts known to him should 
 have led him to inquire, and by inquiry he would have discovered the 
 real situation, in a commercial sense he acted in bad faith, and the 
 law will withhold from him the protection that it Would otherwise 
 extend. 
 
 The _cbai5_yiemselyes_gave noti££„oi.a_suspid£ius fact, ^ind invited 
 inquiry ^ in relation therptn They showed upon their face that Bjriggs 
 was apparentlyusing the money ofJ:he_ElaintiffJor his own purposes, 
 •sirice fh^Twere noTTiisl;TiecEs7biit the checks of a corporation issued 
 by him as its treasurer. In the absence of express authority, or of 
 that which may be implied from past conduct known to the corpora- 
 tion, he could not lawfully use the checks, which stood as its money, 
 for such a purpose, as the defendant is presumed to have known. There 
 was no express authority and nothing to indicate that Briggs was im- 
 pliedly authorized to thus use the money of the plaintiff, and the pre- 
 sumption was the other way. The plaintiff, as its name indicated, was 
 not a trading corporation, but a local plank-road company, with no 
 authority to own buildings situated out of the state. It would be ex- 
 traordinary fora_corKern„which-jnerely_o2^E3iSi 3; short plaiok-road 
 'inTHTs~state t o Tiaveany interest in buildings in Hew Mexico, or to be 
 mdebted foF^remiums upon policies issued thereon, and the admitted 
 facts compel us to assume that the defendant so regarded it. More- 
 over, the policies themselves, as the defendant knew, were not issued 
 in the name of the plaintiff as the owner of the buildings, and there was 
 no connection, apparent or otherwise, between it and the policies. 
 Without inquiry he accepted checks drawn by Briggs as treasurer of 
 the plaintiff in payment of a debt which he had no reason to believe 
 was for it to pay, and which he had strong reason to believe had be- 
 come the debt of Briggs himself. He called for no explanation from 
 him, made no inquiry at the office of the plaintiff, or of any one repre- 
 senting it, which would naturally have disclosed the fraud, but accepted 
 the checks without question, drew the money, and thereby ran the 
 rjsk "f hHng r^^pd^u pon to rest oreit. 
 
 "^ The factsJaiew-H-1:0-4he defendant should have aroused his suspicion, 
 and led him, as an honest man, to make some investigation, before he 
 accepted the money of a corporation, which owed him nothing, in pay- 
 ment of a claim that he held agamst some one else. * * * Among 
 the heaviest losses in business are those which result from a blind trust 
 in men on account of their standing in the community, without making 
 the investigation required by common prudence. There was a shadow 
 on the checks, and the defendant could not, in good faith, accept 
 them until it disappeared. By accepting them he did an act which he 
 had reason to believe would affect the rights of a third party, and he 
 could not, in justice to that party, ignore the suspicion which the facts 
 should have aroused. One vvho suspectSj or,.Qught t_o suspect, is bound 
 to inquire, and the law presumes that he knows. whatever~properiin- 
 quiry would disclose. While the courts are careful to guard the inter- 
 ests of commerce by protecting the negotiation of commercial paper, 
 they are also careful to guard against fraud by defeating titles taken 
 in bad faith, or with knowledge, actual or imputed, which amounts to 
 bad faith, when regarded from a commercial standpoint. * * * 
 
 As the rules of law governing the case are now well settled, we shall 
 
774 NEGOTIABLE INSTRUMENTS (Part 3 
 
 refer to but few authorities, and those of recent date in this court. 
 In Wilson v. Railroad Co., 120 N. Y. 145, 24 N. E. 384, 17 Am. St. 
 Rep. 625, it was stated, as a general rule, "that one who receives from 
 an officer of a corporation the notes or securities of such corporation, 
 in payment of, or as security for, a personal debt of such officer, does 
 so at his own peril. Prima facie the act is unlawful, and, unless actu- 
 cllly authorized, the purchaser will be deemed to have taken them with 
 notice of the rights of the corporation." It was also held in that case 
 that the purchaser of a promissory note, purporting to have been is- 
 sued by a corporation, who made the purchase under circumstances 
 which devolved upon him the duty of inquiry as to its validity, as- 
 sumes the risk, by failing to inquire, of proving that the facts he could 
 have discovered, had he made inquiry, would have protected him. In 
 Gerard v. McCormick, 130 N. Y. 261, 29 N. E. 115, 14 L. R. A. 234, 
 an agent, who had charge of certain premises known as the "Glass 
 Buildings," deposited the rents collected by him to the credit of a bank 
 account kept in his name as "Agent, Glass Buildings." Without au- 
 thority he gave a check on this account, signed by him as "Agent, Glass 
 Buildings," in payment of his own debt. The check was paid, and, 
 upon the trial of an action brought five years afterwards to recover 
 the amount thereof, there was no evidence of bad faith on the part 
 of the defendant who took the check, except that afforded by the check 
 itself and the nature of the debt. The court held that the form of 
 the check was sufficient to indicate to the defendant the existence of an 
 
 ,-ag^cy7 and 4;o put him on inquiry as to the agent's authority to so 
 use the money. In deciding the case, the court said : "We think that 
 the form of the signature to the check was sufficient to_put the payee 
 onjnqiiiry as to the right of the agent to pay his personaTdebT out of 
 
 "the fund. The buildings and the bank were both well known, were in 
 the same city, and very near to the place where the check was received 
 by the defendant, and, had an inquiry been made at the bank or at the 
 buildings, it would have been ascertained that the account was held 
 by William Boswell, not as owner, but as agent for these plaintiffs. 
 In case a person having notice that money or property is held by an- 
 other in a fiduciary capacity receives it without inquiry from the agent, 
 in satisfaction of his personal debt, the sum or property so received 
 may be recovered by the true owner, unless the agent was authorized 
 to so dispose of it." In Cheever v. Railroad Co., 150 N. Y. 59, 67, 44 
 N. E. 701, '34 L. R. A. 69, 55 Am. St. Rep. 646, the paper was reg- 
 ular on its face, and this fact protected the plaintiff; but the court, 
 referring to "a case where an officer of a corporation makes the cor- 
 porate obligation payable to himself, and then attempts to deal with it 
 for his own benefit," said : "When paper of that character is presented 
 by the officer or agent of the corporation, it bears upon its face suffi- 
 cient notice of the incapacity of the officer or agent to issue it." 
 
 In the case at bar the appearances were not deceptive, but suggested 
 the true state of affairs, which worked a fraud on the plaintiff. 
 * * * In the case now before us the question of notice is supreme. 
 The checks, when read in the light of the facts known to the defend- 
 ant, were notice to him that he was apparently accepting money from 
 one to whom it did not belong, and this cast upon him the duty of 
 inquiring into the matter so as to see whether the facts were in ac- 
 cord with the appearances ; for, if they were, he knew that he could 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 775 
 
 not honestly take the checks. The judgment appealed from should be 
 affirmed, with costs. 
 
 FILLEBROWN et al. v. HATWARD et al. 
 (Supreme Judicial Court of Massachusetts, 1906. 190 Mass. 472, 77 N. E. 45.) 
 
 Action by Charles B. Fillebrown and others, as trustees in bank- 
 ruptcy of the Cable Rtibbef Company, against Kezia W. Hayward and 
 another. From a decree in favor of defendants, complainants appeal. 
 
 Braley, J. * * * The question, however, of most consequence 
 remains for consideration. * * * After the period of service had 
 expired to which reference already has been made, the defendant 
 having resigned her offices as treasurer and director sold her stock 
 in the corporation to one Cable, who then was not only treasurer and 
 president, but with the acquiescence of the directors also acted as man- 
 ager of the corporation with a general control of its affairs. * * * 
 Upon the purchase of this stock he made a large money payment, and 
 gave his promissory notes for the balance, so divided that one of them 
 should mature at the beginning of each month for a period of five 
 years. It was undisputed that upon these notes as they severally ma- 
 tured at least the sum of $13,000 was paid by checks drawn by him 
 from time to time on the treasury of the corporation. The books of 
 account disclose in detail the number and amount of these checks, 
 and a balance was always struck by crediting as expense a lump sum 
 sufficient to offset the debit items. In his dealings with the defend- 
 ant, although in a few instances when he caused the checks to be made 
 payable to the order of the bookkeeper who indorsed them either to 
 himself or to the defendant, and upon one occasion when the check 
 was made payable directly to her order, this course of dealing was uni- 
 formly followed. An examination properly conducted would have 
 shown that when the defendant received these monthly payments as 
 between himself and the company his account would have appeared 
 to have been constantly overdrawn, but she had no actual knowledge 
 of this condition of affairs, or that the money she was receiving came 
 clandestinely from the corporation rather than lawfully from, him. 
 The plaintiffs strenuously contend that, notwithstanding this, the form 
 of the check should have suggested to her that he was misappropriating 
 the funds of the company, and therefore she should be charged with 
 constructive notice that he was using corporate assets for the payment 
 of his maturing notes. 
 
 The early doctrine on this subject, so far as it relates to negotiable 
 paper, is found in Ayer v. Hutchins, 4 Mass. 370, 372, 3 Am. Dec. 
 232, * * * where it is said that circumstances which ordinarily 
 would excite the suspicions of a reasonably prudent and careful man 
 were sufficient to put the party receiving negotiable paper not over- 
 due upon his inquiry as to suspicious defects or infirmity of title in the 
 prior holder. * * * The rule thus formulated gave way later to 
 what has been called the modern doctrine, that neither knowledge of 
 suspicious circumstances, nor doubts as to the genuineness of the title, 
 nor gross negligence on the part of the taker, either singly or together, 
 were sufficient to defeat his recovery, unless amounting to proof of 
 want of good faith. * * * 
 
 At the time the first note of the series matured, and the first check 
 in payment was given, St. 1898, p. 492, c. 533, commonly known as 
 
776 NEGOTIABLE INSTRUMENTS (Part 3 
 
 the "Negotiable Instruments Act," now Rev. Laws, c. 73, had become 
 operative. By section 56 of the original act, now section 7Z in the 
 revision, the common-law rule shown by these decisions relating to im- 
 plied notice to the purchaser for value of negotiable paper of a defect 
 \ in the title of a previous owner was codified. The plaintiffs therefore 
 .cannot recover the proceeds of the checks unless the defendant took 
 'them in bad faith, and this inquiry is a question of fact. * * * 
 If each check was signed by him as treasurer, this of itself was not 
 such an affirmative representation as to indicate that he was acting 
 in a fiduciary capacity by which his authority was restricted and lim- 
 ited, as authority to draw and issue checks in the name of the cor- 
 poration was incidental to his office, and the holder in due course of 
 business would receive them under a presumption that they were law- 
 fully issued. * * * 
 
 While the defendant may be held to have known that by purchasing 
 her stock Cable had acquired control of the corporation, there does not 
 appear to have been any reasonable ground for an assumption on her 
 part that its business under his management was not profitable, or had 
 been impaired and then ruined, until the company's assignment for the 
 benefit of its creditors was announced. Before her retirement for at 
 least two years they had been mutually engaged in conducting its busi- 
 ness affairs, and neither during this period, or after her withdrawal, 
 is it shown that there was anything in his conduct indicating to her 
 that he was dishonest or incompetent. There was therefore no reason 
 why she should not have retained her confidence in him, and, even if 
 her former experience had made her familiar with the duties of the 
 office which he held, it could be found that she received the checks 
 without realizing the possible fact that, notwithstanding their form, 
 they were drafts upon the funds of the company in payment of her 
 own debt. It is more than probable that as note after note matured and 
 payments were thus made she gave no thought to the general trans- 
 action, except to get her pay; but, if so, she still may have inferred 
 that the money so appropriated was in payment of his own salary, or 
 otherwise was being lawfully withdrawn. * * * But while she may 
 have been incautious and unsuspecting, where others more accustomed 
 to mercantile affairs might have been mistrustful, there is no evidence 
 that at any time she was possessed of any knowledge of what undoubt- 
 edly to a certain extent was an embezzlement on his part, or, having 
 doubts' as to how he obtained the money, she deliberately decided for 
 her own advantage not to make any inquiries to ascertain why instead 
 of paying with checks drawn on a bank account of his own, or in 
 money, he used checks issued by him as treasurer, though if such 
 conduct had been shown, then it might be inferred that she ignored 
 significant facts with a purpose not to know anything more, and this 
 would have been enough to indicate that, suspecting something was 
 wrong, she intended to avoid the effect of the evidence. * * * 
 But having taken before maturity for a valuable consideration nego- 
 tiable paper which was regular upon its face, without knowledge of 
 any defect in the title, even if there might have been some circum- 
 stances which would have raised doubts in the mind of a more pru- 
 dent person, the defendant's right to retain the proceeds of the checks 
 cannot be divested without proof that she knew, or in the face of facts 
 sufficient to put her upon inquiry purposely refrained from knowing 
 of the fraud of Cable, although, if obliged to bring suit upon them. 
 
Ch. 3) WHO ARE HOLDERS IN DL'E COURSE 777 
 
 after evidence had been introduced in defense that they had been 
 fraudulently issued, the burden would have remained upon her to 
 prove that she was a holder in good faith and for value. * * * 
 Decree affirmed. 
 
 SECTION 5.— PAYEE MAY BE A HOLDER IN DUE 
 
 COURSE 
 
 The preceding sections have shown that a holder, in order to 
 acquire the advantages of being a holder in due course, must have 
 taken the instrument (1) for value; (2) before maturity; and 
 (3) in good faith. The question is sometimes presented as to 
 whether the payee who fulfills all of these conditions may be a 
 holder in due course. In the great majority of cases the payee 
 cannot fulfill all three of these requirements, because the payee 
 will know of the defense possessed by the person with whom he 
 dealt. If the payee obtained an instrument by fraud, or without 
 consideration from the maker, clearly the payee cannot be a holder 
 in due course, for he is not a taker in good faith. But it is possible 
 to find a situation where the payee does fulfill all three require- 
 ments, and the new question then arises as to whether it is possible 
 for the payee to be regarded as a holder in due course. It is pos- 
 sible to argue, that no person can be a holder in due course unless 
 such person acquired title from a holder. The payee does not ac- 
 quire title from a holder. The answer to this question all de- 
 pends on whether or not a payee can be regarded as a holder, be- 
 cause section 52 of the Negotiable Instruments Law provides that 
 a holder in due course is a holder who has taken the instrument un- 
 der the conditions which we have heretofore analyzed. The fol- 
 lowing sections of the act are involved : 
 
 Section 191, clause 7. "Holder" means the payee or indorsee of 
 a bill or note, who is in possession of it or the bearer thereof. 
 
 This section seems to put an end to the problem, for it express- 
 ly says that the payee is a holder. But we have already been made 
 familiar with the situation, which frequently arises in the law, that 
 the apparent meaning of one section of a statute may be cut down 
 or even expanded by other sections of the same act or of a differ- 
 ent act, and we have that situation here. 
 
 The first of the two sections which may affect the meaning of 
 the word "holder," as defined in section 191, is as follows: 
 
 Section 16. Every contract on a negotiable instrument is in- 
 complete and revocable until delivery of the instrvunent for the 
 purpose of giving effect thereto. As between immediate parties, 
 and as regards a remote party other than a holder in due course, 
 the delivery, in order to be effectual, must be made either by or 
 under the authority of the party making, drawing, accepting or 
 iiidorsing, as the case may be; and in such case the delivery may 
 be shown to have been conditioned or for a special purpose only, 
 and not for the purpose of transferring the property in the instru- 
 
778 NEGOTIABLE INSTRUMENTS (Part 3 
 
 merit. But where the instrument is in the hands of a holder in 
 due course, a valid delivery thereof by all parties prior to him so 
 as to make them liable to him is conclusively presumed. And 
 where the instrument is no longer in the possession of a party 
 whose signature appears thereon, a valid and intentional de- 
 livery by him is presumed until the contrary is proved. 
 
 This section makes the defense of "no delivery" available be- 
 tween immediate parties and remote parties other than holders in 
 due course. May the payee be a holder in due course so that the 
 defense of "no delivery" or of conditional delivery of a completed 
 instrument cannot be made successfully against him? 
 
 To be a holder in due course one must be a holder. A payee is a 
 holder by section 191. But section 16 states that the defense of 
 "no delivery" or of "conditional delivery" is available between 
 immediate parties. Therefore our inquiry narrows down to this : 
 Is the payee one of the immediate parties spoken of in section 16? 
 If so, section 16 controls section 191 to this extent. This problem 
 is taken up in the case following. 
 
 There is a second type of situation, wherein it is not altogether 
 clear whether a payee is or is not a holder in due course. This 
 question, which is also discussed in the case immediately follow- 
 ing, concerns instruments which were incomplete at the time 
 they were intrusted by the maker or drawer to some person for 
 delivery to the payee. Suppose, for illustration, that the drawer 
 of a check inserts the name of a payee, signs his name as drawer, 
 and leaves the amount blank, and intrusts the instrument to the 
 agent of the drawer and authorizes this agent to fill up the instru- 
 ment for a specified amount. Then suppose the agent so intrusted 
 with the instrument fills up the instrument for an amount in ex- 
 cess of the authority given, and such agent delivers the instrument 
 to the payee, obtains the money and fraudulently converts it. May 
 the *payee recover the full amount from the drawer — assuming, of 
 course, that the drawer was successful in stopping payment at the 
 drawee bank. This question involves section 14 of the Negotiable 
 Instruments Law, which provides as follows: 
 
 Where an instnunent is wanting in any material particular, the 
 person in possession thereof has a prima facie aiuthority to com- 
 plete it by filling up the blanks therein. And a signature on a 
 blank paper delivered by the person making the signature in order 
 that the paper may be converted into a negotiable instrument oper- 
 ates as a prima facie authority to fill it up as such for any amount. 
 In order, however, that any such instrument when completed may 
 be enforced against any person who became a party thereto prior 
 to its completion, it must be filled up strictly in accordance with 
 the authority given and within a reasonable time. But if any 
 such instrument, after completion is negotiated to a holder in due 
 course, it is valid and effectual for all purposes in his hands, and 
 he may enforce it as if it had been filled up strictly in accordance 
 with the authority given and within a reasonable time. 
 
Ch. 3) WHO AEE HOLDERS IN DUE COURSE 779 
 
 This section makes it perfectly clear that a holder who is not a 
 holder in due course cannot recover from prior parties free from 
 the defense that the instrument was filled up in excess of author- 
 ity ; that is, if there was authority to fill up for $500, and the in- 
 strument were filled up for $1,000, a holder not in due course could 
 recover no more than $500, but the probabilities are that such 
 holder not in due course could recover nothing in a suit on the 
 instrument, because the section states that in order that any such 
 instrument when completed may be enforced * * * it must be 
 filled up strictly in accordance with the authority given. It would 
 be enforcing the instrument to allow the holder not in due course 
 to recover $500. And it is just that, which the section states can- 
 not be done. However, if the holder not in due course had no 
 actual knowledge of the fraud there is every reason to suppose that 
 he could recover $500 on the original debt; that is, upon the the- 
 ory that he had paid out $500 at least for the use of the defendant, 
 drawer. v 
 
 One further observation is necessary before taking up the par- 
 ticular question : May the payee be a holder in due course of an 
 instrument delivered in an incomplete state? That point is this: 
 The last clause of section 14 states that if any such instrument, 
 after completion, is negotiated to a holder in due course, it is valid, 
 etc.; that is, the section is stating that a transferee of the instru- 
 ment cannot be a holder in due course, if such transferee took the 
 instrument before completion, or at the time the instrument was 
 being completed. In order to be a holder in due course, he must 
 have taken the instrument after it was filled up; that is, under 
 circumstances where he would not know that it was intrusted by 
 the maker or drawer to the agent in an incomplete state. The law 
 was otherwise on this point before the Negotiable Instruments 
 Law was adopted. Before the act, a person who was in all other 
 respects a holder in due course did not lose that position merely 
 because he saw the instrument filled up in his presence, or knew 
 that it had been filled up after the drawer intrusted it to his agent. 
 The Negotiable Instruments Law adopted the rule on this point 
 which had been adopted by the English courts. 
 
 Our question, then, narrows down to this: Assuming that the 
 payee took the instrument for value, before maturity, and in good 
 faith — i. e., without knowledge that it was entrusted by the maker 
 or drawer in an incomplete state— may such a payer be a holder 
 in due course? The answer to this question depends upon the 
 subordinate question : Is it possible to negotiate an instrument to 
 the payee? Notice that the last sentence of section 14 speaks of 
 negotiating an instrument to a holder in due course ; that is, if the 
 instrument got into the hands of the payee in any other method 
 than by negotiation, it would seem that the payee could not be a 
 holder in due course. Generally it is true that we use the word 
 "negotiate" to describe a transfer of legal title to a negotiable in- 
 strument by the payee to an indorsee, or by one indorsee to an- 
 
780 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Other indorsee. But may the word "negotiate" be used to describe 
 the act of delivery by a maker or drawer to the payee? 
 
 Section 30. An instrument is negotiated when it is transferred 
 from one person to another in such manner as to constitute the 
 transferee the holder thereof. 
 
 Section 191, clause 10. "Issue" means the first delivery of the 
 instrument, complete in form, to a person who takes it as a holder. 
 
 We now have two questions before us: (1) May the payee 
 be a holder in due course of an instrument which was in a complete 
 form when it left the hands of the maker or drawer? (2) May the 
 payee be a holder in due course of an instrument which at the time 
 it left the hands of the maker or drawer was incomplete in some 
 material respect? Obviously, in both of these cases, the maker 
 or drawer must not have dealt face to face with the payee. There 
 will always be some person to whom the instrument was first 
 intrusted by the maker or drawer, and this person at a later time 
 dealt with the payee. 
 
 The next case discusses these two questions. 
 
 LIBERTY TRUST CO. v. TILTON. 
 
 (Supreme Judicial Court of Massachusetts, 1914. 217 Mass. 462, 
 105 N. E. 605, L. R. A. 1915B, 144.) 
 
 Action by the Liberty Trust Company against Frank B. Tilton. 
 Judgment for plaintii? in the municipal court of Boston. From an or- 
 der dismissing the report to the Appellate Division, plaintiff appeals. 
 
 RuGG, C. J. One Perley G. Tilton signed a note to the order of 
 the plaintiff and presented it complete in every respect except its 
 amount, which was blank, to the defendant Frank B. Tilton, who for 
 the accommodation of Perley G. Tilton signed it in blank on the back 
 upon the express representation and agreement by Perley G. Tilton 
 that the defendant's signature should not be operative nor be deliver- 
 ed unless and until one Leonard Grant also should sign on the back 
 and that then it should be filled out for $200, and no more. Leonard 
 Grant did not sign the instrument, the amount of $400 was filled in and 
 the instrument, without the knowledge or authority of the defendant 
 and in violation of the agreement between him and Perley G. Tilton, 
 was delivered complete in form to the plaintiff, the payee, who took it 
 for value in good faith and without knowledge of the agreement be- 
 tween the maker and defendant. 
 
 The question is whether the defendant is liable to the plaintiff. 
 This point has not been decided in Massachusetts. 
 
 It is plain that prior to the enactment of the Negotiable Instruments 
 Act the plaintiff could recover. The payee could be a bona fide holder 
 for value without notice. * * * The signing in blank authorized the 
 filling of the blank by the one to whom the signer delivered it, although 
 the specific directions might not have been followed. Androscoggin 
 Bank v. Kimball, 10 Cush. 373. This is the general common-law rule. 
 * * * But although the point now in issue has not been decided 
 expressly in this commonwealth, in principle it is covered by Boston 
 Steel & Iron Co. v. Steuer, 183 Mass. 140, 145, 66 N. E. 646, 97 Am. 
 St. Rep. 426. In that decision this case was put : The maker handed 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 781 
 
 a check complete in every respect to her husband upon express in- 
 structions to deliver to the payee on her own account, but the check 
 fraudulently was handed by the husband to the payee in payment of a 
 debt due from him to the payee, and it was accepted in good faith by 
 the payee. It was held that the payee under these circumstances was 
 a holder in due course. * * * The point there decided in substance 
 was that where the instrument when signed by the party sought to be 
 charged was complete as to its form, a payee might be a holder in due 
 course, although the delivery was contrary to the instructions. 
 
 The effect of that decision was to hold that the words "immediate 
 parties" as used in section 33, viz., "as between immediate parties, and 
 as regards a remote party other than a holder in due course, the de- 
 livery, in order to be effectual, must be made either by or under the 
 authority of the party making, drawing, accepting or indorsing, as 
 the case may be ; and in such case the delivery may be shown to have 
 been conditional, or for a special purpose only, and not for the pur- 
 pose of transferring the property in the instrument," did not necessari- 
 ly include the payee. Hence, "immediate parties" in that connection 
 excludes a party who is a holder in due course. In such case these 
 words must be confined to parties who are "immediate" to the condi- 
 tions or limitations placed upon the delivery in the sense of knowing 
 or being chargeable with notice of them._A_payee_who_is^a holder in 
 4ue course is not an immediate party in the sense of that section. This 
 result tollows'from holding that a payee may be a "holder in due 
 course" as defined in section 52 because he could become such holder 
 only on condition "(4) that at the time it was negotiated to him he 
 had no notice of any infirmity in the instrument." Thus he could not 
 be such holder unless the paper was "negotiated" to him. Therefore 
 the word "negotiated" was held to describe the means by which a 
 payee might acquire a note. It was given its common legal significance 
 of concluded by bargain or agreement. * * * a promissory note 
 complete as to form and payable to a named person may be negotiated 
 to that person by being sold to him or taken by him for value. This is 
 the common and popular signification of the word. It was the sense 
 in which it was used in the law merchant prior to the Negotiable In- 
 struments Act. Its meaning has not been changed by the act. * * * 
 
 The soundness of that decision in this respect is confirmed by other 
 provisions of the act. Negotiation is defined by section 30, whereby 
 it is provided that "an instrument is negotiated when it is transferred 
 from one person to another in such manner as to constitute the trans- 
 feree the holder thereof.' "Holder" is defined in section 191 to be "the 
 payee or indorsee of a bill or note who is in possession of it." The re- 
 maining sentence of section 30, viz., "If payable to bearer it is nego- 
 tiated by delivery ; if payable to order it is negotiated by the indorse- 
 ment of the holder completed by delivery," was not intended to in- 
 clude all the ways in which an instrument might be negotiated, nor to 
 restrict the comprehensive terms of the preceding sentence. Plainly 
 under these two sections a negotiable instrument payable to a named 
 payee is negotiated when the physical possession of' it is handed for 
 value to the person named as payee. One effect of the last sentence 
 of section 30 is to describe the method by which the person who first 
 becomes holder may pass title. It does not comprehend all the ways 
 by which an instrument may be negotiated. 
 
 The word "negotiate" being defined thus in the act, and being given. 
 
782 NEGOTIABLE INSTRUMENTS (Part 3 
 
 a definition in conformity to that attached to it by the common law 
 before the passage of the act, it must be held to have the same mean- 
 ing throughout the statute in the absence of a strongly countervailing 
 context requiring a different signification. There is nothing in sec- 
 tion 14 to indicate that it there was used in aiiy different sense. * * *, 
 
 The defendant, not otherwise a party to the instrument, having 
 signed in blank before delivery, became liable as indorser to the payee. 
 Section 64. 
 
 It requires no discussion to show that under the circumstances here 
 disclosed section 32 of the act has no bearing. The defendant trans- 
 ferred actual possession of the incomplete instrument to Perley G. Til- 
 ton. Thus it was "delivered" within the meaning of that section so far 
 as the defendant was concerned. Section 191. 
 
 The conclusion follows that the payee named in a promissory note, 
 who purchases it complete in form for value before maturity, in good 
 faith and without notice of any infirmity in title or otherwise, is a 
 person to whom it has been negotiated as holder in due course, not- 
 withstanding it was signed in blank by the party to be charged, whose 
 instructions as to the filling of blanks and the delivery have not been 
 followed by the one to whom it was intrusted by him in its incomplete 
 state. * * * 
 
 The conclusion here reached is at variance also with Vander Ploeg 
 V. Van Zuuk, 135 Iowa, 350, 112 N._W. 807, 13 L. R. A. (N. S.) 490, 
 124 Am. St. Rep. 275. But that decision, rendered since Boston Steel 
 & Iron Co. V. Steuer, 183 Mass. 140, 66 N. E. 646, 97 Am. St. Rep. 
 426, recognizes its inconsistencies with our case. Desirable as is uni- 
 formity of interpretation touching the Negotiable Instruments Act by 
 courts of the several states where it is in force, * * * -we remain 
 content with the principles laid down in the Steuer Case. The rational 
 application of that principle decides this case. * * * 
 
 It was declared both in Herdman v. Wheeler and in Vander Ploeg 
 v. Van Zuuk that the judges were "very reluctant to come to the con- 
 clusion" there reached. We feel that the result to which we are led 
 by a chain of reasoning not developed in either of those cases is in 
 conformity with the terms of the act, and, being in accordance with the 
 common law, is highly desirable as not upsetting the general under- 
 standing and practice of the commercial world. 
 
 No error is shown upon the record. Order dismissing report af- 
 firmed. 
 
 - For a moment, note the business situation involved in the preced- 
 ing case. Here is a large business establishment. Its disburse- 
 ments by checks run into the hundreds or thousands of dollars 
 every day, or week, or month. The board of directors may have 
 delegated authority to but one man to sign the company's name to 
 checks. Doubtless such person is a thoroughly trustworthy per- 
 son, probably heavily bonded. However, such person relies upon 
 information from o'ther employees as to when obligations are 
 payable. Perhaps they bring the statements received from the 
 company's creditors to his office, and perhaps the checks, after they 
 are drawn, are delivered over to these or other employees to be 
 mailed or delivered. The points which have just been illustrated 
 
Ch.3) WHO ARE HOLDERS IN DUB COURSE 783 
 
 show how the fraudulent agent may make way with the instrument 
 in his own interest, and the concern which employs him will 
 stand the loss. If the instrument is a completed instrument, pay- 
 able, let us say, to P. or order, and the agent is directed to deliver 
 this check or note to P. in payment of his employer's debt due 
 P., we have seen that, if the agent transfers this instrument to P. 
 in payment of his own debt due P., the law regards P. as a' holder 
 in due course ; that is, that the agent's debt was paid by this check 
 and the employer's debt was not paid. Or it is possible that the 
 agent owed no debt at all to P., but transferred the instrument to 
 P. and obtained cash for it. P. is still a holder in due course. 
 Where an instrument is in form payable to bearer, it is much easier 
 for a fraudulent employee to convert the instrument; but we see 
 here that it is possible for an agent in possession of an instrument 
 payable to a payee or order, complete in all respects, to make a 
 fraudulent disposition of it without forging the indorsement of 
 the payee. All he need do is to transfer to the payee for some 
 purpose of his own, and the law protects the payee, assuming, of 
 course, that in all other respects the payee took in good faith. 
 
 However, it is not nearly so common for the fraudulent agent of 
 the drawer to make a fraudulent disposition of a completed in- 
 strument payable to the order of a named payee, because, after all, 
 it is fairly difficult for the fraudulent agent thus to deal with the 
 payee. It is much more common for frauds to be practiced upon 
 drawers of negotiable instruments which were intrusted by the 
 drawer with his agent in incomplete form, who fills up the instru- 
 ment in excess of authority and then fraudulently converts. It 
 is easy for the person who signs the checks to affix his signature, 
 and then to trust to his employee to fill up the instrument for the 
 proper amount; but it happens quite frequently that the trust is 
 abused. The probabilities are that an employee who has suc- 
 ceeded in perpetrating such a fraud once will do so frequently. 
 ' It is not possible to prevent all frauds, but a person who is charg- 
 ed with the responsibilities of disbursing large sums of money 
 should be alive to the possibilities for the perpetration of fraudu- 
 lent schemes, and, at least, not court them by making the oppor- 
 tunity for success easier. 
 
 SECTION 6.— TRANSFEREE FROM A HOLDER IN DUE 
 COURSE IS A HOLDER IN DUE COURSE 
 
 N. I. Li., Section 58. In the hands of any holder other than a 
 holder in due course, a negotiable instrument is subject to the 
 same defenses as if it were non-negotiable. But a holder who 
 derives his title through a holder in due course and who is not 
 himself a party to any fraud or illegality affecting the instnunent, 
 has all the rights of such former holder in respect of all parties 
 prior to the latter. 
 
784 ^ NEGOTIABLE INSTRUMENTS (Part 3 
 
 INHABITANTS OP THE TOWNSHIP OF MONTCLAIR v. EAMSDELL. 
 
 (Supreme Court of the United States, 1883. 107 V. S. 147, 2 Sup. Ct. 391, 
 
 27 L. Ed. 431.) 
 
 Action brought by defendant in error, Ramsdell, on bonds of the 
 Township of Montclair, issued in aid of a railroad company. Verdict 
 and judgment for plaintifJ, in the sum of $21,506.49. Defendant 
 brings this writ of error. 
 
 Harlan, j. * * * Counsel asked the court to give, but the court 
 refused, the following instructions to the jury: "If the evidence sat- 
 isfies the jury that there were circumstances of fraud or illegality in 
 the inception of the bonds, or in the circumstances under which they 
 were issued and disposed of by the commissioners then the plaintiff 
 cannot recover on the bonds without some proof that he purchased 
 them for value, or gave some consideration for them." * * * 
 
 It is not necessary to extend this opinion by a review of the adju- 
 dications in the American and English courts to which our attention 
 has been called, or to deduce therefrom a general rule to govern 
 every case in which it may be claimed that the proof upon the part 
 of a defendant in a suit upon a negotiable security, requires the holder, 
 before he can recover, to show that he paid value. Without entering 
 upon a critical examination of the authorities upon this important 
 question of commercial law, and assuming, for the purposes of this 
 case merely, that the proof, of the exclusion of which the Township 
 complains, was competent evidence for some purposes under the plea 
 of non est factum, we are of opinion that the instruction in question 
 ought to have been refused. Its rejection was proper for the reason, 
 if there were no other, that it required the jury, if they believed either 
 fraud or illegality in the inception of the bonds to have been establish- 
 ed, to find for the Township, unless the plaintiff proved that he pur- 
 chased for value or gave some consideration for them. Such is not 
 law ; for, if any previous holder of the bonds in suit was a bona fide 
 holder for value, the plaintiff, without showing that he had himself 
 paid value, could avail himself of the position of such previous holder. 
 In Byles on Bills, 119, 124, it is correctly said that "If any intermediate 
 holder between the defendant and the plaintiff gave value for the bill, 
 that intervening consideration will sustain the plaintiff's title." In 
 Hunter v. Wilson, 19 L. J. (N. S.) 8, the plea was that the bill of 
 exchange was drawn by a named person, at the request and for the 
 accommodation of the defendant, without any consideration or value 
 whatever, and that it was indorsed by that person without any con- 
 sideration or value given by the plaintiff for such indorsement either 
 to the defendant or to said person, or to any other person whatsoever. 
 It was held that the plea ought to have contained a statement equiva- 
 lent to an allegation, that none of the previous parties to the bill had 
 given value for the indorsement. One of the judges remarked that 
 "Some party to the bill may have given value for it, so as to vest a 
 valid title in the plaintiff. We cannot tell through how many hands it 
 may have passed." It is not necessary in this case to hold that the 
 plea in such a case should aver that no previous holder of a negotiable 
 security paid value. But the case last cited is authority for the 
 proposition that the present plaintiff may be protected by showing 
 that some previous holder paid value. * * * 
 
 The judgment is affirmed. 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 785 
 
 MILES et al. V. DODSON. 
 
 (Supreme Court of Arkansas, 1912. 102 Ark. 422, 144 S. W. 908, 
 50 L. R. A. [N. S.] 83.) 
 
 Action by C. W. Dodson against F. W. Miles and others. From a 
 judgment for plaintiff, defendants appeal. 
 
 Frauenthal, J. This was an action upon a note originally insti- 
 tuted in the circuit court by C. W. Dodson against F. W. Miles and 
 the other makers thereof. The note is a negotiable instrument for 
 $575.25, dated August 20, 1903, and due January 1, 1905, payable to 
 the order of E. H. Smith. The plaintiff claimed that he was an inno- 
 cent purchaser of the note. The defendants alleged payment of the 
 note and that plaintiff had acquired it after its maturity and after 
 notice that it had been paid. * * * 
 
 It is urged by counsel for defendants that the plaintiff purchased the . 
 note from the bank in February, 1905, which was after its maturity, 
 and, on that account, was not an innocent purchaser thereof, but took 
 it subject to all defenses that the makers had against the original 
 payee, Smith, and they cite to sustain this contention Nisbett v. Brown 
 & Norton, 30 Ark. 590, and Sorfells v. McHenry, 38 Ark. 127. But , 
 under the facts of this case we do not think that the makers can resist , 
 the payment of this note by any defense which they might interpose { 
 to it in the hands of the original payee, even if it should be held that ; 
 the plaintiff obtained the note from the bank after its maturity. The' 
 note had been transferred by the payee, Smith, to Dodson & Son in ;' 
 August, 1903, long prior to its maturity. If Dodson & Son were aty 
 that time holders thereof for value in the due course of business, then 
 any subsequ£nt_purchaser thergaffrom them, even though he obtained 
 it after_matuntx,_ would be protected against any defense which the 
 inakers might have or be entitled to assert against the original payee. 
 As is said in 1 Daniel on Negotiable Instruments, p. 801 : "As soon 
 as the paper comes into the hands of a holder unaffected by any defect, 
 its character as a negotiable security is established ; and the power of 
 transferring it to others with the same immunity which attaches in 
 his own hands is incident to his legal right and necessary to sustain 
 the character and value of the instrument and to protect the bona fide 
 holder in its enjoyment." And the author further says : "If the hold- 
 er acquired the paper after maturity from one who became a bona 
 fide holder fc)r value and without notice before maturity, he is then 
 protected by the strength of his transferor's title." * * * 
 
 The decree is, accordingly, affirmed.' 
 
 SECTION 7.— RIGHTS OF THE REACQUIRER 
 
 N. I. L., Section 50. Where an instrument is negotiated back 
 to a prior party, such party may, subject to the provisions of this 
 act, reissue and further negotiate the same. But he is not entitled 
 to enforce payment thereof against any intervening party to whom 
 he was personally liable. 
 
 ' B.& B.Bus-Law— 50 
 
T86 NEGOTIABLE INSTRUMENTS (Part 3 
 
 N. I. L., Section 58. * * * A holder who derives his title 
 through a holder in due course, and who is not himself a party to 
 any fraud or illegality affecting the instrument, has all the rights 
 of such former holder in respect of all parties prior to the latter. 
 
 N. I. L., Section 121. Where the instrument is paid by a party 
 secondarily liable thereon, it is not discharged; but the party so 
 paying it is remitted to his former rights as regards all prior 
 parties and he may strike out his own and all subsequent indorse- 
 ments, and again negotiate the instrument, except (1) where it is 
 payable to the order of a third person, and has been paid by the 
 drawer; (2) and where it was made or accepted for accommoda- 
 tion, and has been paid by the party accommodated. 
 
 The position occupied by a reacquirer of a negotiable instru- 
 ment is not definitely fixed by the Negotiable Instruments Law. 
 A reacquirer certainly may not recover from any subsequent party 
 for the breach of the same obligation which the reacquirer by his 
 indorsement or delivery owed to such party. These obligations 
 simply cancel each other. This rule thus to prevent circuity of ac- 
 tion is recognized by section 50. The principal difficulty arises 
 in connection with sections 58 and 121. Section 58 prevents the 
 payee, who obtained the instrument subject to a defense as. 
 against himself, from bettering his position- by negotiating to a 
 holder in due course and~then repurchasing, but the section permits 
 any person who was not himself a party to any fraud or illegality 
 to succeed to the position of the holder in due course. A holder, 
 who was not a party to the fraud might, however, have such knowl- 
 edge of the defense that he would not be a holder in due course. 
 By passing title to a holder in due course and reacquiring, does 
 he become a holder in due course? Under the common law 
 he did not, by such reacquisition, become a holder in due course, 
 and, under section 121, which remits such party to his former 
 rights, he could not recover as a holder in due course. Since he is 
 not "a party to any fraud" but is merely a party with notice of 
 the fraud of a predecessor in title, under section 58, it would seem 
 that he would be a holder in due course. Most of the cases under 
 the act have held that a reacquirer, who, because of notice of fraud, 
 was not a holder in due course at the time he negotiated the in- 
 strument, does not succeed to the rights of the holder in due course 
 from whom he repurchased. But there are some cases, as for ex- 
 ample where the reacquirer originally was a donee from the payee, 
 or an accommodation indorser, where it would seem that the re- 
 acquirer should be deemed a holder in due course if he purchased 
 from one who occupied that position.^ 
 
 1 See the excellent discussion of these problems by Professor Chafee, In 
 his article, "The Reacquisition of a Negotiable Instrument by a Prior Party," 
 .21 Columbia Law Review, 538. 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 787 
 
 ARAGON COFFEE CO. v. ROGERS. 
 
 (Supreme Court of Appeals of Virginia, 1906. 105 Va. 51, 52 S. B. 843, 
 S Ann. Cas. 623.) 
 
 Action by Alfred M. Rogers against J. W. Harrison, doing business 
 under the name and style of Aragon Coffee Company. There was a 
 judgment for plaintiff, and defendant brings error. * * * 
 
 Keith, P. J. W. Harrison, doing business under the name and style 
 of the Aragon Coffee Company, of Richmond city, purchased of Hills 
 Bros. Co., a corporation in the city of New York, 500 bags of coffee, 
 for which it made its negotiable note for $3,727.02, dated January 11, 
 1904, payable four months after date to Hills Bros. Co., or order, at 
 Planters' National Bank, Richmond, Va. Before the maturity of 
 this note it was indorsed to the National Park Bank of New York, 
 who it is conceded acquired it in the ordinary course of business, and 
 was an innocent holder of it for value and without notice. When the 
 note ffell due, payment was demanded and refused, and the note was 
 duly protested. On November 14, 1904, this note was indorsed to 
 Alfred M. Rogers, without recourse, who paid to the National Park 
 Bank $3,841.69, the full amount represented by the note, principal, 
 and interest. 
 
 In March, 1905, Rogers sued the Aragon Coffee Company upon this 
 note. The defendapt-pleaded nil debet .ani a plea of setj^off, in which 
 he avers that iie-purchaseJ 61 Hills Bros. Co. a certain lot of coffee, 
 which was represented to be sound and as good. * * * The plea 
 then alleges that the coffee was not sound and free from defects, but 
 was unsound, and that both the sample and coffee had been tampered 
 with and adulterated, but so skillfully and cunningly that the defendant 
 did not discover the fraud and could not have discovered it without 
 such a careful examination as no man would make unless he had reason 
 to suspect the perpetration of a fraud. * * * The plea further avers 
 that Hills Bros. Co. is the real plaintiff in the suit, and that it has 
 formed an unlawful combination with the National Park Bank of 
 New York and Alfred M. Rogers, the object of which was wrongfully 
 and unlawfully and by deceit to cut defendant off and prevent him 
 from showing his rightful and lawful set-offs and equities against 
 said note. In conclusion he claims to have been damaged by the fraud 
 practiced upon him in the sum of $1,987.10, which sum he seeks to 
 have set off against the note, and the balance of $1,740.92 was brought 
 into court, which the defendant stated he was ready to pay to the 
 plaintiff. * * * 
 
 We observe in limine that there is no occasion to discuss the trans- 
 action as between the Aragon Coffee Company and Hills Bros. Co. 
 The evidence is conclusive to show a bald and iniquitous fraud. The 
 only question which we need to consider is whether or not the parties 
 before the court occupy such a relation to the transaction as that, un- 
 der the law merchant, we must shut our eyes to the truth and close the- 
 door upon all investigation. 
 
 The National Park Bank, being the holder for value and without 
 notice, could transmit a complete title to a third person, even though 
 that third person had knowledge of the facts which would have de- 
 feated a recovery upon the note in the hands of the payee ; the general 
 rule being that, if a person taking with notice purchase from one 
 without notice, he is entitled to stand in the latter's shoes and take 
 
788 NEGOTIABLE INSTRUMENTS (Part 3 
 
 shelter under his good faith. If it were not so, the bona fide purchas- 
 er without notice might be unable to dispose of the property, and thtis 
 its value in his hands be materially deteriorated. A bona fide holder, 
 it is said, is entitled to have the whole world for his market. 
 / But there is an exception to this rule, which is well established : 
 If the payee sell negotiable paper to an innocent third party and repur- 
 chase it, he does not thereby acquire any better right against the maker 
 than he possessed in the first instance. * * * 
 
 Judge Cooley, in Kost v. Bender, 25 Mich. 515, says : "As a general 
 rule, the bona fide holder of negotiable paper has a right to sell the 
 same, with all the rights and equities attaching to it in his own hands, 
 to whoever may see fit to buy of him, whether such purchaser was 
 aware of the original infirmity or not. Without this right he would 
 not have the full protection which the law merchant designs to afford 
 him, and negotiable paper would cease to be a safe • and reliable me- 
 dium for the exchanges of commerce. For, if one can stop the nego- 
 tiability of paper against which there is no defense, held by another, 
 it is obvious that an important element in its value is at once taken 
 away. Bu^ this rule has never been applieito a puxchasejbyjhe^orig- 
 inal_£ayee, and it is not essential to the protection of the innocent in- 
 "~dbrsee that it should be. It cannot be very important to him that 
 there is one person incapable of succeeding to his equities, and who 
 consequently would not be likely to become a purchaser. If he may 
 sell to all the rest of the community, the market value of his security 
 is not likely to be affected by the circumstance that a single individual 
 cannot compete for its purchase — especially when it is considered that 
 the nature of the negotiable securities is such that their market value 
 is very little influenced by competition. Nor is there any rule or 
 principle of law that would be violated by permitting the maker to 
 set up his defense against the payee, when he becomes the indorsee, 
 with the same effect that he might have done, before it had been sold 
 at all ; nor is there any valid reason against it." 
 
 In this case, then, it was not sufficient for the defendant to show 
 that there was fraud in the transaction between him and Hills Bros. 
 Co., for, notwithstanding that fraud, the National Park Bank, being 
 a bona fide holder of the note, could transmit, and Rogers, the plaintiif, 
 could acquire, a title to the note, free from all antecedent equities, 
 unless there was evidence tending to prove that Rogers purchased, 
 not for himself, but for the original payee in the note. Hills Bros. Co., 
 and that this company and not Rogers was the actual beneficial plain- 
 tiff. We will therefore consider the evidence in the light of these 
 principles. * * * 
 
 [After considering the evidence the court continued:] The case 
 under consideration is, in our judgment, far stronger to show a col- 
 lusive purchase upon the part of Rogers than the one cited. The facts 
 which are set forth in this opinion, coupled with the conduct of the 
 plaintiff when upon the stand as a witness, inexplicable upon any 
 reasonable hypotheses, except that he feared to disclose the truth and 
 preferred to take the chance of success by permitting the court and 
 jury to grope for facts in the dark, when a word from him giving a 
 rational account of his conduct would have dispelled all doubt, war- 
 ranted the jury in believing that the National Park Bank, being pos- 
 sessed of funds belonsrinp' to Hills Bros. Co., which company was ul- 
 timately liable to it for the note, concluded not to risk a lawsuit but 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 789 
 
 to look to its immediate indorser, Hills Bros. Co., and so informed that 
 company, which then hatched the scheme of a purchase of. the note 
 by Rogers, and thus hoped to consummate its fraud. 
 
 We think, upon the whole case, it was for the jury to say whether 
 Rogers was a purchaser in good faith or was conniving with Hills 
 Bros. Co., to purchase the note as their agent, in order to defeat the 
 equities of the Aragon Coffee Company. It follows that the judgment 
 upon the demurrer should have been in favor of the defendant, and 
 this court will enter such judgment as the circuit court ought to have 
 rendered. 
 
 RATCLIFFE V. COSTELLO et al. 
 (Supreme Court of Appeals of Virginia, 1915. 117 Va. 563, 85 S. E. 469.) 
 
 Action by G. IVLJRatcliffe^sjndorsee from the payee N. B. Bullock, 
 against Robert Costello anJ^nother as makers of a note. There was a 
 judgment for defendant, and plaintiff brings error. 
 
 Keith, p. * * * We have searched the record in this case dili- 
 gently, and have been unable to find a scintilla of evidence proving, or 
 tending to prove, that Ratclifife had actual knowledge of any infirmity 
 or defect, or knowledge of such facts that his action in taking the in- 
 strument amounted to bad faith, but on the contrary^e_stood^ before 
 the court, by evidence wholly uncontradicted, as a holder in due 
 course of an instrument complete upon its face, wKich hadTIOt been 
 dishonored, and that he took it in good faith and for value, without no- 
 tice of any infirmity in the instrument or defect in the title of the per- 
 son negotiating it. 
 
 There seems to have been some misapprehension with respect to the 
 case of Aragon Coffee Co. v. Rogers, 105 Va. 51, 52 S. E. 843, 8 Ann. 
 Cas. 623. It will be recalled that Ratchffe, after he purchased the 
 notes, sold them with a guaranty to his vendees that they should be 
 paid, and that in order to keep faith with them he took the notes back 
 after the first one was protested. It is true that when the notes carne^ 
 back to his possession they came under circumstances which would 
 have imputed to him knowledge of the infirmities in the instruments, 
 but that knowledge did-Bo t relate back so as to impair Jiis original 
 position as a purchaser forvalue and^witKoiiOToSce; In the"ca^e of 
 Aragon Coflfee Company exactly the converse of these facts existed. 
 The original payee in that case was the party guilty of a gross fraud, 
 as a result of which the negotiable note in that case was given. He 
 indorsed it to an innocent holder and afterwards repurchased it; 
 and the court held that if a payee sells a negotiable instrument to an 
 innocent third party and then repurchases it, he does not thereby ac- 
 quire a better title against the maker than he had in the first instance. 
 We refer to that case and the authorities there cited as not at all in 
 conflict with the position of the plaintiff in error in this case. * * * 
 
 The judgment of the circuit court must be reversed, the verdict 
 set aside, and the cause remanded for a new trial to be had not in con- 
 flict with the views herein expressed. 
 
790 NEGOTIABLE INSTRUMENTS (Part 3 
 
 COMSTOCK V. BUCKLEY et al. 
 
 (Supreme Court of Wisconsin, 1910. 141 Wis. 228, 124 N. W. 414, 
 135 Am. St. Rep. 34.) 
 
 Action upon a promissory note, $2,500, dated April 21, 1900, signed 
 by J. O. & W. S. Buckley, a copartnership, payable to the order of 
 "Thomas F. Somers, at six months date, with 6 per cent, interest, and 
 indorsed by Thomas F. Somers, Charles Buehner, John Graf, Peter 
 J. Somers, John Zilg, C. S. Otjen, H. F. Bosworth, and W. E. Haskin 
 in the order aforesaid. It appeared that said note, so indorsed without 
 any consideration to the indorsers, but for the accommodation of a 
 mining Company in which they were all concerned and for which the 
 two Buckleys -were financial agents, was delivered to Henry Herman, 
 ,^ as a note broker, to negotiate and pay over the proceeds to said agents ; 
 •that said Herman during the life of said note_di4^isp(jS£_Qf_the^ same 
 [fraudulentlyj_as claimed, to one Wight, an innocenTholderPwHo paid 
 [•'value toTlerman, and concededly obtained good title to the note. 
 ' Herman, it is claimed, applied the proceeds to - his own use without 
 informing defendants that he had disposed of the note. At maturity 
 the note was protested for nonpayment, and shortly thereafter, Octo- 
 ber 25, 1900, -was^paid byjlenry Herman and returned to his_posses- 
 sion. Thereafter, November 27, 1900, Hefman~sold sai33ote Tor 
 value approximating its face to the plaintiff, who had notice of its 
 dishonor, the certificate of protest being attached and who at the same 
 time entered into an agreement with Herman for a definite date of 
 extension of the time of payment. At the close of the trial, upon these 
 facts, the court directed a verdict for the plaintiff for the full amount. 
 From judgment on such verdict the defendants appeal. 
 
 Dodge, J. * * * Justification of the action of the trial court is 
 also attempted on the ground that, by the discount of the note for full 
 value to Wight, he acquired a perfect title as against all parties, ahd 
 that such title he might effectively transfer to another, although that 
 other were charged with notice of some defects in the title of soine 
 previous holder. This is undoubtedly the general rule, and, if the sale 
 by Herman to Wight had been an honest one on Herman's part, with- 
 in his authority as agent, then Wight might have sold the note back to 
 Herman in his individual capacity, and he have acquired a good title 
 thereby which again he might transfer to another. * * * 
 
 This principle, which is so trite as hardly to warrant citation of au- 
 thority, is recognized by the negotiable instrument law, Section 58. 
 * * * If Herman made the sale to Wight fraudulently, he could 
 not, under this statute, acquire the good title which Wight held only 
 by virtue of being a holder of the instrument in due course. When it 
 came back to his hands, it reassumed the same position it formerly 
 occupied, and he could dispose of it to another, not an innocent holder, 
 only within the limits of his own rights and authority. The question 
 •whether Herman acted fraudulently in negotiating the note to Wight 
 was involved in conflict of evidence either received or offered and 
 much uncertainty of inference from such evidence and should have 
 been passed on by the jury; as, also, the question whether his payment 
 to Wight was an attempted purchase by him individually or payment 
 of the note on behalf of his principal. * * * 
 
 Judgment reversed and cause remanded for a new trial. 
 
Ch. 3) WHO ARE HOLDERS IN DUB COURSE 791 
 
 LILL V. GLEASON. 
 (Supreme Court of Kansas, 1914. 92 Kan. 754, 142 Pac. 287.) 
 
 Action by Michael Lill against Nelson Gleason. From judgment for 
 defendant, plaintiff appeals. 
 
 BuRCH, J. On April IS, 1908, Nelson Gleason executed and deliv- 
 ered his negotiable promissory note to the Peerless Machinery & Sup- 
 ply Company for $1,000, due on September 1, 1908. The note was 
 given for stock in the machinery company and was accompanied by 
 a written contract permitting Gleason to return the stock and receive 
 ■his note duly canceled by giving notice of his intention to the machin- 
 ery company on or before August 1, 1908. On July 25, 1908, the no- 
 tice was given but the note was not returned. The machinery com- 
 pany indorsed the note in blank before maturity and left it with the 
 Andale State Bank as security for money to be advanced to the ma- 
 chinery company under a contract providing that advancements should 
 be made up to the sum of $3,500, when collateral security indorsed 
 by Michael Lill was deposited with the bank. The bank refused to 
 make any advancement on the note until it was indorsed by Lill. Lill 
 then went to the bank_an,d wrote his name on the back of the note, pur- 
 suantr'to a contract_with .tht^machinery company to do so, which con- 
 tracTproTrided -for security to, Lill. for his indorsement out of the com- 
 pany's assets. The bank then cashed the note. Gleason had no con;:., 
 cern with any of these transactions. When Lill indorsed the note 
 and the advancement was made, neither he nor the bank had any no- 
 tice of the contract between Gleason and the machinery company. 
 When the note matured, Gleason refused to pay. Upon demand of the 
 bank, Lill took up the note and received it without indorsement from 
 the bank. 
 
 In an action by Lill against Gleason, the court found the foregoing 
 facts and held that Lill was not a holder in due course, and that Glea- 
 son's defense to the note under his stock contract with the machinery 
 company was good. Lill appeals. 
 
 The rights of the parties are governed by the Negotiable Instru- 
 ments Law. * * * Lill became a party to the note for the ac- 
 commodation of the payee, * * * and his original status, so far 
 as liability was concerned, was that of an indorser, since he did not 
 indicate an intention to be bound in some other capacity. * * * 
 He thus became secondarily liable to all parties subsequent to the 
 payee, * * * jn this instance to the Andale State Bank. When 
 Lill paid the note it was not discharged. It was the policy of the law 
 merchant and is the policy of the Negotiable Instruments Law to 
 keep a negotiable instrument alive and negotiable as far as possible 
 ^ntil the principal debtor has discharged his obligation. Discharge 
 could not take place under either section 119 or section 121, and the 
 general rule is that payment by a party other than the principal debtor 
 does not discharge parties prior to the one making the payment, and 
 the payment, instead of extinguishing the instrument, operates as a 
 transfer of it to the party paying. * * * 
 
 The contract of an indorser. for the accommodation of the payee 
 is wholly independent of that of the maker, and such indorser, upon 
 making payment, succeeds to the title and rights of the holder as against 
 the maker. * * * Sheahan v. DaVls, 27 Or. 278, 40 Pac. 405, 28 
 L. R. A. 476, 50 Am. St. Rep. 722. 
 
792 NEGOTIABLE INSTRUMENTS (Part 3 
 
 ' The note having been indorsed by the payee in blank, it became pay- 
 /able to bearer and negotiable by delivery. * * * When it was de- 
 livered by the bank to Lill, he became the bearer and holder. * * * 
 Ha,vmg.jde-rivedJdtlg from the. bank, which was a holder in due course, 
 and not having been a party to any frauH or ill^aliity'aHecfiiiglEe" in- 
 "'"stnmrentv LilllDecame possessed of all the'rigHts of the bank against 
 the maker. * * * j^ made no difference that the paper was over- 
 due and unpaid, and would have made no difference if it had been 
 shown that, when he acquired title, Lill had learned of the contract 
 between Gleason and the supply company to which, as between them, 
 the note was subject. * * * The Negotiable Instruments Law 
 merely affirms the settled principle of the law merchant that, when a 
 negotiable instrument once passes into the hands of a holder by in- 
 dorsement in due course, the maker's right to interpose defenses good 
 against the payee is cut off as to all subsequent holders not parties to 
 fraud or illegality affecting the instrument. The reason is that, if a 
 holder in due course could not invest his transferee with his own ca- 
 pacity to recover on the paper, his property rights would be materially 
 and prejudicially reduced. [Court quotes section 121.] 
 / It is plain that the expression "remitted to his former rights" does 
 not apply to Lill. He was a party secondarily liable who paid the 
 instrument, but he had no former rights to which he might be remit- 
 ted. After the payee had indorsed the note, Lill indorsed it to accom- 
 modate the payee in disposing of it to the bank. Standing in that sit- 
 uation, Lill had no title to the note or claim on either the maker or 
 ' the payee. After he paid the note, he had a right of some kind against 
 somebody — the right to reimbursement from the party accommodated, 
 the right to enforce the note against the defaulting maker, or both — 
 but until he paid the note no obligation arose in his favor on the part 
 of anybody, and of course the statute did not remit him to a situation 
 in which he was entirely remediless. The words "remitted to his 
 former rights" must therefore be restricted in their application to a 
 party secondarily liable, who has himself been connected with the title 
 to the instrument. 
 
 "Manifestly this section refers only to in(tersers for value and not 
 for mere accommodation. An indorser for value at some time prior 
 to his indorsement owned the note with the right to sue upon it at 
 maturity. With this right he parted when he discounted the paper by 
 indorsement to a purchaser for value, who in turn by like process may 
 transfer the title becoming liable by his indorsement to the new in- 
 dorsee, and so on without limit until the maturity of the instrument. 
 Then whichever of the successive indorsers is compelled to pay is 
 restored to his former rights, within the meaning of this section, upon 
 striking out his own and subsequent indorsements. The case is en- 
 tirely different, in reason, concerning, an accommodation indorser or 
 a guarantor. Neither of them has any 'former rights,' nor, indeed, any 
 right whatever, until he pays the note or bill." Noble v. Beeman- 
 Spaulding-Woodward Co., 65 Or. 93, 107, 131 Pac. 1006, 1012, 46 
 L. R. A. (N. S.) 162. 
 
 In the case of Quimby v. Varnum; 190 Mass. 211, 76 N. E. 671, 
 it was well said that section 128 was intended to apply where the per- 
 son secondarily liable can trace his title on the face of the note and its 
 indorsements through the priol*^parties to the party whom he seeks to 
 
Ch. 3) WHO ARE HOLDERS IN DUB COURSE 793 
 
 hold. This case, however, seems- to decide generally that, because an 
 accommodation indorser has no rights before he has made payment to 
 which he could be remitted, payment by him extinguishes the note. 
 Such a result as to one in Lill's situation cannot be deduced from sec- 
 tion 119 or any other section of the Negotiable Instruments Law, is 
 opposed to the express declaration of section 121 that payment by a 
 party secondarily liable does not discharge the instrument, and is con- 
 trary to the policy of the law merchant. No reason is apparent why 
 Lill, after having acquired the paper, might not have negotiated it to 
 another, had he seen fit to do so. * * * 
 
 One of the defenses to the action was that Lill acquired title to the 
 note in December, 1909, from the trustee in bankruptcy of the ma- 
 chinery company. Lill was a creditor of the machinery company, and 
 held, as collateral security for his indebtedness, a number of notes 
 which had been to the machinery company. Lill compounded his in- 
 debtedness with the trustee, by order of the bankruptcy court duly 
 obtained in December, 1909, and accepted in satisfaction the collat- 
 eral notes in his possession. For some reason the Gleason note was 
 included in the list of securities. Lill paid the note and received it 
 from the bank on March 6, 1909. At the time the machinery company 
 was adjudged bankrupt, the note belonged to the bank as a holder in 
 due course. After the bank transferred it to Lill, the note belonged 
 to him, and consequently the trustee in bankruptcy had no title what- 
 ever to the instrument which he could pass to Lill. If, in the adjust- 
 ment of his affairs with the estate of the bankrupt, Lill secured a re- 
 lease of whatever claim the trustee made to the note, it was no concern 
 of the maker, and the title acquired from the bank was not impaired. 
 
 The judgment of the district court is reversed, and the cause is 
 remanded, with direction to enter judgment for the plaintiflE. 
 
 SECTION 8.— RIGHTS OF A TRANSFEREE FROM A HOLD- 
 ER IN DUE COURSE OF UNINDORSED PAPER PAY- 
 ABLE TO THE ORDER OF THE TRANSFEROR 
 
 The situation which we are about to analyze is not a common 
 one. It is likely to arise wholly as a matter of accident. The 
 situation has a double aspect. (1) P., the payee of a negotiable 
 instrument which is in form payable to his order, P. not being 
 a holder in due course, transfers the instrument for value, before 
 maturity, to A., who takes in good faith. We may substitute for 
 the payee any other holder — i. e., any special indorsee — provided 
 such special indorsee is not a holder in due course, and then 
 examine into the rights of his transferee who took the instrument 
 without indorsement of the transferor. The problem is the same in 
 either case. (2) The second aspect of the problem is like the 
 first with the exception that the transferor is a holder in due 
 course. The transferor may be the payee of an instrument pay- 
 able to his order or a special indorsee, and he makes the transfer 
 without indorsement. Is the transferee in either of these cases a 
 holder in due course? The section involved is as follows: 
 
794 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Section 49. Where the holder of an instrument payable to his 
 order transfers it for value without indorsing it, the transfer vests 
 in the transferee such title as the transferor had therein, and the 
 transferee acquires, in addition, the right to have the indorsement 
 of the transferor. But for the purpose of determining whether 
 the transferee is a holder in due course the negotiation takes ef- 
 fect as of the time when the indorsement is actually made. 
 
 Clearly, the transferee of unindorsed paper payable to the order 
 of the transferor, such transferor not being a holder in due course, 
 is not a holder in due course, because the section states that the 
 transferee acquires "such title as the transferor had therein" ; that 
 is, the transferee acquires only the rights of his transferor and not 
 greater rights. Had he taken by indorsement, then, if he bought 
 for value, before maturity, and in good faith, he would have been 
 a holder in due course. As stated above, this transaction is apt to 
 arise through oversight; but it is seen that it is decidedly to the 
 interest of the transferee to see to it that the instrument is duly 
 indorsed to him, so that he will be properly guarded against de- 
 fenses of the maker or drawer. The section does go on to give 
 to such a transferee the right to have such indorsement, but it 
 may take considerable time to convert his right into an actuality. 
 The right to have a thing and the actual possession of it are very 
 different. It is to be noticed that, if at any time before the trans- 
 feree actually obtains the indorsement, notice should come to the 
 transferee of the existence of a defense possessed by the maker, 
 drawer, or acceptor as against the payee, such knowledge prevents 
 the transferee from becoming a holder in due course, because the 
 section states that the negotiation takes effect "as of the time 
 when the indorsement is actually made." Up until that time the 
 transferee has only such rights as his transferor had. 
 
 The second question then arises : May the transferee of unin- 
 dorsed paper payable to the order of a transferor who was a hold- 
 er in due course, be a holder in due course? Section 49 speaks of 
 such person as a transferee. He is not referred to as a holder. We 
 have already seen that only those persons may be holders in due 
 course who are holders, as that term is defined in the act. The 
 answer to the above question depends, on the question whether 
 such a person can be deemed a holder under section 191 which de- 
 fines a holder as the "payee or indorsee of a bill or note who is 
 in possession of it or the bearer thereof." Perhaps such a trans- 
 feree is not an indorsee because an indorsee is a person who ac- 
 quires possession by negotiation. But is it possible to urge that, 
 although a transferee is not a holder and therefore is not techni- 
 cally a holder in due course, such a transferee has all the rights of a 
 holder; in due course? 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 795 
 
 SMITH V. NELSON LAND & CATTLE CO. 
 
 <United States Circuit Court of Appeals, Eighth Circuit, 1914. 212 Fed. 56, 
 
 128 C. 0. A. 512.) 
 
 CarIvAND, Circuit Judge. These are appeals from a judgment ren- 
 dered in an action brought by the Cattle Company against George 
 H. Smith et al., for the purpose of having certain promissory notes, a 
 mortgage securing the same, and assigments of certain land contracts 
 and certificates executed for the same purpose canceled. Smith filed 
 a cross-bill, asking to have the amount for which he held the notes, 
 mortgage, contracts, "and certificates as security ascertained, and a sale 
 of the security to satisfy the same. The trial court granted the relief 
 prayed by Smith as to one note of $1,600, and canceled four other notes 
 of $3,350 each as prayed by the Cattle Company. The facts which 
 determine the correctness of the ruling below appear from the record 
 as follows : November 19, 1907, the Cattle Company, by Fred P. Nel- 
 son, president, and Gust A. Nelson, secretary and treasurer, Celia M. 
 Nelson, and Hugo E. Nelson executed and delivered to E. H. Luikart 
 five promissory notes. * * * The Cattle Company was a corpora- 
 tion, and signed the notes before delivery without any consideration 
 therefor passing to it. Luikart, the payee of the notes, for value re- 
 ceived indorsed and delivered the notes in due course to Roy C. Smith 
 and Albert Anthes, doing business under the firm name of Anthes &• 
 Smith. * * * 
 
 The mortgage was duly assigned by Luikart to Anthes & Smith, and 
 the land contracts and certificates transferred to them by delivery. 
 Subsequent to the indorsement of the notes to Anthes & Smith, but 
 before maturity, they were transferred by them to the defendant and 
 cross-complainant, George H. Smith, in part payment of an antecedent 
 debt owing to Smith by Anthes & Smith. The mortgage, land con- 
 tracts, and certificates were also transferred with the notes. The note 
 for $1,600, due November 19, 1908, was indorsed to George H. Smith 
 in blank by Anthes & Smith. None of the other notes were indorsed 
 by them. * * * 
 
 Upon the foregoing facts the Cattle Company claims that the execu- 
 tion of the notes by it as an accommodation maker, without considera- 
 tion, was ultra vires and void, and that the invalidity of the notes for 
 the above reason can be urged against George H. Smith, the present 
 owner and holder of the same, for the reason that * * * George 
 H. Smith is not a holder in due course. The trial court decided * * * 
 as to the remaining four notes that George H. Smith was not a holder 
 in due course, because they were not transferred to him by indorse- 
 ment, and therefore were void in his hands for want of power in the 
 Cattle Company to execute the same. * * * 
 
 It remains to inquire as to the rights of George H. Smith. * * * 
 We think that, if George H. Smith must stand on the character of his 
 own title, and cannot claim protection by virtue of the title of Anthes 
 & Smith, then the ruling of the trial court as to the other four notes 
 was right. An indorsee of negotiable paper in due course may obtain 
 a better title than his indorser, and in that event may stand upon such 
 title; but is it necessary that he be an indorsee in order to claim the 
 title of a transferror, who was an inddrsee in due course? In other 
 words, cannot George H. Smith, although the notes were transferred 
 to him by delivery, use the Anthes & Smith title to insulate the ultra 
 
796 NEGOTIABLE INSTRUMENTS (Part 3 
 
 vires attack of the Cattle Company? Does not the transferee for value 
 of negotiable paper obtain whatever title his transferror had, irre- 
 spective of the mode of transfer? As we have heretofore said, these 
 notes are Kansas contracts; and, if there are statutes of that state 
 which determine the legal position of the holders thereof, they must be 
 enforced. [Court here quotes section 49.] 
 
 The last Clause of section 49 has no application to the question now 
 under discussion, for there never was any indorsement of the four 
 notes in question by Anthes & Smith; and counsel for George H. 
 Smith are not claiming that he was an indorsee in due course, but 
 that under the first clause of this section * * * George H. Smith 
 obtained whatever title Anthes & Smith had. The last section does not 
 read: "But a holder in due course who derives his title through a 
 holder in due course and who is not," etc. Such language would be 
 entirely useless, for if the holder was a holder in due course, he would 
 be fully protected in any event. The law was enacted in order to pro- 
 tect all holders of whatever character of negotiable paper, providing 
 they derive their title to the same from a holder in due course. An- 
 thes & Smith were holders in due course, free from any defect of 
 title of prior parties, and free from defenses available to prior parties 
 among themselves, and could have enforced payment of the notes for 
 the full amount thereof against all parties liable thereon. * * * Be- 
 ing such- holders when they transferred the notes to George H. Smith 
 for value without indorsing them, the transfer vested in George H. 
 Smith such title as Anthes & Smith had. * * * This provision of 
 the law negatives the idea that there can be no transfer except by in- 
 dorsement, for the reason that the law declares what title a transferee 
 shall acquire, when it is transferred to him without indorsement. It 
 is true section 58 uses the word "holder" in describing the persons 
 who shall derive their title to negotiable instruments from a holder in 
 due course ; and counsel for the Cattle Company urge the proposition 
 that George H. Smith was not a holder under the provisions of section 
 2 of the Negotiable Instruments Law of Kansas. That section pro- 
 vides as follows : "Definitions and meaning of terms. In this act, 
 unless the context otherwise requires ; * * * 'Holder' means the 
 payee or indorsee of a bill or note, who is in possession of it, or the 
 bearer thereof." 
 
 The same section provides that the word "bearer" when used in the 
 act means the person in possession of a bill or note which is payable 
 to bearer. It is. claimed that George H. Smith was not the bearer of 
 the notes because they were not payable to bearer, and that he was 
 not a payee or indorsee for the reason that he was not named as payee 
 in the notes and they are not indorsed to him. It will be noticed, how- 
 ever, that the law only provides that these definitions shall apply un- 
 less the context of any particular portion of the law otherwise requires. 
 To decide that the word "holder" as used in the first part of the last 
 clause of section 58, hereinbefore quoted, does not include a transferee 
 like George H. Smith, who received the notes in question from Anthes 
 & Smith without their indorsement, would be inconsistent with the 
 first clause of section 49, above quoted, for that section provides that 
 where a holder of an instrument payable to his order transfers it for 
 value without indorsing it, tHe transfer vests in the transferee such 
 title as transferror has therein. This section simply uses the words 
 "transfer" and "transferee," and in no way declares that a transferee 
 
Ch. 3) WHO ARE HOLDERS IN DUE COURSE 797 
 
 shall also be a holder within the definition of section 2, above mentioned. 
 We, therefore, think, within the language of said section 2, that the 
 context of sections 49 and 58 require that the word "holder" used 
 in the beginning of the last clause of section 58, should be held to in- 
 clude any transferee of negotiable paper. 
 
 The result of what we have said is that we are of the opinion that 
 George H. Smith has the same title to the four notes in controversy 
 that was possessed by Anthes & Smith, by virtue of the statutes of 
 Kansas, and that, possessing such title, he is entitled to enforce pay- 
 ment of the same against the Cattle Company. We have thus far con- 
 sidered the question last discussed with reference to the statutes of 
 Kansas, and we think our interpretation of the same is in line with 
 the decision of the Supreme Court of Kansas in Underwood v. Fosha, 
 89 Kan. 768, 133 Pac. 866; and we think the weight of authority, in- 
 dependent of statute, is in favor of the views hereinbefore expressed. 
 
 The case of First National Bank v. McCullough, 50 Or. 508, 93 
 Pac. 366, 17 L. R. A. (N. S.) 1105, 126 Am. St. Rep. 758, is relied 
 upon by, counsel for the Cattle Company. This case may be said to 
 be contrary to the views hereinbefore expressed. It has been reported 
 in 17 ly. R. A. (N. S.) 1105, and an interesting note accompanies the 
 report of the case, in which the annotator does not agree with the con- 
 clusion reached in the case cited. 
 
 We place our decision upon the statutes of Kansas as construed by 
 the Supreme Court of that state, and as we construe them. We can- 
 not see how the ruling thus established can work any injustice. The 
 Cattle Company could not have avoided the notes on the ground of 
 ultra vires in the hands of Anthes & Smith, and they are in no worse 
 position now than they would have been if Anthes & Smith still owned 
 them. 
 
 The decree below is reversed, and the cause is remanded, with di- 
 rections to dismiss the original bill at the costs of the complainant and 
 to enter a decree in favor of the cross-complainant, George H. Smith, 
 as prayed for in his cross-bill, and that he also recover his costs. 
 
798 NEGOTIABLE INSTRUMENTS (Part 3 
 
 CHAPTER IV 
 
 RIGHTS OF THE HOLDER AGAINST THE MAKER 
 AND ACCEPTOR 
 
 tScction 
 
 1. Introduction. 
 
 2. Defenses and Claims of Ownership Not Available Against Holders in 
 
 Due Course. 
 
 3. Defenses and Claims of Ownership Available Against Holder in Due 
 
 ■ Course. 
 
 4. Right of the Drawee to Recover Money Paid to the Holder under 
 
 Mistake. 
 
 5. Right of the Drawee with Respect to Instruments Payable to the Order 
 
 of a Fictitious Payee. 
 
 6. Relatioij of the Drawee Bank to the Drawer. 
 
 7. Rights and Liabilities of Parties with Respect to Acceptances and Pay- 
 
 ments for Honor. 
 S. Bills in a Set. 
 
 SECTION 1.— INTRODUCTION 
 
 A complete definition of a negotiable instrument would concern 
 itself with two matters: (1) Operative facts; and (2) their legal 
 effect. The statement that a particular written instrument is ne- 
 gotiable means that certain facts operate to produce other facts. 
 Both of these groups of facts must, to some extent, be considered 
 simultaneously. Practically, however, it is impossible to do this 
 effectively, consequently the emphasis is thrown first upon one 
 group, and then upon the other. Not until both groups of facts 
 have been examined intensively is it possible to obtain a reasonably 
 complete knowledge of the real meaning of a rule of law. In 
 Chapter I we were interested in the question: What facts will 
 operate to make an instrument negotiable? But we were not con- 
 cerned, except secondarily with the question: What are the 
 various legal effects produced by such an instrument? In Chapter 
 II the emphasis was thrown upon some of the legal effects of nego- 
 tiability. Chapter III was an examination into the detail facts 
 which render a holder of a negotiable instrument a holder in due 
 course, but the nature of the rights acquired by the holder in due 
 course were adverted to only incidentally. The present chapter 
 and Chapter V following are concerned with the inquiry into the 
 nature and extent of the rights acquired by the holder in due 
 course, the most important consequence of negotiability. In this 
 chapter the question is : What rights are acquired against parties 
 primarily liable on the instrument — the maker and acceptor? In 
 the next chapter the question is : What rights are acquired against 
 parties secondarily liable on the instrument, the drawer and in- 
 dorsers? The chief problem is to determine the rights of the 
 holder in due course against parties primarily and secondarily li- 
 able, although we shall also be inquiring into the rights against 
 the same parties by holders not in due course. That the liability 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 799 
 
 of the maker and acceptor is a primary liability is recognized by 
 the following sections : 
 
 Section 60. The maker of a negotiable instrument by making 
 it engages that he will pay it according to its tenor, and admits the 
 existence of the payee and his then capacity to indorse. 
 
 Section 62. The acceptor by accepting the instrument engages 
 that he will pay it according to the tenor of his acceptance, and 
 admits (1) the existence of the drawer, the genuineness of his 
 signature, and his capacity and authority to draw the instrument, 
 and (2) the existence of the payee and his then capacity to indorse. 
 
 The most distinctive feature of the law of negotiable instru- 
 ments is the special position accorded to the holder in due course. 
 The Negotiable Instruments Law provides as follows : 
 
 Section 57. A holder in due course holds the instrument free 
 from any defect of title of prior parties, and free from defenses 
 available to prior parties among themselves, and may enforce pay- 
 ment of the instrument for the full amount thereof against all 
 parties liable thereon. 
 
 Section 58. In the hands of any holder other than a holder in 
 due course, a negotiable instrument is subject to the same defenses 
 as if it w^ere non-negotiable. 
 
 Defenses which cannot be set up to defeat the claim of the 
 holder in due course are called personal defenses; defenses which 
 may be successfully interposed against the holder in due course 
 are called real defenses. All defenses and claims not real are per- 
 sonal. Real defenses divide themselves into three groups: (1) 
 Those where in reality there never was a contract executed by 
 the party sued; (2) those where there is a contract but for rea- 
 sons of public policy the holder in due course is not permitted to 
 enforce it ; (3) where there was a contract but the party suing had 
 no title thereto. 
 
 The first group — where there never was a contract executed by 
 the defendant — is further divided into three groups: (a) Where 
 the defendant's name was forged or otherwise placed upon the 
 instrument without his authority; (b) where the defendant did 
 sign the instrument, but did so under such circumstances that he 
 had no reason to suppose that he was executing a negotiable in- 
 strument ; (c) where the defendant knowingly signed a negotiable 
 instrument, but left it in an incomplete state, the instrument get- 
 ting into circulation without the authority of the maker and with- 
 out negligence on his part. In the second group of cases — where 
 there was a real contract executed by the defendant — we have two 
 types of situations: (a) Certain kinds of illegal contracts; (b) 
 contracts executed by persons who do not have full capacity to 
 contract. In the third class, the party attempting to enforce the 
 instrument is claiming title through a forged indorsement, or is 
 himself a thief or other converter of bearer paper. 
 
800 NEGOTIABLE INSTRUMENTS (Part 3 
 
 SECTION 2.— DEFENSES AND CLAIMS OF OWNERSHIP 
 
 NOT AVAILABLE AGAINST HOLDERS 
 
 IN DUE COURSE 
 
 (a) ABSENCE OF GONSIDEEIATION 
 
 INTERSTATE FINANCE CO. v. SCHROEDER. 
 
 (Supreme Court of Appeals of West Virginia, 1914. 74 -W. Va. 67, 
 81 S. E. 552.) 
 
 MiIvLEr, p. The action, begun before a justice, was upon three ne- 
 gotiable instruments, drafts or inland bills of exchange, dated Chi- 
 cago, 111., March 31, 1910, and payable in six, eight and ten months re- 
 spectively, at the office of the drawer, drawn in its favor, by Commer- 
 cial Jewelry Company, on the defendant Henry A. Schroder, and by 
 him duly accepted, and each for the sum of forty-eight dollars. 
 
 The case was tried in the circuit court * * * resulting in a 
 verdict and judgment for plaintiff for $151.92, the full amount sued for. 
 
 The first complaint is that the circuit court erred in refusing to per- 
 mit defendant to prove by his own evidence as against plaintiff, failure 
 of consideration, as between drawer and drawee ; and also to exhibit 
 and show in evidence certain goods sold him by the drawer and payee, 
 and that there was fraud and misrepresentation practiced upon him by 
 said drawer "at the time he accepted said negotiable instruments." 
 
 By section 59, * * *-- every holder of a negotiable instrument is 
 prima facie holder in due course ; and by section 28, thereof, * * * 
 failure of consideration is not a defense as against a holder in due 
 course. By section 57, * * * "a holder in due course holds the 
 instrument free from any defect of title of prior parties, and free 
 from defenses available to prior parties among themselves and may 
 enforce payment of the instrument for the full amount thereof against 
 all parties liable thereon." These provisions of our new negotiable in- 
 struments law, are merely declaratory of the law as it previously ex- 
 isted. Said section 59 further provides that if it be "shown that the 
 title of any person who has negotiated the instrument was defective, 
 the burden is on the holder to prove that he or some person under 
 whom he claims acquired the title as a holder in due course." But 
 failure of consideration does not render title to an instrument defec- 
 tive. By section 55 of that act, "the title of a person who negotiates 
 an instrument is defective within the meaning of this act when he ob- 
 tained the instrument or any signature thereto, by fraud, duress, or 
 force and fear, or other unlawful means, or for any illegal considera- 
 tion or when he ' negotiates it in breach of faith, or under such cir- 
 cumstances as amount to a fraud." * * * if failure of considera- 
 tion is admissible under the general issue, it is not available as against 
 a holder in due course. * * * 
 
 In view of these provisions of the statute law, the court below, we 
 think, properly ruled that the proposed proof of failure or partial 
 failure of consideration was not admissible in evidence as against 
 plaintifT. 
 
Ch. 4) RIGHTS OP HOLDER AGAINST MAKER AND ACCEPTOR 801 
 
 It would follow that, if the absence of consideration is a personal 
 defense, the defenses of nonfulfillment of conditions, of breach of 
 contract, rights of set-off, of counterclaim, and recoupment would 
 also be defenses not available against a holder in due course. 
 
 (b) FRAUD 
 
 Transactions involving the procuring of negotiable instruments 
 by fraudulent representations are as varied as human ingenuity 
 can devise. Frequently the misrepresentations take the form of 
 untrue statements knowingly made concerning the value or gen- 
 eral characteristics of the property offered in exchange for the 
 instrument. Sometimes the fraud consists in misrepresenting the 
 solvency or the identity of the person who obtains the instrument. 
 In whatever form the fraud arises, so long as the party signing the 
 negotiable instrument did so under circumstances where it was 
 fair to assume that the signer knew, or by the exercise of reason- 
 able care should have known, that he was executing a negotiable 
 instrument, his defense is a purely personal defense, not available 
 against a holder in due course. A few courts have reached a re- 
 sult contrary to that reached in the first case, but it is believed 
 that the Colorado case represents the better rule. If the law 
 throws the loss upon the maker in such a case as this, it follows 
 quite clearly that, in the more common types of fraudulent pro- 
 curement of a negotiable instrument, the defense of fraud is purely 
 personal, not available against a holder in due course. The case 
 is not one where a holder in due course sues the drawer, but the 
 result would have been the same, had the suit arisen in this way. 
 
 TWTMAN V. AVERA LOAN & INVESTMENT CO. 
 (Court of Appeals of Georgia, 1918. 23 Ga. App. 136, .98 S. E. 239.) 
 
 Action by the Avera Loan & Investment Company against Reuben 
 Twyman. Judgment for plaintiff upon a directed verdict, and defend- 
 ant excepts and brings error. 
 
 Bloodworth, J. The motion for rehearing in this case is based 
 upon the ground that the court overlooked the following evidence of^ 
 defendant: "He just handed me the deed and the other papers, and 
 said, 'Sign here, right here,' and I thought I was signing a receipt 
 for the deed. * .* * He did not read to me this\ paper. I did not 
 read the paper. Mr. Walker did not read it to me. I could not read 
 it. No one read it to me." * * * On cross-examination the de- 
 fendant said: "I can write and read the English language. I can 
 write some and read a little bit — nothing to amount to anything." 
 
 In the evidence there is nothing to show that the defendant made 
 -^ny effort to read the jiote and~T5&ild~that "He" could nof do so7 of that 
 atTHe time he'signed it there existed any emergency which wouTlf^x- 
 cuse his failure to read, or that his failure to read was brought about 
 by any "misleading artifice or device perpetrated by the opposite par- 
 ty, amounting-tcr-arttrartrau3'such as would reasonably, prevent him 
 B.& B.iBus.Law— 51 
 
802 NEGOTIABLE INSTRUMENTS (Part 3 
 
 from reading it." On the contrary, it clearly appears that he signed 
 the note upon presentation, without apprising himself of its contents 
 otherwise than by accepting statements with reference thereto made 
 by the representative of the opposite party, and between whom and de- 
 fendant there existed no fiduciary or confidential relation. * * * 
 Rehearing denied. 
 
 BOATSMAN v. STOCKMEN'S NAT. BANK. 
 
 (Supreme Court of Colorado, 1914. 56 Colo. 495, 138 Pac. 764, 
 50 L. R. A. [N. S.] 107.) 
 
 Action by John Boatsman, administrator of Carroll Nichols, de- 
 ceased, against the Stockmen's National Bank. Judgment for defend- 
 ant, and plaintiff brings error. 
 
 BaiIvEy, J. Carroll Nichols, a real estate dealer at the town of Mor- 
 rill, Scotts Bluff County, Nebraska, died in April, 1911. John Boats- 
 man, as administrator of his estate, brought this action in the district 
 court of Morgan County, against the Stockmen's National Bank of 
 Brush, Colorado, by which it is sought to recover $1,500.00 and in- 
 terest alleged to have been wrongfully paid out by it on account of 
 Nichols to one H. M. Warren on a forged deed. The quarter section 
 of land involved in the controversy is situate in Scotts Bluff County, 
 Nebraska, and is owned by Charles E. Murphy, a resident of Utah. 
 Warren was also a real estate dealer, residing at Mitchell, Nebraska, 
 near Morrill, ^iichols knew J^yarrenj_butjdid_jiotJm^ Murphy. On 
 /May 23d, 1910, WarreiTwroteMcEoisa letterm the name of Murphy, 
 proposing a quick sale of the land and soliciting an offer therefor. 
 The name of Murphy was wrongfully used, without his knowledge 
 or consent, throughout the whole transaction. In answer to that let- 
 ter Nichols telegraphed an offer of $2,500.00 for the land. Warren 
 acknowledged receipt of the offer in a letter dated May 25th, 1910. 
 Four days later Warren again wrote Nichols, directing him to send 
 the deed to the defendant bank at Brush, Colorado, for execution, with 
 draft to pay for the land. The deed, naming Boatsman as grantee, 
 who loaned Nichols the money to buy, was accordingly mailed by 
 Nichols to Murphy at Brush, Colorado, which Warren received and 
 thereupon executed, as Murphy, acknowledged the same before a 
 Notary Public, presented it to the defendant bank and requested pay- 
 ment of the $2,500.00. Finding no money at the bank, he requested it to 
 telegraph to the Farmers & Merchants Bank of Morrill, Nebraska, with 
 whom Nichols did business, with the following result : 
 
 "Brush, Colo. 6— 1st '10 
 "Farmers and Merchants Bank Morrill Nebraska 
 
 "Deed Chas Murphy to John Boatsman duly executed and in our 
 hand Murphy wants money wired to this bank at once or will call 
 deal off. Stockmens Natl. Bank." 
 
 "June 2, 1910. 
 "Stockmens Natioiial Bank, Brush, Colo. 
 
 "If warranty deed is regular, pay Charles Murphy twenty-five hun- 
 dred dollars. We remit. Register deed to us. 
 
 "Farmers & Merchants Bank 
 
 "Morrill, Nebraska." 
 
Ch. 4) RIGHTS OF HOLDER AGAINST kAKER AND ACCEPTOR 803 
 
 The defendant bank thereupon paid Warren $1,500.00 cash and a 
 $1,000.00 draft on the City National Bank of Omaha, Nebraska^ and 
 took the deed for delivery. The following September the imposition 
 *was discovered and payment stopped on the (draft. Soon thereafter 
 Warren was tried, convicted and sentenced to a term in the Colorado 
 penitentiary on a plea of guilty to a charge of forgery. 
 
 Nicholsde manded of the defen dant bank_the return of the $1,500.00 
 paiStSn^'arren believing him to'be~SrurpTiy. The bank refused pay- 
 ment and this suit followed. A demurrer to the complaint was inter- 
 posed and sustained upon the ground that it stated no cause of ac- 
 tion. Plaintiff elected to stand by his cast as made, the action was 
 dismissed, and he brings the case here to review such judgment. 
 
 The gist of the complaint is that the defendant bar ik ne gligently paid ^ 
 theJIncflstfii-SlT^Otm Q. ^ in such c"ases""{ Ke controliirig mquiry is wheth- 
 er lhe_drawer„ by failure to use ordinary diligence to avert a loss, has 
 .so incre ased the,ri§k, and /•esponsibility of the drawee as to take the 
 _case out of the general rule of l iability for payment of _money on a 
 forged instrument. When the facts show that such is the case, it is 
 unilQrraly._held that the drawer miist bear the loss. 
 
 It will be preiumed that the defendant bank had full knowledge of 
 all deahngs between Nichols and Warren, pretending to be Murphy, 
 which the complaint discloses. Thejigception was complete as to both 
 the defendant bank a nd Ni chols. Warren appeared at' the bank with 
 "Tlie''dee3~Wht5K~NTchoIs had prepared and forwarded, purporting to be 
 duly executed by Charles E. Murphy before a Notary PubHc. The 
 defendant bank telegraphed the Nebraska bank, with whom Nichols 
 did business, that Ch arles Murphy had presented the deedjnd awaited 
 iQKaediatejxjHitiailce or tlie"d5aTwoiil(i~fail. Nichols forthwith sent" 
 the money, and the defendant bank thereupon accepted the deed and 
 made payment. By the letter of May 29th, 1910, Warren requested 
 Nichols to make the draft payable to bearer to avoid identification, as 
 he was not known in that community, and stated that he was very 
 anxious to get the matter off his hands, that the acceptance of the 
 price offered was a great sacrifice on his part and must be acted upon 
 immediately if at all. This is substantially a reiteration in these par- 
 ticulars of the letter of May 25th, four days earlier. Such statement 
 TTTightwell. have gr oused the suspicion of an ordinary business man in 
 oealihg with a stranger and put him on inquiry. 
 
 But the attitude of Nichols is shown by the fact that he ^tej_jn 
 harmony withej^ry suggfiijion ojfJtVarren.^ The,recx)xd fails toTshow 
 tHarlteHroO'k "any precaution^ for his own protection against this stran- 
 ger! ■©vrdeffEly' the price asked was low, and Nichols was so thor- 
 oughly interested in making an advantageous deal that he completely 
 lost sight of the possibihty of deception. By mailing the deed to 
 the stranger for execution, he not only placed' In hts'hands an instTU- 
 '^rcSrpectfiarly'TvefrHdaptea to perpetrate a fraud upon the bank, but 
 so increased its ordinary risk as to take the case out of the general r 
 rule applicable in cases of payment' of money on forged instruments. | 
 The bankjwas fully justifie d, in the circ umstances of this case, in pay-f 
 .vjng the money to the person presenting the deed duly acknowledged,L 
 a^ it drischarged every duty impCTsed~upon Tt by law to escape liaBil- 
 ity. The^w will not_£ermit a drawer who has, through lack of dili- 
 genceri.sen raisledTnto making a direction for the payment of money 
 Qn_aforgea~clee3^ to shift the burden of Toss by placing ajnundue and 
 
804 NEGOTIABLE INSTRUMENTS (Part 3 
 
 extraordinary responsibility upon the drawee bank. The representa- 
 tive of Nichols is here contending that such extraordinary risk attaches 
 to the bank, notwithstanding the total failure of Nichols to use even 
 the most ordinary means to prevent deception. The rule of law which 
 he claims is applicable does not reach the present situation. Generally 
 ion payment of money on a forged instrument, in the absence of neg- 
 lligence on the part of the depositor whose check it purports to be, tiie 
 (bank cannot charge the amount to his account. * * * g^t vvhere 
 thergJ.S-,a^£ailure_onJ.hejart of thg depositor touse diligencelcTavert 
 "aTToss, and such we think majT fairly be sai3~Eb beme- fact in the 
 present dispute; a different rule applies. 
 
 The rule is stated in the case of Land Title & Trust Co. v. North- 
 western National Bank, 196 Pa. 230, 46 Atl. 420, SO L. R. A. 75, 79 Am. 
 St. Rep. 717, as follows : "The reason of the rule that when a bank 
 pays a depositor's check on a forged indorsement, or a raised check, 
 it is held to have paid it out of its own funds and cannot charge the 
 payment to the depositor's account, is that there is an implied agree- 
 ment by the bank with its depositor that it will not disburse the money 
 standing to his credit, except on his order. * * * It is confined to 
 cases in which the depositor has done nothing to increase the risk of 
 the bank. Jt_jhfiuldLriot_ap2ly,wh£iLlhe_check is issued to one whom 
 the, drawer intends to_desigiiaJt£-asJiie- payee :~Fifst7T)ecause' in such a 
 case the risk' is not the ordinary risk assumed by the bank in it's im- 
 plied contract with its depositor, but a largely increased risk, as it 
 follows that a check thus fraudulently obtained will be fraudulently 
 used ; the bank is deprived of the protection afforded by the fact that 
 a bona fide holder of a check will exercise care to preserve it from 
 loss or theft, which are the ordinary risks; there is thrown upon the 
 bank the risk of antecedent fraud practiced upon the drawer of the 
 
 check, of which it has neither knowledge nor means of knowledge." 
 * * * 
 
 Under the facts here disclosed the way was made plain and easy 
 
 j for the perpetration of a fraud upon the bank through lack of care on 
 
 1 the part of Nichols in sending a deed for execution to a stranger, and 
 
 ' in arming him with letters and telegrams which, together with the deed, 
 
 could be presented to the bank as a means of identification, so that 
 
 the purchase price would be paid to him, a perfectly natural and proper 
 
 thing, under such circumstances, for the bank to do. 
 
 The matter is thus reduced to the simple proposition that where 
 two innocent parties have both been deceived, the loss must be borne 
 by the one who primarily made such loss possible. The vital mistake 
 was' made by Nichols in dealing with Warren ■ believing him to be 
 Murphy. This was the fundamental and primary error, the responsi- 
 bility for which rests solely upon Nichols. It was this initial error 
 which led directly to the loss. * * * 
 
 Moreover, under the facts disclosed, it appears that the money was 
 paid to the very person to whom Nichols actually intended it should 
 be, the one through whose agency the transaction was brought about. 
 It is_idle-±Q. say, as -does plaintiff, that Nichols never in fact dealt with 
 Warren, the imposter ; this contention on|jrgoes Joshow_thjl_^ de- 
 ception was c omplete. It would be to disregara~substantial lacts to 
 Say tEaFlhe acfual intent of Nichols, because he mistook his physical 
 payee, Warren, for his mental payee. Murphy, was not met by pay- 
 ment to the former. Nichols did not deal merely with the name 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 805 
 
 "Charles E. Murphy," but rather with the physical entity, the human 
 agency indicated by that name, the one who quickened him to action. 
 The true Charles Murphy was unknown to Nichols, and he naturally 
 had in mind only a man with this land to sell, the person with whom 
 he corresponded, Warren. He meant the money to be paid, and it 
 was paid, to that identical person, and the estate of Nichols must there- 
 fore, as against the bank, bear the loss, for his actual intent was in 
 fact carried out. Names are used as one method only of indicating 
 
 identity of person, and are in no sense conclusive on this proposition. 
 
 * * * 
 
 Judgment affirmed. * * * 
 
 (c) DURESS 
 
 FAIRBANKS v. SNOW. 
 
 (Supreme Judicial Court of Massachusetts, 1887. 145 Mass. 153, 
 13 N. E. 596, 1 Am. St. Rep. 446.) 
 
 Holmes, J. This is an action upon a promissory note made by the 
 defendant and her husband to the order of the plaintiff. The de- 
 fendant ^allegesthatjier_signature was o btained b y duress and threats 
 on the i^Ttof fier husband. The judge'belowTdun3~for the plaintiff, 
 it would rather seem on the ground that, whether there was duress 
 or not, the defendant had ratified the note, which there seems to have 
 been evidence tending to show that she did. * * * But, as this may 
 not be quite clear, we proceed to consider the only exception taken by 
 the defendant,— the judge's refusal to rule that, if the defendant signed 
 the note under duress, it was immaterial whether the plaintiff knew 
 when he received the note that it was so signed. The exception is to 
 this refusal. No doubt, if the defendant's hand had been forcibly tak- 
 en and compelled to hold the pen and write her name, the signature 
 would not have been her act, and if the signature had not been her 
 act, for whatever reason, no contract would have been made, whether 
 the plaintiff knew the facts or not. There still is sometimes showfl 
 an inclination to put all cases of duress upon this ground. * * * 
 But duress, like fraud, only becomes material, as such, on the footing 
 that a contract or conveyance has been made whith the party wishes 
 to avoid. It is well settled that when, as usual, the so-called "duress" 
 consists only of threats, and does not go to the height of such bodily 
 compulsion as turns the ostensible party into a mere machine, the con- 
 tract is only voidable. * * * 
 
 Again, the ground upon which a contract is voidable for duress is 
 the same as in the case of fraud, and is that, whether it springs from 
 a fear or a belief, the party has been subjected to an improper motive 
 for action. * * * g^t, if duress and fraud are so far alike, there 
 seems to be no sufficient reason why the limits of their operation should 
 be different. A party to a contract has no concern with the motives of 
 the other party for making it, if he neither knows them nor is responsi- 
 ble for their existence. It is plain that the unknown fraud of a strang- 
 er would not prevent the plaintiff from holding the defendant. * * * 
 
 The authorities with regard to duress, however, are not quite so 
 clear. It is said in Thoroughgood's Case, 5 Coke, 241, that, "if a 
 stranger menace A. to make a deed to B., A. shall avoid the deed 
 
806 NEGOTIABLE INSTRUMENTS (Part 3 
 
 which he made by such threats, as well as if B. himself had threatened 
 him, as it is adjudged, 45, E. 3, 6a." Shep. Touch. 61, is to like ef- 
 fect. See, also. Fowler v. Butterly, 78 N. Y. 68, 34 Am. Rep. 507. 
 But in 43 Year Book, E. 3, 6 pi. 15, which we suppose to be the case 
 referred to, it was alleged that the imprisonment was by the procure- 
 ment of the plaintiff; and we know of no distinct adjudication of 
 binding authority that threats by a stranger, made without knowledge 
 or privity of the party, are good ground for avoiding a contract in- 
 duced by them. In Keilway, lS4a, pi. 3, "the defendant in debt plead- 
 ed that he made the obligation to the plaintiff by duress of imprison- 
 ment (on the part) of a stranger, and the opinion of Rede and others 
 was that this is not a plea without making the obligee party to this 
 duress." In Taylor v. Jaques, 106 Mass. 291, 294, it was said that 
 the defendant had to prove that he signed the note "under a reasonable 
 and well-grounded belief, derived from the conduct and declarations 
 of the plaintiffs, that if he did not sign it he would be arrested." 
 
 * * * Moreover, the older writers likened duress to infancy, and 
 took a distinction between feoffments, etc., by the party's own hand, 
 and acts done by letter of attorney, regarding the latter as wholly void. 
 
 * * * It has been held in New York and some other states, as well- 
 as in England, that a power of attorney given by an infant is void. 
 
 * * * And if this analogy were followed the contracts in all the 
 New York cases which we have cited would be void by the law of 
 that state for want of a personal delivery by the defendant to the plain- 
 tiff. There may be still other explanations of the decisions. 
 
 In the present case it does not appear who delivered the note, and 
 does not clearly appear that the defendant did not deliver it herself. 
 If any question of authority were open, it would have to be noticed 
 that in Massachusetts the distinction as to power of attorney has been 
 so limited, if not wholly done away with, with regard to infants, that 
 it would be doubtful, at least, if it could have any application to the 
 case at bar. * * * 
 
 However the law may stand elsewhere, we are of .opinion that the 
 ruling requested was wrong upon principle and authority. Exception 
 overruled. 
 
 (d) THEFT OF A COMPLETED INSTRUMENT 
 
 Section 16. Every contract on a negotiable instrument is in- 
 complete and revocable until delivery of the instrument for the 
 purpose of giving effect thereto. As between immediate parties, 
 and as regards a remote party other than a holder in due course, 
 the delivery, in order to be effectual, must be made either by or 
 under the authority of the party making, drawing, accepting or 
 indorsing as the case may be; and in such case the delivery may 
 be shown to have been conditional, or for a special purpose only, 
 and not for the purpose of transferring the property in the instru- 
 ment. But where the instrument is in the hands of a holder in 
 due course, a valid delivery thereof by all parties prior to him so 
 as to make them liable to him is conclusively presumed. And 
 where the instrument is no longer in the possession of a party 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 807 
 
 whose signature appears thereon, a valid and intentional delivery 
 by him is presumed until the contrary is proved. 
 
 This section does not operate to protect a purchaser under a 
 forged or other unauthorized indorsement of the payee or of some 
 special indorsee, for the reason that such a party in possession of 
 the instrument not having the title thereto would not be a holder. 
 The section, therefore, is applicable only where the instrument is 
 in form transferable by delivery, either because originally payable 
 to bearer or because the last indorsement was in blank. Before 
 the Negotiable Instruments Law this defense was, in some states, 
 available against a holder in due course. 
 
 ANGUS V. DOWNS. 
 
 (Supreme Court of AVashington, 1915. 85 Wash. 75, 147 Pac. 630, 
 L. R. A. 1915E, 351.) 
 
 Action by Grace Angus against George A. Downs. Judgment on 
 a directed verdict for plaintiff, and defendant appeals. 
 
 FuLLERTON, J. This is an action brought by the respondent, Grace 
 Angus, against the appellant, George A. Downs, to recover upon a 
 promissory note. In her complaint the respondent alleged that the 
 note had been assigned to her for value, prior to maturity, and that 
 she was a holder thereof in due course. The appellant interposed two 
 defenses : First, that the note was stolen from his possession prior to 
 delivery; and, second, that the respondent was not a holder of the 
 note in due course. * * * 
 
 Appellant first contends that a holder of commercial paper, although 
 received by him in due course,. cannot recover thereon against a maker 
 from whose possession it has been taken before delivery by theft. His 
 learned counsel argue that the question is not controlled by the Nego- 
 tiable Instruments Act, and they cite many cases decided under the 
 common-law rules applicable to the law merchant which sustain the 
 principle that recovery cannot be had under such circumstances. 
 There are, however, many cases maintaining the contrary rule, and, 
 were we to conclude that the act cited is without application to the 
 question, it would be an interesting inquiry to ascertain with which 
 side lay the better reason. But we think the act itself controlling. 
 Section 16 of t h e orig inal act * * * provides in terriis that, where 
 the~instrumenFTs in the hands of a holder in due -course, a valid de- 
 livery thereof by all parties prior to him so as to make them liable to 
 him is conclusively presumed. L,anguage could hardly be made plainer, 
 and is as applicable to a holder in due course of commercial paper 
 stolen before delivery as it is to commercial paper stolen subsequent to 
 delivery, or commercial paper the title to which is defective for any 
 other reason. 
 
 Judgment affirmed. 
 
808 NBGOTIABLK INSTRUMENTS (Part 3 
 
 (e) UNAUTHORIZED OOMPr.ETION OP AN INSTRUMENT BY 
 CUSTODIAN 
 
 LIBERTY TRUST GO. v. TILTON. 
 
 (Supreme Judicial Court of Massachusetts, 1914. 217 Mass. 462, 
 105 N. E. 605, L. R. A. 1915B, 144.) 
 
 See ante, p. 780, for a report of the case. 
 
 (f) THEFT OF AN INCOMPLETE INSTRUMENT ACCOMPANIED BY 
 NEGLIGENCE IN THE CARE OF THE INSTRUMENT 
 
 N. I. L., Section 15. Where an incomplete instrument has not 
 been delivered it will not, if completed and negotiated, without 
 authority, be a valid contract in the hands of any holder, as against 
 any person whose signature was placed thereon before delivery. 
 
 S. S. ALI,EN GROCERY CO. v. BANK OF BUCHANAN COUNTY. 
 
 (Kansas City Court of Appekls, Missouri, 1916. 192 Mo. App. 476, 
 182 S. W. 777.) 
 
 Johnson, J. This is an action against defendant bank by the de- 
 positor of a checking account to recover a deposit of $2,938.70. * * * 
 A jury was waived, and after hearing the evidence the court rendered 
 judgment for defendant. Plaintiff appealed. 
 
 At the beginning of the trial the parties agreed that on August 27, 
 1914, plaintiff had a deposit of $2,938.70 with defendant which was 
 payable on demand unless it should be found that defendant was jus- 
 tified in charging against the deposit, as it did, three checks dated 
 August 15, 1914, which bore the signature of plaintiff, and purported 
 to have been drawn to the order of O. J. Rose. These checks, which 
 were for the respective amounts of $2,700.95, $395.60, and $195.15, 
 were paid by defendant on presentation and charged to the account 
 of plaintiff. They had been signed in blank by plaintiff, but had been 
 stolen from its office by Rose, who, by forgery, had converted the 
 signed blanks into checks for the respective sums stated. 
 
 Plaintiff, a corporation operating a large retail grocery in St. Joseph, 
 has a president, secretary, general manager, six or seven chiefs of de- 
 partments, and about fifty employes. * * * The president, S. S. 
 Allen, alone has authority to sign checks on behalf of the company, 
 and such authority never has been conferred upon any other officer. 
 When Allen found it necessary to be absent from the city, it was his 
 custom to sign a number of blank checks and leave the check book in 
 the custody of the manager, with authority to fill out the blanks and 
 issue checks for use in carrying on the business until his return. He 
 was absent on his summer vacation when the events under considera- 
 tion occurred, and, as usual, had signed plaintiff's name to a number 
 of checks, and had left the book with Mr. Morrow, the manager. 
 Following his usual practice. Morrow had allowed this book to re- 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 809 
 
 main on the top of his desk in the office without instructions to any 
 one respecting its safe-keeping, and, when he had occasion to issue a 
 check, sometimes would draw it himself, and sometimes would have 
 the secretary or stenographer draw it. 
 
 On August 15, 1914, Rose, a traveling salesman who had been sell- 
 ing merchandise to plaintiff and was well acquainted with its officers 
 and office employes, especially with the manager, visited the office 
 during the luncheon hour, and found no one there but the stenogra- 
 pher. On being informed that Morrow, for whom he inquired, was 
 out for lunch, he asked and was accorded the privilege of writing 
 some letters, and seated himself at Morrow's desk, on which the check 
 book was lying in full view and, of course, within easy reach. Some 
 time while at the desk he surreptitiously cut out a sheet from the check 
 book which contained three signed blanks and their stubs. After fill- 
 ing out the blanks Rose went first to defendant bank, where he was 
 known to the paying teller, and presented the check for $395.50, which 
 the teller paid, finding the signature genuine. Next he went to the 
 Empire Trust Company, where he was also known, and presented the 
 check for $2,700.95, and, at his request, was given a cashier's check, 
 which subsequently he cashed at a bank in Atchison. Then he went 
 to a jewelry store and passed off the third check in payment of a dia- 
 mond he purchased. After this he disappeared, and thus far has elud- 
 ed capture. The check for $2,700.95 came to defendant through the 
 clearing house bearing the indorsement of the Empire Trusf Company, 
 and was honored by defendant though its payment overdrew plaintiff's 
 account by more than $600. The third check for $195.15 also passed 
 through the clearing hoiise with the indorsements of the jeweler and 
 the Tootle-Lemon National Bank, and was paid by defendant, further 
 increasing the overdraft. * * * 
 
 The principal argument of counsel for plaintiff * * * jg that the 
 checks, never having been delivered by plaintiff, did not become valid 
 negotiable instruments. * * * Counsel insist that their position has 
 the support of the weight of authority as it stood at the time of the 
 passage of the Negotiable Instruments Act, and is completely and ir- 
 refutably sustained by that act, which provides: "Where an incom- 
 plete instrument has not been delivered it will not, if completed and 
 negotiated without authority, be a valid contract in the hands of any 
 holder, as against any person whose signature was placed thereon be- 
 fore delivery." 
 
 Especially is this argument urged against the validity of the checks 
 of $2,700.95 and $195.15, the payment of \vhich, not being made out 
 of funds of plaintiff on deposit, was voluntary on the part of defend- 
 ant, and should be regarded as the act of a purchaser, rather than that 
 of a debtor bound by law to honor the demand of his creditor. * * * 
 
 On the theory of plaintiff that the position of defendant is that of 
 a mere purchaser or innocent holder for value, the questions to arise 
 are interesting and difficult of solution. * * * As a general rule, 
 the delivery of an incomplete negotiable instrument by the maker whO' 
 signs it is indispensable to the creation of a contractual obligation on 
 the part of such maker. Until delivery the instrument is but so much 
 waste paper. The provisions of section 9986 are merely a legislative 
 enactment of this rule, which had the support of the great weight of 
 authority when the Negotiable Instruments Act was adopted in this 
 state. We think this section was not intended to abrogate or impair 
 
810 NEGOTIABLE INSTEUMENT8 (Part 3 
 
 Other well-recognized rules by which in certain instances delivery by 
 the maker would be implied, either from authority actually conferred 
 by him upon an agent, or from conduct which should estop him from 
 claiming that he had not delivered or authorized the delivery of the 
 signed instrument. * * * 
 
 While estoppels are odious and will not be lightly invoked, they do 
 obtain in instances where it would be manifestly unfair and unjust 
 to suffer a party to gain an advantage by taking inconsistent positions, 
 and they may be based upon conduct whith is so careless and grossly 
 nfegligent as to amount to a willful indifference to the rights of others. 
 * * * In the supposititious case of a man signing a check in blank 
 and tossing it into a public street, an act evincing such an extreme and 
 reckless departure from the field of ordinary care and prudence, and 
 such a wanton indifference to the rights of subsequent purchasers, or 
 others who might innocently comt into possession of it, would call 
 for the application of the rule of estoppel and preclude the actor from 
 claiming that he had not delivered the instrument. 
 
 The opinion of L,ord Bramwell in Baxendale v. Bennett, 3 Q. B. Div. 
 525, 65 Iv. J. Q. B. 593, 75 h. T. 254, 4 Eng. Rul. Cas. 637, much 
 relied upon by plaintiff, instead of being an authority against the dis- 
 tinction just pointed out, is found to give it express sanction. In that 
 case a bill of exchange which the defendant had signed in blank as 
 an indorser had been returned to him unused, and he had put it in a 
 drawer in his desk in his private chambers, from which a thief took it; 
 filled out the blanks, and put it into circulation. Lord Bramwell 
 thought defendant had been negligent in the care of the paper if judg- 
 ed by the standard of care a bailee should have followed, but in reach- 
 ing the conclusion that not such negligence, .but the crime of the thief, 
 was the proximate cause of the loss, he distinguished the case from the 
 earlier English cases of Young v. Grote, 4 Bing. 253, and Ingham v. 
 Primrose, 7 C. B. (N. S.) 82, where the negligence was so gross as 
 to amount to recklessness, on the ground that they were treated as 
 instances where the alleged maker or acceptor was held liable as one 
 who had voluntarily parted with the instrument. * * * 
 
 Other authorities dealing with the subject * * * do not chal- 
 lenge the view that the conduct of the maker or acceptor of a negotiable 
 instrument signed in blank may be sufficient to create an estoppel, 
 though they do agree that the mere signing and withholding from de- 
 livery of such paper is not enough to constitute negligence, and that 
 liability as upon paper delivered by the maker or acceptor will not be 
 imputed from a mere lack of ordinary care in the custody of the pa- 
 per after it is signed. Linick v. Nutting, 140 App. Div. 265, 125 N. Y. 
 ..Supp. 93. * * * 
 
 Certainly this case is an authority sustaining the conclusion that 
 under the rules of the Negotiable Instruments Act which are consid- 
 ered and discussed the maker or acceptor may be guilty of conduct in 
 the care of the paper which would estop him from disputing the title 
 of an innocent holder on the ground that he had not delivered the 
 paper or voluntarily put it into circulation. Was plaintiff in the in- 
 stant case guilty of conduct sufficient to raise an estoppel against the 
 claim that it did not deliver the checks nor voluntarily put them into 
 circulation? Allen, the president and principal stockholder of the 
 plaintiff corporation, controlled its policies and business affairs. He 
 was an able, experienced, and careful merchant who had succeeded in 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 811 
 
 building up a large and successful business, and it is with much re- 
 luctance that we give expression to the conviction that in adopting and 
 pursuing the course of business under consideration he and the man- 
 ager, who acted under his orders, were grossly negligent in keeping 
 the book of signed blank checks in such an exposed place without tak- 
 ing any precautions to guard against its spoliation. In the manager's 
 use of the book knowledge was imparted not only to the employes, but , 
 to others who visited the office on business, that it contained signed, 
 blank checks. That fact may be said to' have been publicly proclaimed, 
 and by offering such easy opportunities for the commission of a crime 
 plaintiff was as much a tempter of the criminally minded and morally 
 weak to whom such opportvmity might come as it would have been had 
 it left money lying unwatched and exposed in the office, or, as m one 
 of the English cases, had signed a blank check and tossed it into the 
 street. Certainly plaintiff, when it signed the checks, must be held to 
 have anticipated that in the usual course of business they would be 
 issued, and that some of them would pass into the hands of innocent 
 holders for value before presentation to defendant for payment, and it 
 owed a duty to such holders, despite the fact that they were under no 
 legal obligation to acquire title or ownership of such pajier, to exercise 
 some care in its custody during the interim between the signing and 
 delivery thereof. 
 
 Regarding defendant merely in the light of an innocent holder for 
 value, we think the facts of the case, upon the plainest principles of 
 fairness and justice, estop plaintiff from taking the position that, as 
 to such holder, it did not voluntarily part with the possession of the 
 checks, and therefore in law deliver them. 
 
 We have gone thus extensively into this aspect of the case for the 
 reason that we think the position of defendant with respect to the two 
 checks of $2,700.95 and $195.15 should be regarded as that of an in- 
 nocent holder for value, and not that of a debtor bank to a depositor. 
 We are aware that in some of the cases cited by defendant, e. g.. Trust 
 Co. V. Conklin, 65 Misc. Rep. 1, 119 N. Y. Supp. 367, and Snodgrass 
 V. Sweetser, 15 Ind. App. 682, 44 N. E. 648, no distinction appears to 
 be observed between the status of a bank which pays a forged check 
 signed by the depositor out of funds on deposit to his credit and of 
 a bank which pays such c^eck, thereby creating an overdraft. 
 
 The relation of banker and depositor is that of debtor and creditor, 
 and as to a checking account the contractual obligation assumed by 
 the banker is to pay on presentation the checks drawn by the custom- 
 er against the deposit. But the banker is under no legal or contractual 
 duty to allow a customer to overdraw his account, and as to checks 
 he pays which cause an overdraft may be regarded, not as a debtor 
 who has discharged a legal duty to a creditor, but as a voluntary pur- 
 chaser or holder for value of negotiable paper. 
 
 As to the check for $395.60, which was paid when plaintiff had a 
 larger sum than that on deposit, the relationship between the parties 
 was purely that of depositor and banker— creditor and debtor — and 
 plaintiff owed a duty of care to the bank greater than that which the 
 maker of a negotiable instrument owes to subsequent holders for val- 
 ue. Any negligent breach of that duty which directly results in loss 
 would charge the depositor with liability for such loss. As, for ex^ 
 ample, it is well settled in this state that, where after delivery of a 
 completed check it is raised by forgery, the loss must fall on the mak- 
 
812 NEGOTIABLE INSTRUMENTS (Part 3 
 
 er if he negligently inserted the amount in a way to admit of the easy 
 addition by forgery of other words and figures. * * * 
 
 Considering the facts that a bank must honor the checks of its de- 
 positor, and cannot by the exercise of any degree of skillful inspection 
 detect a forgery of a check signed and delivered in blank, we think 
 every consideration of justice and common sense sustains the conclu- 
 sion that a depositor should affix his signature to a blank check only 
 for the purpose of directing the bank to pay out the money, and that 
 the risk of signing and then keeping a blank check, whether the keep- 
 ing be careful or negligent, should be considered a risk the maker 
 voluntarily assumed. Trust Co. v. Conklin, supra. * * * If the 
 exigencies of the depositor's situation create a necessity for the sign- 
 ing of checks in blank, and then keeping them a time before putting 
 them, into circulation, why should he not bear the risk made by his own 
 necessities, rather than the banker, who is a stranger to them, and is 
 under the contractual duty to honor his written orders for the pay- 
 ment of money ? He is the one who, in the service of his own interest, 
 has given occasion for the commission of the wrong, and, under the 
 familiar maxim, is the one who should bear the consequences. 
 
 It follows from the foregoing considerations that, whether defend- 
 ant be treated as an innocent purchaser of the checks for value or as 
 a banker who paid them in discharge of a contractual obligation to 
 a depositor, the loss of the forgeries should fall upon plaintiff. * * * 
 
 PHILLIPS V. A. W. JOY CO. 
 
 (Supreme Judicial Court of Maine, 1916. 114 Me. 403, &6 Atl. 727, 
 L. R. A. 1916E, 690.) 
 
 Philbrook, J. The plaintiff is one of the ticket agents of the 
 Maine Central Railroad Company at Bangor. On the evening of Febru- 
 ary 10, 1915, while attending to his duties at the office of the com- 
 pany, his telephone bell rang, and he answered the call. He says he 
 was as sure as one could be that the voice coming over the wire was 
 that of Mr. Wheaton, who, as the evidence shows, was acting man- 
 ager of the defendant company at that time. The sender of the mes- 
 sage, whoever he might have been, asked the plaintiff if he would 
 cash one of the defendant's checks, stating that the funds of the de- 
 fendant were locked up and there was a man who wanted a mileage 
 ticket. The plaintiff consented, and in the course of 20 minutes or 
 half an hour a man came to the window of the ticket office who pre- 
 sented a check for $113.75, payable to the order of Earl S. Woodbury, 
 drawn on the Eastern Trust & Banking Company, and signed "a' 
 W. Joy Co., by J. F. Wheaton, Treas." The name of the company in 
 the signature was printed, but the name and designation of the signer 
 were written. In the upper left-hand corner were printed the name 
 and business of the defendant company, and just below this printing, 
 made by a protectograph stamp, were the words and figures "Not over 
 one hundred twenty $120$." The plaintiff asked the man if he were 
 Earl S. Woodbury, and if he were the man about whom Mr. Wheaton 
 telephoned, to both of which questions affirmative answers were c^iven. 
 The check bore the earmarks of genuineness, and plaintiff says he rec- 
 ognized the signature of Mr. Wheaton. Upon request, therefore the 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 813 
 
 mileage book was delivered, and the balance of the amount paid in cash ; 
 the check having been first indorsed by the payee. In. due time the 
 check was presented to the trust company, but payment was' refused. 
 
 While denyingJhatJi£.,evex„tekpliOQ?-4j. §s claimed by plaintiff, Mx^ 
 Wheatonadijjiftedjthe. signature upon the check to be his own, but said 
 this checkwas sj^ned hy him in h|^jik,_and that after such signature 
 it had been stolen, the date, amount, and name of the payee having been 
 written in, andTTKeprotectograph stamp used, after the stealing. As 
 soon as the theft had been discovered the trust company was directed 
 not to pay the check when presented. Mr. Wheaton testified that it 
 was his custom to sign enough checks in blank during the morning for 
 use during the day, and that Miss Butler, the clerk and bookkeeper, 
 filled in the dates, amounts, and names of the various payees as oc- 
 casion demanded. The testimony shows that after such signature by 
 Mr. Wheaton the check book was kept sometimes in the office safe, 
 sometimes in the drawer of a desk in the office, and sometimes on top 
 of the desk. The plaintiff testified that the bookkeeper told him it 
 would be easy for anybody to come in and abstract one of the checks 
 while she was out making change for the men. This testimony was 
 hot contradicted by Miss Butler. Mr. Wheaton testified that there 
 was nothing to prevent the general help from access to the office al- 
 though either he or Miss Butler was supposed to be there all the time. 
 On cross-examination he stated that the office might have been left 
 alone, that he had been in the store when there was no one in the of- 
 fice, and that there was no lock on the office door. Miss Butler, the 
 bookkeeper, stated that occasionally the office had been left alone for 
 10 or 15 minutes, or perhaps a little longer at times. On cross-ex- 
 amination she said the check book was left on the desk quite often 
 during business hours. 
 
 It is claimed by plaintiff, practically admitted by defendant, and 
 we have no hesitation in finding from the record of the case, that the 
 plaintiff is a bona fide holder of the check for value, that he took it 
 without notice of any facts which would impeach its validity between 
 the antecedent parties, and that he took it under an indorsement made 
 before the same became due. * * * 
 
 Through all the cases, and those holding similarly there runs a 
 distinction between a completed piece of commercial paper with all 
 its blanks filled, including the name of the payee to whom delivery 
 had not been made, either actually or constructively, and a paper 
 signed by the maker with blanks left unfilled as in the case at bar. 
 The element of negligence on the part of the signer also plays an 
 important part. It is conceded that this check was signed in blank. 
 Was there such negligence on the part of the defendant company or 
 its agents as will permit this plaintiff to recover? The case seems to 
 show quite clearly that the check book was left about the office in 
 such a way that this check was, in fact, undoubtedly stolen, and, as 
 we have already seen, according to the plaintiff's undisputed testimony, 
 the bookkeeper admitted that "it would be easy for anybody to come 
 in and abstract one of the checks." Under all the circumstances it 
 seems to us, in view of the character of the paper stolen, its condi- 
 tion as to signature when stolen, the negligence in leaving the signed 
 checks in such environment that theft was easy, and the apparent 
 care of the plaintiff before cashing the check, that we should apply 
 the rule of estoppel, * * * as well as the rule that, when one of 
 
814 NEGOTIABLE INSTRUMENTS (Part 3 
 
 two innocent persons must suffer by the act of a third, he who has 
 enabled such person to occasion the loss must sustain it. 
 
 Judgment, for plaintiff for $113.75, with interest . from date of the 
 
 (g) MATERIAL ALTERATION AS REGARDS THE INSTRUMENT IN 
 ITS ORIGINAL FORM 
 
 N. I. L., Section 124. Where a negotiable instrument is materi- 
 ally altered without the assent of all parties liable thereon, it is 
 avoided, except as against a party who has himself made, author- 
 ized or assented to the alteration, and subsequent indorsers. 
 
 N. I. L., Section 125. Any alteration which changes: 
 
 1. The date; 
 
 2. The sum payable, either for principal or interest; 
 
 3. The time or place of payment ; 
 
 4. The number or the relations of the parties ; 
 
 5. The medium or currency in which payment is to be made ; 
 
 6. Or which adds a place of payment where no place of payment 
 is specified ; 
 
 7. Or any other change or addition which alters the effect of 
 the instrument in any respect, is a material alteration. 
 
 N. I. L., Section 124. But when an instrument has been materi- 
 ally altered and is in the hands of a holder in due course, not a 
 party to the alteration, he may enforce payment thereof according 
 to its original tenor. 
 
 PUBLIC BANK OF NEW XORK CITY v. KNOX-BURCHARD 
 MERCANTILE CO. et al. 
 
 (Supreme Court of Miimesota, 1916. 135 Minn. 171, 160 N. W. 667.) 
 
 Taylor, C. Plaintiff brought suit upon a promissory note for the 
 sum of $7,500 and recovered a verdict against the defendant, * * * 
 S. J. Burchard. * * * He appealed. 
 
 The Knox-Burchard Mercantile Company is a Minnesota corporation 
 which was engaged in the wholesale mercantile business in the city of 
 St. Paul until it went into the hands of a receiver. G. C. Knox, A. M. 
 Knox and S. J. Burchard were respectively the president, vice presi- 
 dent and secretary of the company and constituted its board of direc- 
 tors. G. C. Knox and S. J. Burchard were the active members of the 
 company and conducted its business. * * * 
 
 Appellant claims that, as an accommodation maker, he joined with 
 G. C. Knox in executing a promissory note in the; sum of $10,000 for 
 the personal debt of Knox; * * * ^jj^^ thereafter G. C. Knox 
 changed the signatures upon the face of the pote by inserting above his 
 own name with a rubber stamp the words, "Knox-Burchard Mercan- 
 tile Co., per," by adding after his own name the abbreviation, "Pres." 
 and by adding after appellant's name the abbreviation, "Sec," so that 
 the signature as. so changed reads, "Knox-Burchard Mercantile Co 
 per G. C. Knox, Pres., S. J. Burchard, Sec"; that Knox also changed 
 the indorsements upon the back of the note. * * * 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 815 
 
 The evidence in support of appellant's contention is uncontradicted 
 and persuasive, but conceding that the note was executed as the in- 
 dividual jiotgj3. f TCnnv ^ ^riH Rnrrhard, and that it has bee n changed so 
 t hat it no\ yi.jmr-t)o-i:ts. tobe'the'note of the conipany indors^ by Knox, 
 Burchard, and^Lj^il^Knox, does this'fact release Bufchard from lia- 
 bility thereon ?^ Burchard signed the nofe and also indorsed it. His 
 signatnfe"s"are genuine even if other signatures be forged. Plaintiff 
 
 is a "holder in due course" within the Negotiable Instruments Act. 
 * * * 
 
 By virtue of this statute, a party to a negotiable instrument must 
 respond to "a holder in due course" upon the obligation which he 
 in truth assumed, notwithstanding the fact that the instrument may 
 have been changed so as to import a different obligation. * * * 
 
 N. I. L,., Section 23, provides: "When a signature is forged or 
 made without the authority of the person whose signature it purports 
 to be, it is wholly inoperative, and 'no right to retain the instrument, 
 or to give a discharge therefor, or to enforce payment thereof against 
 any party thereto, can be acquired through or under such signature, 
 unless the party, against whom it is sought to enforce such right, is 
 precluded from setting up the forgery or want of authority." 
 
 Appellant seems to contend that this is the only section which ap- 
 plies to cases where a signature has been forged, and that section 124 
 applies only to cases wheire an alteration has been made in the body 
 of the instrument but not in the signature. We think the statute will 
 not bear this construction. Where a signature is forged or made with- 
 out auth ority, section 26' provides that no' rights can be predicated 
 upoifiuch forged or unauthoftzed" sig'nature except against a party who 
 is precluded from asserting the forgery or want of authority, but goes 
 no further than to make such signature inoperative and to bar the 
 enforcement of rights founded thereon. The langfuage is carefully 
 chosen to confine the effect of the section to the specific points covered 
 thereby. It does not purport to declare the instrument void, nor the 
 genuine signatures thereon inoperative. It protects the party whose 
 signature has been forged or affixed without his authority, but con- 
 tains no provisions releasing other parties from whatever liability they 
 may have assumed. 
 
 Tq determine the rights of the holder of an altered instrument against 
 such other parties we must have recourse to section 124. . Under this 
 section: "When an instrument has been materially "altered and is in 
 the hands of a holder in due course, not a party to the alteration, he 
 may enforce payment thereof according to its original tenor." 
 
 No claim is made that plaintiff was a party to the alteration in 
 question or had any knowledge thereof. According to the original 
 tenor of the instrument, appellant was a maker as well as an indorser, 
 and liable unconditionally for its payment. According to the instru- 
 ment as altered; he appeared to be only an indorser, and the verdict 
 against him was rendered on the theory that his liability was that of 
 an indorser. He was held to no greater or different liability than he 
 in fact assumed and is not in condition to complain. 
 
 Order affirmed. 
 
816 NEGOTIABLE INSTRUMENTS (Part 3 
 
 (h) MATERIAL CHANGE OP A COMPLETED INSTRUMENT EFFECTED 
 OTHERWISE THAN BY ERASURES MADE POSSIBLE BY 
 
 NEGLIGENT EXECUTION 
 
 A material change of a completed instrument effected otherwise 
 than by erasures, when such change is made possible by negligent 
 execution of the instrument, is a personal defense in some states. 
 In other states a change of this Sort is treated as a material alter- 
 ation, and the legal effect is the same as that produced by era- 
 sures followed by alteration. We are dealing with a situation, 
 therefore, where the physical facts bear a close resemblance to the 
 case of material alteration, and to the filling in of blanks in an in- 
 complete instrument. The conflict of authority is therefore easily 
 accounted for. Those courts which protect the holder in due 
 course to the full extent of the change do so for the same general 
 reason that a holder in due course is protected when an incom- 
 plete instrument has been delivered and filled up in excess of 
 authority. Those courts which refuse protection to the holder in 
 due course as regards the instrument in its changed condition do 
 so because they regard the change to be in legal effect a material 
 alteration effected by erasures. But, as appears from the second 
 case following, even these courts which refuse protection to the 
 holder in due course will protect a drawee bank as against the 
 claim of the negligent drawer. 
 
 NATIONAL EXCHANGE BANK OF ALBANY v. LESTER. 
 
 (Court of Appeals of New York, 1909. 194 N. Y. 461, 87 N. E. 7T9, 
 21 L. R. A. [N. S.] 402, 16 Ann. Cas. 7T0.) 
 
 Action by the National Exchange Bank of Albany against William 
 Lester. From a judgment for plaintiff, defendant appeals. 
 
 The defendant was sued as the accommodation indorser upon a 
 note for $375 made by one Frank L,. Fancher and acquired by the 
 plaintiff bank before maturity in the regular course of its business. 
 The defense was that the note as originally made and indorsed' was 
 for $75 only; that the maker thereafter, without the knowledge or 
 .consent of the indorser, altered the note by inserting in the body 
 thereof the words "three hundred" immediately in front of the words 
 "seventy-five" and the figure "3" immediately in front of the figures 
 "75," thereby making the instrument apparently a note for ^37^ in- 
 stead of $75 ; and that the maker thereafter caused the note as thus 
 altered to be discounted by the plaintiff bank. 
 
 WiLLARD Bartlbtt, J. As this case went to, the jury, they might 
 well have found that the note in suit was a note for only $75 when 
 originally prepared by the maker and indorsed at his instance by the 
 defendant, and that it had subsequently been altered to a note for $375 
 when discounted by the plaintiff bank. They were instructed in sub- 
 stance, however, that the indorser was liable for the amount of the 
 note as raised by the alteration, if he had been careless and negligent in 
 placing his name upon the instrument while there were spaces there- 
 on which permitted the insertion of the words and figure wherebv it 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 837 
 
 was transmuted from a note for $75 into a note for $375. Conceding 
 that the contract which he actually signed bound him only to pay the 
 smaller amount, the jury were permitted to find that in consequence 
 of his negligence in the respect indicated it had become a contract 
 which bound him to pay the larger amount to a subsequent innocent 
 holder of the paper. 
 
 In support of the correctness of this ruling, the learned counsel for 
 the respondent asserts the doctrine that "a party to a note who puts his 
 name to it in any capacity of liability, when it contains blanks uncan- 
 celed facilitating an alteration raising the amount, is liable for the face 
 of the note as raised to an innocent holder for value"; and he de- 
 clares that this doctrine has been approved and apparently adopted 
 in Alabama, California, Colorado, Illinois, Kansas, Kentucky, Louis- 
 iana, Michigan, Missouri, Nebraska, and Pennsylvania. In consider- 
 ing his proposition, it is importa,nt to bear in mind a radical distinction 
 which exists between two classes of notes to which the adjudicated 
 cases relate : (1) Those notes in which obvious blanks are left at the 
 time when they are made or indorsed, of such a character as manifest- 
 ly to indicate that the instruments are incomplete until such blanks 
 shall be filled up ; and (2) those notes which are apparently complete, 
 and which can be regarded as coiitaining blanks only because the writ- 
 ten matter does not so fully occupyThe entire paper as to precKide the 
 insertion of additional words or figures or both. It is a note of the 
 latter class that we have to deal with here. One who signs or indorses 
 a note of the first class has been held liable to bona fide holders there- 
 of, in some of the cases cited by the respondent, according to the terms 
 of the note after the blanks have been filled, on the doctrine of implied 
 authority, while in other cases, relating to notes of the second class, 
 the liability of the maker or indorser for the amount of the note as 
 increased by filling up the unoccupied spaces therein is placed upon the 
 doctrine of negligence or estoppel by negligence. * * * 
 
 It has now, however, become in America an established rule that, if 
 the instrument was complete without blanks at the time of its deliv- 
 ery, the fraudulent increase of the amount by taking advantage of a 
 space left without such intention + * * vvill constitute a material 
 alteration, and operate to discharge the maker." * * * The rule 
 thus stated is sustained by the decisions of the courts of last resort in 
 Massachusetts, Michigan, New Hampshire, Iowa, Maryland, Missis- 
 sippi, Arkansas, and South Dakota. In my judgment it rests on a 
 sounder basis than the opposite doctrine, and accords better with such 
 adjudications of this court as bear more or less directly on the ques- 
 tion involved. The leading case sustaining this view is Greenfield Sav- 
 ings Bank v. Stowell, 123 Mass. 196, 25 Am. Rep. 67. * * * 
 
 No one questions the proposition that, where a party to commercial 
 paper intrusts it to another with a blank thereon designed to be filled 
 up with the amount, such party is liable to a bona fide holder of the 
 instrument for the amount filled in, though it be larger than was stip- 
 ulated with the person to whom immediate delivery was made. * * * 
 But, where there is no blank for that purpose when the note is in- 
 dorsed, the insertion of an obligation to pay interest is a material al- 
 teration which invalidates the instrument as against the indorser. 
 * * * As the law stood, he was relieved of all liability whatever 
 as the effect of the unauthorized alteration. Now, however, under the 
 B.& B.Bus.Law— 52 
 
818 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Negotiable Instruments Law, * * * he would be liable on the pa- 
 per according to its original tenor. 
 
 To sustain the judgment in the case at bar * * * we must hold 
 that the indorser of a promissory note, the amount of which has been 
 fraudulently raised * * * jg liable upon the instrument in the 
 hands of a bona fide holder for the increased amount, because of neg- 
 ligence in indorsing the same when there were spaces thereon which 
 rendered the forgery easy, though the note was complete in form. 
 To do this would be to create a contract through the agency of negli- 
 gence. * * * An averment of negligence necessarily imports the 
 existence of a duty. What duty to subsequent holders of a promissory 
 note is imposed by the law upon a person who is requested to indorse 
 the paper for the accommodation of the maker and who complies with 
 such request? It is a complete instrument in all respects — as to date, 
 name of payee, time and place of payment, and amount. There are, 
 it is true, spaces on the face of the instrument in which it is possible 
 to insert words and figures which will enlarge the amount and still 
 leave the note apparently a genuine instrument; in other words, there 
 is room for forgery. On what theory is the indorser negligent because 
 he places his name on the paper without first seeing to it that these 
 spaces are so occupied by cross-lines or otherwise as to render forgery 
 less feasible ? It can only be on the theory that he is bound to assume 
 that those to whom he delivers the paper or into whose hands it may 
 come will be likely to commit a crime if it is comparatively easy to (Jo 
 so. I deny that there is any such presumption in the law. It would 
 be a stigma and reflection upon the character of the mercantile com- 
 munity and constitute an intolerable reproach of which they might 
 well complain as without justification in practical experience or the 
 conduct of business. That there are miscreants who will forge com- 
 mercial paper by raising the amount originally stated in the instru- 
 ment is too true, and is evidenced by the cases in the law reports td 
 which we have had occasion to refer ; but that such misconduct is the 
 rule, or is so general as to justify the presumption that it is to be ex- 
 pected and that business men must govern themselves accordingly, 
 has never yet been asserted in this state, and I am not willing to sanc- 
 tion any such proposition either directly or by implication. On the 
 contrary, the presumption is that men will do right rather than wrong. 
 
 I think the judgment of the Appellate Division should be reversed 
 and a new trial granted. * * * 
 
 TRUST 00. OF AMERICA v. OONKDIN. 
 
 (Supreme Court of New York, Appellate Term, 1909. 65 Misc Rep 1 
 119 N. T. Supp. 367.) ' ' 
 
 Action by the Trust Company of America against Henry Conklin. 
 From a judgment for plaintiff, defendant appeals. 
 
 Lehman, J. The plaintiff seeks to recover from the defendant for 
 an overdraft of his account. It appears that the overdraft arose from 
 the fact that the defendant left the city, and upon his departure gave 
 his bookkeeper a number of checks, signed by him in blank, in or- 
 der to provide funds for use in his business. His bookkeeper locked 
 the checks in a drawer of the safe. One of the defendant's employes 
 
Ch. 4) RIGHTS OF HOLDBK AGAINST MAKER AND ACCEPTOR 819> 
 
 knew where the key was hidden^abst£actej_a-hla uk, chegk^nd filled in 
 the blank so that it apparently^Eecame acomplete instrument payable 
 to bearer for the sum of $200. 
 
 If, * * * the plaintiff has shown a right to charge the account 
 of this defendant, even though that right arises by reason of the neg- 
 ligence of the defendant, then the plaintiff may recover herein, al- 
 though the action is, in form, based on contract. 
 
 The courts of this state have been, however, averse to allowing re- 
 coveries on the ground of negligence of a party to an instrument. 
 * * * In the recent case of National Exchange Bank v. Lester. 194 ' 
 N. Y. 461, 87 N. E. 779, 21 L. R. A. (N. S.) 402, 16 Ann. Cas. 770, 
 the court held that the indorser of a promissor y note, the amount of 
 which had be en f raudulently raised after th e mcforsemerif by means of 
 a" tnrg pry^ IS not lia ble upon the instrument" iii the hands of a bona fide 
 holder fnrjli p^ int-rfased amount becausi:-Xif_.negligen£.e in indorsing 
 the instrument, when there were spaces thereon which rendered the j 
 forgery easy, although the note was complete in form. * * * 
 
 In the present case we have two causes intervening to produce a 
 check which the defendant did not intend to order the plaintiff to pay. 
 The defendant, dsliveredJie. check, signed in blank, to ;^n agent upon 
 whose hdefity he was bound to rely, and the b lanks w ere subseguent- 
 l y filled in. not by his own ag ent, but by one who obtai ned thelch fick 
 t hrough a c nme. I dnjnt think that the ^'fenH ant's agent c an be 
 cbnsidered ne gligent in his care of the instrument. It is true that it 
 was iStoleh; but he kept it locked up in a drawer under circumstances 
 that showed at least reasonable care, and he could not presume that a 
 trusted porter would turn out to be a clever thief. If the defendant is 
 liablejj: all, it is because he o wed the bauk a duty which he violated 
 by^gning the check in blank. 
 
 "We may, for the purpose of this appeal, dismiss entirely the question 
 whether the defendant would be liable to a bona fide holder for value. 
 The question before us is entirely one concerning the duties of a de- 
 positor to his bank. !Jhata d epositor owes a real d uty of care to th"e~ 
 bank has been frequently" decided, and this duty is greater than tha^ 
 which the maker of an instrument owes to subsequent holders for 
 value. A purchaser of a negotiable instrument can take it or not, at 
 his option, and usually, at least to some extent, relies upon the re- 
 sponsibility of the last holder, ^bank, h owever, must at it£ peril ^ay 
 out-the money deposited, if the"^ Baa]Llo.r directs .him to do so. * * * 
 
 IntEis"ea5e^ depositor has" signed a blank check, and has made it 
 possible for a person obtaining the check, not only to successfully tam- 
 per with it, but has facilitated, "if not invited, the forgery which was 
 actually successfully completed. In one sense he may not have been 
 negligent. It is possible that even a careful man might be willing' to 
 assume the risk of theft; but he owed a duty to the bank to put his 
 signature upon a blank check only for the purpose of directing it to 
 pay out the money, and, however sl ight the- risk, thp depositor is the: 
 person who has assumed it The bank could not discover the forgery 
 m any possible' WayTBecause his act had rendered such discovery prac- 
 tically impossible, and by virtue of his contractual relation to the bank 
 he is now bound to pay back to the bank the money which it has paid 
 out. 
 
 The judgment should be affirmed. * * * 
 
820 NEGOTIABLE INSTRUMENTS (Part 3 
 
 (1) FORGERY WHEN ACCOJIPANIED BY FACTS CONSTITUTING AN 
 
 ESTOPPEL 
 
 The following case arises between a drawee bank and its depos- 
 itor, but in so far as the drawee is protected by .estoppel, the doc- 
 trine is equally alpplicable to a holder in due coutse. 
 
 FIRST NAT. BANK OF BIRMINGHAM v. ALLEN. 
 
 (Supreme Court of Alabama, 1893. 100 Ala. 476, 14 South'. 335, 
 27 L. R. A. 426, 46 Am. St. Rep. 80.) 
 
 Coleman, J. The plaintiff, Allen, a depositor, sued to recover mon- 
 ey which had been paid by the defendant bank upon checks to which 
 plaintiff's name had been forged by his clerk, Tomlin. The forgeries 
 coveredr-a~pefi6d "extending frorn abdufThe~5tE~oF~September, 1890, 
 to March 4._1891. at which latter point of time the forgeries were firsF" 
 actually known to the depositor. It was a rule_of the ba nk about on ce 
 a month to post up the depositor's pass book, and render him a state- 
 ment, showing the deposits and checks and the balance. This rule 
 was observed regularly in this case, and the forged checks, with other 
 vouchers, were delivered to the depositor monthly from September, 
 1890, to March 4, 1891, with his pass book. * * * The case was 
 tried without the intervention of a jury, and judgment rendered fOr 
 the plaintiff, from which judgment the defendant appeals. * * * 
 
 As the court found for the plaintiff, it must have found that the plain- 
 tiff, under the facts, was not negligent, and was not chargeable with 
 knowledge of the forgeries in time to have prevented loss to the defend- 
 ant, in consequence of forgeries perpetrated after return of prior forged 
 checks to the depositor with his pass book. Were the conclusions' of 
 the court authorized by the evidence? If, as matter of law, as is insist- 
 ed by the plaintiff^ ^llen, the de positor owed no duty to the bank to ex- 
 amine the vouchervthen the concKisioirbf ffie"couft"mi:srbe sustained, 
 iipon this principle, however negligent the depositor may have been in 
 his examination of the pass book and vouchers. In the same line, but 
 not so positive, may be cited Welsh v. Bank, 73 N. Y. 424, 29 Am. 
 Rep. 175; Frank v. Bank, 84 N. Y. 209, 38 Am. Rep. 501; Bank 
 V. Barnes, 65 111. 69, 16 Am. Rep. 576. [New York cases are here 
 cited.] These New York cases were fully reviewed in the case of 
 Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657, 29 L. Ed. 811, in 
 which a different rule is declared, and it is held that "a depositor in 
 a bank, who sends his pass book to be written up, and receives it 
 back with .entries of credits and debits, and his paid checks as vouchers 
 for the latter, is bound personally, or by an authorized agent, and with 
 due dihgence, to^xamine the pass book and vouchers, and-repacLlo 
 the bank without unreasonable delay liQCerroxs -which may be discov- 
 ered in thern; and, if he fails to do so, and if the bank is thereby 
 misled to its prejudice, he cannot afterwards dispute the correctness 
 of the balance shown by the pass book. * * * The weight of 
 authority and the best considered cases hold that the depositor owes 
 a duty to the bank ; and when the character of the business, the rela- 
 tions of the depositor and bank to each other, and the purposes for 
 which at prescribed intervals the account is stated, and pass book and 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 821 
 
 vouchers (the evidence of the bank) delivered to the depositor are taken 
 into consideration, the conclusion of these authorities is supported by 
 sound reason and just principles. * * * 
 
 What is the proper measure of relief to which the bank is entitled 
 in such cases? Some of the courts have held that, if injury results to 
 the bank by the negligence of the depositor, he will be held to have 
 adopted and ratified the payment of the forged checks. By others, 
 under like circumstances, the doctrine of estoppel has been applied, and 
 the depositor held to be estopped from asserting a claim to the money 
 paid on the forged checks. We do not think that either the doctrine 
 of ratification or estoppel can be applied as a just and equitable prin- 
 ciple in all cases. Ratification refers to a past act or transaction, and, 
 as now being considered, refers to the unauthorized act of an agent, or 
 the adoption of a past act or transaction as his own act, made or ex- 
 ecuted by another, who was not an agent. It would strain the doc- 
 trine of ratification to hold* that a person had ratified or adopted as 
 his own the unauthorized act of another, of which he had no informa- 
 tion, or which was promptly repudiated as soon as brought to his 
 knowledge. So, where a bank pays a forged check drawn in the name 
 of one of its depositors, and the depositor is wholly free from neg- 
 lect or fault, the bank owes the amount to the depositor. There was 
 no act, omission to act, or silence in such a case on the part of the de- 
 positor which induced the bank to pay the forged check, or influenced 
 the action of the bank in the payment of the check. No principle of 
 the law of estoppel can be invoked by the bank against the depositor 
 under such circumstances. The depositor owed the bank a duty, which 
 was to examine the pass book and vouchers with reasonable care and 
 diligence. If the depositor failed in his duty in this respect, and the 
 bank was injured in consequence of such omission of duty, the de- 
 positor became liable to the bank for all such damage. The extent 
 of the liability of the depositor is commensurate with the loss sus- 
 tained in consequence of his neglect of duty; no more, no less. 
 
 It would be unjust, upfair to the depositor, not sanctioned by any 
 correct principle of law, to permit the bank to invoke the doctrine of 
 ratification or estoppel which would exempt the bank from all liabil- 
 ity incurred by its own neglect in the payment of the forged check, 
 and in many cases inflict upon the depositor a greater loss than that 
 caused to the bank by his neglect of duty. The damages sustained 
 by the bank as the result of neglect of duty by the depositor are as sus- 
 ceptible of proof and measurement as arise in any other case of breach 
 of duty imposed by contract. * * * The evidence shows that sev- 
 eral checks were forged by Tomlin and paid by the bank subsequent to 
 the time that Allen, the plaintiff, was chargeable with notice that his 
 clerk was making such unauthorized use of his name. As to all such 
 subsequent payments of forged checks the bank is entitled to invoke 
 the equitable doctrine of estoppel. As to these, it may be fairly said 
 that the bank was induced to pay and did pay in consequence of the 
 silence of the plaintiff when it was his duty to speak. The bank was 
 misled to its injury by the fault of the depositor. A very interesting 
 and instructive collection of leading cases on the question under con- 
 sideration may be found in 26 American Law Review, 274. * * * 
 
 Reversed and remanded. 
 
822 NEGOTIABLE INSTRUMENTS (Part 3 
 
 (j) DISCHAEGE BEFORE MATURITY 
 
 N. I. L., Section 119. A negotiable instrument is discharged: 
 (1) By pa5mient in due course by or on behalf of the principal 
 debtor. (2) By payment in due course by the party accommo- 
 dated, where the instrument is made or accepted for accommoda- 
 tion. * * * (4) By any other act which will discharge a sim- 
 ple contract for the payment of mtoney. 
 
 N. I. L., Section 122. The holder may expressly renounce his 
 rights against any party to the instrument, before, at or after ma- 
 turity. An absolute and unconditional renunciation of his rights 
 against the principal debtor made at or after maturity of the in- 
 strument discharges the instrument. But a renunciation does not 
 affect the rights of a holder in due course without notice. A re- 
 nunciation must be in writing, unless the instrument is delivered 
 up to the person primarily liable thereon. 
 
 MANCHESTER et al. v. PARSONS. 
 
 (Supreme Court of Appeals of West Virginia, 1915. 75 W. Va. 793, 
 84 S. E. 88.5.) 
 
 Williams, J. By this writ of error defendant seeks to reverse a 
 judgment recovered against him by Jason Manchester and L. M. Elli- 
 ott. * * * The recovery was upon a negotiable note made by de- 
 fendant, payable to Burton & Co., a partnership composed of L. A. 
 Burton and D. J. Grindell, and indorsed to plaintiffs. Defendant filed 
 three pleas on which issues were joined. The substance of the pleas 
 are: (1) That defendant had discharged the note by payment to the 
 legal owner and holder, before the suit was brought. * * * 
 
 After the evidence had all been introduced, the court, on motion of 
 plaintiffs, excluded defendant's evidence, and directed the jury to re- 
 turn a verdict for plaintififs. A motion to set aside the verdict was 
 overruled, exceptions taken, and judgment entered. 
 
 Burton & Co. was a Kenton, Ohio, firm, engaged in importing and 
 selling horses for breeding purposes. Defendant lived at Parsons, W. 
 Va., and was engaged in breeding horses. The note is for $800, pay- 
 able 18 months after date, to the order of Burton & Co., at the First 
 National Bank of Parsons, with 6 per cent, interest, and bears date 
 September 22, 1910. It is proven that the note was negotiated to plain- 
 tiffs by one Lee Whorton, about the 1st of November, 1910. Whorton 
 was then employed in selling horses for Burton & Co. 
 
 Defendant's pleas set up affirmative matters entailing on him the 
 burden of proof. Any one of them, if sustained, would defeat recov- 
 ery. But there is no evidence to support any of them. To sustain 
 his first plea, defendant proved that on the 3d of June, 1911, he sold 
 and delivered to Burton & Co. some Percheron colts for $1,675, with 
 the understanding and agreement that it was to pay his note, and that 
 they were to execute to him their note for the balance. He produced 
 a letter from D. J. Grindell, then a member of the firm, but now de- 
 ceased, dated June 15, 1911, acknowledging receipt of the colts in good 
 condition, and promising defendant to send him his note and the firm's 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 823 
 
 note for the balance, soon. Counsel contends that defendant's note was 
 thus discharged. But the uncontradicted testimony of L. A. Burton, 
 the surviving partner, and of Lee Whorton, is that it had been in- 
 dorsed to plaintiffs, for value, about the 1st of November, 1910, and 
 therefore payment to the original holders did not discharge it. 
 
 Counsel invokes subsection 4 of section 119 of the Negotiable In- 
 struments Act as authority for his contention. Section 119 describes 
 how a note may be discharged, and subsection 4 reads : "By any other 
 act which will discharge a simple contract for the payment of money." 
 This subsection must be interpreted with reference to the general pur- 
 ■ pose of the Negotiable Instruments Act. It must be read in connec- 
 tion with its other provisions, and made to harmonize with the general 
 scheme and plan of the act. Thus viewing subsection 4, it is apparent 
 that it was never the legislative intent to make so radical a change 
 in the general law respecting negotiable instruments, as would be 
 wrought by the literal interpretation contended for. It is clear, from 
 other provisions of the act, as well as from the preamble thereto, that 
 the Legislature did not contemplate making so vital and radical a 
 change in the law, as to permit equities between the original parties 
 to a negotiable instrument to defeat the title of an innocent holder 
 for value in due course. That would counteract the purpose of the 
 statute, which was not to revolutionize the law, but to amend, en- 
 large, and re-enact certain sections of tlie statute law respecting ne- 
 gotiable instruments, and consolidate and arrange in one act the gen- 
 eral laws on that subject, so as to make them uniform with the laws 
 of other states. The acts which will discharge a simple contract 
 for payment of money, in order to effect a discharge of negotiable pa- 
 per, within the contemplation of subsection 4, must therefore neces- 
 sarily be limited to such acts as relate to and affect the holder of the 
 paper demanding payment of it. It does not include a holder for value 
 in due course. Negotiable paper, in the hands of such holder, is not 
 discharged by payment made to his transferror, either before or after 
 the transfer. 
 
 Such was the rule of the common law respecting negotiable paper, 
 and it was clearly not the legislative purpose to change the rule. It 
 would injuriously affect the value of commercial paper, by putting it 
 on a plane with simple contracts for the payment of money. We can- 
 not conceive that the Legislature intended any such thing, although a 
 literal interpretation of the subsection in question might indicate other- 
 wise. Other provisions of the statute expressly preserve the rights of 
 holders in due course. Section 52 (sec. 4223) defines a holder in due 
 course to be one who takes the paper in good faith for value, without 
 notice of any infirmities in it or defect in the title of the person ne- 
 gotiating it. And section 57 (sec. 4228) says that such an one holds 
 it "free from any defect of title of prior parties, and free from de- 
 fenses available to prior parties among themselves and may enforce 
 payment of the instrument for the full amount thereof against all par- 
 ties liable thereon." To construe subsection 4 of section 119, as con- 
 tended for by counsel, would defeat section 57 and other provisions 
 contained in the act. * * * 
 Judgment affirmed. 
 
824 NEGOTIABLE INSTRUMENTS (Part 3 
 
 (k) CLAIMS jOF OWTSTEESHIP 
 
 The next case illustrates the rule that a holder in due course 
 takes free from equities of ownership. A holder in due course 
 takes free from both equities of defense and equities of owner- 
 ship. The most common illustration of an outstanding equity of 
 ownership arises where the instrument was in form payable to 
 bearer, and therefore transferable by delivery, and the same is put 
 in circulation by a thief or finder of the instrument. In the fol- 
 lowing case, however, the actual question raised is not whether a . 
 holder in due course takes free from the equity of Ownership, but 
 whether an innocent purchaser after maturity, who was not a 
 holder in due course, takes free from such equity. A contrary re- 
 sult would be reached in England and in some states in this coun- 
 try. No case in this country has yet gone so far as definitely to 
 hold that an innocent purchaser of an instrument stolen and ne- 
 gotiated after maturity takes free from the equity of ownership, 
 but it has been strongly argued that such a purchaser should be 
 protected, for the reason that while a purchase after maturity 
 does in a sense put one on notice of the possibility of a defense, 
 arising from the fact that it is still outstanding, but that a pur- 
 chase after maturity in no real sense puts one on notice of any- 
 thing other than defenses. In no way does it indicate the possi- 
 bility of an outstanding equity of ownership. Moreover, there 
 would be no way of ascertaining who it was who held such equity 
 of ownership. Such person's name may not appear on the in- 
 strument or it may have been that he never was in the chain of 
 title, as would be the case where the holder of the equity furnish- 
 ed the money for the purchase of the instrument. Of course, if 
 the purchaser after maturity bought from a holder in due course 
 such purchaser would be protected for other ireasons. 
 
 GARDNER v. BEACON TRUST CO. et al. 
 
 (Supreme Judicial Court of Massachusetts, 1906. 190 Mass. 27, 76 N. E. 455, 
 2 L. R. A. [N. S.] 767, 112 Am. St. Rep. 303, 5 Ann. Cas. 581.) 
 
 Morton, J. This is a bill in equity brought by the plaintiff, a minor, 
 by her next friend and guardian, to compel the defendant the Beacon 
 Trust Company to assign and deliver to her a mortgage and the note 
 thereby secured, alleged to have been fraudulently obtained from the 
 plaintifif's guardian by one Edwin M. Thayer, since deceased, and 
 fraudulently assigned by him to the trust company. As to certain of 
 the defendants the bill was dismissed, and a decree was entered in favor 
 of the plaintiff against the trust company and other defendants. The 
 case is here on appeal by the trust company. All of the evidence is 
 reported. 
 
 Briefly stated the facts are as follows : In January, 1903, the plain- 
 tiff was the owner of a mortgage and the note thereby secured for 
 $1,500, on land in Quincy, given by the defendant Brown to one Hattie 
 E. Carr and transferred by successive assignments to the plaintiff. 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 825 
 
 Her mother, Mary E. Gardner, now Mary E. Wales, was her guardian. 
 The note and mortgage had been long overdue. By means of fraudu- 
 lent misrepresentations that the owner of the equity wished to pay off 
 the mortgage, Thayer obtained from the plaintiff's guardian an as- 
 signment of the note and mortgage to himself, and subsequently as- 
 signed them to the trust company as security for a note of $2,000 for 
 money borrowed by him of the company. The trust company took the 
 assignment in good faith, for value, and without any notice of Thayer's 
 fraud, or of any defect in his title, unless the fact that it took them 
 when overdue constituted such notice. * * * 
 
 The question is whether, assuming for the moment the validity of 
 the transfer by the plaintiff's guardian to Thayer, which will be con- 
 sidered later, the fact that the note and mortgage were overdue when 
 the trust company took them so affected their title as to postpone their 
 right to that of the defrauded owner. The general rule is thus stated 
 by Lord Herschel in London Joint Stock Bank v. Simmons [1892] A. 
 C. 201, 215 : "The general rule of law is, that where a person has 
 obtained the property of another from one who is dealing with it with- 
 out the authority of the true owner, no title is acquired as against that 
 owner, even though full value be given, and the property be taken in 
 the belief that an unquestionable title is being obtained, unless the 
 person taking it can show that the true owner has so acted as to mis- 
 lead him into the belief that the person dealing with the property had 
 authority to do so. If this can be shown, a good title is acquired by 
 personal estoppel against the true owner." He then goes on to say 
 that there is an exception in the case of negotiable instruments, man- 
 ifestly rneaning those not yet due, and that as to them any person in 
 possession of them can convey a good title, even if acting in fraud of 
 the true owner. This is the only exception mentioned by him to the 
 general rule which he lays down, and which would seem, therefore, to 
 have been regarded by him as' applying to overdue negotiable notes 
 as well as to other property when circumstances brought them within 
 it. Applying the rule thus laid down, or the rule that, where one of 
 two innocent persons must suffer in consequence of the fraud of an- 
 other, the loss must fall upon the one-jivho, by his trust and confidence, 
 has enabled the perpetrator of the fraud to commit it, * * * it 
 would seem plain that the loss in this case should fall upon the plaintiff, 
 unless the fact that the note and m6rtgage were overdue makes a dif- 
 ference. * * * 
 
 The purchaser of an overdue negotiable note takes it subject to all 
 the equities, if any, that are attached to it at the time of the transfer 
 in favor of the maker, the owner, or of third parties. * * * jf 
 there are no equities attached to the note the purchaser gets as good 
 a title after as before maturity. * * * And it makes no difference 
 that the note is dishonored. If there are equities attached to it, he 
 takes it subject to them. This is what is meant when it is said that 
 the purchaser has no better title, legal or equitable, than his transferror 
 had, and that the note is subject in his hands to the same infirmities 
 of title as against the true owner, and to the same defenses as against 
 the maker, that it was subject to in the hands of his transferror. 
 
 * * * If; for instance, an overdue note is stolen from the owner, a 
 subsequent purchaser acquires no title as against the true owner, 
 
 * * * or if an overdue note has been paid by the maker, and is 
 fraudulently put in circulation by the payee, a purchaser, though for 
 
826 NEGOTIABLE INSTEUMBNTS (Part 3 
 
 value and in good faith, takes it subject to the defense of payment by 
 
 the maker. In such a case the very fact that the note is dishonored is 
 
 sufficient to put the purchaser upon inquiry as against the maker. 
 * + * 
 
 But the case is very different where the owner of an overdue note 
 transfers it, under circumstances which enable his transferee, to deal 
 with it, though obtained by fraud, as if he were the true owner, and 
 when an innocent purchaser for value takes it from such transferee 
 before the transfer has been avoided. In such a case no equity attaches 
 to the note in favor of the true owner as against the innocent purchaser 
 for value, since it was by his own act that the perpetrator of the fraud 
 was enabled to commit it. The true owner of an overdue note may 
 deal with it as with any other property, and the mere fact that the 
 note is overdue does not, in such a case, in the absence of anything 
 in the transaction to suggest suspicion, put a purchaser upon inquiry 
 any more than a purchaser is bound in any other case to inquire into 
 the title of his vendor. * * * fhe possibility that the title may have 
 been obtained by fraud exists in all cases; but that is not enough to 
 put a purchaser upon inquiry. Any other view would put upon the 
 innocent purchaser for value of overdue negotiable paper the onus of a 
 defective title, no matter how much he rnay have been misled by the con- 
 duct of the true owner. We do not think that such is the law. * * * 
 The above principle was recognized, though it was held that the facts 
 did not bring the case within it. So far, therefore, as the plaintiff re- 
 lies upon the fact that the note and mortgage were overdue when taken 
 by the trust company, her contention must fail. * * * 
 
 The result is that so much of the decree as adjudges that the mort- 
 gage remains and still is the property of the plaintiff, and orders the 
 trust company to assign and convey its interest in the same to her, is 
 reversed.^ * * * 
 
 SECTION 3.— DEFENSES AND CLAIMS OF OWNERSHIP 
 
 AVAILABLE AGAINST HOLDER IN DUE 
 
 COURSE 
 
 (a) FORGERY 
 
 It is obvious that a person whose name has been forged to a 
 negotiable instrument should not be held liable thereon to any 
 one. The necessities of business do not require that such a risk 
 of loss should be borne by the party whose name was forged. It is 
 more just to throw the loss on the holder in due course, because 
 he will always have a remedy against the party from whom he 
 acquired the instrument. Eventually either the liability will be 
 thrown back upon the forger, or the loss will fall upon the person 
 who dealt with the forger. Of course, where it is not a case of 
 technical 'forgery, as, for example, where an agent signs his prin- 
 cipal's name in the absence of power to do so, there is more reason 
 for throwing the loss on the principal ; but the reasons have not 
 
 1 See the exhaustive discussion of this and related questions by Professor 
 Zechariah Chafee, Jr., in his aiticle on Rights in Overdue Paper, 31 Harvard 
 Law Review, 1104. 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 827 
 
 been deemed strong enough to impose such a liability upon him. 
 The established rules of agency govern. The section involved is 
 as follows : 
 
 Section 23. Where a signature is forged or made without the 
 authority of the person whose signature it purports to be, it is 
 wholly inoperative, and no right to retain the instrument, or to 
 give a discharge therefor, or to enforce payment thereof against 
 any party thereto, can be acquired through or under such signa- 
 ture, unless the party, against whom it is sought to enforce such 
 right, is precluded from setting up the forgery or want of au- 
 thority. 
 
 MAURMAIR V. NATIONAIj BANK OF COJIMERCE OF TULSA. 
 (Supreme Court of Oklahoma, 1916. 158 Pac. 349.) 
 
 RiTTENHOusE, C. This action was brought by Louis Maurmair to 
 recover $1,170.30 of and from the National Bank of Commerce of 
 Tulsa, Okl., wherein it was alleged that plaintiflf deposited such sum 
 in the bank, and the bank refused to pay the same upon demand. An 
 answer was filed, alleging payment, except the sum of $130.30, which 
 it was alleged is on deposit subject to plaintiff's check. A general de- 
 nial was filed to the answer. 
 
 The question presented at. the trial related to the payment of three 
 checks, of $90, $440, and $510, which were paid by the bank, and 
 which plaintiff claimed were signedj, either : ( 1 ) By affixing his sig- 
 nature thereto without his knowledge or con'sentT by'Tneans' of"de- 
 ceptTOir practiced upon him by a third party placing a carbon paper 
 under ibihe papers to which he knowingly affixed his signature and 
 the checks placed thereunder with such carbon paper, thereby obtain- 
 ing carbon copies of his original signature written by hihiself ; or (2) 
 that the signatures to such checks were not his original signatures, 
 but were affixed to said checks by some third party without the knowl- 
 edge of plaintiff, by obtaining an original copy of the signature of plain- 
 tiff and undertaking to duplicate the same, making an original so sim- 
 ilar to that of plaintiff's as to pass undetected; or (3) by means of 
 tracing t b£-same-on carbon copies. 
 
 Instruction No. 6 told the jury that if, from a preponderance of the 
 evidence, they found that the two checks. Exhibits 11 and 12, were 
 signed by plaintiff either by directly affixing his signature, or affixing 
 his signature thereto without his knowledge or consent, but by means 
 of deception practiced upon him by a third party, by placing carbon 
 papers between some paper on which he knowingly affixed his original 
 signature and the checks thereunder, and thereby obtained carbon copies 
 of his original signature written by himself, in either event the law 
 considers such signature as his original signature binding upon him, 
 and, if the bank paid such checks, believing the signature to such 
 checks to be genuine, the plaintiff would not be entitled to recover. 
 
 The Negotiable Instruments Law of this state * * * defines the 
 effect of forgery of a negotiable instrument as follows: [Section 23 
 quoted.] The instruction allowed the bank_ to xecover if the jury 
 f ound the checks'were obtained through deception practiced upon 
 plamtitt By third parties by placing carbon papers between some papers 
 on which-he knowingly affixed his signature and the checks thereunder 
 
828 NEGOTIABLE INSTRUMENTS (Part 3 
 
 without his knowledge or consent. Jnth is there w^ _eixflr^The pro- 
 curement of the signature, as contenaeTby pTamtiffT was without his 
 knowledge or consent. The instruments would therefore be wholly 
 inoperative, and no one would have a right to enforce payment thereof 
 unless plaintiff be precluded from setting up the forgery by his negli- 
 gence ; and under the pleadings and instructions in this case no issue 
 was made that the plaintiff was so precluded. The test as to whether 
 an artifice or trick of this character constitutes forgery is lyhether the 
 signature is procured in such a manner as to be the voluntary act of the 
 signer. If it is procured in such a manner that it is without the as- 
 sent of the signer, and not a voluntary act on his part, then no liabihty 
 
 3.tt3,Cil£S 
 
 The error in this instruction, as we see it, is that the jury was told 
 that, if the signatures were procured by deception, no recovery could be 
 had. The law is that, if the signatures were procured by deception 
 without negligence-on the part of the signer, then a recovery could be 
 had. The question of whether or not plaintiff was precluded from 
 setting up the forgery on account of his own negligence was not sub- 
 mitted to the jury and in order to have properly instructed the jury on 
 the question of the deception in procuring the signature it would have 
 been necessary to have told them that plaintiff could have recovered 
 under such conditions unless he was precluded from setting up the 
 forgery as provided in section 23, supra. 
 
 The judgment should be reversed, and the cause remanded for a new 
 trial. 
 
 ROBB V. PENNSYLVANIA CO. FOR INSURANCE ON LIVES & 
 
 GRANTING ANNUITIES. 
 
 (Supreme Court of Pennsylvania, 1898. 186 Pa. 456, 40 Atl. 969, 
 
 41 L. R. A. 695, 65 Am. St. Rep. 868.) 
 
 Action by Thomas Robb against the Pennsylvania Company for In- 
 surance on Lives & Granting Annuities. Judgment for plaintiff was 
 affirmed by the Superior Court, and defendant again appeals. 
 
 The opinion of the Superior Court is as follows (RrcE, P. J.) : 
 
 "This was an action to recover the amount of a bank dgposjt. The 
 d efense w a§_that the money had been paid out on checSspurportin g 
 fo be drawn by the plaintiff. The j ury Tiave determined by their ver- 
 dict that the signatures were forged, and no question is raised as to the 
 correctness of this finding. But there was evidence that the signa tures ^ 
 _were_inad£j3y_a^third person, JijLtke-imauiion and criminal use of 
 a j.ubbeiL.stamp which the plaintiff owned and kept iii'ffii sate. Upon 
 this evidence a novel and interesting question is raised. The defend- 
 ant's first proposition is that if a depositor, without the knowledge of 
 his bank, has a rubber stamp made, which is a substantial fac simile 
 of his bank signature, he cannot hold the bank responsible for a loss 
 which occurs by reason of the unauthorized signing by a third person 
 of the depositor's signature to a check by means of this stamp. It 
 will be observed that this proposition assumes that the depositor is re- 
 sponsible for the loss, although there is no negligence on his part in 
 the manner of keeping the stamp. * * * 
 
 "A bank is bound to know the signature of its depositor ; and, if it 
 pays out the money on a forged check, it cannot charge the depositor 
 with the amount, but, as against him, must bear the loss. It may be 
 conceded that the relation of the depositor to the bank implies a duty 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 829 
 
 on his part to su bject it to^no extragrdinary .risk,§...wj|h_ regard to.pay- 
 ment oi his checEs^~which he may avoid by the exercise of ordinary 
 care and "prudencer But we cannot assent to the proposition that it 
 is negligence per se for JRirh^FoTiave in his "possession a harmless and 
 nggfiil thing, and one lawful for him to have, but which, in the hands 
 of a thief breaking into his house or his safe, may be used to forge 
 his signature. If he commits the use of it to an agent, selected by him- 
 self, or leave it in such a place as to invite the use of it for illegitimate 
 purposes, there would be plausibility in the contention that he should 
 be deemed to contemplate such use as one of the natural and probable 
 consequences of his act. But, where he has used due care in securing 
 it against unlawful use by others, it cannot be said that his mere pos- 
 session of the thing was the proximate cause of the mispayment of the 
 money to one who unlawfully possessed himself of it, and used it to 
 commit a forgery. 
 
 "The defendant's second proposition is that, even if the court did 
 not err in leaving the question of negligence to the jury, the instruc- 
 tions given by the court were insufficient and erroneous, and laid down 
 a wrong standard of negligence. In order to discuss this proposition 
 properly, it will be necessary to state some of the undisputed facts: 
 In 1893 the plaintiff, as president of a corporation, had occasion to 
 send out a large number of invitations to a banquet, and, in order to 
 save himself the labor of writing his name so often, had a rubber 
 stamp made which would make a fac simile of his signature. For a 
 time the stamp was kept in the company's office, but after he resigned 
 the presidency it was sent to his private office, which he rented from a 
 gentleman who had the adjoining office. With this office, he was en- 
 titled to the services of an office boy of about sixteen years of age. For 
 about nine months he employed this boy for errands and messages, 
 including the sending of him to bank to draw money on checks. He 
 never had occasion to doubt the boy's honesty. When the rubber stamp 
 was returned to the plaintiff from the corporation office, he placed it 
 in a compartment inside of a fireproof safe. He locked this compart- 
 ment, and put the key in a drawer in the safe, behind some papers, and 
 covered it up. He then locked the drawer; and put the key in another 
 unlocked drawer in the safe. He then locked the safe, and put the 
 key in a little box, which he put in a wooden drawer or box, and this 
 was kept on top of another safe. The plaintiff's surmise was that the 
 office boy had watched his moves, found where he kept the safe key, 
 opened the safe, and rummaged around until he found the stamp, and 
 with it signed the two checks Assuming this theory to be correct, it 1 
 turned out that, notwithstanding the plaintiff's precautions to guard 
 the stamp, it was not kept where it wduI3~Be~al3s51ufeI)nnaccessible to 
 others. It follows that an unqualified affirmance of the defendant's 
 second point would have been equivalent to binding instructions to 
 find for the defendant. '' 
 
 "But, for the reasons given in our discussion of the first proposi- 
 tion, the defendant was not entitled to such instructions. The practical 
 effect would be to hold the owner of a rubber stamp up to the same 
 standard of responsibility as the owner of a vicious animal; in other 
 words, to hold that he is bound to keep the stamp, at all hazards, where 
 a trespasser or a thief cannot possibly get possession of it and use it. 
 This is not the standard of his responsibility to the bank in which he 
 is a depositor, or to the public. He is not an insurer against its un- 
 
■830 NEGOTIABLE INSTRUMENTS (Part 3 
 
 lawful use, but it may be conceded that he is responsible for the con- 
 Sequences of his negligence in keeping it. He is bound to exercise 
 the care of an ordinarily prudent man. To adopt the language of the 
 learned trial judge, was it put away in such a manner as was, in view 
 of all the probabilities of the case, sufficient to protect the stamp from 
 being improperly used? This was a question of fact for the jury, 
 and was fairly submitted. There are cases in which the court can de- 
 termine that omissions constitute negligence, but they are exceptional, 
 — those in which the precise measure of duty is determinate ; the same 
 i'.nder all circumstances. What constitutes negligence when the stand- 
 ard shifts, not according to any certain rule, depends upon the facts 
 apd circumstances developed at the trial, and cannot be determined by 
 the court, but must be submitted to the jury. * * * The defendant 
 has no just cause to complain of the submission, or of the manner of 
 
 the submission, of that question to the jury. Judgment affirmed." 
 * * * 
 
 [Judgment also affirmed in Supreme Court.] 
 
 (b) FEAub 
 
 In these cases the obligor either knowingly has signed his name 
 l>ut has not knowingly signed a negotiable instrument, or has not 
 knowingly signed his name, or it may be that he has knowingly 
 signed his name but has done so under circumstances where it 
 was impossible for him to do otherwise. These situations in legal 
 effect are forgeries and section 23 above quoted may be regarded 
 as the statutory basis for the defense. 
 
 GREEN V. WILKIB. 
 
 (Supreme Court of Xovva, 1896. 98 Iowa, 74, 66 X. W. 1046, 36 L. R A 4.S4 
 60 Am. St. Rep. 184.) 
 
 Granger, J. This action is on a promissory note for $1,000, and 
 to foreclose a mortgage given to secure the same. The note and 
 mortgage were given to one Lena Fuerth, April 1, 1893. The note 
 was assigned by Lena Fuerth to plaintiff, who resides in Massachu- 
 setts, about May 5, 1893, for a consideration of $950. The defendant 
 does not deny that he signed the note and mortgage, but he bases his 
 defense thereto on substantially the following facts : That Joe Fuerth 
 is the husband of Lena Fuerth, and a real-estate agent at Marshall- 
 town, Iowa; that he (defendant) was about to sell a piece of land giv- 
 en him by his father, and purchase another piece ; that he went to the 
 office of Joe Fuerth, who was acting for the man to whom he was sell- 
 mg, and the sale and the purchase were completed ; that, as to the land 
 given him by his father, his father had a lease or contract by which de- 
 fendant was to pay a certain rent therefor while he remained single- 
 that, to enable defendant to sell the land, the lease or contract was re- 
 leased; that afterwards Fuerth suggested that defendant give his 
 father a lease of the land purchased, and a note in lieu of the one re- 
 leased, which defendant agreed to do ; that defendant is illiterate and 
 cannot read wntmg or printing, and can only write his name • ' that 
 Tuerth, instead of makmg the note and lease, wrote the note and'mort- 
 
.Gh.4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 83] 
 
 gage in suit, which defendant signed, thinking them to be the note and 
 lease agreed upon ; that he never received anything from Lena Fuerth 
 for said note, and never agreed to make any such note. The purchase 
 of the note in suit v^^as made by WiUiam Andrews as agent for the 
 plaintiff, and it appears that the plaintiff knew nothing of the note till 
 after it was purchased. The facts as to the fraudulent execution of 
 the note are not in dispute. It may be stated as a fact that, when de- 
 fendant signed the note and mortgage, he supposed he was signing a 
 lease to his father and a note for $100. 
 
 There is something of a hopeless conflict of authorities touching 
 the liability of persons whose names appear to negotiable paper, 
 through fraudulent means, and the paper is in the hands of innocent 
 holders. It would be useless to attempt a reconciliation of them. 
 There are numerous cases in which parties, intending to sign a con- 
 tract, have, through fraudulent misrepresentation, placed their sig- 
 natures to negotiable instruments, which have fallen into the hands otf 
 innocent purchasers. There is a very respectable line of authorities 
 holding that, in the absence of negligence, the maker of such an instru- 
 ment is protected. Whitney v. Snyder, 2 Lans. (N. Y.) 477 ; Walker 
 v. Ebert, 29 Wis. 196, 9 Am. Rep. 548; Anderson v. Walter, 34 Mich. 
 113; Bank v. Lierman, 5 Neb. 247; Puffer v. Smith, 57 111. 527. 
 * * * See, as bearing somewhat on the question. Bank v. Zeims 
 (Iowa) 61 N. W. 483. This case is thought to be distinguishable from 
 those because of the fact that in this there was an intent to give a 
 promissory note. In this respect, also, there is something of a conflict 
 of authority, but it is not so marked. The rule is many times stated 
 that there is a distinction between cases in which a party, through 
 fraudulent misrepresentations, signs an instrument which he intends 
 to be a negotiable promissory note, and where, through such misrep- 
 resentation, he signs what he does not intend to be such an instrument : 
 and much is claimed in this case because defendant intended to give 
 a note. See Whitney v. Snyder, supra. 
 
 The case of Douglass v. Matting, 29 Iowa, 498, 4 Am. Rep. 238, 
 is cited by appellee as explanatory of Chapman v. Rose, 56 N. Y. 137,, 
 15 Am. Rep. 401. The latter case announces the rule that beforp one 
 whose name is fraudulently obtained to a note, upon misrepresentations 
 that the instrument is something else, can be held, it must appear that 
 it was5iot the result of negligence on the.part of the signer. It will be 
 well to notice in this connection that in Douglass v. Matting the rule 
 of the case is announced on the theory of the culpable carelessness of 
 the maker of the instrument. It is there said: "Now, it would be 
 manifestly unjust to permit the maker, while admitting the genuine- 
 ness of his signature, to defeat the note, on the ground that, through 
 his own culpable carelessness while dealing with a stranger, he signed 
 the note without reading it, or attempting to ascertain its true con- 
 tents." * * * In Bank v. Steffes, 54 Iowa, 214, 6 N. W. 267, a 
 note was given for a greater amount than agreed upon, through a 
 fraud of the payee, and it was assigned before maturity. The issues 
 did not involve the question of negligence in its execution. It is there 
 said that it was incumbent on the maker to show freedom from neg- 
 ligence. It is then said that it is not certain that he could be allowed 
 to set up fraud as against the plaintiff (an innocent holder) even by 
 showing that he was free from negligence. It cites Whitney v. Snyder, 
 supra, and later cites Griffiths v. Kellogg, 39 Wis. 290, 20 Am. Rep. 
 
832 NEGOTIABLE INSTRUMENTS (Part 3 
 
 48, in which a note intended to be given for $47.50 was, by fraud, made 
 to read $76.25. The note passed into the hands of an innocent in- 
 dorsee. It is said in the opinion that the note "was as little hers as if 
 the transaction between her and the lightning rod man had not taken 
 place, and he had forged the note. If not forgery, it was akin to 
 forgery." The liability of the maker was made to turn, when the 
 fraud was established, on the fact of her negligence in placing her 
 name' to the paper. The case copies from Chipman v. Tucker, 38 Wis. 
 43, 20 Am. Rep. 1, as follows : "The inquiry in such cases goes back 
 to the questions of negotiability, or of the transfer of the supposed 
 paper to a purchaser for' value, before maturity, and without notice, 
 challenges the origin or existence of the paper itself, and the proposi- 
 tion to show that it is not in fact or in law what it purports to be, 
 namely, the promissory note of the proposed maker." 
 
 The facts of this case come within the rule of the Wisconsin cases, 
 and do not contravene any rule announced in our own state. The de- 
 fendant was an illiterate man, who could not read nor write, except 
 that he could barely write his own name. He had no contractual re- 
 lations whatever with Fuerth or his wife. There was nothing to put 
 him on his guard against fraud being practiced upon him. The note 
 and mortgjige that he gave he had never contemplated in any way, and 
 the doing of such a thing was as foreign to his purpose as if he had 
 merely intended to lease- or contract to his father without any note. 
 It seems that the papers were prepared in the absence of defendant. 
 In his testimony he says, speaking of Fuerth : "I met him on the 
 street one day, and he said to me, 'The lease is already drawn up, and 
 all you have to do is to sign it.' I went into the office with him, and 
 asked him to read it. He said he was in a hurry, and wanted to go to 
 dinner, and had some other business to attend to after dinner. I 
 asked him if it was just a straight lease to my father for so much 
 rent, and he said : 'Yes, it is. You can rely on my honor and word 
 for it.' I then asked him to read it, and he said it was no need. I 
 signed what he called a note and lease." This is in no way contradict- 
 ed, and we are warranted in accepting it as truth. It is not denied in 
 argument. 
 
 There was nothing at that time to awaken suspicion as to Fuerth, 
 and the case is peculiar in this: that, as the business was between 
 defendant and his father, there could be no motive for Fuerth to make 
 the papers in any way except as agreed upon. In most of the cases 
 where negligence is considered, the party relieved has had an adverse 
 interest, because of which one might the more readily anticipate that 
 advantage would be taken. This was a case remarkably free from rea- 
 son or grounds of suspicion. What was really done would not have 
 been anticipated by any discreet person. In fact, the situation was 
 such as to disarm one of suspicion, because of Fuerth's absolute want 
 of interest in the business to be done. We think the case is free from 
 neghgence on the part of defendant. This being so, he comes within 
 the rule by which a party may be protected. It is to be remembered 
 that the rule we apply is not the usual one in which innocent holders 
 of negotiable paper are protected against fraud. * * * j^ such 
 cases there is a note, but the bona fides of it is questioned. In this 
 case the note has never existed in the sense of the minds of the par- 
 ties meeting to give it validity, and there is no negligence to render 
 the defendant liable on other grounds. * * * Under these author- 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 833 
 
 ities — and they have strong support — we think the defendant is not 
 liable on the note, because he was never a party to such a contract, 
 and he has been guilty of no negligence by which the plaintiff has been 
 misled. He has violated no legal obligation because of which another 
 is injured. 
 
 The plaintiff's petition should be dismissed. Reversed. 
 
 GREEN et al. v. GUNSTEN et al. 
 
 (Supreme Court ol Wisconsin, 191.3. 154 Wis. 69, 142 N. W. 261, 
 46 L. R. A. [N. S.] 212.) 
 
 ViNjE, J. (after stating the facts). It is admitted that defend- 
 ant Gunsten was an accommodation maker of the note if it was 
 executed under such circumstances as to constitute him a maker in 
 any sense. Plaintiffs claim they were holders in due course, which 
 claim the defendant Gunsten disputes. The trial court, in the dispo- 
 sition of the case, evidently treated plaintiffs as such holders, and we 
 shall assume that they were. That raises the question whether or not 
 total or complete drunkenness on the part of the accommodation maker 
 of a note at the time of the execution and delivery thereof is a defense 
 as against a holder in due course. 
 
 On the grounds of public policy and the necessities of commerce, 
 some courts have held that complete drunkenness "on the part of the 
 maker of a note at the time of its execution and delivery is no de- 
 fense against a holder in due course. * * * The basis for the rule 
 is thus stated by Joyce, Defenses to Com. Paper, § 69 : "The reasons 
 underlying this rule are that, when a man has voluntarily put himself 
 in such a condition and a loss must fall on one of two innocent per- 
 sons, it should fall on him who occasioned it. It is also founded on 
 principles of public policy and the necessities of commerce. The 
 circulation and currency of negotiable paper should not be unneces- 
 sarily impeded, and, if drunkenness of the maker were a defense to 
 a note in the hands of an indorsee, it would clog and embarrass the 
 circulation of commercial paper, and no man could safely take it with- 
 out ascertaining the condition of the maker or drawer when it was 
 given, though there be nothing unusual or suspicious about the ap- 
 pearance of the note." That this rule is founded, at least in part, upon 
 substantial grounds of public policy cannot be denied. Though it 
 should be observed that drunkenness alone, without the fraud or fault 
 of another, does not lead to the signing of notes. In every case, as in 
 the case at bar, the drunken maker has been taken advantage of by a 
 designing payee or third party, and it is not strictly correct to say 
 that the fault, is that of the drunken maker alone. Were that so, 
 there would be more reason for applying the rule that, where loss must 
 fall upon one of two innocent persons, it should fall on him who oc- 
 casioned it. Nor can a holder in due course always rest upon the 
 assumption that the maker of a note is competent to execute it. In- 
 sanity of the maker is a good defense against a bona fide holder, for 
 the latter takes it charged with constructive notice of the legal dis- 
 ability of the maker. * * * 
 
 It is no greater hardship to charge a holder in due course with con- 
 structive notice of the incapacity of the maker resulting from com- 
 plete drunkenness than from insanity. It is deemed that a doctrine 
 B.& B.Btts.Law— 53 
 
834 NEGOTIABLE INSTEpMENTS (Part 3 
 
 more in consonance with the spirit of our decisions is stated by Daniel 
 as. follows: "If the drunkenness were so complete as to suspend all 
 rational thought, the better opinion is that any instrument signed by 
 the party would be utterly void, even in the hands of a bona fide 
 holder wihout notice, foir, although it may have been the party's own 
 fault that such an aberration of mind was produced, when produced, 
 it suspended for the time being his capacity to consent, which is the 
 first essential of a contract." 1 Daniel, Neg. Inst. (5th Ed.) § 214; 
 * * * But the drunkenness must be so complete as to deprive the 
 maker of the use of his faculties. * * * Intoxication merely to the 
 extent that he cannot give the attention to it that a reasonably prudent 
 man would be able to give is not sufficient. 
 
 The reason for the rule is that there can be no valid contract where 
 there is no mind capable of contracting. That drunkenness may be 
 so complete as to render a person utterly incapable of comprehending 
 the nature of his acts or that he is acting at all is a fact as sad as it is 
 true. * * * 
 
 If com])lete drunkenness, by which is meant drunkenness to Such an 
 extent as to wholly destroy for the time being the rational faculties 
 of the mind, renders a note absolutely void as between maker and 
 payee, then, under the provisions of our Negotiable Instrument Law 
 it is void in the hands of a holder in due course. 
 
 Section 1676 — 25 provides: "The title of a person who negotiates 
 an instrument is defective within the meaning of this act when he 
 obtains the instrument, or any signature thereto, by fraud, duress, 
 or force or fear, or other unlawful means or for an illegal considera- 
 tion, or when he negotiates it in breach of faith, or under such cir- 
 cumstances as amount to a fraud and the title of such person is abso- 
 lutely void when such instrument or signature was so procured from a 
 person who, did not know the nature of the instrument and could not 
 have obtained such knowledge by the use of ordinary care." « * * * 
 
 By the provisions of this law it will be seen that a holder in due 
 course takes no title where the note was absolutely void in its incep- 
 tion, as where there was no maker capable of executing the instru- 
 ment. This result follows for the obvious reason that no life, or va- 
 lidity, can be given by transfer to that which is absolutely void. It is 
 the same as if it had no existence at all. And it is but the expression of 
 the rule embodied in the decisions of this court. * * * 
 
 Plaintiffs argue that the rule of ordinary care, as applied in negli- 
 gence cases, obtains under the provisions of section 57 of the Ne- 
 gotiable Instruments L,aw. It is not necessary to decide the ques- 
 tion in this case. The jury found that at the time Gunsten signed the 
 note he was so completely intoxicated that he was temporarily de- 
 prived of his reason and understanding. Manifestly, while in such 
 condition, the rule of ordinary care does not apply. He was incapable 
 of exercising any care whatever. Nor can it be held that he should have 
 exercised care not to get drunk, for, as before observed, the signing 
 of notes is not the usual or probable result of drunkenness. It is other- 
 wise as to a personal injury. A man may well reasonably anticipate 
 that if he gets drunk and becomes unable to care for himself he may, 
 without the fault of another, sustain bodily harm, or even death itself. 
 
 2 The portion in antique type is section 55 of the uniform act ; the rest 
 is a Wisconsin amendment. 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 835 
 
 But a drunken man, if left alone and not taken advantage of by others, 
 is not, as a mere result of the drunkenness, likely to sign notes or exe- 
 cute any other contracts.', The law does not favor drunkehtiess ; nor 
 does it place in the hands of a drunkard any shield against his con- 
 scious or rational acts. It simply says that when, through drunken- 
 ness or any other means, a man is temporarily or permanently wholly 
 incapacitated from exercising his rational faculties, then he shall not 
 be liable upon what purports to be a contract entered into while in 
 such state, because a mind bereft of reason or conscious rational action 
 is incapable of consenting or contracting. In speaking of the early 
 English doctrine holding that a man should not be allowed to stultify 
 himself by alleging his own lunacy or imbecility, Daniel says : "Such 
 doctrine sounds more like the gibberish of a lunatic than like the decree 
 of a humane and enlightened lawyer. * * * " 
 Judgment affirmed. 
 
 (c) THEFT OF AN INCOMPLETE INSTRUMENT 
 N. I. L., Section 15. Where an incomplete instrument has not 
 been delivered it vvill not, if completed and negotiated, without au- 
 thority, be a valid contract in the hands of any holder, as against 
 any person whose signature was placed thereon before delivery. 
 
 LINICK V. A. J. NUTTING & CO. 
 
 (Supreme Court of New York, Appellate Division, 1910. 140 App. Div. 265, 
 
 125 N. Y. Supp. 93.) 
 
 Action by Louis Linick against A. J. Nutting & Co. From a judg- 
 ment dismissing the complaint, plaintiff appeals. 
 
 Burr, J. On July 20, 1909, plaintiff signed his name to a blank 
 check. Thereafter David Ryckoff and Benjamin Silberman stole the 
 check, filled in the name of F. A. Mann as payee and the sum of 
 $147.87 as the amount thereof, and presented it to the State Bank, 
 where plaintiff kept his'^ccount, and procured it to be certified. There- 
 after they indorsed said check with the name of F. A. Mann and passed 
 it to defendant for value, who collected the amount thereof from the 
 said bank. Plaintiff, having taken up said check from the bank, now 
 sues defendant as for money had and received for the amount of the 
 check. 
 
 The question submitted, and which we are called upon to decide, is 
 whether defendant obtained any title to the check which, as against 
 the plaintiff, was a valid obligation for $147.87. As a general rule, 
 one can only part with title to personal property by his voluntary act 
 or by conduct sufficient to create an estoppel. In the case of com- 
 mercial paper it was long ago held that, when by voluntary act a party 
 intrusts another with such paper with a blank thereon designed to be 
 filled up with a stipulated amount, such party is liable to a bona fide 
 holder, of the instrument, although the amount inserted was larger 
 than that agreed upon. So, if the place of payment is left blank when 
 the maker delivers it, the insertion of a different place of payment 
 than that- agreed upon will not avoid such paper in the hands of an in- 
 nocent holder for value. * * * fjjg authorities are not harmonious 
 as to the basis of this liability. Some deem that is rests upon an im- 
 
836 NEGOTIABLE INSTRUMENTS (Part 3 
 
 plied authority conferred by the maker upon the person to whom it 
 was deUvered to fill in the blanks, and others upon estoppel by reason 
 of negligence. Nat. Exchange Bank v. Lester, 194 N. Y. 461^65, 87 
 N. E. 779, 21 L. R. A. (N, S.) 402, 16 Ann. Cas. 770. Upon neither of 
 these grounds can the plaintiflE be charged in this case. Certainly not 
 upon the ground of implied authority, for that doctrine grows out of 
 the relation of principal and agent, and there is no such relation be- 
 tween a thief and his victim. There is a vast difference in the rule of 
 liability upon negotiable instruments between a case where the_ pos- 
 session has been parted with by the affirmative act of the maker in an 
 incomplete state, and one where his parting with such possession is 
 the result of a crime. The rule that the bona fide holder of an in- 
 complete instrument, negotiable but for some lack capable of being 
 supplied, has an implied authority to supply the omission, and to hold 
 the maker thereon, only applies where the latter has by his own act, 
 or the act of another, authorized, confided in, or invested with appar- 
 ent authority by him, put the instrument in circulation as negotiable 
 paper. * * * 
 
 None of the circumstances connected with the theft of this paper 
 appear, except that it was stolen, and that the persons guilty of the 
 crime have been tried, convicted, and sentenced for the same. Plain- 
 tiff, therefore, cannot be charged with negligence giving rise to an es- 
 toppel, unless a man is guilty of negligence in writing his name upon a 
 piece of paper which by some possibility may afterwards be stolen 
 from him, which paper afterwards comes into the hands of a third per- 
 son who is an entire stranger to the transaction, with words written 
 over the signature which are sufficient in form to make it a check or 
 note. Actionable negligence involves, first, the existence of a duty; 
 second, the omission to exercise ordinary and reasonable care in con- 
 nection therewith ; and, third, injury resulting in consequence thereof. 
 In view of the contractual relation existing between the bank and its 
 depositor, some duty of care may be owing to it. The bank, by the 
 terms of its contract with him, is bound to pay on his account to the 
 holder of paper bearing his genuine signature the amount called for, 
 if such amount is to his credit. But a third person is under no obliga- 
 tion to honor his paper. He can take it or not as he pleases, and as a 
 rule such paper is accepted in reliance upon the immediate transferrer 
 thereof. Trust Co. of America v. Conklin, 65 Misc. Rep. 1, 119 N. Y. 
 Supp. 367. What duty, therefore, is owing to him? Again, at the 
 risk of being charged with lack of ordinary care and prudence, must 
 one guard against the possibility of a crime being committed ? It has 
 been held that where the maker of a completed negotiable instrumeni 
 has parted witli its possession, but it is in such form that it is possible 
 to make alterations in it, he is not guilty of negligence in thus deliver- 
 ing it, for the reason that he is not bound to assume that the person 
 to whom he delivers it will be likely to commit a crime because it is 
 apparently easy to do so. Nat. Exchange Bank v. Lester, supra. The 
 drawer of a check is not bound so to prepare it that nobody else can 
 successfully tamper with it. * * * Much less can a party be held 
 liable for negligence because it is possible that he may be deprived 
 of the possession of an incomplete negotiable instrument by a crime. 
 He is not bound to anticipate nor guard against such an act. 
 
 No case has been cited holding a maker liable under such circum- 
 stances. We have found two well-considered cases to the contrary. 
 
Ch. 4) RIGHTS OP HOLDER AGAINST MAKER AND ACCEPTOR 837 
 
 Burson v. Huntington, 21 Mich. 416, 4 Am. Rep. 497 ; Baxendale v. 
 Bennett, L. R. 3 Q. B. Div. 525. * * * The rule of law laid down 
 in Baxendale v. Bennett has now passed into the statute. [Section 
 15.] * * * 
 
 We conclude, therefore, that the delivery of a promissory note by 
 the maker is necessary to a valid inception of the contract. The pos-- 
 session of such a note by the payee or indorsee is prima facie evidence 
 of delivery ; but if it appear that the note has never been actually de- 
 livered, and that without any confidence, or negligence, or fault of the 
 maker, but by force or fraud, it was put in circulation, there can be 
 no recovery upon it, even when in the hands of an innocent holder. 
 
 Defendant contends that, as against the plaintiff, the bank was. jus- 
 tified in paying out the plaintiff's money on the check, and cites in sup- 
 port of his contention. Trust Co. of America v. Conklin, supra. If 
 so, it was not because the check was a valid check in the hands of a 
 third person, but because of the peculiar contract relation between the 
 bank and its depositor. We are not called upon to decide this, since 
 it seems to be conceded that, if the check was not a valid obligation 
 in the hands of the defendant, this action will lie as for money had and 
 received. 
 
 The judgment appealed from must be reversed, and a new trial or- 
 dered ; costs to abide the event. * * * 
 
 (d) CONTRACTS DECLARED VOID BY STATUTE 
 
 If a Statute declares a particular kind of contract void the usyal 
 interpretation of the statute is that the contract is void even in the 
 hands of a holder in due course. Such statutes are common with 
 respect to gambling and usurious contracts. The Negotiable In- 
 struments Law contains no provision with respect to contracts il- 
 legal by reason of statutory denunciation, but the general rule is 
 that the Negotiable Instruments Law does not require any in- 
 terpretation different from that theretofore adopted with respect 
 to such statutes. 
 
 SABINE V. PAINE. 
 
 (Court of Appeals of New York, 1918. 223 N. Y. 401, 119 N. E 849 
 5 A. L. R. 1444.) 
 
 Action by C. Olivia Sabine against Maggie S. Paine. From a judg- 
 ment for defendant, plaintiff appeals. 
 
 Collin, J. The action is upon a promissory note in the sum of 
 $2,100, made by the defendant and owned by the plaintiff. The note 
 was payable, four months after its date, to the order of Eugene F. 
 Vacheron. It was delivered to him as the agent of the defendant 
 for the purpose of having it discounted for her. He, after indorsing 
 it, transferred it to the plaintiff for the .sum of $1,850. Under the 
 evidence and the decision of the Appellate Division, this appeal pre- 
 sents the single question. Is a usurious promissory note enforceable 
 by a holder in due course ? * * * 
 
 When the Negotiable Instruments Law was enacted, it was an es- 
 tablished rule of law in this state and many other jurisdictions that a 
 
838 NEGOTIABLE INSTRUMENTS (Part 3 
 
 holder of a note void by virtue of a statutory declaration because of 
 usury, who became such before the maturity of the note for valu? 
 and without notice of the usury, could not enforce the note. The rule 
 is an exception to the general principle that a negotiable instrument, 
 in the hands of an innocent holder, who had received it in good faith 
 in the ordinary course of business, for value, and without notice of a 
 defense, is not invalid and is enforceable by the holder. The general 
 principle has been stated: "The bona fide holder for value who has 
 received the paper in the usual course of business is unaffected by the 
 fact that it originated in an illegal consideration, without any distinc- 
 tion between cases of illegality founded in moral crime or turpitude, 
 which are termed mala in se and those founded in positive statutory 
 prohibition which are termed mala prohibita. The law extends this 
 peculiar protection to negotiable instruments, because it would seri- 
 ously embarrass mercantile transactions to expose the trader to the 
 consequences of having the bill or note passed to him impeached for 
 some covert defect." 1 Daniel on Negotiable Instruments (6th Ed.) 
 § 197. ' 
 
 The rule, constituting an exception to it, rests upon the legislative 
 intention and enactment. An instrument which a statute, expressly 
 or through necessary implication, declares void, strictly speaking, is a 
 simulacrum only. It is without legal efficacy. It cannot obligate a 
 party or support a right. In Claflin v. Boorum, 122 N. Y. 385, 388, 
 25 N. E. 360, 361, we said: "A note void in its inception for usury 
 continues void forever, whatever its subsequent history may be. It 
 is as void in the hands- of an innocent holder for value as it was in 
 the hands of those who made the usurious contract. No vitality can 
 be given to it by sale or exchange, because that which the statute has 
 declared void cannot be, made valid by passing through the channels of 
 trade." 
 
 The rule has general recognition in judicial opinion. * * * The 
 fact that the holder when he took the paper did not know that it had 
 had no inception — that no prior party could sue upon it, and that 
 he was loaning money upon it — does not affecr the rule. He is bound 
 to know the character of the paper he is dealing in. * '* * The 
 statute is peremptory and unequivocal in enacting that a usurious ob- 
 ligation is absolutely void. 
 
 The Legislature did not by enacting * * * the Negotiable In-' 
 struments Law intend to abrogate the rule we have stated. The stat- 
 ute declaring the usurious instrument void is not repealed expressly 
 or through implication. * * * Our conclusion is in harmony with 
 judicial decisions of other states. * * * 
 
 The judgment should be affirmed, with costs. * * * 
 
 (e) INCAPACITY 
 
 MURRAY V. THOMPSON et al. 
 
 (Supreme Court of Tennessee, 1916. 136 Tenn. 118 1S8 S W 578 
 
 L. R. A. 1917B, 1172.) 
 
 Williams, J. This is a suit by complainant, a minor, to disaffirm 
 a contract of indorsement of a note of which he was payee, and to re- 
 cover the note from Thompson, indorsee. 
 
Ch. 4) RIGHTS OF HOLDEE AGAINST MAKDR AND ACCEPTOR 839 
 
 Complainant while in the employ of a brick company received per- 
 sonal injuries, ^nd the company executed to him a note of $1,750 in 
 satisfaction of his claim to damages. The note was made payable 
 June 1, 19i5, which was the date on which complainant would arrive 
 of age. On October 16, 1914, W. A. Murray, the father of com- 
 plainant, with the knowledge and authority of the latter, sold the note 
 to Thompson, indorsing the name of the son without apprising Thomp- 
 son of the fact that he himself was not the payee. The proceeds of 
 the note were deposited to complainant's account in bank, and later 
 were invested in a saloon business in the name of the father and son, 
 and in a short time lost. There was no actual fraud on the part of 
 complainant in the transaction with Thompson. 
 
 The chancellor decreed that complainant was entitled to disaffirm 
 and recover ; but the Court of Civil Appeals reversed the ruling. The 
 last-named court was of opinion that complainant would have been 
 entitled to the relief awarded by the chancellor under the rules of law 
 in force before the passage of the Negotiable Instruments Law; but 
 that said act, by its spction 22, so changed the law as to deny corn- 
 plainant the remedy sought. The section thus relied on is as follows : 
 "The indorsement or assignment of the instrument by a corporation, 
 or by an infant, passes the property therein, notwithstanding that from 
 want of capacity the corporation or infant may incur no liability 
 thereon." 
 
 It was to make certain and uniform the law on this point that sec- 
 tion 22 was embodied in the Negotiable Instruments Act. In stipu- 
 lating that the indorsement of the instrument by an infant "passes 
 property therein," it was meant to provide that the contract of in- 
 dorsement is not void, and that his indorsee has the right to enforce 
 payment from all parties prior to the infant indorser. The incapacity 
 of the minor cannot be availed of by prior parties. 
 
 It was not intended to provide that the indorsee should become the 
 owner' of the instrument by title indefeasible as against the infant, 
 or to make the act of indorsement an irrevocable one. 
 
 The act does not concern the right of such an indorser to disaffirm 
 under the rules of the law of infancy. The words "passes the prop- 
 erty therein," if given a meaning that would deny that right in respect 
 of a contract of indorsement, would deprive the infant of the right 
 to reinvest in himself the title to the instrument against a holder who 
 had knowledge of the indorser's infancy. The quoted words are not 
 qualified so as to save his rights in such assumed case. It must be 
 admitted that the Legislature did not intend any such radical and 
 grossly inequitable departure from a settled and salutary rule of law. 
 
 The common-law rule is that the purchaser and indorsee of such 
 a note is not a bona fide holder as against an infant indorSer, and 
 that the latter may disaffirm and recover the note from the posses- 
 sion of the former, who takes with constructive notice of the incapac- 
 ity. * * * 
 
 The chancellor made a proper disposition of the case in his decree. 
 The decree of the Court of Civil Appeals is therefore reversed, and 
 that of the chancellor affirmed. 
 
840 NEGOTIABLE INSTRUMENTS (Part 3 
 
 (f) NO TITLE TO THE INSTRUMENT 
 
 If the party suing has no title to the instrument upon which 
 action is brought, the party sued may successfully defend. In such 
 case the party in possession of the instrument is not even a holder. 
 Clearly the party in possession who in all other respects is a 
 holder in due course cannot recover if he has no title to the in- 
 strument.* 
 
 SECTION 4.— RIGHT OF THE DRAWEE TO RECOVER 
 
 MONEY PAID TO THE HOLDER UNDER 
 
 MISTAKE 
 
 The preceding sections dealt with the special rights of the hold- 
 er in due course against parties primarily liable on the instrument, 
 free from personal defenses and equities of ownership. The rights 
 of the holder in due course against parties conditionally liable on 
 the instrument — the drawer of a bill of exchange and indorsers — 
 is the subject of the next chapter. The following sections, just as 
 the preceding sections, are devoted to the consideration of a series 
 of special problems growing out of the relation of the holder in 
 due course, and the acceptor, and the drawee after payment of the 
 bill. Stated broadly, the question is: Upon whom must the loss 
 fall — the holder, or the acceptor, or drawee, who has paid — of an 
 instrument bearing the forged name of the drawer or the forged 
 name of a special indorsee? 
 
 The execution and delivery of a bill of exchange creates no legal 
 rights in the holder against the drawee. The effect of the transac- 
 tion is to confer a legal power upon the holder, either to create a 
 legal duty in the drawee to the drawer to honor the instrument or 
 to create a legal right of reimbursement in the drawee against the 
 drawer, if the bill is honored. The holder possesses no rights of 
 his own against the drawee. Before the adoption of the Negotia- 
 ble Instruments Law some courts held that the delivery of a bill of 
 exchange operated as an assignment of the amount specified there- 
 in, but the majority of courts held that such transaction was not 
 to be interpreted as an assignment. The majority rule was adopt- 
 ed in the Negotiable Instruments .Law. 
 
 N. I, L., Section 127. A bill of itself does not operate as an 
 assignment of the funds in the hands of the drawee available for 
 the payment thereof, and the drawee is not liable on the bill unless 
 and until he accepts the same. 
 
 N. I. L., Section 189. A check of itself does not operate as an 
 assignment of any part of the funds to the credit of the drawer 
 with the bank and the bank is not liable to the holder unless and 
 until it accepts or certifies the check, 
 
 8 See chapter II, section 3, as to the circumstances under which a party 
 in possession will be deemed not to possess the title. 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 841 
 
 These sections merely provide that the drawing and delivery of 
 a bill or check does not "of itself" operate as an assignment. It is 
 still possibk for the drawer to execute an assigtiment of his right 
 against the drawee, but appropriate words, in addition to those 
 which usually appear on the bill, must be employed to produce 
 this effect. 
 
 If the name of the drawer has been forged, and the. instrument 
 negotiated to a holder in due course, we have already seen that in 
 a suit against the drawer the defense of forgery is available against 
 the innocent holder. Moreover, we have seen that if the instru- 
 ment is accepted or paid, the drawee, in the absence of an estoppel 
 does not have the right to charge the drawer's account. While 
 the drawer of a check, in certain situations, does owe a greater 
 duty to the drawee than to holders of the instrument, this duty is 
 not so extensive as to include the obligation to prevent forgery. 
 The drawee having accepted or paid an instrument bearing the 
 forged signature of the apparent drawer must bear the loss unless 
 there is a right in the drawee to recover the money paid to the 
 innocent holder, or -to successfully defend a suit brought by Such 
 holder against the drawee upon its acceptance. May the drawee 
 recover the money so paid, and may an acceptor successfully re- 
 sist payment? These are the questions raised in the cases pre- 
 sented in this section. 
 
 Certain analogous situations are also to be considered: First, 
 where the check or other bill of exchange bears the genuine signa- 
 ture of the drawer, but is accompanied by a negotiable document 
 of title bearing the forged signature of the carfier or other bailee ; 
 second, where the bill of exchange bears the genuine signature of 
 the drawer,' but the face of the bill has been materially altered, as, 
 for example, by raising the amount ; third, where the signature of 
 the drawer is genuine, but the drawer accepted or paid under mis- 
 take as to the existence of funds or credit of the drawer with the 
 drawee. As far as the right of the drawee to charge the drawer's 
 account is concerned, that depends upon whether the bill bears 
 the genuine signature of the drawer. If the signature is genuine, 
 the drawee may charge the drawer's account; and this would be 
 true, even though the drawer had no credit with the drawee at the 
 time of the payment. If a genuine bill has been altered, the drawee 
 may charge the drawer, as a rule, only for the amount of the bill 
 as originally issued. * * * The question involved in the fol- 
 lowing cases narrows down, therefore, to the inquiry: May the 
 drawee recover money paid to an innocent holder of a bill of ex- 
 change: (1) When the drawer's name was forged; (2) where 
 the drawer's name was genuine but a negotiable document of 
 title to goods accompanying the same was forged; (3) where 
 the drawer's signature was genuine but the face of the bill had 
 been altered prior to acceptance or payment; and (4) where the 
 drawer's name was genuine, but at the time of the acceptance or 
 payment the drawer had no credit with the drawee? 
 
842 NEGOTIABLE INSTRUMENTS (Part 3 
 
 The section of the Negbtiiable Instruments Law, which is in- 
 volved is as follows: 
 
 Section 62, The acceptor by accepting the instrument engages 
 that he will pay it according to the tenor of his acceptance; and 
 admits (1) the existence of the drawer, the genuineness of his sig- 
 nature, and his capacity and authority to draw the instrument, 
 and (2) the existence of the payee and his then capacity to indorse. 
 
 NATIONAL BANK OF ROLLA v. FIRST NAT. BANK OF SALEM. 
 
 (Springfield Court of Appeals, Missouri, 1910, 141 Mo. App. T19, 
 125 S. W. 513.) 
 
 Action by the National Bank of RoUa against the First National 
 Bank of Salem. Defendant had judgment, and plaintiff appeals. 
 
 Gray, J. * * * The plaintiff's petition alleges that both parties, 
 at the dates mentioned in the petition, were banking corporations, and 
 on the 26th day of September, 1907, defendant, through its correspond- 
 ent, presented to plaintiff for payment a check for the sum of $42, 
 purporting to be drawn on the plaintiff by one H. W. Lenox, in favor 
 of one J. B. Ragan, and purporting to be indorsed by the said Ragan, 
 and which said check had been duly indorsed by the defendant, and 
 previous indorsements thereon in writing, guaranteed by the defend- 
 ant, and relying upon the indorsement of said check by the defendant 
 and defendant's said guaranty, and believing that by reason thereof 
 it was genuine cashed said check and paid the amount thereof to the 
 defendant ; that after it had cashed said check and paid the proceeds 
 to defendant it discovered that the said check was forged, and thereup- 
 on it caused due notice to be given to defendant in writing, and de- 
 manded of it the payment of the amount of said check, and that de- 
 fendant refused to pay the same, and asked for judgment for the 
 amount of $42. It will be noticed that no allegation of negligence on 
 the part of the defendant in cashing the check for Ragan is made in 
 the petition, and the instruction asked by the plaintiff and refused by 
 the court presented the issue as alleged in the petition. In other words, 
 the question of the negligence of the defendant in cashing the check 
 for Ragan was not submitted either in the petition or the instruction. 
 There are but two reasons alleged for a reversal of the judgment, and 
 they are : Because the court erred in refusing an instruction asked by 
 the plaintiff ; and, because under all the evidence in the case, the judg- 
 ment should have been for the plaintiff. 
 
 The question presented here may be submitted in .the following lan- 
 guage: If B. representing himself to be A. presents to C.'s bank a 
 check purporting to be signed by D., payable to A., and drawn on E.'s 
 bank, of which D. is a customer, and C.'s bank cashes the check and 
 sends it for collection to E., who, when it is presented, pays the same 
 and charges it to D.'s account, and at the time of said payment E. has 
 reason to believe that the signature to the check is not D.'s, can E. sue 
 C for the amount of the check, upon learning that D.'s name. was 
 forged to the check, and showing that C. had sent the check for col- 
 lection, and that the money paid by E. at the time it cashed the check 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 843 
 
 had been received by C? The qiiestion has been answered in the neg- 
 ative many times in the courts of this country. Since the case of 
 Price V. Neal, 3 Burrows, 1355, decided by Lord Mansfield in 1762, 
 the general rule has been that when the drawee of a check or bill pays 
 the same to a bona fide holder, such drawee cannot recover the mon- 
 ey back upon discovering such check or bill to be a forgery. Many of 
 the text-writers on negotiable instruments declare that when a bank, 
 upon which a check is drawn, pays it upon the forged signature of the 
 drawer, the money can be recovered as paid under mistake of fact. 
 Story on Promissory Notes, §§ 379-529 ; 2 Parsons on Notes and Bills, 
 80. Others, while recognizing a different rule, incline to the opinion 
 that the one just cited is the most equitable. 2 Daniel on Negotiable 
 Instruments, c. 48, § 13. Whatever the text-writers may think and 
 declare the law to be, a long line of cases sustain the proposition that 
 as between the drawee and the holder of a check the drawee bank is 
 to be deemed the place of final settlement where all prior mistakes and 
 forgeries can be corrected and settled at once, henceforth and for- 
 ever more; and, if overlooked and payment is made, the chapter is 
 closed and there can be no recovery over. Price v. Neal, 3 Burrows, 
 1355. * * * 
 
 Judge Allen, in Bank v. Bank, 46 N. Y. loc. cit. 80, 7 Am. Rep. 310, 
 states the rule in the following clear language: "For more than a 
 century it has been held and decided, without question, that it is in- 
 cumbent upon the drawee of the bill to be satisfied that the signature 
 of the drawer is genuine ; that he is presumed to know the handwriting 
 of his correspondent; and, if he accepts or pays a bill to which the 
 drawer's name has been forged, he is bound by the act, and can neither 
 repudiate the acceptance nor recover the money paid." In Price v. 
 Neal, which was a similar action. Lord Mansfield stopped the counsel 
 for the defendant, saying that it was one of those cases that never 
 could be made plainer by argument; that it was incumbent upon the 
 plaintiff to be satisfied that the bill drawn uf>on him was the drawer's 
 hand, before he accepted and paid it. In the case of Ellis v. Trust Co., 
 supra, 4 Ohio St. 628, 64 Am. Dec. 610, the doctrine as announced in 
 Price V. Neal, is reviewed, approved, and a long list of authorities 
 cited in support thereof, and among these authorities will be found the 
 case of the Northwestern National Bank v. Bank of Commerce, 107 
 Mo. 402, 17 S. W. 982, IS L. R. A. 102. This doctrine is founded by 
 many courts. Upon the thought that the drawee bank is conclusively 
 presumed to know the signatures of its depositors. UfKjn examina- 
 tion of the authorities, this, however, is too narrow a basis. The 
 courts that declare the rule as abo^e stated put it upon the theory that 
 the rule is demanded by the necessities of business in these times when 
 the currency of the commercial world is composed so largely of checks 
 and drafts. There is another line of decisions that state the rule as 
 follows : The drawee of a forged check, who has paid the same, may, 
 upon discovery of the forgery, recover the money paid from the party , 
 who received the money, even though the latter was a good faith holder, 
 provided the latter has not been misled or prejudiced by the drawee's 
 failure to detect the forgery, and the burden of showing that he has 
 been misled or prejudiced by the drawee's mistake rests upon him who 
 claims the right to retain the money. First National Bank of, Lisbon 
 V. Bank of Wyndmere, 15 N. D. 299, 108 N. W. 546, 10 L. R. A. (N. 
 S.) 49, 125 Am. St. Rep. 588. * * * 
 
844 NEGOTIABLE INSTRUMENTS (Part 3 
 
 The latter doctrine is well stated in Ford v. People's Bank, 74 S. 
 C. 180, 54 S. E. 204, 10 h. R. A. (N. S.) 63, 114 Am. St. Rep. 986, 7 
 Ann. Cas. 744, as follows : "We think the true rule is found stated 
 in the case of National Bank v. Bangs, 106 Mass. 441, 8 Am. Rep. 349, 
 and National Bank v. Bank, 151 Mass. 280, 24 N. E. 44 [21 Am. St. 
 Rep. 450]. The language of the court in the last-cited case, after 
 stating that the presumption is that the drawee bank knows the signa- 
 tures of his own customers, is as follows : 'This presumption is con- 
 clusive only when the party receiving the money has in no way con- 
 tributed to the success of the fraud or the mistake of fact under which 
 the payment has been made. In the absence of actual fault on the part 
 of th^iirawee, his constructive fault in not knowing the signature of 
 the drawer and detecting the forgery will not preclude his recovery 
 from one who took the check under circumstances of suspicion with- 
 out proper precaution, or whose conduct has been such as to mislead 
 the drawee, or induce him to pay the check without the usual inquiry 
 against fraud. Where a loss which must be borne by one of two par- 
 ties alike innocent of the forgery can be traced to the neglect or fault 
 of either, it is reasonable that it should be borne by him, even if inno- 
 cent of any intentional fraud through whose means it has succeeded.' " 
 
 The different doctrines are well stated by the different opinions of 
 the judges of the Supreme Court of Minnesota, in the case of Ger- 
 mania Bank v. Boutell, 60 Minn. 189, 62 N. W. 327, 27 L. R. A. 635, 
 51 Am. St. Rep. 519, and for further information upon these points, 
 reference is made to that case. In nearly all of the authorities where 
 opinions are cited to sustain the different theories, the case of the 
 Northwestern National Bank v. Bank of Commerce, 107 Mo. 402, 17 
 S. W. 982, 15 L. R. A. 102, is cited in support of the doctrine, that it 
 is the absolute duty of the payee to ascertain at his peril when a check 
 is presented for payment, purporting to be drawn by a customer of his 
 bank, whether or not it is the genuine signature of the customer, and 
 if he cashes the check all rights against any person except the forger 
 are I forever barred. But upon reading the case of Bank v. Bank, 107 
 Mo. 402, 17 S. W. 982, 15 E. R. A. 102, supra, it will be found that 
 the question of negligence on the part of the purchaser of the check 
 is made a material issue in the case. * * * 
 
 In Bank v. Bank, 109' Mo. App. 665, 83 S. W. 537, the Kansas City 
 Court of Appeals, in an opinion by Judge Broaddus, declares the rule 
 to be that when the drawee pays a check purporting to be drawn upon 
 its bank by one of its customers its right of action against any other 
 parties to the check is gone, unless it can be shown that the purchaser 
 was guilty of gross negligence, and that a purchaser is not guilty of 
 such negligence as to authorize a recovery against him from the fact 
 that he has knowledge of circumstances sufficient to put a prudent man 
 on inquiry. This authority goes much further in regard to the notice 
 necessary to make the purchaser guilty of negligence than most any 
 other case recognizing the negligence doctrine. * * * 
 
 In addition to, the authorities, the Negotiable Instrument Act of 
 1905 contains the following section: "Sec. 62. The acceptor, by ac- 
 cepting the instrument engages that he will pay it according to the 
 teilor of its acceptance ; and admits : The existence of the drawer, the 
 genuineness of his signature, and his capacity and authority to draw 
 the instrument; and the existence of the payee and his capacity to 
 endorse." * * * After a careful examination of the new law we 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 845 
 
 are inclined to believe that it was intended to adopt the law as declared 
 in Price v. Neal, supra. * * * 
 
 The appellant, however, contends that because the check was in- 
 dorsed, "Endorsement guaranteed. Pay any National or State Bank 
 or Order. The First National Batik of Salem. W. J. Bennett, Cash- 
 ier," that it had the right to rely upon this guaranty, and that its suit 
 is maintained thereon. Such an indorsement is only an indorsement 
 for collection, and does not transfer the title to the indorsee. Bank 
 V. Bank, 109 Mo. App. 673, 83 S. W. 537. And the guaranty only 
 applies to the indorsers, and does not protect the payee against the risk 
 of cashing a check to which the maker's name is forged. See ,author- 
 ities cited on other points in this opinion. * * * 
 
 After a thorough examination of the law as it existed prior to our 
 negotiable instrument act, and as changed by that act, we are satisfied 
 that the court committed no error in refusing plaintiff's instruction, 
 and that upon the allegations of the petition the plaintiflE was not enti- 
 tled to recover, and the judgment of the trial court will be affirmed. 
 * * * 
 
 SPRINGS et al. v. HANOVER NAT. BANK OF CITY OF NEW YORK. 
 
 (Court of Appeals of New York, 1913. 209 N. Y. 224, 103 N. E. 156, 
 52 L. R. A. [N. S.]. 241.) 
 
 HiscocK, J. This case directly presents to this court for the first 
 time the question whether the drawee of a draft^who has mid the same 
 to._aboim_fideJioldex.. for vaftteTfelying in part upon purporIe^~Bills 
 ofla3ing attached by the draw er to^Be draft. But not mentioned 
 tfereinrcari, on discovery that tne'bllTs ofTading are forgeries, recoyer 
 back the moneys so paid from the payee or indorsee who has neither 
 guaranteed the genuineness of said instruments nor been aware of their 
 fraudulent character. 
 
 In this case the plaintiffs, who. as such drawees paid the defendant 
 as indorsee from another bank a draft for $39,000 drawn by a firm 
 of cotton dealers in the south with forged bills of lading attached, urge 
 four theories as justifying a recovery back. They say that defendant 
 represented that the bills of lading were genuine and truthful both 
 as to signatures and contents ; that the draft contained such reference 
 to the bills of lading as to make it conditional on the genuineness of 
 the bills of lading; that plaintiffs relied on an examination of signa- 
 tures by the bank and its transferror which had not in fact been made, 
 and therefore the payment was made under a mistake of fact; that the 
 defendant or its transferror departed from the usual course of business 
 in discounting the draft, and tliereby caused a mistake of fact; and 
 that even if both parties were equally innocent the defendant must 
 suffer. These theories are not sustained. * * * 
 
 We think there was no evidence which showed legal fault upon the 
 part of the Decatur bank in originally discounting the draft, and cer- 
 tainly there is no evidence which affects the defendant in that respect. 
 The contention of the plaintiffs is that defendant became the owner 
 and holder of the draft and was not a mere collecting agent for the 
 Decatur bank. Accepting this theory, there is no question that de- 
 fendant became the owner and holder of the draft iti the regular 
 course of business for value and without notice of any fact or circiim- 
 stance which made it chargeable with knowledge! or of responsibility 
 for the forgery of the bills of lading. 
 
846 NEGOTIABLE INSTRUMENTS (Part 3 
 
 Therefore in the end plaintiffs confront the, general question as first 
 stated. While, as I have said, this question has, not, been directly 
 decided by this court, it has been a subject of discussion and .decision 
 in many other courts. 
 
 In these cases the arg ument had been made on which plaintiffs in 
 this case must finally reT^TThat a party accepting or discounting drafts 
 accompanied by purported bills of lading upon the faith ,and security 
 of which he more or less relies and which prove to be forgeries has 
 acted under a material mistake of fact which entitles him to be re- 
 lieved frorti his acceptance of payment. To this arg wnent, howeve r, 
 .the._aus.vver.,iji.^£u]25tance_Jias ■£een_made''By ~tfae^ourts w ith almost 
 unvarying uniformity, that the mere^ attactaHent of bills iOtl^ing to a 
 draft does not make the former a part of the latter; that one who ac- 
 cepts or pays such a draft must be assumed in the absence of special 
 circumstances to do so on the faith of the draft itself, and that re- 
 liance upon the bills of lading is not a fact which enters into the sub- 
 stance of the real transaction in accepting or paying the draft, but is 
 an extrinsic fact; that, if the rule were established that relief should 
 be afforded against the acceptance or payment of a draft because of 
 mistaken belief in the genuineness of attached bills of lading,, such rule 
 logically would apply to other cases, as that the drawee had enter- 
 tained a mistaken notion as to the financial standing and responsibility 
 of the drawers or as to the value of security for the draft and thus 
 lead to an instability and confusion in transactions involving nego- 
 tiable paper which would be intolerable ; that as between the innocent 
 holder for value of a draft and the drawee who has accepted or paid 
 the same in reliance upon forged bills of lading there is no reason why 
 the drawee should be perrriitted to shift the burden of loss to the holder. 
 . While, as stated, none of these decisions are by this court, and there- 
 fore controlling, nevertheless they have such weight and have so wide- 
 ly established a rule of negotiable paper that we should feel reluctant 
 to disagree with them even if we doubted the wisdom of the principles 
 upon which they are based. We do not, however, have any such dif- 
 ference with other courts in respect of the principles which are in- 
 volved, and have no hesitation in adopting the- rule which has been 
 established by them. * * * 
 
 , Hoffman & Co. v. Bank of Milwaukee, 79 ,U. S. (12 Wall.) 181, at 
 page 189 (20 L. Ed. 366), was an action brought by plaintiffs as 
 drawees to recover the amount of three drafts paid by them to the 
 defendant on the ground that such moneys were paid tinder a mistake 
 of fact. * * * The Supreme Court affirmed the action of the lower 
 courts in directing judgment for the defendant, and in so doing wrote 
 as follows : "Money paid under a mistake of facts, it is said, may be 
 recovered back as having been paid without consideration; but the 
 d?c;isive answer- to that suggestion, as applied to the case before the 
 court; is that money paid, as in this case, by the acceptor of a bill of 
 exchange, to the payee of the same, or to a subsequent indorsee, in dis- 
 charge of his legal obligation as such, is not a payment by mistake nor 
 without consideration, unless it be shown that the instrument was 
 fraudulent in its inception, or that the consideration was illegal, or that 
 the facts and circumstances which impeach the transaction, as between 
 the acceptor and the drawer, were known to the payee or subsequent 
 indorsee at the time he became the holder of the instrument. * * * 
 
 Beyond doubt the bills of lading gave^ some credit to the bills of 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 847 
 
 exchange beyond what was created by the pecuniary standing of the 
 parties to the same, but it is clear that they are not a part of those 
 instruments, nor are they referred to either in the body of the bills or 
 in the acceptance, and they cannot be regarded in any more favorable 
 light for the plaintiffs than as collateral security accompanying the 
 bills of exchange. * * * Failure of consideration, as between tfie" 
 drawer and acceptor of a bill of exchange, is no defense to an action 
 brought by the payee against the acceptor, if the acceptance was uncon- 
 ditional in its terms, and it appears that the plaintiff paid value for the 
 bill, even though the acceptor was defrauded by the drawer, unless 
 itbfi-gh own that the 2 ayeg_hadJglo.wledgeof_thejraudulent actr^rfThe 
 3rawer~Before~Ke~paid such value and became the holder of the in- 
 strument. * * * Forgery of the bills of lading would be a good 
 defense to an action on the bills if the defendants in this case had been 
 the drawers, but they were payees and holders for value in the regular 
 course of business, and the case last referred to, which was decided in 
 the Exchequer Chamber, shows that such an acceptance binds the 
 acceptor conclusively as between them and every bona fide holder for 
 value." * * * 
 
 Judgment [for defendants] affirmed. 
 
 The following case applies the rule as it existed before the Ne- 
 gotiable Instrument Law as regards the right of the drawee to 
 recover money paid out on an altered instrument. While the court 
 quotes certain portions of section 62, no consideration was given 
 to the effect of tiie clause in section 62 which provides that the 
 "acceptor by accepting the instrument engages that he will pay it 
 according to its tenor." There is considerable force to the argu- 
 ment that this clause changed the common-law rule and would 
 therefore prevent the drawee from recovering money paid out on 
 altered instruments. 
 
 McCLEINDON et al. v. BANK OF ADVANCE. 
 (St. Louis Court of Appeals, Missouri, 1915. 188 Mo. App. 417, 174 S. W. 203.) 
 
 NoRTONi, J. This is a suit for a balance of deposits made by plain- 
 tiffs with defendant bank. Plaintiffs recovered, and defendant prose- 
 cutes the appeal. 
 
 Plaintiffs, Ella McClendon and William McClendon, are copartners 
 and as such conduct a mercantile business or store under the firm 
 name of Ella McClendon & Co. at Sturdivant, while defendant is an 
 incorporated banking institution doing business in Advance, a place 
 not far distant from Sturdivant. * * * The facts relevant to the 
 matter for present consideration are substantially as follows: 
 
 Plaintiffs conducted a store at Sturdivant and maintain a check- 
 ing account with defendant bank at Advance, with which they made 
 frequent deposits, while James Kinder & Son, copartners, conducted 
 a sawmill near by at Eaglette. James Kinder & Son also maintained , 
 a checking account with defendant bank, made deposits therein, and 
 drew checks thereon. In conducting the sawmill business, James Kin- 
 der & Son paid their workmen by issuing checks to them on defend- 
 
848 NEGOTIABLE INSTRUMENTS (P^rt 3 
 
 ant bank, and such checks were usually presented to plaintiffs, Ella 
 McClendon & Co., at thpir store at Sturdivant and cashed, by them. 
 After having cashed the checks, it appears plaintiffs forwarded them 
 by mail to defendant bank for deposit. Upon receipt of the checks 
 thus forwarded by plaintiffs, the bank would- deposit them to the credit 
 of plaintiffs, Ella McClendon & Co., and charge the account of James 
 Kinder & Son with the amount so credited. During the summer of 
 1910 James Kinder & Son were informed by the bank that their account 
 was overdrawn, and went about investigating the matter, for it is said 
 there should have been a balance to their credit at that time. The in- 
 vestigation revealed that some five checks, issued by James Kinder & 
 Son to as many different men in their employ, had been altered or 
 raised in the amount after issue, and were cashed by plaintiffs at their 
 store and deposited in defendant bank by plaintiffs, for which they 
 received credit. , Moreover, two checks appeared to have been forged 
 — that is, the signature of James Kinder & Son forged thereto — and 
 those checks were likewise cashed by plaintiffs at their store and fpr- 
 warded to the bank and deposited to their account. All of those checks 
 either raised or forged were charged at the time for the amounts ap- 
 pearing on their face to the account of James Kinder & Son in the 
 bank. * * * Defendant bank continuing in its refusal to pay 
 plaintiffs the balance represented by the respective amounts, the sev- 
 eral checks were raised and those of the forged checks as well, 
 * * * plaintiffs instituted this suit to recover the same. 
 
 From what has been said, it appears that there are two classes of 
 checks to be considered here: First, five separate checks which bore 
 the genuine signature of the drawer and the genuine indorsement of 
 the payee, but were altered by some one through being raised in amount 
 after they were issued; and, second, two separate checks which are 
 said to be forgeries, in that they bore a spurious signature.. Two sep- 
 arate and distinct rules of law obtain with respect to the different sub- 
 ject-matters, for as to the altered and raised checks defendant bank is 
 not concludied by the mere act of acceptance, while such may be true, 
 in a proper case, in so far as the forged signature of its customer is 
 concerned, for the bank is presumed to kfiow the signature of its de- 
 positors. But the court treated both subjects on the same plane — that 
 is, as if defendant bank was concluded by its acceptance of the raised 
 checks from a holder in due course and in good faith precisely as 
 if they were forgeries, in that they bore the forged signature of its 
 customer, the drawer, and such is not the law. It is entirely true that 
 the acceptor, by accepting the instrument — and a bank who pays the 
 check of its customer is such — admits the existence of the drawer, 
 the genuineness of his signature, and his capacity and authority to 
 draw the instrument, and the existence of the payee and his capacity 
 to indorse. See section 10032, R. S. 1909. In so far as the two al- 
 leged forged checks are concerned — ^that is, those which bore the al- 
 leged spurious signature of James Kinder & Son — the bank is concluded 
 by its acceptance and payment of them from disputing the signature of 
 its customer, provided, of course, that Ella McClendon & Co. received 
 such checks in due course and good faith. * * * 
 
 But such is not true with respect to the five checks, above de- 
 scribed, which bore the genuine signature of James Kinder & Son, 
 the drawer, and were altered or raised after their issue. Touching 
 these, the mere acceptance as by receiving and cashing them--— that 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 849 
 
 is, charging them to the account of Kinder & Son and passing the 
 amount they represented to the account of plaintiffs — in no wise con- 
 cludes the bank if it was without fault, for such a matter is reck- 
 oned with in the law on the ground of mistake, where it appears both 
 the bank and the depositor are innocent; that is, act in good faith. 
 In such circumstances, both the Supreme Court of the United States 
 and our own Supreme Courti thus state the law on the subject : "The 
 principle that money so paid under a mistake of the facts of the case 
 can be recovered back is well settled, and in the case of raised or al- 
 tered checks so paid by banks on which they were drawn there are 
 numerous well-considered cases, where the right to recover has been 
 established, when neither the party receiving nor the party paying has 
 been in any fault or blame in the matter." * * * 
 
 The instruction authorizes a recovery on account of both the raised 
 checks and the forged checks as if they were under the rule of law 
 which obtains with respect to the forgeries of the signature of the 
 depositor and is erroneous in so far as the raised checks are concerned. 
 The error seems to run throughout the case, for it appears in other 
 instructions as well and is manifestly prejudicial. * * * 
 
 The judgment should be reversed and the cause remanded. * * * 
 
 RIVERSIDE BANK v. FIRST NAT. BANK OF SHENANDOAH. 
 (United States Circuit Court of Appeals, 1896. 74 Fed. 276, 20 C. C. A. 181.) 
 
 Wallace, Circuit Judge. We are unable to discover any ground 
 upon which the plaintiff was entitled to recover. The certification of 
 the note by the plaintiff was an agreement to pay the amount, and the 
 contract can no more be rescinded than could any other contract be- 
 cause one of the parties in making it was under a misapprehension of 
 fact. * * * Money paid imder a mistake of fact is recoverable of 
 the party receiving it, because good conscience forbids him to retain 
 that which justly belongs to the other party ; but the principle has no 
 application to the case where the recipient has a right to retain the mon- 
 ey because it has been paid pursuant to a contract which he was en- 
 titled to enforce. Assuming that the certification of the note, and its 
 payment through the clearing house, was equivalent to a payment by 
 the plaintiff over its counter to the defendant, the case falls within 
 one of those exceptions to the general right to recover back money 
 paid by mistake which are found in the law of negotiable paper. 
 One of these exceptions is th^t-4jjedrawee of a ^ill of exchan ge-is- 
 ;>resumed to know the signature o^I]fhe--drawet:iSnd_paymen£--by— the 
 ^aw&ersfllfci^^HIR^-o^inanly an admis^ion^qf jthe_jgnuirieiiess--of i 
 the signature, which he is noT after war3s, in a controversy between 
 himself and the holder, at liberty to dispute. 
 
 Another exception, recognized by the decided weight of authority, | 
 is that the payment of a check or of a note by the bank at which it is 
 made payable, although made under misapprehension of the state of the 
 maker's account with the bank, concludes the bank as against the hold- 
 er of the paper. * * * Qf such a case the supreme court used this 
 language : "When a check on itself is offered to a bank as a deposit, 
 the bank has the option to accept or reject it, or to receive it upon 
 such conditions as may be agreed upon. If it be rejected, there is no 
 B.& iB.Bus.IiAW— 54 
 
'850 NEGOTIABLE INSTRUMENTS (Part 3 
 
 room for any doubt or question between the parties. If, on the other 
 hand, the check is offered as a deposit, and received as' a deposit, 
 there being no fraud, and the check genuine, the parties are no less 
 Dound and concluded than in the former case. Neither can disavow 
 or repudiate what has been done. The case is simply one of an ex- 
 ecuted contract. There are the requisite parties, the requisite consid- 
 eration, and the requisi):e concurrence and assent of the minds of those 
 concerned." Bank v. Burkhardt, 100 U. S: 686, 25 1,. Ed. 766. 
 
 To permit a bank which has paid a note or check of a customer 
 to rescind the transaction because it discovers that it was mistaken 
 in the state of the customer's account, would, as is pointed out by 
 Judge Cooley in Bank v. Burkham, supra, 32 Mich. 328, reverse the 
 rule of commercial law, and transfer from the acceptor to the payee 
 the responsibility which the former assumes by the acceptance and the 
 Joss, which should be left where it fell. * * * 
 
 The trial judge properly directed a verdict for the defendant, and 
 1:he judgment should be affirmed. 
 
 The following case contains a further discussion of the principle 
 Tvhich denies to the drawee the right to recover money paid out on 
 paper bearing the forged name of the drawer, and shows that the 
 rule does not apply where the drawee is seeking to recover money 
 paid to a holder under a forged indorsement. There is no provi- 
 -sion in the Negotiable Instruments Law which confers upon the 
 •drawee this right, so that the general rule of the law of quasi con- 
 tract, that money paid out under mistake of fact may be recovered, 
 -applies to payments to holders under forged indorsements. 
 
 FARMERS' NAT. BANK OF AUGUSTA v. FARMERS' & TRADERS' 
 BANK OF MATSVILI/E. 
 
 (Court of Appeals of Kentucky, 1914. 159 Ky. 141, 166 S. W. 986, 
 L. R. A. 1915A, 77.) 
 
 Action by the Farmers' National Bank of Augusta against the Farm- 
 ■ers' & Traders' Bank of Maysville. From a judgment on demurrer for 
 defendant, plaintiff appeals. 
 
 Miller, J. The appellant does a banking business at Augusta, Ky. ; 
 the appellee does a like business at Maysville, Ky. For brevity, they 
 will be called the Augusta Bank and the Maysville Bank, respectively. 
 
 On February 5, 1913, an unknown man, representing himself to be 
 Fred. Schatzman, presented to the Maysville Bank, at its place, of 
 business in Maysville, a check drawn on the Augusta Bank, bearing the 
 signature of "James Ware," as drawer, and payable to the order of 
 Fred. Schatzman, for $375. Without inquiry or question, and without 
 any identification of the holder, the Maysville Bank paid the check 
 and forwarded it to its collecting bank, the Fifty-Third National Bank 
 of Cincinnati, Ohio, which, in turn, forwarded it to the Augusta Bank, 
 where it was received and paid on February 10th. 
 
 James Ware was a regular customer and depositor of the Augusta 
 Bank. * * * On March 14th when Ware went over his checks, he 
 at once discovered the check was a forgery; and it afterwards ap- 
 peared that the indorsement of Fred. Schatzman was likewise a forg- 
 ery, and that the man who received the money was not Fred. Schatz- 
 
Ch. 4) EIGHTS OF HOLDBE AGAINST MAKER AND ACCEPTOR 851 
 
 man. These facts are alleged in the petition and are conceded to be 
 tnie. 
 
 The Maysville Bank having refused to repay to the Augusta Bank 
 the money thus obtained upon the forged check, the Augusta Bank 
 brought this action on August 21, 1913, to recover the money so paid; 
 and, the circuit court having sustained a demurrer to the petition set- 
 ting up the facts as above stated, the Augusta Bank appjgals. * * * 
 
 It is a well-settled rule that a bank is bound to know the signature 
 of its depositor ; and if it pays the check of a depositor it thereby ad- 
 mits the genuineness of his signature, and is estopped to afterwards 
 deny it to the detriment of an innocent third party. The reason for 
 the rule is that the paying bank has in its records the genuine signa- 
 ture of its customer, or knows it, while the collecting bank is a strang- 
 er to the signature of the drawer. 
 
 Appellant insists, however, that, while the general rule is as above 
 stated, it does not apply to the acts of indorsers; and furthermore 
 that the holder is bound to know that all previous indorsements, in- 
 cluding that of the payee, are the genuine handwriting of the parties 
 whose names appear upon the check. 
 
 The rule that money paid under a rnistake of fact may be recovered 
 is too well established to need any discussion. And the exception to 
 the rule that money paid by the drawee of a forged check cannot be 
 recovered is equally well settled. * * * 
 
 The exceptional rule which does not permit the drawee to recover 
 money which it has paid upon the forged check of its customer * * * 
 was first announced by Lord Mansfield in 1762, in Price v. Neal, 3 
 Burr. 1357, where it is said : "It was incumbent upon the plaintiff 
 to be satisfied, 'that the bill drawn upon him was the drawer's hand,' 
 before he accepted or paid it; but it was not incumbent upon the de- 
 fendant to inquire into it.'' 
 
 In the opinion in Deposit Bank of Georgetown v. Fayette National 
 Bank, supra, this court, speaking through Judge Pryor, recognized the 
 fact that, while the decided weight of authority is with Lprd Mans- 
 field, it nevertheless criticised the rule laid down by him in Price v. 
 IVeal as being possibly too sweeping in its character, and that it could 
 not be said that the rule which required a bank to know the signa- 
 ture of its depositor was without an exception, since it is undoubtedly 
 true that the neglect or knowledge of intervening parties, who come 
 into the possession of the check and receive the money on it from the 
 bank where it is "payable, would in some instances be of such a char- 
 acter as to enable the bank to recover back the money. In support of 
 that qualification of the rule. Judge Pryor quotes from Daniel on Ne- 
 gotiable Instruments, vol. 2, p. 669, where it is said "that when one 
 knows that it is a forgery or takes it under circumstances of suspicion, 
 without proper precaution, or whose conduct has been such as to 
 mislead the bank," the money may be recovered back. * * * > 
 
 As Was well said by Judge Pryor, the exceptional rule which does 
 not permit the drawee to recover money paid by mistake is a harsh 
 rule and should be kept strictly within its bounds and not extended. 
 If the indorser or holder has been guilty of the first negligence, there 
 is no good reason why he should not bear the loss, under the general 
 rule which permits the recovery of money paid under a mistake. This 
 view is supported by the great weight of authority, although there are 
 a few cases to the contrary. * * * 
 
852 NEGOTIABLE INSTRUMENTS (Part 3 
 
 In First National Bank of Lisbon v. Bank of Wyndmere, 15 N. D. 
 299, 108 N. W. 546,- 10 L. R. A. (N. S.) 49, 125 Am. St. Rep. 588, 
 
 * * * the North Dakota Supreme Court repudiated the rule an- 
 nounced in Price v. Neal, and held that the drawee of a forged check, 
 who has paid the same without detecting the forgery, may, upon the 
 discovery of the forgery, recover the money from the party who re- 
 ceived the mcmey, even though the latter was a good-faith holder, pro- 
 vided the latter had not been misled or prejudiced by the drawee's fail- 
 ure to detect the forgery, and that the burden of showing that he had 
 been misled or prejudiced by the drawee's mistake rested upon him 
 who claims the right to retain the money, for that reason. * * _ * 
 
 We are not, however, required in the decision of this case to dis- 
 approve the rule of Price v. Neal, since the facts here bring this case 
 within the scope of the rule in cases of forged indorsement. Accord- 
 ing to the weight of authority, under the exceptional rule a bank which 
 cashes a check drawn upon another bank, without requiring proof as 
 to the identity of the person presenting the same, or making inquiry in 
 regard. to him, the amount of which check is afterwards paid to it by 
 the drawee, is liable to the drawee for the amount so paid, where the 
 check proves to be a forgery; it having been guilty of the first fault. 
 
 * * * 
 
 The case at bar is even stronger for the drawee than many of the 
 cases above referred to, since here both the indorsement and the mak- 
 er's name are forgeries. In this case the Maysville Bank first parted 
 with its money upon the forged indorsement. * * * Clearly, the 
 Maysville Bardc would have received nothing from a forged indorse- 
 ment, even though the • check had been genuine. In such a case it 
 would have been liable to the real holder. When, therefore it collected 
 the money on the check in question from the Augusta Bank, it col- 
 lected something to which it was not entitled under the indorsement 
 through which it claimed. Neither can it be said that the Maysville 
 Bank will be put in a worse condition, if it be required to pay this 
 money to flie Augusta Bank, for the good reason that the: Maysville 
 Bank was never entitled to the money. When it paid the check upon 
 the forged indorsement, it lost its money, and, by subsequently induc- 
 ing the Augusta Bank to pay it, it received money to which it was in 
 no way entitled; and, that being true, it has no right to withhold it. 
 
 * * * 
 
 In an unusually interesting and instructive article in 4 Harvard Law 
 Review, 297, entitled "The Doctrine of Price v. Neal," Prof. Ames 
 takes the ground that 'the true principle upon which cases like Price 
 V. Neal are to be supported is that far-reaching principle of natural 
 justice that, as between two persons having equal equities, one of whom 
 must suffer, the legal title must prevail. And he would sustain the rule 
 which allows the drawee to recover from a holder under a forged in- 
 dorsement as follows : "Upon whom finally should the loss fall, when 
 a party to a bill or note pays it to a holder, who could maintain no 
 action against the payor, because one of the indorsements in his chain 
 of title is a forgery? Here, too, it may be urged the equities are equal, 
 and the holder, having obtained the money, should keep it. But this 
 case differs in an important particular from all the cases hitherto con- 
 sidered, and another principle comes into play, which overrides the 
 rule as to equal equities. In all the other cases the bill or note, how- 
 ever valueless it, may have been, belonged to the holder. In the case 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 853 
 
 of the forged indorsement, on the other hand, the bill or note belongs, 
 not to the holder, but to him whose name was forged as indorser. The 
 holder, who bought the bill, was therefore guilty of a conversion, how- 
 ever honestly he may have acted. When he collected the bill, inas- 
 much as he obtained the money by means of the true owner's property, 
 he became a constructive trustee of the money for the benefit of the 
 latter. The true owner may therefore recover the money as money had 
 and received to his use. If he recovers in his action, the property in the 
 bill would pass to the holder; but the bill would be of no value to 
 him, for, if he should seek to collect it, he would be met with the de- 
 fense that it had been paid to him once already. If, on the other hand, 
 the true owner prefers to proceed on the bill against the maker or 
 acceptor, he may do so, and the prior payment to the holder, being 
 made to one without title, will be no bar to the action. The maker 
 or acceptor, however, who pays to the true owner, is entitled to the 
 bill, and should be subrogated to the owner's right to enforce the con- 
 structive trust against the holder, and could thereby make himself 
 whole. Consequently, whatever course the true owner elects to pur- 
 sue, the loss must ultimately fall on the holder. As a matter of posi- 
 tive law, the maker or acceptor, who pays the holder claiming under 
 a forged indorsement, is allowed to proceed against the latter directly, 
 without first paying the true owner. This, as a matter of legal rea- 
 soning, is believed to be unwarranted. But as, in the result, the loss 
 comes where upon the legal principle of subrogation it ought to come, 
 it is not worth while to be too critical." 
 
 Prof. Keener, in his work on Quasi Contracts, considers the rule 
 announced in Price v. Neal, as wholly anomalous, and treats it in a 
 note on page 154 to the chapter upon the recovery of money paid under 
 a mistake for the avowed reason that it is impossible to reconcile it 
 with many of the legal principles announced in his text. After saying 
 •it is impossible to reconcile the exceptional rule which denies a re- 
 covery of money paid under a mistake as to the genuineness of nego- 
 tiable instruments with the principles applicable to the general rule 
 which permits a recovery of money paid under mistake. Prof. Keener 
 points out that the exceptional rule cannot logically be sustained upon 
 any of the different grounds usually relied upon, that the drawee is 
 guilty of negligence, that between equal equities the law leaves the mon- 
 ey where it finds it, or of subrogation in the case of money mistakenly 
 paid under a forged indorsement, thus differing radically from Prof. 
 Ames, who maintains the later view in his article theretofore referred 
 to. In criticising the theory of allowing a recovery upon the principle 
 of subrogation. Prof. Keener says: "The fact that the action is 
 brought at law in the name of the party who made the payment is 
 fatal to allowing a recovery on the theory of subrogation, since the 
 result is to be regarded as anomalous in point of procedure. Equally 
 fatal to this theory is the fact that the plaintiff is allowed to recover 
 without first paying the true ovvner. The theory of subrogation, how- 
 ever, is open to the further objection that a recovery would undoubt- 
 edly be allowed in cases on the line of reasoning adopted by the courts, 
 where the theory of subrogation would have to be denied. Subroga- 
 tion of course implies a right in another which a party seeks to acquire 
 against the defendant. A party claiming through subrogation claims 
 by virtue of a derivative right necessarily presupposes an original right. 
 If, therefore, for any reason, the true owner of the bill could not 
 
854 NEGOTIABLE INSTRUMENTS (Part 3 
 
 maintain an action against the holder thereof for a conversion of the 
 bill, or could not sue at law in a court for money had and received to 
 recover the proceeds received in payment thereof, then a drawee de- 
 pendent upon the doctrine of subrogation could not, on the theory of 
 subrogation, recover the money paid by him under mistake as to the 
 genuineness of an indorsement. In conclusion it is submitted that on 
 no theory of quasi contract can the decisions reached in the cases con- 
 sidered in this note be reconciled, or the results reached in many of the 
 cases be justified." 
 
 These two articles by masters of the subject strongly tend to sup- 
 port the contention that the exceptional rule is unsound. But if it be 
 treated as sound, both under the great weight of authority and the rea- 
 son for it, the case at bar does not come within it, since the defendant 
 claims under a forged indorsement. We are of opinion, therefore, that 
 the appellant was entitled to recover under the general rule which per- 
 mits a recovery of money paid under a mistake, and that the demurrer 
 to the petition should have been overruled. 
 
 Judgment reversed for further proceedings consistent with this 
 opinion. 
 
 SECTION 5.— RIGHT OF THE DRAWEE WITH RESPECT 
 
 TO INSTRUMENTS PAYABLE TO THE ORDER 
 
 OF A FICTITIOUS PAYEE 
 
 Reference was made to the subject of fictitious payees in Chap- 
 ter I, where we were considering the circumstances under which 
 an instrument was to be deeined payable to bearer, and it was there 
 stated that this matter could be taken up more profitably in con- 
 nection with our study of the various legal aspects' of forgery. 
 
 In order to pave the way for our study of the legal effect of 
 making an instrument payable to the order of a fictitious payee, 
 let us take the following illustrations: « 
 
 (1) Suppose that F. forges M.'s name as the drawer of a check 
 drawn upon the D. bank and payable to bearer, or to P. or bearer, 
 and negotiates the instrument to A., a holder in due course. Upon 
 presentment to the drawee, D., A. obtains payment. What is the 
 result? p. cannot charge M.'s account, because M. did not draw 
 the instrument. If the instrument were drawn payable to P. or 
 bearer, and either F. or A. indorsed P.'s name, such indorsement 
 would not be a forged indorsement within the meaning of the 
 rule which allows a drawee having paid to a holder under a 
 forged indorsement to recover the money so paid, for the reason 
 that the genuine indorsement of P. is not necessary to pass title to 
 the instrument. Therefore the drawee, D., cannot recover the 
 money paid to A. because of the rule discussed in section 4 of this 
 chapter. 
 
 (2) Suppose, then, that F. forged M.'s name as the drawer of 
 a check drawn upon the D. bank payable to P. or order and deliv- 
 ers the instrument to P. Suppose further that T. steals the in- 
 strument from P., forges P.'s indorsement and negotiates to A., 
 a holder in due course. Notice the important distinction between 
 
Ch. 4) RIGHTS OP HOLDER AGAINST MAKER AND ACCEPTOR 855 
 
 this case and that put in the first illustration. In this case the 
 check is payable to P. or order, therefore the genuine indorsement 
 of P. is necessary to pass title; while in the first case, the instru- 
 ment being payable to P. or bearer, the indorsement of P. was not 
 necessary to pass title. Upon payment by D. to A., what are the 
 rights of D.? M.'s name being forged, D. cannot charge M.'s 
 account just as in the first case. But D. may recover from A., 
 in spite of the rule developed in section 5 of this chapter, because 
 the drawee has also paid to a holder under the forged indorsement 
 of P., whose genuine indorsement was necessary to pass title to 
 the paper. Money paid under a forged indorsement may be re- 
 covered. It may seem so'mewhat strange to be speaking of hav- 
 ing title to an instrument which is void as far as the drawer is 
 concerned, but it is nevertheless true. A person may own some- 
 thing that has little or no value, as well as he may own some- 
 thing possessing value. 
 
 (3) We are now ready for the case of the fictitious payee. F. 
 forges M.'s name to a check payable to P. or order, drawn upon the 
 D. bank. F. indorses P.'s name and negotiates to A., and A. ob- 
 tains' payment from the drawee, D. What are D.'s rights? Is 
 case (3) in legal effect like case (1) of case (2)? If it is like case 
 (1)' then D. cannot recover from A. If case (3) is like case (2), 
 then D. may recover from A. The answer depends upon the legal 
 effect to be given to the signature by F. of P.'s name, as an appar- 
 ent indorser of the check. Apparently, case (3) is like case (2), 
 because both instruments were payable to order and in both cases 
 P.'s name was placed upon the instrument as an indorser by some 
 one other than P. If the appearance of things governed, D. could 
 recover from A. But as a matter of law the appearance of things 
 does not govern, for the law is that, in legal effect, case (3) is 
 like case (1), and D. accordingly cannot recover from A. We 
 have the rather novel situation of an instrument expressly payable 
 to a named payee or order being treated as though it were pay- 
 able to bearer. The words "or order" have the same meaning as 
 the words "bearer" whenever the instrument is payable to a ficti- 
 tious payee or order, and case (3) is a case where P. was a fictitious 
 payee ; that is, P. was fictitious in the sense that F. intended that 
 P. should never have any interest in the check. 
 
 What reason is there for the rule that an instrument payable 
 to the order of a fictitious payee is deemed payable to bearer? 
 This may best be shown by a case involving a fictitious payee 
 where no fraud is intended. Suppose that M. draws his check in 
 the D. bank payable to P. or order, intending then to deliver the 
 check to P. in payment of a debt. Suppose further that M. there- 
 after changes his mind about delivering the instrument to P. and 
 decides to pay a debt of the same amount which he owes A. Of 
 course, the normal thing for M. to do would be to destroy the first 
 check and draw a new one payable directly to A. ; but suppose 
 M. decides to make use of the check wfiich he has drawn payable 
 
856 NEGOTIABLE INSTRUMENTS (Part 3 
 
 to P. or order, M. then indorses P.'s name and delivers the same 
 to A., or authorizes A. to indorse P.'s name. Certainly P.'s name 
 was not forged either in the criminal law sense nor in any other 
 sense. P. sustained no da,mage whatsoever tecayse until delivery 
 P. could have no interest in the check. Is it not perfectly reason- 
 able to say, therefore, that in this case the indorsement of P. by 
 M. or A. shall be treated as a genuine indorsement of P. and as a 
 result that title to the check passed to A.? This result is not 
 only possible, but virtually necessary, because M. intended that 
 P. should not have any interest in the check, but that A. should 
 obtain title. The result is the same where F., the person who 
 physically drew the instrument, forged the name of the apparent 
 drawer, for he likewise intended that P. should have no interest in 
 the check, but that the transferee, A., should have the interest in 
 the instrument. It would have been Somewhat more logical for the 
 law to have said that where the instrument is made pay.a|ble to 
 the order of a fictitious payee, and such fictitious payee's name is 
 signed as an indorser, such indorsement should have the same 
 effect as though in all respects such indorsement were genuine. 
 The law, however, did not say quite this, but instead the rule be- 
 came fixed that an instrument so drawn became payable to bearer. 
 In the majority of cases the same result is reached, but the way in 
 which the rule is phrased makes the underlying reason for its ex- 
 istence appear less distinct. 
 
 From a practical standpoint the typical case calling for the ap- 
 plication of the rule relating to fictitious payees arises where a 
 fraudulent party, commonly an agent of the person whose name 
 is signed as drawer, adopts this scheme to defraud the bank in 
 which his employer maintains an account. The success of the 
 scheme to defraud is made more certain if the paper is made pay-' 
 able to the order of some one with whom the apparent drawer is 
 known to have business dealings. The scheme is only one of many 
 forced constantly upon the attention of the business and banking 
 world, where the negotiable instrument is made to do the work 
 of the crowbar or of nitroglycerine. 
 
 The section of the Negotiable Instruments Law involved is as 
 follows : 
 
 Section 9, subsection 3. The instrument is payable to becu-er 
 when it is payable to the order of a fictitious or non-existing per- 
 son, and such fact was known to the person making it so payable. 
 
 The case following illustrates the application of the rule. Then 
 follow a few cases bearing a close resemblance to the fictitious 
 payee case but upon closer examination are found to be governed 
 by other rules. (1) Suppose that F., the fraudulent party, induces 
 M. to draw the instrument payable to P. or order, and F. indorses 
 P.'s name; is this instrument payable to bearer? (2) F., by fraud, 
 induces M. to believe that he, F., is P., and obtains an instrument 
 payable to P. or order; is this instrument to be deemed payable 
 to bearer? 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 857 
 
 TRUST CO. OF AMERICA v. HAMII/TON BANK OF NEW YORK CITY. 
 
 (Supreme Court of New York, Appellate IMvision, 1908. 127 App. Diy. 515, 
 
 112 N. Y. Supp. 84.) 
 
 McLattghlin, J. This is a controversy submitted to the court upon 
 an agreed statement of facts. * * * The controversy relates to 
 four checks for $500 e_ach,_drawa_uppn the plaintiff, a tmst company 
 "Homga-Bankllig" business, and §ignsd~i-~'Es.tate,of Kate M^ Wallace. 
 Arthur B. Wallace, Adm'r." i&the time the checks were presented 
 to the plaintiff for payment, the estate of Kate M. Wallace was one 
 of its depositors, having to its credit an amount in excess of all the 
 checks, which could_bg jrawn out on checks signed by Arthur B. Wal- 
 lace._adminifitraTfin when countersigned by theJJnited -States iTdelity 
 & Guaranty Company. The Wallace estate had then been practically 
 settled, and the amount on deposit was ready for distribution among 
 the next of kin of the decedent. The four checks in question were 
 drawn without the knowledge or authority of the administrator, his 
 signatnrr'Beiiig forged, and in each there wa s inserte d as payee the 
 lia me o f someTone af-the—nexlL pf kin whose distrlbiitaBre share of 
 the amounTon deposit with the plaintiff was greater than the amount 
 of the check or checks thus apparently payable to such person. The 
 first check was dated September 25, 1905, and was presented on that 
 day toTReTjnited States Fi delity & Guaranty Company by a person 
 unnamed, without the knowledge of plaintiff or defendant. The United 
 States Fidelity & Guaranty Company, relying upon the apparent genu- 
 ineness of the check, countersigned the same, and it was then, by some 
 person unknown, p resente d to~the plaintiff^ for acceptance and by it 
 acceptedjin writing. Tlae^sSieZofjhe 2ajee_jvj^^ upon 
 
 the back^jofllEe-ebeck as first indorser, and it was subsequently jde- 
 posited with the defendant, ^ one M. F. Kerby, one oTTts depositors, 
 w'Ho'^was'given credit" for the~same. " "TTthen bore The following addi- 
 tional indorsements : "Harvey J. Conkey. M. F. Kerby. A. Edward 
 Fisher." Thereafter, the defendant,_thrQUgh the New York Clearing 
 HQUse,-preS£nted the check, to the plaintiff for payment, guaranteeing 
 the indorsemerter'aiid* it, relying upo'n'the genuineness of the check, 
 with the guarantee of the defendant thereon, not knowing that the 
 indorsement of the payee was forged, paid the samein good faith. 
 Substantially the same^facts are true in 'regard to "the second' check, 
 which was dated in NoveniBerr~1905-. - The £ther two ch ecks, dated 
 in December, 1905, and January, 1906, wer^noCpreiJenfed ' to plain- 
 tiff for-.acceptance before payment and were deposited with defendant 
 by Harvey J. Cotikey, one of its depositors, to the credit of his account ; 
 otherwise, the same course was pursued with regard to them. They 
 were indorsed "Harvey J. Conkey" below the forged indorsement of 
 the payee. 
 
 Upon discovering the forgeries, the plain tiff at once notified the de- 
 f endarit^_teridered back tlie. checks^ arid demanded^repayment. In the 
 ineahtime both Kerby and Conkey had witMrawh^he proceeds of the 
 checks, and the c kfeiiH antT'Ti lying'oir' plalntiff'T acceptance and pay- 
 ment of them, liaB3^^tJiie_same_ in goodTlaith. -The defendant 
 has refused to repay plaintiff the amount of the checks, or any of 
 them, and the question presented is whether plaintiff is entitled thereto. 
 
 The general rule is that payments made under a mistake of fact 
 may be recovered, although negligently made ; but it is also settled that. 
 
858 NEGOTIABLE INSTRUMENTS (Pait 3 
 
 if the drawee of a bill of exchange to which the drawer's name has been 
 forged accepts_oii_ga^ the same, he can neither repudiate the accept- 
 ance nor recover the money paid, since he is bound to know the draw- 
 er's signature. * * * It is also settled that, where the indo rsement 
 of the payee of a. bill of exchange has beejxiorged, subsegu^iLholders 
 obtairr-fio'title to it, and payments made to one who Ti^dsunder such 
 f oTgedJuidorsements may be recovered. * * * 
 
 Therefore, if all the indorsements on the checks in question had 
 been genuine, the plaintiff could not recover ; but if the maker's signa- 
 tures had been genuine, and only the indorsements or any of them 
 forged, it could recover. * * * A leading authority on the subject 
 is Bank of England v. Vagliaho Bros., L. R., 1891 App. Cas. 107. 
 * * * 
 
 Under the negotiable instruments law and the cases cited, I am of 
 the opinion the checks in question, as between plaintiff alxd defendant, 
 were payable to"5earer. It does' not appear who forged the maker's 
 ^ifnafufesTbut IheT'suEsequent history of the checks does not leave it 
 open to doubt that the person_who did so kne w that the_gartieswhose 
 names werejised as payees would' never have any inte^itlSIffifilin- 
 ■stfuments. Just as in the Bank of England aSS~^ie Phillips Cases, 
 140 N. Y. 556, 35 N. E. 982, 23 L. R. A. 584, 37 Am. St. Rep. 596, 
 in order to accomplish .the fraud more, easily, the names inserted as 
 payees were those of persons to whom checks might naturally be made. 
 WhetKef indorsing the names of the payees upon the checks was tech- 
 nically forgery or not it is unnecessary to consider. It has been con- 
 venient to thus describe them. Despite these forged indorsements, 
 then, the defendant Required good title, since in legal effect the checks 
 were payablH~to~bearer. "^Plaintiff, having paid them to a holder in 
 due course, cannot recover upon the ground that the payees' signatures 
 were forged. * * * 
 
 [Quoting from Shipman v. Bank of State of New York, 126 N. Y. 
 318, 27 N. E. 371, 12 L. R. A. 791., 22 Am. St. Rep. 821, the court 
 said:] "The maker's intention is the controlling consideration which 
 determines the character of such paper." * * * 
 
 I am of the opinion that the plaintiff has no legal claim against the 
 defendant, and for that reason the latter is entitled to judgment upon 
 the merits, with costs. 
 
 SEABOARD NAT. BANK v. BANK OF AMERICA. 
 
 (Court of Appeals of New York, 1908. 193 N. T. 26, 85 N. E. 829, 
 22 L. R. A. [N. S.] 499.) 
 
 Action by the Seaboard National Bank against the Bank of America. 
 From a judgment of the Appellate Division, affirming a judgment for 
 plaintiff, defendant appeals. 
 
 Three persons doing business under the firm name o f E. V. Babc ock 
 &Ca]lirPittiBurg, Pa., weredepositors in the Federal National Bank 
 ofTEaTcity. One Pennock "was the auditor and chief bookkeeper, and 
 known by said bank to be in the employ of said firm. On September 
 17, 1904, said Pennock went to said bank, and presented a check pur- 
 porting to be signe(fby said. firm, drawn upon ,SSid banETpayable to the 
 order of "N; Y. Dxait," for $2,000, and requested said bank to give 
 hini a NewYorkdraft for $2,000, payableTo' the order of "Carroll 
 Bros." ~A"draft was drawn by said bank upon the plaintiff, a tank- 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 859 
 
 inginStitutionin the city of New York, and delivered to said Pen- 
 nockr Sam F^iock thereupon went to the Mellon National Bank 
 of Pittsburg, t>a., in which bank he had a personal account, and he 
 thereupon signed the name of " Carroll Bros." on the back of said 
 draft, and deposited the same to his account in said Mellon National 
 Bank. The draft was indorsed by the Mellon National Bank, and jor- 
 wardejj to its correspondent, the defendant, in the city of New York. 
 TEedefendantcQllectfid..sai.d draft jpjLthe_plaintifI, through the clear- 
 ing houseTiT^ie city of New York in the usual course of business. 
 The check_upon the Federal National Bank, which purported to be 
 signed by E. V. Babcock & Co.,j was a forge ry. "Carroll Bros." is 
 a partnership, composed of two members, doing business in Pennsyl- 
 vania,^ and it had dealings, from time to time, with said E. V. Bab- 
 cock & Co., but in the dealings with said E. V. Babcock & Co., Car- 
 roll Bros, were always indebted to E. V. Babcock & Co. The indorse- 
 ment of the name "Carroll Bros." upon said drait was, without tlxe 
 knowledge or~au^Qrity of said Carroll Bros., said E. V. Babcock & 
 Co. or of saidT'ederal National Bank. 
 
 This action was. brought to recover the arnount of said draf t, and 
 jud^HenTwas entered in favor of the plaintj^, from which judgment 
 an appeal was taken to the Appellate Division of the Supreme Court, 
 where the judgment was unaniniously affirmed, and from such judg- 
 ment of affirmance an appeal is taken to this court. 
 
 Chase, J. The Federal National Bank was a depositor with the 
 plaintiff. The relaHoh existing betweefralSanlc and a depositor being 
 'Tfiat'SF^ebtor and creditor, the bank can justify a payment on the 
 depositor's account only upon the actual direction of the depositor. 
 * * * It is provided by the Negotiable Instruments Law that: 
 "Where a signature is forged or made without authority of the per- 
 son whose signature it purports to be, it is wholly inoperative, and 
 no right to retain the instrument, or to give a discharge therefor, or 
 to enforce pa)rment thereof against, any party thereto, can be acquired 
 through or under such signature, unless the party, against whom it is 
 sought to enforce such right, is precluded from setting up the forgery 
 or want of authority." * * "S^^Ifitwas^necessary^ f or CarroUJBros. 
 to indorse ^JhsL-drait- bfifore itj gould be paTd byTEeplaintlff to the ac- 
 count ot the Federal National Bank,'TKenjr^s[neverso indorsed, be- 
 cause Pennock's act was a forgery, and wholl)rinoperative. The de- 
 fendant cannot retain the money paid to it by the plaintiff upon such 
 unindorsed draft, for the very excellent reason that it had no title to 
 the instrument upon which the money was paid. It is further provided 
 by the Negotiable Instruments Law (section 28) as follows: "The 
 instrument is payable to bearer: * * * _When_it,is_ payable to the 
 ordfir_oi..a_^ti_tiQUS^or nonexisting person, and "such facT was known 
 to^e-jje rson making it so payable.^ * * *" -— 
 
 It is claimed'"by the defendant that the draft was payable to a fic- 
 titigus'onfion^Sting' person, and consequently writing the signature 
 of CarrotTBros. on "the' back of the draft was not in legal effect a for- 
 gery, and not necessary to protect the plaintiff in its payment. * * * 
 We * * * think that the (Jefendantis wrong jjnjts contention Jhat 
 the d raft was payable to bearer~a?~deli!ied-Tn the Negotiable Instrii- 
 'ihents JUaw." "Iris- only wheirar^rsoiT making an instrument kn ows ,, 
 that he is making it payable to a fictitious or nonexisting person that 
 it can be treated as payable to bearer. 
 
860 NEGOTIABLE INSTKUMENTS (Part 3 
 
 The appellant asserts that a person to whom a draft, made payable 
 to a third person, is issued can, while he remains the owner thereof, 
 divert it from the purpose for which, it was intended, and that, for the 
 purpose of such diversion, or of returning the amount of the draft 
 to his account in the bank, he can indorse the payee's name thereon 
 without being liable for the crime of forgery. Assuming that, in cases 
 where the draft has never been delivered to the payee, or the payee has 
 not in some way obtained a vested interest therein, the appellant is right 
 in its claim, the assumed authority to so indorse the payee's name 
 thereon does not arise because the draft is payable in legal effect to 
 bearer, but because of the fact that such an act of the owner is harm- 
 less. Such means of recalling a proposed transaction, or of changing 
 the use to be made of a draft, is sustained upon the right that a per- 
 son has. to do as he pleases with his own, and for that reason, until the 
 rights of others in the draft have become vested, the acts of the owner 
 therewith are innocent and colorless. * * * There is no presump- 
 tion arising from the facts proven that the name "Carroll Bros." was 
 intended as a fictitious or nonexisting payee. Such intention, to be 
 effective, must necessarily arise from knowledge, and exist as an af- 
 firmative fact in the miijd of the drawer of a draft at the time of its 
 delivery. * * * 
 
 Selover in his work on Negotiable Instruments Law (page 70) says : 
 "The doctrine that a check or bill made payable to a fictitious person 
 is payable to bearer, and negotiable without indorsement if the ficti- 
 tious character of the payee was known to the parties, originated in 
 England, and in each of the cases holding the doctrine the decision 
 was based on the fact that the acceptor knew, at the time of his ac- 
 ceptance, that the instrument was payable to a fictitious person. If the 
 drawer or maker of an instrument did not know that the payee was 
 a fictitious or nonexistent person, and did not intend to make the paper 
 payable to such person, paper payable to the order of such person can- 
 not be treated as payable to bearer, for the intention of the maker or 
 drawer is the test." * * * 
 
 " It does "not appear that the Federal National Bank knew Carroll 
 Bros, was a fictitious or nonexisting person, or intended that the in- 
 strument should be payable to bearer. 
 
 The judgment should be affirmed, with costs. * * * 
 
 MERCANTILE NAT. BANK OP CITY OF NE3W YORK v. SILVERMAN. 
 
 (Supreme Court of New York, Appellate Division, 1911. 148 App. Div. 1, 
 132 N. X. Supp. 1017.) 
 
 Action by the Mercantile National Bank of New York against Louis 
 Silverman. Judgment for plaintiff, and defendant appeals. 
 
 Laughlin, J. This is an action on a promissory note, upon which 
 the defendant admitted his liability, but pleaded facts on which he 
 demanded that the amount of two checks paid by the plaintiff and 
 charged to his account be set off. This defense was overruled. * * * 
 
 The appellant was a private banker, conducting business in the 
 city of New York, and for a long time he had been accustomed to 
 purchase claims of officers of the United States army for their sala- 
 ries to grow due in the future, and to take assignments of their vouch- 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 861 
 
 ers therefor. He had a drawing account with the plaintiff, and the 
 checks which were charged to his account and the amount of which 
 he seeks to offset herein were drawn and dated on the 16th day of Sep- 
 tember, 1907. One was for $900, payable to the order of "Lieut. Col. 
 Frederick Marsh," and the other was for $526.50, payable to the order 
 of "Capt. J. A. Shipton." * * * 
 
 The appellant was not personally acquainted with either Lieut. Col. 
 Marsh oT'Capt. Shipton, and had had no business transactions with 
 either of them; but in due course of mail he teceived a letter under 
 date of September 11, 1907, written on the statione'ry"of Hie New Wil- 
 lard Hotel at Washington, D. C, purporting to be signed by "Freder- 
 ick Marsh, Lieut. Col. Coast Artillery Corps," and stating, in sub- 
 stance, that the writer observed by an advertisement in the Army and 
 Navy Register that appellant discounted monthly pay vouchers for 
 army officers, and stating his monthly salary ; that he^ d^esired to have 
 appellant cash his vouchers for October, November, and December 
 ofThat "year. —*"'*" * On the receipt of these letters and vouchers, 
 appel lant inclose d_the checks, either in one envelope addressed to 
 MariE by his offiHaTtrtle, or in sepafate_envelopes, the one payable to 
 the'ord er -o f M ^sh addresse^^foTmnTand the other addressed to Ship- 
 ton by^his^-efeiai-title, at the Kew Willard Hotel at Washington, D. 
 C, but as to which the testimony of the appellant is uncertain. The 
 apgellant_knew, by an examination of the Army and Navy Register 
 before answering the first letter, that there were .such -officers,- and 
 where they were regularly stationed, which corresponded in that regard 
 with the information contained in the letter; but he made no inquiry 
 to ascertain whether or not they were then at the New Willard Hotel 
 or in Washington, or to ascertain whether or not the writer of the let- 
 ter was Lieut. Col. Marsh. 
 
 The pri mary questio n to be considered is whether Lieut. Col. Marsh 
 and Capt. Shipton of the United States army ~wefe' "the "respective 
 payeesof the checks ^or whether the appellant intended to make the 
 indrvidual^wilh' whorn^ he had, the correspondence the payee thereof- 
 I am of opinioh"thaF only one inference may be drawn from these un- 
 controverted facts, and that is that, while the appellant erroneously 
 believed that his correspondent was Lieut. Col. Marsh, he did not de- 
 termine that question, and reasonable care did not require that he de- 
 termine it. * * * TJie -appellant did not personally deliver the 
 checkSj_aiid thus_pass.Qn. the identity of the payee. He transmitted 
 th^rf by mail^ so addressed that without violating the law they could 
 not be received and opened by any one other than the army officers, 
 and made the checks out in such form that they could not be collected 
 by any one other than the army officers, without the commission of the 
 crime of forgery, and failure on the part of the person or corporation 
 cashing them in the first instance to require proper identification. In 
 these circumstances, I think ^nojtitIe_±o the. checks passed to the im- 
 postor. * * * 
 
 WitlTrespect to the sale and delivery of property to an impostor, 
 whereJii£_v£nd0n_paasg^s on the question o f his, i dentity , it ias. bgen 
 h^CT ^at the t itle passes, although the transaction may be rescinded 
 for fraud! *~ * * It is unnecessary to decide whether a different 
 result would be required if the appellant had delivered the checks per- 
 sonally, and had determined for himself the identity of the payee which 
 would present the question as to who was intended as the payee in a 
 
862 NEGOTIABLE INSTRUMENTS (Part 3 
 
 somewhat different aspect and might give rise to a question of estop- 
 pel. * * * 
 
 It follows, therefore, that the judgment and order should be re- 
 versed, * * * and the complaini * * * dismissed, with costs. 
 
 SECTION 6.— RELATION OF A DRAWEE BANK TO THE 
 
 DRAWER 
 
 While a>_bajik_which, has certified or paid a check drawn upon it 
 is not__a_holder, the £elation_of_the bank to its depositor is suffi- 
 ciently analogous to the situations disciissed in the preceding sec- 
 tions as to warrant a special iji^quiry into_the_ nature ^ this con- 
 tract., lii fjiany respects this is no_part of the law of negoti able in- 
 "bLi lj hi ents, but is~^Stlof the .lasi^__iif_^ntr2£ts_£ener ally. The 
 proEIem, in its broad outlines, is : What are the terms in the con- 
 tract between a bank and its depositors ? These terms are usually 
 not expressly agreed upon, but are implied either in fact or law. 
 No attempt is here made to present a complete analysis of the 
 contract of deposit. A few only of its important aspects are in- 
 volved in the cases following. 
 
 -pr 
 
 BLAKE V. HAMILTON DlME SAVINGS BANK OO. 
 
 (Supreme Court of Ohio, 1908. 79 Ohio St. 189, 87 N. E. 73, 20 L. R. A. 
 [N. S.] 290, 128 Am. St. Rep. 684, 16 Ann. Cas. 210.) 
 
 Summers, J. The action was brought by the defendant in error, the 
 Hamilton Dime Savings Bank Company, of Hamilton, Ohio, against 
 the Franklin Bank of Cincinnati, Ohio, upon a check dtg wn by C. G. 
 Blake & Co. upon the Fran klin Bank f or $ 27£ payablela-thS" order 
 "ot C. G. Jjiake, aittd ceftifie3~by the FratiklinBank to be jgood, and 
 iridorsed, by C7 G. Blak^and OharlesJ^^^erBer 
 
 On Friday, October 16, i903,'"Blake bought a horse from Werbel and 
 indorsed the check to the order of Werbel_and_deliy_er£d-if to him 
 irLjiayment for the horse. The indorsement of certification was as 
 follows: "Good for $275.QQ- jyhen properly indorsed. The Franklin 
 Bank, H. ^SacEFeleben, Teller. " Werbel InHorsec l the check, and on 
 the following TMonday, October the 20th.' dep osited it to his ac count 
 witLi he Hamilton Di me Sav ings Bank Company, and was give ri~cFed it 
 therefor on the books of the bank. The Hamilton Dime "Savings 
 Bank Company sent the check to the Atlas National Bank, of Cin- 
 cinnati, for collection, and it was protested for^ '^^HEiZSlSP* ^^^ the 
 reason "^j[ment__sto£ped." Thereupon, otnvToveniber 157 1903, the 
 defendant m error .aU£d_the JFranj din_Bank on the check, and the 
 Franklin Bank filed a motion"for an order of interpleader, which was 
 granted, the amount of the check with interest was paid into court, 
 and C. G.. Blake wa_ s_£ubstiluted as defendant Bl^^efiledLaiLaiiswer 
 averfifig thaFTieTiad been induceHTto^purchase the horse and~to de- 
 liver the check in payment therefor by the fals£_ and frandn lpnt rep- 
 resentations of Werbel, that Werbel is the owner of the check, that the 
 plaintifif, The Hamilton Dirne Savings Bank Company, received the 
 check only as collecting agent for Werbel and with knowledge that 
 Werbel had been notified that payment on the cheek would be stopped. 
 
Ch. 4) RIGHTS OF HOLDEE AGAINS'^ MAKER AND ACCEPTOR 863 
 
 A jury was waived, and the court stated its findings of fact sepa- 
 rately from its conclusions of law. Judgmen t was given for the bank 
 for the amount paid into court, less costs to the date of thatpayment. 
 The court found that the Hamilton Dime Savings Bank Company 
 was the purchaser of the check for value and before notice and with- 
 out knowledge of Blake's claim. * * * 
 
 In this state a bank check for part of the sum due the drawer does 
 not, bef ore^ccgpt ance by th e drawee, constitute an_ equitable assl^Ur 
 ment of the amounFfor whichTit is dfawh, * * * and the holder 
 cannot maintain an action against the bank for the amount of the 
 check, although it has funds to the credit of the drawer sufficient to 
 meet it. * * * This is now made the law by statute. * * * 
 [N. I. L,. § 189] is as follows: "A check of itself does not operate as > 
 an assignment of any part of the funds to the credit of the drawer 
 with the bank, and the bank is not liable to the holder unless and , 
 until it accepts or certifies the check.'' 
 
 But this is a certified check. Mr. Daniel says that the certification 
 of modern commerce is quite recent in its origin, but now of daily and 
 extensive occurrence. And in Merchants' National Bank of Boston v. 
 State National Bank of Boston, 10 Wall. 604, 19 L. Ed. 1008, decided 
 in 1871, Mr. Justice Swayne says in the opinion that "it is computed 
 by a competent authority that the average daily amount of such 
 checks in use in the city of New York, throughout the year, is not 
 less than $100,000,000," and that "we could hardly inflict a severer blow 
 upon the comrnerce and business. of thexoiintry than by throw[ng a 
 doubr^on JiieuL,2Slidity . ' ' And, speaking of their legail "effect, he 
 says: "By the law merchant of this country, the certificate of the 
 ba^nls._thatIa„clieck_is.gQQ4Js equivalent to^accegtance. It implies that 
 the check is drawn upon sufficient fundsTnTEehands of the drawee, 
 that they have been set apart fo r its satisfaction, and that they shall 
 be so applied whenever tne check is presented for payment. It is an 
 undertaking that the check is good then and shall continue good ; and 
 this agreement is as bmdingjan .-the .hank as its notes of circulation, 
 a certificate of deposit payable to the order of the depositor, or any 
 other obligation it can assume. The object of certifying a check, as re- 
 gards both parties, is to enable the holder to use it as money. The 
 transferee takes it with the samejreadingfis^nd s.ense_of.securiti_that 
 li£lw£tuid~take the notg^f theT)ank. It is available also to him for 
 all the purposes of money? 'TKuFTT continues to perform its impor- 
 tant functions until in the course of business it goes back to the bank 
 for redemption and is extinguished by payment. It cannot be doubted 
 that the certifying bank intended these consequences, and it is liable 
 accordingly. To hold otherwise would render these important securi- 
 ties only a snare and delusion. A bank incurs no greater risk in cer- 
 tifying a check than in giving a certificate of deposit. In well-regulated 
 banks the prac tice. -is - at- o_n.ce to cha'rgethe check to the account of 
 the drawer, to cr edit it in 'certiBe g" check account^' and, when_the check 
 is paid , to debit'tBat.arrnun J- witTTtJie '^ipniint NofEmg can be" simpler 
 or safer than this process. The practice of certifying checks has grown 
 out of the business needs of the country. They enable the holdei" 
 to keep or convey the amount specified with safety. They enable per- 
 sons not well acquainted to deal promptly with each other, and they 
 avoid the delay and risks of receiving, counting, and passing from hand 
 to hand large sums of money." .Daniel (section 1603) says that, when 
 
864 NEGOTIABLE INSTRUMENTS (Part 3 
 
 the check is certified, the bank becomes at once the principal debtor, and 
 that, wJien_the_holder.^ocur£a. the bank to certif^the check "in con- 
 templation and by operation of law, it is the sanie_aslf 'the funds had 
 
 JBeen actually paid :ou,t_by. the bank to the holder, by him redeposited 
 to his "own credit, and a certificate of deposit issued to him therefor. 
 In otl^er words, a certified check is a shorthand certificate of deposit 
 in favor of the holder, and payable to him, or to him or order, or to 
 bearer, according to its terms." Again, he says : "It will be too late 
 after tihe bank has certified the check for the drawer to revoke it, and 
 the bank will be bound to pay it though notified by the drawer not 
 to do so.'' And again he says, in section 1605, that "the check when 
 certified circulates as the representative of so much cash in bank, pay- 
 able, whenever demanded, to the holder. It is then like cash, but still 
 it is not the same as cash. * * * 
 
 The drawer by jielivery of a - certified ..check . in .thfLa bsence o i sp.e- 
 cial agreem ent, is not discharged fcom-lja bility, the only effect of the 
 
 ~cer!rfication" being to add the credit of the bank to that of the drawer. 
 
 * " * * And the "same is true as to a holder who procures the check 
 to be certified before delivery. He is a new drawer and will be held 
 liable as will the bank, jf, after delivery, the holder ..procures a 
 check.lQ^he.xe,rtified, the drawers and indorsers are thereby .discharged. 
 
 * * * ^InJJiig_ case the .payee, Blake, procured the certification of 
 thecheckafter delivery to him and before delivery Jy him to Werbel, 
 
 TEefeby ^iscFargmg.Blake & Ca, the drawers, and making himself ^s 
 jwfiU.asJthebank Hable on the check. * * * The certification oper- 
 ates as an assignment of the funds, .to meet .lhe_check_afid^makes_ the 
 ba nk lia.b l£.'J:o Inc. hglder. • "" 
 
 WEatTthen, are the rights of the parties? If Blake had given 
 Werbel money, instead of the check, and Werbel had deposited the 
 money to his credit in the Hamilton Bank, the relation of debtor and 
 creditor between the bank and Werbel wouldT thereby have been cre- 
 ated. In C, H. & D. R. R. Co. v. Bank, 54 Ohio St. 60, 71, 42 N. E. 
 700, 702, 31 L. R. A. 653, 56 Am. St. Rep. 700, it is said by Spear, J. : 
 "The relation of bank and general depositor is simply the ordinary 
 one of debtor and creditor, not of agent and principal, or trustee and 
 cestui que trust." And again: "The deposits become the absolute 
 property of the bank, impressed with no trust, and the bank's right 
 to use the money for its own benefit is immediate and continuous." 
 The money would belong to the bank, and Blake could not acquire 
 any interest in it or impose any liability on the bank merely by notify- 
 ing it that Werbel had obtained the money from him by defrauding 
 him in a horse trade. * * * 
 
 Now, while it is true, as has been pointed out, that the delivery of 
 the check was not payment for the horse, and that Blake was liable on 
 the check, still, if certified checks are to circulate as money and to 
 perform the useful purpose in trade they have heretofore, the deposit 
 of them in bank to the credit of the holder must b^, so far as the 
 rights of the indorsee are concerned, treated as a deposit of money. 
 The ti-ansaction under consideration may serve in some slight measure 
 to illustrate their use. Blake may have supposed that Werbel would 
 want cash for the horse and would not accept his check, and, not wish- 
 ing to carry the money from Cincinnati to Hamilton, he procured the 
 certification of the check, and Blake accepted it as readily as he 
 would have accepted cash ; but, jf he^^ould not accept it with the 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 865 
 
 same security that he could cash, then, under such circumstances, a 
 'c ertified'" c hecklcouLd- not ,be used at all, or the indorsee of such a 
 check, if he wishes to avoid embarrassment and delays, such as have 
 resulted in this case, must at once present the check for payment and 
 deposit the money, instead of the check, in bank. This being so, then 
 the obligation of the Franklin Bank to pay the check was not affected 
 J^T^jioticS' to Tt~by Blake not to pay, and the right of the Hamilton 
 Bank tg'enfqrce payment was not affected by-JiQtice of Blake's claim. 
 
 The judgment is affirmed. 
 
 GLENNAN v. ROCHESTER TRUST & SAFE DEPOSIT 00. 
 
 (Court of Appeals of New York, 1913. 209 N. T. 12, 102 N. E. 537, 
 52 L. R. A. [N. S.] 302, Ann. Gas. 1915A, 441.) 
 
 Action by John W. Glennan against the Rochester Trust & Safe 
 Deposit Company. From a .judgment of the Appellate Division in 
 favor of the defendant, plaintiff appeals. 
 
 CuLLEN, C. J. The action is brought by the plaintiff as administra- 
 tor of a depositor in the defendant trust company to_ .recover—the 
 amou nt of a deposit made by the_ intestate. T he def ense_was pay- 
 menrand_atl_as|i^rrient of the deposit~By~'the intestate to a third par- 
 j^ZTTEepayment proveST was that of a check drawn' by the intestate, 
 but not presented to or paid by the defendant until _after the death 
 ofj^e^offiiier, orwHich the defendant claimed, to be ignorant. While 
 the case was submitted to the jury on both issues, the jury was di- 
 rected to answer specific questions of fact, one of which was: "Did 
 the banl< pay the money without knowledge of the death of John Cal- 
 lahan (plaintiff's intestate) and in the due course of business?" This 
 question the jury answered in the affirmative. If the finding required 
 a verdict lin the defendant's favor, as the trial court charged, it is not 
 necessary to consider the other rulings on the trial of which the ap- 
 pellant complained, as they do not affect this issue. 
 
 It is singular that there should be such a paucity of judicial decisions 
 on this question, as seems to be the case. In my search through the 
 reports I have been able to find only one on the precise point, Roger- 
 son, Executor, v. Ladbroke, decided by the English Common Pleas in 
 1822 (1 Bing. 93), in which it was held that the payment or rather the 
 charge of a check to a depositor's account made by the banker after 
 the death of the depositor, but before the bank had received knowledge 
 of that fact, was a valid paymen t, a,nd_that the banker was not liable 
 for the amount^ There is another case often cited to the same effect 
 (Tate V. Hilbert, 2 Vesey, Jun. 112) where the Lord Chancellor ex- 
 pressed the opinion that if the holder of a check had collected the 
 money from the banker after the death of the drawer, hut before the 
 banker had knowledge of death, no court would take the money away 
 from her. This was purely obiter, simply the chancellor's opinion, 
 for, as a matter of fact, the suit in which the opinion was expressed 
 was dismissed and the complainant remitted to her action at law. On 
 the other hand, none of the cases cited by the learned counsel for the 
 appellant is authority for the contrary proposition. 
 
 The greatest reliance is upon Davis, Adm'r, v. Windsor Savings 
 Bank, 46 Vt. 728. There a woman from time to time deposited cer- 
 B.& b.Bus.Law— 55 
 
866 
 
 NEGOTIABLE INSTRUMENTS 
 
 (Part 3 
 
 tain sums of money in a savings^ bank,ia,t]3ajE redit of her bro ther, in 
 whose name the pass-book was iisued. The'lury found that these 
 moiigyj.,.were the property o| the brother and had bee n collecte d„by 
 the wornan on his accQunt. After the ""deanrqF,therbrother, but be- 
 fore notrce of that death had reached it, the d efendant paid the amount 
 of ±he:, account to the,3Koman who, presented the-pafis-beok'. It was 
 held that ^eath revoked the ag ^ency of the plaintiff, and that the pay- 
 ment was bad. Na..g3^tionjDf ithe payment of a check was involved 
 in this case, for there was none. "*"' *^* liiTullen v. Placer County 
 Bank, 138 Cal. 169, 66 Pac. 740, 71 Pac. 83, 94 Am. St. Rep. 19^ the 
 check was paid, not only after the death of the drawer, but after the 
 defendant had been inforrtied of the death, as is stated in the opinion 
 of the court. But, while there is this paucity of judicial decisions on 
 the subject, there seems to be absolute unanimity in the rule as declared 
 by the leading text-writers. Chitty on Bills, *429, Byles on Bills 
 (Sharswood Ed.) p. 22, 2 Parsons on Notes and Bills, p. 81, Story on 
 Promissory Notes, § 498a, Edwards on Bills and Notes, § 739, Morse 
 on Banks and Banking, § 400, and Daniels on Negotiable Instruments, 
 '§ 1618b, all declare that, while a bank should not pay a check after 
 the death of the drawer, still a payment made in good faith, without 
 knowledge of the death, or of facts sufficient to cause inquiry, is a 
 valid payment, though the only authority usually cited is that of Tate 
 v. Hilbert (supra). 
 
 For the appellant it is argued, first, that a check of itself is a mere 
 order for the payment of money, not operating as an assignment of 
 any part of the fund, the authority of the drawee or the banker to 
 pay which may be revoked or countermanded by the drawer. This is 
 the rule of law prevailing in England and in this country, with the 
 exception of a very few states in which a check is considered as an 
 assignment of the fund. The rule stated is unquestionably the law of 
 this state as well as the law of the federal courts. * * * That th e 
 death of the principal revokes .IbfL-a uthoritv oJ the a f^pnt tr> rnllpct 
 the "ghecfc in those jurisdictions where the check js. cpnsidgtfid- a mere 
 order njuaLfllso -B£,£Qaceded. * * * ' It is further true that the com- 
 
 moiwaw doctrine that death revokes an agent's power, even as to third 
 parties dealing with the agent in good faith without notice, is the gen- 
 eral rule in this state. * * * 
 
 At this point we reach the very crux of this case, and the question is 
 whether jayment of _clied?s._by _banks or bankers is an exception to 
 the rule" stated. JjhinkjtJs. It must be first borne lh"mind that the 
 rule itself is an exception to the still broader rule that revocation of 
 the power of an agent does not affect third parties dealing with him in 
 good faith without notice. This is the rule of the civil law even where 
 the agency is revoked by death. The common-law rule in some states 
 has been changed by statute, in others repudiated, * * * -while in 
 still others greatly limited. * * * There are differences between 
 the liability of banks to their deposit,ors and that of ordinary debtors 
 to their creditors which justify excepting the payment of checks from 
 the rule. If an ordinary debtor refuses to Eay_hia_d£hLlQjheagent_Df 
 hiscreditQi:, his 1ia .b ility. is. m,ji.Q. respect increased. It is not so with a 
 "T5imk;__jts ^ contract with the depositor j sto pay his~c h ec ks as loilg a 's 
 Tus depositls" sutticient tor the purposeTaiia^for a failure to pay the 
 checks the bank is liable for any injury to the credit of the drawer 
 occasioned thereby. In the ordinai-y conduct of a bank but a minute 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKBK AND ACCEPTOR 867 
 
 fraction of its payments is made directly to its depositors. The others 
 are made on checks in favor of third parties, usually, at least in large 
 cities, presented through other banks or the clearing house. The num- 
 ber of depositors is often very great, many of them living at other 
 places than where the bank is located. Of the death of those promi- 
 nent, either by their public position, their business activities or great 
 wealth, the bank might be apprised .; but of tb£..£X£at jjiass their deaths 
 woul d pass unk nown by the hank imTess notice of th e fact was ^ven. 
 ft-WDuld be utterly impracticable for business to be done if, before 
 the bank could safely pay checks, it must delay to find out whether the 
 drawer is still living. 
 
 But the dominant and controlling reason for holding that the usual 
 rule that a debtor is not protected in payment to an agent after the 
 death of his principal, though without knowledge of that fact, is not 
 applicable to the payment of checks by banks, is that such has almost 
 universally beenjaccepted as the law. As already said, all the text- 
 books so state the law (in England it has been so settled by section 75 
 of the Bills of Exchange Act of 1882), and apparently the whole coun- 
 try has assumed the text-books to be right. The rule thus adopted, if 
 not strictly a rule of property, is a rule of conduct a ffecting property . 
 interests that very closely approximates to a rule of property. I think 
 the fact that the rule has been adopted by the community is reasonably 
 clear. The use of banks as depositories of money and the practice of 
 making payment by checks prevails in this country to an extent far 
 beyond that existing in any other, so that the situation presented in 
 this case must have frequently arisen. True, where the estate of the 
 depositor is solvent and the check is given for Vcdue, it is of no prac- 
 tical moment whether the bank is liable for the payment of a check 
 after the death of the drawer or not. Very many, however, must 
 have been the cases where either the estate was insolvent or the check 
 was given without value and the bank has paid it after death, in ig- 
 norance of that fact. Yet, in my research, I have not been able to find 
 in the reports in this country or in England a case where it was sought, 
 under such circumstances, to hold the bank liable except the Rogerson 
 Case, supra, in which the attempt failed. 
 
 The rule that denies protection to persons dealing with an agent 
 after the death of the principal, though in good faith and without 
 knowledge of that fact, is an inherited one. In the Wilson Case, 139 
 N. Y. 284, 34 N. E. 784, 36 Am. St. Rep. 696, it was declared by this 
 court to be a harsh one, but the court felt that it had been too firmly 
 established in this state to be disturbed by judicial decision, though it 
 recommended a change by the Legislature, to place the law in har- 
 mony with the more enlightened views of the present time and to pi^o- 
 mote the interests of justice. The same reason which there constrain- 
 ed the court to give effect to the rule, despite its disapproval of it, 
 should also impel us to hold the rule inapplicable to bank checks. If 
 there it appeared that the doctrine of the common law had prevailed 
 too long to be disregarded, it also appears almost equally clearly that 
 the common-law doctrine has never prevailed_as to checks ; for a legal 
 proposition may belaearly as^ell estaBITsEed by its generaTacceptance 
 and the failure of any one to question it as it can be by a series of 
 judicial decisions. Even if it should be assumed that the distinction 
 sought to be drawn between the relation of a bank to its depositors and 
 that between ordinary debtors and their creditors would not justify a 
 
868 NEGOTIABLE INSTRUMENTS (Part 3 
 
 distinction in the principle of law applicable to the respective cases, 
 nevertheless a rule of conduct of a whole people long prevailing and 
 acted upon should not be subordinated to mere consistency of legal 
 principles. The law presents anomalies. They are to be regretted; 
 but no one would maintain that merely to avoid inconsistency courts 
 would be justified in disregarding rules of action long established by 
 judicial decisions, especially when the exception is more just than the 
 general rule. 
 
 The judgment appealed from should be affirmed, with costs. * * * 
 
 THIRD NAT. BANK OP ST. LOUIS v. OBEK. 
 
 (Unfled States Circuit Court of Appeals, Eighth Circuit, 1910. 178 Fed. 678, 
 
 102 C. C. A. 178.) 
 
 Hook, Circuit Judge. This was an action by William A. Ober to 
 recoyer-Janiages--Qf_Jhe. TChird Jfetienal-Baak-^ Louis for its 
 |an^£ja^^payacheck^drawn by him on his account TiFoHtamed a 
 judgmentTand this writ of error was prosecuted. 
 
 Ober, who lived in Natchez, Miss., had a small account with the 
 defendant bank at St. Louis, Mo., and, ;wishing_to trans fer a part of 
 _jt_ta-his— home^iank, he drew- a -check iiTits .favor for $50. At the 
 time his account with defendant had a c redit balanc e of $122.14. 
 When in due banking course the check was presented, defendant. Ig- 
 fuseijgayment jon the j;roaind-Aat^b£x!s,accomit Jtiad beenwithdrawn. 
 The check~wasprotested for nonpayment. There was no malice or 
 JlLwiU„in the action ot~ defendant. It was due solely to arcIencaTei^ 
 ror of a bookkeeper. Ober was not a merchant or trader; He" sued 
 for protest fees, and for general damages to his honor, truth, and busi- 
 ness standing. Aside.Jrom the protest fees, no speciaLdamages were 
 _alleged_in his petition, and the "evidence at the trial disclosed none. 
 He receiyed a verdict and judgment for $500. 
 
 The trial court refused defendant's request that the jury be in- 
 structed to confine their verdict to the protest fees and interest. It 
 then instructed them substantially as follows : 
 
 There is no evidence that defendant acted maliciously in refusing 
 payment of the check, nor that plaintiff sustained special damage. If 
 there was evidence of this character, you would be justified in award- 
 ing substantial damages. As there was.no malice, but only a book- 
 keeper's mistake, and as special damages are not shown, the question 
 is: What is the measure of damage? The plaintiff is entitled to re- 
 cover the protest fees "and such other damages as under all the evi- 
 dence in the case you may believe he is entitled to . * * * You are 
 all business men, and I am disposed to leave the question entirely to 
 your decision and judgment, without any special comment, only saying 
 to you, however, that you ought not limit your verdict to nominal 
 damages, but to give the plaintiff such temperate damages as you, 
 in your judgment, may deem to be reasonable compensation for the 
 injury he sustained by dishonoring his check. As to this you are the 
 sole and exclusive judges." 
 
 The jury retired, and returned into court for further explanation of 
 the instructions, saying : "We want to know whether we are required 
 to give plaintiff some substantial damages." 
 
 The court responded that the instructions meant : "There should be 
 no excessive damages, and not mere nominal damages; that the jury 
 
Ch. 4) EIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 869 
 
 should award su ch damages as they-believe from all the circjimstances 
 plamtitt IS entitT ed"''to."" "Appropriate exceptions were taken by de- 
 tendant. Xs already* cSbserved, there was verdict for $500. 
 
 With some exceptions the underlying principle of the law of 4amiages_ 
 is com gensation for the itiju ry done . In cases of malice, willful wrong- 
 domg, a conicious diSrtgard' of the rights of others, and the like, an 
 additional award may be given by way of punishment. Again, every 
 invasion of a legal right is presumed in law to cause an injury, and, 
 though none is shown, there may nevertheless be a recovery of nominal 
 damages, with costs of the action. Such a recovery is a judicial recog- 
 nition of the right and an admonition that it cannot be invaded with 
 impunity. The relation between banker and depositor is one of con- 
 tract. The right of the latter is that, to the extent of his credit bal- 
 ance subject thereto, his checks drawn and presented according to the 
 customs and usages of the business shall be promptly honored. For 
 a breach of this right an action for damages will lie. Jfjhe^depositgr. 
 is a merchant orJrad£r_Lt_svill_be presumedj^wj.thfflt^furtherj)roof, that 
 suBsTSn tiaT damagea have been sustained. * * * 
 
 ThisTuIFproceeds upon the fact, commonly recognized, that the cred- 
 it of a person engaged in such a calling is essential to the- prosperity of 
 his business, and the dishonoring of his checks is plainly calculated to 
 impair it and inflict a most serious injury. <Jn_i:Qmmoq„ opinion. Sub- 
 stantial dam age is t he natural aiid probable consequence of the act, and 
 "tEerefore a substantial r'ecovery may be had, without pleading or proof 
 of special injury. A leading case upon this subject is Rolin v. Steward, 
 14 C. B. 595, 23 L. J. C. P. 148. * * * 
 
 On the other handj_ifJhe_depQ5itqr is riot a merdxarilfirjtrader, there 
 is^ su ch presumpt ion of substantial Injury, and this recovery should 
 _bgIaZ3in3xiinai-one, tm-less he pleads and proves some special dainage. 
 * * * Upon this latter proposition there is confusion and conflict 
 in the decisions of the courts, due in large part to the undiscriminat- 
 ing application of Rolin v. Steward to cases wholly unlike it in the im- 
 portant particular mentioned. But we think the rule stated is more 
 in accord with the fundamental principles of the law of damages. 
 
 Counsel contend that the presumption arising in the case of a mer- 
 chant or trader is merely that he possesses credit, and that when the 
 depositor is not a merchant or trader the fact not presumed may be es- 
 tablished by proof, and same right to substantial damages would then 
 follow. The character of the presumption is misconceived. It is not 
 so much the possession of credit, as it is that substantial injury thereto 
 has been inflicted by the dishonoring of the check. The very reason 
 for allowing general substantial damages to a merchant or trader, with- 
 out a showing of special injury, implies a contrary rule, generally, as 
 to those not of that class. - ^ mere technical violation of a r ight is no 
 just basis for a recovery of general and substantiaTdamages^ where no 
 actual injury is shown, and none appears to follow as the natural and 
 probable consequences of the act. In the case before us there was no 
 averment of particular circumstances or special injury, aside from the 
 protest fees, and none was proved. On the contrary, witnesses of 
 plaintiff, who knew of the dishonoring of his check, testified that his 
 credit was not injured. We think the court erred in instructing the 
 jury that the verdict should be for more than the protest fees and 
 nominal damages. 
 
 The judgment is reversed, and the cause remanded for a new trial. 
 
870 NEGOTIABLE INSTRUMENTS (Part 3 
 
 CALIFORNIA VEGETABLE UNION v. CROCKER NAT. BANK. 
 (District Court of Appeal, First District, California, 1918. 37 Cal. App. 743, 
 
 174 Pac. 920.) 
 
 Action by the California Vegetable Union, a corporation, against the 
 Crocker National Bank of San Francisco, a national banking associa- 
 tion. From a judgment in its favor granting only a part of the re- 
 lief demanded, plaintiff appeals. 
 
 Beasly, Judge pro tern. The California Vegetable Union is a Los 
 Angeles concern having a branch house in San Francisco. Of this 
 branch house during the period in which we are interested H. F. 
 Ardery was the manager and Fred B. Weeks the cashier. During the 
 years 1911 and 1912 and until the end of the year 1913 t he plaintiff's 
 branch house in San Francisco was _a .degositm" of the detendanl~~ 
 bant." Thi ban k was instructed to pav ctiecks~oT the plaintiff when 
 
 jigrjed^^EjEcedB. Weeks, its casTuer, and H. F. Ardery, i ts manag er. 
 
 ^Weeks ..b ecame an employe of the plaintiff aBou't" fhe 1st of May, 1912, 
 and continued in that employment until about September 1, 1913, when 
 he "departed these quarters for parts unknown, leaving behind him a 
 trail of forged checks." Between September 18, 1912, and August 28, 
 1913, ,Weeks_ forged the name of Axdery -to_i36L_sepaxale_jch£cks,_all 
 drawn upon_th£-^laiatiff's account in the defendant bank, and ag- 
 gregating $3,9^2.65. The bank cashed these checks, and charged their 
 amount to plaintiff's account. The checks went_thxough^the_ bank 
 during_Aevarious months of this period, and_at tlie gni-Dieach-month 
 
 -tfte~?orged~ctigck5--pai4- dm ii ig f tHat~mdnth, together _wi_th,all the valid 
 checks of the :pl3Jntiffrw?re''fg!urne d to it, vyith a list o f all checks paid 
 Ky'Sie bank during that month. * ~^ ^ These returned checks and 
 these accounts for all of the months from August, 1912, to August, 
 1913, although regularly received in the course of business at the 
 end of each month during that period, were., nev.gr pya minpH hy the 
 plaintiff, nor by its manager, Ardery, until some time in September, 
 1913., after Weeks had absconded. * * * 
 
 The principal problem in this case may be stated in the language of 
 the Supreme Court in the case of Otis Elevator Co. v. First National 
 Bank, 163 Cal. 31, 124 Pac. 704, 41 L. R. A. (N. S.) 529, and is as 
 follows : "The claim made by the" appellant "was that * * * the 
 evidence presented the simple case of a forgery * * * ^q ^srhich is 
 to be applied the well-settled rule that as between the bank and its 
 customers the payment of forged or altered checks by such bank is 
 made at its peril, and cannot be charged against the depositor's ac- 
 count. This, of course, is the general rule, and it is applied stringent- 
 ly in cases of simple forgery which involve no other elements than that 
 the purported check of the depositor yhich was paid was a forged one. 
 But this rule is not applied unqualifiedly. It has its limitations and 
 exceptions, as general rules usually have, and is modified to the extent 
 that when some negligent act * * * of the customer has contributed 
 to the payment by thp bank, or the facts in a particular case surround- 
 ing the .forgery of a check and its presentation and payment are of such 
 character as call for the application thereto of some general principle 
 of law or equity, they may be relied on by the bank as an estoppel 
 against the customer, precluding him from denying the correctness 
 of the payment." * * * 
 
 The principle embodied in the case of Otis Elevator Co. v. First Nat. 
 Bank, supra, and the general rule above stated, find emphatic approval 
 
Ch. 4) RXGITTS OF HOLDER AGAINST MAKER AND ACCEPTOR 871 
 
 and application in the leading case of lycather Manufacturers' Bank 
 V. Morgan, 117 U. S. 96, 6 Sup. Ct. 657, 29 L. Ed. 811, in which the 
 court, treating the presentation of a bank book written up accompanied 
 by the canceled checks of the depositor to him as an account stated, 
 says: "Where a party to a stated account, who is under a duty, from 
 the usages of business or otherwise, to examine it within a reason- 
 able time after having an opportunity to do so, and give timely notice 
 of his objections thereto, neglects altogether to make such examination 
 himself, or to have it made, in good faith, by another for him, by 
 reason of which negligence the other party, relying upon the account as 
 having been acquiesced in or approved, has failed to take steps for his 
 protection which he could and would have taken had such notice been 
 given," the depositor is estopped by his conduct to question the con- 
 clusiveness of the account stated which arises out of the presentation 
 to him of the account and his failure to examine it and detect the 
 frauds contained therein, and give the bank notice thereof in order 
 that it may protect itself against future frauds of a similar char- 
 acter." * * * 
 
 Without quoting further, it may be said that the great weight of 
 authority in the United States supports the conclusions arrived at in 
 the cases above cited. It is true that those cases were based upon 
 bank books written up, but there is_ no distin ction in jgrinciple between 
 the old -fashioned bank _boQk and ~the modern statemenFs furnished 
 by alTank; tn it s depositors from time to time upon the balancing of 
 ThelT'accounts and the return of the canceled checks to them. Improv- 
 ed methods of bookkeeping in banks do not render inapplicable the rule 
 of law here invoked and applied. To lay down any other rule than 
 that hereinabove stated would be to add an unjust burden to the du- 
 ties of paying officers of banks. The greatly increased volume of busi- 
 ness consequent upon the development of modern commerce, and the 
 almost universal use of checks in settlement of every conceivable obli- 
 gation, make the post of paying teller of a bank — compelled as he is 
 to know the signature of every depositor of a bank — an exceedingly 
 difficult one. If depositors may regularly at frequent intervals re- 
 ceive their vouchers smd be notified, as was the appellant here, of re- 
 duced balances of their accounts in banks consequent upon the unfaith- 
 fulness of trusted employes during a period of nearly a year, and by 
 n^lecdng__to_exeixisejxasonable supervision over their own business 
 fa2l3a3iscoSeOSud~Hiid'i has been perpetrated upon' tEem"and the 
 bankTand may thus leave the bank in ignorance of the frauds thus 
 committed, and charge the bank with the losses thus occasioned, then 
 banks and their paying tellers face hard conditions indeed. We do 
 not feel justified in establishing any such rule in this state. * * * 
 
 For the foregoing reasons, the judgment is affirmed. 
 
 SECTION 7.— RIGHTS AND LIABILITIES OF PARTIES 
 
 WITH RESPECT TO ACCEPTANCES AND 
 
 PAYMENTS FOR HONOR 
 
 (a) WHEN ACCEPTANCE OB PAYMENT PERMITTED 
 Section 161. Where a bill of exchange has been protested for 
 dishonor by non-acceptance, or protested for better security, and 
 is not overdue, any person not being a party already liable there- 
 
872 NEGOTIABLE INSTRUMENTS (Part 3 
 
 on may, with the consent of the holder, intervene and accept the 
 bill supra protest for the honor of any party liable thereon, or for 
 the honor of the person for whose account the bill is drawn. The 
 acceptance for honor may be for part only of the sum for which 
 the bill is drawn; and where there has been an acceptance for 
 honor for one party, there may be a further acceptance by a differ- 
 ent person for the honor of another party. 
 
 Section 171. Where a bill has been protested for non-payment, 
 any person may intervene and pay it supra protest for the honor of 
 any person liable thereon or for the honor of the person for whose 
 account it was drawn. 
 
 Section 174. Where two or more persons offer to pay a bill 
 for the honor of "different parties, the person whose payment will 
 discharge most parties to the bill is to be given the preference. 
 (t.) WHAT CONSTITUTES ACCEPTANCE AND PAYMENT 
 
 Section 162. An acceptance for honor supra protest must be 
 in writing, and indicate that it is an acceptance for honor, and 
 must be signed by the acceptor for honor. 
 
 Section 172. The pasraient for honor supra protest in order to 
 operate as such and not as a mere voluntary payment, must be at- 
 tested by a notarial act of honor which may be appended to the 
 protest or form an extension to it. 
 
 Section 173. The notarial act of honor must be founded on a 
 declaration made by the payer for honor or by his agent in that 
 behalf declaring his intention to pay the bill for honor and for 
 whose honor he pays. 
 
 (c) PRESENTMENT FOR ACCEPTANCE TO ACCEPTOR FOR HONOR, 
 DISHONOR BX ACCEPTOR FOR HONOR, AND EXCUSES 
 
 FOR non-present:ment 
 
 Section 166. Where a bill payable after sight is accepted for 
 honor, its maturity is calculated from the date of the noting for 
 non-acceptance and not from the date of the acceptance for honor. 
 
 Section 168. Presentment for payment to the acceptor for honor 
 must be made as follows : 
 
 1. If it is to be presented in the place where the protest for non- 
 payment was made, it must be presented not later than the day 
 following its maturity. 
 
 2. If it is to be presented in some other place than the place 
 where it was protested, then it must be forwarded within the time 
 specified in section one hundred and four. 
 
 Section 170. When the bill is dishonored by the acceptor for 
 honor it must be protested for non-payment by him. 
 
 Section 169. The provisions of section eighty-one apply where 
 there is delay in making presentment to the acceptor for honor or 
 referee in case of need. . 
 
 (d) RIGHTS A^D LIABILITIES OF THE PARTIES 
 Section 165. The acceptor for honor, by such acceptance en- 
 gages that he will, on due presentment, pay the bill according to 
 
Ch. 4) RIGHTS OF HOLDER AGAINST MAKER AND ACCEPTOR 873 
 
 the terms of his acceptance, provided it shall not have been paid 
 by the drawee, and provided also, that it shall have been duly pre- 
 sented for payment and protested for non-payment and notice of 
 dishonor given to him. 
 
 Section 164. The acceptor for honor is liable to the holder and 
 to all parties to the bill subsequent to the party for whose honor he 
 has accepted. 
 
 Section 175. Where a bill has been paid for honor, all parties 
 subsequent to the party for whose honor it is paid are discharged, 
 but the payer for honor is subrogated for, and succeeds to, both 
 the rights and duties of the holder as regards the party for whose 
 honor he pays and all parties Kable to the latter. 
 
 Section 176. Where the holder of a bill refuses to receive pay- 
 ment supra protest, he loses his right of recourse against any party 
 who would have been discharged by such payment. 
 -Section 177. The payer for honor, on paying to the holder the 
 amount of the bill and the notarial expenses incidental to its dis- 
 honor, is entitled to receive both the bill itself and the protest. 
 
 SECTION 8.— BILLS IN A SET 
 
 N. I. L., Section 178. Where a bill is drawn in a set, each part 
 of the set being numbered and containing a reference to the other 
 parts, the whole of the parts constitutes one bill. 
 
 N. I. L., Section 179. Where two or more parts of a set are ne- 
 gotiated to different holders in due course, the holder whose title 
 first accrues is as between such holders the true owner of the bill. 
 But nothing in this section affects the rights of a person who in 
 due course accepts or pays the part first presented to him. 
 
 N. I. L., Section 180. Where the holder of a set indorses two or 
 more parts to different persons he is liable on every such part, and 
 every indorser subsequent to him is liable on the part he has him- 
 self indorsed, as if such parts were separate bills. 
 
 N. I. L., Section 181. The acceptance may be written on any 
 part and it must be written on one part only. If the drawee ac- 
 cepts more than one part, and such accepted parts are negotiated 
 to different holders in due course, he is liable on every such part 
 as if it were a separate bill. 
 
 N. I. L., Section 182. When the acceptor of a bill drawn in a set, 
 pays it without requiring the part bearing his acceptance to be 
 delivered up to him, and that part at maturity is outstanding in 
 the hands of a holder in due course, he is liable to the holder 
 thereon. 
 
 N. I. L., Section 183. Except as herein otherwise provided 
 where any one part of a bill drawn in a set is discharged by pay- 
 ment or otherwise the whole bill is discharged. 
 
874 NEGOTIABLE INSTRUMENTS (Part 3 
 
 CHAPTER V 
 
 RIGHTS OF THE HOLDER AGAINST INDORSERS 
 AND THE DRAWER 
 
 Section 
 
 1. Introduction. 
 
 2. Eights of the Holder Against the Unqualified Indorser. 
 
 3. Eights of the Holder Against the Qualified Indorser and the Transferor 
 
 by Delivery. 
 
 4. Eights of the Holder Against the Accommodation Indorser. 
 
 5. Eights of the Holder Against the Eestrictive Indorser. 
 
 6. Eights of the Holder Against the Drawer. 
 
 SECTION 1.— INTRODUCTION 
 
 In this chapter we are dealing with the rights of the holder, both 
 holders in due course and holders not in due course, against par- 
 ties secondarily liable on the instrument. There are five situa- 
 tions to be taken into consideration: (1) What are the rights of 
 the holder against the unqualified indorser; that is, one who has 
 negotiated either by special or blank indorsement? (2) What 
 are the rights of the holder against the qualified indorser, the 
 transferor by delivery ; that is, one who has indorsed "without re- 
 course," or has transferred an instrument merely by delivery. (3) 
 What are the rights of the holder against the accommodation in- 
 dorser; that is, one who is a surety for a principal debtor? (4) 
 What are the rights of the holder against the restrictive indorser? 
 (5) What are the rights of the holder against the drawer? 
 
 It should be borne in mind that the whole matter of real and 
 personal defenses is applicable to suits between the holder and 
 secondary parties just as it is between the holder and parties 
 primarily liable; that is, if B. induces A., by fraud, to indorse an 
 instrument to him, or if it is negotiated by A. to B. as a gift, C, a 
 holder below B. who fulfills all the requirements of a holder in 
 due course as regards A. may hold A. free from all personal de- 
 fenses which A. had against B., the party with whom he dealt. 
 On the other hand, all real defenses which A. had against B., may 
 be set up against C. This phase of the liability of indorsers is 
 not again presented in this chapter ; that is, this chapter, except in- 
 cidentally, is not concerned with the similarities of liability be- 
 tween primary and secondary parties, but to the dififerences in the 
 nature and extent of the liability between these two sets of par- 
 ties. 
 
Ch. 5) EIGHTS OF HOLDER AGAINST INDORSEES AND DRAWER 875 
 
 SECTION 2.— RIGHTS OF THE HOLDER AGAINST THE 
 UNQUALIFIED INDORSER 
 
 The liability of an unqualified indorser is a double liability — the 
 one, conditional; the other, unconditional. The conditional liabil- 
 ity is to pay the holder if the instrument be dishonored' after due 
 presentment and due notice of dishonor. This liability is on the 
 instrument itself. The unconditional liability is not upon the in- 
 strument, but is an extrinsic liability. This liability arises from 
 the fact that the indorser, in addition to his contract of indorse- 
 ment, is a vendor of personal property, and as such impliedly war- 
 rants the truth of certain facts. The following section of the act 
 defines the conditional liability of the unqualified indorser: 
 
 N. I. L. Section 66. (2) Every indorser who indorses without 
 qualification * * * engages that on due presentment, the in- 
 strument shall be accepted or paid or both as the case may be, 
 according to its tenor, and that if it be dishonored and the neces- 
 sary proceedings on dishonor be duly taken, he will pay the amount 
 thereof to the holder, or to any subsequent indorser who may be 
 compelled to pay it. 
 
 The fact of indorsement, either in blank or special, is an offer to 
 each subsequent holder of the instrument, which offer is auto- 
 matically accepted by each successive holder. The above section 
 prescribes the terms and legal effect of this contract. The parties 
 may enter into any kind of contract which they agree upon, but 
 unless they manifest their intention by appropriate words on 
 the instrument the contract of indorsement as defined in the above 
 section governs. The liability of the indorser is a contractual lia- 
 bility on the instrument. While the indorser's liability is on the 
 instrument, his obligation may be, and frequently is, much broad- 
 er than the obligation of the party primarily liable thereon, for the 
 reason that the indorser contracts to pay the amount called for 
 by the instrument to the holder. The indorser is liable to subse- 
 quent holders, whatever the reason may be for non-payment by the 
 party primarily liable thereon. Even where such primary party 
 possesses a real defense, the holder has a right to demand payment 
 from any prior unqualified indorser. The liability of the unquali- 
 fied indorser is, however, a conditional liability. The duty of the 
 indorser to pay does, not arise until the conditions precedent spec- 
 ified in the above section occur. His duty to pay arises when and 
 only when the holder has made a due presentment for payment, 
 and has given due notice of dishonor, and in some cases, has duly 
 protested the instrument. What constitutes a due presentment 
 for payment, due notice of dishonor and protest, is the subject of 
 the next chapter. The principles of the preceding chapters which 
 determine who are holders in due course, and which define the 
 defenses which are and which are not available against holders in 
 due course, are likewise applicable to suits between an indorser 
 and a subsequent indorsee. The immediate indorsee from an in- 
 
876 NEGOTIABLE INSTRUMENTS (Part 3 
 
 dorser may or may not be a holder in due course as regards his 
 indorser. Usually an indorsee will not be a holder in due course 
 as regards his indorser, though he will usually be a holder in due 
 course as regards all indorsers prior to his indorser, as regards the 
 drawer and the parties primarily liable on the instrument — the 
 maker or acceptor. An indorser, whose liability has become fixed 
 by due presentment, due notice of dishonor, and due protest, may 
 avail himself of all personal defenses as against any subsequent 
 holder who is not a holder in due course as regards himself. As 
 regards all subsequent holders, who are holders in due course as 
 regards the indorser, such indorser may defeat liability only by 
 establishing a real defense of his own. To be available, the de- 
 fense must be real as to him. The indorser cannot set up defenses, 
 either real or personal, which belong to the maker, drawer, ac- 
 ceptor, or to any other party prior to him. 
 
 The unconditional liability of the indorser, which arises, not 
 from his contract of indorsement, but from the fact that he is a 
 seller of property, is defined in the following section: 
 
 N. I. L, Section 66. Every indorser, who indorses without qual- 
 ification, warrants to all subsequent holders in due course: (1) 
 That the instrument is genuine and in all respects what it pur- 
 ports to be; (2) that he has good title to it; (3) that all prior 
 parties had capacity to contract; (4) that the instrument is at 
 the time of his indorsement valid and subsisting. 
 
 Subsection (4) probably includes everything specified in sub- 
 sections (1) and (3), and, re-phrased, subsections (1), (3), and (4) 
 mean that the unqualified indorser warrants to subsequent holders 
 in due course that the party or parties primarily liable on the in- 
 strument possess no defenses, either real or personal, that would 
 be available as against such holder. Subsection (2) is a warranty 
 that the chain of title has not been broken by the forged indorse- 
 ment of the payee or any special indorsee. The indorser, there- 
 fore, is not promising to pay the amount called for by the instru- 
 ment, in the event that the holder is unable to obtain payment 
 from the primary party. He assumed this liability by his condi- 
 tional engagement. The indorser as a vendor is merely promis- 
 ing that, if there is no legal liability on the party primarily liable 
 to the holder, then and only then will the indorser be liable on his 
 warranty; that is, the indorser, as a vendor of property, warrants 
 that the holder is legally entitled to a judgment against the prima- 
 ry party. He does not warrant that the judgment will be paid. 
 It is important to notice that these warranties against real and 
 personal defenses are imposed upon the indorser, irrespective of 
 his knowledge as to their existence. 
 
 To summarize: The unqualified indorser finds himself in this 
 position: (1) If any subsequent holder fails to obtain payment 
 because of the insolvency or wrongful refusal of the primary party 
 to discharge his legal duty to the holder, the indorser will be un- 
 der a legal duty to pay: the holder, if there has been a due pre- 
 
Ch". 5) RIGHTS OF HOLDER AGAINST INDORSBRS AND DRAWER 877 
 
 sentment for payment, and if due notice of dishonor were given 
 to the indorser. (2) If the holder fails to obtain payment be- 
 cause the primary party possessed a defense, either real or per- 
 sonal, which under the circumstances, was available as against 
 the holder, then the indorser will be under a legal duty to pay 
 the holder, even though there has been no due presentment and 
 due notice of dishonor. A holder's right to sue a former owner of 
 the instrument on his warranties is not conditioned upon his mak- 
 ing a due presentment for payment and giving due notice of dis- 
 honor, as is the right of the holder against an indorser upon his 
 contract of indorsement. Neither is it necessary for the holder to 
 wait until maturity of the instrument in order to sue former own- 
 ers upon warranties. The warranty, if broken at all, is broken at 
 the time of delivery. Suit may then be brought, although the date 
 of maturity of the instrument has not yet arrived. 
 
 SECTION 3.— RIGHTS OF 'THE HOLDER AGAINST THE 
 QUALIFIED INDORSER AND THE TRANS- 
 FEROR BY DELIVERY 
 
 Two questions are here presented: (1) What is the form of a 
 qualified indorsement? (2) What is its legal effect? The quali- 
 fied indorsement is defined as follows: 
 
 N. I. L. Section 38. A qualified indorsement constitutes the in- 
 dorser a mere assignor of the title to the instrument. It may be 
 made by adding to the indorser's signature the words "without 
 recourse," or any words of similar import. Such an indorsement 
 does not impair the negotiable character of the instrument. 
 
 In form, therefore, the qualified indorsement is a blank or 
 special indorsement, with the added yords "without recourse" or 
 words of similar import. The legal effect of the indorsement is 
 stated in part in section 38, by the declaration that such an indorser 
 is "a mere assignor of the title to the instrument" ; that is, such an 
 indorser is not liable upon any contract of indorsement because he 
 expressly negatives the special engagement of the unqualified in- 
 dorser, by the use of the words "without recourse." He is but a 
 vendor of property, or rather he is a vendor of a bundle of legal 
 rights which he possessed against prior parties. Section 38 im- 
 poses no liability upon the qualified indorser. 
 
 The qualified indorser is, however, under some liability, just as 
 the vendor of any property is under a liability to his vendee. The 
 following cases represent the state of the common law with refer- 
 ence to the nature and extent of the liability of the indorser "with- 
 out recourse" and of the transferor by delivery. 
 
878 NEGOTIABLE INSTRUMENTS (PaFt 3 
 
 CHALLISS V. McCRUM. 
 (Supreme Court of Kansas, 1S79. 22 Kan. 157, 31 Am. Eep. 181.) 
 
 Brewer, J. On December 4, 1871, plaintiff in error loaned one 
 Edward A. Ege $250, and took his note therefor in the sum of $265, 
 payable to Richard Probasco or bearer, and secured by mortgaged 
 Long' aft er its maturity, and in 1876, several payments having been 
 I madetEereon~irL the meantime, jjl aintiff in error sold the note for its 
 |then_face value to defendant irTlr^r! At the time "of sucITsale he 
 jiii3orsed"it : "Without recourse. W. L. Challiss." McCrum sueipn 
 'the note.^.. Ege~ptead' usury.. The plea was sustained and McCrum 
 recoy^fed. $229.90, Jess than the face value of the note, f dr"wKich 
 sum he brought this action. A demurrer to the petition was overruled, 
 and this ruling is now presented for review. Can the action be sus- 
 tained? Of course nonaction will lie on the indorsement, for by his 
 written contract Challiss expressly declines to assume the liabilities 
 of an indorser. J[f_srLStainahle at all, it must be as against him as a 
 vendor, and not as an indorser, and upon the doctrine of an implied 
 warranty. The theory of the defendant in error is that every vendor 
 of a bill, bond,~oniote impliedty^war rants that it is what it purports, 
 on its face to be, the legaT obligation of i]je_parties whose names ap- 
 pear on the instrumenf, "andThat the character of the indorsement, or 
 the lack of an indorsement, in no manner affects this implied war- 
 ranty. * * * It is clear that the character of the indorsement cuts 
 no figure in the question ; as stated, no action will lie on it. But, fur- 
 ther, the restriction is only as to his liability as indorser, and in no 
 manner affects his relation to the paper as vendor. An unqualified 
 indorsement is the assumption of a conditional liability. The indorser 
 becomes a new drawer, and is liable on the default of the drawee. 
 "Without xecpurse" does away with this conditional liability. It leaves 
 the^indorjement simply as a transfer of^ title, and the indorser- liable 
 only as vendor ; yet it leaves him a vendor and divests him of none of 
 tlie liabilities of a-Jifindor. It makes the transaction the "equivalent of 
 a "delivery of paper payable to bearer, and transferable by delivery. 
 * * * Independent, therefore, of any matter of indorsement, what 
 implied warranty is there in the transfer of a promissory note ? Two 
 things ire clear under the authorities: First, that there is an implied 
 warranty of the genuineness of the signatures ; and, second, that there 
 is no warranty of the solvency of the parties. * * * g^j. jj., ^^Q 
 case at bar the signature of the maker was genuine. The objection is 
 that it was never his legal obligation to the full amount for which it 
 purported to be. How far is there any implied warranty in this re- 
 spect? A reference to some of the leading cases will throw light 
 upon this question. * * * 
 
 I In Lobdell v. Baker, 3 Mete. (Mass.) 469, it appeared that the owner 
 of a note procured the indorsement of a minor and then put the paper 
 ; in circulation. He was held liable to a subsequent holder. Chief Jus- 
 tice Shaw, delivering the opinion of the court, says : "Whoever takes 
 a negotiable security is understood to ascertain for himself the ability 
 of the contracting parties, but he has ajri^t to Relieve without inquir- 
 ing, that he has the legal obligation of the contrac^ng paftlei^appear- 
 ing on the bill or note. Unexplained, the purchaser of suchTa note 
 has a right to believe, upon the faith of the security itself, that it 
 
Ch. 5) EIGHTS OF HOLDER AGAINST INDOESBRS AND DRAWER 879 
 
 is indorsed by one capable of binding himself by the contract which 
 an indorsement by law imports." 
 
 In Hannum v. Richardson, 48 Vt. 508, 21 Am. Rep. 152, a note 
 was given for liquor sold in violation of law, and was by statute void. 
 Defendant knew its invalidity, transferred it by an indorsement with- 
 out recourse, and he was held liable to his vendee. 
 
 In Delaware Bank v. Jarvis, 20 N. Y.. 226, a_usurious note was sold, 
 and the ■^endor.jsas adjudged^liable, not merely ior the_mgney re- 
 ceived by him, but alio'Ae costs paidiJT^hisjrendee. in^aTsuit against 
 the makers of the note. In thFopimon Mr. JuiticeComstock uses this 
 language: "The authorities state the doctrine in general terms that 
 the vendor of a chose in action in the absence of express stipulation, 
 impliedly warrants its legal soundness and validity. In peculiar cir- 
 cumstances and relations, the law may not impute to him an engage- 
 ment of this sort. But if there are exceptions, they certainly do not 
 exist where the invalidity of the debt or security sold arises out of 
 the vendor's own dealing with or relation to it. In this case, the de- 
 fendant held a promissory note which was void, because he had him- 
 self taken it in violation of the statutes of usury. When he sold the 
 note to the plaintiffs and received the cash therefor, by that very act he 
 affirmed in judgment of law that the instrument was unattainted so 
 far at least as he had been connected with its origin." * * * 
 
 In Snyder v. Reno, 38 Iowa, 329, it was held that there is an. implied 
 wai^ranty that there has.be^i_nojnaterial alteration in the paper since 
 its execution; The court says: "We have no doubt that there is an 
 implied warranty of the transferrer that there is no defect in the in- 
 strument, as well as that the signature of the maker is genuine." 
 * * * See, also, 1 Dan. on Neg. Inst. 670: In this the author thus 
 states the law: "When the indorsement is without recourse, the in- 
 dorser specially declines to assume any responsibility as a party to the 
 bill or note; but_by the very act of transferring it, he engages that it 
 ig^what it purports to be — the valid obligation of those jwhQa£ ,name s 
 are upon it. He is like a drawer who draws without recourse, but 
 who IS "nevertheless liable if he draws upon a fictitious party, or one 
 without funds. And therefore the holder may recover against the in- 
 dorser without recourse: (1) If any of the prior signatures were not 
 genuine; or (2) if the note was invalid between the original parties, 
 because of the want or illegality of the consideration; or (3) if any 
 prior party was incompetent ; or (4) the indorser was without title." 
 
 These authorities fully sustain the ruling of the district court. The 
 note was not the legal obligation of the maker to the full amount. 
 As to the usurious portion, it was as if it were no note. This was a de- 
 fect in the very inception of the note. It was known to the vendor 
 and arose out of his own dealings in the matter. By all these au- 
 thorities there is an implied warranty against such a defect, and the 
 vendor is liable for a breach thereof. * * * 
 
 The judgment will be affirmed. 
 
880 NEGOTIABLE INSTRUMENTS ('Part 3 
 
 LITTAUER V. GOLDMAN. 
 (Court of Appeals of New York, 1878. 72 N. Y. 506, 28 Am. Eep. 171.) 
 Miller, J. The right of thie plaintiff to maintain this action rests 
 upon the ground that the note in question which was sold and trans- 
 ferred by the defendant to the plaintiff was invalid and void, by rea- 
 son of its original_jisuriou5- consideration. It is alleged th at^ejng 
 in violation oj, the, staffit^ against usury, it was no note, and by im- 
 'glication of Taw , the defendant jid warra nt and undertake that the 
 same was noj_usurious~"orlIiegal,^uta valid andjegal notc^The com- 
 
 'plaint does 'not. allege that the^ def endantJRid' 'anx Js??^^le^e of the 
 TiStlfy'or was a party to the same, butjtates tRat &e seU^Jby the act 
 of transfer for a valuable consideration7 impliedly warr anted that the 
 paper was genuine and all that it purpoffs to be upon its face, and 
 incurred an obligation by the sale to make the paper good, although 
 he did not indorse or guaranty the same. The question whether an 
 action will lie for the loss sustained by the plaintiff by reason of the 
 note being usurious, and the recovery of the amount thereof thereby 
 defeated, has never arisen under the precise circumstances presented 
 in this case, and demands an examination of the principle applicable 
 to the contract entered into upon the sale of paper of this description, 
 and of the authorities bearing upon the subject. 
 
 The rule is well settled that generally one who transfers paper by 
 delivery only incurs none of the, liabilities which attach to an indorser, 
 for the reason that the irresistible inference is that if he transfers it, 
 and it is received without his indorsement, such liabilities did not 
 enter into the bargain or the intention of the parties. This rule, how- 
 ever, is not without exception, and the transferor of notes or bills by 
 deliverT^_warrants the genuineness, of_the_signaJtures, and that the_title ■ 
 
 _jswhat It purports^tp. be. If the paper is forged',~tReT?ansIeror is 
 lIiBIe~upon the original consideration which has never been extin- 
 guished by the sale. 2 Parsons on Contracts, 37, 38. So also, it is 
 laid down by the same author that the vendor without indorsement 
 
 /warrants that the paper is of the kind and description that it purports 
 
 'to be, and there is an implied warranty that the' parties' to tBe paper 
 afe under jno^acapacity to contract, as from infancy or marriage or 
 other disability, and the assignment of a bill or note for a valuable 
 cohsid-eration raises an implied warranty that the assignor has done 
 nothing, and will do nothing, to prevent the assignee from collecting 
 it. The reason given as to forged paper is that it is nothing, and the 
 one who has transferred it has transferred nothing, and is therefore 
 liable. Id. 39, 40. The question whether paper tainted with usury, 
 which is transferred by the holder without knowledge of this defect, 
 can be regarded as within the principle of the exceptions stated, is not 
 free from difficulty, and at first view there appears to be some ground 
 for claiming that a note made in violation of a statute which declares 
 usury to be a misdemeanor, and that all paper of this kind shall be 
 void, should stand on the same footing as forged or other paper, which 
 is excepted from the general rule. * * * 
 
 / It is of grave importance whether a scienter is material for the 
 purpose of upholding an implied warranty in a case of this kind. In 
 Hoe V. Sanborn, 21 N. Y. 552, 78 Am. Dec. 163, Selden, J., lays down 
 the rule "that whenever an article sold has some latent defect, which 
 
Ch. 5) EIGHTS OF HOLDER AGAINST INDORSEES AND DRAWEE 881 
 
 is known to the seller, and not to the purchaser, the former is liable 
 for this defect if he fails to discover his knowledge on the subject 
 at the time of the sale." He proceeds to state that, where knowledge 
 is proved by direct evidence, the responsibility rests upon the ground 
 of fraud; but where the probability of knowledge is so strong that 
 courts will presume its existence without proof, the vendor is held re- 
 sponsible upon an implied warranty; and the difference between the 
 two cases is that in the one the scienter is actually proved; in the 
 other, it is presumed'. ^ A scienter is, jtherefore^ essential to establish t 
 an implied warranty ; . and~as"weTiave seen, the cases to which we have 
 referred all show knowledge on the part of the vetidor. The cases 
 which are cited to sustain the doctrine that the scienter is immaterial 
 where there is a warranty, either express, or implied, do not go to 
 that extent. * * * 
 
 There is no reported case which holds that, where such purchase is 
 made without actual knowledge by the defendant, an implied war- 
 ranty is established. It is true that some of the cases to which we 
 have referred hold that express representations are not necessary to 
 establish a case and fix a liability, but in all of those where the notes 
 were affected by usury the evidence showed that such fact was known 
 to the defendant. _The case^f^jorged instrum_ent, as we_have^seen, 
 rests upon a different prmcTp^e, ^izTJ^TEat the note, is^ no nptej lind 
 feeilce~h5tie-0"f the xases cited aid the plaintiff.-. * * * 
 
 InChitty off Bills, ~p7 245, it is laid""3bwn that where a person ob- 
 tains money on a note, and it turns out to be forged, he is liable to 
 refund the money to the party from whom he received it, on the ground 
 that there is, in general, an implied warranty that the instrument is 
 genuine. Again, at page 247, it is said: "If a man assign a bill for 
 any sufficient consideration, knowing it to be of no value, and the as- 
 signee be not aware of tlie fact, the former would, in all cases, be 
 cornpellable to repay the money he had received." It is knowledge of 
 the defect which renders the party liable for a note which is of no value, 
 and this rule applies to a note which is tainted with usury. * * * 
 
 The examination we have made of the question shows that the law 
 in regard to the transfer of negotiable bills of exchange and promis- 
 sory notes, as laid down for a century or mor e, only excepts_twq^ses 
 as coming within the doctrine of an implied warr ant)vv iz. a warranty 
 of Jitle, and that the instrument is~g entrTne ~and iiot forged. There is 
 no precedent and not a single reported case in The books in favor of 
 the doctrine that where a promissory note is infected with usury, and 
 that fact is unknown to the party who transferred it, that is an im- 
 plied warranty of the validity of the note. To uphold such a doctrine 
 would be an innovation upon a settled principle of law, and the es- 
 tablishing of a new and different rule from that which has governed 
 the sale and transfer of this species of property for a long period of 
 time. * * * The doctrine of caveat emptor applies, and the fault 
 is with the person who fails to exact a warranty, if it turns out that 
 he has been mistaken, or has unfortunately made an unprofitable or 
 a bad bargain. * * * ^ 
 
 The result is that the judgment was wrong and must be reversed. 
 « * * 
 
 B.& B.Btjs.Law— 56 
 
■882 NEGOTIABLE INSTRUMENTS (Part 3 
 
 MEYER V. EIOHAKDS. 
 
 (Supreme Court of the TJnited States, 1896. 163 V. S. 385, 16 Sup. Ot. 1148, 
 
 41 L. Ed. 199.) 
 
 Plaintiffs below (plaintiffs in error here) commenced their action 
 to recover the sum of $8,283.75, with interest from judicial demand; 
 the facts averred in the petition being substantially as follows: In 
 February, 1889, the defendant sold Jo plaintiffs thirtfien.iiQnds_Qf.J,he^ 
 state ofJ,dQuisi^ia^__"PeHBoners'aver that' the saidTlichard delivered 
 ToThStTthe above described bonds as good and legal bonds of the 
 -State of Louisiana. The petition theiTaverred that after the sale and 
 delivery of the bonds in September, 1889, it was discovered tli^tjhe^ 
 were not valid, that they had jiever been lawfully jsgiied-b-y- tECstateT" 
 a"nd~wefe~at~the time of the sale declared^ byjtheConstitutionofJhe 
 state of_I^uisiana to be null and void,3nd tHaT the state^througlTits 
 officiaFs treated them as wholly invalid. The prayer was, as already 
 stated, for a judgment for the amount which had been paid as the 
 purchase price of the bonds. 
 
 The answer of the defendant averred that on the day of the sale, 
 the 27th of February, 1889, the defendant was the owner of the bonds 
 described in the petition; that they were payable to bearer, and were 
 on the face thereof bonds and obligations of the state of Louisiana, 
 and purporting to be issued under valid acts of the Legislature. The 
 answer, moreover, aven-ed that the defendant acquired the bonds long 
 prior to the date of the sale to the plaintiffs, "by purchase in open 
 market, for a full and valuable consideration in money, before the 
 maturity thereof, in full and exact good faith, and withn o knowledge, 
 suspicion of belief of any defect in the title bfobligatioiTof said bonds. 
 
 There was judgment for defendant, * * * and the present writ 
 of error was prosecuted. 
 
 White, J. * * * It is obvious from the facts just detailed that 
 the thirteen bonds which were sold by the defendant in error to the 
 plaintiff in error were at the time of the sal^hsoLut^ .jaaid. The 
 twelve which originally belonged to the two college 'fuiidswere in 
 express terms declared by the constitution of the state to be "null and 
 void," and the general assembly was forbidden to make any provision 
 "for their payment," and they were ordered to be "destroyed in such 
 manner as the general assembly may direct." This provisi on of th e 
 :Constitution.was in existence while the bonds were in the hands of tKe 
 state,^ and beFore they were fraudulently and surreptitiously'sold. 
 Indeed, these bonds were never lawfully put into circulation, because, 
 having been originally issued to represent trust funds belonging to 
 the state, they were held by officers of the state' for its account. The 
 remaining bond was also void under the Constitution of the state, since 
 it had been, under the express terms of that instrument, surrendered 
 to the state treasurer for cancellation and another bond issued in its 
 «tead. 
 
 The bonds were undoubtedly sold by_the_def endant in error as law- 
 ful^obligations of the states Both parties to the cohTracToT" sale so 
 considered. ~The pleadings and the statement of facts leave no ques- 
 tion on this subject. The controversy here presented is wholly be- 
 tween the vendor and vendee as to the nature and extent of the obli- 
 gation of warranty resulting from the sale. * * * 
 
 Both in England and in the United States the doctrine is universal- 
 
Ch. 5) RIGHTS OF HOLDER AGAINST INDORSBRS AND DRAWER 883 
 
 ly recognized that, where commercial paper is sold without indorse- 
 ment or without express assumption of liability on the paper itself, 
 the contract of sale and the obligations which arise from it, as be- 
 tween vendor and vendee, are governed by the common law, relating 
 to the sale of goods and chattels. So, also, the undoubted rule is that 
 in such a sale the obligation of the vendor is not restricted to the mere 
 qu estion of fo :^;gryTt?TiOH7titirdepeTrdg upon whether Eelias delivered 
 tha r%ti ich He confracted~to~seir," this rule being designated, in Eng- 
 iSnd, as~a' condition of the prlricipar contract, as to the essence and 
 substance of the thing agreed to be sold, and in this country being 
 
 generally termed an implied warranty of identity of the thing sold. 
 * * * 
 
 Many of the controversies covered by the cases arose in consequence 
 of the sale of a._forged note, b ut the principles upon, which all. the 
 a uthorities proceed do notxao.fine the right of recovery Jto such_a case, 
 but rest upon the general doctnne"fo"wmch we have already referred. 
 In fact, no case is reported wherein the obligation, as between vendor 
 and vendee, in the sale of negotiable paper, is claimed to be controlled 
 other than by the general principles of the common law, though in 
 three cases, Baxter v. Duren, 29 Me. 434, 50 Am. Dec. 602 ; Fisher v. 
 Rieman, 12 Md. 497, and Ellis v. Wild, 6 Mass. 321, the deduction 
 was made from the law respecting the sale of goods that on a sale of 
 negotiable paper there was under the principle of caveat emptor no im- 
 plied warranty even that the signatures to the paper were not forged. 
 Ellis V. Wild was, however, expressly overruled in Merriam v. Wol- 
 cott, 3 Allen (Mass.) 258, 260, 80 Am. Dec. 69 ; and from the allusions 
 to Baxter v. Duren, contained in the later Maine decisions previously 
 noted in the margin, it is doubtful whether the early ruling in Maine 
 would now be followed there. The three cases referred to, it is need- 
 less to say, are practically disregarded by the entire current of Ameri- 
 can and English authority, and stand alone. They are disavowed by 
 the defendant in error here, since his argument admits that there is a 
 warranty of the genuineness of the signatures, to an apparent negotia- 
 ble instrument, thereby conceding the subsistence of the obligation to 
 warrant the existence or identity of the thing sold, and yet seeking to 
 avoid its consequences by limiting it to non-existence resulting from a 
 particular nullity. 
 
 There is an exceptional case, Littauer v. Goldman, 72 N. Y. 506, 
 28 Am. Rep. 171 (1878), which holds that the common-law obligation, 
 as to the implied warranty of identity in the thing sold, in the case of 
 commercial paper, extends only to the genuineness of the instrument. 
 The case was one involving the nullity of a usurious note, and, if cor- 
 rectly decided, would be authority for the proposition that there was a 
 peculiar species of warranty in the sale of commercial paper, differing 
 from all others ; in other words, that there was a law merchant of war- 
 ranty where there was no commercial contract. The opinion in 
 this case illustrates the same contradictory position presented here by 
 the argument of the defendant in error, to which we have just called 
 attention, that is, that it admits the common law rule and then denies 
 its essential result by eliminating conditions of non-existence which 
 are necessarily embraced by it. It follows that this New York deci- 
 sion leads logically to the view expressed in the Maine and Maryland 
 cases just referred to, for either the principle of warranty of identity 
 must be accepted or rejected; it cannot be accepted and its legitimate 
 
884 NEGOTIABLE INSTRUMENTS 'Part 3 
 
 and inevitable results be denied. The rule there announced was in 
 conflict with previous decisions in New York, and the decision -is 
 strongly criticised by the Court of Errors and Appeals of New Jersey 
 in Wood V. Sheldon, 42 N. J. Law, 421, 425, 36 Am. Rep. 523. * * * 
 It follows that the judgment of the Circuit Court must be reversed, 
 and the case be remanded with directions to enter judgment for plain- 
 tiffs for $8,383.75, with interest from judicial demand and costs. 
 
 Under the Negotiable Instruments Law, the liability of the 
 qualified indorser and the transferor by delivery is as follows: 
 
 N. I. L. Section 65. Every person negotiating an instrument 
 by delivery or by qualified ipdorsement, warrants — (1) that the 
 instrument is genuine and in all respects what it purports to be; 
 (2) that he has a good title to it; (3) that all prior parties had 
 capacity to contract. The provisions of subdivision three of this 
 section do not apply to persons negotiating public or corporations 
 securities, other than bills and notes; (4) that he has no knowl- 
 edge of any fact which would impair the validity of the instrument 
 or render it valueless. But when the negotiation is by delivery 
 only, the warranty extends in favor of no holder other than the 
 immediate transferee. 
 
 There would seem to be no substantial reason why the uncon- 
 ditional liability on warranties of the transferor by delivery and 
 that of the qualified indorser should differ from that of the un- 
 qualified indorser. Both are vendors of negotiable instruments. 
 The liability arising from the warranties spoken of in sections 65 
 and 66 is imposed upon the parties because they are vendors. 
 Nevertheless the vendor who has indorsed without qualification 
 under section 66 is under a broader liability than is a vendor by 
 delivery only or by qualified indorsement. It must be noticed 
 that the warranty of genuineness of the instrument, that the ven- 
 dor has title and that all prior parties had capacity to contract 
 are the same in both cases. But as regards the remaining war- 
 ranty there is a marked difference. The unqualified indorser, by 
 section 66, subsection 2, warrants "that the instrument is at the 
 time of his indorsement valid and subsisting." The qualified in- 
 dorser, and the transferor by delivery, by section 65, subsection 
 4, warrants "that he has no knowledge of any fact which would 
 impair the validity of the instrument or render it valueless." The 
 unqualified indorser, therefore, warrants that there are no real 
 or personal defenses which may be successfully interposed against 
 the claim of the holder even though he may have no knowledge 
 that such defenses exist. With the exception of the warranty of 
 genuineness of title and that all prior parties had capacity to con- 
 tract, the qualified indorser and transferor by delivery warrants 
 merely, he has no knowledge of existing defenses possessed by 
 primary parties. The Negotiable Instruments Law has therefore 
 codified the principle of Littauer v. Goldman. 
 
Ch.5) RIGHTS OP HOLDER AGAINST INDORSERS AND DRAWEE 885 
 
 There is one difference between the liability of a transferor by 
 delivery and that of the qualified indorser. The warranty of the 
 transferor by delivery extends only to his immediate transferee, 
 while that of the qualified indorser, by implication, extends to all 
 subsequent holders in due course. As a general rule, warranties 
 which accompany sales of tangible personal property do not run 
 to sub-vendees. It is, therefore, somewhat difficult to explain the 
 theory on which such warranties run to subsequent holders in due 
 course; perhaps this result follows from the notion that each 
 successive holder under the qualified indorsement, by his trans- 
 fer of the instrument, assigns his right on the warranties to his 
 indorsee and that indorsee in turn assigns to his indorsee and so 
 on. In the law of real property there is an analogy for the view 
 that warranties should run to subsequent holders. Some of the 
 covenants which a grantor of land in a warranty deed enters into 
 with his grantee, will pass to the subsequent purchasers of the 
 law.. Such covenants are called covenants running with the land. 
 
 Where a holder of a negotiable instrument, in such form that 
 it may be negotiated by delivery, does in fact indorse unqualifiedly, 
 it would follow that his liability would be that of the unqualified 
 indorser and not that of the transferor by delivery. This result is 
 recognized in the following section : 
 
 N. I. L. Section 67. Where a person places his indorsement 
 on an instrument negotiable by delivery, he incurs all the liabilities 
 of an indorser. 
 
 Where the transferor by delivery is an agent for the owner on 
 principles of the law of agency, he will incur a personal liability 
 unless he discloses his principal. 
 
 N. I. L. Section 69. Where a broker or other agent negotiates 
 an instrument without indorsement, he incurs all the liabilities pre- 
 scribed by section sixty-five of this act, unless he discloses the 
 name of his principal, and the fact that he is acting only as agent. 
 
 SECTION 4.— RIGHTS OF THE HOLDER AGAINST THE 
 ACCOMMODATION INDORSER 
 
 We have already discussed some features of the liability of an 
 accommodation party. Section 29 defines an accommodation 
 party as one who has signed the instrument as maker, drawer, 
 acceptor or indorser, without receiving value therefor, and for the 
 purpose of lending his name to some other person. The liability 
 of an accommodation party is then declared to be on the instru- 
 ment to a holder for value, notwithstanding such holder at the 
 time of taking the instrument knew him to be only an accommo- 
 dation party. An accommodation party is a surety for some prin- 
 cipal debtor. Either party -may occupy any position on the instru- 
 ment. The present section deals with certain special aspects of the 
 liability of one kind of an accommodation party — i. e., an accommo- 
 
886 NEGOTIABLE INSTRUMENTS (Part 3 
 
 dation indorser. Such an indorser is sometimes called an irregular 
 indorser or an anomalous indorser. The indorsement is said to te 
 irregular or anomalous because the indorser was never in the chain 
 of title. He was never the owner of the instrument. The same 
 indorsement is spoken of as an accommodation indorsement be- 
 cause the indorser is accommodating a debtor by loaning his 
 credit to the debtor. 
 
 The sections following, in the main, deal with two features of 
 the liability of an accommodation indorser: (1) The nature of the 
 liability; (2) the parties to whom the liability runs. The nature 
 of the rights and liabilities of the contract of the accommodation 
 indorser, in their broadest aspect, constitute the subject matter of 
 that branch of the law known as the law of suretyship. To some 
 of the more important principles there applied some reference was 
 made in Chapter XI of Contracts. Those principles, of course, 
 apply to accommodation indorsers the same as to all other sureties. 
 In determining the rights and liabilities of sureties on negotiable 
 paper several sections of the Negotiable Instruments Law must be 
 taken into consideration. In the chapter on Discharge other sec- 
 tions will be referred to. Here we are interested in the four sec- 
 tions following: 
 
 N. I. L. Section 63. A person placing his signature upon an 
 instrument otherwise than as maker, drawer or acceptor, is deemed 
 to be an indorser, unless he clearly indicates by appropriate words 
 his intention to be boxmd in some other capacity. 
 
 N. I. L. Section 64. Where a person, not otherwise a party to 
 an instrument, places thereon his signature in blank before deliv- 
 ery, he is liable as indorser, in accordance with the following rules : 
 (1) If the instrument is payable to the order of a third person, he 
 is liable to the payee and to all subsequent parties. (2) If the in- 
 strument is payable to the order of the maker or drawer, or is pay- 
 able to bearer, he is liable to all parties stibsequent to the maker 
 or drawer. (3) If he signs for the accommodation of the payee 
 he is liable to all parties subsequent to the payee. 
 
 N. I. L. Section 68. As respects one another, indorsers are 
 liable prima facie in the order in which they indorse ; but evidence 
 is admissible to show that as between or among themselves they 
 have agreed otherwise. Joint payees or joint indorsees who in- 
 dorse are deemed to indorse jointly and severally. , 
 
 N. I. L. Section 66. Every indorser who indorses vsdthout qual- 
 ification warrants to all subsequent holders in due course * * * 
 and engages that on due presentment, it shall be accepted or 
 paid. * * * 
 
 In its broadest outline the problem involved in the interpreta- 
 tion of the abbve sections is : For what purposes may parol testi- 
 mony be admitted in a suit against a person whose signature ap- 
 pears on the instrument otherwise than as maker, drawer, or ac- 
 ceptor. From a bare inspection of the instrument it may' be de- 
 termined whether the name appears on the instrument as maker 
 
Ch. 5) RIGHTS OF HOLDER AGAINST INDORSEES AND DRAWER 8S7 
 
 drawer, or acceptor. No parol testimony is necessary. This is 
 simply a question of interpretation of the words on the instru- 
 ment. Section 63 then asserts that the party whose name ap- 
 pears on the instrument otherwise than as maker, drawer, or ac- 
 ceptor is deemed to be an indorser. This section is, therefore, a 
 sweeping declaration, apparently, of the total legal effect of such 
 signature — such party is given the rights of an indorser and is 
 made subject to the liabilities of an indorser. In the absence of 
 this section it is not conclusive that such party is an indorser. A 
 signature on an instrument, wherever placed, may have been placed 
 there by one who intended to sign as maker, acceptor, or drawer, 
 although he did not place his name in the position where the names 
 of such parties usually appear. Such party may have intended to 
 assume the position of a guarantor of payment or of collectibility. 
 
 Before the Negotiable Instruments Law, there was considerable 
 conflict of authority as to the nature of the liability of one who 
 had never had title to the instrument and signed other than as 
 maker, drawer, or acceptor. Many courts held that such a signer 
 was an indorser and this view was adopted by section 63. This 
 section therefore, would seem to render inadmissible any evidence 
 tending to change the nature of the liability of the accommodation 
 indorser from that of an unqualified indorser to that of a joint 
 maker, a guarantor, or other party. The last clause of the section, 
 permitting the accommodation indorser to vary the nature of his 
 liability if he "clearly indicates by appropriate words his intention 
 to be bound in some other capacity," should be interpreted as 
 though it read "clearly indicates by appropriate words on the in- 
 strument his intention to be bound in some other capacity." Sev- 
 eral courts have held, however, that parol evidence is admissible 
 to ohange the liability of the accommodation indorser. The con- 
 flict which the section was intended to silence still continues. 
 
 Section 64 specifies in detail the parties to whom the liability, 
 whatever the nature, of the accommodation indorser runs. The 
 principle behind these detailed rules is that the accommodation in- 
 dorser is liable to the creditor and is not liable to the debtor, the 
 party accommodated. The sectiftn is phrased in language which 
 seems to exhaust all the possibilities. There is one situation not 
 provided for — where the indorser 'signed for the accommodation of 
 the acceptor on a bill payable to the order of the drawer. Since 
 the drawer payee is the creditor the accommodation indorser 
 should be liable to him, but the section does not provide for this 
 liability, for subsection 2 provides that he shall be liable only to 
 parties subsequent to the drawer. The desire to bring about a just 
 result has led the New York Court of Appeals, in Haddock, B Ian- 
 chard & Co. V. Haddock, a case following, to allow parol testimony 
 to be introduced to render the accommodation indorser liable to 
 the drawer. Here again we have the difficulty which it was 
 thought was eliminated by the act. If parol testimony may freely 
 be admitted to establish the liability of the accommodation in- 
 
888 NEGOTIABLE INSTRUMENTS (Part 3 
 
 dorser, uniformity of decision as regards the nature of his liability 
 is improbable, and this result is not desirable. Section 64 should 
 permit the introduction of parol testimony for the one purpose 
 only : That the person whose signature appears on the instrument 
 did in fact sign the same in blank before delivery. 
 
 Section 68 applies to a case where there are two or more accom- 
 modation indorsers for the same debtor, and expressly permits 
 parol testimony to be introduced to show an agreement between 
 them as to the proportion in which they should bear their common 
 liability. Being co-sureties, they would share the loss equally. 
 In the absence of this section it would be possible that the surety 
 whose name appeared last could recover from his co-surety the 
 full amount of the debt, a result which, obviously, should be 
 avoided. 
 
 Section 66, dealing with the liability of indorsers, in express 
 terms, applies to "every indorser, who indorses without qualifica- 
 tion." This includes the accommodation indorser. The accom- 
 modation indorser therefore enters into the same special engage- 
 ment to pay upon due presentment and due notice of dishonor 
 that is imposed by the unqualified indorsement. In many states, 
 before the act, the accommodation indorser, not being regarded as 
 an indorser, was not entitled to due presentment and due notice 
 of dishonor. 
 
 Section 66, also, it would seem, imposes upon the accommoda- 
 tion indorser the liability of a warrantor. Since the accommoda- 
 tion indorser is not a vendor, it is difficult to see upon what theory 
 he should be made liable as a warrantor. 
 
 The following cases illustrate some features of the general 
 problem involved in the application of the above sections : For 
 what purposes may parol testimony be admitted in actions against 
 accommodation indorsers ? 
 
 ROCKFIELD et al. v. FIRST NAT. BANK OF SPRINGFIELD. 
 
 (Supreme Court of Ohio, 1907. 77 Ohio St. 311, 83 N. E. 392, 
 14 L. R. A. '[N. S.] 842.) 
 
 Spear, J. Whether or not the answer avers a defense to the cause 
 of action set up in the petition is the question here. The theory of the 
 defendants' pleading is that Rockfield and Snyder, by writing their 
 names across the back of the note, became indorsers in the commer- 
 cial sense, and therefore entitled to notice of demand at maturity of 
 the maker and of nonpayment, and, failing that, no liability attached. 
 ^_he Jheory_ofthe_petition is that these defendants, having signed the 
 note beforeTilivery, must be held to have signed with the purpose 
 /of giving it credit and of aiding negotiability, and therefore stand as 
 ! maker, and although their names appear on the back of the instrument, 
 I and they are in law sureties, yet they are not indorsers in the commer- 
 cial sense, and therefore not entitled to notice of demand and non- 
 payment. This view is the one adopted by the trial cdurt, which in- 
 corporated in the judgment entry a finding that the defendants are in- 
 
Ch. 5) EIGHTS OF HOLDER AGAINST INDORSBRS AND DRAWER 889 
 
 debted as joint and several makers of the note, and this is the view 
 taken of the question by the circuit court in affirming the judgment 
 of the common pleas. Which is the correct view is the question we 
 have. * * * 
 
 That the conclusion adopted by the lower courts is in accord with^ 
 the law as held in this state from early times, and with all decisions ofy 
 this court thus far made, is conceded. The latest deliverance on the 
 subject is the case of Ewan v. Brooks- Waterfield Co., 55 Ohio St. 596, 
 45 N. E. 1094, 35 L. R. A. 786, 60 Am. St. Rep. 719, opinion by Wil- 
 liams, C. J. It is here held that where the name of a third party, a 
 stranger to the note, appears in blank upon the back of the note at 
 the time it takes effect, his undertaking res ts upon the consideration 
 which supports the note, and gie presump tion~is~ that lie intended to 
 beliable as a sure ty, a'nd he wilTbe held accordingly, unless it is shown 
 that there was a different agreement between the parties. This con- 
 clusion is reached after a careful and somewhat extended review of 
 authorities, many of them decisions of this court, and is supported by 
 strong and convincing argument. While a con trary doctrine, holding 
 suchpartyto be an indorser in the commercTal seiiseTTiad "been held 
 irTaTn umB er of states", notably Alabama, "Calif of nia, Connecticut, Indi- 
 ana, Mississippi, New York, T5fegon, Pennsylvania, and Wisconsin, / 
 th^Ohiorule, asjibove iiidicated, had been the settled common-law rule 
 of the "states of Arkansas, "Colorado, Delaware, "Maine, Maryland, 
 Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, 
 North Carolina, Rhode Island, South Carolina, Texas, Utah, and Ver- 
 mont. The statute referred to is the act of April 17, 1902, known as 
 the Negotiable Instruments Act. * * * 
 
 The question at issue very largely turns upon what is meant 
 by the terms of section 64, the substance of which we here repeat: 
 "Where a person not otherwise a party to an instrument places there- 
 on his signature in blank before delivery, he is Hable as indorser," etc. 
 It seems to have been the view of the learned circuit court (see opinion 
 by Dustin, J., Rockfield v. First Nat. Bank, 8 Ohio Cir. Ct. R. [N. S.] 
 290) that, inasmuch as the liability defined by the rules following the 
 above-quoted portion of section 64 does not differ essentially from 
 the liability attaching to such party under the decisions of this court, 
 no change in the law can be presumed to have been intended by the 
 General Assembly in the enactment of the statute ; also, that the sub- 
 sequent provisions of the sections relating to indorsers and providing 
 what shall be done to fix liability, etc., are inconsistent with this con- 
 clusion because the later sectiotjs apply only to general indorsers, and in 
 those sections every indorser 'is described as such — is called an in- 
 dorser — while in the earlier section the party described is only to be 
 deemed an indorser, and has the liability of an indorser only to a lim- 
 ited extent. 
 
 - The contention, further, is that the terms of section 63 forbid 
 the conclusion that such party is to be deemed an indorser in the com- 
 mercial sense, because he must, in order to have that effect, place his 
 name on the back otherwise than as maker, and the rule is, and was, 
 that the person so placing his name is a maker unless he shows a dif- 
 ferent agreement between the parties. > There is much plausibility in \ 
 these contentions, and they would seem to be~ sound were it not for 
 tlie~1ncorporation of the words "as indorser" in section 64. Had 
 these words been lefttralrof -the" section the construction claimed would 
 
890 NEGOTIABLE INSTRUMENTS (Part 3 
 
 be an unnatural one. But we are required, by the inexorable rule of 
 construction, to give to them some signification — some meaning con- 
 sistent with a rational purpose in placing them in the statute. The law- 
 makers were making law. They cannot be presumed to have beeri 
 simply dealing with legal terms in a loose, popular sense. The word 
 "indorser" has a distinct, clearly defined legal meaning. An indorser 
 is one who undertakes tp be responsible to the holder of the paper for 
 the amount thereof, if the latter shall, at maturity, make legal demand 
 of the payer, and, in default of payment, give proper notice thereof to 
 the indorser. The language of the section is plain and free from am- 
 biguity. The words express a clear meaning. The party has placed 
 his name upon the instrument where general indorsers sign. He is 
 not a party to the note, but is a stranger. 
 
 Section 63 says he shall be deemed to be an indorser unless he 
 clearly indicates by appropriate words his intention to be bound in 
 some other capacity. He has used no word appropriate or otherwise. 
 His status on the paper is, therefore, fixed by the emphatic words of 
 the statute. Then follows the fixing of liability. He is liable ^as in- 
 dorser." Aiid how is that? Why, he must pay wfieh. and onlyjyhen, 
 ""pfopeF demand has been made of the maker at maturity and legal no- 
 tice given ~him.^~ This" is clearly shown by what follows. Every in- 
 dorser who indorses without qualification engages that on due pre- 
 sentment and dishonor, and due notice to him, he will pay. This ex- 
 presses the extent of his liability; without these requisites being 
 complied with he is discharged. And, then, as though to cover a doubt- 
 ful situation, the provision is (section 17 [6]) that, where the lan- 
 guage of an instrument is ambiguous, because of the signature being 
 so placed that it is not clear in what capacity the person intended to 
 sign, he is deemed to be an indorser. Of the rules prescribed by sec- 
 tion 64, it is enough to say that they are not inconsistent wilii the 
 obligation of the general indorser. He, too, is liable to those who 
 come after him as indorsers or holder. The important question is, 
 not to whom is such party liable, but in what capacity — in what relation 
 — is he liable? * * * 
 
 But another purpose seems to us to be indicated by this legislation. 
 Not only were the courts of the country in conflict respecting the 
 attitude and liability of a third party — a stranger — who placed his 
 name in blank on the back of commercial paper, but the situation was 
 in itself an anomalous one, calculated to lead, as it often did lead, to 
 confusion respecting the duty of the holder of such paper with regard 
 to demand and notice. Mistakes in this respect were easy and were 
 frequently made, often resulting in litigation, and, not infrequently, 
 loss, ^ To clear this situation up, and to establish a plain, easily under- 
 stood rule, and one of universal application, was surely a result of high 
 importance to all who deal in commercial paper, and it seems to us thkt 
 the desire to accomplish this purpose had much to do with inducing 
 the enactment of the negotiable instruments act by our General As- 
 sembly. * * * 
 
 It follows from these conclusions that * * * a person who, be- 
 ing a stranger to a promissory note, places his name on the back by 
 blank indorsement, is an indorser of the paper and cannot be held in 
 any other capacity. As such he is entitled, in order to render him 
 liable, to notice of demand upon those who are primarily liable, and, 
 failing such demand and due notice to him, he is discharged. The 
 
Ch. 5) EIGHTS OF HOLDER AGAINST INDORSEES AND DRAWER 891 
 
 answer, therefore, stated a defense, and the sustaining of the demurrer^ 
 and rendering judgment for the bank upon the note was error. 
 , Judgment reversed, and cause remanded. * * * 
 
 FAE ROCKAWAT BAWK v. NOKTON. 
 
 (Court of Appeals of New York, 1906. 186 N. T. 484, 79 N. E. 709.) 
 
 Action by the Far Rockaway Bank against Franklin C. Norton. 
 From a judgment of the Appellate Division, unanimously affirming a 
 judgment on the report of a referee in favor of plaintiff ,. defendant 
 appeals. 
 
 Cuivi.EN, C. J. The action is brought on a promissory note made by 
 one Smith to the plaintiff, which thejdefenda nt ind orsed prior tgjts 
 delivery to the payee^ * * * i^j^g notTwas^given in renewal and to 
 take iip^anrearlteFnote, also indorsed by the defendant. To establish 
 the fact that the defendant had indorsed the note with the purpose of 
 giving the maker credit with the payee, proof was given tending to 
 show that, default having been made in the payment of the earlier note, 
 notice of protest thereof was given to the defendant. It is urged that 
 the evidence as to the protest of the earlier note was not of a proper 
 character. It is unnecessary to consider this question, for, since, the 
 enactment of the nejxjtiablejaslrumentsJaw, the law obtaining in the 
 case of such indorsement as that made by the defendant has been rad- 
 ically changed. Prior to that time the indorser was presumed to be 
 a second indorser, and not liable to the payee' fhougK if was competent 
 for the payee to prove aliunde that the intention of the indorser was 
 to give the maker credit with the payee. * * * The negotiable in- 
 struments law prescribes a different rule. * * * 
 
 The judgment appealed from should be affirmed, with costs. 
 
 HADDOCK, BLANCHARD & CO., Inc., v. HADDOCK. 
 
 (Court of Appeals of New York, 1908. 192 N. Y. 499, 85 N. E. 682, 
 19 L. R. A. [N. S.] 136.) 
 
 Action by Haddock, Blanchard & Co., Incorporated, against John 
 C Haddock. From a judgment of the Appellate Division, affirming a 
 judgment for plaintiff, defendant appeals. 
 
 Chase, J. The plaintiff is a foreign corporation authorized to do 
 business in this state and engaged as a wholesale dealer in coal at 
 Binghamton. The Plymouth Coal Company, a corporation, was en- 
 gaged in the operation of coal mines in Pennsylvania prior to March, 
 1902, at which time it went into the hands of a receiver. The de- 
 fendant was the president and manager of said coal company and the 
 owner of substantially all of its stock. The defendant was, until May, 
 1902, the president of the plaintiff, and during all the times herein 
 mentioned had charge of plaintiif's New York office. At the time 
 when the note and bills hereinafter mentioned were given the plaintiff 
 was engaged in selling on commission at wholesale the coal mined by 
 the Plymouth Company or its receiver, under a contract made with 
 said coal company. One B., the vice president of the plaintiff prior to 
 May, 1902, and its president thereafter, passed upon the financial re- 
 sponsibility of persons seeking credit with the plaintiff, and he ar- 
 ranged with a trust company at Binghamton to discount commercial 
 
S92 NEGOTIABLE INSTRUMENTS (Part 3 
 
 paper of the plaintiff's customers. The Lenape Coal Company, the 
 Living Stone Coal Company, and the Montauk Coal Company were 
 severaJly organized as corporations and engaged in the business of 
 retailing coal in or near the city of New York, and the defendant was 
 the owner of substantially all of the stock of each. Soon after the 
 organization of such corporations to retail coal, they sought credit 
 with the plaintiff, and their firiancial responsibility was investigated by 
 B. The responsibility of each was found to be unsatisfactory, aiid 
 B. so reported to the defendant, and the defendant replied that said 
 companies were his companies and he would guarantee their credit by 
 indorsing their paper. 
 
 On February 13, 1902, said Lenape Coal Company, for value re- 
 ceived, executed and delivered to the plaintiff, as payee, its certain 
 promissory note for $880.96, dated on that day, payable four months 
 after date at a bank in the city of New York. On and between Jan- 
 uary 27, 1902, and May 13, 1902, the plaintiff, for value received, made 
 30 several drafts each on either said Lenape Coal Company, said Liv- 
 ing Stone Coal Company, or said Montauk Coal Company, payable to 
 the order of itself as payee, which drafts aggregated $26,833.15, each 
 of which drafts was, for value received, accepted by the coal company 
 on which it was drawn, payable at a place and on a day in each re- 
 spectively specified. The drafts or bills were all similar in form, and 
 the following is a copy of one of said bills : "1327.41. Coal Office of 
 Haddock, Blanchard & Co., Incorporated, New York, Apl. 28, 1902. 
 ' Four months after date pay to the order of ourselves thirteen hundred 
 twenty-seven and *^/ioo dollars, value received, and charge the same 
 to account of Haddock, Blanchard & Co., Incorporated. C. N. Blanch- 
 ard, Asst. Treas. To Montauk Co., Brooklyn, N. Y." Indorsed 
 across the face : "Accepted. Payable at the Binghamton Trust Co., 
 Binghamton, N. Y. The Montauk Coal Co., Chas. B. Smith, Treas." 
 Indorsed on the back : "Haddock, Blanchard & Co., Incorporated. C. 
 N. Blanchard, Assistant Treasurer. John C. Haddock." 
 
 Said note after it had been signed by said Lenape Coal Company, 
 and each of said bills after they had been accepted by the corporation 
 on which they were severally drawn, were indorsed by the defendant 
 before delivery, and thereafter each of them, so indorsed, was before 
 maturity delivered to the plaintiff as payee, and the plaintiff thereafter 
 and prior to their maturity severally indorsed and procured them to 
 be discounted at a trust company at Binghamton. Said note and each 
 of said bills were given.and delivered to the plaintiff for the purchase 
 price of coal sold and delivered by the plaintiff to the acceptors, re- 
 spectively, of said bills and the maker of said note, or in renewal in 
 whole or in part of prior notes or bills given or accepted for the pur- 
 chase price of coal so sold and delivered. Said note and each of said 
 bills were so indorsed by the defendant for the accommodation of the 
 maker of said note and the acceptor of said bills, respectively, and 
 for the purpose of giving such maker and acceptors credit with the 
 plaintiff, and in pursuance of an agreement between the defendant and 
 the plaintiff by which the plaintiff agreed to sell coal on credit to the 
 acceptors of said bills and to the maker of said note upon the defend- 
 ant's guaranteeing the credit of, said companies respectively, and the 
 plaintiff was induced to take said accepted bills and said note, and each 
 of them for such coal by reason of the indorsement of the said de- 
 fendant and pursuant to said agreement that the defendant would be 
 
Ch. 5) EIGHTS OF HOLDER AGAINST INDORSERS AND DRAWER 893 
 
 liable thereon to the plaintiff in case the respective corporations pri- 
 marily liable thereon should make default in payment thereof. The 
 proceeds of said bills and note were remitted to the defendant at the 
 New York ofifice of the plaintiff to provide funds to pay for coal, and 
 other current expenses. At the time when said note and bills respec- 
 tively became due they were presented for payment at the place where 
 they were respectivel/"made payal5Te,^and' payment duly" demanded, 
 which was refused, and thereupon each was duly protested for non- 
 payment, and noticejjiereoi grven to the plaintiff and to said defend- 
 ant. Thereafter 'the plaintiff was compelled to take up said" note and 
 drafts and pay the amount due thereon, respectively, and became the 
 owner and holder thereof and of each of them. 
 
 This action is brought to compel the defendant to pay to the plain- 
 tiff the amount of said note and bills pursuant to his said agreement 
 with the plaintiff when they were severally indorsed by him, and the 
 facts upon which the plaintiff's claim is based are stated in the com- 
 plaint. The defend'ant denies that he indorsed the note and bills for 
 the accommodation of and as surety for the retail coal companies, re- 
 spectively; but the evidence is sufficient to sustain the findings of the 
 court from which the statements of fact in this opinion have been__ 
 taken. As the facts are found, if the intention of the parties is to pre- 
 vail, the defendant should be required to pay to the plaintiff the amount 
 of such note and bills as established by the judgment. The defend ant 
 conten ds tha Mhe position of his name upon the note and bills conclu- 
 -sively £sta birsHes~"Qiat-- he-Tiidorsed^"he several Instruments withqut_lia- 
 btlity t o the plaintiff . r>anH fliat parnrpvirlpnrp gT=ipi,nrl rir.f~1ifiyp been re- 
 ceived to affect or overcome the alleged conclusive presumption arisiiig 
 from his indorsements as made. 
 
 In the early decisions by the courts in this state there was some con- 
 fusion relating to the liability of a person who indorsed a note or bill 
 prior to its delivery. * * * This court, in Moore v. Cross, 19 N. Y. 
 227, 75 Am. Dec. 326, referring to a case of a person who for the ac- 
 commodation of a maker indorsed a note payable to a third person, 
 say: "Some confusion has been thrown around this subject from 
 what has been finally settled to have been an error, treating such an 
 indorsement as a guaranty and charging the indorser as a maker or 
 guarantor. This doctrine was advanced in Herrick v. Carman, 12 
 Johns. 160, and was adjudged in Nelson v. Du Bois, 13 Johns. 175, 
 and Campbell v. Butler, 14 Johns. 349. It was attacked in Dean v. 
 Hall, 17 Wend. 214, and in Seabury v. Hungerford,' 2 Hill, 80, and 
 was finally overthrown in Hall v. Newcomb, 3 Hill, 233, and the same 
 case in error, 7 Hill, 416, 42 Am. Dec. 82. The Chancellor, in his 
 opinion in the latter case, says: 'If the object of the second indorser 
 was to enable the drawer to obtain money from the payee of the note 
 upon the credit of the accommodation indorser, he may indorse it 
 without recourse, and by such indorsement may either make it payable 
 to the second indorser or to the bearer ; and such original payee may 
 then, as legal holder and owner of the note, recover thereon against 
 such second indorser, upon a declaration stating such special indorse- 
 ment by him and subsequent indorsement of the note to him by the 
 second indorser.' " The court further say : "If a note be made and 
 indorsed for the accommodation of A., who indorses it to another per- 
 son, and afterward in the course of trade again becomes the holder, he 
 could maintain no action against the maker and indorser for his ac- 
 
'894 NEGOTIABLE INSTRUMENTS (Part 3 
 
 commodation, notwithstanding their apparent liability to him on the 
 face of the paper. The fact of the accommodation making and indors- 
 ing might be proved to defeat the action, and it would establish that 
 the agreement of the parties, contrary to the legal inference from the 
 face of the paper, did not impose a liability on the maker and indorser 
 to pay the party suing." 
 
 There has always been conflict among the courts of the several states 
 both in asserting the principles upon which irregular indorsers upon 
 commercial paper are to be held and in the conclusion arrived at in 
 particular cases litigated. The number of cases is so great, and the 
 possibility of even a partial reconciliation of them so remote, that we 
 will confine our citation of authorities wholly to those in this state. 
 f'TtVas well settled in this state for many years prior to the enactment 
 ' of the Negotiable Instruments Law that a person who puts his name on 
 ( the back of a bill or note before its delivery is presumably a second 
 ( indorser and not liable to the payee, but the presumption could be re- 
 I butted by parol evidence to show that the intention of the indorser was 
 \ to become surety for some prior party to the instrument. * * * 
 ' The Negotiable Instruments Law was first enacted in this state in 
 1897. * * * Section 64 provides: [Court quotes section 64.] By 
 this section of sai3TawThe presumption as established by the courts 
 in this state was changed, and an irregular indorser is now presumed 
 to be liable in accordance with the express language of the statute. 
 Questions relating to the sufficiency of the pleadings are settled by 
 the statute. A complaint upon a note or bill, without alleging a col- 
 lateral agreement between the parties whose names are on the instru- 
 ment, seeking to recover against a person except as provided by the 
 statute, would clearly be demurrable. 
 
 The note of the Lenape Coal Company was payable to the plaintiff, 
 a third person, and the defendant, according to the provisions of said 
 section, is- liable to the plaintiff, the payee therein. No serious con- 
 tention has been made to the contrary. .The serious question Jorcon- 
 ^sideration arises from jthe fact that the bil!s^were"payabIeTo"the mak- 
 er and drawer, thereof, respectively, and the defendant, as an indorser 
 'therebiT'before delivery, is not under the statute prima facie liable 
 thereon to the plaintiff. Should parol evidence, have been allowed to 
 show the intent of the parties? We have not discovered any excep- 
 tion to the rule as established by the courts of this state allowing pa- 
 rol evidence as between the parties whose names appear on the bill or 
 note to determine their liability as between themselves. It is fre- 
 quently stated that where a note is payable to a person other than the 
 maker, and is indorsed by a third person before delivery, the intention 
 of the indorser is ambiguous and uncertain on the face of the paper, 
 and such uncertainty justifies the receipt of parol evidence to deter- 
 mine the true intention of the parties. We do not see that any greater 
 certainty exists upon the face of a bill as to the true intention of the 
 parties, where it is drawn to bearer cr to the order of the maker, and 
 it is indorsed by a third person after acceptance by the acceptor and 
 before delivery to the payee and maker. There is a certain rule of 
 presumption determined by common law or by statute, but the alleged 
 reason for the rule in either case is not very apparent. The long-es- 
 tablished rule to allow parol evidence that the intention of the parties 
 may prevail seems to have met with somewhat general approval, with- 
 
Ch. 5) EIGHTS OF HOLDER AGAINST INDORSEES AND DRAWER 895 
 
 out discussing specifically the principles upon which such evidence is 
 admitted. * * * 
 
 In Good V. Martin, 95 U. S. 90, 24 L. Ed. 341, the court say: "Con- 
 siderable diversity of decision, it must be admitted, is found in the re- 
 ported cases, where the record presents the case of a blank indorsement 
 by a third party, made before the instrument is indorsed by the payee 
 and before it is delivered to take effect; the question being whether 
 the party is to be deemed an original promisor, guarantor, or indorser. 
 Irreconcilable conflict exists in that regard; but there is one principle 
 upon the subject almost universally admitted by them all, and that is 
 that the interpretation of the contract ought in every case to be such 
 as will carry into effect the intention of the parties, and in most cases 
 it is admitted that proof of facts and circumstances which took place 
 at the time of the transaction are admissible to aid in the interpretation 
 of the language employed. * * ' * " 
 
 It must constantly be borne in mind that the acceptance of a bill 
 makes the acceptor the principal debtor. A bill, when accepted, be- 
 comes similar to a promissory note; the acceptor being the promisor, 
 and the drawer standing in the relation of an indorser. * * * There ' 
 is nothing in the negotiable instruments law to indicate an intention 
 on the part of the Legislature to change the rule as established in this 
 state relating to the receipt of parol evidence to determine the primary 
 liability as between the persons whose names appear upon the instru 
 ment or as between those secondarily liable thereon. * * * Parol 
 evidence is necessary to determine whether a party to an instrument, 
 including an indorser thereon, is an accommodation party, and also to 
 determine which other party to the instrument he had accommodated. 
 The plaintiff was the holder of the note for value, and the evidence 
 showed that the defendant was an accommodation indorser for the 
 benefit of the acceptor. The last subdivision of section 64, as we have 
 quoted, makes parol evidence necessary to establish whether the in- 
 dorser signed the instrument for th6 accommodation of the payee. 
 It is true that this section does not expressly state that, if the indors- 
 er signed for the accommodation of the acceptor, he is liable to all 
 parties subsequent to the acceptor; but the fact that such a provision 
 is not included in section 64 does not prevent the admission of parol 
 evidence to determine generally thp questions relating to an accommo- 
 dation party as provided by section 29. 
 
 The Negotiable Instruments L,aw by section 196 provides : "In any 
 case not provided for in this act the rules of the law merchant shall 
 govern." By section 68 of the Negotiable Instruments Law it is pro- 
 vided: "As respects one another, indorsers are liable prima facie in 
 the order in which they indorse; but evidence is admissible to show 
 that as between or among themselves they have agreed otherwise." As 
 we have seen, upon the acceptance of the bill the acceptor becomes the 
 principal debtor and the one primarily liable to pay the amount of the 
 bill, and all other parties to the instrument, including the maker and 
 indorser, are secondarily liable. We are of the opinion that the maker ^ 
 of the bill is in legal effect and within the intention of this section an 
 indorser, and that as between the plaintiff and the defendant parol evi- 
 dence is authorized to determine the liability as between them. 
 
 The articles of the Negotiable Instruments Law relating to the pres- 
 entation of bills and notes for payment and notice of dishonor * * * 
 further show an intention by the Legislature to leave the order of lia- 
 
896 NEGOTIABLE INSTRUMENTS (Part 3 
 
 bility among those whose names are on the instrument subject to de- 
 termination by any competent evidence. * * * 
 
 There is no reason that we can conceive why the Legislature should 
 intend to change the rule in regard to the admission of parol evidence 
 as it had existed in this state for many years. All of the quotations 
 that we have made from the negotiable instruments law show that it 
 has enlarged rather than restricted the rules allowing parol evidence 
 to show the true liability and relation of the parties whose names 
 appear upon the bill or note in all actions between themselves. It is 
 certainly very material to the' drawer of a bill whether an indorser 
 signs it at his request or at the request and for the benefit of the 
 acceptor. We do not think it was the intention of the Legislature by 
 the enactment of section 64 of the Negotiable Instruments Law to 
 establish a rule as to the liability of an irregular indorser conclusive on 
 the parties to the instrument as between themselves in an action where 
 the facts showing a different intention are fully alleged. All of the de- 
 cisions of our courts since the enactment of the negotiable instruments 
 law tend to sustain the views herein expressed. * ' * * 
 
 In Kohn v. Consolidated Butter^S: Egg Co., 30 Misc. Rep. 725, 63 
 N. Y. Supp. 265, McAdam, J., said: "That this is the proper inter- 
 pretation of the act is obvious. The true intention of indorsers as 
 between themselves can always be shown by oral evidence. * * * 
 To go further, and decide that the statute intended to create an in- 
 contestable liability against irregular indorsers, would be to impute to 
 the legislative wisdom a design repugnant to every notion of judicial 
 procedure, especially in a provision enacted in the interest of law re- 
 form." 
 
 The judgment should be affirrhed. * * * 
 
 . COOPER V. SOXK et al. 
 (Supreme Court of Michigan, 1918. 201 Mich. 6-55, 167 N. W. S42.) 
 
 Action by Arnold B. Cooper, doing business as A. & W. Cooper, 
 against Michael Sonk and others. To review judgment for plain- 
 tiff, defendants bring error. 
 
 KuHN, J. This action was brought in the justice's court for the 
 city of Detroit to recover from the defendants, as indorsers, the balance 
 claimed to be due on a certain promissory note, of which the following 
 is a copy : 
 $600.00 Detroit, Michigan, February 1, 1915. 
 
 "Six months after date we promise to pay to the order of A. and 
 W. Cooper six hundred dollars at the Wayne County & Home Sav- 
 ings Bank, Detroit, Michigan, for value received, with interest at six 
 per cent, per annum. 
 
 "[Signed] 
 
 St. Michael's Archangel Polish National Catholic Church 
 
 "M. Sonk. 
 "Victor Gorniak. 
 "A. Citorski." 
 
 On the back of the note appear the names of the said M. Sonk, 
 Victor Gorniak, and A. Citorski and also of the twelve other defend- 
 ants. The note was not paid at maturity and was duly protested. 
 Judgment for $500 was rendered in favor of plaintiff by the justice 
 
Ch. 5) EIGHTS OF HOLDER AGAINST INDORSBBS AND DRAWEE 897 
 
 of the peace, and on appeal the circuit judge directed a verdict in 
 plaintiff's favor for the same amount. 
 
 The note was given in renewal of a prior note which had been 
 accepted by the plaintiff in lieu of filing a lien against the church prop- 
 erty for materials furnished in the erection of said church. Mr. Gage 
 Cooper, plaintiff's manager, testified that when the settlement by note 
 was proposed, the representatives of the church agreed to have the 
 note indorsed by some men of financial responsibility ; that he looked 
 up the proposed indorsers, found they were all right, and took the_ 
 note with their indorsement. It is the claim of the defendants that 
 the note was the note of the church corporation solely ; that the names 
 appearing on the face and back of the note were the names of the 
 committee of the church and were signed by those persons as com- 
 mitteemen and not in their individual character ; and that the plaintiff 
 knew and understood this fact at the time the note was taken. Upon 
 the trial the defendants attempted to introduce testimony to sho\y these 
 facts, but the court, upon objection by plaintiff's counsel, refused to 
 admit it, on the ground that the unqualified signatures on the note 
 could not be explained or varied by parol evidence. Whether or not 
 the court erred in refusing to admit this testimony is the question 
 raised by the appellants' assignments of error. 
 
 [Court here quotes sections 63 and 64 of the Negotiable Instruments 
 Law.] 
 
 Mr. Bunker, in his work on Negotiable Instruments, in which he has 
 annotated this act, in a footnote to the last section above set forth, 
 in reviewing the decisions applicable thereto, says : "The statute seems 
 to fix absolutely the status of the irregular indorser and thus excludes 
 parol testimony to vary his liability. The only question of fact would 
 seem to be, Did the person 'not otherwise a party to the instrument,' 
 place his signature thereon 'before delivery' ?" 
 
 From the instrument here in question it appears that the indorse- ' 
 ments on the back of the note were unqualified, and in accordance 
 with the decisions of this court we are of the opinion that parol evi- j | 
 dence is not admissible to vary the terms of this negotiable instruments ' 
 As was recently said by Mr. Justice Steere in the case of Holland City 
 State Bank v. Meeuwsen, 192 Mich. 326, 158 N. W. 1032: "Under 
 the undisputed facts in this case, jiefendants'^ testimony along Jiose 
 lines, as the trial court ultimately held, was wholly incompetent, and but 
 an attempt to reduce this written instrument from an absolute, un- 
 qualified undertaking according to its written terms to a conditional, 
 defeasible agreement, by proof of a contemporaneous, oral contract. 
 The court properly rejected such evidence. * * * " 
 
 The- court ruled properly in rejecting the testimony in controversy. 
 The judgment is affirmed. 
 
 SHEA V. VAHEY et al. 
 (Supreme Judicial Court of Massachusetts, 1913. 215 Mass. 80, 102 N. E. 119.) 
 
 Action by John P. Shea against James H. Vahey and others. Judg- 
 ment for defendants, and plaintiff excepts. 
 
 RuGG, C. J. There was evidence from which it might have been 
 found that the plaintiff was simply the agent of one of the indorsers 
 B.& B.BUS.LAW— 57 
 
898 NEGOTIABLE INSTRUMENTS (Part 3 
 
 of the note in taking up the note after maturity and in bringing this 
 action. 
 
 ' The defendant was the first of the four indorsers upon the note. 
 The true relation as between themselves of parties liable on a note 
 may be shown by oral evidence in actions between them to determine 
 their respective obligations. It is only in the absence of proof to the 
 contrary that the law fixes the legal effect of their liabiUty on the in- 
 strument in accordance with the order of the signature. * * * 
 When an outside agreement is proved the rights of the parties as to 
 each other are fixed in accordance with its terms regardless of the 
 order in which the signatures appear on the note. * * * There 
 was ample evidence to support a finding that the indorsers, of whom 
 there were three at the outset, agreed before signing the original note 
 that they should share equally whatever they might be required to pay 
 on it, and that later when the wife of one of the three signed a re- 
 newal of the original note making four indorsers it was agreed that 
 the proportion of liability of the defendant should remain the same. 
 The jury as shown by the vftrdict believed that this agreement was 
 made. The plaintiff technically was not entitled to recover on the 
 note. The action should have been by the indorser who has paid 
 for contribution upon the oral agreement. * * * The rulings, were 
 sufficiently favorable to the plaintiff. 
 Exceptions overruled. 
 
 SECTION 5.— RIGHTS OF THE HOLDER AGAINST THE 
 RESTRICTIVE INDORSER 
 
 No section of the act deals expressly with the liability of a re- 
 strictive indorser to subsequent holders. Section 66, in terms, ap- 
 plies to "every indorser who indorses without qualification." A 
 restrictive indorser is not a qualified indorser, therefore it would 
 seem that the liability of the restrictive indorser is to be ascer- 
 tained from this section unless the relations existing between the 
 restrictive indorser and subsequent holders are of such a nature 
 as to prevent, by implication, the application of this section. It 
 will be recalled that section 36, in defining what shall constitute 
 a restrictive indorsement provides that "an indorsement is restric- 
 tive, which either (1) prohibits the further negotiation of the in- 
 strument; (2) constitutes the indorsee the agent of the indorser; 
 or (3) vests the title in trust for or to the use of some third per- 
 son." Section 27 deals with the rights of an indorsee under a re- 
 strictive indorsement, which are: (1) "To receive payment; (2) 
 to bring any action thereon that the indorser could bring; (3) 
 to transfer his rights as such indorsee, where the form of the in- 
 dorsement authorizes him to do so." It appears, therefore, that 
 section 37 does not impose any liability on the instrument upon the 
 restrictive indorser to subsequent indorsees. Taking these two 
 sections together it appears that every restrictive indorsement will 
 either (1) pass the title to the restrictive indorsee in trust for the 
 restrictive indorser or in trust for a third party. Where the re- 
 strictive indorsee holds the title in trust for the restrictive indorser 
 
Ch. 5) RIGHTS OF HOI.nEE AGAINST INDORSERS AND DRAWER 899 
 
 there is no reason for and it is virtually impossible to impose a 
 liability upon the restrictive indorser, the cestui que trust, to the 
 restrictive indorsee, the trustee. A contrary holding would, in 
 effect, render a party liable to himself. In such a situation as this 
 the restrictive indorser is the real beneficial owner, the indorsee 
 under the restrictive indorsement being invested with certain 
 rights and duties to be exercised and discharged for the benefit 
 of the restrictive indorser. 
 
 In the second case, where the restrictive indorser has passed 
 the title to the indorsee under the restrictive indorsement in trust 
 for a third person, the reason for not imposing a liability upon the 
 restrictive indorser disappears. The restrictive indorser has parted 
 with his entire interest. If the instrument had been negotiated 
 direct to the cestui que trust, clearly the indorser would have 
 been liable to him. It should make no difference that the indorser 
 passed the title to a trustee for such beneficial owner. The restric- 
 tive indorsee should, therefore, be able to charge the restrictive 
 indorser under section 66. This result would easily be reached 
 were it not for the language of section 37. Under this section the 
 indorsee is given the right to bring any action which the indorser 
 could bring. If this section means that the indorsee may bring 
 only those actions which the restrictive indorser could bring, then 
 the indorsee under the restrictive indorsement cannot hold the re- 
 strictive indorser liable. This would be unjust to the cestui where 
 the transfer was made for a consideration. While the section ap- 
 parently means that the- indorsee cannot sue the restrictive in- 
 dorser in any case, the courts are likely to avoid this result, even 
 though it involves a strained interpretation of section 37 (2), in the 
 case where the negotiation was to a restrictive indorsee in trust for 
 a third party. In all other cases any duty which the restrictive 
 indorser might owe to the restrictive indorsee would arise, not 
 from the law of negotiable instruments, but from the law of trusts 
 or agency or both. 
 
 SECTION 6.— RIGHTS OF THE HOLDER AGAINST THE 
 
 DRAWER 
 
 The liability of the drawer of a bill of exchange, like the liability 
 of an indorser upon his indorsement, is both a conditional and an 
 unconditional liability. The conditional does not arise until there 
 has been a due presentment upon the drawee, dishonor by the 
 drawer, and the notice of dishonor given to the drawer. Unlike 
 that of the indorser, the, dravverjnters_ijUo no warranties, although 
 he is estopped to deny the truth of certain facts. This liability is 
 unconditional. There are some differences between the liability of 
 the drawer of a check and the drawer of other bills of exchange. 
 The sections involved are as follows: 
 
 N. I. L. Section 61. The drawer by drawing the instrument ad- 
 mits the existence of the payee and his then capacity to indorse, 
 
900 NEGOTIABLE INSTRUMENTS (Part 3 
 
 and engages that on due presentment the instrument will be ac- 
 cepted or paid or both according to its tenor, and that if it be dis- 
 honored, and the necessary proceedings on dishonor be duly taken, 
 he will pay the amount thereof to the holder, or to any subsequent 
 indorser who may be compelled to pay it. But the drawer may 
 insert in the instrument an express stipulation negativing or lim- 
 iting his own liability to the holder. 
 
 N, I. L. Section 186. A check must be presented for payment 
 within a reasonable time after its issue or the drawer will be dis- 
 charged from liability thereon to the extent of the loss caused by 
 the delay. 
 
 N. I. L. Section 70. * * * Presentment for payment is nec- 
 essary in order to charge the drawer and indorsers. 
 
 N. I. L. Section 89. Except as herein otherwise provided, when 
 a negotiable instrument has been dishonored by non-acceptance or 
 non-payment notice of dishonor must be given to the drawer and 
 to each indorser and any drawer or indorset to whom such notice 
 is not given is discharged. 
 
 N, I. L. Section 188. Where the holder of a check procures it 
 to be accepted or certified, the drawer and all indorsers are dis- 
 charged from liability thereon. 
 
 The questions raised by the foregoing rsections involve more or 
 less the further questions as to what constitutes a due presentment 
 for payment and a due notice of dishonor. It is important to note 
 here: (1) That the only unconditional liability on the instrument 
 assumed by the drawer of a bill of. exchange, including checks, is 
 the admission of the existence of the payee and his capacity to in- 
 dorse. (2) The drawer of a bill of exchange, other than a check, 
 is absolutely discharged — (a) if there has been a failure to make a 
 due presentment for payment upon the drawee ; (b) or if after due 
 presentment there has been a failure to give due notice of dishonor 
 to the drawer. (3) The drawer of a check is not absolutely dis- 
 charged by failure of the holder to make a due presentment for 
 payment but is discharged only to the extent of the loss caused 
 by the delay. (4) But the drawer of a check is absolutely dis- 
 charged by a failure of the holder to give him due notice of dis- 
 honor. This last rule is unfortunate. Section 89 should be lim- 
 ited to drawers of bills of exchange other than checks, and section 
 186 ought to be amended so as to provide that a failure to give the 
 drawer of a check due notice of dishonor should discharge such 
 drawer only to the extent of the loss caused by the delay. 
 
 Cases illustrating the above sections are inserted in the next 
 chapter where the further question is involved : What constitutes 
 a due presentment for payment and the giving of due notice of 
 dishonor? Section 188 is illustrated by the case following. 
 
Ch. 5) RIGHTS OF HOLDER AGAINST INDORSERS AND DRAWER 901 
 
 TIMES SQUAEE AUT0M0BIIJ3 CO. v. RUTHERFORD NAT. BANK. 
 
 (Court of Errors and Appeals at New Jersey, 1909. 77 N. J. Law, 649, 
 73 AU. 479, 134 Am. St. Rep. 811.) 
 
 GuMMERE, C. J. One Purd y, being desirous of purchasing a sec- 
 ondhand automobile, empl oyed Milla rd_Ashton, an automobile sales- 
 ma n, to j issist him in making a prope fselection. ^ Ashton took him to 
 the salesroom of the^TimesSquare Automobile Company, and, after 
 looking over its stock, Purdy, with Ashtonls_j.£proyal^ selected a car, 
 the price of which was $600, and gave his check on the Rutherford 
 National Bank for the purchase price. JThecheckjvas drawn to the 
 order of As hton who indorsed it and deliveredlFt olhe manager oLlhe 
 ""a utoino5iIe~cbmpa ny. Immediately after receiving it, the automobile 
 company sent it by special messenger to the banking house of the Ruth- 
 erford National Bank with a request that it be certifie d. This request, 
 was complied with. Afterward, when the" check was presented for 
 payment, the bank refused to honor it, upon the ground that it had 
 received instructions from Purdy not to pay it. The automobile com- 
 pany thereupon brought suit against the bank on its contract of cer- 
 tification. The defendant admitted that it had certified the check, and 
 that it did so at the request of the plaintiff, the holder thereof, but 
 sought to justify its refusal to pay upon the ground that Purdy had" 
 been induced to purchase the car by false representations made by the 
 manager of the plaintiff as to its condition and value. It was contended 
 on behalf of the plaintifiP that this defense was not open to the de- 
 fendant. It was, however, admitted over its objection. At the close 
 of the case plaintiff asked for a direction of a verdict in his favor. 
 This request was refused, the case was sent to the jury, and a verdict 
 in favor of the defendant was rendered. The plaintiff now seeks a 
 reversal of the judgment entered upon that verdict, on the ground that 
 its request for a direction in its favor should have been complied with. 
 The effect of the certification of a check by the bank upon which 
 it is drawn depends upon whether it is done at the request of the 
 drawer or of the holder. When a check is presented bv the drawer 
 for certification, the bank knows that it has not yet been negotiated, 
 and that the drawer wishes the • obligation of the bank to pay it to 
 the holder, when it is negotiated, in addition to his own obligation. A 
 certification under such circumstances does not operate to discharge 
 the drawer (Minot v. Russ, 156 Mass. 460, 31 N. E. 489, 16 L. R. AT' 
 510, 32 Am. St. Rep. 472 * * *); and so long as the drawer re- 
 mains undischarged, such a defense as thaF'serup'rn'the present case 
 isTSperTboth to him and~fo the'bankT But when the certification by the 
 barik^is' done at" the reqiiest ""of~t he hold er,, the^effect is radically dif- 
 ferent The Transaction, then, is virtually this : The bank says : "That 
 check is good; we have the money of the drawer here ready to 
 pay it ; we will pay it now, if you will receive it." The holder says : 
 "No, I will not take the money now ; you may retain it for me until the 
 check is presented for payment." The bank replies: "Very well, we 
 will do so." First Nat. Bank of Jersey City v. Leach, 52 N. Y. 353, 
 11 Am. Rep. 708. SllS.iHH.''^ ^^ ^° discharge the drawer from any 
 furtherJ- iability_ _aP-the-db£ck, (Negotiable Instrument Act * * * ), 
 a.nd'to substitute a new contract between the holder and the bank 
 by the terms of which the money called for by the check is transferred 
 
902 NEGOTIABLE INSTRUMENTS (Part 3 
 
 frointhe„ accounts of the drawer to the account of the holder. In 
 'conteSiplation of law the obligation of fhe^'barilnroHrhe-lrorder, when 
 the certification is at his request, is the same as if the funds had been 
 actually paid oiit by the bank to him, by him redeposited to his own 
 credit, and a certificate of deposit issued to him therefor. * * * 
 
 The defendant, in refusing payment of Purdy's check, apparently 
 considered that its obligation to the holder was no greater than if its 
 certification had been made at Purdy's request. It failed to realize that 
 its act operated as a payment of the check, so far as Purdy was con- 
 cerned, and transferred the moneys which it called for to the account 
 of the plaintiff. The situation was the same, so far as the defendant 
 was concerned, as if Purdy had paid cash to the plaintiff for the car 
 which he had purchased, and the plaintiff had then deposited the cash 
 in the defendant's bank. Having accepted the plaintiff's money, and 
 issued to him a certificate of deposit therefor, it did not concern the 
 defendant from whom, or how, or under what circumstances the money 
 had been obtained. Its contract required it to pay the amount of the 
 deposit to the plaintiff or its order, and it could not avoid its obliga- 
 tion to do so by showing that the plaintiff had fraudulently obtained 
 the money which it had deposited with the defendant. 
 
 The defense interposed should have been overruled, and a verdict 
 directed for the plaintiff. The judgment under review will be reversed. 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 903 
 
 ' CHAPTER VI 
 
 PRESENTMENT. NOTICES OF DISHONOR. 
 AND PROTEST 
 
 Section 
 
 1. Introduction. 
 
 2. Time of Presentment for Payment of Demand Notes. 
 
 3. Time of Presentment for Payment of Demand Bills of Exchange, tn 
 
 Order to Charge the Drawer and Indorsers, Drawers of Checks Ex- 
 cepted. 
 
 4. Time of Presentment of Checks in Order to Charge the Drawer. 
 
 5. Time of Presentment of Instruments Bearing a Fixed Maturity. 
 
 6. Other Aspects of a Due Presentment for Payment. 
 
 7. Presentment for Acceptance. 
 
 8. Notice of Dishonor. 
 
 9. Protest. 
 
 SECTION 1.— INTRODUCTION 
 
 It appears from the preceding chapter that a part of the liability 
 of the drawer of a bill of exchange and the indorsers of bills of 
 exchange and notes is a, conditional liability. Their duty to pay 
 the holder does not arise until the fulfillment of certain conditions 
 precedent; i. e., due presentment for payment, the fact of dishonor, 
 the giving of due notice of dishonor, and, in the case of foreign 
 bills, of protest. This chapter is devoted to the consideration of 
 the question: What constitutes a fulfillment of these conditions 
 precedent to the liability of secondary parties to the holder? 
 
 SECTION 2.— TIME OF PRESENTMENT FOR PAYMENT 
 OF DEMAND NOTES 
 
 At what time must the holder of a demand note present the 
 same to the maker for payment in order to be able to hold the in- 
 dorsers thereon in the event of its dishonor? 
 
 N. I. L. Section 71. Where the instrument is not payable on 
 demand presentment must be made on the day it falls due. Where 
 it is payable on demand presentment must be made within a rea- 
 sonable time after issue, except that in the case of a bill of ex- 
 change, presentment will be sufficient if made within a reasonable 
 time after the last negotiation thereof. 
 
 We are interested here only in the first clause of the second sen- 
 tence. In view of the fact that the last clause deals with bills of 
 exchange, the word "it" in the first clause refers only to notes. 
 Therefore, a demand note must be presented within a reasonable 
 time after issue. What is a reasonable time? 
 
 N. I. L. Section 193, provides : In determining what is a "reason- 
 able time" or an "unreasonable time" regard is to be had to the na- 
 ture of the instrument, the usage of trade or business (if any) with 
 
904 NEGOTIABLE INSTRUMENTS (Part 3. 
 
 respect to such instruments, and the facts of the particular case. 
 
 We have already made use of this section in another connection. 
 We had a similar problem raised in regard to the time within which 
 a holder must have acquired the demand note in order to, be a holder 
 in due course, and we found that it was possible for him to purchase 
 several months after issue and be a holder in due course; that is, 
 he would be in such a position that he could hold the maker free 
 from all personal defenses. But that question must not be con- 
 fused with the present question. There the holder was seeking to 
 obtain certain rights against the maker; here the holder has al- 
 ready abandoned his rights against the maker and is seeking to 
 hold indorsers. Is the period of time any different? If a person 
 bought a demand note six months after issue and if at that time he 
 made due presentment and gave due notice of dishonor, would he 
 be able to hold indorsers in the event that his judgment against 
 the maker proved fruitless? Probably so. The courts seem to treat 
 these two periods of time in the same way. Generally speaking, 
 if a holder acquired title of a demand note within such time from 
 date of issue that he would be a holder in due course, if he then 
 makes due presentment and gives due notice of dishonor he would 
 be able to hold indorsers. However, it should be noted that the 
 two questions are essentially different; and it is altogether possi- 
 ble that the usage of trade or the facts of the particular case or 
 both may indicate one period of time within which one must pur- 
 chase in order to be a holder in due course, and a different period 
 of time within which a due presentment must be made upon the 
 maker in order to preserve the liability of indorsers. Important 
 evidence bearing on the question what constitutes "reasonable 
 time" will be the banking custom in the community. It has even 
 been held that evidence that the banks held paper for more than 
 a year before presenting was admissible on the issue of reasonable 
 time. 
 
 SECTION 3.— TIME OF PRESENTMENT FOR PAYMENT 
 OF DEMAND BILLS OF EXCHANGE, IN ORDER TO 
 CHARGE THE DRAWER AND INDORSERS, DRAWERS 
 OF CHECKS EXCEPTED 
 
 On a negotiable note, only the indorsers are under a conditional 
 liability. On a bill of exchange, there are two classes of secondary 
 parties — the drawer and the general indorsers. Therefore, in this 
 section, our question is: Within what period of time, and from 
 what fixed event, must a demand bill of exchange be presented to 
 the drawee, or acceptor, in order to preserve the liability of the 
 drawer and the indorsers to the holder? 
 
 N. I. L. Section 71. Where the instrument is not payable on 
 demand, presentment must be made on the day it falls due. Where 
 it is payable on demand, presentment must be made within a rea- 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 905 
 
 sonable time after its issue, except that in the case of a bill of ex- 
 change, presentment for payment will be sufficient if made within 
 a reasonable time after the last negotiation thereof. 
 
 It appears, therefore, that, in order for the holder of a sight bill 
 of exchange to preserve the liability of the drawer and of the in- 
 dorsers, the holder must present the instrument for payment to 
 the drawee, within a reasonable time from the last negotiation. 
 The period begins to run from the act of the last negotiation and 
 not from the date of issue, as is the case of demand notes. It 
 makes this striking diiiference: That, in the case of a note, the 
 liability of indorsers cannot be preserved for more than a few 
 months, possibly a year, but usually the liability of indorsers will 
 cease to exist unless presentment for payment has been made 
 upon the maker within a period less than a year from the date of 
 issue of the note. But in case of a bill of exchange the liability of 
 the drawer and of the unqualified indorsers thereon may be pre- 
 served for the full period allowed by the statute of limitations. 
 The statute of limitations will begin to run from the date on which 
 each first assumed liability on the instrument. This period varies 
 in the several states. We have yet to consider how many da}'s, 
 weeks, or months may elapse after the date of the last negotiation 
 before the reasonable time expires ; but, assuming that the present 
 holder presents the instrument upon the drawee within a reasona- 
 ble time after the last negotiation, it is possible that the date of 
 this last negotiation may have been many years after the issue of 
 the bill. It is then necessary only that presentment must have 
 been made within such time that actions may be commenced 
 against the drawer and indorsers within the period allowed by the 
 statute of limitations. 
 
 How many days, weeks or months, after the last negotiation, 
 may elapse before the reasonable time expires? It will be a rela- 
 tively short period, measured in days, possibly weeks, in some 
 cases, but not in months. The period will be shorter than is al- 
 lowed a holder of a demand note where he may have from one 
 month, to a year or perhaps a few months in addition. A reason- 
 able time from the last negotiation should be not more than a 
 few weeks. However, from a practical standpoint, delay will not 
 materially affect the holder, for, so long as he is within the period 
 prescribed by the statute of limitations, he may negotiate the 
 instrument to another party. What formerly was the last negotia- 
 tion has now been superseded by another negotiation, which is 
 now the last one. . On this point it is possible for the courts to hold 
 that a negotiation made for the sole purpose of reviving the lia- 
 bility of the drawer and indorsers constitutes fraud and that there- 
 fore the negotiation would fail to have the effect of reviving lia- 
 bility of the drawer and indorsers. This point has not been de- 
 cided. 
 
 The section which we are now considering changed the law from 
 what it was before the act. Before the act, the liability of the 
 
906 NEGOTIABLE INSTRUMENTS (Part 3 
 
 drawer could be preserved only for a reasonable time after he 
 issued the bill. Each indorser was held liable for an equal, but 
 not the same, period of time. Each indorser would be liable for a 
 reasonable time, which period of time began to run from the date 
 on which his liability first arose. Accordingly the liability of the 
 drawer would first expire, then that of the first indorser and so on. 
 But under section 71 of the Negotiable Instruments Law, the lia- 
 bility of the drawer and of all indorsers may be continued simul- 
 taneously for the full period of limitations. Of course, this change 
 in the law is greatly to the advantage of the holder ; but, as 
 soon as the holder ceases to be such and becomes an indorser, it 
 works against him. He then has outstanding a conditional liabil- 
 ity which will not die for the full period of limitation, five, ten or 
 fifteen years, as the case may be. It has been vigorously argued 
 that to compel an indorser to keep account on his books of all out- 
 standing conditional liabilities on bills of exchange which passed 
 through his hands for so long a time is unjust. So far, the sec- 
 tion has not caused wide dissatisfaction, for the reason perhaps 
 that for purely business reasons demand bills of exchange are forced 
 through to an early presentment, and payment, or in the event 
 of dishonor, to an early suit against secondary parties. 
 
 COLUMBIAN BANKING CO. v. BOWEN. 
 (Supreme Court of Wisconsin, 1908. 134 Wis. 218, 114 N. W. 451.) 
 
 Action by the Columbian Banking Company against John Bowen. 
 From a judgment for plaintifit', defendant appeals. 
 
 June 10, 1903, the banking firm known as the Farmers' & Mer- 
 chants' Bank, of Bangor, Wis., sold to the defendant a $400 draft, 
 ■ drawn in the usual form, dated on that day, payable to defendant's or- 
 der, and drawn by such firm on the National Bank of North America, 
 at Chicago, 111. The draft was sent to the defendant at Barron, Wjs., 
 and was indorsed by him to A. R. Tabbert, to whom, it was forwarded 
 by mail, at Spokane, Wash., June 16, 1903, and was there received by 
 him June 20th thereafter. He was at Spokane temporarily and was on 
 his way to the city of San Francisco, Cal. July 14, 1903, he indorsed 
 the draft and sold the same to the plaintiff at such city, receiving $400 
 therefor. On that day, in due course, plaintiff sent the draft by mail 
 to the Bankers' National Bank, of Chicago, 111., by which it was re- 
 ceived July 18th thereafter, and was then, as requested, duly pre- 
 sented to the drawee for payment, which was refused, whereupon it 
 was duly protested for nonpayment by a duly authorized notary public, 
 who forwarded a manifest thereof with notices of protest for A. R., 
 Tabbert, the plaintiff and the defendant, to the plaintiff at San Fran- 
 cisco, Cal., and also sent due notice to the National Bank of North 
 America at Chicago, 111., and to the drawer at Bangor, Wis., July 19, 
 1903. Plaintiff upon receipt of the manifest and notices duly sent the 
 one for defendant to him at Barron, Wis., by whom it was duly re- 
 ceived, and sent the one for Tabbert by mail to his post-office address 
 and reputed place of residence, that being San Francisco, Cal. There- 
 after due demand was made on defendant for payment of the draft, 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AXD PROTEST 907 
 
 and the same was refused. July 28, 1903, the property of the drawer 
 was placed in the possession of a receiver, who duly. paid upon the 
 draft $144. 49, January 6, 1904, $61. 93, May 20tli thereafter, and $30.- 
 96, June 5th following. PlaintiflE was the owner of the draft at the time 
 of the commencement of the action, and at the time of the trial thereof 
 there was due thereon $210. 
 
 The pleadings presented issues for decision involving facts as above 
 detailed. The case was tried by the court resulting in findings of fact 
 in accordance with the statement, and a conclusion of law that plain- 
 tiff became the owner of the draft in due course, and was entitled to 
 judgment for $210, with costs. Judgment was accordingly rendered. 
 
 Marshall, J. (after stating the facts as above). Counsel for ap- 
 pellant have presented quite an extended argument, referring to many 
 authorities, as to the law antedating and independently of the negotiable 
 instrument statute * * * ^q support the proposition, that appellant 
 was released from Uability on the instrument in question, because of 
 the period intervening between his parting therewith and the presenta- 
 tion thereof to the drawee for payment. Such statute was enacted 
 for the purpose of furnishing, in itself, a certain guide for the de- 
 termination of all questions covered thereby relating to commercial 
 paper, and, therefore, so far as it speaks without ambiguity as to any 
 such question, reference to case law as it existed prior to the enactment, 
 is unnecessary and is liable to be misleading. 
 
 The negotiable instrument law is not merely a legislative codification 
 of judicial rules previously existing in this state making that written 
 law, which was before unwritten. It is, so far as it goes, an incorpo- 
 ration into written law of the common law of the state, so to speak, 
 the law merchant generally as recognized here, with such changes or 
 modifications and additions as to make a system harmonizing, so far 
 as practicable, with that prevailing in other states. That it contains 
 some quite material changes in previous rules governing commercial 
 pqper we have had occasion heretofore to point out. * * * 
 
 The primary question discussed by appellant's counsel, it is believed 
 is fully covered by the negotiable instrument law. There are a mul- 
 titude of decisions regarding the character of a bill of exchange and 
 that of a check, as those terms are used in business transactions, and to 
 what extent the incidents of one are identical with those of the other, 
 which decisions are so variant in their. phrasing of the matter as to 
 produce more or less confusion in respect thereto "with many apparent, 
 and some real, conflicts, to remedy which was one of the principal 
 objects of the law. To that end it was provided * * * in section 
 185, "A check is a bill of exchange drawn on a bank, payable on 
 demand."' 
 
 As to whether the incidents of the species of bills of exchange last 
 mentioned are the same as those of bills of exchange generally, it 
 was further provided in the section last referred to, "Except as here- 
 in otherwise provided, the provisions of this act applicable to a bill of 
 exchange payable on demand apply to a check." The only exception 
 referred to material to this case is contained in section 186, in these 
 words: "A check must be presented for payment within a reason- ^ 
 able time after its issue or the drawer will be discharged from lia- j 
 bility thereon to the extent of the loss caused by the delay." 
 
 Keeping in mind that the discharge from liability above referred to 
 because of unreasonable delay after the issuance of a check in present-. 
 
/ 
 
 908 NEGOTIABLE INSTRUMENTS (Part 3 
 
 ing it for payment, is of the drawer only, and that this action is against 
 the payee who indorsed the instrument in question without qualifi- 
 cation and put it in circulation, we turn to section 71, which pro^ 
 vides, as to a bill of exchange payable on demand, which from the 
 foregoing obviously includes a check or draft on a bank of the charac- 
 ter of the one in question, "presentment for payment will be sufficient 
 if made within a reasonable time after the last negotiation thereof." 
 Prom the foregoing it seems plain that as regards the payee of such 
 an instrument as we have here, who puts the same in circulation with 
 his unqualified indorsement thereon, and all subsequent parties there- 
 to so indorsing the same, presentment for payment is sufficient, as 
 regards their liability, if made within a reasonable time after the last 
 negotiation. A bill of exchange payable on demand, regardless of its 
 character, put in circulation, so long as its circulating character is 
 preserved may be outstanding without impairing the liability of in- 
 dorsers thereof. Formerly the length of time within, which a bill of 
 exchange might circulate without impairing such liability was more 
 or less uncertain, rendering it very difficult to determine any one case 
 by the decision in another. That difficu lty wa sj^gmoyed , so far as 
 practicable, by the provision that onlyTKe time need be considered in- 
 teryeningTietween the last negotiation ^d— the" presenfment. "That is 
 
 •recognized as a radical change in the law as it formerly existed. 
 * * * 
 
 As to an ordinary bill of exchange put in circulation, it was quite an- 
 ciently held that the period between July 18th of one year and January 
 16th of the next year was not necessarily unreasonable. * * * Per- 
 haps one might now keep a bill of exchange for such length of time as 
 to destroy its circulating character notwithstanding he ultimately 
 passed it along to another person, but that situation, as we view the 
 case, does not exist here. 
 
 Applying the law as aforesaid to the facts of this case it is readily 
 seen that the delay in presenting the paper for payment between its 
 date and the negotiation to the bank at San Francisco is immaterial. 
 Appellant unqualifiedly indorsed the paper and put it in circulation by 
 sending it to Tabbert at a distant part of the country, probably knowing 
 that he was a traveler. Tabbert received the paper while journeying 
 with the intention of going to San Francisco and held it till he arrived 
 there and then negotiated it. .It was promptly presented for payment 
 thereafter and so in time, as regards that circumstance, to preserve 
 the liability of appellant. 
 
 The court decided, as indicated, that Tabbert was a trjiveler with 
 San Francisco as his destination and properly held that such circum- 
 stance sufficiently explained, if any explanation were necessary, the 
 lapse of time between his reception of the paper and his negotiation 
 thereof, preserving its circulating character and warranting the finding 
 that the respondent came thereby in due course. 
 
 The point is made that the instrument was not presented to the 
 drawee for payment during banking hours. The negotiable instrument 
 law at section 72 provides that "Presentment for payment to be 
 sufficient, must be made: * * * at a reasonable hour on a busi- 
 ness day. * * *" The evidence shows that the paper, after taking 
 its course through the clearing house, was presented to the drawee for 
 payment on the afternoon of the same day between the hours of 3 and 
 6 o'clock. The proof is to the effect that such was the customary 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 909 
 
 way of doing such business in Chicago, where the drawee was located. 
 That is, as we understand it, that the business day of the bank con- 
 tinued after the closing of the clearing house transactions so as to 
 enable banks holding paper for collection, refused recognition in such 
 transactions, to be presented for payment as was done in this case. 
 That satisfies the statute. What constitutes business hours of a bank, 
 within the meaning of the statute, has reference to the general cus- 
 tom at the place of the particular transaction in question. In case of 
 a transaction occurring in a foreign jurisdiction, as in the instance 
 in question, the court cannot take judicial notice of what constitutes 
 reasonable hours on a business day. * * * It is a matter of proof, 
 though in case of the notarial certificate of the transaction, as here, 
 being regular so as to furnish prima facie proof that the paper was 
 duly presented for payment, that raises the presumption that the pre- 
 sentment was made at a proper time. * * * 
 Judgment affirmed. 
 
 AEBI V. BANK OF EVANSVII/LE. 
 
 (Supreme Court of Wisconsin, 1905. 124 Wis. 73, 102 N. W. 329, 
 68 L. E. A. 964, 109 Am. St. Eep. 925.) 
 
 Action by Albert Aebi against the Bank of Evansville. From a 
 judgment for plaintiff, defendant appeals. 
 
 Plaintiff, a farmer, residing about five miles from Evansville, kept 
 account in defendant bank. It was accustomed to receive checks pay- 
 able to his order upon the faith of his indorsement, and credit them 
 to him as cash, and collect them without charge, and in a case of dis- 
 honor to charge the checks back to him on his account. On Septem- 
 ber 14, 1901, plaintiffreceived a dieck dated August 31, 1901, from 
 oji£2geicJua!jcE£eie~dialer at^Brodhead, upon the bank at that city, 17 
 miles distant from Evansville, with daily mail between these places. 
 This check, on Sept ember 21st, he in dorsed and deposited with _ the- 
 bank, and was g iven credit _ f or it as cash. The defen3ant on the 
 same day mSiled^t to the Brodhead^ank for payment and remittance ; 
 heard nothing from it, and gave no further attention to it for about 
 10 days, when a card of inquiry was sent, to which no reply was re- 
 ceived. After waiting several days longer, defendant cashier tele- 
 phoned to the Brodhead Bank, and learned that no such check had been 
 received, and waited still several days, and telephoned again, receiv- , 
 ing the same information. It was proposed that the Brodhead cashier 
 ask Speich for a duplicate. J^otjuntil October 19th did d efenda nt noti- 
 fy the plaintiff jthatihe_ch eck~was not p aidT Then the aFsistant"cashier 
 askedTum to'apply to Speich tor a duplicate, which he consented to do 
 when opportunity presented. He a.coiidingl y saw Speich on the 21st 
 of October, who wrote out a duplicate check, payable to plaintiff, dat- 
 ed same as former, marked" "Duplicate,"^ and with notation, "Original 
 not payable," and mailed it to defendant. On the following day the 
 defendant wrote to plaintiff "to call and sign check when in town." On 
 October 25th he called, and, at the request of the defendant, wrote his 
 name on the back of the duplicate check. The check was then sent to 
 the Brodhead Bank, reaching there October 26th, and was refused, 
 Speich having about that time absconded, leaving a bank balance of 
 about $400, which was absorbed by the Brodhead Bank by charging 
 up a note to him. During the time from September 21st to October 
 
910 NEGOTIABLE INSTRUMENTS , (Part S 
 
 26th Speich persistently had a balance at the Brpdhead Bank except 
 for a day or two, when there was a few dollars overdraft, and_ seems 
 to have been in good credit in that bank, for they discounted his note 
 on one or more occasions. 
 
 Dodge, J. * * * We have no doubt of the correctness of the 
 court's finding, of fact that by the general indorsement of the check, 
 in question its acceptance by the bank, and the- credit of the amount 
 as cash' to the, plaintiff in his general account to be checked against as 
 he saw fit, -with nothing to qualify the effect of such acts,^^the^bank 
 became the^wner of the check, as distinguished from a mereagenTto 
 
 "conecTBirsame on behalf of the plaintiff. All of the acts above, recit-. 
 ed prima facie indicate the discount and completed transfer of the. 
 check. * * * Only by clear evidence could a contrary significance 
 he accorded them. There is no such evidence sufficient to constitute a 
 clear preponderance such as would be tlecessary to warrant us in dis- 
 agreeing with this finding. Such being Jhe transaction, the right of 
 the defendant to charge baclTlKeTOTouht of tfiis""cHeck~"Sr~tD-aJtlect 
 from T:he plaintiff, is. pniy that resulting frqrn the relation of" ifidor see 
 and indofser. The rules governing that relation are' familiar, and 
 largelyniow~codified in our Negotiable Instrument Law of 1899, p. 
 681, c. 356. In order to charge indorser upon a check or inland bill 
 
 ' of exchange payable on demand, presentment must be made by the 
 holder within a reasonable time after it comes to his .possession. * * * 
 Such reasonable time is. not, fixed by statute, but by consensus of au- 
 thority, in absence of special circumstances of excuse. isJ imited to the 
 nextbusiness day, or, if the bank upon which the check is drawn is at 
 "another pl^s. the check m ust be forward ed to the place of payment 
 op' th.ernext business dayT'and presented at latest lipon the day follow- 
 ing its receipt at the place of payment. * * * The check in ques- 
 tioii never was presented for payment until October 25th or 26th, and 
 clearly, by such delay, the indorser was discharged, unless such delay 
 was excused. The_onlyexcuse^ilgggsted isjthe loss of the check. If 
 it be conceded that the defendant was guiTtyof no negligence in adopt- 
 ing the United States mails as' a method of transmission, nor in sending, 
 the check direct to the bank upon which it was drawn, thus takirig 
 chances, of- acqi^iring prompt knowledge whether it was ho'nored or dis- 
 hpr^drecl vwhen it reached the payee, nevertheless it is excused from 
 
 ^giking presentment and deinand taly~ss~lDiig~as7"consiiteffEly~with 
 
 vjeaswlable diligeiK:e,"'1t"was prevented by the lossbf the check. * * * 
 It would seem extremely doubtful whether defendant could claim, in 
 the exercise of due care, to have been so prevented even during the 
 10 days which it waited after mailing the check before making any 
 inquiry about it and before learning of its loss. By ordinary course 
 of mail the check should have reached the Brodhead Bank as early as 
 the 23d, and, unless there was some difficulty, plaintiff should have 
 been notified of its payment or refusal at least as early as the 24th 
 of September., We shall not deem it necessary to decide whether it 
 was not the duty of the defendant to make inquiry immediately upon 
 failure to receive such notification in such ordinary course of mail. 
 Even if that were not so, it did receive notice of the failure of the 
 check to reach its destination some time about the 1st of October. 
 Upon learning that its attempted presentment by mail had failed, and 
 that the, check was lost, at least for the purposes of immediate' pre- 
 sentment, and demand by means of a copy or, sufficient description of 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 911 
 
 the check, and in case of nonpayment to give notice to the indorser. 
 * * * . Surely reasonable diligence would have enabled presentation 
 long before October 19th. While the effect of the failure to present 
 for payment and to give notice of dishonor writhin a reasonable time 
 absolutely discharges the indorser without proof of damage or injury 
 to-him, it may be pointed out that in this case damage is quite obvious. 
 
 Judgment affirmed. 
 
 PLOVER SAVINGS BANK v. MOODIB. 
 (Supreme Ck)urt of Iowa, 1906. 135 Iowa, 685, 110 N. W. 29.) 
 
 Weaver, J. On March 8, 1903, one C. F. Scholer, who was a de- 
 positor in the Greenville Bank, doing a banking business at Greenville, 
 Clay county, Iowa, made and delivered to one Claude Heathman his 
 check on said bank payable to the order of said Heathman for the sum 
 of $50; and thereafter, on March 12, 1903, said Scholer made and de- 
 livered to said Heathman another similar check on the same bank for 
 the further sum of $50. On or about the last-mentioned date Heath- 
 man indorsed and delivered both checks to the appellant. On Friday, 
 March 13, 1903, near the close of business hours, the appellant indors- 
 ed and delivered the checks to the appellee bank which was doing 
 business at Plover, in Pocahontas county, Iowa, and received in ex- 
 change therefor a certificate of deposit for $100 which was afterward 
 paid. While the towns of Plover and Greenville are but 45 miles apart 
 they are on different lines of railway, and the course of the mails be- 
 tween them is quite indirect, and had the appellee forwarded the checks 
 by letter to the Greenville Bank on Saturday they would probably not 
 have reached their destination until after banking hours on Monday, 
 March 16th. Instead of sending them direct to Greenville, the appel^ 
 lee, following its customary method in such matters, sent the checks / 
 to its correspondent, the Des Moines Savings Bank at Des Moines J 
 Iowa, by the first mail in that direction on Saturday, March 14thj| 
 On Monday, March 16th, the Des Moines Savings Bank forwarded thej 
 checks to their correspondent the Citizens' State Bank at Spencer, Clay, 
 county, Iowa, where they were received on March 17th. On the samel 
 day the Citizens' State Bank turned the checks over to the Citizens' 
 National Bank of Spencer, which was the local correspondent of the I 
 Greenville Bank. On the following day, March 18th, the Citizens' Na- \ 
 tional Bank forwarded them direct to the Greenville Bank. The daily 
 mail from Spencer to Greenville does not leave until some time in the 
 afternoon, and if the checks reached Greenville on March 18th, as 
 they doubtless did,' it was after banking hours, and were not received 
 by the bank until the morning of March 19tk Prioir to this date, prob- 
 ably abo«tJilardl_lfit]x£rl2th,_jhedr9.werh^ stopped payment on 
 iherchecks claiming that they had been procured from himbyTraud, 
 and acting upon this notice the Greenville Bank on March 19th declin- 
 ed to honor them, and caused them to be duly protested. 
 
 Thereupon, the appellee i nstituted thi s actic«i'1it law to recover up- 
 on the appellant's ind orseniMirofTtTe "cKeclts. Tlie appellant answered 
 denying liability upon said indorsement because of appellee's alleged 
 negligence in presenting the checks for payment. Other defenses 
 pleaded are not urged in argument, and we need not consider them. 
 In addition to these matters it was also shown in evidence, without 
 
912 NEGOTIABLE INSTRUMENTS (Part 3 
 
 substantial dispute, that the method adopted by appellee and by th? 
 several correspondents mentioned in iorwax^^ the paper for presen- 
 tation and demand of payment was in~accoi^ ijice with the,i: aifeiaLcus- 
 to m prevailing amo ng banks in dealing witTrcEeclcs~3rawn on other 
 TfanRs not doing TousTnessTn the same city or town, and cashed by the 
 receiving bank. No evidence was oflfered tending to show that either 
 of the banks, receiving these checks after their indorsement by ap- 
 pellant, failed to forward them on their way on the day of the receipt 
 or on "the following day, except possibly in the case of the Des Moines 
 Savings Bank, and the day there intervening, if any, was Sunday. 
 At the close of the testimony offered on the trial, the cour t_ sustained 
 a moti ^ to direct a v erdktjor the plaintiff for the amouht~ofTHe 
 checks witETnterest, and'from"the judgment entered on such directed 
 verdict the defendant appeals. 
 
 The single question to be determined is whether this record pre- 
 sents a case in which a verdict f^'- the defendant, if one had been re- 
 turned, could properly be permitted to stand. Counsel's contention in 
 support of the appellant's position is based upon two propositions. 
 ""It is said that in failing to forward the checks by the most direct 
 route from Plover to Greenville, and by electing to send them by a 
 more circuitous route through the hands of correspondent banks, ap- 
 pellee occasioned an unreasonable delay in the presentation of the 
 checks to the drawee for payment, and thereby discharged the appel- 
 lant from liability as an indorser thereon. By the terms of the nego- 
 tiable instrument statute a bank check, in the ordinary form, is classed 
 as a bill of exchange payable on demand. * * * By the same stat- 
 ute it is provided that to charge the indorser of a bill of exchange pay- 
 able on demand, presentation to the drawee and demand of payment 
 shall be deemed sufficient if made within a reasonable time after its 
 issue, or after the last negotiation of such bill. * * * It is also fur- 
 ther provided that, in determining what is a "reasonable time" within 
 the meaning of this act, regard must be had to the nature of the instru- 
 ment, the usage of the trade or business, if any, with respect to such 
 instruments, and the facts of the particular case. * * * Contrary 
 to the requirement for notice to the indorser of the dishonor of a check 
 OT bill upon presentation for payment * * * the holder of the in- 
 dorsed paper is not held to any fixed or invariable limit of time in 
 which to make such presentment and demand. He is required to act 
 with reasonable diligence and promptitude taking into consideration the 
 nature of the instrument, the usages of the business world and the 
 peculiar facts, if any, attending the particular transaction in hand. 
 
 With this rule as our standard, we are clearly of the opinion that 
 the record presents nothing to support a finding that the delay, if any, 
 in presenting the checks for payment was chargeable to negligence on 
 part of the appellee. It was shown by the evidence without contro- 
 versy — indeed, it is a matter oT common knowledge — that, by the sys- 
 tem to which the handling of such business has been reduced, the in- 
 numerable checks and.ljills received by the banks scattered all over the 
 country flow in concentrating currents to distributing banks, whence 
 they go out to correspondent banks at or near the city or town where 
 the drawee banks are located, for collection. To hold that the time 
 between the issue of a check upon a distant bank and its presentation 
 for payment by this method is unreasonable, and serves to discharge 
 the indorser, would not only tend to create disastrous confusion in this 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 913 
 
 most important branch of business, but to a disregard of the statute 
 whicli makes the usage in such business one of the standards by which 
 the reasonableness of the time of presentation for payment is to be 
 determined. Again, as disclosed by the testimony, the transaction 
 under consideration was not a simple matter of collecting checks de- 
 posited with the appellee for that purpose. The checks were negotiated 
 by the appellant to the appellee who paid full value therefor. The 
 appellee indorsed the checks to the Des Moines Savings Bank, receiv- 
 ing credit upon its deposit account with the latter for the full amount 
 as for a deposit of so much cash. In other words, the checks were 
 negotiated by the appellee to the Des Moines Savings Bank, and under 
 the statute already quoted * * * reasonable time for presentation 
 and demand is to be reckoned from the last negotiation of the paper. 
 Checks are an almost universal substitute for money. They pass from 
 hand to hand, bank to bank, and city to city, and, within reasonable 
 limits, it may be said that no matter how long they remain outstand- 
 ing, so long;_ as _one neggdation jromgtlyf ollows another and the 
 che^ks-afem fact in circulation the statute requires us to hold that the 
 indorsieFis hot legally prejudiced by the corisequerif delay in their pres- 
 entatiofi" for payment. Indeed, while at common law it is generally 
 held that when one receives a check payable at a distant bank reason- 
 able diligence requires him to forward it for presentation not later 
 than the next business day thereafter, yet it is equally well settled 
 that this rule is not always one of imperative obligation, but is at times 
 made to give way by reason of circumstances which sufficiently rebut 
 any presumption or inference of negligence on part of the holder. 
 * * * And, among other circumstances having a bearing upon this 
 question, the general course of business has always been recognized 
 as important. * * * Thus, even without the statute it would be ex- 
 tremely doubtful whether a verdict for the appellant upon the ground 
 here contended for could be upheld; and with it, we think, the cor- 
 rectness of the ruling of the trial court thereon is not open to serious 
 question. 
 
 It is next insisted that the act of the Citizens' National Bank o£ 
 Spencer in sending the checks direct to the bank on which they were 
 drawn instead of some suitable third person to present the same at the 
 counter of the bank, and demand payipent thereon, was negligent as a 
 matter of law, and discharged the mdorser. In support of this con- , 
 tention we are cited to Sash & Door Co. v. Bank, 76 Minn. 136, 78 N. 
 W. 980, 44 L. R. A. 504, 77 Am. St. Rep. 609; Scraper Co. v. Sadilek. 
 50 Neb. 105, 69 N. W. 765, 61 Am. St. Rep. 55, and other cases of 
 like import. We have no doubt of the correctness of the precedents 
 referred to, and we shall not hesitate to follow them in a proper case. 
 The substance of the rule of these cases is that where the holder of a 
 check or bill upon a distant bank places it in the hands of another bank 
 for collection, and the latter sends the check direct to the hands of the 
 bank which is under the duty of paying it, and thereby the claim is 
 lost, the bank receiving it for collection will be held chargeable with 
 negligence. In each of the cited cases and in all others of that class 
 which have come under our observation the drawee bank to which 
 the paper has been sent for collection and remittance has closed its 
 doors after receiving it and without remitting the amount due, or by 
 some other act of negligence or fraud occasioned a loss to the real 
 B.& B.Bus.Law— 58 
 
914 NEGOTIABLE INSTRUMENTS (Part 3 
 
 party in interest which would not have occurred or might possibly 
 have been avoided had presentation and demand of payment been duly 
 made by the collecting bank or by some suitable agent selected by it 
 for that purpose. No such circumstances appear in this case. So far 
 as appears from the record, the drawee bank was and is entirely sol- 
 vent, the drawer had funds on deposit sufficient to pay the checks and 
 th e on ly reason why they were not honored was the notice received 
 frdmTfiE"idTawer to ^top" payment. The bank acted promptly, protest- 
 ed the notes at once, and gave due notice thereof to the payee and the 
 several indorsers. The parties stand precisely in the same position 
 which they would have occupied had some third person presented the 
 checks over the bank's counter, and been met with the same refusa.1 
 to pay. The notary who made the demand and protest was for the 
 time being the agent of the transmitting bank, and we cannot see how 
 such presentation and demand by him was any less efficient to protect 
 such bank and all prior indorsers than would be the case had they been 
 made by some other person who had been expressly authorized and 
 employed to perform that service. * * * 
 
 Error is assigned upon the ruling of the trial court refusing to per- 
 mit the appellant to testify to his want of knowledge of the custom of 
 banks with respect to the manner of transmitting checks for payment. 
 To this exception we think it a sufficient answer that want of knowl- 
 edge by one who negotiates and indorses a check, as to the usage of 
 banks relating to its presentation for payment, cannot prevent the ap- 
 plication of the statute which makes such usage a factor in determining 
 whether due diligence has been shown. So, also, it may be said that 
 thevjjsage or custo m here relied upon is not one of mere private or lo- 
 cal cKaracter, but one of general observance in the banking business 
 and as such will be presumed to be known by all persons dealing with 
 such institutions. * * * Appellant knew that the checks were ne- 
 gotiable in character and as such were liable to pass from one indorser 
 to another in their transmission to the bank of payment, and when he 
 negotiated them he must be held to have done so with reference to 
 the usual and ordinary manner in which such business is transacted, 
 and to have consented to presentation, demand of payment being made 
 in the manner which generally prevails among prudent, well-conducted 
 banks. Had he negotiated themiito a merchant or farmer or other in- 
 dividual who in turn negotiated them to the appellee bank, appellant 
 being sued upon his indorsement would not be heard to deny knowl- 
 edge of the usage of banks with respect to such business, and we can- 
 not see that such want of knowledge would be of any, more avEiil in a 
 case like the present one where he indorses the paper direct to the 
 bank. His contract, implied from his indorsement, was that if, upon 
 I presentation and demand within a reasonable time, the checks were 
 dishonored, and due notice given thereof, he would make them good 
 to his indorsee, and it can make no difference whether he did or did not 
 understand what in law would be held a reasonable time for such pre- 
 sentment. Other questions argued are ruled by those already dis- 
 cussed, and we need not further consider them. Of course, we are not 
 to be understood as holding that banks are at liberty to adopt any 
 usage or manner of business they see fit, and escape all imputation of 
 negligence for resulting losses to those with whom they may deal. 
 It is reasonable to hold that checks must go forward for presentation 
 with due regard to the interest of the drawers and indorsers, and if 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 915 
 
 banks adopt unreasonably circuitous routes and methods whereby loss 
 results they should bear the burden, but, ordinarily, the natural caution 
 which is engendered by self-interest will be sufficient to insure prompt- 
 ness and dispatch in the discharge of duties of this nature. Where, 
 however, there is reasonable ground upon which to base the charge of 
 negligence, the case should go to the jury under proper instructions. 
 
 In the instant case we find nothing to support a finding of this na- 
 ture, and the judgment of the district court is affirmed. 
 
 SECTION 4.— TIME OF PRESENTMENT OF CHECKS IN 
 ORDER TO CHARGE THE DRAWER 
 
 The preceding section shows that the time within which a de- 
 mand bill of exchange m.ust be presented to the drawee for pay- 
 ment in order to charge the drawer of a bill of exchange other than 
 a check and the indorsers upon all forms of bills of exchange, 
 including checks, is the same — a reasonable time after the last ne- 
 gotiation. A special rule exists as regards the time within which 
 a check must be presented for payment in order to charge the 
 drawer. This result is brought about by the following sections: 
 
 N. I. L. Section 70. * * * Except as herein otherwise pro- 
 vided, presentment for payment is necessary in order to charge the 
 drawer and indorsers. 
 
 N. I. L. Section 71. * * * in the case of a bill of exchange, 
 presentment for payment will be sufficient if made within a rea- 
 sonable time after the last negotiation thereof. 
 
 N. I. L. Section 185. A check is a bill of exchange drawn on a 
 bank payable on deipand. Except as herein otherwise provided, 
 the provisions of this act applicable to a bill of exchange payable 
 on demand apply to a check. 
 
 Sections 70 and 71 apply to drawers of bills of exchange other 
 than checks, indorsers of bills of exchange including indorsers of 
 checks. 
 
 Section 186 contains a special rule applicable only to drawers of 
 checks. It is as follows: 
 
 A check must be presented for payment within a reasonable 
 time after its issue, or the drawer will be discharged from all lia- 
 bility thereon to the extent of the loss caused by delay. 
 
 The nature of the liability of the drawer of a check is substantial- 
 ly different from that of the drawer of other forms of bills of ex- 
 change. A failure to make a due presentment to the drawee . of 
 a bill of exchange other than a check works an absolute discharge 
 of all liability of the drawer upon the instrument. In the case of 
 a check, failure to make a due presentment upon the drawee bank 
 does not work an absolute discharge of the liability of the drawer, 
 for in no case will a drawer of a check be discharged to an extent 
 greater than the loss caused by the holder's delay in making pre- 
 sentment ; that is, the drawer of a check, when sued by the holder,. 
 
916 NEGOTIABLE INSTRUMENTS (Part 3 
 
 who has failed to make a due presentment, will be liable for the 
 full amount in spite of such failure of the holder to make a due 
 presentment. The only way for the drawer of a check to avoid 
 or cut down his liability to the holder of his check is to show that 
 he (the drawer) lost by reason of the holder's failure to present to 
 the drawee. In the case of the drawer- of any other form of a 
 bill of exchange, the drawer avoids all liability on the instrument 
 by merely showing failure of the holder to make due presentment. 
 He is not required to show affirmatively that he actually sustained 
 a loss because of the delay. The effect, therefore, is virtually to 
 make the liability of this drawer of the check an absolute liability, 
 instead of a conditional liability; at least this should be so, and 
 would be so, were it not for the unfortunate wording of section 89, 
 'which provides that a failure to give due notice of dishonor abso- 
 lutely discharges the drawer of all bills of exchange, and this sec- 
 tion includes drawers of checks. 
 
 Under what circumstances will the drawer of a check be able 
 to show that he sustained a loss arising from the holder's failure 
 to present? Suppose the drawer delivers his check to the payee, 
 and the payee or some indorsee holds the check for several weeks, 
 months, or even years, just so long that the statute of limitations 
 has not run, and at this Ute date the holder presents, and he finds 
 that the drawer now has no funds in the drawee bank. In the 
 meantime the drawer has either drawn out his deposit or checked 
 it out to creditors. The holder sues the drawer. May the drawer 
 defeat liability by claiming that, if the check had been presented 
 within a reasonable time after issue and while he still had funds in 
 the bank, the check would have been paid? Most certainly not. 
 The drawer here cannot show any loss to him caused by the hold- 
 er's delay, for the simple reason that the drawer himself used all 
 the funds then standing to his credit in the drawee bank. 
 
 About the only case where the drawer is able to show an actual 
 loss arising from the failure of the holder to present the check to 
 the drawee bank for payment within a reasonable time after its 
 issue is to show that the drawee bank became insolvent. This is 
 a real loss to the drawer. If the check was delivered before the 
 bank closed, upon presentment, the check would have been paid. 
 If the holder waited an unreasonable time after issue before pre- 
 senting, and if in the meantime the drawee became insolvent, the 
 drawer will be discharged to the extent of his loss. Note that the 
 "reasonable time" begins to run from the date of issue of the check, 
 not from the date of the last negotiation. 
 
 To illustrate: The drawer delivers his check to the payee at 9 
 o'clock Monday morning. The drawer then has funds in the bank 
 sufficient to cover the check. The payee or any indorsee has a 
 reasonable time from 9 o'clock Monday within which to present. 
 During the running of this reasonable time the holder runs no 
 risk ; that is, if the bank closed its doors at 10 o'clock Monday, the 
 holder could still recover from the drawer the full amount of the 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 917 
 
 check. Let X equal the period of time which is here called reason- 
 able. If, during the period X, the drawee becomes insolvent, and 
 passes into the hands of a receiver, and the holder has not pre- 
 sented, the holder may recover the full amount from the drawer. 
 But, if the doors of the bank were closed in accordance with the 
 law at just one minute after period X expired and the holder had 
 not yet presented, then the holder cannot recover the full amount 
 from the drawer, because the drawer has sustained a loss arising 
 from the delay of the holder to present while period X was running. 
 How much will the holder recover from the drawer? The holder 
 will recover that proportion of the face of the check which the 
 total dividends paid by the receiver of the insolvent bank to the 
 drawer bore to the drawer's deposit as the deposit stood at the 
 moment period X expired. For example, suppose at the moment 
 the drawer had on deposit $1,000, and that the check was drawn 
 for $100, and suppose, further, that the receiver of the insolvent 
 bank paid a total dividend to the drawer of $500, then the holder 
 of this check would recover from the drawer just $50. The loss 
 caused by the delay was $50. The next case illustrates this rule 
 and lays down the test for determining how many hours or days 
 are to be included in the period allowed to the holder to present. 
 
 GORDON V. LEVINE. 
 
 (Supreme Judicial Court of Massachusetts, 1907. 194 Mass. 418, 80 N. E. 505, 
 10 L. R. A. [N. S.] 1153, 120 Am. St. Rep. 565, 10 Ann. Cas. 1119.) 
 
 Action by Samuel R. Gordon against Max Levine. Judgment in 
 favor of plaintiff, and defendant brings exceptions. 
 
 Morton, J. This is an action upon a check by the plaintiff as payee 
 against the defendant as drawer. The check was dated December 30, 
 1905, though there was some question whether it was actually drawn 
 and delivered on that day, or the 31st. The plaintiff is described in 
 the writ as of Chelsea and the defendant as of Boston. The bank on'\ 
 which the check was drawn w as in Boston and the £ heck wasr^^ rawn 
 and delivered there. The pl aintitt te stiheH~that Jhe d^aatjant asked 
 bmiiTntjo presenTtin" checTTlnr p, rnt'ifi^'nf ^^yc; pc he did not" have 
 'suffletenT funds Ja-£n£etit,^but that he presented it "Mon3^" .morning 
 ^ndri^as' told t here_ w ere no.fund§, and tKat he went to see'the de- 
 "Tendant aTTiis place of business but did" not see "him. ""The plaintiff 
 also testified that in the afternoon of the same day he pas sed the check 
 fn nnp .^aipyity. in Pa yment of a bill which he owed him receiving the 
 balance in cash. And there was testimony tending to show that on the 
 next day Saieviiz-Lad orsed it to one Ro otstein who deposited it on 
 January 4th, in the Faneuil Hall NatioharBahlc, Bos!orrrf err collection, 
 and tfeaFTEaT bank's messenger went .with it on the afternoon of the 
 following day, Friday, Janua ry 5th, to the bank on which it was drawn, 
 the Provident Securities & easing Company, and found its doors 
 closed. The_plajntiff also t estified that he told the defendantJ:h£,.bjsl.nk 
 had^j^^d and that the delerTdanf promised tO'Tnake the check good. 
 The dfil ^tent de niedjEIs an? also the plaintiff's staterneht tHaFh'e had 
 asked the plaintiff jiot^ to jpresent the check for a couple of 7Iays^"anH 
 
9lS NEGOTIABLE INSTEUMENTS (Part 3 
 
 introduced testimony tending to show that at the time when the check 
 was drawn he had sufficient funds on deposit at the hank to meet it> 
 and continued to have down to the failure of the bank. It was ad- 
 mitted that the^iank failed^F^idaxJanuarx^Sth, and the defendant in- 
 troduced evidenceTSTl3ing to sEowtEathe had .received no payment 
 or dividend on account of his deposit. There was a verdict for the 
 plaintiff and the case is here on exceptions by the defendant to the 
 refusal of the court to give certain instructions that were requested 
 and to the admission of certain testimony. 
 
 Thfijiefoidant, in_substance, a^ed the c ourt to in struct the jury that 
 a check must be presented for payment Tri "a reasonable time and that 
 in order to have been presented within a reasonable time the check in 
 suit should have been presented before the clos e of banking ho urs on 
 Mon^^ That itsTransfer to siic cessiveTioIders' Voulft not exte ndjhe 
 
 'time for presentment "and a presentment on January 5th would not be 
 within a reasonable time and if the bank failed in the meantime and the 
 defendant sustained a loss in consequence of delay in presenting the 
 check, he would be discharged from liability to that extent. The couri 
 gave in part the instruction thus requested, and refused it in part. It 
 instructed the jury that the check must have been presented for pay- 
 ment within a reasonable time, and that if it was presented on Mon- 
 day that would be within a reasonable time. But it^refused to in- 
 stjruct the jury that the transfer to. successix.e..^hplders wouRTnot vyr- 
 
 , tend the time, or that a presentment on Friday was not within a rea- 
 sonable time. Oh "the contrary, it instructed them that "the court had 
 occasion to consider that in one case in this commonwealth (referring, 
 we assume to Taylor v. Wilson, 1 1 Mete. 44, 45 Am. Dec. 180) , and 
 it is there stated that a check may also be passed from hand to hand 
 and a reasonable time is allowed to each party receiving the same to 
 present it for payment." And after calling their attention to the pro- 
 visions of the statute * * * that in considering what a reasonable 
 time is "regard is to be had to the nature of the instrument, the usage 
 of trade or business, if any, with respect to such instruments, and the 
 facts of each particular case," left it to them to determine whether 
 the check was presented on Monday, or, if they were not satisfied that 
 it was, then to determine whether if it passed from hand to hand and 
 each one had a reasonable time to present it the presentment on Friday 
 was within a reasonable time. For aught that appears the jury may 
 not have been satisfied that the check was presented on Monday and 
 may have found for the plaintiff on the ground that the presentment 
 on Friday was within a reasonable time. T.he..ajiest ion is therefor e 
 
 / d|stinctlx_i:aised whether jipres£ntaieiit_ on . Friday could "have been 
 ■f ound~tpJ)e wiHfflra'Tea?oriaDTetime. 
 
 * "The general rule is as was stated by the cdurt and as is provided in 
 the Negotiable Instruments Act * * * that a check must be pre- 
 sented, for payment within a reasonable time after it is issued. If it is 
 not so presented and the drawer sustains a loss by reason of the failure 
 of the drawee he will be discliarged from liability to the extent of 
 such loss, continuing liable otherwise. This results from th'e nature 
 of the instrument, which, though defined in the Negotiable Instru- 
 ments Act * * * as "a bill of exchange drawn on a bank payable 
 on demand," is intended for immediate use * * * ^nd not to cir- 
 culate as a promissory note, and it consequently would be unjust to 
 subject the drawer to the loss, if any, resulting from failure to pre- 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 919 
 
 sent it for payment within a reasonable time. What is a reasonable 
 time, however, still remains for consideration. Th£_li£gQtiahlje -In- 
 struments Act provides generally * * * as the court said that "in 
 determining what is a 'reasonable time' or an 'unreasonable time' re- 
 gi ard is Jo be had to the nature of the instrument, the usage of trade 
 or business, if any,~with respect to such instruments and the facts of 
 the" particuIaT"case." This, how eyer,__a;Quld not .seem„to lay: down or 
 tQ,£§tablish any new rule^ TEe^ nature of the instrument and the facts 
 of the particiilar "case have always been considered in the passing upon 
 the question of reasonable or unreasonable time. In deciding, there- 
 fore, whether this check was presented within a reasonable time, if 
 presented on Friday, resort must be had to the rules which have been 
 hitherto established in similar cases. And one of the rules which 
 have been established is that where the drawer and drawee and the pay- 
 er are all in the same city or town a check to be presented within a rea- 
 sonable time should, be presented. at sonje.time before the close of 
 banking hours~ on the day af ter^ it is issued an J that its circulation 
 fiuiir liaUtTToTiana' wiirBot "extend the time of presentment to the 
 detriment of the drawer. If it is presented and paid afterwards the 
 drawer suffers no harm. But if not presented within the time thus 
 fixed, and there is a loss it falls not on him but on the holder. * * * 
 The case of Taylor v. Wilson, supra, relied on by the plaintiff, was a 
 case where a check was drawn by one doing business in Charlestown 
 and living in Roxbury on a bank in Charlestown in favor of a resi- 
 dent of Newport. The check was dated September 30, 1842, which 
 was Friday, and was received by the payee Saturday evening, Oc- 
 tober 1st. On Tuesday, October 4th, having been previously cashed 
 for the payee by a 4ocal bank, it was given by the cashier of that bank 
 to a messenger to be carried to the Merchants' Bank at Providence in 
 the usual course of remitting its funds and securities and was received 
 by that bank on Wednesday and sent by its cashier to the Suffolk 
 Bank at Boston. That bank received it on the next day (October 6th) 
 and presented it on the same day to the bank on which it was drawn 
 and payment was refused ; the bank having closed its doors on Mon- 
 day morning, October 3d, and being insolvent. The case was sub- 
 mitted to the court on agreed facts with power to draw inferences 
 and the court found in favor of the payee and against the drawer. 
 The court held in effect that under the circumstances there had been 
 no laches and that the check had been presented within a reasonable 
 time. There is a sentence in the opinion to the effect that a check may 
 pass from hand to hand and that a reasonable time is allowed to each 
 party receiving it to present it for payment and the case has been 
 cited to that point with approval in Veazie Bank v. Winn, 40 Me. 60. 
 But we do not think that the court meant to lay down the rule that 
 under any and all circumstances each party receiving a check from a 
 previous holder was entitled to a reasonable time to present it for 
 payment, or that the case required thlat it should lay down such a 
 rule. On the contrary the court expressly said that a party receiving a 
 check was not guilty of laches if he did not present it on the same day 
 on which it was drawn, but was allowed a reasonable time for that 
 purpose, and that jhejifixt^daywas held to_be_such reas onable tim e. 
 The decision should be limiteHTolKe caseTefoFe-flTrTroCrTwhich was 
 that of a check drawn on a bank in one place and sent to a payee in an- 
 other place at considerable distance and forwarded for presentment 
 
920 NEGOTIABLE INSTRUMENTS (Part 3 
 
 in the usual course of business and so understood and applied was 
 correct. 
 
 It follows from what has been said that the exceptions must be sus- 
 tained. The conclusion to which we have come on the principal ques- 
 tion renders it unnecessary to consider the questions of evidence, 
 though we may observe that we see no error in regard to them. 
 
 Exceptions sustained. 
 
 SWIFT & CO. V. MILLER. 
 (Appellate Court of Indiana, 1916. 62 Ind. App. 312, 113 N. E. 447.) 
 
 Felt, J. * * * Under the rules of the law merchant, a check 
 rnusl-beua resented within reasonable time after it is received. Under 
 ordinary conditions when the holder rgSides at the place the check is 
 made payable, such reasonable time for presentment includes all of 
 
 ^e banking hours of the day i mmediatelv following the day on which 
 the check isTeceTved. If the bank upon which the check is drawn is 
 at another place, the check, musL_beliQr.warded-Jja_thg_ place of p ay- 
 ment on the next busines s day , andbe^resented not laterl han the day 
 
 -iTnmedi«kt6ly^folt5WiiigTHe''3ay ot itsreceipt"aOM plice'ol payment." 
 
 As between the holder and drawer of a check, delay in presentment 
 will not ordinarily discharge the drawer from liability, but if loss re - 
 sulta-fuomthejielay for which the drawer is not responsible, the de- 
 lay is atThe peril of the holder. As between the holder of a check 
 and an indorser, unreasonable delay in presentment for' payment, or 
 in giving notice of dishonor, will discharge the indorser from his lia- 
 bility without regard to whether such delay did or did not occasion 
 loss to the holder. * * * 
 
 SECTION 5.— TIME OF PRESENTMENT OF INSTRU- 
 MENTS BEARING A FIXED MATURITY 
 
 We have yet to consider the rules prescribing the time for pre- 
 sentment of instruments payable- at a fixed date. This is relatively 
 simple. These rules are alike for all kinds of negotiable time paper. 
 
 N. I. L. Section 71. Where the instrument is not payable on 
 demand presentment must be made on the day it falls due. 
 
 N. I. L. Section 85. Every negotiable instrument is payable at 
 the time fixed therein without grace. When the day of maturity 
 falls on Sunday, or a holiday, the instrument is payable on the 
 next succeeding business day. Instruments falling due on Satur- 
 day are to be presented for payment on the next succeeding busi- 
 ness day, except that instruments payable on demand may, at the 
 option of the holder be presented for pasmient before twelve 
 o'clock noon on Saturday when that entire day is not a holiday. 
 
 N. I. L. Section 85 abolishes days of grace, which, before the 
 Act, were commonly allowed. A few states expressly allow three 
 days of grace on sight hills. 
 
 N. I. L. Section 86. Where the instrument is payable at a fixed 
 period after date, after sight, or after the happening of a specified 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 921 
 
 event, the time of payment is determined by excluding the day 
 from which the time is to begin to run and by including the date 
 of payment. ' 
 
 N. I. L. Section 72. Presentment for payment must be made 
 at a reasonable hour on a business day. 
 
 Where the instrument bears a fixed date of maturity but is sub- 
 ject to an earlier payment upon the happening of some event or 
 upon the exercise of an option by the holder, it is not certain at 
 what time presentment must be made. We have already been 
 concerned with this situation (1) as regards the negotiability of 
 , such an instrument ; and (2) as to whether a bona fide purchaser 
 before the fixed date arrives but subsequent to the actual maturity 
 under the acceleration clause, could be a holder in due course. 
 We noted that there is a conflict of authority on the question 
 whether such an instrument is negotiable. On the analogy of the 
 rule recognized in section 52 (2) that one may be a holder in due 
 course of a time bill of exchange purchased after dishonor by non- 
 acceptance, but before the arrival of the fixed date, it would seem 
 that in all other cases a holder who acquired title before the fixed 
 date, but after an act or event which under an acceleration clause 
 operated to mature the instrument, would be a holder in due 
 course. So, also, with respect to the time of presentment of such 
 an instrument, presentment should be effective if rriade before the 
 fixed date, if the holder had no knowledge of the occurrence of the 
 event which matured the instrument earlier. 
 
 N. I. L. Section 75. Where the instrument is payable at a bank, 
 presentment for payment must be made during banking hours, un- 
 less the person to make payment has no funds there to meet it 
 at any time, during the day, in which case presentment at any hour 
 before the bank closed on that day is sufficient. 
 
 It should be noted, however, that the person to make payment 
 has until the close of business hours to deposit money in the bank 
 to meet the instrument. If presentment is made and the same is 
 not then paid and the debtor deposits money subsequent to the 
 presentment, the instrument is not dishonored. 
 
 SECTION 6.— OTHER ASPECTS OF A DUE PRESENT- 
 MENT FOR PAYMENT 
 
 fa) WHEN PRESENTMENT FOR PAYMENT IS NECESSARY 
 
 N. I. L. Section 70. Presentment for payment is not necessary 
 in order to charge the person primarily liable on the instrument; 
 but if the instrument is, by its terms, payable at a special place, 
 and he is able and willing to pay it there at maturity, such ability 
 and willingness are equivalent to a tender of payment upon his 
 part. But except as herein otherwise provided, presentment for 
 pajnnent is necessary in order to charge the drawer and indorsers. 
 
922 NEGOTIABLE INSTRUMENTS (Part 3 
 
 (b) WHAT CONSTITUTES A DUE PEEISENTMENT 
 N. I. L. Section 74. The instrument rrifust be exhibited to the 
 person from whom payment is demanded, and when it is paid must 
 be delivered up to the party paying it. 
 
 (c) PLACE WHERE PRESENTMENT MUST BE MADE 
 N. I. L. Section 73. Presentment for payment is made at the 
 proper place — 
 
 1. Where a place of payment is specified in the instrument and 
 it is there presented; 
 
 2. Where no place of payment is specified, but the address of 
 the person to make payment is given in the instrument and it is 
 there presented; 
 
 3. Where no place of payment is specified and no address is 
 given and the instrument i^ presented at the usual place of business 
 or residence of the person to make payment; 
 
 4. In any other case if presented to the person to make payment 
 wherever he can be found, or if presented at his last known place 
 of business or residence. 
 
 (d) BY WHOM PRESENTMENT MUST BE MADE 
 
 N. I. L. Section 72 (1). Presentment for payment, to be suffi- 
 cient, must be made by the holder, or by some person authorized to 
 receive pa3mient on his behalf. 
 
 (e) TO WHOM PRESENTMENT MUST BE 5IADE 
 
 N. I. L. Section 72 (4). Presentment for payment, to be suffi- 
 cient, must be made to the person primarily liable on the instru- 
 ment, or if he is absent or inaccessible, to any person found at the 
 place where the presentment is made. 
 
 N. I. L. Section 76. Where the person primarily liable on the 
 instrvxment is dead, and no place of payment is specified, present- 
 ment for payment must be made to his personal representative, if 
 such there be, and if, with the exercise of reasonable diligence, he 
 can be found. 
 
 N. I. L. Section 77. Where the persons primarily liablp on the 
 instrument are liable as partners, and no place of payment is 
 specified, presentment for payment may be made to anj^ one of 
 them, even though there has been a dissolution of the firm. 
 
 N. I. L. Section 78. Where there are several persons, not part- 
 ners, primarily liable on the instrument, and no place of payment 
 is specified, presentment must be made to them all. 
 
 (f) WHAT CONSTITUTES DISHONOR BY NON-PAYMENT 
 N. I. L. Section 83. The instrument is dishonored by non-pay- 
 ment when — 
 
 1. It is duly presented for payment and payment is tefused or 
 cannot be obtained ; or 
 
 2. Presentment is excused and the instrument is overdue and un- 
 paid. 
 
Ch. 6) PRESEN'TMENT, NOTICES OF DISHONOR, AND PROTEST 923 
 
 (g) LfEGAL EFFECT OF DISHONOR BY NOX-PAYJIENT 
 N. I. L. Section 84. Subject to the provisions of this act, when 
 the instrument is dishonored by non-payment, an immediate right 
 of recourse to all parties secondarily liable thereon accrues to the 
 holder. 
 
 (h) LEGAL EFFECT OF FAILLRE TO MAKE DUE PRESENTMENT 
 
 FOR PAYMENT 
 
 N. I. L. Section 70. * * * But except as herein otherwise 
 provided, presentment for payment is necessary in order to charge 
 the drawer and indorsers. 
 
 N. I. L. Section 186. A check must be presented for payment 
 within a reasonable time after its issue, or the drawer will be dis- 
 charged from liability thereon to the extent of the loss caused by 
 the delay. 
 
 (i) EXCUSES FOR FAILURE TO PRESENT FOR PAYMENT 
 N. I. L. Section 82. Presentment for pa3mient is dispensed 
 with: 
 
 1. Where after the exercise of reasonable diligence presentment 
 as required by this act cannot be made; 
 
 2. Where the drawee is a fictitious person; 
 
 3. By waiver of presentment, express or implied. 
 
 N. I. L. Section 81. Delay in making presentment for payment 
 is excused when the delay is caused by circumstances beyond the 
 control of the holder, and not imputable to his default, misconduct, 
 ' or negligence. When the cause of delay ceases to operate, pre- 
 sentment must be made with reasonable diligence. 
 
 SECTION 7.— PRESENTMENT FOR ACCEPTANCE 
 
 fa) WHEN PRESENTMENT FOR ACCEPTANCE IS NECESSARY 
 N. I. L. Section 143. Presentment for acceptance must be made : 
 
 1. Where the bill is payable after sight, or in any other case, 
 "where presentment for acceptance is necessary in order to fix the 
 maturity of the instrument; or 
 
 2. Where the bill expressly stipulates that it shall be presented 
 for acceptance ; or 
 
 3. Where the bill is drawn payable elsewhere than at the resi- 
 dence or place of business of the drawee. 
 
 In no other case is presentment for acceptance necessary in 
 order to render any party to the bill liable. 
 
 (b) WHAT CONSTITUTES PRESENTMENT FOR ACCEPTANCE 
 N. I. L. Section 145. Presentment for acceptance must be 
 made by or on behalf of the holder at a reasonable hour, on a 
 business day and before the bill is overdue, to the drawee or some 
 person authorized to accept or refuse acceptance on his behalf; 
 and: 
 
924 NEGOTIABLE INSTRUMENTS (Part 3 
 
 1. Where a bill is addressed to two or more drawees who are 
 not partners, presentment must be made to them all, unless one 
 has authority to accept or refuse acceptance for all, in which case 
 presentment may be made to him only; 
 
 2. Where the drawee is dead, presentment may be made to his 
 personal representative ; 
 
 3. Where the drawee has been adjudged a bankrupt or an in- 
 solvent or has made an assignment for the benefit of creditors, pre- 
 sentment may be made to him or to his trustee or assignee. 
 
 N. I, L. Section 146. A bill may be presented for acceptance on 
 any day on which negotiable instruments may be presented for 
 payment under the provisions of sections seventy-two and eighty- 
 five of this act. When Saturday is not otherwise a holiday, pre- 
 sentment for acceptance may be made before twelve o'clock, noon, 
 on that day. 
 
 N. I. L. Section 72. Presentment for payment, to be sufficient, 
 must be made — 
 
 1. By the holder, or by some person authorized to receive pay- 
 ment on his behalf; 
 
 2. At a reasonable hour on a business day; 
 
 3. At a proper place as herein defined; 
 
 4. To the person primarily liable on the instrument, or if he is 
 absent or inaccessible, to any person found at the place where the 
 presentment is made. 
 
 N. I. L. Section 85. Every negotiable instrument is payable at 
 the time fixed therein without grace. When the day of maturity 
 falls upon Sunday, or a holiday, the instrument is payable on the 
 next succeeding business day. Instrmnents falling due on Satur- 
 day are to be presented for payment on the next succeeding busi- 
 ness day, except that instruments payable on demand may, at the 
 option of the holder, be presented for payment before twelve 
 o'clock noon on Saturday when that entire day is not a holiday. 
 
 N. I. L. Section 194. Where the day, or the last day, for doing 
 any act herein required or permitted to be done, falls on Sunday 
 or on a holiday, the act may be done on the next succeeding secular 
 or business day. 
 
 (c) LEGAL EFFECT OF FAILURE TO PRESENT FOR ACCEPTANCE 
 
 N. I. L. Section 144. Except as herein otherwise provided, the 
 holder of a bill which is required by the next preceding section to 
 be presented for acceptance must either present it for acceptance 
 or negotiate it within a reasonable time. If he fail to do so, the 
 drawer and all indorsers are discharged, 
 
 N. I. L. Section 147. Where the holder of a bill, drawn pay- 
 able elsewhere than at the place of business or the residence of 
 the drawee, has not time with the exercise of reasonable diligence, 
 to present the bill for acceptance before presenting it for pay- 
 ment on the day that it falls due, the delay caused by presenting 
 
Ch. 6) PRESENTMENT, NOTICES OP DISHONOR, AND PROTEST 925 
 
 the bill for acceptance before presenting it for payment is ex- 
 cused, and does not discharge the drawers and indorsers. 
 
 (d) WHAT CONSTITUTES DISHONOR BY NON-ACCEPTANCE AND 
 ITS LEGAL EFFECT 
 
 N. I. L. Section 149. A bill is dishonored by non-accepta*ce : 
 
 1. When it is duly presented for acceptance, and such an accept- 
 ance as is prescribed by this act is refused or cannot be obtain- 
 ed; or 
 
 2. When presentment for acceptance is excused, and the bill is 
 not accepted. 
 
 N. I. L. Section 150. Where a bill is duly presented for accept- 
 ance and is not accepted within the prescribed time, the person 
 presenting it must treat the bill as dishonored by non-acceptance 
 or he loses the right of recourse against the drawer and indorsers. 
 
 N. I. L. Section 151. When a bill is dishonored by non-accept- 
 ance, an immediate right of recourse against the drawers and 
 indorsers accrues to the holder and no presentment for payment 
 is necessary. 
 
 N. I. L. Section 142. The holder may refuse to take a qualified 
 acceptance, and if he does not obtain an unqualified acceptance, he 
 may treat the bill as dishonored by non-acceptance. Where a 
 qualified acceptance is taken, the drawer, and indorsers are dis- 
 charged from liability on the bill, unless they have expressly or 
 impliedly authorized the holder to take a qualified acceptance, or 
 subsequently assent thereto. When the drawer or an indorser re- 
 ceives notice of a qualified acceptance, he must, within a reason- 
 able time, express his dissent to the holder, or he will be deemed 
 to have assented thereto. 
 
 N. I. L. Section 52. A holder in due course is a holder who has 
 taken the instrument under the following conditions: * * * 
 (2) that he became the holder of it before it was overdue, and 
 without notice that it had been previously dishonored, if such was 
 the fact; * * * 
 
 (e) EXCUSES FOR NON-PRESENTMENT FOR ACCEPTANCE 
 
 N. I. L. Section 148. Presentment for acceptance is excused, and 
 a bill may be treated as dishonored by non-acceptance, in either 
 of the following cases: 
 
 1. Where the drawee is dead, or has absconded, or is a fictitious 
 person or a person not having capacity to contract by bill. 
 
 2. Where, after the exercise of reasonable diligence, present- 
 ment cannot be made. 
 
 3. Where, although presentment has been irregular, acceptance 
 has been refused on some other ground. 
 
■926 NEGOTIABLE INSTRUMENTS (Part 3 
 
 SECTION 8.— NOTICE OF DISHONOR 
 
 (a) WHEN NOTICE OF DISHONOR IS NECESSARY 
 
 N^. L. Section 89. Except as herein otherwise provided, when 
 a negotiable instrument has been dishonored by non-acceptance or 
 non-payment, notice of dishonor must be given to the drawer and 
 to each indorser and any drawer or indorser to whom such notice 
 is not given is discharged. 
 
 (b) WHAT CONSTITUTES NOTICE 
 
 N. I. L. Section 96. The notice may be in writing or merely 
 oral and may be given in any terms which sufficiently identify the 
 instrument, and indicate that it has been dishonored by non- 
 acceptance or non-payment. It niay in all cases be given by de- 
 livering it personally or through the mails. 
 
 N. I. L. Section 95. A written notice need not be signed, and 
 an insufficient written notice may be supplemented and validated 
 by verbal communication. A misdescription of the instrument 
 does not vitiate the notice unless the party to whom the notice 
 is given is in fact misled thereby. 
 
 (c) TIME WITHIN WHICH NOTICE MUST BE GIVEN 
 
 N. I. L. Section 102. Notice may be given as soon as the in- 
 strument is dishonored ; and unless delay is excused as hereinafter 
 provided, must be given within the times fixed by this act. 
 
 N. I. L. Section 103. Where the person giving and the person 
 to receive notice reside in the same place, notice must be given 
 within the following times: 
 
 1. If given at the place of business of the person to receive no- 
 tice, it must be given before the close of business hours on the day 
 following. 
 
 2. If given at his residence, it must be given before the usual 
 hours of rest on the day following. 
 
 3. If sent by mail, it must be deposited in the post office in time 
 to reach him in usual course on the day following. 
 
 N. I. L. Section 104. Where the person giving and the person 
 to receive notice reside in different places, the notice must be 
 given within the following times : 
 
 1. If sent by mail, it must be deposited in the post office in time 
 to go by mail the day following the day of dishonor, or if there be 
 no mail at a convenient hour on that day, by the next mail there- 
 after. 
 
 2. If given otherwise than through the post office, then within 
 the time that notice would have been received in due course of 
 mail, if it had been deposited in the post office within the time 
 specified in the last subdivision. 
 
 N. I. L. Section 105. Where notice of dishonor is duly ad- 
 dressed and deposited in the post office, the sender is deemed to 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 927 
 
 have given due notice, notwithstanding any miscarriage in the 
 mails. 
 
 N. I. L. Section 106. Notice is deemed to have been deposited 
 in the post office when deposited in any branch post office or in any 
 letter box under the control of the post office department. 
 
 N. I. L. Section 107. Where a party receives notice of dis- 
 honor, he has, after the receipt of such notice, the same time for 
 giving notice to antecedent parties that the holder has after the 
 dishonor. 
 
 (d) PLACE WHERE NOTICE MUST BE GIVEN 
 
 N. I. L. Section 108. Where a party has added an address to 
 his signature, notice of dishonor must be sent to that address; 
 but if he has not given such address, then the notice must be sent 
 as follows: 
 
 1. Either to the post office nearest to his place of residence, or 
 to the post office where he is accustomed to receive his letters ; or 
 
 2. If he live in one place, and have his place of business in an- 
 other, notice may be sent to either place; or 
 
 3. If he is sojourning in another place, notice may be sent to the 
 place where he is so sojourning. 
 
 But where the notice is actually received by the party within the 
 time specified in this act, it will be sufficient, though not sent in 
 accordance with the requirements of this section. 
 
 (e) BY WHOM NOTICE MAT BE GIVEN 
 
 N. I. L. Section 90. The notice may be given by or on behalf 
 of the holder, or by or on behalf of any party to the instrument 
 who might be compelled to pay it to the holder, and who, upon 
 taking it up, would have a right to reimbursement from the party 
 to whom the notice is given. 
 
 N. I. L. Section 91. Notice of dishonor may be given by an 
 agent either in his own name or in the name of any party entitled 
 to give notice, whether that party be his principal or not. 
 
 N. I. L. Section 94. Where the instrument has been dishon- 
 ored in the hands of an agent, he may either himself give notice 
 to the parties liable thereon, or he may give notice to his principal. 
 If he give notice to his principal, he must do so within the same 
 time as if he were the holder, and the principal upon the re- 
 ceipt of such notice has himself the same time for giving notice as 
 if the agent had been an independent holder. 
 
 (f) TO WHOM NOTICE MUST BE GIVEN 
 
 N. I. L. Section 97. Notice of dishonor may be given either to 
 the party himself or to his agent in that behalf. 
 
 N. I. L. Section 98. When any party is dead, and his death is 
 known to the party giving notice, the notice must be given to a 
 personal representative, if there be one, and if with reasonable dil- 
 igence he can be found. If there be no personal representative. 
 
928 NEGOTIABLE INSTETTMENTS (P^rt 3 
 
 notice may be sent to the last residence or last place of business of 
 the deceased. 
 
 N. I. L. Section 99. Where the parties to be notified are part- 
 ners, notice to any one partner is notice to the firm even though 
 there has been a dissolution. 
 
 N. I. L. Section 100. Notice to joint parties who are not part- 
 ners must be given to each of them, unless one of them has au- 
 thority to receive such notice for the otherss 
 
 N. I. L. Section 101. Where a party has been adjudged a bank- 
 rupt or an insolvent, or has made an assignment for the benefit of 
 creditors, notice may be given either to the party himself or to 
 his trustee or assignee. 
 
 (^ IN WHOSE FAVOK NOTICE OPERATES 
 
 N. I. L. Section 92. Where notice is given by or on behalf of 
 the holder, it enures for the benefit of all subsequent holders and 
 all prior parties who have a right of recourse against the party 
 to whom it is given. 
 
 N. I. L. Section 93. Where notice is given by or on behalf of 
 a party entitled to give notice, it enures for the benefit of the 
 holder and all parties subsequent to the party to whom notice is 
 given. 
 
 (h) LEGAL EFFECT OF FAILURE TO GIVE NOTICE 
 
 N. I. L. Section 89. Except as herein otherwise provided, when 
 a negotiable instrument has been dishonored by non-acceptance or 
 non-payment, notice of dishonor must be given to the drawer and 
 to each indorser and any drawer or indorser to whom such no- 
 tice is not given is discharged. 
 
 N. I. L. Section 117. An omission to give notice of dishonor by 
 non-acceptance does not prejudice the rights of a holder in due 
 course subsequent to the omission. 
 
 BACIGALUPO V. PARRILLI. 
 (Supreme Court of New York, Appellate Term, 1908. 112 N. T. Supp. 1040.) 
 
 Seabury, J. This action is upon a check drawn by the defendant 
 and by him delivered to the plaintiff. The check was drawn upon 
 "Banca P. Caponigri," and was delivered to the plaintiff on January 
 10, 1908. On Saturday, January 11, 1908, the plaintiff presented the 
 check at the bank of Caponigri and was told by the cashier of the 
 bank that Caponigri was not in, that "he made a kind of deposit this 
 morning, and we are kind of short of funds." The cashier further 
 told the plaintiff that "You can come here Monday morning, and we 
 will cash the check." To this information the plaintiff replied "All 
 right," and returned on Monday, January 13th, and demanded the pay- 
 ment of the check, and was informed that Caponigri had no money and 
 could not pay the check. It is undisputed that at the time the check 
 was given to the plaintiff the defendant had on deposit with Caponigri 
 a sufficient sum to pay the check, and that he did not withdraw this 
 
Ch. 6) PRESENTMENT, NOTICES OF DISHONOR, AND PROTEST 929 
 
 sum. It is also admitted that Caponigri is insolvent. Under the cir- 
 cumstances disclosed, the loss for the amount of the check must fall 
 upon the plaintiff, and not upon the defendant. After the plaintiff 
 presented the check on January Uth, and payment was refused, and 
 he was told that the banker was "kind of short of funds," it was his 
 duty to notify the defendant that payment had been refused, if he 
 wished to hold the latter upon the check. Upon the nonpayment of 
 the check, the drawer was entitled to notice of that fact, and, in the 
 absence of such notice, was discharged from liability, section 160 of 
 the Negotiable Instrument Law. * * * If the drawer had been 
 promptly notified of the refusal of the banker to pay the check, he 
 might have been able to have taken action to secure the amount de- 
 posited with the banker. 
 
 The judgment appealed from is reversed, and the complaint dis- 
 missed. * * * 
 
 (i) EXCUSES FOR FAILURE TO GIVE NOTICE 
 
 N. I. L. Section 109. Notice of dishonor may be waived, either 
 before the time of giving notice has arrived, or after the omission 
 to give due notice, and the waiver may be express or implied. 
 
 N. I. L. Section 110. Where the waiver is embodied in the 
 instrument itself, it is binding upon all parties; but where it is 
 written above the signature of an indorser, it binds him only. 
 
 N. I. L. Section 111. A waiver of protest, whether in the case 
 of a foreign bill of exchange or other negotiable instrument, is 
 deemed to be a waiver not only of a formal protest but also of pre- 
 sentment and notice of dishonor. 
 
 N. I. L. Section 112. Notice of dishonor is dispensed with 
 when, after the exercise of reasonable diligence, it cannot be given 
 to or does not reach the parties sought to be charged. 
 
 N. I. L. Section 113. Delay in giving notice of dishonor is ex- 
 cused when the delay is caused by circumstances beyond the con- 
 trol of the holder, and not imputable to his default, misconduct, 
 Or negligence. When the cause of delay ceases to operate, notice 
 must be given with reasonable diligence. 
 
 N. I. L. Section 114. Notice of dishonor is not required to be 
 given to the drawer in either of the following cases : 
 
 1. Where the drawer and drawee are the same person; 
 
 2. Where the drawee is a fictitious person or a person not having 
 capacity to contract; 
 
 3. When the drawer is the person to whom the instrument is 
 presented for payment; 
 
 4. Where the drawer has no right to expect or require that the 
 drawee or acceptor will honor the instrument ; 
 
 5. Where the drawer has countermanded payment. 
 
 N. I. L. Section 115. Notice of dishonor is not required to be 
 given to an indorser in either of the following cases: 
 B.& B.Bus.Law— 59 
 
930 NEGOTIABLE INSTRUMENTS (Part B 
 
 1. Where the drawee is a fictitious person or a person not having 
 capacity to contract, and the indorser was aware of the fact at 
 the time he indorsed the instrument; 
 
 2. Where the indorser is the person to whom the instrument is 
 presented for payment; 
 
 3. Where the instrument was made or accepted for his accom- 
 modation. 
 
 N. I. L. Section 116. Where due notice of dishonor by non- 
 acceptance has been given, notice of a subsequent dishonor by non- 
 payment is not necessary, unless in the meantime the instrument 
 has been accepted. 
 
 N. I. L. Section 118. Where any negotiable instrument has 
 been dishonored, it may be protested for non-acceptance or non- 
 payment, as the case may be; but protest is not required except 
 in the case of foreign bills of exchange. 
 
 SECTION 9.— PROTEST 
 
 (a) WHEN PROTEST IS NECESSARY OR PERMITTED 
 
 N. I. L. Section 152. Where a foreign bill appearing on its 
 face to be such is dishonored by non-acceptance, it must be duly 
 protested for non-acceptance, and where such a bill which has not 
 previously been dishonored by non-acceptance is dishonored by 
 non-payment, it must be duly protested for non-payment. If it is 
 not so protested, the drawer and indorsers are discharged. Where 
 a bill dops not appear ©n its face to be a foreign bill, protest there- 
 of in case of dishonor is unnecessary. 
 
 N. I. L. Section 129. An inland bill of exchange is a bill which 
 is, or on its face purports to be, both drawn and payable within this 
 state. Any other bill is a foreign bill. Unless the contrary ap- 
 pears on the face of the bill, the holder may treat it as an inland 
 bill. 
 
 N. I. L. Section 118. Where any negotiable instrument has 
 been dishonored it may be protested for non-acceptance or non- 
 payment, as the case may be ; but protest is not required except in 
 the case of foreign bills of exchange. 
 
 N. I. L. Section 157. A bill which has been protested for non- 
 acceptance may be subsequently protested for non-payment. 
 
 N. I. t. Section 158. Where the acceptor has been adjudged a 
 bankrupt or an insolvent, or has made an assignment for the benefit 
 of creditors, before the bill matures, the holder may cause the 
 bill to be protested for better security against the drawer and in- 
 dorsers. 
 
 - N. I. L. Section 167. Where a dishonored bill has been accept- 
 ed for honor supra protest, or contains a reference in case of need, 
 it must be protested for non-payment before it is presented for 
 payment to the acceptor for honor or referee in case of need. 
 
Gh. 6) PEBSENTMENT, NOTICES OF DISHONOR, AND PROTEST 931 
 
 (b) WHAT CONSTITUTES PROTEST 
 
 N. I. L. Section 153. The protest must be annexed to the bill, 
 Or must contain a copy thereof, and must be under the hand and 
 seal of the notary making it, and must specify: 
 
 1. The time and place of presentment; 
 
 2. The fact that presentment was made and the manner thereof ; 
 
 3. The cause or reason for protesting the bill; 
 
 4. The demand made and the answer given, if any, or the fact 
 that the drawee or acceptor could not be found. 
 
 N, I. L. Section 160. When a bill is lost or destroyed or is 
 wrongly detained from the, person entitled to hold it, protest may 
 be made on a copy or written particulars thereof. 
 
 (c) TIME WITHIN WHICH PROTEST MUST BE MADE 
 
 N. I. L. Section 155. When a bill is protested, such protest 
 must be made on the day of its dishonor, unless delay is excused 
 as herein provided. When a bill has been duly noted, the protest 
 may be subsequently extended as of the date of the noting. 
 
 (d) PLACE WHERE PROTEST MUST BE MADE 
 
 N. I. L. Section 156. A bill must be protested at the place 
 where it is dishonored, except that when a bill drawn payable at 
 the place of business, or residence of some person other than the 
 drawee, has been dishonored by non-acceptance, it must be pro- 
 tested for non-payment at the place where it is expressed to be 
 payable, and no further presentment for payment to, or demand 
 on, the drawee is necessary. 
 
 (e) BY WHOM PROTEST MUST BE MADE 
 
 N. I. L. Section 154. Protest may be made by — 
 
 1. A notary public; or 
 
 2. By any respectable resident of the place where the bill is dis- 
 honored, in the presence of two or more credible witnesses. 
 
 (f) LEGfAL EFFECT OP FAILURE TO PROTEST 
 
 N. I. L. Section 152. * * * If it is not so protested, the 
 drawer and indorsers are discharged. * * * 
 
 (g) EXCUSES FOR FAILURE TO PROTEST 
 N. I. L. Section 159. Protest is dispensed with by any circimi- 
 stances which would dispense with notice of dishonor. Delay in 
 noting or protesting is excused when delay is caused by circum- 
 stances beyond the control of the holder and not imputable to his 
 default, misconduct or negligence. When the cause of delay ceases 
 to operate, the bill must be noted or protested with reasonable dili- 
 gence. 
 
932 NEGOTIABLE INSTRUMENTS (Pail 3 
 
 CHAPTER VII 
 DISCHARGE 
 
 Section 
 
 1. Introduction. 
 
 2. Discharge of the Maker and Acceptwr. 
 
 3. Discharge of the Eegular Indorsers. 
 
 4. Discharge of a Surety. 
 
 SECTION 1.— INTRODUCTION 
 This chapter is devoted to the consideration of the circum- 
 stances that will operate to discharge the various parties to a ne- 
 gotiable instrument as against persons other than holders in due 
 course. There are three classes of parties, which must be consid- 
 ered separately: (1) Parties primarily liable on the instrument 
 — the maker and the acceptor; (2) parties secondarily liable — in- 
 dorsers; and (3) sureties, whether primarily or secondarily liable. 
 A negotiable instrument, being a special kind of contract, is sub- 
 ject to discharge by facts which will not discharge a simple con- 
 tract. This fact, taken in connection with the fact that we must 
 deal with the matter of the discharge of sureties, makes it impos- 
 sible to lay down the broad proposition that parties to negotiable 
 instruments will be discharged when, and only when, facts exist 
 which would discharge a simple contract for the payment of 
 money. 
 
 SECTION 2.— DISCHARGE OF THE MAKER AND 
 ACCEPTOR 
 
 The Negotiable Instruments Law specifies the following meth- 
 ods of discharge: (1) Payment; (2) cancellation; (3) material 
 alteration; (4) renunciation; (5) any act which discharges a 
 simple contract for the payment of money; (6) by the debtor's 
 acquisition of the instrument as a holder at or after maturity. 
 These methods will be taken up in order. The following sections 
 of the act will be considered first, only in so far as they discharge 
 the parties, other than sureties, who are primarily liable on the 
 instrument. These parties are the maker and the acceptor. 
 
 N. I. L. Section 119. A negotiable instrument is discharged: 
 (1) By payment in due course by or on behalf of the principal 
 debtor; (2) by payment in due course by the party accommodat- 
 ed, where the instrument is made or accepted for accommodation. 
 
 N. I. L. Section 88. Payment is made in due course when it is 
 made at or after the maturity of the instrument to the holder 
 thereof in good faith and without notice that his title is defective. 
 
Ch. 7) DISCHARGE 933 
 
 (a) DISCHARGE BY PAYMENT— WHAT CONSTITUTES PAYMENT 
 
 FIRST NAT. BANK OF PHILADELPHIA v. NATIONAL PARK BANK 
 
 OF NEW YORK. 
 
 (Supreme Court of New York, Trial Term, 1917. 100 Misc. Rep. 31, 
 
 165 N. Y. Supp. 15.) 
 
 NewburgER, J. On July 21, 1916, the Mutual Trust Company of > 
 Orange, N. J., being indebted to the plaintiff^_sent its check for the 
 sum of $18,231.66, w hich plaintif f fo rwarde d"'to~the Hanover _.Na- 
 tional Bank, its correspondent in this city . On Monday morning, July 
 
 ^. 1916. the Hanover National Bank s ent t he ch eck.^with Qther ex- 
 
 "chang es, to th e_ Newr York Cleari ng' Houie. whereit was presented to 
 th e representativ e of the defe ndant ba nkj that, according to the cus- 
 tom in said deiif Ing hdiis'S, a balance"was struc k between the repre- 
 sentatives of the Hanover Bank and the oelehdant, whereby it ap- 
 peared that a lar ge sum was due to t he HaiiO-V£r-Baak, and that the 
 c heck sued upon was in cluded in the aggregate credited to the Han- 
 o ^r National Bank , and thereafter the packages containing the checks 
 received by the defendant drawn upon it were opened and sorted and 
 
 • examined by clerks whose business it is to ascertain whether such 
 checks are properly drawn and are in all respects items which the 
 drawee bank is prepared to pay, and the drawee bank then had the 
 privilege, iui^eiJhe.£rgvigions of the constitvttiurr uf the: clearing J&QUse, 
 o f retur ning any checks before 3 p. m. to the bank whichJiad,2IS§fiDt- 
 ^ them" through the c ieaitHg^ house. "The credit balance _due_tg^the 
 H anover National Bantc oh the 24tH day oFJuIy, 1916, w as paid by the 
 defendant irT accord ance with th e^ rules of ,the_clearingJiouse. A list 
 was prepared ot the items an3~totals of checks of each depositor, 
 and t his check, d rawn by the Mutu al Trust Company to .the^piaintiff, 
 was included_andjthen entered j?n. a~separate. sheet, under ,the_name of 
 the trusF"compaS)rancrsent to the fedger bookkeeper, who entered this 
 total_on the debit side of the account of the trust company. ^ At the / 
 tifiie^ f the entry on the ledger there was a.__sufficiierj.t credit balance, tot- 
 
 lneerfc£rche cirgf-$i8^31 .bb. ~" 
 "It appears that the Mutual T rust Company, which opened for_busi- 
 ness o n Tuly 24. 1916. "was closed shortiy TTter 1 1 am nfth^TA^^y 
 ttiS" Bahking Depart ment of New Jersey. A telephone mess age ..to that 
 p-ffpH_j^"g rprpiv.ed.b^the defendant abo ut half past 1^ and at half 
 past 2 the same was confirmed by letter, whereupon the cashier of 
 
 Tfae^efendantdlrectFJ the Teturn pTj^glchprk in suit tn tVie Hannypr 
 National Bank, and subsequently the bookkeeper eras ed„thg JEOtry on 
 the ledger and made a new entry of the check m suitas part af the 
 credi t balance. oF ^he Ln 3grcompanv""aM nof "as a^debit,agai.nsLJt. It 
 appears that while sucK~erasure was made on the ledger, on the slip 
 containing the itemized list of checks received by the defendant from 
 the Hanover National Bank through the clearing house the item of 
 $18,231.66 was not erased. See plaintiff's Exhibit 1. The che ck in 
 suit ;aaa-i:£t urned to the Hanover National Bank.'and _repavment c iainied~ 
 und^rJJae_xu]fiS^ the clearing House, _whlchjwasjnad§_h3!_.sai4_bank. 
 The same_afternogn J plaintiff J e kgraphed a protest to the deffindant, 
 and later nia9e~a ten^rofthe^eck an^~ deniagded7 payment .of $18,- 
 231."567with interest, but' payment was refused TTis true that it has 
 
034 NEGOTIABLE INSTRUMENTS ^Part 3 
 
 been repeatedly held that, undei- the rules pi the Clearin g House As - 
 so'ciation,_the_payment of balances by.it js_merely a tentative payment 
 of Ttems debited against any individual bank, and is nof to be de gmed 
 complete unt il the debtor bankJias. had an opportunity' tq_e?ca^i^7the 
 items SeGrted against it and has, either by silence or^affirmative act, 
 approved oj the debit, and until a drawee bank has actually accepted a 
 check it may render such check not good by refusing to honor it and 
 by returning it to the bank presenting it. See Columbia Knickerbocker 
 Trust Co. V. Miller, 215 N. Y. 191, 109 N. E. 179, Ann. Cas. 1917A, 
 348. * * * 
 
 It will be noticed, however, that in these cases cited the courts, while 
 holding that the drawee banks under the rules of the clearing house 
 had the right to return the checks at anj time before 3 o'clock, it 
 coi[nTohly"ab^ so ^ where the^bank had at , n,o^ti^.^bited^the" amount 
 of the.chgck, against the account of the drawer . Ip thi s case the, ac- 
 count of th e^jSutual Trust Compa nv was charged with the ch_ erk of 
 311 8.^3 l.^ST and in doing so it c onstituted a payment of the chec k, and 
 the mere physical act of the bookkeeper, atter notice oi the suspension 
 of the trust cwnpany; of striking out the ch^ge and transferring it 
 to the credit column, did'ribf'deprive'the plaintiff of the right_thathad 
 accrued by reason of the "charge that had been, made against Jthe de bit 
 account. ""By^charging the account of the trust company with this • 
 check, the same has been paid, nothing more was left to be done, and 
 the plaintiff was entitled to receive the proceeds of the check. * * * 
 
 As was said by Mr. Justice Miller in Baldwins Bank v. Smith, 215 
 N. Y. at page 83, 109 N. E. at page 140, L,. R. A. 1918F, 1089, Ann. 
 Cas. 1917A, 500: "All that is necessary to constitute payment is the 
 intention to make the application, which may be evidenced in a variety 
 of ways, e. g., by bookeeping entries, by canceling the note and sur- 
 rendering it to the makers, by the drawing of a check by the makers 
 and its acceptance in payment by the bank." * * * 
 
 I am therefore of the opinion that the defendant recognized the va- 
 lidity of the check when it debited the check against the account of 
 the drawer, the Mutual Trust Company of Orange, and plaintiff is en- 
 titled to a judgment for $18,231.66 and $832.38 interest. * * * 
 
 HUNT V. SECTjRITY STATE BANK. ^ 
 
 (Supreme Court of Oregon, 1919. 91 Or. 362, 179 Pac. 248.) 
 
 Action by John P. Hunt against the Security State Bank. Judg- 
 ment for plaintiff, and defendant appeals 
 
 The defendant, the Security istate Bank, is a corporation engaged in 
 the banking business in Woodburn, Or. The plaintiff. John P. j iunt. 
 open ed a gene ral deposit account in the bank; and afterwards, on 
 January 247 l^ir; lie drew a chec k directing the bank to pay $90 
 to the order of E. Bur(iT dcr"Srid dJHy ered the clieck .to the payee in' 
 Salem. On January JTriVT T,' at about 8 :30 a. m., the ., defendant re - 
 ceived, thrjDUgfT^ffie^aiail, fconi. the TIrSe3~States_Ifa.ti £inal Bank of 
 Portland, a-"cash Jetter" and ten checks drawn on-the Woadhuxajjank. 
 The "cash letter" is dated January 26, 1917. It contains an itemized 
 statement of the amounts of the accompanying checks, shows that the 
 total amount of the checks is $671.95, and directs the Security State 
 
Ch. T) DISCHARGB 935 
 
 Bank to remit to the United States' National Bank "in Portland ex- 
 change." The Burdick check was among the 10 checks received with 
 the^"cash lette r:" — WhShn^HeTBurdrckdieclf reached 'the plaintiff it 
 t)ore on its back the indorsements of E. Burdick, Ashley & Rumelin, 
 Bankers, and the United States National Bank. Immediately u£pn 
 receipto f the '^ sh letter" and the 10,,checks .E> H. Hoff, the president 
 of the "Security State Banlc^ "footed the_chegkaJltL.th'e_adding machine 
 tols ge iFlhey^wo ulcl total jight witji the cash letter, then exainjned 
 t he checks~as to their s ignatures, and as to whether each account had 
 suff icient |iin^° *•" "TppfrfT' and then each check , including the Burdick 
 ~dieCR, wasmarked "Paid ^geclirity State Bank Jan. 27, 1917," with 
 the bank's "Paid" stamp, and Jinal]^ each check was., "placed uponji 
 th ree-cornered spi ndle that has a three-cornered cutting edge^nd are 
 tli ere mu tilated. ' Wtrerievef'"the Wbbdburn hank receTveoa' check 
 through tfie mail, and ascertained that there were not sufficient funds 
 to pay it, or if the signature was not regular, the bank never marked the 
 paper "Paid," but the check was always returned to the forwarding 
 bank. The steps taken by the defendant with reference to the "cash 
 letter" and checks received from the Portland bank f pllowed the j ame 
 course which t he bank had always .Jakea_,^ien_rLj:eceLved ctiecks 
 th-r cruijh- iKemait-ffSIir outside banks. 
 
 At abour"9^Tr5~oir~ffirmorning of January 27, 1917, but after the 
 Burdick c heckTJad'been stamp^^ "Paid'' and placed upon the spmdle, 
 Hunt~a p"pearecl at the bank, an J'asked for a statementjaf hi s acc ount 
 "y£__fo^2a.te."^ " The statement was a£_once^_prepared and ddiyered to 
 Hunt. * * * Upon receiving the statement of this account. Hunt 
 proceeded to examine it, and he says that, ghen he "saw that the E. 
 B urdick c heck^asn^ charged" to his account, Be Told "Hoff that he 
 "had fl rtiprk. mitTnr ninety doUar&in favor of E. Burdick," and that'he 
 
 "rIpgirpH |n gtnp pavmpnt rvn fhp rliprk " Hunt testified that Hoff \ 
 
 then said, "'J^he E. Burdick check has just arrived; I have it here 
 right in my han3";"~an37 according to Hunt's testimony, Hoff "reache,d 
 tcy fes lef l. "g:nypicked off the spindle, the check and handed me, which 
 wa^~f He~Er gia£cE£Ercheck . ' ' 
 
 'We'shall assume that the verdict of the jury necessarily implies a 
 finding that Hunt directed the bank not to oav the checJi,, At about 3 
 o'clock in the afternoon of January 27, 1917, the defendant Are-^y ' ^ 
 draft directin g the Scandinavian American Bank of Portland to pay 
 lo the'Uniteg S!ates" National Bank of that city the sum QL$g71.9S, 
 the amount of the 10 checks, in clud ing the Burdick check, which had 
 been received with the "cash lettel. ' 'I'Uly diraft was mailed that after- 
 noon to the United States National Bank, and was subsequently paid by 
 the drawee bank. 
 
 In March, 1917, the plaintiff recei ved from the defendant a. state- 
 ment, fSg^er with cariceledT^checks mentioned in the statement, show- 
 ing the condition of this account to March 2, 1917. The statement 
 contained a charge of $90 under date of "Jan. 27^" an d the Burd ick 
 chgdnrgg amo ng tHe cancd eT checks." In"TKe"ra nguage of Hunt, "I 
 dioH't^ cbnSiZlSge^ the correctness of this statement, and I returned 
 ii im I floff l Tthe ninefv-d ollar checkjhen. and there." Subseqtrently, on 
 April 21, 1917, thepTaintiff' drew a check on the defendant for $90 
 payable to "self," but the bank refused to pay the check, and wrote 
 on it the words "Account closed." The^^laintiff then commenced this 
 action to recover the sum of $90, which he~claims' the bank wrongfully 
 
936 NEGOTIABLE INSTRUMENTS (Part 3 
 
 charged against his account. A trial resulted in a verdict and judgment 
 for the plaintiff ior $90. The defendant appealed. 
 
 Harris, J. The de|e nd ant vigorously contends that it was entitled 
 to a directed verdict. tTTTs contention proceeds upon the theory that 
 th e act of placing it upon the spinSleTwhere .alLllp aid ''. checkg , were, kept 
 until entries were made upon the books, after having first ascertained 
 tTiat there were sufficient fundsTcTthe credit of the drawer, and that 
 the signature was genuine, operated as a c harge, against the dr awer, 
 and as a credit to the holder of the check, and amounted to payrrient. 
 The plaintiff insists that the acts of the defendant did not effect a trans- 
 fer of credit from Hunt to the United States National Bank of Port- 
 land, the holder. 
 
 The relation existing between a bank and its depositor is that of 
 debtor and creditor ; a check is simply an order signed by the creditor 
 (depositor) directing the debtor (bank) to pay money to named per- 
 son; an UHCS rtified check of itself does not operate as a legal or as an 
 equit able assig nment of any pafrsi the funds m the bank, and, unles s 
 
 it grrppta tVio-rliPrV ih^J^^IllL-JS-J""'*' ^'abl" ^'" <"^ hnlHpr ; and COnse- 
 
 "queiitly the drawer of the check can, if he chooses, countermand the 
 check or first order, and the bank will be obliged to obey the second or 
 countermanding order, unless the bank has paid, or has become obli- 
 gated to pay, the check. * * * Jf what the bank did prior to H unt's 
 
 ..conx£rsa,tjgn_witb_Ho ff amounted to pavrhent. then Hvin thad lost the 
 right t o counter mand payment of the check. '" 
 
 " Uuring~the investigation we must not. lose sight of the fact that pay- 
 ment and acceptance are essentially different. Payment is the natural, 
 expected, and intended end of a check. Acceptance strengthens the 
 vitality of a check, and serves to prolong, rather than to terminate, 
 the life of it. * * * -yye must remember, too, that the case now 
 under consideration is not like those where the holder , enters a bank 
 with a check, presents it, and is given credit for the amount as a de- 
 posit ; nor is this case like those where the holder mails a check to the 
 drawee bank, and the latter, in obedience to instructions, charges the 
 account of the drawer, and credits the account of the holder, with the 
 amount of the check, for in all those cases payment is made just as 
 completely as it is when the bank actually pays the money over the 
 counter to the holder and he at once returns it to and deposits it with 
 the bank. * * * Theinstructions to the defendant were to "remit 
 
 ^Jn Portla nd exchange?" TEe" Woodburn ballk-did-Tror'aravFof ' mail 
 
 "tEsOraft for the purpose of remitting to the United States National 
 Bank of Portland until after_JIunt_couiitennanded payment of the 
 Burdick check, and theretore we neeH'not decide whether payment 
 was completed when the draft was deposited in the post office or when 
 received by the Portland bank. 
 ' WhenJiunt^ordered the defjndaat nottopayJiie_ciie€k,--dje_bank 
 
 ^afl2oil£_a.Qthing more than to satisfy itsglflffiaTArchfiji^i^^wasgenu- 
 inCi^nd that Jhere .was suffident fuitds to pay it, and tcT stamp it 
 
 ^T?aid," and to place it upon the spindle. All this was merely preparing 
 to pay; it was simply a step towards payment; if^ w as n ot payment. 
 No entry wa s made on the_bgoks. The drawer_^arnot changed ; the 
 
 Jioldet-was:asCEgaited'~irmay be assumed' that t^lBanirTnte'nded 
 to make appropriate entries on its books and to remit ; but we are 
 confronted with a situation where the bank had not yet executed its 
 intentions. An intention to pay is not payment. What the bank did 
 
Ch. 7) DISCHARGE 937 
 
 was done in contemplation of payment ; but payment was not complet- 
 ed. * * * 
 
 The plaintiif cannot recover, if what was done by the defendant 
 resulted in an acceptance of the check. * * * T ^p word "P aid" 
 was stamped upon the check by the defendant, 'when determining 
 whether this constituted an* acceptance within the meaning of the law, 
 we must not forget the essential difference between payment and accept- 
 ance. Payment ends the life of a check. Acceptance reinvigorates 
 it. The word "Paid" tends to indicate, if it evidences anything, extinc- 
 tion rather than rejuvenation of the check. To the extent that it speaks 
 at all, the word "Paid" tells of what has been done rather than of what 
 will be done. In Guthrie National Bank v. Gill, 6 Okl. 560, 565, 54 
 Pac. 434, 436, it was decided that the word "Paid," stamped upon a 
 draft, "had no tendency t o establish an acceptance," because it did not 
 evidence an agreement or promise to do sometKmg." * * * Stamp- 
 ing the word "Paid" did not of itself produce an acceptance of the 
 check. * * * 
 
 Hunt countermanded payment of the check before the bank had 
 either paid or accepted it, and the judgment appealed from must there- 
 fore be affirmed. 
 
 In re WEGMAN PIANO CO. 
 (United States District Court, N. D. New York, 1915. 221 Fed. 128.) 
 
 Ray, District Judge. * * * It is well settled in the state of New 
 York and in the courts of the United States that, where a debt is ow- 
 ing by one person to another, th e_ giving of a note byjthe debtor to the 
 creditor and the_r eceipt of such n ote b y the credi t or w jTTliot pay_ or 
 exlitleuisn the ongirm^ claim or debt . in_theabsence of an agreement 
 between the parties that the note is toTie receTved as payment. This 
 is the common-law rule, which prevails in England and has been adopt- 
 ed in nearly all of the states in this country. In Indiana, Maine,.Mas- 
 sachusetts ^nd Vermont the rule is differ ent. ' In those states it has 
 bee n hel3~'tEat the note extinguishes the existing- debt, unless* it js 
 agreed to the contrary. However, the rule applicable to thjs-contro- 
 vetsy Ts the oneTirst stated. * * * 
 
 It is, of course, c ompetent for the p arties to the transaction to ex- 
 pressly agre e that the note will be and is accepted in full payment 
 and extinguishment of the original debt ; but to establish this as a fact 
 the evidence should be clear and satisfactory. There is no presump- 
 tion that the note is accepted or received as payment. * * * 
 
 (b) DISCHARGE BY CANCELLATION 
 
 N. I. L. Section 119 (3). A negotiable instrument is discharged 
 by the intentional cancellation thereof by the holder. 
 
 N. I. L. Section 123. A cancellation made unintentionally, or 
 under a mistake or without authority of the holder, is inoperative ; 
 but where an instrument or any signature thereon appears to have 
 been cancelled, the burden of proof lies on the party who alleges 
 that the cancellation was made unintentionally, or under mistake or 
 without authority. 
 
'938 NEGOTIABLE INSTEUMBNTS (Part 3 
 
 (c) DISCHAEGK BY MATERIAL ALTERATION 
 
 N. I. L. Section 124. Where a negotiable instrument is materi- 
 ally altered without the assent of all parties liable thereon, it is 
 avoided, except as against a party who has himself made, au- 
 thorized, or assented to the alteration, and subsequent indorsers. 
 But when an instrument has been materially altered and is in the 
 hands of a holder in due course, not a party to the alteration, he 
 may enforce payment thereof according to its original tenor. 
 
 COLUMKIA GROCERY CO. v. MARSHALL. 
 (Supreme Court of Tennessee, 1915. 131 Tenn. 270, 174 S. W. 1108.) 
 
 Bill by the Columbia Grocery Company against O. M. Marshall. 
 Bill dismissed, and complainant appeals. 
 
 Fancher, J. Thejasgwas brought to c ollect on an open accoun t. 
 Notes h ad be en executedDy~detendant covering the account butjna- 
 fEftally alt£ra3~by coinplainants. The case involves the question a s 
 to whether^suitxan. be., maintained on the_originaLaccount. 
 ■^ — THet^umbia Grocery Compariy"is''a'partnership composed of Mose 
 and Ben Lazarous, doing a wholesale grocery business at Columbia, 
 Tenn. Defendant O. M. Marshall was a retail merchant at Campbell's 
 Station, in Maury county, and for several years had purchased goods 
 of the complainants, and a running account had existed for considera- 
 ble time. Complainants sold thjs business and desired to close out 
 their accounts. They urged defendant to pay his indebtedness, and he 
 disputed a large part of the account. After some considerable dispute 
 ^bout this, he finally agreed to give his interestzheaxiiig-xiQtes,_which 
 he didTcbvermg the accoiirit"of~$l,073.78 and $45 of in terest. The 
 notes~wefe~mrr'nomber, bearuig date February 2, 1914—9 for $75 
 each, and one for $200, and another for $242.88. One note fell due 
 each two months during the years 1914 and 1915. 
 
 The n6tes were prepared by complainants some days before execu- 
 tion and handed to defendant. They were_a£iuail;g_|5£cu±£d_E£l2rtiary 
 21st andjdeliy ered to c omplainants. T hatTven ing ^en TayarnnT^g To- 
 cove|53Jiiat-the_EQdd^egerTiad left out a__cl ause the y usually inserted 
 in_serial_noteaj3iJiLi5. character ,"~aimrjffiey3adrTt -&lL3rin-AW.tH..,a_type- 
 writer on each.note ; the first beiing as follows : "This is note 1 of a 
 series oF ^ri, -default, in payment of any^note of tEis~series all noteT 
 becorne_ due and p ayable." ~ "" 
 
 ^Defendant's attention was notj:alled_ to this^ alteration. The notes 
 wereTReiTpu! inatox with other notes and" papers and placed in the 
 vault in the bank for safe-keeping. * * * ^Defjeadant- * * * 
 £alled_to_pay_the_firsLnote, and, when the note w,as produced, he noticed 
 1^ typewritte n alteration, a nd thereupon refused to pay. * * * 
 
 rr"5rar"customary for the^BOnkkegper tcTwrite^ this clause into notes 
 of this character, and some notes had been so fixed after their execu- 
 tion, in other instances. 
 
 This suit was bmightjo recaye:t;_,QnJh£JMiginaiaccoujrt The de- 
 ienM^rrgSilTs^ recovery on the grounds: 
 
 First. That the notes were intended^and ^id_extinguish the original 
 
Ch. 7) DISCHARGE 939 
 
 indebtedness^ being taken in settlement and closing out of the account ; 
 and that, the notes being void because of the alteration, no recovery 
 can be had. 
 
 Second. That, the alteration being fraudulently made, no recovery 
 caQ_be^"h3rd7TegafdTess"bf whether the original account was extin- 
 guished. 
 
 From a review of the authorities, we are of opinion that the weight 
 of authority is as follows : 
 
 That the taking of a promissoiTjiote ofa debtor doesjiot extinguish 
 the original debt, nor operate as ^ payment, unless so intended^ or ^greecT 
 between the parties, though it"^n ay extend the time of payment, an3 if 
 for any reason without iiaud the creduor"loses his riglit to sue onThe 
 nofeTl ie Js^t liberty to sue on the original indebtedness. * * * 
 
 The early doctnne on lETs subject applied to deeds, because an- 
 ciently most transactions which were reduced to writing were evidenced 
 by instruments under seal, and an immaterial change made by the 
 
 obligee, or in a material point if made by a stranger, avoided it. 
 * * * 
 
 But now this early doctrine is nowhere adhered to, and is superseded 
 by a more reasonable doctrine that ai5Liniilial£riai_chang£,Jj}Lwhom- 
 soeye r made, at least wh en unaccompanied by fraudulent design, will 
 not invali date the instr ument, and that a material change by a stranger 
 will not avoid jt. * * * 
 
 It does not clearly appear in the present case that there was an in- 
 tention, at the time these notes were executed, that they were to set- 
 tle and extinguish the original demand for goods, wares, and mer- 
 chandise sold and delivered. And the modern rule being that this in- 
 tention must appear or else the creditor can sue upon the original 
 debt when he loses his right innocently or without fraud, we reach 
 the conclusion that the case must turn alone on whether the complain- 
 ants have lost that right on account of their own wrongs. * * * 
 
 The question in the case then is:__ What i s the degree of the wrong 
 or the effect of the material_altera.tiori_niade"in each of Jhese_ notes? 
 ^"^"Very aole and exhaustive briefs have been furnished on the ques- 
 tions involved^ and we find no material difference in the position of 
 counsel either as to the facts or the law. It is the conclusion from the 
 facts upon which counsel differ. The complainants maintain that these 
 insertions in the no tes were made~ihnocently and in accordance with 
 cSlHpIainanf|[lcustom,i. and do not affect the_ right to sue on the orig- 
 inSt'SeEt. " 
 
 The defendantgjiys that though he did not owe the complainants as 
 much as-thSy~c!aimed, in order to get time, and prevent them from 
 closing him out in business, he gave these notes ; that the insertion of a 
 stipulation after delivery, without his assent or knowledge, that default 
 in the payment of any one note would cause all the notes to become 
 due and payable, was a m aterial change in the contract; that such a 
 change, which the chanceTIor mildly termed constructive fraud, was 
 in reality an intentional and subtle fraud and deception, for which 
 the punishment will be inflicted to the extent thatthejLwiJHose their 
 right to sue on theorigi rial co ntract. 
 
 — iPhe-'1Bio3erlr-rctle7as expressed in many authorities touching this 
 whole question, may be staled as follows •, The Jntent _with which an 
 a lteration_ ofan iastrument is rnade is not of material consequence in 
 determining the^ effect upon~tHe immediate instrument, but the intent 
 
940 NEGOTIABLE INSTRUMENTS (Part 3 
 
 jyrjncitvve is ofjgreat imE ortance in determining whether a recove ry 
 can be had u pon th i~original debt or cofi^iderati on. 
 "rfTKe~alteraHon of a written instrument is made by the holder with 
 a design and intentto_defraud--tb£_inak er, it extinguishes jhfi_jdebt. 
 This rule is foinntea'on'puHicpolicy, andln order to preservethe in- 
 tegrity of valid legal instruments, by providing a punishment for the 
 wrong, and to deter the holder from tampering with it. If, howev er, 
 the alteration is without fraudulent inteiit_Mdlik i t m ilLjleatroy^^e 
 -^trimientrit \^"not destroy the right to recover on t he original cofi- 
 "siaefa!io'n,'~ol"which the. instrument is a mere evidence. Thus, if a 
 holder of a promissory note makes a material aJteration in it after its 
 execution but without any design to defraud, and in the belief that he 
 had a right to aUer it in order to make it conform to the original agree- 
 ment of the parties, such alteration does not deprive the holder of 
 the right to elect to 4isregard the note and to sue on the original ob- 
 ligation, provided the note was not accepted as payment thereof. 
 * * * 
 
 There is some authority that although the alteration be material and 
 fraudulent, since a bill or note suspends and is not absolute payment 
 of the debt for which it was given, such alteration only extinguishes 
 the security, and the original consideration remains, but this is not 
 sound doctrine. The correct rule undoubtedly is that, when a party 
 to a bill or note f rauduj ently alters its legal effect, he not only destro ys 
 the instrument, buTTie'alioSctiriguishes the debt for which it was 
 givear — * — * — -* - - - 
 
 We think the chancellor very mildly termed this act of the com- 
 plainants a constructive fraud. It was more than that. It was not 
 made in an innocent effort to conform the instrument to the true in- 
 tention and agreement of the parties or through ignorance, or any 
 other simple, guileless motive. ,It was a secj :fiLand stealthy attempt to 
 gaii3._jii_jjixantage. The defendant says jthatjhgjvould -not- have ex- 
 "ecuted the papers with stipulafions that, in the event of default of one, 
 all would become due and payable, and it is reasonable to belTeve he 
 would not. He was attempting to get a breathing spell between pay- 
 ments so he could meet them, one by one, through a period of two 
 years. His wife had been sick in the hospital, and he was embarrassed 
 financially. His debts were pressing him. These insertions in the 
 notes jifistroyed ihe. whole advantagejigjiad-gairiisrby closing the"ac- 
 count and substituting time notes, if he should be so unfortunate as 
 to fail in one small payment. He went to make a payment before it 
 was due and discovered the change, and thereupon promptly refused 
 to pay. 
 
 The law on the subject is founded on wise public policy, and we are 
 not at liberty to disregard it. 
 
 Affirmed. 
 
 (d) DISCHARGE BY RENUNCIATION 
 
 N. I. L. Section 122. The holder may expressly renounce his 
 rights against any party to the instrument, before, at or after ma- 
 turity. An absolute and unconditional renunciation of his rights 
 against the principal debtor made at or after the maturity of the 
 instrument discharges the instrument. But a renunciation does 
 
Ch. 7) DISCHARGE 941 
 
 not affect the rights of a holder in due course without notice. A 
 renunciation must be in writing, unless the instrument is delivered 
 up to the person primarily liable thereon. 
 
 (e) DISCHARGE BY AN ACT WHICH WILL DISCHARGE A SIMPLE 
 
 CONTRACT 
 
 N. L L. Section 119 (4). A negotiable instrument is discharg- 
 ed by any other act which will discharge a simple contract for the 
 payment of money. 
 
 This general provision incorporates the various methods of dis- 
 charge of simple contracts which were taken up in Chapter 5 of 
 Contracts': novation, .accord and satisfaction, discharge by bank- 
 ruptcy, by statutes of limitations, etc. 
 
 (f) DISCHARGE BY ACQUISITION OF TITLE FROM A HOLDER 
 
 N. I. L. Section 119 (5). A negotiable instrument is discharged 
 when the principal debtor becomes the holder of the instrument at 
 or after maturity in his own right. 
 
 It is possible for a maker to acquire title to the note as agent for 
 another, in which case he becomes a holder not in his own right. 
 The instruqient in such case would not be discharged. Nor would 
 the instrument be discharged upon its surrender to the maker, 
 upon the execution and delivery by the maker to the holder of a 
 new note which, for any reason, was invalid. But a surrender of 
 the note, upon part payment and an oral promise of the maker to 
 pay the balance, would discharge the maker on the note. In 
 various ways the question may be presented: Did the party pri- 
 marily liable acquire title in his own right? The fact that such 
 party has regained physical possession of the instrument is not con- 
 clusive that the instrument is discharged. 
 
 SECTION 3.— DISCHARGE OF REGULAR INDORSERS 
 
 N. I. L. Section 192. The person "primarily" liable on an in- 
 striunent is the person who by the terms of the instrument is 
 absolutely required to pay the same. All other parties are "sec- 
 ondarily" liable. 
 
 N. I. L. Section 120. A person secondarily liable on the in- 
 strument is discharged: (1) By any act which discharges the in- 
 strument; (2) by the intentional cancellation of his signature by 
 the holder; (3) by the discharge of a prior party; (4) by a valid 
 tender of payment made by a prior party; (5) by the release of 
 the principal debtor, unless the holder's right of recourse against 
 the party secondarily liable is expressly reserved; (6) by any 
 agreement binding upon the holder to extend time of payment, or 
 to postpone the holder's right to enforce the instrument, unless 
 made with the assent of the party secondarily liable, or imless the 
 right of recourse against such party is expressly reserved. 
 
942 NEGOTIABLE INSTRUMENTS (Part 3^ 
 
 SECTION 4.— DISCHARGE OF A SURETY 
 
 There is no provision in the Negotiable Instruments Law ex- 
 pressly dealing with the subject of discharge of sureties. A surety 
 may occupy any position on the instrument: Acceptor, maker, or 
 indorser. Consequently the circumstances under which a, surety 
 will be discharged must be sought in section 119, dealing with the 
 discharge of the instrument, and section 120, dealing with the dis- 
 charg.e of parties secondarily liable. 
 " It will be recalled from the cases in Contracts dealing with the 
 rights of a surety, that certain facts will operate to discharge z 
 surety which will not operate to discharge a principal debtor. The 
 surety, in other words, will be discharged by any act which wilt 
 not operate to discharge a debtor and in addition he will be dis- 
 charged whenever the creditor does any act which in general 
 tends to prejudice the rights of the surety. The Negotiable In- 
 struments Law does not recognize that a surety on a negotiable 
 instrument may be discharged by the special circumstances which, 
 in the law of suretyship, have always operated to discharge the 
 surety. The question is: Does the Negotiable Instruments Law, 
 by implication, take away from the surety these special defenses. 
 Where the surety has signed as an accommodation indorser, the 
 circumstances that will discharge him are specified in section 120, 
 dealing with the discharge of parties secondarily liable. By sub- 
 sections 5 and 6 of section 120, the Negotiable Instruments Law 
 expressly recognizes two of these special defenses of the surety 
 but recognizes no other. It is possible to argue that, having dealt 
 with some aspects of the law of suretyship, the surety is deprived'^ 
 of all other special surety defenses. But where the surety is not an 
 accommodation indorser but is an acceptor or maker, the surety's 
 right of discharge is governed by section 119. Here the surety's 
 position is worse than it is when he is an accommodation indorser, 
 for, section 119 does not confer upon such a surety any of these 
 special defenses. The fact that some special rights of the surety 
 were dealt with in section 120, and not dealt with in section 119- 
 leads to the inference that the framers of the act intended to 
 take away from all sureties who were primarily liable on the 
 instrument as maker or acceptor all of the special defenses of the 
 surety. <Jliis__inference is possible unless the jhrase "a person 
 secondarily liab le," as used,in. section 120, may he interpreted to- 
 mean not only all regular and accommodation indorsers — which it. 
 -OHqiieitionably does includer— but al so all su retie s who_ ai:are_mak- 
 ers or acceptors. If a surety "maker or acceptor may be called "a 
 party, secondarily liable" then such party may at .least avail him- 
 self of the two special defenses recognized^by subsections. 5 and 6 
 of section 120, dealing with the matter of release of or granting 
 an extension of time of payment, to the principal debtor, by the 
 holder. If a surety ,niaker„!0i:.,acceptSir_ma3f.Jiot- be xegarded as a 
 party s^CorfJarily liable then such party is thrown back on sec- 
 
Ch. 7) DISCHARGE 943 
 
 tionll9. This section either takes away all special defenses of 
 the surety or leaves the whole matter of a surety's defenses un- 
 touched. Section 196 provides that: In any case not provided 
 for in this act the rules of the law merchant shall govern. If 
 this section is applicable here then the surety's special rights as 
 developed in the law of suretyship are preserved. The cases fol- 
 lowing indicate the state^of the authorities on these questions. 
 
 UNION TRUST CO. v. McGINTT. 
 
 (Supreme Judicial Court of Massachusetts, 1912. 212 Mass. 205, 98 N. B. 679, 
 
 Ann. Cas. 1913C, 525.) 
 
 Action by the Union Trust Company against William H. McGinty. 
 Verdict for $365 was directed for plaintiff, and defendant excepted. 
 
 RuGG, C. J. The single question presented in. this ..case is whether 
 the accommodatiqn_maEer*of a' promissory note is discharged, if the 
 liolderTiinowing that~tEe^ n^ote^was made for the accomrriodation of 
 the payeg'^Bd'indorser, Tjx. agreement with the indorser upon a valuable 
 consideidLiOU, wIlllU^Utth_e_ maker's consent^ extends the time of pay- 
 ment. ~~" 
 yBejorg the enactment of the Negotiable Instruments Act (St. 1898, 
 c. 533; R. L. c. 73, §§ 18-212) one who made a promissx:try_Jiote-ior 
 the acc ommodation of annfher was as betw een— tha-parties-a— surety. 
 The holdM;^ _^who had knowledg'e of th^ ttue tfila ti"" nf thp par tias^was 
 b ound To act towa nl-such. accommodation maker as to wayd 3, -surety 
 in or der to preserv e his rights^gainstjiim. Under such circumstances 
 an ext ension of tjmp to_tli e person ultimately liable^ without the consent 
 of the su£e±}Ey--that-is_th£^a.cconimo3ation maker, released the latter. 
 * *"* The pr^rispjTnini- is -lyhet her this rule of law has been changed 
 by the Nego tiabIe1!nstrum ents Act. " 
 
 - It ia m 'atfer of common knowledge that the Negotiable Instruments 
 Act was drafted for the purpose of codifyin g the law upon the subject 
 -of negotiable instruments and making it uniform throughout the coun- 
 try through adoption by the Legislatures of the several states and by 
 the. Congress of the United States. The design was to obliterate state 
 lines as to the law governing instrumentalities so vital to the conduct 
 -of interstate commerce as promissory notes and bills of exchange, to 
 remove the confusion or uncertainty which might arise from conflict 
 of statutes or judicial decisions amongst the several states, and to make 
 plain, certain and general the controlling rules of law. Diversity was 
 to be moulded in uniformity. This act in substance has been adopted 
 by many states. While it does not cover the whole field of negotiable 
 Instrument law, it is decisive as to all matters comprehended within 
 its terms. It ought to be interpreted in such a way as to give effect 
 to the beneficient design of the Legislature in passing an act for the 
 promotion of harmony upon an important branch of the law. Sim- 
 plicity and clearness are ends especially to be sought. The language 
 -of the act is to be construed with reference to the object to be attained. 
 Its words are to be given their natural and common meaning, and the 
 prevailing principles of statutory interpretation are to be employed. 
 Care should be taken to adhere as closely as possible to the obvious 
 meaning of the act, without resort to that which had theretofore b^en 
 the law ot this commonwealth, unless necessary to dissolve obscurity 
 
944 NEGOTIABLE INSTEUMENTS (Part 3 
 
 or doubt, especial!x>m instances where there was a difference in the law 
 in the different states. 
 
 Approaching the act from this point of view, it i s jiBparent thatj o 
 relation of principal and sur pty is ps.ta h1ishprl o r rnntfmpla ted hv an y 
 'of Jtsjfi ctiCTS. It determine s the liabilit y: of the various parties to ^ 
 negotiable instr ument on the^§iaof thatjadiich i§, written on the pape r, 
 ^r ne oPii gfa tion of alT make rs, whether for accommodation or otherwise 
 is" to payto the hold er for value^accor ding; to the terms of the bil? or 
 
 "note. Their obligation is primary a nd absolu te. * * ^ The~act 
 makes no provision for the^gi'oqf'ot^ot tier and differen t relation th an 
 tha t expressly- .uii3ertaken aiiH." defitied byihe^jtenor of the_instrument 
 
 ■~si^ed. The fact that one is an ac commodation make r gives rise to a 
 duty n oJess.. tScgSiaiS^jdiSexeiiLlCLJJie^hoIdeE-J^^ 
 im posed upon a .makeEJMhajr. eceived v alue. This is expressly provided 
 by the act, even though such holder knew at the time of making that 
 the maker was an accommodation maker. * * * The act further 
 provide s in defim te terms that the instrument and hence one .pi'imarilY 
 
 -li abie rs ^di&charg£3I.'ifi one of ilve different, wajzs, * *^* that is, by 
 payment by the principal debtor, or by the party accommodated, by 
 cancellation, by any other act which would discharge a simple contract, 
 and by the principal debtor becoming the owner at or after maturity. 
 There is no mention here of a discharge of an accommodation party 
 by extension of time. But among the ways in which a party secon- 
 darily liable may be discharged is * * * an agreement by the holder 
 
 ! to extend the time of payment or to postpone his right to enforce the 
 instrument "unless made with the assent of the party secondarily liable 
 or unless the right of recourse against such party is expressly re- 
 served." 
 
 Whatever force might attach to the enumeration of ways in which 
 the instrument and consequently parties primarily liable might be dis- 
 charged, if this provision stood alone, the inference arising from the 
 omission of extension of time from such enumeration and its inclu- 
 sion among the ways in which persons secondarily liable may be dis- 
 charged is almost irresistible that the Legisl ature did not u itoid^that 
 
 L£H§2£LP"SJaoll..tiSfete!Shonld be :fliS£H5xgedjnJ;!jat_SainnerrTiiese 
 
 r two sections standing side by side, both dealing with the subject of 
 discharge of liabilities of parties, the one mentioning, the other not 
 mentioning, extension of time by the holder as a means of working 
 discharge of liability, cannot be treated as accidental or without signifi- 
 
 i cance. It is strong proof of a legislative purpose to change the pre- 
 existing law of the commonwealth. These considerations outweigh the 
 argument adduced from the fact that the "instrument" rather than 
 "parties primarily liable" is the language used in section 119 and from 
 the phrase of clause 4 to the effect that the instrument may be dis- 
 charged "by any other act which will discharge a simple contract." 
 Theact establishes a liability on the part of an accommodaHo n mak er. 
 >^^£E2s::ag_^Hected by an extension oTtiaie;;^given by the holder to 
 any other party to the note, evenjhou^ as befwg e i i b udi parly an d 
 the aCCumniudalton maker a djfferent^relation may subsist in fact from 
 that appearing on the face of the paper." "TKere^iIFis to render some- 
 what more rigid the rights of the parties as set forth in the written 
 instrument, fend so far as the holder is concerned to establish liability 
 to him upon a firm basis, not easily shaken by parol evidence. * * * 
 This appears to be the view taken without exception by the courts 
 
Ch. 7) DISCHARGE 945 
 
 of other jurisdictions which have considered the point. In the inter- 
 pretation bf a statute widely adopted by the states to the end of se- 
 curing uniformity in a department of commercial law, we should be 
 inclined to give great weight to harmonious decisions of courts of 
 other states, even if we were less clear than we are in this instance as to 
 the soundness of our own conclusion. Vanderford v. Farmers' Bank, 
 105 Md. 164, 66 Atl. 47, 10 L. R. A. (N. S.) 129; Cellers v. Meachem, 
 49 Or. 186, 89 Pac. 426, 10 L. R. A. (N. S.) 133, 13 Ann. Cas. 997; 
 Wolstenholme v. Smith, 34 Utah, 300, 97 Pac. 329; Bradley Engi- 
 neering & Mfg. Co. V. Heyburn, 56 Wash. 628, 106 Pac. 170, 134 Am. 
 St. Rep. 1127; * * * Richards v. Market Exchange Bank, 81 
 Ohio St. 348, 90 N. E. 1000, 26 L. R. A. (N. S.) 99; Fritts v. Kirch- 
 dorfer, 136 Ky. 643-650, 124 S. W. 882. 
 Exceptions overruled. 
 
 SCANDINAVIAN-AMEKICAN BANK OF FARGO v. WESTBT. 
 (Supreme Court of North Dakota, 1918. 41 N. D. 276, 172 N. W. 665.) 
 
 Action by the Scandinavian-American Bank of Fargo, N. D., against 
 Simon Westby, with counterclaim by defendant. Judgment for plain- 
 tiff, and defendant appeals. 
 
 Grace, J. The complaint states an action to recover upon a prom- 
 issory note executed by defendant to plaintiff for $2,320.64. Yhe 
 answer admits the execution and deliv'ery of the note, but denies it 
 was executed for valuable consideration. The defendant, in a very 
 extensive answer, sets out other defenses. To the answer there is a 
 reply interposed. It is not necessary to set out the answer in full, but 
 the substance of the answer is that on August 8, 1911^L _A. Stafp e 
 exec uted and delivered to pla intifL" pi-"TTiis<;nrY nntp" fnr yi^yd^ on 
 with interest ar 12 per cent., payable Novemberl7~I9I2. At the tirn e 
 the note was executed, there wa s pledg^ed to plaintiff as~co llateral se- 
 curity to said note, certain_stock_certificates' of the Citizens' StatiTBank 
 ~of~Ale3tSaer of ~ffie~p'af Talue oT~$TTO per share. The answer fur- 
 ther states that in the year 1913, A. J. Stafne was the owner of 25 
 shares of the corporate stock of the Williston State Bank of the par 
 value of $100 per share. It is claimed by the defendant that about 
 the 1st day of August, 1913, A. J. Stafne gave defendant an option 
 to purchase the 25 shares of the corporate stock of the Williston State 
 Bank/with the understanding that if the same were purchased by the 
 defendant the purchase price thereof should be applied upon indebted- 
 ness of A. J. Stafne to the Williston State Bank of which the defend- 
 ant was president, director, and stockholder. * * * , 
 
 The plaintiff, in its reply, alleges the delivery of the note to it on ' 
 August 8, 1911, by A. J. Stafne, and the pledging therewith at that j 
 time, as collateral security thereto, the 20 shares of stock of the Citi- - 
 zens' State Bank of Alexander. The replv further- alleges., in sub- 
 stance,_ih at the rnnsidf ration atlhe^dfiliveryto. th t.d.eiendant by the 
 plai^ ffof 25~shares in thg ^Wjlli&toa State Bank was the guaranty 
 of the~^^^ent_atjnatunty of .the, .flpte sued upon; that said guaranty 
 was^iSdorsed upon~said~note,and^jrasJn the" follbwing words: "For 
 VahreT-eceived, I hereby guaranty the payment of the within note at 
 maturity or any time thereafter with interest at the rate of twelve per 
 B.& B.Btjs.Law— 60 
 
■946 
 
 NEGOTIABLE INSTRUMENTS 
 
 (Parts 
 
 -cent, per annum until paid, waiving demand, notice of payment and 
 protest" — which guaranty was signed by the defendant. * * * 
 
 The $1,745.90 note was no^t_paid_at maturity, and it was j^raew§d_ 
 ^&ree-difi^SIlt_tioi£s. The'fifBt-timewas on November 28, 1913, when 
 
 '^mon Westby and Albert J. Stafne executed a renewal note for $2,- 
 148.25. The second note was March 25, 1914, for $2,205, signed by the 
 
 ./same parties. T he third r enewal, sigaed-by- 4he d e fe ndan t only, was _ 
 
 fior $2^320.64, daFed NovemEer~20, 1914, and is the note upon which 
 suit IS brought. - 
 
 ^ The first point which we consider is whether or not the defendant, 
 by the giving of the renewal notes from time to time, is estopped to 
 urge the enforcement and collection of the original note, to renew 
 which renewal notes were executed. Tn other words, jf there existed 
 
 _ ^any infirmi ty in the original note, after the de fendant has execut ed 
 renewals of Ihe original note is he estopped ~t"o ~set lortti and felv 
 upon The origifial infirmity or defense "which he had, if any, tothe"orig"- 
 
 -iHSfnote ? Wt' are of the opimon" that, as between the original par- 
 ties to the obligation, where the holder of such note or obligation has 
 not parted with anything of value, or assumed a more detrimental 
 position by reason of the taking of a renewal note or obligation, any 
 defense^flrjr^ilfnily defendant might have taken the advantage ^and 
 
 "^nefit_2f_if_he had been ~siieg."upon the jaj;i5aal-obligatio n is equally 
 
 _02eruaaiijetained to hirn where he has. £xecuted renewal note nr- nate<; 
 and suit is brought upon the renewal note and there is no good reason 
 why this should not be so. The renewal note or obligation is but the 
 old note or obligation which is extended in the form of the renewal 
 note. The renewal of notes may be said to be of as much benefit to 
 the holder as to the maker thereof ; while the renewal, in almost all 
 cases, operates to extend the time of payment to the maker, the holder 
 is benefited by having live paper which is of more use in the business 
 world than past-due paper, and with these and a few other minor 
 differences, the renewal note is the same obligation as the original 
 note. * * * 
 
 The^riiijd and last-point relates to lhe_CQnyersion by t he plain tifi of 
 
 ■ the collateral, to wit . the_bank stpck in_^e~Citize ng^"ta te b^ik of 
 Alexander. This is tEe most important point of 'the case, and involves 
 an important point of the case, and involves an examination and con- 
 struction of that part of the Uniform Negotiable Instruments L,aw, in 
 its relation to the subject we are examining. .It must be conceded that 
 the re lation of Westby_tojthe plaintiff^the holdeTof the notePwasThat 
 
 ^ot_5U£etjir~* ^"'* "[CourFquotes sections 119 and 120 of the Ne- 
 gotiable Instruments Xaw.] 
 
 The claimLixUJae _plaintiff, in short, is that Westby, being- a surety, 
 h^liaEHity i§^ primary'ohe, and "notbing TKe^^giaintifi-might-jdiV-by 
 SKay of surrender of collateral or the, extension of time.jyitjhput the 
 knowledge^ or consent of the surety would, in any manner, -GauseThe 
 plaintiff^any liability to the defendant. In other words, the plaintiff's 
 ciaTm MrSunts to this: That ithe h older of ^the note, to secure the 
 payment of which there w as adim ttedly--altuii£laat'''^ollateral security 
 and, at the same time, having a surety on the note and knowing him 
 to be such, may ac t-mttuajree rein. He may turn thej:Qllat£rd_bg£lc 
 toJhe-Qri ginal debtor , or may otherwise "dtspose-^FTt ; .mayStend 
 le tjme,p.LEayrtlent, and, in fact, act with entire disregar d as lu t he 
 rights of the surety, and with total disregard to his liability as a 
 
Ch. 7) DISCHARGE 947 
 
 trustee, without incurring any liability on his part„.alLfln_ the the ory 
 that primaryji ability of the surety relieves the hol der ofthe~not£.irQm 
 
 ~ atiHisBTirtY_^ ndIrp'!pnnsitixlily..^" J]JEl'"""''^y '^vsingSHlL'^t ^"J collat- 
 ^1 security to _the.original note, or ar2singout_of the_ext_ensiQiLoJ3).e^ 
 time otja}2nen'Lof.thej5riginalnote, ai'-iQ. aojr, other manner. If the" 
 UnrfornTNegotiable instruments Act, as applied to this situation, means 
 that the holder of the note, although hd has abundant collateral se- 
 curity for his note, other than that of the surety, can deliberately dis- 
 pose of the collateral or return it to the original debtor, or otherwise 
 disposing of it, and can extend the time of payment without knowledge 
 or consent of the surety, all without incurring any liability on his 
 part to the surety, it appeals to our sense of fairness and justice in 
 just about the same proportion as a strangle hold, where, in a contest 
 of strength and science, one wrestler secures this deadly hold, and^ 
 slowly but surely, chokes his opponent into insensibility. _We do no t 
 
 4jelie3ifi_-tliat-^i4maryJialiility_ofa sur ety mean s what several^ o±_ the 
 courtsj iave said jtjaeans. 
 
 ~S^~a~ general rule, the surety signs the original note or instrument, 
 and is thus an original promisor, and if the original instrument has con- 
 sideration, that is, if the consideration of the original instrument is 
 sufficient to uphold the contract of surety, in such case, the surety is 
 an original promisor, and may be sued upon default occurring in the 
 note or instrument which he signed. His liability may thus be consid- 
 ered a primary one. I n the consid eration of this c a ge, we w ijjjtssiirnft 
 and consid er the li^BiIity~of t hg_deTendant_a primar y on e. 
 
 HavmgTn thFs case arrived at the "coiiclusion that the defendant is 
 a surety and assuming that his liability is a primary one, the next 
 point to analyze is whe ther section 7004 of the Compiled Laws of 1913 
 repeals_a ll ou r laws relative, to guretyship, either directly or otherwise. 
 The merest mspECtien- of-stTcli section determines that it does not di- 
 rectly attempt to repeal any of our statutory law relative to the rights,, 
 duties, and remedies of surety.- The law does not favor the repeal 
 of existing law by mere implication, and, even if it did, we find no 
 basis, in said section, from which it might be inferred that the repeal 
 of the laws concerning suretyship was implied. ^ careful ejcaminar^ 
 tion of sectio n 70O4 supra, discloses that the-Sj^e-^-vavs. therein specified 
 
 "iiTwhififclilnegotiable instrument may be_ discharged do not apply 
 excli^iveJx_£Q_t]3£l^aEef^f Ihe npte^ but some of the subdivisions xxf 
 '>aTd_.sp.ctia.B-applv also to the holder. The first subdivision implies that 
 a negotiable instrument is discharged by payment in due course, by or 
 on behalf of the principal. The second subdivision is by payment in 
 due course by the party accommodated. The third is by intentional can- 
 cellation by the holder. The fifth, when the principal debtor becomes 
 the holder of the instrument in his own right. It is self-evident that 
 the negotiable instrument would be discharged under such circum- 
 stances. That would be true if there were never any law enacted upon 
 the subject. _ The fpurth_subdmsion_i)i_saiijectio^^ is not 
 
 sq'.Sasite.understood or so~ix5iBle~ofconstruction. It is as-£ollows : 
 "" "By ^r^ other act jvhich will discharge a simple contract f or^the. pay- 
 merit " oTmoney." 
 
 Keeping in mind the other subdivisions of said section, that the 
 nego tiable inst rum£nL.jnay be discharged by certain acts not only 
 oTtEc m aker Tu t by the holder, we believe the language of subdivi- 
 sion~4 appliesToTBoth the maker and the holder. There may be other 
 
948 NEGOTIABLE INSTRUMENTS (Part 3 
 
 ways than those set forth, whereby the maker may show that the ne- 
 gotiable instrument is discharged. For instance, that the contract was 
 fraudulent or obtained under duresSj^^he surety being primarily lia- 
 (bie and an original pfolirisor;"theTaoider of the note might do certain 
 lacts which would operate to discharge the liability of the surety on 
 /such note, and thus dischar ge the mstrument so far as the surety is 
 concerned. If the law of suretyship has not been repealed, and we 
 I hold that it has not, if the holder of the note should, without the 
 knowledge or consent of the surety, extend the time of the payment 
 to a time certain, so far as the surety is concerned, the contract and 
 instrument, being a simple one for the payment of money, is dis- 
 charged. Again, if the holder of the note, at the time of the signing 
 thereof by the surety, had taken collateral security from the principal 
 debtor, it must be held that heJioldS-Sji ch collatera l in trust, and if 
 the surety pays the obligation, he is entitled to stand in tKe"sRbes of the 
 creditor and reimburse himself by having such collateral applied in 
 reduction of the amount of money which the surety has paid the holder. 
 '^ The holder of the note is under no obligation to first realize on the 
 collateral before suing the surety. The holder may proceed against th e 
 gurety without having first^realized upon .i hg collateral security ,~ Tor 
 tiie reason' that the surety's liability is a pr imary one, but the hold er 
 giu^tjjifiyertheless, be faithful Jo. hij^ trust j tL preserving the collater al, 
 anSmust use ordinary care and vigilance to preserve it, and mustliot 
 dispose or convert it, and if the collateral is realized upon, the value 
 thereof must be indorsed upon the note. * * * 
 
 Subdivision 2 of section 6681 of the Compiled Laws of 1913 is as 
 follows : 
 
 "How Exonerated. A surety is exonerated: 
 
 "1. In like manner with a guarantor ; 
 
 "2. To the extent to which he is prejudiced by any act of the cred- 
 itor which would naturally prove injurious to the remedies of the 
 surety or inconsistent with his rights or which lessens his security ; or, 
 
 "3. To the extent to which he is prejudiced by an omission of the 
 creditor to do anything when required by the surety which it is his 
 duty to do." 
 
 Section 6683 provides that the surety may require his creditor to 
 proceed against the principal, and if the creditor neglects to do so 
 the surety is exonerated. 
 
 Section 6686 provides that, when a surety has satisfied the obligation 
 of the principal, he is entitled to enforce every remedy which the cred- 
 itor then had against the principal, until he is reimbursed for what he 
 has expended. He can also require a contribution from . cosureties. 
 
 Section 6687 provides :,/^A^ sur ety is e ntitled to jjie-beaefit of every 
 security for the performance ^oflhe principal oSfigation held by the 
 cfedifor or by a cosurety at the time of entering into the contract of 
 suretyship or acquired by him afterwards, whether the surety was 
 aware of the security or not." 
 
 Section 6688 provides : "Whenever a property of a surety is hypothe- 
 cated with a property of the principal, the surety is entitled to have 
 the property of the principal first applied to the discharge of the ob- 
 ligation." 
 
 Have all these variousjrovisipju-ieen_.abiX!^ by the Uniform 
 Negolial5lCInsirJiments,IAH?^^e^^ and that 
 
 they' still stand as the law of this"lSitrwith rerereHcTTcr'Sufetyship, 
 
Ch. 7) DISCHAEGH 949 
 
 and were never intended to be repealed, and were protected under sub- 
 division 4 of section 119. 
 
 In the case at bar at the time of- the signing of the original note, the 
 plaintiff knew that thpH pft^pdant was a sure ty. He had like knowl- 
 edge 'at the time of tfie^signing of each renewal note, including the 
 note sued upon. The relation of the defendant was, at all times, one 
 of surety. * * * 
 
 The defendant .entered into the contraei to pay .tlie_original obliga- 
 tion or di scha rge the original instrument with all these considerations 
 in mmd, "all .pf which were well known td the plaintiff . ' TEe^'cqllateral 
 s ecuritv was__ held by,„tiie plaintilFin Irust for^jhS~B3.y^^i^ of.«il?e 
 orig inal obligati on—or. if the original obligation were paid by defend- 
 ant, the collateral was held in trust to be turned over to him, if the 
 defendant were compelled to pay the original obligation.^^fjjie plain- 
 tiff converts such collateral security_to_his^own use, t'he instrument 
 " ^s disc harged j o^the extent the collateral security has been decreased 
 fti value" by lailure. of the creditor to exercise ordinary diligence in 
 preservingthegeoirity, or if, after notice by tlie "surety to proceed 
 against the principal, and the principal fails to do so, the instrument is 
 discharged to the extent of the damages which the defendant may 
 show by reason of the creditor's failure to proceed. In other words, 
 the contract which the defendant entered into is jlis^arged toThe ex- 
 ^tierft heieiii uidicatedT'and". where action is brought on the original in- 
 striimenT^or where an action is brought against the surety by the orig- 
 inal holder, it is proper .to set up and plead such damages, if any, by 
 way of counterclaim, as a cause of action against the plaintiff. 
 
 If the creditor extends the time of payment to a time certain, with- 
 out the knowledge or consent of the surety, such extension operates 
 to discharge the instrument so far as the surety is concerned. It is 
 simply another way in which, under subdivision 4 of section 7004, a 
 simple contract for the payment of money may be discharged, and there 
 is no reason why this should not be so, for to hold that the surety 
 can be held on a note which has been extended to a time certain with- 
 out his knowledge or consent is to hold that he can be held on a con- 
 tract which he never made. To illustrate: Supposing A. executes a 
 note to B. for $1,000 which A. owes B. The note is due one year 
 from the date of its execution. C. signs the same as surety. At the 
 time A. executes the note he is worth $20,000. At the maturity of the 
 note, A. and B., without the knowledge or consent of C, extends the 
 time of the payment of the note for five years to a time certain. Dur- 
 ing such five years B. cannot maintain an action against A. for the 
 recovery of the debt. During the five years A. becomes bankrupt. 
 Should C. be held to pay the debt? It is evident that if the suit had 
 been brought at the end of the year when default was made in the first 
 note B, would have gotten his money and C. would not have suffered, 
 but by the extension of time a new contract between A. and B. was 
 made in which C. was not a party, and C.'s loss is also by reason of 
 the new contract to which he is not a party. What sensible or just 
 reason is there, if any, why C. should not be discharged from his con- 
 tract on such instrument? There can be none, and there is none, for 
 the circumstances and conditions which compel C.'s loss are not the 
 conditions to which he contracted. ..Thecoatract has beeri, ipfact, 
 changed_Tsithaut_his-CX)nsent and h e is^scHar ged from .the justcument 
 and from liability, and we holdmat such a condition was contemplated 
 
950 Nr^GOTiABLE INSTRUMENTS (Part 3 
 
 under subdivision 4 of section 119 to discharge one from a simple 
 contract for the payment of money where the circumstances we have 
 above illustrated exist. 
 / We hold that all the rights of suretyship, the right of subrogation, are 
 
 yall brought under subdivision 4 of section 7004. This is the only rea- 
 
 ' sonable construction to be placed upon such section. In this connec- 
 tion, it must not be lost sight of that section 6943 of the Compiled 
 Laws of 1913 provides as follows : "In the hands of any holder other 
 than a holder in due course, a negotiable instrument is subject to the 
 
 ^ same defenses as if it were nonnegotiable." 
 
 ' v_Ii-sUIiegotiable instrument is taken in due course of business in the 
 belief that all the signers of such note are makers, and with^no knowl- 
 edge by the one wbaJak£5..§aJ4 note that anj^^f Ihg. signers jEerfbn 
 a^e sureiies, !Ke"^^retY couCTl^laim noj ^nefit by reason, of iiis^rela- 
 tion as a sursjy- instead of maker, unnrTcnnwIed ye of the suretyship 
 is"Brought1iome to the holder of the note. If, however, a holder in due 
 course has knowledge of the suretyship and has collateral security for 
 the payment of the debt from the time he Required such knowledge 
 he is in no different position than any other holder of the note, and 
 must have due regard to the rights of the surety and exercise ordi- 
 nary diligence to preserve the collateral security. He must bear in 
 mind that a surety cannot be held beyond the express terms of this 
 contract. * * * 
 
 It is clear the defendant did not authorize or consent to the con- 
 version of the collateral by any person, and if the defendant did Ifave 
 knowledge that the plaintiff_ was tur ning the s tock over to . Eric S tafne 
 for the purpo se of ha]nngri?-i£issued]]Ln^Jh^^ riew stock, this 
 
 ^^Sowledg£_w_ould, in no. mawier-r rfilieYejEEeTpiaiaSS^rom the neces- 
 
 ^ty„of_accounting to the defendant for_tli£_value of said stock if 
 plaintiff should pay the obrig"ation "to which such stock was collateral. 
 
 —."The defendant did riot consent to ffie conversion of the stock by 
 Eric Stafne or any one else. The defendant_admits.Jjis^liability upon 
 the note sued upon and courflSfcHimi" f or Jthe_yalu£_af, 20 shares of 
 the Citizens' State Bank of Alexander, which have a par value of 
 $100 per share; there being -no evidence to controvert tiie presump- 
 tion that the stock is worth par. 
 
 We are of the opinion that such c ounter claim is a proper one, and 
 under the evidence as it now sfaadsTlhe deleil dant iSho "uId~have judg- 
 ment for the value of the 20 shares of stock of the Citizens' State 
 Bank of Alexander at par, with interest thereon at the legal rate since 
 the date of the conversion of said stock. 
 
 We are of the opinion that the matters disputed as a counterclaim 
 were available by way of defense. From this view of the case, the 
 only judgment jplaintiff is_eQtitled to is the excess of thejiote and in- 
 
 TefSsTover and above par value of THe^toclc.-Tivlllrmterest at the legal 
 rate since the conversion. 
 
 Though the surety is primarily liable, that does not relieve the cred- 
 itor or the holder of the note from liability if he does not use ordi- 
 nary diligence in preserving the security which has been hypothecated 
 to secure the payment of the note, nor (in the opinion of the writer) can 
 the creditor and the principal debtor, by agreement between themselves 
 without the knowledge or consent of the surety, extend the time of 
 payment to a time certain, thus, in effect, making a new contract, and 
 if such is done the liability of the surety, in my opinion, ceases. 
 
PART IV 
 
 SALES 
 
 Chapter 
 
 Introduction 
 I. Transfer of Title In Contracts of Sale of Ascertained Goods. 
 II. Transfer of Title In Contracts to Sell Unascertained Goods. 
 
 III. Powers of Persons Not Owners of Goods to Transfer Title to Innocent 
 
 Purchasers. 
 
 IV. Negotiable Documents of Title. 
 V. Remedies of the Seller. 
 
 VI. Warranties. 
 VII. Eights and Remedies of the Buyer. 
 
 INTRODUCTION 
 
 The law of sales of personal property, in the main, is a branch 
 of the general law of contracts. To some extent the law of prop- 
 erty is involved. Contracts to sell land and transfers of interests 
 therein by deed are not here taken up. The general law of con- 
 tracts is, of course, applicable to contracts for the sale of real 
 estate ; but the law with reference to the transfer of legal interests 
 in real estate by deed or by will constitutes a branch of law sepa- 
 rate from that which governs the transfers of interests in personal 
 property. These topics of the law of real property are not de- 
 veloped in this volume. 
 
 The following problems of the general law of contracts — offer and 
 acceptance, consideration, irights of third parties in the contract, effect 
 of mistake, fraud, duress, undue influence, illegality, and capacity, and 
 of the statute of frauds — in their application to contracts to sell and 
 of sales of personal property, are not reopened here, for the reason that 
 the treatment of these matters in Part I is deemed adequate. There is 
 no special reason for redeveloping these principles here. The special 
 problems of the law of sales of personal property concern questions (1) 
 of the nature and extent of the obligations of the parties ; (2) perform- 
 ance; (3) discharge; and (4) remedies for breach. To put the matter 
 more concretely it is evident that a contract to sell or of a sale is 
 intended, ultimately, to result in the substitution of the buyer in 
 the position occupied by the seller with respect to certain identified 
 property or property specified by description. All the legal re- 
 lations which the seller has with respect to his property are to 
 be transferred to the buyer. This substitution is referred to com- 
 monly by the phrase "transfer of title," or "transfer of the prop- 
 erty in goods." What are the circumstances under which title to 
 personal property will pass to the buyer, is a most important 
 question in the law of sales. It becomes important to ascertain 
 the moment at which title passes, in order to be able to determine 
 the extent of the rights and liabilities of the buyer and seller when 
 certain unexpected events occur. Risk of loss usually follows 
 B.& B.Bus.IyAW- (951) 
 
952 SALES (Part 4 
 
 title ; the right to sue for the purchase price, as distinguished from 
 the right to sue for damages for breach of an executory contract to 
 buy, is dependent upon a showing, as a rule, that title has passed to 
 the buyer. Rights of creditors of the buyer and of the seller with 
 respect to the subject of a sale are affected according as the title 
 is in the buyer or seller. The first four chapters following deal 
 with various manifestations of this broad inquiry. The remaining 
 problems are three: (1) What is the nature and extent of the 
 seller's obligations? (2) What are the remedies of the seller? 
 and (3) What are the remedies of the buyer? The first leads us 
 into the study of express and implied warranties, a topic deveU 
 oped in Chapter VI. The special remedies of the seller, taken up 
 in Chapter V, and the special remedies of the buyer, taken up in 
 Chapter VII, duplicate some aspects of legal remedies which were 
 noted in Chapter X of Contracts; but, in several particulars, new 
 aspects are presented. To some extent matters adverted to in 
 Chapters V and VII define the substantive rjghts of the parties, 
 rather than prescribe the nature and extent of legal remedies. 
 For convenience these matters have been grouped together. 
 
 The law of sales, like the law of negotiable instruments, ha^ been 
 codified in many states. In 1906 the final draft of the Sales Act 
 was approved at the National Conference of Commissioners on 
 Uniform State Laws and recommended to the several states. The 
 Sales Act has been adopted in Arizona, Connecticut, Idaho, Illi- 
 nois, Iowa, Maryland, Massachusetts, Michigan, Minnesota, Missis- 
 sippi, Nebraska, Nevada, New Jersey, New York, North Dakota, 
 Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota,. Ten- 
 nessee, Utah, Vermont, Wisconsin, Wyoming, and Alaska. 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 953 
 
 CHAPTER I 
 
 TRANSFER OF TITLE IN CONTRACTS OF SALE 
 OF ASCERTAINED GOODS 
 
 Section 
 
 1. Introduction. 
 
 2. Title Passes When the Parties Intend It to Pass. 
 
 3. In" Contracts to Sell Ascertained Goods in a Deliverable State, Presump- 
 
 tively Title Passes at the Time the Contract is Made. 
 
 4. Further Illustrations of the Application of the Presumption. 
 
 5. Application of the Presumption "Where Acts of "Weighing or Measuring 
 
 Must Alone be Done to Ascertain the Amount of the Purchase Price. 
 
 6. Presumption That Title Passes at the Date of the Contract is Applicable 
 
 "Where the Sale is a Sale on Credit. 
 
 7. Presumption That Title Passes at the Date of the Contract Overcome by 
 
 Proof That the Parties Intended a Cash Sale. 
 
 8. Contracts on Sale or Return and Contracts to Sell on Approval. 
 
 9. Conditional Sales. 
 
 SECTION 1.— INTRODUCTION 
 
 As has been noted in the introduction, one of the most important 
 problems, if not the most important, in the law of sales, is the 
 determination of the time when title to the property passes from 
 the seller to the buyer. For the solution of this series of problems 
 it is necessary to classify all contracts to sell into two groups : 
 (1) Contracts to sell ascertained goods; and (2) contracts to sell 
 unascertained goods. Some of the rules of law applicable to con- 
 tracts in the one group also apply to contracts in the other group, 
 but there are some rules which apply exclusively to contracts in 
 but one of these groups. For these reasons, these two divisions 
 must be considered separately. Each group, of course, must be 
 further subdivided into several smaller groups; the contracts so 
 classified in each having some features not common to the other 
 groups. 
 
 The importance of determining the precise time at which title 
 passes arises from the fact: (1) That, generally, the risk of loss 
 follows the title. (2) If title has passed to the buyer he is liable 
 for the purchase price, as distinguished from damages for breach 
 of contract to buy, even though he has not received the goods or 
 has refused to accept them. (3) The power to transfer the title 
 to a third party vests in the person who holds the title, and this is 
 true, even though by such resale the party selling breaks his con- 
 tract with the other party. When the purchase price has not been 
 paid, and the buyer has the title and is insolvent, the result will be 
 a loss to the seller. Or, if the purchase price has been paid, and 
 the seller, still holding the title, resells to a third party and is in- 
 solvent, the buyer will lose. (4) Creditors of the buyer and cred- 
 itors of the seller, who are forced to sue for debts due them, pos- 
 sess the right to have the property which belongs to their debtors 
 sold to satisfy their judgments. Since the possession of property 
 
954 SALES (Part 4 
 
 may be in one of the parties and title in the other, it will often- 
 times be puzzling to the creditors of buyer and seller to know 
 whether it is safe to levy on certain property. The levy will be 
 effective, and the sale thereunder binding, only when the title to 
 the property levied upon was in the judgment debtor. 
 
 Another, but more extended, aspect of this same problem arises 
 when either the buyer or seller are adjudicated bankrupts. The 
 trustee in bankruptcy takes title to all the property owned by the 
 bankrupt for the benefit of the bankrupt's creditors. Complicated 
 situations develop in such instances as these : When a large busi- 
 ness enterprise is suddenly stopped by bankruptcy, the bankrupt 
 will have any number of uncompleted contracts of sale outstand- 
 ing. In some he will be the buyer, in others the seller, and the 
 property may be scattered over many states. Each of such con- 
 tracts of. sale must be looked at with the view of determining, 
 when the bankrupt was the seller, whether the title had yet passed 
 to the buyer, or, if he were buyer, whether the title had yet 
 reached him, for the trustee in bankruptcy, with but a few excep- 
 tions, will take only the property to which the bankrupt had title. 
 
 There are other types of problems where the controversy may 
 only be decided after finding where the title was; but enough 
 has been said to indicate the importance of this question, and also 
 to point out the kinds of situations out of which they arise. 
 
 SECTION 2.— TITLE PASSES WHEN THE PARTIES 
 INTEND IT TO PASS 
 
 Proceeding, now, to the question, when will title pass in a con- 
 tract to sell ascertained goods, the Sales Act provides : 
 
 Section 18, Subsec. 1. Where there is a contract to sell specific 
 or ascertained goods, the property in them is transferred to the 
 buyer at such time as the parties to the contract intend it to be 
 transferred. 
 
 There are three independent questions raised by this section : 
 (1) What are specific or ascertained goods? (2) What is meant 
 by transferring property in goods? (3) How is the intent of the 
 parties to be determined? 
 
 (1) The section deals with contracts to sell goods; that is, con- 
 tracts to sell tangible personal property, such as a book, a horse, 
 or a carload of wheat. The section does not apply to intangible 
 claims, nor to negotiable instruments. The section does not deal 
 with all kinds of contracts to sell goods. It applies only to con- 
 tracts to sell specific or ascertained goods. All goods are either 
 ascertained or unascertained. When will goods be ascertained? 
 This question rarely presents difficulty. Goods are ascertained 
 when the parties understand what property, as distinguished from 
 all other property, is meant. If the subject of the sale is physically 
 present, so that buyer and seller may each see it, and language is 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 955 
 
 used in the negotiations, or in the contract, which shows that the 
 object before them is the thing sold, the goods are said to be as- 
 certained. But the subject of the sale need not be physically pres- 
 ent, in order for the goods to be ascertained. The goods may be 
 in another place. If the parties use language during the course of 
 the negotiations which refers to the goods with sufficient definite- 
 ness as to their appearance and present location, so that the parties 
 may find them, the goods are said to be ascertaintd or specified. 
 They are capable of being identified. But the goods must not be so 
 mixed up with other goods that they are not distinguishable. . 
 The sale of a machine bearing a certain number, not borne by other 
 machines of the same kind, and described as to kind and location, 
 would be a sale of ascertained goods. But the sale of a machine of 
 specified description, stated to be located at a certain place, where 
 there were other machines of the same kind, would not be a sale 
 of ascertained goods. 
 
 (2) We have already discussed what is meant by transferring 
 property or title in goods. Another way of stating the general legal 
 effect of the passing of title to property to the buyer is to say that 
 the buyer becomes the owner of it. The buyer may use the prop- 
 erty, recover damages from one who injures the property, and 
 the risk of loss or damage is on the buyer. The buyer may sell 
 and pass a good title thereto, even though he may not have paid 
 the seller. 
 
 (3) The most difficult question raised by this section is to deter- 
 mine what the parties did in fact intend. There has been and still 
 is a good deal of litigation over this question. It is very important 
 to keep in mind in the study of the following cases that the court's 
 principal problem is to ascertain what the parties intended with 
 respect to the time at which title to the goods was to pass. The 
 law might have taken the view that title to goods contracted to 
 
 .be sold positively could not pass to the buyer, no matter what the 
 parties intended, until (1) actual delivery to the buyer; or (2) 
 until the price were paid; or (3) unless credit were expressly 
 given. At one time this was the law, but to-day, if the contract 
 concerns ascertained goods, the sole test as to when title shall pass 
 is the intention of the parties. 
 
 If seller and buyer always expressed their intention in such 
 forms that there could be no mistake concerning the matter, the 
 problem of ascertaining intention would almost disappear. As a 
 matter of fact, however, buyer and seller very rarely express 
 their intention as to the time when title is to pass. At the time 
 of a sale the attention of the parties is so firmly fixed upon the 
 purely business aspects of the transaction that there is nothing to 
 cause the parties to reflect upon this matter. They know and 
 intend that finally title is to pass to the buyer, but they do not ex- 
 pressly agree as to the precise moment when this is to happen. In 
 the great majority of transactions it will make very little, if any, 
 difference as to the time when title passes. But there comes a 
 
956 SALES (Part 4 
 
 time when this question becomes of supreme importance. If 
 during the negotiations, or subsequent thereto, and before pay- 
 ment of the price, the goods are destroyed by fire, or sink while 
 on board a vessel, must the buyer pay for the goods? Or suppose 
 the buyer, B., before payment to the seller, A., sells the goods to 
 a third party, C, and C. pays B., and B. goes into bankruptcy, 
 may A. keep the goods, or recover them from C, or must A. con- 
 tent himself with the dividends which will be paid from the bank- 
 rupt estate of B.? Again, suppose B. enters A.'s jewelry store to 
 •buy a watch. A. shows B. a watch, priced $100. B. says, "I will 
 take it ; show me a chain." The watch is left on the counter. A. 
 and B. step to the case containing the chains, and B. finally selects 
 one. On returning they find that the watch has been stolen. 
 Must B. pay for the watch? 
 
 In all these and in many other similar situations the question 
 raised can be answered only by finding out where the title was 
 when the unexpected event, such as the loss or damage to the 
 goods, the sale to a third party, or the bankruptcy of one of the 
 parties, occurred. Usually the parties have not made known what 
 their intention was as to the time when title should pass. There- 
 fore the intention of the parties must be found in the circumstances 
 of the case ; that is, the courts will, in the light of all the evidence 
 surrounding the negotiations, determine what the parties must 
 have intended, having conducted themselves in such a manner. 
 Quite likely tlie parties actually had no intention at all about the 
 matter; therefore the search for something which had no exist- 
 ence may impress one as rather odd. This anomaly is explained 
 in this way : Title had to pass at some time ; having entered into 
 a contract to sell, certainly the seller and buyer did in fact intend 
 that title should pass at some time, although they may have had no 
 intention as to the time when this event should occur.' Therefore 
 the search for the intention as to the time when title passed is in 
 reality a search for some particular instant of time which, in the 
 light of all the circumstances, is the most reasonable to suppose 
 that the parties would have intended title to pass, had their atten- 
 tion been called to this feature of the sale. 
 
 The courts have recognized the great difficulty in ascertaining 
 the intention of parties who had no intention, or, if they had, 
 failed to express it, and as a result several rules have been devel- 
 oped which are a great aid, at least, in settling the controversy. 
 These rules are of two kinds: (1) There is a rule which directs 
 the court to examine with particular care into certain kinds of 
 evidence, which experience has shown is the best evidence from 
 which to infer what the intention of the parties was. (2) There 
 are several rules, called rules of presumption, which assert that, 
 if the parties have conducted themselves in a particular manner, 
 and the goods are in such and such a condition, the presumption 
 is that title passed at a time which the rule proceeds to indi- 
 cate. A presumption is the equivalent of proof, or, rather, it is 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 957 
 
 taken to be the equivalent of proof until other evidence makes it 
 appear that the conclusion thus presumed is not justifiable in the 
 particular case, and therefore the presumption will not govern. 
 
 The first rule, discussed above, is expressed in the Sales Act as 
 follows : 
 
 Section 18, Subsec. 2. For the purpose of ascertaining the in- 
 tention of the parties, regard shall be had to the terms of the con- 
 tract, the conduct of the parties, usages of trade and the circum- 
 stances of the case. 
 
 Something has been said above in explanation of this section. 
 Its purpose is to focus the attention of the courts upon four kinds 
 of evidence which must be taken into consideration in ascertaining 
 intention : 
 
 (1) The court must note the terms of the contract. Obviously, 
 this is the first and best evidence. If the parties have definitely- 
 expressed their intention, that expressed intent must govern, no 
 matter what contrary intention would be indicated by the other 
 three kinds of evidence viewed alone. 
 
 (2) The court must take into consideration the conduct of the 
 parties. This direction is very similar to the fourth kind of evi- 
 dence which must be carefully considered ; i. e., the circumstances 
 of the case. -Taken together, these two rules direct the court to 
 look: (a) At the acts of the parties done with respect to the 
 goods, or with respect to the payment of the price ; (b) the nature 
 of the goods and where located at the time of the transaction; 
 (c) all the language employed by the parties during the course of 
 
 'the negotiations; and (d) perhaps many other matters, which, 
 while difficult to conceive of and to express generally, would prop- 
 erly be called "the circumstances of the case," if we had before us 
 a concrete situation. 
 
 (3) Usages of trade must be considered. The rule requiring the 
 investigation of the usages of trade is most important. Practically 
 all business is conducted according to certain established usages. 
 Time and time again the most complicated of business transactions 
 are entered into, where the acts of the parties are very few, cover 
 but a short space of time and where practically nothing is said 
 in explanation of the conduct of the parties. These apparently 
 simple acts have the most far-reaching consequences ; yet they are 
 left by the parties unexplained. Perhaps it would not .be incorrect 
 to say that the great majority of business transactions finally gen- 
 erate into the observance of certain specified formalities the mean- 
 ing and consequence of which can be learned only from a careful 
 consideration of the usages established in that particular type of 
 transaction. 
 
 We shall find, with respect to the narrower question of the 
 effect of custom upon the passing of title, that this question is of 
 great importance in ascertaining what the parties intended. It is 
 incumbent upon a business man to know with considerable com- 
 pleteness and accuracy all of the established customs of the 
 
958 SALES (Part 4 
 
 trade, if he desires to avoid unforeseen and sometimes unfortunate 
 consequences. 
 
 The second class of rules which have been established to aid in 
 the discovery of the intention of the parties as to when title to 
 goods contracted to be sold shall pass, as has been indicated, are 
 rules of presumption. When the law raises a presumption that a 
 certain conclusion is true, as, for example, that title to goods 
 passed at a certain moment, the meaning is: First, that certain 
 evidence then before the court justifies the legal conclusion as- 
 serted in the presumption. Were it not for the rule of presump- 
 tion the probabilities are that the court would not be justified in 
 reaching any conclusion at all until further evidence appeared. 
 The rule of presumption, therefore, enables a court to decide a con- 
 troversy upon evidence which might be insufficient to warrant any 
 determination of the case. This should not be taken to mean that 
 a decision so arrived at is unjust. On the contrary, the case very 
 probably will be decided fairly for both parties. We should bear in 
 mind that a particular rule of presumption was never formulated 
 until the courts had been confronted with a great many cases. 
 Upon such experience it was found that certain acts or words in 
 the great majority of cases indicated what the intention of the 
 parties was, and thereupon the courts decided that, for the future, 
 when these selected kinds of evidence, found to be exceptionally 
 cogent appeared the necessity of further proof would 'be dispensed 
 with. 
 
 At this point the most important aspect of a legal presumption 
 arises, a feature which is sometimes lost sight of. That feature is' 
 this : The presumption will be rendered inapplicable to the case 
 upon further evidence that the parties intended the contrary. The 
 presumption is not, in the strict sense, a rule of positive law. To 
 illustrate the distinction : Simple contracts must be founded upon 
 consideration. This is not a rule of presumption. It is a positive 
 requisite to the existence of the contract. No matter how conclu- 
 sively the parties have indicated that they intended to bind them- 
 selves without consideration, the law will not hold them to their 
 intention. Contrast this situation with the following: A. is in- 
 dicted for the murder of B. Suppose the evidence shows the fact 
 that A. killed B., that he intended to kill B., and that there was no 
 evidence of justification or excuse. The presumption arises that 
 A. was sane, and was accountable for his conduct ; but it is only a 
 presumption,' for evidence will be admitted to show that the de- 
 fendant, by reason of mental deficiency or mental disease, was not 
 capable of possessing the requisite criminal intent. The mistake 
 which is often made is to regard a rule, which in reality is but a 
 rule of presumption, capable of being rebutted and made inapplica- 
 ble to the case by' evidence showing that the parties intended' some- 
 thing different, as an inflexible rule of law, which cannot be made 
 inapplicable merely because the parties intended that such rule 
 should not govern the transaction. Practically all the problems 
 
Ch. 1) TRANSFER OP TITLE WHERE GOODS ASCERTAINED 95& 
 
 where the question of the passing of title is raised we must con- 
 sider one or more rules of presumption. The same is true with 
 respect to many other sections of the law of sales. In every case 
 we must know with certainty whether we are dealing with a pre- 
 sumption or a binding rule of law. If the rules applied and dis- 
 cussed in the cases are conceived of as binding rules of law, many 
 of the cases will not be understood, and many will appear to be in 
 conflict, when in reality they are not so. Perhaps the greatest val- 
 ue to the business man in studying this most important topic of 
 the law is to call attention sharply to the sources of controversies 
 out of sales contracts and to the methods by which these contro- 
 versies are decided, to the end that attention be focused iipon the 
 necessity for providing expressly for these contingencies, at least 
 where the risk is heavy. 
 
 With this preliminary discussion of the nature and importance 
 of rules of presumption, we pass to the statement of the rules 
 themselves, and to the consideration of their application to specific 
 facts. 
 
 SECTION 3.— IN CONTRACTS TO SELL ASCERTAINED 
 GOODS IN A DELIVERABLE STATE, PRESUMPTIVELY 
 TITLE PASSES AT THE TIME THE CONTRACT IS 
 MADE 
 
 Sales Act, Section 19. Rules for Ascertaining Intention. — Un- 
 less a different intention appears, the following are rules for 
 ascertaining the intention of the parties as to the time at which the 
 property in the goods is to pass to the buyer: 
 
 Rule 1. — Where there is an unconditional contract to sell spe- 
 cific goods, in a deliverable state, the property in the goods passes 
 to the buyer when the contract is made, and it is immaterial wheth- 
 er the time of payment, or the time of delivery or both, be post- 
 poned. 
 
 The most important matter presented by rule 1 is to note that it 
 applies only to those contracts to sell ascertained or specified 
 goods which goods are also in a deliverable state. Contracts to 
 sell ascertained goods are divided into two classes: (1) Those 
 goods which, though ascertained, are not in a deliverable state; 
 (2) those goods which are ascertained and also are in a deliverable 
 state. It would follow from rule 1 that, if goods were not in a de- 
 liverable state, the title — or the property, as the Sales Act here 
 terms it — would not pass until they were put in a deliverable con- 
 dition. But, if the Sales Act had nothing more to say about the 
 time when title would pass in contracts to sell ascertained goods 
 not in a deliverable condition, that would mean that title would 
 not pass at the date of the contract in two classes of cases: (1) 
 Where the seller, by the terms of the contract, was bound to put 
 the goods into a deliverable state; (2) where the buyer was to 
 
960 SALES (Part 4 
 
 put the goods into a deliverable state. Accordingly the following 
 rule was added: 
 
 Section 19, Rule 2. Where there is a contract to sell specific 
 goods and the seller is boiuid to do something to the goods, for the 
 purpose of putting them into a deliverable state, the property does 
 not pass until such thing be done. 
 
 It appears, therefore^ that when we are dealing with a contract 
 to sell ascertained goods there are two situations where the pre- 
 sumption is that title passes to the buyer at the date of the con- 
 tract: (1) Where the goods are in a deliverable state at the time 
 when the contract is entered into; (2) when the goods are not in 
 a deliverable state at the time the contract is made, but where the 
 buyer by the contract is bound to put the goods in a deliverable 
 state. The important question is : When are goods in a delivera- 
 ble state? The following cases discuss this question. 
 
 CARROLL V. HASKINS. 
 (Supreme Judicial Court of Massachusetts, 1912. 212 Mass. 593, 99 N. E. 477.) 
 
 Action by Arnold L,. Carroll against Emmett F. Haskins. Verdict 
 for plaintiff, and defendant excepts. 
 
 Bralby, J. While as between the parties to the sale the title passed 
 to the plaintiff if the jury believed the evidence yet the defendant who 
 as a deputy sheriff subsequently attached the property on a writ against 
 the seller is not liable for conversion unless there also was proof of 
 actual or constructive delivery. * * * The evidence showed a bar- 
 gain for the purchase in satisfaction of a debt due from the seller 
 to the buyer of 4% tons of hay, stored in two "bents" distinguished 
 from each other by a post, and containing some 6 or 7 tons. Upon the 
 day following the agreement the parties went to the barn where in their 
 presence the "bent" in the northeast corner was measured, and the con- 
 tents having lacked less than a ton of the amount purchased, the ven- 
 dor, although he declined to sell the hay in the adjoining "bent," 
 agreed, that the plaintiff could take therefrom enough to supply the de- 
 ficiency, and gave a bill of parcels for the full quantity. It is not con- 
 tended that the sale was made to defraud creditors, even if the plain- 
 tiff was given permission to remove the hay at his own convenience, 
 and from the language and conduct of the parties the jury could find, 
 that the seller for a valuable consideration, and in good faith, actually 
 intended to part with possession, and the plaintiff intended to accept 
 the transfer. * * * 
 
 By the act of measurement the line of demarcation could be ascer- 
 tained, and the subject of the controversy could have been identified 
 even if not physically separated from the other hay, as having been 
 covered by the contract of sale. The bulky nature of the property 
 having precluded manual possession unless the plaintiff had immediate- 
 ly taken the hay away, constructive delivery under the circumstances 
 was sufficient, and the transaction resulted in the sale of specific goods 
 where nothing further remained to be done. * * * 
 
 The defendant's request was rightly denied, and the exceptions must 
 be overruled. 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 961 
 
 In re COPE'S ESTATE. 
 
 Appeal of CO ATE S et al. 
 
 (Supreme Court of Pennsylvania, 1899. 191 Pa. 589, 43 Atl. 473.) 
 
 Sterrett, C. J. This appeal is from the decree of the court below 
 disallowing appellant's claim of $8,037.55 for books and engravings 
 sold by him to said decedent, except to the extent of $880, which rep- 
 resents the value of goods delivered at his home. Mr. Cope, the dece- 
 dent, was a gentleman of independent fortune, and of literary and ar- 
 tistic tastes. For many years he had been an extensive purchaser of 
 books and engravings from appellant. During the last three years of 
 his life his payments to him aggregated over $11,000. 
 
 The nature of appellant's present claim for balance disallowed by the 
 orphans' court will perhaps be best understood by referring to the tes- 
 timony of witnesses examined in support thereof. Col. J. E. Barr, 
 their salesman, testified, inter alia, as follows: "Mr. Cope came to 
 the store every time, I think, that he came to town; made it a place 
 where he always stayed, and when any new invoices of prints came in, 
 I would always tell him, and he would come in and go over them, — 
 look at them, — and if there was anything he liked he would say : 'Put 
 them away for me,' 'I will take this,' or 'I will take that,' and I put 
 them away in the drawers. Q. Were they put in general drawers or 
 special drawers ? A. Special drawers set apart for him, with nothing 
 else in. Q. And drawers to which he had access A. He and I ; nobody 
 else touched them. * * * q 'Would the prices be named? A. He 
 would ask the price, and I would give it to him, — mark it on the prints. 
 * * * Q. These prints, after he bought them and the price agreed 
 upon marked and put away in his drawers, and did he get them from 
 time to time? A. If you will allow me to tell you, Mr. Cope was in the 
 habit of making mats for his own prints, and making little biographical 
 sketches on the back of each, and then put therri away into portfolios, 
 and catalogue them, and in that way he would take them home as fast 
 as he could do that, and put them away in proper portfolios, and in 
 that way the prints in the store would accumulate faster than he could 
 take them home. He did not want them at home, lying about, be- 
 cause they were fine prints, and he just took enough home from time 
 to time to catalogue and mat them, and put them away in the portfo- 
 lios, and in the meantime invoices came from all parts of the world, and 
 he would see them all, and select what he wanted, and they were put 
 away in these drawers. Q. And then, as he finally took them away, 
 you sent a bill for them? A. Yes, sir Q. You did not send a bill 
 until he took them away? A. Oh, no. Q. He was a peculiar man, 
 was he not ? A. Yes, sir ; he -vVould make his own list when he would 
 take them home. He would bring the list, which he would hand to me, 
 and tell me to charge them up. Q. Were those put aside in those 
 drawers for approval or actually sold? A. No; absolutely sold, I 
 would not dare to take them out. Q. They were his ? A. Yes, sir." 
 Appellant's bookkeeper testified that charges were made and bills 
 rendered in the manner sworn to by Col. Barr, their salesman. He 
 further testified: "Q. When you took account of stock each year, 
 including these drawers, did you put that in your general stock, or 
 how did you charge the amount in these drawers ? A. It was charged 
 B.& B.BUS.L.AW— 61 
 
962 SALES (Part 4 
 
 up to Mr. Cope, so that we would not take it into stock each year. Q. 
 On your book it would appear as charged each year ? A. Yes, sir. Q. 
 By Mr. Thompson: It was a memoranduta merely for the purpose 
 of showing where the goods were in your account of stock. Of course 
 it was that. ' A. Showing where they were. Q. That is all? A. They 
 were not belonging to us at all. They were not included in our stock. 
 Q. But you never rendered any bill for them, of course? A. No." 
 
 On behalf of the appellee evidence was offered to show that the de- 
 cedent always paid his bills promptly, and at the time of his death 
 left no other outstanding accounts, except for medicine and medical 
 attendance. It was also attempted to be shown by a salesman of the 
 publishing house of J. S. Lippincott & Co. that decedent was in the 
 habit of having books laid aside for inspection. This testimony was 
 as follows: "Q. Was it not at times a habit of his to have set aside 
 the books, that he would come back and confirm or disaffirm ? A. No, 
 sir. Q. He was always prompt in his payment? A. If he wanted a 
 book, he would say, 'I will take it.' If I said to him, 'Perhaps you 
 would like to look at it a different time,' he would say, 'No,' he did not 
 want it. He was a man that would make up his mind in a very little 
 time if he wanted an article." This testimony on behalf of the ap- 
 pellee, so far as it has any bearing on the case, is corroborative of ap- 
 pellant's witnesses, and tends to support his contention. 
 
 The learned auditing judge, who was sustained by the court in bank, 
 held that there was no contract of sale, "because the minds of the 
 parties did not come together in a common intention." . In this we 
 think he was mistaken. The evidence to support the auditing judge's 
 conclusion is far from being satisfactory. In examination in chief of 
 appellant's salesman, Mr Barr, he was emphatic in his assertion of an 
 uncohditional sale, and this was reiterated by him on cross-examina- 
 tion. In endeavoring to strengthen appellee's line of defense, he was 
 asked on cross-examination: "O. Was it not your habit of showing 
 him prints, and was it not his habit to look at them, and then come 
 back, and, having concluded to take them, to order them ? A. I never 
 put these away until he told me to do so. Q. Did he not tell you to 
 lay these aside? A. No. sir; I never laid any prints aside for Mr. 
 Cope." The language employed by decedent is entirely consistent 
 with a consummated contract of sale. The conduct of appellant was 
 uniform in treating the transaction as a sale. In every case the select- 
 ed engravings were marked with their respective prices, separated 
 from the commoa stock, and made accessible to the decedent and Mr. 
 Barr alone, then charged to him, and never thereafter carried into 
 the general stock. The learned auditing judge attached too much im- 
 portance to the fact that the bills were not rendered until the goods 
 were taken away. There is nothing in that circumstance that is in- 
 consistent with an absolute sale, especially when we consider the 
 uniform course of dealing, which the decided weight of the evidence 
 shows the parties themselves adopted. The appellant was under no 
 obligation to notify Mr. Cope of the charge. It would not have been 
 in accord with their mutually recognized mode of dealings, and might 
 have resulted in the loss of a valuable customer. If it had been sought 
 to establish the contract of sale by the dealings of the parties alone, 
 without regard to the evidence of their mutual understanding in re- 
 lation thereto, there might be some force in the position contended 
 for by the appellee ; but the direct evidence of a sale and mutually un- 
 
Ch. 1) TRAXSFER OP TITLE WHERE GOODS ASCERTAINED 96?> 
 
 derstood mode of delivery, in drawers specially designated as re- 
 teptacles for decedent's purchases, is positive and uncontradicted, 
 except by the circumstances relied on by the appellee. Unfortunately 
 for him, none of those circumstances are inconsistent with a sale. 
 
 It follows from what has been said that the assignments of error 
 must be sustained. Decree reversed, at appellee's costs, and ordered 
 that the record be remitted to the court below, with instructions to al- 
 low the residue of appellant's claim. 
 
 J. B. BRADFORD PIANO CO. v. HACKER. 
 
 (Supreme Court of Wisconsin, 1916. 162 Wis. 335, 156 N. W. 140.) 
 
 Action by the J. B. Bradford Piano Company against Bertha Hack- 
 er. From a judgment for defendant, plaintiff appeals. 
 
 This is an action to recover the purchase price of a Conover inner 
 player piano sold by the plaintiff to the defendant. * * * At the 
 time the 'Contract was entered into defendant finally showed a prefer- 
 ence for one and agreed to take it provided the case would he stained a 
 certain darker color and the tone made more brilliant, which was agreed 
 to. * * * 
 
 An order was duly sent, confirming the verbal order, dated April 
 4, 1914. On April 7, 1914, the defendant sent a letter to the Bradford 
 Piano Company repudiating the contract. The Bradford Company 
 on May 2, 1914, made a tender of delivery of the piano as refinished. 
 At the time of the trial the piano was in the warerooms of the Bradford 
 Company. * * * The trial court directed a verdict for the defend- 
 ant. 
 
 SiEBECKBR, J. The trial court held that the facts and circumstances 
 show, as matter of law, that the property in the piano was hot trans- 
 ferred to Miss Hacker at the time the written order for the purchase 
 was given nor prior to the time Miss Hacker repudiated this contract 
 on April 7, 1914. The plaintiff assails this holding of the trial court 
 upon the ground that, on the evidence, it was a question for the jurv to 
 determine whether or not the parties to the contract intended ^hat 
 the property in the piano was transferred prior to the time defendant 
 repudiated the sale. The evidence shows that defendant and plaintiff's 
 agent negotiated for the sale on April 2, 1914, at the factory of the 
 Cable Company in the city of Chicago, where the defendant selected 
 the piano in question. It appears that she was not satisfied with the 
 color of the case of the instrument she selected, and insisted on having 
 the color altered and made darker. The manufacturer agreed with 
 plaintiff and defendant to alter the color so as to comply with the un- 
 derstanding of the parties, to regulate the tone of the instrument as 
 defendant desired it, and to insert the player action and test it, as is 
 usually done before sending instruments from the factory to custom- 
 ers. The sale price and the shipment of the instrument by railroad to 
 Hartford, Wis., by the plaintiff were agreed upon by plaintiff's agent 
 and defendant, as specified in the written memorandum of sale set 
 out in the above statement. The defendant signed this memorandum 
 at the depot in Chicago. The evidence shows that the piano was re- 
 turned to the varnishing department of the factory, and a color coat of 
 varnish applied to bring the color to the shade desired by the defend- 
 ant. After this coat had dried two more coats of regular varnish 
 
964 SALES (Part 4 
 
 were put on, which, when properly dried, completed the piano so that 
 it was ready for shipment. This process took from two to three weeks, 
 when the instrument was boxed and shipped. Defendant repudiated 
 the contract on the fifth day from the date of sale. 
 
 The facts and circumstances show that the piano was not in a de- 
 liverable condition at any time up to the date of the repudiation on 
 April 7, 1914. The contract also required thp shipment of the in- 
 strument from Chicago to Hartford, Wis., which could not be done, 
 and in fact was not attempted to be done, within two weeks or more 
 after the sale. The conduct of the parties at the factory and in nego- 
 tiating the sale, when taken in connection with the terms of the con- 
 tract and the circumstances of the case, fail to show that it was mu- 
 tually understood and intended that the property in the instrument 
 should pass to defendant at this time. It is plain that the defendant 
 had no control of nor any dominion over the instrument while in the 
 factory, and that the Cable Company retained full control and posses- 
 sion to deal with the property as its own. The evidence, showing the 
 entire transaction, does not permit of the inference that the parties 
 mutually intended that the property passed to defendant under the 
 agreement of sale of the instrument, as contemplated by the provisions 
 of section 19, rule 2, of the Sales Act. * * * 
 
 It is obvious that the piano was not in a deliverable state until the 
 coloring of the case had been altered to comply with the conditions 
 of the sale wifhin the contemplation of this statute, and hence the 
 property had not passed when defendant repudiated the sale. * * * 
 Under the circumstances and conditions of the sale, defendant's breach 
 of the contract on April 7, 1914, renders her liable to the plaintiff for 
 the damages it suffered from such breach. * * * j^ was held in 
 Badger State I^umber Co. v. Jones Lumber Co., 140 Wis. 73, 121 N. 
 W. 933, that, where specific performance cannot be enforced, either 
 party may stop performance and subject himself to the payment of 
 compensatory damages. "In such cases it is held that an action can- 
 not be maintained to recover the contract price, but may be maintained 
 to recover damages for the breach of the contract" — citing cases in this 
 court. The complaint is framed for recovery of the purchase price, 
 and no evidence was offered to show damages resulting from the 
 breach of contract. 
 
 Appellant makes no claim upon the record for recovery of damages. 
 The most liberal rule of practice, * * * in the light of the record, 
 would entitle plaintiff to no more than nominal damages, and requires 
 affirmance of the judgment. * * * 
 
 The judgment appealed from is affirmed. 
 
 AUTOMATIC TIME-TABLE ADVERTISING OO. v. AUTOMATIC 
 TIME-TABLE CO. 
 
 (Supreme Judicial Court of Massachusetts, 1911. 208 Mass. 252, 94 N. E. 462.) 
 
 Action by the Automatic Time-Table Advertising Company against 
 the Automatic Time-Table Company. There was a verdict for plain- 
 tiff, and defendant brings exceptions. 
 
 This was an action of contract for damages for defendant's failure 
 to comply with its terms. The contract recited that defendant sold 
 plaintiff the following goods : Twelve automatic time-table machines 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 965 
 
 complete,- together with all printed matter, time-tables, electro-plates, 
 printed goods and advertising matter, and advertising contracts, re- 
 lating to said machines, which were sold, assigned and transferred 
 to the said Automatic Time-Table Company by the said Automatic 
 Time-Table Advertising Company under agreement, dated July 13, 
 1909. Said machines are described and located as follows : One ma- 
 chine located at Merrimack Square, in lyowell, Mass., one machine 
 located in Lawrence, Mass., one machine located in Haverhill, Mass., 
 one machine located in Salem, Mass., one machine located in Lynn, 
 Mass., one machine located in Chelsea, Mass., six machines now stand- 
 ing in the shop of the Automatic Time-Table Company, 58 Middle 
 street, Lowell, Massachusetts, and numbered on door on battery side 
 of case respectively as follows: 8, 9, 10, 11, 12 and 13. 
 
 LoRiNG, J. The contract of July 16th was a contract for the sale 
 of 12 specific machines and not a contract for the sale of 12 machines 
 of a particular description. By its terms it purports to be a present 
 sale, but it was a sale of "twelve automatic time-table machines com- 
 plete," and there was evidence that no one of the "six machines now 
 standing ir the shop of the Automatic Time-Table Company" was 
 complete. 
 
 The bill of exceptions is somewhat obscure on this point. But as 
 we interpret it there was evidence that apart from the Gordon batter- 
 ies no one of these six machines was complete. We speak of the parts 
 of the machine other than the Gordon batteries because it seems to have 
 been the undisputed fact that as matter of practice these batteries 
 were not piit into the machines until they were set up for use on the 
 premises of the purchaser or licensee, and setting up these machines 
 on the premises of the plaintiff was not part of the obligation of the 
 vendor under the contract here in question. It appeared that that 
 was to be paid for by the vendee in addition to the purchase price 
 named in the written contract. 
 
 The contract does not say that the "twelve automatic time-table ma- 
 chines" were complete, but it says that the defendant sells to the plain- 
 tiff "twelve automatic time-table machines complete." Evidence that 
 the six here in question were in fact incomplete was admissible as 
 one of the circumstances under which the contract was made and so 
 one of the circumstances in the light of which it was to be construed. 
 
 Since something had to be done to the machines to put them in a de- 
 liverable state and a different intention did not appear, the property 
 in the 6 machines here in question did not pass on the execution of 
 the contract. The transaction was governed by the sales act ( St. 1908, 
 c. 237) and it is there so provided in section 19, rule 2. The rule 
 was the same at common law. * * * 
 
 The defendant contends that the cases of Glover v. Austin, 6 Pick. 
 209, Glover v. Hunnewell, 6 Pick. 222, Sumner v. Hamlet, 12 Pick. 76, 
 Thorndike v. Bath, 114 Mass. 116, 19 Am. Rep. 318, Mauger v. Crosby, 
 117 Mass. 330, and Whittle v. Phelps, 181 Mass. 317, 63 N. E. 907, 
 are decisions to the contrary. Those are cases where it appeared that 
 it was the intention of the parties to sell the chattel in its unfinished 
 condition with an agreement by the seller to complete it; or in the 
 language of St. 1908, c. 237, § 19, those were cases where a different 
 intention did appear. 
 
 The contract of July 16th, therefore, was not a contract of present 
 sale of six unfinished machines with an agreement on the part of the 
 
966 SALES (Part 4 
 
 defendant to complete them, but it was a contract to complete the six 
 unfinished machines which on completion were to become the property 
 of the plaintiff. * * * The bill of exceptions went no further than 
 to state that the "fire greatly damaged the 6 machines standing in the 
 defendant's premises." * * * 
 
 The learned counsel for the defendant misconceives the character 
 of the action now before us when he contends that the plaintiff has not 
 put himself in a position to sue on the footing that the contract is 
 rescinded. This is not an action fotmded on the decision of the con- 
 tract of July 16th, but it is an action on that contract to recover dam- 
 ages for the defendant's failure to complete the 6 machines which at 
 the date of the contract were standng in its shpp, and on completion 
 of them to pass the title to the plaintiff. * * * 
 
 SECTION 4.— FURTHER ILLUSTRATIONS OE THE 
 APPLICATION OF THE PRESUMPTION 
 
 An owner of hogs is fattening them for market. There is a con- 
 tract to sell them when they are fattened. Does title pass at the 
 date of the contract, if there is no other evidence of the intention 
 of the parties ? No ; because the hogs are not in the condition 
 which the parties intend that they shall be in, at the time when 
 the buyer is to take them. But suppose the buyer says, "What 
 will you take for those hogs?" The seller names a price. The 
 buyer adds, "They are not fat enough to take to market, but I will 
 buy them anyway." They so agree. The hogs are stolen that 
 night. The buyer has not paid the price. Must he pay? Yes; 
 because the subject of the contract here is not "fattened hogs," but, 
 on the contrary, the sale is of "unfattened hogs." 
 
 Where the contract is to sell logs to be cut, cotton to be ginned, 
 wheat to be threshed, etc., in all these cases the parties have shown 
 that they have in mind as the subject of the sale certain goods, 
 then identified, but which are to be put in a different condition be- 
 fore the buyer is under any obligation. But the greatest of care 
 must be exercised in examining the evidence, the circumstances of 
 the case, custom, etc., to determine whether or not the parties, aft- 
 er all, intended to sell these identified goods in their present un- 
 finished or incomplete condition. For certainly parties may buy 
 and sell cotton which has not been ginned, or wheat not yet thresh- 
 ed or logs which have not yet been cut or sawed into lumber. Pay- 
 ment of the price is strong evidence that the parties intended title 
 to pass to the goods in their incomplete condition. Other evi- 
 dence may be equally strong, but neither will be conclusive. An- 
 other variation arises when the parties have agreed upon a sale of 
 goods in an incomplete state, with the superadded obligation upon 
 the seller to complete them. It is possible here that the obligation 
 of the seller to complete the goods is a new obligation, based upon 
 an entirely different contract — i. e., a contract by which the buyer 
 employs the seller to do some work upon the buyer's own goods. 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 967 
 
 The opportunity for variation is indefinite, a fact which empha- 
 sizes the impossibility of isolating all conceivable situations in 
 selling transactions and in laying down beforehand a rule of 
 thumb by which all such cases may be decided. This cannot be 
 done. The intention of the parties is the test and the parties may 
 intend anything. 
 
 SECTION 5.— APPLICATION OF THE PRESUMPTION 
 WHERE ACTS OF WEIGHING OR MEASURING MUST 
 ALONE BE DONE TO ASCERTAIN THE AMOUNT OF 
 THE PURCHASE PRICE 
 
 Suppose we are confronted with a contract to sell a stack of 
 hay, or a pile of wood or coal, where the mass is identified and is 
 in a deliverable state; that is, the parties have agreed to buy and 
 sell that particular mass in its present state, not in some other 
 condition, as would be the case if the contract called for baled 
 hay, or wood sawed into specified lengths, or the coal screened. 
 We have a case, therefore, where the presumption which we have 
 been discussing should apply, and title would pass at the time the 
 contract was made, unless tha parties expressly agree that title 
 shall pass at some later time. But suppose the parties do not know 
 what quantity, measured in tons, cords, etc., is sold. They have 
 agreed upon a sale of an identified mass, and they have agreed 
 upon the price per unit of weight or measure, but they do not 
 know what the total price will be. Query: Is the presumption 
 that title passes at the time of the contract made inapplicable, 
 simply because the amount of the purchase price has not been as- 
 certained? The courts have not agreed upon this question. Most 
 courts have held that title does not pass in such a case, provided 
 the act of weighing or measuring was to be done by the seller. 
 Where the act of weighing or measuring to ascertain the price was 
 by the contract, to be done by the buyer, the general rule was that 
 the title passed at the time the contract was made. When the 
 courts held that the title did not pass, if the seller was bound to 
 weigh or measure the goods, they were not holding t^iat the fact 
 that the price was unascertained meant that the goods were not 
 in a deliverable state, but they did say that it was just as sensible 
 to suppose that the parties intended title not to pass until the 
 goods were weighed or measured and the price fixed as it was to 
 assume that, when goods at the time of the contract were not in 
 the physical condition contemplated by the contract, the parties in- 
 tended title not to pass until the goods were put in a deliverable 
 condition ; that is, there were two rules, similar, but not identical. 
 Is it, after all, a fair assumption that the parties intend title not 
 to pass until the price has been ascertained, the goods in all other 
 respects being ascertained and in a deliverable state? The Sales 
 Act has left out all mention of this question, the intention being 
 
S68 SALES (Part 4 
 
 thus to change the rule of presumption. Probably, therefore, in 
 all those states which have enacted the Sales Act, the former rule, 
 that title did not pass when the goods were yet to be weighed or 
 measured either by the seller or buyer, to ascertain price, has been 
 changed, so that the special presumption that title passes upon 
 execution of the contract to sell goods in a deliverable state ap- 
 plies. 
 
 SECTION 6.— PRESUMPTION THAT TITLE PASSES AT 
 
 THE DATE OF THE CONTRACT IS APPLICABLE 
 
 WHERE THE SALE IS A SALE ON CREDIT 
 
 The sale on credit is well understood. The legal effect of the 
 transaction is that the seller intends to part with his ownership in 
 the goods. Usually possession of the goods passes to the buyer, 
 or the goods may in part be delivered to him. It is possible for 
 the seller to remain in possession, title having passed. In such 
 case the seller simply has possession of the buyer's goods. The 
 seller is in very much the same situation that any bailor is in with 
 respect to property in his possession. There is this difference : A 
 seller in possession of goods already sold does have the power to 
 sell to a third party, and thus to cut off the claim of the first pur- 
 chaser, while a bailor does not have such power. This point will 
 be taken up later. 
 
 The Sales Act expressly contemplates that the presumption that 
 title passes at the date of the contract is applicable to sales on 
 credit, because section 19, rule 1, provides that the presumption is 
 applicable, "whether the time of payment, or the time of delivery, 
 or both, be postponed." The sale on credit therefore, is a sale 
 where the seller has intended to part with ownership. How is 
 such intention manifested? This intention may be expressly or 
 impliedly shown. A sale is never presumed to be on credit. 
 Where wholesalers sell to retailers, it is very common for the in- 
 voice to state that the goods are sold on ten, thirty, or sixty days' 
 time, etc. In such a case, of course, the intention that the goods 
 are sold on credit is clearly shown. Frequently resort must be 
 had to the course of dealing between the parties. This is another 
 illustration of the importance of custom in business transactions. 
 People do not always put into language everything that goes on 
 in their minds with respect to a particular transactidn. Each as- 
 sumes that the other knows what he is thinking about. Time does 
 not permit extended discussion. Where parties have had business 
 relationships extending over considerable periods of time, their 
 dealings have r-epeated themselves so often that it is not necessary 
 to put all of their understandings into writing. Perhaps the ma- 
 jority of the obligations of the parties are not adverted to in the 
 course of each new transaction. When controversy arises, their 
 meaning can be discovered only by resort to the course of dealing. 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 969 
 
 These propositions are true, no matter what particular type, of 
 controversy has arisen. 
 
 The question as to whether the course of dealing in a particular 
 case shows a sale on credit is only illustrative. If A. has, for 
 some substantial period of time, had a charge account at a store, 
 and on a particular occasion asks for — let us say — a hat ; he finally 
 says, "I will take this," and the buyer thereupon wraps it up and 
 places the hat on the counter and in front of A. ; A. picks it up 
 and says, "Charge it to me" — would the seller have the right to 
 demand possession of the hat on the theory that a sale was in- 
 tended for cash? Probably not. The course of dealing shows a 
 sale on credit. It is A.'s hat, although he has not yet paid for it. 
 A. would not be guilty of converting the shop-keeper's hat, nor of 
 stealing the hat. The shopkeeper might feel aggrieved if in his 
 own rnind he had actually intended a cash sale and had intended to 
 refuse further credit to A. ; but, since he had not made known 
 what was actually going on in his mind, this unexpressed inten- 
 tion would not control. On the other hand, had the hat blown 
 off the counter into the street, where it was run over by a passing 
 automobile, the shopkeeper would have no regrets that he had not 
 made his secret intention known, for in this case, the sale being a 
 sale on credit, title passing, the buyer was under an obligation to 
 pay for the hat. It was A.'s hat which blew away, and not the 
 shopkeeper's hat. 
 
 Resort to custom is but one way of ascertaining the intention 
 of the parties as to whether the sale was a sale on credit. Every- 
 thing said and done by the parties during negotiations is equally 
 important. Sometimes we shall find conclusive evidence as to 
 intention in one group of circumstances; sometimes in another. 
 The parties should not leave such matters unprovided for. Uncer- 
 tainty as to the nature and extent of contract obligations fosters 
 controversy and unnecessary litigation. These things are within 
 the control of the parties while the contract is being made. After 
 that, it is a closed book, not subject to alteration, except upon mu- 
 tual agreement. Of course, the necessity for speed in the con- 
 duct of modern business renders impossible the exercise of the 
 highest degree of care. It is better to take the risk sometimes 
 than to slow up the process of exchange. But the risk is there, 
 and the parties should realize the source and the nature of that risk. 
 
 ABRAHAM v. KARGER. 
 (Supreme Court of Wisconsin, 1898. 100 Wis. 387, 76 N. W. 330.) 
 
 Per Curiam. This was an action^for the recovery of a lot of mer- 
 chandise stored by the defendant, Kafger, at No. 559 East Water street, 
 Milwaukee, and was in charge of one Bing, a relative of Karger,. to 
 sell for him on commission. The plaintiff, Clara Abraham, was at 
 this time conducting a business under the name of the "Milwaukee 
 
970 SALES (Part 4 
 
 Knitting Works." This business was managed for her by her father, 
 Louis Abraham, as her agent, who a few days prior to August 26, 
 1896, began negotiations with Bing for the purchase of the merchan- 
 dise belonging to the defendant, Karger. These negotiations were in 
 part conducted, according to the evidence of the plaintiff, Abraham, 
 in the presence of, and with the sanction of, the defendant, Karger. 
 There was a dispute between the witnesses for the plaintiff, on the one 
 side, and the defendant and his witnesses, on the other, as to the terms 
 of sale finally agreed on between the plaintiff and defendant. 
 
 On the part of the plaintiff, Louis Abraham testified that the agree- 
 ment as finally made was that the plaintiff was to pay the defendant, 
 Karger, for this stock $2,000 in cash, and to deliver to him the note 
 of one- W. A. Meyer, for $500; and this was corroborated by the 
 evidence of James L. Gates, a witness on the part of the plaintiff, who 
 testified that the defendant, Karger, stated to him that such was the 
 case. The testimony of Karger and his witnesses was that the plain- 
 tiff was to pay to the defendant $2,500 in cash, and that Karger did 
 not agree or consent in any way to accept the note of Meyer in pay- 
 ment of part of the consideration ; and it appeared that this dispute as 
 to the terms of the sale was the only matter upon which there was 
 any conflict of testimony. On all other points the witnesses substan- 
 tially agreed. At the time when the bargain was made, Louis Abra- 
 ham paid Bing $25 to bind the bargain. The next day, the plaintiff, 
 Abraham, paid to Bing $1,500, and at the time Bing gave to Abraham 
 an invoice or statement, drawn up in Bing's handwriting, which recites 
 the value of the merchandise at $4,100, the payment by cash and mer- 
 chandise in exchange of $3,100; the balance of $1,000 to be paid, $500 
 in cash, and $500 in W. A. Meyer's note. Both Bing and Abraham 
 admit that the purchase price was $2,500, and that no merchandise 
 was given in exchange ; that the bill or invoice was made out this way as 
 a matter of convenience between the parties. And Bing further claims 
 that the statement that the balance was to be $500 in cash and $500 
 in notes did not express the true understanding between them. August 
 24th, the plaintiff, through Louis Abraham, paid $500 more on the 
 purchase; and, on the 26th of August, Louis Abraham tendered to 
 the defendant, Karger, Meyer's note for $500, payable to the Milwau- 
 kee Knitting Works, and indorsed, "C. Abraham, Proprietor." This 
 tender was refused, and Karger said to Abraham, "If you don't have 
 the money before noon, I am going to store the goods, and you will 
 have to pay the costs;" whereupon the plaintiff, Clara Abraham, 
 brought replevin, charging the unlawful and wrongful detention of the 
 property. 
 
 The court, in its charge to the jury, in effect told them that the ques- 
 tion at issue was whether the sale was to be for cash and notes, as 
 testified to by the plaintiff's witnesses, or for cash solely, as testified 
 to by the defendant and his witnesses ; that, if they found the claim of 
 the plaintiff to be correct, then the verdict should be in favor of the 
 plaintiff; if they found the facts as to the sale or agreement to be as 
 claimed by the defendant, then they should find for the defendant. 
 The jury found for the plaintiff, and that she was the owner of, and 
 entitled to the possession of, the goods seized under the writ ; that the 
 same were unlawfully detained from her by the defendant; that the 
 value of the property was $3,500; and the plaintiff had judgment 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCIORTAINED 971 
 
 against the defendant for the possession of the property, and for the 
 recovery of the costs, together with the damages of 6 cents. * * * 
 
 There was evidence on the part of the plaintiff to maintain these 
 contentions. It is established by the verdict as a verity that payment 
 of the $2,000 in money, and tender of the note of Meyer for $500, 
 were made. Such payment and tender of payment prior to the time 
 of the commencement of the action had the same effect as actual pay- 
 ment upon the rights of the parties. There is nothing to show that 
 the contract was executory, so far as anything remaining to be done to 
 the goods was concerned. The evidence shows that they were ready 
 for delivery, and set apart, and the price agreed upon, and a partial 
 delivery made before the tender of the $500 note. The goods were in 
 the sight of the parties, and were pointed out in the presence of Karger, 
 the defendant, when it was agreed that he was to get $2,000 in cash 
 and W. A. Meyer's note for $500 for them. There can be no doubt 
 but that, under the circumstances stated, the title to the goods, and the 
 right of possession as well, passed to the plaintiff, and, if afterwards 
 they were wrongfully detained, she might maintain replevin for them. 
 "When the terms of sale are agreed on, and the bargain is sti^uck, and 
 everything the seller is to do with the goods is complete, the contract 
 of sale becomes absolute as between the parties, without actual pay- 
 ment or delivery, and the property and the risk of accident to the goods 
 ■ vests in the buyer. He is entitled to the goods on payment or tender 
 of the price, and not otherwise, when nothing is said at the sale as 
 to the time of delivery or time of payment. But if the goods are sold 
 upon credit, and nothing is agreed upon as to the time of delivery of 
 the goods, the vendee is immediately entitled to the possession, and the 
 right of property vests at once in- him." 2 Kent, Comm. (9th Ed.) 671. 
 * * * The evidence as to what actually did occur, or what was 
 agreed on between the parties, is in some respects conflicting and con- 
 tradictory. The case was rightly submitted to the jury to find upon 
 the vital point in dispute, and thus determine whether the property 
 and right of possession passed to the plaintiff. The evidence was clearly 
 sufficient to sustain the finding of the jury, and the court could not have 
 properly directed a verdict for the defendant. * * * 
 
 A discussion of the evidence contained in the printed case would 
 serve no useful purpose. For these reasons, the judgment of the 
 superior court of Milwaukee county must be affirmed. Judgment is 
 ordered accordingly. 
 
 SECTION 7.— PRESUMPTION THAT TITLE PASSES AT 
 THE DATE OF THE CONTRACT OVERCOME BY 
 PROOF THAT THE PARTIES INTENDED A CASH 
 SALE 
 
 We are still discussing the application of the rule of presump- 
 tion stated in section 19, rUle 1, that where there is an uncondi- 
 tional contract to sell specific goods in a deliverable state, the 
 property in the goods passes when the contract is made. We 
 see that in a sale on credit title passes to the buyer when the con- 
 tract is made. It will usually not be difficult to decide whether a 
 particular contract was a sale on credit or a cash sale. Suppose 
 the evidence, the character of which was commented upon in the 
 
972 SALES (Part 4 
 
 preceding section, shows that the parties did not intend a sale on 
 credit, but on the contrary the evidence shows that the passing of 
 the title to the goods was in some way tied up with the obliga- 
 tion to pay the purchase ptice. If we had only two kinds of sales, 
 sales on credit and cash sales, it would be easy to determine the 
 circumstances under which we would have a cash sale. But the 
 trouble is that there are several types of transactions which are 
 not sales on credit. One of them is the cash sale, another is the 
 conditional sale — and there are at least three varieties of the con- 
 ditional sale — and finally there is a sale for which we have no 
 single descriptive word, which may be called a sale with the reser- 
 vation of a lien. How are we to identify the cash sale? 
 
 So far we have discussed but one of these — the sale on credit. 
 After deciding that a particular sale is not a sale on credit, the 
 question narrows down to the ascertainment of the features which 
 distinguish a cash sale from a sale with a reservation of a lien, 
 on the one hand, and from the three types of conditional sales, on 
 the other. To distinguish the cash sale froni the sale with a 
 reservation of a lien is the more difficult problem. We shall dis- 
 cuss this problem in this section. The analysis of the three kinds 
 of conditional sales will be taken up in the succeeding sections, • 
 wherein the difference between them and the cash sale will appear. 
 
 In order to get the proper perspective here, we should recall the 
 cases and the discussion in sections 3 and 4. We were there 
 dealing with contracts to sell ascertained goods, in some of which 
 the goods were in a deliverable condition; in others the goods 
 were not in a deliverable condition. We found that title passed at 
 the time the contract was made, when the goods were in a deliv- 
 erable condition ; but, if they were not, title did not pass until they 
 were put in a deliverable condition. Notice that, in such cases, we 
 were concerned only with one type of evidence; i. e., the evi- 
 dence as to the physical condition of the goods. For the time 
 being we did not recognize the possibility that evidence of a 
 wholly different nature, not dealing with the physical condition 
 of the goods, might completely change the result. In this section 
 we must open the doors to such possibilities and see what effect 
 they have upon our former determinations. 
 
 All contracts of sale, which are not sales on credit nor condition- 
 al sales, break up into two groups. These two groups possess the 
 common element that the buyer cannot gain actual possession of 
 the goods until he pays the purchase price. The two groups differ 
 in the nature of the right reserved by the seller for the purpose of 
 securing his actual possession of the goods until the price is paid. 
 In the first group, the nature of this security is a lien upon the 
 goods; in the second group, the nature of the seller's security is 
 title itself. The first may be called a sale with the reservation of a 
 lien ; the second is called the cash sale. The cases which we dis- 
 cussed in sections 3 and 4 might have been either sales with the 
 reservation of a lien or cash sales. The cases did not call for a 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 973 
 
 determination of this question. But the question is frequently 
 presented: How are sales of the one class to be distinguished 
 from sales of the other? 
 
 Before taking up this. matter a word should be added concern- 
 ing the nature of a lien. A lien may be defined as a mere personal 
 right to retain the possession or physical control over the goods 
 until the other party to the contract has performed his obliga- 
 tions. The lien gives its holder no remedies of compelling pay- 
 ment in addition to that which the lienholder has independent of 
 his lien. The lien does bring about an additional pressure upon 
 the debtor to pay. The ownership in the property is in the debtor. 
 There has simply been subtracted from the total rights of owner- 
 ship the right to retain possession until a certain thing is done. 
 To illustrate the rather delicate nature of the right of the lien- 
 holder, we find that the act of a voluntary surrender of the pos- 
 session of the goods to their owner causes the lien to disappear. 
 Even if the former lienholder regained possession the lien would 
 not thereby be re-created. Common-icarriers have liens on goods 
 shipped to secure payment of freight; pledgees of property also 
 hold liens on the property pledged. Similarly an unpaid seller 
 has a lien on the goods to secure payment of the price. 
 
 We are now prepared to consider the circumstances under 
 which the seller has merely a lien on the goods still in his pos- 
 session, or whether title is retained. The parties may do either. 
 If they use language which expressly reserves a lien or title, such 
 case, of course, furnishes no difficulty. But in the majority of 
 transactions the parties do not think about this matter, and they 
 have no understanding regarding it. Again, we are forced to ex- 
 plore the circumstances of the case, the course of dealing, custom, 
 etc., in search of evidence which may indicate what the parties 
 probably would have intended, had their attention been called to 
 this aspect of their dealings. The most important evidence in de- 
 termining this question is as to the time when the parties contem- 
 plated the exchange of the goods for the price, with respect to the 
 time when the contract was made; that is, we are dealing with 
 three acts: (1) The execution of the contract; (2) the delivery 
 of the goods; (3) the payment of the price. In both cases — i. e., 
 a sale with a reservation of a lien, or a contract to sell, title being 
 retained — we know that act (2), the delivery of the goods, and 
 act (3), the payment of the price, must be concurrent acts; they 
 are to be done at the same time. So the solution of the problem 
 turns on whether the parties intend that acts (2) and (3) are to be 
 done at the same time that act (1) is done. If the parties contem- 
 plate that all three acts are to be done at the same time, we have 
 a cash sale. If any fairly substantial period of time is intended to 
 elapse after act (1), before acts (2) and (3) are performed, we 
 have a sale with a reservation of a lien. In cases of doubt, the 
 sale should be regarded as a sale with a reservation of a lien, rather 
 than a cash sale. The learned author ""of the Sales Act and of a 
 
974 SALES (Part 4 
 
 treatise on the law of sales, Professor Williston, thus states the 
 rule: "It is submitted that the true test is this: If the parties 
 when they make their bargain contemplate an exchange of the 
 goods for the price immediately on making the bargain, the sale 
 is to be regarded as a cash sale. There is no occasion to invoke 
 the doctrine of a sale subject to a lien. On the other hand, if the 
 parties do not contemplate an immediate exchange of the money 
 for the goods, even though they do contemplate that possession 
 of the goods shall not be delivered lintil the price is paid, it is 
 presumptively an absolute sale as soon as the parties agree on 
 the terms of the bargain and the goods are in a deliverable state 
 in accordance with the rules previou,sly given. In case of doubt 
 it seems better to assume that the latter kind of bargain was in- 
 tended." 1 I 
 
 In the early law every sale was presumed to be a cash sale — 
 that is, where title was reserved until the price was paid — but to- 
 day the presumption is that every sale of goods in a deliverable 
 state is presumed to be a sale with the reservation of a lien only, 
 uijtil circumstances or other evidence show it to be a cash sale, con- 
 ditional sale, or a sale on credit. 
 
 There are two well-known transactions of daily occurrence, 
 wherein the circumstances show that the delivery of the goods and 
 the payment of the price are to occur at the time the contract is 
 made and hence a cash sale results. These cases are: (1) Ordi- 
 nary retail sales over the counter; and (2) where the buyer is to 
 execute and deliver some negotiable instrument at the time of the 
 delivery of the goods to him. If A. walks into a store and asks for 
 a certain article, the price being given, and A. indicates that he will 
 buy the article, all the circumstances go to show that the merchant 
 expects payment before delivery of the goods, and also that pay- 
 ment and delivery are to be then made. This is a cash sale. Title 
 remains in the seller until he is paid. If, as frequently happens, the 
 goods are actually placed in the hands of the buyer before he 
 pays the price, this is not a case where possession has been volun- 
 tarily parted with. The merchant has simply allowed his cus- 
 tomer to pick them up for the temporary purpose of examining 
 them. Legal possession has not passed. If A. were to leave the 
 store with the goods without paying the price, this act probably 
 would be larceny. So, also, where the goods are shipped to the 
 buyer under a negotiable document of title running to the order 
 of the seller, and such bill of lading is accompanied by a bill of 
 exchange or trade acceptance, as it is frequently called, and both 
 the bill of lading and the bill of exchange are sent to some third 
 party, usually a bank, for presentment for payment or acceptance, 
 title remains in the holder of the bill of lading until the bill of 
 exchange is actually paid or accepted, accordingly as the bill of 
 exchange demanded payment or acceptance. Cases involving ne- 
 
 1 Williston on Sales, p. 549. " 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 975 
 
 gotiable bills of lading will be discussed more completely in a later 
 chapter. 
 
 Confining cash sales to these types of transactions, there is left a 
 great many sales where the delivery of the goods and the payment 
 of the price are to occur at some subsequent date. Here the pre- 
 sumption is that title passes when the contract was entered into, 
 the seller reserving a lien only to secure payment of the price. 
 
 In determining whether a particular transaction is a cash sale, 
 as that term has been used in this discussion, too much importance 
 must not be attached to the use of the words "terms cash," or 
 "cash sale," as these words are used in the contract. Business men 
 sometimes call a sale a cash sale when in reality they contem- 
 plate that credit be given for a short space of time. If such be 
 the case, the parties have not entered into a cash sale, as that bar- 
 gain is regarded in the law, but they have entered into a different 
 kind of contract. A contract will not derive its legal characteristics 
 from the use of any particular words. Words are, after all, only in- 
 dications as to what the parties meant. Their conduct and other 
 circumstances are equally important. A man may say that he can 
 run one hundred yards in nine and two-fifths, but his statement of 
 his ability and intention to do so does not break any records. So 
 the parties may say, "We will enter into a cash sale," but the 
 fact that they formed this decision is not conclusive that this 
 sort of contract was the legal result of their conduct. One cannot 
 but be impressed with the fact that in the study of the law, that 
 legal relationships and legal effects cannot be permanently linked 
 to any one word, series of words, or phrases. Language is too 
 unstable to bring about this much desired, but wholly impossible, 
 result. The notion that the law is all carefully and neatly arranged 
 in books, readily accessible and definite in meaning, is sadly un- 
 true. The knowledge of the law's real nature, and of the inherent 
 difficulties involved in its construction and in its application, is 
 perhaps of more value, ultimately, than a certain degree of ac- 
 quaintance with specific rules and doctrines. 
 
 The "cash sale" may also be described as a "contract to sell." 
 In fact, the latter expression more accurately indicates the legal 
 eiifect of the transaction heretofore called a cash sale. A sale and 
 a contract to sell are not the same thing. As defined in the Sales 
 Act: 
 
 Section 1, Subsec. 1. A contract to sell goods is a contract 
 whereby the seller agrees to transfer the property in goods to the 
 buyer for a consideration called the price. 
 
 A sale is defined: 
 
 Section 1, Subsec. 2. A sale of goods is an agreement whereby 
 the seller transfers the property in goods to the buyer for a con- 
 sideration called the price. 
 
 The distinction between a sale and a contract to sell is, there- 
 fore, that in a sale title to the property passes to the buyer at the 
 time the contract is entered into. It is executed to this extent. 
 
976 SALES (Part 4 
 
 The seller has partly performed. Title has ; passed. It may be a 
 sale on credit, or a sale with the reservation of a lien, or that type 
 of a conditional sale wherein title passes to the buyer, but subject 
 to a condition that title may be revested in the seller upon the elec- 
 tion of the buyer not to keep the goods — a type of transaction yet 
 to be discussed. In all these cases the bargain is a real sale, be- 
 cause title has passed. But, as we have seen, buyer and seller may 
 be bargaining concerning ascertained goods in a deliverable con- 
 dition, under circumstances where the intention shown is that title 
 shall' not pass until the price is paid. This has been called a cash 
 sale, but it is also one kind of contract to sell. 
 
 There are types of contracts to sell other than cash sales. For 
 example: (1) The parties may agree, irrespective of the time 
 when the price is to be paid, that the title to the goods shall pass 
 at some specified future date; or (2) they may agree that title 
 shall pass at such time in the future as the buyer may elect to 
 take the goods ; or (3) where the bargain relates to goods not in 
 a deliverable condition, the presumption is that a contract to sell 
 results. As we have noted, however, if at the time the contract is 
 made the goods are ascertained and in a deliverable condition, the 
 presumption will "be that a sale and not a contract to sell, was in- 
 tended. Before the transaction will be construed as an executory 
 contract to sell, strong evidence must appear that the parties in- 
 tended to postpone the passage of title until some future time, or 
 until some event occurred. Notice that in thfe above cases the 
 transaction is construed as a contract to sell, solely because the 
 parties intended it to be such. The law would permit them under 
 the circumstances to enter into a sale. There is one kind of trans- 
 action which will always be construed as a contract to sell, as dis- 
 tinguished from a sale, even though the parties have unequivocally 
 manifested their intention to make a sale. A seller cannot pass 
 title to goods which at. the time the contract was made were not 
 ascertained. A rule of law forbids it. This type of case will be 
 taken up in the next chapter. 
 
 SECTION 8.— CONTRACTS ON SALE OR RETURN AND 
 CONTRACTS TO SELL ON APPROVAL 
 
 Sales Act, Section 19, Rule 3 (1). When goods are delivered to 
 the buyer "on sale or return," or on other terms indicating an in- 
 tention to make a present sale, but to give the buyer an option to 
 return the goods instead of paying the price, the property passes 
 to the buyer on delivery, but he may revest the property in the sell- 
 er by returning or tendering the goods within the time fixed in the 
 contract, or, if no time was fixed, within a reasonable time. 
 
 Sales Act, Section 19, Rule 3 (2). When goods are delivered 
 to the buyer on approval or on trial or on satisfaction, or other 
 similar terms, the property therein passes to the buyer : (a) When 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 977 
 
 he signifies his approval or acceptance to the seller or does any 
 other act adopting the transaction, (b) If he does not signify his 
 approval or acceptance to the seller, but retains the goods without 
 giving notice of rejection, then, if a time has been fixed for the re- 
 turn of the goods, on the expiration of such time, and, if no time 
 has been fixed, on the expiration of a reasonable time. What is a 
 reasonable time is a question of fact. 
 
 A great deal of business is done on the basis of contracts on sale 
 or return and contracts to sell on approval. A manufacturer or 
 wholesaler may find it difficult to put his product on the market. 
 In order to induce the trade to display and attempt to sell his 
 goods he may be willing to ship them to a retailer upon the under-- 
 standing that he is not to pay for them until he elects to keep them. 
 Likewise, between individuals, the seller, in a last attempt to make 
 a sale, will agree and insist upon the buyer taking the goods home 
 with him for further examination or trial; the buyer not being 
 bound to pay for them until he elects to take or keep them, or 
 unless he keeps them beyond the time fixed by the seller. Some- 
 times such sales are called sales on consignment. But too much 
 importance must not be attached to the use of any particular words 
 or phrases as indicating the character of the transaction. From 
 the business standpoint both these contracts look alike. In each 
 the seller has surrendered actual possession to the buyer, and in 
 each the buyer is not, at the time he takes possession, under any 
 obligation to pay for them. In the law these transactions are very 
 different, and an examination into the distinctions will throw some 
 light upon the business problems as to which type of contract it is 
 desirable to enter into. 
 
 The difference all turns on the fact that in the sale on return 
 title passes to the buyer, while in the contract to sell on approval 
 title remains in the seller. The buyer in both cases has possession. 
 In the sale on return the title is in the buyer, but attached to it is a 
 condition that the title may by the voluntary act of the buyer be 
 revested in the seller. In contracts we called this kind of condition 
 a condition subsequent. In the contract to sell on approval the 
 buyer, while he does not have title, may by his own voluntary act 
 take title to the goods; that is, he will obtain title when he elects 
 to take them. This is a transfer of possession, and the condition 
 which must happen before title vests in the buyer is the act of 
 his making an election to keep the goods. Such a condition is a 
 condition precedent to the passing of title. What are the conse- 
 quences? In the sale on return, title being in the buyer, the 
 risk of loss and other incidents of title are in the buyer. If the 
 goods are lost or damaged without his fault, the buyer will be 
 held liable for such loss, even though he elects not to take the 
 goods. If the sale is on approval, the buyer is a mere bailee until 
 he elects to take the goods. Risk of loss is not in the buyer. The 
 incidents of title remain in the seller. 
 B.& B.Bus.Law— «2 
 
978 SALES (Part i 
 
 D. M. FERRY & 00. v. HALL, Tax Collector. 
 
 (Supreme Court of Alabama, 1914. 188 Ala. 178, 66 South. 104, L. R. A. 
 
 1917B, 620.) 
 
 Gardner, j. * * * 'j^he appellant brought suit against the ap- 
 pellee for the recovery of $203 paid by appellant to appellee, as tax 
 collector for Houston county, under protest ; suit having been brought 
 by said tax collector for said sum due as taxes and garnishment is- 
 sued in aid thereof. 
 
 The cause was submitted in the court below upon an agreed stater 
 ment of acts, in which it was agreed that the facts in said cause were 
 as set out in said agreement, and that the "cause be submitted to the 
 jury upon said statement of facts, and that the liability, if any, of the 
 defendant arises out of said facts." The agreement further stipulates : 
 "It is further agreed by and between the parties hereto that the only 
 question presented for the court for its decision, in this case is whether 
 or not the assessment for the collection of the taxes, due on said seed, 
 should have been made against the said D. M. Ferry & Co., or against 
 the merchants to whom said D. M. Ferry & Co. had shipped the seed, 
 and in whose possession said seed were at the time the assessments were 
 made, under the f acls hereinafter set forth ; and if the assessments for 
 the collection of ssnd taxes should have been made against said D. 
 M. Ferry & Co., then the defendant is entitled to judgment; but if 
 said assessments for the collection of said taxes should not have been 
 made against D. M. Ferry & Co., then the plaintiff is entitled to re- 
 cover." 
 
 The sole question, therefore, for determination is: In whom, for 
 the purposes of taxation, vested the title or property to the seed in 
 possession of the retail merchants ? If the seeds were the property of 
 the appellant, then it is conceded and agreed the defendant is entitled 
 to judgment, and, on the other hand, it is likewise conceded and agreed 
 that, if the seeds were the property of the retail merchants, then appel- 
 lant is entitled to judgment. 
 
 The order of the retail merchant, the letter of acceptance accom- 
 panied by the invoice, and the placing of the paster marked in the rec- 
 ord "D" on the box when shipped, together with the method or course 
 of dealing with reference to said transactions between the wholesaler 
 and the retailer, as disclosed by said agreed statement of facts, are 
 the matters upon which, according to said agreement, we are to con- 
 clude the title to said seed. 
 
 The order has on it the word "consignment," and that which is 
 signed by the retailer has the words "to sell on commission," showing 
 the terms as 40 per cent, commission on the papers sold, and 25 per 
 cent, on the packages sold, from the invoice prices ; the unsold seed, 
 with boxes, to be returned in good order when called for, and amount 
 due for all seeds not so returned to be paid at the same time. 
 
 The invoice which accompanied the memorandum of shipment had 
 thereon, among other things, the following: "Terms: To be settled 
 for when traveler calls. Sold to Mr. John Doe, etc. We agree to 
 buy back all unsold seeds with boxes at prices billed, less discounts, 
 when our traveler calls." * * * 
 
 The following extract from the agreed statement of facts explains 
 the method or course of dealing as between the wholesale and retail 
 
Ch. 1) TRANSFER OF TITLE WIIKRE GOOUS ASCKUTAINED ~ 979 
 
 merchants, as to such transactions: "At the close of each season in 
 which said seed was so sold, the traveling salesman representing D. 
 M. Ferry & Co., would call upon the retail merchant and adjust the 
 local dealer's account with D. M. Kerry & Co., taking back the unsold 
 seeds in said box or boxes, allowing credit for the seed at invoice 
 prices, and collecting cash for tlie balance of the seed at invoice prices, 
 less the commission provided for in the original contract. The re- 
 tailer, in selling the foregoing seed to his customers, would fix the 
 price at which he would sell them, and would also have entire con- 
 trol of the seed, while the seed was in his possession and control, and 
 would also sell the seed and collect for the seed from his customers 
 in his own name. D. M. Ferry & Co. were in no way interested in 
 the price which the retailer obtained for the said seed, but merely took 
 back the unsold seed, allowing credit therefor at invoice prices and 
 collecting, for the seed not returned, the invoice prices, less commis- 
 sions. The said seed wei-e in packages and papers. D. M. Ferry & 
 Co. printed a price upon said packages, but printed no price upon the 
 papers ; but, for the seed not returned by the retailer to D. M. Ferry 
 & Co., the retailer accounted to D. M. Ferry & Co. for each package, 
 not returned, at the price printed on said package, and at the price 
 of five cents for each paper, less the commission. The retailer renders 
 no account to D. M. Ferry & Co. of any sales made by him, and gives 
 no information in regard thereto, but the representative of D. ]\I. Ferry 
 & Co. goes annually to each retailer, makes his own investigation from 
 the seed that the retailer has on hand, and states the account between 
 the retailer and D. M. Ferry & Co. * * * " 
 
 Mr. Mechem, in his work on Sales, in volume 1, § 46, has this to 
 say: "The distinction between sale and an agency to sell is ordinarily 
 clear and simple, but, unfortunately, many cases are presented in 
 which the parties, for the purpose of evading the operation of some 
 local statute, of defeating the claims of creditors, or otherwise, have 
 made contracts involving such a confused jumble of the elements of 
 both sale and agency that it is exceedingly difficult to determine their 
 true character. Certain of these contracts have evidently been framed 
 for the purpose of concealing a sale under the guise of an agency, while 
 others have been drawn with a view to having them construed as con- 
 tracts of sale or agency, as might best suit the convenience or "sub- 
 serve the purposes of their framers. In construing these anomalous 
 instiruments, courts look chiefly at the essential nature and preponderat- 
 ing features of the whole instrument, and not at the peculiar form of 
 isolated parts of it. It matters very little what the parties have chosen 
 to call their contract. * * * If the parties have made a contract 
 which really operates to transfer the title, it is a sale, notwithstanding 
 they may have labeled it a 'special selling factor appointment,' or have 
 expressly stipulated that the alleged factor 'shall never purchase such 
 goods for his own account.' So with regard to the use of the term 
 'consign.' It may express the true state of the case, and, if so, it 
 will be given effect ; or it may be a mere subterfuge, and, if it be the 
 latter, 'there is no magic in that word which can take from the trans- 
 action its real character.' " 
 
 This is peculiarly illustrated by the cases of Arbuckle Bros., whose 
 contracts have been the subject of review in some of the courts of last 
 resort, notably those of Georgia, Tennessee, and Virginia, wherein it 
 
980 SALES (Part 4 
 
 was held that notwithstanding the contract was called, and purports 
 on its face to be, a "special selling factor appointment," stipulates for 
 a retention of title, and that the goods shall be consigned and held by 
 the party, merely as a factor, and that such factor shall never pur- 
 chase such goods on his own account, and the same to be sold in name 
 of the factor, but only as the f actor_ of Arbuckle Bros., and only at 
 such prices and on such terms as said Arbuckle Bros, may give from 
 time to time. The contract provided also for certain "allowances and 
 commissions." There were other provisions as to payments, etc., and 
 these courts held that the entire contract disclosed a sale and not 
 an agency, notwithstanding the many such expressions to be found 
 therein. Arbuckle Bros. v. Gates & Brown, 95 Va. 802, 30 S. E. 496; 
 Arbuckle Bros. v. Kirkpatrick, 98 Tenn. 221, 39 S. W. 3, 36 h. R. 
 A. 285, 60 Am. St. Rep. 854 ; Snelling v. Arbuckle Bros., 104 Ga. 362, 
 30 S. E. 863. 
 
 Speaking of this contract, the court in the latter case says : "It ap- 
 pears to have been drawn for the purpose of enabling Arbuckle Bros, 
 to 'run with the hare or hold with the hounds,' according as, in the 
 exigencies of a given case, their interest might dictate." 
 
 In reference to the same contract, the Supreme Court of Virginia, in 
 above case of Arbuckle Bros. v. Gates & Brown, said : "The agreement 
 was an attempt to accomplish that which cannot be done — to make a 
 sale of personal property and at the same time constitute the buyer 
 simply an agent of the seller to hold the property until it is paid for. 
 The two things are incompatible and cannot co-exist. The agreement 
 had in it every element of sale. * * * " 
 
 While, in the instant case, a portion of the contract has the words 
 "sell on commission" and the word "consignment" written thereon, 
 yet other portions (memorandum of shipment and invoice, etc.) make 
 use of the words "sold to" and agreement to ^'buy back," and nothing 
 is said as to the title to the seeds or that the retail merchant is in fact 
 the agent of the wholesaler, and, from what is therein contained, it is 
 difficult to determine the real intention of the parties. The agreed 
 statement of facts, however, contains the method of business, the 
 course of dealing in reference to such transactions, and from such 
 agreement it is disclosed that the retail merchant acquires complete 
 dominion and control of the seeds, makes sales to whom he pleases at 
 his own prices and on whatever terms he pleases, and makes no ac- 
 counting whatever to the wholesaler. Indeed, from the agreed statement 
 of facts it appears the retailer deals with the seed as his own. He 
 need not sell at all, but may give away the seed or use them himself. 
 He is to account to the wholesaler for the seed not returned at the in- 
 voice price, less the commission, when the traveling man calls and ad- 
 justs the accounts, giving the retailer credit for the unsold seed at in- 
 voice price. This settlement is not to be made as the seeds are sold, 
 but the settlement is to be made when the "traveler calls"; that is, 
 on demand, as it were. The retailer sold to his customer in his own 
 name, and the wholesaler was in no manner interested in the price 
 obtained, but merely took back the unsold seeds, allowing credit there- 
 for at invoice prices. When sold by the retailer, the proceeds of the 
 sale were his own, and no duty rested on him to account therefor to 
 the wholesale dealer. 
 
 Under the agreed statement of facts as shown by the record, guided 
 by the rules of law as found in the foregoing authorities, we think it 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 981 
 
 quite clear that the retailer was not a mere agent but was in fact a pur- 
 chaser of seeds. It is shown that the retailer had the right to return 
 the unsold seeds, and that the wholesaler agreed to buy them back 
 
 at invoice prices. What, then, is the relation between the parties? 
 
 * * * 
 
 We are of the opinion that the real transaction between D. M. 
 Ferry & Co. and the retail merchants, under the agreed statements of 
 facts, was that of "sale or return," as disclosed by these authorities 
 and definitions. The retailer was to pay for the seeds not returned 
 at a certain price previously fixed by the parties, and at a certain time 
 (that is, when the "traveler calls"), and he had the option of return- 
 ing seeds not sold. We deem a further discussion unnecessary, and 
 indeed recognize that this opinion is doubtless of undue length, but we 
 trust pardonable on account of the importance of the principles in- 
 volved. * * * 
 
 We therefore conclude that the transactions disclosed by this record, 
 as appears from the agreed statement of facts, are not consignments, 
 creating the relation of principal and agent, but are what are known 
 as "sale or return," and that therefore the property vested in the re- 
 tailer upon delivery, subject to be defeated by the condition subse- 
 quent. For the purpose of taxation, therefore, the seeds under the 
 agreed statement of facts were the property of the retailer, and the 
 appellant was not liable for such taxes. 
 
 The court below erred in giving the affirmative charge for the de- 
 fendant and in refusing that asked by the plaintiff. The judgment of 
 the circuit court is therefore reversed, and, as the cause was tried upon 
 an agreed statement of facts, one will be here rendered in favor of 
 the plaintiff, for the sum sued for. 
 
 Reversed and rendered. 
 
 NEAL, CLABK & NEAL CO. v. TARBY. 
 
 (Supreme Court of New York, Special Term, 1917. 99 Misc. Rep. 380 
 163 N. Y. Supp. 675.) 
 
 Action by the Neal, Clark & Neal Company against Michael J. 
 Tarby. From a judgment dismissing the complaint, plaintiff appeals. 
 
 Wheeler, J. The facts in this case are undisputed, and briefly 
 stated are : That the plaintiff, among other rfiings, deals In Victrolas. 
 One Fertig was the solicitor of advertising, and in that capacity was 
 accustomed to visit the plaintiff's store. On the occasion of one of 
 his visits the subject of the purchase of a Victrola was brought up by 
 one of plaintiff's salesmen. Fertig was asked if he had decided to 
 purchase a Victrola, to which he replied : "No, we haven't reached a 
 point where we will decide on it." The salesman suggested sending 
 one out on approval, to which Fertig replied : "If you want to take 
 a chance, and send it out on approval, with the understanding I don't 
 have to purchase it unless I want it, all right." To this the salesman 
 replied : "All right, I will send it out with a selection of records, and 
 see if we can't later sell you the machine." 
 
 They then selected a Victrola of the price of $150, which seems to 
 have been fully understood, and the machine was delivered to Fertig. 
 The salesman testified that some time later he asked Fertig if he. had 
 decided to purchase, to which Fertig replied: "We haven't quite de- 
 
982 SALES (Part 4 
 
 cided to purchase the machuie." To which the salesman replied : "All 
 right; let us know when you are ready." It further appears that 
 Fertig moved the machine to the Lenox Hotel, where he went to Itve, 
 and while there sold and delivered the Victrola to the defendant m 
 this action, who paid Fertig $75 therefor. Fertig then left, and has 
 not since been seen. 
 
 The plaintiff, learning the facts, and claiming to own the machine, 
 demanded it of the defendant, who refused to deliver it up. The 
 plaintiff then brought this action in the City Court to recover posses- 
 sion. The City Court dismissed its complaint, and the case now comes 
 before this court on appeal. 
 
 The plaintiff, in substance, cotitends there never was any consum- 
 mated sale ; that the title of the property never passed to Fertig, and 
 he could give none to the defendant; that Fertig stole or converted 
 the Victrola to his own use, and the plaintiff should have recovered. 
 The defendant contends he is protected as a bona fide purchaser for 
 value under the provisions of the Personal Property Law, and that 
 the court below did not err in dismissing the plaintiff's complaint. 
 
 The defendant stands on the provisions of section 129 of that act, 
 as added by Laws 1911, c. 571, providing: "The buyer is deemed to 
 have accepted the goods when he intimates to the seller that he has 
 accepted them, or when the goods have been delivered to him and he 
 does any act in relation to them which is inconsistent with the owner- 
 ship of the seller, or when, after the lapse of a reasonable time, he re- 
 tains the goods without intimating to the seller that he has rejected 
 them." 
 
 It seems to us that this section governs the case here presented for 
 review. If we correctly interpret the transaction between the plaintiff 
 and Fertig, it amounted to this : The plaintiff delivered to Fertig the 
 Victrola in question for trial, with the option to purchase it at the 
 price of $150. This offer was at no time canceled or recalled by the 
 plaintiff. There was evidently, under this arrangement, no actual 
 sale, and no transfer of title to Fertig, until he had accepted the offer, 
 or until he did some act in relation thereto "inconsistent with the own- 
 ership of the seller." The instant Fertig undertook to sell the machine 
 as his own, he did an act inconsistent with the ownership of the plain- 
 tiff. It was evident that he had, in fact, acted upon the plaintiff's op- 
 tion to sellj and, in the absence of fraud, it became a consummated 
 sale between the parties to it. Under such circumstances, I think 
 there can be no question but what the plaintiff would have had a per- 
 fect right to have sued and recovered from Fertig the agreed pur- 
 chase price of the machine. 
 
 Section 100 of the Personal Property Law also provides: "When 
 goods are delivered to the buyer on approval or on trial or on satisfac- 
 tion, or other similar terms, the property therein passes to the buyer — 
 (a) When he signifies his approval or acceptance to the seller or does 
 any other act adopting the transaction." * * * 
 
 It is urged, and with force, that the act of Fertig in selling the 
 Victrola to the defendant was not, after all, an act affirming or accept- 
 ing the right to purchase at an agreed price, but really a conversion 
 or larceny -of the property delivered to him, and therefore ought not 
 to defeat the right of the plaintiff to follow the property into whose- 
 soever hands it may be found. 
 
Ch. 1) THANSFEE OF TITLE WHERE GOODS ASCERTAINED 98!^ 
 
 We think, however, the provisions of the Personal Property Law 
 above quoted were designed, not only to define the rights of parties 
 to such transactions as between themselves, but also to afford protec- 
 tion to third persons who may deal with the buyer on the strength of 
 his apparent ownership of the property possessed, so that any one in- 
 trusting another 'with the possession of property under circumstances 
 such as in this case does so largely at his own risk, while an innocent 
 purchaser dealing with one in possession will be fully protected. * * * 
 
 I am of the opinion that the judgment appealed from should be af- 
 firmed. 
 
 MNSMORE V. RICE. 
 (Court of Appeals of Maryland, 1916. 128 Md. 209, 97 Atl. 537.) 
 
 Action by Marion G. Dinsmore against Nathaniel A. Rice, in which 
 the defendant brings a counterclaim. Judgment for the defendant, 
 and plaintiff appeals. 
 
 Constable, j. * * * 'j^^e appellant brought suit for the re- 
 covery of an amount claimed to be due him for feed furnished the 
 appellee. The appellee admitted the correctness of the account filed 
 with the narr, but claimed by way of set-off that the appellant was 
 indebted to him in a sum less than the amount sued for, the same be- 
 ing the purchase price of a horse alleged to have been purchased by 
 the appellant from him, and paid the appellant the difference between 
 the account and the purchase price of the horse. The only question 
 involved in the trial was whether or not the appellee was entitled to ' 
 an allowance for the purchase price of the hqrse. * * * 
 
 ■ The appellant's contention was that the horse died in his possession 
 under such a set of circumstances that he was under no obligation to 
 pay for it. Those circumstances were, according to the appellant's 
 testimony, that the appellant, Dinsmore, went to the stables of the ap- 
 pellee and looked at a horse that Dr. Nolan, a veterinary surgeon, had 
 recommended to him. The horse, apparently, being suited for the 
 purpose for which it was wanted and the price agreed upon, was or- 
 dered by Dinsmore to be sent to his place, on trial, but no definite time 
 was fixed for its acceptance or rejection. The horse was delivered on 
 Thursday. The following Frida!y and Saturday were stormy days, 
 and the horse- was worked for about five hours on the latter day. On 
 the afternoon of that day, Dinsmore called Rice over the telephone and 
 told him he had not been able to report as to the horse, and said to 
 him: "I have been detained downtown and I will either accept or 
 reject the horse by Monday, 12 o'clock." 
 
 The next day, Sunday, the horse was slightly ill with a cold, and 
 Dinsmore again called Rice and told him that the horse was ill, but 
 that Dr. Nolan had reported it as not anything serious, and that Rice 
 had answered: "That is all right, Marion; he can do as much for 
 him as I can." On Wednesday, it for the first time was apparent 
 that the horse was very ill, and shortly afterwards on the same day it 
 died from congestion of the lungs. 
 
 The contention of the appellee was that it was not a sale on trial, 
 but that the horse had been purchased outright on the day it was de- 
 livered ; and he denied that he had had "the conversation testified to by 
 Dinsmore as to reporting on Monday whether or not he would take 
 
984 SALES (Part 4 
 
 the horse. The appellant offered no prayers, but the appellee offered 
 several, two of which were granted by the court, and it is the first of 
 these which the appellant urges, is erroneous and should be the basis 
 of a reversal. The prayer is as follows: "Even though the jury 
 find that the horse mentioned in the evidence was delivered by the de- 
 fendant. Rice, to the plaintiff, Dinsmore, on trial, yet, nevertheless, 
 their verdict should be for the defendant, if they further find that 
 under all the circumstances of the case, the plaintiff retained the horse 
 for an unreasonable time without giving notice of his rejection of 
 said horse to the defendant." * * * 
 
 Assuming the truth of the testimony of the appellant that the ap- 
 pellee agreed to allow him until Monday at 12 o'clock, to either ac- 
 cept or reject the horse, although this testimony may be said to be ma- 
 terially different from the testimony at the former trial, we neverthe- 
 less are of the opinion that the above referred to provisions of the 
 Uniform Sales Act are still applicable to this case. * * * 
 
 Assuming the appellant's testimony to mean that, although in the 
 beginning of the transaction no time had been fixed for a return of 
 the horse, yet by the Saturday conversation the time for the return 
 was fixed as of Monday at 12 o'clock, still in order to escape liability, 
 it was incumbent upon him to show at or before that time he had 
 given notice of rejection. And as to this, there is not a word in the 
 record that there was a communication of any character between the 
 parties after Saturday's conversation, except the notice on Sunday, 
 that the horse was suffering from a cold until some little time after the 
 death of the horse. That he merely communicated to the seller the 
 fact that the horse was slightly ill and was being attended by the buy- 
 er's veterinarian could not be considered by the jury as operating as 
 a performance of his agreement to notify him of his acceptance or 
 rejection. The appellant clearly explained that it was his under- 
 standing that if he did not notify the seller by Monday at 12 o'clock, 
 the horse was to belong to him. 
 
 Admitting all of the testimony of the appellant as to the Sunday 
 notice, we are of the opinion that there is nothing in it that could be 
 construed to relieve him of his obligation to give notice of his rejec- 
 tion. The prayer, therefore, instead of requiring the jury to find 
 whether or not the horse was retained an unreasonable time without 
 notice of rejection, should have directed a verdict for the defendant if 
 the jury found that the buyer retained it without notice of rejection 
 after Monday at 12 o'clock. In the absolute absence of any such no- 
 tice, the jury could not have found any other verdict, so, therefore, no 
 injury was done the appellant by the granting of the prayer in the 
 form offered. * * * 
 
 Finding no reversible error, the judgment will be affirmed. * * * 
 
Ch. 1) TRANSFER OF TITLE WHERE GOODS ASCERTAINED 985 
 
 SECTION 9.— CONDITIONAL SALES 
 
 The transactions which we have just been considering-^sales on 
 return and contracts to sell on approval — are conditional sales. 
 In the former, the title in the buyer is coupled with a condition 
 subsequent; in the latter, there is a condition precedent to the 
 vesting of title. These contracts are rarely, if ever called condi- 
 tional sales. On the other hand, the contract which is the subject 
 of this section, a very common one in business, is not strictly a con- 
 ditional sale, but everywhere, in business and in the law, is always 
 called a conditional sale. 
 
 In short the transaction is this: The seller, being willing to 
 sell the goods on credit, but desirihg to retain some hold on the 
 goods, enters into a contract with the buyer, by the terms of 
 which the buyer is allowed to take possession of the goods, but 
 the title thereto is expressly retained by the seller until the buyer 
 pays the price. It is necessary for the seller, if he desires to retain 
 title in a contract wherein he has surrendered possession, and con- 
 tracted also to pass title upon the payment of the price, expressly 
 to reserve it, because the law would not give him any lien or title 
 under such circumstances. The situation here is different from the 
 case where the seller is in possession of goods sold in a deliverable 
 condition. In such a case the law attaches a lien on the goods, giving 
 the right to retain possession until the price is paid — except, of course, 
 where the bargain shows a cash sale or other executory contract to sell. 
 Liens do not survive voluntary surrender of the possession of the goods. 
 
 The buyer, then, having expressly retained title to secure pay- 
 ment of the price, what are the rights and liabilities of the parties? 
 
 (1) The general rule is that the risk of loss or damage is on the 
 buyer. Generally the risk of loss accompanies title, but there are 
 some exceptions, and this is one of them. The reason for the ex- 
 ception is that, while the seller does in a sense retain title, his re- 
 tention of the same is for a special purpose only, to secure pay- 
 ment of the price. The buyer has possession. In the natural 
 course of events he will become the owner. Therefore it is emi- 
 nently just to allow the risk of loss to rest upon the person who 
 is chiefly interested in the goods. Therefore, if before the price is 
 paid the goods conditionally sold are destroyed or damaged, even 
 without the fault of the buyer, he is still bound to pay the price. 
 This result is reached under the Sales Act, Section 22 (a) : 
 
 "Where delivery of the goods has been made to the buyer, or to 
 a bailee for the buyer, in pursuance of the contract, and the prop- 
 erty in the goods has been retained by the seller merely to secure 
 performance by the buyer of his obligation under the contract, the 
 goods are at the buyer's risk from the time of such delivery." 
 
 (2) If the buyer makes default in his obligation to pay the price, 
 
,986 SALES (Part 4 
 
 the seller may recover possession of the goods. The possibility of 
 just such a contingency is the sole reason for the seller's having 
 sold the goods on contract of conditional sale. Had he merely sold 
 them on credit, the seller would have had no greater rights against 
 the goods sold by him than any other creditor of the conditional 
 vendee. In the event of the buyer's insolvency or bankruptcy, the 
 seller would likely lose some, or perhaps a large proportion, of the 
 price remaining unpaid ; but he is protected if he retains a security 
 title. If the buyer refuses to allow the seller to reclaim the goods, 
 the seller may recover possession in a proceeding usually known 
 as an action of replevin. 
 
 By way of comparison, it might be mentioned in this connection, 
 that the seller could protect himself to the same extent by selling 
 the goods on credit absolutely to the buyer, and requiring the 
 buyer to execute and deliver a chattel mortgage. For practical 
 purposes the protection of the seller is the same, whether he 
 adopts the conditional sale plan or sells the goods without reser- 
 vation of title and takes back a mortgage. In some states, where 
 chattel mortgages are required to be recorded, and where con- 
 tracts of conditional sale are not required to be recorded, there is a 
 difference in the rights of the seller as against the purchasers and 
 creditors of the conditional vendee, a point now to be noticed. 
 
 (3) It was stated above that the conditional vendor might re- 
 claim possession of the goods upon the buyer's default. Suppose, 
 however, that the conditional vendee sold the goods to a third 
 party, who had no knowledge that the goods were held by his ven- 
 dor on a contract of conditional sale. Suppose, further, that the 
 conditional vendee is now insolvent, so that the seller's right to 
 sue him for the price is worth nothing. May the seller recover the 
 goods from the innocent purchaser? Or if, instead of/ an inno- 
 cent purchaser, it may be that some creditor of the conditional 
 vendee has obtained a judgment against his debtor, and has levied 
 on the goods so sold, and that the same were sold by the sheriff to 
 satisfy this judgment; may the conditional vendor recover the 
 goods from the purchaser at the sheriff's sale? The two questions 
 are the same. First, let it be supposed that these questions are 
 asked with respect to a conditional sale in a state which does not 
 require recording of conditional sales contracts to make them effec- 
 tive against subsequent purchasers and creditors of the conditional 
 vendee. There are two views on this question. The great ma- 
 jority of courts have held that the conditional vendor may recover 
 his goods from the innocent purchaser or from the purchaser at the 
 sheriff's sale. This rule is expressed by saying that the reservation 
 of title in a contract of conditional sale is good against purchasers 
 and creditors of the conditional vendee. A few states, among them. 
 Illinois, Pennsylvania, and Colorado, have held that the condi- 
 tional vendor is not protected. Under this rule parties dealing with 
 a conditional vendee have the right to assume that he is the ex- 
 
.Ch. 1) TRANSFER OP TITLE WHERE GOODS ASCERTAINED 987 
 
 elusive owner of goods held on contract of conditional sale. Of 
 course if such persons had notice of the interest of the seller, they 
 would not be protected. 
 
 WniTLOCK V. AUBUEJSr LUMBER CO. 
 
 (Supreme Court of North Carolina, 1907. 145 N. C. 120, 58 S. E. 909, 
 12 K E. A. [N. S.l 1.214, 122 Am. St. Rep. 446.) 
 
 Action by Charles M. Whitlock, as a creditor of the Auburn lyumber 
 Company, for the purpose of winding up its affairs, on an allegation 
 of insolvency. Cameron V. MacRae was appointed receiver in the 
 proceeding, and, from a judgment refusing to allow a certain credit 
 on notes of the Auburn Lumber Company, MacRae, as receiver, ap- 
 peals. 
 
 The Acme Machine Works sold to the Auburn Lumber Company 
 certain machinery and personal property for $2,770, of which sum 
 $1,000 was paid in cash and the balance of the purchase money was 
 secured by two notes, due, respectively, February 23 and April 24, 
 1903. On these notes payments were made, which reduced the balance 
 due on December 15, 1906, including interest, to $973.36. In the con- 
 tract of sale it was stipulated that if the Auburn Lumber Company 
 should fail to pay the notes, or either of them, at maturity, the entire 
 debt should become due, and the Acme Machine Works might take 
 possession of the property, but, if the notes were paid at maturity, then 
 the title, which, until the payment should remain in the Acme Machine 
 Works, should vest in the Auburn Lumber Company. * * * 
 
 Walker, J. It cannot be well denied that, under the prior decisions 
 of this court, the transaction between the Acme Machine Works and 
 the Auburn Lumber Company constitutes a conditional sale of the 
 property described in their contract. The agreement was that the 
 former should sell, and the latter should buy, the machinery and other 
 property, to be delivered at once for the stipulated price. A part of 
 the purchase money was paid in cash, and for the remainder the lum- 
 ber company executed its notes, by which it absolutely and uncondi- 
 tionally promised to pay the sums therein specified. All of the prop- 
 erty named would have iDcen delivered immediately to the lumber 
 company but for the request that the dry kiln be retained by the Acme 
 Company until the lumber company should be ready to receive it. 
 The receiver of the latter company contends, upon the facts found 
 by the referee, that he is entitled to a credit of $750, which was the 
 value of the dry kiln, upon the notes given for the purchase money 
 of the property bought by the lumber company from the Acme Com- 
 pany, and which are now owned and held by the Bank of Wayne. 
 
 We do not perceive upon what ground, legal or equitable, any such 
 claim can be successfully maintained. The lumber company has made 
 an absolute promise to pay a certain sum of money, the consideration 
 -of which was the purchase of the property described in the contract. 
 Why, then, should it not be compelled to perform its promise? It is 
 a mistake to suppose that its liability depends upon whether the title 
 did or did not pass unconditionally to it from the Acme Company. Its 
 obligation arises out of the fact that it has promised to pay the money 
 upon a sufficient consideration, and the said obligation is in no way 
 
988 SALES (Part i 
 
 affected by the state of the title to the property, as between the parties ; 
 that is, whether vested conditionally or unconditionally. * * * 
 
 It was not necessary to effectuate the intention and purpose of the 
 parties, in making the contract, that there should have been an actual 
 delivery of the dry kiln, as there was of the other property. The 
 kiln was held by the Acme Company, subject to the order of the lum- 
 ber company, and was therefore constructively in its possession. 
 * * * Here it appears that the lumber company, by its own request, 
 prevented the delivery of the kiln. Will it now be heard to say that the 
 resulting loss should fall upon the Acme Company, who was ready and 
 willing, at all times, even up to the very moment of the fire, to deliver 
 it, when, if the delivery had been made as originally contemplated and 
 agreed, no loss would have occurred? Such a proposition cannot be 
 entertained for a moment. * * * 
 
 The real and substantial nature of the transaction, for the purpose 
 of determining who should bear the loss, is that of mortgagor and mort- 
 gagee, or lienor and lienee. The contract, it is true, creates technically 
 a conditional sale, but the vendor, in fact, only retains the legal title 
 as a security in equity, and the title otherwise passes to the vendee 
 with a lien for the purpose named. * * * 
 
 We find no error in the record. Affirmed. 
 
Ch. 2) TKANSFER OF TITLE WHERE GOODS UNASCERTAINED 989 
 
 CHAPTER II 
 
 TRANSFER OF TITLE IN CONTRACTS TO SELL 
 UNASCERTAINED GOODS 
 
 Section 
 
 1. Introduction. 
 
 2. Acts of Unconditional Appropriation. 
 
 3. Acts of Unconditional Appropriation with Respect to Only a Portion of 
 
 the Goods. 
 
 4. Acts of Unconditional Appropriation Not Necessary in Sales of Fungible 
 
 Goods. 
 
 5. Pas.sinK of Title to Goods Which at the Date of the Contract are Not in 
 
 Existence. 
 
 6. Passing of Title to Property Contracted to be Sold upon Its Delivery to a 
 
 Carrier or Other Bailee. 
 
 7. EfCect of the Form of the Bill of Lading upon the Passing of Title. 
 
 SECTION 1.— INTRODUCTION 
 
 The great majority of transactions in modern business which 
 ultimately result in transfers of title to personal property have 
 their origin in executory contracts to sell goods which at the 
 date of the execution of the contract were unascertained. The 
 farmer may contract to sell his cattle and his grain before the 
 subject of the contract can be identified. The manufacturer and 
 wholesaler send out their salesmen, who enter into contracts with 
 the dealer or consumer under circumstances where the subject of 
 the sale is not capable of actual identification at the time. The 
 contracts will simply call for goods of a specified description or of 
 an agreed quality, but until some act be done, either by the seller 
 or by the buyer, the effect of which will be to segregate the goods 
 corresponding to the description and quality, the goods cannot be 
 said to be ascertained. In the natural course of events, and upon 
 the performance of certain specified acts, the goods will become 
 ascertained, and title will pass. The problem in this chapter is to 
 discover the circumstances under which title will pass to the buyer 
 in contracts of this character. Of course, in the great majority of 
 cases, it is unimportant to know at what moment title passed to the 
 buyer, because the entire transaction will be closed just as the 
 parties intended. But accidents occur. The goods are lost or 
 damaged. Some of the numerous parties through whose hands the 
 goods pass on their journey to the purchaser may find themselves 
 plunged into bankruptcy. Dishonesty still finds an occasional 
 fertile field in which to involve the parties in difficulties. Speed 
 invites opportunity for misunderstanding; misunderstanding 
 breeds controversy. Before the era of the industrial revolution, 
 buyer and seller more frequently dealt face to face. The trans- 
 action was simple, and quickly terminated. The most casual ob- 
 servation upon the elaborate mechanism of modern exchange re- 
 veals countless chances for the unforeseen to occur. When it does 
 
990 SALTis (Part 4 
 
 occur, some of the eddies from the stream of business pour into 
 the lawyer's offices and the courtrooms. The balance sheets regis- 
 ter a loss, even for the successful litigant. 
 
 When will goods be unascertained? (1) When they are not in 
 existence at the date of the contract; (2) when they are to be 
 manufactured ; (3) when the goods are in existence, but are so 
 mixed up with other goods that it is not certain what particular 
 goods will finally be delivered to the buyer — when will title pass 
 under such a contract? 
 
 Sales Act, Section 19, Rule 4 (1). Where there is a contract to 
 sell unascertained or future goods by description, and goods of 
 that description and in a deliverable state are unconditionally ap- 
 propriated to the contract, either by the seller with the assent of 
 the buyer, or by the buyer with the assent of the seller, the prop- 
 erty in the goods thereupon passes to' the buyer. Such assent may 
 be expressed or implied, and may be given either before or after 
 the appropriation is made. 
 
 There are several matters here which require separate considera- 
 tion, (1) This rule is but a rule of presumption, for the first sen- 
 tence of section 19 qualifies rule 4, just as it qualifies rules 1, 2, 
 and 3, by declaring that unless a different intention appears, the 
 following rules for ascertaining the intention of the parties as to 
 the time at which the property in the goods is to pass to the buyer. 
 (2) The section applies to unascertained and future goods. Fu- 
 ture goods are also unascertained goods; but, for reasons ap- 
 pearing in section 4, it is apparent that title will not pass at the 
 moment when the goods are put in a deliverable state, but that, in 
 addition to the act of putting the goods in a deliverable state, the 
 goods must be unconditionally appropriated to the contract. It is 
 of great importance to note that title -will not pass at so early a 
 moment under contracts to sell unascertained goods. When 
 goods are ascertained, we found that title presumptively passes 
 just as soon as they are put in a deliverable state. But we note here 
 that, while presumptively title will not pass until the goods are put 
 in a deliverable state, we observe that presumptively title will not 
 pass, even at the time the goods are put in a deliverable state, 
 because the act requires something else before title is deemed to 
 pass; that is, the goods must be unconditionally appropriated to 
 the contract. When are goods unconditionally appropriated to the 
 contract? The determination of this question is the most impor- 
 tant part of this chapter. The law might just as well have pro- 
 vided— -i. e., it would not be illogical to so provide — that title 
 would pass presumptively just as soon as the goods were put in a 
 deliverable state. But the law did not take this turn, for the addi- 
 tional act of unconditionally appropriating the goods to the con- 
 tract is required before title presumptively passes. It is possible 
 for the parties by express agreement to make title pass just as 
 soon as the goods are in a deliverable condition and without any 
 act of unconditional appropriation, but it requires exceptionally 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 991 
 
 Strong evidence to overcome the presumption that an act of un- 
 conditional appropriation is necessary. There are very few such 
 cases. (3) There is one situation where the circumstances of the 
 case uniformly are construed as doing away with an act of uncon- 
 ditional appropriation — i. e., sale of a specified quantity of goods 
 called fungible goods, such as grain or oil. In all other cases 
 goods must be unconditionally appropriated before title passes. 
 Quite frequently the courts employ the expression "an act of sub- 
 sequent appropriation." Where this term is used, it has the same 
 meaning as the phrase found, in the Sales Act. (4) It must be no- 
 ticed that the act of unconditional appropriation must be assented 
 to by both seller and buyer. 
 
 On final analysis, therefore, there are two main problems pre- 
 sented in the next section: (1) What kinds of acts constitute acts 
 of unconditional appropriation? (2) What circumstances will 
 show assent by both parties to this act of unconditional appro- 
 priation? 
 
 SECTION 2.— ACTS OF UNCONDITIONAL APPRO- 
 PRIATION 
 
 PROCTOR & GAMBLE CO. v. PETERS, WHITE & CO. 
 
 (Supreme Court of New York, Appellate Division, 1919. 187 App. Div. 376, 
 
 176 N. Y. Supp. 169.) 
 
 Action by the Proctor & Gamble Company against Peters, White & 
 Co. On motion by plaintiff for a new trial on a direction of a ver- 
 dict in favor of defendant. 
 
 Smith, J. (dissenting in part). In January, 1914, the plaintiff made 
 a contract with the Atlantic Phosphate & Oil Corporation, a manu- 
 facturer of fish oil, for its entire product for the year 1914, with the 
 exception of 6,000 barrels, or as much thereof as might be demanded, 
 which the said oil corporation had agreed to give to Harden, Orth & 
 Hastings Company. The contract provided that the purchaser should 
 receive the oil in the purchaser's tank cars, to be supplied by the pur- 
 chaser at the seller's said factory at Promised Land, or, at the pur- 
 chaser's option, from time to time, in purchaser's barrels to be fur- 
 nished by the purchaser at the said factory at Promised Land. It was 
 further provided that the purchaser should provide enough tank cars 
 or barrels at the factory as aforesaid to take and receive all said oiT 
 as and when produced by the seller, except as thereinafter provided. 
 It was thereinafter provided that when the said oil is produced by the 
 seller at its factory it shall be invoiced to the purchaser by Harden, 
 Orth & Hastings Company, the agent of the seller, and provision is 
 made for the drawing of drafts as against the purchase price. 
 
 Later the contract provides: "If at any time there shall not be at 
 the factory sufficient tank cars or barrels furnished by the purchaser 
 to receive all the oil as fast as produced, the seller shall store the said 
 oil in its own tanks at its factory, and Harden, Orth & Hastings Com- 
 pany shall invoice it so soon as stored in said tanks to the purchaser, 
 and shall be entitled to draw on the purchaser at the same rate of 25 
 
992 SALES (Part 4 
 
 • cents a gallon for the said oil so stored in storage tanks, as well as for 
 oil placed in said tank cars or barrels : Provided, however, that if 
 at any time the oil so stored in the seller's storage taifiks shall reach 
 the amount of 15,000 barrels, and there shall not bie enough tank cars 
 or barrels provided by the purchaser to take care of all excess as fast 
 as produced, the seller may ship such excess oil to the purchaser or 
 store the same in any way that may be possible, and the purchaser in 
 that event shall pay to the seller any extra expenses thus incurred by 
 the seller." 
 
 The defendant was the factor under an agreement for the sale of 
 this oil of the Atlantic Phosphate & Oil Corporation. The defendant 
 had advanced substantial sums of money to that corporation, and in 
 order to protect the defendant for its commissions and for the ad- 
 vances, the drafts drawn on the plaintiff for the oil shipped were de- 
 livered to and collected by the defendant. Thereafter, by the direc- 
 tion of the defendant, the Atlantic Phosphate & Oil Corporation ship- 
 ped six carloads of the oil to Swift & Co., and it is for the conversion, 
 of these six carloads of oil by the defendant that this action is brought. 
 
 Of these six carloads, four were taken direct from the tanks of the 
 Atlantic Phosphate & Oil Corporation and put upon the cars of Swift 
 & Co., and thus forwarded to Swift & Co. The other two carloads 
 had been taken from the tanks by the Atlantic Phosphate & Oil Cor- 
 poration and put upon the cars belonging to the plaintiff, and the oil in 
 these cars belonging to the plaintiff was shipped to Swift & Co. As 
 to the oil taken directly from the tanks of the Atlantic Phosphate & 
 Oil Corporation and put upon the cars of Swift & Co., I do not think 
 the defendant can be held for conversion, although it participated in 
 a diversion of this oil. The defendant can only be held for conversion 
 provided title had passed from the Atlantic Phosphate & Oil Corpora- 
 tion to the plaintiff. 
 
 In the manufacture of this oil, the evidence shows that the method 
 of manufacture was to cook the fish which were not otherwise fit for 
 eating, and then through presses the oil was pressed out and turned 
 into tanks, where the oil was further cooked; that thereafter the oil 
 is turned into settling tanks and given a chance to clear, and that after 
 it is cleared the oil is finally pumped into the storage tanks, where it 
 stays until it is loaded upon the car, so that the placing of this oil in 
 the storage tanks was only the last step in the process of manufacture. 
 It would, of necessity, have been run into these -storage tanks, wheth- 
 er or not it was sold to the plaintiff, or whether or not it was sold to 
 any one. All of the oil was run into these storage tanks from the 
 settling tanks, in order that the settling tanks might be used for fur- 
 ther oil that was in process of manufacture. * * * 
 
 Section 19 of the Uniform Sales Act purports to give the rules for 
 ascertaining intention, and by rule 4 it is provided: "1. Where there 
 is a contract to sell unascertained or future goods by description, and 
 goods of that description and in a deliverable state are uncondition- 
 ally appropriated to the contract, either by the seller with the assent 
 of the buyer, or by the buyer with the assent of the seller, the prop- 
 erty m the goods thereupon passes to the buyer. Such assent may be 
 expressed or implied, and may be given either before or after the 
 appropriation is made." * * h= 
 
 In Williston on Sales at Common Law and under the Uniform 
 Sales Act, Professor Williston, in speaking of rule 4, says, at page 
 
,Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 993 
 
 380: "As an original question it might be well urgeil that, when a 
 contract is made for the sale of unspecified goods, the property should 
 pass, unless a contrary intention is manifested, as soon as the goods 
 become specified and put in a deUverable condition by the seller. It is 
 well settled, however, that the property does not pass at so early a 
 moment. iSome subsequent act in regard to the goods is necessary 
 as a manifestation of the intent to transfer it. The intention alone 
 is not enough, and certainly, unless clearly so agreed, the completion 
 of the goods is not a sufficient manifestation of intention by outward 
 act. There is not much authority upon the question whether the 
 parties, if they expressly so agree, may vary the rule that the property 
 does not pass on the mere completion of the goods. In other words, it 
 is not clear whether the rule that the property does not pass until some 
 subsequent act of appropriation is one of presumption, based perhaps 
 on supposed intention, or whether it is an absolute rule of law. In 
 theory there seems no reason why the intention of the parties should 
 not prevail, if it is clearly manifested, and some authority supports 
 this view. The completion of the goods itself is an outward act, which 
 it would seem might be agreed upon as .the appropriation. As a gen- 
 eral rule, however, some act of appropriation of the goods to the buy- 
 er, other than mere completion or preparation, is essential for the 
 transfer of the property, and it is necessary that the act of appropria- 
 tion should be assented to by both parties. But as to the formation of 
 contractual agreements generally it is immaterial that the parties ex- 
 press their assent at different times,, nor is it material which party 
 makes the proposition." * * * 
 
 At page 161 of his work. Professor Williston, in speaking of the 
 sale of future goods, says : "But the mere acquisition of the goods 
 by the seller does not, it seems, in our law operate as a transfer of ti- 
 tle to the buyer even though the parties intend that it should be so." 
 * * * / 
 
 In Andrews v. Durant, 11 N. Y. 35, 62 Am. Dec. 55, Judge Denio 
 says : "In general a contract for the building of a vessel or other 
 thing not yet in esse, does not vest any property in the party for whom 
 it is agreed to be constructed during the progress of the work, nor 
 until it is finished and delivered, or at least ready for delivery and 
 approved by such party. All the authorities agree in this [citing au- 
 thorities], and the law is the same, though it be agreed that payment 
 shall be made to the builder during the progress of the work, and such 
 payments are made accordingly. In Mucklow v. Mangles, which 
 arose out of a contract for building a barge, the whole price was paid 
 in advance, the vessel was built and the name of the person who con- 
 tracted for it was painted on the stern, yet it was held that the title re- 
 mained in the builder." 
 
 In Comfort v. Kiersted, 26 Barb. 472, it was held: "Where an ar- 
 ticle agreed to be sold is yet to be manufactured, the title does not pass 
 until there has been some act on the part of the vendor which amounts 
 to a delivery, and some act on the part of the vendee which amounts 
 to an acceptance." 
 
 In writing for a unanimous court, Judge Harris there says: "In 
 
 this case the parties to the contract had agreed that the shingles should 
 
 be the property of the defendants as fast as they were made. Still 
 
 the contract was executory. To make a sale complete, so as to vest 
 
 B.& B.Brrs.LAW— 63 
 
994 SALES (Part 4 
 
 the title in the vendee, the thing sold must not only be in existence, 
 but it must be identified. The contract itself conveyed no present right 
 of property to the defendants. Though Davis agreed that the shingles 
 he was about to make should, as fast as made, become the property of 
 the defendants, still, as it was an agreement to be executed in future, 
 his right was, not to the shingles, but in action for not executing the 
 agreement. Before the title would vest, even after the shingles had 
 been made, something must have been done which would amount at 
 least to a constructive delivery. The shingles must have been in some 
 way designated and set apart, so as to be capable of being identified 
 as the property of the purchasers [citing cases]." 
 
 Under these authorities, I am unable to find any act of the vendor 
 * which constitutes an unconditional appropriation of this oil to the plain- 
 tifli's contract. Nothing was done with the oil, except what was nec- 
 essary to do in the completion of the process of manufacture. The oil 
 that was in these tanks belonged in part to Marden, Orth & Hastings 
 Company, if they chose to exercise their option to purchase the same. 
 It is stipulated in the case that they did exercise their option, but by 
 the stipulation it is stated that that option was exercised during "that 
 period." That period is the period provided in their contract with the 
 American Phosphate & Oil Corporation, which was one year from the 
 15th day of December, 1913, so that in August, 1914, it does not ap- 
 pear that Marden, Orth & Hastings Company had exercised their op- 
 tion to take any part of that oil. For aught that appears, their 6,000 
 barrels provided for in their contract may all have been in those tanks 
 at the time of the alleged conversion, and thereafter taken. 
 
 It. is argued, because by plaintiff's contract a draft might be drawn 
 upon the plaintiff for 25 cents a gallon, while the oil was still in the 
 storage tanks, that this provision indicates an intention that title shall 
 pass at once when the property gets into the storage tanks. It will be 
 noticed, however, that these drafts are to be drawn by Marden, Orth & 
 Hastings Company, which firm had its option to withdraw 6,000 
 barrels of oil at any time from those tanks, so that this clause of the 
 contract is not sufficient to indicate the intention of the parties that 
 title shall pass at once upon production and storage in these storage 
 tanks. In Comfort v. Kiersted, supra, the opinion discusses this very 
 situation and Judge Harris writes: "Suppose Davis had made, with 
 another person, another contract, in all respects like that under con- 
 sideration, whereby he had agreed to deliver the same quantity of shin- 
 gles as fast as made ; could it be pretended that the defendants would, 
 by the mere operation of their contract, become the owner of all the 
 shingles made by Davis, as soon as manufactured? It would then 
 need, as now, that in some way the shingles should be designated as 
 delivered in execution of the contract, in order to change the right of 
 property ; and they would then have become the property of the one or 
 the other of the parties to whom he had agreed to sell them, according 
 to their designation." 
 
 So, under the contract here to sell to Marden, Orth & Hastings Com- 
 pany 6,000 barrels of the oil at their option, the placing of the oil in 
 these storage tanks could not in any way be deemed an appropriation 
 to the plaintiff's contract, and much less, with the right of Marden, 
 Orth & Hastings Company to take therefrom 6,000 barrels of oil, could 
 it be deemed to be an unconditional appropriation to the plaintiff's con- 
 tract, which unconditional appropriation is made by the Personal Prop- 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 995 
 
 erty Law a requisite to the passing of title of future goods. If placing 
 this oil in these storage tanks could in any event be deemed a delivery, 
 it was a conditional delivery, conditioned upon the election of Harden, 
 Orth & Hastings Company to take 6,000 barrels thereof for their own 
 purposes. 
 
 As to the oil which had been placed in the cars of the plaintiff, it 
 seems to me clear that the Atlantic Phosphate & Oil Corporation had 
 so far made an unconditional appropriation of that oil to the plain- 
 tiff's contract as to vest title in the plaintff. That the' defendant had 
 full knowledge of that contract I have no doubt whatever. It had loan- 
 ed to the Atlantic Phosphate & Oil Corporation a large amount of 
 money. Confessedly, the contract was shown to one of the officers of 
 the defendant, with every presumption that it was read, as it was to 
 their interest to read the contract and become acquainted with its con- 
 ditions. Moreover, the defendant discounted drafts drawn by the At- 
 lantic Phosphate & Oil Corporation upon the plaintiff for oil delivered 
 under this contract, and discounted the drafts for the $25,000 advanced 
 by the plaintiff to the Atlantic Phosphate, & Oil Corporation, and it is 
 against all probability that this was done without a substantial knowl- 
 edge of the plaintiff's rights in this oil. In fact, the course of busi- 
 ness of the Atlantic Phosphate & Oil Corporation seems, during all 
 this time, to have been dictated by the defendant, which had so large 
 an interest in the company by reason of moneys advanced. 
 
 Inasmuch as the title to this oil in these cars had passed to the plain- 
 tiff, the defendant was guilty of conversion in directing a diversion of 
 this oil from the plaintiff to Swift & Co. ; and as to this oil, the excep- 
 tions must be sustained, and a new trial ordered, with costs to plaintiff 
 to abide the event. 
 
 Laughlin, J., delivered the opinion of the majority of the court. 
 At the conclusion the court used the following language : "By virtue 
 of the precise terms of this contract and the uncontroverted facts, the 
 case is, I think, brought clearly within the provisions of the Personal 
 Property Law quoted, and the intention of the parties, which governs 
 as to when title was to pass plainly was, I think, that the title was to 
 pass when the oil was pumped into the storage tanks." 
 
 BRISTOL MFG. CO. v. ARKWRIGHT MILLS. 
 
 (Supreme Judicial Court of Massachusetts, 1912. 213 Mass. 172, 
 
 100 N. K 55.) 
 
 Action by the Bristol Manufacturing Company against the Ark- 
 wright Mills. There was a verdict for plaintiff, and defendant brings 
 exceptions. 
 
 RuGG, C. J. This is an action of contract to recover for goods sold 
 and delivered and for damages for breach of contract for the sale of 
 goods. There was evidence tending to show that the plaintiff agreed, 
 by a broker's "sale note," to make and deliver to the defendant 1,500,- 
 000 yards of cotton cloth. The quality, weight, price, terms and rate 
 of delivery were fixed, and the note further contained these provisions : 
 "No marks of any kind on bales except bale numbers. Arkwright 
 will let you know what bale number to begin with." The defendant 
 gave to the plaintiff the bale number with which to begin numbering 
 the bales. After about 500,000 yards were delivered according to the 
 contract, which the defendant resold without examination, it began 
 
996 SALES (Part 4 
 
 selling to the Merrimac Manufacturing Company. Tlie cloth was re- 
 jected by it as not being of the required quality. Thereafter exam- 
 inations were made, and negotiations were carried on between the de- 
 fendant, the 'plaintiff and the Merrimac Manufacturing Company, to 
 the end that the goods might be accepted under the contract between 
 the defendant and the Merrimac Manufacturing Company, which con- 
 tinued for about six weeks, beginning with March 1.6th. These efforts 
 failed, and on or about the 1st of May the Merrimac Manufacturing 
 Company canceled its contract with the defendant, and the defendant 
 in turn its contract with the plaintiff, on the ground that the goods 
 were not of the required quality. 
 
 While these negotiations were pending and while it was in doubt 
 whether the Merrimac Manufacturing Company would continue to 
 accept the goods, the defendant wrote to the plaintiff on April 1st 
 the following: "Please hold shipments of 28" goods, covered by in- 
 surance, subject to our order. Will let you know the result of our 
 examination as soon as completed ;" and on April 28th : "Please ship 
 at once 1,200 pieces billed April 7 held for our account. They are 
 going over the goods at the Merrimac Mfg. Co.'s and expect to let 
 you know the result in a day or two." After April 1st the plaintiff 
 continued its manufacture of the goods according to its contract, 
 baled them and numbered the bales according to the previous directions 
 of the defendant, stored them in its storehouse, insured them, and held 
 them according to the instructions contained in the defendant's letter 
 of April 1st, notifying the defendant in each instance and submitting 
 an invoice. There was no difference in the insurance on these goods 
 and other goods in the plaintiff's storehouse. The case was sent to 
 an auditor. His report and the verdict of the jury were for the 
 plaintiff. 
 
 The inquiry is whether this evidence was sufficient to show a delivery 
 of the goods between April 1st and the time when the defendant can- 
 celed the contract. * * * The sale note required a delivery by the 
 plaintiff to a common carrier for shipment to the defendant. It is ad- 
 mitted that no such delivery was made. The first question is whether 
 the defendant's letter of April 1st, which was received and accepted 
 by the plaintiff, constituted a modification of the contract as to delivery. 
 The contract between the plaintiff and the defendant was in no wise 
 dependent upon the relations between the defendant and the Merri- 
 mac Manufacturing Company. A breach by the latter of its contract 
 with the defendant affords no justification for a cancellation by the 
 defendant of its contract with the plaintiff. The letter of April 1st 
 should be read in the light of all the conditions then known to the 
 plaintiff and defendant. The defendant contends that so read it 
 should be construed to mean a request to withhold or to hold back 
 shipments pending the negotiations with the Merrimac Manufactur- 
 ing Company and that the contract should remain in abeyance mean- 
 while. 
 
 But the letter is something more than a mere request to suspend 
 shipments. It is a direction that the goods be covered by insurance. 
 This was an act of proprietorship under all the circumstances. If 
 title remained in the plaintiff, there was no occasion for the defend- 
 ant to be concerned about the insurance. It is only on the theory that 
 the defendant expected title to vest in it that its reference to insurance 
 becomes reasonable. * * * The defendant's further request that 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 997 
 
 the goods be held subject to its order looks in the same direction. Its 
 letter of April 28th directing shipment of certain goods previously 
 billed "held for our [its] account" tends to indicate a reference to 
 goods owned by it. The fair meaning of the letter of April 1st is a 
 request for a modification of the original contract as to delivery of the 
 goods to a common carrier with an additional stipulation as to insur- 
 ance. When accepted by the plaintiff, the contract was changed to 
 that extent. The precise form in which the insurance was carried 
 by the plaintiff does not appear, but no exception is taken on this 
 point, and after verdict it must be assumed that it conformed to the 
 letter of April 1st. 
 
 The question remains whether there was sufficient evidence of a 
 separation and an appropriation by the plaintiff of the goods to con- 
 stitute a constructive delivery. The cloth seems to have been a com- 
 mon grade well known in die general market, and such as the de- 
 fendant also manufactured. It was not a unusual kind made upon 
 special order. The manufacture was completed, and nothing remained 
 in order to execute the contract on both sides, except for the buyer 
 to take the goods and pay for them. A definite quantity of goods was 
 to be shipped or ready for shipment each week. Under these circum- 
 stances as between the immediate parties nothing was necessary in 
 order to pass title to the buyer beyond a setting apart of the goods for 
 the buyer. It might have been found that the seller was impliedly 
 authorized to make such appropriation by the buyer. Title may pass 
 although the goods remain in the actual possession of the vendor. 
 * * * The evidence was that the plaintiff placed numbers upon the 
 bales in accordance with the requirement of the sale note and put 
 them in its storehouse. Any visible marks which are sufficient for 
 identification are enough to show an appropriation. Each bale was a 
 physical entity. When it was stamped or marked with a serial number 
 conforming to an initial number furnished by the defendant, it could 
 be identified readily in a storehouse where there were other bales. It 
 was not necessary that all the bales should be set apart in a group by 
 themselves. The appropriation was complete without it. * * * 
 
 It follows that the defendant's requests for rulings were refused 
 rightly, and that there was no error in the charge. 
 
 Exceptions overrued. 
 
 SECTION 3.— ACTS OF UNCONDITIONAL APPROPRIA- 
 TION WITH RESPECT TO ONLY A PORTION 
 * OF THE GOODS 
 
 A. goes into B.'s grocery store and calls for a dozen oranges. 
 B. takes a paper sack and places one orange in the sack. Who 
 owns that orange at that instant of time? To present a real situ- 
 ation, suppose at that moment a dog seized the sack containing the 
 orange and ran away with it. B. takes another sack, puts in eleven 
 oranges, and tenders them to A., and demands the price of a dozen 
 oranges. A. claims he is entitled to twelve oranges. Let us see: 
 In the beginning there was a contract to sell one dozen oranges. 
 The oranges were unascertained at the moment the agreement 
 was made. It would be possible for the rule as to fungible goods 
 
&98 SALES (Part 4 
 
 to apply here, but it is decidedly unlikely that the parties intend 
 to become tenants in common of all the oranges owned by B. ; 
 therefore an act of unconditional appropriation assented to by A. 
 and B. would be necessary to pass the title. The act of putting one 
 orange in the sack, so far as the physical character of the act is con- 
 cerned, is an act of unconditional appropriation, and since it is 
 done by the seller, the seller very likely assents to the act, and 
 expects the normal legal effect to follow, and expects that title 
 should pass to this one orange. But where is the assent by the 
 /buyer? There is clearly no express assent to take title, nor is it 
 at all reasonable to suppose that A. is impliedly consenting to take 
 title to that orange. A. wants one dozen oranges. If, at that in- 
 stant, something should cause the complete loss to all of B.'s 
 oranges, except the one in the sack, it could not be contended that 
 A. is under any duty to take and pay for one orange. Therefore 
 A. does not assent impliedly to this act as an act having the legal 
 effect of passing title to him. Partial appropriations, or, rather, 
 appropriations as to a portion only of all the goods contracted to 
 be sold, do not pass title. 
 
 Notice, however, that if there is evidence showing an assent by 
 the buyer title will pass. Suppose that, just as B. put the orange in 
 the sack, B. said : "It is understood that this is your orange." 
 A. replies : "I agree to that." Then, of course, title to that orange 
 has passed. To avoid the difficulty of forcing A. to pay for this 
 one orange, if something should then prevent B. from placing 
 eleven more oranges in the sack, we need but say that the title 
 which then passed to A. was a defeasible title; that is, the title 
 was accompanied by a condition subsequent, that, in the event that 
 the contract was not completely performed by B., the title to the 
 one orange would, upon B.'s default, revert to B. 
 
 Would this result ever be reached where the evidence of B.'s 
 assent to take title lay solely in the circumstances of the case? 
 There are such cases, and sometimes they are of considerable busi- 
 ness importance. Suppose that, in the above case, instead of B. 
 placing the orange in the sack, B. had handed the orange to A., 
 and A. took it in his hand. Would title pass then ? Probably so, 
 because the act of appropriation by B. has been assented to by A., 
 evidenced by A.'s willingness to take it in his h^d. Of course, if 
 A. does not receive the other eleven oranges, A. is under no obli- 
 gation to pay for the one orange, and he must, upon B.'s default, 
 return the orange. But while he has it in his hands it is A.'s 
 orange, and the risk of loss is on A., and if at that instant A. 
 were adjudicated a bankrupt title to the orange would pass to 
 A.'s trustee in bankruptcy. B. could not recover possession of the 
 orange, but, on the contrary, would be required to file his claim in 
 the bankruptcy proceedings, where he would get less, as a general 
 rule, than the price of the orange. 
 
 As commonly expressed, an act of unconditional appropriation 
 of part of the goods will not pass title, unless the act is of such 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 999 
 
 a character as to amount to an actual delivery to the buyer. It re- 
 quires evidence sufficient to show a delivery before one may legiti- 
 mately infer the requisite assent by the buyer to the act of appro- 
 priation. The next case illustrates an application of the rule. 
 
 ROCHESTER & OLEOPOLIS OIL CO. v. HUGHET. 
 (Supreme Court of Pennsylvania, 1867. 56 Pa. 322.) 
 
 In the court below the Rochester & Oleopolis Oil Company brought 
 an action of assumpsit in September, 1866, against J. M. Hughey, to 
 recover the price of a quantity of oil alleged to have been sold and 
 delivered by the plaintiffs to the defendant. The oil having been 
 burned, the question was whether the delivery was complete before the 
 burning. 
 
 The plaintiffs gave evidence, by the deposition of A. L. Burnett, their 
 agent, that he sold to Owsten, the agent of the defendant, four barge 
 loads of oil, about 2,200 barrels, at $4.50 per barrel, deliverable at 
 Oleopolis, to be measured in the iron tanks of the Pennsylvania Tube 
 Company. The Tube Company receives the oil at the oil regions in 
 their tubes; it is transported through the tubes and received into the 
 tanks of the company at the several shipping points on the Allegheny 
 river. The oil of the respective owners is not kept separate, but is 
 measured when received by the tube company, and is delivered to the 
 order of the owner by measurement at the tanks. 
 
 The evidence of plaintiffs, further, was that 495 gallons had been 
 run on the afternoon of June 19, 1866, into a barge furnished by Ows- 
 ten ; another barge was placed under the tanks, and about 450 barrels 
 had passed into it, when the oil took fire, and both barges and the 
 oil were burned. 
 
 The court (Stowe, A. J.) charged : 
 
 "The first point is as to what the contract was: If it was to be de- 
 livered in boat loads, and the purchaser had the right to say when 
 the boat was loaded, and you should find that this boat was not ac- 
 cepted by defendant's agent, and that he was not bound to accept it 
 because it was not a boat load, that is, not filled so that he was bound 
 to take it from the vendor, then there was no delivery in law, and plain- 
 tiff cannot recover. If you should find, however, that the -first boat 
 was reasonably loaded, so that purchaser was bound to accept, or 
 that the boat was actually taken into his charge, so as to waive the 
 righ^ to have more oil put into it, then plaintiff can recover for that. 
 
 "As to the oil rurming into the boats at the time, there was no de- 
 livery of that in law, because, if the contract was for delivery in boat 
 loads, about 2,000 gallons, as stated by the witnesses on both sides, the 
 boat was not filled, so that plaintiff was bound to take it from the 
 vendor. As to this latter it is clear under all the evidence that, if the 
 plaintiff had shut off the oil and requested defendant to pay for what 
 was in the boat, he could not have compelled defendant to receive it, 
 nor to pay for it. 
 
 "In reference to the first boat, was there anything further to be 
 done before the plaintiff had a right to require the defendant to take 
 and pay for it? That depends upon whether the barge was sufficiently 
 full, or not being full, whether Owsten, defendant's agent, had already 
 taken possession of it, under such circumstances as to indicate he 
 
1000 SALES (Part 4 
 
 was satisfied to take it as it was. As to the latter the plaintiff cannot 
 recover in this action, because it is not pretended that the boat was 
 in a condition to deliver." 
 
 The plaintiffs took a writ of error, and assigned * * * that "the 
 court erred in the whole charge and in each part thereof, and especially 
 in the assumption that the plaintiff was not entitled to recover unless 
 the boats were so loaded that the defendants were bound to accept 
 them." 
 
 Thompson, C. J. The question .was submitted to the jury on the 
 trial below, and they found that the contract between the plaintiff and 
 defendant was for the sale and delivery of four barge loads of oil, 
 and not a sale of oil by the barrel. Of course until delivery no spe- 
 cific oil passed to the defendant. Until this took place, he had only a 
 right of action to recover for a breach of contract. 
 
 It is unnecessary to say whether the defendant was bound to take, 
 and pay for the number of barrels in each completely laden barge; 
 if there be a question about that, it is not here — ^but whether the con- 
 tents of partially laden barges in progress of being filled passed as 
 fast as it entered the barge. The court thought not, and so decidedly 
 think we. The defendant could not be compelled to take a partly filled 
 barge when he had contracted for full ones, any more than if he had 
 contracted for a barrel of oil could he have been compelled to accept 
 one half or quarter full. This would hardly be contended for, yet 
 the principle is the same. Under the finding of the jury there is little 
 room for argument against the ruling complained of. Nor do we see 
 any error in rejecting the offers of testimony. Not one of the assign- 
 ments of error was according to rule and we might have dismissed 
 them all without notice, but did not, hoping for more accuracy in the 
 future. 
 
 Judgment affirmed. 
 
 SECTION 4.— ACTS OF UNCONDITIONAL APPROPRIA- 
 TION NOT NECESSARY IN SALES OF 
 FUNGIBLE GOODS 
 
 Sales Act, Section 6. (1) There may be a contract to sell or a 
 sale of an undivided share of goods. If the parties intend to effect 
 a present sale, the buyer by force of the agreement, becomes an 
 owner in common with the owner or owners of the remaining 
 shares, 
 
 (2) In the case of fungible goods, there may be a sale of an un- 
 divided share of a specific mass, though the seller purports to sell 
 and the buyer to buy a definite number, weight or measure of the 
 goods in the mass, and though the nvunber, weight or measure of 
 the goods in the mass is undetermined. By such a sale the buyer 
 becomes owner in common of such a share of the mass as the num- 
 ber, weight or measure bought bears to the number, weight or 
 measure of the mass. If the mass contains less than the number, 
 weight or measure bought, the buyer becomes the owner of the 
 whole mass and the seller is bound to make good the deficiency 
 from similar goods unless a contrary intent appears. 
 
 Section 76, Clause 8. "Fungible goods" means goods of which 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1001 
 
 any unit is from its nature or by mercantile usage treated as the 
 equivalent of any other unit. 
 
 Subsection 2 lays down an apparent. exception to the rule that 
 some act of unconditional appropriation is necessary to pass title 
 to goods. But it is apparent only, not actual, because there is no 
 unbending rule of law which absolutely requires an act of uncondi- 
 tional appropriation. The law only presumptively requires such 
 an act. In sales of fungible goods the presumption is simply over- 
 come by an intention actually expressed by the parties, or implied- 
 ly expressed because of an established business custom that in 
 certain sorts of sales the parties do intend to dispense with the 
 act of unconditional appropriation. 
 
 The rule is not confined to any particular kinds of goods. It 
 is true that in practice a case seldom arises where the rule is ap- 
 plied except in sales of grain, oil, wine, cotton, and similar com- 
 modities. If the parties definitely express their intention to do 
 so, the rule can be made to apply to sales of any kind of goods, 
 where each entity of the mass is deemed by the parties to be like 
 all other entities in the same mass. Thus the rule could be ex- 
 tended to include sales of a certain number of cattle, of automo- 
 biles, cases of canned goods,, etc., out of a mass containing a larger 
 quantity. Stronger evidence will be required in such cases to show 
 that the parties intended this result to follow than is required in 
 the cases of common occurrence. 
 
 GOURD V. HEALT. 
 (Court of Appeals of New York, 1912. 206 N. T. 423, 99 N. B. 1099.) 
 
 Action by Henry E. Gourd against Thomas Healy. From a judg- 
 ment of the Appellate Division, affirming a judgment of the Trial Term, 
 •dismissing the complaint, plaintiff appeals. 
 
 Werner, J. This action, which has been twice tried, was brought 
 to recover the purchase price of 50 cases of wine. The original com- 
 plaint contained the usual averments where there has been a bargain 
 and sale, but no delivery, and the answer was, in substance, a general 
 denial. * * * 
 
 There is no dispute over the fact that on the 26th day of May, 1906, 
 the plaintiff sold to the defendant 50 cases of wine at the agreed price 
 of $740, which was to be billed November 1, 1906, at four months, thus 
 fixing the 1st day of March, 1907, as the day of payment; and that 
 meanwhile the plaintiff was to hold the wine subject to the shipping 
 instructions of the defendant. * * * 
 
 It is contended, however, that the title to the wine never passed from 
 the plaintiff to the defendant, because at the time of sale, and until 
 the close of the correspondence in December, 1907, the wine had not 
 been segregated from the larger mass of which it formed a part in an 
 unidentified cellar in Bordeaux, France; and that is the position taken 
 by the Appellate Division. What has been said concerning the tender 
 of the goods seems to answer this contention. Even if it were true th^t 
 the title to merchandise which forms part of a larger quantity does 
 
1002 SALES (Part 4 
 
 not pass to the purchaser until it is separated from the mass, the deal- 
 ings between these parties were such as to relieve the plaintiff from the 
 duty of segregation. But this property was of a species in which there 
 may be a transfer of title, even when it remains an integral part of a 
 larger bulk. Ordinarily articles of personal property must, if not 
 delivered, be so designated that possession can be taken by the pur- 
 chaser without any further act on the part of the seller. That is the 
 rule in the sale of a horse, a table, or any other article having a distinct 
 and separate identity as the particular thing sold. It is different, how- 
 ever, when the thing sold is coal, wine, oil, or wheat, which is to be taken 
 in a specified quantity or bulk from a larger mass. 
 
 Property may be acquired and held in many things which are in- 
 capable of more specific designation than a reference to their kind, qual- 
 ity, or other general description. "Articles of this nature are sold, not 
 by a description which refers to and distinguishes the particular thing, 
 but in quantities, which are ascertained by weight, measure, or count ; 
 the constituent parts which make up the mass being undistinguishable 
 from each other by any physical difference in size, shape, texture, or 
 quality." Kimberly v. Patchin, 19 N. Y. 330, 333 (75 Am. Dec. 334). 
 Here the thing sold was wine described as Chateau Yquem of the vin- 
 tage of 1901, and the quantity was to be 35 cases of quarts and 15 
 cases of pints. Any 50 cases of this kind of wine in the specified num- 
 ber of quarts and pints would have answered the description in this 
 contract.. Upon the last trial it appeared that this wine was in the 
 cellars of Schroeder and Schyler, Bordeaux, when the contract was 
 made, and that it remained there until it was shipped to the plaintiff 
 in April, 1910; and, in view of the nature of the property and the deal- 
 ings between the parties, we think that is precisely the same as though 
 
 the wine had been in the cellar of the plaintiff from the beginning. 
 * * * 
 
 The judgment should be reversed and a new trial ordered. 
 
 SECTION 5.— PASSING OF TITLE TO GOODS WHICH AT 
 
 THE DATE OF THE CONTRACT ARE NOT 
 
 IN EXISTENCE^ 
 
 ■Suppose A. intends to plant a certain number of acres of corn 
 next spring, or suppose he has already planted his corn; may he 
 sell it? That is, may A. then pass title to a crop yet to be grown? 
 Obviously, A. cannot, in the ordinary sense, sell something which 
 he does not have, and which may never come into existence. But 
 will the law enable A. to create in B. rights and powers which will 
 take precedence over the rights and powers of all other purchasers 
 and creditors of A.? If the law will permit this to be done, we 
 may, for convenience sake, call the transaction a sale of future 
 goods, because it is something more than an executory contract 
 to sell future goods. 
 
 Before the Sales Act, and in states which have not yet adopted 
 this act, there is a rule of law stated somewhat as follows : There 
 may be a present sale of goods not in existence at the date of 
 the contract, provided such goods were at the date of the con- 
 tract potentially possessed, but not in any other kind of case. 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS TIXASCERTAINED 1003 
 
 When are goods said to be potentially possessed? This question 
 is discussed in the following case. 
 
 DICKEY et al. v. WALDO. 
 (Supreme Court of Mlchignn, 1S93. 97 Mich. 255, 56 N. W. 608, 
 • 23 L. R. A. 449.) 
 
 Action by John W. Dickey and Addison Lurvey against George W. 
 Waldo for the conversion of peaches grown on defendant's land, and 
 of which plaintiffs claimed to be the owners under a contract with 
 defendant's grantor. Waldo obtained the land by deed from Schulti 
 with notice of this contract. There was a judgment for plaintiffs, and 
 defendant brings error. 
 
 A written contract provided that Dickey and Lurvey should furnish 
 Schultz a certain number of peach trees, which the latter agreed to 
 plant and cultivate for 10 years on a portion of his homestead, con- 
 sisting of 40 acres of land, occupied by himself and wife, and that, in 
 consideration for the trees, Dickey and L,urvey should be entitled to 
 one-half the peaches grown thereon during any two of such years that 
 they might select. 
 
 Grant, J. The contract and the finding of facts in this case are 
 found in the margin. This contract and the judgment should be sus- 
 tained, unless there are some inexorable rules of law which stand in 
 the way. Two rules are invoked to defeat the plaintiffs' action: (1) 
 That the land upon which the peach trees were planted is a home- 
 stead; that Schultz's wife did not sign the contract; that it inter- 
 feres with the homstead right, and the contract is therefore void. (2) 
 That the crop which the plaintiffs agreed to take in payment for the 
 trees was not in esse at the time, and therefore not the subject of sale. 
 
 We think there is no force in the first proposition. * * * guch 
 contracts are reasonable, and beneficial to both the vendor and the 
 vendee. They are especially beneficial to the vendee. He avoids all 
 expense except his labor, runs no risk, and, if in indigent circum- 
 stances, he may obtain gains which would otherwise be beyond his 
 reach. Such contracts are of common occurrence, and, if the rigid 
 rules of law are against their validity, there is a necessity of legisla- 
 tive action to render them valid. The rule of law is well established 
 that things having no potential existence cannot be the subject of mort- 
 gage and sale. 'There are, however, exceptions to this rule, as where 
 a merchant mortgages his stock of goods, and all future additions 
 thereto. It is unnecessary to cite authorities to this proposition. The 
 difficulty seems to arise in determining what comes within the defini- 
 tion of the term "potential existence." The definition of the word "po- 
 tential" is: "Having latent power; endowed with energy adequate 
 to a result; efficacious; existing in possibility, not in act." Sir W. 
 Hamilton said: "Potential existence means merely that the thing 
 may be at some time; actual existence, that it now is." 
 
 In the legal sense, things are said to have a potential existence when 
 they are the natural product or expected increase of something al- 
 ready belonging to the vendor. When one possesses a thing from 
 which a certain product, in the very nature of things, may be ex- 
 pected, such product, we think, has a potential existence. The follow- 
 ing rule appears to be well established both by reason and authority, 
 viz. : That, while one owns property from which such product natu- 
 
1004 SALES (Part 4 
 
 rally arises, such product may be the subject of sale and mortgage. 
 The authorities which thus hold also recognize the other rule above 
 stated. The authorities are by no means uniform, but we think the 
 conflict in them has arisen from a failure to make a proper distinc- 
 tion. In Grantham v. Hawley, Hob. 132, it was held that a grant of 
 that which* the grantor has potentially, though not actually, is good, as 
 a grant by the lessee of all the corn that shall be growing on the land 
 at the end of the term. It was there said : "Though the lessor had 
 it [the corn] not actually in -him, nor certain, yet he had it potentially, 
 for the land is the mother and root of all fruits. Therefore, he that 
 hath it may grant all fruits that may arise ppon it after, and the 
 property shall pass as soon as the fruits are extant. A person may 
 grant all the tithe wool that he shall have in such a year yet perhaps 
 he shall have none; but a man cannot grant all the wool that shall 
 grow upon his sheep that he shall buy hereafter, for there he hath it 
 neither actually nor potentially." * * * 
 
 Justice Redfield, in delivering the opinion in Smith v. Atkins, 18 
 Vt. 461, said: "It is, without doubt, true that the sale of a thing not 
 in existence is, upon general principles, inoperative, being merely ex- 
 ecutory ; that is, it confers no title in the thing bargained. But when 
 the thing thereafter to be produced is the produce of land, or other 
 thing, the owner of the principal thing may retain the general property 
 of the thing produced, unless there be fraud in the contract, and it be 
 entered into merely to defeat creditors." * * * In McCaffrey v. 
 Woodin, 65 N. Y. 464, it is said : "It is well settled that a grant of 
 the future produce of land actually in possession of the grantor at 
 the time of the grant passes an interest in such future crop as soon as 
 it comes into existence." * * * 
 
 In the present case the trees were in existence at the time of the 
 contract, were transferred to and became the property of Schultz, the 
 vendee, subject to a share of the crops for the years specified; the 
 contract was executed by the plaintiffs, and operated to the great ben- 
 efit of Schultz and his grantee, the defendant. This contract is one 
 that the law ought to delight in sustaining. If it cannot be sustained, 
 then no executed contract can be, where a party furnishes seed, and 
 puts in the crop upon shares. The same reason that would defeat the 
 right to recovery for the crop of peaches in this case would defeat the 
 right to recover a crop of corn, wheat, or other grain, or strawberries 
 and other fruits of like character. The defendant purchased with no- 
 tice, and the purchase price was reduced on account of the plaintiffs' 
 rights in the crop. We think that under the authorities above cited, as 
 well as in reason and justice, plaintiffs and Schultz became tenants in 
 common of the peaches for the years which they should select; and 
 that defendant, having purchased with notice, stood in the same rela- 
 tion to plaintiffs that did his grantor. Defendant's counsel cite Bates 
 V. Smith, 83 Mich. 347, 47 N. W. 249, and insist that it controls this 
 case in their favor. The language of that case is broad, and, if strict- 
 ly followed, would seem to include the present one ; but we think the 
 authorities above cited make a clear distinction between the natural 
 products of the soil, wool from sheep, milk from cows, and the like, 
 from the case that was then under consideration, and we are disposed 
 to follow them. The language of that case must be construed in con- 
 nection with its facts. 
 
 Judgment affirmed. The other justices concurred; • 
 
Ch. 2) TEANSFBE OF TITLE WHERE GOODS UNASCERTAINED 1005 
 
 What effect has the Sales Act had upon this rule? Section 5, 
 subsec. 3, provides: 
 
 Where the parties purport to effect a present sale of future 
 goods, the agreement operates as a contract to sell the goods. 
 
 We are already aware of the marked distinction between con- 
 tracts of sale and contracts to sell. The section lays down a posi- 
 tive rule of law, not a rule of presumption, that, even if the parties 
 do intend to enter into a contract of sale, their intention will not 
 be given effect, because the section says present sales of future 
 goods shall operate as contracts to sell. The intention of the par- 
 ties is highly important. As has already been said, the question of 
 ascertaining intention is the most important single problem in the 
 law of sales. The emphasis thus thrown upon the intention of the 
 parties, and the very great. effort manifested by the courts in at- 
 tempting to carry out this intention, must not blind us to the pos- 
 sibility of the law's overriding intention. It does so very fre- 
 quently. Individuals cannot be allowed to do everything they 
 choose to do, because the rights of other people suffer to too 
 great an extent. So in this case the rule of policy adopted in the 
 Sales Act defeats intention. 
 
 But does the phrase "future goods" include sales of goods poten- 
 tially possessed ? Could it be urged that the section is meant to ap- 
 ply in all cases where it did apply at common law, but that the ex- 
 ception in favor of sales of goods potentially possessed were to be 
 treated as exceptions under the Act? Probably not. Section 76, 
 clause 9, provides : 
 
 "Future goods means goods to be manufactured or acquired by 
 the seller after the making of the contract of sale." 
 
 The natural meaning of these words includes goods potentially 
 possessed and it would seem clear, therefore, that the common- 
 law doctrine of potential possession as applied to sales of goods 
 has been abolished by the Sales Act. 
 
 This section of the Sales Act does not apply to mortgages of 
 future goods. Section 75 provides: 
 
 The provisions of this act relating to contracts to sell and to 
 sales do not apply, unless so stated, to any transaction in the form 
 of a contract to sell or a sale which is intended to operate by way 
 of mortgage, pledge, charge, or other security. 
 
 It is possible, therefore, to mortgage after-acquired property, 
 but the extent to which this may be done — that is, the fixing of 
 the precise nature of the rights acquired by the mortgagee prior 
 and subsequent to the acquisition of the property as against judg- 
 ment creditors and subsequent purchasers of the mortgagor — is a 
 matter upon which the courts are not entirely agreed.^ It may 
 be mentioned that, when after-acquired property may be mort- 
 gaged at all, the rule is not confined to the mortgaging of property 
 
 I See the article by Professor Willlston in 19 Harvard Law Review, 557, 
 for a full discussion of these questions. 
 
1006 SALES (Part 4 
 
 potentially possessed. The rule applies to all property, whether 
 potentially possessed or not. 
 
 SECTION 6.— PASSING OF TITLE TO PROPERTY CON- 
 TRACTED TO BE SOLD UPON ITS DELIVERY 
 TO A CARRIER OR OTHER BAILEE 
 
 The most common transaction which calls for an application of 
 the presumption that title passes when there has been an uncon- 
 ditional appropriation assented to by both parties arises where 
 goods are delivered to a railroad, express, or shipping company, 
 or other carrieu, for shipment to the buyer. In the light of pre- 
 vious cases let us examine into the situation vvith a view of ascer- 
 taining what the law ought to be. Let us suppose a contract to 
 sell goods of a certain description. Buyer and seller have their 
 respective places of business in different cities. (1) The contract 
 may result either from negotiations carried on by mail or tele- 
 graph or through salesmen sent out by the seller. The con- 
 tract is one for unascertained goods. The goods are to be sent by 
 freight to the buyer. (2) Upon receiving the order, the seller will 
 have his clerks select the . goods. (3) They will be sent to the 
 packing room, boxed, and the name of the buyer will be written 
 on the, packages. (4) The goods will then be taken to the loading 
 platform, and orders will be issued to the truck drivers to take the 
 goods to a designated freight office and to procure bills of lading. 
 (5) The goods will then be loaded on the seller's- trucks, taken 
 to the freight shed, and unloaded on the railroad company's plat- 
 form. (6) The driver reports the delivery to the freight agent, 
 and bills of lading are made out, running to the buyer as consignee. 
 (7) The goods are loaded into a car. (8) The car is sealed and 
 taken to the switchyards. (9) The train is made up and leaves the 
 terminal. (10) The goods arrive at destination and are unloaded 
 on the company's platform. The consignee is notified of the ar- 
 rival of the shipment. 
 
 At what moment did title pass? This is by no means an idle or 
 an easy question. When goods are lost or damaged, the event 
 occurs at a particular moment. The holder of the title at that 
 moment sustains the loss. If the buyer or seller be adjudicated 
 bankrupt, the order of adjudication is entered at a particular mo- 
 ment, and the trustee's title to the bankrupt's property for the bene- 
 fit of his creditors is acquired at a particular moment. Property 
 which at that moment belonged to the bankrupt goes to the trustee 
 If in- the normal course of events title would have passed to the 
 bankrupt five minute? later, the trustee gets no title to the goods. 
 Again, if either buyer or seller undertakes, to resell the goods, that 
 sale is consummated at a particular instant of time. If the seller 
 then had title, it passed ori to his purchaser. If he did not have 
 title, the purchaser will not obtain the goods. 
 
Ch. 2) TRANSFER OF TITLE WHERE 'GOODS UNASCERTAINED 1007 
 
 Let US return to the illustration. When did title presumptively 
 pass? Notice that when act (3) was done — i. e., the goods packed 
 and marked with the buyer's name — we have an act which, under 
 other circumstances, unquestionably would be an act of uncondi- 
 tional appropriation, and title would then pass, if there was the 
 requisite assent by both parties. But in this case is it reasonable to 
 suppose that the parties intended to pass and receive title at so 
 early a moment? Hardly. It is much more reasonable to suppose 
 that the parties intended that title should not pass until the seller 
 had performed the last act with respect to the goods which, under 
 the contract, it was his duty to perform. This act consisted in 
 (1) the actual delivery and unloading on the company's platform, 
 coupled with (2) the act of obtaining from the freight agent a 
 recognition that from that instant the railroad company regarded 
 itself as having the possession of the goods and the responsibility 
 for their safe keeping. And so the law is, as now codified in the 
 Sales Act: 
 
 Section 19, Rule 4. (2) Where, in pursuance of a contract to 
 sell, the seller delivers the goods to the buyer, or to a carrier or 
 other bailee (whether named by the buyer or not) for the purpose 
 of transmission to or holding for the buyer, he is presumed to have 
 unconditionally appropriated the goods to the contract, except in 
 the cases provided for in the next rule and in section 20. This 
 presumption is applicable, although by the terms of the contract 
 the buyer is to pay the price before receiving delivery of the goods, 
 and the goods are marked with the words "Collect on Delivery" 
 or their equivalents. 
 
 It may not be out of place again to call attention to the fact 
 that we are dealing only with a rule of presumption, not an un- 
 bending rule of law. Title may pass at an earlier date, and it may 
 pass at a later time. The above rule merely provides that, in the 
 absence of other evidence manifesting a contrary intention, title 
 will pass at the moment the goods are delivered to and accepted 
 by the carrier's agents. 
 
 No cases have been inserted where title did pass at a time earlier 
 than that at which the goods were delivered to the carrier, but 
 these cases are not uncommon. Suppose that a buyer goes to a 
 distant city to purchase an automobile. He finally selects one, 
 tries it out, and buys it, let us suppose, in this case, on credit. The 
 car is to be shipped to him. That night, and before the car is 
 taken out of the seller's sales room, the car is stolen or destroyed 
 by fire. The buyer will be obliged to pay the price. It was his 
 car that was lost. Even this result could be changed by evidence 
 showing that, in spite of the fact that this was a sale of ascertained 
 goods, the title was not presumed to pass until the seller delivered 
 the car to the carrier. 
 
 Quite a number of case^ follow where title was held to pass at 
 a time subsequent to delivery to the carrier. This kind of case is 
 
1008 SALES (Part 4 
 
 the more common situation, where the general presumption that 
 title passes on delivery to the carrier is overcome. 
 
 No case has been inserted for the purpose of establishing the 
 general rule which we have been discussing. We shall presume 
 that that is fairly well understood at this point. But we do want 
 to find out, especially, the circumstances where the presumption 
 is deemed to be inapplicable. Perhaps the idea has already been 
 grasped that in the study of law, and the study of its application 
 to varied states of fact, the real understanding of the rules results 
 from the discovery of the outer limits of the rule ; that is, we want 
 to discuss these cases which are just barely within the rule and 
 those cases which are just slightly outside of the rule, for it is just 
 this sort of study that enables us — to employ a mathematical term 
 — to plot the curve made by the principle. One of the most im- 
 portant things to learn about the law is the uncertainty which in- 
 variably attends its application to the infinite variety of the facts 
 of business. Business transactions change in character, and so 
 does the law, because the legislatures and the courts change it. It 
 is conceivable that a legislature could, by sweeping changes in 
 the law, wipe out in an instant all the law that one knew ; but no 
 series of new statutes or repealing acts can take away from one 
 who has struggled with a substantial number of actual cases the 
 deep appreciation of the nature of legal relationships, the source 
 of controversy, and of the knowledge of some things that may be 
 done to avoid the losses consequent upon the failure to note the 
 legal aspects of business. The first case, therefore, simply pre- 
 sents a border line case. 
 
 GEHL V. PEYCKE BEOS. COJIMISSION CO. 
 (Supreme Court of Wisconsin, 1914. 158 Wis. 494, 149 N. W. 275.) 
 
 Action by N. V. Gehl, sole trader as N. V. Gehl & Co., against the 
 Peycke Bros. Commission Company, to recover the purchase price 
 of a shipment of two car loads of cabbage from Milwaukee to Kansas 
 City. The suit was begun in the civil court for Milwaukee county, and 
 resulted in a judgment in favor of the plaintiff. An appeal was taken 
 to the circuit court, and an order was therein entered reversing the 
 judgment of the civil court and awarding a new trial in the circuit 
 court. Plaintiff appealed from such order. 
 
 The questions raised by the appeal on the merits involve the deter- 
 mination of where, under the agreement between the parties, the de- 
 livery of the cabbage took place. It was damaged by frost in transit. 
 Plaintiff claims, and the civil court found, that the place of delivery 
 was Milwaukee. The defendant contends, and the circuit court held, 
 the place of delivery was Kansas City. The following facts determine 
 the solution of the 'question involved: 
 
 On January 2, 1912, the defendant, a commission company located 
 at Kansas City, Mo., telegraphed the plaintiff, a dealer in Milwaukee, 
 as follows : "Wire lowest strictly first class Holland free from f rost[ 
 prompt shipment." To which plaintiff on 'the 3d replied by telegraph : 
 "Offer U. R. T. five forty two, shipment to-morrow weather permit- 
 
Ch. 2) TRANSFER OP TITLE WHfiRE GOODS UNASCERTAINED 1009 
 
 ting. Twenty four ton here." The same day defendant wired plain- 
 tiff: "Ship car offered, wire routing, prefer routing Dogwood" — "Dog- 
 wood" meaning Chicago, Milwaukee & St Paul Railway Company 
 and "U. k. T." meaning Union Refrigerator Transit Company's car. 
 On the 5th plaintiff wired the defendant : "Below zero yesterday and 
 to-day ; offer another car at same price, empty car on hand both ship- 
 ment first weather permitting loading." To which on the same day the 
 defendant answered by wire: "Book another car first quality. Ship 
 both earliest possible." January 9th plaintiff wired defendant: "Car 
 five forty two leaves to-day fast train other possibly to-morrow." And 
 on the 10th he sent this message, "Car U. R. T. still here under shel- 
 ' ter. Can ship both to-morrow. Will furnish stoves, fuel and a man 
 in charge if you pay two dollars a ton extra. Railroad will not accept 
 billing or forward otherwise. Must advise early to complete arrange- 
 ments." Defendant's reply by wire was : "Start cars to-day with man 
 and heat. Will pay extra" — and by letter dated the 11th: "We wired 
 you in answer to yours of yesterday to ship two cars of cabbage in 
 charge of a man with stoves and we hope he will reach us with same 
 by Monday morning at the latest. It seems to us, however, as if the 
 expenses should not quite reach $2 per ton when shipping two cars at 
 the same time. Thus, if after the deal has been closed the expenses 
 should be less we hope you will give us the benefit of the same." 
 
 The cabbage was free from frost and in good merchantable condi- 
 tion when it left Milwaukee, and plaintiff furnished an experienced 
 man, who exercised ordinary care in looking after the shipment en 
 route. Union Refrigerator Transit cars do not have openings for stove 
 pipes, and plaintiff furnished salamanders, which are the practical equiv- 
 alent of stoves. Defendant knew that stoves could not be used in 
 Union Refrigerator Transit Cars. The cars arrived at Kansas City 
 January 14th, after haiving been in transit about 60 hours, the usual 
 time required for such shipments. The weather during that time was 
 extremely and unusually cold ; the thermometer at Kansas City regis- 
 tered 13° below zero on the 11th, 20° below on the 12th, and 12° be- 
 low on the 13th of January, during the most of which time the cabbage 
 was en route. 
 
 ViNjE, J. * * H= Were it not for the arrangement with refer- 
 ence to furnishing a man and stoves, no serious question could arise 
 as to where delivery was made. The offer by plaintiff was to sell 
 cabbage for $24 per ton here, meaning Milwaukee, and that offer was 
 accepted. It is the settled law of this state that, in the absence of con- 
 tract provisions or circumstances showing a different intent, where 
 there is a contract for the sale of chattels to be placed on cars by the 
 vendor at a particular place, the title passes to the vendee when they 
 are so placed. * * * • 
 
 The defendant contends that the vendor's agreement to furnish man 
 and stoves for $2 per ton extra takes the case out of the general rule, 
 and that the 'contract as finally concluded was that for $26 per ton 
 the vendor agreed to deliver the cabbage at Kansas. City. We have 
 been unable to so construe the transactions. When the agreement to 
 furnish man was made the first car had already been delivered to the 
 railway company and title had passed to the vendee under the rule 
 above stated. Owing to the severity of the weather the railway com- 
 pany refused to forward the shipment except upon conditions stated by 
 B.& B.BUS.LAW— 64 
 
1010 SALES (Part 4 
 
 it. The contract of the plaintiff was to dehver at Milwaukee. This he 
 had done as to one car and was ready to do as to the other. Under 
 the contract it was the vendee's duty to comply with the requirements 
 of the railway company. The fact that the vendor agreed to do so 
 at an additional cost per ton to the vendee did not change the original 
 contract as to place of delivery. That it was understood by the vendee 
 not to change it is evident from its letter wherein it says that, should 
 the expense of sending man with both cars be less than $2 per ton, 
 it expected to have the expense adjusted at actual cost. When a defi- 
 nite contract is made as to the chattels sold, the price, and place of 
 delivery, such contract is not necessarily chan^d as to the place of 
 delivery or the time of the passing of title by the fact that the vendor 
 for extra compensation or gratuitously agrees to perform services rel- 
 ative to them after they have been delivered or have left the place 
 of delivery, or that the contract in some other respect has been modi- 
 fied. * * * 
 
 There is nothing inconsistent with the original contract in the later 
 agreement, and it does not purport to modify such contract in any re- 
 spect, except as to the cost of the cabbage to the defendant, which 
 increased cost was rendered necessary by the seyerity of the weather — 
 surely not the fault of the plaintiff. He stood ready to deliver and did 
 deliver according to his agreement. * * * 
 
 Order reversed, and cause remanded, with directions to affirm the 
 judgment of the civil court. 
 
 Section 19, Rule 4 (2), expressly provides that the presumption 
 is that title passes upon delivery to the carrier, even though the 
 goods are sent "collect on delivery." The rule which represented 
 the weight of authority was here adopted by the act. The effect of 
 the words "collect on delivery" is merely to reserve possession of 
 the goods as a means of obtaining payment of the price before 
 actual delivery to the buyer. We have seen, in other types of 
 cases, that the seller may pass title and reserve possession. There 
 is nothing inconsistent in such reservation. The next case shows 
 some of the consequences of the rule. 
 
 UNITED STATES v. ADAMS EXP. CO. 
 (United States District Court, S. D. Iowa, E. D., 1902. 119 Fed. 240.) 
 
 McPherson, District Judge. This case is by indictment, charging 
 the defendant as * * * within' this district "carrying on the busi- 
 ness of a retail liquor dealer without having paid the special tax as 
 required by law." * * * ^.t the dates covered by the indictment 
 the Dallas Company delivered at Dallas, 111., to the defendant, for car- 
 riage and delivery at Birmingham, Iowa, jugs containing each less than 
 five wine gallons of such liquors, addressed and consigned to certain 
 and divers parties at said Iowa town, orders therefor for said liquors 
 having been received by and for said Dallas Company from its agent, 
 who took said orders from the consignees. All of said consignments 
 were shipped C. O. D.; that is, the defendant carried said liquors 
 from Dallas, 111., to Birmingham, Iowa, and was to and did collect from 
 
Ch. 2) TRANSFER OF TITLE WHEHB GOODS UNASCERTAINED 1011 
 
 the consignee the carrying charges and the selhng price or value of the 
 liquors, and, after collecting the two sums, was to and did deliver the 
 liquors to the consignee. Neither the Dallas Company nor the de- 
 fendant has paid the special tax as a retail liquor dealer at Birming- 
 ham, Iowa. * * * 
 
 The only question, in my judgment, is, where and by whom were 
 the liquors sold? If in Illinois, this court is without jurisdiction. 
 * * * Did the Adams Express Company carry on the business of 
 a liquor dealer in Iowa? * * * fhe title to the liquors did not 
 pass from the Dallas Company when the orders were taken by the 
 agent. The company could ignore the orders, and refuse to ratify the 
 act of the agent, for any reason, good or otherwise. Did the title pass 
 from the Dallas Company to the consignees when the liquors, prop- 
 erly addressed, were deposited in the office of the defendant at Dallas, 
 111., with directions to defendant to carry them to Iowa, and deliver 
 them to the consignees, after first collecting the selling price? I be- 
 lieve, and so hold, that the title did then and there pass; and also 
 hold that, the title thus passing, that it is decisive of this case against 
 the government. That the authorities are in irreconcilable conflict is 
 beyond question. But that the great weight of authority sustains the 
 above holding is equally true. * * * 
 
 The weight of authority, both state and federal, is to the effect that 
 the title passes to the consignee when the goods are delivered to the 
 carrier, I have no doubt. And that the fact that the goods are carried 
 C. O. D. does not change the rule I am equally clear. And, this being 
 so, the liquors in question were sold in Dallas, 111. ; and, the sales hav- 
 ing been made there, there is no pretense that the liquors in question 
 were again sold by any one. 
 
 The express company was the agent of the vendees in carrying the 
 liquors, and the agent of the vendors in collecting and returning the 
 money; and, as the express company did not sell the liquors, it was 
 not engaged in the business of a liquor dealer. 
 
 Suppose a dealer in southern Florida should order a carload 
 of fresh meat from one of the Chicago packers, and that the ship- 
 ment is delivered to a carrier under a contract of shipment which 
 freed the carrier from all obligation of iceing the car. The meat 
 is in perfect condition when accepted by the railroad company 
 but spoils during transit. If the usual presumption applies here 
 the buyer loses. Does it apply? 
 
 Sales Act, Section 46. (1) Whe^, in pursuance of a contract to 
 sell or a sale, the seller is authorized or required to send the 
 goods to the buyer, delivery of the goods to a carrier, whether 
 named by the buyer or not, for the purpose of transmission to the 
 buyer is deemed to be a delivery of the goods to the buyer, except 
 in the cases provided for in Section 19, Rule 5, or unless a con- 
 trary intent appears. (2) Unless otherwise authorized by the 
 buyer, the seller must make such contract with the carrier on be- 
 half of the buyer as may be reasonable, having regard to the nature 
 of the goods and the other circumstances of the case. If the seller 
 omits so to do, and the goods are lost or damaged in course of. 
 
1012 SALES (Part 4 
 
 transit, the buyer may decline to treat the delivery to the carrier 
 as a delivery to himself, or may hold the seller responsible in 
 damages. (3) Unless otherwise agreed, where goods are sent by 
 the seller to the buyer under circumstances in which the seller 
 knows or ought to know that it is usual to insure, the seller must 
 give such notice to the buyer as may enable him to insure them 
 during their transit, and, if the seller fails to do so, the goods shall 
 be deemed to be at his risk during such transit. 
 . Before taking up the cases which directly concern our general 
 inquiry as to the circumstances under which title passes upon de- 
 livery to a carrier, we should note here a matter which is some- 
 what outside the general theme. (1) A seller is always under a 
 contract obligation to pass title to the buyer. (2) The seller may 
 be under an additional contract obligation to deliver the goods 
 to the buyer. This is an independent obligation. The purpose of 
 the subsection is to declare what shall constitute a delivery to the 
 buyer in all those cases not covered by Section 19, Rule 5. Sec- 
 tion 46 (1) applies (1) to contracts to sell, and (2) to sales; while 
 Section 19, Rule 5, applies only to contracts to sell. 
 
 Passing, then, to the question in which we are primarily inter- 
 ested here, we note the very important qualification that title is not 
 presumed to pass upon delivery to the carrier, when the seller has 
 made a contract of shipment with the carrier which, under the cir- 
 cumstances of the case, is not a reasonable one. When will such a 
 contract be unreasonable? There are probably a great variety of 
 such instances. The following case presents one' instance of con- 
 siderable practical importance. 
 
 MITiLER V. HARVEY. 
 
 (Court of Appeals of New Xork, 1917. 221 N. T. 54, 116 N. E. 781, 
 L. R. A. 1917F, 559.) 
 
 Action by Charles E. Miller against George Harvey. From a judg- 
 ment of the Appellate Division, affirming a judgment for defendant, 
 plaintiff appeals. 
 
 Cardozo, J. The plaintiff sold to the defendant in the city of New 
 York automobile tires which were to be sent by express to Allenhurst, 
 N. J. _ The price, $95.43, was paid by the defendant in advance. The 
 seller intrusted the tires to an express company without declaring their 
 value. The waybill states that tn^ value was asked and not given. Bv 
 the contract of carriage the liability of the carrier was limited to $50, 
 unless a greater value was "declared and paid for or agreed to be paid 
 for at the time of shipment." The tires were lost in transit. The der 
 fendant notified the plaintiff of the loss and requested a duplicate ship- 
 ment, which was made. The question to be determined is whether 
 payment must be made again. 
 
 The general rule is that delivery to a carrier is delivery to the buyer. 
 Sales of Goods Act, § 127, subd.l. * * * But the rule has its ex- 
 ception. * * * By section 127, subd. 2, of the Sales of Goods Act, 
 it is provided : "Unless otherwise authorized by the buyer, the seller 
 mtist make such contract with the carrier on behalf of the buyer as 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1013 
 
 may be reasonable, having regard to the nature of the goods and the 
 other circumstances of the case. If the seller omit so to do, and the 
 goods are lost or damaged in course of transit, the buyer may decline 
 to treat the delivery to the carrier as a delivery to himself, or may 
 hold the seller responsible in damages." The statute is declaratory of 
 the rule at common law. The seller must not sacrifice the buyer's 
 right to claim indemnity from the carrier. That rule was declared more 
 than a century ago in Clarke v. Hutchins, 14 East, 475. * * * ^ 
 
 Tested by these principles, the plaintiff's case must fail. He limited 
 the carrier's liability to $50. He sacrificed the defendant's right of 
 indemnity to the extent of almost one-half of the value of the shipment. 
 He did this when full indemnity could have been procured by an ad- 
 ditional payment of ten cents. That was not a reasonable protection 
 of the interests of his principal. The plaintiff's argument, if sound, 
 would require us to hold that the acceptance of a like limitation would 
 be reasonable if the value had been $1,000. Precedent and reason 
 forbid that conclusion. The seller who puts the buyer at the mercy of 
 the carrier must procure the buyer's approval or assume the risk him- 
 
 qaI -t ip lie jfc 
 
 The judgment should be affirmed. 
 
 The preceding case stands for the important general proposition 
 that if the seller, at the time he delivers the goods to the carrier, 
 is then guilty of a breach of contract that title to the goods will not 
 pass to the buyer. It would be possible for the law to provide that 
 title did pass, thus imposing upon the buyer the burden of suing 
 the seller for the damages, but the law has taken the other view of 
 the matter. The particular obligation of the seller in that case was 
 implied in the contract and the difficulty always will be in ascer- 
 taining what obligations are to be implied in the contract. - 
 
 The next case illustrates the same general rule: That a breach 
 of contract by the seller prevents title from passing to the buyer 
 upon delivery to the carrier. One should keep in mind, however, 
 that any breach of contract of a material character will have the 
 same effect. It so happens that in the following case we may 
 make use of an additional section of the act. This section, it should 
 be noticed, will be involved in cases where there is no shipment 
 of goods by carrier to the buyer. 
 
 Sales Act, Section 44. (1) Where the seller delivers to the buy- 
 er a quantity of goods less than he contracted to sell, the buyer 
 may reject them, but if the buyer accepts or retains the goods so 
 delivered, knowing that the seller is not going to perform the con- 
 tract in full, he must pay for them at the contract rate. If, how- 
 ever, the buyer has used or disposed of the goods delivered before 
 he knows that the seller is not going to perform his contract in 
 full, the buyer shall not be liable for more than the fair value to 
 him of the goods so received. 
 
 (2) Where the seller delivers to the buyer a quantity of goods 
 larger than he contracted to sell, the buyer may accept the goods 
 included in the contract and reject the rest, Or he may reject the 
 
1014 SALES (Part 4 
 
 whole. If the buyer accepts the whole of the goods so delivered he 
 must pay for them at the contract rate. 
 
 (3) When the seller dehvers to the buyer the goods he con- 
 tracted to sell mixed with goods of a different description not in- 
 cluded in the contract, the buyer may accept the goods which are 
 in accordance with the contract and reject the rest, or he may re- 
 ject the whole. 
 
 (4) The provisions of this section are subject to any usage 
 of trade, special agreement, or course of dealing between the 
 parties. 
 
 The case following involves the application of subsection 3. 
 
 ROCK GJOEN SAI/T CO. v. SEGAL. 
 
 (Supreme Judicial Court of Massachusetts, 1918. 229 Mass. 115, 
 118 N. E. 239.) 
 
 Action by the Rock Glen Salt Company against Jacob N. Segal. 
 There was a finding for plaintiff, and defendant claimed report to the 
 appellate division of the municipal court of the city of Boston, which 
 ordered judgment for defendant, and plaintiff appeals. 
 
 PiBRCE, J. "This is an action of contract to recover the purchase 
 price of 300 burlaps of table salt * * * amounting in all to $403 
 less freight, $80.44, net amount $322.56." A "memorandum of agree- 
 ment" for the purchase and sale of "a supply of salt numbering five 
 to ten cars" * * * f. o. b. Boston, Mass. The shipment in ques- 
 tion was the last to be made under this contract. * * * The de- 
 fendant had previously * * * received * * * nine carloads 
 of salt. * * * 
 
 February 8, 1913, the plaintiff purchased of the Watkins Salt Co., 
 Watkins, N. Y., the salt in bags ordered by the defendant. Two days 
 later it purchased 15 barrels of salt ordered by another customer of 
 the plaintiff. The salt in bags and barrels was placed in a car and 
 shipped at plaintiff's request from Watkinsj N. Y., to the Rock Glen 
 Salt Co., Boston, Mass. The plaintiff took from the carrier a non- 
 negotiable bill of lading. The salt was not consigned to the defendant, 
 but on the contrary was consigned to the plaintiff itself, and was de- 
 scribed in the bill of lading as 15 Bbls. 400 Sax. Weight 64600#." 
 * * * This bill of lading was indorsed "Deliver to order of Segal 
 Bros. Rock Glen Salt Co. F. W. Relyea, Tres." It was then sent to 
 and received by the Boston & Maine Railroad at Boston, Mass., but it 
 was never delivered to or accepted by the defendant. * * * Qn 
 February 19, 1913, the Boston & Maine Railroad notified the defend- 
 ant in writing of the arrival of freight consigned to the Rock Glen 
 Salt Co. and stated that it was ready for delivery. * * * Neither 
 the bill of lading nor the notice stated the different kinds of salt that 
 made up the 400 bags nor the quantity of each kind. Nor did the 
 defendant know that the 15 barrels of salt had been put into the car 
 with the 400 bags to fill an order of another customer of the plain- 
 tiff. 
 
 Defendant * * * compared the notice with the memorandum 
 of his order, found that the salt stated in the notice did not correspond 
 to the order given by him to the plaintiff, noticed that the freight 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1015 
 
 charges were excessive for the quantity of salt ordered by him, and 
 that they covered the whole quantity of salt contained in the car. He 
 thereupon returned tKe notice to the "railroad's messenger." Without 
 contradiction, so far as the record discloses, he testified "that there 
 was no way in which the freight charges could have been apportioned 
 or separated and if [he] the defendant had accepted any part of this 
 car of salt he would have been obliged to pay the full amount of the 
 freight charges on said car." * * * February 26, 1913, the car of 
 salt was damaged by fire at the Boston & Maine freight house and the 
 defendant refused to receive the salt. ■ * * * 
 
 , We think the forwarding of the salt to Boston at the seller's expense, 
 the taking of a bill of lading running to itself as consignee, and the pro- 
 vision in the contract "sells * * * at the following prices f. o. b. 
 cars, Boston," indicate an intent of the seller to reserve to itself the jus 
 disponendi of the salt until the railroad company in Boston on behalf 
 of the plaintiff, and in the exercise of the authority conferred by the 
 indorsement upon the bill of lading, should appropriate and deliver to 
 the defendant from the mass the quantities and kinds ordered by ihe 
 defendant. * * * 
 
 In this regard if is to be noticed that the railroad company was not 
 instructed by the bill of lading or otherwise of the kind or quantity 
 of salt required to fill the defendant's order. Nor, so far as appears, 
 was there anything about the bags or barrels to indicate the quality of 
 their contents.' What the railroad did was to tender the contents of 
 a car — a quantity of goods larger than the defendant agreed to pur- 
 chase and on which the defendant would have been obliged to advance 
 freight charges in excess of the amount he agreed to advance. [Court 
 quotes section 44 of Sales Act.] These sections express the effect of 
 Rommel v. Wingate, 103 Mass. 327. * * * 
 
 In the case at bar the defendant, upon receiving the notice and in- 
 voice, could have assumed properly that the 15 barrels of salt had 
 been sent by the seller to be delivered by the railroad to him ; the bill 
 of lading in terms directed the railroad to do so. Upon this assump- 
 tion, if he did not intend to pay for the whole car, he must have de- 
 termined whether to take a part and reject a part, or reject the whole. 
 If he desired to have the part only which he had ordered, it remained 
 to determine whether he would become responsible for the enSre 
 freight charges and look to the purchaser of the 15 barrels or to the 
 seller for his repayment. If it were a fact that the defendant could 
 have paid the proportionate charges, that fact does not appear in the 
 report and cannot be assumed. We are of opinion that the severance 
 of the 400 bags from the 15 barrels involved pecuniary "trouble or 
 risk" to the defendant. * * * 
 
 tt follows that the title never passed to the defendant. 
 
 Judgment for defendant affirmed. 
 
 Many important classes of situations where the presumption 
 that title passes upon delivery to the carrier are provided for in 
 Section 19, Rule 5, as follows : 
 
 If a contract to sell requires the seller to deliver the goods to 
 the buyer, or at a particular place, or to pay the freight or cost of 
 transportation to the buyer, or to a particular place, the property 
 
1016 SALES (Part 4 
 
 does not pass until the goods have been delivered to the buyer or 
 reached the place agreed upon. 
 
 This section calls for careful examination. The section dis- 
 closes that the presumption that title passes on delivery to the 
 carrier does not govern in four kinds of cases. (1) Where the 
 seller agrees to deliver the goods to the buyer. (2) Where the 
 seller agrees to deliver the goods at a particular place. (3) Where 
 the seller agrees to pay the freight or cost of transportation to the 
 buyer. (4) Where the seller agrees to pay the freight to a par- 
 ticular place. The section not only states that title does not pass 
 on delivery to carrier, but proceeds to designate the particular 
 time, in these four cases, when the title will pass. 
 
 Every case will call for the solution of four problems: (1) 
 What words will have the legal effect of imposing upon the seller 
 the obligation (a) to deliver; or (b) to pay freight. (2) What 
 physical acts will amount to a performance of the obligation to 
 deliver or to pay the freight? That is, after we have definitely de- 
 cided that a particular contract does impose an obligation to deliv- 
 er, or to pay the freight, we then must turn our attention to the 
 physical acts done by the seller, to see whetl^er or not he has 
 performed this duty. (3) The third question is usually a simple 
 question of fact: What particular geographical point on the 
 surface of the earth is the point at which there rnust be a delivery 
 or to which the freight must be paid? (4) The last question, also 
 a question of fact: At what geographical point were the goods 
 actually situated when the event — such as damage, loss, or resale 
 by, or bankruptcy of, one of the parties — occurred which had the 
 effect of projecting the parties into litigation. 
 
 The first two questions are sometimes difficult of solution. Lan- 
 guage is so indefinite that there may often exist considerable 
 doubt whether it does impose upon the seller the duty of deliver- 
 ing or of paying the freight. Even in those cases where the par- 
 ties actually employ the words "the seller hereby agrees to de- 
 liver," etc., or, "the seller hereby agrees to pay the freight to," 
 etc., we cannot always be certain that these words mean the same 
 thing that is contemplated in the statute. This is so, for one rea- 
 son, because the conduct of the parties in this, and in their former 
 dealings, may have the effect of putting an entirely different mean- 
 ing upon these words than is usually conveyed by them, or even of 
 depriving them of all legal effect Again, the usual meaning of 
 the words "I agree to deliver," or "I agree to pay freight," when 
 used in a contract by way of specifying the duties of the seller, 
 may be deprived of this usual meaning because there appears in 
 the same contract other language which destroys the effect of the 
 former words. This situation has analogies in the field of chem- 
 istry. A compound will have certain properties. Introduce a new 
 element or compound, and the properties of the first may disappear. 
 In the cases following we have a few situations where the apparent 
 meaning of the language is not applicable to the facts, because of 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1017 
 
 other elements. Stated in other words, the question in a few of 
 the cases is : Which of two inconsistent presumptions, as to the 
 time when title passed, is applicable to the case? Not all the 
 questions which have been suggested above are touched upon in 
 the cases here collected, but they illustrate some of the more im- 
 portant ones. 
 
 WESTMORELAND COAL 00. v. STRAOUSB LIGHTING CO. 
 
 (Supreme Court of New York, Appellate Division, 1913. 159 App. Div. 323, 
 
 145 N. Y. Supp. 420.) 
 
 Action by the Westmoreland Coal Company against the Syracuse 
 ' Lighting Company. From a judgment for defendant, plaintiff appeals. 
 
 Plaintiff sought to recover in this action the purchase price of two 
 canal-boat loads of coal shipped by it to the defendant. * * * 
 
 RoBSON, J. The parties to the contract * * * contemplated that 
 plaintiff in fulfillment of the contract would ship the coal therein men- 
 tioned by rail from plaintiff's mines to Watkins, N. Y. It was to be 
 there loaded on canal boats, and thence taken by boat to Syracuse, N. 
 Y. ; and there delivered alongside defendant's dock as theretofore, 
 plaintiff having furnished defendant with coal under prior contracts 
 between the parties. The two boats with their loads of coal, which are 
 the subject of this action, reached Syracuse and approached to within 
 300 or 400 feet of defendant's dock, which was on the north, or tow- 
 path, side of the canal. They could not at once be docked and un- 
 loaded because two other boats then occupied the dock. These latter 
 boats contained coal theretofore delivered by plaintiff under its con- 
 tract; and their cargoes were then being unloaded by defendant. 
 For this reason and also (as the evidence shows and the trial justice 
 finds) "because the rules governing traffic upon the canal requi*td it, 
 the two boats in question were moved over to the south side of the 
 canal, nearly opposite the defendant's dock to await their turn for be- 
 ing unloaded, until the unloading of the boats already at the dock was 
 completed." 
 
 Notice of the arrival of the boats was given to defendant, the cir- 
 cumstances of which and of the casualty, which thereafter ensued 
 causing the total loss of the coal, are succinctly stated in the findings, 
 as follows : "That upon the arrival of the said two boats carrying the 
 coal in question in this action at said point, 300 or 400 feet west of 
 the defendant's dock, as above stated, the captain and man in charge 
 of the boats notified the defendant of their arrival, and the defendant 
 entered said boats as having arrived at the dock at 12 o'clock noon 
 on July 30, 1907, in its books kept for that purpose. That at about 
 2 o'clock on the same day, a break occurred in the banks of the Erie 
 Canal a short distance west of the defendant's dock, and, without any 
 fault on the part of the plaintiff, the boats with the cargoes of coal 
 in question were drawn into said break and lost." * * * 
 
 If the coal in question had not been in fact delivered to the defend- 
 ant before it was lost, then the carrier still remained the agent of 
 plaintiff for the purpose of making delivery of it under the contract. 
 It is dear that the carrier's duty in making the delivery had not at 
 that time ended. He still had to place the boats alongside defendant's 
 dock. This he had not in fact done, though the boats at one time had 
 approached within a few hundred feet of the dock. It is true that had 
 
1018 SALES (Part 4 
 
 the dock, at the time, not been completely occupied with other boats, 
 which were then unloading, he would have done so. But defendant 
 was not responsible for this delay in laying the boats alongside the 
 dock. The boats already at the dock were discharging their cargoes 
 of coal, which plaintiff, by its carrier in control of those boats, had 
 previously delivered to defendant under the contract. Plaintiff was 
 fully advised before the contract was made that the capacity of the 
 dock was limited, so that only two boats could be there unloaded at 
 the same time. There is no question that defendant was diligent in 
 unloading the boats then at its dock. The arrival of the two boats, 
 concerning which this controversy has arisen, before the dock was 
 cleared for their reception, was due only to the carrier's management 
 of their transportation. The carrier for this purpose was plaintiff's, 
 not defendant's agent. Taking them to the side of the canal opposite 
 defendant's dock and tying them up where they were afterwards lost 
 was the carrier's act. Defendant gave no direction as to their manage- 
 ment, or what .should be done with them. 
 
 The entry on defendant's books of arrival of the boats did not in 
 fact indicate actual delivery to nor receipt by the defendant; but 
 was, as the evidence shows, simply a concession to plaintiff's interest 
 for the sole purpose of fixing a time from which subsequent possible 
 claims of boat captains against plaintiff for demurrage could be cor- 
 rected and verified. 
 
 It is suggested that when plaintiff placed the coal on these boats 
 there was an appropriation of it in fulfillment pro tanto of the execu- 
 tory contract for delivery of coal. ' While this may have been an actual 
 appropriation by plaintiff to that end, yet it did not complete what it 
 had agreed to do before title passed to the defendant. Delivery of 
 the coal was as much a part of its duty as actual selection and appro- 
 prialjpn of it. Delivery of the coal at the place specified in the con- 
 tract was required to be made, and then only would the defendant's 
 assent to such appropriation in' part fulfillrnent of the contract be 
 established. Delivery was not made. Therefore title had not passed 
 to defendant. * * * 
 
 By subdivision 5 of section 100 of the Personal Property Law (Con- 
 sol. L,aws, c. 41), added by chapter 571, Laws 1911, the effect of a pro- 
 vision in a contract of sale requiring the seller to deliver to the buyer 
 the goods sold is declared to be, presumptively at least, that the prop- 
 erty therein does not pass to the latter until the goods have been de- 
 livered to him, or reached the place agreed ttpon. 
 
 The judgment should be affirmed, with costs. All concur, except 
 KrusB, P. J. (dissenting). The practical question here is which of 
 the parties shall bear the loss of the two boat loads of coal, which were 
 lost owing to a break in the canal occurring while the boats were 
 waiting to be unloaded, the plaintiff, the seller, or the defendant, the 
 buyer. The solution of that question does not depend so much upon 
 whether the plaintiff had delivered the coal alongside the dock, with- 
 in the meaning of the contract. That is a mere circumstance to be 
 taken into account in determining the controlling question as to wheth- 
 er the title to the coal had passed to the defendant before it was lost, 
 or still remained in the plaintiff. If there was an appropriation of 
 the specific coal to the contract, assented to by the defendant after 
 the coal reached Syracuse, as I think should be found as a fact from 
 the evidence, the title passed to the defendant, and the loss must fall 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1019 
 
 upon it. Even if the evidence is sufficient to make that question one of 
 fact, I think it should be found in favor of the plaintiff. 
 
 It may be, as defendant's counsel contends, that the record of ar- 
 rival of boats was kept by the defendant to protect the plaintiff against 
 unfounded claims for demurrage; but the record and surrounding 
 circumstances also establish that the defendant knew that this partic- 
 ular coal had been set apart to it under the terms of the contract and 
 was clearly identified by both the buyer and the seller. Not only did 
 the defendant know the precise time and place of arrival of the 
 coal, but a record of the quantity, as well, was ;nade by it. The identi- 
 fication of the coal as the subject of the sale was complete. 
 
 Although the contract was originally executory, it was as to the coal 
 in question so far executed before it was lost as to pass thd title. As 
 regards the passing of the title, it was in effect the same as though the 
 coal had been set apart and identified as the subject of the sale at the 
 time of the making of the contract. The subsequent appropriation of 
 the coal to the contract was sufficient to pass the title to the defendant. 
 * * * Although the coal may not have been delivered alongside 
 the dock within the meaning of the contract, that was made impossible 
 by a cause for which the plaintiff was not responsible, and if the title 
 thereto had passed before the break in the canal, as I think it had, 
 the loss of the coal should fall upon the defendant. * * * 
 
 JIT'RKAY V. MORRIS. 
 (Supreme Court of Vermont, 1917. 91 Vt. 541, 102 Atl. 99.) 
 
 Replevin by C. W. Murray against G. L. Morris. There was ver- 
 dict directed for plaintiff, and defendant excepts. 
 
 Miles, J. Only two questions are raised in this case, viz.: First, 
 Had Townsend, Townsend & Co. any attachable interest in the die of 
 the monument in question, which was attached in the suit of Parry & 
 Jones Company on the 26th day of September, 1914, at the time the 
 attachment was made? And, second, was there anything in the case 
 to submit to the jury? * * * 
 
 The plaintiff ordered from Townsend, Townsend & Co. a monu- 
 ment, consisting of a die and some other parts, and also a marker, 
 all to be thereafter delivered f . o. b. Barre, Vt., to be shipped to Brazil, 
 Ind. On June 19, 1914, Townsend, Townsend & Co. ordered the same 
 monument and marker from the Central Granite Company of Barre, 
 Vt., to be "delivered f. o. b. cars at your station" to be shipped car- 
 load later, no place of shipment nor consignee being stated in the or- 
 der. Subsequently and on September 23, 1914, the Central Granite 
 Company loaded the monument at their yard onto a car of the Cen- 
 tral Vermont Railroad Company, set by that company on the 22d day 
 of September, 1914, in the yard of the Central Granite Company upon 
 the order of the local agent of Townsend, Townsend & Co., and short- 
 ly after the monument was loaded upon the car, the car with the mon- 
 ument and marker was taken by the railroad company to a siding in 
 their yard, about half a mile from the Central Granite Company's 
 yard, where other granite material was to be loaded upon the car to 
 complete the carload and while the car, with the monument upon it, 
 was there standing, the defendant, a deputy sheriff, attached the die 
 upon a writ in favor of Parry & Jones Company against Townsend, 
 Townsend & Co. as their property. Before the die was attached, the 
 
1020 SALES (Part- 4 
 
 local agent of Townsend, Townsend & Co. delivered to the billing 
 agent of the Central Vermont Railroad Company at Barre, Vt., a biU 
 of lading of the monument and marker to be shipped to the plaintiff 
 at Brazil, Ind., in which Townsend, Townsend & Co. were designated 
 as the shippers and the plaintiff as consignee. * * * 
 
 "Ordinarily a delivery of goods by the seller to the carrier designat- 
 ed by the purchaser, or to one usually employed in the transportation of 
 goods from the place of the seller to that of the purchaser, is a de- 
 livery to the purchaser." * * * No question is raised but that the 
 Central Granite Company had title to the monument before it was 
 loaded upon the car, and that it parted with its title when the monu- 
 ment was thus loaded, and that then title passed to either the plaintiff 
 or Townsend, Townsend & Co. The plaintifJ claims that the title 
 passed to him, and the defendant claims that it passed to Townsend, 
 Townsend & Co. at that time. 
 
 Under the general rule above stated when the monument was loaded 
 upon the car and the bill of lading delivered by the local agent of 
 Townsend, Townsend & Co. to the billing clerk of the railroad com- 
 pany, the title to the monument passed to the plaintiff subject only to 
 stoppage in transitu and the right of rescission by the plaintiff if the 
 monument failed to be in accordance with the order, neither of which 
 rights were exercised in this case, unless something more appears in 
 the case showing the contrary. 
 
 The defendant argues that the fact that the box inclosing the die 
 was marked "T. T. & Co." shows that the delivery was to that com- 
 pany; but we think that this does not have the tendency claimed for 
 it, in the light of the other facts in the case. It was quite proper to 
 mark the box with something identifying it as the property sent by 
 Townsend, Townsend & Co., the shipper, to the plaintiff, in view of 
 the fact that it was sent with other granite material furnished by oth- 
 er parties. * * * 
 
 The plaintiff ordered the monument in question from Townsend, 
 Townsend & Co. to be delivered f. o. b. on the cars, Barre, Vt., and 
 Townsend, Townsend & Co. procured the Central Granite Company to 
 fill that order, which that company did on the 23d day of September, 
 1914. When the Central Granite Company loaded the monument up- 
 on the cars nothing further remained for Townsend, Townsend & Co. 
 to do under their contract with the plaintiff, and the contract on their 
 part was then fully performed, and so far as anything appears in the 
 case Townsend, Townsend & Co. then became entitled to payment for 
 the monument. We think and so hold that when the monument was 
 loaded upon the cars by the Central Granite Company and the bill of 
 lading delivered to the carrier's billing agent, the title to the monu- 
 ment passed to the plaintiff, and that at the time of the attachment by 
 the defendant Townsend, Townsend & Co. had no attachable interest 
 in it. * * * 
 
 Judgment affirmed. 
 
 PITTSBURGH PROVISION & PACKING CO. v. CUDAHY PACKING 00. 
 (Supreme Court of Pennsylvania, 1018. 260 Pa. 135, 103 Atl. 548.) 
 Assumpsit by the Pittsburgh Provision & Packing Company against 
 the Cudahy Packing Company to recover the price paid for merchan- 
 dise. Verdict for plaintiff for $4,036.70, and judgment thereon, and 
 defendant appeals. 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1021 
 
 Frazf,e, J. Plaintiff and defendant are both engaged in the whole- 
 sale meat and provision business in the city of Pittsburgh and on 
 June 21, 1913. plaintiff sent to defendant's office in that city an order 
 as follows: "Please ship the following articles and send invoice and 
 shipping receipt or bill of lading to above address, stating how ship- 
 ped, route, etc., and giving car numbers and initials: 16,000 pounds 
 fresh boneless beef chucks, 12i/^c t. a. f . Pittsburgh ; 5,000 lbs. fresh 
 beef trimmings, 12c c. a. f. Pittsburgh, packed in sugar barrels, light- 
 ly salted. Guaranteed fresh. * * * Ship to Pittsburgh Provision 
 ,& Packing Co., Union Stockyards, Pittsburgh, Pa." 
 
 In compliance with this order defendant shipped the meat mention- 
 ed from its packing house in Kansas City, Kan., in refrigerator cars 
 by way of the Wabash Railroad, under bill of lading consigned to its 
 own order at Pittsburgh, with direction to notify plaintiff company 
 at that city. The bill of lading with draft attached to invoice was for- 
 warded to a Pittsburgh bank, and, upon presentation to plaintiff, the 
 draft, calling for the cash price less freight charges, was paid by 
 plaintiff without awaiting arrival of the meat. The car was delivered 
 at defendant's siding at Pittsburgh on Saturday, June 28, 1913, and 
 on the following Monday defendant gave the Wabash Railroad di- 
 rections to reconsign the car to plaintiff's siding at the Union Stock- 
 yards. Upon' reaching this latter point plaintiff's examination of the 
 meat found it unfit for food, and its representative at once notified 
 defendant by telephone of the condition. The following day plaintiff 
 advised defendant by letter that the meat was not as guaranteed, and 
 requested defendant to have the car removed promptly. Upon failure 
 of the latter to do so the railroad company subsequently disposed of 
 the contents. This action was then brought to recover the purchase 
 price, together with an item of expense for re-icing the car at de- 
 fendant's request. The trial resulted in a verdict for plaintiff for the 
 full amount of its claim. 
 
 The single question submitted to the jury was whether the meat was 
 in the condition required by the guaranty at the time of its (Jslivery 
 at its destination, where plaintiff had an opportunity to make inspec- 
 tion. That the meat was not in proper condition for use was practi- 
 cally conceded, the principal dispute being whether under the terms of 
 the order, the title of the goods passed upon delivery to the carrier at 
 Kansas City, or whether the sale was not consummated until delivery 
 on plaintiff's siding at Pittsburgh. In the former case proof of de- 
 livery to the carrier at Kansas City in good condition and properly 
 packed would entitle defendant to the purchase price, and if the ship- 
 ment was lost through delay or improper care in transit, the loss 
 would be a matter of adjustment between the purchaser and the car- 
 rier. 
 
 The general rule is that a delivery of goods to a carrier, pursuant 
 to a contract of sale, is a delivery to the vendee sufficient to pass title 
 to the goods, and the carrier at once becomes the agent of the vendee, 
 * * * to whom the latter must look for resulting damages while the 
 goods are' in transit. * * * Consequently, in absence of circum- 
 stances indicating a contrary intent, if defendant in the present case 
 delivered the meat to the carrier in good condition, properly packed 
 and refrigerated, in view of the distance it must travel, and gave 
 proper instructions as to re-refrigeration if needed in the course of 
 transit, defendant's duty was fully performed, and its responsibility 
 
1022 SALES (Part 4 
 
 ended on such delivery, and it was no longer concerned in the question 
 of delay or damage on delivery. * * * Where, however, the con- 
 tract requires delivery at the place of destination, title remains in 
 the vendor until that point is reached and the risks of transportation 
 are assumed by him. * * * 
 
 The facts here are not in dispute; hence the question as to the 
 place of delivery and when title passed is for the court. Both par- 
 ties conducted places of business in Pittsburgh. The order was to 
 ship to "Union Stock Yards, Pittsburgh, Pa.," that being the business 
 address of plaintiff, and the designation as to price "c. a. f. [cash and 
 freight] Pittsburgh," meant in this case that the price quoted included 
 the freight to destination, the abbreviation apparently having substan- 
 tially the same significance as "f. o. b. Pittsburgh." * * * 
 
 The judgment of the lower court is affirmed. 
 
 TWITCHELI>CHAMPLIN CO. v. RADOVSKY. 
 (Supreme Judicial Court of Massachusetts, 1910. 207 Mass. 72, 92 N. E. 1038.) 
 
 Action on contract for goods sold and delivered by the Twitchell- 
 Champlin Company against Joseph S. Radovsky. A finding was re- 
 turned for plaintiff, and defendant brings exceptions. 
 
 Braley, J. The defendant contends that, as the goods when packed 
 were to be shipped to him by rail at a price from which the cost of 
 transportation was to be deducted, title did not pass until their arrival 
 at his place of business. But there was no express clause in the agree- 
 ment that this expense was to be borne by the seller, and while the 
 amount undoubtedly measured what the buyer would have to pay for 
 carriage, the stipulation could be found to have been intended by the 
 parties as a discount from the seller's regular prices, and not as a pre- 
 payment of the freight. The question was one of fact, and the find- 
 ing for the plaintiff, having been warranted by the evidence, cannot b? 
 revised. * * * it being settled that, unless there is an agreement 
 or usage of the trade to the contrary, delivery to the carrier is a deliv- 
 ery to the buyer, when the sale becomes complete, the case at bar falls 
 within the familiar rule, and the title having passed, the refusal of 
 the defendant to accept the clams was unjustifiable, and furnishes no 
 defense to the suit for the price. * * * 
 
 The requests were rightly refused, and the exceptions must be over- 
 ruled. 
 
 SMITH CO., Limited, v. MARANO. 
 
 (Supreme Court of Pennsylvania, 1020. 267 Pa. 107, 110 Atl. 94, 
 10 A. L. R. 697.) 
 
 Action by Smith Company, Limited, against Antonio Marano. Judg- 
 ment for plaintiff, and defendant appeals. 
 
 Brown, C. J. The facts in this controversy are agreed upon in a 
 case stated. Smith Company, lyimited, is a corporation, with its place 
 of business in the city of St. Johns, Newfoundland. The defendant 
 is a resident of the city of Philadelphia, this state, and is engaged in 
 business there. In September, 1916, the plaintiff and defendant, by let- 
 ters and telegrams, endeavored to complete a contract for the sale of 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1023 
 
 codfish to the latter. As a result of preHminary negotiations, on Sep- 
 tember 26, 1916, plaintiff made the following offer to the defendant, 
 by telegram : "Will give you first quality at nine dollars, second qual- 
 ity at eight dollars per drum of one hundred pounds c. i. f. Philadel- 
 phia." 
 
 On the following day the defendant wired his acceptance of 1,000 
 drums of the fish, first quality, and by letter of the same date directed 
 the plaintiff to send with the first shipment of that quality 25 drums 
 of the second quality. On or about October 4, 1916, the plaintiff 
 shipped 300 drums of the fish of first quality and 25 of second quality, 
 in accordance with the terms of the contract. The goods were shipped 
 by a steamer from the city of St. Johns, consigned to the plaintiff's 
 agent at New York, for transshipment to Philadelphia, to be deliv- 
 ered to the order of plaintiff, the bill of lading being indorsed by the 
 plaintiff in blank. Under the terms of the contract, the plaintiff paid 
 for the customary marine insurance on the goods shipped and the 
 freight charges on them to Philadelphia. It immediately forwarded 
 to the Girard National Bank of Philadephia, through a bank in New 
 York, the insurance policy, indorsed in blank, the invoice and a through 
 bill of lading, also indorsed in blank, all attached to a sight draft on 
 the defendant, in accordance with the contract between them, the draft 
 being for $2,900, covering the value of the fish shipped. About two 
 days later the ship carrying the fish shipped by the plaintiff to the 
 defendant was sunk by a submarine of the Imperial German govern- 
 ment, on the high seas, while en route to the port of destination, and 
 the goods in question were totally destroyed. The bill of lading and 
 the sight draft were duly tendered to the defendant after the cargo 
 had been destroyed. He refused to accept the draft, and subsequently 
 refused to pay any part thereof. The parties agree that the expression 
 "c. i. f ." means that tlie price quoted by the plaintiff to the defendant, 
 and accepted by him, included the cost of the goods, the cost of obtain- 
 ing customary insurance thereon, and the freight charges to the city 
 of Philadelphia. On the foregoing state of facts the court below en- 
 tered judgment in favor of the plaintiff for the full amount of its claim. 
 
 The letters "c. i. f." are abbreviations of the words "cost, insurance, 
 and freight," and when used in connection with commercial quotations 
 signify that the price to be paid for goods will include all charges to 
 the port of destination. * * * 'j^j-^g ^^ge now under consideration 
 calls upon us for the first time to construe what may be termed a "c. 
 i. i." contract for the purchase of goods, and to determine when, under 
 such contract, there is delivery to the buyer. As just stated, plaintiff 
 and defendant agree that the term "c. i. f ." means that the price quoted 
 to the latter and accepted by him included "the cost of said goods, the 
 cost of obtaining the customary insurance thereon, and freight charges 
 to the city of Philadelphia." In recognizing that such is the true mean- 
 ing of the abbreviations, the English courts hold that property pur- 
 chased under a contract in which they are used passes to the buyer 
 upon the seller's delivery of it to a carrier. * * * 
 
 A concise statement of the rule is thus made by Mr. Justice Hughes 
 in Thames & Mersey Marine Insurance Co., Limited, v. U. S., 237 U. 
 S. 19, 35 Sup. Ct. 496, 59 L. Ed. 821, Ann. Cas. 1915D, 1087: "The 
 requirements of exportation are reflected in the familiar 'c. i. f.' con- 
 tract (that is, at a price to cover cost, insurance, and freight), which 
 has 'its recognized legal incidents, one of which is that the shipper 
 
1024 SALES (Part 4 
 
 fulfills his oblig-ation when he has put the cargo on board and for- 
 warded to the purchaser a bill of lading and a policy of insurance with a 
 credit note for the freight, as explained by Lord Blackburn in Ireland 
 V. Livingston.' t. R. 5 H. L. 395^06. * * * " 
 
 Counsel for appellant admit that the judgment of the court below is 
 in accord with the English decisions, followed in this country by the 
 two cases cited, but their contention is that, under the Pennsylvania 
 Sales Act of May 19, 1915 (P. L. 543), the property purchased by the 
 defendant was never delivered to him, and the plaintiff is therefore 
 not entitled to recover. The pertinent parts of that act are as fol- 
 lows : * * * 
 
 "Sec. 19. Unless a different intention appears, the following are the 
 rules for ascertaining the intention of the parties as to the time at 
 which the property in the goods is to pass to the buyer ; * * * Rule 
 5. If the contract to sell requires the seller to deliver the goods to 
 the buyer, or at a particular place, or to pay the freight or cost of 
 transportation to the buyer, or to a particular place, the property does 
 not pass until the goods have been delivered to the buyer or reached 
 the place agreed upon." 
 
 The appellant agreed to pay to the appellee a fixed price for the 
 goods to be shipped to him. The price quoted to him, and which he 
 agreed to pay, included not only the actual value of the fish to the 
 seller, but insurance and freight charges to Philadelphia. If the 
 price had not included insurance, it might be well urged that, under 
 rule 5 of section 19 of our Sales Act, the goods were never delivered 
 to the appellant ; but, reading the contract as a whole — as it must be 
 read — with the item for insurance included in it, "a different intention" 
 on the part of the buyer is disclosed, * * * and ,that he must now 
 be held to have understood that the delivery of the goods to the com- 
 mon carrier was a delivery to him, are clearly demonstrated by the 
 court below in the following from its 'opinion directing judgment to 
 be entered against him : * * * "No matter what is to be inferred 
 from the reference to freight, the inference from that to insurance 
 must also have weight. The contract must be interpreted as a whole. 
 Both provisions must be explained, interpreted, and given their due 
 force. A provision for the payment of freight by the seller or its 
 inclusion in the price might indicate an intention to deliver at the 
 end of the voyage, or it might be a consideration affecting the price 
 merely, and the cost and uncertainty of the freight charge might be a 
 burden accepted by the seller to expedite the sale. On the other hand, 
 the provision with regard to insurance was either fully intended, and 
 reasonable because of the risk the buyer intended to assume, orj if he 
 did not so intend, it was entirely meaningless and mere surplusage." 
 
 The bill of lading, made out to the appellee or its order, was indorsed 
 immediately by it in blank, and attached to the draft drawn upon the 
 appellant. This merely meant that the appellee intended to retain prop- 
 erty in the goods to secure performance by the defendant of his prom- 
 ise to pay for them, and did not, by the express words of the Sales 
 Act, relieve him from the risk that was upon hii.i from the time the 
 goods were delivered to the carrier. 
 
 Judgment affirmed. 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1025 
 
 The next case presents a situation where there are a number 
 of conflicting presumptions, each of which is fairly involved by the 
 facts. Many difficulties in the law are of just this kind — the ques- 
 tion being which rule of law, out of several rules involved, really 
 controls the issue. In the following case we have: (1) The pre- 
 sumption that title passed on delivery to the carrier. (2) Evi- 
 dence to show that this presumption is overcome, and that title 
 was to vest on delivery. (3) Circumstances then show that this 
 second presumption has been overcome. The recognition of the 
 legal effect of the third presumption puts us back exactly where 
 we were at the point of delivery to the carrier. (4) Finally, we 
 find an additional term in the contract, which has the effect of 
 destroying the third presumption, and it is this presumption which 
 the court adopts as determining. 
 
 The particular facts of the case are not so important as is the 
 opportunity of noting the complexity inherent in the application 
 of legal principles to the ever varying facts of business. 
 
 AGRI MFG. 00. v. ATLANTIC FERTILIZER CO. 
 
 (Court of Appeals of Maryland, 1916. 129 Md. 42, 98 Atl. 365. Ann. Cas. 
 
 1918D, 396.) 
 
 Action by the Agri Manufacturing Company against the Atlantic 
 Fertilizer Company. Judgment for defendant, and plaintiff appeals. 
 
 Urner, J. A carload of ground tankage, for use in the manufacture 
 of fertilizer, was sold and shipped by the appellant, the Agri Manu- 
 facturing Company, to the appellee, the Atlantic Fertilizer Company, 
 and was destroyed by fire before being removed from the car and 
 while awaiting official analysis and weighing at the appellee's works. 
 The question raised by this suit is whether the loss thus occasioned 
 should be borne by the vendor or by the vendee, neither of whom was 
 at fault in regard to the destruction of the property. 
 
 The terms of the agreement relating to the sale are set forth in a 
 letter from the appellant to the appellee under date- of October 21, 
 > 1913, as follows : "Gentlemen : This will serve to confirm sale to 
 you of about four hundred (400) tons of our regular production of 
 ground tankage for approximate equal monthly shipments for months 
 of January, February, March, and April, 1914, at $2.67% per unit 
 of ammonia per ton of 2,000 lbs. cif. your works, Curtis Bay, Md. 
 Delivered weights and sampling by Stallings, analysis by Wiley & Co. 
 at seller's expense. Bags to be furnished by buyer as far as possible ; 
 if furnished by sellers they are to be returned promptly at buyer's ex- 
 pense. Terms, three-fourths cash upon presentation of pro forma in- 
 voice and B/L, balance upon completion of weights and analysis. 
 "These goods are sold upon the representation by sellers that the 
 availability of the nitrogen they contain will show at least 70 per cent, 
 by a permanganate method. In the event buyers should have any 
 goods analyzed for available nitrogen, an official sample to be used, 
 and they should prove to contain less than the 70 per cent, availability 
 above mentioned, the expenses of said analysis shall be paid by sellers, 
 B.& B.Bus.Law— 65 
 
1026 SALES (Parti 
 
 and buyers shall have the privilege of refusing said goods. In all dis- 
 putes, the sampling and weighing of Stallihgs and the analysis of 
 Wiley & Co. to govern." 
 
 In the course of the deliveries under this contract, a carload of 
 ground tankage, estimated to contain about 30 tons, was shipped on 
 April 20, 1914, over the line of the Baltimore & Ohio Railroad^ from 
 Mt. Claire, Baltimore, to the appellee's factory at Curtis Bay. The 
 car reached the siding of the Atlantic Fertilizer Company on the aft- 
 ernoon of Friday, April 24, and upon an order issued by the superin- 
 tendent of the company it was placed in position the following day 
 for unloading. Notice was sent by the company to Mr: Stallings and 
 to Wiley & Co. to l;)e at its works on Monday morning, April 27, to 
 weigh and analyze the contents of the car as provfded by the agree- 
 ment. On the intervening Sunday, a fire occurred at the appellee's 
 plant and the flames consumed the carload of fertilizer in question as 
 it stood on the siding adjacent to the factory. The bill of lading for 
 the shipment, in which the Atlantic Fertilizer Company was named as 
 consignee, had been previously delivered to it by the sales manager 
 of the vendor company, together with a pro forma invoice, upon which 
 he received a payment of $661, representing three-fourths of the es- 
 timated value of the material on the basis of the ammonia content 
 assumed by the contract of sale. In this suit the vendor seeks to re- 
 cover from the vendee a balance of $240.86 for the shipment referred 
 to, and the sum of $203.88 on account of a carload which was deliv- 
 ered after the fire and upon which also a three-fourths payment was 
 made on presentation of the bill of lading and pro forma invoice. 
 * * * [Court quotes Section 19, Rules 4 and 5, of the Uniform 
 Sales Act.] 
 
 In the case before us the seller contracted to deliver 400 tons of 
 fertilizer, of the kind and quality described, at the buyer's works. 
 The term "cif. your works," as used in the agreement, is shown by 
 the testimony to mean that the seller should pay the cost, including 
 freight, incurred in the transportation. The material shipped and de- 
 stroyed by the fire was appropriated by the seller to the contract, but 
 as it was the duty of the seller, under the terms of the sale, to make 
 delivery, at the buyer's factory, and to pay the freight on the ship- 
 ment, the rule last quoted precludes any question as to the transfer of 
 the title before fhe delivery at the designated place was accomplished. 
 It is therefore unnecessary to consider what, in the absence of such a ' 
 stipulation, is the ordinary effect upon the title of delivering goods to 
 a cominon carrier and of consigning them to the buyer upon a bill of 
 lading issued in his name, and of the payment of part of the purchase 
 money. Whether the title to the specific carload of fertilizer under 
 inquiry passpd to the buyer as soon as it reached the place of destina- 
 tion depends upon the question as to whether the parties to the sale 
 intended the transfer of the title to occur at that point of time or to be 
 deferred to a later period. The intention of the parties is the control- 
 ling factor in the determination of such an issue. This is the plain im- 
 port of the provisions we have reproduced from the Uniform Sales 
 Act, which simply declare in this respect the settled rule of the com- 
 mon law. * * * 
 
 Upon the question of intention in regard to the time when the title 
 should pass, we have nothing in the record of any special significance 
 beyond the written terms of the sale. There were no acts of the par- 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1027 
 
 ties reflecting upon this subject, except such as the agreement evident- 
 ly contemplated The issue to be decided is therefore one of law 
 and involves the inquiry as to whether there are any conditions of the 
 contract which had the effect of postponing the transfer of the .title 
 to the defendant beyond the time of the arrival of the shipment at its 
 plant. It is cle^r that this effect would not necessarily be produced by 
 the provision for weighing and analysis to ascertain the quantity of 
 the material and the units of ammonia it contained for the purpose 
 of correctly determining the amount of the price. * * * 
 
 The sale was made, however, upon the representation that * * * 
 the buyer should have "the privilege of refusing said goods." * * * 
 Consequently, the fact that a particular carload had arrived on the 
 buyer's siding, and had been placed by its order in a position to have 
 the cargo discharged, can have no important bearing upon the question 
 as to the effect upon the title of the provision in reference to testing 
 and rejection. The decisive inquiry is whether the right to refuse the 
 shipment, if a stipulated analysis at the time of delivery demonstrates 
 that it does not conform to the contract, is consistent with the theory 
 that the title has already passed to the purchaser. * * * 
 
 A sale on terms permitting rejection of the goods if they do not pass 
 a prescribed test of quality is somewhat analogous to a sale on trial, in 
 reference to which the Uniform Sales Act provides, in section 19, 
 rule 3 (2) : "When goods are delivered to the buyer on approval, or 
 on trial, or on satisfaction, or other similar terms, the property there- 
 in passes to the buyer : (a) When he signifies his approval or accept- 
 ance to the seller, or does any other act adopting the transaction ; (b) 
 if he does not signify his approval or acceptance to the seller, but re- 
 tains the goods without giving notice of rejection, then, if a time has 
 been fixed for the return of the goods, on the expiration of such time, 
 and, if no time has been fixed, on the expiration pf a reasonable time." 
 
 This provision was applied in Rice v. Dinsmore, 124 Md. 276, 92 
 Atl. 847. In Farmers' Phosphate Co. v. Gill, 69 Md. 537, 16 Atl. 2U, 
 1 L. R. A. 767, 9 Am. St. Rep. 443, where an agreement that a ship- 
 ment of rock phosphate should be weighed and its quality tested upon 
 arrival at the buyers' works was held not to defer the passing of the 
 title until these acts were performed-, it was pointed out that the buy- 
 ers were given by the contract "no right to reject the rock if it did not 
 come up to the prescribed standard," but were simply allowed in 
 that event a proportionate abatement of the price. The absolute right 
 conferred upon the buyer in this instance to refuse the material deliv- 
 ered if it did not meet the test agreed upon is .a conclusive indication 
 that the title was not intended to pass to the buyer until the custom- 
 ary opportunity for making the test was afforded. There is nothing in 
 the evidence tending to show that there was any undue delay on the- 
 part of the buyer in arranging for the weighing and analyzing of the 
 contents of the car on the occasion in question, and as the property 
 was destroyed without fault of either party, before the buyer's un- 
 qualified right to test, and his conditional right to refuse the shipment, 
 could be exercised, we must hold that the instruction of the trial court 
 placing the loss on the seller was properly granted. * * * 
 
 Judgment affirmed. 
 
1028 SALES (Part 4 
 
 SECTION 7.— EFFECT OF THE FORM OF THE BILL OF 
 LADING UPON THE PASSING OF TITLE 
 
 The presumption that title passes upon delivery of the goods to 
 the carrier for shipment to the buyer may also be controlled by the 
 form of the bill of lading. There are two kinds of bills of lading, 
 called, respectively, straight bills of lading and negotiable bills of 
 lading. A negotiable bill of lading is one which provides for the 
 delivery of the goods to the order of some person therein desig- 
 nated, or to bearer. A straight bill of lading provides for the 
 delivery of the goods to a named consignee only ; words of nego- 
 tiability being omitted. The various aspects of negotiable docu- 
 ments of title are taken up in Chapter IV ; but, in connection with 
 the present section, the Introduction to Chapter IV should be 
 read in further explanation of the distinctions between negotiable 
 and non-negotiable documents of title. It will there appear that a 
 negotiable bill of lading may be used to prevent an act which 
 would normally constitute an act of unconditional appropriation 
 from operating as such. The provisions of the Sales Act bearing 
 on these matters are as follows: 
 
 Sales Act, Section 20. (1) Where there is a contract to sell 
 specific goods, or where goods are subsequently appropriated to 
 the contract, the seller may, by the terms of the contract or ap- 
 propriation, reserve the right of possession or property in the 
 goods imtil certain conditions have been fulfilled. The right of 
 possession or property may be thus reserved notwithstanding the 
 delivery of the goods to the buyer, to a carrier or other bailee for 
 the purpose of transmission to the buyer. 
 
 (2) Where goods are shipped, and by the bill of lading the goods 
 are deliverable to the seller or his agent, or to the order of the 
 seller or of his agent, the seller thereby reserves the property in 
 the goods. But if, except for the form of the bill of lading, the 
 property would have passed to the buyer on shipment of the goods, 
 the seller's property in the goods shall be deemed to be only for 
 the purpose of securing performance by the buyer of his obliga- 
 tions under the contract. 
 
 (3) Where goods are shipped, and by the bill of lading, the 
 goods are deliverable to the order of the buyer or of his agent, but 
 possession of the bill of lading is retained by the seller or his 
 agent, the seller thereby reserves a right to the possession of the 
 goods as against the buyer. 
 
 (4) Where the seller of goods draws on the buyer for the price 
 and transmits the bill of exchange and bill of lading together to the 
 buyer to secure acceptance or payment of the bill of exchange, the 
 buyer is bound to return the bill of lading if he does not honor 
 the bill of exchange, and if he wrongfully retains the bill of lading 
 he acquires no added right thereby. If, however, the bill of lading 
 provides that the goods are deliverable to the buyer or to the or- 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1029 
 
 der of the buyer, or is indorsed in blank, or to the buyer by the 
 consignee named therein, one who purchases in good faith, for 
 value, the bill of lading, or goods from the buyer will obtain the 
 property in the goods, although the bill of exchange has not been 
 honored, provided that such purchaser has received delivery of 
 the bill of lading indorsed by the consignee named therein, or of 
 the goods, without notice of the facts making the transfer wrong- 
 ful. 
 
 What is the effect of these sections? As regards subsection (1) 
 this language asserts, what we already have found to be true, that 
 goods may be delivered to the buyer under circumstances where 
 the title may remain in the seller. The conditional sale, the sale on 
 approval and the contract on sale or return furnish instances of 
 this right. These are instances of a reservation of title in the 
 contract between buyer and seller. This section provides that a 
 similar result may be accomplished by a shipment of the goods 
 under a negotiable bill of lading. Subsections (2), (3), and (4) 
 present various detailed aspects of this right. 
 
 Subsection (2) deals with two distinct situations, though each 
 includes two subordinate situations: (1) The clause reading, 
 "Where goods are shipped, and by the bill of lading the goods are 
 deliverable (a) to the seller, or (b) his agent," refers to a case 
 where, although there was a contract for the sale of the goods, the 
 seller chooses to ship them under a straight bill of lading to him- 
 self or to his agent. (2) The clause reading: "Where goods are 
 shipped and by the bill of lading the goods are deliverable (a) to 
 the order of the seller, (b) or to the order of the agent of the 
 seller," refers to a shipment of goods under a negotiable bill of 
 lading. 
 
 The remaining portion of the subsection deals with the legal 
 effect of these two situations, and we note that the legal effect is 
 stated to be that the seller thereby — that is, in either of the above- 
 mentioned situations — reserves the property in the goods; that 
 is, title to the goods. We know, however, that the Words "title" 
 or "the property" are used to describe more than one kind of 
 interest in the thing said to be owned ; hence the section proceeds 
 to declare what kind of title is thus reserved. This it apcomplishes 
 by asserting that the property thus reserved by the seller shall be 
 deemed to be only for the purpose of securing performance by the 
 buyer of his obligations under the contract. 
 
 The further detailed effects of the reservation of title may be 
 stated as follows: (1) The buyer cannot obtain possession of the 
 goods, until, in the case of the straight bill, the seller voluntarily 
 consents to a delivery to him, and, in the case of the order bill, the 
 buyer cannot obtain possession until the bill of lading has been in- 
 dorsed to him. (2) The buyer has no power to sell the goods to 
 other parties until he obtains possession of the goods. (3) Cred- 
 itors of the buyer cannot seize the goods in satisfaction of their 
 claims against the buyer. (4) The seller may sell the goods to 
 
1030 SAtBS (Part 4 
 
 other persons, in the case of the straight bill, without dealing with 
 the bill at all, and in the case of the order bill, by indorsing it to 
 the new purchaser. Such purchaser gets a good title to the goods. 
 Of course, the seller, in reselling to the new purchaser, will prob- 
 ably be liable for ^ breach of contract with the first buyer; but 
 that fact does not prevent him from dealing with the goods as his 
 own. (5) As regards the risk of loss, we might expect, perhaps, 
 since so much of the beneficial interest in the property is thus re- 
 served to the seller, that the risk of loss would also fall upon the 
 seller; but this is not true. After all, the title reserved is but a 
 security title, as in C. O. D. shipments and in conditional sale con- 
 tracts, where the risk of loss is upon the buyer. And so here this 
 analogy is carried out, and the risk of loss or damage while the 
 goods are in transit is upon the buyer. This effect is brought about 
 by Section 22 (a), which provides : 
 
 Where delivery of the goods has been made to the buyer, or to a 
 bailee for the buyer, in pursuance of the contract and the property 
 in the goods has been retained by the seller merely to secure per- 
 formance by the buyer of his obligations under the contract, the 
 goods are at the buyer's risk from the time of such delivery. 
 
 This section casts the risk of loss upon the buyer "when the 
 title has been reserved "merely to secure performance by the buyer 
 of his obligations under the contract." And we have just seen that 
 under Section 20 (2) the buyer, by sending the goods to himself or 
 agent by a straight bill of lading, or by sending the goods under a 
 negotiable bill running to the seller's order, or to the order of the 
 agent of the seller, does reserve just this kind of title; therefore 
 there can be no question but what the risk of loss in such case is 
 transferred to the buyer at the time of delivery to the carrier. 
 
 The form of the negotiable bill of lading referred to in subsec- 
 tion 3 differs from the fo.rm of the negotiable bill referred to in 
 subsection 2, in that in subsection 3 the bill runs to the order of 
 the buyer or to the order of the buyer's agent, instead of to the or- 
 der of the seller or the seller's agent. The legal effect differs from 
 that produced by subsection 2, in that under subsection 3 the re- 
 tention of the bill running to the order of the buyer reserves a 
 right of possession of the goods, whereas under subsection 2 a 
 security title was reserved. If the right of possession alone is re- 
 served, the title obviously must be in the buyer. The further 
 effect of the section is very similar to that where the bill runs to 
 the order of the seller: (1) The buyer cannot obtain possession 
 until he acquires possession of the bill of lading, just as was the 
 case under subsection 2. (2) The buyer could not eifectively 
 transfer the title to a third party, unless he first obtained the bill 
 of lading. If the carriers should deliver the goods to the buyer, an 
 event not likely to occur, no doubt the buyer could transfer a good 
 title to his purchaser, and the seller could not recover the goods, 
 though the holder of the bill of lading could hold the carrier 
 liable for thus wrongfully surrendering the goods without requir- 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1031 
 
 ing the surrender of the bill of lading. (3) The rights of credi- 
 tors of the buyer and of the seller are about the same as they are 
 under subsection 2, but this matter will be adverted to later. (4) 
 The seller cannot transfer a title to a third party which would de- 
 feat the right of the buyer. In fact, since the bill runs to the 
 order of the buyer, it is possible' to say that the indorsement by 
 the seller of the buyer's name would not be effective to pass title ; 
 but it might be argued that the act of the seller in indorsing the 
 buyer's name has the same kind of effect as the indorsement of 
 the name of a fictitious consignee would have ; that is, perhaps, the 
 indorsement of the buyer's name would convert the bill into a 
 bearer bill. Looking at it in this way, and this seems a reasonable 
 view, the seller would be liable for a breach of contract to the 
 buyer, but the innocent purchaser would get a title good against 
 the first buyer. It would also seem that the seller could surrender 
 the bill of lading to the carrier and obtain a bill running to his 
 own order, and could thereby obtain the power to transfer a good 
 title to a third party. Risk of loss is clearly on the buyer from the 
 time of delivery to the carrier, under the general rule that risk of 
 loss follows title. 
 
 It thus appears that the outstanding effect produced by nego- 
 tiable bills of lading, whether the bill runs to the order of the 
 seller or to the order of the buyer, is that it enables the seller to 
 retain an effective hold upon the goods during the period of the 
 transit. This power in the seller pre-supposes that title had not 
 passed before the delivery to the carrier. If title has passed to the 
 buyer before such delivery, then, of course, the buyer may ob- 
 tain his goods without production of the bill of lading. This mat- 
 ter will be further adverted to in Chapter IV. 
 
 ALDERMAN BROS. CO. v. WESTINGHOUSB AIR BRAKE CO. 
 (Supreme Court of Error.s of Connecticut, 1918. 92 Conn. 419, 103 Atl. 267.) 
 
 Beach, j, * * * Section 20 deals with the reservation of the 
 right of possession of, or the property in, goods shipped to the buyer. 
 It makes the distinction that if the bill of lading is drawn to the order 
 of the buyer or his agent, and is retained by the seller or his agent to 
 secure payment of the price, the seller reserves only the right of pos- 
 session of the goods ; but if the bill of lading is drawn to the order of 
 the seller or his agent "the seller, reserves the property in the goods." 
 This last statement is, however, qualified by the next succeeding 
 words "but if, except for the form of the bill of lading, the property 
 would have passed to the buyer on the shipment of the goods, the seller's 
 property in the goods shall be deemed to be only for the purpose of 
 securing performance by the buyer of his obligations under the con- 
 tract " Manifestly, the intention is to make some kind of a distinction 
 between a reservation of title with intent to remain the owner of the 
 goods for all purposes, and a reservation of title for the sole purpose of 
 securing payment of the price. The legal effect of this distinction is 
 pointed out in section 22. * * * 
 
1032 SALES (Part 4 
 
 It makes no difference to a buyer who has agreed to pay the freight 
 whether a sight draft is presented to him attached to a bill of lading 
 drawn to his own order, or, to a bill of lading drawn to the order of 
 the seller and indorsed in blank. In either case he must pay his draft 
 in order to get possession of the goods, and in either case his rights 
 on paying the draft are the same. The risk of loss unquestionably 
 passes to the buyer in the former case as soon as the goods are de- 
 livered to the carrier, and section 22 of the Sales Act provides that 
 it shall pass to the buyer at the same time in the latter case, provided 
 the seller's purpose in drawing the bill of lading to his own order 
 was merely to secure payment of the draft. This resolves for us 
 any conflict of opinion on the point, and gives to the maxim res periit 
 domino an interpretation which makes the risk follow the beneficial in- 
 terest according to the intent of the parties and not the legal title held 
 merely as security for the payment of the price. * * *' 
 
 COLI/IN COUNTY NAT. BANK v. HARRIS & JAGGERS. 
 (Supreme Court of Arkansas, 1909. 90 Ark. 439, 119 S. W. 662.) 
 
 Action by Harris & Jaggers against the Browne Grain Company; 
 Collin County National Bank, interpleader. From a judgment for 
 plaintiffs, the interpleader appeals. 
 
 McCuLLOCH, C. J. * * * The facts concerning the attached 
 property are as follows: On July 7, 1908, the Browne Grain Com- 
 pany entered into a written executory contract with appellees to sell 
 and deliver to them two car loads of oats at a stipulated price. On 
 the same day the grain company caused to be shipped from Belleview, 
 Tex., the car load of oats in controversy, and the same was billed 
 to the shipper's order. The car arrived at Monticello on July 20th, 
 but was not received by the appellees, a controversy having arisen be- 
 tween the parties concerning tfie inspection of the oats, and later con- 
 cerning a charge made by the railroad company for demurrage on 
 account of delay in unloading. On August 12, 1908, the grain com- 
 pany entered into a contract with H. M. Wilson, of Monticello, for 
 the sale of this car, and on the same day drew a draft on Wilson for 
 the agreed price, which was delivered to appellant bank at McKinney, 
 Tex., with bill of lading indorsed in blank, attached. The bank placed 
 to the credit of the grain company on its books the amount of the 
 draft, less a small discount, and the amount was immediately checked 
 out by the grain company. One of the partners composing the grain 
 company, and also the cashier of the appellant bank, testified that the 
 draft, with bill of lading attached, was delivered to the bank as an 
 actual cash sale for the full amount thereof, less discount, and this 
 is the only testimony on that subject. The day following the delivery 
 of the draft to appellant bank the car of oats in this action was attached 
 at Monticello. * * * 
 
 The contract of sale between the grain company and appellees was 
 executory, and title -had not passed. There had been no delivery of 
 the oats, and the contract was for the sale of no particular car load 
 of oats. The particular subject-matter of the sale was not specified 
 and identified, and the contract, therefore, up to the time of delivery, 
 was purely executory. * * * The title to the specified propertv 
 remained in the grain company until appropriated to the performance 
 
, Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1033 
 
 of the contract and delivered in completion of the sale. The assign- 
 ment of the bill of lading attached to the draft passed the title as col- 
 lateral security to the bank, where the title remained until the payment 
 of the draft and delivery of the bill of lading. * * * 
 
 At the time of the delivery of the draft and bill of lading the title 
 to the property remained in the grain company; and, according to the 
 uncontradicted evidence, the draft was delivered to the bank as an ab- 
 solute sale, and the proceeds thereof were immediately checked out 
 by the grain company. There is no evidence whatever of any fraud or 
 collusion between the appellant bank and the grain company, nor of 
 insolvency or inability on the part of the latter to meet its obligations. 
 There is nothing in the evidence to indicate or to warrant a conclu- 
 sion otherwise than that this was a transaction in the ordinary course 
 of business, whereby products of this kind are sold and the sales there- 
 of consummated. * * * 
 
 Reversed and remanded for new trial. 
 
 Some few aspects of a very common and most important com- 
 mercial transaction are made the subject of subsection (4). For 
 the moment this subsection may be viewed from a standpoint of 
 its business importance. Occasionally, perhaps, a seller will find 
 it convenient to ship goods under a negotiable bill of lading, with- 
 out accompanying the bill of lading with a bill of exchange drawn 
 upon the buyer for the purchase price; but the more Common 
 situation, calling for the use of the negotiable bill, arises where the 
 seller's chief desire is to make a delivery of goods sold to a buyer 
 at a distant point under circumstances where the seller will be 
 assured that the price will be paid before delivery. 
 
 Of course, the seller could require the buyer to pay for the goods 
 before shipment; but the plan from a business standpoint is often 
 not desirable. On the other hand, if the seller sends the goods 
 to the buyer under no restriction whatever, except that imposed 
 by a contractual duty of the buyer to remit the price upon receipt, 
 the seller thereby assumes considerable risk. The buyer may 
 refuse to pay for the goods. The seller may accordingly be forced 
 to exert considerable eflfort to make collection, or the seller may 
 even find it necessary to sue the buyer. Again, the risk of insol- 
 vency or of actual bankruptcy of the buyer is borne entirely by 
 the seller. Once the goods become a part of the general assets 
 of the buyer, the seller possesses no longer any interest in them, 
 even though he has not been paid the price. In a bankruptcy 
 proceeding the seller would be a general creditor. Of course, 
 where the relations between the buyer and seller are of such a 
 nature that the seller feels perfectly safe in selling goods on cred- 
 it, there is no occasion for the use of the negotiable bill with the 
 bill of exchange. But in those cases, and they are quite frequent, 
 where the seller desires to make the sale and yet desires to pro- 
 tect himself adequately, the instrumentality afforded by the use 
 of the negotiable bill and the bill of exchange cannot be over- 
 
1034 SALES (Part 4 
 
 emphasized. In addition to the "security thus afforded to the seller 
 there are other collateral advantages. 
 
 ' The normal procedure is for the seller to draw a bill of ex- 
 change upon the buyer for the price. Sometimes this document 
 is called a "trade acceptance." The negotiable bill of lading, usu- 
 ally drawn to the order of the seller and then indorsed, either 
 specially or in blank, will be attached to the bill of exchange, and 
 both instruments transferred to a bank at the seller's place of 
 business. The bank may merely agree to collect the amount called 
 for by the bill of exchange, or it may be that the bank will dis- 
 count the bill; that is, the bank will credit the seller with the 
 amount of the bill of exchange, and will allow the seller to check 
 against the credit during the time required to make presentment 
 of the bill to the buyer at the point of destination. Of course, if 
 the bill be dishonored, the credit will be withdrawn. But in the 
 meantime the seller has a bank credit subject to check, and in 
 the usual case no occasion will arise for its withdrawal. The 
 capital represented by the value of the goods is accordingly con- 
 verted into actual working capital from the moment of discount by 
 the bank. The bank feels safe in extending the credit, becattse it 
 holds the goods as security for the amount credited to the seller. 
 Were it not for the doctrine that the bill of lading represents the 
 goods, there would be no satisfactory procedure for a seller safely 
 to carry out transactions like these, nor would it be possible for 
 him to keep in his working capital the amount represented by the 
 value of the goods during the time they were in transit or until 
 the period of credit expired. 
 
 It should also be noted that the practice of sending goods under 
 a negotiable bill of lading accompanied by a bill of excha'nge is 
 perfectly proper, and often highly desirable, even where the seller 
 is willing to sell the goods on a prescribed period of credit. In 
 such a case the bill of exchange would not be drawn so as to be 
 payable on demand, but would be drawn payable in thirty, sixty ,- 
 or ninety days, as the parties might agree. But the bill would be 
 drawn so as to require an immediate acceptance, and the right of 
 the buyer to obtain the bill of lading, without which he could not 
 get the goods, would be conditional upon the buyer's actually ac- 
 cepting the hill of exchange. Here the buyer does lose all hold on 
 the goods after acceptance and delivery of the bill of lading, but 
 the hold given the seller upon the goods by reason of the bill of 
 lading insured his actually obtaining the buyer's acceptance. Had 
 the goods been sent direct to the buyer, and the seller had simply 
 written to the buyer, inclosing a bill of exchange drawn upon him, 
 and required the buyer to accept and return the bill, it would not 
 be certain in many cases that the buyer would comply with the 
 seller's request. When the seller obtains the acceptance of the 
 buyer, he is then in possession of a commercial instrument which 
 is of considerable value. Such a bill may be discounted at the 
 Federal Reserve Banks. It is prime commercial paper. Since 
 
Ch. 2) TRANSFER OF TITLE WHERE GOODS UNASCERTAINED 1035 
 
 the establishment of the Federal Reserve System, such instru- 
 ments as have just been described are commonly called "trade 
 acceptances." 
 
 There can be no question but what the rules which we are now 
 considering, which fix the rights and liabilities of parties to ne- 
 gotiable documents of title, including bills of lading and warehouse 
 receipts, taken in connection with the rules governing the rights 
 and liabilities of parties to negotiable instruments payable in 
 money, operate as a powerful stimulus to trade and commerce, and 
 a degree of safety to the parties concerned is thereby attained, not 
 possible without such instruments. , Especially is this true as re- 
 gards the export and import business. 
 
 In our further discussion of the detailed rules which govern ne- 
 gotiable documents of title in Chapter IV, and in our study of 
 the cases, we shall feel more or less drawn away from our obser- 
 vation of the normal business transaction, because our attitude will 
 be directed to the accidents which now and then occur — the de- 
 struction of the goods, the bankruptcy or fraud of some of the 
 parties ; but these risks, however rare they may be, must always 
 be taken into account. It is never certain that a particular cargo 
 will be lost, or that a particular business enterprise will be forced 
 into bankruptcy, or that a certain individual will commit a fraudu- 
 lent act; but it is absolutely certain that all of these things will 
 happen at some time. The important point is that the manner in 
 which the law extracts the parties who unfortunately find them- 
 selves in these situations has a great deal to do with the buying 
 and selling policies of commercial establishments. 
 
 Returning to the more detailed examination of subsection 4, it is 
 to be noticed that the first sentence states that, if the bill of lading 
 and the bill of exchange are sent direct to the buyer, with the di- 
 rection to the buyer to return the bill of exchange accepted, or, if 
 drawn for immediate payment, the buyer does not comply with this 
 demand, such buyer acquires no right to the bill of lading or to the 
 goods, as regards the seller; that is, the seller could recover pos- 
 session of the bill or of the goods by appropriate proceedings, but 
 this right to the seller is of no great value, because the next sen- 
 tence provides that the buyer thus wrongfully in possession of the 
 bill of lading does have the legal power to pass a good title to an 
 indorsee innocent of the buyer's breach of contract. If a buyer is 
 so deaf to business ethics as to refuse to return the accepted bill or 
 the draft for the price as directed, the probabilities are that he will 
 negotiate the document to an innocent party. It is therefore ap- 
 parent that the practice of sending the bill of lading and the bill of 
 exchange direct to the buyer,' instead of sending them through 
 custortiary banking channels, is dangerous. Doubtless in many 
 cases the seller may safely do so, but he should be aware of the 
 risk therein involved. The detailed legal aspects of negotiable 
 documents of title is more completely presented in Chapter IV. 
 
1036 SALES (Part 4 
 
 CHAPTER III 
 
 POWERS OF PERSONS NOT OWNERS OF GOODS TO 
 
 TRANSFER TITLE TO INNOCENT 
 
 PURCHASERS 
 
 Section 
 
 1. Introduction. 
 
 2. Estoppel of the Owner to Deny Custodian's Power to Transfer Title. 
 
 3. Sale by One Having a Voidable Title. 
 
 4. Sale by a Seller in Possession of Goods Already Sold. 
 
 5. Eights of Creditors Against Goods Sold in Seller's Possession. 
 
 6. Rights of Creditors Against Goods Sold in Violation of Bulk Sales Acts. 
 
 SECTION 1.— INTRODUCTION 
 
 If every one were absolutely honest, and if every one always 
 knew the exact scope and nature of his legal rights, the subject- 
 matter of the more important parts of this chapter wDuld disap- 
 pear from the law. As it is, people are sometimes dishonest, but 
 much more often they are merely mistaken as to the scope of their 
 legal rights, with the result that they attempt to do things which 
 prove unfortunate for themselves and for others. In the study of 
 negotiable instruments it appeared that the most difficult case to 
 decide, both as regards matters of legal policy and as regards the 
 application of established policy to specific facts, was the case 
 where a loss had to be thrown upon one of two or more innocent 
 parties. And so we discover the same situation in connection with 
 sales of property. Of course, as long as the machinery of ex- 
 change is functioning smoothly, we are not troubled by such ques- 
 tions. But sooner or later some fraudulent party, some one in 
 financial distress, or some careless workman on the road traveled 
 by the goods from producer to consumer, throws the machinery 
 out of gear, and the- tremors are heard and felt all along the line. 
 The individual who was thus responsible for the accident should 
 sustain the loss, and in the majority of cases no doubt the law im- 
 poses legal liability upon him ; that is, ultimately it will be upon 
 him. But this party may be in New York, and the two innocent 
 parties in Portland. A lawsuit is very likely to develop between 
 the two innocent parties, and it must be decided. And, again, it 
 so often happens that the person who was the cause of the loss is 
 now insolvent, so that, even if it were convenient to compel him to 
 repair the damage, the legal right to do so is valueless. 
 
 The problem of discovering which of two innocent persons must 
 bear a loss is one which ramifies all through the law. In the la.w 
 of negotiable instruments we studied a series of rules which ex- 
 perience has shown bring about a result which is about as fair for 
 all concerned as we may expect. So, also, in the law of real prop- 
 erty, though this is a branch into which we shall not enter here. 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1037 
 
 The specific rules are not the same, but they are grounded upon 
 the same fundamental conception of justice. In transactions con- 
 cerning tangible personal property we have another series of 
 rules, forged from the mills of business experience, which, though 
 differing in many respects from the analogous doctrines of the law 
 of real property and of commercial paper, leads to a fair average 
 of just results. 
 
 The problem in this chapter therefore is: Under what circum- 
 stances will a person who is not the owner of goods have the pow- 
 er, although not the legal privilege, to transfer title to an inno- 
 cent purchaser? The following case contains a discussion of the 
 general principles involved, after considering which we may di- 
 rect our attention to the provisions of the Sales Act, to note how 
 these general principles have there been carried into effect. 
 
 SALTUS V. EVERETT. 
 
 (Court for the Correction of Errors of New York, 1838. 20 Wend. 267, 
 
 32 Am. Dec. 541.) 
 
 Senator Vbrplanck. * * * The main question depends upon 
 and involves the general rule that ought to govern between the con- 
 flicting rights of bona fide purchasers of personal property, bought 
 without notice of any opposing claim, and those of the original owner, 
 divested of the possession or control of Kis property by accident, mis- 
 take, fraud, or misplaced confidence. The original owner now claims 
 his lead against purchasers who bought for a fair price, in the usual 
 course of trade, from persons holding the usual evidence of such 
 property (a bill of lading indorsed to them), and in actual possession 
 of the goods. Of these two innocent parties, which of the two is to 
 bear the loss arising from the wrongdoing of the third? 
 
 The universal and fundamental principle of our law of personal 
 property is that no man can be divested of his property without his 
 own consent, and consequently that even the honest purchaser un- 
 der a defective title cannot hold against the true proprietor. That 
 "no one can transfer to another a better title than he has himself" 
 is a maxim, says Chancellor Kent, "alike of the common and the civil 
 law, and a sale, ex vi termini, imports nothing more than that the 
 bona fide purchaser succeeds to the rights of the vendor." The only 
 exception to this rule in the ancient English jurisprudence was that 
 of sales in markets overt, a custom which has not been introduced 
 among us. "It has been frequently held in this country that the Eng- 
 lish law of markets overt had- not been adopted, and consequently, as 
 a general rule, the title of the true owner cannot be lost without his 
 consent." 2 Kent's Comm. 324, and cases there cited. 
 
 To whatever and however numerous exceptions this rule of our 
 law may be subject, it is unquestionably the general and regulating 
 principle, modified only by the absolute necessity or the obvious poli- 
 cy of human affairs. The chief justice of the superior court has said, 
 in his opinion on this case, that "it must be conceded that a purchaser 
 for a fair and valuable consideration, in the usual course of trade, 
 without notice of any conflicting claim or any suspicious circumstanc- 
 
1038 SALES ;(?,art* 
 
 es to awaken inquiry, or to put him on his guard, wjll, as. a general 
 rule, be protected, in his purchase, and unaffected, by any latent claim.. 
 But there are exceptions to this rule." Now, I cannot agree with the 
 learned justice that this is the general rule. On the contrary, I think 
 it obvious that it is but the broad statement of a large class of ex- 
 ceptions to the operation of a much more general principle, and that 
 statement of exceptions is subject again to many limitations: I have 
 stated the general and governing law; let us now see what are pre- 
 cisely the exceptions to it. 
 
 The first anld most remarkable class of these exceptions relates to 
 money, cash, bank bills, checks, and notes payable to the bearer or 
 transferable by delivery, and in short whatever comes under the gen- 
 eral notion of currency. It was decided by Lord Chief Justice Holt, 
 at an earjy period of our commercial law, that money and bills payable 
 to bearer, though stolen, could not be recovered after they had passed 
 into currency; and this "by reason of the course of trade which cre- 
 ates a property in the holder." "They pass by delivery only, find are 
 considered as cash, and the possession alyvays cari'ies with it the 
 property." Anon., 1 Salk. 126. A long series of decisions, beginning 
 with Miller v. Race, 1 Burr. 452, has now settled the law that posses- 
 sion of such paper is presumptive proof of property, and tha!t he who 
 received it in the course of trade, for a fair consideration, without 
 any reason for just suspicion, can hold it against the true owner, and 
 recover on it against the drawer, maker, and other parties, even if 
 the paper had been stolen from or lost by the former holder ; such 
 former holder retaining all his original rights only against the thief 
 or the finder, or whoever received the paper from them under suspi- 
 cious circumstances. These decisions have been argued upon as au- 
 thorities (at least in the way of analogy) both at bar and in opinions 
 of the courts, in cases involving the same question as to goods or 
 other movable property. Hence it was inferred that goods bought or 
 received "in the course of trade stand on the same footing with bank 
 notes or checks so received." But an examination of the cases will 
 show that this part of the law of negotiable paper rests on grounds 
 quite peculiar to itself, for the following reasons: 
 
 1. The protection of the bona fide holder of paper, transferable by 
 delivery, extends even to cases where the paper has been lost or 
 stolen. But it has been often decided that loss by accident, theft, or 
 robbery does not divest the title of the owner of goods, nor give a 
 title in them to a fair after purchaser. 
 
 2. The rule is put by all the authorities on the express and sepa- 
 rate ground of the necessity of sustaining the credit and circulation 
 of the currency. Thus Lord Chief Justice Hardwicke: "No dispute 
 ought to be made with the holder of a cash note, who came fairly by 
 it; for the sake of currency, to which discrediting such notes would be 
 a great disturbance." See, too, the reasoning of Lord Mansfield, in 
 all cases on this head decided before him. Thus, he says, in the 
 case of a stolen note. Peacock v. Rhodes, 2 Doub. 636 : "An assignee 
 must take the thing assigned, subject to all the equity to which the 
 original party was subject. If this rule was applied to bills, it would 
 stop their currency. "_ Similar reasons are assigned for the same de- 
 cision by American judges. 
 
 3. The analogy between notes and movables, or goods, is expressly 
 denied in the leading cases on this head. Thus, in reply to an argu- 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1039 
 
 merit founded on that similarity, Lord Mansfield answers (Miller v. 
 Race, 1 Burr. 457) : "The whole fallacy of the argument rests upon 
 comparing bank notes to what they do not resemble, and what they 
 ought not to be compared to, viz., goods, or securities, or documents for 
 debts. Now, they are not goods, nor securities, nor similar to them ; 
 they are treated as cash to all purposes," etc. 
 
 Setting wholly aside, then, this part of the law as to cash, bank 
 notes, and bills to bearer, as founded on the peculiar necessities of 
 currency and trade, and regulated by decisions and usages peculiar 
 to itself, what rules do we find to obtain in other instances of con- 
 flict between the rights of original owners and those of fair purchasers ? 
 After a careful examination of all the English cases and those of this 
 state, that have been cited or referred to, I come to this general con- 
 clusion : That the title of property in things movable can pass from the 
 owner only by his ov/n consent and voluntary act, or by operation of 
 law, but that the honest purchaser, who buys for a valuable considera- 
 tion, in the course of trade, without notice of any adverse claim, or any 
 circumstances which might lead a prudent man to suspect such adverse 
 claim, will be protected in his title against the original owner in those 
 cases, and in those only, where such owner has by his own direct vol- 
 untary act conferred upon the person from whom the bona fide vendee 
 derives title, the apparent right of property as owner, or of disposal as 
 an agent. I find two distinct classes of cases under this head, and no 
 more. 
 
 I. The first is, when the owner, with the intention of sale, has in 
 any way parted with the actual property qf his goods, with his own 
 consent, though under such circumstances of fraud or error as would 
 make that consent revocable, rescind the sale, and authorize the re- 
 covery of the goods as against such vendee. But, if the property 
 passes into the hands of honest purchasers, the first owner must bear 
 the loss. Thus, to take an instance from our own reports, where goods 
 were obtained by a sale on credit under a forged recommendation 
 -and guaranty, and then sold to a bona fide purchaser in the customary 
 course of trade, the second buyer was protected in his possession 
 against the defrauded original owner. Mowrey v. Walsh, 8 Cow. 243. 
 So, again, where the owner gave possession and the apparent title of 
 property to a purchaser, who gave his worthless note, in fraudulent 
 contemplation of immediate bankruptcy, a fair purchase from the 
 fraudulent vendee was held to be good against the first owner. Root 
 V. French, 13 Wend. 572, 28 Am. Dec. 482. See, also, McCarty v. 
 Vickery, 12 Johns. 348. In all such cases, to protect the new pur- 
 chaser, there must be a full consent of the owner to the transfer of 
 property, though such consent might be temporary only, obtained by 
 fraud or mistake, and there revocable against such unfair first pur- 
 chaser. 
 
 II. The other class of cases in which the owner loses the right of 
 following and reclaiming his property is where he has, by his own 
 voluntary act or consent, given to another such evidence of the right 
 of selling his goods as, according to the custom of trade, or the com- 
 mon understanding of the world, usually accompanies the authority 
 of disposal, or, to use the language of Lord Ellenborough, when the 
 owner "has given the external indicia of the right of disposing of his 
 property." Here it is well settled that, however the possessor of such 
 rexternal indicia niay abuse the confidence of his principal, a sale to a 
 
1040 SALES (Part i 
 
 fair purchaser divests the first title, and the authority to sell, so con- 
 ferred, whether real or apparent, is good against him who gave it. 
 
 Thus the consignee, in a bill of lading, is furnished by his consign- 
 or with such evidence of right of disposal, according to the custom 
 and law of trade, so that the bona fide holder of the bill indorsed by 
 the consignee is entitled to all the rights of property of the consignor 
 in those goods, if bought fairly in the course of business, although 
 the actual consignee, under whose indorsement he holds, has no right 
 to the goods as against the former owner. If such goods were not 
 paid for, they might be stopped in transitu by the owner, unless his 
 consignee has already assigned his bill of lading; but that assignment 
 divests the owner of his right of stoppage against such assignee. 
 
 The famous series of decisions in the various courts in the case of 
 Lickbarrow v. Mason (2 T. R. 63; 2 H. Black. 211; 5 T. R. 367), 
 which led to the establishment of the doctrine of this qualified nego- 
 tiability of bills of lading, memorable alike in legal and commercial 
 history, strongly illustrates the whole question before us. There, Bui- 
 ler and his associate judges, trained up at the feet of the great father 
 of English commercial jurisprudence, maintained and established the 
 law as we now hold it, under the influence of Mansfield's genius, upon 
 his reasoning and on his authority, against those of Lord Lough- 
 borough arid others, the most learned lawyers of their times. All the 
 arguments and admissions of both sides show how deeply the general 
 principle is rooted in the law of England that (to use Lord Loughbor- 
 ough's words) "mere possession, without a just title, gives no property, 
 and the person to whom such possession is transferred by delivery 
 must take the hazard of the title of its author." 
 
 It is only as an express exception to this rule that it was maintained, 
 and finally established, that the custom of merchants, evidenced and 
 sanctioned by legal decisions, and founded on those conveniences of 
 trade, so admirably stated by BuUer, had compelled the courts to 
 consi^der the owner as giving his consignee evidence of the power of 
 disposal, which it was not for him to dispute when the goods had 
 fairly passed into other hands, on the faith of that evidence. But 
 there is no case to be found, or any reason or analogy anywhere sug- 
 gested in the books, which would go to show that the real owner could 
 be concluded by a bill of lading not given by himself, but by some 
 third person, erroneously or fraudulently, as in this present case. The 
 assignment of the bill of lading conveys, not an absolute right to goods, 
 but the right and title merely of the actual consignor, who alone is 
 bound by it. 
 
 Again: The owner may lose the right of recovering his goods 
 against purchasers, by exhibiting them to the world, a third person, as 
 having power to sell and dispose of them ; and this, not only by giving 
 a direct authority to him, but by conferring an implied authority. 
 Such an authority may be implied by the assent to and ratification of 
 prior similar dealings, so as to hold such person out to those with 
 whom he is in the habit of trading as authorized to buy or sell. It 
 may be inferred from the nature of the business of the agent, with 
 fit accompanying circumstances. "If a man," says Bayley, ']., in 
 Pickering v. Busk^ 15 East, 44, "puts goods into another's custody, 
 whose common business it is to sell, he confers an implied authority 
 to sell," and 'the cause was decided On that ground; But this implied 
 authority must arise from the natural and obvious interpretation, of 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1041 
 
 facts, according to the habits and usages of business ; and it never 
 applies where the character and business of the person in possession 
 do not warrant the reasonable presumption of his being empowered to 
 sell property of that kind. If, therefore, to use an illustration of Lord 
 Chief Justice EHenborough, in the case just cited, a person intrusts 
 his watch to a watchmaker to be repaired, the watchmaker is not ex- 
 hibited to the world as an owner or agent, and credit is not given as 
 such ; because he has possession "of the watch, the- owner, therefore, 
 would not be bound by his sale. When these exceptions cease, the gen- 
 eral rule resumes its sway; and the law is therefore clear that an 
 agent, for a particular purpose, and under a limited power, cannot 
 bind his principal if he exceed his power. "Whoever deals with an 
 agent constituted for a special purpose deals at his peril, when the 
 agent passes the precise limits of his power. 2 Kent's Comm. 621, 
 and the authorities there cited. 
 
 Beyond the precise exceptions I have above stated, I think our law 
 has not carried the protection of the fair vendee against the defrauded 
 or unfortunate owner. It protects him when the owner's misplaced 
 confidence has voluntarily given to another the apparent right of prop- 
 erty or of sale. But if the owner loses his property, or is robbed of it, 
 or it is sold or pledged without his consent by one who has only a tem- 
 porary right to its use by hiring, or otherwise, or a qualified possession 
 of it for a specific purpose, as for transportation, or for work to be 
 performed on it, the owner can follow and reclaim it in the hands* of 
 any person, however innocent. 
 
 Let us apply these conclusions to the present case. Collins, the 
 person whose sale it is asserted must divest the original owner of his 
 rights in favor of the bona fide purchaser, stands, it is said by the 
 superior court, in a double relation of a "master, who is at the same 
 time the consignee of the goods, and who himself filled the character of 
 shipper, and has therefore an undoubted power to sell, and his bona 
 fide transfer will be effectual to purchasers against any secret trust 
 for others with which Iiis apparent title might be affected." Had the 
 lead been consigned to Collins from the intermediate port, by the own- 
 er or his agent, this would be true. But it is shipped by Myers, of 
 whom neither the owner, nor any one with full power to represent him 
 in this riiatter, had any Icnowledge as an agent, and under whose care 
 the vessel and cargo were placed by Collins, so that he appeared only 
 as his representative, and thus he styles himself in the bill of lading. 
 
 The plaintiff below comes in no wise within the rule I have stated. 
 He has neither given to Collins documentary and mercantile evidence 
 of property in a bill of lading from himself or his own agent with 
 competent power, nor the evidence customary in business, such as to 
 hold him out as an agent authorized to, change the title of his prop- 
 erty in his goods. The assumed authority of shipping goods in his 
 own name and to his own order, at Norfolk, and the documentary evi- 
 dence of it in the bill of lading, can have no more effect as to the title 
 of the property, than if he had forged such a bill of lading at New 
 Orleans. 
 
 il 2ither does the selection of a ship and its master vest in the master 
 
 any iiTiplied authority to sell the ship, or any part of her cargo. His 
 
 business is to carry the goods, and nothing more, with some other 
 
 clearly defiiictl and very limited powers, to be exercised only in cases 
 
 B.& B-Bus-tAW— 66 
 
1042 SALES (Part 4 
 
 of absolute necessity. He stands in the same legal relation to his cargo 
 with the watchmaker, in the case supposed by Lord Ellenborough, 
 who has in his hands a watch to be repaired. He is not exhibited to 
 the world as the owner, or agent for selling; and if he does sell it, 
 the sale is void against the true proprietor. 
 
 Such, then, being the well-settled and generally known law, the se- 
 lection of a master or any other carrier, by sea or land, does nothing 
 to exhibit such a carirer to the world as having the power of disposing 
 of the goods he carried. The owner does nothing to enable him to 
 commit a fraud on third persons. He gives merely a qualified pos- 
 session, and if that is turned into an assumed right of ownership, it is 
 tortious conversion, and will not divest the owner's title. 
 
 It is true that the rule will sometimes, as was urged by Chief Justice 
 Jones, "involve purchasers in great perils" ; but that peril can scarce- 
 ly be called "unreasonable," since there is a reason of public policy 
 of at least equal weight to counterbalance this inconvenience. It is 
 the same which is the ground of the absolute prohibition to a master 
 or carrier to sell the goods he transports, except under insurmountable 
 necessity; it is to prevent, in the language of the court in the case 
 just quoted (5 Barn. & Aid. 623), "fraudulent sales of ships and 
 cargoes in foreign ports." Now the fraudulent consignments or change 
 of the apparent evidence of property, for the purpose of selling else- 
 where, is but another form of the same evil. I may add that this same 
 rule, however rigid and occasionally hard in its operations, is no 
 small safeguard to the protection of the owner's rights in goods and 
 other property, in active commerce necessarily placed under the tem- 
 porary control, and in the legal, though qualified, possession of agents, 
 sailors, carriers, boatmen, servants, and clerks, as well as of those 
 who may have them stored for safe-keeping, and their clerks, porters, 
 :and servants. 
 
 Judgment unanimously 'affirmed. 
 
 SECTION 2.— ESTOPPEL OF THE OWNER TO DENY 
 CUSTODIAN'S POWER TO TRANSFER TITLE 
 
 The Sales Act contains three sections which deal with the rights 
 ■of innocent purchasers from persons who are not the owners of 
 the goods : 
 
 Sales Act, Section 23, Subsec. (1). Subject to the provisions 
 of this act, where goods are sold by a person who is not the owner 
 thereof, and who does not sell them under the authority or with 
 the consent of the owner, the buyer acquires no better title to the 
 goods than the seller had, unless the owner of the goods is by his 
 conduct precluded from denying the seller's authority to sell. 
 
 This section does three things: (1) It declares, as the general 
 rule, that a person who attempts to buy property from one who is 
 not the owner will obtain no right to keep the goods. In such a 
 case we know' that such person will be under a legal duty of per- 
 mitting the owner to take them back into his possession, and will 
 be liable to him for any damage done to the goods even though in- 
 nocently inflicted. 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1043 
 
 (2) The section recognizes the apparent exception, which we 
 already know from our study of the principles of agency, that an 
 agent to whom has been given by his principal the possession of 
 goods and the authority to sell them, may transfer a good title, if 
 he acts within the scope of express or implied authority. Indeed, 
 most sales are made through agents. This is not an exception to 
 the general rule at all, for the owner is really selling the goods, but 
 through the medium of another person. 
 
 (3) The section lays down one real exception to the general 
 rule. The last clause asserts that the general rule does not apply 
 where the owner of the goods is by his conduct precluded from 
 denying the seller's authority to sell. To state the exception af- 
 firmatively : A person who is not the owner of goods will have the 
 power to transfer a title to another person if the true owner by 
 his conduct is precluded from denying. the seller's authority to sell. 
 
 The prominent word in the exception is the word "conduct," and 
 it is only that kind of conduct which precludes the seller from 
 denying the seller's authority to sell. What kinds of conduct fall 
 within the meaning of this rule ? 
 
 CANALES V. EAKL. 
 (Municipal Court of City of New York, 1918. 168 N. T. Supp. 726.) 
 
 OppEnheimER, J., The plaintifi^laims he is the owner of an auto- 
 mobile, which he alleges was converted by the defendant. On Septem- 
 ber 30, 1916, he gave the machine to his chauffeur, Arturo Carona, 
 to be sent to him at Havana, Cuba. Instead of shipping the automo- 
 bile, the chauffeur sold it to the Broadway Used Car Company for 
 $225 and pocketed the proceeds. On the same day this company sold 
 the machine to one Martin Beikert, who sold it to George Jones, and 
 the latter sold the car to the defendant for the sum of $412.50. At the 
 time of the sale the chauffeur had in his possession duplicate receipts 
 from the plaintiff's vendors and also a consular invoice. 
 
 The plaintiiif claims that no title passed to the Broadway Used Car 
 Company and consequently none to the defendant. The defendant al- 
 leges that he is now the owner of the machine, because the plaintiff 
 furnished to Carona the indicia of ownership and is estopped from 
 asserting his title as against an innocent purchaser. 
 
 Section 104, c. 571, of the Laws of 1911, known as the "Sales of 
 Goods Act," states that: ''Where goods are sold by a person who 
 is not the owner thereof, and who does not sell them under the author- 
 ity or with the consent of the owner, the buyer acquires no better 
 title to the goods than the seller had, unless the owner of the goods is 
 by his conduct precluded from denying the seller's authority to sell." 
 * * * 
 
 The relation between the plaintifif and the defendant was merely that 
 of owner of a c^r and a chauffeur. He who deals with an agent does 
 so at his peril. The defendant contends that the plaintiff must suf- 
 fer the loss sustained by him because he placed Carona in a position to 
 perpetrate the wrong. I do not think that the plaintifif did anything 
 inconsistent with his ownership of the machine. * * * 
 
1044 SALES (Part 4 
 
 A little investigation on the part of the Broadway Company or 
 any subsequent purchaser would have revealed the fact that the cer- 
 tificate of registration issued by the secretary of state, attached to the 
 deposition offered in evidence, was in the name of the plaintiff. The 
 receipts for the payment of storage of the car must also be taken into 
 account. They were also in the name of the plaintiff. 
 
 These considerations, I believe, dispose of the doctrine of "equitable 
 estoppel," invoked by the defendant's attorney. The conclusions seem 
 to me to be irresistible that Carona was guilty of larceny, that the plain- 
 tiff still has a proprietary right to the automobile (which is not now 
 in the state of New York), and that there be judgment for the plain- 
 tiff, on the merits, for the value of the car, viz. $500. * * * 
 
 O'CONNOR'S ADM'X v. CLARK. 
 
 (Supreme Court of Pennsylvania, 1895. ITO Pa. 318. 32 Atl. 1029; 
 29 L. K. A. 607.) 
 
 Replevin by John O'Connor's administratrix against John Clark. 
 Judgment for plaintiff, and defendant appeals. 
 
 StbrrBTT, C. J. If there is nothing more in this case than the facts 
 recited by the learned trial judge in the excerpt from his charge quoted 
 in the first specification of error, the instructions therein given to the 
 jury to find for the plaintiff if they believed the testimony would be 
 substantially correct. The only facts of which this instruction is pred- 
 icated are (1) that the wagon in question was the property of John 
 O'Connor, the original plaintiff; and (2) that Tracy, without his per- 
 mission, took it, and sold it, or at^mpted to sell it, to the defendant 
 as his own. But these are not the only facts of which there was evi- 
 dence before the jury. On defendant's behalf, it is contended that the 
 testimony tended to prove, and the jury, if they had been permitted, 
 would have been warranted in finding, that defendant purchased the 
 property in question from Tracy in the honest belief that he was in fact 
 the owner thereof; that the name and occupation of Tracy — ^viz. 
 "George Tracy, Piano Mover" — were on the wagon when he offered it 
 for sale, and that fact was referred to as indicating his ownership of the 
 property, etc.; that, Tracy being a stranger, defendant was specially 
 careful to inquire and inform himself that the person who was in 
 possession of and offering to sell the wagon was the George Tracy 
 whose name and occupation were painted thereon ; that Tracy's name 
 and occupation were put upon the wagon with the knowledge of O'Con- 
 nor, the original plaintiff, and himself, and by direction of the former, 
 for the purpose of creating the impression and inducing the public to 
 believe that the property belonged to Tracy, and was being used by 
 him in his business as a piano mover, in which he had theretofore been 
 engaged. Without attempting to summarize the testimony relied on by 
 the defendant, it is sufficient to say that it tends to prove substanially 
 the state of facts above outlined, and especially that the original plain- 
 tiff, for his own gain and benefit, was a party to the arrangement where- 
 by Tracy's name was put On the wagon for the purpose of misleading 
 the public into the belief that the property was his, and that defend- 
 ant, acting with due caution and in good faith, was thus misled as to 
 the ownership of the property, and purchased the same from Tracy. 
 
 While the soundness of the general rule of law that a vendee of per- 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1045 
 
 sonal property takes only such title or interest as his vendor has and 
 is authorized to transfer cannot for a moment be doubted, it is not 
 without its recognized exceptions. One of these is where the owner 
 has so acted with reference to his property, as to invest another with 
 such evidence of ownership, or apparent authority to deal with and 
 dispose of it, as is calculated to mislead, and do"es mislead, a good- 
 faith purchaser for value. In such cases the principle of estoppel 
 applies, and declares that the apparent title or authority, for the ex- 
 istence of which the actual owner was responsible, shall be regarded 
 as the real title or authority, at least so far as persons acting on the 
 apparent title or authority, and parting with value, are concerned. 
 Strictly speaking, this is merely a special application of the broad 
 equitable rule that, where one of two innocent persons must suffer loss 
 by reason of the fraud or deceit of another, the loss should fall upon 
 him by whose act or omission the wrongdoer has been enabled to com- 
 mit the fraud. 
 
 Assuming, in this case, that a jury, under the evidence, should find 
 • — as we think they would be warranted in doing — that such marks 
 of ownership were placed on the property by direction of O'Connor, 
 the real owner, as were not only calculated to deceive, but actually in- 
 tended to deceive, the public, and that by reason thereof, and without 
 any fraud or negligence on his part, the defendant was misled into 
 the belief that Tracy was the real owner, and he accordingly bought 
 and paid him for the property, can there be any doubt, as between the 
 real owner and the innocent purchaser, that the loss should fall upon 
 the former, by whose act Tracy was enabled to thus fraudulently sell 
 and receive the price of the property? We think not. In Barnard v. 
 Campbell, 55 N. Y. 456, 14 Am. Rep. 289; Id., 58 N. Y. 71, 17 Am. 
 Rep. 208— a well-considered case, involving substantially the same prin- 
 ciple — it was held that to create an estoppel by which an owner is pre- 
 vented from asserting title to and is deprived of his property by the 
 act of a third person, without his assent, two things must concur: 
 "(1) The owner must have clothed the person assuming to dispose of 
 the property with the apparent title to or authority to dispose of it. 
 (2) The person alleging lie estoppel must have acted and parted with 
 value upon the faith of such apparent ownership or authority, so that 
 he will be the loser if the appearances to which he trusted are not 
 real." 
 
 Judgment reversed, and a venire facias de novo awarded. 
 
 Section 23 of the Sales Act above quoted is qualified by the fol- 
 lowing subsections. 
 
 Section 23, Subsec. (2). Nothing in this act, however, shall af- 
 fect (a) the provisions of any factors' acts, recording acts, or any 
 enactment enabling the apparent ovimer of goods to dispose of them 
 as if he were the true owner thereof, (b) The validity of any con- 
 tract to sell or sale under any special common law or statutory 
 power of sale, or under the order of a court of competent juris- 
 diction. 
 
1046 ' SALES (Part 4 
 
 SECTION 3.— SALE BY ONE HAVING A VOIDABLE 
 
 TITLE 
 
 Sales Act, Section 24. Where the seller of goods has a void- 
 able title thereto, but his title has not been avoided at the time of 
 the sale, the buyer acquires a good title to the goods provided he 
 buys them in good faith, for value and without notice of the 
 seller's defedt of title. 
 
 In the preceding cases the innocent purchaser was protected not 
 because his vendor had any title or authority to sell the goods, 
 but solely because it was unjust to permit the owner to deny that 
 the seller had authority to sell or to deny that the seller was the 
 owner. 
 
 Under section 24 we are dealing with a case where the vendor 
 did in law and fact have the title but the circumstances under 
 which he obtained and held that title were such that his vendor 
 had a legal right to get that title back. In the law such a title is 
 called a voidable title. So the question is: When will a person 
 have a voidable title? 
 
 In re AliLEN. 
 (United States District Court, E. D. Arkansas, W. D. 1910. 183 Fed. 172.) 
 
 In the matter of John Q. Allen, bankrupt. On review of order of 
 referee sustaining the petition of the Heim Brewery Company to re- 
 claim property. 
 
 The Heim Brewery Company filed its intervention for a number of 
 casks and cases containing empty beer bottles in the possession of 
 the trustee of the estate of the bankrupt, claiming to be the owner 
 thereof and entitled to the immediate possession. The trustee denied 
 that the intervener was the owner of the property, but insists that the 
 property claimed belongs to the bankrupt's estate. 
 
 The cause was submitted upon an agreed statement of facts, which 
 shows that under that contract the bankrupt bought large quantities 
 of beer from the intervener ; that the beer was delivered in cases con- 
 taining bottles and in casks containing bottles bearing the individual 
 brand and registered copyright of the intervener; that a part of said 
 casks, cases, and bottles have been returned; but that the trustee is 
 now in possession of a number claimed by the intervener. Upon a 
 hearing before the referee, he found in favor of the intervener. The 
 cause now comes before the court on petition for review by the 
 trustee. 
 
 TriEbEr, District Judge. On behalf of the intervener it is claimed 
 that, until the articles claimed are paid for by the vendee, it is merely 
 a bailment, and he is entitled to a return of them, or, at most, that it 
 was an option to purchase. On the other hand, it is claimed on the 
 part of the trustee that it was a contract of "sale and return." 
 
 A "bailment" is properly defined as being a delivery of goods in 
 trust upon a contract, express or implied, that the trust shall be duly 
 executed and the goods restored by the bailee as soon as the purpose 
 of the bailment shall be served. 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1047 
 
 On the Other hand, a "contract of sale" is when there is an agreed 
 price, a vendor, a vendee, an agreement of the former to sell for the 
 agreed price, and an agreement of the latter to buy and pay the agreed 
 price. An "option to purchase" is merely an agreement whereby the 
 vendee may, upon compliance with certain terms and conditions, be- 
 come the owner of the property ; the vendor giving him that option. 
 
 The leading case upon which the intervener relies is Wescott v. 
 Thompson, 18 N. Y. 363. In that case the contract was for the sale of 
 ■beer and provided for the sale of the beer to the vendee at a certain 
 price. The beer was to be shipped in barrels and the barrels to be 
 returned to the plaintiff when emptied of the beer, and if not returned 
 the vendee was to pay for every barrel not returned the sum of $2, 
 and thereupon became the owner thereof. On the other hand, in the 
 case at bar, the contract provides that the vendee is to be charged and 
 pay for the cases and bottles,, but in case he wishes to return any of 
 the cases and empty bottles he is to be allowed a rebate on his bill of 
 $1.50 for each case of empty bottles returned to the intervener. 
 
 Is this an option to purchase or a contract of sale and return ? The 
 distinction between these two forms of agreement has been aptly 
 pointed out in Hunt v. Wyman, 100 Mass. 198, as follows : "An op- 
 tion to purchase if he liked is essentially dififerent from an option to 
 return a purchase if he should not like. In one case the title would 
 not pass until the option is determined ; on the other hand, the prop- 
 erty passes at once, subject to the right to rescind and return." 
 
 Applying this rule to the contract between the intervener and th6 
 bankrupt, it clearly appears that it was not an option to purchase, but 
 a contract of sale and return, while, on the other hand, the contract 
 in Wescott v. Thompson was merely an option to purchase. In the 
 latter case it was optionary with the vendee to keep the empty bar- 
 rels and pay the sum of $2 for each barrel kept by him or to return 
 them. In the case at bar the bankrupt was charged and promised 
 to pay for the cases and bottles unless he desired to return the same, 
 and if he did he was to be paid or given credit on his account therefor 
 the sum of $1.50 for each case and bottles therein. 
 
 Great stress is laid upon the fact that under the contract the bank- 
 rupt was to pay the net price only on the bottled beer, still the charge 
 was made against him, and until he returned them he was liable to 
 the intervener who had a cause of action against him. In Heryford 
 V. Davis, 102 U. S. 235, 26 L. Ed. 160, the contract between the par- 
 ties spoke of the cars sold as being leased until paid for, but notes 
 were executed by the vendee for the full purchase money. The cars, 
 before they were paid for, having been seized under execution, the 
 vendor claimed them as his property, but the court held that calling 
 it a lease did not make it so, nor was it a conditional sale, but merely 
 an attempt to retain a lien for the purchase money, and, the same not 
 having been recorded as required by the laws of the State of Missouri, 
 it was void as against creditors. 
 
 In Re Rahilly V. Wilson, 3 Dill. 420, Fed. Cas. No. 11,532, grain 
 was stored in a warehouse with the understanding that it should be 
 sold by the warehouseman, and when the depositor would surrender 
 the receipt therefor the warehouseman had the right to return an 
 equal amount of grain of equal quality or pay the then market price 
 of the grain. Upon these facts it was held by Judge Dillon that it 
 was a sale and not a bailment. The distinction between bailments and 
 
1048 SALES (Part 4 
 
 sales is clearly shown by the opinion of that eminent jurist, who care- 
 fully reviews the authorities on that subject. 
 
 In Sturm v. Boker, ISO U. S. 312, 14 Sup. Ct. 99, 37 L,. Ed. 1093, 
 the court held that "a transaction is a 'sale,' as distinguished from a 
 'bailment,' wheh there is no obligation to return the specified article." 
 In this case there was no obligation on the part of the bankrupt to 
 return the property claimed by the intervener; but, if he saw proper, 
 he had the right to do so and receive a credit for the amount speci- 
 fied in the agreement. If the property had been destroyed by fire 
 or by any other cause, even if without any fault or negligence on the 
 part of the bankrupt, the loss or destruction would still have fallen 
 on him. This is the rule applicable to contracts of sale and return. 
 
 As this was a contract of sale and return and not a mere option to 
 purchase, nor a bailment in any sense; the title passed to the bank- 
 rupt, and the tpustee is entitled to the possession of the property. 
 
 The finding of the referee will be set aside, and judgment entered 
 dismissing the intervention, with costs. 
 
 PHIELPS et al. v. McQTJADE. 
 
 (Court of Appeals of New York, 1917. 220 N. Y. 232, 115 N. E. 440, 
 L. R. A. 1918B, 973.) 
 
 Action by William R. Phelps and another against Dennis Charles 
 McQuade. From a judgment of the Appellate Division, directing 
 judgment for defendant, plaintiffs appeal. 
 
 [The statement of facts is taken from the opinion in the same case 
 in the Appellate Division of the Supreme Court. 158 App. Div. 528, 
 143 N. Y. Supp. 822.] 
 
 Clarkb, J. The plaintiffs were jewelers. On February 15, 1911, 
 one Walter C. Gwynne falsely represented himself to the plaintiffs 
 to be Baldwin J. Gwynne, a resident of the Lincoln Hotel in Colum- 
 bus, Ohio, with a Satisfactory rating in the reports of the Dun and 
 Bradstreet Mercantile Agencies, and later on the same day, the man- 
 , ager of Jules S. Bache & Co., bankers, identified the said Walter C. 
 Gwynne to plaintiffs' manager as being Baldwin J. Gwynne of Colum- 
 bus, Ohio. That was brought about in this way: Gwynne had be- 
 come acquainted with one of Bache's customers in an uptown hotel 
 and had told this customer that he had had a falling out with his 
 sweetheart, that he had some jewelry he wished to dispose of, and 
 asked this gentleman if he would be willing to purchase any of these 
 goods. He said he could not take them back to the parties that he 
 had purchased them from. After some conversation, the gentleman 
 decided to purchase one of these pieces and asked him what the name 
 was. He told him Baldwin J. Gwynne, and so this customer of 
 Bache's wrote out a check for the amount agreed upon. After this 
 the supposed Baldwin J. Gwynne went down to Bache's office to cash 
 the check and was told that as he vi^as not known he would have to 
 identify himself. He replied that would be very easy; he would call 
 the maker of the check. This was satisfactory to Bache & Co. The 
 maker did call and told the bankers that thiS was the person the mon- 
 ey was intended for. 
 
 The plaintiffs, relying upon the representations of Gwynne and 
 said identification, sold him a ring, a gold mesh purse, and a diamond 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1049 
 
 and pearl scarf, pin of the aggregate value of $838, and delivered the 
 articles to him under the belief that they were delivering the same 
 under the terms of a sale on credits to Baldwin J. Gwyrine of the Lin- 
 coln Hotel of Columbus, Ohio, and whom they found to be satisfac- 
 torily rated in the said Mercantile Agencies' reports. Thereafter 
 Gwynne sold the jewelry to the defendant, McQuade, for a valuable 
 consideration. It is admitted that McQuade was a bona fide purchaser 
 for value, without any notice of any defect in the title. Due demand 
 was made and refused. * * * The question is presented as to 
 which of the two innocent parties, the original owners, or the bona fide 
 purchaser, will have to stand the loss. * * * 
 
 Andrews, J. * * * The learned Appellate Division rested their 
 decision upon the definition of common-law larceny, holding that 
 where such larceny had been committed the thief acquired no title by 
 his crime; where it had not, at least a voidable title passed. We 
 agree with that statement of the law. But we should prefer to define 
 the rule in another form. Where the vendor of personal property in- 
 tends to sell his goods to the person with whom he deals, then title 
 passes, even though he be deceived as to that person's identity or re- 
 sponsibility. Otherwise it does not. It is purely a question of the 
 vendor's intention. 
 
 The fact that the vendor deals with the person personally rather 
 than by letter is immaterial, except in so far as it bears upon the 
 question of intent. Where the transaction is a personal one, the sell- 
 er intends to transfer title to a person of credit, and he supposes the 
 one standing before him to be that person. He is deceived. But in 
 spite of that fact his primary intention is to sell his goods to the per- 
 son with whom he negotiates. Where the transaction is by letter the 
 vendor intends to deal with the person whose name is signed to the 
 letter. He knows no one else. He supposes he is dealing with no one 
 else. And while in both cases other facts may be shown that would 
 alter the rule, yet in their absence, in the first, title passes ; in the 
 second, it does not. * * * 
 
 In Cundy v. Lindsay, 3 App. Cas. 463, one Blenkarn, signing him- 
 self Blenkiron & Co., bought goods by letter of Lindsay & Co. The 
 latter shipped the goods to Blenkiron & Co. They knew of the firm 
 of Blenkiron & Son; believed the letter came from that firm and 
 that the goods were shipped to it. Blenkiron & Son were the persons 
 with whom Lindsay & Co. intended to deal and supposed they were 
 dealing. Under those circumstances it was held that, although Blen- 
 karn obtained possession of the goods, he never acquired title thereto. 
 * * * 
 
 Another class of cases such as Hentz v. Miller, 94 N. Y. 64, and 
 Consumers' Ice Company of Buffalo v. Webster, Son & Co., 32 App. 
 Div. 592, 53 N. Y. Supp. 56, illustrate the rule under different cir- 
 cumstances. In them, persons falsely stating .that they are the 
 agents or representatives of others fraudulently obtained possession 
 of goods under a pretense of sale to such others. There is no inten- 
 tion on the part of the vendor to sell to the pretended agent or rep- 
 resentative and no title passes. * * * 
 
 The judgment of the Appellate Division must be affirmed, with 
 costs. * * * 
 
1050 SALES (Part 4 
 
 SECTION. 4.— SALE BY A SELLER IN POSSE^SSION OF 
 GOODS ALREADY SOLD 
 
 Sales Act, Section 25. Where a person having sold goods con- 
 tinues in possession of the goods, or of negotiable documents of 
 title to the goods, the delivery or transfer by that person, or by 
 an agent acting for him, of the goods or documents of title under 
 any sale, pledge, or other disposition thereof, to any person receiv- 
 ing and paying value for the same in good faith and without notice 
 of the previous sale, shall have the same effect as if the person 
 making the delivery or transfer were expressly authorized by the 
 owner of the goods to make the same. 
 
 If A. sells goods to B., and B. leaves the goods in A.'s possession, 
 and subsequently A. sells the same goods to C, who had no notice 
 of the prior 'sale to B., under this section C. will be protected in 
 his claim of ownership as against the claims of B. The rule that 
 one who merely has possession of goods does not thereby gain a 
 power to transfer a title to the goods to an innocent third person 
 has already been adverted to. For example, an agent who has been 
 intrusted with property belonging to his principal, or a bailee, such 
 as a warehouseman, does not, by reason of his lawful possession, 
 acquire power to cut off the rights of the owner by an unauthor- 
 ized sale to a bona fide purchaser. There must be something in 
 addition to the fact of lawful possession to give the possessor the 
 power to pass title to a third party. The situation referred to in 
 Section 25 is one where the party in possession is given the power 
 to extinguish the claims of the first purchaser, not solely because 
 he is in lawful possession of the goods, but because of this fact 
 plus the fact that he was a former owner of them and because he 
 has never done any overt act with respect to the goods which would 
 indicate that a change of ownership had occurred. 
 
 Three facts must concur before the legal effect of the section 
 is applicable: (1) There must have been a contract, the result of 
 which passed the title to the buyer. (2) The seller must have re- 
 mained in possession of the goods. A reacquisition of possession 
 after delivery to the first purchaser would prevent the application 
 of the rule. (3) The second sale must have been made to one who 
 had no notice of the prior sale. Another way of putting the rule 
 would be to say that the law requires delivery of goods to perfect a 
 sale as against the claims of subsequent purchasers. This is 
 probably the original rule, although in a great many cases under 
 the common law the result is worked out by regarding the act of 
 retention of possession after sale as a fraud on subsequent pur- 
 chaseri. The difficulty in working out the result in this way is 
 that it involves the holding that retention of possession is always 
 fraudulent as against claims of subsequent purchasers. As a mat- 
 ter of fact retention of possession may or not be fraudulent in 
 fact. The acts do not necessarily involve affirmative misconduct. 
 
Ch. 3) INNOCENT PURCHASERS FROJr PERSONS WITHOUT TITLE 1051 
 
 Perhaps in a great majority of cases no fraud is intended. Of 
 course there are many illustrations in the law where a particular 
 ^roup of facts is given the same legal effect as though they were 
 fraudulent; as, for example, a voluntary conveyance of piroperty 
 by an insolvent, although accompanied by delivery to the donee 
 is held to be fraudulent as against the creditors of the donor. 
 To call a particular group of facts fraudulent, when they are not 
 such in fact, tends to confusion, however beneficent the result. 
 The rule asserted in the above section represents the conviction 
 that it is better policy to protect the purchaser who has obtained 
 actual possession than to protect the purchaser who has allowed 
 possession to remain in the vendor; but it is not baseid upon the 
 assumption that the act of retaining possession is frauduknt. 
 
 WILSON V. WALRATH. 
 
 (Supreme Court of Minnesota, 190S. 103 Minn. 412, 115 N. W. 203, 
 24 L. R. A. [N. S.] 1127.) 
 
 Action by Mark E. Wilson against A. Parker Walrath. Judgment 
 for defendant, and plaintiff appeals. 
 
 Elliott, J. This was an action in replevin, in which the plaintiff 
 sought to recover possession of an automobile. * * * One Spargo 
 sold the automobile in question to the appellant, Wilson, who paid 
 full consideration therefor, but agreed to allow Spargo to retain pos- 
 session of the property for certain purposes and under certain condi- 
 tions for a specified time. While in possession, Spargo mortgaged the 
 machine to Walrath, who had no knowledge of the sale to Wilson. 
 The court found as a fact that the evidence does not prove that the 
 sale to Wilson "was made in good faith and without intent to injure, 
 delay, or defraud creditors and subsequent purchasers in good faith 
 from Spargo." If the evidence sustains this finding of fact, the re- 
 spondent must prevail in this court. 
 
 There is a line of cases which holds that, while delivery is not es- 
 sential to pass title as between the vendor and vendee of personal 
 property, it is necessary for such purpose as against every one but 
 the vendor. Under this rule, when the same goods are sold to differ- 
 ent persons by conveyances equally valid, he who first lawfully ac- 
 quires the possession will hold them as against the other. The mo- 
 tives and intentions of the parties are immaterial, as the doctrine rests 
 upon the general principle that, where one of two innocent persons 
 must suffer, the loss should fall on him whose acts or omissions have 
 made or contributed to make the loss possible. * * * Closely con- 
 nected with this doctrine, but resting on other principles, is the rule 
 which makes the retention of possession by the vendor conclusive evi- 
 dence of fraud. This doctrine also rests upon grounds of assumed 
 public policy. It prevails by virtue of statutes or decisions based on 
 the common law in a number of states. * * * In the greater num- 
 ber of states, however, the rule is established that the mere retention 
 of possession by the vendor is presumptive evidence only of a fraud- 
 ulent and colorable sale, and the vendee is permitted to overthrow 
 
1052 SALES (Part 4 
 
 this presumption by evidence which establishes his good faith and 
 want of knowledge of any fraudulent intent on the part of the vendor. 
 
 * * * 
 
 In the thirteenth year of Elizabeth there was enacted the famous 
 statute which made all conveyances not made bona fide and for value, 
 with intent to injure and delay or defraud the creditors, void as to 
 such creditors. St. 13 Eliz. c. 5. A later statute extended this pro- 
 tection to subsequent purchasers as well as creditors. St. 27 Eliz. 
 c. 4. These statutes did not in terms apply to personal property, but 
 from the time of Sir Edward Coke's decision in Twyne's Case, 3 
 Co. Rep. 80b, 5 Eng. Rul. Cas. 2, sales of personal property made with 
 intent to delay and defraud creditors or subsequent purchasers have 
 been regarded as \xithin the provisions of the statutes. The question 
 soon arose whether, under these statutes, possession by the vendor 
 was fraudulent per se, and therefore conclusive, or merely presump- 
 tively fraudulent. In Twyne's Case, in speaking of the indicia of 
 fraud, it was said that "continuance of the possession in the donor 
 is the sign of trust for himself." In Edwards v. Harben, 2 T. R. 
 587, it was held that, "if there be nothing but the absolute conveyance 
 without the possession, that in point of law is fraudulent." For some 
 time thereafter this was the established rule in the English courts, 
 but it was finally held that the proper construction of the statute 
 made such a conveyance presumptively fraudulent only. Hale v. 
 Metropolitan Co., 30 L. J. Ch. 777; Gregg v. Holland, [1902] 2 Ch. 
 360. To clear up the difficulty which arose under the statute. Parlia- 
 ment enacted the various bills of sale acts, which are fully discussed 
 and explained by Lord Blackburn in Cookson v. Swire, 9 A. C. 
 653-670 (1884). * * * jn the United States Edwards v. Harben 
 was followed by Chancellor Kent in Sturtevant v. Ballard, 9 Johns. 
 (N. Y.) 337, 6 Am. Dec. 281, and by the. Supreme Court of the United 
 States in Hamilton v. Russell, 1 Cranch (U. S.) 309, 2 E. Ed. 118. 
 But in Warner v. Norton, 20 How. (U. S.) 448, 15 L. Ed. 950, Mr. 
 Justice McLean stated that "for many years past the tendency has 
 been in England and the United States to consider the question of 
 fraud as a fact for the jury under the instruction of the court." This 
 is now the established doctrine of the court. * * * 
 
 Section 3496, Rev. Laws 1905, and the previous statutes which are 
 embodied therein, were enacted for the purpose of removing any 
 doubts as to whether the retention of possession by the vendor is con- 
 clusive or only presumptive evidence of fraud. It provides in ex- 
 press terms that such possession shall be presumed to be fraudulent 
 and void as against subsequent purchasers in good faith, unless those 
 claiming under such sale make it appear that the sale was made in 
 good faith and without any intent to defraud such purchasers. The 
 effect is to cast upon the vendee the burden of rebutting the statutory 
 presumption of fraudulent intent by proving his own good faith and 
 want of knowledge of fraudulent intent on the part of the vendor. 
 
 * * * The statute controls this case. If Wilson proved that he 
 purchased the machine in good faith without knowledge of any in- 
 tent on the part of Spargo to defraud his creditors or subsequent pur- 
 chasers, he was entitled to the possession of the property. It is con- 
 ceded that on April 5, 1906, Spargo owed Wilson $250, the proceeds 
 of an old machine which had been sold by Spargo for Wilson. The 
 money had been retained for some time with the consent of Wilson. 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1053 
 
 Sparge then owned a Jackson machine, which he used for demonstrat- 
 ing purposes. Wilson wished to purchase a new machine, and after 
 various negotiations he purchased the Jackson machine for $1,000, 
 which was substantially its actual value. In payment he at the time 
 gave Spargo $700 in cash and satisfied the debt for $250 and accumu- 
 lated interest. Wilson was interested in country banks, and his busi- 
 ness called him away from home a great deal of the time. It was 
 necessary that the machine should be stored in some garage. Spargo, 
 being agent for the Jackson automobile, and having no other machine 
 of that make on hand, wished to retain possession of this machine for 
 a time and use it for demonstrating purposes. It was therefore agreed 
 and stated in the bill of ifde that Spargo might retain possession of 
 the machine for 30 days and in the meantime use it for demonstrative 
 purposes, in consideration of which he was to store the machine and 
 keep it in repair. Spargo's business and personal standing was good, 
 and Wilson had no reason to suspect, and did not suspect, that Spargo 
 was insolvent. It appears from all the evidence that if he had made 
 special investigations he would have found that Spargo's standing was 
 good. Spargo kept the machine in his garage after the expiration of 
 the 30 days and continued to use it in his business. During this time 
 he mortgaged it to the respondent, Walrath, who had no knowledge 
 of the previous sale to Wilson and acquired his lien in good faith for 
 value. Neither Wilson's bill of sale nor Walrath's mortgage was re- 
 corded. Walrath finally took possession of the machine, and in this 
 action Wilson sought to recover possession from him. 
 
 A careful examination of the evidence compels the conclusion that 
 Wilson was entitled to a finding of fact to the effect that he purchased 
 the automobile in good faith and without any intent to hinder, delay, 
 or defraud Spargo's creditors, or subsequent purchasers from Spargo. 
 Wilson certainly acted in good faith in the matter, if such a thing is 
 possible when the vendor is allowed to retain possession of the chat- 
 tel. He paid full value for the property, and this in itself is persuasive 
 evidence of his good faith. * * * It is not contended that there 
 was any actual bad faith on the part of Wilson. In his brief the 
 respondent thus states his position. The sale was not accompanied 
 with immediate delivery and followed by an open and continuous 
 change of possession, within the meaning of section 3496, Rev. Laws 
 1905 ; and hence, "while it may be true that on April 5, 1906, appel- 
 lant in the utmost good fdith purchased the automobile, yet from that 
 time on the action of the appellant in permitting and allowing Spargo, 
 the vendor, to keep and use that machine in exactly the same manner 
 as before, was a fraud per se upon any person who might either pur- 
 chase or take the same as security without notice of the rights of a 
 prior purchaser." This is the doctrine of Lanfear v. Sumner, 17 
 Mass. 110, 9 Am. Dec. 119, and the other cases of the group to which 
 reference has been made. As an abstract principle of law, that doc- 
 trine is sound and controlling when applied to appropriate facts and 
 conditions. But the effect which shall be given to possession under 
 the particular circumstances disclosed in this record is declared by the 
 statute, and the statute should not be disregarded and annulled by 
 the application of the doctrine of equitable estoppel. Upon the evi- 
 dence Wilson sustained the burden which the statute imposes upon 
 him, and the finding of the trial court was thus erroneous. * * * 
 
 The judgment is therefore reversed, and a new trial granted. 
 
10^4 SALES (Part 4 
 
 SECTION 5.— RIGHTS OF CREDITORS AGAINST GOODS 
 SOLD IN SELLER'S POSSESSION 
 
 Sales Act, Section 26. Where a person having sold goods con- 
 tinues in possession of the goods, or of negotiable documents of 
 title to the goods, and such retention of possession is fraudulent in 
 fact or is deemed fraudulent under any rule of law, a creditor or 
 creditors of the seller may treat the sale as void. 
 
 This section is an incorporation, by reference, of the re-enact- 
 ments in this country of the English stat||te on fraudulent convey- 
 ances. Under these statutes, as appears from the preceding case, 
 there is a good deal of conflict on the question as to whether re- 
 tention of possession is conclusive proof of fraud, or whether it is 
 tut prima facie evidence of fraud. The above section does not 
 attempt, therefore, to adopt either view, but is so phrased as to 
 permit a state which enacts the Sales Act to continue the local 
 rule on this matter. It appears, therefore, that the Sales Act does 
 not place rights of creditors on the same basis as those of subse- 
 quent purchasers of a vendor in possession of goods already sold. 
 
 SECTION 6.— RIGHTS OF CREDITORS AGAINST GOODS 
 SOLD IN VIOLATION OF BULK SALES ACTS 
 
 GLVNTZ V. GARDINER. 
 
 (Supreme Court of Rhode Island, 1917. 40 E. I. 297, 100 Atl. 913, 
 Tj. R. a. 1917F, 226.) 
 
 Action by Max Glantz against Samuel E. Gardiner, Deputy Sheriff. 
 Certified from the superior court on an agreed statement of facts. 
 
 Baker, J. This is an action of i-eplevin, brought by the plaintifif 
 * * * to recover possession of certain goods attached by the de- 
 fendant as deputy sheriff of said county, * * * and held in cus- 
 tody by the said defendant under and by virtue of a writ of attach- 
 ment issued out of the superior court" in said county "at the suit of 
 Alphonso Brickett against said Frank S. Lockhart alias." * * * 
 
 The agreed statement of facts shows that on the 19th day of De- 
 cember, 1916, the plaintiff, Max Glantz, paid to said Frank S. Lock- 
 hart the sum of $100 and received from Lockhart the following writ- 
 ten instrument : 
 
 "Received of M. Glantz one hundred ($100.00) dollars, deposited on 
 sale of all household furniture contained in stores Nos. 605-613 West- 
 minster street ; also in storehouse in rear ; also Columbia truck. Bal- 
 ance due, thirty-nine hundred dollars ($3,900.00), to be paid in full 
 December 22, 1916. [Signed] Frank S. Lockhart. 
 
 "In presence of William A. Reiner." * * * 
 
 On the said 20th day of December, 1916, the plaintiff demanded 
 from the said Lockhart a written list of the names and addresses of 
 his creditors, and on the same day received from him a written list, 
 giving names, addresses, and amounts, signed and sworn to by said 
 
Chi 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1055- 
 
 Lockhart as "a true, full, accurate, and complete list" of his creditors- 
 "and the amounts due each of them," "to the best of his knowledge 
 and belief." The list included six names and addresses, and amounts 
 of indebtedness aggregating $796.21. * * * Qn said December 
 20th the plaintiff sent by registered mail a letter to each of said cred- 
 itors named in said list, giving notice that said Frank S. Lockhart 
 had entered into an agreement with said Max Glantz for the sale' of 
 all his stock of furniture and house furnishings, that the transfer of 
 title would take place on December 27, 1916, at 9 o'clock a. m. * * * 
 Said Alphonso Brickett was a creditor of said Lockhart prior to and 
 at the time of said transfer, but his claim was not included in the list 
 delivered by Lockhart, and was not filed with said Glantz or his at- 
 torneys prior to said transfer, and neither of them had any knowledge 
 of such claim until several days after December 27th. 
 
 Chapter 387 of the Public Laws was passed April 14, 1909, and is 
 entitled "An act to prohibit sales of merchandise in bulk in fraud of 
 creditors." * * * 
 
 The precise question presented by the agreed statement and as ar- 
 gued by the counsel of both parties in their briefs is whether the trans- 
 fer of said goods and chattels by said Lockhart to the plaintiff on De- 
 cember 27, 1916, was under the provisions of section 1 of said chap- 
 ter 387 of the Public Laws fraudulent and void as to said Alphonso 
 Brickett. 
 
 Within the last 20 years nearly all, if not all, of the states have 
 enacted statutes regulating the sale of merchandise in bulk. This wide- 
 spread legislation at least implies a general belief in the existence of a 
 widespread evil requiring legislative control. While these statutes are 
 similar in general purpose, they differ in phraseology, both in their 
 requirements of the parties to such sales and particularly in the lan- 
 guage which declares the effect of noncompliance with the provisions 
 of these acts. "That evil is the tendency and practice of merchants 
 who are heavily in debt to make secret sales of their merchandise in 
 bulk for the purpose of defrauding creditors." Wright v. Hart, 182 
 N. Y. 330, 346, 75 N. E. 404, 410, 2 L. R. A. (N. S.) 338, 3- Ann. 
 Cas. 263. A convenient classification of these laws into five groups, 
 based upon the different requirements imposed upon the parties to such 
 sales, may be found in Kidd-Dater Co. v. Musselman Grocer Co., 
 217 U. S. 461, 467-469, 30 Sup. Ct. 606, 54 L. Ed. 839. These re- 
 quirements vary from the simple one by which a prospective vendor 
 is compelled to have recorded from five to ten days previous to the 
 actual sale in the town clerk's office of the town in which he con- 
 ducts his business a notice of his intention to make such sale, describ- 
 ing the property to be sold, the condition of such sale, and the par- 
 ties thereto, to the more oneroussones of the preparing by the vendor 
 and vendee together of an inventory of the property and its cost, and 
 of requiring the vendee to demand and receive sworn lists of the ven- 
 dor's creditors, with their addresses and the respective amounts due 
 them, and to notify these creditors of his intended purchase, and in a 
 few instances to see that the purchase price is applied, so far as neces- 
 sary, to the payment of the vendor's creditors. 
 
 As to the effect of a failure to comply with the requirements of 
 these statutes, they fall into two classes: First, those acts in which 
 the sale is declared fraudulent and void; second, those acts in which 
 the sale is declared presumptively fraudulent and void. It is reasona- 
 
1056 SALES (Part 4 
 
 ble to infer that these different acts vary much as effective instru- 
 mentalities in checking actual fraud. The courts differ in their con- 
 struction of the acts in the second class, some holding that they simply 
 prescribe a rule of evidence, throwing the burden of showing good 
 faith on the purchaser with the right to introduce any evidence perti- 
 nent to this question as in Thorpe v. Pennock Mercantile Co., 99 
 Minn. 22, 108 N. W. 940, 9 Ann. Cas. 229, and Pisher v. Herrmann, 
 118 Wis. 428, 95 N. W. 392, while others restrict the evidence to the 
 showing of a compliance with the requirements of the statute. Moore 
 Dry Goods Co. v. Rowe & Carithers, 99 Miss. 30, 54 South. 659, Ann. 
 Cas. 1913C, 1213; Cantrell v. Ring, 125 Tenn. 472, 145 S. W. 166. 
 The statute of this state belongs to the first class. It provides in ef- 
 fect that the transfer of "the whole of a stock of merchandise and 
 fixtures" in bulk in one transaction "shall be fraudulent and void 
 as against all persons who are creditors of the transferor at the time 
 of such transfer unless the transferee" does certain things ; that is to 
 say, without any regard to the solvency of the vendor, or the fairness 
 of the purchase price to be paid, or the good faith of the vendor and 
 vendee, and although the transaction may not be fraudulent in fact, it 
 will be fraudulent and void in law so far as the vendor's creditors are 
 concerned unless the vendee or transferee does the things required 
 of him by the provisions of the statute. In other words, in order to 
 guard against the commission of actual fraud in the class of sales 
 with which it deals, the law regulates them by requiring the perform- 
 ance of certain acts in the carrying out of such a sale and declares 
 that the failure to perform these acts will render the transaction fraud- 
 ulent in law. It is obvious that this is not the enactment merely of a 
 rule of evidence but a declaration of substantive law that the nonob- 
 servance of certain statutory provisions constitutes fraud in law. 
 
 Such laws have generally been upheld as a justifiable use of the 
 police power. As such statutes declare sales in bulk fraudulent and 
 void if the regulations governing such sales are not complied with, 
 it is clearly implied and must inevitably follow that, if these regulations 
 are complied with, the sale or transfer is not fraudulent and void under 
 these statutes. As already appears, said chapter 387 makes a transfer 
 or sale of a stock of merchandise in bulk fraudulent and void as to 
 the transferor's creditors unless the transferee or purchaser "demands 
 and receives from the transferor a written list of the names and ad- 
 dresses of the creditors of the transferor and certified by him, under 
 oath, to be, to the best of his knowledge and belief, a full, accurate, 
 and complete list of his creditors; and unless the transferee shall, 
 at least five days before such transfer, notify personally, or by regis- 
 tered mail, every creditor whose name and address are stated in said 
 Hst of the proposed transfer." Did the plaintiff in this case demand 
 and receive from Lockhart a written list of the names and addresses 
 of the latter's creditors, certified by Lockhart under oath, to be, to 
 the best of his knowledge and belief, a full, accurate, and complete 
 list of his creditors, and did the plaintiff at least five days before the 
 transfer notify in the manner required by the statute every creditor 
 whose name and address were stated in said list of the proposed trans- 
 fer? The agreed statement of facts clearly shows that he did all 
 of these things, and apparently satisfied the requirements of the statute. 
 
 It is urged, however, that inasmuch as the Hst of Lockhart's creditors 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1057 
 
 received by the plaintiff was not in fact "a full, accurate, and com- 
 plete list of his creditors," and as the plaintiff afterwards learned this, 
 but before the transfer was made, the sale, in consequence, was void. 
 So far as chapter 387 is concerned, we do not think this fact affects 
 the situation. The statute declares the sale void only on the failure 
 of the purchaser to do what is required of him. It does not declare 
 the sale void if the list of creditors furnished by a vendor under oath 
 is not in fact "full, accurate and complete." It does not in any way 
 make the purchaser responsible for any incorrectness in the list. We 
 think it would be unreasonable to so construe it. * * * 
 
 In Coach v. Gage, supra, 70 Or. on page 188, 138 Pac. on page 849, 
 the court in interpreting these last provisions said : "The act in ques- 
 tion, in our judgment, imposes upon the purchaser (1) the duty to de- 
 mand a written statement, under oath, of the vendor of the names and 
 addresses of his creditors, and (2) upon the receipt of such list to 
 notify the persons named therein of the proposed purchase. For an 
 intentional breach of either of these duties, it was entirely competent 
 for the Legislature, by way of penalty for such breach, and to secure 
 the faithful performance of such duty, to declare that their nonper- 
 formance should constitute conclusive evidence of fraud, and render 
 the sale void as to creditors ; but it is not in the power of the Legis- 
 lature to make a breach of duty by the vendor evidence of fraud in the 
 vendee. To hold the law means that an omission of the name of a 
 creditor by the vendor without the knowledge of the vendee renders 
 the transaction void as to him would be to hold that it was the intent 
 of the Legislature to ordain that a fraud committed by the vendor upon 
 the vendee by falsifying the list of creditors should be conclusively 
 presumed to be the fraud of the person so defrauded and deceived. 
 Such a construction would be so contrary to every principle of law and 
 
 good morals that it is inconceivable that the Legislature intended 
 j^ j> * * * 
 
 It may be urged that under the statute as thus interpreted oppor- 
 tunity is afforded a vendor to successfully practice fraud. That is 
 entirely possible. We think the remedy for this situation lies with the 
 lawmaking body and not with the courts. It is noteworthy that, while 
 common observation shows that it is the dealer in merchandise who 
 for one reason or another attempts to .defraud his creditors by the 
 sale of his stock, our statute, like some others, declares such a sale 
 fraudulent and void only on a failure of the purchaser to do certain 
 things. Chapter 387 is in effect an addition to section 1 of chapter 
 253 of the General Laws relating to conveyances in fraud of creditors. 
 Of course this transaction, like others, is open to inquiry as to the ex- 
 istence of fraud in fact. There is opportunity for collusion in mak- 
 ing up the list of creditors, and apart from any active participation in 
 actual fraud the purchaser might have knowledge of a fraudulent in- 
 tent of the vendor, so that the question of the purchaser's good faith 
 might be material. We think the words "good faith," as used in some 
 opinions in cases under acts regulating the sale of merchandise in bulk, 
 have reference to this aspect of the case, namely, the existence of fraud 
 in fact. * * * 
 
 In these circumstances, it is our judgment that the sale by Lockhart 
 to the plaintiff should not be held to be in fact fraudulent and void as 
 to said Alphonso Brickett as a creditor of Lockhart. Our decision 
 B.& B.BUS.LAW— 67 
 
1058 SALES (Part 4 
 
 accordingly is that the plaintiff acquired a good title to the goods and 
 chattels transferred to him by Frank S. Lockhart on December 27, 
 1916, and that he is entitled to the entry of judgment for their pos- 
 session. * * * 
 
 LINN COUNTY BANK v. DAVIS et al. 
 
 (Supreme Court of Kansas, 1918. 103 Kan. 672, 175 Pac. 972, 
 9 A. L. R. 468.) 
 
 Action by the Linn County Bank against O. L,. Davis, with garnish- 
 ment against R. I,. Glascock. Judgment for the garnishee, and plaintiff 
 appeals. 
 
 Mason, J. On March 20, 1917, O. h. Davis, a merchant, executed 
 a bill of sale on his stock to R. L. Glascock, who took possession there- 
 of. On March 24, 1917, the Linn County Bank, a creditor of Davis, 
 brought an action against him upon its claims, and caused a garnishee 
 summons to be served upon Glascock, who filed an answer denying 
 any liability to Davis. The plaintiff took issue on this answer on the 
 ground that the transaction between Davis and Glascock involved a 
 violation of the Bulk Sales Law, inasmuch as it had been given no notice 
 thereof. A trial resulted in a judgment in favor of the garnishee, and 
 the plaintiff appeals. 
 
 At the time of the execution of the bill of sale, the seller gave to the 
 buyer a list of his creditors, complete except for the omission of the 
 plaintiff. The buyer (the garnishee), having no knowledge of the exist- 
 ence of the plaintiff's claim, paid off all the other creditors. He con- 
 tends "that these facts protect him from liability, assuming that the 
 Bulk Sales Law is applicable to the transaction. 
 
 There is some conflict of judicial opinion as to the effect of the 
 omission of one or more creditors from a list otherwise properly fur- 
 nished in accordance with the Bulk Sales Law,- at the time of a sale 
 of a stock of goods. In some jurisdictions it is held that in such a case 
 the omitted creditors have no remedy against the buyer ( Coach v. Gage, 
 70 Or. 182, 138 Pac. 847; International Silver Co. v. Hull, 140 Ga. 
 10, 78 S. E. 609, 45 L. R. A. [N. S.] 492), even if he learns of their 
 claims before making payment (Glantz v. Gardiner, 40 R. I. 297, 100 
 Atl. 913, L. R. A. 1917F, 226). A view more in keeping with the 
 spirit and purpose of the statute is that the buyer is bound to hold any 
 part of the price Still under his control when he is advised of the exist- 
 ence of a creditor not mentioned in the list. In re Thompson (D. C.) 
 242 Fed. 602. See, also, Rabalsky v. Levenson, 221 Mass. 289, 108 
 N. E. 1050. 
 
 Here the transfer of stock was made in consideration of a pre- 
 existing debt, and it seems that (inasmuch as a release procured by 
 the debtor's furnishing an incomplete list of creditors, in violation of 
 the law, would be ineffective) the buyer would have parted with noth- 
 ing in the transaction, and would therefore be answerable to the omitted 
 creditor. That, however, need not be determined, for the same re- 
 sult follows from another circumstance. The statute requires the list 
 of creditors given to the buyer to be certified by the seller under oath 
 to be complete. * * * No such verification was made in this case. 
 If the buyer had insisted upon the law being followed in this regard, it 
 is conceivable that the seller would haVe used more diligence in assur- 
 ing himself of the completeness of the list. At all events, the buyer, 
 having closed the deal without requiring a compliance with the statute. 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1059 
 
 acted at his peril, and the title he received is subject to the claims of 
 the omitted creditor. * * * 
 
 So far, it has been assumed that the Bulk Sales Law applies to the 
 transaction involved. A doubt on this question arises from evidence 
 that the bill of sale referred to was given as security, and from the 
 circumstance that at the time of its execution the buyer agreed in writ- 
 ing to reconvey the property upon the repayment of the purchase price 
 within a fixed time. If, however, the bill of sale is deemed to have been 
 in legal contemplation a chattel mortgage, we still regard it as con- 
 stituting a "sale or disposal" of the stock within the meaning of the 
 statute. If the owner of a stock of merchandise, while allowed to sell 
 it only, upon notice to his creditors, could mortgage it effectively with- 
 out such notice, the evasion of the statute would be so easy as to 
 deprive it of all practical force. In this state the title to chattels passes 
 by the execution of a mortgage, * ,* * which therefore amounts to 
 a sale, or at least to a disposal. This view finds support in decisions 
 elsewhere. Baker v. Nipper (Tex. Civ. App.) 198 S. W. 596; Sem- 
 mes v._ Stecher Brewing Co., 195 Mo. App. 621, 187 S. W. 604. In 
 some jurisdictions what might seem to be a contrary conclusion is 
 reached, but this is by reason of local statutes under which the mort- 
 gagor of chattels continues to be their owner. * * * 
 
 It results from these considerations that error was committed in 
 
 denying the plaintiff all relief. The extent of his recovery, however 
 
 remains to be determined. The goods in a sense constituted a trust 
 
 fund for the benefit of all creditors alike, and as the purchaser was free 
 
 from intentional wrong, he may justly be subrogated to the rights of 
 
 the creditors whose claims he has paid off. * * * Nor is any reason 
 
 apparent why his own claim should not be as favorably treated as those 
 
 of others. We conclude therefore that the plaintiff should recover the 
 
 'proportion of the value of the stock that the amount of his claim bears 
 
 to the total sum owed by the vendor at the time of the sale, including 
 
 the debts paid off by the buyer and that originally owing to him. 
 * * * 
 
 The judgment is reversed, and the cause remanded for further pro- 
 ceedings in accordance herewith. * * * 
 
 COONEY, ECKSTEIN & CO. v. SWEAT et al. 
 
 (Supreme Court of Georgia, 1909. 133 Ga. 511, 66 S. E. 257, 25 L. R. A. 
 
 [N. S.] 758.) 
 
 Action by Cooney, Eckstein & Co., against F. B. Sweat and others. 
 Judgment for defendants, and plaintiff brings error. 
 
 Evans, P. J. Cooney, Eckstein & Co., sued out an attachment in 
 the superior court of Wayne county against Sweat, alleging that he 
 was indebted to them in the sum of $219.17 for money advanced; 
 that for some time prior thereto he was the lessee of a sawmill, at 
 which trees were manufactured into lumber and sold to various pur- 
 chasers; and that a few days prior to filing the suit he had sold to 
 the Waynesville Trading Company substantially all the lumber he had 
 on hand. * * * H was further alleged that the notice referred to 
 •in the Bulk Sales Act of 1903 had not been given. The attachment 
 was issued, and the lumber levied upon. * * * Subsequently the 
 judge of the superior court dismissed the attachment, on the ground 
 that the Bulk Sales Act of 1903 does not apply to a transaction of the 
 
1060 SALES (Part 4 
 
 kind set forth in the petition. The correctness of this judgment is 
 the sole question presented by the writ of error. 
 
 The act of 1903 is applicable to a sale of "any stock of goods, wares 
 and merchandise in bulk." The object of the Legislature in pass- 
 ing the statute was the protection of persons who had been extending 
 credit to merchants on the faith of apparent prosperity, indicated bv 
 a stock of goods, wares, and merchandise, which would not be sold 
 in bulk to one person, but which would be sold out gradually, and re- 
 plenished from time to time. When merchants sell their entire stock 
 of goods to one person, without notice of any kind to their creditors, 
 a fraud is frequently perpetrated upon the creditors; and it was the 
 intention of the I^egislature to afford a remedy to the victim of these 
 fraudulent sales. The act is in derogation of the common law, arid pf 
 a person's right to alienate his property without restriction, and is 
 therefore to be strictly construed. * * * In the construction of 
 statutes of this kind, it is always well to consider the evil intended to 
 be reached. That evil, says Vann, J., in his dissenting opinion, in the 
 case of Wright v. Hart, 182 N. Y. 330, 75 N. E. 404, 2 L. R. A. (N. S.) 
 338, 3 Ann. Cas. 263) "is the tendency and practice of merchaiits who 
 are heavily in debt to make secret sales of their merchandise in bulk 
 for the purpose of defrauding creditors. Common observation shows 
 that, when a dealer has reached a point in his business career where 
 he cannot go on, owing to the claim of creditors, the temptation is 
 strong and the practice common of making fraudulent sales." 
 
 The act of 1903 bears internal evidence of a legislative intent to 
 confine its operation to merchants or dealers in merchandise. The first 
 section thereof, in prescribing the preliminary acts necessary for the 
 validity of a sale authorized by the act and the duty of the vendor, 
 declares that "it shall further be the duty of said vendor to give the 
 vendee a statement of his assets and liabilities, and the cost price of 
 the merchandise to be sold, said cost price to be arrived at by an in- 
 ventory taken at the time by the seller and purchaser." And the same 
 section makes it the duty of the purchaser, in giving notice of the sale 
 to the vendor's creditors, to also send "a copy of the statement of the 
 assets and liabilities as furnished him by the vendor." The word 
 "merchandise" is, however, not to be taken in such a restricted sense 
 as to exclude the usual and customary accessories of a mercantile or 
 trading establishment, when a sale in bulk is made of the whole. Thus, 
 bar fixtures, safes, desks, cash registers, cigar cases, pool tables, re- 
 frigerators, and the like, used in connection with a business in which 
 they are appropriate in facilitating the operation of such business and 
 the sale of the goods connected therewith, have been held to be included 
 in the sale of the business, within the meaning of the Sales in Bulk 
 
 ^qX * * * 
 
 Though in many of the states statutes of a similar character have 
 been enacted within the last 10 years, there" are to be found only a 
 few cases defining the meaning of the phrase "goods, wares, and mer- 
 chandise." In the state of Washington it was held, in Plass v. Morgan, 
 36 Wash. 160, 78 Pac. 784, that a sale of all goods, wares, and 
 merchandise in a restaurant was a sale within the contemplation 
 of the statute ; but later in the same state it was held, in Everett Prod- 
 uce Co. V. Smith, 40 Wash. 566, 82 Pac. 905, 2 L. R. A. (N. S.) 331, 
 111 Am. St. Rep. 979, 5 Ann. Cas. 798, that a sale of the horses, wag- 
 ons, and harness comprising the stock in a livery stable was not a 
 
Ch. 3) INNOCENT PURCHASERS FROM PERSONS WITHOUT TITLE 1061 
 
 stock of goods, wares, or merchandise within the meaning of the stat- 
 ute. In Massachusetts it was held that biscuits and crackers put up in 
 boxes or barrels by a wholesale biscuit company for the wholesale 
 market was within a statute regulating the sale of goods, wares, or 
 merchandise in bulk. Hart v. Brierly, 189 Mass. 598, 76 N. E. 286. 
 And in a later case it was there held that the sale in bulk statute was 
 intended to prevent a trader from disposing of his stock of merchandise 
 in a manner outside of his usual course of business. Gallus v. Elmer, 
 193 Mass. 106, 78 N. E. 772, 8 Am. & Eng. Ann. Gas. 1067. A person 
 operating a sawmill, at which trees are manufactured into lumber and 
 then sold, is not within the purview of the act, though he sells sub- 
 stantially all the lumber he has on hand at a particular time to one 
 person. * * * 
 
 Judgment affirmed. * * * 
 
 OWOSSO CARRIAGE & SLEIGH 00. v. MelNTOSH & WARREN. 
 
 (Supreme Court of Texas, 1915. 107 Tex. 307, 179 S. W. 257, 
 L. R. A. 1916B, 970.) ■ 
 
 Action by the Owosso Carriage & Sleigh Company against C. K. 
 Sweet, with Mcintosh & Warren, garnishee. A judgment in part for 
 plaintiff against the defendant garnishee was reversed and remanded 
 by the Court of Civil Appeals and plaintiff brings error. 
 
 Yantis, J. This case involves * * * what is commonly known 
 as the "Bulk Sales Law," * * * ^nd the effect of the service of 
 the writ of garnishment upon the proceeds of the sale of merchandise 
 which was purchased by Mcintosh & Warren, defendants in error, at 
 private sale, and not in the ordinary course of trade, but in bulk, and 
 in violation of all the provisions of said bulk sales statute, and after- 
 wards resold by them and converted into cash prior to the service of 
 the writ of garnishment upon them, which was issued at the instance 
 of the Owosso Carriage & Sleigh Company, plaintiff in error. * * * 
 
 One C. K. Sweet was engaged in the implement, vehicle and hard- 
 ware business in the town of Brownwood. The evidence strongly 
 indicates that on the 10th day of August, 1909, he was insolvent. 
 
 * * * He was indebted to the plaintiff in error * * * in the 
 sum of $1,700. * * * He owed various other creditors in the ag- 
 gregate sum of $3,000. On said 10th day of August, 1909, he sold his 
 stock of goods in bulk to Mcintosh & Warren, defendants in error, for 
 the consideration of $6,005.97. * * * 
 
 On October 19, 1910, plaintiff in error filed suit against the said 
 Sweet * * * and at the same time caused a writ of garnishment 
 to be issued, which was served upon the defendants in error on the 
 20th day of October, 1910. On the 20th day of December, 1910, 
 plaintiff in error recovered in said suit its judgment against said 
 Sweet in the sum of $1,883.60, with costs of suit and interest at the 
 rate of 8 per cent. 
 
 The evidence indicates that there was no intentional fraud upon the 
 part of the defendants in error in purchasing said merchandise, or on 
 the part of said Sweet in making the sale. * * * ^ii^ bulk sales 
 statute of 1909 was not complied with in any form in making said sale. 
 
 * * * 
 
 We will now consider the important' question as to the effect of 
 the service of the writ of garnishment upon the defendants in error 
 
1062 SALES (Part i 
 
 subsequent to the sale of the merchandise by them, which they had 
 purchased from Sweet. It is contended that the garnishment did not 
 fasten upon either the property belonging to Sweet, or upon its pro- 
 ceeds after sale, for the reason, as asserted, that the property belong- 
 ing to Sweet, which passed into the hands of the defendants in er- 
 ror, had been sold by them, and that the proceeds of the sale could 
 not be reached by the writ of garnishment, and that the writ of gar- 
 nishment would not be effective unless served before such sale. Up- 
 on the other hand, the contention is made that the writ of garnishment 
 took effect and became a lien upon the proceeds of the sale of said 
 merchandise. 
 
 In considering this question it should be remembered that the pur- 
 chase by defendants in error from Sweet, however innocently intend- 
 ed, was in open violation of the bulk sales law, and, under section 1 
 thereof, "void as against creditors of the seller." There was, then, 
 no real sale, in law, but merely a change of possession. The parties 
 could not accomplish that which was prohibited by law. The posses- 
 sion was transferred from Sweet to the defendants in error, which 
 left them holding it in trust for the benefit of Sweet's creditors, with 
 the title still in Sweet. This necessarily follows as the result of the 
 attempted sale being rendered void by the statute. A contract be- 
 tween citizens, however honestly made, cannot prevail as against a 
 statute which prohibits the making of the contract. * * * 
 
 When the defendants in error sold the merchandise, the title to 
 which remained by law in Sweet, they became indebted to Sweet for 
 its value. Having sold and converted property which, in law, belong- 
 ed to Sweet, it obviously follows that they owed him for its value. 
 It is true, the law would not aid Sweet in recovering its value from 
 the defendants in error ; for, having acted in the sale in open vio- 
 lation and defiance of a statute, public policy would deny him a rem- 
 edy, and leave the parties to the legal wrong where it found them. 
 Especially would this be true since the statute in question, under the 
 circumstances of this sale, holds the property for the benefit of 
 Sweet's creditors, and the courts would not aid Sweet to withdraw 
 it beyond their reach. But the plaintiff in error is not in the same 
 attitude as Sweet. Not having participated in the wrongdoing; the 
 law would aid it to recover the fund set apart by statute for creditors. 
 Now the evidence shows that the defendants in error sold the mer- 
 chandise for at least as much as they agreed to pay for it. In other 
 words, the evidence shows that the defendants in error sold Sweet's 
 property for at least as much as $6,005.97, and at the time the writ 
 of garnishment was served they still were indebted to Sweet in said 
 sum, and the garnishment fastened upon said fund. 
 
 The identical question presented here has not been adjudicated by 
 this court in connection with the bulk sales statute. In other jurisdic- 
 tions the authorities appear to be somewhat in conflict, but the weight 
 of authority is to the effect that, when one purchases merchandise in 
 violation of the bulk sales law, he holds the property, not for hiinself . 
 but as trustee for the seller's creditors, who may reach the trust fund 
 by writ of garnishment, even though the purchaser has paid full value 
 for the merchandise and has resold it. * * * 
 
 For the reasons indicated, the judgment of the Court of Civil Ap- 
 peals should be reversed, and the judgment of the trial court should 
 be affirmed. * * * 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1063 
 
 CHAPTER IV 
 NEGOTIABLE DOCUMENTS OF TITLE 
 
 Section 
 
 1. Introduction. 
 
 2. Definition of a Negotiable Document of Title. 
 
 3. Negotiation of Negotiable Documents of Title. 
 
 4. Eigbts of an Indorsee of a Negotiable Document of Title. 
 
 5. Eigbts of tbe Indorsee Against Indorsers. 
 
 6. Eigbts of Creditors Against Goods Eepresented by Negotiable Documents 
 
 of Title. 
 
 7. Rigbts of Transferees of a Non-Negotiable Document of Title. 
 
 SECTION 1.— INTRODUCTION 
 
 It IS highly advantageous, even necessary, for the business com- 
 munity to be able effectively to deal with goods during the time 
 they are in transit or while stored in warehouses. We have al- 
 ready seen that, in order that a sale of goods shall in all respects 
 be binding as against creditors and subsequent purchasers of the 
 seller, there must be a delivery. Obviously, delivery of goods 
 while in transit or while stored cannot be made in any real sense 
 without incurring a good deal of effort. To meet this difficulty the 
 commercial world has found it necessary to use some more or less 
 formal document as a representative of the goods. This document 
 contains the evidence of a contract executed by the person who 
 has possession of the goods and by the persons who owned them. 
 The document discloses the name of the owner of the goods, the 
 bailor, the name of the party in possession, th^ bailee, and the 
 terms of the contract of bailment. It is this document which may 
 thereafter be made use of with the same legal effect that would 
 follow a dealing with the actual goods themselves. There are 
 some important differences, of course, and these variations will be 
 duly noted in the ensuing sections. A document which may ef- 
 fectively transfer a title to goods is therefore properly spoken of 
 as a document of title. Bills of lading, issued by carriers, and 
 warehouse receipts, are the well-known illustrations of documents 
 of title. 
 
 It is to be noticed, however, that our topic here is "negotiable 
 documents of title." It is possible to create a document of title 
 which is not negotiable. But it is not surprising that the business 
 world, thoroughly familiar with advantages resulting from the use 
 of negotiable instruments, should greatly desire that documents of 
 title should likewise possess the attributes of negotiability. We 
 are already familiar with l^he formal requisites of negotiable in- 
 struments payable in money, and of the rights and liabilities of 
 the parties thereto, and we know that all of these numcirous rules 
 develop out of the desire to protect purchasers of them to the 
 greatest extent compatible with justice to all other parties. In 
 
1064 SALES (Part 4 
 
 our study of the law of sales thus far, particularly Chapter III, it 
 appears that a purchaser of goods assumes a much greater risk in 
 buying goods than he does in buying a note, check, or bill of ex- 
 change. The desire was, therefore, to draw upon the principles 
 of the law governing negotiable instruments payable in money, 
 and, in. so far as it was possible, to incorporate these rules into 
 the law of sales of goods represented by a document of title, and 
 so we have to-day negotiable documents of title. 
 
 The analogy between negotiable instruments payable in money 
 and negotiable documents of title is not perfect. A note or bill of 
 exchange does not transfer title to any specific piece of money. It 
 merely transfers a right to demand money ; whereas a bill of lad- 
 ing or warehouse receipt exists primarily for the purpose of trans- 
 ferring title to specific, ascertained goods. While not perfect, the 
 analogy is surprisingly similar. A comparison of the relation of 
 the parties to bills and notes with those to bills of lading and ware- 
 house receipts may be of value. The bailee is the primary obligor; 
 therefore the bailee occupies a position similar to that of the maker 
 of a note or the acceptor of a bill of exchange. As between these 
 two, the bailee perhaps more nearly occupies the position of the 
 acceptor of a bill of exchange — ^but not that of a drawee, before 
 acceptance. The bailor occupies a position similar to that of the 
 drawer of a bill of exchange payable to the drawer's own order, 
 with this exception — ^that the bailor's liability, he being the seller, 
 is a primary, and not a secondary or conditional, liability, such as 
 that of the drawer of a bill of exchange. Indorsers and indorsees 
 of both kinds of instruments occupy the same relative positions, 
 although their rights and liabilities are not quite the same. 
 
 In the study of this chapter, therefore, it should be realized at 
 all times that the various rules of law here discussed represent at- 
 tempts to introduce the law of negotiable instruments payable in 
 money into this branch of the law of sales. 
 
 SECTION 2.— DEFINITION OF A NEGOTIABLE DOCU- 
 MENT OF TITLE 
 
 Sales Act, Section 27. A document of title in which it is stated 
 that the goods referred to therein will be delivered to the bearer, 
 or to the order of any person named in such document is a nego- 
 tiable document of title. 
 
 This section would make negotiable bills of lading and ware- 
 house receipts, though the Uniform Bills of Lading Act and the 
 Uniform Warehouse Receipts Act contain sections of like import. 
 The distinctive characteristics of negotiable documents of title is, 
 therefore, that it must provide that the goods shall be deliverable 
 to the order of a specified person or to bearer. If these words are 
 omitted from a bill of lading, we have what is then known as a 
 non-negotiable or straight bill of lading which cannot be used as 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1065 
 
 a symbol of the goods. A warehouse receipt which omitted these 
 words would not be effective to transfer title to the goods. Fur- 
 ther comment on this section is not necessary, except to note some 
 similarities and differences between negotiable documents of title 
 and negotiable instruments payable in money. As regards the ne- 
 cessity for using the words "or order," or "bearer," we note that 
 the same rule applies. 
 
 The words "or order," "or bearer," or words of similar meaning, 
 must appear on the document. Frequently the color of paper used 
 for negotiable bills of lading will differ from that on which the 
 same carrier prints straight bills of lading; but it is the presence 
 of these words which produces the great variation in legal effect 
 between the two kinds of documents. 
 
 One variation is to be noted. If an instrument payable in money 
 contained all of the formal requisites of negotiability, but there 
 appeared on the instrument the words "non-negotiable," courts 
 would generally hold that these words would control, and the in- 
 strument would be non-negotiable. But if the words "non-nego- 
 tiable" appear on a negotiable document of title, the words "non- 
 negotiable" are deemed, not to control. Section 30 of the Sales 
 Act provides: 
 
 "If a document of title which contains an undertaking by a car- 
 rier, warehouseman, or other bailee to deliver the goods to the 
 bearer, to a specified person or order, or to the order of a specified 
 person, or which contains words of like import, has placed upon 
 it the words "not negotiable," "non-negotiable" or the like, such a 
 document may nevertheless be negotiated by the holder and is a 
 negotiable document of title within the meaning of this act. But 
 nothing in this act contained shall be construed as limiting or de- 
 fining the effect upon the obligations of the carrier, warehouse- 
 man or other bailee issuing a document of title of placing thereon 
 the words "not negotiable," "non-negotiable" or the like. 
 
 We have no rule which expressly provides that the document 
 must direct an unconditional delivery to the consignee, but pre- 
 sumably the courts would follow the analogous rule in the law of 
 negotiable instruments — that the promise or order must be uncon- 
 ditional. Such a case as this is not likely to arise, because the 
 forms of bills of lading and warehouse receipts are well standard- 
 ized. A negotiable instrument must be payable in money; but 
 here, obviously, the very purpose of the bill of lading or ware- 
 house receipt is to transfer title to specified property then in the 
 possession of the issuer of the document, and not to create a right 
 to demand money. No rule expressly requires that the negotiable 
 document of title shall make the goods deliverable within a fixed 
 or determinable future time, as we find in the law of negotiable in- 
 struments, but as a matter of fact negotiable documents of title 
 rarely provide that the goods shall be deliverable at any specified 
 time. No provision as to time of delivery is inserted. A nego- 
 tiable instrument, in which no time of payment is expressed, is 
 
1066 SALES (Part 4 
 
 deemed payable on demand, and hence at a determinable future 
 time. This rule by implication governs negotiable documents of 
 title. The rule in the law of negotiable instruments that renders 
 non-negotiable an instrument which contains a promise to do an 
 act in addition to the payment of money would not be followed in 
 the law of negotiable documents of title. The carrier often ex- 
 pressly assumes obligations other than to deliver the goods, for 
 example, to ice perishable goods traveling in refrigerator cars, 
 and to give additional service to live stock. For the most part it 
 is seen that the formal requirements of a negotiable document of 
 title are the same as for negotiable instruments payable in money. 
 
 SECTION 3.— NEGOTIATION OF NEGOTIABLE DOCU- 
 MENTS OF TITLE 
 
 Sales Act, Section 28. A negotiable document of title may be 
 negotiated by delivery: 
 
 (a) Where by the terms of the document the carrier, ware- 
 houseman or other bailee issuing the same undertakes to deliver 
 the goods to the bearer; or 
 
 (b) Where by the terms of the document the carrier, ware- 
 houseman or other bailee issuing the same undertakes to deliver 
 the goods to the order of a specified person, and such person or a 
 subsequent indorsee of the document has indorsed it in blank or 
 to bearer. 
 
 Where by the terms of a negotiable document of title the goods 
 are deliverable to bearer or where a negotiable document of title 
 has been indorsed in blank or to bearer, any holder may indorse 
 the same to himself or to any other specified person, and in such 
 case the docvmient shall thereafter be negotiated only by the in- 
 dorsement of such indorsee. 
 
 Sales Act, Section 29. A negotiable dociunent of title may be 
 negotiated by the indorsement of the person to whose order the 
 goods are by the terms of the document deliverable. Such indorse- 
 ment may be in blank, to bearer or to a specified person. If in- 
 dorsed to a specified person, it may be again negotiated by the in- 
 dorsement of such person in blank, to bearer or to another specified 
 person. Subsequent negotiation may be made in like manner. 
 
 Sales Act, Section 32. A negotiable document of title may be 
 negotiated — 
 
 (a) By the owner thereof; or 
 
 (b) By any person to whom the possession or custody of the 
 document has been intrusted by the owner, if, by the terms of the 
 document the bailee issuing the document undertakes to deliver 
 the goods to the order of the person to whom the possession or 
 custody of the documents has been intrusted, or if at the time of 
 such intrusting the document is in such form that it may be ne- 
 gotiated by delivery. 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1067 
 
 There are three questions here: (1) As regards the form of 
 indorsement necessary for negotiation ; (2) as regards the legal 
 effect of each kind of indorsement; and (3) as regards the per- 
 sons who have power to negotiate. The same kinds of indorse- 
 ments used to transfer title to negotiable instruments payable in 
 money are used to transfer title to negotiable bills of lading and 
 warehouse receipts ; i. e., the special indorsement, "Deliver to A.," 
 signed by the then holder of the document, and the blank indorse- 
 ment, consisting only in the signature of the holder. Either of 
 these indorsements, accompanied by delivery, transfers title to the 
 instrument and to the goods, just as the same indorsements, cou- 
 pled with delivery, transfer title to the instruments and to the le- 
 gal right to recover money from the party primarily liable there,- 
 on. Apparently there is no occasion for the use of the restrictive 
 indorsement, or the conditional indorsement, for the established 
 custom is to transfer the title to the document to banks which are 
 employed to present and collect the amount called for by a bill of 
 exchange drawn upon the buyer for the purchase price and sent 
 along with the bill of lading. The legal effect of the special and 
 blank indorsements, when accompanied by delivery, is the same as 
 in the law of negotiable instruments; i. e., the title to the instru- 
 ment passes. There is one possible exception. A negotiable docu- 
 ment of title, which, on the face of the document, makes the goods 
 deliverable to bearer, will, by virtue of section 28b, be controlled 
 by a subsequent special indorsement ; that is, that in any case 
 where a negotiable document of title is transferable by delivery — ■ 
 i. e., when it is made out to bearer, or originally made out to order 
 and became deliverable to bearer by virtue of an indorsement in 
 blank, in both of these cases the subsequent special indorsements 
 changes the character of the bill from a bearer bill to an order bill. 
 In the law of negotiable instruments it seems that an instrument 
 payable to bearer on its face cannot be controlled by subsequent 
 special indorsement. 
 
 As regards the persons who have power to negotiate documents 
 of title, it is to be noted that section 32 differs essentially from the 
 corresponding sections in the Negotiable Instruments Law. It 
 will be recalled that the effect of several sections of this law give 
 to a thief or finder of a negotiable instrument payable to bearer 
 the legal power to pass a good title to holders in due course. These 
 sections codified a well-established rule of the common law. Sec- 
 tion 32 of the Sales Act, however, provides that the only persons 
 who may negotiate a document are (1) the owner; or (2) a per- 
 son to whom the possession or custody of the document has been 
 intrusted by the owner. A thief or finder of a negotiable docu- 
 ment in form transferable by delivery certainly is not a person in- 
 trusted by the owner with the possession or custody of the instru- 
 ment. Therefore it would seem quite clear that an innocent pur- 
 chaser of a negotiable document of title running to bearer, under 
 the Sales Act, would get no title to the instrument nor to the 
 
1068 SALES (Part 4 
 
 goods. Section 40 of the Uniform Warehouse Receipts Act con- 
 tains the same language as that which is used in section 32 of the 
 Sales Act. Therefore a thief or finder of a negotiable warehouse 
 receipt would have no power to transfer a title to an innocent pur- 
 chaser. The Uniform Bills of Lading Act, however, follows out 
 the analogy of the rule in the Negotiable Instruments Law, for sec- 
 tion 31 of the Uniform Bills of Lading Act provides that "a nego- 
 tiable bill may be negotiated by any person in possession of the 
 same, however such possession may have been acquired, if, by the 
 terms of the bill, the carrier undertakes to deliver the goods to the 
 order of such person^ or if at the time of negotiation the bill is in 
 such form that it may be negotiated by delivery." While the theft 
 of negotiable documents of title is not so common as the theft of 
 other negotiable instruments, it is important to bear these distinc- 
 tions in mind. A purchaser of a negotiable warehouse receipt 
 should realize that he is taking a chance that at some place in the 
 chain of title the instrument, if at any time running to bearer, 
 might have been stolen. Of course, he will always have his rem- 
 edy back against his indorser; but in some cases this may not be 
 as great a degree of protection as he may desire. 
 
 There are no provisions in the Sales Act, Warehouse Receipts 
 Act, or Bills of Lading Act which deal with the effect of forgery 
 of negotiable documents of title, and of the names of holders there- 
 of, as directly as these matters are dealt with in the Negotiable 
 Instruments Law. Instances of forgery, either of the carrier's 
 name or holders of genuine bills, are not common. The analogies 
 in the law of negotiable instruments in most instances would be 
 carried out. The forgery of the name of the person to whose or- 
 der goods are deliverable, or of a special indorsee's name, clearly 
 would pass no title to the innocent transferee. 
 
 SECTION 4.— RIGHTS OF AN INDORSEE OF A NEGO- 
 TIABLE DOCUMENT OF TITLE 
 
 Sales Act, Section 33. A person to whom a negotiable docu- 
 ment of title has been duly negotiated acquires thereby : (a) Such 
 title to the goods as the person negotiating the document to him 
 had or had ability to convey to a purchaser in good faith for value 
 and also such title to the goods as the person to whose order the 
 goods were to be delivered by the terms of the docvunent had or 
 had ability to convey to a purchaser in good faith and for value ; 
 and (b) the direct obligation of the bailee issuing the docimient to 
 hold possession of the goods for him according to the terms of the 
 document as fully as if such bailee had contracted directly with 
 him. 
 
 Sales Act, Section 38. The validity of the negotiation^ of a ne- 
 gotiable dociunent of title is not impaired by the fact that the ne- 
 gotiation was a breach of duty on the part of the person making 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1069 
 
 the negotiation, or by the fact that the owner of the document was 
 induced by fraud, mistake or duress to entrust the possession or 
 custody thereof to such person, if the person to whom the docu- 
 ment was negotiated or a person to whom the document was sub- 
 sequently negotiated paid value therefor, without notice of the 
 breach of duty, or fraud, mistake or duress. 
 
 In the present section our problem is to ascertain the rights 'of 
 an indorsee of a negotiable document of title arising out of his 
 ownership of such document. We have already noted the circum- 
 stances under which a party in possession of a document of title 
 will be deemed to be the owner of the same. The instrument must 
 have been negotiated to him in one of the ways allowed by law. 
 Granted, then, that a person is owner of the document ; what rights 
 against all other people does he acquire thereby? This general 
 problem involyes three subordinate inquiries: (1) Under what 
 circumstances will an indorsee be an innocent purchaser for value? 
 (2) Under what circumstances will claims of ownership and all 
 other kinds of claims with respect to the goods, asserted by other 
 persons, be cut off by the negotiation of the document to an inno- 
 cent purchaser? (3) What rights does an innocent indorsee ac- 
 quire against the carrier or warehouseman who issued the docu- 
 ment? 
 
 The first question, as to the circumstances under which an in- 
 dorsee will be deemed to be an innocent purchaser, need engage 
 our attention but briefly, because such a person must be substan- 
 tially in the same position that a person must occupy in order to be 
 a holder in due course of a negotiable instrument payable in mon- 
 ey, (a) That is, he must take in good faith and without notice of 
 the claim of the third party. The element of good faith, or con- 
 versely, what constitutes bad faith, was sufficiently treated in the 
 law of negotiable instruments, (b) He must be a purchaser, not 
 a donee. But just as we found to be true in negotiable instru- 
 ments, a person will be a purchaser when he has parted with value, 
 and value is defined in section 7(i of the Sales Act as "any consid- 
 eration sufficient to support a simple conti'act. An antecedent or 
 pre-existing claim, whether for money or not, constitutes value 
 where goods or documents of title are taken either in satisfaction 
 thereof or as security therefore." A donee, or a transferee with 
 notice from an innocent purchaser, would be an innocent purchaser 
 unless he participated in the fraud. 
 
 The second question, as to the circumstances under which the 
 claims of others with respect to the goods will be cut off, opens 
 up a broad field of possibilities. At the start, one matter should 
 be noted by way of comparison with the rights of a holder in due 
 course of negotiable instruments payable in money. We there 
 found that in the hands of a holder in due course two very differ- 
 ent kinds of rights possessed by third parties were cut off; i. e., 
 equities of defense and equities of ownership. Equities of defense 
 were, from a practical standpoint, more important than equities 
 
1070 SALES (Part 4 
 
 of ownership. That is, we found that usually, when the holder in 
 due course was suing the maker or acceptor, the defendant was 
 attempting to set up a defense which undoubtedly would have been 
 available to him, had he been sued by the party with whom he 
 dealt, but that such defenses, usually lack of consideration, fraud 
 in the inducement, payment or breach of contract, etc., were shut 
 out when he was sued by a holder in due course. Occasionally 
 some person will assert against the holder in due course an equity 
 of ownership, and we found that these equities were likewise shut 
 out in the hands of the holder in due course. The point worthy 
 of observation here is that equities of defense more commonly 
 arise in connection with negotiable instruments payable in money 
 than do claims of ownership. Just the converse is true in connec- 
 tion with negotiable documents of title. Equities of defense are 
 seldom asserted, but claims of ownership continually arise. So in 
 looking at our second question we are concerned largely with 
 claims of ownership in the goods asserted, by other parties. When 
 will these claims be cut off? 
 
 When the bailor actually obtained a negotiable document, and 
 did not deposit any goods, obviously the innocent indorsee will 
 obtain no goods. This situation arises in this way : A person may 
 intend to deliver the goods to a carrier, and upon making this rep- 
 resentation will induce the agent to issue the bill of lading. Later 
 events may make it impossible to deliver, or the bailor may have 
 acted fraudulently. It is clear that the indorsee of the document 
 can acquire no title to the goods. But may he hold the carrier 
 liable? May the defense which the carrier clearly has against the 
 procurer of the document be asserted against the innocent in- 
 dorsee? Generally not. The carrier will be liable to the holder 
 of the bill. This defense is not available as against the innocent 
 holder — it being a personal defense. At common law there was a 
 conflict of authority on this point. Those courts which held that 
 the carrier could set up the defense of non-receipt of the goods 
 against the innocent holder allowed it upon the theory that the de^ 
 fense was a real defense; the execution and delivery of the docu- 
 ment by the carrier's agent being regarded as entirely an unau- 
 thorized act, tantamount to a forgery of the carrier's name. The 
 Uniform Bills of Lading Act now throws the loss upon tht car- 
 rier. This section is as follows : 
 
 Section 23. If a bill of lading has been issued by a carrier or 
 on his behalf by an agent or employee the scope of whose actual 
 or apparent authority includes the issuing of bills of lading, the 
 carrier shall be liable to the consignee found in a non-negotiable 
 bill or the holder of a negotiable bill. 
 
 Notice that this section is limited to cases where the bill was 
 issued by an agent whose actual or apparent authority included 
 the issuance of bills of lading. If the bill were issued by a switch- 
 man, the indorsee would acquire no rights against the carrier. A 
 warehouseman would be under a liability of similar scope. This 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1071 
 
 section would throw the liability on the carrier in a case where 
 some of the goods were received, but not as many as were called 
 for by this bill of lading. This situation may easily arise. A ship- 
 per of grain may declare that there were 500 bushels, when in 
 reality there were but 400. The carriers, may, however, avoid this 
 liability by inserting in the bill of lading the words "shipper's load 
 and count." This statement relieves the carrier from liability for 
 damages caused by improper loading or by non-receipt of the 
 goods. Section 23 of the Uniform Bills of Lading Act authorizes 
 this stipulation to be made and prescribes its effect. 
 
 Assuming, now, that goods were in fact delivered over to the 
 carrier or warehouseman, and a negotiable document issued for 
 them; are there any circumstances under which the holder of the 
 document will have a claim inferior to that of third parties? Ob- 
 viously there are such cases. If the bailor had stolen the goods, 
 he could not by the simple device of depositing them and procur- 
 ing a negotiable receipt obtain the power to cut off the claims of 
 the true owner. The indorsee will lose in this case. The case of 
 theft will not be common, but we know that there are a great many 
 situations where a person may have possession of goods, but will 
 not have the power to transfer a good title to a purchaser. In this 
 connection we should recall the subject-matter of Chapter III. 
 We there found that in some cases a person, although not the 
 owner of goods, did possess the power to transfer title to an inno- 
 cent purchaser. This power is not nearly so extensive as is the 
 power to transfer title to money and negotiable instruments pay- 
 able to bearer. In fact, the presumption is all against the exist- 
 ence of such power. Still, if the seller had a voidable title, or was 
 in possession of goods already sold, or where there was some ele- 
 ment of estoppel against the true owner, a party, though not the 
 owner, will have power to pass title to an innocent person. It is 
 then to be noticed that the introduction of the negotiable docu- 
 ment of title does not change this general situation in the slightest 
 degree. Section 33, above quoted, states that the title acquired by 
 the indorsee will be (1) the title which the person negotiating the 
 document had or (2) had ability to convey. A person will have 
 ability to convey title in cases where he is not owner, only in those 
 situations which were discussed in Chapter III. 
 
 Complications of great difficulty arise at this point. The prob- 
 lem of ascertaining the respective rights of the holder of the docu- 
 ment and of some other claimant is not always easy of solution. 
 In the first case presented. Commercial Bank v. J. K. Armsby Co., 
 a pledgee bank was protected. In the two cases following Com- 
 mercial Bank v. J. K. Armsby Co. a type of business transaction 
 is presented which is of considerable importance, particularly in 
 connection with the import and export trade. All manner of dif- 
 ficulty may arise therefrom, depending upon the nature of the 
 ■"accident" which has plunged the parties into litigation. These 
 two cases by no means exhaust the possibilities, but they are in- 
 
1072 ^ALES (Part 4 
 
 serted here, first, because of the commercial importance of the 
 transaction involved ; and, second, because they vividly reveal the 
 inherent difficulty in balancing the rights of the various parties 
 who may become concerned therein. 
 
 The situation may be called generally "the trust receipt trans- 
 action." An importer desires to import a cargo of goods. His 
 capital is limited. He does have credit. He arranges with a bank 
 either to accept bills of exchange drawn by the foreign exporter, 
 and the bank will issue a letter of credit, or in some way will bind 
 itself to pay the price to the foreign exporter. The cargo is ship- 
 ped, usually under negotiable documents of title, and finally the 
 bill of ladings accompanied by the bill of exchange, will be pre- 
 sented to the bank which has undertaken to finance the transac- 
 tion for the importer. The bank pays the exporter, and the banks 
 which represented him drop out. The other bank holds the impor- 
 ter's note and the bill of lading. So far this bank is the only 
 party who has parted with any money in connection with the 
 transaction. The bank does not expect to sell these imported 
 goods, but eventually it expects to transfer the possession to the 
 importer, who is chiefly interested in the shipment. The bank is 
 interested in the deal only to the extent that it desires reimburse- 
 ment of the funds advanced and a legitimate profit. But the im- 
 porter has no funds, and cannot pay until he sells the goods which 
 were imported. So the business problem which confronts the 
 bank is how to enable the importer to dispose of the goods, and 
 at the same time retain a sufficient hold upon the goods, and upon 
 the proceeds arising therefrom, to protect the loan to the importer. 
 
 There are various possibilities open. The bank may surrender 
 the bill of lading unconditionally, trusting to the importer's gen- 
 eral credit. Here, of course, there is no special protection what- 
 ever, except that which any general creditor has. Second, the 
 bank could transfer the bill of lading and require a mortgage back. 
 But this solution may be hedged with difficulty. Obviously the 
 mortgage must carry a power of sale to the importer; otherwise 
 he could not sell the goods. The mortgage would be of no value 
 to the bank as soon as the goods were sold, unless the mortgage 
 covered the proceeds arising from the sale. Furthermore, many 
 banks will not have power to take a chattel mortgage, and, even 
 if tFey did, the mor,tgage would not create an effective hold upon 
 the money derived from the sale, for money may be disposed of to 
 other creditors of the importer, in which case the bank's protec- 
 tion is gone, except in so far as such payments operate as recov- 
 erable preferences in bankruptcy. 
 
 Perhaps there are other possibilities, but the policy usually 
 adopted by the bank is to deliver the bill of lading to the importer 
 in exchange for what is known as a "trust receipt" executed by 
 the importer. This trust receipt may be executed for various pur- 
 poses. In the first place the importer may desire to obtain the 
 bill of lading merely for a temporary purpose, such as getting the 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1073 
 
 goods through the custom house, leaving for a later transaction 
 the arrangements under which a final sale by the importer may be 
 made. Or the trust receipt may permit a sale only to a particular 
 person. Whatever the reason for the delivery of the bill of lading 
 to the importer may be, if there be restrictions imposed upon the 
 importer's use of the bill of lading, we have a case where the 
 holder of the bill has intrusted the possession of the same to a per- 
 son who has but a limited legal right thereto; but he has a legal 
 power to dispose of the bill which is considerably broader than 
 his legal right so to do. 
 
 (X)MMERCIAL BANK v. J. K. ARMSBY CO. 
 (Supreme Court of Georgia, 1004. 120 Ga. 74, 47 S. B. 589, 65 L. R. A. 443.) 
 
 Action by the J. K. Armsby Company against the Commercial Bank. 
 Judgment for plaintiff, and defendant brings error. 
 
 Candler, J. The J. K. Armsby Company, an Illinois corporation, 
 shipped to Walton & Carr, their brokers in Augusta, a quantity of 
 salmon for distribution to different parties to whom the goods had 
 been sold. Walton & Carr were merely agents of the Armsby Com- 
 pany, and had no right or title to the salmon. The goods were ship- 
 ped from a point in Oregon, by parties from whom they had been or- 
 dered by the Armsby Company, on a through bill of lading to Augusta, 
 and were consigned to the order of the consignor, with directions to 
 notify Walton & Carr. The Armsby Company sent Walton & Carr a 
 check for the amount of the freight, which was paid, and it also mailed 
 them the original bill of lading, which was indorsed blank. Carr. a 
 member of the firm of Walton & Carr, took the bill of lading to the 
 Commercial Bank of Augusta, and hypothecated it for a loan of money. 
 Shortly thereafter Walton & Carr failed, and the bank converted the 
 salmon for the payment of its debt, whereupon the Armsby Company 
 brought against it the present suit, which was an action of trover. 
 The case was tried before the judge of the city court of Richmond 
 county, without a jury. * * * It was admitted that neither the 
 bank nor any of its officials knew or had reason to suspect that Carr 
 had no right to convey the salmon, and that, in the event the banlc 
 should be held liable, the proper amount to be recovered was $700. 
 The judge found in favor of the plaintiff, and rendered judgment in its 
 favor for the amount mentioned. The defendant excepted. * * * 
 
 The sole question for our determination, then, is, does a bill of lad- 
 ing of the character of the one involved in this suit constitute such 
 an external indicium of the right of disposing of the property for 
 which it was issued as to bring the case within the operation of the 
 rule laid down in the Code. As a general rule, the transferee of a 
 bill of lading can obtain no better title to the goods which it covers 
 than that which was in the person by whom it was transferred. In- 
 deed, it is a self-evident proposition that no man can convey that which 
 he does not possess. But the true owner of property may, by placing 
 it in the power of another to defraud innocent purchasers by an ap- 
 parently valid transfer of the property, cut himself off from claiming 
 it, and thereby divest the title from himself. In 4 Am. & Eng. Enc. L. 
 (2d Ed.) 551, it is said that an important exception to the general rule 
 B.& B.BUB.LAW— 68 
 
1074 SALES (Part 4 
 
 which has already been stated "arises in the case of the transfer of a 
 bill of lading to a bona fide purchaser for value by a consignee to whom 
 the goods are by the terms of the instrument made deliverable, or to 
 whom the consignor and original owner of the goods has indorsed 
 and delivered the bill. It seems to be established that in this case the 
 transfer defeats the vendor's right of stoppage in transitu, and passes 
 the title to the goods to the bona fide transferee." * * * While a 
 bill of lading is not in the full sense a negotiable instrument, it is 
 treated by universal commercial usage as a symbol of the goods For 
 
 which it is issued, and consequently it is in a measure negotiable. 
 
 * * * 
 
 The following language from the opinion of Mr. Justice Miller in 
 the case of McNeal v. Hill, Woolw. 96, Fed. Cas. No. 8,914, is there 
 quoted with approval: "As civilization has advanced and commerce 
 extended, new and artificial modes of doing business have superseded 
 the exchanges by barter and otherwise which prevail while society is 
 in its earlier and simpler stages. The invention of the bill of exchajige 
 is a familiar illustration of this fact. A more modern, but still not 
 recent, invention of like character, for the transfer, without the cum- 
 bersome and often impossible operations of actual delivery, of articles 
 of personal property, is the indorsement or assignment of bills of 
 lading and warehouse receipts. Instruments of this kind are sui gen- 
 eris. From long use and trade they have come to have among com- 
 mercial men a well-understood meaning, and the indorsement or as- 
 signment of them as absolutely transfers the general property of the 
 goods and chattels therein named as would a bill of sale." 
 
 In this case there was no dispute as to the general custom of trade 
 in regard to bills of lading of the character of the one negotiated by 
 Carr with the Commercial Bank. It was the daily practice of banks 
 in Augusta and elsewhere to advance money on such security, for 
 possession of the bill of lading was regarded as prima facie evidence 
 of the title of the holder to the goods of which the bill was the sym- 
 bol. Ordinarily bills of lading of this kind are attached to drafts for 
 the purchase price of the goods, and can only be obtained by payment 
 of the drafts. Carr's possession of the bill of lading was therefore 
 prima facie evidence that he had paid a draft drawn by the consignor, 
 and was entitled to the property. * * * 
 
 Judgment reversed. * * * 
 
 ROLAND M. BAKER OO. v. BROWN et al. 
 
 (Supreme Judicial Court of Massachusetts, 1913. 214 Mass. 196, 
 100 N. E. 1025.) 
 
 Action by the Roland M. Baker Company against Waldron P. Brown 
 and others. There were findings for defendants, and plaintiff brings 
 exceptions. 
 
 Tort to recover for the alleged conversion of 120 bales of hides which 
 plaintiff claimed to own by reason of a bill of lading which it had re- 
 ceived from the Columbia Leather Co. 
 
 Sheldon, J. This case seems to have been dealt with, both at the 
 trial and at the argument in this court, largely as if the plaintiff's 
 rights depended upon the title which it acquired when the bill of lad- 
 ing for the goods in question, with the indorsements thereon, was de- 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1075 
 
 livered to it. If that were so, it might be found, as was found at 
 the tirial, that the plaintiff tooli the bill of lading with notice of the de- 
 fendants' claim to the goods represented thereby and of the trust 
 receipt which the defendants had t^ken from the Massachusetts Hider 
 Company, and so was not a purchaser in good faith and without no- 
 tice of the breach of duty of the Hide Company in violating the terms 
 of that trust receipt. But that point is not decisive of the case. The 
 plaintiff had, or there was evidence that it had, purchased the hides 
 of the Columbia Leather Company; and if so, the plaintiff, whatever 
 notice or knowledge it may have had of the defendants' rights, yet ac- 
 quired all the rights of its vendor. * * * 
 
 The testimony was that the Columbia Company took these hides from 
 the Massachusetts Hide Company in payment of a debt due to it from 
 the Hide Company. The defendants had held this bill of lading, and 
 the goods mentioned therein were to be delivered to their order, in 
 consequence of their having issued to the Hide Company a letter of 
 credit, upon which the hides had been purchased in Russia, and shipped 
 to Boston. The defendants had paid or caused to be paid the drafts 
 drawn under their letter of credit for the price of the hides, and bills 
 of lading for the hides had been issued in triplicate, all of which were 
 originals and "one of which being accomplished, the others [were] 
 to stand void." The defendants were accordingly the absolute owners 
 of the hides. * * * 
 
 The defendants then, before the arrival of the hides, but after they 
 had received the bills of lading, wrote upon the back of the first of 
 the triplicate bills the indorsement signed by them, "Deliver to Massa- 
 chusetts Hide Corporation," and on August 11th delivered it to a clerk 
 of that company. This they did upon the representation of that com- 
 pany that it wished to arrange for the custom-house entry in advance 
 of the arrival of the ship, with the understanding and intention of both 
 parties that the Hide Company should take the bill merely as the agent 
 of the defendants, and without any design to pass to the Hide Company 
 the title either to the bill of lading or to the goods which it represented, 
 but with authority to sell the same to one Baker whom the Hide Com- 
 pany falsely represented that it had obtained as a purchaser thereof. 
 At the same time with the bill of lading, the defendants handed to the 
 Hide Company a "trust receipt," to be properly filled in and signed and 
 returned to the defendants. This was done, and the trust receipt was 
 returned to the defendants a few days later signed by the Hide Com- 
 pany and by, its treasurer. By this receipt, the signers acknowledged 
 that they had received from the defendants the hides "in trust to de- 
 liver the same to R. M. Baker, who have [sic] purchased the same 
 and to obtain form the purchaser the proceeds of the sale of the same," 
 and to deliver immediately such proceeds to the defendants. This trust 
 receipt provided also that the defendants might at any time cancel the 
 trust and take possession of the goods or the proceeds thereof. 
 
 By this transaction, under the common law as declared by our de- 
 cisions, the title to the hides remained in the defendants; the Hide 
 Company had no power to dispose of them in any other way than by 
 a sale to Baker; and no one else could by a purchase from the Hide 
 Company or by any dealings with it acquire a title to the hides which 
 would be good against the defendants. The bill of lading merely repre- 
 sented the goods themselves ; the Hide Company had no greater right, 
 and could pass to any purchaser other than Baker no greater right. 
 
1076 SALES (Part 4 
 
 than if its possession with this limited authority had been of the goods 
 themselves instead of the bill of lading which was their representa- 
 
 tlVG -p sp -P 
 
 But before any of these transactions took place our Uniform Bills 
 of Lading Act (St. 1910, c. 214) had been passed. Section 5, of that 
 act provides that "a bill in which it is stated that the goods are con- 
 signed or destined to the order of any person named in such bill, is 
 a negotiable or order bill." By section 29, "a negotiable bill may be 
 negotiated by the indorsement of the person to whose order the goods 
 are deliverable by the tenor of the bill. Such indorsement may be in- 
 blank or to a specified person. If indorsed to a specified person, it 
 may be negotiated again by the indorsement of such person in blank 
 or to another specified person." By section 32, any one to whoni a 
 negotiable bill has duly been negotiated acquires thereby "such title 
 to the goods as the person negotiating the bill to him had, or had abil- 
 ity to convey to a purchaser in good faith for value, and also such ti- 
 tle to the goods as the consignee and consignor had, or had power to 
 convey to a purchaser in good faith for value." By section 38, "the 
 validity of the negotiation of a bill is not impaired by the fact that 
 such negotiation was a breach of duty on the part of the person mak- 
 ing the negotiation, or by the fact that the owner of the bill was de- 
 prived of the possession of the same by fraud, accident, mistake, du- 
 ress or conversion, if the person to whom the bill was negotiated, or 
 a person to whom the bill was subsequently negotiated, gave value 
 therefor, in good faith, without notice of the breach of duty, or fraud, 
 accident, mistake, duress or conversion." And section 39 further 
 adds that "where a person having sold, mortgaged or pledged goods 
 which are in a carrier's possession and for which a negotiable bill has 
 been issued, or having sold, mortgaged or pledged the negotiable bill 
 representing such goods, continues in possession of the negotiable bill, 
 the subsequent negotiation thereof by that person under any sale, 
 pledge or other disposition thereof to any person receiving the same 
 in good faith, for value and without notice of the previous sale, shall 
 have the same effect as if the first purchaser of the goods or bill had 
 expressly authorized the subsequent negotiation." 
 
 The efifect of the statute has been to change fundamentally the 
 rights of parties to transactions within its purview. In the present 
 case if the statute applies to it, when the defendants delivered their 
 bill of lading to the Hide Company, with their unconditional and un- 
 limited indorsement thereon, they intrusted their property to the hon- 
 esty of that company and relinquished their right to set up their 
 title against any one who might in good faith, for value, and with- 
 out notice of the duty which rested upon the Hide Company, purchase 
 from that company the goods described in the bill and take from that 
 company a delivery of the bill itself duly indorsed by it. The previous 
 decisions of this court, by which the defendants were protected against 
 the consequences of their agent's breach of duty, have been abrogated 
 and nullified by the statute. As is said in Williston on Sales, § 437, 
 the statute "renders unsafe what has doubtless been a common prac- 
 tice of bankers — the intrusting of the documents for a special purpose 
 to the pledgor of them or the proposed buyer of the goods." The 
 Columbia Company seems from the findings of the judge to have 
 made, or at any rate it could be found to have made and there is no 
 finding that it did not make, its purchase from the Hide Company in 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1077 
 
 good faith and without notice of any limitation upon the authority 
 or any breach of duty of the Hide Company. It gave value for its 
 purchase. The statute provides (section 53) that "an antecedent or 
 pre-existing obligation, whether for money or not, constitutes value 
 where a bill is taken either in satisfaction thereof or as security 
 therefor." If the statute applies to this case, the plaintiff's exceptions 
 must be sustained. The case then, must be governed by the decisions 
 which either were made upon statutes resembling more or less closely 
 the one which we are considering, or independently of statutes have 
 adopted the rule thereof instead of the one laid down in our former 
 decisions. * * * 
 
 It follows from what has been said that the Columbia Company 
 by its purchase from the Hide Company and the indorsement and 
 delivery of the bill of lading acquired as against the defendants a 
 good title to the hides, and that title passed to the plaintiff by its pur- 
 chase from the Columbia Company. The act of the defendants in ob- 
 taining the hides from the carrier by means of the second bill of lad- 
 ing was, as to the plaintiff, wrongful and having been done under a 
 claim of right, constituted a conversion, for which they became liable 
 to the plaintiff; and no demand was necessary before bringing the 
 action. * * * 
 
 Nor can the defendants be heard to claim that the first bill of lad- 
 ing had become a spent document, upon the ground that before the 
 plaintiff received that bill the carrier had delivered the hides to the 
 defendants upon the second original bill of lading, which had re- 
 mained in their possession. It may be that the carrier was justified 
 in making this delivery, and that the plaintiff could not have maintain- 
 ed any action against the carrier therefor. * * * But it was none 
 the less, as to all parties claiming under the first bill, which the de- 
 fendants had indorsed and allowed to be put into circulation, a de- 
 livery wrongfully obtained by the defendants. * * * 
 
 Exceptions sustained. 
 
 Suppose, in the preceding case, that the person to whom was in- 
 trusted the negotiable document of title, instead of negotiating it, 
 had surrendered the bill to the carrier, obtained actual possession 
 of the goods, and had then sold the goods ; would the purchaser 
 be protected against the claim of the holder of the trust receipt? 
 Is the possession of the goods themselves to be deemed a rep- 
 resentation by the owner — in this case the holder of the trust re- 
 ceipt — that the party in possession of the goods has power to dis- 
 pose of them. It is possible to say that such person is now in the 
 position of an ordinary bailee, and therefore has no such power. 
 It is possible to reach a contrary result by saying that the trust 
 receipt evidences a conditional sale. In some states the 
 holder of the trust receipt, the conditional vendor, would be pro- 
 tected ; in others he would not be, for there is a conflict in the au- 
 thorities as to whether the conditional vendor or the purchaser 
 from the conditional vendee shall be protected. Many states have 
 statutes requiring the recording of conditional sales contracts to 
 render them effective against creditors and purchasers of the con- 
 
1078 SALES (Part 4 
 
 ditional vendee. In such states the holder of the trust receipt 
 would be protected if the instrument were recorded, but he would 
 not be protected if it were not recorded. A slight variation in the 
 facts would also change the result. 
 
 Suppose that, after obtaining possession of the goods, the goods 
 are stored in a warehouse, and negotiable warehouse receipts pro- 
 cured, all without authority from the holder of the trust receipt, 
 and then suppose the warehouse receipt is negotiated to an inno- 
 cent holder; would this purchaser obtain title good against the 
 holder of the trust receipt? This would depend entirely upon 
 whether the depositor of the goods in the warehouse had power to 
 sell the goods. A person who, being intrusted with a negotiable 
 document of title, while he has power to pass a good title to the 
 document to an innocent purchaser will not necessarily have such 
 a corresponding power to sell the goods, if in breach of his duty 
 he attempts to sell them. In this connection would section 20(4) 
 add to the power of the bailee in possession of the goods. A clause 
 therein pfrovides that, where the seller sends the negotiable bill of 
 lading, accompanied by a draft, directly to the buyer, he acquires 
 no added right if he wrongfully dishonors the bill. The section 
 then adds : "If, however, * * * Qjje who purchases in good 
 faith, for value, the bill of lading or goods from the buyer will ob- 
 tain the property in the goods." 
 
 The next case presents a situation involving a re-deposit of the 
 goods and a negotiation of the document to an innocent holder. 
 
 COMMERCIAL NAT. BANK OP NEW ORLEANS V. OANAL-LOUISIANA 
 BANK & TRUST CO. et al. 
 
 (Supreme Court of the United States, 1916. 239 U. S. 520, 36 Sup. Ct. 194, 
 60 L. Ed. 417, Ann. Cas. 1917B, 25.) 
 
 Hughes, J. This is a controversy arising in a bankruptcy proceed- 
 ing. The Conamercial National Bank of New Orleans petitioned the 
 district court for the recovery from the trustee in bankruptcy of certain 
 bales of cotton alleged to have been held by the bankrupts, Dreuil & 
 Company, for the account of the petitioner under trust receipts. The 
 Canal-Louisiana Bank & Trust Company defended, presenting its re- 
 conventional demand based upon a claim of superior title. The district 
 court entered a decree in favor of the Canal-Louisiana Bank & Trust 
 Company, which was affirmed by the Circuit Court of Appeals. 
 
 The controversy arises from the following transactions which were 
 had prior to the bankruptcy. On December 9, 1912, Dreuil & Co., 
 holding inland bills of lading for two lots of cotton (40 bales and 60 
 bales respectively), pledged the bills of lading with the Canal-Louisi- 
 ana Bank to secure certain promissory notes for moneys advanced. 
 On December 13, 1912, the bills of lading were withdrawn from the 
 Canal-Louisiana Bank on trust receipts, as follows : 
 
 "Received of Canal Bank & Trust Company the bills of lading or 
 other documents or securities as enumerated below, held by the said 
 bank as collateral pledged to secure advances made to the undersigned. 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLB 1079 
 
 and in consideration thereof, the undersigned hereby agrees to pay 
 over to the said bank or its assigns, and to specifically apply against 
 the very same advances the proceeds of the sale of the property men- 
 tioned in the said documents ; or to deliver to the said bank or its as- 
 signees the shipping documents or warehouse receipts representing 
 the undermentioned goods within one day from the receipt thereof, 
 this delivery being temporarily made the undersigned for convenience 
 only, without novation of the original debt, or giving the undersigned 
 any title thereto, except as trustee for the said bank, and except to re- 
 ceive the avails thereof or the documents therefor for account of the 
 said bank." 
 
 Dreuil & Co., surrendering the bills of lading to the railroad com- 
 pany, obtained delivery of the cotton and sent it to a "pickery," where 
 the lot of 40 bales was remade into 60, and the lot of 60 bales into 90. 
 Dreuil & Co. then stored the cotton with a warehouseman, the Planters' 
 Press, receiving two negotiable warehouse receipts which, on Decem- 
 ber 17, 1912, they pledged to the Commercial Bank as security for their 
 notes. On December 20, 1912, and December 28, 1912, these ware- 
 house receipts, respectively were withdrawn by Dreuil & Co. from the 
 Commercial Bank on trust receipts similar in tenor to those which 
 had been given as above stated, to the Canal-Louisiana Bank. Dreuil 
 & Company then obtained a delivery of the cotton from the Planters' 
 Press; on December 31, 1912, they were adjudicated bankrupts and 
 temporary receivers were appointed. It appears that 60 of the bales had 
 been disposed of, but the remainder of the cotton, which had been sent 
 by Dreuil & Co. to a steamer for shipment, was recovered by the re- 
 ceivers and placed by them in the Planters' Press, warehouse receipts 
 being issued therefor which passed into the possession of the trustee. 
 Despite the changps mentioned, and re-markings (which we need not 
 consider) , the District Court found the identity of the cotton to be es- 
 tablished, and there is no further controversy upon that point. Nor is 
 it controverted that the Commercial Barlk was a purchaser in good 
 faith for value of the warehouse receipts negotiated to it. 
 
 We assume that under the jurisprudence of Louisiana the transac- 
 tion between Dreuil & Co. and the Canal-Louisiana Bank (described by 
 the bank as a pledge) created rights in the bank in the nature of own- 
 ership for the purpose of securing its advances * * * (Uniform 
 Bills of Lading Act, § 32), and that when the Canal-Louisiana Bank 
 intrusted the bills of lading to Dreuil & Co. for the purposes described 
 in the trust receipts, given to that bank, it could still assert its title as 
 against Dreuil & Co. and their trustees in bankruptcy. * * * The 
 bills of lading were not negotiated; they served their purpose, being 
 surrendered to the railroad company on the delivery of the goods to 
 Dreuil & Co. The transactions with the "pickery" are not material 
 to the question to be decided. Dreuil & Co. having obtained possession 
 of the cotton, as was contemplated, placed it in store and the question 
 is as to the effect of the negotiation of the warehouse receipts to the 
 Commercial Bank. 
 
 It is a familiar rule that one who has no title to chattels cannot trans- 
 fer title unless he has the owner's authority or the owner is estopped. 
 * * * j^ follows that, in the absence of circumstances creating an 
 estoppel, one without title cannot transfer it by the simple device of 
 warehousing the goods and indorsing the receipts. But if the owner 
 of the goods has permitted another to be clothed with the apparent 
 
1080 SALES (Part 4 
 
 ownership through the possession of warehouse receipts, negotiable in 
 form, there is abundant ground for protecting a bona fide purchaser 
 for value to whom the receipts have been negotiated. * * * 
 
 It will be observed that "one who takes by trespass or a finder is 
 not included within the description of those who may negotiate." Re- 
 port of Commissioners on Uniform State L,aws, January 1, 1910, p. 
 204. Aside from this, the intention is plain to facilitate the use of 
 warehouse receipts as documents of title. Under section 40, the person 
 who may negotiate the receipt is either the "owner thereof," or a "per- 
 son to whom the possession or custody of the receipt has been intrusted 
 by the owner" if the receipt is in the form described. The warehouse 
 receipt represents the goods, but the intrusting of the receipt, as stated, 
 is more than the mere delivery of the goods; it is a representation 
 that the one to whom the possession of the receipt has been so intrust- 
 ed has the title to the goods. By section 47, the negotiation of the re- 
 ceipt to a purchaser for value without notice is not impaired by the 
 fact that it is a breach of duty, or that the owner of the receipt was 
 induced "by fraud, mistake, or duress" to intrust the receipt to the 
 person who negotiated it. And, under section 41, one to whom the 
 negotiable, receipt has been duly negotiated acquires such title to the 
 goods as the person negotiating the receipt to him, or the depositor 
 or person to whose order the goods were deliverable by the terms of 
 the receipt, either had or "had ability to convey to a purchaser in good 
 faith for value." The clear import of these provisions is that if the 
 owner of the goods permits another to have the possession or custody 
 of negotiable warehouse receipts running to the order of the latter, or 
 to bearer, it is a representation of title upon which bona fide pur- 
 chasers for value are entitled to rely, despite breaches of trust or vio- 
 lations of agreement on the part of the apparent owner. 
 
 It cannot be doubted that if Dreuil & Co. had pledged to the Com- 
 mercial Bank the bills of lading which they withdrew from the Canal- 
 Louisiana Bank under the trust receipts, the former, paying value in 
 good faith, would have had the superior right. This would have been 
 directly within the terms of the Uniform Bills of Lading Act. * * * 
 It seems to be contended that the case is different with the warehouse 
 receipts. But it cannot be said that it was not within the contempla- 
 tion of the parties that Dreuil & Company, on obtaining the goods from 
 the railroad company, should put them in warehouse and take the usu- 
 al receipts. As we have stated, we are not concerned with what hap- 
 pened at the "pickery," as the case is precisely the same, so far as the 
 Commercial Bank is concerned, as if the original bales had been ware- 
 housed (without remarking) as soon as received. It was not the plac- 
 ing of the cotton in warehouse in the usual course of business, but the 
 negotiation of the receipts, that constituted the violation of Dreuil & 
 Co.'s agreement with the Canal-Louisiana Bank. By the very terms 
 of that agreement Dreuil & Co. were to take the position of "trustee" 
 for the bank, with authority to receive "the avails" of the goods or 
 "the documents" therefor for account of the bank, and being bound 
 to apply the proceeds of sale to the bank's advances. And in taking 
 documents of title, in drdinary course, pursuant to the agreement, 
 which was intended to facilitate the disposition of the cotton through 
 Dreuil & Co., the latter were manifestly permitted to take such docu- 
 ments to their own order, as they took the bills of lading with which 
 they were intrusted. To repeat, it was the negotiation of the receipts 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1081 
 
 that constituted the breach of trust. But after the Canal-LOuisiana 
 Bank had allowed Dreuil & Co. to be clothed with apparent ownership 
 through possession of the receipts, it cannot be heard to question the 
 title of a bona fide purchaser for value to whom they had been nego- 
 tiated. * * * 
 
 It is said that under the law of Louisiana, as it stood prior to the 
 enactment of the Uniform Warehouse Receipts Act, the Commercial 
 Bank wovtld not have taken title as against the Canal-Louisiana Bank. 
 * * * and it is urged that the new statute is but a step in the devel- 
 opment of the law, and that decisions under the former state statutes 
 are safe guides to its construction. We do not find it necessary to re- 
 view these decisions. It is apparent that if these uniform acts are 
 construed in the several states adopting them according to former local 
 views upon analogous subjects, we shall miss the desired uniformity, 
 and we shall erect upon the foundation of uniform language separate 
 legal structures as distinct as were the former varying laws. It was 
 to prevent this result that the Uniform Warehouse Receipts Act ex- 
 pressly provides (section 57) : "This act shall be so interpreted and 
 construed as to effectuate its general purpose to make uniform the 
 law of those states which enact it." This rule of construction requires 
 that in order to accomplish the beneficent object of unifying, so far 
 as this is possible under our dual system, the commercial law of the 
 country, there should be taken into consideration the fundamental pur- 
 pose of the uniform act, and that it should not be regarded merely as 
 an off-shoot of local law. The cardinal principle of the act — 
 which has been adopted in many states — is to give effect, within the 
 limits stated, to the mercantile view of documents of title. There had 
 been statutes in some of the states dealing with such documents, but 
 there still remained diversity of legal rights under similar commercial 
 transactions. We think that the principle of the uniform act should 
 have recognition to the exclusion of any inconsistent doctrine which 
 may have previously obtained in any of the states enacting it ; and, in 
 this view, we deem it to be clear that, in the circumstances disclosed, 
 the Commercial Bank took title to the warehouse receipts and to the 
 cotton in question. 
 
 Finally, it is insisted that whatever right the Commercial Bank 
 might have had, if it had retained the warehouse receipts, it lost as 
 against the Canal-Louisiana Bank by permitting Dreuil & Co. to with- 
 draw the documents under the trust receipts which they gave to the 
 Commercial Bank ; that is, that as the cotton came into the possession 
 of Dreuil & Co., the equities of the two banks are equal, and the earlier 
 equity should prevail. We think that this contention begs the question. 
 The Commercial Bank did not lose its rights by permitting the with- 
 drawal of its warehouse receipts under the agreement to hold for its 
 account, any more than the Canal-Louisiana Bank lost its rights merely 
 by the withdrawal of the bills of lading under its trust receipts. It 
 was because the Canal-Louisiana Bank clothed Dreuil & Co. with the 
 indicia of ownership that a bona fide purchaser for value was enabled 
 to take title; and a similar result would have followed if, after the 
 withdrawal of the warehouse receipts from the Commercial Bank, 
 there had been a like negotiation by Dreuil & Co. But there was no 
 subsequent negotiation, and the Commercial Bank, in the absence of 
 the intervention of a purchaser in good faith for value, did not lose 
 its rights by the agreement under which the cotton which it had duly 
 
1082 SALES ^Part 4 
 
 acquired was to be held for its account. There is no equahty of equi- 
 ties, for it was through the action of the Canal-Louisiana Bank and 
 the apparent ownership ,it created in Dreuil & Co. that the Commer- 
 cial Bank was led to advance its money upon the faith of the docu- 
 ments of title. 
 
 The decree is reversed and the cause is remanded, with direction to 
 enter a decree in favor of the appellant. 
 
 Before leaving the subject of trust receipts, let us examine brief- 
 ly one further situation. The holder of the trust receipt has deliv- 
 ered the bill of lading, and authorized the holder of the bill, the 
 buyer, to obtain possession of the goods, and has authorized him 
 to sell the goods in the regular course of trade. But the trust re- 
 ceipt provides that the proceeds arising from the sale of the goods 
 shall be held in trust for the holder of the trust receipt. Suppose 
 the buyer becomes bankrupt; may the holder of the trust receipt 
 claim the whole of this fund, or must such holder share with all 
 other creditors? The bankruptcy of the buyer is the very contin- 
 gency which the bank desired to protect itself against, and to bring 
 about this result attempted to create a trust. It will be recalled 
 that property held in trust by a bankrupt does not constitute a part 
 of his assets. The beneficiary may claim it, and is not forced to 
 share with general creditors. The parties have called this a trust, 
 and it would seem, therefore, that the holder of the trust receipt 
 would be protected, and many courts so hold. But calling a thing 
 a trust will not make it so. The term "trust" is descriptive of 
 certain legal relations existing between a person called a trustee, 
 and a person called a beneficiary or cestui que trust. A horse may 
 be called a race horse, but calling him such gives him no capacity 
 to run fast. So it is possible that the trust receipt does not evi- 
 dence a real trust. Some courts take this view. Which view was 
 stated by the Supreme Court of the United States in its opinion 
 in the Canal Bank case to be correct? 
 
 Enough has been said to show the generail nature of these prob- 
 lems, although there are many situations which have not been ad- 
 verted to. Where a person is financing transactions involving con- 
 siderable risk, the plan of handling them should not be adopted 
 without obtaining the judgment of able counsel, who have had the 
 opportunity of making a searching investigation into the matter, 
 from the standpoint of the local law. 
 
 This closes the discussion as to question 2, heretofore raised, as 
 to the circumstances under which the negotiation of a negotiable- 
 document of title cuts off claims of third parties, and we have seen 
 that the indorsee does take some risk. In some cases he will ac- 
 quire no title, although the rules go quite far in protecting him. 
 
 The third question concerns the rights of the indorsee against 
 the carrier. We have already noted the circumstances under which 
 a carrier will be liable to the indorsee where the carrier received 
 
Ch. 4) NEGOTIABLE DOCUMENTS OP TITLE 1083 
 
 no goods. Will the carrier or warehouseman be liable to the in- 
 dorsee in the event that goods were received, but not owned by 
 the bailor? Obviously, it would seem, the bailee should not be 
 liable ; and this is the law. This defense of the carrier may be re- 
 garded as a real defense. So, also, as regards the kind or quality 
 of the goods shipped. The carrier will not be liable to the indorsee 
 for the seller's breach of contract, except where the bill of lading 
 misdescribed the goods under circumstances where the carrier 
 should have known that the statement was not true. If the goods 
 are lost or damaged in transit, generally the carrier will be liable, 
 but not always. The liability of a carrier for loss or damage to 
 goods opens up a broad subject, which we adverted to briefly in 
 Chapter XI of Contracts. If the carrier delivers the goods to the 
 buyer without requiring the surrender of the bill of lading, and if 
 at the time the negotiable bill is held by another party, may the 
 holder of the bill recover from the carrier for its wrongful deliv- 
 ery? 
 
 Before taking up the next case, it may be mentioned that, where 
 goods are sent under negotiable bills of lading, the usual practice 
 is to take out a bill running to the order of the seller. It is very 
 desirable that the buyer be assured of prompt notice of the arrival 
 of the goods, so that he may go to the bank, pay the bill of ex- 
 change, and procure the bill of lading. The only way to insure 
 the giving of such notice is for the buyer's name to appear on the 
 bill of lading to the carrier and to notify such party. The practice, 
 therefore, is to insert in the bill of lading the words "Notify A." — 
 A. being the buyer. Is a carrier justified in delivering the goods 
 to the "notify party" without obtaining the bill of lading? 
 
 CANANDAIGDA NAT. BANK v. CLBVELiAND, C, C. & ST. L. RY. CO. 
 
 (Supreme Court of New York, Appellate Division, 1913. 155 App. Div. 53, 
 
 -1.S9N. Y. Supp. 561.) 
 
 Action by the Canandaigua National Bank against the Cleveland, 
 Cincinnati, Chicago & St. Louis Railway Company. Judgment for 
 plaintifif, and defendant appeals. 
 
 Lambert, J. This action involves the value of a car load of apples, 
 shipped from Farmington, N. Y., to Terre Haute, Ind. The shipment 
 originated upon the Lehigh Railroad, and the defendant, was the 
 delivering carrier. The apples were loaded by the Manchester Prod- 
 uce Company, which concern owned the fruit, having collected and 
 purchased same in the vicinity of Farmington. 
 
 Through a pre-existing arrangement, this fruit was to be shipped 
 to John W. Neumann & Co., a copartnership, which was to market 
 the apples, first remitting to the Produce Company the cost price 
 thereof, and ultimately the Produce Company and Neumann & Co. 
 were to share equally in any profits of the venture. Similar practices 
 had been engaged in by these two business concerns prior to this par- 
 ticular shipment. At the request of Neumann & Co. and In pursuance 
 of prior arrangements, and for the purpose of facilitating the market- 
 
1084 SALES (Part 4 
 
 ing of these apples, this car was billed out as though Neumann & Co. 
 were the shippers. They were named in the bill of lading as consign- 
 ors. As between these two concerns, at least, this manner of ship- 
 ment was not intended to evidence any change of title to the property, 
 but was merely adopted for convenience. The actual title to the ap- 
 ples still remained in the Produce Company. 
 
 In the bill of lading, the consignees were named as follows: "Or- 
 der John W. Neumann & Co. Notify Dan Case." * * * 
 
 After initiating, this shipment and. receiving this bill of lading, the 
 Manchester Produce Company attached to the bill of lading a draft, 
 drawn upon Neumann & Co. for the cost price of these apples, and 
 then sold the draft and bill of lading to the plaintiff. The draft and 
 bill of lading were in the due course of business presented for payment 
 to Neumann & Co., and such payment was refused, upon the claim 
 made that the Produce Company was then largely indebted to Neu- 
 mann & Co. 
 
 Upon the arrival of this car at destination, the defendant, upon the 
 written order of Neumann & Co., delivered same to "Dan Case," who 
 was named therein to be notified of its arrival without requiring the 
 production, indorsement, or surrender of the bill of lading. Upon this 
 state of fact plaintiff brings this action for conversion. It must be 
 conceded that the defendant breached the contract of carriage by not 
 complying with its provisions, and, further, that conversion is the 
 proper remedy, if any exists in plaintiff. The sole question presented, 
 of consequence, is whether plaintiff is in a position to assert the con- 
 tract obligation of the bill of lading as against the defendant. 
 
 This manner of shipping property has the sanction of usage, and, 
 based upon the carrier's agreement to require the surrender of the 
 original bill of lading, a commercial practice has become established, 
 whereby the shipper is enabled, through banking institutions, to se- 
 cure the value of the property consigned, in advance of its delivery 
 at destination by the sale or pledge of the bill of lading. Such sale or 
 pledge, in effect, secures the value advanced by pledging the property 
 represented thereby. Such a course of commercial dealing has long 
 had the sanction of our courts. It has been uniformly held that the 
 transfer of the bill of lading transfers the title to the property repre- 
 sented thereby, and that such transfer of the bill of lading may be by 
 mere delivery thereof when such is the intention. * * * It is also 
 well settled that the bill of lading is valid and enforceable in the hands 
 of a bona fide transferee in all its terms and provisions. * * * 
 
 The only question remaining is whether the sale by the Manchester 
 Produce Company to plaintiff transferred any title. We can discover 
 no reason why it did not. The Produce Company was concededly the 
 owner of the apples. It had bought and paid for them. It had not 
 transferred the title to any other person, and its right to effect a sale 
 thereof was unlimited except that such sale was required to be subject 
 to its contract for the transfer of such title to Neumann & Company, 
 upon payment of the draft. The title of the Produce Company be- 
 ing complete, there was no restriction upon its right to sell the same, 
 and that object was accomplished by the transfer of the bill of lading! 
 The bank was then in a position to insist upon all the carrier's obliga- 
 tions, as expressed in the bill of lading. 
 
 Nor does the fact that the Produce Company named Neumann & 
 Co. as consignors have any effect upon the status of the parties. Such 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1085 
 
 fact did not work to the detriment of the carrier in any manner, and 
 hence no estoppel could arise. The bill of lading makes no restriction 
 upon the shipment in the name of the consignee instead of the con- 
 signor. Under its plain provisions, even if Neumann & Co. had ac- 
 tually initiated the shipment, its obligation to require the surrender 
 of the bill of lading remained unchanged. Under such circumstances, 
 the rights of third parties were just as likely to intervene shipment 
 and delivery. In fact, it is not an infrequent practice for the con- 
 signor of goods to ship them to his own order, with an accompanying 
 direction to notify third parties, and then to dispose of the bill of lad- 
 ing to banking institutions, as was done in this case, thus securing 
 his money for the shipment in advance of its delivery. ***!(; 
 will thus be seen that the naming of Neumann & Co. as consignors 
 did not affect the contract obligatiorj of the carrier. The only safe 
 course for the carrier was to observe its contract. By so doing it 
 could sustain no loss, while by its violation it would necessarily de- 
 feat the intervening property rights of third persons, who might deal 
 with the bill of lading, upon the faith of the agreement of the carrier 
 to require its production before making delivery. This is equally true, 
 whether the railroad supposed Neumann & Co. to be the consignors 
 or not. It cannot be said that the delivery in this instance was induc- 
 ed, in any way, by the manner in which this shipment was made. 
 The carrier chose to violate the plain obligation it had assumed and 
 with entire disregard to the rights of the plaintiff. Because of such 
 delivery the defendant was unable to surrender the property to the 
 plaintiff and a conversion thereby arose, for which the defendant 
 should be held liable. 
 The judgment appealed from should be affirmed. 
 
 In the above case, such delivery was wrongful. The holder of 
 the bill of lading could have recovered possession of the goods 
 from the person to whom the carrier made delivery. If the goods 
 are delivered to a person, who at the time was lawfully in posses- 
 sion of the bill of lading and entitled to delivery, but without re- 
 quiring surrender of the bill of lading, such person would thereby 
 obtain power to transfer title to the goods; that is, if the goods 
 were sold to one person and the bill of lading subsequently nego- 
 tiated to another person, in this case, the indorsee of the bill would 
 get no title to the goods, but such holder could hold the carrier lia- 
 ble for making delivery without requiring surrender of the bill of 
 lading. This rule is recognized in section 14 of the Uniform Bills 
 of Lading Act. 
 
 One additional class of rights against a carrier should here be 
 mentioned. The contractual obligations of the carrier, as provided 
 for in the bill of lading, are due to the holder of the bill of lading. 
 The indorsement of the document also operates as an assignment 
 of all the contract rights which the bailor had against the bailee. 
 Generally, perhaps, the holder of the bill, being the owner, pos- 
 sesses all the remedies necessary, solely because he is owner of the 
 goods; but sometimes it will be to his advantage to sue, not as 
 
1086 SALES (Part i 
 
 ■owner of the goods, but as assignee of the rights which the bailor 
 had against the bailee. The converse is not true. The carrier can- 
 not sue the holder of the bill of lading- for freight charge. The 
 •contractual obligations of the bailor do not pass by the assignment 
 of the bill. The carrier, however, cannot be compelled to surren- 
 der the goods until the freight is paid ; hence the carrier is in just 
 about as safe a position as though it were allowed to sue the holder 
 for the freight. The carrier would not have this right against the 
 ■owner of goods wrongfully shipped. 
 
 SECTION 5.— RIGHTS OF THE INDORSEE AGAINST 
 
 INDORSERS 
 
 Sales Act, Section 36. A person who for value negotiates or 
 transfers a document of title by indorsement or delivery, including 
 one who assigns for value a claim secured by a document of title, 
 unless a contrary intention appears warrants: 
 
 (a) That the document is genuine. 
 
 (b) That he has a legal right to negotiate or transfer it. 
 
 (c) That he ha? knowledge of no fact which would impair the 
 validity or worth of the document, and 
 
 (d) That he has a right to transfer title to the goods and that 
 the goods are merchantable or fit for a particular purpose, when- 
 ever such warranties would have been implied if the contract of the 
 parties had been to transfer without a document of title the goods 
 represented thereby. 
 
 Sales Act, Section 37. The indorsement of a document of title 
 shall not make the indorser liable for any failure on the part of the 
 bailee who issued the document or previous indorsers thereof to 
 fulfill their respective obligations. 
 
 Sales Act, Section 35. Where a negotiable document of title is 
 transferred for value by delivery, and the indorsement of the trans- 
 feror is essential for negotiation, the transferee acquires a right 
 against the transferor to compel him to indorse the document unless 
 a contrary intention appears. The negotiation shall take effect 
 as of the time when the indorsement is actually made. 
 
 The liability of an indorser of a document of title is very different 
 from the liability of the unqualified indorser of a negotiable instru- 
 ment payable in money, but is very much like the liability of the 
 indorser without recourse. The unqualified indorser of a nego- 
 tiable instrument enters into two kinds of obligations: (1) A se- 
 ries of warranties; and (2) a special engagement to pay the 
 amount called for by the instrument, if it be not paid at maturity, 
 conditioned upon there having been a due presentment for pay- 
 ment upon the person primarily liable and due notices of dishonor, 
 and, in case of a foreign bill, due notice of protest sent out to the 
 indorser. It is clear from sections 36 and 37 that the indorser or 
 transferor of a negotiable document of title does not enter into 
 
Ch. 4) NEGOTIABLE DOCUMENTS OP TITLE 1087 
 
 any such "special engagement." Therefore, with respect to nego- 
 tiable documents of title, there is no corresponding practice or ne- 
 cessity for making any due presentment upon the, bailee and for 
 the giving of notices of dishonor to indorsers. The indorsers of 
 the negotiable document of title does enter into the same warran- 
 ties which attach to the indorser "without recourse." It is true 
 that the act does not mention that such indorser warrants that 
 prior parties had capacity to contract, but the probabilities are that 
 such an obligation would be construed to be involved in the gen- 
 eral warranty that he has a legal right to negotiate it. The special 
 warranty expressed in 36 (d) has no analogy in the law of bills 
 and notes. From a practical standpoint the warranties pertaining 
 to the kind and quality of the goods are the most important. It 
 is to be noticed that, if certain warranties would have been implied, 
 had the parties been dealing with the goods directly, instead of by 
 means of a document of title, such warranties are still regarded as 
 attaching to the sale. All sellers of goods impliedly warrant cer- 
 tain things. A seller of a negotiable document of title is a seller 
 of goods ; therefore he incurs the liability which arises out of the 
 several implied warranties. There are six implied warranties : (1) 
 Of title; (2) in sale by description, that the goods shall corre- 
 spond to the description ; (3) of merchantability, in certain cases ; 
 (4) in sales by sample, that the goods shall correspond to the 
 sample; (S) of reasonable fitness for a particular purpose, in cer- 
 tain cases; and (6) any additional warranty arising out of estab- 
 lished usage. The Sales Act mentions but three of these warran- 
 ties, though it is not likely that section 36 (d) would be construed 
 as confining the liability of indorsers of negotiable documents of 
 title to these three types of implied warranties. 
 
 Do these warranties run to all successive holders, or do they 
 run only to the immediate indorsee? The Sales Act makes no pro- 
 vision, and the point seems not to have been decided. In nego- 
 tiable instruments we found that the indorser without recourse 
 warranted to all successive holders, but that the transferor by de- 
 livery warranted only to his immediate indorsed In sales of per- 
 sonal property, not involving negotiable documents of title, the 
 warranty extends only to the immediate buyer, except, perhaps, in 
 sales of food. Logically, we should say, therefore, that the war- 
 ranties specified in 36 (a), (b), and (c) would run to successive 
 holders, but not where the negotiation was by delivery, thus fol- 
 lowing out the analogy in negotiable instruments. But as re- 
 gards the warranties in 36 (d) the analogy in sales of personal 
 property generally should be followed, and these warranties, there- 
 fore, would not as a rule extend beyond the immediate indorsee. 
 
 What is the position of a bank which has taken for purpose of 
 collection a bill of exchange drawn by the seller upon the buyer 
 for the amount of the purchase price, which bill was attached to 
 a negotiable document of title? The negotiable document of title 
 will nearly always be indorsed, either specially to the bank or in 
 
1088 SALES (Part 4 
 
 blank, so that the bank has apparent ownership. If the bank has 
 already discounted the bill of exchange, then the bank has an ac- 
 tual interest in the bill of lading and in the goods, but the bank's 
 interest is essentially a pledgee's or mortgagee's interest. When 
 the bank indorses or delivers the bill to a sub-agent bank, does the 
 bank incur liability on the bill of lading? Generally not, because 
 this transaction is not a sale. The bill of exchange will usually be 
 indorsed restrictively to the sub-agent bank, and such an indorse:- 
 ment carries no liabilities upon the indorser, for it is merely a 
 transfer of title to the bill for the purpose of making a collection. 
 There has been no sale of the bill. The same would be true as re- 
 gards the transfer by the bank of the negotiable document of title. 
 The transaction is not a sale; therefore no liability would attach 
 to the bank. If the bills should get out of banking circles and be 
 sold to innocent parties, there is reason to think that the bank 
 would be liable. 
 
 Does the transfer of the bill of lading to the buyer, at the time 
 of the buyer's payment or acceptance of the bill of exchange, im- 
 pose upon the bank making such delivery any liability to the buyer 
 because of the seller's breach of contract? 'This question is raised 
 in the following case. The liability of the transferor by delivery 
 merely of a negotiable document of title, which is in such form as 
 to require indorsement to pass title, by section 35 is made the 
 same as that imposed upon the transferor of unindorsed negotiable 
 instruments payable in money, and the rights of such a transferee 
 are likewise the same. 
 
 TOLERTOiV & STETSON CO. v. ANGLO-CALIFORNIA BANK, Limited. 
 (Supreme Court of Iowa, 1901. 112 Iowa, 706, 84 N. W. 930, 50 L. R. A. 777.) 
 
 The petition originally filed in this case asked, briefly, for damages 
 on account of a breach of warranty, in the sale of merchandise. 
 Plaintiff is a corporation engaged in the wholesale grocery business 
 at Sioux City, Iowa. Defendant is a banking corporation. During 
 the summer of 1897 plaintiff purchased a car of canned goods from 
 the California Canneries Company, of San Francisco, under a warranty 
 that the goods should be equal in quality to certain samples shown. The 
 Canneries Company delivered said goods to a railway company at San 
 Francisco, taking a bill of lading therefor, in which defendant bank 
 was named as consignee at Sioux City. This bill of lading was by 
 defendant bank attached to a draft in its favor drawn by the Can- 
 neries Company on plaintiff for the price of said goods. The car of 
 goods came in the course of transit into possession of the Sioux City 
 & Pacific Railroad Company, and was by it delivered to plaintiff, who 
 paid to said railroad company the price of said merchandise, which sum 
 was paid over by the latter to defendant bank. Plaintiff relied on the 
 warranty in receiving the goods, and thereafter found such goods in- 
 ferior in quality to the samples. Plaintiff notified the Canneries Com- 
 pany of the breach of warranty, but nothing was done by the latter 
 to rectify matters. It is further alleged that defendant is the assignee 
 of the order for the purchase of said goods, and as such is bound by 
 
Ch. 4) NBGOTIABLH DOCUMENTS OF TITLE 1089 
 
 the warranty of the Canneries Company, and asks judgment against 
 it for the damages caused by such breach. 
 
 Waterman, j. * * * There was a sale of these goods with a 
 warranty, which was broken. Defendant was the payee of the draft 
 drawn by the Canneries Company on plaintiff for the price, with the 
 bill of lading attached, and as such received payment of the full pur- 
 chase price. The question to be determined is whether defendant is 
 now liable in damages for the breach of the Canneries Company's 
 warranty. It must be confessed that this theory of its liability is fully 
 supported by the case of Landa v. Lattin, 19 Tex. Civ. App. 246, 46 S. 
 W. 48, and that the doctrine of that case has been adopted and fol- 
 lowed by the supreme court of North Carolina in Finch v. Gregg, 
 126 N..C. 176, 35 S. E. 251, 49 L. R. A. 679, decided since the trial 
 below. If we were prepared to yield our assent to the line of reason- 
 ing pursued in these cases, we should have to affirm this judgment. 
 These decisions proceed upon the theory that the assignee stands in 
 all respects in the shoes of his assignor, and to this broad doctrine we 
 cannot agree. While the rights of such an assignee are to be measured 
 by those of his assignor, his liability is not necessarily the same. 
 
 Defendant bank could not have compelled payment by plaintiff of 
 any greater sum than could have been collected by the Canneries Com- 
 pany, but op what theory can we say it is liable on a contract of war- 
 ranty which it never made? The rule of the Landa Case is founded 
 on the thought that the transfer of the draft and bill of lading to the 
 bank amounted to a sale of the goods, and that the bank as a purchaser 
 undertook to deliver the goods and carry eut the Canneries Company's 
 contract with plaintiff, and because of these facts it necessarily assumed 
 the contract of warranty, although it may have been in fact ignorant 
 that any warranty was made. We do not think, even as the proposition 
 is thus stated, the premises justify the conclusion. But the premises 
 are not correct. The transaction between the Canneries Company and 
 defendant was not and could not be a sale of the goods, for they had 
 already been sold to plaintiff, and it was the intention of all parties 
 that such sale to plaintiff should be consummated by delivery. What 
 was in fact done by the assignment of the draft and bill of lading was 
 to transfer to the bank the Canneries Company's right to the price, and 
 to give it the possession of the goods as security. Manifestly, while the 
 bank could collect no more than its assignor would have been entitled 
 to, the character of its engagement was not such as to impose upon it 
 any liability to the buyer which it did not expressly assume. One who 
 purchases an account against another takes it subject to defenses, but 
 not to affirmative claims of the debtor on some collateral agreement 
 with the original creditor. The two cases cited stand alone in holding 
 the purchaser of a draft with the bill of lading attached liable on a 
 warranty made by the assignor, and the line of reasoning pursued to 
 reach this conclusion is so at variance with well-established elementary 
 principles of law that we decline to accept the rule they announce. 
 * * * 
 
 Plaintiff's remedy is against the Canneries Company. It has now 
 no enforceable claim against the bank. Reversed. 
 B.&B.BUS.LAW— 69 
 
1090 SALES (Part 4 
 
 SECTION 6.— RIGHTS OF CREDITORS AGAINST GOODS 
 REPRESENTED BY NEGOTIABLE DOCU- 
 MENTS OF TITLE 
 
 Sales Act, Section 39. If goods are delivered to a bailee by the 
 owner or by a person whose act in conveying the title to them to a 
 purchaser in good faith for value would bind the owner and a ne- 
 gotiable docvunent of title is issued for them they cannot there- 
 after, while in the possession of such bailee, be attached by gar- 
 nishment or otherwise or be levied upon under an execution un- 
 less the document be first surrendered to the bailee or its negotia- 
 tion enjoined. The bailee in no case can be compelled to deliver up 
 the actual possession of the goods imtil the document is surren- 
 dered to him or impounded by the court. 
 
 Sales Act, Section 40. A creditor whose debtor is the owner of 
 a negotiable document of title shall be entitled to such aid from 
 courts of appropriate jurisdiction by injunction and otherwise in 
 attaching such document or in satisfying the claim by means there- 
 of as is allowed at law or in equity in regard to property which 
 cannot readily be attached or levied upon by ordinary legal pro- 
 cess. 
 
 These sections carry out the underlying theory of negotiable 
 documents of title by giving to indorsees of such documents rights 
 superior to those of other persons. A creditor who seeks to levy 
 on the goods of his debtor, who then holds a document of title for 
 them, must act with considerable promptness, because the negotia- 
 tion of the document will cut off the right to levy on the goods. A 
 creditor is virtually barred from levying on the goods, and his 
 rights are confined to proceeding against the document. This re- 
 sult is brought about indirectly by the requirement that the credi- 
 tor must first obtain the document, or obtain a decree from a court 
 enjoining its negotiation. 
 
 SECTION 7.— RIGHTS OF TRANSFEREES OF A NON- 
 NEGOTIABLE DOCUMENT OF TITLE 
 
 Sales Act, Section 31. A document of title which is not in such 
 form that it can be negotiated by delivery may be transferred by 
 the holder by delivery to a purchaser or a donee. A non-negotiable 
 document cannot be negotiated and the indorsement of such docu- 
 ment gives the transferee no additional right. 
 
 Sales Act, Section 34. A person to whom a document of title 
 has been transferred, but not negotiated, acquires thereby, as 
 against the transferor, the title to the goods, subject to the terms 
 of any agreement with the transferor. 
 
 If this document is non-negotiable such person also acquires the 
 right to notify the bailee who issued the document of the transfer 
 thereof, and thereby to acquire the direct obligation of such bailee 
 
Ch. 4) NEGOTIABLE DOCUMENTS OF TITLE 1091 
 
 to hold possession of the goods for him according to the terms of 
 the document. 
 
 Prior to the notification of such bailee by the transferor or trans- 
 feree of a non-negotiable document of title, the title of the trans- 
 feree to the goods and the right to acquire the obligation of such 
 bailee may be defeated by the levy of an attachment or execution 
 upon the goods by a creditor of the transferor, or by a notification 
 to such bailee by the transferor or a subsequent purchaser from 
 the transferor of a subsequent sale of the goods by the transferor. 
 
 The purpose of this section is to make it clear that a straight 
 bill of lading cannot safely be used as a document of title. The 
 transferee never acquires a better right than his transferor had, 
 and even after receiving the document his right to the goods may 
 be defeated by a subsequent sale by his transferor, or by an exe- 
 cution against the goods levied by a creditor of the transferor. 
 
 Occasionally, even yet, persons overlook the important distinc- 
 tion between straight bills of lading and negotiable bills of lading, 
 as the next case shows. 
 
 C. E. WHITE & OO. V. CENTURY SAVINGS BANK OF 
 DES MOINES, IOWA. 
 
 (United States Circuit Court of Appeals, Seventh Circuit, 1916. 229 Fed. 975, 
 
 144 C. C. A. 257.) 
 
 Action by the Century Savings Bank of Des Moines, Iowa, against 
 C. E. White & Co., a corporation. Judgment for plaintiff, and defend- 
 ant brings error. 
 
 Baker, Circuit Judge. This is an action in trover, instituted by de- 
 fendant in error, a bank at Des Moines, Iowa, against White & Co., 
 a commission house at East St: Louis, 111. Judgment for the bank 
 was entered upon a directed verdict. 
 
 To sustain the charge of a tortious appropriation of the bank's chat- 
 tels, the following proofs were made : On June 22, 1908, Hough was 
 a stock buyer at Des Moines and was the owner and in possession of 
 319 hogs. He took them that day to the Wabash Railroad, which load- 
 ed them into cars and issued to him a bill of lading for their trans- 
 portation from "Shipper L. R. Hough," at Des Moines to "Consignee 
 C. E. White & Co.," at East St. Louis. Hough on the same day took 
 the bill of lading to the bank, indorsed it in blank, and signed a demand 
 draft on White & Co. in favor of the bank for $3,900. On delivery of 
 this draft and bill of lading the bank paid Hough the face value less 
 lawful discount. * * * j^ the evening of the same day the bank 
 deposited the draft with the bill of lading attached in the mail. * * * 
 The draft and bill of lading did not reach East St. Louis and were 
 not presented to White & Co. until June 2Sth. In the meantime, on 
 the morning of June 23d, "the hogs arrived in East St. Louis and were 
 delivered by the railroad to White & Co. Prior to this time White & 
 Co. had continuing authority and instructions from Hough to receive 
 his hogs and sell them promptly on commission. During the day of 
 June 23d White & Co. sold the hogs. Hough never directly revoked 
 his instructions. If his transfer of the bill of lading to the bank was 
 
1092 SALES (Part i 
 
 an indirect revocation. White & Co. had no knowledge thereof until 
 two days after they had parted with possession of the hogs. 
 
 Do these facts sustain the judgment in tort? * * * In our judg- 
 ment the difficulties in the present case arising from an apparent con- 
 flict between principles concerning factors and principles concerning 
 the rights of indorsees or holders of bills of lading are solvable by 
 reference to the different aspects in which a transference of a bill of 
 lading may be considered. 
 
 These are three: 1. As evidence of an intended sale, pledge, or 
 mortgage of the chattels described in the bill of lading, the same as 
 a separate document would be evidence. 2. As an assignment of the 
 shipper's rights against the carrier. 3. As a symbolic delivery of the 
 chattels, equivalent in law to manual delivery. It would seem that 
 there could be no doubt that all these elements characterize the trans- 
 ference of an "order" bill of lading. 
 
 But is the third element present as against the factor consignee of 
 a "straight" bill of lading? In our judgment, No. We believe that^a 
 '^straight" bill of lading is not a true document of title, possession of 
 which is symbolic of actual possession, and that the carrier's posses- 
 sion, though not for all purposes the actual possession of the consignee, 
 nevertheless is on his behalf. * * * if the consignor be in truth 
 the owner and the consignee merely his factor, the consignor may trans- 
 fer his interest as owner to a third person. But for that purpose his 
 assignment on and delivery of the bill of lading are of no greater force 
 than would be a separate bill of sale while the chattels were in the 
 actual possession of the carrier for the factor consignee. For, "strictly 
 speaking, no person but such consignee can, by an indorsement of the 
 bill of lading, pass the legal title to the goods." * * * In other 
 words, though the owner consignor may deal with his interest as own- 
 er by separate documents (and they are separate even if written upon 
 the bill of lading) , he is powerless to disturb the effect of the "straight" 
 bill of lading as against the carrier or the factor consignee without 
 notice. And this we believe is just, because the owner is the one who 
 creates the bill and selects its form. Necessarily the transferee of such 
 a bill is bound to take notice of its form and acquires no greater rights 
 than the transferrer had. And so the bank, succeeding only to Hough's 
 interest as owner of the consigned hogs, and failing to prove notice to 
 White & Co. of its interest before sale by White & Co., has not sus- 
 tained its declaration in trover. * * * 
 
 The judgment is reversed, with the direction to grant a new trial. 
 
Ch. 5J EEMEDIES OF THE SELLER 1093 
 
 CHAPTER V 
 REMEDIES OF THE SELLER 
 
 Section 
 
 1. Introduction. 
 
 2. Action for the Purchase Price. 
 
 3. Seller's Rights Against the Goods in General. 
 
 4. Unpaid Seller's Lien. 
 
 5. Right of Resale. 
 
 6. Right of Rescission. 
 
 7. Right to Damages for Breach of Contract to Sell. ' 
 
 SECTION 1.— INTRODUCTION 
 
 In this chapter we are to look at the contract after it has been 
 broken by the buyer, and the question is: What remedies does 
 the seller now have against the buyer? May he recover money 
 damages? If so, how much? Does the seller have any right to 
 keep or take back the goods sold or contracted to be sold? We 
 shall have to deal both with contracts of sale and contracts to sell. 
 We shall find that the seller in some cases may recover the amount 
 of the purchase price; in others, the seller will not be allowed to 
 recover as much as the purchase price, but is allowed only the dif- 
 ference between the contract price and the market price. We shall 
 also find that the seller has a right against the goods themselves 
 in some cases ; that is, he may keep them without being guilty of 
 any breach of contract, and in some cases he may even get them 
 back, although he has parted with their possession, and may keep 
 them as his own or resell them. 
 
 SECTION 2.— ACTION FOR THE PURCHASE PRICE 
 
 There are three situations where the seller is allowed by the law 
 to recover from the buyer, who has broken the contract, the actual 
 amount of the purchase price agreed upon : 
 
 (a) Where the title has passed to the buyer; (b) where, al- 
 though title has not passed, the buyer has agreed to pay the pur- 
 chase price on a day certain; (c) where, although title has not 
 passed to the buyer, and although the buyer has not agreed to pay 
 the price on a day certain, the property contracted to be sold was 
 of such a nature that it could not readily be resold for a reasonable 
 price. 
 
 The provisions of the Sales Act dealing with these three situa- 
 tions will be taken up in this order. 
 
 (a) ACTION FOR PURCHASE PRICE, WHERE TITLE HAS ALREADY 
 PASSED TO BUYER 
 
 Sales Act, Section 63. Where, under a contract to sell or a sale, 
 the property in the goods has passed to the buyer, and the buyer 
 
1094 SALES (Part 4 
 
 wrongfully neglects or refuses to pay for the goods according to 
 the terms of the contract or the sale, the seller may maintain an 
 action against him for the price of the goods. 
 
 This section recognizes the rule, which we have all along as- 
 sumed to be true, that the seller could recover the price, if title, or, 
 as the Sales Act here calls it, "the property," had passed to the 
 buyer. The main question in all such cases is to determine wheth- 
 er or not title had actually passed. We do not need to retrace this 
 ground which was covered in Chapters I, II, and IV. If the buyer 
 broke his contract one minute before title would have passed to 
 him, if something had not happened to prevent, this section is not 
 applicable. When invoking this section, the seller must prove that 
 title is in the buyer. One should l^ave in mind here particularly 
 sections 17, 18, 19, and 20 of the Sales Act, and also the sections 
 dealing with negotiable documents of title, and the cases which 
 we have taken up construing and applying these sections. With 
 that statement it is believed that it is not necessary to go further 
 into the section quoted above. 
 
 (b) ACTION FOR PURCHASE PRICE, ' WHERE TITLE HAS NOT 
 
 PASSED TO THE BUYEIi, BUT THE BUYER HAS AGREED 
 
 TO PAY THE PRICE ON A DAY CERTAIN 
 
 Sales Act, Section 63, Subsection 2. Where, under a contract 
 to sell or a sale, the price is payable on a day certain, irrespective 
 of delivery or of transfer of title, and the buyer wrongfully neg- 
 lects or refuses to pay such price, the seller may maintain an action 
 for the price, although the property in the goods has not passed, 
 and the goods have not been appropriated to the contract. But 
 it shall be a defense to such an action that the seller at any time 
 before judgment in such action has manifested an inability to per- 
 form the contract or the sale on his part or an intention not to 
 perform it. 
 
 This section states a general principle of contract law. If A. 
 agrees to sell his horse to B., and to transfer title and possession 
 to B. on February 1st next, and B. agrees to pay for the horse on 
 January 1st preceding the date 'fixed for transfer of title to him, it 
 is clear that B., having made a promise to perform on January 1st, 
 will at the close of that day be guilty of a breach of contract, and 
 A. may on January 2d sue B. for the price. By the express terms 
 of the contract the obligation of A. to deliver possession and to 
 transfer title to the horse were not conditions precedent to B.'s 
 obligation to perform. This situation is common in connection 
 with contracts of conditional sale, as is illustrated in the next case. 
 
Ch. 5) HEMEDIBS OF THE SELLER 1095 
 
 R. C. BAETLEY CO. v. LEIdJ. 
 (Supreme Court of New Jersey, 1915. 87 N. J. Law, 19, 93 Atl. 78.) 
 
 Action by the R. C. Bartley Company against Edwin Lee. There 
 was judgment for plaintiff, and defendant brings certiorari. 
 
 SwAYZE, J, The Bartley Company contracted with L,ee to put a 
 heating apparatus in his house, reserving title until he had paid for 
 the same. He paid a portion of the purchase price but refused to 
 pay the balance and when suit was brought claimed to recoup dam- 
 ages. The trial judge decided the facts in favor of the plaintiff, and 
 awarded judgment for the balance of the purchase price. The only 
 question presented by the appeal is whether it is proper to allow the 
 Bartley Company to recover the balance of the purchase price or 
 whether they should have been restricted to a recovery of the dam- 
 ages for breach of an executory contract of sale. The theory of the 
 defendant is that as the title did not pass, although the heating appara- 
 tus was in his house, the only remedy of the plaintiff was for breach 
 of an executory contract. Whether this is to be regarded as a work- 
 ing contract or a contract of sale strictly so called is of no importance. 
 Assuming, in the defendant's favor, that it was a contract of sale, the 
 law is settled adversely to his contention. 
 
 It is dealt with by Williston at section 579 of his treatise on Sales, 
 and is within the rule of section 63 of Sales Act, C. S. 4662. . It is 
 also the logical result of our decision in American Soda Fountain Co. 
 V. Vaughn, 69 N. J. Law, 582, 55 Atl. 54. As Prof. Williston says : 
 "No satisfactory solution ^of the rights of the parties in such a trans- 
 action can he found without observing that the essential character of 
 the transaction is the same as that of an absolute sale with a mortgage 
 back." 
 
 The judgment of the Morris common pleas must therefore be affirm- 
 ed, with costs. 
 
 (c) ACTION FOK THE PRICE, WHERE TITLE HAS NOT PASSED, 
 
 AND THE GOODS CANNOT READILY BE RESOLD FOR 
 
 A REASONABLE PRICE 
 
 Before the adoption of the Sales Act, there were many states — 
 a majority of them, in fact— held that, in any case where the buyer 
 wrongfully refused to take the title when it was tendered to him, 
 the seller could recover the purchase price, even though title had 
 not passed. This rule has been criticized, because it gives to the 
 seller a remedy which is higher than the corresponding remedy of 
 the buyer, if the buyer were suing for the seller's breach of con- 
 tract. In the latter action, the buyer, as plaintiff, would be limited 
 in his recovery to the amount which he had actually suffered — i. e., 
 the difference between the contract price and the market or current 
 price of the goods at the time when the goods should have been 
 delivered; or, to put the matter in another way, the rule really 
 gave the seller the remedy of specific performance, when the buyer 
 would not be entitled to this remedy. The Sales Act did not adopt 
 the whole of this rule, but did adopt it to a certain extent : 
 
 Sales Acts, Section 63 (3). Although the property in the goods 
 
1096 SALES (Part 4 
 
 has not passed, if they cannot readily be resold for a reasonable 
 price, and if the provisions of section 64 (4) are not applicable, 
 the seller may offer to deliver the goods to the buyer, and, if the 
 buyer refuses to receive them, may notify the buyer that the goods 
 are thereafter held by the seller as bailee for the buyer. There- 
 after the seller may treat the goods as the buyer's, and may ipain- 
 tain an action for the price. 
 
 The principal question which presents itself is, therefore: Un- 
 der what circumstances will one be justified in assuming that the 
 goods contracted to be sold cannot readily be resold at a reason- 
 able price? This is a question of fact, not a question of law. To 
 answer it one must inquire into the facts largely from the business 
 point of view. Certainly the rule would not apply to contracts to 
 sell goods which the seller always kept in stock and was actually 
 selling to the trade. A majority of contracts to sell would not, 
 therefore, come within this rule. Accordingly in such case the 
 seller would be limited to his action to recover the actual damage 
 suffered. In the end, the seller, theoretically, would recover the 
 purchase price, even under the latter rule, for, after having search- 
 ed the country over for a buyer, doubtless he would find some one 
 who would take them, though probably at one-half, or even a less 
 percentage, of the purchase price. The seller could then sue the 
 buyer for the actual damages suffered, and recover the difference 
 between the relatively small amount which he obtained from the 
 buyer at the greatly sacrificed price and the price agreed upon. 
 If the seller could not sell them at any price, it- would be for the 
 court or jury to determine the amount which they should bring. 
 While theoretically the seller is thus in the same position, actually, 
 it makes a great deal of difference to him. If it were not for the 
 exception stated in this subsection the buyer must go to all the 
 trouble and expense of finding some one who will take his goods 
 even at greatly reduced prices. In the second place, the court 
 might find that the seller was not justified in the particular case 
 in selling at such a heavy discount from the agreed price. To al- 
 low the seller to recover the actual price, as this subsection per- 
 mits, without the necessity of taking all these risks, is of consid- 
 erable value to him. 
 
 The usual case where the exception is applicable will be where 
 goods were manufactured specially by the seller for the buyer. 
 The following cases illustrate the application of the rule. 
 
 ILLXJSTEATEOD POSTAL CARD & NOVELTX CO. v. HOLT. 
 (Supreme Court of Errors of Ccnnecticut, 1912. 85 Conn. 140, 81 Atl. 1061.) 
 
 Action by the Illustrated Postal Card & Novelty Company against 
 Clarence D. Holt. Judgment for plaintiff, and defendant appeals. 
 
 Wheeler, J. The plaintiff is a manufacturer of post cards in New 
 York City. The defendant is a wholesale dealer in post cards in 
 New Haven. A salesman of plaintiff procured frbm defendant in 
 
Ch. 5) REMEDIES OF THE SELLER 1097 
 
 New Haven a verbal order for Christmas post cards, subject to 
 change. Subsequently, the defendant called at plaintiff's place of busi- 
 ness in New York, and, after examining plaintiff's catalogue, gave it 
 a written order for 100,000 Christmas post cards No. 438, for the 
 price of $275, and for other Christmas cards, the price fpr the whole 
 order amounting to $321, the same to be shipped, by what method did 
 not appear, on August 1st, and paid for December 1, .1910. The plain- 
 tiff in its business manufactured post cards of this character on spe- 
 cial order and did not keep them in stock. On July 16, 1910, defend- 
 ant wrote plaintiff that he was obliged to cancel the order for the 
 100,000 post cards. After securing this order, the plaintiff began the 
 manufacture of the cards, and all of the cards so ordered were fin- 
 ished and packed for shipment at the date of receipt of this letter. 
 The plaintiff replied that it could not accept the attempted cancella- 
 tion as the cards would be left on its hands. Wholesale dealers in 
 Christmas post cards place their, orders by April 1st, the retail trade 
 continues usually until the fall, and after July 1st there was no avail- 
 able market for these cards with jobbers and wholesale dealers. The 
 defendant twice again requested plaintiff to cancel the order for 
 card No. 438, which plaintiff declined to do, replying to defendant's 
 last letter of July 29th, on July 30th, and on August 4th shipped de- 
 fendant's entire order by common carrier, not separating cards 438 
 from the rest of the order. Upon arrival of the goods in New Haven, 
 defendant refused to receive them and notified plaintiff he would re- 
 ceive balance of order exclusive of No. 438. Thereupon plaintiff 
 notified him the goods were in the hands of the New England Naviga- 
 tion Company subject to his order, where they have since remained. 
 * * * 
 
 This action was begun to recover for the price of goods sold and 
 delivered. Prior to the passage of the Sales Act (P. A. 1907, c. 212), 
 our law permitted an action for damages by the seller against the buy- 
 er for breach of his contract to buy goods to be manufactured for 
 him, and it sought in such action to put the injured party in the place 
 the contraqt would have placed him in had it been performed. The 
 actual damage suffered was the recovery upheld. That was, as a rule, 
 measured by the difference between the price of the contract of sale 
 and the value of the goods made. When there was no market, or 
 they were worthless, the actual damages might even be the entire val- 
 ue of the goods. * * * So far as we are aware, no case has ever 
 reached this court where upon breach of contract for the sale of goods 
 an action for the price of the goods was begun. 
 
 The English law denied such a remedy, and many of our state 
 courts have followed the English law, while a number under the lead 
 of the New York court have given the seller, upon breach of a con- 
 tract of sale, a remedy permitting him to store or retain the goods for 
 the buyer and sue the buyer for the entire purchase price. The the- 
 ory of this law is that when the seller deposits the goods with a third 
 person for the buyer, or segregates the goods and notifies the buyer 
 that he holds them for him, the title passes, or the rights of the parties 
 will subsequently be adjusted as if it had passed at that time. Willis- 
 ton on Sales, p. 945, § 56. Our law was in this condition when the 
 Sales Act was passed. 
 
 The remedies provided by the Sales Act for the recovery of dam- 
 ages for nonacceptance of goods (section 64), and for the recovery of 
 
1098 SALES (Part 4 
 
 the price (section 63, 1, 2), when the property in the goods has passed, 
 dp not substantially differ from the remedies provided by our law at 
 the time of its enactment. 
 
 The remedy (section 63, 3) is an addition to the remedies up to that 
 time known ,to our law. * * * Prof. Williston who wrote the Sales 
 Act, says in a note (42 Am. Law Rev. 900) : "The rights of the seller 
 are also enlarged as compared with his rights under thg English act 
 both by the greater freedom in rescission allowed an»<sunpaid seller 
 with a lien (section 61), and by the allowance of an action for the full 
 price, even though the property in the goods has not passed, if they 
 cannot readily be resold for a reasonable price (section 63, 3)." 
 
 The elements of an action under this section are : (1) A breach of 
 the contract to sell goods; (2) that the property in the goods at the 
 time of the breach has not passed; (3) that they cannot be sold for a 
 reasonable price; (4) that the seller has offered to deliver them to 
 the buyer ; (5) that he has refused to receive them ; (6) that the seller 
 has notified the buyer that he thereafter holds the goods as bailee for 
 the buyer. 
 
 The notification of cancellation by this defendant and his persist- 
 ence in this course constituted a breach of the contract of sale. At- 
 this time the goods had not been segregated, nor marked for the buy- 
 er, nor delivered to a carrier for the buyer, and, in the absence of 
 provision in the contract to the contrary, the property had not passed 
 to the buyer. * * * 
 
 The finding that there was no available market for the goods after 
 the breach, and that jobbers and wholesalers place no orders after 
 April for such goods, and that these goods are not goods kept in stock, 
 but are manufactured on special order, fully shows that the goods 
 could not be sold for a reasonable price. There was no obligation 
 upon the manufacturer to sell these cards at retail or to the retail 
 trade — that would have involved the undertaking on its part of a new 
 business. * * * 
 
 The plaintiff was under no obligation to separate- the order, nor to 
 attempt to sell goods for which it knew it could not obtain a reason- 
 able price. * * * 
 
 There is no error. 
 
 SECTION 3.— SELLER'S RIGHTS AGAINST THE GOODS 
 
 IN GENERAL 
 
 INTRODUCTION 
 Let us suppose that title to the goods has passed to the buyer, 
 under some one of the numerous rules which heretofore have been 
 studied, and that the seller has not been paid. What are the rights 
 of the unpaid seller against the goods? It is very easy to think 
 that an unpaid seller of goods, who is still in possession of them, 
 really owns them, but under our assumption here this is not true. 
 We are assuming a case where title has passed. It has already 
 been shown that this is the usual case. If the bargain relates to 
 ascertained goods in a deliverable condition, title is presumed to 
 pass at the time the contract was made ; and, if they are to be put 
 into a deliverable condition by the seller, title will pass at the in- 
 
Ch. 5) REMEDIES OP THE SELLER 1099 
 
 stant that they are put in a deliverable state. Also, where the 
 contract relates to unascertained goods, title presumptively will 
 pass at the moment when, in addition to the act of putting them in- 
 to a deliverable state, there has been some act of unconditional 
 appropriation assented to by buyer and seller. In any of the very 
 numerous cases which fall within these rules under which title 
 has passed to the buyer, our general inquiry is : What rights does 
 the law give to an unpaid seller against the buyer's goods, which 
 are the subject of the sale? 
 
 This general inquiry divides itself into three subordinate in- 
 quiries : 
 
 (1) Who are unpaid sellers? That is, what legal relations must 
 be found to exist between buyer and seller, before the seller may 
 be deemed unpaid, within the meaning of the law? 
 
 (2) How must the unpaid seller be situated with respect to the 
 goods, before he may exercise any rights against them which are 
 accorded to him by the law? 
 
 (3) What rights does an unpaid seller have? That is, of what 
 nature are such rights? Of what value are they to the unpaid 
 seller? How may the unpaid seller exercise these rights so as to 
 prevent financial loss to him? 
 
 (a) WHO ARE UNPAID SELLERS? 
 
 Sales Act, Section 52. (1) The seller of goods is deemed to be 
 an unpaid seller within the meaning of this act — (a) When the 
 whole of the price has not been paid or tendered, (b) When a 
 bill of exchange or other negotiable instrument has been received 
 as conditioned payment, and the condition on which it was re- 
 ceived has been broken by reason of the dishonor of the instru- 
 ment, the insolvency of the buyer, or otherwise.. 
 
 (2) In this part of this act, the term; "seller" includes an agent 
 of the s^ler to whom the bill of lading has been indorsed, or a 
 consignor or agent who has himself paid, or is directly responsible 
 for, the price, or any other person who is in the position of a seller. 
 
 Section 54. (1) Subject to the provisions of this act, the un- 
 paid seller of goods who is in possession of them is entitled to re- 
 tain possession of them until payment or tender of the price in the 
 following cases, namely: (a) Where the goods have been sold 
 without any stipulation as to credit, (b) Where the goods have 
 been sold on credit, but the term of credit has expired, (c) Where 
 the buyer becomes insolvent. 
 
 (2) The seller may exercise his right of lien notwithstanding 
 that he is in possession of the goods as agent or bailee for the 
 buyer. 
 
 To observe merely the important features of these two sections, 
 we find that we must consider two features of the contract: (1) 
 We must look at the nature of the contract. (2) We must note 
 whether or not the buyer has performed his obligations there- 
 under. 
 
1100 SALES (Part 4 
 
 (1) As to the nature of the contract, section 54 declares that 
 a seller is unpaid (a) Where the goods have been sold without 
 any stipulation as to credit. Let us see what kinds of contracts 
 are here contemplated: (1) We know that, in a contract to sell 
 ascertained goods in a deliverable state, title presumptively passes 
 to the buyer at the date of the contract. There being no express 
 agreement as to credit, possession remaining in the seller, this 
 would be one case where the seller would have his special reme- 
 dies against the goods. (2) We may also include the case where 
 there has been a contract to sell unascertained goods, followed by 
 an act of unconditional appropriation, assented to by buyer and 
 seller. This act passes title to the buyer ; but, if possession is re- 
 tained by the seller, the seller, in such case, has his special reme- 
 dies against the goods. (3) We may also include the case where 
 the goods have been shipped under a negotiable bill of lading run- 
 ning to the order of the consignee, the bill being retained by the 
 seller or his agent. Most, if not all, of the possible cases will fall 
 under the classes of contracts just enumerated. These are the 
 kinds of contracts to which section 54 refers when it mentions 
 cases "where the goods have been sold without any stipulation as 
 to credit." 
 
 By way of contrast, it should be noticed that contracts under 
 which title has; not passed do not come within this section. These 
 cases are: (1) Cash sales; (2) conditional sales; (3) sales on 
 approval; (4) sales of goods shipped to the buyer under a nego- 
 tiable bill of lading running to the order of the seller, the bill 
 being retained by him ; (5) sales of goods shipped under a straight 
 bill of lading to the seller or to the seller's agent; (6) all execu- 
 tory contracts to sell. In all these cases title has been reserved 
 by the seller; at least, a security title. Having title, he is not an 
 unpaid seller within the meaning of these sections. This does not 
 mean that such a seller — one from whom the title has not passed 
 — will have no remedies against the goods. Having title, he may 
 protect himself more easily than the seller from whom title has 
 passed. By virtue of his having title he is entitled to all the ben- 
 efits to which the unpaid seller is entitled under the sections now 
 being considered, and even more. These sections are necessary 
 only for the seller who has theretofore -transferred his title, and 
 this general object is to assist such an unpaid seller in getting 
 back that title, with which he has already parted. Section 54 (1) 
 (a) is perfectly clear in its meaning when it declares that the 
 rights of the unpaid seller exist when there has been a sale other 
 than a sale on credit, title having passed, possession remaining 
 with the seller. 
 
 But there are two cases where the rights of the unpaid seller 
 arise, even where there has been a sale on credit and the posses- 
 sion still remains with the seller. These cases are: (1) Where 
 the buyer becomes insolvent before the period of credit expires. 
 This is eminently just. If A. sells B. goods on credit, and for any 
 
Ch. 5) REMEDIES OF THE SELLER 1101 
 
 reason B. sees fit not to exercise his legal right of then taking pos- 
 session of the goods, and before the date arrives at which he 
 agreed to pay for them he becomes insolvent it is altogether prop- 
 er to provide that the act of becoming insolvent constitutes a ma- 
 terial breach of his contract, which has the effect of creating in the 
 seller a lien for the purchase price. Of course, no lien will arise 
 if the seller has already given up possession to the buyer ; but, if 
 he has the goods, then the law allows him to take advantage of his 
 position. The second case where there is a lien growing out of 
 a sale, on credit arises where the seller is in possession, after the 
 . period of credit has expired. Insolvency of the buyer is not nec- 
 essary. The buyer had the right to take the goods at any time 
 up until the arrival of the date on which he had promised to pay 
 for the goods. This date having passed without payment from 
 the buyer, it is just for the law at that time to create in the seller 
 a lien on the goods ; and this is so, whether the buyer is insolvent 
 or not. Any other result would in effect be an extension of the 
 period of credit without the consent of the seller, which clearly 
 would be unjust. 
 
 (2) Assuming, then, that we have before us the kind of contract 
 of sale in which there is an unpaid seller within the meaning of 
 the sections just discussed, the next question which arises is : 
 What kinds of acts done by the buyer will have the effect of put- 
 ting an end to the unpaid seller's rights? The answer made by sec- 
 tion 52 (1) is that payment by the buyer will destroy the seller's 
 rights. This, obviously, would be true. But what constitutes a 
 payment? Is the acceptance of the buyer's negotiable note, or a 
 note or hill of exchange of a third party indorsed by the buyer, a 
 payment? It is possible to accept a negotiable instrument in ab- 
 solute payment, but the presumption is that the instrument is 
 accepted only in conditional payment. During the time from the 
 date of the acceptance of the negotiable instrument until its ma- 
 turity, the seller is not an unpaid seller; but at the moment the 
 instrument is dishonored, or if before dishonor the buyer becomes 
 insolvent, the seller then becomes an unpaid seller. The situation 
 then is the same as though no instrument had ever been accepted 
 by the buyer. 
 
 The second act which takes from the seller the rights which he 
 has against the goods as an unpaid seller is a tender. Very sel- 
 dom will a seller find it to his advantage to refuse money when it 
 is offered to him, but occasionally a seller will find it to his interest 
 to refuse money offered him by the buyer. It may be that the rea- 
 son for refusing the money tender is that he thinks the proper 
 amount has not been offered. Of course, an offer of an incorrect 
 sum is not a tender ; but, if it should turn out that the buyer was 
 mistaken, and that the seller tendered the correct amount of mon- 
 ey, then there has been a valid tender, the effect of which is to 
 deprive the seller of his rights against the goods. 
 
 It is thus seen that an unpaid seller is (1) a seller of goods who 
 
1102 SALES (Part 4 
 
 does not have title, and (2) who has not been paid or tendered 
 the whole of the purchase price. 
 
 (b) HOW MUST THE UNPAID SELLER BE SITUATED WITH RESPECT 
 
 TO THE GOODS BEFORE HE MAY EXERCISE HIS RIGHTS 
 
 AGAINST THEM? 
 
 In addition to the preceding requirements, to be an unpaid seller, 
 the seller must either be in posspssion of the goods, or, he must 
 be in such , a position that although no longer in possession, he 
 may exercise the right of stoppage in transitu. Section 53 pro- 
 vides: Subject to the provisions of this act, notwithstanding that 
 the property in the goods may have passed to the buyer, the un- 
 paid seller of goods, as such, has — (a) a lien on the goods or right 
 to retain them for the price while he is ii^possession of them, 
 (b) In case of the insolvency of the buyer, a right of stoppage in 
 transitu after he has parted with possession of them; Section 60 
 (1) in part provides that an unpaid seller having a right of lien 
 or having stopped the goods in transitu may resell the goods. 
 Section 61 provides that an unpaid seller having a right of lien 
 or having stoppfed the goods in transitu, may rescind the transfer 
 of title and resume the property in the goods. 
 
 From these three extracts from sections 53, 60, and 61 we ob- 
 tain our first intimation of the nature of the seller's rights against 
 the goods — i. e., the (1) lien on the goods; (2) the right to resell; 
 and (3) the right to rescind the contract. But, at this point of the 
 subject, attention is not directed to the study of the nature of the 
 lien, the right of resale, and the right of rescission, but rather to 
 the physical condition of things upon which the existence of the 
 lien, the right of resale, and the right of rescission turn. - 
 
 It is to be noticed that all of these rights, the lien, the right of 
 resale, and the right of rescission, all turn on the question whether 
 the unpaid seller was in possession of the goods, or had the right 
 to stop in transitu. Section 53 states that the unpaid seller has a 
 lien while he is in possession, or upon exercising the right of stop- 
 page in transitu after he has parted with possession of them. 
 
 Section 60, while it does not directly say that the right of resale 
 depends upon the seller's having possession of the goods, or upon 
 his having stopped the goods in transitu, reaches precisely the 
 same result, because the section discloses that the right of resale 
 is dependent upon the "unpaid seller having a right of lien or 
 having stopped the goods in transitu," and we know from sec- 
 tion 53 that the right of lien exists only when the seller has pos- 
 session, or has the right to stop the goods in transitu. Likewise 
 section 61 does not directly make the right of rescission depend 
 upon the unpaid seller's having possession, or having stopped the 
 goods in transitu, but does declare that the right of rescission 
 arises only when the unpaid seller has a lien, or has the right to 
 stop the goods in transitu, and section 53 makes the lien turn upon 
 possession, or upon the right to regain possession, by exercising 
 
Ch. 5) REMEDIES OF THE SELLER 1103 
 
 the right of stoppage in transitu. The unpaid seller's remedies 
 against the goods — i. e., that of a lien, or resale, and of rescission 
 ■ — may be exercised when, and only when the seller has possession 
 of the goods, or, if he does not have possession, then these reme- 
 dies exist only when the seller has the right to recover possession 
 by exercising the right of stoppage in transitu. (1) Under what 
 circumstances may it be said that an unpaid seller has possession? 
 (2) Under what circumstances may the unpaid seller regain pos- 
 session by exercising the right of stoppage in transitu? 
 
 (1) The question as to what constitutes possession is not strict- 
 ly a part of the law of sales. At least, the Sales Act does not at- 
 tempt to define possession. Volumes have been written on the 
 subject of possession. There is a real difficulty in the subject, 
 which we may point out here, but shall not undertake to develop. 
 The difficulty is this: The word "possession" has a double mean- 
 ing. In the first place, the word "possession" may be used to de- 
 scribe the physical relation existing between an individual and 
 some physical object, as, for example, if A. has a^book in his hand, 
 A. may be said to have possession of it. A. has physical control 
 over the book. In the second place, the term "possession" is used 
 in a legal sense, as descriptive of an individual's legal relation with 
 all other people in the world with respect to an object. Thus A., 
 being in the state of Maine, might in this sense have "possession" 
 of a book which for the time being was physically in the hands of 
 B., who was in the state of California. 'The word "possession," as 
 it is used in the Sales Act, must be given the meaning which it has 
 in the law, as a word descriptive of the legal relations existing be- 
 tween the person said to have possession and all other persons. 
 It is apparent, therefore, that one may have actual physical con- 
 trol over an object, and not have possession in law; conversely, 
 that one may have possession in law, and not have actual physical 
 -control over the object. In the majority of cases, no doubt, pos- 
 session in fact is possession in law, and possession in law is pos- 
 session in fact; but there are a great many exceptions to this rule. 
 If a merchant is negotiating a cash sale with a customer, and hands 
 him the object which the customer is considering, the merchant 
 still has possession ; the customer has something less than pos- 
 session. If goods are placed in storage, the warehouseman has 
 possession. Possession in law is in the employer, when in fact the 
 property may be in the hands of his employee. For our purposes 
 the more or less popular notion of possession, as meaning substan- 
 tially physical control, in fact is sufficiently accurate; but we 
 should be aware of the existence of difficult problems which can 
 arise involving the interpretation of the meaning of this word. 
 
 There is one special case, -which should be mentioned in this 
 •connection. When the seller ships goods to the buyer by carrier, 
 under a negotiable bill of lading which runs to the order of the 
 buyer, section 20 of the Sales Act provides that, while the seller 
 
1104 SALES (Part 4 
 
 is in possession of the bill of lading, the seller reserves the right 
 to possession. Is such a seller an unpaid seller? Probably not, 
 technically, because, the right to possession is not quite the same 
 as possession. But, the seller having the right to possession until 
 payment, the buyer cannot get the goods until he obtains the bill 
 of lading. The seller needs but to direct his agent to obtain pos- 
 session, by means of the bill of lading, and certainly from that mo- 
 ment on the seller, assuming that he fulfills all the other require- 
 ments, does have the necessary possession to give him the rights 
 of an unpaid seller. 
 
 Two sections of the act have been inserted for the purpose of 
 making clear the circumstances under which the unpaid seller's 
 rights against the goods once possessed will be lost. Necessarily 
 these conditions must relate to the giving up of possession, ex- 
 pressly or by implication. They are as follows : 
 
 Section 56. (1) The unpaid seller of goods loses his lien there- 
 on: (a) When he delivers the goods to a carrier or other bailee 
 for the purpose of transmission to the buyer without reserving the 
 property in the goods or the right to the possession thereof. 
 
 Another way of stating the meaning of this subsection is to say 
 that, when the seller delivers the goods to a carrier for shipment 
 to the buyer under a straight bill of lading, running to the buyer 
 as consignee, the rights against the goods are lost, but that a de- 
 livery to a carrier under negotiable bills of lading running either 
 to the order of the shipper or to the order of the buyer, the bill of 
 lading retained by the seller or by his agents, does not destroy any 
 rights which the seller, at the time of delivery tp the carrier, had 
 in or against the goods. 
 
 Section 56. 1 (b) The unpaid seller loses his lien thereon when 
 the buyer or his agent lawfully obtains possession of the goods. 
 
 The usual case here would be that of a voluntary surrender by 
 the seller to the buyer. From the business standpoint this is quite 
 important. The seller cannot expect to have any of his rights 
 against the goods, and at the same time permit them to get into 
 the hands of the buyer. If the business situation confronting him 
 is such that he deems it necessary to deliver possession to the 
 buyer, and the seller desires to retain a hold on the goods them- 
 selves, the safest way to do so is to enter into a contract of condi- 
 tional sale, or to require the buyer to execute a chattel mortgage, 
 and then to record the^instrument. 
 
 Section 56 (1) (c) provides that the unpaid seUer of goods loses 
 his lien thereon, by a waiver thereof. A waiver may be express 
 or implied. If the seller desires to retain his rights against the 
 goods, he should exercise considerable care, in his dealings with 
 the buyer, not to assume any position inconsistent with that which 
 he must assume as the holder of rights against the goods. The 
 seller might, for example, convert the transaction into a sale on 
 credit. Clearly, in such a case, the rights against the goods will 
 be lost. 
 
Ch. 5) REMEDIES OF THE SELLER 1105 
 
 Section 56. (2) The unpaid seller of goods having a lien there- 
 on, does not lose his lien by reason only that he has obtained judg- 
 ment or decree for the price of the goods. 
 
 If the seller has made a good bargain, no doubt, he would prefer 
 to have the amount of the purchase price than to have his goods, 
 and so he may even sue the buyer for the price. This section pro- 
 vides that the obtaining of a judgment against the buyer does not 
 cause a loss of the lien. Nothing but actual satisfaction — i. e., pay- 
 ment of the judgment — would destroy the seller's rights. 
 
 Section 55. Where an unpaid seller has made a part delivery 
 of the goods, he may exercise his right of lien on the remainder, 
 unless such part delivery has been made under such circumstances 
 as to show an intent to waive the lien or right of retention. 
 
 (2) Stoppage in Transitu. There is one exception to the rule 
 that an unpaid seller's lien is lost by a surrender of possession. 
 Where goods have been shipped to the buyer under such circum- 
 stances that title has passed, the seller may regain possession upon 
 the insolvency of the buyer. The Sales Act provides: 
 
 Section 57. Subject to the provisions of this act, when the buy- 
 er of goods is or becomes insolvent, the unpaid seller who has 
 parted with the possession of the goods has the right of stopping 
 them in transitu, that is to say, he may resume possession of the 
 goods at any time while they are in transit, and he will then be- 
 come entitled to the same rights in regard to the goods as he would 
 have had if he had never parted with the possession. 
 
 This section declares the existence of the right. Note the cir- 
 cumstances under which it may be exercised: (1) Title must be 
 in the buyer and the possession must have passed from the seller 
 to the carrier. (2) The goods will be traveling under a straight 
 bill of lading, or under a negotiable bill of lading, which bill has 
 been delivered to the buyer and is still in the buyer's possession — 
 i. e., not negotiated to an innocent purchaser. (3) The buyer 
 must be insolvent. (4) The goods must be in transitu. (5) 'The 
 seller must be-unpaid. 
 
 Points (1) and (2) here enumerated have been sufficiently com- 
 mented upon. The third requisite, the insolvency of the buyer, 
 requires a brief explanatory statement. When is one insolvent? 
 Various definitions might be found. There are two well-estab- 
 lished general rules as to what constitutes insolvency which differ 
 very materially. One of them is adopted in the law of sales ; the 
 other, in bankruptcy proceedings. The Sales Act, in section 76, 
 clause 23, defines insolvency as follows : A person is deemed in- 
 solvent within the meaning of this act who has ceased to pay his 
 debts in the ordinary course of business or cannot pay his debts 
 as they become due, whether he has committed an act of bank- 
 ruptcy or not, and whether he is solvent within the meaning of the 
 federal bankruptcy law or not. Note the very marked difference 
 between the above definition and the definition of insolvency found 
 B.& B.Btrs.LAW— 70 
 
1106 SALES (Part 4 
 
 in section 1, clause (15), of the Federal Bankruptcy Law (U. S. 
 Comp. St. § 9585), which we have heretofore considered: A per- 
 son shall be deemed insolvent within the provisions of this act 
 whenever the aggregate of his property, exclusive of any property 
 which he may have [fraudulently] conveyed, transferred, con- 
 cealed or removed, with intent to defraud, hinder or delay his 
 credition, shall not, at a fair valuation, be sufficient in amount to 
 pay his debts. 
 
 It is quite apparent that one may be "insolvent," to the extent 
 that his creditor will be justified in stopping goods in transit, when 
 such person would not be insolvent within the meaning of the 
 Bankruptcy Act. The rule permitting a creditor to stop goods in 
 transit when his debtor is insolvent virtually means that when 
 the debtor has ceased to meet his obligations as they mature he is 
 to be deemed insolvent, even though the fair valuation of his as- 
 sets exceeds liabilities. The rule is very easily applied, because the 
 right to make it rests upon external circumstances readily discov- 
 ered. ' The determination of the fact of insolvency under the Bank- 
 ruptcy Act calls for a careful valuation of assets, and a comparison 
 of this item with liabilities. A great many diffictilties present 
 themselves in determining whether liabilities exceed assets. The 
 law, in adopting different notions of insolvency in sales and in 
 bankruptcy, merely goes to show that it is deemed good policy to 
 allow creditors to regain possession of goods by stopping them 
 while in transit, under circumstances when it would not be good 
 policy to permit a creditor to have his debtor declared a bankrupt. 
 
 The fourth requisite to the right to stop goods is that they must 
 be in transit. When are goods in transit? Of course, one can 
 tell, under ordinary circumstances, when goods are in transit ; but 
 anow and again that troublesome case in the law arises which is 
 near the line. This type of problem calls for considerable ingenu- 
 ity and sound judgment in the field of legal definition and in the 
 application thereof to varied facts. In fact, a great deal of the 
 study of the law consists of an effort to discover, and to draw 
 boundary lines of, legal doctrines which in their general aspect 
 are reasonably clear to any one who has no technical knowledge 
 'of the law. 
 
 When does a transit begin? When does it end? We have pre- 
 viously decided that a transit begins at the moment that goods are 
 placed under the physical control of the carrier's agents, and such 
 agents have manifested their willingness to assume responsibility 
 for the safe keeping of the goods, and so the Sales Act, Section 
 58 (1) (a), provides: Goods are in transit within the meaning of 
 section 57 from the time when they are delivered to a carrier by 
 land or water, or other bailee for the purpose of transmission to 
 the buyer. No further comment on this section is here necessary, 
 for the question as to what constitutes a delivery has been suffi- 
 ciently adverted to in earlier chapters. 
 
 When does transit end? Upon delivery, certainly; but what con- 
 
Ch.5) REMEDIES OF THE SELLER 1107 
 
 stitutes a delivery? If the buyer, consignee, sends his trucks for 
 the goods, pays freight charges, and the freight agent allows the 
 goods to be taken away, there is a delivery ; but is it necessary that 
 the goods actually be taken from the possession of the carrier? 
 Or, suppose the consignee took the goods from the railroad com- 
 pany's platform without paying the freight, and without consent 
 from the carrier, would this be an ending of the transit? The fol- 
 lowing sections of the act attempt to make clear what constitutes 
 an ending of a transit. In the main these sections undertake to- 
 declare what constitutes a delivery. 
 
 Sales Act, Section 58, Subsection 1. (a) Goods are in transit 
 within the meaning of section 57 * * * until the buyer, or his 
 agent in that behalf, takes delivery of them from such carrier or 
 other bailee, (b) If the goods are rejected by the buyer, and the 
 carrier or other bailee continues in possession of them, even if the 
 seller has refused to receive them back. 
 
 Section 58. (2) Goods are no longer in transit within the mean- 
 ing of section 57: (a) If the buyer, or his agent in that behalf, 
 obtains delivery of the goods before their arrival at the appointed 
 destination, (b) If, after the arrival of the goods at the appointed 
 destination, the carrier or other bailee acknowledges to the buyer 
 or his agent, that he holds the goods on his behalf and continues 
 in possession of them as bailee for the buyer, or his agent; and 
 it is immaterial that a further destination" for the goods may have 
 been indicated by the buyer, (c) If the carrier or other bailee 
 wrongfully refuses to deliver the goods to the buyer, or his agent 
 in that behalf. 
 
 (3) If goods are delivered to a ship chartered by the buyer, it 
 .is a question depending on the circumstances of the particular 
 
 case, whether they are in the possession of the master as a carrier, 
 or as agent for the buyer. 
 
 (4) If part delivery of the goods has been made to the buyer, 
 or his agent in that behalf, the remainder of the goods may be 
 stopped in transitu, unless such part delivery has been made un- 
 der such circumstzuices as to show an agreement with the buyer 
 to give up possession of the whole goods. 
 
 It will not be possible to go into a detailed discussion of the 
 problems that involve the application of this section, but special 
 mention should be made of two situations which are of consid- 
 erable importance. Notice that subsection 2 (a) provides that a 
 delivery may be made to the buyer or to his agent before the 
 goods reach their destination. A buyer may purchase a carload 
 of merchandise and order it shipped to a designated place. At the 
 time the shipment is started, the buyer intends to sell the car dur- 
 ing transit and upon effecting the resale will direct the carrier to 
 reconsign the shipment to the purchaser. Again, the buyer may 
 direct the carrier to deliver the shipment to the buyer's agent at 
 some- intermediate point. In either event, as soon as the order 
 from the consignee is received by the carrier, the original transit is 
 
1108 SALES (Part 4 
 
 at an end. This situation illustrates the necessity for prompt ac- 
 tion by a seller, if he expects to make effectual his right of stop- 
 page in transitu. 
 
 The other point that may be specially mentioned is that there 
 may be a delivery in law, although the goods are still in the car 
 or freight sheds of the carrier at the point of destination. As sec- 
 tion 58 (2) (b) provides, this result occurs when the carrier has 
 acknowledged to the buyer or his agent that he holds the goods 
 on his behalf. 
 
 Another difficult situation arises when the goods are consigned 
 to some forwarding agent acting for the buyer, and such agent, 
 upon delivery of the shipment to him, reships them to a third 
 party. The rule which governs here, as laid down in Cabeen v. 
 Campbell,^ is: "When an intermediate delivery occurs before the 
 goods reach their ultimate destination, if the party to whom they 
 are delivered has authority to receive them and gives to them a 
 new destination, not originally intended, the transitu is at ai;i end. 
 They have reached the ultimate destination intended by both 
 buyer and seller. But if the middleman be a mere agent to trans- 
 mit the goods in accordance with original directions, the vendor's 
 right continues. The rule may be stated as follows : If in the 
 hands of the middleman they require new orders to put them 
 again in motion, and give them another substantive destination — 
 if without such new orders they must continue stationary — then 
 the delivery is complete and the lien of the vendor has expired." 
 
 Sales Act, Section 59. (1) The unpaid seller may exercise his 
 right of stoppage in transitu either by obtaining actual posses- 
 sion of the goods or by giving notice of his claim to the carrier or 
 other bailee in whose possession the goods are. Such notice may . 
 be given either to the person in actual possession of the goods or 
 to his principal. In the latter case the notice, to be effectual, must 
 be given at such time and under such circvunstances that the prin- 
 cipal, by the exercise of reasonable diligence, may prevent a deliv- 
 ery to the buyer. 
 
 (2) When notice of stoppage in transitu is given by the seller 
 to the carrier, or other bailee in possession of the goods, he must 
 redeliver the goods to, or according to the directions of, the seller. 
 The expenses of such redelivery must be borne by the seller. If 
 however, a negotiable document of title representing the goods has 
 been issued by the carrier or other bailee he shall not be obliged 
 to deliver or justified in delivering the goods to the seller unless 
 such document is first surrendered for cancellation. 
 
 1 30 Pa. 254 (1858) quoted- in Williston o» Sales, § 530. 
 
Ch. 5) ■ REMEDIES OF THE SELLER 1109 
 
 PRATT V. S. FREEMAN & SONS MFG. CO. 
 (Supreme Court of Wisconsin, 1902. 115 Wis. 648, 92 N. W. 368.) 
 
 Marshall, J. * * * If a person contracts to sell and deliver 
 property to another on credit, not retaining any lien thereon, specific- 
 ally, to secure the purchase money, the presumption is that he acts upon 
 the belief that the latter is solvent, and on condition that he will so re- 
 main. If there is a breach in that regard before control of the prop- 
 erty passes to the buyer, the seller may withdraw from the contract 
 the element of credit and insist that it shall stand. only as an agreement 
 to sell for cash upon delivery of the property, and that the contract 
 as so modified shall be executed; and upon the buyer's neglect or re- 
 fusal to perform, the seller may have a choice of several remedies for 
 the wrong: 
 
 "The seller may store the property for the buyer and sue for the 
 purchase price ; or may sell the property as agent for the vendee and 
 recover any deficiency resulting ; or may keep the property as his own 
 and recover the difference between the contract price and the market 
 price at the time and place of delivery." Van Brocklen v. Smeallie, 
 140 N. Y. 70, 75, 35 N. E. 415. 
 
 In case he elects to take the second remedy mentioned, the sale of 
 the property is but a mere means of determining the precise amount of 
 the damages caused by the breach, while the incidental effect is to 
 satisfy the loss suffered by the vendor so far as the proceeds of the sale 
 will accomplish that result. * * * Immediately upon the vendee's 
 refusing or neglecting, when required to do so, to comply with the 
 sale contract by paying for the property and accepting delivery there- 
 of, the cause of action of the vendor becomes complete and his right 
 to enforce the same by such appropriate remedies as he may elect to 
 pursue perfect. If he chooses to liquidate his damages by a sale of the 
 property and incidentally to recover his loss so far as the proceeds of 
 the sale will effect that result, * * * failure to do that which is 
 reasonably necessary to secure the best price obtainable therefor, does 
 not give the vendee any right to rescind his contract, but renders the 
 result of the sale not binding on him as to the amount of the vendor's 
 loss by the former's breach, and he will remain liable to the latter for 
 the full market value of the property less his actual damages, inde- 
 pendently of the sale. The sale in such circumstances is but a method, 
 as before indicated, of enforcing a right to damages for breach of 
 contract, and of making evidence of the precise amount of such dam- 
 ages. The sale, when properly conducted, the executory vendee having 
 been so notified of the intention to make it as to give him reasonable 
 opportunity to prevent it by paying his debt, constitutes a basis, bind- 
 ing on him, for computing the damages for which he is liable. The 
 rule governing the subject was laid down in T. B. Scott Lumber Co. 
 V. Hafner-Lothman Mfg. Co., 91 Wis. 667, 65 N. W. 513, in these 
 words : 
 
 "If a resale is made and the evidence shows that all reasonable ef- 
 forts were made to secure the best price obtainable, or that the price 
 obtained was a fair one, it settles the question of the market value, so 
 that the damages become liquidated." 
 
 The idea is that when the executory vendee of property breaks his 
 agreement to take and pay for the property, the measure of damages 
 
mo SALES ■ (Part 4 
 
 is the difference between the market value thereof and the contract 
 price ; but the vendor must necessarily establish that as a basis f o'r his 
 claim. If he sues for his damages without selling the property, or 
 without selling the same with proper regard to the rights of the execu- 
 tory vendee, he takes upon himself the burden of establishing the fair 
 market value of the goods at the time of the breach. * * * 
 
 DIEM V. KOBLITZ et al. 
 
 (Supreme Court of Ohio, 1892. 49 Ohio St. 41, 29 N. B. 1124, 
 34 Am. St. Kep. 531.) 
 
 WiLUAMS, C. J. * * * The right of stoppage in transitu is the 
 right of the vendor to resume possession of the goods sold, while they 
 are in transit to the vendee, who is insolvent or in embarrassed circum- 
 stances. Actual insolvency of the vendee is not essential. It is suffi- 
 cient if, before the stoppage in transitu, he was either in fact insolvent, 
 or had, by his conduct in business, afforded the ordinary, apparent evi- 
 dences of insolvency. Nor is the vendor's right abridged or in any 
 way affected by the fact that he has received the vendee's bills of ex- 
 change or other negotiable securities for the whole price, even though 
 they have been negotiated, and are still outstanding. It seems to be 
 well settled that when the right of stoppage in transitu is properly ex- 
 ercised the effect is to restore the vendor to precisely the same position 
 as if the goods had never left his possession. He has the same rights 
 with respect to the property, and they riiay be enforced in the same 
 way. His right to intercept the goods before they reach the hands of 
 the vendee, and his right to withhold those still in his possession, rest 
 upon the same just principle, that the insolvent vendee cannot require 
 the vendor to deliver the goods or perform the contract when he him- 
 self is unable to pay for them or perform the contract on his part. 
 To require the goods to be delivered to such vendee would simply be 
 applying the property of one man to the payment of another man's 
 debts. 
 
 The right of the unpaid vendor with respect to the goods is some- 
 times called a "hen" ; and it is a lien, in the sense that the vendee, upon 
 payment or tender of the price, but not otherwise, may recover them. 
 But it is something more than a mere common-law lien, which is only 
 a naked right of possession. With the goods in his possession, the ven- 
 dor has a special property in them, which is parcel of his original 
 ownership. Whether the effect of the stoppage in transitu, or the re- 
 tention of the goods by the vendor, on the discovery of the vendee's 
 insolvency, is to rescind the contract, or not, has been the subject of 
 much discussion ; and some authors say the question is, not yet defi- 
 nitely settled. But the prevailing opinion now is, we believe, that 
 the contract is not necessarily rescinded, unless the parties by their con- 
 duct so treat it, which conclusion is most favorable to the vendor, for 
 whose protection the doctrine of stoppage in transitu was first estab- 
 lished. * * * 
 
 The observations of Gholson, J., in Benedict v. Schaettle, 12 Ohio' 
 St. 520, 521, are in point, and * * * he says : "If the true prin- 
 ciple of the right of stoppage in transitu be found in that certainly just 
 rule of mutual contract by which either party may withold perform- 
 ance on the other becoming unable to perform on his part; if the- 
 
Ch. 5) REMEDIES OF THE SELLER 1111 
 
 foundation of the rule be a just lien on the goods for the price until 
 delivered — an equitable lien adopted for the purposes of substantial 
 justice— then it is the ability to perform the contract, to pay the price, 
 which is the material consideration. If there be a want of ability, 
 it can make no difference, in justice or good sense, whether it was 
 produced by causes or shown by acts at a period before or after the 
 contract of sale. Substantially to the vendor who is about to complete 
 delivery, and abandon or lose his proprietary lien, the question is, can 
 the vendee perform the contract on his part ? has he, from insolvency, 
 become unable to pay the price ?" And in another part of the opinion 
 he further says : "The rights of a fair vendee will be sufficiently pro- 
 tected by giving him an indemnity when the right of stoppage in transi- 
 tu is exercised upon rumor or suspicion without any foundation in fact, 
 and by depriving the vendor, in all cases, of any chance of speculating 
 upon the goods, by requiring them to be delivered or accounted for to 
 the vendee or his assignee on the payment or tender of the agreed 
 price." * * * 
 
 GASS V. SOUTHERN PAC. CO. 
 
 (Supreme Court, of New York, Appellate Division, 1912. 152 App. Div. 412, 
 
 137 N. T. Supp. 261.) 
 
 Action by John H. Gass against the Southern Pacific Company. 
 From a judgment of the Supreme Court, in favor of the plaintiff, for 
 the sum of $752.62, defendant appeals. 
 
 HiRSCHBERG, J. The defendant, a common carrier, appeals from a 
 judgment awarding the plaintiff damages for the alleged conversion 
 of certain lumber. The material facts were not disputed. It appeared 
 that about February 1, 1905, the International Mahogany Company 
 agreed to sell and to deliver to the plaintiff, free on board defend- 
 ant's- dock in the city of New York, certain lumber for the sum of 
 $27 per 1,000 feet, including freight charges to that city, which were 
 to be paid by plaintiff in cash. March 2, 1905, the Interxiational Ma- 
 hogany Company, in order to comply with its contract, made a con- 
 tract with the Gibson Cypress Lumber Company, a foreign corpora- 
 tion, whereby the latter company agreed to ship the lumber to the 
 former igompany, free on board defendant's dock in the city of New 
 York, f^ $385.83 ; the former company agreeing to pay the freight 
 charges in cash at the time of delivery. On March 4, 1905, the Gibson 
 Cypress Lumber Company delivered the lumber to the defendant at 
 Gibspn, in the state of Louisiana, for transportation to defendant's 
 dock in New York City, and received a bill of lading therefor, 
 marked "Not Negotiable," and containing the name of the Interna- 
 tional Mahogany Company as consignee. On March 20, 1905, the 
 International Mahogany Company assigned its bill against the plain- 
 tiff for the purchase price of said lumber to the Astoria Veneer Mills. 
 About the same day the plaintiff was notified of the assignment 
 and asked to pay the purchase price of the lumber to said Astoria 
 Veneer Mills. 'The bill of lading, properly indorsed, was delivered 
 to the plaintiff on April 1, 1905. On March 30, 1905, the lumber 
 arrived at the defendant's dock in New York City and was comr 
 pletely discharged thereon at 3 o'clock of the afternoon of the fol- 
 lowing day. On the 30th of March, 1905, the defendant sent a writ- 
 ten notice to the consignee, the International Mahogany Company, 
 
1112 SALES (Part 4 
 
 informing it of the arrival of the lumber, and stating that the freight 
 charges were $214.50. The International Mahogany Company in- 
 dorsed this notice with a direction to deliver the lumber to the plain- 
 tiff, and delivered the notice so indorsed to the Astoria Veneer Mills. 
 The latter company on April 3, 1905, loaned the plaintiff, at his re- 
 quest, the amount of the freight charges, and gave him the indorsed 
 notice of the arrival of the lumber, with a receipted bill for the pur- 
 chase price thereof, and the plaintiff gave that company his secured 
 promissory notes therefor. On April 4, 1905, the plaintiff demanded 
 the delivery of the lumber from defendant and tendered it the bill 
 of lading, the notice of arrival, and the Astoria Veneer Mills' check 
 for the freight charges. The defendant refused to deliver the lumber 
 unless the freight charges were paid in cash. The parties stipulated 
 on the trial that the defendant had the right to demand the payment 
 of those charges in cash. On the same day and before the payment 
 of the freight charges in cash, and while the lumber was in defend- 
 ant's possession, the consignor, Gibson Cypress Lumber Company, 
 notified the defendant not to deliver the lumber. On that day the 
 consignee, the International Mahogany Company, was duly adjudged 
 a bankrupt. On April 5, 1905, the plaintiff again demanded delivery 
 of the lumber, and again presented the Astoria Veneer Mills' check 
 in payment of the freight charges, and the defendant again refused 
 to deliver the lumber. On the following day the plaintiff tendered 
 cash to the defendant in payment of the freight charges, and the de- 
 fendant then refused to deliver the lumber, on the ground that its de- 
 livery had been prevented by the order of the consignor. 
 
 The unpaid consignor's right of stoppage in transitu may be ex- 
 ercised against an insolvent consignee at any time prior to actual 
 or constructive delivery of the goods or the assignment of the bill of 
 lading to a bona fide purchaser for value. The consignor may exer- 
 cise this right while the goods are in the possession of the carrier 
 at the place of destination and are held for unpaid freight charges, 
 unless the, bill of lading has been so assigned. * * * jjj ^j^g ^^gg 
 at bar there was no delivery of the goods prior to the defendant's 
 receipt of the stoppage order from the consignor, and the indorsement 
 and transfer of the bill of lading was ineffectual under the circum- 
 stances of the case to defeat the consignor's right of stoppage in 
 transitu. * * * By neglecting promptly to pay the freighlkcharges 
 he unreasonably delayed obtaining possession of the lumber until 
 the consignee had failed and the consignor had exercised its right of 
 stoppage in transitu. Under these circumstances, * * * i ^hink 
 the defendant was warranted in obeying the stoppage order trans- 
 mitted to it by the consignor. Its letters to the consignee do not con- 
 tain any waiver of its right to hold the lumber, those communications 
 expressly making the proper payment of the freight charges a condi- 
 tion precedent to delivery. 
 
 The judgment should be reversed. 
 
Ch. 5) REMEDIES OF THE SELLER 1113 
 
 northj:rn grain CO. v. WIFFLER et ,al. 
 
 (Court of Appeals of New York, 191S. 223 N. Y. 169, 119 N. E. 393, 
 7 A. I.. R. 1370.) 
 
 Action by the Northern Grain Company against Joseph J. Wif- 
 fler and others. From a judgment for defendants, plaintiff appeals. 
 
 HrscocK, C. J. This appeal involves a consideration of the right of 
 stoppage in transitu of goods sold on credit and shipped by a common 
 carrier. The question of the existence of the right is to be determined 
 upon an agreed statement of facts. 
 
 Plaintiff sold to one Wiffler on credit a carload of oats which vvere 
 shipped to the latter over the line of the defendant railroad company. 
 A bill of lading covering the shipment was forwarded with a draft 
 for the purchase price of the oats, and upon acceptance by the vendee 
 of the draft the bill of lading was delivered to him. He presented the 
 same at the office of the defendant railroad company, where it was 
 received and marked, "Canceled by delivery." "Thereupon" the ven- 
 dee examined and was dissatisfied with the condition of the oats and 
 "thereupon" withdrew the bill of lading from the railroad company, 
 caused the words "Canceled by delivery," to be stricken from the 
 face of the bill and "thereupon" returned it to the plaintiff with the 
 statement that he refused to accept the oats or take delivery thereof 
 by reason of their condition and that he rejected the same. 
 
 Nothing more was done by which there is claimed to have been 
 accomplished a delivery tff or acceptance by the vendee of the oats. 
 These, after remaining in a car in the possession of the railroad com- 
 pany for six months, were sold at public auction to satisfy its lien for 
 transportation charges and the surplus of the proceeds over such 
 charges was held by the railroad company and is the subject of the 
 present controversy. 
 
 The draft which had been accepted by the vendee was not paid at 
 maturity, and an action was commenced against him thereon by the 
 vendor and a judgment recovered which has never been satisfied. In 
 such action the vendee alleged that : "The draft was given by defend- 
 ant in payment of a certain carload of oats which plaintiff sold to the 
 defendant and that the same were good, marketable, and useable (thus 
 written in the agreed statement), and that when defendant received 
 said carload the same were old and musty, and could not be sold and 
 used, and were of no value whatsoever, and for that reason the note 
 was given without consideration." 
 
 Intermediate the commencement of this action and entry of judg- 
 ment the vendee made an assignment for the benefit of creditors to 
 the defendant Dana, and thereafter plaintiff surrendered to the defend- 
 ant railroad company for cancellation the bill of lading before men- 
 tioned and served upon it notice asserting the exercise of its right of 
 stoppage in transitu of said oats," claiming that' the latter had never 
 been delivered to the vendee. * * * 
 
 The only debatable question under the tests thus prescribed is the 
 one whether the goods had been delivered by the carrier to the vendee. 
 It seems to us that they had not been. The facts determinative of that 
 question have already been stated and need not be repeated. Referring 
 back to them, it may be conceded that if the vendee after taking his 
 bill of lading to the carrier and permitting it to be marked, "Canceled 
 by delivery" had stopped, there would have been a constructive de- 
 
1114 SALES (Part 4 
 
 livery. Also, if he had allowed the mater to rest in that situation for 
 a substantial time before doing anything to recall this act, it might be 
 necessary to submit to the jury the question whether a delivery had 
 not been so consummated that it could not thereafter be avoided. 
 But he pursued neither of these courses. After the stamping of the 
 bill of lading, he "thereupon," — that is, immediately — examined the 
 oats and made what, if then permissible, was a clear and decisive re- 
 fusal of acceptance of them from the buyer and of delivery from the 
 carrier. It is only by separating these steps and regarding them as 
 divisible and distinct transactions that a delivery can be made out. We 
 do not think they ought to be thus separated, but that they were so 
 closely connected in point of time and otherwise that they should be 
 given the effect of one connected transaction. This being done, it 
 is clear that there was no delivery. * * * 
 
 In accordance with these views, the judgment should be reversed 
 and judgment directed in favor of plaintiff against the defendant New 
 York Central & Hudson River Railroad Company, for the sum of 
 $287.85, with any interest. * * * 
 
 NORFOLK HARDWOOD CO. v. NEW YORK CENT. & H. R. R. CO. 
 (Supreme Judicial Court of Massachusetts, 1909. 20-J. Mass. 160,. &.S >;. E. t)64.) 
 
 Action by the Norfolk Hardwood Company against the New York 
 Central & Hudson River Railroad Company. Judgment for defend- 
 ant, and plaintiff appeals. ^ 
 
 Plaintiff shipped certain lumber ordered by the Cambridge Lum- 
 ber Company, consigned to plaintiff's order at East Cambridge, where 
 it arrived August 3, 1904, over defendant's road. On July 21st plain- 
 tiff wrote the lumber company inclosing an invoice. On July 27th a 
 waybill of defendant road was sent to plaintiff, showing freight, etc., 
 and on October 4th defendant's agent wrote plaintiff requiring that 
 the car be promptly unloaded, to which plaintiff replied that the car 
 was intended for the Cambridge Lumber Company, and that the bill 
 of lading called for Boston & Maine delivery, after which plaintiff di- 
 rected the agent to deliver the lumber to the lumber company. The 
 lumber company immediately directed that the lumber be stored, after 
 which plaintiff received the lumber company's 90-day note therefor, 
 and the lumber company, without paying the freight, had defendant 
 reship the lumber for it to another town. 
 
 Sheldon, J. This action has been argued for the plaintiff as if it 
 presented merely a question of the right of stoppage in transitu, but 
 wCi are of opinion that this is not the case. The plaintiff, although it 
 accepted the order of the Cambridge Lumber Company for the lum- 
 ber in question, and undertook to forward the lumber accordingly, 
 yet when it came to ship the goods consigned them to itself and took 
 a bill of lading running to itself. It thus, as between itself and the 
 purchaser, retained the possession and control of the lumber, and re- 
 tained also its vendor's lien for the agreed price. * * * If the 
 plaintiff has not lost this lien by parting with the possession of the 
 goods, it can hold them in spite of the credit agreed to be given, upon 
 the insolvency of the purchaser. * * * gut if a delivery has been 
 made to the purchaser by the authority of the plaintiff, then its lien, 
 .depending solely upon the possession of the property, is gone, and the 
 plaintiff cannot hold the goods. * * * 
 
Ch. 5) REMEDIES OF THE SELLER 1115 
 
 When the car containing this lumber arrived at East Cambridge on 
 August 4, 1904, the defendant's agent notified the plaintiff thereof, 
 and the plaintiff on August 6th informed the agent by letter that the 
 car was intended for the Cambridge Lumber Company, which is here- 
 inafter called the purchaser ; and on August 12th, the plaintiff, at the 
 request of the defendant's agent, expressly authorized delivery to be 
 miade to the purchaser. In the meantime, on August 8th, the defend- 
 ant, at the request of the purchaser, forwarded the car containing the 
 lumber from East Cambridge to the defendant's Huntington avenue 
 storehouse in Boston, and issued to the purchaser a local waybill nam- 
 ing the purchaser as the consignee. On August 10th the purchaser 
 requested the defendant to store these and some other goods; and 
 the defendant did accordingly store them in the name of the pur- 
 chaser in its storehouse aforesaid, where they remained until taken 
 by the plaintiff on this writ of replevin. 
 
 There can be no doubt upon these facts that the property, subject 
 to the defendant's lien for its proper charges, was delivered by the 
 defendant to the purchaser with the consent and authority of the 
 plaintiff ; and the plaintiff's lien for the price of the lumber was thus 
 destroyed. * * * The plaintiff voluntarily gave up its lien upon 
 the property; it does not rest its claim upon the allegation that this 
 was procured by means of any fraud practiced upon it; and it can- 
 not now reinstate itself in its original position. 
 
 If, however, it were necessary to pass upon that question, we should 
 be obliged to hold that the plaintiff had failed to show any right to 
 stop these goods in transitu. The goods were to be transported to 
 East Cambridge, and, according to the final directions of the plaintiff, 
 to be there delivered to the purchaser. The right of stoppage in 
 transitu would continue until the goods were delivered to the purchas- 
 er, or until, by some new arrangement between the carrier and the 
 purchaser, the former had recognized the title of the latter, and at- 
 torned to it, and agreed to hold the goods, not merely as carrier or as 
 a warehouseman pending a complete delivery to the purchaser, but as 
 agent for the purchaser under a new contract made and assented to 
 by both the carrier and the purchaser. * * * The fact that the 
 carrier's prior charges have not been paid, although strong evidence 
 that no such new contract has been made, is not decisive. * * * 
 
 But here, althottgh the defendant's charges remained unpaid, it yet 
 did make a new agreement with the purchaser for the further trans- 
 portation of these goods to a neighboring city ; and it carried out that 
 agreement. There was more than a mere storage of the goods for 
 the convenience of the purchaser, which would not have terminated 
 the transit. There was a recognition of the purchaser as owner, and 
 a new transit, made under a new agreement with the purchaser, 
 to a new destination, for the expenses of which the plaintiff personally 
 could not have been held. If this new agreement had been made by 
 the 'purchaser with another railroad company, which had paid the de- 
 fendant's charges and made the new transportation, there could be 
 no question that the original transit had ended, even though this new 
 carrier held the goods not only for the freight due to itself, but also 
 for the past charges of the former carriers which it would have satis- 
 fied. The original transit is at an end when the goods have reached 
 their original destination; and when after this they are actually sent 
 by the purchaser to a new destination, the right of stoppage in transitu 
 
1116 SALES (Part 4 
 
 is as effectually destroyed as if he had taken manual possession of 
 them and placed them in his own warehouse. This has been clearly 
 stated by Lord Esher, in Bethell v. Clark, 20 Q. B. T). 615, 617, in 
 which it was held that the original transit was not terminated: 
 "There has been a difficulty in some cases where the question was 
 whether the original transit was at an end and a fresh transit had be- 
 gun. The way in which that question has been dealt with is this: 
 Where the transit is a transit which has been caused either by the 
 terms of the contract or by the directions of the purchaser to the ven- 
 dor, the right of stoppage in transitu exists ; but if the goods are not 
 in the hands of the carrier by reason either of the terms of the con- 
 tract or of the directions of the purchaser to the vendor, but are in 
 transitu afterwards in consequence of fresh directions given by the 
 purchaser for a new transit, then such transit is no part of the orig- 
 inal transit, and the right to stop is gone." * * * It can make no 
 difference in principle that the new directions were given by the pur- 
 chaser to the original carrier, and that the new transit was made over 
 the lines of the original carrier. * * * 
 
 Accordingly the plaintiff had no right of stoppage in transitu when 
 it replevied these goods, and no right to their possession, and cannot 
 maintain this action. * * * 
 
 The judgment for the defendant must be affirmed. 
 
 Would a sale by the consignee, prior to notice from the seller 
 to the carrier to stop the goods, and while the goods were still in 
 transit, cut off the right of the seller to regain possession? It 
 would follow, from the general rule that goods may be stopped 
 at any time during the transit, that such resale, even to an inno- 
 cent purchaser, would not affect the seller's rights. The Sales Act, 
 however, expressly covers this point : 
 
 Section 62. Subject to the provisions of this act, the unpaid 
 seller's right of lien or stoppage in transitu is not affected by any 
 sale, or other disposition of the goods which the buyer may have 
 made, unless the seller has assented thereto. 
 
 Where there is a negotiable bill of lading outstanding, the situ- 
 ation is quite different. As long as the seller retains possession 
 of the bill of lading, there is no need for him to resort to this right 
 of stoppage in transitu ; but, if he should deliver the bill of lading 
 to the buyer, then his only remedy would be to exercise the right 
 of stoppage in transitu. But the right under these circumstances 
 is a very delicate one. It is available only so long as the bill of 
 lading is in the hands of the buyer, and it is not effective, even 
 then, if, subsequent to the stoppage, the buyer negotiates the .bill 
 of lading to an innocent purchaser. With respect to these matters 
 the Sales Act provides: 
 
 Section 62. If, however, a negotiable document of title has been 
 issued for goods, no seller's lien or right of stoppage in transitu 
 shall defeat the right of any pxirchaser for value in good faith to 
 whom such dociunent has been negotiated, whether such negotia- 
 tion be prior or subsequent to the notification to the carrier, or 
 
Ch. 5) ' REMEDIES OF THE SELLER 1117 
 
 Other bailee who issued such document, of the seller's claim to a 
 lien or right of stoppage in transitu. 
 
 KUMMELL et al. v. BLANCHARD et al. 
 
 (Supreme Court of New York, Appellate Division, 1915. 167 App. Div. 654, 
 
 153 N. Y. Supp. 159.) 
 
 Action by Jacob Rummell and another against Archibald Bknchard 
 and another, trustees in bankruptcy of Alden & Co., a bankrupt, and 
 another. From a judgment for defendant, plaintiffs appeal. 
 
 Action of replevin. In fulfillment of a contract dated January 27, 
 1913, for the sale or exchange of certain cases of shellac which Alden 
 & Co. were to return at a later date, plaintiffs indorsed and delivered 
 to Alden & Co. a negotiable warehouse receipt for the cases in ques- 
 tion. On February 14th Alden & Co. tendered the receipt to the 
 warehouseman and demanded new receipts running in their name. 
 This demand was refused on the ground that the warehouse charges 
 were unpaid, which payment Alden & Co. failed or declined to make. 
 On their appointment, the indorsed receipt came into the possession 
 of the defendants, trustees in bankruptcy of Alden & Co., from whom 
 plaintiffs sought in this action to recover the goods. 
 
 HoTCHKiss, J. The sole question is whether plaintiffs lost their sell- 
 ers' lien by indorsing and delivering the negotiable receipt to Alden 
 & Co. Nearly 70 years ago, in the course of his opinion in McEwan 
 V. Smith, 2 H. L. Cas. 309, Lord Campbell said (page 328) : "There 
 can be no doubt that, after sale of the goods, the vendor has a lien 
 on them for the price, so long as they remain in his possession, and 
 this is a doctrine as old as any doctrine connected with the purchase 
 and sale of goods." 
 
 It is scarcely necessary to cite authorities to show that this ancient 
 lien existed practically unchanged at the time of the codification in 
 this state of the law of personal property, including bills of lading 
 and warehouse receipts, and that it depended upon possession. * * * 
 If the buyer once gets both title and possession from the seller, at 
 common law the lien of the latter is gone; * * * 
 
 Prior to the legislation to which I have referred, it was uniformly 
 held that' bills of lading were in and of themselves muniments of 
 title sufficient to vest title as well as possession and absolute control 
 of the 'goods in him to whose order they were drawn. * * * These 
 instruments, when indorsed and delivered for value, also vested in the 
 indorsee to whom they were delivered, with intent to pass title, the 
 same ownership and control of the goods as that held by him to whose 
 order they originally ran. In this respect warehouse receipts were 
 the same as bills of lading. * * * 
 
 The presumption is that Alden & Co. accepted the bill of lading in 
 full satisfaction of their contract to sell and deliver. * * * These 
 principles have been incorporated into the Personal Property Law and 
 the Warehouse Receipts Act. * * * Section 137, art. 5, of the 
 Personal Property Law, entitled "Sales of Goods," provides that the 
 unpaid seller of goods loses his lien thereon "when the buyer or his 
 agent lawfully obtains possession of the goods." Section 125 of the 
 General Business Law provides that "a person to whom a negotiable 
 receipt has been duly negotiated acquires thereby," not only the title 
 
1118 SALES (Part 4 
 
 the one negotiating the receipt or the depositor of the goods, to whose 
 order they were by the terms of the receipt to be delivered, had or could 
 convey, but also "the direct obligation of the warehouseman to hold 
 possession of the goods for him according to the terms of the receipt 
 as fully as if the warehouseman' had contracted directly with him." 
 * * * 
 
 If such an instrument has been issued, no seller's lien or right of 
 stoppage in transitu shall defeat the rights of any purchaser for value 
 in good faith to whom such document has been negotiated, etc. As 
 Willistdn explains in his treatise on sales (page 921), these provisions 
 were intended to protect a purchaser for value without notice after 
 the seller had stopped the goods either by virtue of his right of stop- 
 page in transitu or his seller's lien. It must be clear that they could 
 not have been intended to work such a radical change in the law as 
 would be the result if we accepted the appellants' argument that they 
 applied to sustain a lien of a seller in the situation of these plaintiffs. 
 
 The order should be affirmed. * * * 
 
 SECTION 4.— UNPAID SELLER'S LIEN 
 
 All of the preceding portion of this chapter was devoted to the 
 explanation of the circumstances under which an unpaid seller 
 would have the rights of lien, of resale, and of rescission of the 
 contract. We may now turn our attention to the discussion of the 
 nature of these rights and as to the manner in which they may be 
 exercised. 
 
 The prominent feature of a lien is that the seller in possession 
 of the goods, or one who has regained possession by exercising his 
 right of stoppage in transitu, has a right to continue to hold the 
 -goods, and by so doing is not guilty of any breach of contract with 
 the buyer. The following cases illustrate the effect of the right of 
 lien, and also one way in which the lien may be lost. 
 
 CAPUANO V. ITAIjIAN IMPORTING CO. OF NEW YORK. 
 
 (Supreme Court of New York, Appellate Term, 1915. 89 Misc. Rep 449 
 151 N. Y. Supp. 994.) 
 
 Replevin by Guiseppe Capuano against the Italian Importing Com- 
 pany of New York. From judgment for defendant, and from an or- 
 der denying new trial, plaintiff appeals. 
 
 Pendleton, J. The action is in replevin. The answer is a general 
 denial, and sets up as a separate affirmative defense an alleged ven- 
 dor's lien on the goods and the right to possession thereunder. It 
 was apparently conceded at the. trial, and nothing to the contrary is 
 Jiow claimed, that defendant bought the goods, with others, from one 
 Andreis, and paid for them under an agreement that any not sold 
 by the end of the season Andreis would take back and pay defendant 
 therefor the invoice price, plus any duty paid. At the end of the sea- 
 son the goods in question remained unsold, and defendant demanded 
 of Andreis under the agreement payment therefor of the invoice 
 _price, plus the duty paid. Andreis refused, and defendant thereupon 
 
Ch. 5) REMEDIES OF THE SELLER , 1119 
 
 brought suit against Andreis for the agreed price, and recovered judg- 
 ment for the full amount. Plaintiff claims title to the goods un- 
 der an alleged purchase from Andreis subsequent to the entry of the 
 above judgment. 
 
 That title to these goods passed to defendant at the time of their 
 delivery to it under the original agreement with Andreis seems clear. 
 On the latter's refusal to take back the goods and pay the agreed in- 
 voice price and duty paid, defendant could rescind and sue for the 
 difference between the agreed price and their value as damages (sec- 
 tion 142, Sales Act ; * * * ), or treat the goods as belonging to An- 
 dreis and sue to recover the contract price. If it elected to pursue 
 the former course, title remaining in it, plaintiff took nothing by the 
 assignment from Andreis and cannot recover. As matter of fact, it 
 chose the latter, as an examination of the judgment roll introduced in 
 evidence shows. In thus suing it treated Andreis as a vendee, and 
 was entitled to a vendor's lien until the purchase price was paid, 
 
 * * * unless it had lost the right to assert the lien, either (1) by an 
 agreement to release it, which must have been a valid agreement for 
 a consideration ; or (2) by representations which had estopped it from 
 asserting a lien; or (3) by acts so inconsistent with the lien as to 
 show an election on its part to waive the lien and rely on another and 
 inconsistent right or remedy. 
 
 As to any agreement, the only possible evidence was the alleged 
 statements that the goods were at Mr. Andreis' disposal. These were 
 without consideration, and could not constitute a valid agreement. 
 They could not work an estoppel, as for that purpose it is essential 
 to show that the representations were made to the person asserting 
 the estoppel, that they were intended to be relied on, and were in 
 fact relied on, and a change of position. There is nothing to show 
 here that they were made to plaintiff, or intended for him, or that he 
 ever heard of or relied thereon. 
 
 The suit brought against Andreis was not a waiver of the lien. 
 
 * * * It is no more inconsistent with, or a waiver of, a lien than 
 a suit on a note secured by collateral, or on a bond secured by a mort- 
 gage. There was, therefore, no evidence of waiver, and plaintiff's 
 request to go to the jury on that question was properly denied, and 
 the direction of a verdict for defendant was proper. - 
 
 Judgment affirmed. * * * 
 
 WRIGHT V. FRANK A. ANDREWS CO., Inc. 
 (Supreme Judicial Court of Massachusetts, 1912. 212 Mass. 186, 98 N. E. 798.) 
 
 Action by William B. Wright against the Frank A. Andrews Com- 
 pany, Incorporated. There was a judgment for plaintiff, and defend- 
 ant brings exceptions. 
 
 Sheldon, J. The jury could find that the plaintiff purchased a par- 
 ticular diamond of the defendant, the title to which at once passed to 
 the plaintiff, but that he left it with the defendant to be set in a ring, 
 for the whole price of $500, of which he paid down the sum of $100. 
 They also could find that the stone was set in the ring to his satisfac- 
 tion and acceptance, and that the defendant then retained it until he 
 should make full payment therefor. The plaintiff, as it could be 
 found, could not then pay the residue of the price, and after a con- 
 
1120 . SALES (Part 4 
 
 siderable delay made an offer to the defendant to rescind the purchase 
 and take back what he had paid; but the defendant did not accept 
 this offer. After still further delay he tendered the balance due to 
 the defendant and demanded the ring, and the defendant merely an- 
 swered that it did not then have the ring but could get it. By the tender, 
 any lien which the defendant had upon the ring was ended, and the 
 plaintiff was entitled to immediate possession thereof,, as could be 
 found, but the defendant refused to give it to him. If so, he was en- 
 titled to maintain an action for its conversion. * * * 
 
 Nor were the jury bound to find that the defendant had rescinded 
 its contract with the plaintiff for his delay in making full payment, 
 even if it could have done so. It never had returned or offered to re- 
 turn the payment which the plaintiff had made; nor as could have 
 been found, had it availed itself of any one of the remedies which 
 his default left open to jt. * * * It may be assumed that it had a 
 vendor's lien for the unpaid purchase money. * * * But this was 
 perfectly consistent with, and indeed presupposed, a general right 
 of property in the plaintiff, and would be ended by the plaintiff's ten- 
 der. Nor was the tender invalid because it did not incjude interest 
 which was not shown to have been due. 
 
 Accordingly a verdict for the defendant could not have been or- 
 dered. * * * 
 
 Exceptions overruled. 
 
 SECTION 5.— RIGHT OF RESALE 
 
 Obviously the bare right to hold the goods does not protect the 
 seller sufficiently, for, if the buyer is intending never to pay for 
 the goods, the seller will either desire to sell them to other persons 
 or to use them himself. If all the seller has is a right to hold the 
 goods, a sale by him to a third party or the use of them would 
 amount to a conversion of the buyer's goods. We must not lose 
 ;sight of the fact that title is really in the buyer in all of these 
 cases. Clearly the law would not stop with giving the unpaid 
 seller a mere right to continue in possession. In fact, wherever 
 we find a lien,' whether in the law of sales or other branches of the 
 law, we will discover that the law prescribes a certain procedure 
 whereby the lienholder may convert his lien into money or into an 
 absolute ownership in himself. In the law of mortgages of land, 
 every one is more or less familiar with the foreclosure suit. The 
 term "foreclosure suit" merely describes the procedure by which 
 the mortgagee, -who has, by virtue of his mortgage, a lien on the 
 land, has the right to have the land sold, and the proceeds aris- 
 ing from the sale paid over by the officer of the court who made 
 the sale, to the mortgagee. So, also, where a pledgee of personal 
 property may, by following out certain other, but similar, rules, 
 obtain a sale of the goods and the right to apply the proceeds on 
 the debt due him. Railroad companies have liens on freight to 
 secure freight charges, and the company has a right, upon certain 
 conditions and by following the prescribed procedure, to sell the 
 goods and to apply the money on the debt. 
 
Ch. 5) REMEDIES OF THE SELLER 1121 
 
 Liens arise in a great many ways, but the point here sought to 
 be made is that the law does prescribe some method by which the 
 holder of the lien will be able to convert that right into money. 
 The steps necessary to bring about this result vary according to 
 the circumstances under which the lien arose. Accordingly in 
 the law of sales we find special rules which the seller must fol- 
 low, if he desires to sell the property or to resume his ownership 
 in it. The most distinctive feature is that the buyer need not 
 begin any action in court, as is necessary in enforcing a mortgage 
 lien on land. The lien, given to the unpaid seller, is thus seen to 
 be the real basis for the other two rights — of resale and of rescis- 
 sion. The latter two are derivative. 
 
 Sales Act, Section 60. (1) Where the goods are of a perish- 
 able nature, or where the seller expressly reserves the right of re- 
 sale in case the buyer should make default, or where the buyer 
 has been in default in the payment of the price an unreasonable 
 time, an unpaid seller having a right of lien or having stopped the 
 goods in transitu may resell the goods. He shall not thereafter 
 be liable to the original buyer upon the contract to sell or the sale 
 or for any profit made by such resale, but may recover from the 
 buyer damages for any loss occasioned by the breach of the con- 
 tract or the sale. 
 
 (2) Where a resale is made, as authorized in this section, the 
 buyer acquires a good title as against the original buyer. 
 
 (3) It is not essential to the validity of a resale that notice of 
 an intention to resell be given by the seller to the original buyer. 
 But where the right of resale is not based on the perishable nature 
 of the'^oods or upon an express provision of the contract or the 
 sale, the giving or failure to give such notice shall be relevant in 
 any issue involving the question whether the buyer has been in 
 default an unreasonable time before the resale was made. 
 
 (4) It is not essential to the validity of a resale that notice of 
 the time and place of such resale should be given by the seller to 
 the original buyer. 
 
 (5) The seller is bound to exercise reasonable care and judg- 
 ment in making a resale, and subject to this requirement may make 
 a resale either by public or private sale. 
 
 The first point that should be noticed in connection with this 
 section is that the unpaid seller, in reselling the goods, is not sell- 
 ing his own goods. He is selling the goods of the buyer. The 
 above section does not say that the unpaid seller, in making a re- 
 sale, is doing so as owner of the goods, These sections merely 
 give to the unpaid ^seller the legal power and legal privilege to sell 
 the buyer's own goods and to pass a title to the buyer at the re- 
 sale, which sale will be effective as against the claims of the origi- 
 nal buyer. The distinction between selling as owner and selling, 
 in a sense, as agent for the buyer, may sometimes affect the amount 
 of the damages which the seller will be allowed to recover from 
 B.& B.BtJS.LAW— 71 
 
1122 SALES (Part 4= 
 
 the buyer after the resale. We should recall that the circum- 
 stances are such, title being in the buyer, that the seller has the 
 right to sue the seller for the amount of the purchase price. Let 
 us suppose, in a particular case, that this amount is $1,000. The 
 unpaid seller, instead of suing for the price, resells them strictly 
 in accordance with this section, and obtains $900 for the goods on 
 the resale. Suppose, also, that the market price was $950. When 
 the seller sued the buyer, after the resale, he would recover the 
 difference between the contract price, $1,000, and the amount ob- 
 tained at the resale, $900— i. e., he would recover $100. If he had 
 resold as owner, then the seller, in his subsequent suit against the 
 buyer, would recover the difference between the contract price 
 of $1,000 and the market price of $950, or $50. The resale fixes 
 the amount of damage which may be recovered from the buyer. 
 
 There is this further difference between selling as owner and 
 selling the purchaser's goods. The seller may add to his damages 
 the expense to which he was put in selling the goods, and may also 
 recover the cost to which he was put in keeping the goods from 
 the time when the buyer was first under a duty of paying for the 
 goods and the date of the resale. 
 
 From the business point of view, the important things to keep 
 in mind are : First, that the right to resell does not arise until the 
 buyer has been in default an unreasonable time. If a seller under- 
 takes to resell on the first day after the buyer was under an obli- 
 gation of paying the price, he is very likely to find that the law, 
 instead of sanctioning the resale, will say that the act was a tor- 
 tious conversion of the buyer's goods, and accordingly the seller 
 will be liable to the buyer for all damages sustained thereby by 
 the latter. There is one exception, noted in the section, where 
 the seller is not obliged to wait until the buyer is in default an 
 unreasonable time; i. e., when the subject of the sale was of a 
 perishable nature. The reason for such exception is apparent. 
 On the general question, how long must the seller wait? no. sat- 
 isfactory answer can be laid down in general terms. The circum- 
 stances of the case will in general indicate what constitutes an un- 
 reasonable time. In this connection the seller should not put very 
 much reliance upon the rule stated in the section, which relieves 
 him from the necessity of giving the buyer notice of the time and 
 place of sale. That clause is by no means a dead letter, but at 
 the same time it is decidedly to the interest of the seller to give 
 such notice to the buyer of the time and place of sale. This gives 
 an opportunity, and a fair one, to the buyer to protect himself. If 
 notice is not given under circumstances where it could have been 
 given, this carries with it suggestions that the seller may be at- 
 tempting to take an unfair advantage of the buyer. For these 
 reasons notice should be given. Before the adoption of the Sales 
 Act, and in some of the states where it has not been enacted, the 
 law requires notice to be sent to the buyer. 
 
 In the second place, the seller should take note of the direction 
 
Ch. 5) REMEDIES OF THE SELLER 1123 
 
 that he exercise reasonable care and judgment in making a resale. 
 In connection with the circumstances of a particular transaction, 
 this requirement may mean a good deal. The law will not permit 
 an, unpaid seller deliberately to resell the goods at a great sacrifice 
 when a better price could have been obtained. If it proves to be 
 an unfair sale, the seller will not be allowed to recover from the 
 buyer any more than the difiference between the contract price 
 and the market price. If the sale is a fair one, he will recover the 
 difiference between the contract price and the amount which the 
 goods brought at the resale. 
 
 SECTION 6.— RIGHT OF RESCISSION 
 
 The third and last right which the unpaid seller has against the 
 goods is the right of rescission. This word is often used to ex- 
 press the idea that a party to a contract is excused from perform- 
 ing his obligation thereunder, if the other party has materially 
 broken his promise. The term should not be used in this sense. 
 When used in connection with a contract, rescission means some 
 act which has the legal effect of totally destroying the legal rela- 
 tions between the parties to a contract or to some part thereof. 
 What is the relation of the parties after destruction of these rela- 
 tions? As was shown in Chapter X of Contracts, the parties are 
 in the same position that they were in before they entered into 
 the contract. Any suit between the parties subsequent to a re- 
 scission of the entire contract is for the sole purpose of putting 
 the parties in the same financial or proprietary position which they 
 occupied just before they entered into contract relations. Such a 
 lawsuit has a different object from an action brought on the con- 
 tract to recover damages for its breach. An action to recover dam- 
 ages for the breach of a contract seeks to put the plaintiff, party 
 not in default, in the same position he would have been in if the 
 contract had been performed. An action following a rescission 
 of a contract because of default, or for any other reason, seeks to 
 put the plaintiff, not where he would have been if the contract 
 had been performed, but to put him in the same position which 
 he held before he entered into the contract which is now rescinded. 
 One cannot sue upon a contract which has been totally rescinded. 
 If but a part of it has been rescinded, the remaining portion is suf- 
 ficiently alive to support an action upon it. 
 
 The Sales Act gives the unpaid seller two powers of rescission : 
 (1) Power to rescind the transfer of title; and (2) power to re- 
 scind the entire contract. These sections are as follows: 
 
 Section 61. (1) An unpaid seller having a right of lien or hav-. 
 ing stopped the goods in transitu may rescind the tremsfer of title 
 and resume the property in the goods, where he expressly reserved 
 the right to do so in case the buyer should make default, or where 
 
1124 SALES (Part i 
 
 the buyer has been in default in the payment of the price an un- 
 reasonable time. The seller shall not thereafter be liable to the 
 buyer upon the contract to sell or the sale, but may recover from 
 the buyer damages for any loss occasioned by the breach of the 
 contract or the sale. 
 
 (2) The treinsfer of title shall not be held to have been rescind- 
 ed by an unpaid seller until he has manifested by notice to the 
 buyer or by some overt act an intention to rescind. It is not nec- 
 essary that such overt act should be communicated to the buyer, 
 but the giving or failure to give notice to the buyer of the inten- 
 tion to rescind shall be relevant in any issue involving the ques- 
 tion whether the buyer has been in default an unreasonable time 
 before the right of rescission was asserted. 
 
 The important point to notice in the first instance is, that this 
 section authorizes an unpaid seller, upon the buyer's default, to 
 rescind the transfer of title ; that is, the buyer's failure to pay gives 
 to the seller the legal power to treat the title as never having pass- 
 ed to the buyer. The seller may exercise this right only in the 
 manner prescribed in the act ; i. e., by manifesting by notice to the 
 buyer or by some overt act an intention to rescind. While the 
 next sentence provides that this notice need not be communicated 
 to the buyer, it is always wiser to do so. After the seller manifests 
 his intention to rescind, what are the legal relations between buyer 
 and seller? Simply this: There is still a contract between buyer 
 and seller, but the title to the goods has now returned to the seller. 
 The situation is the same as would exist in any contract to sell 
 goods, title not having passed to the buyer, which contract had 
 been broken by the buyer. Consequently the seller may sue the 
 buyer after rescission upon the contract for damages to recover for 
 the breach. Since title is now back in the seller, the provisions of 
 section 64 are applicable to all actions brought by the seller against 
 the buyer for the latter's breach of an executory contract to sell. 
 Here we find that the rule of damages is: "Where there is an 
 available market for the goods in question, the measure of dam- 
 ages is, in the absence of special circumstances showing proximate 
 damage of a greater amount, the difference between the contract 
 price and the market or current price at the time or times when 
 the goods ought to have been accepted." It is to be noticed that, if 
 the seller, after rescission of the transfer of title, sells the goods, he 
 does so as any owner of goods may do, and his right is in no sense 
 based upon the section heretofore discussed, giving an unpaid 
 seller the right of resale. 
 
 As noted above, the law gives the unpaid seller the power, not 
 only to rescind the transfer of title, but also to rescind the whole 
 contract. 
 
 Section 65. Where the goods have not been delivered to the 
 buyer, and the buyer has repudiated the contract to sell or sale, or 
 has manifested his inability to perform his obligations thereunder 
 or has committed a material breach thereof, the seller may totally 
 
Ch. 5) REMEDIES OF THE SELLER 1125 
 
 rescind the contract or the sale by. giving notice of his election so 
 to do to the buyer. 
 
 Very seldom will it be to the advantage of the seller totally to 
 rescind the contract, because, if he does so, he will have no right 
 of action on the contract against the buyer for the breach. The 
 unpaid seller may sue the buyer, not on the contract, but upon an 
 implied or quasi contract to recover the reasonable value, not the 
 contract price, of what he parted with. The plaintiff in such a case 
 is seeking restitution. He is not suing for damages to compensate 
 him for the loss of the contract. It would seem that an actual no- 
 tice must needs be given to the buyer in this case, whereas, in re- 
 scinding the transfer of title, he need but manifest his intentions to 
 rescind by some overt act. The remedy of rescission was taken 
 up in Chapter X of Contracts, so that it is not necessary to go 
 further into this matter here. 
 
 SECTION 7.— RIGHT TO DAMAGES FOR BREACH OF 
 CONTRACT TO SELL 
 
 Where title has not passed to the buyer, and the buyer has 
 broken his contract, it is perfectly obvious that the seller may sue 
 the buyer on the contract and recover damages for the breach. 
 Assuming that the seller was not in default, and that the buyer 
 had materially broken his contract, the only remaining question 
 concerns the measure of damages. 
 
 Sales Act, Section 64. (1) Where the buyer wrongfully neg- 
 lects or refuses to accept and pay for the goods, the seller may 
 maintain an action against him for damages for non-acceptance. 
 (2) The measure of damages is the estimated loss directly and 
 naturally resulting, in the ordinary course of events, from the buy- 
 er's breach of contract. (3) Where there is an avedlable market 
 for the goods in question, the measure of damages, is in the ab- 
 sence of special circumstances, showing proximate damages of a 
 greater amount, the difference between the contract price and the 
 market or current price at the time or times when the goods ought 
 to have been accepted, or, if no time was fixed for acceptance, then 
 at the time of the refusal to accept. (4) If, while labor or expense 
 of material amount are necessary on the part of the seller to enable 
 him to fulfill his obligations iinder the contract to sell or the sale, 
 the buyer repudiates the contract or the sale, or notifies the seller 
 to proceed no further therewith, the buyer shall be liable to the 
 seller for no greater damages than the seller would have suffered 
 if he did nothing toward carrying out the contract or the sale after 
 receiving notice of the buyer's repudiation or countermand. The 
 profit the seller would have made if the contract or the sale had 
 been fully performed shall be considered in estimating such damr 
 ages. 
 
1126 SALES (Part 4 
 
 Sales Act, Section 51. When the seller is ready and willing to 
 deliver the goods, and requests the buyer to takie delivery, and the 
 buyer does not within a reasonable time after such request take 
 delivery of the goods, he is liable to the seller for any loss occa- 
 sioned by his neglect or refusal to take delivery, and also for a rea- 
 sonable charge for the care and custody of the goods. If the neg- 
 lect or refusal of the buyer to take delivery amounts to a repudia- 
 tion or breach of the entire contract, the seller shall have the rights 
 against the goods and on the contract hereinafter provided in 
 favor of the seller when the buyer is in default. 
 
 TORKOMIAN v. KUSSELL et al. 
 
 (Supreme Court of Errors of Connecticut, 1916. 00 Coun. 481, 97 Atl. 760.) 
 
 Action by Baron J. Torkomian against William E. Russell and an- 
 other. From a judgment for plaintiff, defendants appeal. 
 
 WhEELBR, J. The finding recites that : On November 1, 1913, the 
 defendants were dealers in automobiles in Waterbury and agents for 
 the sale of the Lozier make of automobile. On said day the plaintiff 
 and the defendants entered into a written contract by the terms of 
 which the defendants agreed to sell the plaintiff a Lozier Six automo- 
 bile, to deliver the same between April IS and May 1, 1914, and to ac- 
 cept in part payment a used Studebaker car at the agreed price gf $700, 
 and to give the plaintiff their note for $700 payable to plaintiff or order 
 on demand in consideration of the Studebaker car. The plaintiff in 
 consideration of the promises of the defendants agreed to pay $3,250 
 for the Lozier car and not to demand payment of the $700 note unless 
 the defendants failed to deliver the L,ozier car. From about the be- 
 ginning of 1914, down to the delivery period, the plaintiff repeatedly 
 expressed his unwillingness to take the Lozier Six, and desired defend- 
 ants to substitute another car, which they refused to do. The defend- 
 ants were ready and willing to deliver the Lozier Six at the delivery 
 period; but, by reason of plaintiff's expressed unwillingness to accept 
 a car if delivered, the defendants did not make actual physical delivery. 
 
 The agreepient expressly provides that the note is not to be demand- 
 ed unless the defendants failed to deliver the car at the period named. 
 The defendants pleaded, and it is found, that the plaintiff had notified 
 the defendants for upwards of five months and down to the period of 
 delivery named that he would not accept the Lozier Six. The defend- 
 ants were entitled to act upon the assumption that the plaintiff meant 
 what he said, and they were not required to go through the idle cere- 
 mony of making a physical tender. They did all that they were obliged 
 to do when, havmg the means of getting the car, they "were ready 
 and willing to deliver the Lozier Six automobile at the time specified 
 for delivery in said contract." * * * There has been no failure on 
 the part of the defendants to deliver this car, and the judgment, so far 
 as the action upon the note was concerned, should have been for the 
 defendants. 
 
 The remaining reasons of appeal that require consideration are based 
 upon the measure of damages for the defendants adopted by the trial 
 court. In count 1 of the complaint the plaintiff seeks to recover for 
 
Ch. 5) REMEDIES OF THE SELLER 1127 
 
 the defendants' breach of their contract, and in count 2 upon the $700 
 note. The defendants alleged under their special defense to both 
 counts and as a basis of recovery on their counterclaim, that the plain- 
 tiff had notified them that he would not accept the car contracted for, 
 if tendered, and, further, that they had lost in consequence of this 
 breach of contract by the plaintiff seven hundred dollars. The de- 
 fendants, if entitled to recover under their counterclaim, were entitled 
 to recover under our common law such sum as would put them, so far 
 as It can be done by money, in the same position they would have been 
 in if the contract had been performed. 
 
 In the absence of special circumstances requiring a different rule, 
 the damages recoverable by a vendor for refusal to take goods con- 
 tracted for is the difference at the time and place of delivery, between 
 the contract price and the market price. * * * But we recognize 
 that this rule is not an unbending one, that the circumstances may re- 
 quire its moditication in order to effectuate the cardinal purpose, "just 
 compensation for the loss incurred." And the loss must be such as 
 "may reasonably be supposed to have been in the contemplation of the 
 parties at the time they made the contract." * * * Section 64 of 
 the Sales Act reaffirms our rule for measuring damages in case of 
 breach of a contract of sale by the contractee or vendee. 
 
 The market price to these defendants of a L,ozier Six was undoubt- 
 edly less than its selling price, since they were selling agents who pur- 
 chased and took title to the cars they disposed of. Section 64 provides 
 as a measure of damages the difference between the contract price and 
 the market price "in the absence of special circumstances showing 
 proximate damage of a greater amount." The circumstance that these 
 defendants were selling agents and purchased cars at a rate lower 
 than the market price of the cars to the public made the ordinary 
 measure of damages inadequate. The defendants lost by the plaintiff's 
 breach the difference between the contract price and what the car 
 ready for physical delivery to the plaintiff would have cost them, 
 which would have been the purchase price of the car plus the expense, 
 if any, of delivery and of making it ready for delivery. This is the 
 application to the facts of this case of section 64. It requires the per- 
 son who has failed to keep his contract of sale to pay the loss caused 
 to the contractor who has kept his contract. * * * The defendants, 
 as vendors or contractors, were entitled to show what a Lozier Six 
 car would have cost them in the same way a manufacturer might 
 show the cost of an aiticle manufactured by him. The defendants 
 would thus recover the profits they would have made had the plaintiff 
 carried out his contract. In such a case profits are not speculative, but 
 certain and ascertainable, and the legitimate fruits of the contract. 
 * * * The profit of the defendants might also have been ascertained 
 by finding the commission made by them in the sale less the expenses 
 incurred by them. * * * 
 
 Since the defendants retained the Studebaker car and the agreed 
 price of this car was $700, the plaintiff should be allowed this sum, 
 and the defendants should be allowed their profit had the plaintiff 
 fulfilled his contract. The judgment should have been for the differ- 
 ence between these sums and for the plaintiff if the $700 exceeded 
 the profit, and for the defendants if the profit exceeded the $700. 
 
 There is error, the judgment is reversed, and a new trial ordered. 
 
1128 SALES (Part 4 
 
 CHAPTER VI 
 
 WARRANTIES 
 
 Section 
 
 1. Introduction. 
 
 2. Express Warranties. 
 
 3. Implied Warranties Considered Generally. 
 
 4. Implied Warranty of Title. 
 
 5. Implied Warranty That the GooSs Shall Correspond to the Description. 
 
 6. Implied Warranty That the Goods Shall Correspond to the Sample 
 
 7. Implied Warranty of Merchantability. 
 
 S. Implied Warranty of Fitness for a Particular Purpose. 
 
 9. Implied Warranties May Arise from the Usage of Trade. 
 
 10. Implied Warranties May be Negatived by Agreement. 
 
 11. Rights of Sub-Vendees Against Former Warrantors. 
 
 SECTION 1.— INTRODUCTION 
 
 From the business standpoint, the subject of warranties in sales 
 and contracts to sell is of great importance. The legal problem in 
 outline is simply this: To ascertain the circumstances under 
 which the law regards a seller as having broken his promise as to 
 the kind or quality of goods sold. We are already aware of the 
 fact that the law recognizes express promises and implied prom- 
 ises. Similarly we find two classes of warranties: Express war- 
 ranties and implied warranties. The representation or promise 
 which is called a warranty is often called a guaranty. It is some- 
 times said that a seller guarantees his product. In the law the 
 word "guaranty" is not used in this sense. In the law the word 
 "guaranty" is used to describe a contract in which one person 
 promises to be responsible for the performance of another person's 
 obligation. 
 
 Controversy and litigation between buyer and seller over war- 
 ranties is sometimes unnecessary. A grocer, who sells his cus- 
 tomer a can of beef, which gives his customer ptomaine poisoning, 
 could not very easily have avoided the liability; but the seller of 
 a machine, who makes extravagant statements of fact concerning 
 the article, might have avoided the liability. 
 
 Let us look for a moment at the subject of express warranties 
 through the eyes of the seller, who, although anxious to make a 
 sale, does not intend to make untrue statements about his goods. 
 What matters of legal policy should he be aware of as he enters the 
 negotiations leading up to the sale? Why does one make untrue 
 statements about the goods which he sells? Now and then, of 
 course, we find one who will deliberately and intentionally mis- 
 represent his goods. This is fraud, because there is a guilty mind 
 accompanying the act. In such a case, wholly outside the law of 
 contracts, the law of torts gives to the defrauded buyer a right to 
 sue the fraudulent seller in an action of deceit. We may eliminate 
 that kind of a case from our discussion, for we are here concerned 
 
Ch. 6) WARRANTIES 1129 
 
 with the honest seller. He very often makes untrue statements 
 about his goods, but the law does not exempt him from responsi- 
 bility because he made. a mistake and acted honestly. Intention 
 is not an element of a warranty. 
 
 There are perhaps three principal reasons for the innocent or 
 unintentional making of untrue statements of fact with respect to 
 goods offered for sale: 
 
 (1) A clerk in a dry goods store, if asked whether a certain fabric 
 will fade, may answer, "No," whether he has affirmative knowledge of 
 that fact or not. A seller of a second-hand automobile may be led to 
 state that the car offered for sale has not been run over a specified num- 
 ber of miles. Sometimes he knows the truth of the fact asserted, but 
 often he does not know. The seller of complicated machinery 
 may undertake to make all manner of assertions of fact concerning 
 the article, without possessing the requisite knowledge. But 
 enough has been said to call to mind the fact that there is consid- 
 erable pressure upon a seller to launch into a vivid description of 
 the thing offered for sale without possessing accurate information 
 in regard to the facts asserted. The remedy for this is an obvious 
 one, however difficult it may be to apply. 
 
 (2) Assuming that the seller possesses accurate information concern- 
 ing the various features of the goods, it is still possible for him to fail 
 to convey the truth to the prospective purchaser, because the language 
 which he employs for that purpose is carelessly selected. Ivanguage is 
 sometimes a very poor vehicle for the conveyance of thought from one 
 mind to another. It is altogether possible for a seller to know the truth, 
 and simply fail to transfer to the mind of the buyer the exact idea 
 which the speaker had. The seller may use language which has a 
 broader meaning than that intended, or he may select expressions 
 which have too narrow a meaning. Oftentimes, in a particular line 
 of business, custom may have attached fairly accurate notions to 
 certain words descriptive of quality, which in common usage have 
 a slightly different meaning. A seller may carelessly employ the 
 word in the ordinary sense, under circumstances where the law 
 would give it the technical interpretation. 
 
 The third cause for the unintentional making of untrue state- 
 ments about the goods arises from the natural tendency of the 
 seller to give an answer pleasing to the buyer in response to lead- 
 ing questions from him. The buyer, interested, will naturally 
 make numerous inquiries concerning the goods, and will phrase his 
 questions in leading form; that is, so that the hoped-for response 
 is suggested in the question. It is the tendency for one so interro- 
 gated to give the suggested answer, without thinking whether it 
 represents his real judgment. It is for this reason that the law 
 of evidence forbids the asking of leading questions of witnesses; 
 the answers thereto, as a general rule, not being trustworthy. 
 The dramatic situation which may develop in the negotiations may 
 easily lead the seller into the making of warranties which, in his 
 sober judgment, he would not have made. 
 
1130 SALES (Part 4 
 
 The law makes some concession to this trait of human nature, 
 and provides, accordingly, that a statement of opinion shall not 
 be deemed a warranty. But still the question is always raised: 
 How may a statement of fact be distinguished from a statement of 
 opinion? With this comment we may now take note of the purely 
 legal aspects of express warranties. 
 
 SECTION 2.— EXPRESS WARRANTIES 
 
 Sales Act, Section 12. Any affirmation of fact or any promise 
 by the seller relating to the goods is an express warranty, if the 
 natural tendency of such affirmation or promise is to induce the 
 buyer to purchase the goods, and if the buyer purchases the goods 
 relying thereon. No affirmation of the value of the goods, nor any 
 statement purporting to be a statement of the seller's opinion only, 
 shall be construed as a warranty. 
 
 (1) A warranty may take the form either of an affirmation or of 
 a promise. An affirmation relating to the goods differs from a 
 promise relating to the goods, in that an affirmation is in form a 
 statement of a fact then existing, while a promise is in form a 
 statement that the individual so promising undertakes to do what- 
 ever may be necessary to bring the fact into existence. The affir- 
 mation will be a statement descriptive of the quality or of other 
 attributes of the goods. Where the affirmation consists in a de- 
 scription of the goods given for the purpose of enabling the par- 
 ties to identify them, this affirmation also is a warranty, but it is 
 regarded as an implied warranty rather than an express warranty. 
 If A. is selling B. a horse, and the horse is present, words de- 
 scribing the horse will constitute express warranties. But if A. 
 is selling B. a horse, which at the time is in a field with many other 
 horses, affirmations which describe the horse in such a way that 
 he may, by means of the description, be identified, will be regard- 
 ed as implied warranties. There is no difference in legal effect be- 
 tween the tv/o except this : Where the contract relates to goods 
 not identified, the affirmations descriptive of the identity of the 
 goods makes the contract one of sale, as distinguished from a con- 
 tract to sell, and therefore would affect the time when title would 
 pass. If the description did identify the subject-matter of the 
 contract, title would then pass. If the descriptive statement did 
 not sufficiently identify the goods, title would not oass until there 
 was an act of unconditional appropriation, assented to by both 
 parties. An affirmation of fact relating to the attributes of the 
 subject of the sale, whether it be with respect to ascertained goods 
 or unascertained goods, are express warranties. 
 
 (2) The definition, set forth in the section above quoted, shows 
 that it must be a particular kind of affirmation ; i. e., one of fact, 
 as distinguished from one relating to value, or which expresses 
 some other opinion of the seller. "^ 
 
Ch. 6) WARRANTIES 1131 
 
 (3) It is to be noticed that not all affirmations of fact may be 
 treated as express warranties. Only those affirmations of fact 
 which have "the natural tendency to induce the buyer to purchase 
 goods" may be so treated. 
 
 (4) Finally, the affirmation of fact which has a natural tendency 
 to induce the buyer to purchase the goods, while it thus satisfies all 
 of the formal requirements of warranty, will not be so regarded, 
 unless, in the particular case, the buyer did in fact purchase the 
 goods relying upon such affirmation of fact. 
 
 All of these four elements must be present before a seller will be 
 held liable for breach of an express warranty. The following cases 
 illustrate the application of these rules. 
 
 HOBART V. TOTJNG. 
 (Supreme Court of Vermont, 1891. 63 Vt. 363, 21 Atl. 612, 12 L. B. A. 693.) 
 
 The evidence of the plaintiff tended to show that in early June, 
 1888, he purchased a pair of horses, of which the horse in question 
 was one; that he first saw these horses in May; that about the 1st 
 of June he rode after them with the defendant ; and that the defendant 
 then warranted them to be sound. The bill of sale which the plaintiff 
 si-gned was as follows : "Alburgh, June 5, 1888. J. W. Hobart bo't of 
 Sumner Young, Esq., one pair of black (Pilot) geldings, sound and 
 kind, $487.50 to be delivered on the cars at the depot with good halters, 
 duties paid, and certificates of the same attached hereto. Rec'd. pay- 
 ment. S. Young." 
 
 RowELL, J. * * * ■ An important qviestion is whether the words 
 "sound and kind," contained in the bill of sale, constitute an express 
 warranty as matter of law. The law of warranty has undergone much 
 change since Chandelor v. Lopus, Cro. Jac. 4, decided in the Ex- 
 chequer Chamber in 1803. It was there held that an affirmation that 
 the thing sold was a bezoar stone was no warranty ; for, it was said, 
 every one, in selling his wares, will affirm that they are good, or that 
 the horse he sells is sound ; yet, if he does not warrant them to be so, 
 it is no cause of action. But latterly courts have manifested a strong 
 disposition to construe liberally in favor of the purchaser what the sell- 
 er affirms about the kind and quality of his goods, and have been 
 disposed to treat such affirmations as warranties when the language 
 will bear that construction, and it is fairly inferable that the purchaser 
 so understood it. * * * And now any affirmation as to the kind 
 or quality of the thing sold, not uttered as matter of communication, 
 opinion, nor belief, made by the seller pending the treaty of sale,' for 
 the purpose of assuring the purchaser of the truth of the affirmation 
 and of inducing him to make the purchase if so received and relied 
 upon by the purchaser, is deemed to be an express warranty. And 
 in cases of oral contracts it is the province of the jury to decide, in 
 view of all the circumstances attending the transaction, whether such 
 a warranty exists or not. * * * 
 
 But when the contract is in writing it is for the court to construe it, 
 and to decide whether it contains a warranty or not ; * * * and 
 by the great weight of recent authority positive statements in instru- 
 ments evidencing contracts of sale, descriptive of the kind, or asr 
 
1132 SALES (Part 4 
 
 sertive of the quality and condition of the thing soldi are treated as a 
 part of the contract and regarded as warranties if the language is rea- 
 sonably susceptible of that construction, and it is fairly inferable that 
 the purchaser understood and relied upon it as such. Thus, in Has- 
 tings V. Lovering, 2 Pick (Mass.) 214, 13 Am. Dec. 420, the sale note 
 described the article as "prime quality winter sperm oil." The plain- 
 tiff declared in assumpsit on a warranty, and had judgment. In Hen- 
 shaw V. Robins, 9 Mete. (Mass.) 83, 43 Am. Dec. 367, the bill of par- 
 ticulars afifirmed the article to be indigo. The court said that that 
 imported an express warranty if it was so intended, and that it must 
 be taken to have been so intended, as there was no evidence to the con- 
 trary. In Brown v. Bigelow, 10 Allen (Mass.) 242, a case exactly in 
 point, these very words, "sound and kind," were held to constitute 
 a general warranty of soundness. In Gould v. Stein, 149 Mass. 570, 
 22 N. E. 47, 5 L. R. A. 213, 14 Am. St. Rep. 455, a bought and sold 
 note described the article as "Ceara scrap rubber as per sample, of 
 second quality." The court said that it did not admit of doubt that 
 the note was intended to express the terms of the sale, and that the 
 contract of the parties was to be found in what was thus written, read 
 in the light of the attendant circumstances. Pleld a warranty that 
 the rubber was of second quality, and that the fact that the plaintiff 
 made such examination of it as he pleased did not necessarily do away 
 with the warranty. 
 
 Osgood v. Lewis, 2 Har. & G. (Md.) 495, 18 Am. Dec. 317, is a lead- 
 ing case on this subject. There the bill of particulars contained a state- 
 ment that the article was "winter-pressed sperm oil," and the question 
 was whether those words were per se a warranty; and it was, held that 
 they were, for it was said they could not be regarded as mere matter 
 of opinon or belief, but as the assertion of a material fact that the de- 
 fendant assumed to know and to warrant the existence of. In Kearly 
 V. Duncan, 1 Head (Tenn.) 397, Ti Am. Dec. 179, the words, "said 
 negroes, sound in body and mind," contained in a receipt for the price 
 paid for them, were held clearly to constitute a warranty of soundness. 
 The words, "being of sound mind and limb, and free from all disease," 
 in a bill of sale of slaves, were held a warranty in Cramer v. Brad- 
 shaw, 10 Johns. (N. Y.) 484. This case is criticised by Bennett, J., 
 in Foster v. Caldwell's Estate, 18 Vt. 181, who would treat the words 
 as a mere representation, descriptive of the property sold. But that 
 case seems to have stood the test in New York, while Seixas v. Woods, 
 2 Caines, 48, 2 Am. Dec. 215, and Swett v. Colgate, 20 Johns. 203, 11 
 Am. Dec. 266, to which he refers, and which held that no warranty 
 arises from a description of the kind of property sold, have been ex- 
 pressly overruled by Hawkins v. Pemberton, 51 N. Y. 198, 10 Am. 
 Rep. 595, as not properly applying the doctrine that they correctly 
 announce, wherein a contrary application's made, and wherein it is 
 held that there is ho distinction in principle between a representation as 
 to quality and condition and a representation as to kind and character. 
 And in 1 Smith, Lead. Cas. (7th Amer. Ed.) 341, it is said that such a 
 distinction is too refined to be practicable. 
 
 In Yates v. Pym, 6 Taunt. 446, a description of bacon in a sale note 
 as "pr;ime singed" was held to be a warranty that it was prime singed. 
 So in Bridge v. Wain, 1 Starkie, 504, the goods sold were described in 
 the invoice as "scarlet cuttings." Hjeld a warranty that they answered 
 the known mercantile description of scarlet cuttings. The advertise- 
 
Ch. 6) WARRANTIES 1133 
 
 ment of the sale of a ship described her as a "copper-fastened vessel," 
 whereas she was only partially copper-fastened, and not what was 
 called in the trade a "copper-fastened vessel." Held a warranty that 
 she was copper-fastened. Shepherd v. Kain, 5 Barn. & Aid. 240. A 
 sold note described turnip seed as "Skirving's Swedes." Coleridge, J., 
 said that there was no doubt that the statement was made by the de- 
 fendant a part of the contract, and it was held to be a warranty that 
 the seed was Skirving's. Allan v. Lake, 18 Q. B. 560. In Wetherill v. 
 Neilson, 20 Pa. 448, 54 Am. Dec. 741, the bill of sale described the 
 soda ash as being of a certain strength, whereas it was of a less 
 strength, and unmerchantable. Held no warranty. It is said in 1 
 Smith, Lead. Cas. (7th Amer. Ed.) 343, that this case stands almost 
 if not quite, alone, and cannot be reconciled with the general course 
 of decisions in this country and in England. In Barrett v. Hall, 1 
 Aik. 269, the note was payable in "good cooking-stoves." The court 
 said that no definite quality could be intended from the term "good," 
 and that it imported nothing but opinion, and was no warranty, and 
 referred to Chandelor v. Lopus, Cro. Jac. 4, for authority, which is no 
 longer authority. But we do not say that the court was wrong in that 
 case, for "good" is a very common term of praise in trade, and, as 
 used in the note, ascribed no particular quality to the stoves, and might 
 well be regarded, in that case, as mere matter of opinion or commenda- 
 tion, and as so understood by the parties. In Wason v. Rowe, 16 Vt. 
 525, the bill of sale said the horse was "considered sound." Held no 
 warranty ; and with good reason, for "considered" was no assertion of 
 a fact, but a mere expression of opinion. 
 
 The more recent cases in this state recognize the general rule that 
 positive statements of fact by the seller in respect of the kind or the 
 quality of the thing sold that constitute a part of the contract or form 
 its basis, and that are fairly susceptible of such a construction, are to 
 be regarded as warranties. Thus in Beals v. Olmstead, 24 Vt. 114, 58 
 Am. Dec. 150, one of the reasons given why the defendant's state- 
 ments ought to be regarded as warranties is that they were made pos- 
 itively, and concerning matters as to which he was supposed and pro- 
 fessed to have knowledge. Therefore, it is said, he ought to expect to 
 be bound by them. See, also. Drew v. Edmunds, 60 Vt. 401, 15 Atl. 
 100, 6 Am. St. Rep. 122 ; Enger v. Dawley, 62 Vt. 164, 19 Atl. 478. 
 It is sufficiently certain, as matter of construction, that the words, 
 "sound and kind," found in the bill of sale before us, were intended by 
 the parties to be a part of the contract of sale, and as such it would be 
 unreasonable to construe them as an expression of mere opinion when 
 they positively ascribe to the horses a condition and a quality that 
 the defendant assumed to know they possessed, and that he had pecul- 
 iar means of knowing, whether they possessed or not, while the plain- 
 tiff had no such means. 
 
 We think the words, reading the instrument in the light of the at- 
 tendant circumstances, clearly constitute an express warranty of 
 soundness and that the chief judge was right in so holding. Judgment 
 affirmed. 
 
1L34 SALES (Part 4 
 
 DEMING V. DARLING. 
 
 (Supreme Juaicial Court of Massachusetts, 1889. 148 Mass. 504, 20 N. E. 107, 
 
 2 L. R. A. 743.) 
 
 Action by Vesta A. Deming against David H. Darling, for fraud- 
 ulent representations, whereby plaintiff's agent, Dr. Charles Jordan, 
 was induced to purchase a certain railroad bond. Verdict for plain- 
 tiff, and defendant excepts. 
 
 Holmes, J. This is an action for fraudulent representations, alleged 
 to have been made to the plaintiff's agent for the purpose di inducing 
 th6 plaintiff to purchase a railroad bond from the defendant. * * * 
 
 Among the representations relied on, one was that the railroad 
 mortgaged was good security for the bonds, and another was that the 
 bond was of the very best and safest, and was an "A No. 1" bond. 
 With regard to these and the like, the defendant asked the court to 
 instruct the jury "that no representations which the defendant might 
 have made or did make to Dr. Jordan, in relation to the value of the 
 bond in question, or of the railroad, its terminals, or other property 
 which were mortgaged to secure it, with other bonds, even though 
 false, wei"e repiresentations upon which Dr. Jordan ought, to have re- 
 lied, and are not sufficient to furnish any grounds for this action;" 
 and also "that each of the expressions, 'and that the same [meaning 
 said rail, and all the property covered by the mortga:ge] was good se- 
 curity for said bonds,' 'that said bond was of the very best and saf- 
 est, and was an "A No. 1 bond," ' are expressions of Opinion of value^ 
 and even though false are not such representations as Dr. Jordan had 
 a right to rely upon, and are not enough to furnish any grounds for 
 this action." 
 
 The court declined to give these instructions, and instead instructed 
 the jury that "an expression of opinion, judgmeint, or estimate, or a 
 statement of a promissory nature, relating to what would be in the 
 future, so far as they were expressions of opinion, if made in good 
 faith, however strong as expressions 6i belief, would not support an 
 action of deceit." 
 
 It will be seen that the fundamental difference between the instruc- 
 tions given and those asked is that the former require good faith. 
 The language of some cases certainly seems to suggest that bad faith 
 might make a seller liable for what are known as "seller's statements,"^ 
 apart from any other conduct by which the buyer is fraudulently in- 
 duced to forbear inquiries. Pike v. Fay, 101 Mass. 134. But this is 
 a mistake. It is settled that the law does not exact good faith from 
 a seller in those vague commendations of his wares which manifestly 
 are open to difference of opinion — which do not imply untrue asser- 
 tions concerning matters of direct observation (Teague v. Irwin, 127 
 Mass. 217), and as to which "it always has been understood, the world 
 over, that such statements are to be distrusted." * * * Moreover, 
 in this case, market prices, at least, were easily accessible to the 
 plaintiff. 
 
 The defendant was known by the plaintiff's agent to stand in the 
 position of a seller. If he went no further than to Say that the Ijond 
 was an "A No. 1" bond, which we understand to mean simply 'that 
 it was a first rate bond, or that the railroad was good security for the 
 bonds, we are constrained to hold that he is not liable, under the cir- 
 cumstances of this case, even if he made tlie statement in bad faith. 
 
Ch. 6) WARRANTIES 1135 
 
 * * * The rule of law is hardly to be regretted, when it is consid- 
 ered how easily and insensibly words of hope or expectation are con- 
 verted by an interested memory into statements of quality and value, 
 when the expectation has been disappointed. * * * 
 Exceptions sustained. 
 
 Mccormick et ai. v. kelly. 
 
 (Supreme Court of Minnesota, 1881. 28 Minn. 135, 9 N. W. 675.) 
 
 Dickinson, J. This action was brought to recover the amount of 
 a prornissory note made by the defendant to the plaintiffs for part 
 of the purchase price of a harvester purchased by the former from 
 the latter. The making of the note is not in issue; the only defense 
 asserted being in the nature of a counter claim for damages from an 
 alleged breach of warranty, on the part of plaintiffs, in respect to the 
 harvester. 
 
 By his answer the defendant avers that he first took the machine on . 
 trial, and upon the trial it proved to lie unsatisfactory and would not 
 do good work, and that he notified the plaintiffs to take the machine 
 away ; whereupon the plaintiffs promised and agreed with the defend- 
 ant to put the machine in good order; to furnish certain parts of 
 the machine new, and warranted the machine to be well made, of good 
 material, durable, and not liable to break or get out of order; that it 
 would cut and elevate grain as well as any other machine, and was in 
 all respects a first-class machine, and capable of doing first-class and 
 satisfactory work as a harvesting machine ; relying upon which prom- 
 ises, agreements, and warranties, defendant purchased the machine, 
 giving the note in question. * * * 
 
 The court further instructed the jury in the following language: 
 "A vendor may warrant against a defect thkt is patent and obvious. 
 * * * You sell me a horse, and you warrant that horse to have 
 four legs, and he has only three. I will take your word for it. [The 
 court then read in the hearing of the jury the following from Addison 
 on Contracts: 'When a general warranty is given on a sale, defects 
 which were apparent at the time of the making of the bargain, and 
 were known to the purchaser, cannot be relied on as a ground of ac- 
 tion. If one sells purple to another, and saith to him, "This is scar- 
 let," the warranty is to no purpose, for that the other may perceive 
 this; and this gives no cause of action to him. To warrant a thing 
 that may be perceived at sight is not good.'] Gentlemen, that is not 
 the law of this state." 
 
 The court erred in these instructions to the jury. It has always 
 been held that a general warranty should not be considered as apply- 
 ing to or giving a cause of action for defects known to the parties at 
 the time of making the warranty, and both the weight of authority 
 and reason authorize this proposition, viz.: that for representations 
 in the terms or form of a warranty of personal . property no action 
 will lie on account of defects actually known and understood by the 
 purchaser at the time of the bargain. * * * 
 
 In the nature of things one cannot rely upon the truth of that which 
 he knows to be untrue ; and to a purchaser fully knowing the facts in 
 respect to the property, misrepresentation cannot have been an in- 
 ducement or consideration to the making of the purchase, and hence 
 could have been no part of the contract. 
 
1136 SALES (Part 4 
 
 It has often been said that a general warranty may cover patent 
 defects, and it has led to some misapprehension of the law. The 
 proposition is strictly true, but, as was said by the court in Marshall 
 V. Drawhorn, 27 Ga. 275, it is "confined to those cases of doubt and 
 difficulty where the purchaser relies on his warranty and not on his 
 own judgment." It has no application to the case of a purchaser who 
 knows the defects in the property and the untruthfulness of the ven- 
 dor's representations. We do not, however, mean to say there may 
 not be 'a warranty against the future consequences or results from 
 even known defects. The fact that a portion of the. charge given at 
 the request of the plaintiffs stated correctly the legal principle under 
 consideration, cannot affect the result. In fact, that the instructions 
 to the jury were thus inconsistent, and calculated to mislead or con- 
 fuse ratber than inform and guide the jury, is, in itself, a sufficient 
 reason why the verdict should not stand. * * * 
 
 The order refusing a new trial is reversed and a new trial is 
 awarded. 
 
 MEICKLET V. PARSONS et al. 
 (Supreme Court of Iowa, 1885. 66 Iowa, 6Z, 23 k. W. 265, 55 Am. Rep. 261.) 
 
 Adams, J. There was evidence tending to show that the plaintiff 
 expressly warranted the brick "to be good brick and all right" ; that 
 they in fact were not all good ; that there were in the kiln between 
 45,000 and 50,000 brick, and that about lOjOOO were worthless ; that 
 the purchaser saw the exterior of the kiln, and that the brick upon the 
 outside appeared to be good, but upon the removal of a portion of 
 them there was revealed what the witnesses call ai "cold spot," where 
 the brick had been imperfectly burned; that the "cold. spot," or de- 
 fective part of the kiln, 'could have been discovered by the purchaser, 
 but not without going upon the top of the kiln, and the kiln was cov- 
 ered with three thicknesses of boards, and some brick and other things, 
 and the purchaser did not go upon the top of the kiln. The court in- 
 structed the jury that "if, by the exercise of ordinary care at the time 
 of the purchase, he (the purchaser) might have discovered and 
 known the character, quality, and number of brick in the kiln, and 
 failed to do so, he cannot recover because of a breach of warranty." 
 The giving of this instruction, is assigned as error. In our opinion the 
 instruction cannot be sustained. 
 
 In Benj. Sales, § 616, the author says: "A general warranty does 
 not usually extend to defects apparent on simple inspection, requiring 
 no skill to discover them, nor to defects known to the buyer." 
 Some of the authorities speak of the defects which are not covered 
 by a warranty as those which are patent or obvious. The doctrine 
 seems to be that the warranty as to such defects is waived. The court 
 may presume, ordinarily, that that was the understanding. But we 
 cannot think that the purchaser who has bought with a warranty is 
 to be careful in order to avoid a waiver of it. The purpose of exact- 
 ing a warranty may be to exempt the purchaser from the necessity of 
 diligence. The court below was perhaps misled by a rule which ap- 
 plies in a different kind of a case. Where the question is as to whether 
 a representation was- understood to be a warranty or mere expression 
 of opinion, it may be important to inquire whether the purchaser could, 
 in the exercise of ordinary diligence, have formed his' own opinion. 
 
Ch. 6) WAEEANTIBS 1137 
 
 Where a purchaser forms his own opinion, or might be expected to do 
 so, it is the right of the seller to insist that his representation was a 
 mere expression of opinion. But the case before us is not one of rep- 
 resentation, where the words used might or might not be a warranty, 
 according to circumstances. The instruction concedes the fact of 
 warranty. Now, the brick being warranted, the purchase]-, we think, 
 might feel excused from exercising the care to discover the defect in 
 the kiln which he, or a prudent purchaser, would probably have exer- 
 , cised if buying without a warranty. * * * 
 Reversed. 
 
 POWERS V. BHIGGS. 
 (Supreme Court of Michigan, 1905. 139 Mich. 664, 103 N. W. 194.) 
 
 Action by Seroll E. Powers against Albert Briggs. There was a 
 judgment for defendant, and plaintiff brings error. 
 
 Montgomery, J. This action was brought to recover the price of 
 a hay loader sold and delivered to the defendant. The defense was 
 that the loader was bought under an express warranty that it would do 
 good work and would load hay from windrows, and that, if it failed to 
 do so, defendant might return it ; that it did not answer the terms of the 
 warranty; and that defendant returned it. There was a sharp con- 
 test on the trial. * * * The evidence shows that, after the conversa- 
 tion referred to in the request, the subject was again taken up, and 
 the loader ordered. In the view most favorable to plaintiff, it was a 
 question for the jury as to whether the subsequent order had reference 
 to, and was understood to have reference to the preceding conversa- 
 tion, and whether both parties understood that the loader was ordered 
 under the warranty which was a part of the offer of the machine in 
 the first instance. The case of Childs v. O'Donnell, 84 Mich. 533, 47 
 N. W. 1108, is easily distinguished. It was there held that a warranty 
 on a sale of one bill of goods did not attach to a sale of another bill 
 at a later time. In the present case the negotiations all related to the 
 identical machine delivered to the defendant, and the question isi wheth- 
 er all that was said during the negotiations was understood to have ref- 
 erence to these machines, and whether, in the understanding of the 
 parties, the proposed warranty attached when the sale was finally 
 consummated. * * * 
 
 No error appears. Judgment affirmed. 
 
 Sales Act, Section 11. (1) Where the obligation of either party 
 to a contract to sell or a sale is subject to any condition which is 
 not performed, such party may refuse to proceed with the contract 
 or sale or he may waive performance of the condition. If the 
 other party has promised that the condition should happen or be 
 performed, such first-mentioned party may also treat the non- 
 performance of the condition as a breach of warranty. 
 
 Sales Act, Section 7. (1) Where the parties pxarport to sell 
 specific goods, and the goods without the knowledge of the seller 
 have wholly perished at the time when the agreement is made, the 
 agreement is void. 
 
 B:& B.Bus.Law— 72 
 
1138 SALES (Part 4 
 
 (2) Where the parties purport to sell specific goods, and the 
 goods without the knowledge of the seller have perished in part or 
 have wholly or in a material part so deteriorated in quality as to 
 be substantially changed in character, the buyer may at his op- 
 tion treat the sale — (a) as avoided, or (b) as transferring the prop- 
 erty in all the existing goods or in so much thereof as have i*ot de- 
 teriorated, and as binding the buyer to pay the full agreed price if 
 the sale was indivisible or to pay the agreed price for the goods in 
 which the property passes if the sale was divisible. 
 
 Section 8. (1) Where there is a contract to sell specific goods, 
 and subsequently, but before the risk passes to the buyer, without 
 any fault on the part of the seller or the buyer, the goods wholly 
 perish, the contract is thereby avoided. 
 
 (2) Where there is a contract to sell specific goods, and sub- 
 sequently, but before the risk passes to the buyer, without any 
 fault of the seller or the buyer, part of the goods perish or the 
 whole or a material part of the goods so deteriorate in quality as 
 to be substantially changed in character, the buyer may at his op- 
 tion treat the contract — (a) as avoided, or (b) as binding the seller 
 to transfer the property in all of the existing goods or in so much 
 thereof as have not deteriorated, and as binding the buyer to pay 
 the full agreed price if the contract was indivisible, or to pay the 
 agreed price for so much of the goods as the seller, by the buyer's 
 option, is bound to transfer if the contract was divisible. 
 
 ABE STEIN CO. v. ROBERTSON. 
 (Court of Appeals of New York, 1901. 167 N. T. 101, 60 N. E. 329.) 
 
 Action by the Abe Stein Company against Julius Robertson. From 
 a judgment for plaintiff, defendant appeals. 
 
 Martin, J. The action was to recover damages for the breach of a 
 contract between the parties for the purchase and sale of a quantity 
 of goatskins. The agreement was made through brokers, and evi- 
 denced by a bought and sold note dated May 24, 1895, modified by a 
 letter dated the 31st of the same month.. The note was as follows: 
 "New York, May 24, 1895. Sold, for account of Messrs. L. F. Rob- 
 ertson & Son, to the Abe Stein Company, about 85,000 Teinsin 
 goatskins, firsts, 1% to 2 lbs. avg., expected to arrive from China, at 
 .22 cts. per lb. Goods to be shipped immediately by steamer or steam- 
 ers to New York. About % of lot to be medium, black-haired skins, 
 and the remainder % white or gray-haired skins, of which 40 per cent, 
 medium hair, 60 per cent, medium to long hair. Skins to be of the 
 usual good quality of this province. Any question of quality to be 
 decided by selling brokers, and their decision to be final and binding 
 on both parties. Terms, net cash, and to be taken from the wharf. 
 John Andresen & Son, Brokers." The modification by letter was the 
 addition of the usual condition of "no arrival, no sale." Subsequently 
 the defendant notified the brokers of the arrival of a portion of the 
 goods, which were inspected by them in the presence of ,both parties, 
 whereupon they determiped that the goods tendered were not of the 
 
Ch. 6) WARRANTIES 1139 
 
 kind or quality described in the contract. As subsequent shipments 
 were received, they were also examined in the same way, and the 
 same conclusion was reached in regard to them. Upon such deter- 
 minations the plaintiff refused to receive the goods shipped, and 
 brought this action for damages sustained by the failure of the defend- 
 ant to deliver the goods contracted for. * * * 
 
 The appellant insists that the contract was conditional, not only as to 
 its performance, but as to its effect, and that the provisions, "expected 
 to arrive from China," and "no arrival, no sale," were, in effect, an 
 agreement that if the goods referred to in the contract, when they ar- 
 rived, were not of the quality prescribed, the contract was at an end, 
 and the plaintiff could recover nothing for its breach. Doubtless the 
 effect of those provisions was to relieve the defendant from any breach 
 of the contract occasioned by the nonarrival of the goods, provided it 
 was not caused by fault of the seller. There are also other cases relied 
 upon by the appellant where the existence of a right of recovery is 
 conditional upon the arrival of goods of the quality specified in. the 
 agreement. But no such condition existed in this case, as there was 
 an express agi-eement upon the part of the seller to make shipment 
 of the goods particularly specified in the contract. This contract was 
 clearly executory, and the title was. not intended to pass until the goods 
 arrived and were delivered. * * * But the principle that, if the 
 goods specified and described in the contract do not arrive, a condi- 
 tion which terminates the contract exists, and the seller is not liable, 
 has no application where the contract contains either a warranty that 
 the shipment has been made, or an express agreement upon the part of 
 the seller to make shipment of goods described. In the latter case 
 the contract is an existing and continuing one, and its provisions as to 
 the quality of the goods are not only conditions precedent to any ob- 
 ligation upon the part of the buyer to accept them, but, where the 
 seller fails to ship goods of the quality required, the buyer is also en- 
 titled to such damages as he sustains by reason of such failure. * * * 
 
 In this case, as the contract required the defendant to ship the goods 
 described therein immediately by steamer or steamers to New York, 
 he was bound not only to ship goods at the time and in the manner 
 directed, but was likewise bound to ship goods of the quality required, 
 and upon his failure to do so he was liable for a breach of the con- 
 tract. The parties expressly agreed that the question of quality was 
 to be conclusively determined by the brokers. That was the only 
 question about which there was any controversy in this case. The 
 undisputed evidence is that the brokers decided that the goods were 
 not of the quality required by the contract, and, as there was no fraud 
 or collusion upon their part, their decision concluded the parties upon 
 that question. 
 
 The conclusion we have reached in this case is : (1) That the terms, 
 "expected to arrive," and "no arrival, no sale," apply only to the- 
 risks or perils of navigation or transportation. (2) That the goods 
 which the defendant intended to deliver, and which he tendered to the 
 plaintiff in performance of his contract, having been determined, in 
 the manner provided therein, not to be of the quality which he con- 
 tracted to sell, the plaintiff was not bound to accept them. (3) It 
 having been proved by undisputed evidence that the goods which the 
 defendant shipped in pursuance of his contract arrived, and it having 
 been conclusively established in the manner pointed out in the con- 
 
1140 SALES (Part 4 
 
 tract that they were not of the quality required, the plaintifiE was en- 
 titled to recover such damages as he sustained by the defendant's fail- 
 ure to deliver goods of the quality described in the agreement. (4) 
 Under these circumstances, with the additional one that there was 
 no dispute as to the amount of damages sustained, the court properly 
 directed a verdict, and the judgment should be affirmed, with costs. 
 
 J. A. KIESCH & OO., Inc., v. BBNYUNJ3S. 
 
 (Supreme Court, Special Term, New York County, 1919. 105 Misc. Eep. 64S, 
 
 174 N. Y. Supp. 794.) 
 
 Action by J. A. Kirsch & Co., Incorporated, against Joseph De A. 
 Benyunes. Plaintiff's motion for judgment sustaining its demurrers 
 to the defenses denied. 
 
 Lehman, J. The complaint herein alleges that the plaintiff and 
 the defendant on the 27th day of November, 1916, entered into a writ- 
 ten contract, a copy of which is annexed to the complaint. The material 
 parts of the said contract are as follows : 
 
 "Sold to Messrs. J. A. Kirsch & Co., Inc., New York, for account 
 of Mr. J. D. A. Benyunes, New York. Quantity (about) twenty-eight 
 hundred (2,800) baskets of about 110 net each, crop 1916, good qual- 
 ity Spanish chestnuts at seven cents (7c) per pound net, ex dock New 
 York. Shipment reported by cable to be afloat per S. S. Elef K. Vene- 
 zelos, scheduled to be due here to-day." 
 
 The complaint further alleges that the said 2,800 baskets of chest- 
 nuts duly arrived on the Elef K. Venezelos in the city of New York 
 on the 28th day of November, 1916, but the defendant repeatedly neg- 
 lected and refused to deliver the said 2,800 baskets of Spanish chest- 
 nuts purchased by the plaintiff from him, and still fails and refuses 
 to deliver the same. The defendant claims that the steamer Venezelos 
 sailed from the port of Lisbon, Portugal, on or about November 12, 
 1916, and did not arrive at the port of New York until December 2, 
 1916; that the chestnuts covered by the agreement of November 27th 
 between the parties arrived in a moldy condition, and that the depart- 
 ment of agriculture directed that the entire shipment should be de- 
 stroyed, except approximately 228 baskets of the said chestnuts, which 
 had not deteriorated, and which were found to have passed the stand- 
 ards of the United States government. The defendant has pleaded 
 this claim, in various forms, in five separate affirmative defenses, and 
 the plaintiff has demurred to the sufficiency thereof. Upon this motion 
 the court must first consider whether the facts claimed by the defend- 
 ant could constitute a defense to an action for nondelivery of the chest- 
 nuts. * * * 
 
 The first affirmative defense alleges in effect that the contract of sale 
 was for a specific shipment or consignment of 2,800 baskets of Span- 
 ish chestnuts, at that time aboard the steamer Venezelos, on its way 
 to the port of New York ; that subsequent to the making of the afore- 
 mentioned contract of sale of the said consignment of chestnuts, and 
 before their arrival at a dock in the port of New York, without any 
 fault on the part of the defendant, part of the consignment of chest- 
 nuts perished, or the whole or a material part of said consignment of 
 chestnuts so deteriorated in quality as to be substantially changed in 
 character. * * * 
 
Ch. 6) WARRANTIES 1141 
 
 It is quite evident that the defendant in pleading these defenses 
 intended to allege facts which would bring this case within the rule 
 announced in sections 7 and 8 of the Sales Act. The plaintiff, how- 
 ever, urges that these sections have no application, because (1) under 
 the agreement between the parties the defendant did not sell specific 
 goods on the steamship Venezelos, but merely agreed to deliver 2,800 
 baskets of chestnuts, complying with a certain description or warranty, 
 and was absolutely bound to ship and deliver such goods; and that 
 (2) if the contract was for the sale of specific goods it contained an 
 express warranty that the goods were of good quality, and that the 
 rule announced in the statute has no application to a sale where there 
 is an express warranty of quality. It seems to me quite clear under 
 the terms of the written contract that the defendant agreed to sell and 
 deliver certain goods described in the contract and that the contract 
 was conditional upon the arrival of the steamship with the goods de- 
 scribed in the contract upon it. 
 
 In the case of Shields v. Pettie, 4 N. Y. 122, a broker negotiated a 
 contract in these words: "Sold for Messrs. Geo. W. Shields & Co., 
 to Messrs. Pettie & Mann, 150 tons Gartshemi pig iron. No. 1, at $29 
 per ton, one-half at 6 mos., one-half cash, less 4 pr, ct., on board 
 Siddons." It was understood by both parties that the ship Siddons was 
 at sea when the contract was made, and she arrived at the port of 
 New York about 10 days afterwards with the quantity of iron con- 
 tracted for, but which turned out not to be the quality denominated No. 
 1. The court there held : "There was no warranty, express or implied, 
 either that any iron should arrive, or that arriving, it should be of a 
 particular quality. One hundred and fifty tons of Gartsherni pig iron 
 of the quality denominated No. 1 was expected to arrive by the Sid- 
 dons, and the contract was to the effect that, if that quantity and qual- 
 ity ofiiiron did so arrive, one party should sell and the other should re- 
 ceive it at a certain price per ton. The iron called for by the contract 
 did not arrive, but iron of a different quality, and I think the contract 
 was at an end." 
 
 It seems to me that the same rule of law applies to the facts in the 
 present case as pleaded by the defendant. The defendant agreed under 
 that contract to sell to the plaintiff certain specific goods described 
 therein, which both parties evidently believed to be upon the steamship 
 Venezelos. The defendant did not agree to deliver and the plaintiff 
 did not agree to accept any goods of similar kind which might arrive 
 upon another steamship. No goods of that description arrived on the 
 steamship Venezelos, and the contract to sell was therefore at an end. 
 The authority of the case of Shields v. Pettie, supra, has apparently 
 never been questioned in this state, although there are decisions which 
 distinguish and perhaps limit the application of that decision. In the 
 case of Abe Stein Co. v. Robertson, 167 N. Y. 101, 60 N. E. 329, the 
 defendant agreed to sell certain goatskins "expected to arrive from 
 China, at 22 cents per pound. Goods to be shipped immediately by 
 steamer or steamers to New York." Thereafter the defendant did ship 
 goatskins from China, but when they arrived they were not of the 
 quality prescribed. In that case the court held that the right of recov- 
 ery in the buyer was not conditional upon the arrival of the goods of 
 the quality specified in the agreement, stating: "The principle that, if 
 the goods specified and described in the contract do not arrive, a con- 
 dition which terminates the contract exists and the seller is not liable. 
 
1142 SALES (Part 4 
 
 has no application where the contract contains either a warranty that 
 the shipment has been made, or an express agreement upon the part 
 of the seller to make shipment of goods described." 
 
 In the present case it seems to me quite evident that the written con- 
 tract contained no warranty that the shipment had been made and no 
 express agreement upon the part of the seller to make a shipment of 
 goods described, but that, on the contrary, the contract was made in re- 
 liance upon a report that such goods had been shipped on the steamer 
 Venezelos, and was conditioned upon the arrival of that steamer with 
 such goods. It may, however, be urged that the words "good qual- 
 ity" are not words of description, but constitute a warranty by the 
 defendant, and that, since 2,800 baskets of Spanish chestnuts as de- 
 scribed in the contract arrived on the steamship Venezelos, the condi- 
 tion upon which the vendor's liability depends was fulfilled, and the 
 vendor was obliged to deliver the goods described in the contract of 
 sale, and in addition to comply with his collateral warranty that the 
 goods were of good quality. * * * 
 
 In my opinion, however, these words do not constitute a collateral 
 warranty, but constitute merely a description of the goods covered by 
 the contract of sale. It is true that in the case of Egbert v. Hanford 
 Produce Co., 92 App. Div. 252, 86 N. Y. Supp. 1118, the court stated: 
 "The rule seems to be well settled that upon a sale of personal prop- 
 erty, where inspection of it is not possible at the time, and the seller 
 knows the quality and the buyer does not, the representations made by 
 the seller as to quality are to be regarded as a warranty." In the pres- 
 ent case, however, there is nothing to show that the seller knew the 
 quality. On the contrary, the goods had at that time been upon the 
 ocean more than 15 days, and the answer specifically alleges that they 
 had deteriorated in quality without the knowledge of the defendant. 
 
 Moreover, the first and second affirmative defenses a'lege deterio- 
 ration after the making of the contract, and the defendant could cer- 
 tainly not have had any knowledge at that time that they would not 
 deteriorate thereafter. I have not overlooked * * * section 11 of 
 the Sales Act. Under this provision the distinction between an im- 
 plied warranty of condition that the goods sold shall comply with the 
 description and an express warranty that the goods shall be of the 
 quality named is for most purposes destroyed. 
 
 Before, however, a party may treat the nonperformance of the con- 
 dition as a breach of warranty, it must appear that the other party has 
 actually promised that the condition should happen or be performed; 
 whereas, in the present case, the contract is certainly susceptible of the 
 interpretation that the defendant did not agree that the goods to be 
 delivered under the contract should comply with the description, but 
 merely agreed that if such goods arrived it would deliver them for 
 the agreed price to the plaintifif. If these views are correct, then the 
 fact that 2,800 baskets of good quality chestnuts did not arrive on 
 the steamship as contemplated by the parties would in itself and with- 
 out regard to sections 7 and 8 of the Sales Act put an end to the 
 contract and release the defendant fron; any obligation thereunder, for 
 the defendant's promise to sell and deliver such goods was based upon 
 a condition which was never fulfilled. On the other hand, if the con- 
 tract be regarded as a contract to sell specific goods which actually 
 arrived in New York upon that steamer, and the description was 
 inserted merely for the purpose of identifying the goods, then sec- 
 
Ch. 6) WARRANTIES 1143 
 
 tions 1 and 8 of the Sales Act apply, and if the goods had perished at 
 the time when the agreement was made, br the goods without the 
 knowledge of the seller had deteriorated in quality, so as to be substan- 
 tially changed, or if after the contract was made the goods perished or 
 so deteriorated in quality, the defendant could not be held liable for 
 the loss which occurred without his fault. In other words, the de- 
 fendant is clearly not bound under this contract to deliver the 2,800 
 baskets of Spanish chestnuts of good quality and in good condition, 
 unless he has expressly and unconditionally agreed to sell and deliver 
 such chestnuts, and I think that, if the allegations of the answer are 
 true, the defendant has not made such a promise. * * * 
 
 For these reasons the plaintiff's motion for judgment sustaining the 
 demurrers is denied. * * * 
 
 SECTION 3.— IMPLIED WARRANTIES CONSIDERED 
 GENERALLY 
 
 In the law of sales of personal property there are^ix kinds of 
 implied warranties: (1) The warranty of title; (2) the implied 
 warranty that the goods sold shall correspond to the description ; 
 (3) the implied warranty that the goods sold shall correspond to 
 the sample; (4) the implied warranty of merchantability; (S) 
 the implied warranty of reasonable fitness for a particular pur- 
 pose; and (6) any implied warranty in addition to those enumer- 
 ated, which is annexed by custom or usage of trade. 
 
 An implied warranty differs from an express warranty chiefly in 
 the character of the evidence necessary to prove its existence. 
 Express warranties arise out of the express language employed by 
 the seller. Implied warranties are not to be found expressed in 
 words in the contract. The general character of the transaction 
 gives rise to the inference that the parties intended such an obliga- 
 tion to attach. At least, some implied wjfranties rest upon the 
 assumed intention of the parties; others. are not founded so much 
 upon ^the assumed intention of the parties as they are upon a 
 rule of law which imposes the obligation irrespective of intention. 
 However, no implied warranty is so essentially a part of a con- 
 tract of sale that the parties cannot provide that none of them 
 shall be deemed a part of their contract. If such is their intention, 
 the parties must employ language which clearly shows that it 
 was their intention to eliminate all implied warranties; otherwise, 
 the law will assume that they are still present. 
 
 SECTION 4.— IMPLIED WARRANTY OF TI'iLli 
 
 We have already noticed that a seller of a negotiable instrument 
 warrants that he has title thereto, and this is so even where he 
 indorses "without recourse" or transfers bearer paper by delivery, 
 though in the latter case his warranty runs only to his purchaser, 
 
1144 SALES (Part 4 
 
 and not to any other subsequent holder, while in the former case 
 the warranty extends to all subsequent holders. 
 
 In sales of tangible personal property there is likewise an im- 
 plied warranty that the seller has title, or that he has the power 
 to transfer a title, and that there are no incumbrances upon the 
 property. A seller of personal property will therefore be liable to 
 the buyer, even thougla the contract of sale does not expressly so 
 provide, if the buyer is forced to surrender the property bought to 
 some person who really owned the property or held a mortgage 
 on it at the time of the sale. The provisions of the Sales Act are as 
 follows : 
 
 Section 13. In a contract to sell or a sale, unless a contrary in- 
 tention appears, there is — (1) An implied warranty on the part of 
 the seller that in the case of a sale he has a right to sell the goods, 
 and in the case of a contract to sell he vdll have a right to sell 
 the goods at the time when the property is to pass. (2) An im- 
 plied warranty that the buyer shall have and enjoy quiet posses- 
 sion of the goods as against any lawful claims existing at the time 
 of the sale. (3) An implied warranty that the goods shall be 
 free at the time of the sale from any charge or encumbrance in 
 favor of any third person, not declared or known to the buyer 
 before or at the time when the contract or sale is made. (4) 
 This section shall not, however, be held to render liable a sheriff, 
 auctioneer, mortgagee, or other person professing to sell by virtue 
 of authority in fact or law goods in which a third person has a legal 
 or equitable interest. 
 
 There was a time, fairly recent, when the doctrine of caveat 
 emptor — let the buyer beware — cast upon the buyer the risk that 
 the seller had title, but that rule, even before the Sales Act, was 
 changed. In Chapter IV we discussed the various situations when 
 a seller did not have the power to transfer title to an innocent 
 buyer. In all those ciSes, therefore, where the seller did not pos- 
 sess either the legal right or the legal power to transfer a title 
 to the innocent purchaser, the property will eventually be taken 
 from him by the true owner. In this event the buyer will have 
 his remedy back against his vendor for the breach of the latter's 
 implied warranty of title. Of course, it is possible for one to sell 
 merely his interest in property, or it is even possible for the buyer 
 to assume the sole risk of the seller's having any interest in the 
 property, but before a court will so construe the contract there 
 must be clear evidence that the parties intended to negative the 
 implied warranty of title. 
 
 KIRKPATEICK v. KEPLER et al. 
 (Supreme Court of Wisconsin, 1917. 164 Wis. 558, 160 N. W. 1047.) 
 
 Action by John Kirkpatrick against A. L. Kepler, Frank E. Walker, 
 arid others. From a judgment for defendants dismissing the com- 
 plaint, plaintiff appeals. 
 
Ch. 6) WARRANTIES 1145 
 
 The plaintiff is a dealer in cheese in Richland Center, and on Sep- 
 tember 1, 1913, paid the defendants A. L. Kepler, A. H. Ray, C. 11. 
 Babb, L. C. Brown, James Draper, Fred McMillan, E. E- Kepler, S. 
 Roudebush, William Wanless, and Joseph E. Davis, $690.27 for 83 
 boxes of cheese at the then market price. These named defendants 
 had been patrons of a cheese factory in Richland Center owned by one 
 Walker, for whose estate the defendant Christie Walker was ad- 
 ministratrix. These 83 boxes of cheese had been delivered on June 
 20, 1913, to one H. J. Bamford at his cold storage warehouse in Rich- 
 land Center under an arrangement for selling the same. On June 
 23d and 27th Bamford gave two warehouse receipts for this cheese 
 to the First National Bank of Richland Center for his then indebted- 
 ness to said bank. Shortly thereafter Bamford was adjudicated a 
 bankrupt, and appears to have made a composition with his creditors, 
 in which composition none of the defendants appear to have partic- 
 ipated. 
 
 After the bankruptcy of Bamford the said bank which owned the 
 storage warehouse occupied by Bamford leased the same to plaintiff 
 who, on August 8th, gave a warehouse receipt to the bank, for all the 
 cheese he found in said warehouse on taking possession, which in- 
 cluded the 83 boxes in question here. This warehouse receipt was not 
 given on account of any obligation owing to the bank by plaintiff. 
 
 Shortly before the plaintiff paid the defendants for this cheese he 
 talked with their attorney and then with some of the defendants about 
 the purchase, and as a result of such conversations an instrument 
 [a bond] was drawn by defendants' attorney and submitted by the 
 plaintiff to his attorney, and which was signed by all the defendants 
 other than Walker, and delivered to plaintiff. 
 
 EscHWEiLER, J. The plaintiff seeks to recover the amount he paid 
 to the defendants for the 83 boxes of cheese on the theory that there 
 was a failure of consideration and a breach of warranty of title. 
 * * * 
 
 By section 1684tl3, subsec. 1, it is provided that in a contract of 
 sale, unless a contrary intention appears, there is an implied warran- 
 ty on the part of the seller that he has a right to sell the goods. By 
 the third subdivision of the same section there is an implied warranty 
 that the goods shall be free at the time of the sale from any charge 
 or incumbrance in favor of any third person not declared or known 
 to the buyer before or at the time when the sale is made. 
 
 The general rule is well established that there is an implied war- 
 ranty of title in a sale of chattels in possession of the seller for a fair 
 price, where a contrary intention is not shown from the surrounding 
 circumstances. * * * 
 
 The question in this case really is whether plaintiff, when he paid 
 the defendants full market price, purchased cheese or a lawsuit. If 
 he bought the cheese, there was by law an implied warranty of right 
 to sell in the vendors ; if it was intended by the parties that he was 
 to purchase all the possibilities of a lawsuit, then tiie bond was incon- 
 sistent with such purpose. If the purpose of the bond was to limit 
 the form of the lawsuit which defendants undertook to assume the 
 care and expense of, then such limitation in no wise contradicts the 
 implied warranty of title under the statute, and questions concerning 
 the same could only come up if suit were brought upon the bond. 
 
 The uncontradicted evidence shows that the warehouse receipt given 
 
1146 SALES (Part 4 
 
 by plaintiff to the bank at the time of the taking possession of ;the 
 warehouse was without consideration, and in no wise altered the re- 
 spective positions of the parties to this action, except as it might affett 
 the right to bring a suit on the bond ; but, that not being before us, 
 the giving of the receipt is entirely immaterial. * * * 
 
 Judgment reversed, and cause remanded, with directions to dismiss 
 the complaint as to the defendant Christie Walker, and to enter judg- 
 ment in favor of plaintifif against the other defendants for the amount 
 claimed. 
 
 WiNSLOW, C. J. (dissenting). I confess that I cannot understand 
 the reasoning upon which the decision is based. To me the evfdence 
 tells a very plain and simple story. The parties on both sides knew 
 that there was a dispute as to the title of this cheese, and that the bank 
 claimed to own it. The plaintiff had in fact gone so far as to acknowl- 
 edge the bank's title by giving a warehouse receipt therefor to the 
 bank when he took possession of the storehouse. So when the par- 
 ties met to negotiate for the sale, there was no misapprehension about 
 the situation, the plaintiff knew that the defendants claimed title as 
 the original manufacturers of the cheese, and that the bank claimed 
 title through Bamford, in whose hands the defendants had placed it. 
 
 The subject as to what remedy the plaintiff should have in case 
 the defendants' claim of title proved invalid was discussed, and it was 
 finally agreed that the defendants should give the bond or undertaking 
 set forth in the statement of facts. Had this bond been signed by 
 sureties, there would be logical ground for the conclusion that it was 
 given to increase the plaintiff's secjirity, but it was not. It was signed 
 only by the parties who claimed to own the cheese. These parties 
 would all be liable for the value of the cheese on their implied war- 
 ranty, had nothing been said about security, and this liability would 
 not depend on the successful results of an action of replevin or trover. 
 The liability on the bond, therefore, is a limited liability, considerably 
 more restricted, though included in the liability resulting from implied 
 warranty of title. 
 
 It is a familiar legal principle that the giving of express limited 
 warranties excludes and negatives the idea that more comprehensive 
 warranties were intended, "and repels any implication of law to that 
 effect." * * * Hence there was no implied warranty here because 
 the "contrary intention appears," and in such cases the statute in ex- 
 press terms declares that there is no implied warranty. * * * 
 
 SECTION 5.— IMPLIED WARRANTY THAT THE GOODS 
 SHALL CORRESPOND TO THE DESCRIPTION 
 
 Sales Act, Section 14. Where there is a contract to sell or a 
 sale of goods by description, there is an implied warranty that the 
 goods shall correspond with the description and if the contract or 
 sale be by sample, as well as by description, it is not sufficient 
 that the bulk of the goods corresponds with the sample if the 
 goods do not also correspond with the description. 
 
 The word "description," as here used, means some statement 
 concerning the goods made for the sole purpose of enabling the 
 
Ch. 6) WARRANTIES 1147 
 
 parties to identify or pick out the goods. The term as here used 
 does not include statements concerning tlie quality of the goods. 
 To illustrate: If A. called his g'l^er over the telephone and said, 
 "Send me one pound of creamery butter," and the grocer agreed 
 to do so, the expression "creamery butter" is a statement descrip- 
 tive of the goods, as the term "description" is used in this sec- 
 tion. The grocer, therefore, impliedly warrants that the butter 
 which he sends is "creamery butter." He would break his war- 
 ranty if he sent "home-made butter" or "oleomargarine." If the 
 grocer sent creamery butter which was unpalatable, there would 
 be no breach of the warranty in section 14 ; that is, section 14 does 
 not attach any warranty of quality. We shall discuss the implied 
 warranty of quality in section 7. 
 
 Notice that this section applies only when there is either a con- 
 tract to sell or a sale of goods to be identified by the description. 
 If the goods are identified by looking at them, or by touching them, 
 such a contract to sell, or sale, is not by description. Hence, in 
 our supposed case, if A., instead of calling her grocer over the 
 telephone, had gone to the store, and upon seeing some creamery 
 butter in the refrigerator had said, "I want a pound of that cream- 
 ery butter," this would not be a sale by description. Obviously 
 there is no necessity for applying section 14 in such a case. When 
 section 14 applies at all, it will make no difference whether the 
 seller is a dealer or not. The section includes all sellers — casual 
 sellers, as well as dealers, manufacturers, etc. 
 
 INTERSTATE GROCER CO. v. GEORGE WM. BENTLEY CO. 
 
 (Supreme Judicial Court of Massachusetts, 1913. 214 Mass. 227, 
 101 N. E. 147.) 
 
 Action by the Interstate Grocer Company against the George Wm. 
 Bentley Company. Judgment for plaintiff, and defendant brings excep- 
 tions. 
 
 RuGG, C. J. This is an action of contract to recover damages for 
 an alleged breach of an implied condition or warranty that certain 
 canned sardines purchased by the plaintiff were merchantable. The 
 plaintiff was a wholesale grocer in Missouri. In the summer of 1907 
 it placed an order with brokers in Missouri for five hundred cases of 
 "14 oil sardines and 200 cases of % mustard sardines." The broker 
 sent the order to the Maddocks Packing Company, a corporation en- 
 gaged in the business of packing sardines in Maine. That company 
 had an arrangement with the defendant whereby it placed sardines 
 as fast as packed in storage in a Portland warehouse, taking ware- 
 house receipts in the defendant's name. The defendant upon delivery 
 to it of the warehouse receipts advanced to the packing company a per- 
 centage of the value of the stored goods upon which advancements the 
 company paid interest. Orders received by the packing company for 
 sardines were referred to the defendant for approval, and the pro- 
 ceeds of goods which were shipped from those on storage were paid- 
 to the defendant. On receipt of the plaintiff's order the packing com- 
 
1148 SALES (Part 4 
 
 pany wrote to the defendant, with a request for shipping orders, so that 
 the goods might be sent the following week. * * * The goods 
 were shipped and an invoice was sayt in the name of the defendant to 
 the plaintiff, and payment was made by the plaintiff to the defendant, 
 which credited it on its account against the packing company. There 
 was testimony from which it might have been found that the goods 
 were not merchantable when delivered to the plaintiff. * * * 
 
 Upon the sale of goods, by name or description, in the absence of 
 some other controlling stipulation in the contract, a condition is im- 
 plied that the goods shall be merchantable under that name. They must 
 be goods known in the market and among those familiar with that 
 kind of trade by that description, and of such quality as to have value. 
 This is not a warranty of quality. It does not require any particular 
 grade. It is a requirement of identity between the thing which is de- 
 scribed as the subject of the trade and the thing proffered in perform- 
 ance of it. The buyer is entitled to receive goods fairly answerable 
 to the description contained in his contract' of sale. It does not mat- 
 ter whether the deleterious characteristic is latent or obvious, provided 
 it goes to the extent of changing the nature of the goods, so that they 
 have no value in the market under the designation contained in the 
 contract of sale. This is a general rule applicable alike to all, whether 
 they be manufacturers or dealers or merely sellers. It was declared 
 early in this commonwealth, and has been adhered to consistently. 
 
 This being the governing principle, it is of no consequence whether 
 the seller is a manufacturer or not, or whether the defect is hidden or 
 discoverable by inspection. Upon a sale even by a casual owner of 
 sardines, he is bound to deliver something which answers that descrip- 
 tion in the trade. If he does not, he does not perform his contract. 
 
 * * * This rule is quite apart from instances where the sale is of 
 specifically defined goods, whether open to the inspection of the parties 
 or not, where the rule of caveat emptor governs. * * * It is dis- 
 tinct also from a sale expressly or avowedly to the knowledge of both 
 parties for a particular purpose, as to which another rule prevails. 
 
 * * * All these rules are different statements of the principle that 
 a buyer has a right to get that which he had bought. They deal not 
 with a warranty of quality but with a condition of the contract-. They 
 touch the identity of the subject with that tendered in performance of 
 it. Tl^is principle also is quite separate from that frequently applied 
 in purchases from manufacturers and sometimes from dealers, where 
 the buyer relies upon the skill or knowledge of the seller, and there 
 arises some sort of implied warranty of quality. If the goods in the 
 case at bar were not salable for some price as sardines when they were 
 
 delivered to the plaintiff, there was a breach of contract by the seller. 
 
 * * * 
 
 Exceptions overruled. 
 
 DIEBOLD SAFE & LOCK OO. v. HUSTON et al. 
 
 (Supreme Court of Kansas, 1895. 55 Kan. 104, 39 Pac. 1035, 28 L. R. A. 53.) 
 
 Action by Huston & Breeding against the Diebold Safe & Lock 
 
 Company. Plaintiffs had judgment, and defendant brings error. 
 
 ' Ai,i.EN, J. The plaintiff testified to an oral warranty that the safe 
 
 was fireproof, by the agent of the defendant, * * * It is clear that 
 
Ch. 6) WAREANTIBS 1149 
 
 the safe was delivered to the plaintiffs in compliance with the terms 
 of the written order. Does this order contain what in law amounts 
 to a warranty? There are no. words in it of express^ warranty. Does 
 an order, however, for a fireproof safe, imply a warranty ? *. * * 
 
 There is nothing in this case indicating that the safe purchased by 
 the plaintiffs was manufactured specially for them, but the fair infer- 
 ence is that it was one of a kind of safes which the defendants manu- 
 factured for sale to whomsoever would buy. It is designated in the 
 order as a "No. 4 firegroof safe," and the order provides that it shall be 
 one of the defendant's latest styles and improvements ; thus clearly in- 
 dicating that it is one of a kind of safes manufactured by the safe and 
 lock company. "There is in America an implied warranty of iden- 
 tity ; namely, that the article shall be of the kind or species it pur- 
 ports to be or is described to be, — that is, that the article delivered 
 shall be the same thing contracted for." Benj. Sales (6th Ed.) 636. 
 This proposition is illustrated in the following cases : 
 
 In Henshaw v. Robins, 9 Mete. (Mass.) 83, 43 Am. Dec. 367, a sale 
 and bill of parcels of two cases of indigo was made. It was shown 
 that the article paid for and delivered was not indigo at all, but com- 
 posed of Prussian blue, chromate of iron, and potash, and worthless 
 for any purpose. It was held that the description of the article inserted 
 in the bill of parcels amounted to a warranty that the article was such 
 as represented. In Hawkins v. Pemberton, 51 N. Y. 198, 10 Am. Rep. 
 595, it was held that the sale of an article as blue vitriol amounted 
 to a warranty that it was such. In Wolcott v. Mount, 36 N. J. L,aw, 
 262, 13 Am. Rep. 438, it was held that a sale of se^d which the seller 
 said was early strap-leaf, red-top turnip seed was equivalent to a war- 
 ranty that it was such, and that the purchaser might recover the dif- 
 ference between the market value of the crop raised and the same 
 crop from such seed as was ordered. In White v. Miller, 71 N. Y. 118, 
 27 Am. Rep. 13, it was held that, on a sale of "large Bristol cabbage 
 seed" to a market gardener, there was an implied warranty that the 
 seed was not only raised from such stock, but free from any latent 
 defect arising from the mode of cultivation, and would produce that 
 kind of cabbage. In Jones v. George, 61 Tex. 345, 48 Am. Rep. 280, it 
 was held that a sale by a druggist to a planter of an article as Paris 
 green implied a warranty that it was that substance. 
 
 There is no doubt, under the authorities, that the article sold must 
 answer in kind to the description under which it is sold, and that there 
 is an implied warranty that the article delivered is such an article as 
 the name under which it is sold indicates. When, however, the 
 question arises whether an article is of a particular quality or 
 degree of excellence, unless it is designated by some term which is 
 descriptive of the article and calls for a particular quality, the general 
 rule is that no warranty of quality will be implied. In Wolcott v. 
 Mount, supra, it was said : "In general, the only contract which arises 
 on the sale of an article by a description, by its known designation in 
 the market is that it is of the kind specified." In Winsor v. Lom- 
 bard, 18 Pick. (Mass.) 57, it was held that, where a large number of 
 barrels of mackerel branded under the inspection laws as No. 1 and 
 No. 2 mackerel were sold in the spring with that description of them 
 in the bill of parcels, it was not a warranty that the mackerel were 
 free from rust, although it appeared that mackerel affected by rust 
 are not considered as No. 1 and No. 2. In Gossler v. Refinery, 103 
 
1150 SALES (Part 4 
 
 Mass. 33, it was held that "one who agreed to sell 'Manilla sugar' to 
 refiners, and delivered to them what is usually called in commerce by 
 that name, can, in the absence of fraud, misrepresentation, or war^ 
 ranty, recover the' agreed price, though the article delivered contained 
 more impurities than sugar known under that name usually does." 
 
 The case of Shisler v. Baxter, 109 Pa. 443, 58 Am. Rep. 738, seems 
 to be opposed to White v. Miller, supra, holding that the sale of seed 
 as Wakefield cabbage seed did not amount to a warranty that it was 
 such, but was a representation as to quality. In,Towell v. Gatewood, 
 .2 Scam. 111. 22, 33 Am. Dec. 437, a bill of sale of good first and sec- 
 ond rate tobacco was made. The court refused to treat this as a war- 
 ranty, but rather as an expression of opinion as to the quality of the 
 article sold, concerning which the buyer should have relied on his 
 own judgment or obtained an express warranty. "The mere descrip- 
 tion of iron sold as mill iron in a bill rendered to the purchaser will 
 not amount to a warranty that the same is of the quality or grade 
 described, but will be regarded as a mere statement or expression of 
 opinion as to the quality." Iron Works v. Moore, 78 111. 65. See, also, 
 Ryan v. Ulmer, 108 Pa. 332, 56 Am. Rep. 210; Bounce v. Dow, 64 
 N. Y. 411. 
 
 In Fraley v. Bispham, 10 Pa. 320, 51 Am. Rep. 486, it was held that 
 a sale bill of superior sweet-scented Kentucky leaf tobacco affords 
 no evidence from which the jury may infer a warranty that it is 
 either superior or sweet scented. The case of Shaw v. Smith, 45 Kan. 
 334, 25 Pac. 886, was on a contract for the sale of flaxseed, which 
 the buyer agreed to sow, and sell the crop to the seller on certain terms 
 stated in the contract. The seed proved worthless, and did not grow. 
 It was held that under the contract, and in view of the purposes for 
 which it was purchased, the buyer might recover as upon a warranty. 
 In that case the purposes of the contract did not end with the delivery 
 of the seed to the buyer, for he was obligated to sow the seed, and 
 to sell the crop which it might produce to the vendor. Under such 
 a contract, it was held that a warranty of the fitness of the seed for 
 the purposes specified in the contract would be implied. 
 
 In the case under consideration the plaintiffs ordered a fireproof 
 safe. There is no proof, nor was it in fact claimed at the trial, that 
 the article delivered did not answer the description; that is, that 
 it was not such an article as is generally known and designated as 
 a "fireproof safe." The evidence shows that it was manufactured 
 ■and placed on the market in the same way that other fireproof safes 
 were made. "Fireproof" is defined by Webster : "Proof against fire; 
 incombustible." The case of Hickey v. Morrell, 102 N. Y. 454, 
 7 N. E. 321, 55 Am. Rep. 824, was an action agaifist a warehouse 
 man to recover for goods destroyed by fire in a warehouse repre- 
 sented to have a fireproof exterior. It appeared that the window 
 frames and sash were wooden, and that there were no outside shut- 
 ters, and it was held that the building could not be deemed fireproof. 
 In the course of the opinion it is said : "Here the allegation is that the 
 exterior of the building is fireproof. It necessarily refers to the qual-' 
 ity of the material out of which it is constructed, or which forms its 
 exposed surface. To say of any article it is fireproof conveys no 
 other idea than that the material out of which it is formed is incom- 
 bustible." In the case of Insurance Co. v. Hird, 4 Tex. Civ. App. 82, 
 23 S. W. 393, in an action on a fire insurance policy which stipulated 
 
Ch. 6) WAEEANTIBS 1151 
 
 "that the assured would keep his books in a fireproof safe, and' that in 
 case of loss he would produce the books, and on failure to so produce 
 them the policy would become void. The books were in good faith 
 kept in a safe of the kind generally known and reputed as fireproof, but 
 which failed to preserve them from destruction by fire. Held, that 
 the insured had not warranted the safe to preserve the books, and 
 that he complied with the condition." 
 
 It is not claimed in this case that the safe itself was constructed of 
 combustible materials, nor that it was burned, or even greatly dam- 
 aged by fire. The plaintiiis seek to recover solely for damages result- 
 ing from the burning of articles deposited in the safe. There was no 
 contract or representation with reference to the degree of heat, pr the 
 length of time when exposed to a fire, against which the safe would af- 
 ford protection. Safes denominated as "fireproof" are made of various 
 sizes, capacities, and styles. If the outside be made of iron, while 
 that metal is commonly regarded as incombustible, because it will not 
 burn, it yet is not indestructible by fire. It is a matter of common 
 knowledge that iron will melt when subjected to a sufficient degree of 
 heat. To imply a warranty that the safe would protect its contents 
 against any given exposure to fire, we think, would be to imply a wai- 
 ranty of quality, and that altogether indefinite in its terms, and im- 
 posing a liability which might be immensely disproportionate to the 
 sum received. The recovery in this case was for more than three times 
 the price of the safe. 
 
 We are of the opinion that it was incumbent on the plaintiflfs to in- 
 spect the safe, when they received it, for the purpose of ascertaining 
 whether it was of the kind specified in the order ; that, if it was so, no 
 warranty of quality was implied, and no recovery can be had for the 
 destruction of its contents. The judgment is reversed. 
 
 LISSBERGER v. KELLOGG et al. 
 (Supreme Court of New Jersey, 1909. 78 N. J. Law, 85, 73 Atl. 67.) 
 
 Action by Edmund L,issberger against David M. Kellogg and oth- 
 ers. Verdict for plaintiff, and defendants obtained a rule to show 
 cause why a new trial should not be granted. ' 
 
 SwAYZE, J. The action is for damages caused by the failure of the 
 defendants to deliver wool in accordance with the contract between 
 them and the plaintiff. The plaintiff is a wool merchant in New York. 
 The defendants are wool brokers and dealers at Buenos Ayres in 
 the Argentine. In the summer of 1905 the plaintiff ordered sorne 30 
 bales of wool, of which 10 bales were to be Lincoln, 10 bales i/^ blood, 
 and 10 bales %. The order was accepted, but 35 bales were shipped 
 instead of 30. The invoice described the wool as composed of Lin- 
 coln % blood, %, %, and %, and the specifications described them as 
 10 bales Lincoln, 11 bales % blood, 10 bales % Lincoln, 4 bales % 
 Lincoln. This wool arrived in New York December 26, 1905. Prior 
 to its arrival, and on December 5th, the plaintiff ordered defendants 
 to buy 200 bales, one-half of which was to be % and half of which 
 was to, be %; and on December 18th ordered them to buy 100 bales, 
 half of which was to be % and half i^. These orders were duly 
 accepted, and the wool shipped in January, arriving in New York 
 in February. The two lots of 200 and 100 bales were sold in advance 
 
1152 SALES (Part 4 
 
 of their arrival, by the plaintiff, to the Cleveland Worsted Mills of 
 Cleveland, Ohio, and shipped through to them directly from the 
 steamer, in bond. The wool proved to be inferior in quality to the 
 description. * * * 
 
 The defendant next contends : That the sale in this case was a sale 
 by sample, and, so far as the 300 bales is concerned, that they were 
 equal to the sample of 35 bales ; that, so far as the 35 bales was con- 
 cerned, they were a mere sample shipment, and the quality was im- 
 material. We think the defendant is wrong in both contentions. The 
 letter ordering the first shipment distinctly said that the wool was to 
 be one-third I^incoln, one-third % blood, and one-third %, and this 
 order .was accepted. It was clearly a sale by description. So, too, 
 the cables did not order the wool similar to the sample lot. In fact, 
 it Would have been impossible, for at the time the cables were sent the 
 first shipment had not arrived in New York. Both the cables or- 
 dered wool half % and half ^4- This also was clearly a sale by de- 
 scription, and the trial judge should so have charged. Instead of do- 
 ing so, he charged that it was for the jury to say whether the plain- 
 tiff was to get the grades generally known to the trade by the descrip- 
 tion, or whether he was to get the same kind or similar kinds that he 
 had been receiving in prior years. This error, however, was injuri- 
 ous to the plaintiff, and not to the defendants. He further charged 
 that "the rule as to selling by sample is this : That what is sent there- 
 after must substantially comply with the sample, and, if it does not, 
 the purchaser is under no obligation to keep it." 
 
 As applied to the present case, this charge also was inaccurate. The 
 true rule prior to our codification of the law relating to sales is thus 
 stated in the last English edition of Benjamin on Sales (page 616) : 
 "The implied condition that goods bought under specified commer- 
 cial description should conform therewith is not excluded by the fact 
 that the sale is by sample, or even after an inspection of the bulk. 
 A sample is looked on in such case as a mere expression of the quality 
 of the article, and not of its essential character, and notwithstanding 
 the bulk be fairly shown, or agree with the sample, yet, if the bulk 
 does not reasonably answer to the description, the seller is liable." 
 * * * The same rule of law is stated in Sales Act 1907 (P. L. p. 
 316) § 14. This act did not take effect until after the transactions 
 now in question, but it was a mere codification of the then existing 
 law in this respect. The charge of the court, while erroneous, was 
 injurious only to the plaintiff, and the defendant is not injured there- 
 
 Vj-i^ •(* Jk ^ 
 
 The plaintiff was allowed to recover the following items : (1) The 
 difference between the purchase price paid by him and the amount 
 received on the sale ; (2) the loss of profits on the sale to the Cleveland 
 Worsted Company ; (3) damages paid that company to settle its claim 
 agamst him; (4) freight on wool shipped from Cleveland to Boston 
 for resale. It was proper to include all of these items in the plain- 
 tiff's claim for damages. * * * 
 
 The rule is discharged, with costs. 
 
Ch. 6) WARRANTIES 1153 
 
 SECTION 6.— IMPLIED WARRANTY THAT THE GOODS 
 SHALL CORRESPOND TO THE SAMPLE 
 
 Sales Act, Section 16. In the case of a contract to sell or a sale 
 by sample — (a) there is an implied warranty that the bulk shall 
 correspond with the sample in quality, (b) There is an implied 
 warranty that the buyer shall have reasonable opportunity of com- 
 paring the bulk with the sample, except so far as otherwise pro- 
 vided in Section 47(3). (c) If the seller is a dealer in goods of 
 that kind, there is an implied warranty that the goods shall be free 
 from any defect rendering them unmerchantable, which would not 
 be apparent on reasonable examination of the sample. 
 
 Where a sample is exhibited by a seller to a buyer and a sale 
 results we may have one of three situations which are distinguish- 
 able: 
 
 (1) If the seller has said: "I warrant the goods which I am 
 offering you to be precisely like this sample both as to kind and 
 quality," we then have an express warranty, where the sample has 
 merely performed the same function that, in the absence of a 
 sample, would have been performed by words descriptive of the 
 kind and quality. 
 
 (2) If the seller, although exhibiting a sample, does not employ 
 language during the negotiations which amounts to an express 
 warranty, there may or may not be an implied warranty that the 
 goods will all be like the sample. As a general rule, no doubt, the 
 exhibiting of the sample would be under circumstances where it 
 was reasonable to infer that the representation thus made was 
 that the goods would be like the sample. Whenever we may in- 
 terpret the negotiations in this manner we have what the Sales 
 Act calls "a contract to sell or a sale by sample." The situation is 
 closely analogous to the warranty that the goods shall correspond 
 to the description, in contracts to sell or a sale by description. 
 By "description" here was meant the language which furnished 
 other means of identifying the goods. If there were statements 
 added regarding quality for the purpose of inducing the purchase 
 these statements would constitute express warranties. So in con- 
 tracts to sell or sales by sample, the implied warranty that at- 
 taches is not one of quality, but of identity — i. e., that the bulk of 
 the goods will be like the sample. True subsection (c) of Section 
 16 does add a warranty of quality in certain cases ; i. e., where the 
 sale was by a dealer, but npt otherwise. This is the warranty of 
 merchantability, but it owes its existence solely to subsection (c) 
 and not to subsection (a), just as there is added the warranty of 
 merchantability in sales by description by dealers in Section 15 
 (2) ; Section 14 not imposing it. 
 
 The warranty of merchantability, in sales by description and 
 in sales by sample, is the subject of the next section. The analogy 
 B.& iB.Bus.Law— 73 
 
1154 SALES (Part 4 
 
 between sales by description and sales by sample is simply that, in 
 the former, words identify the kind of goods; in the latter, a 
 physical specimen identifies. Presumably the same mental picture 
 is aroused in the buyer, whether it be produced by words or by 
 physical objects. 
 
 (3) It is possible for the seller to exhibit a sample, and a sale by 
 sample, such as described above, would not result. If it did not so 
 result, it would be because the seller made it clear that he was not 
 representing all of the goods to be like the sample. He exhibits 
 the specimen not as the sole means of describing the goods for he 
 chooses to do that by words. The sample merely aids in making 
 the description. 
 
 Subsection (b), providing that the buyer shall have the oppor- 
 tunity of comparing the goods with the sample, states a general 
 rule which is taken up in detail in Chapter VII. Clause (b) mere- 
 ly shows that the duty of the seller to afford the buyer an oppor- 
 tunity for inspection is not dispensed with in sales by sample. 
 
 Subsection (c) adds a warranty of merchantability in sales by 
 sample, when the sale was by a dealer. This is the subject of the 
 next section. 
 
 BORBEN V. FINE et al. 
 
 (Supreme Judicial Court of Massachusetts, 1912. 212 Mass. 425, 
 98 N. E. 1073.) 
 
 Action by Thomas S. Borden against Samuel Fine and another. 
 There was a finding for plaintiff, and defendants bring exceptions. 
 
 This was an action of contract to recover a specified sum on an 
 alleged special promise by defendants to reimburse plaintiff. Plaintiff 
 offered evidence to show that at the request of one of the defendants 
 he went to defendants' place of business and was shown cotton sweep- 
 ings, that plaintiff was then taken into the office of defendants and 
 there shown a sample, that after some talk as to price it was mutually 
 agreed that the sample would be a fair sample of the sweepings after 
 they were sorted, and that defendants would sell all of the cotton 
 sweepings until further notice for five cents a pound, and that the 
 goods would be shipped from time to time in accordance with plain- 
 tiff's directions. 
 
 BralEy, J. The contract for the purchase of the cotton sweepings 
 being oral, its terms are to be ascertained from the evidence, which 
 would have warranted the judge before whom the case was tried with- 
 out a jury in finding that the sale had been consummated upon the 
 representations of the defendants that the goods in bulk to be deliv- 
 ered in the future should be like the sample exhibited. * * * And 
 there would be a breach of the implied ^warranty, entitling the plain- 
 tiff to rescind upon reasonable notice to the defendants, if the four 
 shipments in question fell below the quality bought, or he might re- 
 tain the cotton and recover damages. * * * The sample must be 
 deemed as having been one of the essential terms of sale, and although 
 the plaintiff availed himself of the opportunity for inspection before 
 the shipments to his consignee, the cotton had been bagged by the 
 defendants, and he testified, that during the customary examination 
 he rejected such portions as he observed to be defective, but the bags 
 
Ch. 6) WARRANTIES 1155 
 
 I 
 
 were not emptied, and the remainder was expected to be in conform- 
 ity with the_ sample. It was a question of fact, independently of the 
 place of delivery, whether the plaintiff waived the warranty, and ac- 
 cepted the contents of the bags, and whether after arrival at the place 
 of business of the consignee the cotton upon assortment proved to be 
 of inferior quality. * * * 
 
 The plaintiff's evidence, if believed, having supported his contention 
 that there had been a breach, and that he had not relinquished his 
 right to insist upon performance of the contract, these issues of fact, 
 as well as the further issue whether after receiving information from 
 the consignee he seasonably inspected the cotton, and gave notice to 
 the defendants of the deficiency, with his claim for reclamation, are 
 settled conclusively in his favor by the judge's finding. * * * 
 
 Exceptions overruled. 
 
 GASCOIGNE et al. v. OAKY BRICK CO. 
 
 (Supreme Judicial Court of Massachusetts, 1914. 217 Mass. 302, 104 N. E. 734, 
 
 Ann. Gas. 1917C, 336.) 
 
 Action by Joseph Gascoigne and another against the Gary Brick 
 Gompany. There was a verdict for plaintiffs, and both parties bring 
 exceptions. 
 
 Brai^ey, J. It is unquestioned that delivery was free on board at 
 the place where the bricks were to be used, and that after its erection, 
 and because of the variation in color, the wall proved unacceptable to 
 the supervising architect, and the plaintiffs under their contract with 
 the owner were obliged to demolish and rebuild it. The defendant, 
 although promptly notified of the imperfections upon discovery, con- 
 tends tha,t the sale was for a quality of bricks known to the trade as 
 "up and down hard brick," wherein uniformity of color is not con- 
 templated, and asked the presiding judge in the first, second, third and 
 sixth requests to rule that, as there was n© express or implied af- 
 firmation of q^uality, and the defendant not having been charged with 
 fraud, the plaintiffs must be presumed to have bought on their own 
 judgment. * * * But these requests could not be given. The con- 
 tract was "not confined to the correspondence. The letters as the jury 
 properly could find were merely preliminary to the interview between 
 the plaintiffs and the defendant's representative, when the terms of 
 sale were settled, and the order for the bricks given. It is in the evi- 
 dence of what then took place that the contract must be sought. The 
 testimony is irreconcilable, and the jury were to determine whom the}' 
 would believe. If they accepted the plaintiffs' statements, the defend- 
 ant's agent having been informed that, as both sides of the wall would 
 have to be faced, the facings necessarily would have to be of a uniform 
 shade or appearance, similar to the brick exhibited which the architect 
 had accepted as of the required color, replied that he knew what the 
 requirements were, and the defendant would furnish the bricks ac- 
 cordingly. The order thereupon given and accepted the jury could say 
 constituted a sale, where the plaintiffs relied on the statements of the 
 seller, and the defendant impliedly warranted that the bricks delivered 
 in bulk should correspond with the sample. * * * St. 1908, c. 237, 
 § 16. If these terms were found to constitute the contract, the evi- 
 dence was plenary that the shipments did not conform to the sample 
 
1156 SALES . (Part i 
 
 in quality; the plaintiffs therefore could recover damages, and the 
 fourth and fifth requests were inappropriate. * * * 
 
 The plaintiffs, although they prevailed, are dissatisfied with the rul- 
 ings as to the measure of damages. By acceptance of title the plain- 
 tiffs did not as matter of law release the defendant, or bar their claim 
 for damages. St. 1908, c. 237, § 9. It was a question of fact whether 
 they waived the warranty and took the bricks as they found them on 
 the cars, which has been established in their favor by the verdict. 
 
 * * * But if they knew or ought to have known of the defective 
 coloring, no damages caused by the use of the bricks can be recovered. 
 
 * * * The jury were to determine if by reason of moisture caused 
 by the weather the bricks at the time of delivery, and when placed 
 in the wall had taken on and retained a darker appearance, rendering 
 it difficult to ascertain their true or natural color, and if this appeared, 
 whether the plaintiffs', who might rely on the presumption that the de- 
 fendant would perform its contract, had acted with reasonable dili- 
 gence in using the bricks without further inspection, or whether the 
 general appearance was such that imperfections would not have been 
 disclosed by an extended examination. A conclusion that no negligence 
 had been shown, in connection with the uncontradicted evidence, that 
 notice was promptly given to the defendant who declined further per- 
 formance, would warrant the assessment of damages for not only 
 the difference between what the plaintiffs bought, and what they re- 
 ceived, but also the expense of taking down and rebuilding the wall. 
 
 The judge whose attention had been directed to the rule to be applied 
 by the plaintiff's request, and in }iis rulings upon the exclusion of 
 evidence should have so instructed the jury. * * * But instead he 
 charged that the plaintiffs could recover only a sum equal to the dif- 
 ference between the value of bricks the color of the sample, and the 
 value of the bricks actually delivered. * * * A. majority of the 
 court are accordingly of opinion that the defendant's exceptions 
 should be overruled, but the plaintiffs' exceptions must be sustained. 
 
 E. EISI^G & CO., Inc., v. AMBEICAN ALCOHOL CO., Inc. 
 (Supreme Court of New Tork, Appellate Term, 1918. 168 N. Y. Supp. 682.) 
 
 Action by E. Eising & Co., Incorporated, against the American Al- 
 cohol Company, Incorporated. From a judgment dismissing the com- 
 plaint, plaintiff appeals. 
 
 Lehman, J. The plaintiff has brought this action to recover dam- 
 ages for an alleged breach of contract whereby the defendant agreed 
 to sell and deliver to the plaintiff 100 barrels of high proof grain spirits 
 at the price of 67 cents per gallon. * * * 
 
 Plaintiff's president testified that the defendant offered to sell him 
 100 barrels of high proof grain spirits and that after some conversa- 
 tion with the defendant's vice president he agreed to buy these goods 
 for 67 cents in bond, the goods to be carted to the freight station free 
 of charge: He testified further: "I said, 'I have never seen your 
 goods, and I have never made any purchases from you, and have never 
 seen any kind of goods you serve.' He said, 'Our goods are standard, 
 but I can divert a barrel to you from one of my customers who is get- 
 ting a shipment to New York ; I will divert a barrel of it and send it 
 
Ch. 6) WARRANTIES 1157 
 
 to you.' And I said, 'Very good ;' and I said, 'Now we definitely under- 
 stand it that I will buy those 100 barrels from you at 67 cents in bond ; 
 he said, 'Yes ;' and I said, 'Confirm this purchase to me by letter, so 
 that we shall both understand the terms and conditions of it.' " 
 
 Thereafter the defendant wrote to the plaintiff the following letter : 
 " * * * Messrs. E. Eising Co., 51 Water Street, New York City 
 — Gentlemen : This will confirm offer made to you on 100 barrels of 
 H. P. grain spirits at 67^ per gallon in bond. We will deliver the 
 goods alongside steamer free of charge after you pay the tax. We 
 understand that this offer is accepted by you subject to a trial sample 
 of one barrel, and we believe we can have this barrel for you some 
 time this week. Awaiting in anticipation, we remain, * * * Ameri- 
 can Alcohol Company, Inc., A. Balinsky, V. P." 
 
 The plaintiff did not answer this letter, but on April 19th wrote de- 
 fendant as follows : "The American Alcohol Co., 60 Wall. St., Mr. A. 
 Balinsky, V. P., City — Dear Sir : We have not as yet received the trial 
 sample of one barrel of high proof grain spirits as per your letter 
 of April 10th, and wish you v/ould advise us when delivery will be 
 made. We remain, * * * jj Eising & Co., Inc., Per Ebe." 
 
 In answer to this letter the defendant wrote : "Messrs. E. Eising & 
 Co., 51 Water Street, New York City— Gentlemen : Yours of the 19th 
 reached me this morning on my return from the West. I was some- 
 what surprised to hear from you at t^is late' date, inasmuch as my 
 letter is dated the 10th. In view of the fact that you have not seen fit 
 to answer my letter before the 19th, the company has not booked your 
 order. * * * A. Balinsky, Vice President." 
 
 It seems to me that these 'facts establish a complete cause of action. 
 The parties in their conversation had agreed upon a complete contract. 
 The plaintiff's president asked the defendant to send him a trial sample 
 barrel of the spirits, not in order to enable him to make up his mind 
 as to whether he would agree to buy the spirits, but merely to enable 
 him to determine that the spirits he had actually agreed to buy were 
 standard high proof grain spirits. Ujider any fair construction of the 
 conversation, the plaintiff reserved no right to reject the goods, if the 
 sample consisted of standard high proof spirits ; but it did reserve the 
 right to determine by means of this sample whether the goods complied 
 with the description in the contract without being obliged to examine 
 the goods then in bond in New Orleans, or to pay the government taxes 
 to release them from bond and ship them to New York before having 
 the opportunity to examine them. * * * 
 
 If defendant refused to furnish the goods described, he broke his 
 contract to sell and deliver; if plaintiff refused to proceed with his 
 contract, after receipt of a proper sample, he broke his contract to 
 accept andpay for the goods. In other words, the term "subject to a 
 trial sample of one barrel" does not mean that the minds of the parties 
 have not Tully met on all terms of the agreement, but is only a provi- 
 sion of the agreement fixing the rights of the parties thereunder. 
 
 Judgment should therefore be reversed, and a new trial ordered. 
 
 * 4: * 
 
1158 SALES (Part 4 
 
 SECTION 7.— IMPLIED WARRANTY OF 
 MERCHANTABILITY 
 
 Sales Act, Section 16. In the case of a contract to sell or a 
 sale by sample — , * * * (^^ jf the seller is a dealer in goods 
 of that kind, there is an implied warranty that the goods shall be 
 free from any defect rendering them unmerchantable, which 
 would not be apparent on reasonable examination of the sample. 
 
 Sales Act, Section IS. (2) Where the goods are bought by de- 
 scription from a seller who deals in goods of that description 
 (whether he be the grower or manufacturer or not) there is an 
 implied warranty that the goods shall be of merchantable quality. 
 
 (3) If the buyer has examined the goods, there is no implied 
 warranty as regards defects which such examination ought to have 
 revealed. 
 
 JAMES DRUMMOND & SQ-XS v. E. H. VAN IXGEN & CO. 
 (House of Lords, 18S7. 12 App. Cas. 284.) 
 
 The respondents, in July, 1883, ordered from the appellants, who are 
 worsted cloth manufacturers at Bradford, certain goods, described in 
 the contracts as "mixt worsted coatings," which were to be, in "qual- 
 ity and weight," equal to certain numbered samples, which the appel- 
 lants had previously furnished to the respondents. The goods were 
 of a class well-known in the trade under the denomination of "cork- 
 screw twills." They were delivered to the respondents, whose ob- 
 ject (known to the appellants) was to sell them to clothiers or tailors 
 in the United States of America. All, or great part of them, were, in 
 fact, disposed of to various customers of the respondents in the United 
 States; but they were returned upon, the respondents' hSnds, as not 
 suitable for the purposes of that trade. They were afterwards sold 
 by auction, at a loss-; and an action (for the price of the goods) -hav- 
 ing been brought by the appellants against the respondents,, a counter- 
 claim was made by the respondents to recover damages against the ap- 
 pellants, on the ground that the goods were not merchantable, as they 
 ought to have been. 
 
 The goods were, in point of fact, made exactly in the same manner 
 as the samples; and the. defect alleged to exist in them, viz., that of 
 "slipperiness" (or want of such cohesion in the texture of the cloth, be- 
 tween the warp and weft, as was requisite' to prevent them from giv- 
 ing way under the strain of ordinary wear when made up. into coats 
 in the usual manner) existed equally in those samples. * * * 
 
 An order having been made for the trial of certain preliminary is- 
 sues in fact by Day, J.,, without a jury before any of the other ques- 
 tions of fact, that learned judge found upon the issues as follows : 
 
 1. That there was an implied warranty on the sale of the goods that 
 the cloth should be merchantable generally as worsted coatings, and 
 should be properly manufactured, and should be suitable to be made 
 up into coats in the ordinary course of tailors' work. 2. That the 
 plaintiffs did sell the cloth for the purpose of being made up into 
 coats in the ordinary course of tailors' work. 3. That it was an 
 
Ch. 6) WARRANTIES 1159 
 
 express term of the contract of sale that the cloth should be efficiently 
 woaded and dyed so as not to fade unduly. 4. That the cloth was not 
 merchantable as worsted coating, and was not properly manufactured 
 and suitable to be made up into coats in the ordinary course of tailor- 
 ing, and was not efficiently woaded and dyed within the meaning of 
 the contract. 5. That the cloth was sold by sample in the sense that 
 it was to be' similar to a sample produced in respect of weight and 
 quality, and that the term "quality" covers strength as distinguished 
 from rottenness in cloth, but the judge is not satisfied that the term 
 quality has been ordinarily applied to such a defect as is alleged to 
 exist in the cloth delivered under the contract, that is to say, slipperiness 
 of weft under warp. 6. That the cloth did correspond with the sam- 
 ple. 7. That the sample was made to the defendants' order, and was 
 seen and approved of by them as to pattern, colour, and generally as to 
 handle. 8 and 9. That the defects both of structure and colour in 
 the cloth and in the sample were latent, and were not apparent or 
 discoverable upon such inspection as was ordinary and usual upon sales 
 of worsted cloths of this class. 
 
 The Court of Appeal (Lord Esher, M. R., and Fry, L. J.) affirmed 
 the findings of Day, J. * * * From this decision the present ap- 
 peal was brought. * * * 
 
 Earl of SelbornE. * * * As to so much of this defence to 
 the counterclaim as turns on the question of fact, whether the alleged 
 defect in the cloth existed or not. (by which I mean existed as a de- 
 fect, causing coats made of it in the manner usual among clothiers and 
 tailors to give way under a strain which goods of the same class, such 
 as were generally known and used in the trade, ought to resist) I think 
 your Lordships must, on the principle on which the Court of Appeal 
 acted, take the existence of the defect, in a degree sufficient to render 
 the cloth unmerchantable for the purposes for which goods of the 
 same general class had previously been used in the trade, to have been 
 sufficiently established. That question depended in part on practical 
 demonstration by skilled witnesses in the presence of the Court, fol- 
 lowed up and further verified by the judge himself. Of all possible 
 kinds of evidence, this appears to me to be the most unfit for review 
 by a Court of Appeal. So far, therefore, I think the fact must be as- 
 sumed in the respondent's favour, on whom the burden of proof, upon 
 that point, undoubtedly lay. 
 
 It remains to be considered, whether this was a defect of quality 
 against which there was an implied warranty by the appellants, under 
 all the circumstances of the case. That it was a defect of quality seems 
 to me indisputable ; and, if it was known to the respondents when 
 they gave the order, or if (as between themselves and the appellants) 
 they ought to be taken as having discovered, or as having had means 
 which they ought to have used of discovering it from the samples, I 
 should hold, that it was covered by the word "quaHty," as used in the 
 contracts, and that there was no implied warranty against it. But, if 
 it was a latent defect, of which knowledge, or means of knowledge 
 which ought to have been used, could not properly, under the circum- 
 stances, be imputed to the respondents, then I think that the word 
 "quality" as used in the contracts, ought to be restricted to those qual- 
 ities which were patent, or discoverable from such examination and in- 
 spection of the samples as, under the circumstances, the respondents 
 might reasonably be expected to make ; and that it cannot be extended 
 
1160 SALES (Part 4 
 
 to defects in the texture of the samples, rendering the cloth so manu- 
 factured unmerchantable for the purposes for which the order was 
 given, of which such examination and inspection would give the mer- 
 chants, practically, no notice. * * * 
 
 In the present case the defect arose out of the want of sufficient con- 
 nection or cohesion in the texture of the cloth between the warp and 
 the weft. In all goods of the class called "corkscrew twills," the weft 
 lies hidden inside, the surface on both sides being warp. * * * 
 There was, in point of fact, nothing to put the respondents on their 
 guard against any such defect; and they had, in my opinion, a right 
 to assume that the appellants, accepting the order, could and would 
 produce and deliver a good article, having the weight and all the other 
 apparent qualities of the samples, which would be as merchantable for 
 coatings as other articles of the same class previously known in the 
 trade. * * * 
 
 Lord Herschell. My Lords, I think that the general principles 
 of law which have to be applied to the facts of this case are well set- 
 tled and beyond question. It was laid down in Jones v. Bright (1) 
 that where goods are ordered of a manufacturer for a particular pur- 
 pose, he impliedly warrants that the goods he supplies are fit for that 
 purpose. This view of the law has been constantly acted upon from 
 the time of that decision, and was not impeached by the learned coun- 
 sel for the appellants. It is equally well settled that upon a sale of 
 goods of a specified description, which the purchaser has no oppor- 
 tunity of examining before the sale, the goods must not only answer 
 that specific description, but must be merchantable under that descrip- 
 tion. This doctrine was laid down in Jones v. Just, L. R. 3 Q. JB. 
 197, where all the previous authorities on the point were reviewed. 
 In the case of Mody^v. Greyson, L. R. 4 Ex. 49, in the Exchequer 
 Chamber, the decision in Jones v. Just was approved of and acted upon, 
 and it was further held that the implied warranty that the goods sup- 
 plied are merchantable was not absolutely excluded by the fact that the 
 goods were sold by sample, and that the bulk precisely corresponded 
 with it, but was only excluded as regards those matters which the 
 purchaser might, by due diligence in the use of all ordinary and usual 
 means, have ascertained from an examination of the sample. I think 
 that the law enunciated in these cases is sound and not open to doubt. 
 
 * sH * 
 
 The question arises whether, in these circumstances, the plaintiffs 
 have complied with their contract by delivering coatings precisely cor- 
 responding in quality and weight with the patterns, or whether they are 
 liable to the defendants. * * * 
 
 It is true that the purpose for which the goods were required was not, 
 as in Jones v. Bright, 5 Bing. 533, stated in express terms, but it was 
 indicated by the very designation of the goods, "coatings." I think 
 that upon such an order the merchant trusts to the skill of the manu- 
 facturer, and is entitled to trust to it, and that there is an implied 
 warranty that the manufactured article shall not by reason of the mode 
 of manufacture be unfit for use in the manner in which goods of the 
 same quality of material, and the same general character and designa- 
 tion ordinarily would be used. I think too that where the article 
 does not comply with such a warranty it may properly be said to be 
 unmerchantable in the sense in which that word is used in relation to 
 transactions of this nature. * * * 
 
Ch. 6) WARRANTIES 1161 
 
 There is no doubt that the impHed warranty will be excluded as 
 regards any defects which the sample would disclose to a buyer of ordi- 
 nary diligence and experience. The inquiry, therefore, arises whether 
 the defendants by "due diligence in the use of all ordinary and usual 
 means" would have detected in the patterns the defects of which they 
 now complain. I think not. What is "due dihgence" must depend 
 upon the circumstances. Having regard to the order given in the previ- 
 ous year, and the mode in which that order was fulfilled, I think that 
 when the defendants made the contract there was nothing which could 
 reasonably lead them to anticipate that the patterns represented goods 
 possessing th^ defect which was, in fact, inherent in them. And I 
 am satisfied upon the evidence that the defendants who, undoubtedly, 
 did not discern the defect, did not fail to do so from neglecting to use 
 the means usually adopted by buyers under like circumstances. 
 
 I have therefore arrived at the conclusion that the learned judge 
 who tried the case took a correct view of the facts on this part of it, 
 
 and that his decision was properly affirmed by the Court of Appeal. 
 
 * * * 
 
 SECTION 8.— IMPLIED WARRANTY OF FITNESS FOR 
 A PARTICULAR PURPOSE 
 
 Sales Act, Section 15. (1) Where the buyer, expressly or by 
 implication, makes known to the seller the particular purpose for 
 which the goods are required, and it appears that the buyer relies 
 on the seller's skill or judgment (whether he be the grower or 
 manufacturer or not), there is an implied warranty that the goods 
 shall be reasonably fit for such purpose. 
 
 Section 15. (3) If the buyer has examined the goods, there 
 is no implied warranty as regards defects which such examination 
 ought to have revealed. 
 
 Section 15. (4) In the case of a contract to sell or a sale of a 
 specified article imder its patent or other trade name, there is no 
 implied warranty as to its fitness for any particular purpose. 
 
 One may desire to purchase some article to be used in the accom- 
 plishment of a certain result. He may not know what article is 
 best suited to his purpose. The prospective purchaser may explain 
 this situation to some one competent to select the particular ar- 
 ticle. During the negotiations it is easily conceivable that the 
 seller will make an express warranty but if he does not do so the 
 law implies a warranty that the goods sold are reasonably fit for 
 the particular purpose. 
 
 This warranty has a very wide application. It applies to all sell- 
 ers. The question whether it is to be implied in a particular case 
 is essentially a question of fact. It is easier to conclude that the 
 buyer relied upon the seller's skill or judgment in contracts to 
 sell and of sale of goods identified by description than it is when 
 the contract to sell or sale concern goods identified in some other 
 way, as when the subject of the bargain is physically present and 
 open to actual examination by the buyer. When the goods are to 
 
1162 SALES (Part 4 
 
 be identified by description and the seller makes known the par- 
 ticular purpose for which the goods are required, evidence that the 
 buyer asked for something by its patent or trade name would be 
 almost conclusive evidence that the buyer relied upon his own 
 judgment. Even in a sale of goods, physically present, it is still 
 possible for the buyer to rely upon the seller's skill or judgment. 
 This opportunity for inspection or actual inspection is evidence 
 that the buyer relied on his own judgment, but it is not conclusive. 
 In sales of machinery and mechanical devices the warranty of 
 reasonable fitness for a particular purpose is common. This 
 warranty should not be confused with that of merchantability. 
 The warranty of fitness for a particular purpose, in some cases, 
 will be the equivalent of merchantability, in others, it may be 
 greater or less than that of merchantability. If a buyer desired a 
 machine which could be used to thrash wheat, oats, barley and flax. 
 and the machine would properly thrash the grains but would not 
 thrash flax, there would be a breach of the warranty though ob- 
 viously the machine was merchantable. It is a question of fact 
 in each case. For what purpose were these goods intended? Did 
 the buyer rely upon the seller's skill or judgment? Were the 
 goods reasonably fit for the purpose made known to the seller? 
 
 HOXT V. HAINSWORTH MOTOR CO. 
 (Supreme Court of Washington, 1920. 112 Wash. 440, 192 Pac. 918.) 
 
 Main, J. This is an action for damages for breach of an. alleged 
 implied warranty in the sale of an automobile. The case was tried to 
 the court and a jury, and resulted in a verdict for the plaintiflE. * * * 
 The defendant appeals. * * * 
 
 The appellant is * * * engaged in the business of selling auto- 
 mobiles at Seattle, Wash. On April 5 it sold to the respondent a new 
 1918 model, six-cylinder Oldsmobile. At the time the car was sold 
 the appellant had on the floor of its showroom this particular car. It 
 did not, however, sell this car, but sold a car of the model described. 
 The respondent saw and looked at the car that was in the showroom. 
 A few days after the respondent had agreed to purchase a car, the 
 appellant delivered to him the car which he looked at in the show- 
 room, and then told him that it was the same car. The respondent 
 operated the car after it was delivered to him for a period of ap- 
 proximately 11 months. The car was defective, in that the pistons 
 were a little too small for the cylinders. The car did not prove to 
 be satisfactory, and after having operated it for the time mentioned 
 the present action was instituted, for the purpose of recovering dam- 
 ages for a breach of implied warranty. It should be noted and kept 
 in mind that the appellant was not the manufacturer of the automo- 
 bile, but simply a dealer. The theory of the respondent that the sale 
 was not of a particular car, but of a particular model will be adopted. 
 
 The appellant claims that, since it was a dealer, and not a manu- 
 facturer, in selling the car there was no implied warranty against la- 
 tent defects. The respondent claims that, since he purchased, not a 
 specific car, but a car of a particular model, even though the appel- 
 
Ch. 6) WARRANTIES 1163 
 
 lant were a dealer, there would be an implied warranty against latent 
 defects, such as ordinary inspection would not disclose. The defect 
 in this car was latent, and one that ordinary inspection would not 
 disclose. The controlling question is whether, under the facts stated, 
 the appellant as a dealer is liable upon an implied warranty ; there 
 being no express warranty. Upon the question as to whether the deal- 
 er is liable upon an implied warranty for a latent defect in an article 
 sold, the decisions of the various courts that have passed upon the 
 question are divided. In some it is held that there is such an implied 
 warranty. The majority of the courts, however, in this country hold 
 that in the case of the dealer, as distinguished from the manufacturer, 
 there is no such impHed warranty. WilHston on Sales, § 233. This 
 court, in Hurley-Mason Co. v. Stebbins, Walker & Spinning, 79 Wash. 
 366, 140 Pac. 381, I^. R. A. 1915B, 1131, Ann. Cas. 1916A, 948, has 
 adopted the majority rule; that is, that a dealer does not impliedly 
 warrant against defects not discoverable by ordinary inspection and 
 tests. * * * 
 
 Under the undisputed facts in the present case, there was a sale of 
 an automobile of known manvifacture. There is a rule collateral to 
 that above referred to as the majority rule, to the effect that where an 
 article of known manufacture is made by one not the vendor, and the 
 vendee knows this fact, there is no implied warranty by the dealer 
 against latent defects. * * * 
 
 There is no escaping the conclusion that the appellant in this case 
 sold to the respondent an article of known manufacture, of which 
 the vendor or dealer was not the builder. The case comes squarely 
 within this rule. The appellant relies upon the rule that, where goods 
 of some specific kind are ordered of the manufacturer or dealer, 
 which the buyer has neither inspected nor selected, there is an im- 
 plied warranty that the article delivered shall be of fair average 
 quality or goodness according to its kind, and free from remarkable 
 defects. Mechem on Sales, § 1340. But under this rule, as pointed 
 out by the same author in section 1345, before a dealer can be held 
 liable on an implied warranty, the conditions stated in the rule must 
 be present, " * * * namely, an executory agreement by the dealer 
 to supply an article not yet ascertained, but left to be determined by 
 him according to his own judgment, in view of the purpose to be sub- 
 served by it as communicated to him by the buyer." This case,, how- 
 ever, does not come within this rule. Nothing was left to be deter- 
 mined according to the judgment of the appellant, and his duty was 
 fulfilled when he delivered a car of the particular model contracted 
 for. /- 
 
 To review the many authorities cited in the respondent's brief and 
 distinguish them seriatim would extend this opinion to an unreasona- 
 ble length and serve no useful purpose. Generally speaking, it may be 
 said that the cases cited fall into one of the four following classes:- 
 First, they are cases that have adopted what is called the minority 
 rule, and not the rule of the majority, as adopted in fhe Hurley-Ma- 
 son Case. Such cases would not be persuasive in this jurisdiction, 
 so lohg as the rule of the case referred to stands. Second, cases 
 where there is an express warranty. Third, cases where the purchas- 
 er desires an article for a specific purpose, and communicates this 
 purpose to the dealer, and the latter undertakes to furnish an article 
 suitable for the purpose specified. * * * Fourth, where goods of 
 
1164 SALES (Part 4 
 
 some specific kind are ordered of the manufacturer or dealer which 
 the buyer has neither inspected nor selected. As already pointed out 
 the present case does not fall within this rule. * * * 
 
 The judgment will be reversed, and the cause remanded, with di- 
 rections to the superior court to dismiss the action. 
 
 WARD V. GREAT ATLANTIC & PACIFIC TEA CO. 
 
 (Supreme Judicial Court of Massachusetts, 1918. 231 Mass. 90, 120 N. E. 225, 
 
 5 A. L. R. 242.) 
 
 Action by Bliss B. Ward against the Great Atlantic & Pacific Tea 
 Company. On report, on an agreed statement of facts, to the Su- 
 preme Judicial Court. Judgment ordered for plaintiff. 
 
 Action based on an implied warranty as to the proper condition of 
 goods sold. Plaintiff suffered injuries in consequence of the presence 
 of stones in a can of baked beans sold by defendant to plaintiff. In 
 the superior court, on an agreed statement of facts, the case was re- 
 ported to the Supreme Judicial Court. 
 
 RuGG, C. J. The defendant conducts a retail grocery store at 
 Ipswich. It had for sale at this store beans in sealed all tin cans, 
 bearing this label: "Grandmother's Brand A & P Beans & Pork with 
 Sauce, contents 2 lbs. 1 oz." "Remove contents of this can as soon 
 as opened and place in earthenware dish." "The Great Atlantic '& 
 Pacific Tea Co., Incorporated, Distributors, Jersey City, N. J., U. 
 S. A." 
 
 These cans of beans were purchased by the defendant from the 
 Thomas Canning Company, of Grand Rapids, Mich, after canning. 
 It furnished the labels which were affixed to the cans by the manu- 
 facturer. The defendant had no supervision of the process of canning 
 and no knowledge or means of knowledge that any foreign substance 
 was in the cans. Such cans are always sold to the public in a sealed 
 condition. * * * At no time after the sealing of the can until it 
 was opened by the plaintiff was there visible indication that the con- 
 tents were in any way defective or that the can contained any foreign 
 substance. The can contained baked beans, among which was a small 
 pebble. The plaintiff was ignorant of its presence and, while eating 
 the beans, broke his tooth on the pebble and later, on account of this 
 injury, was obliged to have the tooth extracted. * * * 
 
 The transaction between the plaintiff and the defendant as to the 
 can of beans necessarily involved a purchase of food to be eaten. 
 That need not be stated in precise words. It was an underlying and 
 essential condition of the corttract, implied without expression. It 
 arose from the nature of the goods, the size of the purchase and the 
 terms of the label. It is provided by the Sales Act (St. 1908, c. 237) 
 § 15 (1): "Where the buyer, expressly or by implication, makes 
 known to the seller the particular purpose for which the goods are 
 required, and it appears that the buyer relies on the seller's skill or 
 judgment, whether he be the grower or manufacturer or not, there is 
 an implied warranty that the goods shall be reasonably fit for such 
 purpose." 
 
 That provision gover'ns the relations of the parties in the case at bar. 
 In this respect the statute is in substance, so far as concerns a dealer 
 such as the defendant, simply a codification of the common law. It 
 Was said in Farrell v. Manhattan Market Co., 198 Mass. 271, 279, 
 
Ch. 6) WAEEANTIE8 1165 
 
 280, 281, 84 N. E. 481, 485 (15 L. R. A. [N. S.] 884, 126 Am. St. 
 Rep. 436, 15 Ann. Cas. 1076) a case arising before the Sales Act: 
 
 "Finally, provisions may be ordered by the purchaser in person in 
 the dealer's shop, in such a way that it is made known to the dealer 
 that his knowledge and skill are relied on to supply a wholesome food, 
 and, if they are so ordered, he is liable if they are not fit to be eaten. 
 * * * If the sale is by a dealer and the selection of food is left to 
 him, it is an implied term or condition of the sale that the provisions 
 sold shall be fit for food whether supplied under a pre-existing con- 
 tract * * * or in response to an order not given in person * * * 
 or even when the order is given in person in the dealer's shop, provid- 
 ed * * * that the selection is left to the dealer. * * * gut, 
 even when the sale is by a dealer, if the provisions are selected by fhe 
 buyer and the selection is not left to the judgment and skill of the 
 dealer, the general rule applies and the dealer is not liable (in the ab- 
 sence of knowledge by the dealer that the provisions are unsound) if 
 provisions are not fit for food.^' * * * 
 
 That statement of the law, which is but an amplification so far as 
 relates to the case at bar of the terms of- the Sales Act, governs the 
 facts here presented. The defendant was a dealer, the plaintiff a 
 buyer at retail. There arises inevitably the implication that the plain- 
 tiff made known to the defendant that he was purchasing the beans 
 for consumption as food and that he was relying, because from the 
 character of the transaction he was bound to rely, upon the skill of 
 the defendant in selecting the can which was offered to him. 
 
 It is not expressly stated in the agreed facts that the defendant se- 
 lected the can for delivery to the plaintiff, or that the latter relied upon 
 the skill and judgment of the defendant in selecting the can for de- 
 livery. But that he did so rely seems an almost irresistible inference 
 from the facts stated. The cans in the defendant's stock were all 
 alike in label, and in general appearance. The cans were sealed. 
 Their contents could not in the nature of things be open to inspection 
 before the sale. There could be no intelligent selection based upon 
 any observation by the purchase!:. There is no room for the exercise 
 of individual sagacity in picking out a particular can. The customer 
 at a retail store is ordinarily bound to rely upon the skill and experi- 
 ence of the seller in determining the kind of canned goods which he 
 will purchase, unless he demands goods of a definite brand or trade- 
 name. The situation is quite different from the choice of a fowl or 
 a piece of meat from a larger stock, all open to inspection, where there 
 is opportunity for the exercise of an independent judgment by both 
 the buyer and the seller, and where, therefore, the fact as to the one 
 who makes the selection is of significance, as in the Farrell Case. 
 The case at bar must be treated on the footing, as matter of neces- 
 sary inference arising from the relation of the parties, so far as that 
 is material in view of the other facts, that the plaintiff relied upon the 
 knowledge and trade wisdom of the defendant in purchasing the can 
 of beans. In the absence of an express statement to the contrary, 
 this must be regarded as a necessary inference from the relation of 
 parties. 
 
 There appears to us to be no sound reason for ingrafting an ex- 
 ception on the general rule, because the subject of the sale is canned 
 goods, not open to the immediate inspection of the dealer, who is not 
 the manufacturer, any more than of the buyer. It doubtless still re- 
 
1166 SALES (Part 4 
 
 rflains true that the dealer is in' a Isetter position to know and ascer- 
 tain the reUabihty and responsibility of the manufacturer than is the 
 -retail purchaser. But the principle stated in Farrell v. Manhattan 
 ■Market Co., 198 Mass. 271, 84 N. E. 481, 15 L. R. A. (N. S.) 884, 126 
 Am. St. Rep. 436, 15 Ann. Cas. 1076, is a general one. It has long 
 been established. Simply because it may work apparent hardship m 
 certain instances is no reason for changing it to fit particular cases. 
 It is a salutary principle. It has become wrought into the fabric of 
 the law as the result of long experience. It may be assumed that the 
 affairs of mankind have become adjusted to it. It has recently been 
 -adopted by the Legislature in codifying the law as to sales. It im- 
 poses liability in the absence of an express contract between the par- 
 ties governing the subject. It places responsibility upon the party to 
 the contract best able to protect himself against original wrong of 
 this kind, and to recoup himself in case of loss, because he knows or 
 comes in touch with the manufacturer. In the case at bar the plain- 
 tiff had no means of ascertaining the manufacturer from inspection of 
 the goods bought. The retail purchaser in cases of this sort ordinari- 
 ly would be at some disadvantage if his only remedy were against the 
 manufacturer. * * * 
 
 No discussion is required to demonstrate that canned beans and 
 pork are not fit for consumption if they contain a pebble of sufficient 
 size to break a tooth. It is matter of common knowledge that pebbles 
 often are found in raw and uncleaned beans. In domestic use, care- 
 ful sorting i^ required to free them from such substance. * * * 
 
 It follows that the plaintiff is entitled to recover, and since it is 
 agreed that his damages are $350, judgment may be entered in his 
 .favor for that sum. * * * 
 
 COMMERCIAL REALTY & COXSTRUCTIOX CO. v. DORSET. 
 (Court.of Appeals of Maryland, 1910. 114 Md. 172, 78 Atl. 1099.) 
 
 Action by William C. Dorsey against the Commercial Realty & 
 Construction Company. From a judgment for plaintiff, defendant ap- 
 peals. 
 
 ScHMUCKER, J. The appeal in this case was taken from a judgment 
 of the superior court of Baltimore city against the appellant company 
 in a suit on a contract for the supply of building materials. 
 
 The. company, on the eve of the erection of a row of small build- 
 ings in Baltimore city, entered into a, written contract with the appel- 
 lee, William C. Dorsey, on December 9, 1908, to supply it with the 
 requisite quantity of certain kinds of lumber and millwork, at specified 
 prices, for the buildings. The negotiations were made, and the con- 
 • tract vi^as signed on behalf of the company by Abel Rosenthal, its pres- 
 ident, and its corporate seal was affixed thereto. It was also signed, but 
 not sealed, by Dorsey. * * * 
 
 There is evidence in the record on behalf of the plaintiff tending to 
 show that Rosenthal, when he looked at the lumber in.Dorsey's yard, 
 for the purpose of purchasing material to be used in the erection of 
 the houses, informed Dorsey that the company wanted cheap lumber, 
 and that he was then shown by Dorsey the identical luinber which was 
 afterwards delivered under the contract, and that he agreed to buy it, 
 and that the contract prices for it were made low because of its low 
 quality. * * ■ * ■ 
 
Ch. 6) WARRANTIES 1167 
 
 The fourth paragraph denied the defendant's right to recoup either 
 the item of $75 of alleged loss from the defective quality of certain 
 joists supplied by the plaintiff. * * * The law upon this subject 
 received consideration by us in Queen City Glass Co. v. Clay Pot 
 Co., 97 Md. 429, 55 Atl. 447, where we, quoting with approval from the 
 cases of Jones v. Just, L. R. 3 Q. B. 197, and Rice v. Forsyth, 41 Md. 
 403, and relying upon other cases there cited, said : "Where a manu- 
 facturer contracts to supply an article which he manufactures to be ap- 
 plied to a particular purpose so that the buyer necessarily trusts to the 
 judgment or skill of the manufacturer, there is in that case an im- 
 plied term or warranty that it shall be reasonably fit for the purpose 
 to which it is to be applied. In such a case the buyer trusts to the 
 manufacturer or dealer and relies upon his judgment and not upon his 
 own." We have held with equal clearness that, where the seller is 
 not the manufacturer of the article sold and the buyer has an oppor- 
 tunity of examining it, there is no implied warranty, in the absence of 
 fraud, that it shall be fit for the purpose for^ which it was bought. In 
 such cases, if there be no express warranty, the doctrine of caveat 
 emptor applies, and the buyer, not having seen fit to exact a warranty, 
 takes upon himself the risk as to quality. Horner v. Parkhurst, 71 
 Md. 116, 17 Atl. 1027. * * * 
 
 In the case now before us it is not contended that the contract sued 
 on contained any express warranty, and, as the joists, alleged to have 
 been defective, were merely commercial lumber, and not goods manu- 
 factured by the seller, and the buyer had ample opportunity to inspect 
 them after they were delivered before using them, there was no im- 
 plied warranty, but he must be regarded as having assumed the risk 
 of their quality. * * * 
 
 For the reasons mentioned by us, we will affirm the judgment ap- 
 pealed from. * * *' 
 
 AMERICAN SODA FOUNTAIN CO. v. SPRING WATER 
 
 CARBONATING CO. 
 
 (Supreme Judicial Court of Massacliusetts, 1911. 207 Mass. 488, 93 N. E. 801.) 
 
 Action by the American Soda Fountain Company against the Spring 
 Water Carbonating Company. Heard on exceptions by defendant to 
 ruling on offer of proof. 
 
 LoRiNG, J. This is an action on a written order for 100 special 
 draught arms to be manufactured "as per drawing submitted." At 
 the trial it was admitted that 100 special draught arms manufactured 
 according to the "drawing submitted" had been delivered to the de- 
 fendant, and that $272 of the purchase price had been paid by it on 
 account. But the defendant contended that the contract was procured 
 by fraud and that it had been avoided on that ground. It set this up 
 in defense to the action for the unpaid balance of the purchase price, 
 and filed a declaration in set-off to recover back the $272 paid by it 
 to the plaintiff on account. 
 
 In support of the contention the defendant offered to prove : "That 
 during preliminary negotiations and at the time this order or contract 
 was signed the plaintiff represented to the defendant that it would 
 manufacture special draught arms to be used for the purpose of draw- 
 ing root beer from wooden kegs, which would deliver, automatically, 
 two streams of different volume and at different degrees of velocity 
 
1168 SALES (Part 4 
 
 and which would be durable and practical for the purpose for which 
 they were designed, and submitted to the defendant a drawing or plan 
 of a draught arm, claimed by the plaintiff to be durable and practical 
 for the purpose aforesaid, and represented that it would manufacture 
 for the defendant special draught arms, in accordance with said plan, 
 which would accomplish the purposes aforesaid; that the defendant, 
 relying upon said representations and believing them to be true, or- 
 dered the plaintiff to manufacture for it one hundred (100^ of said 
 special draught arms, made according to "said drawing or plan." 
 The judge ruled "that the offer of proof, if maintained, did not con- 
 stitute a defense to the action and did not entitle the defendant to re- 
 cover on its declaration in set-off." The case is here on an excep- 
 tion to that ruling. 
 
 It is stated by the defendant in its bill of exceptions that it was 
 induced to give the order sued on "by certain false representations, 
 not fraudulent in fact, but amounting in law to fraudulent representa- 
 tions" ; and its sole contention is that the representations of the plain- 
 tiff which it offered to prove were representations of fact made by the 
 plaintiff as of its own knowledge and so of themselves fraudulent with- 
 out proof of a scienter. * * * 
 
 To make out a fraud of that kind the defendant had to prove that 
 the plaintiff had in fact tested the special draught arms made ac- 
 cording to the "drawing submitted," or represented that that had been 
 done, and that the result of the test was that they would do what the 
 defendant wished them to do. Or the defendant had to prove some- 
 thing equivalent to that. What he offered to prove manifestly was 
 short of that if it had stood by itself. But it did not stand by itself 
 in the case at bar. Witnesses called by the plaintiff had testified "that 
 the defendant desired to procure a faucet through which both still 
 and live beer could be drawn; that the draughtsman of the plaintiff 
 made a working drawing of a draught arm designed to draw both 
 still and live beer, and submitted it to Mr. Flynn. It appeared that 
 Flynn, the defendant's manager, examined this sketch and signed 
 and delivered to the plaintiff" the order sued on, and there was no 
 offer to contradict this. On this bill of exceptions it must be taken 
 that the plaintiff caused its draughtsman to design the arm shown in 
 the "drawing submitted" for the purpose of accomplishing what the 
 defendant wished, and that the representations which the defendant 
 offered to prove were not representations by the plaintiff as of its own 
 knowledge as tp what these special draught arms had done, but a rep- 
 resentation of its opinion as to what they ought to do. Such misrep- 
 resentations "not fraudulent in fact" are not ground for rescinding a 
 contract. * * * 
 
 Exceptions overruled. 
 
 SPENCER HEIATER CO. v. ABBOTT. 
 
 (Court of Errors and Appeals of New Jersey, 1918. 91 N. J. Law, 594 
 
 104 Atl. 91.) 
 
 Action by the Spencer Heater Company against Randolph Abbott, 
 trading, etc., as the Park Floral Company. Judgment for defendant, 
 and plaintiff appeals. 
 
 Trenchard, J. This action was brought on a mechanics' lien claim 
 to recover the price of certain Spencer steam heaters furnished to the 
 
Ch. 6) WAKRANTIES 1169 
 
 defendant, together with some smaller items of labor and expense. The 
 defendant is a florist. He admitted that the claim was unpaid, and, 
 with his answer, filed a counterclaim for loss of profits on plants, and 
 for expenses, caused by the alleged failure of the plaintiff to perform 
 its contract to furnish heaters adequate to heat the defendant's green- 
 houses. The jury rendered a verdict for the defendant, and the plain- 
 tiff appealed from the consequent judgment. * * * 
 
 The evidence tended to show that what occurred was this ; * * * 
 The plaintiff, at the request of the defendant, sent its salesman to the 
 defendant's place for a consultation as to the number and sizes of 
 heaters required for the defendant's purposes. The salesman went 
 there, examined the premises, took measurements, and told the de- 
 fendant, wlio disclaimed any knowledge of the number and sizes re- 
 quired, that a No. 11 and a No. 12 would supply the heat required, and 
 agreed to furnish them. Now the question whether or not a statement 
 or affirmation accompanying a sale is a warranty depends upon 
 whether the conditions were such that the vendee had a right to un- 
 derstand, and did understand, that what was said by the vendor was 
 meant as a warranty. A decisive test is whether the vendor assumes 
 to assert a fact of which the buyer is ignorant, or merely states an 
 opinion or judgment upon a matter of which the vendor has no spe- 
 cial knowledge, and on which the buyer may be expected also to have 
 an opinion, and to exercise his judgment. In the former case there 
 is a warranty ; in the latter, not. * * * Tested by that rule, it was 
 open to the jury to find, as they did, that the plaintiff warranted the 
 heaters to do the work the defendant required. * * * 
 
 In the present case the evidence tends to show that after the heaters 
 furnished had failed to do the work, the facts and circumstances were 
 brought to the attention of the manager of the plaintiff. * * * 
 He acknowledged that the trouble was due to the mistake of their 
 agent, offered to pay the expense of a temporary makeshift, proceeded 
 to install adequate heaters, and all without any repudiation of the acts 
 of their salesman. We think, therefore, that the motion for a direc- 
 tion was properly denied. 
 
 But we think the learned trial judge erred in his charge respecting 
 the measure of damages. It was a part of defendant's business to 
 force plants into bloom to make them ready for the winter and early 
 spring markets, and for that purpose he required heat in his green- 
 house of a certain temperature. It was open to the jury to find that 
 the plaintiff knew this, and contracted to furnish heaters for that pur- 
 pose, and failed in the performance of that contract. The trial judge 
 directed the jury to consider the retail price of the flowers, what 
 it would cost to replace them, and all the surrounding circumstances. 
 But we think that was an inaccurate and misleading statement of the 
 measure of damages in a case of the retardation in the development of 
 plants for a particular market. The true measure of damage was the 
 difference between the market value of such plants in the winter and 
 early spring markets and their market value when they were in fact 
 matured. * * * 
 
 The judgment will be reversed and a venire de novo awarded. 
 B.& B.Btjs.Law— 74 
 
1170 SALES (Part 4 
 
 CENTURY EIvECTEIC CO. v. DETROIT COPPER & BRASS ROIiLING 
 
 MILLS. 
 
 <United States Circuit Court of Appeals, Eighth Circuit, 1920. 264 Fed. 49.) 
 
 Sanborn, Circuit Judge. This is an action by the vendee in a writ- 
 ten contract of sale, at prices therein stated, of 400,000 pounds of brass 
 rods, of sizes and other qualities therein specified, to recover back 
 the purchase price, $8,506.03, of 27,504 pounds thereof, which the 
 vendee returned, because, as it claipis, they were too hard to be cut 
 and made into brass primers by automatic screw machines. The ven- 
 dor defended on the ground that it was under no obligation to make 
 the rods of such a degree of hardness that they could be so machined. 
 The written agreement contained no covenant of that nature. The 
 vendee offered to prove that in the negotiations for the contract, just 
 before it was made, the vendor made a parol agreement to that effect. 
 The court ruled out this evidence,' because it varied the written con- 
 tract, by adding a new covenant to it. The vendee contended that 
 there was an implied warranty to that effect, but the court held oth- 
 erwise, and directed a verdict for the vendor. These rulings are as- 
 signed as error. * * * 
 
 The written contract clearly describes the ingredients, 60 parts 
 copper and 40 parts spelter, of the mixture from which the brass 
 rods were to be produced, the size and shape of the rods, and the 
 vendor made and delivered rods which filled the requirements of the 
 writing. When the parties were negotiating for the contract, the 
 vendee might have required, and, if the vendor had consented, might 
 have obtained, a provision in the written agreement that the vendor 
 would sell and deliver brass rods that could be readily cut and made 
 into Russian primers by the use of automatic screw machines, but it 
 did not do so. * * * 
 
 Counsel, however, maintain that, out of the rejected testimony that 
 the vendor, before it made the contract, knew the custom of cutting 
 and making the rods into Russian primers by the use of automatic 
 screw machines, that the vendee was buying the rods to be even- 
 tually made into primers, that the vendor represented that it could 
 produce the goods to make such primers, that the rods made by it 
 could be machined readily, that it had sold brass rods for this pur- 
 pose to another concern, which had bought brass rods from another 
 brass company, which were defective, and had finally come to it tQ 
 get the proper kind of brass, there arose an implied warranty that the 
 brass it sold to the Century Company would be of such a degree of 
 hardness that the rods could be readily machined. If the vendee had 
 employed the vendor to manufacture and deliver to it brass rods to 
 be cut and made into Russian primers by automatic screw machines, 
 and had intrusted to the judgment and skill of the vendor the in- 
 gredients and composition of the mixture from which the rods should 
 be made and the percentage of lead which the rods should contain, 
 such a warranty might have arisen. It did not do so. * * * The 
 vendor made and delivered rods which complied with all require- 
 ments of the contract, and this case falls under the rule that, when 
 a known, described, and definite article is ordered of a manufacturer, 
 although it be stated by the purchaser to be required for a particular 
 use, yet if the known, described, and definite thing be actually supplied, 
 
Ch. 6) WARRANTIES 1171 
 
 there is no implied warranty that it shall answer the particular purpose 
 intended by the buyer. * * * 
 
 The judgment below must be affirmed. 
 
 SECTION 9.— IMPLIED WARRANTIES MAY ARISE EROM 
 THE USAGE OF TRADE 
 
 Sales Act, Section 15. (5) An implied warranty or condition 
 as to quality or fitness for a particular purpose may be annexed 
 by the usage of trade. 
 
 PKOCTER et al. v. ATLANTIC FISH COS., Limited. 
 
 (Supreme Judicial Court of Massachusetts, 1911. 208 Mass. 351, 
 94 N. E. 281.) 
 
 Action by Joseph O. Procter and another against the Atlantic Fish 
 Companies, Limited. Verdict for plaintiffs, and defendant brings ex- 
 ceptions. 
 
 LouiNG, J. This is an action for breach of warranty in the sale of 
 350 barrels, and for the breach of an executory contract for the sale 
 by description of 41 barrels of salt mackerel. The plaintiffs' firm did 
 business in Gloucester and the defendant company in Lunenburg, Nova 
 Scotia. One of the plaintiffs' employes, McKinnon by name, had seen 
 the 350 barrels on a wharf in Lunenburg in the first week of November, 
 1906. By an interchange of telegrams between the parties on Novem- 
 ber 10, 1906, the plaintiff bought the 350 barrels, agreeing to pay $14 a 
 barrel for large mackerel and for the medium and small "what they 
 are worth." It is stated in the bill of exceptions "that several small 
 lots of salt mackerel came to the defendant's place of business within 
 a few days after McKinnon's visit, and that these lots were sent to 
 Yarmouth and shipped with the larger lot." All the mackerel were 
 shipped from Lunenburg to Yarmouth, Nova Scotia, where they were 
 put on the Boston steamboat. The invoice of both lots was as follows : 
 Large mackerel: 350 barrels and 18 half barrels, at $14 a barrel, 
 amounting to $5,026. Medium mackerel : 8 barrels and 8 half barrels, 
 at $10 a barrel, amounting to $120; and small mackerel, 19 barrels 
 and 2 half barrels, at $7.50, amounting to $150; the whole price being 
 $5,296, to which was added $2.50 for consular papers, making a total 
 of $5,298.50. For this the defendant drew two drafts on the plaintiffs 
 which were paid. 
 
 By direction of the plaintiffs the fish were shipped to a Boston firm 
 who were instructed to sell them for the plaintiffs. The plaintiffs' Bos- 
 ton agents sent to the plaintiffs' customers half a dozen samples of 5 
 barrels each, which were returned as rusty mackerel. Thereupon one 
 of the plaintiffs "examined the lot of mackerel" and found it to be a 
 fact that rusty mackerel were packed in the middle of all of the bar- 
 rels, with clear fish at each end. On finding this the plaintiffs shipped 
 the fish to their wharf in Gloucester at a cost of $114.50, and there un- 
 packed, resorted and repacked them at a cost of $177.75. One of the 
 plaintiffs testified that there was no place in Boston where that could 
 be done economically. The same plaintiff also- testified that, "the fish 
 
1172 SALES (Part 4 
 
 were not salable except as rusty mackerel until they were repacked 
 and that after repacking, the clear fish were salable as clear mackerel 
 and the discolored ones as rusty mackerel." * * * 
 
 At the trial the plaintiff was allowed to prove that in the fish trade 
 "the custom is when a party purchases a lot of mackerel he is sup- 
 posed to receive clear fish. If he finds they are rusty fish he is entitled 
 to cull out the rusty fish and have an allowance of half price for the 
 rustles." What the plaintiff was allowed to prove by the first part of 
 this custom was that the word mackerel in the fish trade has a trade 
 meaning, namely, clear mackerel, not rusty mackerel. That was ad- 
 missible. * * * The second part of the custom is to supply by usage 
 a basis of settlement in case of breach by delivering rusty in place of 
 clear fish. Such an, arrangement could have been made by an express 
 agreement and the existence of the usage dispensed with the necessity 
 of making it expressly. In our opinion it is not a usage which is con- 
 trary to the rule of law and so bad within Dickinson v. Gay, 7 Allen, 
 29, 83 Am. Dec. 656. See in this connection Barrie v. Quinby, 206 
 Mass. 259, 92 N. E. 451. 
 
 The defendant objected to the evidence on the ground that this was 
 a sale of specific barrels which McKinnon saw and inspected, and that 
 the plaintiffs received those barrels and consequently that is an end of 
 their case. In any event this reasoning applies to the 350 barrels only 
 and not to the 49 barrels. But that is of no consequence because it is 
 not correct. It is settled in this commonwealth that in the sale of 
 specific goods as goods of a specified description, the description 
 amounts to a warranty that they are as described. It is also settled 
 that the fact that the specific goods were open to inspection and were 
 in fact inspected by the buyer does not deprive him. of his right to rely 
 on such a description as a warranty if the difference between the specif- 
 ic goods and the description of them would not have been and was not 
 detected on the inspection. * * * 
 
 ^^ The sixth ruling asked for by the defendant was in these words : 
 "A warranty as to quality or condition of the mackerel cannot be im- 
 plied into this case by evidence of custom or usage." This was not 
 given in terms but the judge told the jury that if they found the cus- 
 tom testified to they could allow one half the cost price for the rusty 
 mackerel. Under the custom clear mackerel and rusty mackerel are 
 in the trade different grades of mackerel, not different qualities of the 
 same grade of mackerel ; and so this case does not come within Dickin- 
 son V. Gay, 7 Allen, 29, 83 Am. Dec. 656. The rule adopted in that 
 case never was law m many jurisdictions (see Williston on Sales, 8 
 246) and has been changed by the sales act. St. 1908, c. 237 pt 1 8 
 15 (5). * * * -' » ±- • > 3 
 
 The result is that there must be a new trial on damages unless the 
 plamtiffs remit $292.15 with interest from the date of the writ The 
 order will be that unless that sum be remitted within 30 days the ex- 
 ceptions shall be sustained, the new trial being confined to damages 
 
 So ordered. 
 
Ch. 6) WAKRANTIBS 1173 
 
 SECTION 10.— IMPLIED WARRANTIES MAY BE NEGA- 
 TIVED BY AGREEMENT 
 
 ROSSv. NORTHRTJP, KING & CO. 
 (Supreme Court of Wisconsin, 1914. 156 Wis. 327, 144 N. W. 1124.) 
 
 Action by Samuel C. Ross against Northrup, King & Co. From a 
 judsrment for plaintiff, defendant appeals. 
 
 The defendant is a wholesale dealer in garden and field seeds. It 
 advertised its seeds quite extensively ; such advertisements suggesting 
 to prospective purchasers of seeds that they send for defendant's cata- 
 logue, and also advise it of the name of the prospective purchaser's 
 local dealer. The plaintiff is a farmer who, in the spring of 1911, was 
 intending to plant about 20 acres of tobacco. He saw one of defend- 
 ant's catalogues in which was advertised "Comstock Spanish Tobacco 
 Seed." He desired to raise the variety of tobacco produced from this 
 seed, and called on three local dealers in Viroqua in the spring of 1911 
 to purchase the same. None of these dealers had any of this seed in 
 stock, so he called on a fourth dealer, one Morton, who also advised 
 him that he did not have any of this seed on hand. The plaintiff then 
 stated that he would himself order the seed from the defendant. Mor- 
 ton then informed him that he was handling some seeds of the defend- 
 ant, and would send and get the tobacco seed for him, and it was finally 
 arranged between them that Morton should order one pound i of this 
 variety of tobacco seed. The order was dated on March 27th. When 
 the order was received, the defendant did not have any of this par- 
 ticular variety of seed on hand, and sent to Virginia for it. This order 
 apparently was promptly filled, except that the tobacco seed which 
 was sent in response thereto' was not Comstock Spanish tobacco seed. 
 It was not possible to tell from an examination of the seed itself that 
 it v\?as not of the variety ordered. The defendant shipped this seed 
 to Morton on April 8, 1911, who thereafter notified the plaintiff of its 
 arrival. The seed was taken by the plaintiff and planted by him, and 
 proved to be an inferior variety of tobacco, or one which was not 
 adapted to the soil in which it was planted. The defendant did not 
 know of the circumstances under which the seed was ordered, and so 
 sold the same to Morton in the ordinary course of business. Plaintiff 
 brought action against the defendant to recover damages for breach 
 of warranty. 
 
 Barnes, J. * * ,* The defendant advertised its seeds in the 
 Wisconsin Agriculturist and other papers. Such advertisements re- 
 quested prospective purchasers to send for its catalogue. A blank cou- 
 pon to be used in ordering the catalogue was included in the adver- 
 tisement. "In the coupon there was a blank space in which was to be 
 inserted the "local dealer's name," and in the advertisement proper this 
 sentence was used : "Use the coupon or write us a postal, giving the 
 name of your dealer, and sign at the bottom of the card with your own 
 name." * * * 
 
 In disposing of the case we will assume that the evidence was suffi- 
 cient to warrant a court or jury in finding that the relation of buyer 
 and seller did not exist between the plaintiff and Morton, and that Mor- 
 ton acted as the agent of the plaintiff, an undisclosed principal, in 
 
1174 SALES (Part 4 
 
 ordering the goods. This is the most favorable view for the plaintiff 
 that the evidence will warrant. 
 
 It is apparent that thematerial question in the case is whether the 
 tobacco seed was sold to Morton with or without a warranty that it 
 was true to description. Defendant knew nothing of the plaintiff in the 
 transaction. Plaintiff's rights against the defendant are no greater 
 than Morton's would be if he had been the real instead of the ostensible 
 principal. This is frankly conceded by respondent in the brief filed, 
 and advisedly so. 
 
 Leaving any question of custom out of consideration, where a cer- 
 tain variety of seed is called for, and seed is furnished in response to 
 such call, there is a warranty that it is true to description, unless the 
 seller advises the purchaser that the sale is made without warranty. 
 * * * Were the goods so. sold to Morton? He had the defendant's 
 catalogue before him when he placed the order and ordered from it. 
 He so testifies. The defendant knew that he ordered from the cata- 
 logue, because one of the two items called for was ordered by the 
 catalogue number. Between the cover and the first page of the cata- 
 logue there was a blank order sheet for customers to detach and use 
 in ordering seeds. Immediately above the blank spaces in which the 
 order was to be written was a printed statement to the effect that de- 
 fendant gave "no warranty, express or implied, as to description, qual- 
 ity, productiveness, or any other matter of any seeds * * * they 
 send out, and will not be in any way responsible for the crop." 
 
 On the first page of the catalogue proper there was printed in large 
 type the words "General Suggestions to Customers." There were a 
 dozen such suggestions made; the first word or words in each in- 
 stance, indicating the nature of the suggestion, being printed in large, 
 heavy type. One of these headings consisted of the word "Disclaim- 
 er" so printed, and immediately following it was a statement substan- 
 tially like the one quoted above. 
 
 The two packages ordered from the defendant were wrapped in one 
 bundle, and shipped by express. One side of the shipping tag con- 
 tained the name and address of the consignee. On the reverse side 
 there was printed in red ink and in conspicuous type the following 
 words, which were underscored as indicated: "Northrup, King & Co. 
 do not give, and their agents are forbidden to give, any warranty, ex- 
 press or implied, as to description, quality, productiveness, or any 
 other matter of any seeds, bulbs, or plants they send out, and will not 
 be in any way responsible for the crop. If the purchaser does not ac- 
 cept the goods on these terms, they are at once to be returned, and 
 money paid for same will be promptly refunded." * * * Morton 
 testified that he did not read or pay any attention to any of these non- 
 warranty provisions. If Morton had observed the conditions printed 
 on the invoice, it would certainly have been his duty to inform his prin- 
 cipal of them. 
 
 The defendant having the right to sell without warranty, it seems 
 clear that it did all that could in reason be required of it to advise the 
 purchaser of the condition upon which the seed was sold. Of course 
 it is easy to imagine other things which it might have done which 
 would be better calculated to give notice ; but, if those things had been 
 done, and had proved inefficacious, still other things might be sug- 
 gested which would surely acquaint Morton with the conditions of 
 sale. The business was transacted by mail. Where the book from 
 
Ch. 6) WARRANTIES 1175 
 
 which the order was given, the shipping tag, and the invoice, all stated 
 these conditions, it would seem to be unreasonable to hold that any 
 blame attached to the defendant, if Morton failed to observe all of 
 these things. The evidence is quite convincing to show that there 
 was a disclaimer of warranty printed on the bag containing the tobacco 
 seed also ; but there was a sufficient conflict in the evidence on this 
 point to make the question one for the jury, and it found that there 
 was none. 
 
 Mr. Morton could not close his eyes to the information that was lit- 
 erally staring him in the face, and then hold the defendant liable be- 
 cause he did so. In matters of contract one must observe what he has 
 reasonable means of knowing. The law for the protection of persons 
 even against fraud will not be extended to those who, "having the 
 means in their own hands, neglect to protect themselves. * * * 
 The law requires men, in their dealings with each other, to exercise 
 proper vigilance, and apply their attention to those particulars which 
 may be supposed to be within reach of their observation and judg- 
 ment, and not close their eyes to the means of information which are 
 accessible to them." * * * 
 
 In the absence of fraud, "a man cannot relieve himself from the obli- 
 gation of a written agreement by saying he did not read it when he 
 signed it, or did not know what it contained." Deering v. Hoeft, 111 
 Wis. 339, 87 N. W. 298. * * * 
 
 The presumption arises from the delivery and acceptance 'of a bill 
 of lading that the party receiving it assented to its terms. Ignorance 
 of its contents "arising from failure to read it, or to make some reason- 
 able effort to obtain information in that regard, in the absence of any 
 evidence of fraud, * * * or of the use of any means to deter the 
 shipper from fully understanding the contract, is not sufficient to over- 
 come it. " * * * 
 
 There is still another insurmountable difficulty in the way of plain- 
 tiff's recovery. The jury found that at the time of the sale there was "a 
 general custom in the Northwest, including Wisconsin, among seeds- 
 men such as the defendants, to refuse to warrant seeds." The jury 
 also found that the plaintiff did not know of such custom. The jury 
 made no such finding in reference to Morton. There is no evidence 
 to show whether he knew of such custom or not. He did testify that he 
 had no notice from any source that the defendant would not sell its 
 seeds with a warranty. This might all be true, and still the general 
 custom such as the jury found might not only exist, but Morton 
 might have knowledge of it. It is probable that, had he been asked 
 the direct question, he would have denied all knowledge of the custom, 
 and we will assume that on the evidence referred to the court might 
 have found lack of knowledge, and that it actually did so find. 
 
 It is not the law that ignorance of a general trade custom relieves a 
 party from the effect of it. If there was a general custom among seeds- 
 men such as was found, Morton, as a retail dealer in seeds, was bound 
 to know of it. "The object of proving a general custom is not to con- 
 tradict or change a contract made between the parties, but to inter- 
 pret it to the court and jury as it was understood by the parties at the 
 time it was made ; and this evidence of a general custom, when it does 
 not contradict or change the express terms of the written contract, is 
 admitted for the purpose of showing what the real contract between 
 the parties was. * * * And, when it is clearly proven, the parties 
 
1176 SALES (Part 4 
 
 are supposed to have contracted with reference to such custom, unless 
 such custom changes the express terms of the written contract." 
 * * * "A uniform trade custom is readily accepted by courts to 
 define what is ambiguous or is left indeterminate in a contract, where 
 both parties have knowledge of the custom, or are so situated that such 
 knowledge may be presumed, for the reason that the majority of such 
 transactions are had in view of the custom, and the agreement on which 
 the minds of the parties actually met will thereby be carried into effect. 
 -> * * Where the custom is proved to be known to both, it may 
 even add terms to the contract. * * * Where the custom is gen- 
 eral, it will be presumed to have entered into the contract, and one may 
 be bound thereby, although ignorant, unless the other party be shown 
 to have knowledge of his ignorance." * * * 
 
 Replying to the argument of counsel in another case, that a cus- 
 tom in order to be binding must be known to both parties to the con- 
 tract, or it must have existed a sufficient length of time to raise a pre- 
 sumption of knowledge, the court said: "That rule, of course, pre- 
 vails in case of an attempt to annex to a contract some incident not 
 expressed therein, as in the case of Hewitt v. John Week Lumber Co., 
 17 Wis. 548 [46 N. W. 822] , where the question was whether the owner 
 of a sawmill, under his contract to^ saw logs by the thousand, was en- 
 titled to the slabs. There is a difference between evidence of usage to 
 establish a custom for the purpose of annexing that as an incident to 
 a contrafct and the same kind of proof to show the meaning of some 
 word or term used in a contract. In the latter situation the meaning 
 of the term as understood at the time and place of the contract gov- 
 erns, whether both of the parties knew of such meaning or not. They 
 are presumed to contract with reference to the meaning of words and 
 terms used by them, as such words and terms are understood at the 
 place of their contract." Shores Lumber Co. v. Stitt et al., 102 Wis. 
 450, 455, 78 N. W. 562, 564. 
 
 The case at bar is in its facts very much like one recently decided by 
 the Supreme Court of Iowa, from which we quote the following : "The 
 alleged liability of the Younkerman Seed Company may be considered 
 first. The evidence that a general custom, such as pleaded, prevails 
 in the seed trade was conclusive. The particular package had the 
 printed matter thereon, and, though this may not have been noticed, 
 the sale is presumed to have been negotiated with reference to the 
 general custom of the trade. * * * This being so, a warranty that 
 the seed was true to name could not be inferred, and the court rightly 
 found in favor of the Younkerman Seed Company." Blizzard Broth- 
 ers V. Growers' Canning Co., 152 Iowa, 257, 259, 132 N. W. 66, 
 g7_ * * * 
 
 Speaking of a general custom pertaining to the manner in which 
 mines were operated, the Iowa court in another case said : "Again, it 
 is said there is no showing that defendant had notice or knowledge 
 of the custom. This is not necessary. The custom or usage being 
 shown by competent evidence, the defendant is presumed to have had 
 knowledge thereof. This is fundamental." Thayer v. Smoky Hol- 
 low Coal Co., 121 Iowa, 121, 127, 96 N. W. 718, 719. 
 
 The rules of law applicable to a general custom should not be con- 
 founded with those appHcable to a local custom. * * * It is ar- 
 gued that the evidence was not sufficient to warrant the finding of a 
 general custom. We think it was. 
 
Ch. 6) WARRANTIES 1177 
 
 The conclusions which follow from the foregoing discussion may be 
 summarized as follows : (1) The defendant offered the tobacco seed 
 in question for sale without a warranty, as it had the right to do, and 
 adopted reasonable and adequate means of advising the purchaser 
 Morton that the seed was so ofifered, and in so doing performed its full 
 duty to the purchaser, there being no evidence of fraud or bad faith ; 
 (2) Morton was chargeable with knowledge of the condition upon 
 which the sale was made ; and (3) Morton was chargeable with knowl- 
 edge of the general custom which the jury found to exist. Under these 
 conditions Morton would have no right of action against the defend- 
 ant, and therefore his undisclosed principal would have no such right. 
 These conclusions would, we think, follow if Morton acted as the 
 agent of both parties, because it would be his duty as agent of the 
 plaintiff to communicate to him the knowledge with which he was 
 chargeable. * * * 
 
 In the present case the pound of tobacco seed was sold to Morton 
 for $2.25. The damages recovered were $1,015. It may seem unjust 
 that the purchaser should suffer this loss. But it is apparent that, if 
 seedhouses warranted their seeds, they would have to sell at a very 
 much higher price than if no warranty were given. If the defendant 
 had sold 100 pounds of this seed instead of one pound, it would re- 
 ceive therefor $225, and on the basis of plaintiff's recovery would be 
 liable for over $100,000 damages. It purchased the seed in Virginia, 
 and admittedly ordered the variety which the plaintiff desired. The 
 evidence shows that there was no way in which the substitution could 
 be discovered until the tobacco plants were pretty well grown. Large 
 seedhouses who draw their supply of seeds from different parts of this 
 and perhaps other countries cannot well grow all the seeds which they 
 handle. They are liable to be imposed on, and must either adopt the 
 practice of selling without warranty or of selling with one, and im- 
 posing on the consumer an added price sufficient to make good the 
 losses sustained by reason of the failure of the seed sold to comply with 
 the warranty. * * * 
 
 Judgment reversed, and cause remanded, with directions to dismiss 
 the complaint. 
 
 Sales Act, Section IS. (6) An express warranty or condition 
 does not negative a warranty or condition implied under this act 
 unless inconsistent therewith. 
 
 SECTION 11.— RIGHTS OF SUB-VENDEES AGAINST 
 FORMER WARRANTORS 
 
 WEI/SHAXJSEN v. CHARLES PARKER OO. 
 (Supreme Court of Errors of Connecticut, 1910. 83 Conn. 231, 76 Atl. 271.) 
 
 Action by William Welshausen against the Charles Parker Com- 
 pany. From a judgment refusing to vacate a judgmetit of nonsuit, 
 plaintiff appeals. 
 
 Thaybr, J. The complaint alleges that the plaintiff purchased of 
 the defendants a gun of their own manufacture with an express war- 
 
1178 SALES (Part 4 
 
 ranty by their agent that the same was sound, of best quality, and fit 
 to stand the strain of proper and ordinary use, and that the barrels 
 thereof were of the best Damascus steel. It also alleges negligence 
 on the part of the defendants in manufacturing the gun and putting 
 it on the market and allowing it to go into the hands of customers 
 without proper supervision and inspection in the manufacture of the 
 same and during and after its manufacture before it was sold, and 
 that the gun was weak, insufficient, badly constructed, and of poor 
 quality of steel, and that because of such defect the left barrel burst 
 when the plaintiff was using it in the ordinary manner and with due 
 care, and injured him. In compliance with an order of the court, the 
 complaint was so amended as to show wherein the gun was defective,, 
 weak, and badly constructed. There is no allegation expressly stat- 
 ing a breach of the warranty. Upon the motion to set aside the non- 
 suit the plaintiff claimed that there was evidence from which the jury 
 could find the express warranty or an implied warranty that the gun 
 was fit for the purposes for which it was sold, and the breach of such 
 warranty, also, that there was sufficient evidence that the gun was de- 
 fective in the respects alleged, and the defendants' negligence in put- 
 ting it upon the market in that condition to warrant a verdict upon 
 that ground. 
 
 To sustain a finding that there was a breach of warranty express 
 or implied, there must have been evidence of a contract between the 
 parties, for without a contract theie could be no warranty. There 
 was no evidence which would justify the jury in finding any contract 
 between the parties. The evidence did not show that the plaintiff pur- 
 chased the gun from the defendants. On the contrary, it showed 
 that they sold the gun to the Simmons Hardware Company, by whom 
 it was sold to one Koenig, who sold it to the plaintiff. The evidence 
 of this was so clear that, had the jury found that the sale was made 
 by the defendants to the plaintiff, the finding must have been set 
 aside. The warranty, if one was given, was to the hardware com- 
 pany, and not to the plaintiff. And he, as subvendee, has no cause of 
 action upon the warranty. 
 
 Upon the other branch of the case, there was no evidence to justi- 
 fy the jury in finding that the gun was defective in the respects set 
 forth in the amended complaint. The gun was in evidence, and there 
 was some evidence that the cartridges fitted the left barrel somewhat 
 loosely. But the jury would not be permitted from these facts alone, 
 to conjecture that the gun was defective or unsafe. Those facts laid 
 the foundation for the introduction of further evidence by experts 
 to show that the thickness of .the barrels as shown by the exhibit was 
 insufficient for safety, or that the quality of the steel was poor, or 
 that the barrels were improperly and irregularly bored, and that the 
 looseness of the fit of the cartridge was liable to cause a dismptive 
 explosion. If such were the fact, it was easy to produce witnesses 
 having knowledge derived from experience and study to testify to it. 
 The jury could not properly be allowed to guess or surmise that it 
 was so. * * * There was an entire failure of evidence to prove 
 that the defendants broke any warranty or negligently placed the gun 
 uppn the market, and the motion to open the nonsuit was properly re- 
 fused. 
 
 There is no error. * * * 
 
Ch. 6) WARRANTIES 1179 
 
 ROBERTS V. ANHETTSEK^BUSCH BREWING ASS'N. 
 {Supreme Judicial Court of Massachusetts, 1912. 211 Mass. 449, 98 N. E. 95.) 
 
 Action by Joseph E. Roberts against Anheuser-Busch Brewing As- 
 sociation. A verdict was directed for defendant, and the case re- 
 ported to the Supreme Judicial Court. 
 
 The action was for ptomaine poisoning from a bottle of Malt Nu- 
 trine, whereby plaintiff's wife was made very ill and his young son 
 died. The druggist from whom plaintiff bought the bottle testified 
 that it had not been in his place more than eight months. 
 
 Sheldon, J. While there may be no inherent difficulty in main- 
 taining an action of tort upon a false warranty, * * * j^ y^t re- 
 mains true that, there cannot be a warranty where there is no privity 
 of contract. It cannot be found that there was a particular contract 
 where there was no contract whatever. As there was here no con- 
 tractual relation between the plaintiff and the defendant, the action 
 cannot be maintained upon the ground that there was any warranty 
 by the defendant of the good qualities of its mixture. * * * Nor 
 did the plaintiff state such a cause of action. His declaration is in tort. 
 
 There was evidence that the defendant had by advertisements rep- 
 resented that its mixture was healthful, free from all injurious sub- 
 stances, beneficial to women and children and to those needing strength 
 and nourishment, and that it was compounded with great care. These 
 representations could be found to have been made as of the defend- 
 ant's own knowledge. It could be found that the plaintiff had seen 
 some of these advertisements, and we cannot say that the jury might 
 not have found that his purchase of a bottle of the mixture was upon 
 the faith of and in reliance upon these representations. There was 
 , also evidence, although meager, tending to show that this bottle had 
 Ijeen put upon the market by the defendant and had come from it 
 through a wholesale dealer to the druggist who sold it to the plaintiff. 
 It also could be found that the sickness of the plaintiff's wife and 
 child was due to ptomaine poisoning, caused by the contents of this 
 bottle, though as to the last point it is true that the evidence was but 
 meager. Still it was for the jury to pass upon. If this sickness was 
 due to ptomaine poisons contained in a bottle which had come from 
 the defendant, there was evidence of the falsity of its representations. 
 
 If these facts were found in accordance with the plaintiff's conten- 
 tion, there might have been a verdict in his favor. If the defendant 
 made such representations as of its own knowledge, and put its mix- 
 ture upon the market to come through wholesale and retail dealers 
 to the ultimate consumers, who in reliance upon such representations 
 "bought and drank the mixture in the manner intended by the defend- 
 ant, these representations must be regarded as continuous, intended to 
 be accepted and relied on by all who finally should purchase the arti- 
 cle for their own consumption. This rule often has been declared. 
 * * * 
 
 But it is claimed that these representations should not be given an 
 indefinite continuance, and that this bottle either was or might have 
 been so long out of the possession of the defendant that its represen- 
 tations ought to have been regarded as no longer in force when the 
 plaintiff made his purchase. There may be a lapse of time after which 
 this fairly could be maintained ; but it cannot be held as matter of law 
 that such was the case here. The bottle was corked with a stopple 
 
1180 SALES (Part 4 
 
 which had to be pulled out by the plaintiff after the seal over it had 
 been removed by his wife. This would indicate that any outside 
 contamination had been guarded against, and might tend to relieve a 
 purchaser from any fear of such contamination. This contention pre- 
 sents only a question of fact. 
 
 In our opinion the case should have been submitted to the jury. 
 * * * As the case stands, we are of opinion that there should be 
 a new trial, * * * 
 
 DAVIS V. VAN CAMP PACKING CO. 
 (Supreme Court of Iowa, 1920. 176 N. W. 382.) 
 
 PrEJSTOn, J. The original petition alleges substantially that on July 
 24, 1916, a can of Van Camp's pork and beans was eaten by certain 
 members of the Davis family, of whom Alfred Davis, plaintiff, was a 
 member; that as a result of eating said beans, plaintiff sustained dam- 
 age by reason of ptomaine poisoning; "that the said defendant was 
 guilty of negligence, false representations, and breach of implied and 
 expressed warranty, in placing in the said can and container said pork 
 and beans, containing poisonous, deleterious, noxious, and unwholesome 
 substances which rendered the contents of said can unwholesome and 
 dangerous to human life and health." * * * 
 
 At the close of plaintiff's evidence, defendant moved that plaintiff 
 be required to elect whether he would proceed upon the theory of 
 breach of warranty, express or implied, or upon the grounds of negli- 
 gence in tort. Plaintiff was required to elect, and at first elected upon 
 breach of implied warranty and tort, but was further required by 
 the court to elect, and he then elected to stand on a tort action. * * * 
 
 Appellee contends that the evidence is not sufficient to show that 
 the eating of the pork and beans caused, or was the proximate cause 
 of, plaintiff's sickness; that under the law there is no warranty, and 
 that the evidence shows that there was no negligence. 
 
 There is but little dispute in the evidence. Defendant is engaged in 
 the manufacture of pork and beans. * * * Defendant, in July, 
 1916, was jobbing canned pork and beans to the Ft. Dodge Grocery 
 Company, for distribution to retailers and consumers. This was 
 known to defendant company. On July 4, 1916, the can of beans in 
 question was received by said grocery company in a consignment 
 from the defendant company. July 12th, the grocery company sold 
 to Munn, a retail grocer at Gypsum, five miles east of Ft. Dodge, the 
 can of beans in question, with others. July 24, 1916, this can of beans 
 was sold by Munn to the mother of plaintiff. This was Monday. The 
 can. appeared to be all right. The beans were eaten for the evening 
 meal, within an hour after they were brought by Mrs. Davis to the 
 home. When the beans were opened they were emptied into a bowl. 
 They were not left standing in the can. This evening meal consisted 
 of crackers, bread and butter, potatoes which had been dug that morn- 
 ing from the garden, boiled for dinner, and fried for supper, also the 
 can of beans in question, and nothing else. * * * f he family con- 
 sisted of the father and mother, and seven children. Three of the 
 children were not at home for the meal at which the beans were eaten, 
 and did not partake of any of the beans, nor did the father and mother. 
 One of the younger children ate nothing but beans for that meal. 
 
Ch. 6) WAERANTIES 1181 
 
 This one subsequently died from ptomaine poisoning, and the other 
 three children who ate of the beans were taken sick soon after. Some 
 of them were seriously ill for several weeks. All who ate of the beans 
 were sick after eating. The father and mother and the three other 
 children who did not eat of the beans were not sick. * * * 
 
 Without restating the evidence, we are of the opinion that the jury 
 could have properly found therefrom that the eating of the beans by- 
 plaintiff was the proximate cause of his illness. As before stated, 
 the medical testimony is to that effect. * * * 
 
 Counsel for appellee argues at considerable length that there was 
 no express warranty. They argue, that there can be no warranty, ex- 
 press or implied, becausp there is no privity of contract between the 
 defendant and plaintiff. They cite authorities, some of which are by 
 this court, to the further point, holding, as appellee claims, that there 
 cannot be both an express and implied warranty involving the same 
 subject-matter, to wit, quality or character of goods sold; that when 
 the express warranty does not provide as to the same obligation it ex- 
 cludes the implied. The Iowa cases cited on this point were not cases 
 involving food products. One was the sale of a threshing machine, 
 another, piling, and the other, the sale of sheep, and the warranty had 
 to do with the breeding, health of the sheep, etc. For reasons, ap- 
 pearing later we do not determine this point. The cases cited by ap- 
 pellee, for the most part at least, hold that the action sounds in tort. 
 We understand their argument to be that it is a tort action, but they 
 contend that under the record, there was no negligence shown, and that 
 their evidence shows there was no negligence. Without citing the cases 
 on the question as to express warranty, it seems to us that the language 
 on the label does not constitute an express warranty that the food 
 is wholesome and fit for use. The substance of it is, that the can con- 
 tains Van Camp's Pork and Beans,, prepared with tomato sauce ; that 
 the meat has been inspected and passed at an establishment where 
 federal inspection is maintained ; the contents are ready for the table ; 
 directions are given how to serve hot ; the quantit}' ; and where it is 
 prepared. From appellant's argument, we think they do not seriously 
 contend that there is an express warranty. ' The part of the printing 
 on the label relied upon as an express warranty is, "The contents of 
 this can are ready for the table, and can be served hot or cold." This, 
 we think, means no more than that the beans may be used without 
 cooking. Doubtless it should be construed to mean that it is for 
 human consumption. But it is shown in other ways that it was so 
 prepared, and that defendant knew it was to be sold for that purpose. 
 We think we should spend no more time on this phase of the case. 
 
 It must be admitted that there is much confusion in the authorities 
 as to the theory of the liability of defendant, if any, in this class of 
 cases. Some of the cases hold that the action is bottomed upon negli- 
 gence alone ; others that there is an implied warranty ; and still others 
 that there is an implied warranty, and that, if in addition it is found 
 that the seller was negligent in selling food products that were danger- 
 ous to those who ate them, he would be liable for the consequences if, 
 by proper care, he could have known of the condition. There is a con- 
 flict in the decisions. * * * 
 
 From the decisions, and particularly the later decisions, we think 
 there is an implied warranty as contended by plaintiff, and that the 
 question as to privity is not controlling. The case should have gone to 
 
1182 SALES (Part 4 
 
 the jury on that question. We are of opinion, too, that on the whole 
 case there was sufficient evidence to take the case to the jury on the 
 question of neghgence, and that it was for the jury to say whether 
 plaintiff's prima facie case had been negatived or overcome by the tes- 
 timony introduced on behalf of the defendant. The court erred in re- 
 quiring plaintiff to elect as between implied warranty and negligence. 
 While it is, true that no particular act of negligence is shown by plain- 
 tiff, in the very nature of the case that could not be done. It is also 
 true that, according to the defendant's evidence, its plant and method 
 of manufacture is good, probably as good as any, still, it does appear 
 that the method was not always adhered to by defendant's employes. 
 We think, from all the circumstances shown by the evidence, the jury 
 could have' properly inferred and found that the can of beans in ques- 
 tion, and perhaps a batch, as one of defendant's witnesses calls it, were 
 defective. * * * 
 
 If we call it a duty to use care in the preparation and manufacture, 
 then in that sense a breach of that duty would constitute negligence. 
 Or it may be treated as a representation or a warranty that, because 
 of the sacredness of human life, food products so put out are whole- 
 some. In either event, a failure in this respect is a breach of duty and 
 a breach of warranty, and the plaintiff, suing, may rely on either or 
 both, and when he makes a prima facie case he is entitled to go to the 
 jury on the question as to whether defendant's evidence negatives 
 plaintiff's prima facie case. * * * For an interesting discussion of 
 this subject and the citation of many cases, see Iowa L,aw Bulletin, 
 vol. 5, p. 86. * * * 
 
 The question of caveat emptor has been referred to in some of the 
 cases ; in the earlier cases, and perhaps followed by some of the later 
 ones, when a person went to market with a market basket on his arm, 
 and could examine the food, the doctrine was held to apply, in the 
 absence of a, warranty. But the business of canning food products of 
 almost every kind has increased enormously in recent years. The 
 purchaser has no opportunity of examination, until opened for use, 
 and, under the circumstances of this case, we think the doctrine does 
 not apply. It is possible that when Mrs. Davis purchased this can, 
 had it had the appearance of being old, and the label soiled, or the 
 ends swollen, or something of that kind, the doctrine might apply. 
 
 For the reasons given, the judgment is reversed and remanded for a 
 new trial. 
 
Ch. T, EIGHTS AND REMEDIES OF THE BUYEH 1183 
 
 CHAPTER VII 
 RIGHTS AND REMEDIES OF THE BUYER 
 
 Section 
 
 1. Introduction. 
 
 2. Buyer's Eight to Examine tlie Goods. 
 
 3. Nature and Consefjuences of an Acceptance of the Goods. 
 
 4. Buyer under No Duty to Return Goods Not Accepted Because of Non- 
 
 Compliance with the Contract. 
 
 5. Remedies of the Buyer for Breach of Warranty. 
 
 6. Buyer's Right to Recover Damages for Breach of the Contract to Sell. 
 
 7. Right of the Buyer to Sue the Seller for Conversion of the Goods. 
 
 8. Buyer's Eight of Specific Performance. 
 
 SECTION 1.— INTRODUCTION 
 
 In Chapter V there was discussed at some length the special 
 rights and remedies of an unpaid seller. It was there noted that, 
 in addition to the ordinary remedies for breach of contract, the 
 unpaid seller had three special rights against the goods. In one 
 special case the seller is allowed to recover the price, even though 
 title has not passed. In the present chapter we enter upon a sim- 
 ilar discussion of the special remedies of the buyer. The remedies 
 of the buyer for breach of warranty are of particular importance 
 here. Also it will be found that the buyer may, in a special case, 
 recover possession of the goods, even though title has not passed 
 to him, a remedy which is similar in nature to that special case in 
 which is accorded to the seller the right to recover the price, al- 
 though title has not passed. 
 
 SECTION 2.— BUYER'S RIGHT TO EXAMINE THE GOODS 
 
 Sales Act, Section 47. (2) Unless otherwise agreed, where the 
 seller tenders delivery of the goods to the buyer, he is bound, on 
 request, to afford the buyer a reasonable opportunity of examin- 
 ing the goods for the purpose of ascertaining whether they are in 
 conformity with the contract. 
 
 (3) Where goods are delivered to a carrier by the seller, in ac- 
 cordance with an order from or agreement with the buyer, upon 
 the terms that the goods shall not be delivered by the carrier to the 
 buyer until he has paid the price, whether such terms are indi- 
 cated by marking the goods with the words "collect on delivery" 
 or otherwise, the buyer is not entitled to examine the goods be- 
 fore payment of the price in the absence of agreement permitting 
 such examination. 
 
 Subsection 2 imposes upon the seller of goods an obligation to 
 afford the buyer a reasonable opportunity of examining the goods, 
 and gives to the buyer the correlative right to examine the goods, 
 unless the parties have, by express or implied stipulation, de- 
 
1184 SALES (Part 4 
 
 stroyed such right to examine the goods. Subsection 3 presents 
 one situation where it is presumed that the parties have waived the 
 buyer's right of examination. 
 
 Of what value is this right to the buyer? Where is the examina- 
 tion to be made? In studying the nature of the buyer's right of 
 examination, or of inspection as it is sometimes called, it is desir- 
 able to keep two different situations in mind. The general prob- 
 lem is to discover the effect upon the rights and liabilities of the 
 parties as they are affected by the right of examination. These 
 two situations are: (1) A case where the goods do in fact comply 
 with the terms of the contract ; and (2) a case where the goods in 
 fact do not comply with the contract. The buyer's rigjht of exam- 
 ination, obviously, exists in each case, for the very purpose of the 
 right is to enable the buyer to learn whether the goods do conform 
 to the contract. 
 
 Let us take as an illustration the case of a shipment of a carload 
 of goods sent under a straight bill of lading to the buyer. Let us 
 suppose, further, that these goods do in fact comply with the 
 terms of the contract. The buyer has a right of examination. 
 Waiving, for the time being, the question as to where the examina- 
 tion should take place, whether at the point of origin or of desti- 
 nation, our question is : Of what value to the buyer is his right of 
 examination? The law is that, if the buyer has not yet paid for 
 the goods, he is under no duty to pay for them until he has had a 
 reasonable opportunity of examining them ; that is, the buyer will 
 not break his contract by refusing payment until he has had this 
 opportunity. Stating it in another way, the seller cannot sue the 
 buyer for failure to pay until this opportunity has been given the 
 buyer. The act of affording a reasonable opportunity to examine 
 the goods is a condition precedent to the buyer's duty to pay. No- 
 tice that the giving of such an opportunity is not a condition pre- 
 cedent to the passing of title. From a rule already discussed we 
 know title passed on delivery to the carrier. The buyer owns the 
 goods; the risk of loss has passed to him. He simply is not re- 
 quired to pay for them until he has had an opportunity of exam- 
 ining them, assuming that he has not waived this right. 
 
 Assume, now, that an opportunity is given the buyer to examine, 
 but that he does not avail himself of it. This is a very common 
 case, not so common in carload shipments, but certainly quite com- 
 mon where the goods are packed in boxes or otherwise concealed. 
 The normal 'thing done by the buyer is to take them from the 
 freight office to his place of business and leave them there until 
 he is ready to use or display them. Having had an opportunity to 
 examine, it is evident that, just as soon as there is a failure to take 
 advantage of the opportunity, at that moment the buyer is under a 
 duty to pay for the goods. The contract, of course, may provide 
 otherwise as to time of payment. 
 
 Taking up the second situation, where we are assuming that, the 
 goods, at the time of delivery to the carrier, were not in conformity 
 
Ch. 7) RIGHTS AND REMEDIES OF THE BUYER 1185 
 
 with the contract. This is the more important case. We have al- 
 ready noted that the delivery to the carrier, or any other act of 
 unconditional appropriation of goods not in accordance with the 
 contract, does not pass title nor risk of loss to the buyer. There- 
 fore, in this case, the giving of an opportunity to examine the 
 goods is not only a condition precedent to the buyer's obligation to 
 pay the price, the contract not providing otherwise, but it is also 
 a condition precedent to the passing of title to the buyer. If he 
 examines and accepts, title passes to him, and his duty to pay 
 then arises. If he examines and rejects, that act terminates his 
 duties under the contract, and perfects his right to sue the seller 
 for his breach. The scope of the buyer's duty to care for rejected 
 goods will be noted in section 4. If the buyer does not examine, 
 having the opportunity of examining, but receives the goods, per- 
 haps taking them from the carrier and storing them in his own 
 place of business, title to the goods passes at that moment, carry- 
 ing with it the risk of loss, in spite of the fact that they are not in 
 compliance with the terms of the contract. It is only fair to the 
 seller to hold that, even if he has been guilty of a breach of con- 
 tract, and the buyer has taken the goods to his own establishment, 
 and then retained them for a time without examination, the title 
 and risk of loss is in the buyer. But the buyer will, upon opening 
 up the boxes, discover that the goods are not what he ordered. 
 What are his rights? Has he lost everything by failing to examine 
 when he first had the opportunity? No; because he has not yet 
 accepted the goods. The buyer may then reject them. The act of 
 rejection has the effect of casting back title and risk of loss to 
 the seller. The buyer's right to so reject is founded on a condi- 
 tion subsequent, very similar to the case where the buyer holds 
 goods under a contract "on sale or return." 
 
 The above comment explains in general the nature of the right 
 of examination; but this right does not always exist, because the 
 parties have contracted it away. This may be done in various 
 ways, but the situation presented, described in subsection 3, is of 
 outstanding importance here. It is illustrated in the next case. 
 The dissenting opinion in this case was inserted because it con- 
 tained a more complete explanation of the facts and of the general 
 principle of law involved. The majority and dissenting opinions 
 do not differ in their explanation of the rule. It will be noticed 
 that they differed only as to whether the contract called for ship- 
 ment in the manner adopted; i. e., the majority affirming that 
 "there was no agreement that the shipment should be made 'col- 
 lect on delivery,' " while the dissenting opinion states that "it was 
 the agreement of the parties, as evidenced by the written contract, 
 that the delivery should be by carrier," etc., and that "the agree- 
 ment was a cash sale." 
 B.& B.BUS.LAW— 75 
 
1186 SALES (Part 4 
 
 IMPERIAIi PRODUCTS 00., Inc., v. OAPITOIi CHEMICAL CO. 
 
 (Supreme Court of OSfew York, Appellate Division, 1919. 187 App. Div. 599, 
 
 176 N. T. Supp. 49.) 
 
 Action by the Imperial Products Company, Incorporated, against 
 the Capitol Chemical Company. From a determination of the Appel- 
 late Term, reversing a judgment of the City Court, plaintiff appeals. 
 
 PaGB, J. Four conditions must exist to bring a case within sub- 
 division 3 of section 47 of the Sales Act : (1) Goods must be delivered 
 to a carrier, (2) with instructions that the carrier is not to deliver 
 the goods to. the buyer until paid for ; (3) this must have been done 
 pursuant to an agreement between the buyer and seller; (4) such an 
 arrangement may be indicated by the marking of the goods "collect on 
 delivery" or otherwise. In my opinion, this subdivision does not ap- 
 ply to every shipment by a carrier, but only to such shipments when 
 the terms of the contract of sale provide that the carrier shall collect 
 on delivery. The controlling element is the agreement of the parties, 
 and not the, method of shipment by the seller. 
 
 In this case there was no agreement that the shipment should be 
 made "collect on delivery," nor was there any agreement that the buyer 
 would pay the purchase price by sight draft to be attached to the 
 bill of lading. No terms of payment were specified in the agreement 
 between the parties. Under such a contract, delivery and payment are 
 concurrent obligations. * * * This is very different from payment 
 of the purchase price by sight draft with bill of lading attached. In 
 the first, the buyer has the right of inspection to ascertain whether the 
 goods are in conformity with the contract, when the seller tenders de- 
 livery, before he is required to accept and pay for the goods. In the 
 latter, payment is a condition precedent to delivery, and hence incon- ■ 
 sistent with the right of inspection. * * * Inasmuch as there was 
 no provision in the agreement between the parties inconsistent with the 
 right of inspection before acceptance and payment, the seller could 
 not deprive the buyer of that right by adopting a method of collection 
 not provided in the agreement. * * * 
 
 In my opinion the judgment of the Citv Court was right, and the 
 determination of the Appellate Term should be reversed. * * * 
 
 DowLiNG, J. (dissenting). This action was brought to recover dam- 
 ages for the breach of a contract whereby plaintiff agreed to purchase 
 and accept from the defendant one car, standard quality, white naptha- 
 lene flakes, in barrels or in paper-lined boxes, at 8 cents per pound, f. 
 o. b. West Elizabeth, N. J., prompt shipments from defendant's plant 
 at Birmingham, Ala. The contract is in writing and is not disputed. 
 The question involved in this appeal is whether the purchaser, the 
 plaintiff, had the right to inspect the goods shipped it by the defendant 
 pursuant to this agreement of sale. 
 
 The bill of lading issued by the Pennsylvania Railroad Company for 
 the goods in question, covering the car Rutland filled with napthalene 
 and routed to the plaintiff at West Elizabeth, N. J., the invoice for 
 said goods covering said carload, aggregating 33,127 pounds, at 8 
 cents a pound, $2,650.16, and the sight draft on plaintiff for such sum 
 of $2,650.16, were all sent to the Chase National Bank for presenta- 
 tion and collection, and were regularly presented and demand for the 
 payment of the draft made on plaintiff by the bank. There is no dis- 
 pute as to these facts, and upon the trial plaintiff's counsel admitted 
 
Ch. 7) RIGHTS AND REMEDIES OF THE BUYER 1187 
 
 that a tender of the goods had been made. Plaintiff, however, refused 
 to take up the draft unless an opportunity was given it to inspect the 
 goods. The plaintiff's counsel asked the court to charge the jury that, 
 as a matter of law, the plaintiff had a right to inspect the merchan- 
 dise before delivery. The court charged that plaintiff had the right 
 to ask for a certificate for the inspection of the merchandise before 
 delivery, to which exception was duly taken. The sole question for 
 determination is whether, under the contract between the parties for 
 the purchase and sale of these goods, the purchaser had a right of 
 inspection before paying therefor. 
 
 No terms of payment were specified in the agreement between the 
 parties; therefore the sale was a cash sale, where payment for goods 
 must be made upon delivery. The shipment was by carrier, as the 
 agreement contemplated, and the payment was to be of a sight draft 
 against the bill of lading and invoice, which was the equivalent of 
 cash on delivery. This case comes within subdivision 3, section 47, of 
 the Sales Act. * * * 
 
 It was the agreement of the parties, as evidenced by the written 
 contract, that the delivery should be by carrier. The law treats this 
 sale under the agreement in question as one for cash, where the goods 
 are not to be delivered by the carrier to the buyer until he has paid the 
 drafts, and these terms were indicated by the fact that the buyer was 
 to meet the sight draft before it became entitled to the invoice and bill 
 of lading, which were its sole authority to take possession of the goods. 
 There was no special agreement peiTnitting an examination before ac- 
 ceptance. Under these conditions the provisions of the subdivision re- 
 ferred to are literally and completely applicable to this case, and the 
 plaintiff had no right to an inspection of the goods and the tender 
 therefore was good. In Williston on Sales, p. 840, the rule is recog- 
 nized that sending goods forward with a draft attached to a bill of lad- 
 ing is the equivalent of sending them forward C. O. D., and both in- 
 volve the loss of the buyer's right of inspection. No great hardship is 
 worked by the rule laid down by the statute in question, as it is always 
 competent for the parties to provide for an inspection by special agree- 
 ment. 
 
 It follows, therefore, that the charge of the learned trial court was 
 incorrect, and that, plaintiff not having the right of inspection which 
 it claimed, the tender made by defendant was effective, and the deter- 
 mination of the Appellate Term, reversing the judgment in favor of 
 the plaintiff, was correct. * * * 
 
 Clarke, P. J., concurs. 
 
 At what point is the buyer entitled to examine the goods? Sub- 
 section 2 states that the buyer is to afford the seller a reasonable 
 opportunity of examining the goods "when the seller tenders de- 
 livery of the goods to the buyer." But when does the seller "ten- 
 der delivery"? In the case of shipment by carrier, section 46 of 
 the Sales Act provides that "delivery of the goods to a carrier 
 
 * * * is deemed to be a delivery of the goods to the buyer 
 
 * * * unless a contrary intent appears." The duty to examine 
 the goods at the seller's place of business, or at the office of the 
 carrier located there, would be a right of little value to the buyer. 
 
1188 SALES (Part 4 
 
 Therefore, in the very circumstances of the case, delivery to a 
 carrier, for purposes of affording an opportunity to the buyer to 
 examine the goods, is not a delivery to the buyer, as the word 
 "delivery" is used in section 47. The general presumption stated 
 in section 46 does not govern here, because a contrary intent dops 
 appear. The next case discusses this rule, and also points out that 
 the parties may expressly or impliedly designate any place as the 
 place for making an examination. 
 
 EATON V. BLACKBURN et al. 
 
 (Supreme Court of Oregon, 1908. 52 Or. 300, 96 Pac. 870, 20 L. R. A. [N. S.] 
 53, 132 Am. St. Eep. 705, 16 Ann. Cas. 1198.) 
 
 Action by A. E. Eaton against Edward Blackburn and another, part- 
 ners as Blackburn & Breck. From a judgment for defendants, plain- 
 tiff appeals. 
 
 This is an action to recover the purchase price of two car loads of 
 hay. The defense is that the hay, which plaintiff agreed to sell and 
 deliver to defendants, was to be "good, number one, merchantable hay," 
 and that furnished was not of this quality, for which reason it was 
 rejected. The defendants are commission merchants, residing and 
 doing business in Baker City. Plaintiff resides in Union county, some 
 miles distant from Baker. In March, 1906, he contracted and agreed 
 to sell to defendants five car loads of hay, for use in their business, 
 at $11.50 per ton, f. o. b. cars, Nodine Spur, Union county. The con- 
 tract was made at Baker City, and defendants were to pay the freight 
 from place of shipment to that point, but nothing was said about the 
 time or place of payment, or the inspection or acceptance of the hay. 
 Shortly after making the contract, plaintiff loaded two cars with hay 
 at Nodine Spur, and the same were carried by the railroad company 
 to Baker, reaching there Sunday morning, March 25th. On the morning 
 of the 27th, in company with Abercrombie — a prospective purchaser — 
 Mr. Breck, one of defendants, opened the cars, in which the hay had 
 been shipped, and examined it, but Abercrombie was unwilling to pur- 
 chase. In the afternoon of the same day they made a further and 
 more careful examination, and Breck, claiming that the hay was not 
 of the kind and quality contracted for, refused to accept it, and so noti- 
 fied plaintiff and the railroad company on the following morning. 
 
 At the time of the trial it was contended by plaintiff that, under the 
 contract between him and defendants, it was the duty of defendants to 
 inspect and accept or reject the hay at Nodine Spur, where it was to 
 be loaded on the cars ; and, if they neglected to do so, they were bound 
 to receive such hay as was actually shipped, and rely upon a claim 
 of damages for breach of contract, if it was of inferior kind and qual- 
 ity, but, if this was not so, defendants' conduct, after the hay reached 
 Baker City, was such as to amount, in law, to an acceptance thereof. 
 The court instructed the jury that if the hay, delivered on the cars 
 by plaintiff at Nodine Spur, was substantially the kind and quality 
 called for by the contract, it would amount to a full and complete per- 
 formance, and enable him to recover the contract price, whether the 
 hay was subsequently accepted by defendants or not; and, if the hay 
 was different or inferior to that which plaintiff agreed to sell, not- 
 
Ch. 7) RIGHTS AND REMEDIES OF THE BUYER 1189 
 
 withstanding which the defendants accepted it, or did something 
 amounting to an acceptance, they could not thereafter repudiate their 
 liabiHty by returning or tendering a return of the hay, but that defend- 
 ants had a reasonable time in which to inspect the hay after it reached 
 Baker City, and if it was, in fact, of an inferior quality, and not ac- 
 cording to the contract, they could reject it, and refuse to accept or pay 
 for it, and if they did so, plaintiff could not recover in this action. 
 
 Bean, C. J. The principal point relied upon by plaintiff for a re- 
 versal of the judgment is the ruling of the court that, under the con- 
 tract for the sale of hay in question, defendants had a right to inspect 
 it after it reached Baker City, and, if it did not conform to the con- 
 tract, to refuse to accept or pay for it. The argument is that the 
 place of inspection and acceptance or rejection was at Nodine Spur, 
 where the hay was to be delivered by the plaintiff, f . o. b. cars ; and, 
 if defendants neglected to exercise the right of inspection at that 
 time and place, they were liable for the value of the hay so delivered. 
 But we do not so find the law. No place or time of payment or of 
 inspection or acceptance was stipulated in the contract. All parties 
 concur in this point, The contract was made between plaintiff and de- 
 fendant Breck. These gentlemen both say that Breck met plaintiff at 
 the depot at Baker City, and inquired of him if he had any hay for 
 sale, and that he (plaintiff) said he had; that the price was $11.50 
 per ton, f. o. b. cars at Nodine Spur, and that Breck said he would take 
 five car loads at that price, and under the conditions named. * * * 
 
 The payment, therefore, became due and payable on a complete 
 delivery, and there could be no such delivery without an opportunity 
 for inspection. Under an executory contract for the future sale 
 and delivery of goods of a specified quality, the quality is a part of 
 the description, and the seller is bound to furnish goods actually com- 
 plying with such description. If he tenders articles of inferior qual- 
 ity, the vendee is not bound to accept them; and, unless he does so, 
 he is not liable therefor. This necessarily gives to the vendee the 
 right, and imposes upon him the duty, of inspection, and he must 
 therefore be given an opportunity to make such inspection before be- 
 coming liable for the purchase price, unless the contract otherwise pro- 
 vides ; and where articles are to be delivered to a common carrier 
 by the vendor, to be forwarded to the vendee at a distant point, and 
 no provision is made for inspection and acceptance before or at the 
 time of shipment, the vendee is entitled, under the law, to a reasonable 
 time, after the goods arrive at their destination, in which to exercise 
 the right of inspection, and to accept or reject them, if they do not 
 comply with the contract. * * * 
 
 In Pierson v. Crooks, 115 N. Y. 539, 22 N. E. 349, 12 Am. St. Rep. 
 831, the court said: "The ordering of goods of a specific quality by 
 a distant purchaser of a manufacturer or dealer, with directions to 
 ship them by a carrier, is one of the most frequent commercial trans- 
 actions. It would be a most embarrassing and inconvenient rule — 
 more injurious even to the dealer or manufacturer than to the pur- 
 chasers — if delivery to the carrier was held to conclude the party giv- 
 ing the order from rejecting the goods on arrival, if found not to be of 
 the quality ordered." * * * 
 
 We are of the opinion, therefore, that no error was committed by 
 the court below in its ruling on this phase of the case. In Samuel 
 M. Lawder & Sons Co. v. Albert Mackie Grocery Co., 97 Md. 1, 54 
 
1190 SALES (Part 4 
 
 Atl. 634, 62 L. R. A. 795, cited by plaintiff, the contract required pay- 
 ment to be made for the goods at the place of shipment, which the 
 court held was necessarily inconsistent with a right of inspection at 
 another place. But here, as we have seen, no time or place of pay- 
 ment was specified, and therefore it did not become due until the 
 goods were delivered. * * * 
 
 It is also insisted that defendants waived the fight to reject the 
 hay for defective quality, by their action and conduct in relation 
 thereto after it reached Baker City. But this question was for the 
 jury, and, we think, was fairly submitted to them. The defendants 
 were not precluded from rejecting the hay by merely receiving it. 
 They still had a reasonable time in which to inspect and reject it, if 
 not according to the contract. Nor did their offer to sell and dispose 
 of the hay, before they, had examined it, amount to an acceptance. 
 This was before they ascertained that it was of an inferior quality, 
 and was on the assumption that plaintiff had complied with his con- 
 tract, and shipped hay of the kind and quality agreed upon. It was 
 therefore not conclusive in law of an intent to accept the hay, in 
 performance of the contract. * * * ^ 
 
 Finding no error in the record, the judgment is affirmed. 
 
 SECTION 3.— NATURE AND CONSEQUENCES OF AN 
 ACCEPTANCE OF THE GOODS 
 
 There are two principal questions here raised: (1) What con- 
 stitutes an acceptance? (2) What is the legal effect, especially 
 upon the rights and obligations of the buyer, of an acceptance? 
 
 In answer to the first question. What constitutes an acceptance? 
 the Sales Act makes two provisions. Section 47, subsection 1, 
 provides : 
 
 Where goods are delivered to the buyer, which he has not pre- 
 viously examined, he is not deemed to have accepted them unless 
 and until he has had a reasonable opportunity of examining them 
 for the purpose of ascertaining whether they are in conformity 
 with the contract. 
 
 The effect of this section is that an act which under some cir- 
 cumstances might be deemed an acceptance under the definition 
 prescribed in Section 48, next to be noticed, will not be construed 
 as an acceptance unless the buyer has had a reasonable opportu- 
 nity of examining the goods. This subsection in a sense, therefore, 
 recognizes an exception to Section 48. It is to be noticed that 
 it is the reasonable opportunity of examining the goods, not an 
 actual examination which section declares must occur before the 
 buyer may be deemed to have accepted. Our discussion, in the pre- 
 ceding section, of the nature and legal effect of the buyer's exam- 
 ination and of his failure to examine, makes it unnecessary to dis- 
 cuss this subsection further, though its importance should not be 
 overlooked. 
 
 In direct answer to the first question, what constitutes an ac- 
 ceptance, the Sales Act, Section 48, provides : 
 
Ch. 7) EIGHTS AND REMEDIES OP THE BUYER 1191 
 
 The buyer is deemed to have accepted the goods when he inti- 
 mates to the seller that he has accepted them, or when the goods 
 have been delivered to him, and he does any act in relation to them 
 which is inconsistent with the ownership of the seller, or when, 
 after the lapse of reasonable time, he retains the goods without in- 
 timating to the seller that he has rejected them. 
 
 The question raised is essentially one of fact. It is to be no- 
 ticed that two very different types of conduct may be deemed an 
 acceptance: (1) An affirmative act, done intentionally or unin- 
 tentionally, which is substantial evidence of an assertion of owner- 
 ship in the goods, is an acceptance. This is well illustrated in the 
 next case. (2) A negative act — i. e., a failure to reject when con- 
 tinued an unreasonable time — is construed as an acceptance. This 
 rule is another manifestation of a very broad doctrine of the law, 
 that a person who fails to exercise a legal right promptly will, in 
 one way or another, be penalized by his failure to act. Generally 
 the right is taken from him. Statutes of limitation furnish an 
 important and very common illustration of this broad doctrine. 
 
 WHITE V. SCHWEITZER et al. 
 (Court of Appeals of New York, 1917. 221 N. Y. 461, 117 N. E. 941.) 
 
 Action by William E. White against Nathan Schweitzer and oth- 
 ers. From a judgment for defendants, plaintiff appeals. 
 
 McLaughlin, J. The action was brought to recover the purchase 
 price of a carload of turkeys shipped by plaintiff's assignor, the Key- 
 stone Commercial Company, from Maysville, Ky., to the defendants 
 in New York City. They were shipped on November 17, and arrived 
 November 23, 1908. There was a dispute between the parties as to 
 the terms of sale ; that is, whether the turkeys were to be "dry-picked" 
 or "scalded." Those shipped were scalded, and the verdict has set- 
 tled the disputed question in favor of the defendants. When the car 
 arrived in which the shipment was made, the turkeys were examined 
 by defendants, and it was then discovered they were scalded, instead 
 of dry-picked, and also that they were in bad condition. About half 
 past 7 o'clock in the morning of that day the defendants wired plain- 
 tiff's assignor at Maysville: "Your car arrived scalded, instead of 
 dry-picked. Stock sticky and cannot use it. Wire instructions." 
 
 About two hours later on the same day, not having received an an- 
 swer to the first telegram, they sent another, saying: "Having rail- 
 road inspector examine car. Will put in claim for you. Have turned 
 car over to house that can sell such stuff." 
 
 Both telegrams were delivered to plaintiff's assignor at the same 
 time, and neither of them was answered. At the time the second tele- 
 gram was sent defendants delivered the turkeys to commission mer- 
 chants for sale, and the same were on that day sold for $729.69, which 
 sum was subsequently tendered to the plaintiff's assignor, and by it 
 refused. At the time the turkeys were delivered to the commission 
 merchants, one of the defendants wrote plaintiff's assignor, confirm- 
 ing the telegrams, and saying, among other things: "I do not know 
 just how I will make out with the sale of these goods, but in the 
 event of any deficiency I will expect you to make good." 
 
1192 > SALES (Part 4 
 
 The principal question presented upon the appeal is whether the 
 trial court erred in charging the jury, to which an eJiception was tak- 
 en, that there was no evidence upon which it could find that the de- 
 fendants accepted the turkeys. I am of the opinion the exception was 
 well taken, * * * It is not at all times easy to determine whether 
 a purchaser's retention, sale, or disposition of property constitutes 'an 
 acceptance, but as a general rule it must be determined as a question 
 of fact. * * * It may be, and usually is, indicated by exercising 
 acts of ownership; e. g., where one resells the goods, as such action 
 would be improper except or the assumption that the buyer had ac- 
 quired title. That necessarily indicates an assent on the part of the 
 buyer to become the owner. * * * If the article purchased is not 
 in accordance with the contract, then the purchaser must, upon dis- 
 covering that fact, do nothing inconsistent with the vendor's owner- 
 ship. * * * So it has been held that an acceptance is made out by 
 action of the vendee in insuring the goods or offering to mortgage 
 them (Georgia v. Augusta, 74 Ga. 497), or by loaning them (Hensen 
 v. Beebe, 111 Iowa, 534, 82 N. W. 942), or by directing an agent to 
 sell them (Brown v. Nelson, 66 Vt. 660, 30 Atl. 94), or, while disclaim- 
 ing a purchase, permittiilg a third person to select and retain a portion 
 of the goods upon his promise to account to the seller for them (Bar- 
 tholomae v. Paull, 18 W. Va. 771). Mere complaint by the vendee 
 that the goods do not come up to the contract does not amount to a 
 rejection. Something more is required. If the goods received do not 
 conform to the contract as to quality or kind, the purchaser must, as. 
 a general rule, within a reasonable time after such facts have been 
 ascertained, return or offer to return them. Mason v. Smith, 130 N. 
 Y. 474, 29 N. E. 749. In case the goods are in such condition that 
 they must be speedily disposed of, or else there will be a total loss, 
 then there is an exception to the general rule which permits the pur- 
 chaser to dispose of them. This right is implied from the necessity of 
 the case and to make the loss as small as possible. But the exception 
 only applies where the seller cannot be communicated with and in- 
 structions from him quickly obtained. 
 
 Applying the rule laid down in the authorities cited to the evidence 
 adduced at the trial, it at once becomes apparent that the question of 
 acceptance was at least one of fact. It might well be doubted wheth- 
 er the uncontradicted facts did not show as matter of law an accept- 
 ance. * * * That question, however, is not presented on the ap- 
 peal, and we do not pass upon it. The defendants ascertained, about 
 7 o'clock on the morning of the 23d, when the goods were received, 
 that the quality did not correspond to what they had purchased. They 
 communicated that fact by a telegram to the seller, but did not state 
 that they refused to receive or offer to return them ; on the contrary, 
 without waiting until an answer to the telegram could be received 
 from the seller (at most three or four hours), they proceeded to treat 
 the goods as their own by delivering them to commission merchants 
 for sale, and so informed the seller. Respondents suggest that the 
 seller did not answer either telegram. There was no necessity for 
 its doing so. Both telegrams were received at the same time, and the 
 second was to the effect that the goods had then been disposed of. 
 
 For the reasons stated, it follows that the court also erred in in- 
 structing the jury they must find a verdict for the defendants if the 
 
Ch. 7) RIGHTS AND REMEDIES OF THE BUYER 1193 
 
 contract were for dry-picked turkeys. Such instruction also withdrew 
 from the jury the question of an acceptance. 
 
 It follows that the judgment appealed from should be reversed, and 
 a new trial ordered. 
 
 SECTION 4.— BUYER UNDER NO DUTY TO RETURN 
 GOODS NOT ACCEPTED BECAUSE OF NON- 
 COMPLIANCE WITH THE CONTRACT 
 
 Sales Act, Section 50. Unless otherwise agreed, where goods 
 are delivered to the buyer, and he refuses to accept them, having 
 the right so to do, he is not bound to return them to the seller, 
 but it is sufficient if he notifies the seller that he refuses to accept 
 them. 
 
 This section, in connection with other principles of law produces 
 these effects: (1) The failure of the buyer to return the goods 
 which do not comply with the contract, after notice to the buyer 
 of his rejection, cannot be construed as an acceptance; (2) nor 
 does such failure constitute a breach of contract. (3) The buyer 
 does owe the same duty which any gratuitous bailee owes to the 
 bailor; that is, the buyer must use a certain degree of care over 
 the goods. (4) In some cases the buyer could recover from the 
 seller the damages to which he was put in caring for the property. 
 (5) In some cases, the buyer would have the legal right to sell the 
 goods for the seller's account, the proceeds being thereafter held in 
 trust for the seller. This situation would arise where the goods 
 were of perishable nature, or in any other case where from a 
 business standpoint a sale would be for the best interests of the 
 seller. 
 
 Some phases of the application of the general principle here 
 involved are presented in the following case. 
 
 EHEINSTROM et al. v. STEINER et al. 
 
 (Supreme Court of Ohio, 1904. 69 Ohio St. 452, 69 N. E. 745, 
 100 Am. St Rep. 699.) 
 
 Action by Wm. Steiner Sons & Co. against Rheinstrom Bros. Judg- 
 ment for plaintiffs, and defendants bring error. 
 
 The defendants in error brought action against plaintiffs in error, 
 in the court of a justice of the peace of Hamilton county, to recover 
 $247.50, the agreed price of certain labels claimed to have been sold 
 and delivered to Abraham and- Isaac Rheinstrom at their request. 
 
 Spear, j. * * * dj^j t^g ^j-ial court apply the wrong rule of law 
 to the evidence respecting the acceptance and retention of the goods? 
 Without question, the burden was upon the defendants in error to 
 establish acceptance. To determine this with fairness to them, it is 
 proper to recite the evidence - adduced by them to support that con- 
 tention — ^not that the evidence is to be weighed, but, taken all to- 
 gether, does the evidence tend to show such acceptance, or does it 
 show the contrary? 
 
1194 SALES (Part 4 
 
 On the day the goods were received by defendants below, they ac- 
 knowledged receipt, under date of January 31, 1900, by the following 
 letter, viz. : "Dear Sirs : We received to-day the shipment of Jed 
 Clayton labels, but regret to find that the work is not properly carried 
 out. Please return to us the original sketch and we will point out to 
 you in detail the defects. Yours truly, Rheinstrom Bros." 
 
 To this the plaintiff below responded as follows : "Gentlemen. We 
 beg to acknowledge receipt of your favor of the 31st ult. in regards to 
 'Jed Clayton' labels, that same have reached you, but that the work 
 is not properly carried out. We are again very sorry to hear your 
 complaint, and herein enclose the sketch which was submitted to you, 
 with one of the labels, and no doubt our Mr. Steiner will be in your city 
 by the time these few lines reach you, and you can explain matters to 
 him personally. We remain yours very truly, Wm. Steiner Sons & Co." 
 
 Some time after the above date, Mr. Isadore Steiner, one of the 
 plaintiffs below, called at the office of Rheinstrom Bros. ; and his ac- 
 count of the conversation then had is, in substance, that "Mr. Rhein- 
 strom then told me that he received our labels, but will not use them. 
 I asked him why, and he said they were too far away in color from his 
 original label. * * * I pleaded with him, saying, 'The labels are no 
 earthly good to me.' He said he couldn't help that. 'The best thing 
 you can do is to put them in the fire and burn them up while you wait 
 here.' I said: 'You cannot burn them. They are my property until 
 they are paid for.' Then I tried to get him to accept them. He said 
 he would not accept them labels for any price — ^not for ten cents a 
 thousand. I put on my hat. and coat and walked out." There is no 
 other evidence by plaintiffs below bearing on the question of acceptance 
 than the foregoing, and no evidence at all of use by defendants below 
 of any of the labels. Mr. Abraham Rheinstrom testified, in substance, 
 that the labels were defective in drawing, color, and workmanship. 
 "We could not use them at any price. . We never accepted these labels, 
 but wrote immediately rejecting them. * * * " 
 
 The burden was upon plaintiffs below to prove a compliance with 
 their contract. * * * Their own evidence shows conclusively that 
 the buyers did not accept, unless a failure to manually return the re- 
 jected goods is, in law an acceptance. Is it? From the standpoint of 
 ordinary fairness, how is it? The buyers had ordered labels of a 
 specified kind. The sellers had delivered labels of a different kind, 
 not conforming to the agreement, of which facts the sellers were at 
 once, by letter, fully apprised, to which they responded that, by the 
 time their letter should reach the buyers, one of their firm would call, 
 and matters could be explained. He did call, and was distinctly notified 
 that the labels were wholly useless to the buyers, and as distinctly in- 
 formed that they were rejected. On what principle of commercial 
 dealing could they ask the buyers to take further trouble in the mat- 
 ter, at the peril of being compelled tp pay for a wholly useless ar- 
 ticle, and one which they had not purchased ? We can conceive of no 
 rule of business comity which would justify such a claim. If main- 
 tainable at all, it must be by force of some rigid rule of law. * * * 
 
 Without doubt, the rule is well settled that the buyer's retention of 
 the goods beyond a reasonable time for examination and communica- 
 tion with the seller, standing alone, will be regarded as warranting 
 the conclusion that he has accepted, and thus become liable, especially 
 if the delay has worked prejudice to the seller. But we find no case 
 
Ch. 7) RIGHTS AND RENtEDIES OF THE BUYER 1195 
 
 either among those cited or elsewhere, analogous to the case at bar 
 on its facts, and none in which the mere failure to make manual re- 
 turn of the goods after a timely and explicit rejection of them, ana 
 where it appears that no prejudice to the seller has been caused by 
 the delay, is held to make the buyer liable under the contract. On 
 the contrary, there is abundant authority for the proposition that, un- 
 less otherwise agreed, where goods are delivered to the buyer, and he 
 refuses to accept them, having the right so to do, he is not bound to 
 return them to the seller, but it is sufficient if he informs the seller 
 that he refuses to accept them. * * * 
 
 True, it does not appear that it was stated to him in words that the 
 goods were held subject to his order, but any intelligent business man 
 could not fail to draw the conclusion that such was the fact, and his 
 own declarations show that he regarded the labels as still the property 
 of his firm. And such, indeed, was the law of the situation ; the rule 
 being that where there is a contract for sale of specific goods, and the 
 seller is bound to do sometliing to put them in a deliverable state, the 
 property does not pass until that is done, and the buyer has notice. 
 * * * To have shipped the goods to the Steiners, without direct 
 orders to do so, would have made the Rheinstrom Bros, liable, in the 
 first instance, for drayage and freight; and' this burden the Steiners 
 had no right, either in morals or in law, to place upon them. * * * 
 
 We are of opinion that the court of common pleas applied the cor- 
 rect rule of law to the evidence on the question of acceptance and 
 retention of the goods and that the reversal of its judgment by the cir- 
 cuit court was erroneous. Its judgment will therefore be reversed, 
 and that of the common pleas affirmed. 
 
 SECTION 5.— REMEDIES OF THE BUYER FOR BREACH 
 
 OF WARRANTY 
 
 Assuming that there has been a breach either of an express or 
 of an implied warranty, what are the remedies of the buyer? May 
 he refuse to take, or must he take them and content himself with 
 a deduction from the purchase price which measures the extent of 
 his loss ? The law confers upon the buyer, two remedies : A right 
 to refuse the goods and thus to destroy his obligation to pay the 
 price, and also the right, if the buyer chooses to accept the goods, 
 to take the goods at a reduced price. From the legal standpoint it 
 is necessary to regard each of these two remedies as further di- 
 vid-ed into subordinate groups. It is commonly said that the buyer 
 has four remedies for breach of warranty. The four remedies 
 are provided for in the Sales Act, Section 69 : 
 
 (1) Where there is a breach of warranty by the seller, the buyer 
 may, at his election (c) refuse to accept tiie goods, if the property 
 therein has not passed, and maintain an action against the seller 
 for damages for breach of warranty; (d) rescind the contract to 
 sell or the sale and refuse to receive the goods, or, if the goods have 
 already been received, return them or oifer to return them to the 
 seller and recover the price or any part thereof which has been 
 
1196 SALES (Part 4 
 
 paid; (a) accept or keqj the goods and set up against the seller 
 the breach of warranty by way of recoupment in diminution or ex- 
 tinction of the price; (b) accept or keep the goods and maintain 
 an action against the seller for damages for the breach of war- 
 ranty. 
 
 These four subsections show: (1) That the buyer may refuse 
 to take the goods, or, if he has already taken them, he may undo 
 what he has done and in neither case will he be liable to pay for the 
 goods. But it is only in the first case, where he has refused in the 
 first instance to take the goods, that the buyer will have the right 
 to sue the seller for the damages caused by the seller's breach of 
 contract. If he has already taken the goods and then rescinds, 
 the buyer may recover no damages from the seller. Of course, if 
 the buyer has paid the price, or part of it, he may sue the seller 
 and get that money back. (2) The two remaining subsections 
 show that the buyer may, if he cares to, keep the goods, and then, 
 if he cannot agree with the seller • as to the amount which should 
 he deducted from the price, he may wait until the seller sues him 
 and in this suit set up in a cross-action a claim for the damages 
 sustained by the breach. The judgment against the buyer will 
 then be the amount of the purchase price less the amount of the dam- 
 ages. 
 
 Having now sketched the remedies of the buyer in outline form, 
 we may now devote some attention to some of the details connect- 
 ed with these four remedies, and we shall take them up in the fol- 
 lowing order: (1) The right of the buyer to refuse to take the 
 goods and to sue the seller for damages ; (2) the right of the buy- 
 er to rescind the contract; (3) the right of the buyer to accept 
 the goods and to set up breach of warranty by way of recoupment ; 
 (4) the right of buyer to accept the goods and to sue the seller for 
 damages for breach of warranty. 
 
 (a) BUYER MAY REFUSE TO ACCEPT THE GOODS 
 It is to be noticed that subsection (c) authorizes the buyer to 
 refuse to accept the goods if the title has not passed. If the title 
 has passed to the buyer, subsection (c) does not govern. It is true 
 that title to goods, which, because of a breach of warranty, do not 
 comply with the contract, will not pass to the buyer merely by rea- 
 son of an act of unconditional appropriation, or because the sale 
 was of ascertained goods in a deliverable state, because, as has 
 already been seen, these presumptions do not govern where there 
 is a breach of warranty. We have seen that a buyer has the right 
 of examination, and that until the opportunity to examine has been 
 given him, he will not be deemed to have accepted the goods. Ac- 
 ceptance of the goods is an acceptance of title. The reason for 
 recalling this matter here is for the purpose of making it clear that 
 the buyer's right to refuse the goods exists when and only when 
 he has not accepted. 
 
 We have previously discussed what constitutes an acceptance as 
 defined in section 48 of the Sales Act, and it there appeared that a 
 
Ch. 7) RIGHTS AND REMEDIES OF THE BUYER 1197 
 
 buyer is deemed to have accepted the goods (1) when he inti- 
 mates to the seller that he has accepted them; or (2) when the 
 goods have been delivered to him, and he does any act in relation 
 to them which is inconsistent with the ownership of the seller; or 
 (3) when, after the lapse of a reasonable time, he retains the 
 goods without intimating to the seller that he has rejected them. 
 If the buyer has done any of these things which amount to an ac- 
 ceptance, he no longer has the right to treat the breach as an ex- 
 cuse for non-performance. If a buyer desires to avoid payment of 
 the price and also to recover damages for the breach he must act 
 promptly and should manifest unequivocally that he refuses to 
 accept. 
 
 It should also be noted here, merely for the purpose of showing 
 that the rule laid down in subsection (c) is but another manifesta- 
 tion of another rule of much wider scope which was discussed in 
 Contracts. That rule is that, where a party to a contract has broken 
 a material promise made by him, such breach gives to the other 
 party two rights: (1) The right to refuse to go on with his part 
 of the contract; and (2) the right to sue the party in .default for 
 breach. A breach of warranty is therefore a material breach of 
 contract. 
 
 As to the measure of damages which would apply in a suit 
 brought against the seller, those rules will be discussed in con- 
 nection with subsections (b) and (a). The same measure of dam- 
 ages is applicable, whether the buyer is proceeding under sub- 
 sections (a), (b), or (c). 
 
 (b) BUYER'S RIGHT OF RESCISSION 
 
 Several subsections of Section 69 deal with various aspects of 
 the buyer's right of rescission. They are as follows: Subsection 
 
 (d) Where there is a breach of warranty by the seller, the buyer 
 may, at his election rescind the contract to sell or the sale and re-' 
 fuse to receive the goods, or if the goods have already been re- 
 ceived, return them or offer to return them to the seller and recover 
 the price or any part thereof which has been paid. 
 
 (3) Where the goods have been delivered to the buyer, he can- 
 not rescind the sale if he knew of the breach of warranty when he 
 accepted the goods, or if he fails to notify the seller within a rea- 
 sonable time of the election to rescind, or if he fails to return or to 
 offer to return the goods to the seller in substantially as good 
 condition as they were in at the time the property was transferred 
 to the buyer. But if deterioration or injury of the goods is due to 
 the breach of warranty, such deterioration or injury shall not pre- 
 vent the buyer from returning or offering to return the goods to the 
 seller and rescinding the sale. 
 
 (4) Where the buyer is entitled to rescind the sale and elects to 
 do so, the buyer shall cease to be liable for the price upon returning 
 or offering to return the goods. If the price or any part thereof 
 has already been paid, the seller shall be liable to repay so much 
 
1198 SALES (Part 4 
 
 thereof as has been paid, concurrently with the return of the 
 goods, or immediately after an offer to return the goods in ex- 
 change for repayment of the price. ' 
 
 (5) Where the buyer is entitled to rescind the sale and elects 
 to do so, if the seller refuses to accept an offer of the buyer to re- 
 turn the goods, the buyer shall thereafter be deemed to hold the 
 goods as bailee for the seller, but subject to a lien to secure the 
 repayment of any portion of the price which has been paid, and 
 with the remedies for the enforcement of such lien allowed to an 
 unpaid seller by section 53. , 
 
 It appears from subsection (d) that there are two kinds of con- 
 tractual obligations which may be rescinded by the buyer for 
 breach of warranty: (1) Contracts to sell; and (2) contracts of 
 sale. As regards the first class, in many instances there can be no 
 breach of warranty so long as the contract is a mere contract to 
 sell, because the goods have not as yet been ascertained. Even 
 after they become ascertained, and there is an attempt to appro- 
 priate them to the contract, title will not pass until after inspec- 
 tion and acceptance by the buyer. Up to this point it is not neces- 
 sary for the buyer to rescind the contract, for he has a better rem- 
 edy by proceeding under subsection (c), where he is allowed to 
 refuse to accept the goods and sue for damages. The same is 
 true v?ith respect to executory contracts to sell ascertained goods ; 
 there- is no necessity for rescinding, for the title, which, if there 
 were no breach by the seller, would pass just as soon as the goods 
 were in a deliverable condition, will not pass, if the goods are not 
 in conformity with the contract, until after an opportunity to ex- 
 amine, followed by acceptance. Still it is worth while to note that 
 the buyer, if he is willing to give up his right to sue the seller for 
 breach of warranty, may rescind. If he does rescind, the buyer 
 gives up this right which he has under subsection (c). 
 
 In the second case we are dealing with the right of rescission of 
 contracts of sale. Title is now in the buyer. He has lost his right 
 to proceed under subsection (c), permitting him to refuse to ac- 
 cept. He has, by hypothesis, already accepted, and the title to the 
 goods is in the buyer. Under section 48 a buyer accepts if he (1) 
 intimates to the seller that he has accepted them; or (2) if he 
 does any act in relation to the goods which is inconsistent with the 
 ownership of the seller; or (3) when, after the lapse of a reason- 
 able time, he retains the goods without intimating to the seller 
 that he has rejected them. It is very easy, therefore, for a buyer to 
 have accepted when it would have been much better for him not 
 to have accepted, for by not accepting he could have avoided lia- 
 bility for the price and also have sued the seller for damages. 
 Still the law gives the buyer who has accepted some consideration, 
 by allowing him to undo his act of accepting the goods, and allows 
 him to get his money back, if he has paid any part of it, but that is 
 all. 
 
Ch. 7) EIGHTS AND REMEDIES OP THE BUYER 1199 
 
 But notice the series of very important qualifications. It is not 
 in every case that a buyer who has accepted is given even this 
 much consideration. In many cases the buyer who has accepted 
 will have no right even to rescind. He must keep the goods, or 
 at least he cannot get his money back. What are these situations? 
 Obviously all of them should arise out of those kinds of accept- 
 ances made under circumstances which make it reasonable to sup- 
 pose that the goods were accepted by the buyer vwth an intention 
 to keep and use them. This does not mean that the buyer has 
 accepted the goods in full satisfaction of the contract. He may 
 accept with an intention to keep and use, or resell the goods with- 
 out accepting in full satisfaction. He may lose his right of rescis- 
 sion, and still hold the seller for damages ; but this is another ques- 
 tion next to be taken up. The point involved here is that the buyer 
 will lose the right to rescind an executed sale in three cases, all of 
 which carry evidence of the buyer's intention to keep the goods 
 permanently. As provided in subsection (3) these cases where 
 there is no right of rescission are: (1) Where the buyer, at the 
 time he accepted the goods, knew of the breach of warranty; (2) 
 where the buyer did not know of the breach of the warranty at 
 the time he accepted the goods, but later discovered the defect in 
 the goods — the breach of warranty — and then made up his mind to 
 rescind, but failed to notify the seller within a reasonable time of 
 his election to rescind; and (3) where, even after the buyer has, 
 within a reasonable time, notified the seller of his election to re- 
 scind, has failed to return the goods or to offer to return the goods 
 to the seller in substantially as good condition as they were in at 
 the time the property was transferred to the buyer. 
 
 Extended comment on these three exceptions to the rule allow- 
 ing rescission for breach of warranty is not necessary, except to 
 call attention in (1) to the fact that when the law speaks of ac- 
 cepting goods with knowledge of a breach of warranty, the law 
 does not mean actual knowledge but it means that the facts con- 
 stituting the breach of warranty must have been so apparent that 
 a reasonably careful man would have known of the breach. This 
 shows that the right of rescission is of practical importance only in 
 the case where the breach of warranty consisted in a latent defect 
 not discovered until after acceptance. 
 
 The second exception calls attention to a general doctrine of the 
 law that some rights can be lost by delay in enforcing them. The 
 seller is entitled to prompt notice, after the buyer has discovered 
 the latent defect. If he does not receive the notice, the buyer 
 should sustain the loss. With respect to the third exception, the 
 buyer is under a duty of (a) retaining the goods; or (b) offering 
 to return the goods. In this connection it will be recalled that 
 section SO provides that, "unless otherwise agreed, where goods 
 are delivered to the buyer, and he refuses^ to accept them, having 
 the right so to do, he is not bound to return them to the seller, 
 but it is sufficient if he notifies the seller that he refuses to accept 
 
1200 SALES (Part 4 
 
 them." These two sections are not in conflict, for section 50 ap- 
 plies only when the goods have not been accepted. Section 69 (3) 
 applies only when the goods have been accepted. It is altogether 
 just to say that, where thp buyer has not accepted because of 
 breach of warranty, he should be under no duty to return or offer 
 to return the goods. Pie is but a gratuitous bailee. His only duty 
 in addition to the observance of that degree of care which a gra- 
 tuitous bailee owes the bailor is to give notice that he refuses to 
 accept. It is entirely a matter for the seller to make all arrange- 
 ments for their return, and if the seller requested the buyer to 
 return them, and the buyer did so, the buyer would be entitled to 
 compensation. But where the buyer has accepted the goods, and 
 later discovered the defect in them, there is more reason in placing 
 a duty on the buyer to return. It is not necessary that the buyer 
 box them up and send them immediately. The buyer performs his 
 duty in the first instance by communicating with the seller and 
 offering to return the goods. The seller may not care to have 
 them returned. He may prefer to employ the buyer to sell them 
 for him to other persons. But the buyer has made an offer to 
 return. If the seller accepts this offer, there is a contract, and 
 then there is a duty on the buyer to return, so that it is correct to 
 say that where a buyer has rescinded a sale he must return if the 
 seller wishes the goods returned. 
 
 Notice one further detail in connection with the duty to return: 
 Subsection (3) provides that the buyer must offer to return the 
 goods in substantially as good condition as they were in at the 
 time the property was transferred to the buyer. Suppose that a 
 carload of meat were bought under an express warranty that the 
 car should be kept iced during transif;. The seller failed to give 
 icing instructions to the railroad company. The meat may have 
 been in good condition at the time of acceptance by the buyer, but 
 the meat rapidly deteriorates, owing to heated conditions. It is 
 now impossible for the buyer to offer to return the meat in as good 
 condition as it was in when he accepted it. The last sentence in 
 subsection (3) makes provision for this kind of situation by stat- 
 ing that, "if deterioration or injury of the goods is due to the 
 breach of warranty, such deterioration or injury shall not prevent 
 the buyer from returning or offering to return the goods and re- 
 scinding the sale." Of course, if the buyer has damaged the goods 
 himself, then he has made it impossible for him to rescind. 
 
 In the above paragraphs dealing with the duty of the buyer to re- 
 turn, it has been assumed that the seller was willing to have the 
 goods returned to him. It very often happens that, after the buyer 
 has notified the seller that he will return, the seller will refuse to 
 accept them. The situation usually is that at this time the seller 
 is quite convinced that there has been no breach of warranty, and 
 the buyer is equally convinced that there is a breach of warranty. 
 The seller does not want them returned, for fear that he will lose 
 rights against the buyer. In other words, the seller wants ta 
 
Ch. 7) EIGHTS AND REMEDIES OF THE BUYER 1201 
 
 force the sale through. What is the position of the buyer in such 
 a case? Subsection 5 covers this situation and expressly provides 
 that the buyer is a bailee for the seller. The goods must not be 
 handled negligently. The section also gives a lien to the buyer, en- 
 titling him to hold the goods to secure repayment of the price if 
 it has been paid, and, as an incident of the lien, the buyer will have 
 the remedy of resale just as an unpaid seller has. 
 
 We have reserved for the last the comment on the more detailed 
 legal effect of the right of rescission, although in all the preced- 
 ing discussion the nature of the right appears, and also we have 
 reserved the statement concerning the state of the law on the 
 matter of rescission before the adoption of the Sales Act. By a re- 
 scission of a contract is meant the doing of an act the legal effect 
 of which is the restoration of the condition of affairs as they exist- 
 ed before the sale was made. Rescission may be a voluntary act 
 of the parties, or it may arise as a result of the act of one of 
 the parties alone, the justification therefor being proved on 
 the part of the adverse party, or some kinds of mistake, or for 
 material breach. Here we are interested in rescission by the 
 buyer because of the seller's breach of warranty. Any lawsuit be- 
 tween buyer and seller will not be for breach of the contract, be- 
 cause after rescission there is no contract, but the suit will be 
 brought for the recovery of what has been parted with. This ex- 
 plains why subsections 1 (d) and (4) refer only to the recovery of 
 the price, and do not refer to an independent claim for damages. 
 The buyer, who has accepted the goods and who later discovers 
 that they are not in conformity with the contract, has but one 
 right; i. e., to recover the money he has paid upon his return of 
 the goods. It is to be noticed here, in comparison with the unpaid 
 seller's corresponding right of rescission, that the buyer's right of 
 rescission differs from the seller's right of rescission. The unpaid 
 seller may rescind either (1) the transfer of title, or (2) the entire 
 contract, while the buyer is allowed only the right to rescind the 
 entire contract. It makes this difference: That an unpaid seller, 
 who rescinds transfer of title, may still sue the buyer on the con- 
 tract for the breach, while the buyer, who rescinds, rescinds the 
 entire contract, and hence cannot sue the seller for damages. 
 
 Before the Sales Act there was a conflict of authority as to the 
 right of the buyer to rescind. About half of the states in this 
 country allowed rescission, just as is allowed under the Sales Act, 
 while the other half, and also the English courts, held that the 
 buyer, who had accepted, could not rescind. The following case 
 illustrates the exercise of the right of rescission. 
 B.& B.BTJS.LAW— 76 
 
1202 SALES (Part 4 
 
 KELSBY V. J. W. RINGBOSB NET CO. 
 (Supreme Court of Wisconsin, 1913. 152 Wis. 499, 140 N. W. 66.) 
 
 , Action by George W. Kelsey, Junior, against the J. W. Ringrose 
 Net Company. Judgment for defendant, and plaintiff appeals. Af- 
 firmed. 
 
 The plaintiff purchased from the defendant a power-driven tipping 
 machine, which was calculated to automatically place metal tips on 
 the ends of the strands of horse fly nets, which plaintiff was engaged 
 ill manufacturing. The purchase price of the machine was paid in 
 advance, and the plaintiff endeavored for a considerable length of time 
 to operate it, and finding that it would not work satisfactorily, tendered 
 the machine to the defendant, and gave notice that he elected to rescind 
 the contract to purchase. This action was brought to recover the pur- 
 chase price. The court directed a verdict in favor of the defendant, 
 and from the judgment entered in accordance with such ruling the 
 plaintiff appeals. 
 
 Barnbs, J. * * * The machine involved was built for a special 
 purpose. There were only about a half a dozen such machines in use 
 when the plaintiff made his purchase. It was not sold under any ex- 
 press warranty. It is settled in this state that under such circumstances 
 the law implies a warranty that the machine will do the work which it 
 was intended to do. * * * 
 
 Where such an article is sold without express warranty, the pur- 
 chaser has a reasonable time within which to test it, for the purpose of 
 determining whether or not it complies with the warranty which the 
 law implies. If it does not, he has an election of remedies. He may 
 affirm the contract and recover the legitimate damage occasioned by 
 the breach of the warranty, or he may rescind the contract and tender 
 back the article and recover the purchase price, if it has been paid. 
 If it has not, he may successfully defend an action to recover it. 
 
 The cases last cited further hold that what is a reasonable time 
 within which to make a test is usually a question of fact for a jury 
 to decide, but that the time may be so long that a court can and should 
 say, as a matter of law, that it was not made within a reasonable time. 
 
 As a corollary to what has already been said, it is held that, where 
 the defects are such that the purchaser, in the exercise of ordinarv 
 care, should have discovered them, it is his duty to do so; and that 
 failure to observe such duty and to rescind with reasonable promptness 
 will defeat the right of rescission. * * * 
 
 Any use of an article purchased under an implied warranty, after it 
 has been ascertained that it does not fulfill such warranty, and which is 
 not made for the purpose of testing, is an acceptance of the article and 
 a waiver of the right to rescind; * * * 
 
 After it is ascertained that the article does not comply with the 
 
 warranty, timely notice must be given that it will not be accepted as 
 
 a compliance with the contract, or the right to rescind is waived. 
 * * * I 
 
 In a case involving a sale of vanilla, it was held that only so much 
 of it should be used for testing purposes as was fairly and reasonably 
 necessary; and that where an excessive quantity was used the right 
 •of rescission was lost. Zipp Mfg. Co. v. Pastorino, 120 Wis. 176, 97 
 N. W. 904. 
 
Ch. 7) RIGHTS AND REMEDIES OF THE BUYER v 120R 
 
 The concrete question before us is : Did the court err in not allow- 
 ing the jury to say whether the offer to rescind was made within a. 
 reasonable time, in view of the principles of law above referred to? 
 
 The plaintiff used the machine all, or nearly all, of the month of 
 December. During that time he could not get it to work properly. In- 
 deed, he says he did not succeed in putting tips on a single fly net with 
 it that he would place on the market. He then returned it to the maker, 
 who was also a manufacturer of fly nets. It showed evidences of hard, 
 though, no doubt, well meant, usage. It also showed evidences that it 
 had been experimented with, even to the extent of putting a set screw 
 in an oil hole in the loose pulley. Defendant overhauled and adjusted 
 it, and set it up in its factory and ran it for some time and returned 
 it, according to the evidence, in first-class condition. It was set up in 
 plaintiff's factory as early as February 6th, and was thereafter tested 
 until March 25th, according to plaintiff's evidence. At no time did it 
 do any satisfactory work, or tip a single fly net that plaintiff felt he 
 could place upon the market for sale. The attempted rescission was 
 made on March 25th. 
 
 In behalf of the appellant, it is urged that the plaintiff was attempt- 
 ing, in good faith, to try out the machine and get it to work properly ; 
 that it was somewhat complicated ; and that it was for the jury to say 
 whether he retained it an unreasonable length of time for the purpose 
 of testing. 
 
 On the other hand, the plaintiff had used the machine during the 
 month of December, and failed to get it to work. After it was over- 
 hauled and put in what the manufacturer claimed was perfect running 
 condition, he continued to experiment for about six weeks without 
 results. The trial judge, in deciding the case, said that it was obvious 
 that a week's trial after the machine was returned would have been 
 ample ; and that an offer to return after six weeks of alleged trial came 
 too late. 
 
 The case is a reasonably close one. Had the trial judge submitted 
 the case to the jury, we might not be disposed to hold that it was er- 
 ror to do so ; but we are far from being convinced that the circuit 
 judge was clearly wrong in arriving at the conclusion which he did. 
 A period of 2% months experimentation would seem to be an unrea- 
 sonable length of time, considering the character of the machine and 
 the further fact that at no time did the quality of the work turned out 
 show any material improvement. 
 
 Judgment affirmed. 
 
 (c) BUYER IIAY ACCEPT AND SET UP BREACH OP WARRANTY 
 BY WAY OF RECOUPMENT. 
 
 The two preceding remedies of the buyer were alike in that, 
 in the end, the buyer did not keep the goods. In the first of these,^ 
 where he had not accepted, he was entitled to damages ; in the 
 second, he was not entitled to damages. We pass, now, to the two 
 cases where the buyer elects to keep the goods in spite of the 
 breach of warranty, and seeks to obtain a deduction from the pur- 
 chase price. The first of these rights is known as recoupment. 
 This merely means that, when the seller sues the buyer, the buyer 
 can recover an amount equal to the reasonable value of the goods 
 
1204 SALES (Part 4 
 
 as they were when delivered to the buyer. The right is not identi- 
 cal with that of set-off, where the buyer prosecutes a cross-action; 
 but the buyer's right of recoupment is a right to discharge his debt 
 to the seller by the payment of the reasonable value of the goods. 
 If it be viewed as the prosecution by the buyer of a cross-action for 
 breach of warranty, there would be little difference in the amount 
 of money which the buyer would be required to pay, in most cases ; 
 but in some cases,, doubtless, there would be a difference 
 
 (d) BUYER MAT ACCEPT AND MAINTAIN AN ACTION FOR BREACH 
 
 OF WARRANTY 
 
 If the buyer has already paid the price, his only method of ob- 
 taining reimbursement for breach of warranty will be by an inde- 
 pendent action against the seller. If he has not paid, then he 
 may wait until sued — that is, if he cannot compromise witli the 
 seller, a procedure which from a financial standpoint is a great deal 
 better — and in this suit by the seller against him he may put in his 
 claim for damages arising from the breach. Subsection (b) gives 
 the buyer this right. In this connection we should again refer to 
 section 49 of the Sales Act, which asserts in ^greater detail the 
 same right as that provided for in subsection (b) of section 69. 
 Section 49 provided that: 
 
 In the absence of express or implied agreement of the parties, 
 acceptance of the goods by the buyer shall not discharge the seller 
 from liability in damages or other legal remedy for breach of any 
 promise or warranty in the contract to sell or the sale. But, if, 
 after acceptance of the goods, the buyer fail to give notice to the 
 seller of the breach of any promise or warranty within a reasonable 
 time after the buyer knows, or ought to know of such breach, the 
 seller shall not be liable therefor. , 
 
 Looking at these sections from the business point of view, the 
 things that stand out distinctly are : (1) The right of the buyer to 
 keep the goods and still reserve his right to recover damages from 
 the seller ; but (2) in order to preserve this right to recover dam- 
 ages the buyer must give notice to the seller of the breach of war- 
 ranty. The buyer must do this just as soon as he learns of the 
 breach. Not only that, but the buyer must take some care to find 
 out whether there is a breach of warranty, for the section states 
 the buyer will lose hig right to sue for damages if he waits to noti- 
 fy the buyer beyond a reasonable time. 
 
 Before the Sales Act, just as in the case of rescission, where it 
 was found that some courts held that the buyer had no right of re- 
 scission, others that there was such a right, so here some courts 
 held that, if a buyer accepted the goods, he must be deemed to 
 have accepted them in full satisfaction of the obligation of the sell- 
 er. The states which adopted this rule commonly expressed it by 
 saying that an action for breach of warranty did not survive ac- 
 ceptance, but these courts worked out several exceptions to this 
 general rule. Other states held that the mere fact that the buyer 
 
Ch. 7) RIGHTS AND REMEDIES OF THE BUYER 1205 
 
 accepted the goods was not in itself to be deemed a waiver of his 
 right to sue the seller for damages. This rule was adopted by the 
 Sales Act. 
 
 One further point should be here adverted to with respect to 
 the measure of damages to be applied when the buyer sues the sell- 
 er for breach of warranty : 
 
 Sales Act, Section 69. (6) The measure of damages for breach 
 of warranty is the loss directly and naturally resulting, in the 
 ordinary course of events, from the breach of warranty. 
 
 Section 69. (7) In the case of breach of warranty of quality, 
 such loss, in the absence of special circumstances showing pro3?i- 
 mate damage of greater amount, is the difference between the 
 value of the goods at the time of delivery to the buyer and the 
 value they Would have had if they had answered to the warranty. 
 
 The next case illustrates how the right of the buyer may easily 
 be lost by the failure to give notice. The case following it, that 
 of Paul Gerli & Co. v. Mistletoe Silk Mills, contains a discussion 
 of the various remedies of the buyer for breach of warranty. 
 
 REGINA CO. V. GATELY FURNITURE CO. 
 
 (Supreme Court of New York, Appellate Division, 1916. 171 App. Div. 817, 
 
 157 N. Y. Supp. 746.) 
 
 Action by the Regina Company against the Gately Furniture Com- 
 pany. From a judgment sustaining plaintiflf's demurrer to the alleged 
 defense and counterclaim, defendant appeals. 
 
 Woodward, J. The complaint alleges the incorporation of the 
 plaintiff and defendant, and then sets forth that the defendant ordered 
 from the plaintiff, on several dates, vacuum cleaners of different types, 
 and that the said cleaners were shipped to the defendant, and were 
 of certain agreed values; that these cleaners were received by the 
 defendant, and that the latter agreed to pay for the same, but that no 
 such payments had been made; and that the defendant was indebted 
 for the aggregate of these shipments, amounting to $162.75. The an- 
 swer admits the formal averments. * * * The defendant then at- 
 tempts to set up a counterclaim for breach of warranty. * * * 
 
 To this alleged counterclaim the plaintiff demurred, * * * and 
 the 'learned court * * * sustained the demurrer. There is no al- 
 legation of any express warranty; but, as the plaintiff was a dealer 
 in the kind of goods being sold, there was, of course, an implied war- 
 ranty that the goods should be free from^any defect, rendering them 
 unmerchantable, which would not be apparent on reasonable examina- 
 tion of the sample. * * * At common law an express warranty 
 survives acceptance, but an implied warranty does not. Ferguson v.' 
 Netter, 204 N. Y. 505, 510, 98 N. E. 16. Section 130 of the Personal 
 Property Law has, however, extended the rights of purchasers, and 
 it is there provided that : In "the absence of express or implied agree- 
 ment of the parties, acceptance of the goods by the buyer shall not dis- 
 charge the seller from liability in damages or other legal remedy for 
 breach of any promise or warranty in the contract to sell or the sale." 
 
 This places the warranty, whether expressed or implied, upon the 
 
1206 SALES (Part 4 
 
 same foundation, but as a condition of this change it is provided, in 
 the same section, that : "If, after acceptance of the goods, the buyer 
 fails to give notice to the seller of the breach of any promise or war- 
 ranty within a reasonable time after the buyer knows, or ought to know, 
 of such breach, the seller shall not be liable therefor." 
 
 Obviously the buyer takes this additional right to the survival of 
 a warranty, expressed or implied, upon the condition that he shall give 
 notice of a breach of ^e warranty within a reasonable time. Such 
 notice is therefore a condition precedent, and this he is obliged to 
 plead. There is nothing said in the alleged counterclaim of any notice 
 having been given to the seller of any alleged breach of warranty, 
 and in the absence of such an allegation there is a failure to state the 
 facts necessary to constitute a counterclaim. * * * 
 
 The interlocutory judgment appealed from should be affirmed. 
 
 PAUL GERLI & CO. r. MISTLETOE SILK MILLS. 
 (Supreme Court of New Jersey, 1910. SO N. J. Law, 128, 76 Atl. 335.) 
 
 Action by Paul Gerli & Co. against the Mistletoe Silk Mills. Ver- 
 dict for defendant. 
 
 Trenchard, J. This is an action for the purchase price of a bale 
 of raw silk delivered by the plaintiff to the defendant. The defense 
 is that it was sold as "best classical Italian silk for single weaving," 
 and did not answer that description. The defendant counterclaimed 
 for profits lost and for expenses incurred in the attempt to weave the 
 silk and recovered a verdict. Thereupon the plaintiff was allowed this 
 rule to show cause why the verdict should not be set aside. At the 
 trial at the Hudson circuit no loss of profits was proved, but there 
 was evidence that the defendant had incurred expenses to the amount 
 of $224.81. The purchase price of the silk was $872.22 and it was 
 undisputed that it was worth $721.30 as waste. The defendant claim- 
 ed that it had rescinded the contract and offered to return the goods 
 and held them subject to the plaintifif's order. The verdict was for 
 $224.81, the exact amount of the expenses incurred by the defendant 
 in attempting to weave the silk. It is clear, therefore, that the jury 
 took the. view that the contract had been rescinded. 
 
 The charge of the learned trial judge did not permit the jury to 
 allow for damages for breach of the contract in case they found it 
 had been rescinded. Such a charge would have been erroneous in 
 law. Under the sales act (§ 69[l]d), in case of a rescission of a 
 contract to sell or a sale, the buyer is entitled to recover the price or 
 any part thereof which has been paid; and this remedy is made ex- 
 clusive by paragraph (2) of the same section. It is a logical conse- 
 quence that, where the purchase price has not been paid, the buyer's 
 only remedy in case of rescission is to withhold the price. Such is the 
 view of the learned author of our sales act (Williston on Sales, § 
 612), and the rule recently expressed in one of our sister states. 
 Houser & Haines Mfg. Co. v. McKay, 53 Wash. 337, 101 Pac. 894, 27 
 h. R. A. (N. S.) 925. * * * The verdict, therefore, cannot be sus- 
 tained and the rule must be made absolute. Since the case must be 
 tried again, it may serve a useful purpose to call attention to the 
 questions which seem likely to arise. 
 
 The first question for the jury will of course be whether the con- 
 
Ch. 7) EIGHTS AND REMEDIES OF THE BUYER 1207 
 
 tract was for "best classical Italian silk for single weaving." If it was 
 not, there seems to be no defense. If it was, the question is, Did the 
 silk delivered comply with the contract? If it did, the plaintiff is en- 
 titled to recover. If it did not, the question arises whether the de- 
 fendant accepted it. The defendant had a right to inspect and exam- 
 ine (Sales Act, § 47), and, if necessary, to test the goods even though 
 the test involved destruction of a part. Williston on Sales, § 475. 
 If, however, the defendant intimated to the plaintiff that it had ac- 
 cepted the goods, or if the defendant did any act inconsistent with 
 the ownership of the plaintiff, or if, after the lapse of a reasonable 
 time, it retained the goods without intimating to the plaintiff a rejec- 
 tion, then the defendant must be deemed to have accepted the goods 
 and the right of rescission is gone. Sales Act, § 48. If the defend- 
 ant had the right to rescind and had not lost it when it finally notified 
 the plaintiff that it had rejected the goods, and has actually rescind- 
 ed, the verdict should be for the defendant, but not a verdict for dam- 
 ages. 
 
 If, however, the goods were not in accordance with the contract, 
 and the defendant had accepted them, there would still be open the 
 remedies allowed for breach of contract. The defendant, if such are 
 found to be the facts of the case, had the option to recoup in diminu- 
 , tion or extinction of the purchase price or to maintain a distinct action 
 against the plaintiff for all its damages including loss of profits and 
 expenses to which it had been put. Sales Act, § 69 (1) (a) and (b). 
 The remedy under subdivision (a) is recoupment in the strict sense of 
 that word, and involved merely an abatement of the purchase price 
 which can amount to the whole purchase price only where the goods 
 are worthless. The remedy under subdivision (b) is that which for- 
 merly was the subject of a cross-action, but it is now available by 
 way of counterclaim under section 105 of the practice act. * * * 
 This remedy is inconsistent with the claim of a rescission of the con- 
 tract, and at the trial it will be necessary for the defendant to elect 
 whether to stand upon the theory of a rescission and abandon its claim 
 to damages or to abandon the claim of rescission and rely upon the 
 contract as subsisting and insist on damages for the breach. If it 
 adopts the latter course, the plaintiff will be entitled to recover the 
 value of the silk, which will be the full purchase price, unless the de- 
 fendant establishes that it was of inferior quality, in which event it 
 will be the actual value as proved (Sales Act, § 48 ; Williston on Sales, 
 § 488), from which may be deducted such loss as the defendant may 
 prove it has sustained directly and naturally resulting in the ordinary 
 course of events from the breach of warranty. 
 
 SECTION 6.— BUYER'S RIGHT TO RECOVER DAMAGES 
 FOR BREACH OF THE CONTRACT TO SELL 
 
 Sales Act, Section 67. (1) Where the property in the goods has 
 not passed to the buyer, and the seller wrongfully neglects or re- 
 fuses to deliver the goods, the buyer may maintain an action 
 against the seller for damages for non-delivery. (2) The measure 
 of damages is the loss directly and naturally resulting in the 
 ordinary course of events, from the seller's breach of contract. 
 
1208 SALES (Part 4 
 
 (3) Where there is an available market for the goods in question, 
 the measure of damages, in the absence of special circumstances, 
 showing proximate damages of a greater amount, is the diiiference 
 between the contract price and the market or current price of the 
 goods at the time or times when they ought to have been delivered, 
 or if no time was fixed, then at the time of the refusal to deliver. 
 
 N. P. SIjOAN CORP. V. LINTON et al. 
 
 (Supreme Court of Pennsylvania, 1918. 260 Pa. 569, 103 Atl. 1011, 
 6 A. L. E, 633.) 
 
 Assumpsit for breach of contract for the sale of personal property 
 by the N. P. Sloan Corporation against Ross B. Linton and W. Horace 
 Linton, copartners trading as Josiah Linton & Co. Verdict for plain- 
 tiff for $2,300, and defendants appeal. 
 
 Potter, J. The N. P. Sloan Corporation brought this action of 
 assumpsit to recover damages from the firm of Josiah Linton & Co. 
 for the breach of a contract for the sale of cotton linters. Plaintiff's 
 claim was based upon a letter dated October 25, 1916, from defendants 
 to plaintiff, in which they stated that: "We have sold to you as bro- 
 kers per contracts turned over to us, cotton linters as follows : Quan- 
 tity, 475 bales. Quality, clean mill run. Price, 6.18 f. o. b. cars 
 mills." It was further stated that the linters sold consisted of 250 
 bales at Columbia, S. C, and 225 bales at Cheraw, S. C. The letter 
 contained the following clause: "You have the privilege of examin- 
 ing stock at point of shipment, but shipping instructions to be given to 
 us immediately." 
 
 The record shows that shipping instructions were promptly given 
 to defendants, and plaintiff sent its agent to Columbia and Cheraw, 
 S. C, to examine the goods sold, but none could be found at either 
 place, and therefore he could make no inspection. On November 1, 
 1916, defendants notified plaintiff that they could not deliver the goods 
 sold, and stated that they had sold them as brokers on account of the 
 Corey-Bickmore Corporation of New York, and that their interest in 
 the matter had ceased. In plaintiff's statement damages were claimed 
 on the basis of the difference between the contract price and the mar- 
 ket value of cotton linters on November 1st, the date of the breach, at 
 New York, less the cost of transportation from Columbia and Cheraw, 
 S. C, to that city. At the trial, defendants contended ; * * * ^^at 
 the measure of damages set up in the statement was not the true 
 measure under the law. There was a verdict for plaintiff, and from 
 the judgment entered thereon defendants have appealed. * * * 
 
 Upon the trial, both parties agreed that the damages in such a case 
 are to be measured by the difference between the contract price and 
 the, market value at the date of the breach. But they differed as to 
 the method of ascertaining that value. Plaintiff proved the market 
 value at the place of delivery by showing the market value in New 
 York City and deducting therefrom the cost of transportation from 
 the places of shipment. Counsel for appellants contend that this meth- 
 od was erroneous. 
 
 The general rule is stated in 35 Cyc. L. & Pr. 633, as follows: 
 "Where the breach consists in the failure of the seller to deliver the 
 
Ch. 7) RIGHTS AND REMEDIES OF THE BUYHE 1209 
 
 goods, the measure of damages is ordinarily the difference between 
 ine contract price and the market price of the goods at the time and 
 place of delivery, provided there is a market price for goods of the 
 character and quality contracted for by the buyer at such time and 
 place, and interest thereon from the time of the breach." And on 
 page 638, it is said: "The market price must be determined as of 
 the place of delivery, provided the goods have a market price at such 
 place. If there is no market price at the place of delivery, the true 
 value is to be shown by the best evidence possible, and in such cases 
 the market value at other places, plus the expense of transportation 
 to the place of delivery, may be used as a basis for computation; and 
 if the market price in the vicinity of the place of delivery is shown to 
 depend on the market price at a large, well-known and active market, 
 the market price at such place plus transportation charges may be 
 considered. If the place of delivery and place of destination are dif- 
 ferent, the market price at the destination less the cost of transporta- 
 tion may be resorted to." 
 
 Here there was testimony tending to show that the market price of 
 cotton linters throughout the country is based on New York prices, 
 that being the largest and most active market for that class of goods. 
 There was also testimony from which the jury were justified in finding 
 that the market value at Columbia and Cheraw, S. C, was based up- 
 on the market price in New York, being determined by the cost of 
 transportation, to that point. 
 
 Under Sales Act May 19, 1915 (P. L. 543) § 67, referring to the 
 measure of damages where the seller has wrongfully refused to de- 
 liver the goods, it is provided: "Third. Where there is an available 
 market for the goods in question, the measure of damages, in the 
 absence of special circumstances showing proximate damages of a 
 greater amount, is the difference between the contract price and the 
 market or current price of the goods at the time or times when they 
 ought to have been delivered, or, if no time was fixed, then at the time 
 of the refusal to deliver." 
 
 It will be noted that it is an "available market" to which resort is 
 to be had for a price, and no mention of the place of delivery is made 
 in that connection in the act. 
 
 We find no merit in any of the assignments of error in which com- 
 plaint is made of the rulings of the learned trial judge upon the ad- 
 mission of testimony as to the market value of the goods. * * * 
 
 The judgment is affirmed. 
 
 BIEDSONG & CO., Inc., v. MARTY. 
 (Supreme Court of Wisconsin, 1916. 163 Wis. 516, 158 N. W. 289.) 
 
 Action by Birdsong & Co., Incorporated, against Jacob Marty, doing 
 business as Jacob Marty & Co. Judgment for plaintiff, and defendant 
 appeals. 
 
 Action for damages for breach of contract. Plaintiff is a corpora- 
 tion engaged principally in the business of buying and selling cheese 
 and other edible products, with its principal office at Philadelphia. 
 The defendant is a maker and dealer in cheese, doing business as 
 Jacob Marty & Co. at Brodhead, Wis. 
 
 The case was tried before the court without a jury. The trial court 
 held that the correspondence constituted an unqualified contract of 
 
1210 SALES (Part 4 
 
 purchase and sale, by which the plaintiff purchased of the defendant 
 25 tubs of No. 1 cheese at 16% cents a pound, and a sufficient amount 
 of No. 2 at 13 cents to make a minimum carload; that a minimum 
 east-bound car contains 20,000 pounds; that the average weight of a 
 tub of Swiss cheese in August is approximately 775 pounds, and that 
 the contract therefore called for 19,375 pounds of No. 1 and 625- 
 pounds of No. 2 ; that at Brodhead and in Southern Wisconsin gener- 
 ally the market price on August 17th was 17% cents to 18 cents for 
 No. 1 and 15% cents for No 2; that at the time plaintiff received de- 
 fendant's letter canceling the contract the price had advanced to 20' 
 cents for No. 1 and 16% cents for No. 2, and plaintiff had .judgment 
 accordingly for $700. Prom such judgment, defendant appeals. 
 
 RosBnbErry, J. * * * The only question remaining is that re- 
 lating to the measure of damages. The defendant having refused to 
 deliver the goods, and the title thereto not having passed to the plain- 
 tiff, the measure of damages in harmony with the decisions of this 
 court is stated by Uniform Sales Act, § 67. * * * 
 
 The court found the market price on August 19th, the day the plain- 
 tiff received the defendant's letter in which the defendant stated that he 
 would not deliver the goods, to be for No. 1 cheese 20 cents a pound, 
 and for No. 2 16% cents a pound, and found that the amount desig- 
 nated in the telegram was 25 tubs of No. 1 and just enough No. 2 to 
 make 20,000 pounds. * * * 
 
 Defendant's proposition was, "Offer you good sound number two at 
 thirteen to make minimum car," to which plaintiff replied, "Complete 
 minimum car with twos per your wire." The term "minimum car" 
 refers to the smallest amount of the specified article which will take 
 the carload rate, and is shown in this case to be 20,000 pounds on 
 cheese east-bound. Ulnder the terms of this contract we think that 
 plaintiff would not have been required to accept more than the amount 
 stated. Plaintiff therefore was entitled to receive 19,375 pounds of No. 
 1 and one tub of No. 2 to make out a carload lot, or 775 pounds of 
 No. 2. 
 
 While the trial court found the market price, it appears from all the 
 evidence without dispute that there was, in fact, no market for cheese 
 in or about Brodhead, the place of delivery, or in or near Southern 
 Wisconsin, in the latter part of August, 1914. The defendant himself 
 testified : "On account of tlie war you know we simply had no market 
 price through our section in the Swiss cheese." "The farmers got 
 hold of theirs and they would not sell at any price, and some that had 
 sold it backed out on it." "We could not get any what we had bought." 
 "For ten days or two weeks you could not get it at any price, no mat- 
 ter what you offered." 
 
 Another witness testified: "There wasn't practically any market 
 there. It was in such a fluctuating state." And the testimony of all 
 of the other witnesses is substantially to the same effect. There was 
 some evidence as to deliveries made during the latter part of the month 
 mostly on orders taken earlier, but a careful examination of the evi- 
 dence shows that there was no market at the time, arid hence there 
 could be no market price. Market price is not an imaginary fictitious 
 thing, but is the price at which goods are. actually being sold in the 
 market at the time or times in question. 
 
 The burden was upon the plaintiff' to establish the amount of its 
 damages. This it did by showing that there was no available market 
 
Ch. 7) RIGHTS AND EEMEDIBS OF THE BUYER 1211 
 
 in which the cheese could be purchased, and that it was obliged to pay 
 for 6,500 pounds of No. 1 cheese 20 cents a pound, and for 12,875 
 pounds of No. 1 cheese 23 cents a pound, in order to fill contracts 
 which it had made with its customers. This made a prima facie case 
 for the plaintiff. If the damages could have been minimized by pur- 
 chase of the cheese in the open market, the burden was then upon the 
 defendant to show that there was such an available market in which 
 the goods could have been purchased. As has been said by this court, 
 the idea that there can be a real substantial market price for a given 
 commodity when there is no such commodity for siale in the market is 
 absurd. Cockbum and Another v. Ashland Lumber Company, 54 
 Wis. 619, 12 N. W. 49. The defendant in this case made no such 
 showing, and, as has been pointed out, it was, on the contrary, estab- 
 lished that no market existed. 
 
 The trial court therefore was in error in assessing the damages at 
 the difference between the contract price and the so-called market 
 price. The rule stated in subdivision 3, can only be applied under the 
 conditions therein prescribed. In other cases, where the property in 
 the goods has not passed to the buyer, and the seller refuses to deliver 
 the goods, the rule laid down in subdivision 2 establishes the measure 
 of damages, which is the loss directly and naturally resulting in the 
 
 ordinary course of events from the seller's breach of the contract. 
 * * * 
 
 The evidence in this case shows that the plaintiff purchased 6,500 
 pounds of No. 1 cheese at 20 cents, and was obliged to pay for the 
 remainder, 12,875 pounds, 23 cents a pound, and that the lowest price 
 quoted for 775 potmds of No. 2 was 17 cents a pound. It does not 
 clearly appear whether plaintiff purchased the 775 pounds at that price 
 or not, but he might have done so. On this basis the plaintiff was en- 
 titled to judgment for the sum of $1,095.37, with interest from Au- 
 gust 19, 1914. 
 
 The judgment appealed from should be modified as stated in the 
 opinion, and as so modified it is affirmed, with costs to the respondent. 
 
 SECTION 7.— RIGHT OF THE BUYER TO SUE THE 
 SELLER FOR CONVERSION OF THE GOODS 
 
 Sales Act, Section 66. Where the property in the goods has 
 passed to the buyer and the seller wrongfully neglects or refuses to 
 deliver the goods, the buyer may maintain any action allowed by 
 law to the owner of goods of similar kind when wrongfully con- 
 verted or withheld. 
 
 For the moment we leave the subject of the law of contracts and 
 sales, and note one phase of the law of torts. The nature of a tort, 
 and the scope of the field of tort liability was sketched in the general 
 introduction and in the chapters on Agency. We there saw that the 
 wrongful interference with one's property is a tort. When the 
 wrong done is with respect to tangible personal property, or even 
 sometimes to the written evidence of intangible claims, the injury 
 done is known as a conversion. Conversion is a wrong, not only 
 to the owner of the property, but also to the one who has legal 
 
1212 SALES (Part 4 
 
 possession. Here we are concerned only with the nature of the 
 right conferred by the law upon the owner to recover dafnages 
 from a person who has committed an unauthorized act with re- 
 spect to the property. We know that there are cases where the 
 buyer is the owner of the property, but where the possession is 
 still in the seller. The opportunity afforded the seller for commit- 
 ting a wrong with respect to the goods is present. He may refuse 
 to surrender them when the law directs him to do so. In this case 
 the buyer, by the above section, is entitled to enlist the aid of the 
 court to recover possession of them. Such an action is often called 
 an action of replevin. The seller may use the goods, damage 
 them, or dispose of them, so that the buyer cannot locate them. 
 In these cases the buyer may choose to recover damages to re- 
 imburse him for his wrong. The above section recognizes the 
 existence of this right. Such an action is oftentimes called an ac- 
 tion of trover, or of conversion, or of trover for conversion. 
 
 SECTION 8.— BUYER'S RIGHT OF SPECIFIC 
 PERFORMANCE 
 
 Sales Act, Section 68. Where the seller has broken a contract 
 to deliver specific or ascertained goods, a court having the powers 
 of a court of equity may, if it thinks fit, on the application of the 
 buyer, by its judgment or decree direct that the contract shall be 
 performed specifically, without giving the seller the option of re- 
 taining the goods on payment of damages, the judgment or de- 
 cree may be unconditional, or upon such terms and conditions as 
 to damages, payment of the price and otherwise, as the court may 
 think just. 
 
 SOUTHERN IRON & EQUIPMENT CO. v. VAUGHAN. 
 
 (Supreme Court of Alabama, 1918. 201 Ala. 356, 78 South. 212, Ij. R. A. 
 
 1918E, 594.) 
 
 Bill in equity by the Southern Iron & Equipment Company against 
 W. H. Vaughan. Decree for defendant, and plaintifif appeals. 
 
 Thomas, J. The suit, which was by appellant as complainant below, 
 was to restrain appellee (respondent) from making disposition to others 
 than complainant of certain railroad material alleged to have been 
 theretofore purchased by complainant from respondent; and it is 
 prayed in the bill that, upon final hearing, a decree be entered directing 
 specific performance of the contract on the part of respondent. The 
 bill does not aver the insolvency of the respondent. The court is 
 sought to be given jurisdiction of such matter by the averment: "That 
 the nature of the contract now existing between it and the respondent 
 is such that by a breach thereof by the respondent your orator will 
 have no complete and adequate remedy at law, and if such a breach 
 thereof is permitted, it will suffer great and irreparable injury thereby. 
 Your orator avers that the kind and character of rails sold by the re- 
 spondent to your orator cannot be procured by your orator in the open 
 
Ch. 7) EIGHTS AND REMEDIES OF THE BUYER 1213 
 
 market, and, despite diligent efforts, your orator has not been able to 
 procure them from any other source; that the market value of said 
 rails cannot be ascertained ; that if a breach of said contract is per- 
 mitted, there will be no way to ascertain readily and completely and ade- 
 quately the amount or extent to which your orator has been damaged. 
 * * * 
 
 _ The general rules obtaining, for specific performance, are that : "Eq- 
 uity will not, in general, decree the specific performance of contracts 
 concerning chattels, because their money value recovered as damages 
 will enable the party to purchase others in the market of like kind 
 and quality. Where, however, particular chattels have some special 
 value to the owner, over and above any pecuniary estimate — pretium 
 affectionis — and where they are unique, rare, and incapable of being 
 reproduced by money damages, equity will decree a specific delivery 
 of them to their owner, and the specific performance of contracts con- 
 cerning them." 
 
 For example, paintings, statuary, an ancient horn which has gone 
 along with plaintiff's estate (Pusey v. Pusey, 1 Vem. 273), an old 
 silver patera dug up on plaintiff's estate (Duke of Somerset v. Cookson, 
 3 P. Wms. 389), a peculiar tobacco box belonging to a club (Fells v. 
 Read, 3 Ves. 70), the dress and regalia of a Lodge of Free Masons 
 (Loyd v. Loaring, 6 Ves. 373), family pictures (Lady Arundel v. 
 Phipps, 10 Ves. 139), title deeds and valuable paintings (Lowther v. 
 Lord Lowther, 13 Ves. 95), a finely carved cherry stone (Peame v. 
 Lisle, Amb. 75, 17), two very valuable jars (Falcke v. Gray, 4 Drew. 
 651), and a newspaper business, printing plant, and material used in 
 said business (Williams v. Carpenter, 14 Colo. 477, 24 Pac. 558; Brady 
 V. Yost, 6 Idaho, 273,_ 55 Pac. 542). * * * 
 
 While complainant in the instant case does not aver the price at which 
 it had resold the property in question to L. B. Foster Company of 
 Pittsburgh, Pa., yet such sale is specifically averred, and the price there- 
 of fixed by complainant is easy of ascertainment for submission to a 
 jury for estimation of damages for a breach of the contract under the 
 rules of law obtaining in such matters. 
 
 The further averment that "said Foster Company are demanding" 
 fulfillment of their contract with complainant for said rails, and that 
 if complainant does not secure said rails from respondent to make de- 
 livery of the same in accordance with its contract with said Foster 
 Company, complainant will be unable to carry out its contract with that 
 company, and will be "irreparably damaged," does not make a case of 
 irreparable damage, that may not be fixed by a jury at law. * * * 
 The contract, specific performance of which was sought in Black Dia- 
 mond Co. v. Coal Co., 200 Ala_. 276, 76 South. 42, was for the pur- 
 chase and sale of coal, and required the defendant to sell to the plain- 
 tiff all of its output, to a stated daily average, for which the plaintiff 
 was to pay monthly a stated amount per ton, etc., thus contemplating 
 a continuous daily operation of the mine, requiring special skill, knowl- 
 edge, and direction, over a period of months, and stipulating for a suc- 
 cession of acts that cannot be consummated by one transaction. The 
 relief sought was denied. 
 
 Under the averments of the bill the act of delivery of the railroad 
 material was to embrace a series of installments extending over the 
 period from October 2 to November 2, 1917, necessitating the removal 
 of such material from its present location along a right of way of 14 or 
 
1214 SALES (Part 4 
 
 , more miles in length, and delivery f. o. b. the cars at Perry's Mills, 
 Ala. Thus the contract, by its terms, stipulated a succession of acts, 
 to be continued through the reasonable period required, to move to and 
 deliver at point of destination the property in question. If specific 
 performance of such contract be required by the court, a more or less 
 protracted supervision and direction would be necessary to consumate 
 such removal' and delivery as per contract stipulations. And it may 
 he that on this ground the decree of the court should be sustained, but 
 this is not decided. 
 
 However, we prefer to justify the ruling of the court in dismissing 
 plaintiff's bill, on the ground that the insolvency of Vaughan is not al- 
 leged, and that compensation for the breach of the contract will give 
 ful and complete redress, from the nature of the contract itself and the 
 character of the subject-matter thereof. That is, by a verdict at law 
 the complainant will obtain all that it was the object, by resale of the 
 property in question, to obtain. * * * 
 
 The result is unchanged by Lewman & Co. v. Ogden, 143 Ala. 351, 
 42 South. 102, 5 Ann. Cas. 265. There one of the parties had a con- 
 tract with the United States for the erection of certain locks and dams 
 on the Warrior and Tombigbee rivers, and sublet the contract to the 
 other party under the written agreement to do the work by a designated 
 time, and to furnish all necessary labor, teams, machinery, and appli- 
 ances, etc. ; and it was averred that said sublessee had ceased to work, 
 and was attempting to remove such personal property necessary to the 
 prosecution of the work, and to its completion "at the present season 
 of the year, and at the present stage of the water." The bill, "in 
 substance and in spirit" one for specific performance, was held to be 
 without equity. The court said that specific performance might be 
 decreed of a contract for the delivery of chattels, which no one but 
 the defendant can supply, and which are necessary to enable the plain- 
 tiff to fulfill an engagement with a third party, "but not where the de- 
 livery of the chattels by the defendant was a mere question of con- 
 venience." It may be that where goods of special value have been 
 sold^ and there are no other similar goods in the market, a contract for 
 the delivery of them would be specifically performed. * * * 
 
 The bill does not show that the complainant is not provided with 
 a plain and adequate remedy at law for the breach of the contract by 
 respondent Vaughan, but that a breach of such contract is fully meas- 
 urable by a money standard. The present temporary economic condi- 
 tion, brought about by the pending war, does not bring the instant case 
 within an exception to the general rules hereinabove adverted to. 
 
 The decree of the Montgomery circuit court in equity is affirmed. 
 
PART V 
 
 PARTNERSHIP 
 
 Chapter 
 
 Introduction. 
 I. What Constitutes a Partnership. 
 II. Relations of the Partners Between Themselves. 
 III. Relations of Partners to Third Persons. 
 IV. Causes of Dissolution. 
 V. Effect of Dissolution upon the Relations of the Partners Between 
 
 Themselves. 
 VI. Effect of Dissolution upon the Relations of the Partners to Third 
 Parties. 
 VII. Limited Partnerships. 
 
 INTRODUCTION 
 
 The preceding portions of this volume, in the main, have dealt 
 either with the general law of contracts or with the rules applica- 
 ble to particular kinds of contracts. This is particularly true of 
 Parts I, III, and IV. Part II dealt with the law of agency. To 
 a great extent this topic also concerned the application of the 
 principles of the law of contracts to a special relationship. The 
 primary object of study was, however, this relationship and its 
 consequences. It was necessary to draw upon the principles of 
 the law of contracts to determine the nature and consequences of 
 the relationship, but other departments of the law were also in- 
 volved. And so with respect to the law of partnership. The object 
 of study is the relationship. 
 
 A partnership is one form of business organization. It is one 
 method by which two or more persons may combine their services 
 and property for business purposes and for common ends. The 
 relationship is usually created by contract, but this relationship is 
 something separate and distinct from the contract which created it. 
 A contract to enter into a partnership and an actual partnership 
 are two different things. The law of partnership is concerned with 
 the solution of the special problems which arise out of and because 
 of the form of organization in which the business is carried on. 
 As in other branches of the law, the first question to arise is: 
 What groups or combinations of facts will create a partnership? 
 Persons may intend to enter into a partnership, but fail to do so. 
 Their acts may have created a different relationship. Conversely, 
 persons may intend not to enter into a partnership, but actually 
 form one. 
 
 After determining what facts are sufficient to create a partner- 
 ship, and what facts may or may not be present without affecting 
 the existence of the relationship, the questions then arise as to 
 the nature and extent of the legal consequences which follow the 
 B.& B.Btjs.Law ' (1215) 
 
1216 PARTNERSHIP (Part 5 
 
 formation of a partnership. There are a great number of general 
 and specific problems which arise naturally out of the situation. 
 Prominent among them is the series of problems which, either di- 
 rectly or indirectly, arise out of the fact that the partners have com- 
 bined their individual properties to be employed in a common en- 
 terprise. The law of property defines with considerable particu- 
 larity the legal relations which one has with respect to property. 
 But when two or more persons unite thdr properties, employ it 
 for business purposes, exchange the original properties for other 
 properties, accumulate surplus and sustain losses, a situation is 
 created which makes it impracticable, if not impossible, to re- 
 gard the original relation which each contributor to the capital 
 originally possessed as still continuing. Each partner owns the 
 property which he contributes to capital, but after the contribu- 
 tions have been made each partner's relations with respect to the 
 property which he contributed necessarily have changed. Much of 
 the law of partnership is concerned with the problem : What is the 
 relation of an individual partner with respect to the property em- 
 ployed in the enterprise? 
 
 The ascertainment of the interest of each partner with respect 
 to partnership property has a dbuble aspect. It is necessary to de- 
 termine what the relation is as between the partners themselves 
 and as between the partners and third parties. If the capital of a 
 partnership consists of land, buildings, machinery, and merchan- 
 dise, is any particular machine owned by one partner just as it was 
 before he employed it in the business? May he sell it otherwise 
 than in the course of the partnership business? May a creditor 
 of one of the partners, w'ith respect to a debt not contracted in 
 the course of the partnership business, seize the machine which 
 was contributed to the working capital of the business? These 
 are some of the detailed questions which involve the determination 
 of the nature and extent of the interest of the individual partners 
 in the partnership property. 
 
 Another question concerns the relations of firm creditors with 
 respect to the individual members of the firm. If a firm creditor 
 sues all the members of the firm, it logically follows that firm 
 property is liable to seizure for satisfaction of the debt. But is it 
 necessary that the firm creditor proceed against firm property? 
 May the creditor sue an individual partner alone? If he sues all of 
 the members of the firm, will he be permitted to take out execution 
 against individual property of the partners? The relation of firm 
 creditors and individual creditors with respect to property employ- 
 ed in the business and to the individual properties of each mem- 
 ber constitute an important part of the law of partnership. 
 
 A partnership is a relation voluntarily entered into by the mem- 
 bers. A great many changes in their relations, among themselves 
 and as regards third parties, arise as a result of their joint under- 
 taking. Whatever changes are thus worked, it is apparent that 
 the new relations will not continue indefinitely. These new re- 
 
INTRODUCTION 1217 
 
 lations may be destroyed. Another group of problems concerns 
 the question: What acts will operate as a dissolution of the 
 partnership relation? The term "dissolution" has a technical 
 meaning. As there used, it indicates that something has occurred 
 which has. materially changed the legal relations between the part- 
 ners and as between the partners and third parties. This ques- 
 tion divides into two parts: What facts will operate as a dissolu- 
 tion, and to what extent are the partnership relations changed? 
 A new member comes into the firm; an old member withdraws; 
 one of the partners dies; what effect is thereby produced upon 
 the partnership relations? 
 
 The principal problems of the law of partnership are therefore: 
 (1) What facts will create a partnership? (2) What legal rela- 
 tions arise therefrom (a) as between the partners; (b) as between 
 the partners and third parties? (3) What facts will cause a dissolu- 
 tion ? (4) What is the legal effect of a dissolution (a) as between 
 the partners; (b) as between the partners and third parties? 
 
 The Uniform Partnership Act, approved by the National Con- 
 ference of Commissioners on Uniform State Laws in 1914, has 
 been adopted in Idaho, Illinois, Maryland, Michigan, Minnesota, 
 New Jersey, New York, Pennsylvania, Tennessee, Utah, Wiscon- 
 sin, Wyoming, and Alaska. 
 
 The Uniform Limited Partnership Act, approved in 1916, has 
 been adopted in Idaho, Illinois, Iowa, Maryland, Minnesota, New 
 Jersey, Pennsylvania, Tennessee, Utah, Wisconsin, and Alaska.' 
 
 1 The notes appended to the various sections of the acts are the work of 
 Professor William Draper Lewis, the able draftsman of the Partnership 
 Acts. See texts of the Acts issued by the National Conference of Commis- 
 sioners on Uniform State Laws. 
 B.& iB.Bus.Law— 77 
 
1218 PARTNERSHIP (Part 5 
 
 CHAPTER I 
 
 WHAT CONSTITUTES A PARTNERSHIP 
 
 Section 
 
 1. Partnership the Result of Intention. 
 
 2. Partnership by Estoppel. 
 
 3. Partnership by Operation of Law as to Third Persons. 
 
 4. Partnerships Distingnished from Trusts for Business Purposes. 
 
 SECTION 1.— PARTNERSHIP THE RESULT OF 
 INTENTION 
 
 Uniform Partnership Act, Section 6. (1) A partnership is an 
 association of two or more persons to carry on as co-owners a 
 business for profit.* 
 
 2 Lewis' Note to Section 6 (1). — The first inquiry is, Why say a partnership 
 Is "an association of two or more persons"? In view of the fact that the 
 word "association" itself implies the acting together of two or more persons, 
 why not merely say that a partnership is an association to carry on business 
 in which the members are co-owners of the business? The word "person" 
 includes, as stated in section 2, supra, "individuals, partnerships, corpora- 
 tions, and other associations." The definition as worded thus asserts, what 
 would be doubtful if the words "of two or more persons" were omitted, 
 namely, that any one of these associations may become members of a part- 
 nership. It is true that if two or more corporations attempt to form a part- 
 nership the contract may be ultra vires as to both (Boyd v. American Carbon 
 Black Co., 182 Pa. 206, 37 Atl. 937 [1897]) ; but the capacity of corioorations 
 to contract is a question of corporation law. Under the present law it ap- 
 pears that a partnership can, as such, be a member of another partnership, 
 if that was the intent of the parties. Raymond v. Putnam, 44 N. 11. 160 
 (1862) ; Cheap v. Cramond, 4 Barn. & Aid. 663 (1821) ; In re Hamilton (D. C.) 
 1 Fed. 800 (1880) ; Riddle v. Whitehill, 135 U. S. 621, 10 Sup. Ct. 924, 34 L. 
 Ed. 282 (1890). 
 
 The words "to carry on as co-owners a business" remove any doubt in the 
 following case: A. and B. sign partnership articles and make their agreed 
 contributions to the common fund. A. refuses to carry on business as agreed. 
 Is there a partnership to be wound up in accordance with the provisions of 
 Part VI, "Dissolution and Winding up"? The words quoted require an af- 
 firmative answer to this question. If the words "carrying on business" had 
 been used, in the case given, no partnership would exist, and Part VI would 
 not apply. 
 
 The definition asserts that the associates are "co-owners" of the business. 
 This distinguishes a partnership from an agency — an association of principal 
 and agent. A business is a series of acts directed toward an end. Owner- 
 ship involves the power of ultimate control. To state that partners are 
 co-owners of a business is to state that they each have the power of ultimate 
 control. 
 
 Lastly, the definition asserts that the business is for profit. Partnership 
 is a branch of our commercial law ; it has developed in connection with a 
 particular business association, and it is, therefore, essential that the opera- 
 tion of the act should be confined to associations organized for profit. 
 
 In view of the many definitions of a partnership which have been pro- 
 posed, it is desirable to note the reasons for the omission of certain ideas 
 expressed in some of the definitions cited bv Lindley in his work on Partner- 
 ship, pp. 11, 12. 
 
 It is not indicated that the association must be a voluntary one. In the 
 domain of private law the term association necessarily involves the idea 
 that the association is voluntary. 
 
 To say that the association must be created by contract is not only unnec- 
 essary, but in view of the varied use of the word "contract" in our law if 
 the word is used an explanation would have to be made as to whether the 
 
^"- 1) WHAT CONSTITUTES A PARTNERSHIP 1219 
 
 (2) But any association formed under any other statute of this 
 state, or any statute adopted by authority, other than the authority 
 of this state, is not a partnership under this act, unless such asso- 
 ciation would have been a partnership in this state prior to the 
 adoption of this act; but this act shall apply to limited partner- 
 ships except in so far as the statutes relating to such partnerships 
 are inconsistent herewith.^ 
 
 Section 7. In determining whether a partnership exists, these 
 rules shall apply: 
 
 (2) Joint tenancy, tenancy in common, tenancy by the entireties, 
 joint property, common property, or part ownership does not of 
 itself establish a partnership, whether such co-owners do or do 
 not share any profits made by the use of the property. 
 
 (3) The sharing of gross returns does not of itself establish a 
 partnership, whether or not the persons sharing them have a joint 
 or common right or interest in any property from which the re- 
 turns are derived. 
 
 (4) The receipt by a person of a share of the profits of a busi- 
 ness is prima facie evidence that he is a partner in the business, 
 but no such inference shall be drawn if such profits were received 
 in payment: 
 
 (a) As a debt by installments or otherwise; 
 
 (b) As wages of an employee or rent to a landlord; 
 
 (c) As an annuity to a widow or representative of a deceased 
 partner ; 
 
 (d) As interest on a loan, though the amount of payment vary 
 with the profits of the business; 
 
 (e) As the consideration for the sale of the good will of a busi- 
 ness or other property by installments or otherwise. 
 
 contract could be implied, and, if so, whether it could be implied in law or 
 only implied as a fact. By merely saying that it is an association these 
 difficulties are avoided. 
 
 Again, it is not said that the business must he a lawful bu.«lness. The 
 effect of the unlawfulness of the business is dealt with under Part VI, "Dis- 
 solution and Winding Up." Section 31 (3), infra, provides that dissolution is 
 produced "by any event which makes it unlawful for the business of the 
 partnership to be carried on or for the members to carry it on in partnership." 
 If the business is wholly unlawful, then the partnership is dissolved the 
 moment it is created. The omission of the word "lawful" in the definition 
 does not prevent this result. Very often, however, a business may be in part 
 lawful and in part unlawful. Hotel keepers may run a "dive." Placing the 
 word "lawful" before the word "business" in the definition would tend to 
 throw a doubt on the propriety of the orderly winding up of such a business 
 as a partnership. 
 
 3 Lewis' Note to Section 6{2). — The reason for not following the English 
 Act, and attempting to enumerate the associations which are excluded be- 
 cause formed under special statutes, is because such an enumeration is un- 
 necessary, and because the paragraph would have to be differently worded 
 for each state. The paragraph as drawn makes any association formed under 
 a statute a partnership, if it would have been a partnership in the state if 
 the act had not been adopted. If the association would not have been a 
 partnership had the act not been adopted, the adoption of the act does not 
 make it a partnership. In short, the adoption of the act does not change 
 the legal status in the state of any association formed under a statute. 
 
1220 PARTNERSHIP (Part 5 
 
 ASH et al. V. GUIE. 
 (Supreme Court of Pennsylvania, 1881. 97 Pa. 493, 39 Am. Rep. 818.) 
 
 The members of a Masonic lodge, an unincorporated body, ap- 
 pointed a committee to erect a building for the use of the lodge, 
 authorizing them to borrow money for this purpose. The committee 
 accordingly borrowed'various sums, giving to the lenders certificates 
 of indebtedness in the name of the lodge, signed by the officers 
 thereof, and sealed with a seal, usually employed by the secretary for 
 authenticating communications to other lodges, and which had never 
 before been appended to a pecuniary obligation. In a suit brought 
 upon one of said certificates, wherein all the members of the lodge 
 were joined as defendants and alleged to be partners, verdict and 
 judgment in the trial court were for the plaintiff. Defendants bring 
 writ of error. 
 
 Trunkey, J. One of the defendants, called by* plaintifiFs, testified : 
 " * * * The purposes of our lodge are charitable, benevolent and 
 social." This is the evidence as to the objects for which the associa- 
 tion was formed, and without proof of its constitution or rules re- 
 specting admission of members and the management of its afifairs it 
 was held to be a common partnership. A partnership has been de- 
 fined to be a "combination by two or more persons of capital, or labor, 
 or skill, for the purpose of business for their common benefit." It 
 may be formed, not only for every kind of commercial business, but 
 for manufacturing, hunting, and the like, as well as for carrying on 
 the business of professional men, mechanics, laborers; and almost all 
 other employments. It would seem that there must be a community 
 of interest for business purposes. Hence, voluntary associations or 
 clubs, for social and charitable purposes, and the like, are not proper 
 partnerships, nor have their members the powers and responsibilities 
 of partners. * * * 
 
 A benevolent and social society has rarely, if ever, been consid- 
 ered a partnership. * * * Jn Flemyng v. Hector, 2 M. & W. 172, 
 Lord Abinger stated the difference between a body of gentlemen 
 forming a club and meeting together for one common object, and a 
 partnership where persons engage in a community of profit and loss, 
 and each partner has the right of property for the whole, and in any 
 ordinary transactions may bind the partnership by a credit. He held 
 that a club and its committee must stand on the ground of principal 
 and agent, and that the authority of the committee depends on the 
 constitution of the club, which is to be found in its own rules. . After 
 noting the rules of the club, in the case before him, he says : "It 
 therefore appears that the members in general intended to provide 
 a fund for the committee to call upon. I cannot infer that they in- 
 tended the committee to deal upon credit, and unless you infer that 
 that was the intention, how are the defendants bound?" A mutual 
 benefit society partakes more the character of a club than of a trading 
 association. Every partner is agent for the partnership, and as 
 concerns himself he is a principal, and he may bind the others by 
 contract, though it be against an agreement between himself and his 
 partners. * * * 
 
 Here there is no evidence to warrant an inference that when a 
 person joined the lodge he bound himself as a partner in the business 
 of purchasing real estate and erecting bilildings, or as a partner, so 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP • 1221 
 
 that other members could borrow money on his credit. The proof 
 fails to show that the officers or a committee, or any number of the 
 members, had a right to contract debts for the building of a temple 
 which would be valid against every member from the mere fact that 
 he was a member of the lodge. But those who engaged in the enter- 
 prise are liable for the debts they contracted, and all are included in 
 such liability who assented to the undertaking, or subsequently rat- 
 ified it. Those who participated in the erection of the building, by 
 voting for and advising it, are bound the same as the committee who 
 had it in charge. And so with reference to borrowing money. A mem- 
 ber who subsequently approved the erection or borrowing could be 
 held on the ground of ratification of the agent's acts. We are of 
 opinion that it was error to rule that all the members were liable 
 as partners in their relation to third persons in the same man- 
 ner as individuals associated for the purpose of carrying on a 
 trade. * * * 
 
 Judgment reversed. * * * 
 
 PHILLIPS V. PHILLIPS. 
 (Supreme Court of Illinois, 1863. 49 111. 437.) 
 
 John Phillips owned a business. His sons were not expressly 
 given any interest in the business, but they worked with him in mak- 
 ing a success of the enterprise, and received no salaries. The father 
 paid them, from time to time, out of the profits of the business, such 
 sums as they needed. One of the sons withdrew his services from 
 the business, and filed a bill for an accounting as a partner. 
 
 CaTon, C. J. The only question in this case is one of fact. Was 
 there a copartnership between John Phillips and his four sons, or was 
 he the sole proprietor of the business about which the controversy 
 has arisen? It must be remembered in the outset that this is a con- 
 troversy inter sese, and is not between third parties and the alleged 
 members of the firm. Parties may so conduct themselves as to be 
 liable to third persons as partners, when in fact no partnership ex- 
 ists as between themselves. The public are authorized to judge 
 from appearances and professions, and are not absolutely bound to 
 know the real facts, while the certain truth is positively known to the 
 alleged parties of a firm. A partnership can only exist in pursuance 
 of an express or implied agreement to which the minds of the par- 
 ties have assented. The intention or even belief of one party alone 
 cannot create a partnership without the assent of the others. If John 
 S. Phillips designed and really believed that there was a partnership, 
 but to which his father and brothers never assented, and in the exist- 
 ence of which they did not believe, then there was no partnership, un- 
 less, indeed, a copartnership could be formed and conducted with- 
 out their knowledge or consent. This would be simply absurd. We 
 cannot in this way surprise them into a partnership of which they 
 never dreamed. 
 
 Over 20 years ago John Phillips emigrated from Scotland and set- 
 tled in Chicago with his family, consisting of a wife and four sons 
 and two daughters. He was then very poor. He was a wood turner 
 by trade, and commenced that business in a very small way with a 
 foot lathe. He was frugal, industrious, and honest, and prospered as 
 
1222 PARTNERSHIP (Part 5 
 
 but few men, even in this country, prosper. He labored hard with 
 his own hands, and as his sons grew up they joined their work to his, 
 all except John S., who at a proper age was put as an apprentice to 
 learn the chair maker's trade; but, his health proving delicate, his 
 father made an arrangement with his master by which his time was 
 released when he had but partially learned his trade, when John S. 
 returned home and took a more or less active part in the business 
 of his father. His health was, however, for many years very del- 
 icate, and he was enabled to do but little physical labor. He, how- 
 ever, mostly took charge of the office and books, for which the 
 testimony shows he was very well qualified, and where he rendered 
 efficient service. In the meantime the business had grown from the. 
 smallest beginning, with a single foot lathe, to a large manufactory, 
 with extensive machinery propelled by steam; and chair making, 
 which was introduced at an early day, had become the principal or 
 largest branch of the business. Thus this business was begun and 
 continued and prospered till 1860, when the complainant left his fa- 
 ther and the business, and filed this bill for an account as among 
 partners. 
 
 The business had always been conducted, as it was begun, in the 
 name of John Phillips, the father, although in a few instances bills 
 were made out to John Phillips & Sons by persons with but a su- 
 perficial acquaintance with them, which were paid without eliciting 
 remark or particular attention. The books were all kept in the name 
 of John PhiUips, with the exception of a few entries made by a book- 
 keeper in the name of John Phillips & Sons. Indeed, there is, and 
 can be, no question that, if there was a copartnership embracing the 
 father and sons, the firm name adopted was John Phillips. 
 
 The complainant, to show a copartnership, proves that the sons 
 all devoted their time and attention to the business after they at- 
 tained their majority, without regular salaries as laborers or serv- 
 ants ; that funds which they drew from the concern for their support 
 were charged to each one separately, while neither received a credit 
 for labor or services ; that the father, upon one or two occasions, 
 stated to third persons that his sons were interested in the busi- 
 ness ; and he also relies upon the appearances to the outside public 
 and the interest which all took in the success of the business. 
 
 For the defense it is claimed that, following the habits and customs 
 of their forefathers in Scotland, the sons continued to serve the fa- 
 ther in the same relation and with the same fidelity after attaining 
 their majority as before, under the distinct and often declared un- 
 derstanding that all should belong to the father during his life, and 
 at his death the business and property should be left by him to his 
 children, as he should think proper. * * * jf such was the un- 
 derstanding and purpose of the parties, then there was no partner- 
 ship. Originally, undoubtedly, the entire concern belonged to the 
 father, and it so continued, unless by the agreement of the father the 
 sons were admitted into the concern as partners ; for, as before inti- 
 mated, we know of no means by which the sons could become part- 
 ners with the father, and thus acquire a title to his property, without 
 his knowledge or consent. Did the father ever consent that his sons, 
 or either of them, should be admitted as partners with him? Did 
 he ever agree that they should be part owners of this property ? On 
 repeated occasions the subject of a copartnership with his sons 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP 1223 
 
 was presented to him, both in the presence of the complainant and 
 his brothers, and he ever repudiated the suggestion in the most em- 
 phatic terms. The very suggestion, even seemed to excite his in- 
 dignation. Upon one occasion he expressed himself in this char- 
 acteristic phrase : "Na, Na ! I will ha^ nae sons for partners as long 
 as I live. Damn them ! they would put me out of the door." 
 
 On none of these occasions do we find the complainant or any of 
 his brothers, claiming the existence of a copartnership ; but, on the 
 contrary, they silently acquiesced in the assertions of the father. 
 * * * Had there been ever any agreement, express or implied, 
 that there should be a partnership, they, as parties to it, must have 
 been aware of it. If not expressed in words, there must have been 
 at least the mental intention and tacit understanding on the part of 
 the father that they should be admitted as partners, and on their part 
 to assume the benefits and liabilities of partners, and this could not 
 be without their knowledge. Others might be deceived by appear- 
 ances. Others, ignorant of the customs and traditions of their fore- 
 fathers, which are so fondly cherished by emigrants from the old 
 country, and particularly from Scotland, might draw erroneous con- 
 clusions as to the true relation existing between them as a family, 
 by seeing men in middle life zealously bending their energies under 
 the guidance of their father to the promotion of the success of the 
 business. Whoever should apply customs prevalent among native 
 Americans to this state of facts would unhesitatingly conclude that 
 all were in partnership. And so, no doubt, many were deceived ; 
 nor was it deemed necessary by any of the parties, on all occa- 
 sions, to undeceive them by a full explanation of this family arrange- 
 ment. 
 
 But the question here is, what was the actual fact? and not what 
 observers supposed was the fact from appearances. It is the internal 
 truth we are seeking, and these external appearances are only impor- 
 tant as they may enable us to arrive at this truth ; and when we so find 
 the truth by indubitably proof in a different direction than that indi- 
 cated by these external appearances, then these must go for naught. 
 Here we ha\e the positive testimon}- of every living man who has '"he 
 absolute knowledge of the facts, including the complainant himself, 
 all testifying most unqualifiedly that there was no partnership. 
 
 Decree is reversed, and the bill dismissed. 
 
 MEEHAN V. VALENTINE. 
 
 (Supreme Court of the United States, 1N92. 145 U. S. 611, 12 Sup. Ct. 972, 
 
 36 L. Ed. 835.) 
 
 Statement by Mr. Justice Gray : 
 
 This was an action of assumpsit brought by Thomas J. Meehan, a 
 citizen of Maryland, against John K. Valentine, executor of William 
 G. Perry, both citizens of Pennsylvania, alleging Perry to have been 
 a partner with Lawrence W. Counselman and Albert L,. Scott, under 
 the name of L,. W. Counselman & Co., and counting on promissory 
 notes of various dates from August 10, 1883, to November 25, 1884, 
 signed by that firm, indorsed to the plaintifif, and amounting- in all to 
 about $10,000, with interest. The defendant denied that Perry was 
 a partner in the firm. 
 
1224 PAETNEESHip (Part 5 
 
 At the trial, the plaintiff put in evidence the following agreement: 
 '%. W. Counselraan. Albert L. Scott, Office of L. W. Counselman & 
 Co., Oyster and Fruit Packers, corner Philpot and Will streets. Bal- 
 timore,' Md., March 15, 1880. For and in consideration of loans 
 made and to be made to us by Wm. G. Perry, of Philadelphia, amount- 
 ing in all to the sum of ten thousand dollars, for the term of one year 
 from the date of said loans, we agree to pay to said Wm. G. Perry, 
 in addition to the interest thereon, one tenth of the net profits over 
 and above the sum of ten thousand dollars on our business for the 
 year commencing May 1, 1880, and ending May 1, 1881 — i. e., if our 
 net profits for said year's business exceed the sum of ten thousand 
 dollars, then we are to pay to said W. G. Perry one tenth of said ex- 
 cess of profits over and above the said sum of ten thousand dollars; 
 and it is further agreed that if our net profits do not exceed the sum 
 of ten thousand dollars, then he is not to be paid more than the in- 
 terest on said loan, the same being added to notes at the time they are 
 given, which are to date from the time of said loans, and payable one 
 year from date. L,. W. Counselman & Co." * * * 
 
 The plaintiff also called Scott as a witness, who testified that the firm 
 was composed of L. W. Counselman and himself; that it was en- 
 gaged in "the fruit and vegetable packing and oyster business" in Bal- 
 timore; that Perry was in the stationery business in Philadelphia; 
 that the $10,000 mentioned in the agreement was paid by him to the 
 firm, receiving their notes for it, and remained in the business through- 
 out, no part of it having been repaid; that from time to time he lent 
 other sums to the firm, which were repaid; that he was an intimate 
 friend of the witness, and visited him every few weeks; that these 
 visits were not specially connected with the business, though on such 
 occasions Perry "usually went down to the place of business and talked 
 business ;" that he annually asked and received from the firm ac- 
 counts of profit and loss; that the accounts showed an annual profit, 
 which varied from year to year, amounting for the second year to $11,- 
 000 or $12,000 ; that, it being then found difficult to tell at the end of 
 the j^ear exactly what the profits would be, it was agreed with Perry 
 that he should thenceforth receive $1,000 each year, leaving the final 
 settlement until the whole business was settled up ; and that he re- 
 ceived under the agreement about $1,500 the first year, and $1,000 
 each subsequent year. On cross-examination, the witness stated that 
 the firm made an assignment to the plaintiff for the benefit of creditors 
 on April 30, 1885 ; that their liabilities were from $60,000 to $70,000, 
 about half of which was with collateral security, and he did not know 
 whether it had been paid out of such security; that the assets re- 
 alized less than $2,000; that so far as he knew, no dividend had been 
 paid; and, in regard to the $10,000 received from Perry, the witness 
 testified as follows : "Question. Mr. Counselman and yourself did owe 
 this $10,000 to the estate of Mr. Perry, did you? Answer. They had 
 my notes for it. Q. Did you or did you not owe it ? A. It was capital 
 he had in the business the same as ours. We owed it to him. Of 
 course, we owed it to him if we did not lose it." 
 
 At the close of the plaintiff's evidence, the defendant moved for a 
 nonsuit, on the ground that there was no evidence to show that Perry 
 was liable as a partner. The court so ruled, and ordered a nonsuit. 
 * * * Theplaintiff duly excepted to the ruling, and sued out this writ 
 of error. 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP 1225 
 
 Gray, J, * * * Some of the principles applicable to the ques- 
 tion of the liability of a partner to third persons were stated by Chief 
 Justice Marshall in a general way, as follows : "The power of an 
 agent is limited by the authority given him ; and, if he transcends 
 that authority, the act cannot affect his principal; he acts no longer 
 as an agent. The same principle applies to partners. One binds the 
 others so far only as he is the agent of the others." "A man who shares 
 in the profit, although his name may not be in the firm, is responsible 
 for all its debts." "Stipulations [restricting the powers of partners] 
 may bind the partners, but ought not to affect those to whom they are 
 unknown, and who trust to the general and well-established commer- 
 cial law." Winshipv. Bank,5Pet. 529, 561,562, 8Iv.Ed.216. * ;* * 
 
 How far sharing in the profits of a partnership shall make one liable 
 as a partner has been a subject of much judicial discussion, and the 
 various definitions have been approximate rather than exhaustive. 
 
 The rule formerly laid down, and long acted on as established, was 
 that a man who received a certain share of the profits as profits, with 
 a lien on the whole profits as security for his share, was liable as a 
 partner for the debts of the partnership, even if it had been stipulated 
 between him and his copartners that he should not be so liable; but 
 that merely receiving compensation for labor or services, estimated 
 by a certain proportion of the profits, did not render one liable as a 
 partner. Story, Partn. c. 4. * * * The test was often stated to be 
 whether the person sought to be charged as a partner took part of the 
 profits as a principal, or only as an agent. * * * 
 
 Accordingly, this court, at December term, 1860, decided that a per- 
 son employed to sell goods under an agreement that he should re- 
 ceive half the profits, and that they should not be less than a certain 
 sum, was not a partner with his employer. "Actual participation in 
 the profits as principal," said Mr. Justice Clifford in delivering judg- 
 ment, "creates a partnership as between the parties and third persons, 
 whatever may be their intentions in that behalf, and notwithstanding 
 the dormant partner was not expected to participate in the loss be- 
 yond the amount of the profits," or "may have expressly stipulated with 
 his associates against all the usual incidents to that relation. That rule, 
 however, has no application whatever to a case of service or special 
 agency, where the employee has no power as a partner in the firm and no 
 interest in the profits, as property, but is simply employed as a servant 
 or special agent, and is to receive a given sum out of the profits, or 
 a proportion of the same, as a compensation for his services." Bert- 
 hold V. Goldsmith, 24 How. 536, 542, 543, 16 L. Ed. 762. * * * 
 
 Mr. Justice Story, at the beginning of his Commentaries on Partner- 
 ship, first published in 1841, said: "Every partner is an agent of the 
 partnership; and his rights, powers, duties, and obligations are in 
 many respects governed by the same rules and principles as those of an 
 agent. A partner, indeed, virtually embraces the character both of a 
 principal and of an agent. So far as he acts for himself and his own 
 interest in the common concerns of the partnership, he may properly be 
 deemed a principal; and so far as he acts for his partners, he may 
 as properly be deemed an agent. The principal distinction between him 
 and a mere agent is that he has a. community of interest with the other 
 partners in the whole property and business and responsibilities of the 
 partnership; whereas an agent, as such, has no interest in either. 
 * * * " 
 
1226 PARTNERSHIP (Part 5 
 
 Afterwards, in discussing the reasons and limits of the rule by which 
 one may be charged as a partner by reason of having received part of 
 the profits ,of the partnership, Mr. Justice Story observed that the 
 rule was justified, and the cases in which it had been applied reconciled, 
 by considering that "a participation in the profits will ordinarily estab- 
 lish the existence of a partnership between the parties in favor of third 
 persons, in the absence of all other opposing circumstances,"_ but that 
 it is not "to be regarded as anything more than mere presumptive proof 
 thereof, and therefore liable to be repelled and overcome by other 
 circumstances, and not as of itself overcoming or controlling them," 
 and therefore that, "if the participation in the profits can be clearly 
 shown to be in the character of agent, then the presumption of partner- 
 ship is repelled." And again : "The true rule, ex sequo et bono, would 
 seem to be that the agreement and intention of the parties themselves 
 should govern all the cases. If they intended a partnership in the 
 capital stock, or in the profits, or in both, then that the same rule should 
 apply in favor of third persons, even if the agreement were unknown 
 to them. And on the other hand, if no such partnership were intend- 
 ed between the parties, 'then that there should be none as to third per- 
 sons, unless where the parties had held themselves out as partners to 
 the public, or their conduct operated as a fraud or deceit upon third 
 persons." Story, Partn. §§ 1, 38, 49. 
 
 Baron Parke (afterwards Lord Wensleydale) appears to have taken 
 much the same View of the siibject as Mr. Justice Story. Both in the 
 Court of Exchequer and in the House of Lords he was wont to treat 
 the liability of one sought to be charged as a dormant partner for the 
 acts of the active partners as depending on the law of principal and 
 agent. Beckham v. Drake (1841) 9 Mees. & W. 79, 98. * * * 
 
 In Cox v. Hickman, 8 H. L,. Cas. 268, two merchants and copartners, 
 becoming embarrassed in their circumstances, assigned all their prop- 
 erty to trustees, empowering them to carry on the business, and to di- 
 vide the net income ratably among their creditors (all of whom be- 
 came parties to the deed) and to pay any residue to the debtors, the 
 majority of the creditors being authorized to make rules for conduct- 
 ing the business or to put an end to it altogether. The House of Lords, 
 differing from the majority of the judges who delivered opinions 
 at various stages of the case, held that the creditors were not liable as 
 partners for debts incurred by the trustees in carrying on the business 
 under the assignment. The decision was put upon the ground that 
 the liability of one partner for the acts of his copartner is in truth 
 the Hability of a principal for the acts of his agent; that a right to 
 participate in the profits, though cogent, is not conclusive, evidence 
 that the business is carried on in part for the person receiving them ; 
 and that the test of his liability as a partner is whether he has author- 
 ized the managers of the business to carry it on in his behalf. * * * 
 
 This new form of stating the general rule did not at first prove 
 easier of application than the old one ; for in the first case which arose 
 afterwards one judge of three dissented (Kilshaw v. Jukes, 3 Best. 
 & S. 847), and in the next case the unanimous judgment of four judges 
 in the common bench was reversed by four judges against two in the 
 Exchequer Chamber, Bullen v. Sharp, 18 C. B. (N. S.) 614, and L. 
 R. 1 C. P. 86. And, as has been pointed out in later English cases, 
 the reference to agency as a test of jjartnership was unfortunate and 
 inconclusive, inasmuch as agency results from partnership rather than 
 
Ch. 1) WHAT CONSTITUTES A PAUTNERSIIIP 1227 
 
 partnership from agency. * * * Such a test seems to give a syno- 
 nym, rather than a definition ; another name for the conclusion, rather 
 than a statement of the premises from which the conclusion is to be 
 drawn. To say that a person is liable as a partner, who stands in the 
 relation of principal to those by whom the business is actually carried 
 on, adds nothing by way of precision, for the very idea of partnership 
 includes the relation of principal and agent. * * * 
 
 In other respects, however, the rule laid down in Cox v. Hickman 
 has been unhesitatingly accepted in England, as explaining and modi- 
 fying the earlier rule. * * * 
 
 In the present state of the law upon this subject, it may perhaps be 
 doubted whether any more precise general rule can be laid down than, 
 as indicated at the beginning of this opinion, that those persons are 
 partners who contribute either property or services to carry on a joint 
 business for their common benefit, and who own and share the profits 
 thereof in certain proportions. If they do this, the incidents or conse- 
 quences follow that the acts of one in conducting the partnership 
 business are the acts of all'; that each is agent for the firm and for the 
 other partners ; that each receives part of the profits as profits, and 
 takes part of the fund to which the creditors of the partnership have a 
 right to look for the payment of their debts ; that all are liable as part- 
 ners upon contracts made by any of them with third persons within the 
 scope of the partnership business ; and that even an express stipula- 
 tion between them that one shall not be so liable, though good between 
 themselves, is ineffectual as against third persons. And participating 
 in profits is presumptive, but not conclusive, evidence of partnership. 
 
 In whatever form the rule is expressed, it is universally held that 
 an agent or servant, whose compensation is measured by a certain 
 proportion of the profits of the partnership business, is not thereby 
 made a partner, in any sense. So an agreement that the lessor of a 
 hotel shall receive a certain portion of the profits thereof by way of 
 rent does not make him a partner with the lessee. * * * And it is 
 now equally well settled that the receiving of part of the profits of a 
 commercial partnership, in lieu of or in addition to interest, by way 
 of compensation for a loan of money, has of itself no greater effect. 
 
 ■•:: * * 
 
 In some of the cases most relied on by the plaintiff, the gerson held 
 liable as a partner furnished the whole capital on which the business 
 was carried on by another, or else contributed part of the capital and 
 took an active part in the management of the business. * * * And 
 in MoUwo v. Court of Wards, * * * after speaking of a contract ot 
 loan and security, in which no partnership was intended, it was justly 
 observed : "If cases should occur where any persons, under the guise 
 of such an arrangement, are really trading as principals, and putting 
 forward, as ostensible traders, others who are really their agents, they 
 must not hope by such devices to escape liability; for the law, in 
 cases of this kind, will look at the body and substance of the arrange- 
 ments, and fasten responsibility on the parties according to their true 
 and real character." L,- R. 4 P. C. 438. But in the case at bar no such 
 element is found. 
 
 Throughout the original agreement, and the renewals thereof, the 
 sum of $10,000 paid by Perry to the partnership, and for which they 
 gave him their promissory notes, is spoken of as a loan, for which the 
 partnership was to pay him le£,al interest at all events, and also pay 
 
1228 PARTNERSHIP (Part 5 
 
 him one tenth of the net yearly profits of the partnership business, if 
 those profits should exceed the sum of $10,000. The manifest inten- 
 tion of the parties, as apparent upon the face of the agreements, was 
 to create the relation of debtor and creditor, and not that of partners. 
 Perry's demanding and receiving accounts and payments yearly was 
 in accordance with his right as a creditor. There is nothing in the 
 agreement itself, or in the conduct of the parties, to show that he as- 
 sumed any other relation. He never exercised any control over the 
 business. The legal effect of the instrument could not be controlled 
 by the testimony of one of the partners to his opinion that "it was 
 capital he had in the business the same as ours ; we owed it to him ; of 
 course, we owed it to him if we did not lose it." 
 
 Upon the whole evidence, a jury would not be justified in inferring, 
 on the part of Perry, either "actual participation in the profits as 
 principal," within the rule as laid down by this court in Berthold v. 
 Goldsmith, or that he authorized the business to be carried on in part 
 for him or on his behalf, within the rule as stated in Cox v. Hickman 
 and the later English cases. There being no partnership, in any sense, 
 and Perry never having held himself out as a partner to the plaintiff 
 or to those under whom he claimed, the circuit court rightly ruled that 
 the action could not be maintained. * * * 
 
 Judgment affirmed. 
 
 SECTION 2.— PARTNERSHIP BY ESTOPPEL 
 
 Uniform Partnership Act, Section 16. (1) When a person, by 
 words spoken or written or by conduct, represents himself, or 
 consents to another representing him to any one, as a partner in 
 an existing partnership or with one or more persons not actual 
 partners, he is liable to any such person to whom such representa- 
 tion has been made, who has, on the faith of such representation, 
 given credit to the actual or apparent partnership, and if he has 
 made such representation or consented to its being made in a 
 public manner he is liable to such person, whether the representa- 
 tion has or has not been made or communicated to such person so 
 giving credit by or with the knowledge of the apparent partner 
 making the representation or consenting to its being made, (a) 
 When a partnership liability results he is liable as though he were 
 an actual member of the partnership, (b) When no partnership 
 liability results, he is liable jointly with the other persons, if any, 
 so consenting to the contract or representation as to incur liability, 
 otherwise separately,* 
 
 ^Lewis' Note to Section IS (lb). — The section clears several doubts and 
 confusions of our existing case law. It has been held that a person is liable, 
 if he has been held out as a partner and ijnows that he is being held out, 
 unless he prevents such holding out, even if to do so he has to take legal 
 action. Fletcher v. Pullen, 70 Md. 205, 16 Atl. 887, 14 Am. St. Rep. 355 (1889) ; 
 Tanner & De Laney Engine Co. v. Hall, 86 Ala. 305, 5 South. 584 (1888) ; 
 Rittenhouse v. Leigh, 57 Miss. 697 (1880) ; Speer v. Bishop, 24 Ohio St. 598 
 (1874); Prof. Burdick, In 30 Cyc. 393. On the other hand, the weight of 
 authority is to the effect that to be held as a partner he must consent to 
 the holding and that consent is a matter of fact. The act as drafted follows 
 this weight of authority and better reasoning. Morgan v. Farrel, 58 Conn. 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP 1229 
 
 (2) When a person has been thus represented to be a partner in 
 an existing partnership, or with one or more persons not actual 
 partners, he is an agent of the persons consenting to such represen- 
 tation to bind them to the same extent and in the same manner as 
 though he were a partner in fact, with respect to persons who 
 rely upon the representation. Where all the members of the ex- 
 isting partnership consent to the representation, a partnership act 
 or obligation results; but in all other cases it is the joint act 
 or obligation of the person acting and the persons consenting to 
 the representation. 
 
 THOMPSON V. FIRST NAT. BANK OF TOLEDO. 
 
 (Supreme Court of Uae United States, 1884. Ill XJ. S. 529, 4 Sup. Ot. 689, 
 
 28 L. Ed. 507.) 
 
 Gray, J. * * * f ^g remaining and the principal question in 
 the case is whether the liability of Thompson, by reason of having 
 held himself out as a partner, was submitted to the jury under proper 
 instructions. 
 
 The court was requested to instruct the jury that if Thompson was 
 not in fact a member of the partnership, the plaintiff could not recov- 
 er against him, unless it appeared from the testimony that he had 
 knowingly permitted himself to be held out as a partner, and that the 
 plaintiff had knowledge thereof during its transaction with the part- 
 nership. The court declined to give this instruction, and instead 
 thereof instructed the jury, in substance, that if Thompson permitted 
 himself to be held out to the world as a partner, by advertisements 
 and otherwise, as shown by the evidence, and to be introduced to oth- 
 er persons as a partner, the plaintiff was entitled to the benefit of the 
 fact that he was so held out, and he was estopped to deny his liability 
 as a partner, although the plaintiff did not know that he was so held 
 out, and did not rely on him for the payment of the plaintiff's debt, or 
 give credit to him, in whole or in part. This court is of opinion that 
 the circuit court erred in the instructions to the jury, and in the re- 
 fusal to give the instruction requested. 
 
 A person who is not in fact a partner, who has no interest in the 
 business of the partnership and does not share in its profits, and is 
 sought to be charged for its debts because of having held himself out, 
 or permitted himself to be held out, as a partner, cannot be made lia- 
 ble upon contracts of the partnership except with those who have con- 
 tracted with the partnership upon the faith of such holding out. In 
 such a case, the only ground of charging him as a partner is that, by 
 his conduct in holding himself out as a partner, he has induced per- 
 sons dealing with the partnership to believe him to be a partner, and, 
 by reason of such belief, to give credit to the partnership. As his lia- 
 bility rests solely upon the ground that he cannot be permitted to deny 
 a participation which, though not existing in fact, he has asserted, or 
 permitted to appear to exist, there is no reason why a creditor of the 
 partnership, who has neither known of nor acted upon the assertion 
 
 413, 20 Afl. 614, 18 Am. St. Rep. 282 (1890) ; Bishop v. Georgeson, 60 111. 484 
 (1871); Thompson v. First Nat. Bank, 111 TJ. S. 529, 4 Slip. Ct. 689, 28 L. 
 Ed. 507 (1884) ; Fisher v. A. Y. McDonald Co., 85 111. App. 653 (1899) ; Ihmgen 
 V. Lathrop, 104 Pa. 365 (1883) ; Wood's OoUyer, 75, note. 
 
1230 PARTNERSHIP (Part 5 
 
 or permission, should hold as a partner one who never was in fact, 
 and whom he pever understood or supposed to be, a partner, at the 
 time of dealing with and giving credit to the partnership. There may 
 be cases in which the holding out has been so public and so long con- 
 tinued that the jury may infer that one dealing with the partnership 
 knew it and relied upon it, without direct testimony to that effect. 
 But the question whether the plaintiff was induced to change his po- 
 sition by acts done by the defendant or by his authority is, as in other 
 cases of estoppel in pais, a question of fact for the jury, and not of 
 law for \he. court. The nature and amount of evidence requisite to 
 satisfy the juiy may vary according to circumstances. But the rule 
 of law is always the same : that one who had no knowledge or belief 
 that the defendant was held out as a partner, and did nothing on the 
 faith of such a knowledge or belief, cannot charge him with liability 
 as a partner if he was not a partner in fact. * * * 
 
 The result is that both, upon principle and upon authority, the third 
 and fourth assignments of error, as well as the first, must be sustained, 
 the judgment of the circuit court reversed, and the case remanded 
 to that court with directions to order a new trial. 
 
 SECTION 3.— PARTNERSHIP- BY OPERATION OF LAW 
 AS TO THIRD PERSONS 
 
 Uniform Partnership Act, Section 7. (1) Except as provided 
 by section 16, persons who are not partners as to each other are 
 not partners as to third persons. 
 
 As appears from the following case, the English courts once 
 held that the fact of sharing in the profits of a business established 
 a partnership liability upon such person as to third persons by 
 operation of law. This rule was not based upon estoppel. This 
 rule proceeds upon the theor)- that the fact of sharing in the profits 
 was Something more than evidence of intention to create a partner- 
 ship. It was conclusive proof of a pertnership as to third parties. 
 This rule was later overthrown by the English courts. Except in 
 a few cases, the earlier English rule has never been adopted in the 
 United States. The Uniform Partnership Act adopts the majority 
 rule. Under section 7 (1) there can be no partnership as regards 
 third persons except as the result of the application of the doc- 
 trine of estoppel. The sharing of profits is made but prima facie 
 evidences of a true partnership. Section 7 (4) provides : 
 
 The receipt by a person of a share of the profits of a business 
 is prima facie evidence that he is a partner in the business, but no 
 such inference shall be drawn if such profits were received in 
 payment: (a) As a debt by installpients or otherwise; (b) as 
 wages of an employee or rent to a landlord; (c) as an annuity 
 to a widow or representative of a deceased partner ; (d) as interest 
 on a loan; though the amount of payment vary with the profits 
 of the business; (e) as the consideration for the sale of the good 
 will of a business or other property by installments or otherwise. 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP 1231 
 
 HARVEY V. CHII..DS et al. 
 (Supreme Court of Ohio, 1876. 28 Ohio St. 319, 22 Am. Rep. 387.) 
 
 Day, J. The original action was brought by Harvey against Childs 
 and Potter, to recover $158.40, for seventeen hogs sold by Harvey 
 to Potter. 
 
 Potter is in default. Childs denies his liability. His liability is 
 claimed solely on the ground that he was a partner of Potter in the 
 adventure for which the hogs were purchased. 
 
 The partnership claimed rests on the following state of facts : Pot- 
 ter went to Childs, and told him that he had contracted for about two 
 car loads of hogs, to be dehvered at Loudonville the next day, and 
 had not the money to pay for them. He asked Childs to advance the 
 money and take an interest in the hogs. Childs refused. Thereupon 
 Potter proposed that if he would let him have the money to enable 
 him to pay for the hogs he had bought, and others he might have to 
 buy to make the two car loads, he (Childs) should take possession of 
 the hogs when carried at Loudonville,, as security for the money, take 
 them to Pittsburgh, sell them, and take his pay from the proceeds of 
 the sale; that he might have one half the net profits of the adventure 
 and that in no event should Childs sustain any loss, but the money 
 advanced by him should be fully paid by Potter in case the amount 
 realized from the sale of the hogs was insufficierft. Childs accepted 
 the proposition, and, it being agreed that $2,500 would be enough to 
 pay for the two car loads, he advanced that sum to Potter. After- 
 ward, without the knowledge of Childs, Potter bought the hogs in 
 question of Harvey, on his own credit, and they made part of the two 
 car loads of hogs which were takenvpossession of by Childs, sold in 
 Pittsburgh, and the avails of the sale were appropriated in payment 
 of the money advanced by him. No profits were made. The avails 
 of the sale were insufficient to pay the amount advanced by Childs, 
 and Potter advanced him the deficiency, and for time and expenses 
 in the transaction. 
 
 The question to be considered, then, is, Are the defendants, by con- 
 struction of law, to be regarded partners as to the plaintiff, being a 
 third person, in the debt incurred to him by Potter in his own name? 
 
 What shall be regarded, as to third persons, a test of partnership 
 between parties who do not consider themselves to be partners, and 
 who have done nothing to estop them from denyitig that they are 
 such, has been much discussed by courts and elementary writers, and 
 the problem seems to be one of diiificult solution. It is needless to 
 review here the numerous cases on the subject; a statement of re- 
 sults is sufficient. 
 
 No little difficulty has been experienced in determining the mean- 
 ing and limits of phrases that have been recognized as tests of a part- 
 nership in such cases, and in their application to the various cases 
 that arise. 
 
 The effort has been to draw a distinct line between cases where 
 one has a community of interest in the profits of a business, as dis- 
 tinguished from those where one is entitled to receive a sum of money 
 out of the profits as a creditor, or a sum proportionate to a quantum 
 of profits, or a share of the profits as a compensation for services or 
 labor. 
 
1232 PARTNERSHIP (Part 5 
 
 Although a partnership may be said to rest upon the idea_ of a 
 com:nunion of profits, nevertheless the foundation of the liability of 
 one partner for the acts of another is the relation they sustain to 
 each other, as being each principal and agent. That relation, it would 
 seem, then, constitutes the true test of a partnership liability, and 
 rests upon the just foundation that the joint liability was incurred on 
 the express or implied authority of the party sought to be charged. 
 
 But if the relation of principal and agent be regarded as the test of 
 a partnership and consequent joint liability, the question still remains, 
 what shall be deemed sufficient evidence of that relation,^ or to raise 
 the injplication of authority to incur the liability in question? 
 
 To this end numerous tests have been supposed tn exist; but the 
 best considered and least objectionable is that of a community of in- 
 terest in the profits of a business or transaction as a principal or pro- 
 prietor. * * * 
 
 But this test is valuable as a rule chiefly because it evinces a re- 
 lation between the parties, where each may reasonably be presumed 
 to act for himself and as agent for the others, and to that extent es- 
 tablishes the fact that the liability was incurred on the authority of 
 all so participating in the profits. Participation in the profits of a 
 business, however, cannot be regarded as a rule so universal and 
 unrelenting as to be tin justly applied in a case where a debt is incur- 
 red by one who cannot be said to be acting, in the particular transac- 
 tion, as the agent or on behalf of the party sought to be charged. 
 Therefore, on principle, the true test of a partnership, at last, is left 
 to be that of the relation of the parties as principal and agent, to be 
 proved by any competent evidence; for when they sustained that 
 relation, a joint liability may be said to have been incurred by the au- 
 thority, or on behalf of each of the parties so related. The tendency 
 of the more modern avithorities, both English and American is to this 
 conclusion. 
 
 The case of Cox v. Hickman, decided by the House of lyords in 
 1860. has become a leading case on that subject. 8 House of lyords, 
 268, 99 E. C. L. 47, 11 Eng. Repr. 431, 19 Eng. Rul. Cas. .323. It is 
 summarized in the subsequent case of Bullen v. Sharp, 1 Law Re- 
 porter, 112, by Blackburn, J., as follows: "I think the ratio decidendi 
 is that the proposition laid down in Waugh v. Carver, 2 H. Bl. 235, 
 126 Eng. Repr. 525, viz. that a participation in the profits of a busi- 
 ness does of itself, by operation of law, constitute a partnership, is 
 not a correct statement of the law of England; but that the true 
 question is, as stated by Lord Cranworth, whether the trade is car- 
 ried on on behalf of the person sought to be charged as a partner, the 
 participation in the profits being a most important element in deter- 
 mining the question, but not being of itself decisive; the test being, 
 in the language of Lord Wensleydale, whether it is such a participa- 
 tion in the profits as to constitute the relation of principal and agent 
 between the person taking the profits and those actually carrying on 
 the business." Addison on Contracts, 163. 
 
 These cases were decided before the passage of the act of par- 
 liament in relation to partnerships. But, so far as relates to this 
 question in a subsequent case, Bramwell, J., declared, in eflfect, that 
 the act was only declaratory of the common law, as held in Cox v. 
 Hickman. Holme v. Hammond, 7 Law, 218-236. 
 
 The question was much considered in Eastman v. Clark, S3 N. H. 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP 1233 
 
 276, 16 Am. Rep. 192, where the authorities are fully collated and 
 aUy reviewed. The case was decided in 1872. The conclusion ar- 
 rived at is stated by Smith, J., as follows: "The real ultimate ques- 
 tion in all cases like the present is one of agency. Did the person 
 sought to be charged stand in the relation of principal to the person 
 contracting the debt? Participation in the profits is not decisive of 
 the question, 'except so far as it is evidence of the relation of prin- 
 cipal and agent between the persons taking the profits and those ac- 
 tually carrying on the business.' Whether such relation actually ex- 
 isted is a question of fact. Upon the trial of that question, proof of 
 a right to participate in the profits would be a cogent and often prac- 
 tically conclusive piece of evidence to establish the existence of that 
 relation; but there is no sound foundation for an arbitrary rule of 
 law requiring courts or jurors to regard participation in the profits as 
 a decisive test which will in all instances necessitate the conclusion 
 that the participator is liable for the debts." 
 
 In the absence of any known stipulation to the contrary, every part- 
 ner of a trading firm, within the scope of the joint business, in con- 
 templation of law, is clothed with implied authority to enter into sim- 
 ple contracts on behalf of the firm in furtherance, of the business of 
 the partnership, and thereby bind each member of the firm. Where, 
 therefore, as in the case of Wood v. Vallette, 7 Ohio St. 172, and in 
 the later case of Leggett v. Hyde, 58 N. Y. 272, 17 Am. Rep. 244, 
 money is advanced, to be used in a trading business, and returned in 
 a year with a share of the profits made during that time, it may be 
 implied that the business was conducted on behalf and by the author- 
 ity of the person advancing the money and sharing the profits, for 
 it is to the continuing trade, in the ordinary way, that he looks for 
 his profits. 
 
 But such cases are plainly distinguishable from one where money 
 is advanced, to be embarked in a single transaction, where no credit is 
 contemplated. In such cases there is no ground for the implied au- 
 thority to incur debts, such as exists in regard to a general trading 
 business. 
 
 In the case before us it is obvious that it was not contemplated in 
 the arrangement between Childs and Potter that any indebtedness 
 should be incurred in the purchase of hogs for the contemplated ad- 
 venture, to which the whole business was to be confined. There is, 
 then, no ground for the implication of authority from Childs to incur 
 the debt in question. On the contrary, such implication is rebutted by 
 the advancement of money to pay for all the hogs that were to come 
 to his hands. 
 
 Moreover, Childs had no legal interest in any of the hogs until 
 they were delivered to him at the cars, nor had he any equitable in- 
 terest in hogs, before such delivery, that were bought by Potter and 
 not paid for by money received from Childs. He had, then, no in- 
 terest whatever in the hogs bought of Harvey on credit, when the 
 debt to him was incurred; and Potter, before delivery to Childs, 
 might have sold them without being liable to account to Childs. The 
 fa,ct is apparent that it was the understanding of the parties that Potter 
 had bought for himself, and, if need be, was in like manner to buy 
 enough more hogs to make two carloads ; and it cannot be doubted that, 
 until their delivery at least, all the hogs belonged to Potter alone, and 
 B.& B.BTJS.LAW— 78 
 
1234 PARTNERSHIP (Part 5 
 
 at most were only regarded as his contribution to the enterprise. If 
 so regarded, 'the case is like that of Wilson v. Whitehead, 10 M. & 
 W. 503, where it was agreed between three parties that one should 
 edit, another print, and the other publish a paper, and share equally 
 in the net profits. The printer was to furnish the paper and charge 
 the firm at cost prices. It was held that the printer alone was liable 
 to the person of whom he bought the paper. Parke, B., said: "The 
 question is, Did the other defendants authorize Whitehead to purchase 
 the paper on their account or on his own? It appears to me, on the 
 true construction of the contract, that the latter was the case. When 
 the paper was in his possession he was at liberty to have appropri- 
 ated it to any other purpose." 
 
 But the truth is, Potter was the owner of the hogs until they were 
 sold by Childs; for Childs declined to take any interest in the hogs 
 other than as security for the money advanced by him to Potter. 
 Looking to the whole matter, it is clear that the transaction was a loan 
 of money by one party to the other, on the security afforded by the 
 possession of the hogs. Childs, therefore, was the mere pledgee of the 
 hogs, with' a power of sale by agreement of the parties, and, as such, 
 had only special property in the hogs. The general property in the 
 hogs, from first to last, remained in Potter. He was the owner, and 
 if they had died on the way to market without the fault of Childs, 
 the loss would have fallen upon Potter, both by the positive agree- 
 ment of the parties, and the legal effect of the transaction between 
 them as bailor and bailee. There was, then, strictly speaking, no 
 mutuality of community of interest between them in the hogs. Childs 
 had no interest in them other than as security for a debt, and to 
 find in half the profits of their sale the measure of his reward for 
 the use of -his money, to be paid out of Potter's property. 
 
 The relation of the parties was that of debtor and creditor, of bailor 
 and bailee, and not that of partners. They had no mutual interest in 
 the hogs in common as principals or proprietors, nor was either acting 
 as principal for himself and agent for the other. If, however, that 
 relation could be said to exist after the hogs were delivered to Childs, 
 there is no ground for art inference that the debt to Plarvey, previously 
 contracted by Potter, was incurred upon the authority of Childs. On 
 the contrary, the facts rebut any implication of such authority, and 
 are consistent only with the supposition that the debt was incurred 
 without authority from Childs, who was doubtless no less surprised 
 to learn of the debt than Harvey was, after the failure of Potter, 
 to find the existence of a rule of law under which he had unwittingly 
 given credit to another and responsible party. We may, in conclu- 
 sion, therefore, well adopt in this case the language of Judge Story 
 (Partnership, § 36) : "Now, it is incumbent upon those who insist that 
 a partnership exists between the parties, as to third persons, by mere 
 operation of law, in opposition to their own intention, to establish that 
 in the given case, under all the circumstances, there is such a rule, and 
 that it is strictly applicable." 
 
 This disposes of the material question made by the record., The 
 court of common pleas gave Judgment in favor of the plaintiff, against 
 both Childs and Potter. The district Court, on error reversed the 
 judgment as to Childs. It follows that the judgment of the district 
 ■court must be affirmed. 
 
 Judgment accordingly. 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP 1235 
 
 SECTION 4.— PARTNERSHIPS DISTINGUISHED FROM 
 TRUSTS FOR BUSINESS PURPOSES 
 
 SIMSON et al. v. KLIPSTEIN. 
 (United States District Court, D. New Jersey, 1920. 262 Fed. 823,) 
 
 Action by Leslie N. Simson and George W. Hunter, trustees, against 
 Ernest C. Klipstein. On motion to dismiss for want of jurisdiction. 
 
 D.-^VTS, District Judge. Defendant in the above-stated cause moved 
 to dismiss the same on the ground that this court is without jurisdic- 
 tion because one of the necessary parties plaintiff and the defendant 
 are both citizens of the state of New Jersey. The defendant further 
 asks permission to take testimony to establish the citizenship of the 
 said necessary party and for an order adding the name of said party 
 plaintiff to the complaint. 
 
 On March IS, 1916, the plaintiffs, Simson and Hunter, by an in- 
 strument purporting to be a declaration of trust, called "Articles of 
 Association of Midvale Chemical Works," estabhshed a proposed trust 
 and constituted themselves trustees thereof. Their plan contemplated 
 that, as trustees of the Midvale Chemical Works, the name of the pro- 
 posed trust, persons would give to them money, in return for which 
 they would issue certificates entitling the holders thereof to share in 
 the profits resulting from their management of the enterprise upon 
 \^'hich they were to embark with said money. The certificate holders 
 were the beneficial owners of the money contributed by them, in that 
 they were to share in the profits earned and in the final distribution 
 of the assets of the association, in accordance with the terms of the 
 articles of association. According to said terms, however, the legal 
 and equitable title to the property is vested in the said trustees. 
 
 The trustees purchased at Elizabeth, N. J., some considerable real 
 estate and established and operated a factory thereon, wherein aniline 
 oil, etc., was manufactured. On May 31, 1917, the "Midvale Chemical 
 Works, by George W. Hunter. Leslie N. Simson, trustees." entered 
 into an agreement with the defendant for the sale to him of said real 
 estate and factory for the sum of $150,000, and also for the personal 
 property, including the raw materials on hand, an inventory of which, 
 the plaintiffs allege, showed it to be worth about $45,000 in addition. 
 The defendant entered into possession of the property, but it devel- 
 oped that the said trustees could not give a clear title to the real estate 
 and the defendant refused to accept a deed for the same. During the 
 time title to said real estate was being determined by litigation in the 
 Court of Chancery of New Jersey, the defendant continued in posses- 
 sion of the property and operated the factory. For his alleged failure 
 to pay for the personal property and raw materials, for his refusal to 
 remove from the premises at the termination of the litigation in ac- 
 cordance with the terms of an agreement entered into while litigation 
 was going on, and for damages alleged to have been done to the said 
 property while in possession of defendant, plaintiffs brought this ac- 
 tion against him to recover the sum of $141,870.78. The defendant is 
 before this court on motions as aforesaid. 
 
 Whether or not an association is a trust or partnership depends upon 
 the instrument creating it. Real estate trusts, such as this claims to- 
 
1236 PARTNERSHIP (Part 5 
 
 be, have arisen principally in Massachusetts and Missouri. Upon a 
 careful examination of the articles of association of the Midvale Chem- 
 ical Works and of the cases bearing upon this question, I am of the 
 opinion that the Midvale Chemical Works is a partnership. The test 
 is the power of control of the management of the association. If the 
 certificate holders have the power of control, the association is a part- 
 nership ; if they have not, and the power of control is in the trustees, 
 it is a trust. "The distinction," said Judge Morton, in the case of 
 In re Associated Trust (D. C.) 222 Fed. 1012, "betweenthe two turns 
 upon the provisions of the trust agreement or > declaration. In cases 
 where by the declaration of trust, the shareholders are given substantial 
 control of the management of the trust property, the trust is held to 
 be a partnership ; in cases where shareholders have no such control, the , 
 trust is held, for the purposes of taxation, to be of the same sort as 
 the usual testamentary trust, and not to be a partnership." * * * 
 
 In Williams v. Milton, 215 Mass. 1, 102 N. E. 355, Judge Loring, 
 in distinguishing the cases, said the difference "lies in the fact that in 
 the former cases the certificate holders are associated together by the 
 terms of the 'trust' and are the principals whose instructions are to be 
 obeyed by their agent, who for their convenience holds the legal title 
 to their property. The property is their property. They are the 
 masters. While in Mayo v. Moritz, on the other hand, there is no 
 association between the certificate holders. The property is the prop- 
 erty of the trustees, and the trustees are the masters. All that the 
 certificate holders in Mayo v. Moritz had was a right to have the 
 property managed by the trustees for their benefit.' They had no 
 right to manage it themselves, nor to instruct the trustees how to man- 
 age it for them. As was said by C. Allen, J., in Mayo v. Moritz, 
 151 Mass. 481, 484 [24 N. E. 1083] : 'The scrip holders are cestuis 
 que trust, and are entitled to their share of the avails of the property 
 when the same is sold,' and that is all to which they were entitled. In 
 Mayo v. Moritz the scrip holders had a common interest in the trust 
 fund in the same sense that the members of a class of life tenants 
 and the members of a class of remaindermen (among whom the in- 
 come of a trust fund and the corpus are to be distributed respectively) 
 have a common interest. But in Mayo v. Moritz there was no asso- 
 ciation among the certificate holders just as there is no association, 
 although a common interest among the life tenants or the remainder- 
 men in an ordinary trust." 
 
 It was held in New Jersey that the mere sharing in profits would 
 make persons partners as to third parties, even though there was 
 no intention to become partners. * * * Later this rule seems to 
 have been modified, so that profit sharers must have the power of 
 control, in order to constitute them partners. * * * It is not 
 necessary that the power of control should be actually exercised for 
 partnership to exist. It is sufficient if the power is given, though nev- 
 er exercised. * * * This would follow as a necessary corollary 
 from the statement that whether or not a partnership exists, rather 
 than a trust, depends upon the terms of the creative instrument, the 
 trust declaration, for it could not be determined from the examination 
 of such instrument whether or not the power given by it had been 
 exercised. 
 
 Power of control in the case at bar is given to the certificate hold- 
 ers in the articles of association. By articles X and XI a meeting 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP 1237 
 
 may be called at any time, and the certificate holders may amend any 
 and all of the articles of the association, except in three particulars, 
 not essential to the substantial control of the association or the man- 
 agement of the property thereof. In article II it is provided that: 
 
 "The trustees shall have the power to contract and carry on in the 
 name of and for the association any business which could be lawfully 
 conducted or carried on by an individual, and, in the conduct of such 
 business, may use and invest any funds of the association and shall 
 have full general power and authority to buy,' sell, pledge, mortgage, 
 grant, convey and exchange property of every description, real, per- 
 sonal or mixed," etc. 
 
 Suppose at one of their meetings provided for in article XI, the 
 certificate holders should pass a resolution amending article II, line 1, 
 by striking out the word "trustees" and substituting in lieu thereof 
 the words "certificate holders," the trustees would be practically strip- 
 ped of their control and operation of the enterprise. 
 
 In article XXI it is provided that "the trust here created shall ter- 
 minate at the expiration of 21 years after the death of the last survivor 
 of the above named trustees," etc. If in one of their said meetings 
 the certificate holders should pass a resolution amending the said 
 •article, so that the trust should terminate forthwith, the trustees 
 would be powerless and the trust would come to an end. The trus- 
 tees have no vote in such matters, nor have they, so far as the facts 
 before me disclose, any capital of their own in the enterprise to pro- 
 tect. It is evident that the power of control of the management is 
 in the certificate holders, and may at any time be exercised by them, 
 notwithstanding any opposition the trustees might oflfer. The cer- 
 tificate holders are associated together by the terms of the creative 
 instrument. The association is therefore a partnership, and not a 
 trust. 
 
 Does it thereupon follow, as contended by the defendant, that the 
 names of the certificate holders should be added as parties plaintiff, 
 one of whom, it is alleged, is a citizen of New Jersey, which fact ousts 
 this court of jurisdiction? It should be noted that the association 
 is a partnership, the certificate holders themselves being the part- 
 ners, and not, as defendant seemed to think, partners with the trus- 
 tees, who are not certificate holders. There is, therefore, no trust 
 here, and strictly speaking no trustee. The so-called trustees repre- 
 sent the certificate holders. The certificate holders are principals, 
 and the trustees, the plaintiffs, are their mere "managing agents." 
 By whatever name, however, they are designated, there can be no 
 doubt that they have full authority to represent the certificate hold- 
 ers and bind them in all transactions touching the property. It will 
 be recalled that by article II the "trustees" "have full general power 
 and authority to buy, sell, pledge, mortgage, grant, convey, and ex- 
 change property of every description, * * * and do all things 
 necessary to the conduct of the business which they may undertake." 
 It is further provided in article IV that "the trustees shall be deemed 
 the absolute owners of all the property of the association and both 
 the legal and equitable title to all such property shall be vested abso- 
 lutely in them." 
 
 The defendant in all his dealing with the plaintiffs, has regarded 
 and accepted them as accredited authoritative agents of the certificate 
 holders, with full power to deal as they pleased with the property con- 
 
1238 PAETNERSHiP (Part 5 
 
 tributed by said certificate holders. That the present plaintiffs are 
 the proper parties plaintiff in a suit in equity in New Jersey touching 
 said property was decided in the case of Simson et al. v.' Klipstein, 
 88 N. J. Eq. 229, 102 Atl. 242. The parties plaintiff and defendant 
 were the same in that case as in the instant case and the same ques- 
 tions which are raised here as to proper parties were raised there, 
 and decided against the defendant. In view of the powers conferred 
 upon the so-called trustees or "managing agents" by the articles of 
 the association, the recognition by the defendant of their full and un- 
 questioned authority of the association, and the decision of the Court 
 of Chancery of New Jersey holding that the plaintiffs are the proper 
 parties plaintiff in a suit touching said property, I am of the opin- 
 ion that Simson and Hunter are proper parties plaintiff, and have 
 full power and authority to represent the certificate holders in this pro- 
 ceeding. * * * 
 
 The defendant may have 20 days, after the entry of order, within 
 which to answer. 
 
 WILLIAMS et al. v. IXILVBITANTS OF MILTON. 
 (Supreme Judicial Court of Massachusetts, 1913. 215 Mass. 1, 102 N. E. 355.1 
 
 LoRiNG, J. These are four petitions for the abatement of taxes 
 assessed upon the plaintiffs as trustees of the Boston Personal Prop- 
 erty Trust. The Boston taxes were assessed on the theory that the 
 property held by the plaintiffs under that trust was partnership prop- 
 erty to be assessed under St. 1909, c. 490, pt. 1, § 27, in Boston where 
 the partnership (if there was a partnership) had its place of business. 
 The other taxes were assessed upon the theory that the property held 
 by the plaintiffs under that trust was held by them as trust property 
 the income of which was payable to another person and was to be 
 assessed under St. 1909, c. 490, pt. 1, § 23, cl. 5. 
 
 It has been contended in effect if not in terms that whatever may 
 be its true character the trust for the purposes of taxation was a 
 partnership. Doubtless the Legislature might provide that a trust 
 which was not a partnership should be treated as a partnership for 
 the purposes of taxation. But it has not done so. What the Leg- 
 islature has done is to provide (1) that "personal property held in 
 trust by an executor, administrator or trustee, the income of which is 
 payable to another person, shall be assessed to the executor, admin- 
 istrator or trustee in the city or town in which such other person re- 
 sides, if within the commonwealth," and if he resides out of the com- 
 monwealth, in the place where the trustee resides (St. 1909, c. 490, 
 pt. 1, § 23) ; and (2) that "partners, whether residing in the same or 
 in different cities or towns, may be jointly taxed under their firm 
 name, in which their business is carried on, for all the personal prop- 
 erty employed in such business, except ships or vessels" (St. 19(P, 
 c. 490, pt. 1, § 27). That is to say, the Legislature has provided 
 that the right to tax property as trust or as partnership property de- 
 pends upon the real character of the property taxed. Under these 
 enactments of the Legislature there is no room for holding that prop- 
 erty which is in reality not partnership property can be taxed as part- 
 nership property. The right to tax property as trust or as partner- 
 ship property depends upon what the character of the property taxed 
 really is. * * * 
 
Ch. 1) WHAT CONSTITUTES A PARTNERSHIP 1239 
 
 This brings us to the question of the character of the Boston Per- 
 sonal Property Trust. It is plain that it is a trust and not a partner- 
 ship. By the terms of the indenture of trust the property contributed 
 by the certificate holders, or that bought with money contributed by 
 them (the original trust property could be acquired in both ways by 
 the terms of the indenture of trust), was to be held by the trustees 
 in trust to pay the income to the holders of the certificates, and on the 
 termination of the trust to divide the trust fttnd or the proceeds there- 
 of among them. The certificate holders are throughout called "cestuis 
 que trustent." The certificate holders, or "cestuis que trustent," are 
 in no way associated together, nor is there any provision in the in- 
 denture of trust for any meeting to be held by them. The only act 
 which (under the trust indenture) they can do is to consent to an 
 alteration or amendment of the trust created by the indenture or 
 to a termination of it before the time fixed in the deed. But they can- 
 not force the trustees to make such alteration, amendment or termina- 
 tion. It is for the trustees to decide whether they will do any one of 
 these things. All that the certificate holders or "cestuis que trustent" 
 can do is to give or withhold their consent to the trustees taking such 
 action. And the giving or withholding of consent by the cestuis que 
 trust is not to be had in a meeting, but is to be given by them indi- 
 vidually. As we hafve said, no meeting of the cestuis que trust for 
 that or any other purpose is provided for in the trust indenture. The 
 trustees of the Boston Personal Property Trust have a right to sell 
 the trust securities and reinvest the proceeds, and also a limited pow- 
 er to borrow on the security of the trust property. The certificate 
 holders, or "cestuis que trustent," as they are called in the trust deed, 
 have a common interest in precisely the same sense that the members 
 of a class of life tenants (among whom the income of a trust fund is 
 to be distributed) have a common interest, but they are not socii, and 
 it is the trustees, not the certificate holders, who are the masters of 
 the trust property. The sole right of the cestuis que trust is to have 
 the property administered in their interest by the trustees, who are 
 the masters, to receive income while the trust lasts, and their share of 
 the corpus when the trust comes to an end. 
 
 It has been urged by the learned counsel for the city of Boston 
 that these certificate holders or "cestuis que trustent" are in effect 
 carrying on the business of buying and selling securities through the 
 trustees as managing agents or directors, and he refers to two facts 
 which (he argues) bear him out in that contention, namely : (1) That 
 the trustees on April 1, 1911, had on hand undivided income to the 
 amount of $51,516.93, and a "surplus capital" amounting to $488,- 
 566.35. By the terms of the trust the trustees are authorized to set 
 aside from time to time such portion of the net income as shall not 
 be required for dividends for a "surplus fund," which surplus fund 
 may be subsequently used by them in their discretion in payment of 
 dividends. It appears that the face value of the outstanding certifi- 
 cates is $2,090,500. The surplus fund of undivided income therefore 
 amounts to about 2% per cent, of the corpus of the fund. The sur- 
 plus capital of $488,566.35 is about 23% per cent, of the face value of 
 the outstanding certificates. That is not an extraordinary increase in 
 the value of the corpus of the trust fund during a period of 18 years. 
 But this contention brings out a fact in addition to those already re- 
 
1240 PARTNERSHIP (Part 5 
 
 ferred to, which shows that the Boston Personal Property Trust is 
 not a partnership, but a trust, and nothing but a trust. 
 
 When persons engage as partners in buying and selling stocks, bonds 
 and other securities for their mutual profit, the gains made by pur- 
 chases and sales are profits of the partnership, divisible as such 
 among those entitled to the profits of the partnership. In the case of 
 a trust, on the other hand, any gain made by a change of investments 
 is an accretion belonging to the corpus of the trust fund and belongs 
 to those who own the corpus of the fund. Such gains become part 
 of the corpus as much as the original money contribution to the trust 
 fund. On them the certificate holders or "cestuis que trustent" are 
 entitled to income while the trust lasts, and to their share of them 
 (because they are included in the corpus of the trust fund) when the 
 trust ends and there is a distribution of the corpus among the cestuis 
 que trust. That is the way in which the trustees of the Boston Per- 
 sonal Property Trust have dealt with gains made by changes of in- 
 vestment of the securities of that trust. That is to say, the trustees 
 have treated gains from sales of securities not as profits of a pju'tner- 
 ship organized to buy and sell stock for a profit, but as gains on a 
 change made in the investments of a trust fund. * * * 
 
 There is nothing in the trust deed of the Boston Personal Property 
 
 Trust which is in any way different from a trust under a will except 
 
 ■ that there are no limitations over and the interests of the cestuis que 
 
 trust are represented by transferable and transmissible certificates. 
 
 Up to this time we have not alluded to the declaration in the in- 
 denture of trust here in question that it was the intention of the par- 
 ties to it to create a trust and not a partnership. It is what the par- 
 ties did that is decisive. If there had been doubt as to what they did, 
 what they intended to do would have been a matter entitled to some 
 consideration in determining what they did. * * * 
 
 In the Boston Personal Property Trust the property is the property 
 of the trustees, to be managed for the benefit of the certificate holders, 
 but to be managed by the trustees and not by the certificate holders. 
 There is no association of or among the certificate holders. The rights 
 of the certificate holders are limited to each receiving his share of the 
 income of the trust investments during the continuance of the trust 
 and his share of the corpus of the trust when the trust comes to an 
 end. It is in every respect an investment trust and nothing more. 
 
 It follows (1) that the property held by the plaintiff as trustees of 
 the Boston Personal Property Trust was not taxable as partnership 
 property, and that in the petition brought by them against the city of 
 Boston they are entitled to an abatement ; and (2) that their property 
 was taxable as property held in trust, the income of which was pay- 
 able to another, and the taxes assessed by the assessors of the city of 
 Waltham and by the assessors of the inhabitants of Milton and of 
 Brookline were properly assessed, and that the petitions against those 
 municipalities should be dismissed. 
 
 It is so ordered. 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THBMSBLVHa 1241 
 
 CHAPTER II 
 
 RELATIONS OF THE PARTNERS BETWEEN 
 THEMSELVES 
 
 Section 
 
 1. Partner's Interest in Specific Partnerslilp Property. 
 
 2. What Constitutes Partnership Property. 
 
 3. What Constitutes Partnership Capital. 
 
 4. Acquisition and Transfer of Partnership Realty. 
 6. Partnership Name and Good Will. 
 
 6. Partner's Interest In the Partnership. 
 
 7. Sharing of Profits and Losses. 
 
 8. Partner's Right to Repayment of Contributions. 
 
 9. Partner's Right of Indemnity. 
 
 10. Partner's Right to an Acconntlng. 
 
 11. Fiduciary Relation of Partners. 
 
 12. Partner'^ Right to Participate In Management 
 
 13. Partner's Right to Information. 
 
 14. Partner's Right to Remuneration for Services. 
 
 SECTION 1.— PARTNER'S INTEREST IN SPECIFIC 
 PARTNERSHIP PROPERTY 
 
 Uniform Partnership Act, Section 24. The property rights of 
 a partner are (1) his rights in specific partnership property, (2) 
 his interest in the partnership, and (3) his right to participate in 
 the management. 
 
 Uniform Partnership Act, Section 25. (1) A partner is co- 
 owner with his partners of specific partnership property holding as 
 a tenant in partnership.^ 
 
 1 Leicis' Note to Section' 25(1). — One of the present principal difficulties in 
 the administration of the law of partnerships arises out of the difficulty of 
 determining the exact nature of the rights of a partner in specific partnership 
 property. That the partners are co-owners of partnership property is clear; 
 but the legal incidents attached to the right of each partner as co-owner .'ire 
 not clear. When the English courts in the seventeenth century first began 
 to discuss the legal incidents of this co-ownership, they were already fani.iiiar 
 with two other kinds of co-ownership joint tenancy and tenancy in common. 
 In joint tenancy, on the death of one owner his right in the property passes 
 to the other co-owners. This is Isnown as the right of survivorship. The 
 incident of survivorship fits in with the the necessities of partnership. On the 
 death of a partner, the other partners, and not the executors of the deceased 
 partner, should have a right to wind up partnership affairs. See clause 
 (d), infra. The early courts, therefore, declared that partners were joint 
 tenants of partnership property ; the consequence being that all the other legal 
 incidents of joint tenancy were applied to partnership co-ownership. Many 
 of these Incidents, however, do not apply to the necessities of the partnership 
 relation and produce most Inequitable results. This is not to be wondered at, 
 because the legal Incidents of joint tenancy grew out of a co-ownership of land 
 not held for the purposes of business. The attempt of our courts to escajje 
 the inequitable results of applying' the legal incidents of joint tenancy to 
 partnership has produced very great confusion. Practically this confusion 
 has had more unfortunate effect on substantive rights when the separate 
 creditors of a partner attempt to attach and sell si)eciflc partnership prop- 
 erty than when a partner attempts to assign specific partnership prop- 
 erty not for a partnership purpose, but for his own purposes. 
 
 The Commissioners, however, believe that the proper way to end the con- 
 
1242 PARTNERSHIP (Part 5 
 
 (2) The incidents of this tenancy are such that: 
 
 (a) A partner, subject to the provisions of this act and to any 
 agreement between the partners, has an equal right with his part- 
 ners to possess specific partnership property, for partnership pur- 
 poses; but he has no right to possess such property for any 
 other purpose without the consent of his partners. 
 
 (b) A partner's right in specific partnership property is not as- 
 signable except in connection with the assignment of the rights of 
 all the partners in the same property.* 
 
 fusion, whicli has arisen out of the attempt to treat partners as joint ten- 
 ants, is to recognize the fact that the rights of a partner as co-owner with 
 his partners of specific partnership property should depend on the necessities 
 of the partnership relation. In short, that the legal incidents of the tenancy 
 In partnership are not necessarily those of any other co-ownership. 
 
 In the clauses of this section these incidents of tenancy in partnership are 
 stated with several practical results of value. In the first place, the law is 
 greatly simplified in expression. In the second place, the danger of the 
 courts reaching an inequitahle conclusion by refusing to modify the results 
 of applying the legal incidents of joint tenancy to the partnership relation is 
 done way with. Finally, ground is laid for the simplification of a procedure 
 in those cases where the separate creditor desires to secure satisfaction out 
 of his debtor's interest in the partnership. Compare clause (c) with section (1). 
 
 2 Lewis' Note to Section 25 (26). — Clause (b) asserts that the right of a 
 partner as co-owner in specific partnership property is not separately assign- 
 able. This peculiarity of tenancy in partnership is a necessary consequence 
 of the partnership relation. If A. and B. are partners, and A. attempts to as- 
 sign all his rigfit in partnership property, say, a particular chattel, to C, 
 and the law recognizes the possibility of such a transfer, C. would pro tanto 
 become a partner with B. ; for the richts of A. in the chattel are to possess 
 the chattel for a partnership purpose. But partnership is a voluntary rela- 
 tion. B. cannot have a partner thrust upon him by A., without his (B.'s) 
 consent. A. cann'ot confer on C. his (A.'s) right to possess and deal with the 
 chattel for a partnership purpose. Neither can he confer any other rights 
 which he has in the property. A partner has a beneficial interest in partner- 
 sliip property considered as a whole. As profits accrue, he has a right to be 
 paid his proportion, and on the winding up of the business, after the obliga- 
 tions due third persons have been met, he has a right to be paid in cash his 
 share of what remains of the partnership property. These rights, considered 
 as a whole, are bis interest in tlie partnership; and this beneficial interest 
 he may assign, in whole or fractional part, as is indicated in section 27, infra. 
 In a sense, each partner, having thus a beneficial interest in the partnership 
 property considered as a whole, has a beneficial interest in each part, and 
 such beneficial interest might be regarded as assignable, if it were not iui- 
 possible, except by purely arbitrary and artificial rules, to measure a part- 
 ner's beneficial interest in a specific chattel lielonging to the partnership, or 
 any other specific portion of partnership propeity. 
 
 A single illustration will make clear the Impossibility of determining a 
 partner's beneficial Interest in any single piece of partnership property. 
 Let us suppose A. and B. are partners. The value of partnership property is 
 $100,000; the liabilities amount to ,$50,000. A. has contributed $15,000, and 
 has a three-fourths interest in the profits;- B., $10,000, and has a one-fourth 
 interest in the profits. A. attempts to assign his interest in certain definite 
 chattels belonging to the partnership; the value Of these chattels being 
 $5,000. The chattels themselves must be still used for partnership purposes. 
 On dissolution, if still part of the partnership property, they must be sold. 
 If A. conveyed anything, it was not a right in these chattels, but in a frac- 
 tional part of his Interest in the partnei'ship. But how is it to be deter- 
 mined what fractional part of his Interest In the partnership A. intended 
 to assign? Did he intend to give B. a lien for $5,000 on his interest, or a 
 lien on his interest for three-fourths — his share of the profits— of $5,000' Or 
 did he intend to give him a lien on his interest in the partnership, which in 
 amount should bear the same proportion to the total value of the chattel 
 $5,000, as the amount which he would receive should the partnership b& 
 
Ch. 2) RELATIONS OF THE PARTNBIiS BETWEEN THEMSELVES 1243 
 
 (c) A partner's right in specific partnership property is not 
 subject to attachment or execution, except on a claim against the 
 
 liquidated, bears to the total of the present partnership property? It is 
 Impossible to answer these questions. If the assigning partner did not 
 intend to dissolve the partnership, it is even impossible to analyze the iwssi- 
 ble intentions. Of course, in practice, a partner who assigns his "interest in 
 particular partnership chattels" has only the vaguest notion of what he 
 intends. 
 
 Clause (b) not only states a principle theoretically sound, it expresses al- 
 most the unbroken current of authority, if we confine our investigation to 
 cases relating to attempted voluntary assignments, as distinguished from in- 
 voluntary assignments, the result of adverse proceedings by a separate cred- 
 itor of a partner. 
 
 Thus in Cayton v. Hardy, 27 Mo. 536 (1858), two were partners in a farm. 
 One, without the consent of the other, sold two yoke of oxen, the property 
 of the partnership, used in the work of the farm. He delivered the oxen to 
 the purchaser. The co-partner brought an action against the purchaser and 
 recovered possession. In Drake v. Thyng, 37 Ark. 228 (1881), the co-partners, 
 after an assignment by one of his interest in a partnership chattel, recovered 
 possession bj' proceedings in equity, and in McNair v. Wilcox, 121 Pa. 437, 
 15 Atl. 575, 6 Am. St. Kep. 799 (1888), the co-partners recovered in an action 
 of trover and conversion against a purchaser who refused to return the prop- 
 erty. In Freeman v. Abramson, 30 Misc. Rep. 101, 61 N. T. Supp. 839 (1899), 
 the court held that a partner who had "assigned the partnership stock" was 
 a necessary party in a suit for the replevin of the goods brought by the other 
 partners, as the assignment did not deprive the assignee of any interest in 
 the property. These cases are direct authority for the proposition that the 
 attempted assignment of a partnership chattel by a partner, or of his inter- 
 ■est in the chattel, does not make the purchaser and the other partners joint 
 tenants or tenants in common of the chattel, for one joint tenant or one ten- 
 ant in common cannot recover possession from his cotenant. 
 
 An assignment, by way of mortgage, of specific partnership property, the 
 assignment not being an act within the power of the partner creating the 
 mortgage, confers no rights of possession on the mortgagee. Wilcox v. 
 Jackson, 7 Colo. 521, 4 Pac. 966 (1884). Nor can such mortu'ugee prevent the 
 property from being applied to the payment of partnership debts, though 
 thereby all the mortgagee's rights, if any, are destroyed. McGrath v. Cow- 
 en, 57 Ohio St. 385, 49 N. E. 338 (1898) ; Osborne v. Barge, 29 Fed. 725 (C. C, 
 X. D. Iowa. IS.'^T). There arc. indeed, at least two cases which have regarded 
 the partner assigning by way of mortgage, his interest in specific partnership 
 property as mortgaging something. Arnold v Steveson, 2 Nev. 234 (1866) ; 
 Sutlive v. Jones. 61 Ga. 676 (1878). But in neither case did the court indicate 
 how the value of the interest of the partner could be determined. 
 
 After an attempted assignment by a partner, invalid as against his co- 
 partner, of all the partnership property, it has been held that both partners, 
 as partners, have an insurable Interest in the property. Kimball v. Hamilton 
 Fire Ins. Co., 21 X. Y. Super. Ct. 495 (1861). 
 
 Of course, an attempted assignment of all the partnership property, void 
 as an assignment of the rights of either of the partners in the property, or 
 an attempted assignment by one partner of his rights in all the partnership 
 property may be regarded as a valid assignment of the partner's interest in- 
 the partnership. For instance, in Xicoll v. Mumford, 4 Johns. Ch. (N. T.) 522 
 (1820), the entire property of the partnership was the brig Phcenix and her 
 cargo. One partner assigned "all his estate real and personal," according 
 ■to a schedule annexed to the deed of assignment, the schedule including the 
 "brig Phoenix and her cargo. Chancellor Kent regarded the deed as assigning 
 the partner's interest in the partnership. Whatever the merits of this deci- 
 -sion, it is not authority for the proposition that a partner's right in one or 
 more of the chattels of the partnership may be separately assigned. It 
 merely stands for the proposition that a particular act — the attempted as- 
 si°Timent of the partnership property — was, under the circumstances of that 
 <;a*se, an assignment, not of the chattels, the brig and her cargo, but of the 
 interest of the assignor in the partnership. Compare Htorton's Appeal, 13 
 Pa. 67 (1850). In Miller v. Brigham, 50 Cal. 615 (1875), A, and B. were part- 
 ners. A. "sold and conveyed" to C. "all his (A.'s) one undivided one-half inter- 
 
1244 PARTNERSHIP (Part 5 
 
 partnership. When partnership property is attached for a partner- 
 ship debt the partners, or any of them, or the representatives of a 
 
 est in the property." The court was of the opinion, though the question was 
 not directly before them, that A. had assigned to O. his interest in the part- 
 nership. The case does decide that O. had no right to possess any of the 
 partnership property. 
 
 Against' this uniform current of authority we know of only one case where 
 the voluntary assignment by a partner of a chattel belonging to a partnership, 
 not being valid as a collective assignment of the rights of all the partners in 
 the property, nevertheless vested rights in the chattels in the assignee. The 
 ease is Blaker v. Sands, 29 Kan. 551 (1883). A. and B. were partners ; the 
 business being the improvement of a flock of sheep. In the temporary absence 
 of B., A. sold and delivered all the sheep to C. As the partnership was for 
 the improvement, not for the sale of the sheep, their sale was beyond the 
 scope of A. as partner. A. died, and B. brought an action against O. for the 
 possession of the sheep. The trial court refused to admit O.'s offer of the 
 bill of sale of the sheep, and a verdict in favor of B. was given. On appeal 
 a new trial was awarded on the theory that, while O.'s assignment did not 
 transfer the ^ghts of B. in the sheep, it made B. and O. tenants in common, 
 and therefore the bill of sale was a defence to B.'s action, and should have 
 been admitted in evidence. The practical result of the decision was to deny 
 to the surviving partner the right to obtain possession of partnership prop- 
 erty, though, of course, he was liable for all the partnership debts. The adop- 
 tion of clause (b) as drafted would make such a decision impossible. 
 
 It will be noted that this clause deals with what may be called the quality 
 of assignability. It asserts that the right in specific partnership prop- 
 erty is assignable collectively with the rights of the other partners ; or, 
 to put the matter in another way, it is possible to assign the rights of all the 
 partners — the rights of the partnership — in partnership property, but it is 
 not possible to assign separately the right of an individual partner. 
 
 It is important to note that the clause does not deal with the person or 
 persons who may make an assignment of partnership property, or with the 
 acts necessary to a conveyance of title. Indeed, the act as a whole, except 
 in the ,case of a conveyance of land belonging to a partnership (see section 
 11, paragraphs 2, 3, 4, 5, 6), does not attempt to deal with any question per- 
 taining to the transfer of title. The act, however, does deal in section 9 (1) 
 with the authority of a partner to bind the partnership. Olause (b) asserts 
 that partnership property is assignable, while section 9 (1) indicates when 
 a partner has authority to make ' an assignment of partnership property ; 
 but neither tells us what the partner, in view of what we may call the rules 
 of conveyancing, must do in order to transfer the title to a stranger, or even 
 whether. In view of those rules, it is possible for him, acting alone, to transfer 
 title. For instance, A. and B. are partners in the retail dry goods business. 
 In the course of the business A. sells and delivers to 0. part of the stock in 
 trade. Clause (b) indicates that the rights of A. and B. in the goods are 
 collectively assignable; section 11 (1) that A. had the authority to make the 
 sale and deliver the goods. But whether a good title has, by the sale and 
 delivery, been vested in C, is a question pertaining to the transfer of title 
 to chattels. Delivery passe-s the title of the owner, when the delivery is by the 
 owner or with his consent. C, therefore, In the case put, obtains a good 
 • title. It is no part of the business of a Partnership Act however, to deal 
 with such a question, unless, as in the case of land, it is considered desirable 
 to introduce a new method of transfer of title, or to make clear confusions in 
 the law which confusions exist only in cases connected with property held by 
 a partnership. In all other cases, as in the illustration given, the requirements 
 of a partnership act are satisfied if the co-ownership of partnership property 
 is stated, the collective assignability of the rights of all the partners em- 
 phasized, and the extent of the agency of the partner to act for his co-part- 
 ners indicated. 
 
 The importance of seeing clearly the exact scope of clause (b) warrants 
 two additional illustrations: If A., in the case above put, instead of selling 
 and delivering part of the stock, should attempt to sell and should deliver 
 a counter or table on which the goods were sold, would the purchaser obtain 
 a good title? Olause (b) does not answer this question. It merely states that, 
 the table being partnership property, the rights of all the partners in it are 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1245 
 
 deceased partner, cannot claim any right under the homestead or 
 exemption laws.* 
 
 (d) On the death of a partner his right in specific partnership 
 property vests in the surviving partner or partners, except where 
 the deceased was the last surviving partner, when his right in 
 such property vests in his legal representative. Such surviving 
 partner or partners, or the legal representative of the last surviving 
 partner, has no right to possess the partnership property for any 
 but a partnership purpose. 
 
 subject to collective assignment. This is what A. has attempted to do. But 
 the clause does not tell us whether A. had, under the circumstances, power 
 to make the assignment, or whether, having the power he has done so. 
 Neither does section 11 (1) answer either of these questions. Section 11 (1) 
 tells us that A. has, under the circumstances, no authority to bind the part- 
 ners, as the act is not an act for apparently carrying on in the usual way 
 the business of the i>artnershlp. But whether A. has the power to malie the 
 conveyance depends on the law of transfer of title to chattels — a subject 
 beyond the scope of the act. Under ordinary circumstances, C. would obtain 
 no title to B.'s rights, as it is a fundamental rule jyertaining to the transfer 
 of titles to chattels that the right of the true owner is not transferred by 
 the sale and delivery of an agent in possession, unless the owner has done 
 something to clothe the agent with the apparent power of sale, the delivery 
 of the chattel by the owner to the agent or bailee not being considered such 
 an act. 
 
 Finally, suppose A. and B. are in partnership, the business of the partner- 
 ship being the buying and selling of land. The title to a particular tract is 
 in A. and B. A. sells X to C, giving 0. a deed signed by A., but not by B. 
 The land being partnership property, the rights of A. and B. are collectively 
 assignable. A. has attempted to nialie such an assignment. The business of 
 the partnership being "trading in land," the sale was an act which the part- 
 ner had authority to do. But whether the deed signed by one partner only 
 in his own name conveyed to B. title is again a question of conveyancing, 
 and normally outside the province of a Partnership Act. In this case, how- 
 ever, section 11 (4) does deal with the transfer of the equitable title, declaring 
 that it, under the circumstances, vested in C. 
 
 3 LeiDis' 'Note to Section 25 (c). — Compare this clause with section 28(1). 
 
 The first sentence in this clause is similar to section 2.3 (1) of the English 
 act. It is a logical consequence of clause (b). If a partner's right in specific 
 partnership property is not assignable by voluntary assignment for a separate 
 purpose of the assigning partner, his separate creditoi'S should not be able 
 to force an involuntary assignment. The beneficial rights of the separate 
 creditors of a partner in partnership property should be no greater than the 
 beneficial rights of their debtor. The confusion of the subject of this clause 
 in the decisions is well known to all students of the law of partnership. For 
 all practical purposes, while the reasoning of the courts is more or less con- 
 flicting, the net result of the remedial law, as worked out in law and at 
 equity, is that a judgment creditor of a separate partner may attach and sell 
 his debtor's interest in partnership property as that interest is defined in 
 section 26 (see section 28) ; but he cannot sell, so as to affect in any way the 
 rights of the partnership, specific partnership property. See Jleydon v. Hey- 
 don, 1 Salk. .392 (1693) ; Eddie v. Davidson, 2 Douglas 650 (1781) ; Taylor v. 
 Fields, 4 Ves. 396 (1799) ; Lord v. Baldwin, 23 Mass. (6 Pick.) 348 (1828) ; 
 Doner v. Stauffer, 1 Pen. & W. (Pa.) 198, 21 Am. Dec. 370 (1829) Tappan v. 
 Blaisdell, 5 N. H. 190 (1830) ; Piiillips v. Cook, 24 Wend. (N. Y.) 389 (1840) ; 
 Washburn v. Bank of Bellows Falls, 19 Vt. 278 (1847) ; Nixon v. Nash, 12 
 Ohio St. 647, 80 Am. Dec. 390 (1861) ; Cooper's Appeal, 26 Pa. 262 (1856) ; 
 Menagh v. Whitwell, 52 N. Y. 146, 11 Am. Rep. 683 (1873) ; Case v. Beaure- 
 gard, 99 U. S. 119, 25 L. Ed. 370 (1878). 
 
 The second sentence in, the paragraph apparently expresses the weight of 
 authority. See Burdick, 111-113, 299. A partner has a right to claim ex- 
 emption, if his interest in the partnership is attached for his separate debts. 
 See section 28(3), infra. 
 
1246 PARTNERSHIP (Part 5 
 
 (e) A partner's right in specific partnership property is not 
 subject to dower, curtesy, or allowances to widows, heirs, or next 
 of kin. 
 
 R. A. MYLES & CO. v. A. D. DAVIS PACKING CO. et al. 
 (Court of Appeals of Alabama, 1919. 17 Ala. App. 85, 81 South. 863.) 
 
 Action by R. A. Myles & Co. against the A. D. Davis Packing Com- 
 pany and another. Judgment of nonsuit, and plaintiffs appeal. Re- 
 versed and remanded. 
 
 Bricken, J. The appellants, R. A. Myles, Mrs. R. A. Myles, and 
 Erwin S. Myles, conducted a meat market under the style of "R. A. 
 Myles & Co." A judgment was recovered in the law and equity court 
 of Mobile county by the A. D. Davis Packing Company against R. A. 
 Myles individually. An execution was issued upon this judgment and 
 placed in the hands of the sheriff of Mobile county. The sheriff levied 
 upon ten cows as the property of the defendant in execution, took pos- 
 session of the same, and sold them in satisfaction of the execution. 
 Prior to the sale of this property, the sheriff received an indemnifying 
 bond, executed by the A. D. Davis Packing Company as principal and 
 the Fidelity & Deposit Company of Maryland as surety. 
 
 The defendants in this suit were the principal and surety in the in- 
 demnifying' bond. The complaint contained six counts. Each count 
 is based upon the theory that the property levied upon was partnership 
 property, and that the action of the sheriff in levying upon, taking 
 possession of, and selling such property for the satisfaction of the 
 individual debt of one of the partners was wrongful. Demurrers were 
 interposed to the complaint, were sustained by the court, and appellants 
 took a nonsuit. 
 
 The main and determining question raised by this record is whether 
 the levy upon and sale of this property by the sheriff was wrongful. 
 Each member of a copartnership is the owner of an undivided inter- 
 est in the chattels and goods of such partnership. This interest under 
 the decision in this state, is subject to seizure and sale under an execu- 
 tion in the hands of a sheriff upon a judgment rendered against one 
 of the individual members of the partnership. * * * 
 
 The contention of appellants that this rule is to be applied only when 
 all of the tangible property of a partnership has been levied upon to sat- 
 isfy a judgment against one of the members of the firm is, in our opin- 
 ion, without merit, and is opposed to the authorities above cited. Sec- 
 tion 4106 of the Code of 1907 in no way changes this rule of law, and 
 does nothing more than clothe the sheriff with the right of taking or 
 not taking actual possession of the property levied upon, as he may 
 see fit. * * * 
 
 The action of the court in sustaining appellee's demurrer was with- 
 out error. 
 
 On Rehearing. 
 
 Samford, J. The original opinion in this case expresses the view of 
 Bricken, J., who still adheres to the principles there announced. The 
 Presiding Judge and the writer, after a further consideration of the 
 case, are of the opinion that the application for rehearing should be 
 granted and the judgment reversed and the cause remanded for the 
 following reasons : 
 
Ch. 2) RELATIONS OF THE PAETNBR8 BETWEEN THEMSELVES 1247 
 
 It is undoubtedly the law of this state that under a fieri facias against 
 the goods of one member of a partnership his interest in the tangible 
 assets of the partnership may be levied on and sold, but only such in- 
 terest as he has; the right acquired by such purchase is the right of 
 the partner whose interest was sold .and only his right, subject to all 
 the liens, incumbrances, or infirmities affecting it as assets of the part- 
 nership. It is not a separate and exclusive right to any part or por- 
 tion of it, or any right of any kind to any one part rather than to any 
 other part, or any other right or interest than was held by the ex- 
 ecution debtor as a member of the partnership. The ownership of each 
 partner is subject to the ownership of all the other partners, and 
 all the partners together hold the property sttbject to the right of the 
 partnership to apply all of its funds to the payment of the partnership 
 debts. The real ownership of all the chattels is vested in the firm, 
 and the interest of each partner is merely a right to share in the profits 
 of the business during its continuance, or in a division of the property 
 upon dissolution after all the partnership obligations have been satis- 
 fied. No one partner has a separate ownership of or right to possess 
 exclusively any part of the partnership assets, and a successor to his 
 interest by purchase, at an execution sale can acquire no greater inter- 
 est than he has. * * * 
 
 And while the interest of a partner in the partnership may be levied 
 upon and sold, if the sheriff, in total disregard and denial of the rigTits 
 of the partnership, levies upon and sells the partnership property as the 
 property of one of the individual partners under an execution against 
 such member, the sheriff is a trespasser as to the partnership, and his 
 act is a conversion of the partnership property. * * * And the 
 partnership can maintain an action against him to recover damages re- 
 sulting from such conversion. * * * 
 
 Such a sale being illegal and rendering the officer a trespasser ab 
 initio, the action may properly be brought in the name of the partners, 
 and they will be entitled to recover full value of the goods sold. 
 * • * * At common law the ownership of partnership property, as 
 well as partnership obligations, were joint only, each partner holding 
 his interest for the joint benefit of the other members and for the firm, 
 the firm being all of the partners, and hence the process and pleadings 
 in every action require the disclosure of the first name and surname 
 of all the parties thereto for the purpose of rendering judicial pro- 
 ceedings, certain and conclusive as between the parties and to give full 
 force and effect to the doctrine of res judicata. * * * 
 
 The rulings of the trial court were not in accord with the foregoing 
 views. The application for rehearing is granted, the judgment of af- 
 firmance is set aside, the judgment of the trial court is reversed, and 
 the cause is remanded. * * * 
 
 DAREOAV et al. v. CALKJNS et al. 
 
 (Court of Appeals of New York, 1897. 154 N. T. 503, 49 N. B. 61, 
 48 L. E. A. 299, 61 Am. St. Kep. C.37.) 
 
 Calkins and Darrow, the plaintiffs' intestate, were partners, owning 
 certain lands. Darrow executed a deed of his interest in the partnership 
 real estate, conveying it to Calkins to hold, to control, and manage as 
 part of the partnership property, and to pay over to the grantor what 
 should be due him. Plaintiffs seek partition of the lands. The con- 
 
1248 PARTNERSHIP (Part 5 
 
 tention of plaintiffs is that their property is realty; the defendant ar- 
 gues that the act of plaintiffs' intestate converted the land of Darrow 
 into personalty, so that a suit for partition cannot be maintained. An 
 interlocutory (temporary) judgment for plaintiffs in the trial court was 
 vacated. Plaintiffs appealed. 
 
 Andrews, C. j. * ^ * 'pjjg jgg^l nature and incidents of land 
 purchased by a co-partnership with co-partnership funds is a subject 
 upon which great diversity of opinion exists in different jurisdictions. 
 The English rule, after many fluctuations, has, as we understand the 
 cases, come to be that lands so purchased, whether purchased for or 
 used for partnership purposes or not, provided only that they were 
 intended by the partners to constitute a part of the partnership prop- 
 erty, become ipso facto, in the view of a court of equity, converted 
 into personalty for all purposes, as well for the purpose of the ad- 
 justment of the partnership debts and the claims of the partners inter 
 se as for the purpose of determining the succession as between the per- 
 sonal representatives of a deceased pa,rtner and the heir at law. 
 
 * * * This doctrine had its origin in England, and is said to have 
 grown out of the peculiar law of inheritance there, and to remedy 
 the hardship of the rule which excludes all but th^ eldest child from 
 the inheritance, and of the other rule which exempts real estate in the 
 hands of the heir from all but the specialty debts of the ancestor. 
 
 * * * Lindley, in his work on Partnership, bases the rule on the 
 nature of the interest of each partner in the partnership property. He 
 says (page 687) : "From the principle that a share of a partner is 
 nothing more than his proportion of the partnership assets after they 
 have been turned into money and applied in liquidation of the partner- 
 ship debts, it necessarily follows that in equity a share in a partner- 
 ship, whether its property consists of land or not, must, as between 
 the real and personal representatives of a deceased partner, be deemed 
 to be personal, and not real, estate, unless, indeed, such conversion is 
 inconsistent with the agreement between the parties." The concluding 
 words of the paragraph quoted concede that the intention of the par-r 
 ties will prevent a conversion where that intention is manifested. 
 
 The general doctrine of "out and out" conversion adopted by the 
 English courts has not been followed to its full extent in this and many 
 other American states. There is no policy growing out of our laws 
 of inheritance or the exemption of lands from liability for simple con- 
 tract debts, which requires the application of such a doctrine here. 
 The lands of the ancestor are assets for the payment of all debts, and 
 the persons who take by descent and under the statute of distribution 
 are substantially the same. The necessity for an absolute conversion, 
 supposed to be found in the nature of a partnership interest, seems 
 hardly sufficient to justify a fiction which should deprive real estate of 
 a partnership of its descendible quality, when it is admitted on all 
 hands that partnership real estate, if the necessity arises, is first subject 
 to be appropriated in equity to the discharge of partnership obligations 
 and the adjustment of the equities between the parties. 
 
 The clear current of the American decisions supports the rule that, 
 in the absence of any agreement, express or implied, between the part- 
 ners to the contrary, partnership real estate retains its character as 
 realty with all the incidents of that species of property between the 
 partners themselves, and also between a surviving partner and the 
 real and personal representatives of a deceased partner, except that each 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1249 
 
 share is impressed with a trust implied by law in favor of the other 
 partner that, so far as is necessary, it shall be first applied to the ad- 
 justment of partnership obligations and the payment of any balance 
 found to be due from the one partner to the other on winding up the 
 partnership affairs. To the extent necessary for these purposes the 
 character of the property is, in equity, deemed to be changed into 
 personalty. On the death of either partner, where the title is vested 
 in both, the share of the land standing in the name of the deceased 
 partner descends as real estate to his heirs, subject to the equity of 
 the surviving partner to have it appropriated to accomplish the trust 
 to which it was primarily subjected. The working out of the mutual 
 rights which grew out of the partnership relation does not seem to 
 require that the character of the property should be changed until the 
 occasion arises for a conversion, and then only to the extent required. 
 
 The American rule commends itself for its simplicity. It makes the 
 legal title subservient in equity to the original trust. It disturbs it no 
 further than is necessary for this purpose. The portion of the land 
 not required for partnership equities retains its character as realty, and 
 it leaves the laws of inheritance and descent to their ordinary opera- 
 tion. It would be useless to review in detail the authorities which seem 
 to us to maintain what has been called the "American rule." * * * 
 
 If, as sometimes happens, the title to partnership real estate is in the 
 name of one of the partners only, on the death of the other partner 
 his equitable title descends to his heirs or goes to his devisees, but sub- 
 ject to the primary claims growing out of the partnership relation. 
 * * * But the general principles to which we have adverted are 
 those applied by courts of equity in determining the character and in- 
 cidents of partnership real estate, in the absence of any agreement, 
 express or implied, between the partners on the subject. It is, however, 
 generally conceded that the question whether partnership real estate 
 shall be deemed absolutely converted into personalty for all purposes, 
 or only converted pro tanto for the purpose of partnership equities, 
 may be controlled by the express or impKed agreement of the part- 
 ners themselves, and that where, by such agreement, it appears that it 
 was the intention of the partners that the lands should be treated and 
 administered as personalty for all purposes, effect will be given .there- 
 to. In respect to real estate purchased for partnership purposes with 
 partnership funds, and used in the prosecution of the partnership busi- 
 ness, the English rule of "out and out" conversion may be regarded as 
 properly applied on the ground of intention, even in jurisdictions which 
 have not adopted that rule as applied to partnership real estate ac- 
 quired under different circumstances, and where no specific intention 
 appeared. The investment of partnership funds in lands and chattels 
 for the purpose of a partnership business, the fact that the two species 
 of property are in most cases of this kind so commingled that they 
 cannot be separated without impairing the value of each, has been 
 deemed to justify the inference that under such circumstances the 
 lands as well as the chattels were intended by the partners to consti- 
 tute a part of the partnership stock, and that both together should take 
 the character of personalty for all purposes ; and Judge Denio, in Col- 
 lumb V. Read, 24 N. Y. 505, expressed the opinion that to this extent 
 the English rule of conversion prevailed here. That paramount con- 
 B.& B.BUS.LAW— T9 
 
1250 PARTNEESHiP, (Part 5 
 
 sideration should be given to the intention of the partners whenascei'- 
 tained, is conceded by most of the cases. * * * 
 
 The legal title to the real estate which the heirs of Bdwiri J. Dar- 
 row asked to have partitioned in this action was vested in Daniel O. 
 Calkins at the time of the death of Darrow, in November, 1864. The 
 plaintiffs, on the death of their father, took no legal estate in the lands. 
 The legal estate which, prior to the 25th day of September, 1861, Dar- 
 row held in the undivided one-half of the premises, was by the deed 
 executed by him on that day conveyed to Calkins. That this was the 
 effect of the deed, we have no doubt. The deed is in terms full and 
 ample to convey in fee the interest of Darrow to his grantee. It was 
 coupled, however, with the declaration on the face of the deed that it 
 was to be held by Calkins as partnership property, and the deed con- 
 tained a power of management and sale, and this was followed by the 
 significant clause, "And to pay over to the said Darrow, his heirs and 
 assigns, or other legal representatives, such portion thereof as shall, 
 at the closing of the partnership business of said Calkins and Darrow, 
 belong to or be due or coming to said Darrow, his heirs, executors, 
 assigns, or other legal representatives." 
 
 The suggestion that the deed attempted to create an expresss trust 
 in lands, not within the enumerated trusts permitted by section 55 of 
 our statute of "Uses and Trusts" (1 Rev. St. 728), and was, therefore, 
 void as a conveyance, is not well founded. It recognized a pre-existing 
 trust imposed upon the lands, implied by law, and arising out of the 
 partnership relation, and that the trust was to continue notwithstand- 
 ing the conveyance of the legal title. This was not, we think, in con- 
 travention of the statute which contemplated the creation of original 
 trusts, and not the abrogation of existing trusts resulting from or im- 
 plied by operation of law ; nor did it render inoperative the subsequent 
 recognition of such an existing trust in connection with a conveyance 
 of the legal title. We think the legal title to the one-half part of the 
 land passed by Darrow's deed, subject to the performance by Calkins 
 of the trust therein declared. The important question is whether it 
 operated to convert the partnership lands into personalty, and to change 
 the interest of Darrow, or his representatives, from an interest in the 
 land as realty into an interest in the proceeds of the lands, after a 
 sale thereof by Calkins under the power contained in the deed. 
 
 We are of opinion that it was the intention of the partners, disclosed 
 on the face of the deed and by the surrounding circumstances, to sub- 
 stitute in place of Darrow's prior interest in the lands, as such, an 
 interest in him and his representatives in any surplus which should re- 
 main after a sale by Calkins, and tl^e adjustment of the partnership 
 affairs. It is not necessary to decide whether the surplus, when ascer- 
 tained, would go to the real or personal representatives of Darrow. 
 As between Darrow and his representatives and Calkins and his repre- 
 sentatives, the deed operated as a conversion of the lands into person- 
 alty. The personal representatives of Darrow were entitled to enforce, 
 in an action for an accounting and an adjustment of the partnership 
 affairs, the claims of Darrow's estate. This was the purpose of the 
 action which resulted in the decree of October 31, 1867, and we think 
 that decree was binding upon the plaintiffs, not on the ground that they 
 were parties, but for the reason that, no controversy existing as to the 
 original character of the property as partnership property, or as to 
 the subsequent dealing between the partners in respect to it, the heirs 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1251 
 
 of Darrow were not necessary parties to a final adjustment of the 
 partnership affairs, including the interest of the Darrow estate growing 
 out of his relation to the lands under the deed of September 25, 1861. 
 It was open to the plaintiffs, on an accounting by the administratrix 
 of the Darrow estate, to claim that the $14,000 received by her under 
 the decree in the action for an accounting should be regarded as real, 
 and not personal, assets, and that they were entitled to it in their char- 
 acter as heirs, and not as distributees. 
 
 We think the order of the court below reversing the judgment at 
 special term was correct, and it should, therefore, be affirmed, and judg- 
 ment absolute entered for the defendants on the stipulation, with costs. 
 All concur. Order affirmed. 
 
 MENAGH V. WHITWELL. 
 (Court of Appeals of New York, 1873. 52 N. Y, 146, 11 Am. Rep. 683.) 
 
 Appeal from a judgment in favor of the plaintiff entered upon the 
 report of a referee. This was an action for converting machinery, 
 utensils, lumber, and other chattels formerly belonging to the firm 
 of J. C. Smith & Co. and appertaining to a yeast factory operated 
 by that firm. 
 
 From the 17th of August to the 22d day of December, 1866, the 
 firm consisted of John C. Smith, HoUister E. Goodwin, John Wride, 
 Marietta Huntington, and William B. Rubert, each being inter- 
 ested to the extent of one-fifth. The firm as thus constituted con- 
 tracted debts to the Geneva National Bank upon which judgments 
 were afterward recovered against the above-named parties, viz., one 
 judgment for $1,403.83, and one for $237.53, both recovered May 
 24, 1867. The larger judgment embraced claims to the amount of 
 $330 which accrued after the withdrawal of John Wride from the firm. 
 Executions were issued on these judgments on the 2Sth day of May, 
 1867, and placed in the hands of the defendant Ringer, who was dep- 
 uty sheriff of Ontario county, and by virtue of those executions he 
 levied upon the property on the 19th day of July, 1867, and sold it on 
 the 29th of July, 1867. The defendant Whitwell was sheriff, and this 
 action was brought against him and his deputy for that levy and sale. 
 The plaintiff recovered four-fifths of the value of the property. 
 
 The plaintiff makes title to this four-fifths as follows : On the 
 22d of December, 1866, John Wride assigned all his interest in the 
 property and business of the firm to John C. Smith, who agreed to pay 
 the firm debts, and on the 4th of February, 1867, Marietta Hunting- 
 ton assigned all her interest in the property of the firm to said John 
 C. Smith, who assumed her place in the firm. After these trans- 
 fers the same business was carried on by the remaining partners un- 
 der the same firm name. The referee finds that both of these trans- 
 fers were made with the consent of all the other members of the firm, 
 and in good faith, without intent to defraud the creditors of the firm. 
 
 On the 28th of February, 1867, the firm then consisting of John 
 C. Smith, William B. Rubert, and Hollister E. Goodwin, and Smith's 
 interest being then three-fifths, he gave to the plaintiff a chattel 
 mortgage upon his undivided three-fifths interest in the yeast fac- 
 tory, property, accounts, and other choses in action of the firm to 
 secure his individual debt to the plaintiff of $2,400, payable in in- 
 stallments in two, five, and seven months, with power to take posses- 
 
1252 PARTNERSHIP (Part 5 
 
 ■sion and sell in case of default, or whenever she should deem herself 
 unsafe before default. The referee finds that this amount was justly 
 due the plaintiff for money loaned by her to Smith, which he had 
 used for the firm and for which it was indebted to him, and that the 
 mortgage was given in good faith, with the consent of all the persons 
 composing the firm, and without intent \o defraud creditors. There 
 is no express finding in respect to the solvency of the firm at the time 
 of the giving of this mortgage. 
 
 ■ On the 2d of February, 1867, William B. Rubert had given a like 
 chattel mortgage on his one-fifth interest to Samuel E. Rubert to 
 secure an individual debt of $500, payable in five days. The referee 
 finds that this was a just debt for money loaned, and that the mort- 
 gage was executed in good faith to secure the debt, and without any 
 fraudulent intent. It does not appear that any of the other partners " 
 consented to this mortgage. 
 
 On the 10th day of May, 1867, the plaintiff and Samuel E. Rubert 
 took possession of the property mentioned in their respective mort- 
 gages, and after advertisement it was sold on the 18th day of May, 
 1867 ; the three-fifths interest of John C. Smith being purchased by 
 the plaintiff for $1,000, and the one-fifth interest of William B. Ru- 
 bert being bought in by Samuel E. Rubert for an amount less than 
 his mortgage. On the same day John C. Smith sold and delivered to 
 the plaintiff all his interest in a quantity of lumber, boxes and other 
 material then on the premises, and belonging to the firm, for $200, 
 which was applied in part payment of the plaintiff's mortgage. The 
 referee finds that this sale was in good faith and without any fraud- 
 ulent intent. This lumber, etc., was levied upon and sold by the 
 defendants and is embraced in the plaintiff's recovery. On the same 
 day on which the plaintiff and Samuel E. Rubert took possession 
 under their mortgages, viz., the 10th of May, 1867, HoUister E. Good- 
 win, the only remaining member of the firm, transferred his undi- 
 vided one-fifth interest in the property and business of the firm to 
 Mary B. Goodwin, who still owns the same, but never became a mem- 
 ber of the firm. The referee has not found that there was any con- 
 sideration for this transfer, or what was its object, or that it was made 
 in good faith. 
 
 The only findings in respect to the solvency of the firm at the 
 times of these several transactions are that, on the 22d of Decem- 
 ber, 1866, when John Wride withdrew from the firm, transferring 
 his interest to John C. Smith, the firm was somewhat embarrassed, 
 but was not known or believed to be insolvent by either Wride or 
 Smith, and that on the 4th of February, 1867, when Marietta Hunt- 
 ington transferred her interest, the financial affairs of the firm were 
 about the same as they were on the 22d of December, 1866; that 
 the firm was largely indebted and somewhat embarrassed; that the 
 value of its' property and assets depended in part upon the contin- 
 uance of its business, and. In case such business was continued and 
 properly managed, the property and assets of the firm were more than 
 sufficient to pay its debts. The referee further finds that at the time 
 of the seizure and levy by the defendants the property was in the 
 possession of the plaintiff and Samuel E. Rubert, and was of the 
 value of $2,150; that the plaintiff was the owner of an undivided 
 three-fifths, and Samuel E. Rubert of one undivided fifth part there- 
 of; that Mary B, Goodwin was the owner of the other undivided 
 
Ch. 2) RELATIONS OP THE PARTNERS BETWEEN THEMSELVES 1253 
 
 fifth part thereof; and that, on the ISth of August, 1867, and before 
 the commencement of this action, the said Samuel duly assigned to 
 the plaintiff all his right to the property and cause of action against 
 the defendants for taking possession thereof. 
 
 As conclusion of law he finds that at the time of the levy neither 
 of the defendants in the execution had any leviable interest in the 
 property, but that it belonged, four-fifths to the plaintiff, and one- 
 fifth to Mary B. Goodwin ; that the bank had no lien thereon ; and 
 that the plaintiff was entitled to recover four-fifths of the value, 
 amounting to $1,720, with interest from the time of the conversion. 
 
 Rapallo, J. The mortgages executed by John C. Smith and William 
 P. Rubert appear to have been regarded by the learned referee as 
 transferring an undivided four-fifths of the corpus of the partner- 
 ship property therein described. He has found, as to the mortgage 
 from Smith, that it was executed and delivered with the assent of 
 the other members of the firm. This mortgage, if such be its true 
 construction, having been given to secure the individual debt of the 
 partner, even if effectual as to the firm, by reason of the concurrence 
 of all the partners giving it, would be a fraudulent misapplication of 
 the partnership property, and void as to the creditors of the firm, 
 under the principle of the cases of Ransom v. Vandeventer, 41 Barb, 
 307, and Wilson v. Robertson, 21 N. Y. 587, unless the firm were 
 solvent at the time the mortgage was given, and sufficient property 
 would rerriain, over and above that devoted by that instrument to 
 the payment of the individual debt, to pay the debts of the firm. The 
 Supreme Court have considered that the findings of the referee fail 
 to disclose any insolvency, but, on the contrary, establish solvency 
 of the firm at the time the mortgages were given. We cannot concur 
 in this view of the effect of the findings, but think that the facts 
 found show that the firm was insolvent when the mortgages were 
 given, and, if there were any doubt upon that point, they clearly es- 
 tablish that the diversion of four-fifths of its properties to the in- 
 dividual debts of two of the partners would make it insolvent. 
 
 According to these findings the firm was, in February, 1867, 
 and had been from December, 1866, largely indebted and embar- 
 rassed and the value of its property, and its consequent ability to pay 
 its debts, depended in part upon the continuance and proper man- 
 agement of its business. The mortgages were given on the 2d and 
 28th of February, 1867. If they were intended to be liens upon the 
 corpus of the property, as they have been treated by the referee, and 
 not merely Hens upon the surplus which should belong to the part- 
 ners, respectively, after the payment of the firm debts, it is evident, 
 from the facts stated as existing at the time, as well as from the 
 result, that their enforcement would prevent the firm creditors from 
 collecting their demands out of the firm property, and that, under 
 the principle of the cases cited, they were fraudulent and void as to 
 such creditors. If so, the mortgagees, by purchasing at the sale under 
 the mortgages, acquired no valid title as against such creditors, and 
 the plaintiff was, consequently, not entitled to recover. 
 
 Assuming, however, that the mortgages were intended to pass 
 merely the individual interests of the mortgaging partners in the 
 common stock, and for that reason were not fraudulent as to the firm 
 creditors, then it becomes necessary to consider their legal effect 
 •upon the rights of creditors of the firm. It is clear that the re- 
 
1254 PARTNERSHIP (Part 5 
 
 maining partner was entitled to the control of the firm property so 
 long as he retained his interest, and to apply it to the firm debts, and 
 that the mortgagees acquired only a right to the surplus, if any, 
 which would be found to belong to the mortgagors on the settle- 
 ment of the accounts. And so long as any of the partners had this 
 dominion over the firm property it can hardly be questioned that 
 it was subject to levy on execution at the suit of a firm cred- 
 itor. * * * 
 
 But the point upon which the judgment was sustained in the Su- 
 preme Court, at General Term, was that after the execution of the 
 mortgages H. E. Goodwin, the only remaining partner, made a sep- 
 arate transfer to a third party of his individual interest in the part- 
 nership properties, and on this ground it was held that when the ex- 
 ecution was levied none of the defendants in the execution had any 
 leviable interest in the property levied upon, and it was further held 
 that the plaintiff, who had purchased the interest .of S. E- Rubert 
 under his mortgage, was entitled, by virtue of the two mortgages 
 and of the purchase at the sale under them, to recover the value 
 of four-fifths of the corpus of the partnership property levied upon 
 by the defendants, without regard to the partnership debts. 
 
 This position is not without authority in its support. It is founded 
 upon the theory that the separate transfers of the individual inter- 
 ests of all the partners divested the title of the firm; that firm 
 creditors have no lien upon the partnership effects, and no direct 
 right to compel their application to firm debts in preference to in- 
 dividual debts ; that the right to compel this application is an equity 
 vested in the partners themselves, and exists only as between each 
 other; that so long as this equity exists in any of the partners the 
 creditors have an equity to compel its enforcement between the part- 
 ners, and may by this means obtain the application of the partnership 
 properties to their demands, in preference to the individual debts 
 or separate dispositions of any of the partners — in other words, 
 "that the equities of the creditors can only be worked out through 
 the equities of the partners." From these premises the conclusions 
 have been drawn that, if such equities are waived or released by the 
 partners themselves, the creditors lose them, and that a transfer of 
 the individual interest of a partner in the firm property to a third 
 person extinguishes the equity of the partner, and consequently 
 that of the creditors, which is dependent upon it. This doctrine 
 has been carried to the extent of holding that, if the individual in- 
 terests of each of the members of a firm are successively sold under 
 executions against such members, respectively, for their individual 
 debts, the purchasers acquire the corpus of the property free from 
 the copartnership debts, and the equities of the partners and partner- 
 ship creditors are extinguished. Coover's Appeal, 29 Pa. 9, 70 Am. 
 Dec. 149. 
 
 The injustice, and it may be said, the absurdities which result from 
 such a view lead to an inquiry into its correctness. A firm may be 
 perfectly solvent, though the members are individually insolvent, 
 and yet in such a case the doctrine that the property of the firm is 
 divested, and the equities of the partners and partnership creditors 
 are extinguished, by separate transfers of the individual interests of 
 all the partners, might result, not only in an appropriation of all 
 the properties of the firm to the payment of the individual debts, to the 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1255 
 
 entire exclusion of tlie firm creditors, but to a most unjustifiable sac- 
 rifice and waste of such properties. For instance, suppose a firm 
 to consist of three members, each having an equal interest, and to 
 be possessed of assets to the amount of $300,000, and to owe debts 
 to half of that amount, the interest of each partner, supposing their 
 accounts between themselves to be even, is $50,000. The members 
 of the firm are individually indebted. One of them sells his share, 
 and- receives for it $50,000, which is its actual value. The share 
 of another of the partners is sold under execution, and brings its 
 full- value, $5,000. Thus far one partner remains, and he has an 
 equity to have the firm debts paid, and those who have sold out are 
 protected against those debts. The purchasers of the separate in- 
 terests are entitled to the surplus only. The joint creditors still have 
 their recourse against the partnership property, and the right to levy 
 on such of it as is subject to sale on execution ; but before any 
 levy the remaining partner sells out his individual interest, or it 
 is sold on execution. According to the doctrine applied in the pres- 
 ent case, and maintained in the case of Coover's Appeal, supra, the 
 firm property is by this last sale relieved from the partnership debts, 
 the two shares first sold are at once changed from interests in the 
 surplus to shares in the corpus of the property free from the debts, 
 their value is doubled, and the fund which should have gone to pay 
 the joint debts, is, without any consideration, appropriated by the trans- 
 ferees of the individual interests of the partners. 
 
 Such is, in substance, the operation performed in the present case. 
 Assuming that the mortgages are intended to convey only separate 
 interests of the mortgagors (which, as has been shown, is the only 
 theory upon which they can escape being regarded as fraudulent), the 
 mortgaged property was, at the time the mortgages were given, liable 
 to be taken for the partnership debts. The mortgages were but a 
 slender security, and their value dependent upon the firm debts being 
 paid. This state of afifirs continued so long as Hollister E. Good- 
 win retained his one-fifth interest in the firm. The firm property was 
 legally under his dominion for the payment of firm debts; and the 
 firm creditors, if they then had their execution, could have rightfully 
 levied upon it, or availed themselves of Goodwin's equity as to any 
 property which must be reached in that form. But on the 10th of 
 May, 1867, Hollister E. Goodwin made a transfer of his interest in 
 the property of the firm to one Mary B. Goodwin; and on the same 
 day the plaintiff and Samuel E. Rubert took possession under their 
 mortgages. The referee has not found what was the consideration 
 or purpose of this assignment from Hollister E. to Mary B. Goodwin, 
 nor has he expressly found that it was made in good faith. But the 
 effect claimed for it is that, Hollister E. Goodwin being the only re- 
 maining partner, the transfer of his interest divested him of his do- 
 minion over the partnership property and of his equity to require the 
 application of the partnership property to the payment of its debts, 
 and that, as the partnership creditors could only reach the property 
 through him, he, by this transfer or surrender of' his rights, had cut 
 off their access to it, and thrown it into the hands of the transferees 
 of the individual partners, unincumbered by firm debts. 
 , Waiving any question as to the bona fides of this transaction, the 
 referee not having found it fraudulent, and treating the sale of Good- 
 win's interest as if it had been made under an execution against him, 
 
1256 PARTNERSHIP (Part 5 
 
 we come back to the question whether the consequences claimed do 
 legally follow from separate sales of the individual interests of the 
 several partners. It would be a superfluous labor to trace the history of 
 the changes which have, from time to time, taken place in the views 
 of the courts respecting the nature of the interests of individual part- 
 nerS in the common stock of a firm, and the respective rights of sepa- 
 rate and joint creditors; but it is sufHcient to observe that they have 
 resulted in a general recognition of the doctrine that as between a firm 
 and its creditors the property is vested in the firm, and that no indi- 
 vidual partner has an exclusive right to any part of the joint stock 
 until the firm debts are paid and a balance of account is struck be- 
 tween him and his copartners, and the amount of his interest accurately 
 ascertained. 
 
 The corpus of the effects is joint property, and neither partner 
 separately has anything in that corpus ; but the interest of each is only 
 his share of what remains after the partnership debts are paid and ac- 
 counts are taken. * * * 
 
 Partnership effects cannot be taken by attachment or sold on execu- 
 tion to satisfy a creditor of one of the partners, except to the extent 
 of the interest of such separate partner in the effects, subject to the 
 payment of the firm debts and settlement of all accounts. 3 Kent, 
 Com. (11th Ed.) 7(i. 
 
 Purchasers of the share of an individual partner can only take his 
 interest. That interest, and not a share of the partnership effects, 
 is sold, and it consists merely of the share of the surplus which shall 
 remain after the payment of the debts and settlement of the accounts 
 of the firm. 3 Kent, Com. (11th Ed.) 78, note "b." 
 
 No more property can be carried out of the firm by the assignee 
 of one partner than the partner himself could extract after all the ac- 
 counts are taken. * * * 
 
 No person deriving under a partner can be in a better condition than 
 the partner himself. •* * * 
 
 A partner has no right, by an assignment of his interest, to take 
 from the creditors or other partners the right to have their claims 
 against the partnership satisfied out of its property. A mortgage made 
 by one partner of his undivided interest cannot avail against the cred- 
 itors of the partnership who attach partnership property. * * * 
 
 These principles have been enunciated in a great number of cases, 
 where some one at least of the partners retained his equity to have 
 the firm debts paid, and the rights of the creditors to assets or pro- 
 ceeds, which have come under the control of a court of equity, have 
 been worked out through the equity of that partner. But I find no case 
 in which the consequences of transfers of the separate interests of all 
 the partners to outside parties has been considered, except the case of 
 Doner v. Staufter, 1 Pen. & W. (Pa.) 198, 21 Am. Dec. 37Q, and 
 Coover's Appeal, supra. In neither of these cases is the point adju- 
 dicated, for_ in both cases the joint creditors intervened before the 
 sale of the interest of the last remaining partner, and their right to 
 priority was sustained, though the opinion of the court was expressed 
 as to what the result would have been if all the individual interests 
 had been first sold. 
 
 There is another class of cases in which the partnership effects have 
 been held to be liberated from liability to be applied to partnership 
 debts in preference to the separate debts of one partner; that is, where 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1257 
 
 a bona fide sale has been made by a retiring partner, in a solvent firm 
 of two members, to his copartner, the latter assuming the debts. In 
 such a case it is settled that the property formerly of the partnership 
 becomes the separate property of the purchasing partner, and that 
 the partnership creditors are not entitled to any preference as against 
 his individual creditors in case of his subsequent insolvency. Ex parte 
 Ruffin, 6 Ves. 119; Dimon v. Hazard, 32 N. Y. 65. But in those cases 
 the joint property was converted into separate property by the joint 
 act of all the members of the firm. They had power to dispose of the 
 corpus of the joint property, and the exercise of that power, when 
 free from fraud, divested the title of the firm as effectually as if they 
 had united in a sale to a stranger. It remained subject to execution 
 for firm debts so long as it continued in the hands of the purchasing 
 partner. It is conceded that the creditors have no lien which would 
 affect the title of a purchaser from the firm. But the question now 
 is : What is the effect upon the title of the firm, as between it and its 
 creditors, of transfers by the partners severally of their respective 
 interests to third persons ? Where the property remains in specie, and 
 no act has been done by the firm to divest its title, but the partners 
 have made separate transfers of their respective individual interests 
 to different persons, is it still to be regarded, as to the firm creditors, 
 as firm property, or has it become the absolute property of the several 
 transferees of the interests of the individual partners? 
 
 It has been shown that no share in the corpus of the property passed 
 by either of these transfers separately, but merely an interest in the 
 surplus, and which should be ascertained on an accounting after pay- 
 ment of the firm debts. But it is claimed that, when all the partners 
 have assigned, their interest in the property is divested, and their equity 
 is destroyed, and therefore the property is released from the debts, and 
 what was at the time of the assignment a share of a contingent surplus 
 has been converted into a share of the corpus of the property. Is this 
 position sound ? When a partner sells his interest in a firm to a person 
 other than his copartner, or it is sold on execution against him, does 
 he thereby lose all equity to have the firm debts paid out of the assets ? 
 
 When he sells to his copartner he relies upon his assumption of the 
 partnership debts, and unless he stipulates for an application of the as- 
 sets to that purpose he parts with all lien upon them. But when he 
 sells to a stranger not liable for the debts, or his interest is sold on exe- 
 cution, is not the right to have the debts paid out of the property a 
 right of indemnity personal to himself, and which does not pass by the 
 sale? Could it be tolerated fhat the interest of a partner should be 
 sold under execution against him, on which sale only the value of 
 his interest in the surplus could be realized, and that the purchaser 
 should. be allowed to take the corpus of the property and leave him 
 liable for the debts ? If the legal effect of the transfer were set forth 
 in the instrument, it would be seen that all the purchaser acquired was 
 a right to an account and to the partner's share in the surplus after 
 payment of debts, when ascertained, and that he had no right to that 
 part of the property which was required for the payment of debts; 
 that the sale was subject to the debts. 3 Kent, Com. 76-78. The part- 
 ner whose share was sold would manifestly have an interest in the 
 protection and appropriation of that part of the property in discharge 
 of his own liability to the firm creditors. 
 
 I do not see how this right can be affected by the question whether 
 
1258 PARTNERSHIP (Part 5 
 
 the separate interests of all or only one of the partners Is thus sold. 
 Each of the purchasers would acquire an interest merely in the sur- 
 plus, and each partner whose interest was sold would have the right 
 to indemnity against the firm debts by the application to such debts of 
 so much of the property as might be necessary for the purpose. These 
 debts must have been taken into consideration in fixing the price of the 
 interest sold, and consequently allowed to the purchaser, and the 
 partnership assets are the primary fund for their payment. The case 
 differs materially from a sale by a retiring copartner to his copartner, 
 who is personally liable for the debts directly to the creditors; but 
 even such a sale is valid only when there is no insolvency at the time. 
 To sell to an insolvent partner would be a clear fraud. How much 
 more 'clearly apparent would be the injury to creditors by a sale to a 
 person not liable for the debts, if such sale had the effect to relieve the 
 property from them. 
 
 It can hardly be necessary, when the firm property remains in specie, 
 and is tangible and capable of being levied upon, to resort to the equi- 
 ties of the partners in case there has been no transfer by the firm and 
 the only .adverse claimants are assignees of the individual interests 
 of the several partners for their separate debts. The right of the firm 
 creditor to levy on property thus situated can be sustained on two 
 grounds. If the effect of any of the transfers is to divest the title of 
 the firm, then, if effected by the acts of the partner, they are clearly 
 fraudulent and void as to firm creditors, as is shown in the cases of 
 Ransom v. Vandeventer, 41 Barb. 307, and Wilson v. Robertson, 21 
 N. Y. 587. An appropriation to the individual debt of one partner 
 of any part of the firm property, even with the assent of his copartners, 
 is illegal and void, provided the firm is not left with sufficient to pay 
 its debts. How absurd it would be to hold that all of the partners, 
 by making separate assignments of their respective shares in the firm 
 property to their individual creditors, could effectually divest the firm 
 of all its property and apply it to their individual debts, leaving notlv 
 ing for the partnership creditors. But the simple solution of the ques- 
 tion is to hold that the title of the firm, as between it and its creditors, 
 to the corpus of its property, or at least to so much of it as is neces- 
 sary for the debts, is not divested by these separate transfers to 
 strangers. 
 
 As is stated by Prof. Parsons, in his work on Partnership (pages 
 356 to 362 [2d Ed.] c. 10, 1), a partnership, though neither a tenancy 
 in common nor a corporation, has some of the attributes of both. 
 The well-established rule which excludes creditors of the several part- 
 ners from the partnership property until that has paid the debts of 
 the partnership is derived from the acknowledgment that a partner- 
 ship is a body by itself. In its relation to its creditors it is placed upon 
 the basis of having its own creditors and possessing its own property, 
 which it applies to the payment of its debts, and after this work is done 
 there is a resolution of the body into its elements. 
 
 Until some act is done by the firm to transfer the joint interest, no 
 separate act of either or all of the partners, or proceedings against 
 them individually with reference to their individual interests, should 
 be held to affect the title of the firm, so as to preclude a creditor of 
 the firm, having a judgment and execution, from levying upon the joint 
 property. To hold that separate transfers of their individual shares 
 by the several partners can convey a good title to the whole pioperty 
 
Ch. 2) EELATIONS OF THE PAUTNERS BETWEEN THEMSELVES 1259 
 
 free from joint debts would be to return to the doctrine, long since 
 exploded, that partners hold by moieties as tenants in common. In 
 the present advanced stage of the law upon this subject, no established 
 rule is violated by holding that the title of the firm, as between it and 
 its creditors, cannot be divested by the acts of the partners severally, 
 not in the business of the firm, nor by the separate creditors of mem- 
 bers of the firm (further thdn such temporary interruption of the 
 possession as may be necessary to enable tlie officers of the law to 
 make an effectual sale of the interest of the debtor partner). This view 
 does not recognize any lien of partnership creditors upon the firm 
 property. The firm have power to dispose of it without regard to 
 the creditors, provided the disposition be not fraudulent. But. the 
 individual members or their creditors ought not to have any such power, 
 and all transfers made by them for individual purposes should be 
 held inoperative upon the corpus of the property, so long as there are 
 firm debts unpaid for which the property is required. As against 
 firm creditors, no greater effect should be given to such transfers when 
 made by all the partners separately than when made by a portion of 
 them, but the property should be deemed to continue in the firm until 
 its title has been divested by some act of the firm. 
 
 My conclusion is that, as between the firm of J. C. Smith & Co. 
 and its creditors, the property levied upon by the defendants remained 
 the property of the firm, and subject to levy on execution against it, 
 notwithstanding the transfers by the several partners of their re- 
 spective individual interests. * * * 
 
 SECTION 2.— WHAT CONSTITUTES PARTNERSHIP 
 
 PROPERTY 
 
 Uniform Partnership Act, Section 8. (1) All property original- 
 ly brought into the partnership stock or subsequently acquired, by 
 purchase or otherwise, on account of the partnership is partnership 
 property. (2) Unless the contrary intention appears, property 
 acquired with partnership funds is partnership property. 
 
 EOBINSON BANK v. MILI.ER et al. 
 
 (Supreme Court of Illinois, 1894. 153 lU. 244, 38 N. E. 1078, 27 L. K. A. 449. 
 
 46 Am. St. Rep. 883.) 
 
 MagrudEr, J. * * * Whether real estate upon which a part- 
 nership transacts its business is firm property or the property of the 
 individual members of the firm is oftentimes a difficult question to 
 determine, and one upon which the authorities are not altogether uni- 
 form. The mere fact of the use of land by a firm does not make it 
 partnership property. * * * Nor is real estate necessarily the in- 
 dividual property of the members of a firm because the title is held 
 by one member, or by the several members in individual interests. 
 * * * Whether real estate is partnership or individual property de- 
 pends largely upon the intention of the partners. That intention may 
 be expressed in the deed conveying the land, or in the articles of part- 
 nership; but when it is not so expressed the circumstances usually 
 relied upon to determine the question are the ownership of the funds 
 
1260 PARTNBRSH-iP (Part 5 
 
 paid for the land, the uses to which it is put, and the manner in which 
 it is entered in the accounts 'u^ion the books of the firm. * * * 
 Where real estate is bought with partnership funds for partnership 
 purposes, and is applied to partnership uses, or entered and carried 
 in the accounts cif the firm as a partnership asset, it is deemed to be 
 firm property; and in such case it makes no difference, in a court of 
 equity, whether the title is vested in all the partners^ as tenants in 
 common, or in one of them, or in a stranger. * * * jf the real es- 
 tate is purchased with partnership funds, the party holding the legal 
 title will be regarded as holding it subject to a resulting trust in favor 
 of the firm furnishing the money. In such case no agreement is nec- 
 essary, and the statute of frauds has no application. * * * 
 
 In the case at bar the land was not purchased with partnership 
 funds. * * * The evidence, however, does show that the property- 
 was bought for the purpose of beii^g used in the milling business, and 
 that after its purchase it was used for firm purposes, and that the firm 
 gave its notes to pay for repairs, and for placing new machinery in 
 the mill upon the premises. Under these circumstances, was the land 
 partnership property, or the individual property of the partners, hold- 
 ing as tenants in common? It cannot be said that the land is firm 
 property, upon the theory of a resulting trust, because the money of 
 the firm was not used to buy the property. Such a trust might ex- 
 ist in favor of the firm, regarding it as a person, if the partners had 
 taken the legal title, and the firm had advanced the purchase money. 
 The trust must arise at the time of the execution of the conveyance, 
 and when the title vests in the grantee. Such could not have been the 
 case here, under the facts stated. * * * in view of the fact that 
 the land was bought with individual, and not partnership, funds, and 
 was conveyed in undivided interests to the several partners, and in 
 the absence of any agreement that it should be regarded as firm prop- 
 erty, does the conduct of the parties in afterwards forming a part- 
 nership, and using the property for partnership purposes and re- 
 pairing and improving the mill at the expense of the firm, make the 
 land firm property, in a court of equity? A negative answer to this 
 question is found in many of the authorities, as will be seen by refer- 
 ence to the following : Alexander v. Kimbro, 49 Miss. 529 ; Theriot 
 V. Michel, 28 La. Ann. 107; Reynolds v. Ruckman, 35 Mich. 80; 
 Parker v. Bowles, 57 N. H. 491; Thompson v. Bowman, 6 Wall. 
 316, 18 L. Ed. 736; Frink v. Branch, 16 Conn. 260. * * * 
 
 The general doctrine of all these cases is that a purchase of the 
 land with partnership funds is necessary to make it firm property. 
 T. Parsons, in his work on Partnership (4th Ed.), says: "Although 
 it [real estate] be held in the joint name of two or more persons, if 
 there be no proof that it was purchased with partnership funds for 
 partnership purposes, it will be considered as held by them as joint 
 tenants or tenants in common. * * * So, if not paid for by part- 
 nership funds, then it is probably his property who does pay for it, 
 whatever uBe he permits to be made of it." * * * There are cases 
 which hold that, even though the land was originally bought by the 
 several partners with their individual funds, and deeded to them as 
 tenants in common, yet it will be regarded in equity as firm property 
 where it is improved out of partnership funds for firm purposes, and 
 actually used for such purposes, or where the firm puts valuable and 
 permanent improvements upon it for firm purposes, and which are 
 
Ch. 2) BELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1261, 
 
 essential to the firm. In some instances the land is held to be the 
 property of the partners, and the improvements to be the property of 
 the firm.' * * * The use of the property is not conclusive of its 
 character as real estate or personalty, but is only evidence oi the in- 
 tention of the parties. When the intention of the partners to convert 
 the land into firm property is inferred from circumstances, the circum- 
 stances must be such as do not admit of any other equally reasonable 
 and satisfactory explanation. * * * And, where it is sought to 
 show a conversion of the land into personalty by agreement of the 
 partners, such agreement must be clear and explicit. * * * 
 
 The weight of authority seems to us to support the position that 
 where persons who afterwards become partners buy land in their in- 
 dividual names and with their individual funds, before the making of 
 a partnership agreement, the land will be regarded as the individual 
 proi>erty of the partners, in the absence of' a clear and explicit agree- 
 ment subsequently entered into by them to make it firm property, or in 
 the absence of controlling circumstances which indicate an intention 
 to convert it into firm assets. We do not think that an application of 
 this rule to the facts of the present case shows the real estate here in 
 controversy to be firm property. The testimony proves affirmatively 
 that there was no agreement, written or verbal, to put the land into 
 the firm as a firm asset, and that it was treated by the parties as in- 
 dividual property.' * * * 
 
 The judgment of the appellate court and the decree of the circuit 
 court are affirmed. * * * 
 
 SECTION 3.— WHAT CONSTITUTES PARTNERSHIP 
 
 CAPITAL 
 
 DEAN et al. v. DEAN et al. 
 (Supreme Court of Wisconsin, 1882. 54 Wis. 23, 11 N. W. 239.) 
 
 Cole, C. J. This action is brought by the plaintiflfs, as executors, to 
 obtain a construction of the codicil to the will of N. W. Dean, who 
 died February 28, 1880. The will was dated February 29, 1876, 
 and makes a full disposition of the testator's estate, both real and 
 personal. After the payment of certain legacies named, the testator 
 directed his executors to divide the rest and residue of his estate into 
 six equal parts, which were to be paid to the persons named in the 
 proportions specified. * * * There is no controversy as to the 
 proper construction of the will, and we need not further give its 
 provisions. The codicil bears date February 23, 1880. On May 1, 
 1871, the decedent and his brother, Thaddeus Dean, entered into part- 
 nership in the business of dealing in lumber in the city of Chicago, 
 which partnership was continued to the death of N. W. Dean. 
 
 The will makes no express reference to this partnership business. 
 But the codicil, after reciting that this partnership business had 
 hitherto been profitable to the testator, which was largely due to the 
 business capacity and integrity of his brother Thaddeus, contaitis this 
 laiiguage : "And being desirous of showing my appreciation thereof, 
 and that the business so commenced should be maintained and car- 
 ried on,- 1 hereby direct my said executors to allow my present cap- 
 
1262 ?;,/ PARTNERSHIP CP^rt ^ 
 
 itctl in; said: busin'eSs to remain for the period of two years after my 
 decease, collecting and receiving annually, from my said brother 
 Thaddeus, the net profits arising from said business, under my agree- 
 ment with him, belonging to me,, for the benefit of my estate. At 
 the expiration of two years it is my will and I direct that my said ex- 
 ecutors have a full , settlement and accounting with niy said brother 
 Thaddeus in relation to said business, and that thereupon they col- 
 lect and receive from him one-half of the net value of my interest 
 therein, and upon the payment by him of the one-half value so ascer- 
 tained I instruct and direct my said executors to execute and deliver 
 to him all proper and necessary assignments and conveyances sO' as 
 to vest in him absolutely all my right, title, and interest in the business- 
 aforesaid;, it being my intention, in addition to the bequest hereto- 
 fore made to him in my said will, tO' bequeath and devise to him one- 
 half of my entire interest in said business, subject to the limitations 
 and restrictions aforesaid." 
 
 The articles of copartnership, to which reference .is made in the 
 codicil, are quite full and specific. They provide, among other things, 
 that each partner should contribute $15,000 to the capital of the firm, 
 which was to be used in carrying on the copartnership' business ; that 
 Thaddeus Dean was to have the management of the business ; that 
 he should be entitled to receive two-thirds of the profits, and N. W. 
 Dean oncrthird thereof. The losses were to be borne in the same 
 proportion. Books of "account were to be kept, wherein all of the 
 rransactions of the tirm should be entered, and which books should, 
 be open to the inspection of each partner at all times. By the ninth 
 clause it was provided that N. W. Dean was to take out of the cash 
 of ,,tbe- company',s funds $125 per month for his own use, and Thad- 
 deus Dean $250 per month, providing these sums could be sO' drawn 
 out by the respective parties without impairing the capital of the 
 firm, but neither partner was to take a greater sum for his own, use 
 during any month without the written consent of the other. The 
 tenth clause provided that Thaddeus Dean, at the end of each year, 
 and oftener, if need be, on request, should make and render to <N. W. 
 Dean a just and true account of all the gains and profits, as well as 
 losses, of the business, and of all things .done on behalf of the part- 
 nership, and this account being so made he was to pay N. W. Dean 
 his proportionate share of the profits, and take to himself his own 
 share. In the eleventh clause it was provided that during the contin- 
 uance of the copartnership none of the capital of the firm, nor any 
 of the accrued but undivided gains and profits thereof, should be 
 used or employed by the parties thereto for any other purpose than 
 carrying on said business. In the twelfth, that at the end of the 
 copartnership a final accounting should be had, and all the debts of 
 the firm should be fir^t paid, then each should draw out the amount 
 of capital originally contributed by him, diminished by his propor- 
 tionate share o;f losses, if any ; the balance, if any, to be divided as pro- 
 vided for dividing profits. These are. the material provisions of the 
 copartnership agreement. 
 
 From three letters which were introduced on the hearing — one writ- 
 ten by Thaddeus: Dean ; the other two by ,N. W. Dean — it appears 
 that each party agreed, in July, 1872,, to increase its capital to.$20,- 
 000, and did so. An4 it farther appears, from the annual; statement 
 made of the partnership-; business, that at the end of each partnerT 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1203 
 
 ship year each partner was credited on the books of the concern with 
 his share of the profits, and was charged with the amount which he 
 had drawn out during the year. The accumulated but undivided prof- 
 its of the business consisted almost wholly of real estate, lumber, 
 notes, book accounts, and other personal property belonging to the 
 firm. The amount standing to the credit of N. W. Dean, at the time 
 of his death, including his capital of $20,000, was $43,478.16. Or, 
 to speak more accurately, that sum embraced the profits standing 
 to the credit of N. W. Dean on the books of the firm at the time 
 of his death, and also the unascertained profits which had accrued 
 since the last annual statement of May 1, 1879, down to that time. 
 
 The question arising upon the codicil, which the executors request 
 the aid of the court in determining, is what amount they must leave 
 in the partnership business for two years, and which, at the end of 
 that period, they are directed to assign and convey to Thaddeus Dean 
 upon his paying one-half of its ascertained net value; the annual 
 profits having been collected by them in the meantime. On the part 
 of the residuary legatee Thaddeus Dean it is claimed that it was the 
 intention of the testator that his entire interest in the partnership 
 business should remain in the business, including both his capital of 
 $20,000 and all accumulated but undivided profits belonging to him 
 under the partnership agreement ; while, on the part of other resid- 
 uary legatees, it is insisted that it was his capital only which was to be 
 left in the business. * * * 
 
 On looking at the language of the codicil itself, the first thing which 
 will be noticed is that the testator, in the introductory part, speaks 
 of his "interest" in the business, which has been profitable to him. 
 Being desirous that the business so commenced should be maintained 
 and carried on, he directs his "executors to allow my present capital 
 in said business to remain for the period of two years after my de- 
 cease, collecting and receiving annually from my said brother, Thad- 
 deus Dean, the net profits arising from said business under my agree- 
 ment with him, belonging to me, for the benefit of my estate." It will 
 be seen that the mind of the testator was fixed at the outset upon his 
 entire interest in that business as distinguishable from his capital there- 
 in. If he intended that his entire interest should remain, it is singular 
 that he changed his language, using words which convey a different 
 meaning. The terms "interest" and "present capital" are not equiv- 
 alent expressions, and do not convey the same idea in the connection in 
 which they are used. If the testator intended that his entire interest 
 in the business should remain, it is remarkable that he changed his 
 phraseology. But this is not all. The executors are directed to 
 collect annually from his brother Thaddeus the net profits arising from 
 the business under the partnership agreement which belonged to him 
 for ihe benefit of his estate. If the codicil is construed, as it must be, 
 in connection with the partnership agreement, there is no difficulty 
 in getting at the intention of the testator, for the agreement makes 
 a plain and broad distinction between capital and profits. The for- 
 mer is devoted to the use of the partnership business, but provision 
 is made for withdrawing the latter from time to time. Therefore we 
 think that the word "capital," as used in the codicil, must be under- 
 stood as meaning the same thing as when used in the agreement ; it 
 means the capital as opposed to profits, and the word "profits" means 
 .the gains upon the capital invested in the business. * * * If he 
 
1264 PARTNERSHIP (Part 5 
 
 had. intended to direct that his whole interest in tlje business should 
 remain two years, or if he regarded his entire assets therein as caj)- 
 ital, his intention or understanding would have been hiade manifest by 
 the use of different language than that employed. 
 
 But, as observed by counsel who argue in favor of the view we have 
 taken of the meaning of the codicil, the testator, in the very sentence 
 in which the words "my present capital" occur, directs what shall be 
 done with the "net profits" of the business, and pointedly makes a dis- 
 tinction between capital and profits, thus showing that the two things 
 were separate in his mind. The intention of the testator must pre- 
 vail if it is possible to gather it from the language of the entire codicil. 
 That intention was tp allow his capital to remain in the business for 
 two years, but nothing more. This construction of the codicil is 
 vigorously combated by the learned counsel for Thaddeus Dean, be- 
 cause, as he says, if the accumulated profits of the parties were with- 
 drawn it would so cripple the business that it could not be carried on 
 with the success and profit which had theretofore attended it. _ But 
 this argument, under the circumstances, is entitled to but little weight ; 
 for if there had been no provision for continuing the business it would 
 have to be closed up on the death of N. W. Dean. Its continuance, 
 therefore, was a favor, and could not have been claimed as a right by 
 the surviving partner. * * * 
 
 , It results, from the views expressed, that the judgment of the circuit 
 court, placing a construction upon the codicil, and giving directions 
 to the executors in regard to the proper execution of their trust, 
 is erroneous. The judgment must, therefore, be reversed, and the 
 cause be remanded, with directions to enter a judgment in accordance 
 with this opinion. 
 
 SECTION 4.— ACQUISITION AND TRANSFER OF 
 PARTNERSHIP REALTY 
 
 While title to personal property may be taken, held, and trans- 
 ferred in the partnership name, it is generally held that title to 
 realty cannot be taken in the partnership name, because of the 
 uncertainty as to the grantee. There is authority, however, for the 
 proposition that title taken in the firm name vests in all of the 
 members of the firm, parol evidence being admissible to identify 
 the grantees. The Uniform Partnership Act adopts the latter 
 rule. 
 
 Section 8. (3) Any estate in real property may be acquired in 
 the partnership name. Title so acquired can be conveyed only in 
 the partnership name. (4) A conveyance to a partnership in the 
 partnership name, though without virords of inheritance, passes' the 
 entire estate of the grantor unless a contrary intent appears.* 
 
 Section 10. (1) Where title to real property is in, the partner- 
 
 4 Lewis' Note to Section S (3, Jf). — Paragraphs (3), (4), in connection with 
 section 10, infra, do away with existing confusions where there ha,s been a. 
 conveyance to a partnership in the partnership name, or a conveyance by a 
 partner in the partnership name. At present such conveyance may convey 
 an equitable, but does not convey a legal title. To this extent paragraph (Z) 
 of this section and section 10 (1), infra, change existing law. 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1265 
 
 ship name, any partner may convey title to such property by a 
 conveyance executed in the partnership's name. * * * 
 
 Of these sections Professoi; Lewis has said: "In permitting a 
 partnership .to acquire real property by a conveyance executed in 
 the partnership name, the intent of the Conference was to avoid 
 those complications now arising when an attempt is made to make 
 such a conveyance. Of course it is not probable that the practice 
 of holding title to partnership real estate in the partnership name 
 will become universal. * * * Still we may expect that a con- 
 trolling consideration which will move many to place title to real 
 property in the partnership name will be the convenience of being 
 able to convey good title in case of the death of a partner without 
 having to secure the signature of persons not members of the par- 
 nership." ^ 
 
 WINTER V. STOCK. 
 (Supreme Court of California, 1866. 29 Cal. 407, 89 Am. Dec. 57.) 
 
 CuRREY, C. J. This action was brought to recover the sum of $800, 
 paid by the plaintifif to the defendant on a contract for the purchase of 
 a lot of land in the city of San Francisco. The contract between the 
 parties was in writing, the concluding clause of which, on the part of 
 the defendant, the bargainor, is in these words : "I warrant an indis- 
 putable and satisfactory title, or no sale, and I have to pay the ex- 
 penses for the examination of the title." The defendant's title was 
 submitted to a lawyer for examination, who pronounced against it. 
 * * * 
 
 The objection made to the title, and which the court below held 
 well founded, was that the conveyance by the Racouillats was to Louis 
 Blanchard & Co. and John Antoine Couttolene & Co., and that the 
 conveyance of the 8th of August, 1857, was by John Antoine Cout- 
 tolene and Ernest Paris to Louis Blanchard & Co., and that the con- 
 veyance of February, 1861, was by Louis Blanchard and Francois 
 Porta to Edme Ludovic Racouillat. 
 
 The fact that these several conveyances were made to certain per- 
 sons whose names were mentioned with the words "and Company" an- 
 nexed thereto seemed to have been regarded as passing the title, not 
 alone to the grantees najned, but also to persons not named, but rep- 
 resented by the word "Company," and that the deeds of the persons 
 thus represented were necessary to transfer the entire title of the 
 property to a subsequent grantee, and that, as "Company" was a word 
 of indefinite and uncertain import, it could not be known to the pur- 
 chaser that Paris and Porta were respectively members, and the only 
 members, of the firms of Blanchard & Co. and Couttolene & Co. 
 
 The doctrine on this subject is well expounded in Arthur v. Weston 
 and Strode, 22 ,Mo. 378. * * * The court observed that the ques- 
 tion "is not merely whether the grantor intended to convey to the 
 persons composing the firm, but whether the partnership style is, as 
 a matter of law, a good name of purchase in a conveyance of real 
 property sufficient to pass the legal title to' all the individuals of the 
 
 « The trniform Partnership Act, 24 Tale Law Journal, 624. 
 B.& B.BTJS.LAW— 80 
 
1266 PARTNERSHIP (Part 5 
 
 firm. * * * A conveyance of real property being required by the 
 statute to be put in writing, the party who is to take as grantee must 
 be sufficiently ascertained by the written instrument, or it is a nullity, 
 so far as it purports to effect a transfer of the legal title." The court; 
 in the case here referred to, admit, upon authorities cited, that parties 
 to a deed may be described by other modes than by their proper names 
 — as a grant to the wife of a person named, or to the first son or sec- 
 ond son, or to all the children of a particular person who is specified, 
 •or to a person who can answer the description. * * * 
 
 The defendant's title to the lot being good and valid, it was, in the 
 sense of the defendant's warranty, an indisputable title, and the plaintiff 
 was in duty bound to be satisfied with it. * * * 
 
 The judgment must be and is hereby reversed. 
 
 SECTION 5.— PARTNERSHIP NAME AND GOOD WILL. 
 
 WILLIAMS et al. v. FARRAND et al. 
 
 {Supreme Court of Michigan, 1891. 88 Mich. 473, 50 N. "W. 446, 
 14 L. R. A. 161.) 
 
 Bill in equity by William C. Williams et al. against Jacob S. Far- 
 rand et al. Respondents retired from a partnership composed of 
 themselves and complainants, and sold the latter "all their right, title, 
 and interest in the firm." Complainants alleged that they had bought 
 the good will of the firm, and were entitled to the exclusive use of its 
 name, and prayed that respondents be restrained from so using their 
 own names as to attract the firm's old customers, etc., and from using 
 its trade-marks, etc. From a decree for respondents, complainants 
 appeal. 
 
 McGraTh, J. Complainants and defendants had been for some 
 years engaged as wholesale druggists on Larned street east, in the city 
 of Detroit, as copartners, under the name and style of Farrand, Wil- 
 liams & Co. There were no articles of copartnership, and no term 
 fixed for which the partnership was to continue. Prior to the taking 
 of the annual inventory in January, 1890, defendant Jacob S. Farrand 
 expressed to complainant Sheley a desire to dissolve the copartnership. 
 * * * On the 25th of January, 1890, after the completion of the 
 inventory, defendants made a proposition in writing to "pay Messrs. 
 Sheley & Brooks, for their interest in the firm of Farrand, Williams 
 & Co., for the amount of their interest, being fifty thousand dollars, 
 ($50,000), the sum of sixty thousand dollars, ($60,000), or they will 
 take for their interest, the amount being one hundred thousand dollars, 
 ($100,000), the sum of one hundred and twenty thousand dollars, 
 ($120,000), the sum to be paid in cash, or in notes acceptable to the 
 parties who sell, one week from to-day, Saturday, the first day of 
 February next. The store to be leased to the party purchasing for a 
 term of five years, at a rent of eight thousand dollars ($8,000) a year, 
 and the warehouse to be rented to the party purchasing, at a net rental 
 of 6% a year on the cost of their interest therein." 
 
 On the following Monday Mr. Sheley accepted defendants' offer to 
 sell, and on the 1st day of February following a bill of sale was pre- 
 
Lh. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1267 
 
 pared, reciting, among other things, that defendants, in consideration of 
 the sum of $120,000, paid to them by Alanson Sheley, party of the 
 second part, "have bargained and sold unto the said party of the sec- 
 ond part all our right, title, and interest to the within-mentioned re- 
 sources of said firm, including the good will attendant upon the busi- 
 ness." This bill of sale was not executed, objection being made to the 
 clause, "including the good will attendant upon the business," and a 
 new instrument was prepared, reciting that defendants, parties of 
 the first part, "for and in consideration of the sum of one hundred 
 and twenty thousand dollars, to them paid by Alanson Sheley, of the 
 second part, have bargained and sold, and by these presents do grant 
 and convey, unto the said party of the second part, his executors, ad- 
 ministrators, or assigns, all our right, title, and interest in the firm of 
 Farrand, Williams & Company." This instrument was executed, the 
 insurance policies were assigned by Farrand, Williams & Co. to Wil- 
 liams, Sheley & Brooks, and an agreement to assume and pay all the 
 debts of tlie old firm was executed by Williams, Sheley & Brooks, and 
 delivered to defendants. Defendants afterwards formed a copartner- 
 ship under the firm name of Farrand, Williams & Clark, and opened 
 a wholesale drug establishment at No. 32 Woodward avenue. 
 
 Complainants adopted the name and style of Williams, Sheley & 
 Brooks, posted their firm name, as successor to Farrand, Williams 
 & Co., over their place of business, had the words "Williams, Sheley 
 & Brooks, Successors to" printed in red ink over the words "Farrand, 
 Williams & Co." wherever the latter appeared upon letter heads, bill 
 heads, labels, and on other stationery, advertised themselves in the 
 newspapers and trade journals as Williams, Sheley & Brooks, succes- 
 sors to Farrand, Williams & Co., and sent out circulars to the trade 
 containing not only their firm name, but the names of the individual 
 members of the new firm. Defendants also extensively advertised the 
 new enterprise through the same mediums, calling special attention to 
 the names of the members of the new firm, their long connection with 
 the drug business, and the dissolution of the old firm, and soliciting 
 trade. 
 
 The complainants contend that the assignment by defendants of all 
 interest in the business carried with it the good will of the business,- 
 and, having purchased the good will of that business, they are entitled 
 to the exclusive use of the old firm name ; that, while defendants have 
 the right to engage in the same line of business, they have not the 
 right to such a collocation of their own names as will produce confu- 
 sion, attract customers, and secure orders, letters, and goods intended 
 for the old firm ; that defendants have no right to simulate their labels, 
 to solicit their customers, or entice away their employes. "Good will" 
 has been defined by this court to be "the favor which the management 
 of a business wins from the public, and the probability that old cus- 
 tomers will continue their patronage." Chittenden v. Whitbeck, 50 
 Mich. 401, 15 N. W. 526. Lord Eldon, in Cruttwell v. Lye, 17 Ves. 
 335, defined it as simply the probability that old customers will resort 
 to the old place. 
 
 The following propositions must be regarded as established by the 
 clear weight of authority: 
 
 1. Though a retiring partner may have assigned his interest in the 
 partnership business, including the good will thereof, to his copart- 
 ner, he may, in the absence of an express agreement to the contrary. 
 
1268 ' PARTNERSHIP (Part 5 
 
 engage in the same line of business in the same locality, and in his 
 own name. 
 
 2. He may, by newspaper advertisements, cards, and general cir- 
 culars, invite the general public to trade with him, and through the 
 same mediums advertise his long connection with the old business, 
 and his retirement therefrom. 
 
 3. He will not be allowed, however, to use his own name, or to ad- 
 vertise his business, in such a way as to lead the public to suppose 
 that he is continuing the old business ; hence, will not be allowed to 
 advertise himself as its successor. 
 
 4. The purchaser will not, in the absence of an express agreement, , 
 be allowed to continue the business in the name of the old firm. 
 
 5. That no man has a right to sell or advertise his own business or 
 goods as those of another, and so mislead the public, and injure such 
 other person. * * * 
 
 6. That when an express contract has been made to remain out of 
 business, or for the use by a purchaser of a fictitious name, or a trade- 
 name, or a trade-mark, the courts will enjoin the continued violation of 
 such agreement. * * * 
 
 7. That an assignment of all the stock, property, and efifects of a 
 business, or the exclusive right to manufacture a given article, car- 
 ries with it the exclusive right to use a fictitious name in which such 
 business has been carried on, and such trade-marks and trade-names 
 as have been in use in such business. These incidents attach to the 
 business or right of manufacture, and pass with it. Courts have uni- 
 formly held that a trade-mark has no separate existence; that there 
 is no property in words, as detached from the thing to which they are 
 applied; and that a conveyance of the thing to which it is attached 
 carries with it the name. * * * 
 
 8. A corporate name is regarded as in the nature of a trade-mark, 
 even though composed of individual names, and its simulation may 
 be restrained. After adoption it follows the corporation. Statutes 
 providing for the organization of corporations usually prohibit the 
 adoption of the same name by two companies. * * * 
 
 These propositions are sustained by a long line of authorities, but 
 in none of the cases cited does the question hinge upon a grant of 
 good will. Complainants insist, however, that a grant of good will 
 may be implied, and, when express or implied, it imposes certain re- 
 straints upon the vendors, viz.: (1) That they cannot afterwards 
 personally solicit customers of the old firm; and (2) that they are 
 restricted in the use that may be made of their own names. 
 
 I. The doctrine that a retiring partner, who has conveyed his in- 
 terest in an established business, whether the good will be included 
 or not, cannot personally solicit the customers of the old firm, has no 
 support in principle. A retiring partner conveys, in addition to his 
 interest in the tangible efifects, simply the advantages that an estab- 
 lished business possesses over a new enterprise. The old business 
 is an assured success, the new an experiment. The old business is a 
 going business, and produces its accustomed profits on the day after 
 the transfer. It is capital already invested, and earning profits. The 
 continuing partner gets these advantages. The new business must 
 be built up. The capital taken out of the old concern will earn nothing 
 for months, and in all probability the first year's business will show 
 loss instead of profit. For a time at least it is capital awaiting in- 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1269 
 
 vestment, or invested, but earning nothing. The retiring partner 
 takes these chances or disadvantages. He does not agree that the 
 benefit derived from his connection with that business shall contin- 
 ue. He does not agree that the old business shall continue to have the 
 benefit of his name, reputation, or service; nor does he guaranty the 
 continuance of that patronage which may have been attracted by his 
 name or reputation. He does not pledge a continuance of conditions. 
 He takes out of the business an element that has contributed to the 
 success of that business. He sells only those advantages and incidents 
 which attach to the property and location, rather than those which at- 
 tach to the person of the vendor. * * * He sells only so much of 
 the custom as will continue in spite of his retirement and activity. He 
 sells probabilities, not assurances. 
 
 It is. urged that by the solicitation of the customers of the old 
 firm he is endeavoring to impair the value of that which he has sold, 
 but every act of his in the direction of the establishment of the new 
 business tends to divert the customers of the old firm. The right to 
 enter into the same line of business in the same locality — next door, 
 if you please — ^to advertise his former connection with the old business, 
 and to solicit generally the patronage of the public, is conceded by 
 the clear weight of authority. The exercise of these rights necessari- 
 ly involves the diversion of custom to the new firm. Does not the 
 right to again engage in the same line of business include all of the 
 incidents of that right? Upon what principle is the line arbitrarily 
 drawn at the personal solicitation of the customers of the old firm? 
 The right to engage in business in his own name attaches to the re- 
 tiring partner, and, unless expressly so agreed, there is no restraint 
 upon that right. 
 
 In the present case, Jacob S. Farrand had been at the head of the 
 old house for half a century. His name could not be subsequently 
 used in the same line of business without attracting the attention of 
 the entire trade, nor without affecting the probabilities of a continu- 
 ance of the patronage of the old house. He gave no hint that he did 
 not intend to again engage in business. All of the circumstances 
 pointed in the direction of a new business. The retirement was not 
 of Jacob S. Farrand alone, but of his son-in-law and Mr. Clark also. 
 The proposition made to complainants was not only to sell, but to 
 buy. In Ginesi v. Cooper, 14 Ch. Div. 596, the court went so far as 
 to insist that a retiring partner had no right to deal with the custom- 
 ers of the old firm ; but that rule would operate as a restriction upon 
 the public, and the case is without support in that respect. In La- 
 bouchere v. Dawson, L,. R. 13 Eq. 322, the court say that a retiring 
 partner who sells the good will of a business is entitled to engage in 
 a similar business, may publish any advertisement he pleases in the 
 papers, stating that he is carrying on such a business; he may pub- 
 lish circulars to all the world, and say that he is carrying on such a 
 business; but he is not entitled, by private letter, or by visit by him- 
 self or agent, to solicit the customers of the old firm. 
 
 But in Pearson v. Pearson, 27 Ch. Div. 145, Labouchere v. Daw- 
 son is expressly overruled. The court say: "The case of the plain- 
 tiff is founded on contract, and the question is, what are his rights 
 under the contract? There is no express covenant not to solicit the 
 customers of the old business, but it is said that such a covenant is 
 to be implied. I have a great objection to straining words so as to 
 
1270 PARTNERSHIP (Part 5 
 
 make them imply a contract as to a point upon which the parties have 
 said nothing, particularly when it is a point which was in their con- 
 templation. It is said that there was a sale of the good will. I think 
 that there was, taking good will as defined by Lord Eldon in Cruttwell 
 V. Lye, 17 Ves. 335. The purchaser has a right to the place and a 
 right to get in the old bills; so the purchaser gets the good will, as 
 defined by Lord Eldon. But the term 'good will' is not used; and 
 when a contract is sought to be implied we must not substitute one 
 word for another. But suppose the word did occur, what is the ef- 
 fect of the sale of 'good will.' It does not, per se, prevent the vendor 
 from carrying on the same class of business." 
 
 Vernon v. Hallam, 34 Ch. Div. 752, held that a covenant by a ven- 
 dor of a business, including the good will thereof, that he would not 
 for a term of years carry on the business of a manufacturer, either 
 by himself or jointly with any other person, under the name or style 
 of J. H. or H. Bros, (the name of the business which he had sold), 
 is not a covenant that the vendor would not carry on business as a 
 manufacturer, but against using a particular name or style in trade, 
 and the injunction was granted to restrain a breach of that covenant. 
 The court say : "When a vendor sells his business, and commences a 
 similar business in the same locality, and solicits customers of the 
 old house to deal with him, the court, following the decision in Pear- 
 son V. Pearson, and being of opinion that the case of Labouchere v. 
 Dawson had been overruled by the decision in that case, refused to 
 grant an injunction to restrain such solicitation." Leggott v. Bar- 
 rett, 15 Ch. Div. 306, Ginesi v. Cooper, 14 Ch. Div. 596, and a number 
 of other cases cited, follow Labouchere v. Dawson. 
 
 The correct rule is, we think, laid down in Cottrell v. Manufactur- 
 ing Co., 54 Conn. 138, 6 Atl. 791. The court say: "Cottrell did not 
 require Babcock to agree, and the latter did not agree to abstain from 
 the manufacturing of printing presses. By purchasing the good will 
 merely Cottrell secured the right to conduct the old business at the 
 old stand, with the probability in his favor that old customers would 
 continue to go there. If he desired more, he should have secured it 
 by positive agreement. The matter of good will was in his mind. 
 Presumptively he obtained all that he desired. At any rate, the ex- 
 press contract is the measure of his right; and since that conveys a 
 good will in terms, but says no more, the court will not upon inference 
 deny to the vendor the possibility of successful competition by all 
 lawful means with the vendee in the same business. No restraint upon 
 trade may rest upon inference. Therefore, in the absence of any 
 express stipulation to the contrary, Babcock might lawfully establish 
 a similar business at the next door, and by advertisement, circular, 
 card, and personal solicitation invite all the world, including the old 
 customers of Cottrell & Babcock, to come there and purchase of him; 
 being very careful always when addressing individuals or the public' 
 either through the eye or the ear, not to lead any one to believe that 
 the presses which he offered for sale were manufactured by the plain- 
 tiffs, or that he was the successor to the business of Cottrell & Bab- 
 cock, or that Cottrell was not carrying on the business formerly con- 
 ducted by that firm. That he may do this by advertisements and gen- 
 eral circulars courts are substantially agreed, we think. But some 
 have drawn the line here and barred personal solicitation. They per- 
 mit the vendor of a good will to establish a like business at the next 
 
Ch. 2) RELATIONS OP THE PARTNERS BETWEEN THEMSELVES 1271 
 
 door, and, by the potential instrumentalities of the newspapers and 
 general circulars ask old customers tolbuy at the old place, and with- 
 hold from him only the instrumentality of highest power, viz., per- 
 sonal solicitation. To deny him the use of the newspapers and gen- 
 eral circulars is to make successful business impossible, and there- 
 fore is to impose art absolute restraint upon the; right to trade. This 
 the courts could not do, except upon express agreement. But possi- 
 bly the old customers might not see these; and in some cases, the 
 courts have undertaken to preserve this possibility for the advan- 
 tage of the vendor, and found a legal principle upon it. Other courts 
 have been of the opinion that no legal principle can be made to rest 
 upon this distinction; that to deny the vendor personal access to old 
 customers even would put him at such disadvantage in competition 
 as to endanger his success; that they ought not upon inference to 
 bar him from trade, either totally or partially; and that all restraint 
 of that nature must come from his positive agreement. And such, 
 we think, is the present tendency of the law." 
 
 Good will may be said to be those intangible advantages or inci- 
 dents which are impersonal, so far as the grantor is concerned, and 
 attach to the thing conveyed. Where it consists of the advantages of 
 location, it follows an assignment of the lease of location. Again, it 
 may not depend at all upon location, as in the case of a newspaper, 
 and it would follow an assignment of all interest in the plant, property, 
 effects, and business. A partnership name may become impersonal 
 after the death of the partners, and it is then treated like a fictitious 
 or corporate name. A surname may become impersonal when it is 
 attached to an article of manufacture, and becomes the name by which 
 such article is known in the market, and the right to use the name 
 may in consequence follow a grant of the right to manufacture that 
 article, or a sale of the business of manufacturing such article; and 
 where the right to manufacture is exclusive, the right to the use of 
 the name as applied to that article becomes likewise exclusive. It 
 appears, however, that in the first bill of sale which was prepared the 
 words, "including the good will attendant upon said business," were 
 inserted, but were objected to, stricken out, and a new bill of sale 
 prepared, omitting any reference to good will. But it is said that this 
 clause was objected to because, in the opinion of the objector, it might 
 preclude him from engaging in the same business, whereas, under the 
 law, he would have such a right had the clause remained. The only 
 use, however, which complainants now propose to make of the clause, 
 treated as a part of the instrument, is to restrict that right to engage 
 in business by taking away one of its incidents. Adopting the lan- 
 guage used in Churton v. Douglas, Johns. Eng. Ch. 174, with refer- 
 ence to the right of plaintiff to continue the use of the old firm name, 
 "I think the defendant is fully entitled to the benefit of the observa- 
 tion that it was proposed to him to insert such a provision, and that 
 he refused it. I think, therefore, that this case goes a step higher 
 than the authorities, and the defendant is entitled to put his case in 
 the highest possible form with regard to his right" to engage in the 
 same line of business. 
 
 II. The next question relates to the use by defendants of the firm 
 name of Farrand, Williams & Clark. It is clear that complainants 
 have no right to continue their business under the old firm name. The 
 rule that upon a dissolution of a firm neither partner has the right to 
 
1272 PARTNERSHIP (Part 5 
 
 use the firm name, as well as the other rule that a retiring partner 
 has no right to use the old firm name, are both subject to the exception 
 that a person has the right to use his own name unless he has express- 
 ly covenanted otherwise. In case A. B. should sell out his business 
 to C. D., in the absence of a grant to C. D. of the right to use the name 
 of A. B., or an agreement to the contrary, is there any doubt but that 
 A. B. would have the' right to engage in the same line of business in 
 his own name ? In that case, such a probability would naturally sug- 
 gest itself to C. D., and, if he desired to get the advantage of A. B.'s 
 abstinence from business, he would insist upon an agreement to that 
 effect. 
 
 In the present case, Mr. Farrand's name had been at the head of the 
 firm name for nearly half a century, and the name of another of the 
 retiring members corresponded with the only other surname used in 
 the old firm name. It must have been evident to complainants that 
 in any event the name of the new firm would be similar to that of the 
 old firm. If complainants desired any protection against such a use 
 of the names of the retiring members, they should have inserted a pro- 
 vision to that effect in the bill of sale. The right to continue the use 
 of a firm name, as well as a restriction upon the use by a retiring 
 partner of his own name, are proper subjects of bargain, sale, and 
 agreement. Here neither have been purchased. Complainants have 
 purchased the business of the old firm. They have the right to ad- 
 vertise themselves as succeeding to and continuing that business. The 
 exercise of such a right does not conflict with any right reserved by 
 defendants. Complainants, by such a holding out, commit no fraud, 
 misrepresentation, or deception. They publish the truth only. Defend- 
 ants have the right to use their own names, or any collocation of their 
 own names. They have not adopted the old firm name, although it 
 would have been appropriate. They have adopted no fictitious name. 
 There is no deception in the use of the name adopted by them. The 
 business of the old firm is a separate and distinct business. Defend- 
 ants have no' right to advertise their business as a continuation of the 
 old firm business. They are subject to the rule already laid down, 
 that no man has the right to sell or advertise his own goods or busi- 
 ness as that of another, and so mislead the public and injure such 
 other person. * * * 
 
 The same principle obtains with reference to trade-marks. One 
 may have a right in his own name as a trade-mark, but he cannot have 
 such a right as against another person of the same name, unless the 
 defendant use a form of stamp or label so like that used by the plain- 
 tiff as to represent that the defendant's goods are of the plaintiff's 
 manufacture. * * * The tests applied by all the authorities in this 
 class of cases are: Is a corporate or trade or fictitious name simu- 
 lated? Is the name assumed or adopted false in fact? Is it used in 
 connection with locality or other representations, so as to convey the 
 impression that the business is a continuation of the old business? 
 Defendants are not responsible for the blunders made by clerks, postal 
 clerks, mail carriers, telephone - employes, or newspaper reporters. 
 
 Any collocation of the names of Farrand and Williams yvoUld create 
 some confusion. Defendant Clark had been connected with the old 
 business for 30 years, and Williams, the son-in-law of Mr. Farrand, 
 for 21 years. Defendants are using their own names only. 'They went 
 
Ch. 2) RELATIONS' OF THE PARTNERS BETWEEN THEMSELVES 1273 
 
 into business on Woodward avenue, several blocks from the old stand. 
 In every letter head, bill head, card, or advertisement in which their 
 firm name appears they give the individual names of the members of 
 the firm, the new place of business, and in no case have they represent- 
 ed that they are successors to the old firm. The bill hea:ds used by 
 the old firm had a cut of the old stand on the left-hand upper corner, 
 about three inches square. Those of the new firm contain no cut, and 
 less than half of the amount of matter. It would be exceedingly diffi- 
 cult to prepare two bill heads more unlike. The letter heads of the 
 old firm contained two cuts — one of the old stand, at the left hand, and 
 one of the Peninsular White Lead & Color Works, on the right. The 
 dissimilarity is marked. The envelopes used by the old firm contain 
 eight printed lines on the upper left-hand corner, occupying an inch 
 and three-quarters of space. Those used by the new firm contain 
 five lines, occupying about three-quarters of an inch in space. There 
 has been no attempt at imitation in words or type. On March ISth 
 they announced, through circulars distributed generally, that they had 
 engaged in business at 32 and ^4 Woodward avenue; that they ex- 
 pected to have their new store ready for occupancy in a few days; 
 and that the work of getting a new stock of goods would be pushed as 
 fast as possible. On April 7th they issued another circular announc- 
 ing that they were now prepared to fill orders, and hoping that the 
 friendly acquaintance of many years would be continued. An ad- 
 vertisement is produced, wherein defendants say: "Though it may 
 seem paradoxical, it is nevertheless true, that the wholesale drughouse 
 of Farrand, Williams & Clark is both the oldest and the newest repre- 
 sentative of this important commercial industry in Detroit." But in 
 the same advertisement they announce the dissolution of the old firm, 
 their retirement from said firm, and the formation and business location 
 of the new firm. 
 
 It is difficult to imagine how such an advertisement would mislead 
 the public. It contains no false colors. Both parties advertised exten- 
 sively in the city and state papers and in the trade journals; complain- 
 ants giving the names of their individual members, and their new firm 
 name, and advertising themselves as the successors to Farrand, Wil- 
 liams & Co. ; and defendants giving the names of their individual 
 members, and the name and business location of the new firm. Com- 
 plainants sent out circulars to the trade generally, informing it of the 
 dissolution of the old firm, the fact that they were the successors, and 
 giving their firm name; and defendants sent out circulars announcing 
 their withdrawal and the formation of a new firm. There is no doubt 
 but that the dissolution of this firm, the fact that complainants had 
 bought out the interests of defendants, the name adopted by com- 
 plainants, the formation of the new firm, the names of its members, 
 and the defendants' firm name, have been most extensively adver- 
 tised by both parties,' not only in the city, but throughout the state 
 and Union. Nearly 50 letters have been received by the old firm, 
 since the dissolution, addressed to Farrand & Williams; Farrand & 
 Williams Paint Co. ; Farrand & Williams Drug Co. ; Farrand, Sheley 
 & Brooks; Farrand, Williams & Sheley; Farrand, Williams, Sheley 
 & Co. ; Farrand, Williams & Brooks ; Farrand & Co. ; Williams, Far- 
 rand & Co. ; Farrand, Sheley & Brooks ; Williams & Farrand ; Wil- 
 liams, Farrand & Co. ; and Williams & Co. It cannot be said that any 
 act of defendants is responsible for these blunders. Confusion is in- 
 
1274 PARTNERSHIP (Part 5 
 
 separable from the dissolution of an old firm and the composition 
 of two firms from its membership, especially when the name of but 
 one of these who remain has appeared in the firm name, and the new 
 firm is composed of one whose name for nearly half a century has 
 stood at the head of the firm name, and the surname of another re- 
 tiring member is the same as the only other name used in the old firm 
 name. * * * These proofs do not tend to show any appropriation 
 by defendants of the old firm name, or any attempt to secure the cor- 
 respondence addressed to the old firm, or that the customers have been 
 deceived or misled, or that defendants have practiced any fraud, con- 
 cealment, or deception. * * * 
 
 Complainants have, under the authorities cited, an undoubted right 
 to protection in the proprietary rights acquired by the old firm, and in 
 the use of such trade-marks as were in use by the old firm, and de- 
 fendants have no right to so imitate the labels in use by the old firm 
 as to convey the belief that the goods labeled are from the old house. 
 The use, however, of the worSs, "Sold by Farrand, Williams & Co." 
 or "Prepared by Farrand, Williams & Co.," upon a label, will not be 
 protected as a trade-mark or trade-name and the right to use that name 
 in that connection did not pass under the bill of sale. 
 
 The decree of the court below must be affirmed as of February 27, 
 1891, and the bill dismissed, with costs to defendants. 
 
 Morse and Grant, JJ., concurred with McGrath, J. Long, J., did 
 not sit. Champlin, C. ]., dissented. 
 
 SECTION 6.— PARTNER'S INTEREST IN THE 
 PARTNERSHIP 
 
 Uniform Partnership Act, Section 26. A partner's interest in 
 the partnership is his share of the profits and surplus, and the same 
 is personal property. 
 
 Section 27. (1) A conveyance by a partner of his interest in 
 the partnership does not of itself dissolve the partnership, nor, as 
 against the other partners in the absence of agreement, entitle the 
 assignee, during the continuance of the partnership, to interfere in 
 the management or administration of the partnership business or 
 affairs, or to require any information or account of partnership 
 transactions, or to inspect the partnership books ; but it merely en- 
 titles the assignee to receive in accordance with his contract the 
 profits to which the assigning partner would otherwise be entitled. 
 
 (2) In case of a dissolution of the partnership, the assignee is 
 entitled to receive his assignor's interest and may require an ac- 
 count from the date only of the last account agreed to by all the 
 partners. 
 
 Section 28. (1) On due application t<l) a competent court by any 
 judgment creditor of a partner, the court which entered the judg- 
 ment, order, or decree, or any other court, may charge the interest 
 of the debtor partner with payment of the unsatisfied amount of 
 such judgment debt with interest thereon; and may then or later 
 appoint a receiver of his share of the profits, and of any other 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1275 
 
 money due or to fall due to him in respect of the partnership, and 
 make all other orders, directions, accounts and inquiries which the 
 debtor partner might have made, or which the circumstances of 
 the case may require. 
 
 (2) The interest charged may be redeemed at any time before 
 foreclosure, or in case of a sale being directed by the court may 
 be purchased without thereby causing a dissolution : 
 
 (a) With separate property, by ony one or more of the part- 
 ners, or 
 
 (b) With partnership property, by any one or more of the part- 
 ners, with the consent of all the partners whose interests are not 
 so charged or sold. 
 
 (3) Nothing in this act shall be held to deprive a partner of his 
 right, if any, under the exemption la'ws, as regards his interest in 
 the partnership. 
 
 SECTION 7.— SHARING OF PROFITS AND LOSSES 
 
 Uniform Partnership Act, Section 18. (a) Subject to any agree- 
 ment between them, each partner shall * * * share equally 
 in the profits and surplus remaining after all liabilities, including 
 those to partners, are satisfied; and must contribute toward the 
 losses, whether of capital or otherwise, sustained by the partner- 
 ship according to his share in the profits. 
 
 WHITCOMB V. CON\'EE.SB et al. 
 
 (Supreme Judicial Court of Massactiusetts, 1875. 119 Mass. 38, 
 20 Am. Rep. 311.) 
 
 Bill in equity by a partner in the late firm of Converse, Whitcomb 
 & Co., against the other partners, James C. Converse, Walter Stanton, 
 and Edward Blagden, to compel contribution to the losses incurred 
 by the partnership. The partnership agreement provided for carrying 
 on of a dry goods commission business on the following terms : Whit- 
 comb was to contribute $50,000 to the capital, receive 7 per cent, on 
 the same and 25 per cent, of the net profits. Converse was to con- 
 tribute $25,000. receive 7 per cent, interest on the same, and 25 per 
 cent, of the net profits. Blagden and Stanton were each to contribute 
 all their time to the business and each to receive 25 per cent, of the 
 net profits. Whitcomb put in $25,000 of the $50,000 which he was to 
 contribute. The partnership having been dissolved by mutual con- 
 sent, a settlement of its affairs showed a loss of about $25,000. Blag- 
 den, at the time of the dissolution, was, ever since has been, and now 
 is, insolvent and unable to pay any part of said loss. Stanton con- 
 tended that he was not liable to make good any of the losses, and, if 
 liable, he was not liable to make good any part of the share which Blag- 
 den ought to have contributed. The cause was reserved for the opinion 
 of the court. 
 
 Gray, C. J. In the absence of controlling agreement, partners must 
 bear the losses in the same proportion as the profits of the partnership, 
 even if one contributes the whole capital, and the other nothing but 
 
1276 PARTNERSHIP (Part 5 
 
 his labor or services. 3 Kent, Com. 28, 29. Whether a loss of capital 
 is a partnership loss, to be borne by all the partners, depends upon the 
 nature and extent of the contract of partnership. 
 
 If, as is not unfrequently the case in a partnership for a single ad- 
 venture, the mere use of the capital is contributed by one partner, and 
 the partnership is in the profits and losses only, the capital remains the 
 property of the individual partner to whom it originally belonged, any 
 loss or destruction of it falls upon him as the owner, and, as it never 
 becomes the propert)' of the partnership, the partnership owes him 
 nothing in consideration thereof. Story, Part. §§ 27, 29. * * * 
 
 But where, as is usual in an ordinary mercantile partnership, a 
 partnership is created not merely in profits and losses, but in the 
 property itself, the property is transferred from the oi^iginal owners 
 to the partnership, and becomes the joint property of the latter. A 
 corresponding obligation arises on the part of the partnership to pay 
 the value thereof to the individuals who originally contributed it. 
 Such payment cannot, indeed, be demanded during the continuance 
 of the partnership, nor are the contributors, in the absence of agree- 
 ment or usage, entitled to interest ; but if the assets of the partnership, 
 upon a' final settlement, are insufficient to satisfy this obligation, all 
 the partners must bear it in the same proportion as other debts of 
 the partnership. * * * Only two cases were cited in the learned 
 argument for the defendant Stanton in which opinions inconsistent 
 with this view have been expressed. The one is Everly v. Durborow, 
 1 Leg. Gaz. R. (Pa.) 127, a nisi prius decision, with no reference to 
 authorities, except an early edition of Lindley on Partnership, which 
 has been corrected by the learned author, * * * conformably to the 
 adjudged cases. The other is Cameron v. Watson, 10 Rich. Eq. (S. 
 C.) 64. That was a bill in equity to settle the affairs of a partnership, 
 to which Cameron had contributed labor and Watson capital. The 
 master, to whom the case was referred, allowed the claim of Watson 
 for so much of the capital as he had not withdrawn during the con- 
 tinuance of the partnership, but disallowed his claim for interest there- 
 on. * * * Cameron excepted to the allowance of Watson's claim for 
 capital, and Watson excepted to the disallowance of interest. The 
 chancellor, before whom the exceptions were heard in the first in- 
 stance, overruled the exceptions of Cameron, and also that of Watson 
 as regarded interest before the dissolution of the partnership, but 
 sustained it so far as to allow him interest after the dissolution. * * * 
 The Court of Appeals, although in one part of its opinion appearing 
 to discountenance Watson's claim for capital, ended by confirming 
 the master's report in every particular. * * * So that the final 
 judgment, while it disallowed Watson's claim for interest, established 
 his claim for capital, and was in exact accordance with our conclusion. 
 
 In the case at bar the partnership was not for a single enterprise, 
 but for the transaction of a commission business in New York and Bos- 
 ton for a year. Converse and Whitcomb contributed the whole capital, 
 in unequal proportions. Converse was to contribute "such time as he 
 may be able to give," and Whitcomb and the other two partners, Blag- 
 den and Stanton, were each "to contribute all his time to the business." 
 Those partners who contributed the capital did not contribute merely 
 the use thereof, but the capital itself, and were by express agreement 
 to receive interest thereon at rates specified in the articles of copart- 
 nership. The partners were by agreement to receive each one-fourth 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1277 
 
 of the net profits, and by implication of law must share the losses in 
 the same proportion. The capital' contributed became the property 
 of the partnership ; and the partnership, consisting of all the partners, 
 became liable to Whitcomb and Converse, respectively, for the amount 
 of capital paid in by them. 
 
 Blagden, one of the partners, being insolvent and unable to discharge 
 any part of the obligation, it must rest in equity upon the three solvent 
 partners in equal proportions. * * * 
 
 Decree for the plaintiff accordingly. 
 
 SECTION 8.— PARTNER'S RIGHT TO REPAYMENT OF 
 CONTRIBUTIONS 
 
 Uniform Partnership Act, Section 18 (a) Subject to any agree- 
 ment between them each partner shall be repaid his contributions, 
 whether by way of capital or advances to the partnership property. 
 * * * (c) A partner, who in aid of the partnership makes any 
 payment or advance beyond the amount of capital which he agreed 
 to contribute shall be paid interest from the date of the payment or 
 advance, (d) A partner shall receive interest on the capital con- 
 tributed by him only from the date when repayment should be 
 made. 
 
 FOLSOM V. MABLETTE. 
 (Supreme Court of Nevada, 1897. 23 Nev. 459, 49 Pac. 39.) 
 
 Suit by G. N. Folsom against S. H. Marjette. From a judgment in 
 favor of plaintiff, and from an order denying a new trial, defendant 
 appeals. 
 
 Belknap, C. J. This is a suit for an accounting between partners, in 
 which each demands a balance due from the other. The partnership 
 was formed on the 29th day of September, 1880, and continued until 
 the 27th day of May, 1890, when it was dissolved. Its business was 
 that of contracting for the cutting of cord wood and logs, and the 
 sawing of timber, to which the business of merchandising was sub- 
 sequently added. They were equal partners. The district court or- 
 dered judgment in favor of respondent for the sum of $6,540.49. From 
 the judgment and an order refusing a new trial, defendant has ap- 
 pealed. * * * 
 
 Respondent paid to the creditors of the firm, after it had discon- 
 tinued business, a short time prior to its dissolution, the sum of $16,- 
 747.72. The district court allowed interest upon this sum amounting 
 to the sum of $7,224.06. The money thus paid is properly treated 
 as an advancement for the benefit of the firm. Lindley, in his work 
 upon Partnership, says : "An advance by a partner to a firm is not 
 treated as an increase of his capital, but rather as a loan, on which 
 interest ought to be paid ; and, by usage, interest is payable on money 
 bona fide advanced by one partner for partnership purposes, at least 
 when the advance is made with the knowledge of the other partners." 
 Volume 1, p. 390. The propriety of this charge admits of no ques- 
 tion. The firm had no capital. It had been in the habit of paying 
 
1278 PARTNERSHIP (Part 5 
 
 interest at its banker's upon overdrafts for a long time. Appellant 
 has not suggested in his testimony that this money was not advanced 
 with his knowledge and acquiescence. Under these circumstances, 
 the charge of interest is equitable. * * * _ 
 
 The case will be remanded to the district court, with mstructions 
 to modify its judgment, * * * and to allow him simple mterest 
 at the rate of 7 per cent, per annum, instead of 10 per cent, per annum, 
 upon the advances made by him after they had ceased to do business 
 together. * * * 
 
 SECTION 9.— PARTNER'S RIGHT OF INDEMNITY 
 
 Uniform Partnership Act, Section 18. (b) Subject to any 
 agreement between them, the partnership must indemnify every 
 partner in respect of payments made and personal liabilities rea- 
 sonably incurred by him in the ordinary and proper conduct of its 
 business, or for the preservation of its business or property. 
 
 SECTION 10.— PARTNER'S RIGHT TO AN ACCOUNTING 
 
 Uniform Partnership Act, Section 22. Any partner shall have 
 the right to a formal account as to partnership affairs : (a) If he is 
 wrongfully excluded from the partnership business or possession of 
 its property by his co-partners; (b) if the right exists under the 
 terms of any agreement; (c) as provided by section 21; (d) 
 whenever other circumstances render it just and reasonable.® 
 
 LORD et al. v. IItirJ>. 
 
 (Court of Appeals of New York, 1904. 178 N. T. 9, 70 N. E. 69, 
 102 Am. St. Rep. 484.) 
 
 Action by Lord and others against their copartner, Hull, for an 
 accounting without dissolution. Murchison was made a co-defendant 
 with Hull, because of a disagreement between plaintiffs and Hull as 
 to payments on a contract with Murchison. Judgment below for 
 
 6 Lewis^ Note to Section 22. — Ordinarily a partner is not entitled to a for- 
 mal account, except on dissolution. He has equal access with his partners 
 to the partnership books, and there is no reason why they should constantly 
 render to him accounts in the formal sense of that word, which is the sense 
 in which it is here used. When, however, he is excluded from the business 
 or the possession of partnership property, without any express agreement 
 authorizing such exclusion, he should have the right to demand a formal 
 account from his partners, without necessarily requiring him to dissolve the 
 partnership. 
 
 The reason for clause (d) is that there frequently arises circumstances 
 which impose on one or more of the partners the duty of rendering a for- 
 mal accoimt to the co-partner, as where one partner is traveling for a long 
 period of time on partnership business, and the other partners are in pos- 
 session of the partnership books. These various circumstances cannot be de- 
 tailed in any act. In view of the wording of clause (d), the total effect of 
 this section is to emphasize the fact, that a partner, the partnership not 
 being dissolved, has not, necessarily, the right to demand formal accounts, 
 ■except at particular times and under particular circumstances. 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1279 
 
 plaintiffs against defendant Hull, and for defendant Murchison against 
 the plaintiffs and the defendant Hull. 
 
 Vann, J. This action was brought by two copartners against the 
 third for an accounting, without a dissolution, and it is not surprising 
 that a challenge is interposed to the jurisdiction of the court. The 
 contract of copartnership has existed as long as the common law, 
 and a vast amount of business has been transacted by persons working 
 together under this relation. The law upon the subject is founded 
 on the custom of merchants, who have thus, in effect, made their own 
 law, yet we find no well-considered case which approves of such an 
 action as the one now before us. While the novelty of an action is by 
 no means conclusive against it, still it is suggestive, when the history 
 of the law relating to the subject shows many occasions and few 
 efforts. 
 
 The general rule is that a court of equity, in a suit by one partner 
 against another, will not interfere in matters of internal regulation, or 
 except with a view to dissolve the partnership, and by a final decree 
 to adjust all its affairs. Story on Partnership, § 229. * * * It is 
 not its office "to enter into a consideration of mere partnership squab- 
 bles" * * * Qj. "qjj every occasion to take the management of 
 every playhouse and brewhouse." * * * jf the members of a 
 firm cannot agree as to the method of conducting their business, the 
 courts will not attempt to conduct it for them. Aside from the in- 
 convenience of constant interference, as litigation is apt to breed hard 
 feelings, easy appeals to the courts to settle the differences of a 
 going concern would tend to do away with mutual forbearance, fo- 
 ment discord, and lead to dissolution. It is to the interest of the law 
 of partnership that frequent resort to the courts by copartners should 
 not be encouraged, and they should realize that, as a rule they must 
 settle their own differences, or go out of business. As a learned 
 writer has said : "A partner who is driven to a court of equity, as 
 the only means by which he can get an accounting from his copart- 
 ners, may be supposed to be in a position which will be benefited by 
 a dissolution; in order words, such a partnership as that ought to 
 be dissolved." Parsons on Partnership (4th Ed.) § 206. "If a con- 
 tinuance of the partnership is contemplated," as another commen- 
 tator has said, "or if an accounting of only part of the partnership 
 concerns is allowed, no complete justice can be done between the 
 partners, and the fluctuations of a continuing business will render the 
 accounting which is correct to-day incorrect to-morrow ; and to enter- 
 tain such bills on behalf of a partner would involve the court in inces- 
 sant litigation, foment disputes, and needlessly drag partners not in 
 fault before the public tribunals." 2 Bates on Partnership, ? 
 910. * * * 
 
 While a forced accounting without a dissolution is not impossible, 
 it is by no means a matter of course, for facts must be alleged and 
 proved showing that it is essential to the continuance of the. business, 
 or that some special and unusual reason exists to make it necessary. 
 Thus, Mr. Lindley, upon whom reliance was placed by the courts 
 below, mentions three classes of cases as exceptions to the general 
 rule: "(1) Where one partner has sought to withhold from his co- 
 partner the profits arising from some secret transaction; (2) where 
 the partnership is for a term of years still unexpired, and one partner 
 has sought to exclude or expel his copartner, or drive him to a dis- 
 
1280 PARTNERSHIP (Part 5 
 
 solution; (3) where the partnership has proved a failure, and the 
 partners are too numerous to be made parties to the action, and a 
 limited account will result in justice to them all." The plaintiffs claim 
 that this case belongs to the second class, and the courts below have 
 so held ; but, as we think, it does not come under any head of Mr. 
 Lindley's classification, which is correct as far as it goes, and it goes 
 as far in the direction of the plaintiffs' theory as any just classifi- 
 cation that can be made. 
 
 There is neither allegation nor evidence that Hull tried to exclude 
 or expel the plaintiffs, or to drive them to a dissolution, or that he did 
 anything in bad faith or with an ulterior purpose. The controrersy 
 was confined to one point of difference — the Murchison contract — 
 which was a matter of internal regulation. There was no dispute 
 about anything else. The plaintiffs claimed that the contract bound 
 the firm, and that it included all work done or to be done for Mr. 
 Clark, while Hull claimed that it did not bind the firm, and that, if it 
 did, it embraced only a part of that work. There was no difference 
 in the computation of balances, or claim that the articles had been 
 violated by either side, except with reference to that contract. The 
 plaintiffs insisted that Hull had drawn out more than his share of the 
 profits, because he drew one-third of the income without leaving one- 
 third of the part going to Murchison, and that thus there was a bal- 
 ance against him. Hull claimed that the plaintiffs, in paying any- 
 thing to Murchison, wasted the assets of the firm, and thus there was 
 a balance against them. When the interlocutory judgment was made, 
 the parties at once stipulated the respective balances on the basis 
 of that decree, and thus obviated a reference, so that final judgment 
 was entered without delay. Neither party desired an accounting, 
 except as an excuse to sustain or defeat the Murchison contract. 
 
 Exclusion from a small portion of the profits, paid or withheld in 
 good faith on account of that contract, was not exclusion from the 
 affairs of the firm, yet an accounting was sought only as a means of 
 settling the dispute over that particular subject, which related simply 
 to a detail in the management of the business. No discovery was 
 asked for. There was no claim that Hull was insolvent, or that he 
 had suppressed any fact, or had made secret profits, or had been guilty 
 of bad conduct, or that the books had not been prope^rly kept, or that 
 the plaintiffs had been denied access to the books. There was no 
 evidence that any partner had refused to give an account of all moneys 
 received by him, or that there was error or omission of any kind in 
 the accounts of the firm, except as limited to the Murchison agree- 
 ment. It was easy to test the validity of that contract by simply with- 
 holding payment, forcing Murchison to sue, and raising the question 
 by answer. That was not an equitable, but a legal, question. Mur- 
 chison's claim did not differ from that of any firm creditor, except 
 that the partners were at odds over its validity. "No action can be 
 maintained by one partner against the other in respect to particular 
 items of account pertaining to the partnership business." Thompson 
 V. Lowe, 111 Ind. 274, 12 N. E. 477. 
 
 An accounting without a dissolution has never been allowed, under 
 the circumstances of this case, by any court in this country or in 
 England, so far as we can learn from the authorities cited by counsel 
 or discovered by ourselves. A brief review of the leading cases will 
 show that the principle upon which they rest has no application to the 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1281 
 
 facts of the case before us. In Fairthorne v. Weston, 3 Hare's Ch. 
 R. 387, the plaintiff bought into the business of an attorney, paying 
 i700 down, and agreeing to pay 700 more at the end of five years, 
 when the defendant was to retire, and the business was to belong to 
 the plaintiff. During the five years the parties were to be copartners, 
 sharing the profits and expenses equally. After a while the defend- 
 ant, for the fraudulent purpose of getting rid of his contract, received 
 money, and refused to account for it, excluded the plaintiff from all 
 knowledge and control over the business, used insulting language 
 toward him, and violated the copartnership agreement in other ways, 
 and all in order to bring about a dissolution. A bill filed for an ac- 
 counting, without a dissolution, was sustained upon the ground that 
 the defendant was violating the contract in order to compel the plaintiff 
 to submit to a dissolution upon very injurious terms, and that the 
 court had power to support as well as dissolve a partnership. In 
 Richards v. Davis, 2 Russell & M. 347, a copartnership for a long 
 term had not expired, and the acting partner excluded the others "from 
 the means of ascertaining the state of the partnership affairs." A bill 
 for an accounting, and to permit the plaintiffs "to have access to all 
 the books of the partnership," was sustained ; but the court refused 
 to make an order "for carrying on the partnership concerns, unless 
 with a view to dissolution." * * * 
 
 With respect to occasional breaches of agreement between part- 
 ners, when they are not of so grievous a nature as to make it impos- 
 sible that the partnership should continue, the court stands neuter; 
 but when it finds that the acts complained of are of such a character 
 as to show that the partners cannot continue partners, and that relief 
 cannot be given but by a dissolution, the court will decree it, although 
 it is not specifically asked. * * * , 
 
 A court of equity will not take cognizance of an action for an ac- 
 counting as a mere incident to the settlement of a solitary matter 
 in dispute between partners, when it is not vital to either party or to 
 the business, and dissolution is not sought. Actions to establish a 
 partnership, the existence of which was denied by the partner in con- 
 trol to give a partner access to the books after persistent refusal, or 
 to permit him to take part in the business from which he had been 
 excluded, are founded on intentional and continuous wrongdoing, 
 which, unless arrested, might subvert the partnership. Wh^n one par- 
 ty seizes or absorbs the entire business, or usurps rights of his co- 
 partner which are essential to his safety or the safety of the firm, or 
 persists in misconduct so gross as to threaten destruction to the 
 interests of all, the court may intervene to restore the rights of the 
 innocent party, or to rescue a paying business from ruin. Extreme 
 necessity only, however, will justify interference without a dissolu- 
 tion. 
 
 There was no sufficient reason for an appeal to a court of equity in 
 the case under consideration. There was no equity in the bill as filed ' 
 by the plaintiffs, and none in the case made for them by the evidence. 
 The defendant Murchison had an adequate remedy at law, and he can 
 take nothing from his intrusion into the litigation, under the circum- 
 stances, for the questionable order admitting him as a defendant did 
 not create a cause of action, nor add to the jurisdiction of the court. 
 All the parties should be put back where they were before the action 
 B.& B.Bus.Law— 81 
 
1282 PARTNERSHIP (Part 5 
 
 was commenced, and hence it is our duty to reverse the judgments 
 below and dismiss the complaint, with costs to the defendant Hull 
 against the plaintiffs and the defendant Murchison. 
 Judgments reversed. 
 
 CENTRAL TRUST & SAFE DEPOSIT CO. v. RESPASS. 
 
 (Court of Appeals of Kentucky, 1902. 112 Ky. 606, 66 S. W. 421, 
 56 L. R. A. 479, 99 Am. St Rep. 317.) 
 
 Action by Jerome B. Respass against the executors of Solomon L- 
 Sharp for a settlement of partnership accounts. Judgment granting 
 relief sought, and defendants appeal. 
 
 Du RSLLE, J. Jerome B. Respass and Solomon L,. Sharp appear 
 to have formed a copartnership, extending over several years, in the 
 business of managing a racing stable, and, in connection with that 
 business, were engaged in "bookmaking," or making wagers upon 
 race horses. They seem, also, to have had an interest in a pool room 
 at Newport. For the book business a separate account was kept by a 
 cashier employed for the purpose. They had no regular time for mak- 
 ing settlements with each other, but at various times, when requested 
 the cashier made out statements of the' booking business of the firm. 
 It appears from the testimony of Bernard, the cashier, that Sharp in 
 November, 1897, handed him $4,724, and told him to deposit it to 
 his (Sharp's) credit in the Merchants' National Bank of Cincinnati, 
 Ohio, which was done. Sharp appears to have stated at the time that 
 one-half of this fund belonged to Respass. It appears further that 
 this was the "bank roll" of the bookmaking concern, in which each 
 partner had an equal interest. At the same time he remarked that 
 Respass had paid out $1,500 for the firm, and that he would see him 
 in a few days and settle with him. Sharp died suddenly, before any 
 such settlement was made. The money in the bank roll was on de- 
 posit to Sharp's credit. The racing business of the firm seems to have 
 been almost entirely in the hands of Respass, who attended to the 
 horses, trained them, entered them in races, and at times wagered on 
 them for the benefit of the firm, which divided the profits or shared 
 the losses, as the case might be. Respass brought suit against 
 Sharp's executors for a settlement of the partnership accounts. The 
 horses in the racing stable were sold under order of court, and vari- 
 ous claims against the fund in court were made by Respass for ex- 
 penses incurred in keeping, shoeing, clipping, training, and caring for 
 the various horses, as well as for entering certain of the horses in 
 stakes, and for wagers paid upon the horses "Fair Deceiver" and 
 "Shannon." The business of breeding, training, and racing horses for 
 purses is legal. The partnership for that purpose can undoubtedly 
 be settled by the chancellor. The only question presented as to this 
 matter is upon the correctness of the settlement made. * * * 
 
 Another item to which exception is taken consists of $700; being 
 the amount of two bets made, lost, and paid by Respass on the horses 
 "Fair Deceiver" and "Shannon." In view of the statutory law of 
 Kentucky, * * * ^e are unable to see how any legal consideration 
 can exist for a promise to reimburse to a partner any portion of any 
 sum lost upon a bet on a horse race. * * * We think it is well 
 settled that a man who lends money to another, to be then bet on a 
 
<^h. 2) RELATIONS OP THE PARTNERS BETWEBfJ THEMSELVES 1283 
 
 horse race, cannot recover it back. And so it would seem that if A. 
 agrees with B. that B. shall advance the money, and himself bet upon 
 a horse race for their joint account, no action will lie by B. to com- 
 pel A. to respond for his share of a bet which is lost. The statement 
 of this proposition seems to decide it. It is a contract for an illegal 
 venture. The whole contract is illegal. ' No right of action can arise 
 out of that contract. This is exactly the position of Respass as to 
 the two bets. He advanced the money to make them for himself and 
 Sharp, relying upon Shai-p's express or implied agreement to pay half 
 the losses if loss should be incurred. Such a contract cannot be en- 
 forced in this state. 
 
 A closer question is presented by the claim for a division of the 
 "bank roll." This $4,724 was, as found by the chancellor, earned by 
 the firm composed of Respass and Sharp in carrying on an illegal 
 business — ^that of "bookmaking" — in the state of Illinois. But though 
 this amount had been won upon horse races in Chicago, it is claimed 
 that, though secured illegally, "the transaction has been closed, and 
 the appellee is only seeking his share from the realized profits from 
 the illegal contracts, if they are illegal." On the other hand, it is 
 claimed for appellants that, as to the bank roll, this proceeding is a 
 bill for an accounting of profits from the business of gambling. 
 
 It does not seem to be seriously contended that the business of 
 "bookmaking," whether carried on in Chicago or in this common- 
 wealth, was legal, for by the common law of this country all wagers 
 are illegal. Irwin v. Williar, 110 U. S. 510, 4 Sup. Ct. 160, 28 L. Ed. 
 225. One of the most interesting cases upon this subject is that of 
 Everet v. Williams, the celebrated Highwaymen's Case, an account of 
 which is given in 9 Law Quart. Rev. 197. That was a bill for an ac- 
 counting of a partnership in the business of highwaymen, though the 
 true nature of the partnership was veiled in ambiguous language. The 
 bill set up the partnership between defendant and plaintiff, who was 
 "skilled in dealing in several sorts of commodities"; that they "pro- 
 ceeded jointly in the said dealings with good success on Hounslow 
 Heath, where they dealt with a gentleman for a gold watch"; that 
 defendant had informed plaintiff that Finchl'ey "was a good and con- 
 venient place to deal in," such commodities being "very plenty" there, 
 and if they were to deal there "it would be almost all gain to them" ; 
 that they accordingly "dealt with several gentlemen for divers watches, 
 rings, swords, canes, hats, cloaks, horses, bridles, saddles, and other 
 things, to the value of i200 and upwards" ; that a gentleman at Black- 
 lieath had several articles which defendant thought "might be had for 
 a little or no money, in case they could prevail on the said gentleman 
 to part with the said things"; and that, "after some small discourse 
 with the said gentleman," the said things were dealt for "at a very 
 che2^ rate." The dealings were alleged to have amounted to £2,000 
 andi(jupwards. This case, while interesting from the views it gives of 
 the audacity of tTie parties and their solicitors, sheds little light upon 
 the legal questions involved, for the bill was condemned for scandal 
 and impertinence; the solicitors were taken into custody, and "fyned" 
 iSO each for "reflecting upon the honor and dignity of this court"; 
 the counsel whose name was signed to the bill was required to pay the 
 costs ; and both the litigants were subsequently hanged, at Tyburn and 
 Maidstone, respectively, while one of the solicitors was transported. 
 This case is found referred to in the cases of Sykes v. Beadon, 11 
 
1284 PARTNERSHIP (Part 5 
 
 Ch. Div. 170, 195, and McMullen v. Hoffman, 174 U. S. 639, 19 Sup. 
 Ct. 839, 43 L,. Ed. 1117. * * * 
 
 In the case at bar there was no division of the unlawful gains made 
 by Sharp at Chicago. There was no new transaction with reference 
 to them, such as the investment of the fund, or any part of it, in hors- 
 es, for their joint account. There was not even an accounting of the 
 gains, accompanied by a promise to pay to Respass the amount ascer- 
 tained to be due him under the terms of the illegal partnership agree- 
 ment. There was simply a termination by death of an illegal partner- 
 ship, with unlawful gains in the hands of one of the partners, an ac- 
 counting for which is here sued for. * * * 
 
 We conclude that in this country, in the case of a partnership in a 
 business confessedly illegal, whatever may be the doctrine where there 
 has been a new contract in relation to, or a new investment of, the 
 profits of such illegal business, and whatever may be the doctrine as 
 to the rights or liabilities of a third person who assumes obligations 
 with respect to such profits, or by law becomes responsible therefor, 
 the decided weight of authority is that a court of equity will not en- 
 tertain a bill for an accounting. 
 
 The judgment of the chancellor is therefore reversed, and the cause 
 remanded, with directions to enter a judgment in accordance with this 
 opinion. 
 
 SECTION 11.— FIDUCIARY RELATION OF PARTNERS 
 
 Uniform Partnership Act, Section 21. (1) Every partner must 
 account to the partnership for any benefit, and hold as trustee for 
 it any profits derived by him without the consent of the other 
 partners from any transaction connected with the formation, con- 
 duct, or liquidation of the partnership or from any use by him of 
 its property." 
 
 MITCHELL V. EKED. 
 (Commission of Appeals of New York, 1874. 61 N. Y. 123, 19 Am. Rep. 252.) 
 
 Appeal from judgment of the General Term of the Supreme Court 
 in the First Judicial Department, affirming a judgment in favor of de- 
 fendant, entered upon decision of the court at Special Term. 
 
 This action was brought to have certain leases, obtained by the 
 defendant during the existence of a copartnership between him and 
 plaintiff, for terms to commence at its termination, of premises leased 
 
 Q.I 
 
 1 Lewis' Note to Section 21 (1) — This paragraph removes a doiibt m the 
 existing law. At present it is not clear whether the obligation to account, 
 •where the partner has money or other property in his hands, is or is not an 
 obligation in the nature of a trust. For instance: A., B., and C. are part- 
 ners. A., as a result of a transaction connected with the conduct of the 
 partnership, has in his hands, so that it may be traced, a specific sum of money 
 or other property. A. is insolvent. Is the claim of the partnership against 
 A. a claim against him' as an oi;dinary creditor, or is it a claim to the spe- 
 cific property or money in his hands. The words "and hold as trustee for 
 the partnership any profits" indicate clearly that the partnership can claim 
 as their own any property or money that can be traced. 
 
Ch..2) RELATIONS OP THE PARTNERS BETWEEN THEMSELVES 1285 
 
 and occupied by the firm, declared to have been taken for the part- 
 nership, and to have it adjudged that the defendant held them as 
 trustee for the partnership. * * * 
 
 The court found, as conclusions of law, that the defendant, Reed, 
 was the sole owner of the leases executed to him as aforesaid, and 
 that the plaintiff had no right, title, or interest in or to them, or either 
 of them, and that the defendant have judgment accordingly, to ;which 
 plaintiff duly excepted. Judgment was rendered accordingly. 
 
 Earl, C. The relation of partners with each other is one of trust 
 and confidence. Each is the general agent of the firm, and is bound 
 to act in entire good faith to the other. The functions, rights, and 
 duties of partners in a great measure comprehend those both of trus- 
 tees and agents, and the general rules of law applicable to such char- 
 acters are applicable to them. Neither partner can, in the business and 
 affairs of the firm, clandestinely stipulate for a private advantage to 
 himself. He can neither sell to nor buy from the firm at a concealed 
 profit to himself. Every advantage which he can obtain in the busi- 
 ness of the firm must inure to the benefit of the firm. These principles 
 are elementary, and are not contested. * * * j^ jj^s been fre- 
 quently held that when one partner obtains the renewal of a partner- 
 ship lease secretly, in his own name, he will be held a trustee for the 
 firm as to the renewed lease. It is conceded that this is the rule where 
 the partnership is for a limited term, and either partner takes a lease 
 commencing within the term ; but the contention is that the rule does 
 not apply where the lease thus taken is for a term to commence after 
 the expiration of the partnership by its own limitation, and whether 
 this contention is well founded is one of the grave questions to be de- 
 termined upon this appeal. 
 
 It is not necessary, in maintaining the right of the plaintiff in this 
 case, to hold that in all cases a lease thus taken shall inure to the ben- 
 efit of the firm, but whether, upon the facts of this case, these leases 
 ought to inure to the benefit of this firm. I will briefly allude to some 
 of the prominent features of this case. These parties had been part- 
 ners for some years. They were equal in dignity, although their in- 
 terests differed. The plaintiff was not a mere subordinate in the firm, 
 but, so far as appears, just as important and efficient in its affairs as 
 the defendant. They procured the exclusive control of the leases of 
 the property, to terminate May 1, 1871, and their partnership was to 
 terminate on the same day. They expended many thousand dollars 
 in fitting up the premises, a portion thereof after the new leases were 
 obtained, and they expended a very large sum in furnishing them. 
 By their joint skill and influence they built up a very large and profita- 
 ble business, which largely enhanced the rental value of the premises. 
 More than two years before the expiration of their leases and of their 
 partnership the defendant secretly procured, at an increased rent, in 
 his own name, the new leases, which are of great value. Although 
 the plaintiff was in daily intercourse with the defendant, he knew noth- 
 ing of these leases for about a year after they had been obtained. There 
 is no proof that the lessors would not have leased to the firm as 
 readily as to the defendant alone. The permanent fixtures, by the 
 terms of the leases, at their expiration belonged to the lessors. But 
 the movable fixtures and the furniture were worth vastly more to be 
 kept and used in the hotel than to be removed elsewhere. 
 
 Upon these facts I can entertain no doubt, both upon principle and 
 
1286 PARTNERSHIP / (Part 5 
 
 authority, that these leases should be held to inure to the benefit of the 
 firm. If the defendant can hold these leases, he could have held them 
 if he had secretly obtained them immediately after the partnership 
 commenced, and had concealed the fact from the plaintiff during the 
 whole term. There would thus have been, during the whole term, in 
 making permanent improvements and in furnishing the hotel, a con- 
 flict between his duty to the firm and his self-interest. Large invest- 
 ments' and extensive furnishings would add to the value of his lease, 
 and defendant would be under constant temptation to make them. 
 While he might not yield to the temptation, and while proof might 
 show that he had not yielded, the law will not allow a trustee thus 
 situated to be thus tempted, and therefore disables him from making 
 a contract for his own benefit. * * * it matters not that the 
 court at Special Term found upon the evidence that the improvements 
 were judicious and prudent for the purposes of the old term. The 
 plaintiff was entitled to the unbiased judgment as to such improve- 
 ments, uninfluenced by his private and separate interest. But, further, 
 the parties owned together a large amount of hotel property in the 
 form of furniture and supplies, considerably exceeding, as I infer, 
 $100,000 in value. Assuming that the oartnership was not to be con- 
 tinued after the 1st day of May, 1871, this property was to be sold, 
 or in some way disposed of for the benefit of the firiri, and each part- 
 ner owed a duty to the firm to dispose of it to the best advantage. 
 Neither could, without the violation of his duty to the firm place the 
 property in such a situation that it would bp sacrificed, or that he 
 could purchase it for his separate benefit, at a great profit. Much of 
 this property, such as mirrors, carpets, etc., was fitted for use in this 
 hotel, and it is quite manifest that all of it would sell better with a 
 lease of the hotel than it would to be removed therefrom. It is clear 
 that one or both of these parties could obtain advantageous leases of 
 the hotel for a term of years, and hence, if the parties had determined 
 to dissolve their partnership, it would have been a measure of ordi- 
 nary prudence to have obtained the leases and transferred property 
 with the leases as the only mode of realizing its value. This was de- 
 feated by the act of the defendant, if he is allowed to hold these leases, 
 and thus place himself in a position where the property must be largely 
 sacrificed or purchased by himself at a great advantage. 
 
 This the law will not tolerate. The language of Lord Eldon, in 
 Featherstonhaugh v. Fenspoint, 17 Ves. 311, a case in many respects 
 resembling this, is quite in point. He says: "If they [the defendants] 
 can hold this lease, and the partnership stock is not brought to sale, 
 they are by no means on equal terms. The stock cannot be of equal 
 value to the plaintiff, who was to carry it away and seek some place in 
 which to put it, as to the defendants, who were to continue it in the 
 place where the trade was already established ; and if the stock was 
 sold the same construction would give them an advantage over the bid- 
 ders. In effect they would have secured the good will of the trade 
 to themselves in exclusion of their partner." For these reasons, in- 
 dependently of the consideration that the leases themselves had'a value 
 to which the firm was entitled, upon other grounds and upon author- 
 ities, to be hereafter cited, the plaintiff, who commenced his suit about 
 one year before the term of the partnership expired, was, upon undis- 
 puted principles and authorities applicable to all trustees and persons 
 
Ch. 2) RELATIONS OF THE PARTN3SRS BETWEEN THEMSELVES 1287 
 
 holding a fiduciary relation to others, entitled to the relief he prayed 
 for. * * * 
 
 I am therefore of opinion that the judgment should be reversed, and 
 new trial granted ; costs to abide the event. 
 
 LATTA V. KILBOURN. 
 
 (Supreme Court of the United States, 1S&3. 150 U. S. 524, 14 Sup. Ct 201, 
 
 .37 L. Ed. 1169.) 
 
 Bill by appellees, Kilbourn and Olmstead, as members of a dis- 
 solved partnership, against appellant, Latta, another member thereof, 
 for an account of profits made by the latter in certain transactions al- 
 leged to have been within the scope of the partnership business, and 
 which, as claimed, it was his duty to have conducted for the benefit of 
 the firm, instead of for his individual advantage. Kilbourn and Latta 
 had been partners in carrying on business as real estate brokers. Their 
 business was one of agency, and consisted in negotiating and making 
 sales and purchases of real property for others. Afterwards one 
 Olmstead was admitted to the firm, the scope of the partnership busi- 
 ness remaining unchanged. During the existence of both firms, each 
 member thereof, with the knowledge of the others, had purchased real 
 estate and other property on his individual account, and no question 
 was ever made of the right to do so, nor did any partner ever claim 
 that the profits realized from such purchases should be treated as be- 
 longing to the partnership or subject to division among its members. 
 By special agreement and as a special venture they had several times 
 bought real estate and property on joint speculation and had divided 
 the profits. During the existence of the firm Latta entered into an 
 agreement with one Stearns by which they undertook to engage in 
 the buying and selling of real estate on joint speculation. These spec- 
 ulations resulted in large profits, and the present action is to compel 
 Latta to account for his^'share of those profits and share them with 
 his copartners, Olmstead and Kilbourn. 
 
 The court below entered a decree requiring Latta to account to his 
 former partners for this share of these profits. From this decree Latta 
 appealed. v 
 
 Jackson, j. * * * The court below based its opinion upon two 
 grounds: First, that the scope of the copartnership business and 
 agreement, as alleged in the third paragraph of the bill, (quoted 
 above), was established, and that the appellant could not engage in 
 purchases of real estate on his own account or in connection with 
 others, except by the consent of his copartners, without violating the 
 duty and obligation which he owed to his firm; and, secondly, that 
 even if the copartnership did not include the business of buying and 
 selling real estate on partnership account, still the appellant could not 
 employ the knowledge and information acquired in the course of the 
 partnership business in respect to the real estate market in making 
 purchases or transactions for his own benefit. 
 
 The general principles on which the court proceeded admit of no 
 question, it being well settled that one partner cannot, directly or in- 
 directly, use partnership assets for his own benefit; that he cannot, 
 in conducting the business of a partnership, take any profit clandes- 
 tinely for himself ; that he cannot carry on the business of the part- 
 
1288 PARTNERSHIP (Part 5 
 
 hership for his private advantage; that he cannot carry on another 
 business in competition or rivalry with that of the firm, thereby de- 
 I^riving it of the benefit of his time, skill, and fidelity, without being 
 accountable to his copartners for any profit that may accrue to him 
 therefrom; that he cannot be permitted to secure for himself that 
 which it is his duty to obtain, if at all, for the firm of which he is a 
 member ; nor can he avail himself of knowledge or inf ormatiofi which 
 may be properly regarded as the property of the partnership, in the 
 sense that it is available or useful to the firm for any purpose within 
 the scope of the partnership business. 
 
 It therefore becomes necessary, in testing the liability of the appel- 
 lant to account for the profits realized from the transactions with 
 Stearns, to consider and ascertain what was the scope of the partner- 
 ship agreement in reference to the purchase and sale of real estate. 
 This is the underlying and essential fact on which rests the proper 
 determination of the question whether the appellant, in engaging in 
 the joint enterprises with Steams, violated any duty or obligation 
 which he owed to the firm of Kilbourn & L,atta. In other words, the 
 question on this branch of the case depends entirely upon this : Were 
 or were not those transactions within the scope of the firm business, in 
 respect to which Latta owed a duty to his firm, or in respect to which 
 he could properly be said to be the agent of the firm? * * * 
 
 The proofs in the present case not only fail to break down his denial 
 on this point, but, on the contrary, affirmatively establish that neither 
 under the first nor the second firm of Kilbourn & Latta did the part- 
 nership agreement extend to the business of buying and selling real 
 estate either for investment or for speculation on firm account. Nei- 
 ther of the appellees testified to the contrary. The appellee Kilbourn, 
 when pressed upon the question, evaded a reply thereto; and Olm- 
 stead, in his sworn testimony, failed to support the allegation of the 
 bill as made on that particular subject. On the other hand, the tes- 
 timony of the appellant fully supported the denial of his answer, and 
 he is corroborated by all the facts and circumstances in the case, such 
 as the character of the business as advertised and as actually con- 
 ducted. * * * 
 
 The court below was in error in finding as a matter of fact that 
 the partnership extended to the buying and selling of real estate for 
 the account of the firm. There is, therefore, no right on the part of 
 the complainants to relief in this cause, based upon the consideration 
 that the scope and character of the partnership business embraced the 
 purchase and sale of real estate, either for the firm alone or jointly 
 with others. 
 
 The further allegation of the bill "that all profits resulting from op- 
 erations in real estate by any member of the firm of Kilbourn & Latta 
 during the existence of said partnership should belong to said firm, 
 and be entered upon the books of the firm, and be paid into the part- 
 nership account; and that no member of said firm should engage in 
 the business of bilying and selling real estate in the said District on 
 his own account, or with any other person or persons, except in 
 cases where the proposed transaction had been explained to the said 
 firm, and the firm had declined to take any part therein," — was also 
 positively denied by the answer of the appellant under oath. There 
 is no testimony in the cause to overcome that denial. On the contrary, 
 the evidence establishes that there was no such restriction or limita- 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1289 
 
 tion imposed upon the individual members. So that the complain- 
 ants were entitled to no relief on that ground. 
 
 But, aside from the foregoing questions of fact, how stands the 
 case on the assumption that there was a new stipulation or agreement 
 when Olmstead was taken into the firm (as claimed by Kilbourn and 
 Olmstead, and as set out above) that knowledge and information ob- 
 tained by any member of the firm as to bargains in real estate should 
 be first communicated to the firm, with the view of giving the firm, or 
 the members thereof, the first opportunity of purchasing, before any 
 individual member thereof could act upon such knowledge or infor- 
 mation for his own benefit? Can the agreement to furnish informa- 
 tion as to bargains in real estate, and give copartners the option of 
 taking benefit of such bargains, be considered as so enlarging the 
 scope of the partnership business as to include therein the purchase 
 and sale of real estate on joint account? It would be a perversion of 
 language and a confusion of ideas to treat such a stipulation, if it 
 were clearly established, as creating a partnership in future options 
 to buy what did not already, by the terms of the copartnership, come 
 within the scope and character of the partnership business. That al^ 
 leged stipulation, instead of enlarging the partnership business, was 
 manifestly a restriction and limitation upon the power and authority 
 of the copartners to bind the firm, or the members thereof, in any 
 real estate transaction, until each member had expressly consented or 
 agreed to join in the particular purchase, specially submitted for con- 
 sideration. 
 
 By the well-settled law of partnership each member of the firm is 
 both a principal and an agent to represent and bind the firm and his 
 associate partners in dealings and transactions within the scope of the 
 copartnership. No express authority is necessary to confer this agen- 
 cy or fiduciary relation in respect to the business of the firm. If 
 the buying and selling of real estate was a part of the business of 
 Kilbourn & Latta, the alleged stipulation about giving an option to 
 the firm and the members thereof to accept special bargains would have 
 been an idle arrangement. But under the alleged stipulation each 
 and every purchase of real estate was a special and individual trans- 
 action or enterprise, requiring the special assent and agreement of 
 each partner thereto, before it became a subject of partnership, or 
 was brought within the scope of the partnership business. Under 
 the operation of the agreement, a partner who purchased real estate, 
 either on joint or partnership account, did so not under or by virtue 
 of the partnership articles, or under authority derived from the part- 
 nership business and his implied agency to represent the firm therein, 
 but solely and exclusively from the special assent or agreement of 
 his associates to engage in that particular purchase. So that each par- 
 cel of real estate to be acquired, as well as the agreement to purchase 
 the same, was first made the subject of a special arrangement. It is 
 difficult to understand how, under such circumstances and conditions, 
 a copartnership could properly be said to include or extend to the 
 business of purchasing and selling real estate. 
 
 The special subject of each purchase, as admitted by Kilbourn, like 
 the purchase of bonds and other securities, did not and could not 
 come within the operation of the copartnership, or become a part of 
 the partnership agreement until each particular piece of property had 
 been selected and agreed upon. It is undoubtedly true that, under this 
 
1290 PARTNERSHIP (Part 5 
 
 alleged agreement, if a partner had submitted to the firm or his as- 
 sociates the question of boxying a particular parcel of land, and they 
 had agreed to make that purchase, he would thereafter have occupied 
 an agency or fiduciary relation in respect to that particular piece of 
 property. But the question here is whether his failure to give the firm, 
 or his copartners, the opportunity of making an election to buy cer- 
 tain real estate, and his making the purchase thereof for his own ac- 
 count, or jointly with another, is such a violation of his fiduciary 
 relations to the firm and his associates in respect to copartnership 
 business as to entitle the latter to call him to account for profits re- 
 alized in such transactions. In other words, will the violation of his 
 undertaking to give to the firm, or his associates, the opportunity or 
 option to engage in any particular transaction, not within the scope 
 of the firm's business, entitle the copartners to convert him into a con- 
 structive trustee in respect to the profits realized therefrom ? * * * 
 
 We are clearly of opinion that the alleged new stipulation that each 
 copartner should furnish to the firm, or to the members thereof, in- 
 formation as to bargains in real estate, and give it or them the option 
 to engage in the acquisition thereof before acting upon such informa- 
 tion for his own benefit, neither enlarged the scope of the partnership 
 so as to make it include the purchases and sales of real estate, nor pre- 
 cluded any member of the firm from making purchases on his own 
 account or jointly with others; and that the act of the appellant in 
 purchasing property with Stearns was no such a violation of his duty 
 and obligation to, the firm of Kilbourn & Latta, or to the members 
 thereof, as to entitle the appellees to share in the profits which he 
 realized therefrom. 
 
 In respect to the second ground, on which the court below rested 
 its judgment, that the appellant could not take advantage of the skill, 
 knowledge, and information as to the real-estate market acquired in 
 the course of his connection with the partnership of Kilfourn & Latta, 
 so as to gain any profit individually therefrom, but was bound to 
 share with his copartners all the beneficial results which could be 
 derived from his knowledge or information on that subject, we need 
 not do more than to say that this proposition is wholly unsupported 
 either by the authorities or by any legal principle applicable to part- 
 nership law. 
 
 It is well settled that a partner may traffic outside of the scope of 
 the firm's business for his own benefit and advantage, and without 
 going into the authorities it is sufficient to cite the thoroughly consid- 
 ered case of Aas v. Benham, [1891] 2 Ch. 244, 255, in which it was 
 sought to make one partner accountable for profits realized from an- 
 other business, on the ground that he availed himself of information 
 obtained by him in the course of his partnership business, or by rea- 
 son of his connection with the firm, to secure individual advantage in 
 the new enterprise. It was there laid down by Lord Justice Lindley 
 that if a member of a partnership firm avails himself of information 
 obtained by him in the course of the transaction of the partnership 
 business, or by reason of his connection with the firm, for any pur- 
 pose within the scope of the partnership business, or for any purpose 
 which would compete with the partnership business, he is liable to ac- 
 count to the firm for any benefit he may have obtained from the use 
 of such information; but if he uses the information for purposes 
 which are wholly without the scope of the partnership business, and 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1291' 
 
 not competing with it, the firm is not entitled to an account of such 
 benefits. 
 
 It was further laid down in that case * * * that "it is not the 
 source of the information, but the use to which it is applied, which is 
 important in such matters. To hold that a partner can never derive 
 any personal benefits from information which he obtains as a partner 
 would be manifestly absurd." And it was said by Lord Justice Bow- 
 en that the character of information acquired from the partnership 
 transaction, or from connection with the firm, which the partner 
 might not use for his private advantage, is such information as belongs 
 to the partnership in the sense of property which is valuable to the 
 partnership, and in which it has a vested right. 
 
 Tested by these principles, it cannot be properly said that Latta used 
 any information which was partnership property, so as to render him 
 chargeable y^ith the profits made therefrom. His knowledge of the 
 real estate market, or in respect to profitable investments therein, was 
 not used in competition with the business of the firm, nor in any man- 
 ner so as to come within the scope of the firm's business. * * * 
 
 We are clearly of opinion, upon the whole case, that the decree 
 should be reversed, and the cause remanded to the court below with 
 directions to dismiss the bill at the costs of the appellees, and it is 
 accordingly so ordered. * * * 
 
 BLOOM et al v. TX)FGREX et al. 
 (Supreme Court of MinDesota, 1896. 64 Minn. 1, 65 X. W. 960) 
 
 Action by Louis Bloom and others against C. F. Lofgren and oth- 
 ers. Verdict for plaintiffs, and from an order refusing a new trial, 
 Lofgren appeals. 
 
 CoLi-iN^S, J. From the evidence adduced upon the trial of this ac- 
 tion, it was well established that the writing designated as "Exhibit A" 
 never became a contract between defendant Lofgren and the other 
 persons who signed it, for there was nothing tending to show that the 
 former ever accepted its terms and conditions. To the contrary, it 
 appeared tha^t he did not, and that it was wholly superseded by the 
 oral agreement entered into April 15, 1891, after the writing was signed. 
 And, even if it had been binding on the signers up to that time, it is 
 clear that its terms and conditions were changed and modified at the 
 meeting of Lofgren and his associates on that day. It was then agreed 
 that Lofgren should purchase the horse in question of the supposed 
 owner, Walker, for cash, for the association; that he should buy for 
 $1,800 if he could not buy for a less sum ; that he should advance the 
 necessary money; and that he should take the notes of such persons 
 as could not make immediate payment, payable at a future time, bear- 
 ing 10 per cent, interest. This was the final contract, and, as before 
 stated, modified or entirely superseded the writing. If Lofgren had 
 previously purchased the horse at $1,200, — and it was admitted that he 
 had,-^he fraudulently imposed upon those with whom he was dealing, 
 his actual or proposed copartners in the transaction. The law will not 
 permit him to retain and enjoy the fruits of his fraudulent representa- 
 tions that Walker was still the owner, that the lowest cash price was 
 $1,800, and his later representations of the same nature, that he had 
 bought the animal as authorized, and had paid $1,800 for him. In 
 
1202 PARTNEESHip (Part 5 
 
 their dealings with each other, partners occupy positions of trust, and 
 are required to exercise the most scrupulous good faith towards each 
 other. Nor is this requirement confined to persons who are actually 
 copartners, but it extends to those negotiating for a partnership not yet 
 formed. AH of the findings of fact were supported by the evidence. 
 Order affirmed. 
 
 EXCHANGE BANK OF LEON et al. v. GARDNER et al. 
 (Supreme Court of Iowa, 1897. 104 Iowa, 176, 73 N. W. 591.) 
 
 Suit in equity for an accounting, and to recover of defendant Gard- 
 ner $15,000 on account of poor investments made by him as one of 
 the partners and cashier of plaintiff banking partnership. Gardner was 
 accused of negligently purchasing and renewing notes, to the loss of 
 the partnership. Judgment for defendants. Plaintiffs appeal. 
 
 Robinson, J. * * * It must be admitted that Gardner did not 
 exercise the highest degree of care and diligence which was possible 
 in purchasing the notes in controversy; and the question we are re- 
 quired to determine is whether, in view of the facts disclosed by the 
 record, his failure to exercise greater care and diligence than he did 
 makes him liable for the loss which followed the investments. There 
 is no evidence whatever that he acted in bad faith, nor do we think 
 that he exceeded his authority in purchasing Kansas City paper. Mon- 
 ey of the bank was invested in Chicago, and a little later investments 
 were made in Sioux City and Minneapolis paper. It is not at all proba- 
 ble that all of those investments were made without the knowledge of 
 the president of the bank ; and, even if not known at the time they were 
 made, they were certainly known within a short time thereafter, and 
 we are satisfied that Gardner's authority to make them was not then 
 questioned. That he was making an honest effort to invest properly 
 a portion of the idle money of the bank is clearly shown, and that 
 no question in regard to the Kansas City investments was made until 
 after the Winner failure is, we think, also established. It was the duty 
 of Gardner to act in good faith and with entire honesty in transacting 
 all the business of the bank, and to exercise as high a degree of care 
 and skill as is generally exercised by business men in the management 
 of such business. * * * But he was not liable for fionest errors 
 in judgment, nor for the failure to take the utmost precaution possible 
 in making investments for the bank. * * * Applying these rules, 
 we conclude that he was not so negligent in the transactions in ques- 
 tion as to he liable for the resultin'g losses. 
 
 This conclusion makes it unnecessary to determine questions in re- 
 gard to ratification and waiver discussed in the arguments of counsel. 
 The judgment of the district court appears to be sustained by the evi- 
 dence, and is affirmed. 
 
 SECTION 12.— PARTNER'S RIGHT TO PARTICIPATE IN 
 
 MANAGEMENT 
 
 Uniform Partnership Act, Section 18. (e) Subject to any agree- 
 ment between them, all partners have equal rights in the manage- 
 ment and conduct of the partnership business. 
 
 (h) Subject to any agreement between them any difference 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1293 
 
 arising as to ordinary matters connected with the partnership 
 business may be decided by a majority of the partners ; but no act 
 in contravention of any agreement between the partners may be 
 done rightfully without the consent of all the partners. 
 
 (g) Subject to any agreement between them no person can 
 become a member of a partnership without the consent of all the 
 partners. 
 
 JOHNSTON & CO. V. BUTTON'S ADM'R. 
 (Supreme Court of Alabama, 1855. 27 Ala. 245.) 
 
 GoLDTHWATTE, J. The evidence in this case tended to show that the 
 appellants and one Vanderslice carried on in copartnership a steam 
 sawmill, which by the articles of copartnership was to continue at least 
 five years; that the note sued on was given with the concurrence of 
 two of the partners, Fogg and Vanderslice, for supplies necessary for 
 the hands engaged in carrying on the mill, which had been ordered by 
 one of them. Upon these facts alone there can be no doubt that the 
 firm would be bound. The furnishing of supplies to those engaged in 
 the immediate direction of the business was essential to the conduct- 
 ing of it, and within the scope of the purpose for which the individ- 
 uals had associated; and the authority of either of the partners to 
 purchase such supplies, and give the note of the firm, cannot be ques- 
 tioned. 
 
 The principal ground of objection, however, is that the evidence 
 proved that, before the goods were furnished and the note given, the 
 appellant Johnston gave notice to the pubUc that he would not be re- 
 sponsible for any future debt contracted on account of the copartner- 
 ship, and that this notice was brought home to the party with whom 
 the debt was contracted ; and it is insisted that its effect was to revoke 
 the authority of the other partners, so far as he was concerned, to bind 
 the firm from that time. ' 
 
 It is to be observed that in the present case the contract was 
 concurred in by two members of the firm ; and the question, therefore, 
 is as to the right of the majority to bind the other partners, against 
 their dissent, as to matters appertaining to the common business, and 
 in the absence of any stipulation conferring that power in the articles 
 of copartnership. This question is a new one in this court, and, in- 
 deed, we have found no case in which it has been expressly decided. 
 Both in England and the United States there are cases which assert 
 the general proposition that a partner may protect himself against the 
 consequences of a future contract, by giving notice of his dissent to 
 the party with whom it is about to be made. * * * And where 
 the firm consists of but two persons, and there is nothing in the articles 
 -to prevent each from having an equal voice in the direction and con- 
 trol of the common business, the correctness of the proposition can- 
 not be questioned. In such case the duty of each partner would re- 
 quire him not to enter into any contract from which the other in good 
 faith dissented; and, if he did, it would be a violation of the obHga- 
 tions which were imposed by the nature of the partnership. It would 
 not, in fact, be the contract of the firm ; and the party with whom it 
 was made, having notice, could not enforce it as such. So, if the 
 firm was composed of more than two persons, and one of them dis- 
 
1294 PARTNERSHIP (Part 5 
 
 sented, the party with whom the contract is made acts at his peril, and 
 cannot hold the dissenting partner . liable, unless his liability results 
 from the articles or from the nature of the partnership contract. All 
 the cases can be sustained on this principle ; and it is in strict analogy 
 with the civil law, which holds, where the stipulations of the partner- 
 ship expressly intrust the direction and control of the business to one 
 of the partners, that the dissent of the other would not avail, if the 
 contract were made in good faith. Pothier, Traite du Com. de Soc, 
 Nos. 71, 90. And such, also, we think, is the rule of the commqn law. 
 Const. V. Harris, Turn. & Russ. 496; Story on Part. § 121. Were it 
 otherwise it would be denying to parties the right to make their own 
 contracts. If our views as to the governing force of express stipula- 
 tions are correct, the effect of such terms or conditions as result by 
 clear implication from the articles, or arise out of the nature of the 
 partnership, must be the same. It is as if they had been expressly 
 provided. 
 
 Now, whenever a partnership is formed by more than two persons, 
 we think that in the absence of any express provision to the contrary 
 there is always an implied understanding that the acts of the majority 
 are to prevail over those of the minority as to all matters within the 
 scope of the common business; and such we understand to be the 
 doctrine asserted by Lord Eldon in Const, v. Harris, supra, and such 
 was the opinion of Judge Story. Story on Part. § 123 ; 3 Kent's Com. 
 (Sth Ed.) 45. The rule as thus laid down is certainly more reasonable 
 and just than to allow the minority to stop the operations of the con- 
 cern against the views of the majority. We do not say that it would 
 be a bona fide transaction, so as to bind the firm, if the majority choose 
 wantonly to act without information to or consultation with the mi- 
 nority. * * * But when, as in the present case, the one partner 
 has given notice, and expressed his dissent in advance, there could 
 be no reason or propriety in requiring him to be consulted by the other 
 two. 
 
 We do not consider the cases to which we have been referred, hold- 
 ing that one partner has the right at pleasure to dissolve a partner- 
 ship, although the articles provide that it is to continue for a specified 
 term (Marquand v. Mfg. Co., 17 Johns. [N. Y.] 525 ; Skinner v. Day- 
 ton, 19 Johns. [N. Y.] 513, 10 Am. Dec. 286), as having any bearing 
 on the case under consideration. Conceding they are law — which is 
 doubtful (Story on Partn. & 275, note 3, and cases there cited) — the 
 decision rests solely upon the ground that the limitation on the right 
 of dissolution is incompatible with the nature of the copartnership 
 contract; and this principle does not militate against the position we 
 have asserted. The dissent, in the present case, cannot be regarded 
 as a dissolution ; for, if effectual, it would not necessarily produce that 
 result, although it might operate to change the mode of conducting the 
 business. In other words, it might be carried on without contracting 
 debts. 
 
 Our conclusion is that the act, being concurred in by two of the 
 partners, was, under the circumstances, the act of the firm, and that 
 the charge, asserting the proposition that the dissent of one partner 
 against the other two would necessarily exonerate him, was properly 
 refused. 
 
 Judgment [for plaintiff] affirmed. 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1295 
 
 APPEAL OF JENNINGS et al. 
 (Supreme Ck)urt of Pennsylvania, 1888. 16 Atl. 19, 2 L. B. A. 43.) 
 
 Bill by Joseph G. Beale against Benjamin F. Jennings, John Davis, 
 Robert Flenniken, and T. D. Jennings, all parties being of the firm 
 of Jennings, Beale & Co., Limited, to enjoin the removal of the loca- 
 tion of the steel-works of the firm. The opinion of the court was as 
 follows : "The facts in this case present but a single question. It is 
 whether the majority of the copartnership of Jennings, Beale & Co., 
 Limited, have authority to change the location of their works, against 
 the will of the minority. The partnership was formed for the man- 
 ufacture and sale of steel, and the location of their works was stated 
 in their certificate of association to be Leechburg, Armstrong coun- 
 ty. Pa. It seems evident that the location of works for the manu- 
 facture of steel is not a matter of indifference. Any business, to be 
 successful, must be properly surrounded. This is so much the case 
 with the manufacture of steel that few places in our whole land are 
 adapted for it, and therefore few are chosen for such works. This 
 being a palpable truth, a court, in construing an instrument intended 
 as the basis of such a copartnership, could not regard the place men- 
 tioned for the location of the works as a matter of indifference, or in 
 any other light than a material element in the contract of the parties. 
 If that be true, it could of course be changed only with the consent 
 of all the members. If a majority were determined to abandon the 
 works in Leechburg, and erect new works in some part of Allegheny 
 county, it would plainly be a new enterprise; and yet no distinction 
 in principle can, to our minds, be made between that and what is 
 here proposed. The majority of Jennings, Beale & Co., Limited, are 
 about to remove part of their works from Leechburg to some place 
 in Allegheny county, with a view to the removal of the entire works 
 thither in the future. Thus they would undertake a venture to which 
 the plaintiff never committed himself, and would destroy the works 
 they have agreed to operate. In our opinion, this is such a departure 
 from the enterprise contemplated in the agreement of the parties, that 
 constitutes such an irreparable injury to the property and right of 
 the plaintiff, as entitles him to the injunction heretofore granted. The 
 injunction is therefore continued until the further order of the 
 court." Whereupon defendants appeal. 
 
 Pbr Cuream. Decree affirmed, at costs of appellants. 
 
 SECTION 13.— PARTNER'S RIGHT TO INFORMATION 
 
 Uniform Partnership Act, Section 19. The partnership books 
 shall be kept, subject to any agreement between the partners, at 
 the principal place of business of the partnership, and every 
 partner shall at all times have access to and may inspect and copy 
 any of them. 
 
 Section 20. Partners shall render on demand true and full in- 
 formation of all things affecting the partnership to any partner or 
 the legal representative of any deceased partner under legal disa- 
 bility. 
 
1296 PARTNERSHIP (Part 5 
 
 SECTION 14.— PARTNER'S RIGHT TO REMUNERATION 
 
 FOR SERVICES 
 
 Uniform Partnership Act, Section 18. (f) Subject to any agree- 
 ment between them, no partner is entitled to remuneration for act- 
 ing in the partnership business, except that a surviving partner 
 is entitled to reasonable compensation for his services in winding 
 up the partnership affairs. 
 
 GAY V. HOUSEKOLiDER. 
 
 (Supreme Court of Appeals of West Virginia, 1912. 71 W. Va. 277, 
 76 S. E. 450, Ann. Cas. 19140, 297.) 
 
 Bill by Pat Gay against W. C. Householder. Decree for defendant, 
 and plaintiff appeals. 
 
 MiLLDR, J. This suit is to settle a partnership. * * * 
 
 Now as to the salary item. There is substantial agreement between 
 the parties as to what the original contract of co-partnership was, and 
 that not a word was then said about salary. Householder makes 
 some pretension that afterwards something was said by him to Gay 
 about salary, but Gay denies this. He swears 'that Householder 
 thought when they made the contract that as he was to finance the 
 enterprise, and furnish the stock or capital to run it, an equal share 
 of the profits would be fair compensation. It required considerable 
 capital to furnish the live stock and keep the business stocked up with 
 meat and other articles dealt in, besides the time required of Gay in 
 doing so. The general rule is well established, that one partner is not 
 entitled to compensation for his services in attending to partnership 
 affairs, unless there be a contract therefor, express or implied. * * * 
 No express agreement is proven, and we cannot say, on the facts 
 proven, that one is implied. * * * 
 
 Another assignment of error is the allowance to John Wallace, ex- 
 pert accountant, $20.00, for work done on the firm's books, and in 
 making up the account. We are not disposed to disturb this item. 
 True Householder should have furnished the account without assist- 
 ance of an expert accountant, but it was a proper expense incurred by 
 the commissioner or receiver, and we think the item was a proper 
 disbursement of the firm assets. 
 
 Affirmed in part, and reversed in part. 
 
 LINDSEY V. STRANAHAN. 
 (Supreme Court of Pennsylvania, 1889. 129 Pa. 635, 18 Atl. 524.) 
 
 Suit in account render by J. K. Lindsey against J. A. Stranahan, 
 to settle the copartnership business existing under the name of J. 
 K. Lindsey & Co. Decree for defendant, and plaintiff appeals. 
 
 Per Curiam. _ There is but a single question in this case : Is J. R. 
 Ivindsey, the plaintiff, entitled to compensation for his services as a 
 partner? It is conceded that there was no express contract that he 
 should be paid for such services, and there is no principle better set- 
 
Ch. 2) RELATIONS OF THE PARTNERS BETWEEN THEMSELVES 1297 
 
 tied than that the law will not imply a contract in such cases. The 
 reason is that the partner is but attending to his own aflfairs. This 
 rule is inexorable; as much so as that between parent and child. 
 Were it otherwise, we might have a contract between the partners up- 
 on the settlement of every partnership account as to the value of their 
 respective services. It is true this principle may work hardship in 
 particular cases, — almost every general rule does ; but that is a weak 
 argument against the soundness of the rule. When the copartnership 
 agreement contemplates that one partner shall manage the business, 
 or do more than his share of the work, it is easy to provide for his 
 compensation in the agreement itself ; and if no such stipulation is 
 then made, as before said, the law will not imply one. Even where a 
 liquidating or surviving partner settles up the business, it has been re- 
 peatedly held that he is not entitled to compensation for doing so, 
 although, in such case, he performs all the services. * * * 
 Judgment affirmed. 
 B.& B.Btjs.Law— 82 
 
1298 PARTNERSHIP (Part 5 
 
 CHAPTER III 
 RELATIONS OF "PARTNERS TO THIRD PERSONS 
 
 Section ' 
 
 1. Scape of a Partner's Power In General. 
 
 2. Particular Powers. 
 
 3. Powers with Respect to Partnership Realty. 
 
 4. Powers Arising by Estoppel. 
 
 5. Liability of Partners, When Joint, or .Joint and Several. 
 
 6. Right of a Creditor of a Partner in the Partner's Individual Capacity 
 
 with Respect to Partnership Property. 
 
 SECTION 1.— SCOPE OF A PARTNER'S POWER IN 
 GENERAL 
 
 Uniform Partnership Act, Section 9. (1) Every partner is an 
 agent of the partnership for the purpose of its business, and- the 
 act of every partner, including the execution in the partnership 
 name of any instrument, for apparently carrying on in the usual 
 way the business of the partnership of which he is a member binds 
 the partnership, unless the partner so acting has in fact no au- 
 thority to act for the partnership in the particular matter, and 
 the person with whom he is dealing has knowledge of the fact 
 that he has no such authority.^ 
 
 (2) An act of a partner which is not apparently for the carrying 
 on of the business of the partnership in the usual way does not 
 bind the partnership unless authorized by the other partners. 
 
 WINSHIP et al. V. BANK OF THE UNITED STATES. 
 (Supreme Court of the United States, 1831. 5 Pet. 529, 8 L. Ed. 216.) 
 
 Marshai,l, C. J. * * * This was an action brought in the 
 court for the first circuit and district for Massachusetts, against 
 John Winship, Amos Binney and John Binney, merchants and part- 
 ners, trading under the name and firm of John Winship, as indorser 
 of several promissory notes, made by Samuel Jacques, Jun. * * =i= 
 A verdict was found fpr the plaintiffs, and judgment entered there- 
 on ; which is brought before this court by writ of error. * * * 
 
 The third instruction asked in the Circuit Court, goes to the con- 
 struction of the articles of co-partnership. The plaintiff in error 
 contends that those articles gave Winship no authority to raise money 
 on the credit of the firm, or to bind it by his signature, for the pur- 
 pose of borrowing money. 
 
 The instruction given was, that if the particular terms of the ar- 
 
 1 Lewis' Note to Section 9 (1). — The words "including the execution in the 
 partnership name of any instrument" avoid any possible doubt as to whether 
 a partner has the authority, in the ordinary course of business, to enter into 
 formal contracts for his partnership, or to convey partnership property when 
 the conveyance is the result of a sale in the ordinary course of partnership 
 business. 
 
Ch. 3) RELATIONS OF PARTNERS TO THIRD PERSONS 1299 
 
 tides were unknown to the public, they had a right to deal with the 
 firm in respect to the business thereof, upon the general principles 
 and presumptions of limited partnerships of a like nature, and that 
 any special restrictions did not afifect them; that in such partner- 
 ships, it was within the general authority of the partners to make and 
 indorse notes, and to obtain advances and credits for the business and 
 benefit of the firm, and if such was the general usage of trade, the 
 authority must be presumed to exist, but that it did not extend to 
 transactions beyond the scope and object of the co-partnership ; that 
 in the present articles, Winship was in effect constituted the active 
 partner, and has general authority to transact the business of the 
 firm, and a right to bind the firm in transacting its ordinary busi- 
 ness with persons ignorant of any private restriction, to the same 
 extent that partners in such limited partnerships usually possess. 
 
 The amount of the charge is, that if Winship and the two Binneys 
 composed a joint company for carrying on the soap and candle busi- 
 ness on the credit of the company, in the manner usually practiced in 
 such partnerships, notwithstanding any secret restriction on his pow- 
 ers, in any agreement between the parties ; provided such restriction 
 was unknown to the lender. 
 
 The counsel for the plaintiff in error has objected to this instruc- 
 tion with great force of reasoning. He contends very truly, that in 
 fact scarcely any unlimited partnerships exist. They are more or less 
 extensive ; they may extend to many or to few objects ; but all are in 
 some degree limited. 
 
 That the liability of a partner arises from pledging his name, if his 
 name is introduced into the firm, or from receiving profits if he is a 
 secret partner. 
 
 No man can be pledged but by himself. If he is to be bound by 
 another, that other must derive authority from him. The power of 
 an agent is limited by the authority given him ; and if he transcends 
 that authority, the act cannot afifect his principal, he acts no longer 
 as an agent. The same principle applies to partners. One binds the 
 others, so far only as he is the agent of the others. 
 
 If the truth of these propositions be admitted, yet their influence on 
 the case may be questioned. Partnerships for commercial purposes, 
 for trading with the world, for buying and selling from and to a 
 great number of individuals, are necessarily governed by many gen- 
 eral principles, which are known to the public, which subserve the 
 purpose of justice, and which society is concerned in sustaining. One 
 of these is, that a man who shares in the profit, although his name 
 may not be in the firm, is responsible for all its debts. Another, more 
 applicable to the subject under consideration, is, that a partner, cer- 
 tainly the acting partner, has power to transact the whole business 
 of the firm, whatever that may be, and consequently to bind his part- 
 ners in such transactions, as entirely as himself. This is a general 
 power, essential to the well conducting of business; which is im- 
 plied in the existence of a partnership. When then a partnership is 
 formed for a particular purpose, it is imderstood to be in itself a 
 grant of power to the acting members of the company to transact its 
 business in the usual way. If that business be to buy and sell, then 
 the individual buys and sells for .the companv, and every person with 
 whom he trades in the way of its business, has a right to consider 
 him as the company, whoever may compose it. 
 
1300 PARTNERSHIP (Part 5 
 
 It is usual to buy and sell on credit ; and if it be so, the partner 
 who purchases on credit in the name of the firm must bind the firm. 
 This is a general authority held out to the world, to which the world 
 has a right to trust. The articles of co-partnership are perhaps never 
 published. They are rarely if ever seen, except by the partners them- 
 selves. The stipulations they may contain are to regulate the con- 
 duct and rights of the parties, as between themselves. The trading 
 world, with whom the company is in perpetual intercourse, cannot 
 individually examine these articles, but must trust to the general 
 powers contained in all partnerships. The acting partners are iden- 
 tified with the company, and have power to conduct its usual busi- 
 ness, in the usual way. This power is conferred by entering into 
 the partnership, and is perhaps never to be found in the articles. If 
 it is to be restrained, fair dealing requires that the restriction should be 
 made known. These stipulations may bind the partners ; but ought 
 not to afiect those to whom they are unknown, and who trust to the 
 general and well established commercial law. * * * 
 
 The counsel for the plaintiff in error supposes, that though these 
 principles may be applicable to an open avowed partnership, they are 
 inapplicable to one that is secret. 
 
 Can this distinction be maintained? If it could, there would be a 
 difference between the responsibility of a dormant partner, and one 
 whose name was to the articles. But their responsibility, in all part- 
 nership transactions, is admitted to be the same. Those who trade 
 with a firm on the credit of individuals whom they believe to be 
 members of it, take upon themselves the hazard that their belief is 
 well founded. If they are mistaken, they must submit to the conse- 
 quences of their mistake ; if their belief be verified by the fact, their 
 claims on the partners, who were not ostensible, are as valid as on 
 those whose names are in the firm. This distinction seems to be 
 founded on the idea that, if partners are not openly named, the re- 
 sort to them must be connected with some knowledge of the secret 
 stipulations between the partners, which may be inserted in the ar- 
 ticles. But this certainly is not correct. The responsibility of un- 
 avowed partners depends on the general principles of commercial law, 
 not on the particular stipulation of the articles. * * * 
 
 We think there is no error in the opinions given by the judge to the 
 jury. * * * The judgment is affirmed. * * * 
 
 GORDON V. AUMILLER. 
 
 (Supreme Court of Washine;ton, 1920. 109 Wash. 496, 187 Pae. 354, 
 9 A. L. R. 369.) 
 
 Action by J. H. Gordon against W. C. Marburger and another, 
 wherein W. J. Aumiller intervened. The plaintiff, Gordon, com- 
 menced this action against the defendant Marburger, seeking an ac- 
 counting of their partnership affairs and the appointment of a receiver 
 to take charge of their partnership property, pending the settlement 
 of their differences. The partnership had been for the growing of 
 potatoes. Marburger had borrowed money from Aumiller, giving 
 his notes therefor, secured by a chattel mortgage on the potatoes of 
 the firm. From a judgment for the plaintiff, Gordon, the intervener, 
 Aumiller, appeals. 
 
Ch. 3) EBLATIONS OP PARTNERS TO THIRD PERSONS 1301 
 
 Parkbr, J. * * * It is conceded that th? business relation be- 
 tween them was that of a nontrading partnership, and that Marburger's 
 power to contract debts and incumber the pai'tnership property was 
 limited accordingly. In Snively v. Matheson, 12 Wash. 88, 40 Pac. 
 628, SO Am. St. Rep. 877, Judge Dunbar, reviewing the law touching 
 the power of one partner of a nontrading partnership to bind the other 
 partners, or the partnership property to the detriment of the other part- 
 ners, speaking for the court, said : "The presumption is that one part- 
 ner has no power to bind the other partners. Hence, before recovery 
 can be obtained upon a contract entered into by one partner in a non- 
 trading partnership against the other partners, it must be affirmatively 
 shown by the party attempting to bind the noncontracting partners, 
 either that the authority to bind was conferred by the articles of incor- 
 poration, or that authority had been specially conferred, or that it had 
 been the custom of such partnership to recognize this right to such an 
 extent as would give innocent dealers a right to rely upon the cus- 
 tom." 
 
 It was also recognized as the law in that decision that, in the doing 
 of acts ordinarily necessary to be done by one partner in the perform- 
 ance of partnership duties assigned to such partner, he can bind the 
 other partners and their interest in the partnership property. It is 
 plain, however, that in this partnership Marburger had.no duties to 
 perform in the partnership business rendering it at all necessary for 
 him to borrow money to further the partnership interests, nor was 
 there any custom of dealing by either of the partners touching the 
 partnership business in the least suggesting that Marburger was au- 
 thorized to borrow money for the partnership or incumber its prop- 
 erty. The contentions of counsel for Marburger are rested upon 
 the theory that Gordon was a silent or dormant partner, and that 
 Aumiller was warranted in dealing with Marburger upon the assump- 
 tion that he was the sole owner of the potatoes. It is true that Au- 
 miller testified in substance that he had no notice of Gordon's interest 
 in the potatoes until after he had made all of the three loans to Mar- 
 burger. It is hard to believe that Aumiller was wholly ignorant of 
 Gordon's interest in the potatoes, in view of the fact that Aumiller 
 prepared the rent receipt evidencing the leasing of the land to both 
 Marburger and Gordon for the raising of these potatoes. The chattel 
 mortgage given by Marburger to Aumiller to secure the first loan 
 of $150 described the crop of potatoes as being then growing upon 
 the same land, describing it, and referring to it as belonging to Henry 
 Pagel, which mortgage was executed on June 12th, only 1 month and 
 12 days after Aumiller had prepared the rent receipt for Marburger. 
 Surely this ought to be held to be sufficient to at least put Aumiller 
 upon inquiry as to the probability of Gordon being interested in the 
 potatoes. This significant fact, together with the fact that Gordon 
 made no effort to conceal, and did no act tending to conceal, the ex- 
 istence of the partnership relation between him and Marburger and 
 the fact that this was purely a nontrading partnership, we think, com- 
 pels the conclusion that in no event can Aumiller at this time be 
 heard to say, as against the rights of Gordon, that he was led to believe 
 that Marburger was the sole owner of the potatoes, with absolute right 
 to borrow money and secure the payment of the same by incumbering 
 them. * * * 
 
 The judgment is affirmed. 
 
1302 PARTNERSHIP (Part 5 
 
 SECTION 2.— PARTICULAR POWERS 
 
 Uniform Partnership Act, Section 9. (3) Unless authorized by 
 the other partners or unless they have abandoned the business, 
 one or more but less than all the partners have no authority to : 
 
 (a) Assign the partnership property in trust for creditors or 
 on the assignee's promise to pay the debts of the partnership; 
 
 (b) Dispose of the good will of the business ; 
 
 (c) Do any other act which would make it impossible to carry 
 on the ordinary business of the partnership ; 
 
 (d) Confess a judgment; 
 
 (e) Submit a partnership claim or liability to arbitration or ref- 
 erence. 
 
 (4) No act of a partner in contravention of a restriction on au- 
 thority shall bind the partnership to persons having knowledge 
 of the restriction. 
 
 Section 11. An admission or representation made by any part- 
 ner concerning partnership affairs within the scope of his authority 
 as conferred by this act is evidence against the partnership.^ 
 
 Section 12. Notice to any partner of any matter relating to 
 partnership affairs, and the knowledge of the partner acting in 
 the particular matter, acquired while a partner or then present to 
 his mind, and the knowledge of any other partner who reasonably 
 could and should have communicated it to the acting partner, op- 
 erate as notice to or knowledge of the partnership, except in the 
 case of a fraud on the partnership committed by or with the con- 
 sent of that partner.* 
 
 2 LevAs' Note to Section 11. — Admissions before dissolution concerning a 
 particular matter should bind' the partnership only where the partner has 
 authority to act in the particular matter, and after dissolution only if nec- 
 essary to wind up the business. Where the partner has no authority to act 
 and the person with whom he is dealing Ijnows he has no authority, or where 
 the admission is made after dissolution and is not for the winding up of 
 partnership affairs, it should not affect the partnership. If it is not the act 
 of the partnership then it should not affect the partnership. If it is not tlie 
 act of the partnership then it should not be evidence against it The words 
 "within the scope • of his authority, as conferred by this act" produce this 
 result. 
 
 3 LevAs' Note to Section 12. — ^At present, there is no confusion In the law 
 when the "notice" is given to the partner while he is a partner. In such 
 case the effect is the same as if notice was had by all the partners. Where 
 the linowledge or notice has been received by the partner before he became 
 a partner, and his partners are ignorant of this, and he is not the partner 
 acting in the particular matter, there is no doubt that there has been nei- 
 ther knowledge of or notice to the partnership. Where, however, the part- 
 ner acting in the particular matter acquired knowledge before he became a 
 partner, and the knowledge Is then present in his mind, the weight of au- 
 thority, and, it is submitted, of reason, appears to be that the partnership 
 should be charged with knowledge. Mechem on Agency, p. 721. The words 
 "acquired while a partner or then present to his mind" effect the result de- 
 sired. 
 
 It is not clear what the present law is when "knowledge," which is not the 
 knowledge that may come from notice, has been obtained by a partner after 
 the formation of the partnership, but the partner having such "knowledge" 
 is not the one acting in the particular matter. It seems clear that in this 
 
Ch. 3) RELATIONS OP PARTNERS TO THIRD PERSONS 1303 
 
 SECTION 3.— POWERS WITH RESPECT TO PARTNER- 
 SHIP REALTY 
 
 Uniform Partnership Act, Section 10.* (1) Where title to real 
 property is in the partnership name, any partner may convey title 
 to such property by a conveyance executed in the partnership 
 name; but the partnership may recover such property imless the 
 partner's act binds the partnership under the provisions of para- 
 graph (1) of section 9, or unless such property has been conveyed 
 by the grantee or a person claiming through such grantee to a 
 holder for value without knowledge that the partner, in making the 
 conveyance, has exceeded his authority. 
 
 (2) Where title to real property is in the name of the partner- 
 ship, a conveyance executed by a partner, in his own name, passes 
 the equitable interest of the partnership, provided the act is one 
 within the authority of the partner under the provisions of para- 
 graph (1) of section 9. 
 
 (3) Where title to real property is in the name of one or more 
 but not all the partners, and the record does not disclose the right 
 of the partnership, the partners in whose name the title stands may 
 convey title to such property, but the partnership may recover 
 such property if the partners' act does not bind the partnership 
 under the provisions of paragraph (1) of section 9, unless the pur- 
 chaser or his assignee, is a holder for value, without knowledge. 
 
 (4) Where the title to real property is in the name of one or 
 more or all the partners, or in a third person in trust for the part- 
 nership, a conveyance executed by a partner in the partnership 
 name, or in his own name, passes the equitable interest of the 
 partnership, provided the act is one within the authority of the 
 partner under the provisions of paragraph (1) of section 9. 
 
 (5) Where the title to real property is in the names of all the 
 partners a conveyance executed by all the partners passes all their 
 rights in such property. 
 
 SECTION 4.— POWERS ARISING BY ESTOPPEL 
 
 Uniform Partnership Act, Section 4. (2) The law of estoppel 
 shcdl apply under this act. 
 
 (3) The law of agency shall apply under this act. 
 
 case the partnership should be charged only when the partner having "knowl- 
 edge" had reason to believe that the fact related to a matter which had some 
 ipossibility of being the subject of partnership business, and then only if 
 he was so situated that he could communicate it to the partner acting in 
 the particular matter before such partner gave binding effect to his act. 
 The words "who reasonably could and should have communicated it to the 
 acting partner" accomplish this result. 
 
 * Lewis' Note to Section 10. — The adoption of this section does away with 
 the existing uncertainty surrounding the subject of the conveyance of real 
 jproperty belonging to a partnership. 
 
1304 PARTNERSHIP " (Part 5 
 
 BANK OF MONONGAHELA VALLEY v. WESTON et al. 
 (Court of Appeals of New York, 1902. 172 N. Y. 259, 64 N. E. 946.) 
 
 William W. Weston and his two brothers were partijers under the 
 firm name of Weston Bros. The other members remained silent during 
 many years, while William made or indorsed in the firm's name many 
 notes for his individual purposes; the notes aggregating more than 
 $1,000,000. Finally the partnership was dissolved. After dissolu- 
 tion, but before any notice of dissolution was given, William indorsed, 
 in the firm name, for his individual purposes, the two notes now sued 
 upon by a bank which discounted them. One note was for $6,500, and 
 the other for $5,000. Prom a judgment in favor of the defendants, 
 William W. Weston's partners, the bank, plaintiff, appeals. 
 
 O'Brien, j. * * * jj- appears without any dispute, since the 
 facts were testified to by Abijah Weston himself, that for 10 years 
 prior to the indorsement of the notes in question he knew that his 
 brother who made the indorsement on these notes was using the firm 
 name for the accommodation of others by indorsing notes in the name 
 of the firm outside the partnership business. He had warned him 
 against this course of business several times, and forbid him to do it 
 any more. * * * The brother and member of the firm who was 
 thus engaged for -years in using the firm name to give credit to the pa- 
 per of parties outside the partnership business was all the time acting 
 or assuming to act as the agent of the firm. When one partner, with 
 the knowledge of the other partners, uses the firm name and indorse- 
 ment to give credit to others in matters foreign to the partnership 
 business, and this course of conduct is allowed by the other partners 
 to continue during a long series of years, the question must always 
 arise as to how far the habitual exercise of such an agency or authority, 
 originally irregular or even void, is cured by acquiescence, or made 
 binding upon the firm as such by the doctrines of negligence or estop- 
 pel; and this brings us to the exceptions taken to the charge of the 
 learned trial judge in submitting the case to the jury. 
 
 The plaintiff's counsel requested the court to charge that, when the 
 defendant became aware of the persistent and continued use of the 
 firm name by his brother outside the business of the firm, it became 
 his duty to take some public action for the protection of outside parties. 
 The court refused to charge the request, and the plaintiff's counsel ex- 
 cepted. We think that the request embodied a correct and important 
 principle applicable to the proofs in the case, and that affected the issue 
 between the parties from various directions, and should have been 
 charged. * * * The right of one partner to use the firm name rests 
 upon those rules and principles applicable to the relations of principal 
 and agent. The principal will be often bound by the act of his agent 
 in excess or abuse of his actual authority as between the principal and 
 third persons, who, believing and having the right to believe that the 
 agent was acting within and not exceeding his authority, would sus- 
 tain loss if the act was not considered that of the principal. The doc- 
 trine is established to prevent fraud, and proceeds also upon the ground 
 that, when one of two innocent persons must suffer from the act of a 
 third person, he shall sustain the loss who has enabled the third person 
 to do the injury. * * * When a partnership firm, having knowledge 
 of the continued and persistent conduct of one of its members in lend- 
 
Ch. 3) RELATIONS OP PARTNERS TO THIRD PERSONS 1305 
 
 ing the credit of the firm to others by means of accommodation pa- 
 per, neglects to promptly and actively condemn the unauthorized act, 
 and to_ seek judicial redress after knowledge of the committal of it, 
 that will be deemed an acquiescence in it, and, if innocent third persons 
 have been led thereby to put themselves in a position from which they 
 cannot be taken without loss, if the act were held invalid, the other 
 partners will be estopped from questioning it. * * * 
 Judgment reversed. 
 
 SECTION 5.— LIABILITY OF PARTNERS, WHEN JOINT 
 OR JOINT AND SEVERAL 
 
 Uniform Partnership Act, Section 15. All partners are liable: 
 (b) Jointly for all debts and obligations of the partnership; but 
 any partner may enter into a separate obligation to perform a 
 partnership contract.* 
 
 hewis' "Note to Section 15 (h). — The actual condition of the American 
 statute law affecting the nature of partnership liability is as follows: 
 
 In the following states, by specific declaration of statutes, all partnership 
 liability is made both joint and several: Mississippi, Missouri, New Mexico, 
 Alabama, Maryland, West Virginia, Iowa, Kansas, Minnesota, North Caro- 
 lina, and Arkansas. In some of these states the liability is merely "deem- 
 ed to be joint and several for the purposes of suit." In some of the states 
 referred to the statutes are general — that is, they include all joint liability 
 ^while in others there is the general statement, followed by specific enumera- 
 tion of partnership liability. But in all the states referred to the statutes 
 taken as a whole, effect, not only partnership liability, but also all joint 
 liability. 
 
 In Illinois the court refused to interpret a general statute making all 
 liability joint and several so as to include partnership liability, Fleming v. 
 Ross, 225 111. 149, 80 N. B. 02, S Ann. Cas. 314 (1907) ; also the courts of 
 Colorado, Erskine v. RusseU, 43 Colo. 453, 96 Pao. 219 (1908). In New York, 
 though the statute apparently made partners liable jointly and severally, the 
 court refused so to interpret the act. Seligman v. Friedlander, 138 App. Div. 
 784, 123 N. Y. Supp. 583 (1910). 
 
 In Texas, Oklahoma, Montana, Pennsylvania, New York, Colorado, Illi- 
 nois, North Dakota, South Dakota, Ohio, Massachusetts, New Jersey, Geor- 
 gia, Vermont, Virginia, Rhode Island, Kentucky, Michigan, Maine, Connec- 
 ticut, Idaho, and Indiana, partnership liability is joint. In many of these 
 states, however, the results of joint liability, as known to the common law, 
 have been modified by statute and decision. The extent of the modification 
 varies. In some each partner must be sued severally, or all jointly ; an elec- 
 tion being required. In some the partnership may be sued in the partnership 
 name, and thereafter the partners separately until satisfaction is had. In 
 all the estate of the deceased partner is subject to liability, but in some 
 only after action first had agaiilst the survivors; in others, proof of no 
 partnership property must first be made; in others, proceedings may be 
 first had against the estate. 
 
 The purpose of the statutes in those states which have made the liability 
 joint and several was to effect certain procedural results, rather than to 
 affect the substantive law. Where, therefore, a state has already declared 
 the liability to be joint and several, then the principle of uniformity wo%ild 
 not be affected by that state so altering this paragraph as to make the lia- 
 bility joint and several, as- this change would affect only the procedural law 
 and this act is one to make uniform the substantive law of partnership. 
 
1306 PARTNERSHIP (Part 5 
 
 MASON V. ELDRED et al. 
 
 (Supreme Court of the United States, 1867. 6 Wall. 231, 18 L. Ed. 783.) 
 
 On certificate of division between the judges of the Circuit Court 
 of Wisconsin. The plaintiff, Mason, sued in the Circuit Court for 
 Wisconsin Anson Eldred, Elisha Eldred, and one Balcom, trading 
 as partners, upon a partnership note of theirs. Process was served 
 on Anson Eldred alone, who alone appeared and pleaded non assump- 
 sit. On the trial, the note being put in evidence by the plaintiff, El- 
 dred offered the record of a judgment in one of the state courts of 
 Michigan, showing that Mason had already brought suit in that court 
 on the same note against the partnership, where, though Elisha Eldred 
 was alone served and alone appeared, judgment in form had been pass- 
 ed against all the defendants for the full amount due upon the note. 
 The evidence being objected to by the plaintiff, because not admissible 
 under the pleadings, and because it appeared on the face of the rec- 
 ord that there was no judgment against either of the defendants nam- 
 ed, except Elisha Eldred, who alone, as appeared also, was served or 
 appeared, and because it was insufficient to bar the plaintiff's action, 
 the question whether it was evidence under the issue in bar of, and 
 to defeat, recovery against Anson Eldred, was certified to, this cotirt 
 for decision as one on which the judges of the Circuit Court were 
 opposed. 
 
 Field, J. The counsel of the plaintiff suggests that the question 
 presented lay the certificate of the judges of the Circuit Court is di- 
 visible into two parts: (1) Whether the record of the judgment re- 
 covered in Michigan was admissible under the pleadings; and (2) 
 whether, if admissible, the judgment constituted a bar to the present 
 action. We think, however, that the admissibility of the record de- 
 pends upon the operation of the judgment. 
 
 If the note in suit was merged in the judgment, then the judgment 
 is a bar to the action, and an exemplification of its record is admissi- 
 ble; for it has long been settled that under the pleas of the general 
 issue in assumpsit evidence may be received to show, not merely that 
 the alleged cause of action never existed, but also to show that it did 
 not subsist at the commencement of the suit. * * * q^ ^.jjg other 
 hand, if the note is not thus merged, it still forms a subsisting cause 
 of action, and the judgment is immaterial and irrelevant. 
 
 The question, then, for determination, relates to the operation of 
 the judgment upon the note in suit. 
 
 The plaintiff contends that a copartnership note is the several ob- 
 ligation of each copartner, as well as the joint obligation of all, and 
 that a judgment recovered upon the note against one copartner is not 
 a bar to a suit upon the same note against another copartner; and 
 the latter position is insisted upon as the rule of the common law, 
 independent of the joint debtor act of Michigan. 
 
 It is true that each copartner is bound for the entire amount due 
 on copartnership contracts, and that this obligation is so far several 
 that, if he is sued alone and does not plead the nonjoinder of his co- 
 partners a recovery may be had against him for the whole amount due 
 upon the contract and a joint judgment against the copartners may be 
 enforced against the property of. each. But this is a different thing 
 from the liability which arises from a joint and several contract. There 
 the contract contains distinct engagements, that of each contractor in- 
 
Ch. 3) RELATIONS OF PAETNEES TO THIED PBRS0N8 1307 
 
 dividually, and that of all jointly, and different remedies may be pursued 
 upon each. The contractors may be sued separately on their several 
 engagements, or together on their joint undertaking. But in copartner- 
 ships there is no such several liability of the copartners. The copart- 
 nerships are formed for joint purposes. The members undertake 
 joint enterprises, they assume joint risks, and they incur in all cases 
 joint liabilities. In all copartnership transactions this common risk 
 and liability exists. Therefore it is that in suits upon these transac- 
 tions all the copartners must be brought in, except when there is 
 some ground of personal release from liability, as infancy or a dis- 
 charge in bankruptcy; and, if not brought in, the omission may be 
 pleaded in abatement. The plea in abatement avers that the alleged 
 promises upon which the action is brought were made jointly with 
 another, and not with the defendant alone, a plea which would be 
 without meaning, if the copartnership contract was the several con- 
 tract of each copartner. 
 
 The language of Lord Mansfield in giving the judgment of the 
 King's Bench in Rice v. Shute, Burr. 2511, "that all contracts with 
 partners are joint and several, and every partner is liable to pay the 
 whole," must be read in connection with the facts of the case, and, 
 when thus read, does not warrant the conclusion that the court in- 
 tended to hold a copartnership contract the several contract of each 
 copartner, as well as the joint contract of all the copartners, in the 
 sense in which these terms are understood by the plaintiff's counsel, 
 but only that the obligation of each copartner was so far several that 
 in a suit against him judgment would pass for the whole demand, if 
 the nonjoinder of his copartners was not pleaded in abatement. 
 
 The plea itself, which, as the court decided, must be interposed in 
 such cases, is inconsistent with the hypothesis of a several liability. 
 
 For the support of the second position, that a judgment against 
 one copartner on a copartnership note does not constitute a bar to a 
 suit upon the same not against another copartner, the plaintiff relies 
 upon the case of Sheehy v. Mandeville & Jamesson, decided by this 
 court, and reported in 6 Cranch, 254, 3 L. Ed. 215. In that case the 
 plaintiff brought a suit upon a promissory note given by Jamesson 
 for a copartnership debt of himself and Mandeville. A previous suit 
 had been brought upon the same note against Jamesson alone, and 
 judgment recovered. To the second suit against the two copartners 
 the judgment in the first action was pleaded by the defendant Mande- 
 ville, and the court held that it constituted no bar to the second action, 
 and sustained a demurrer to the plea. 
 
 The decision in this case has never received the entire approbation 
 of the profession, and its correctness has been doubted and its au- 
 thority disregarded in numerous instances by the highest tribunals of 
 different states. It was elaborately reviewed by the Supreme Court 
 of New York in the case of Robertson v. Smith, 18 Johns. 459, 9 Am. 
 Dec. 227, where its reasoning was declared unsatisfactory, and a 
 judgment rendered in direct conflict with its adjudication. 
 
 In the Supreme Court of Massachusetts a ruling similar to that of 
 Robertson v. Smith was made. Ward v. Johnson, 13 Mass. 148. In 
 Wann v. McNulty, 2 Oilman, 359, 43 Am. Dec. 58, the Supreme 
 Court of lUinois commented upon the case of Sheehy v. Mandeville 
 and declined to follow it as authority. The court observed that, not- 
 withstanding the respect which it felt for the opinions of the Supreme 
 
1308 PARTNERSHIP (Part 5 
 
 Court of the United States, it was well satisfied that the rule adopted 
 by the several state courts — referring to those of New York, Massa- 
 chusetts, Maryland, and Indiana — was more consistent with the prin- 
 ciples of law and was supported by better reasons. 
 
 In Smith v. Black, 9 Serg. & R. 142, 11 Am. Dec. 686, the Supreme 
 Court of Pennsylvania held that a judgment recovered against one 
 of two partners was a bar to a subsequent suit against both, though 
 the new defendant was a dormant partner at the time of the contract 
 and was not discovered until after the judgment. "No principle," 
 said that court, "is better settled than that a judgment once rendered 
 absorbs and merges the whole cause of action, and that neither the 
 matter nor the parties can be severed, unless, indeed, where the cause 
 of action is joint and several, which, certainly, actions against part- 
 ners are not." In its opinion the court referred to Sheehy v. Mande- 
 ville, and remarked that the decision in that case, however much en- 
 titled to respect from the character of the judges who composed the 
 Supreme Court of the United States, was not of binding authority, 
 and it was disregarded. 
 
 In King v. Hoare, 13 Mees. &,W. 495, the question whether a judg- 
 ment recovered against one of two joint contractors was a bar to an 
 action against the other was presented to the Court of Exchequer 
 and was elaborately considered. The principal authorities were re- 
 viewed, and the conclusion reached that by the judgment recovered 
 the original demand had passed in rem judicatam and could not be 
 made the subject of another action. In the course of the argument the 
 case of Sheehy v. Mandeville was referred to as opposed to the con- 
 clusion reached, and the court observed that it had the greatest re- 
 spect for any decision of Chief Justice Marshall, but that the reason- 
 ing attributed to him in the report of that case was not satisfactory. 
 Mr. Justice Story, in Traftori v. United States, 3 Story, 651, Fed. Cas. 
 No. 14,135, refers to this case in the Exchequer, and to that of Sheehy 
 V. Mandeville, and observes that in the first case the Court of Ex- 
 chequer pronounced what seemed to him a very sound and satisfactory 
 judgment, and as to the decision in the latter case that he had for 
 years entertained great doubts of its propriety. 
 
 The general doctrine maintained in England and the United States 
 may be briefly stated. A judgment against one upon a joint contract 
 of several persons bars an action against the others, though the latter 
 were dormant partners of the defendant in the original action, and 
 this fact was unknown to the plaintiff when that action was -com- 
 menced. When tf]e contract is joint, and not joint and several, the 
 entire cause of action is merged in the judgment. The joint liability 
 of the parties not sued with those against whom the judgment is re- 
 covered being extinguished, their entire liability is gone. They can- 
 not be sued 'separately, for they have incurred no several obligation. 
 They cannot be sued jointly with the others, because judgment has 
 been already recovered against the latter, who would otherwise be sub- 
 jected to two suits for the same cause. 
 
 K, therefore, the common-law rule were to govern the decision of 
 this case, we should feel obliged, notwithstanding Sheehy v. Mande- 
 ville, to hold that the promissory note was merged in the judgment of 
 the court of Michigan, and that the judgment would be a bar to the 
 present action. But by a statute of that state (2 Comp. I^ws Mich. 
 1857, p. 1219, c. 133), the rule of the common law is changed with 
 
Ch. 3) RELATIONS OF PARTNERS TO THIRD PERSONS 1309 
 
 respect to judgments upon demands of joint debtors, when some only 
 of the parties are served with process. The statute enacts that "in 
 actions against two or more persons jointly indebted upon any joint 
 obligation, contract, or liability, if the process against all of the 
 defendants shall have been duly served upon either of them, the de- 
 fendant so served shall answer to the plaintiff, and in such case the 
 judgment, if rendered in favor of the plaintiff, shall be against all the 
 defendants in the same manner as if all had been served with pro- 
 cess," and that "such judghnent shall be conclusive evidence of the lia- 
 bilities of the defendant whp was served with process in the suit, or, 
 who appeared therein, but against every other defendant it shall be 
 evidence only of the extent of the plaintiff's demand, after the liability 
 of such defendant shall have been established by other evidence." 
 
 Judgments in cases of this kind against the parties not served with 
 process, or who do not appear therein, have no binding force upon 
 them personally. The principal is as old as the law, and is of uni- 
 versal justice, that no one shall be personally bound until he has had 
 his day in court, which means until citation is issued to him, and op- 
 portunity to be heard is afforded. D'Arcy v. Ketchum, 1 How. 165, 
 13 L. Ed. 648. Nor is the demand against the parties not sued merged 
 in the judgment against the party brought into court. The statute 
 declares what the effect of the judgment against him shall be with 
 respect to them. It shall only be evidence of the extent of the plain- 
 tiff's demand after their liability is by other evidence established. It 
 is entirely within the power of the state to limit the operation of the 
 judgment thus recovered. The state can as well modify the conse- 
 quences of a judgment in respect to its effect as a merger and ex- 
 tinguishment of the original demand as it can modify the operation 
 of the judgment in any other particular. 
 
 A similar statute exists in the state of New York, and the highest 
 tribunals of New York and Michigan, in construing these statutes, 
 have held, notwithstanding the special proceedings which they au- 
 thorize against the parties not served to bring them afterward before 
 the court, if found within the state, that such parties may be sued 
 upon the briginal demand. * * * 
 
 Following these authorities, and giving the judgment recovered in 
 Michigan the same effect and opieration that it would have in that 
 state, we answer the question presented in the certificate that the ex- 
 emplification of the record of the judgment recovered against the 
 defendant Elisha Eldred, offered by the defendant Anson Eldred, 
 is not admissible in evidence in bar of, and to defeat, a recovery 
 against the latter. 
 
 STOUT V. BAKER^ Sherifie. 
 (Supreme Court of Kansas, 1884. 32 Kan. 113, 4 Pac. 141.) 
 
 HuRD, J. Devier & Blackburn recovered a judgment in the district 
 court of Kingman county, on the twenty-third day of October, 1882, 
 against Stout & Wingert, by their partnership name, for $90.74, and 
 costs of suit. Execution was issued on this judgment to the defend- 
 ant in error, as sheriff of Kingman county, under which he levied on 
 and took into his possession the buggy in controversy in this suit. 
 The plaintiff in error commenced suit in a justice's court, filed his 
 affidavit and bond for a delivery of the buggy to him, and the justice 
 
1310 PARTNERSHIP (Part 5 
 
 issued the proper process, and, by virtue thereof, the buggy was taken 
 ' from the defendant and delivered to the plaintiff. The bill of par- 
 ticulars in this suit in the justice's court states that S. S. Baker, sher- 
 iff, "on the thirteenth day of March, 1883, did levy on a certain phae- 
 ton, buggy, or wagon, as the property of Stout & Wingert, according 
 to an execution, * * * but is the individual and private property of 
 the plaintiff herein, and that said buggy or wagon is exempt from levy 
 on execution or writ of attachment, and that the plaintiff has been 
 damaged in the premises to the amount of' ten dollars, for which he 
 prays, judgment." On the trial the justice of the peace rendered judg- 
 ment in favor of the plaintiff for the possession of the buggy and costs 
 of suit. The defendant appealed from the judgment to the district 
 court of Kingman county. At the April term of the said district court 
 the cause was tried by the court without a jury, and the court made 
 general findings in these words: "The court, after hearing the evi- 
 dence and argument of counsel, does find that the right of property 
 and of possession thereof, as set out in the plaintiff's petition, was in 
 the defendant at the commencement of the action, and that the value 
 thereof was one hundred dollars" — and then rendered judgment on 
 these findings against the plaintiff for the return of the property in 
 dispute to the defendant, and, if return cannot be had, then for its 
 value in the sum of $100, and costs. The plaintiff filed his motion 
 for a new trial, which was overruled, and he made his case for this 
 court and brings the cause here by petition in error. He brings up 
 a record of all the evidence and proceedings in the cause. * * * 
 
 The second objection is that, under the judgment and execution 
 against Stout & Wingert as partners, the individual property of the 
 plaintiff in error could not be legally seized. We doubt whether this 
 question can properly arise under the evidence. * * * Assuming 
 that the second point can be and is properly raised, we need only say, 
 in answer to it, that the record shows that the summons in the suit 
 was served on both defendants, and that the return of the service 
 shows the full names of each, and the plaintiff by his full name was 
 one of the defendants served. Both defendants appeared in the suit 
 in the district court. By such service and appearance both t)f the de- 
 fendants are individually as well as partners bound by the judgment. 
 * * * These defendants were jointly and severally liable on this 
 judgment, (section 4, c. 21, Comp. Laws, 1879,) and we think an exe- 
 cution on it might be legally levied upon the partnership property of 
 both or the individual property of either. * * * 
 
 We find no error in the rulings of the court, ahd the judgnient is 
 affirmed. 
 
 Uniform Partnership Act, Section 15. (a) All partners are li- 
 able jointly and severally for everything chargeable to the partner- 
 ship under sections 13 and 14. 
 
 Section 13. Where, by any wrongful act or omission of any 
 partner acting in the ordinary course of the business of the part- 
 nership, or with the authority of his co-partners, loss or injury is 
 caused to any person, not being a partner in the partnership, or 
 any penalty is incurred, the partnership is liable therefor, to the 
 same extent as the partner so acting or omitting to act. 
 
Ch. 3) RELATIONS OF PARTNERS TO THIRD PBKS0N8 1311 
 
 Section 14. The partnership is bound to make good the loss: 
 (a) Where one partner acting within the scope of his apparent 
 authority receives money or property of a third person and mis- 
 applies it; and (b) where the partnership in the course of its 
 business receives money or property of a third person and the mon- 
 ey or property so received is misapplied by any parties while it is 
 in the custody of the partnership. 
 
 MURPHY V. COPPIETBRS et al. 
 (Supreme Court of California, 1902. 136 Cal. 317, 68 Pac. 970.) 
 
 Gray, C. This action was brought by plaintiif for the negligent kill- 
 ing of her son by defendants, while said son was at work as a plumber 
 in the Call Building on the 30th day of September, 1897. The son 
 was at work in a certain shaft at the rear of the elevator shaft on the 
 second floor. In the same shaft, above, at about the seventeenth floor, 
 an employe of appellants named Johnson was engaged in fastening 
 an iron ladder in place by means of iron anchors, and the evidence 
 indicates that it was by Johnson dropping one of these anchors down 
 the open shaft that the son came to his death. The plaintiflE, upon 
 a trial and verdict in her favor for $2,250, had judgment for that 
 amount. The appeal is from this judgment and from an order deny- 
 ing a new trial. * * * 
 
 Nor was it necessary to bring suit against appellants as copartners ; 
 for, when a cause of action for tort exists against a copartnership, 
 the several partners may be sued individually, if so preferred. We 
 quote from Lindley on Partnership, at page 283 : "Supposing a tort 
 to be imputable to a firm, an action in respect to it may be brought 
 against all or any of the partners. If some of them only are sued, they 
 cannot insist upon the other partners being joined as defendants; and 
 this rule applies even where the tort in question is committed by an 
 agent or servant of the firm, and not otherwise by the firm itself." 
 
 The judgment and order appealed from should be affirmed. 
 
 Uniform Partnership Act, Section 13. Where, by any wrongful 
 act or omission of any partner acting in the ordinary course of the 
 business of the partnership, or with the authority of his co-part- 
 ners, loss or injury is caused to any person, not being a partner in 
 the partnership, or any penalty is incurred, the partnership is li- 
 able therefor to the same extent as the partner so acting or omit- 
 ting to act. 
 
 Section 14. The partnership is bound to make good the loss : 
 
 (a) Where one partner acting within the scope of his apparent 
 authority receives money or property of a third person and mis- 
 applies it; and 
 
 (b) Where the partnership in the course of its business receives 
 money or property of a third person and the money or property so 
 received is misapplied by any partner while it is in the custody of 
 the partnership. 
 
1312 PARTNERSHIP (Part 5 
 
 SECTION 6.— RIGHT OF A CREDITOR OF A PARTNER IN 
 
 THE PARTNER'S INDIVIDUAL CAPACITY WITH 
 
 RESPECT TO PARTNERSHIP PROPERTY 
 
 Uniform Partnership Act, Section 25. (2) (c) A partner's 
 right in specific partnership property is not subject to attachment 
 or execution, except on a claim against the partnership. * * * 
 
 Section 28. (1) On due application to a competent court by 
 any judgment creditor of a partner, the court which entered the 
 judgment, order, or decree, or any other court, may charge the in- 
 terest of the debtor partner with payment of the unsatisfied amount 
 of such judgment debt with interest thereon; and may then or 
 later appoint a receiver of his share of the profits, and of any other 
 money due or to fall due to him in respect of the partnership, 
 and make alL other orders, directions, accounts and inquiries which 
 the debtor partner might have made, or which the circumstances 
 of the case may require. * * * 6 
 
 Section 32. (2) On application by or for a partner the court 
 shall decree a dissolution on the application of the purchaser of a 
 partner's interest in sections 28 or 29 : (a) After the termination 
 of the specified term or particular undertaking ; (b) at any time if 
 the partnership was a partnership at will when the interest was 
 assigned or when the charging order was issued. 
 
 JOHNSON V. WINGFIELD et al. 
 
 (Court of Chancery Appeals of Tennessee, 1S97. 42 S. W. 203.) 
 
 Barton, J. This cause is before us on bill and demurrer. The de- 
 murrer was sustained, and the bill dismissed. Complainant appealed, 
 and assigns errors. The main question presented in the case is whether 
 iti this state specific property belonging to the firm is subject to levy 
 for the individual debt of one of the members of the firm. The case 
 made in the bill substantially is as follows: The complainant shows 
 and avers that he had obtained before a justice of the peace in Hamil- 
 ton county two judgments against the defendant Wingfield, on which 
 executions had been issued and certified, in pursuance of section 3786 
 of the Code of Tennessee, to Hamblen county, where executions had 
 been issued, which were placed in the hands of a constable, and by him, 
 on the 2d day of January, 1896, levied on the interest of Nisbet Wing- 
 field in a lot of iron pipe and other material, the property of the firm 
 of J. N. Hazelhurst & Co., a firm composed of J. N. Hazelhurst and 
 Nisbet Wingfield, in which firm, it is alleged, Hazelhurst and Wing- 
 field were equal partners. * * * The defendants filed a demurrer 
 
 e LevHs' Note to Section 28 (1). — This provision is taken from section 23 (2) 
 of the English Partnership Act. The operation of the provision has given 
 great satisfaction. The .indgment creditor does not acquire any greater 
 rights than the debtor is entitled to for his own benefit. Sutton v. English 
 & Colonial Produce Co., [1902] 2 Ch. 502 ; Howard v. Sadler, [1893] 1 Q. B. 
 1; Cooper v. Griffin, [1892] 1 Q. B. 740; Scott v. Lord Hastings, 4 K. & J. 
 6.33 (185S). 
 
Ch. 3) RELATIONS OF PARTNERS TO THIRD PERSONS 1313 
 
 and answer, the demurrer being incorporated in the answer ; the sub- 
 stance and point of demurrer being that a levy cannot be made on a 
 certain, specific part of partnership property for the individual debt 
 of one of the members of the firm, as the bill shows was done in this 
 case, and that, to reach a partner's interest in partnership property, 
 the levy must be made upon all the partnership property. The point 
 is made that the partnership owned as- an entirety the particular as- 
 sets of the partnership, and had a right to use the same in the business 
 of the partnership; that the purchaser would be required simply to 
 take the interest of the debtor partner, and would have no right to 
 maintain this bill for trover or conversion of the specific property levied 
 on. * * * As stated, the demurrer was sustained, and the bill was 
 dismissed. * * * 
 
 The main question presented has been before our Supreme Court in 
 a number of cases, and the subject seems to be surrounded by many 
 perplexities. One of the earlier and the leading case in this state on 
 the subject is that of Haskins v. Everett, 4 Sneed, 531. This was an 
 action of replevin brought by Haskins & Reynolds against James 
 Everett, to recover certain personal property belonging to the firm 
 of Haskins & Reynolds, which had been levied on bj'- an execution in 
 the hands of a constable, issued on a judgment recovered by one Brow- 
 den against Haskins for his individual debt. Judge Caruthers, in his 
 opinion, stated that the question was whether partnership property can 
 be taken in execution and sold for the private debt of one of the mem- 
 bers. The circuit judge held that it could, and gave judgment for 
 the value of the property, and also for $43, damages for the detention 
 of the property which had been taken in the action, against the com- 
 plainants, Haskins & Reynolds; and this judgment was affirmed 
 by the Supreme Court. Judge Caruthers, in his opinion, says : "What- 
 ever doubts and difficulties may have existed on this subject, the law is 
 now well settled that partnership property may be seized and the in- 
 terest of one partner sold for his individual debt. The purchaser, 
 however, only takes the interest of such judgment debtor after the 
 settlement and adjustment of the partnership accounts, and not his 
 proportion of the property sold. What that interest is cannot generally 
 be ascertained until a final adjustment and settlement of the partner- 
 ship concerns. The effect of the sale and purchase is only to place 
 the purchaser in the shoes of the partner whose interest he buys, and 
 makeTiim a tenant in common with the other partners. This is a nec- 
 essary consequence of the rule that each partner has a lien upon the 
 firm property, as well for the debts due by the firm as his own share 
 and proportion thereof. The judgment creditor or the purchaser under 
 him must take the interest sold subject to all such liens and claims. 
 To ascertain the interest sold, the purchaser or any of the other part- 
 ners may file a bill for the settlement of the partnership. The great 
 uncertainty of the value of the interest purchased (for it may be noth- 
 ing, or more or less than the amount bid) does not affect the princi- 
 ple." * * * 
 
 Referring to authorities outside of the state: The confusion and 
 perplexity in which this question is involved is not confined to our own 
 state, but is found in the annunciations of the text writers on this sub- 
 ject, and in the decisions of nearly all of the courts of last resort of the 
 United States and in England. Mr. Freeman, in his work on Exe- 
 B.& B.BUS.LAW— 83 
 
1314 PAETNEKSHip (Part 5 
 
 cutions (2d Ed. § 125), in treating of the matter, says: "It is. uni- 
 versally conceded that, except where some statutory provision to the 
 contrary has been enacted, the interest of the partner -is liable to an 
 execution for his individual debts. * * * Confessedly, a sale under 
 an execution against one partner does not divest the title of the part- 
 nership in the property. It transfers only such interest as remains in 
 the judgment debtor upon the settlement and adjustment of the affairs 
 of the partnership. As the rights of the partnership are paramount, 
 it would seem that the(y would preclude the officer serving the writ 
 from taking the property into his exclusive possession, even for the 
 purposes of levy and sale. And this view has been maintained with 
 
 freat force in several decisions pronounced in the supreme court of 
 lew Hampshire. The authorities elsewhere are almost unanimous 
 in affirming that the officer may, in levying on the interest of a partner, 
 assume exclusive possession of the chattels of the firm, and retain it 
 until the sale. It is also undoubted that the interest subject to exe- 
 cution is, at least in equity, in no respect greater than that held by the 
 defendant; that it is subject to the paramount claims against the part- 
 nership, and is in fact nothing beyond the right to demand an account- 
 ing, and to share in the surplus that may remain after all the partnership 
 obligations have been discharged. Whether the levy can be upon any 
 specific part of the goods of the firm, and whether, by the sale, the 
 purchaser acquires any interest in the property sold, beyond the right 
 to call for an accounting, are questions upon which the authorities are 
 not agreed. The earlier cases were determined when partnerships 
 were regarded as mere co-tenancies. Hence those cases, and such mod- 
 ern cases as have been controlled by them, place sales under execution 
 for the separate debt of a co-partner very much on the same ground 
 as a sale for a separate debt of a co-tenant. Therefore, according to 
 this view, an officer can, under such an execution, levy upwn a part as 
 well as upon the whole of the chattels of the firm ; and it can, by his 
 sale, transfer a moiety of the legal title, together with the right to take 
 and hold possession against the other partners, leaving them without 
 any other means of enforcing the rights of the partnership than by 
 proceedings in chancery. But the courts have gradually progressed 
 towards a realization of the true nature of partnerships, and have 
 therefore come to understand that they are materially different from 
 co-tenancies. A co-partner has no right to any specific chattel belong- 
 ing to the firm, nor has he any right as against the firm to take of hold 
 exclusive possession of any such chattel. The real ownership of all 
 the chattels is vested in the firm. The interest of each partner is mere- 
 ly a right to share in the proceeds of these chattels after all the part- 
 nership obligations have been satisfied. Upon what principle can the 
 purchaser at an execution sale be sustained in the exercise of rights 
 to which the defendant was never entitled ? Clearly, upon no principle 
 whatever. The precedents made at an early day, when the law of 
 partnership was imperfectly understood, are losing their force as 
 authorities. Their place is being supplied by a line of decisions des- 
 tined to grow in favor and in number declaring that the creditor of an 
 individual partner cannot sell any specific article, but only the partner's 
 interest in the whole of the partnership assets and that the purchaser 
 does not acquire the right to hold possession of the property purchased 
 as against the other member of the firm, but only an interest in the 
 proceeds, after the business of the firm shall have been settled. 
 
Ch. 3) RELATIONS OF PARTNERS TO THIRD PERSONS 1315 
 
 Though the right of the oiificer to seize the property of the partnership 
 tinder an execution against one of its members is conceded, it must be 
 exercised, as far as possible, in harmony with the rights of the other 
 partners, and not in hostility to them. His power to take and deliver 
 possession of the corpus of the property is merely incidental of the 
 right to reach the interest of the debtor, and is to be exercised only 
 as a means to that end. Consequently, if he exceeds that limit, and 
 undertakes to interfere with the rights of the other partners to a great- 
 er extent than is necessary to reach the interest of the debtor partner, 
 he undertakes to sell the entire property, though his act is nugatory, 
 such interference renders him liable as a trespasser ab initio." 
 
 In the same authority (section 254) it is said: " * * * *rhe ma- 
 jority of the decisions on this subject are based on the false assumption 
 that a co-partnership is a co-tenancy, and therefore sustains the offi- 
 cer in taking exclusive possession of the partnership property under a 
 writ against one member alone. * * * The minority, based on more 
 correct perceptions of the nature of- a co-partnership and the rights of 
 its respective members, will not permit a writ against one member to 
 be used to seize all the assets and to suspend the business of the firm. 
 The law with respect to the levy of a writ on a partner's interest in 
 firm property involves many perplexities, the solution of which is 
 worthy of legislative aid. To deny the right to make such a levy may 
 very seriously embarrass creditors of a debtor amply able to discharge 
 their debt ; while to admit the right may involve the co-partners, and 
 perhaps • the creditors of the firm, in very serious inconvenience and 
 substantial loss. Where the levy is permitted, its ultimate eilfect is to 
 confer on the purchaser thereunder nothing beyond the right to an 
 accounting. This is all the judgment debtor has, and therefore all he 
 can transfer, whether the transfer be voluntary or involuntary. 
 * * *" 
 
 These extracts will show into what confusion this subject has fallen 
 by reason of the early decisions in all the states, evidently based, as 
 stated by the text writers from whom we have quoted, on an erro- 
 neous conception, or, rather, a failure to recognize the true status of 
 partnership property. It is well settled everywhere that, as to partner- 
 ship property, partners are trustees of the partnership, as to each 
 other, and the advantages derived from it inure to the benefit of the 
 firm. And it is undoubtedly true that a firm or its members could, 
 by injunction, or other appropriate remedy, prevent a partner from 
 diverting partnership property to his individual use, to the damage of 
 the firm, and could prevent him from exercising rights of possession 
 and control which would be destructive of the purposes, or an injury 
 to the business, of the firm. It is also well settled, as a general rule, 
 that an execution cannot reach any higher interest in property than 
 the debtor himself has ; and yet all these decisions which justify an 
 officer in taking exclusive possession of firm property would seem to 
 ignore these just principles, which are so absolutely necessary to the 
 successful operation of partnership business. 
 
 It would seem to be a contradiction of terms and principles to hold 
 that the officer only takes and the purchaser only gets the interest 
 which a partner may have in partnership property after a firm has 
 been wound up and liquidated, and the partner's ultimate interest thus 
 ascertained, and that an officer may seize partnership property, and 
 retain exclusive possession of it until the sale, he thus being enabled 
 
1316 PARTNERSHIP (Part 5 
 
 to do what the individual partner would have no right to do. And it 
 also seems a violation of fundamental rights, and the taking of private 
 property without compensation, to hold, * * * that where a part- 
 nership has endeavored to assert its rights of possession by a replevin 
 suit as against an officer who had levied on the property for the indi- 
 vidual debt of one of its members, it would be liable for damages for 
 the use and detention of its own property. * * * j^ seems to be 
 clear that, as long as property has not been converted by a partner, and 
 is being used, or subject to be used, for the legitimate purposes of the 
 partnership, no partner has any certain or exclusive or special inter- 
 est in any specific partnership property, but it is the property of the 
 entity, the firm. How, then, can a creditor or an officer take any spe- 
 cific interest in any particular piece of property belonging to the firm 
 under such an execution, levy, and sale? * * * In other words, 
 does the levy on specific property appropriate any specific property, or 
 only the debtor's interest in the firm ? 
 
 It would seem that by far the njore sensible and enlightened method 
 of reaching a partner's interest in the firm would be by garnishment, 
 as provided by statute in Georgia; and, as said in Freem. Ex'ns, it 
 would seem to be a subject deserving of legislative attention. * * * 
 But, whatever trouble may arise from these holdings, we do not feel 
 at liberty, in this court, to depart from what we understand to be 
 well-settled principles in this state. Nor do we wish to be understood 
 as criticising the holdings of our supreme court upon this subject, 
 further than to call attention to the seeming inconsistencies that arise 
 therefrom, and which are common to all the earlier cases in almost 
 every state in the Union, as well as in England. But, for the purposes 
 of this case, we may state that the decisions in this state from which we 
 have above quoted settle the following points: (1) That partnership 
 property may be levied on by the creditor for the individual debt of a 
 member of the firm. (2) That specific property may be levied on, and it 
 is not necessary that the execution be levied upon all the property of the 
 firm. (3) That the officer may, and that in fact it is his duty to, 
 take actual possession of the property levied on, and to retain it until 
 the sale is made. (4) That the purchaser only takes the interest of 
 such judgment debtor after the settlement and adjustment of the part- 
 nership accounts. * * * (5) That, as stated by Judge Freeman in 
 Bank v. Gray, 12 Lea, 459, a levy is necessary in order to fix a lien so 
 as to authorize the filing of a bill. 
 
 These points being settled, it results, in our opinion, that the chan- 
 cellor was in error in dismissing the complainant's bill. While we think 
 that Hazelhurst had the right to use, and properly, whether by him- 
 self, or by the new firm of Hazelhurst & Co., used, the iron which had 
 been levied on, in carrying out the contract and business of the old 
 firm, still it is the logical effect of the decisions which we have quoted 
 that the creditor, Johnson, having the right to have the property levied 
 on, by the sale and purchase took whatever interest Wingfield had in 
 this property at that time, which could only be ascertained by an ac- 
 counting, and that this he has a right to do. If it shall turn out on an 
 accounting that at the time of the levy the liabilities of the firm, as 
 claimed in the answer filed with the demurrer, exceeded the assets, and 
 that the firm was insolvent, then Johnson will, of course, take nothing 
 by his purchase ; and it is also clear that Johnson's interest could not 
 exceed the value of Wingfield's share in all the partnership assets after 
 
Ch. 3) RELATIONS OP PARTNERS TO THIRD PERSONS 1317 
 
 all partnership debts were paid, and all charges against him in favor of 
 Hazelhurst.were settled. The logical result of our cases on this sub- 
 ject seems to be that the taking by the officer has practically the same 
 effect as the withdrawal and conversion of that amount of property 
 by the debtor member of the firm, subject to being compelled to re- 
 turn such an amount of the property after the exhaustion of other 
 partnership property as might be necessary to pay all partnership debts, 
 and to secure to the other partner his just share and division of the 
 partnership assets. 
 
 For these reasons the decree of the chancellor will be reversed, and 
 the cause remanded to be further proceeded with, with directions to 
 refer the cause to the master to take an account, and to ascertain and 
 report the condition of the old firm of Hazelhurst & Co. at the time 
 of the levies made, as shown in the bill ; and the complainant will be 
 entitled to a decree for the value of Wingfield's interest in the property 
 levied on, if any, on the lines indicated in this opinion. The decree 
 of the chancellor is reversed, the demurrer overruled, and the cause 
 remanded, as stated, and the defendants will pay th6 costs of the ap- 
 peal. 
 
1318 PARTNERSHIP (Part 5 
 
 CHAPTER IV 
 CAUSES OF DISSOLUTION 
 
 Bectlon 
 
 1. Nature of Dissolution in General. 
 
 2. Causes of Dissolution Not Based on Breach of the Partnership Agreement. 
 
 3. Dissolution Caused by Breach of Partnership Agreement. 
 
 4. Dissolution Caused by Business Becoming IU6gaL 
 
 5. Dissolution Effected by Court Decree. 
 
 6. Effect of Assignment of a Partner's Interest. 
 
 SECTION 1.— NATURE OF DISSOLUTION IN GENERAL 
 Uniform Partnership Act, Section 29. The dissolution of a 
 partnership is the change in the relation of the partners caused by 
 any partner ceasing to be associated in the carrying on as dis- 
 tinguished from the winding up of the business.^ 
 
 SECTION 2.— CAUSES OF DISSOLUTION NOT BASED ON 
 BREACH OF THE PARTNERSHIP AGREEMENT 
 
 Uniform Partnership Act, Section 31. (1) Dissolution is caused 
 without violation of the agreement between the partners: 
 
 (a) By the termination of the definite term or particular under- 
 taking specified in the agreement, 
 
 (b) By the express will of any partner when no definite term 
 or particular undertaking is specified, 
 
 (c) By the express will of all the partners who have not assigned 
 their interests or suffered them to be charged for their separate 
 debts, either before or after the termination of any specified term 
 or particular undertaking. 
 
 (d) By the expulsion of any partner from the business bona 
 fide in accordeuice with such power conferred by the agreement 
 between the partners. 
 
 Section 31. (4) Dissolution is caused by the death of any part- 
 ner. 
 
 (5) Dissolution is caused by the bankruptcy of any partner 
 or the partnership. 
 
 1 Lewis' Note to Section 29. — As used by the legal profession, the term 
 "dissolution" designates; not only the single act of the termination of the 
 actual conduct of the' ordinary business, but also often the series of acts 
 thereafter until the final settlement of all partnership affairs. It is also 
 frequently said that dissolution, although the word is used to designate only 
 the termination of ordinary business relations, terminates the partnership; 
 it being at the same time explained tliat the partnership thereafter continues 
 to exist for the purpose of suing and being sued in the process of ■winding 
 up partnership affairs. Certainty demands that this confusion should be re- 
 moved, if iwssible. In this act dissolution designates the point in time when 
 the partners cease to cai'ry on the business together; termination is the 
 point in time when all the partnership affairs are wound up ; winding up the 
 process of settling partnership affairs after dissolution. 
 
Ch. 4) CAUSES OP DISSOLUTION 1319 
 
 SECTION 3.— DISSOLUTION CAUSED BY BREACH O^ 
 PARTNERSHIP AGREEMENT 
 
 Uniform Partnership Act, Section 31. (2) Dissolution is caused 
 in contravention of the agreement between the partners, where 
 the circumstances do not permit a dissolution xmder any other 
 provision of this section, by the express will of any partner at any 
 time.* 
 
 SECTION 4.— DISSOLUTION CAUSED BY BUSINESS 
 BECOMING ILLEGAL 
 
 Uniform Partnership Act, Section 31. (3) Dissolution is caused 
 by any event which makes it unlawful for the business of the 
 partnership to be carried on or for the members to carry it on in 
 partnership. 
 
 SECTION 5.— DISSOLUTION EFFECTED BY COURT 
 
 DECREE 
 
 Uniform Partnership Act, Section 32. (1) On the application 
 by or for a partner the court shall decree a dissolution whenever — 
 
 (a) A partner has been declared a lunatic in any judicial pro- 
 ceeding or is shown to be of unsound mind. 
 
 (b) A partner becomes in any other way incapable of perform- 
 ing his part of the partnership contract. 
 
 (c) A partner has been guilty of such conduct as tends to affect 
 prejudicially the carrying on of the business. 
 
 2 Letcis' Note to Section SI. — Paragraph (2) will settle a matter on which 
 at present considerable confusion and uncertainty exists. The paragraph as 
 drawn allows a partner to dissolve a partnership in contravention of the 
 agreement between the partners. This is supported by the weight of au- 
 thority. Civ. Code Cal. § 2417 ; Civ. Code S. D. 1903, § 1736 ; Gen. St. Okl. 
 1908, § 4850; Civ. Code N. D. 1905, § 5848; Civ. Code Mont. 1895, § 3262 ; Civ. 
 Code, Ga. 1895, § 2633 r Skinner v. Dayton, 19 Johns. (N. Y.) 513, 537, 10 Am. 
 Dec. 286 (1822) ; Mason v. Connell, 1 Whart. (Pa.) 381, 388 (1836) ; Monroe 
 v. Conner, 15 Me. 178, 32 Am. Dec. 148 (1838); Cape Sable Co.'s Case, 3 
 Bland (Md.) 606, 674 (1S40) ; Slemmer's Appeal, 58 Pa. 168, 176, 98 Am. Dec. 
 255 (1868) ; Solomon v. Kirkwood, 55 Mich. 256, 21 N. W. 336 (ISSi) ; Carr v. 
 Hertz, 54 N. J. Eq. 127, 33 Atl. 194 (1895) ; Moore v. Price, 116 Ala. 247, 22 
 South. 531 (1896) ; Karrick v. Hannaman, 168 U. S. 328, 334, 18 Sup. Ct. 135, 
 42 L. Ed. 484 (1897) ; Lapenta v. Lettieri, 72 Conn. 377, 44 Atl. 730, 77 Am. 
 St. Rep. 315 (1899) ; Clements v. Norris, 8 Ch. Div. 129, 133 (1878). The 
 English law is opposed to this view. Lindley, 601 ; Crawshay v. Maule, 1 
 Swanst. Ch. 509 (1818); Featherstonhaugh v. Fenwick, 17 Ves. 298 (1810); 
 Peacock v. Peacock, 16 Ves. 49 (1809) ; Ferrero v. Buhlmeyer, 34 Hc^w. Prac. 
 (N. T.) 33 (1867) ; Story, § 275. 
 
 The relation of partners is one of agency. The agency is such a personal 
 one that equity cannot enforce it, even where the agreement provides that 
 the partnership shall continue for a definite time. The power of any partner 
 to terminate the relation, even though in doing so he breaks a contract, 
 should, it is submitted, be recognized. 
 
 The rights of the parties upon a dissolution in contravention of the agree- 
 ment are safeguarded by section 38 (2), infra. 
 
1320 PARTNERSHIP (Part 5 
 
 (d) A partner wilfully or persistently commits a breach of the 
 partnership agreement, or otherwise so conducts himself in mat- 
 ters relating to the partnership business that it is not reasonably 
 practicable to carry on the business in partnership with him. 
 
 (e) The business of the partnership can only be carried on at 
 a loss. 
 
 (f) Other circumstances render a dissolution, equitable. 
 Section 32. (2) The court shall decree a dissolution on the 
 
 application of the purchaser of a partner's interest imder sections 
 28 or 29 : (a) After the termination of the specified term or par- 
 ticular xmdertaking. (b) At any time if the partnership was a 
 partnership at will when the interest was assigned or when the 
 charging order was issued. 
 
 Section 28. (1) On due application to a competent court by any 
 judgment creditor of a partner, the court which entered the judg- 
 ment order or decree, or any other court, may charge the interest 
 of the debtor partner with payment of the unsatisfied amount of 
 such judgment debt with interest thereon; and may then or later 
 appoint a receiver of his share of the profits, and of any other 
 money due or to fall due to him in respect of the partnership, and 
 make all other orders, directions, accounts and inquiries which the 
 debtor partner might have made, or which the circumstances of 
 the case may require. (2) The interest charged may be redeemed 
 at any time before foreclosure, or in case of a sale being directed 
 by the court may be purchased without thereby causing a disso- 
 lution: (a) with separate property, by any one or more of the 
 partners, or (b) with partnership property, by any one or more of 
 the partners with the consent of all the partners whose interests 
 are not so charged or sold. (3) Nothing in this Act shall be held 
 to deprive a partner of his right, if any, under the exemption laws, 
 as regards his interest in the partnership. 
 
 HAVNER V. STEPHENS. 
 (Court of Appeals of Kentucky, 1900. 58 S. W. 372, 22 Ky. Law Rep. 498.) 
 
 Action by Robert Havner against John Stephens for the dissolution 
 of a partnership. Judgment for defendant, and plaintiff appeals. 
 
 BuRNAM, J. This is an appeal from a judgment of the lower court 
 sustaining a general demurrer to the plaintiff's petition, upon the 
 ground that it does not state facts sufficient to support a cause of ac- 
 tion. It is alleged, in substance, that plaintiff and defendant were con-, 
 ducting a sawmill business, as co-partners; that they were equally 
 interested in the enterprise; that each member was to be consulted 
 as to the management of the business, and to participate jointly in its 
 management ; that some tim.e after the formation of the partnership, 
 and while the business was being conducted satisfactorily, the defend- 
 ant, without right, refused to allow the plaintiff to have anything to do 
 with the management of the business, or to receive any portion of 
 its profits or earnings ; that he had taken entire control of the money, 
 accounts, and property of the firm, and converted them to his own 
 
Ch. 4) CAUSES OP DISSOLUTION 1321 
 
 use; that the defendant was insolvent — and asks a dissolution and 
 settlement of the firm's business, and that the property be sold to apply 
 to the payment of the debts, and for a division of the surplus in ac- 
 cordance with the rights of the parties. 
 
 In an action by one partner against another, seeking a dissolution 
 of the partnership and a settlement of the accounts growing out of the 
 partnership business, the essential allegations are the fact of the part- 
 nership, and the terms thereof, the rights and interests of the parties 
 therein, and the grounds for seeking dissolution. It is not necessary 
 to allege the specific indebtedness of the firm. These are matters of 
 detail, to be determined from the testimony. If, as alleged, the de- 
 fendant is insolvent, and has taken possession of the partnership's 
 property and converted the same to his own use, and refused to con- 
 sult or allow the plaintiff to participate in the management of the 
 firm's business, it is a sufficient ground to dissolve the partnership, 
 and to entitle the plaintiff to the settlement thereof. The averments 
 of the petition are sufficient, and good on demurrer. 
 
 For reasons indicated, the judgment is reversed, and the cause re- 
 manded for proceedings consistent herewith. 
 
 BOSENSTEIN v. BUBNS. 
 
 (United States Circuit Court, D. Massachusetts, 18S2. 41 Fed. 841, affirmed 
 135 U. S. 449, 10 Sup. Ct. 817, 34 L. Ed. 193.) 
 
 Nelson, J. This bill is brought to procure a dissolution and winding 
 up of the affairs of a partnership entered into between the parties un- 
 der a written agreement for the canning of fish and the manufacture 
 of pomace and fish guano, and to continue for the term of five years 
 from July 1, 1881. The copartnership agreement provides that the 
 plaintiffs shall furnish the capital with which to carry on the busi- 
 ness, and shall furnish, also, all materials at cost ; that the defendants 
 shall have charge of and superintend the manufacturing department 
 at the factory in Gloucester, keep correct books, and submit weekly 
 statements of the business to the plaintiffs, make good and market- 
 able goods, at the lowest possible cost, in such quantities as the 
 plaintiffs should deem advisable ; and that all goods made, except 
 in certain specified cases, should be shipped to the plaintiffs, and be 
 sold by them in New York. The grounds upon which the dissolu- 
 tion is asked for are the willful and persistent neglect of the defend- 
 ants to comply with the terms of the written agreement, that the busi- 
 ness is being conducted at a great loss, and that the plaintiffs were 
 induced to enter into the partnership, and contribute their capital 
 to the concern, through certain false and fraudulent representations 
 of the defendants as to the nature and extent of the business. The 
 defendants demur to the bill * * * for want of equity. * * * 
 
 The bill states a plain case for equitable relief. A partner is under 
 no obligation to continue a member of a partnership when his co- 
 partner persistently and willfully violates the essential conditions upon 
 which the contract of the partnership rests. He is not under the 
 necessity of remaining in the firm, and resorting to his action at law 
 upon the partnership contract for redress. He is at liberty to with- 
 draw himself and his capital from the concern whenever it becomes 
 reasonably certain that the business can no longer be carried on at a 
 profit, whether through the misconduct of his copartner or from a 
 
1322 PARTNERSHIP (Part 5 
 
 failure of the business itself. So, if he has been induced to enter into 
 the partnership contract through the deceit of his copartner, he 
 may withdraw whenever the fraud practiced upon him becomes known. 
 In neither case is he required to continue in the firm until the part- 
 nership expires by limitation of time, but is at liberty at once to ask 
 for a dissolution and a winding up of the affairs of the partner- 
 ship. * * * 
 
 Demurrer overruled. 
 
 CHILDERS et al. v. OTJELT. 
 
 (Supreme Court of Appeals of West Virginia, 1899. 47 W. Va. 70, 34 S. E. 828, 
 49 L. R. A. 468, 81 Am. St. Rep. 777.) 
 
 Bill by J. M. Childers and another against S. H. Neely. Judgment 
 for plaintiflfs, and defendant appeals. 
 
 Brannon, J. Childers aiid Ramey filed a bill in equity in the circuit 
 court of Tyler against Neely, praying that a partnership between 
 them be dissolved, an account taken "of all its accounts, dealings, and 
 transactions whatever," and that a manager be appointed to take 
 charge of the property. The business was oil production. * * * 
 The decrees made a partial account, decreed its balance against Neely, 
 and denied him further participation in the partnership, and he ap- 
 pealed. * * * 
 
 The bill demanded a dissolution. It showed abundant cause, and 
 the evidence shows abundant cause, of dissolution. The bill charges 
 ,that the plaintiffs and Neely made a settlement to a certain date, but 
 that they had been unable to get Neely to make a settlement since 
 then ; that he was violent and abusive, had threatened them with vio- 
 lence, and declared he would have nothing more to do with them; 
 that he would not contribute to expenses ; that bills remained unpaid ; 
 and that because of the unsatisfactory condition of the business, and 
 the "disagreements, dissensions, and disaffections between the part- 
 ners, the property and business were suffering." The evidence shows 
 these disagreements and dissensions. Thus, it was plain that the 
 business was hopeless of success and prosperity, and the interests of 
 all parties demanded absolute dissolution at the hands of the law. 
 Reconciliation, harmony, and success were utterly beyond hope. 
 * * * Therefore the court should have decreed dissolution ab- 
 solute, and directed an account of the partnership, and wound it up. 
 But it decreed no dissolution, but, on the contrary, suffered the part- 
 nership still to subsist, and, indeed, go on in the sole hands and man- 
 agement of Ramey, excluding Neely therefrom, and decreed that the 
 settlement by the commissioner should only apply to its date, leaving 
 it open to future account. The decree perpetuated the injunction, 
 forever prohibiting Neely from participation in the business, and pro- 
 vided that when he should pay $487.15 found due from him, and costs, 
 the injunction should cease. * * * 
 
 If ever there were cases which, by bill and proof, called for dissolu- 
 tion and final account, not partial, this is one. And besides the show- 
 ing of bill and proof, a petition for rehearing alleged that Ramey had 
 sold the boilers. The evidence so shows. This would charge Ramey 
 to credit of Neely. There was partnership property in Ramey's hands. 
 There could only one adequate relief be given, — dissolution, sale of the 
 property entire, and full account. But no provision was made for dis- 
 
Ch. 4) CAUSES OP DISSOLUTION 1323 
 
 solution, sale, or full account, — only a partial settlement and decree 
 against Neely for the sum found by it. The bill alleged that the prop- 
 erty could not be divided in kind. If the injunction applied to prop- 
 erty belonging to the firm, on which a lien rested for the other part- 
 ners, it would be proper to continue it until final account and decree. 
 * * * But Neely's share of the oil was his separate property. And 
 I do not see why he should, without cause, be excluded from par- 
 ticipation, letting Ramev have sole control. A receiver, impartial be- 
 tween them, was proper, under the circumstances. * * * 
 
 Therefore we dissolve the injunction, reverse the decree, overrule 
 the demurrer to the bill, and remand for further proceedings as herein 
 indicated, and further according to principles governing courts of 
 equity in such cases. 
 
 SECTION 6.— EFFECT OF ASSIGNMENT OF A PART- 
 NER'S INTEREST 
 
 Uniform Partaership Act, Section 27. (1) A conveyance by a 
 partner of his interest in the partnership does not of itself dissolve 
 the partnership, nor, as against the other partners in the absence 
 of agreement, entitle the assignee, during the continuance of the 
 partnership, to interfere in the management or administration of 
 the partnership business or affairs, or to require any information 
 or account of partnership transactions, or to inspect the partner- 
 ship books; but it merely entitles the assignee to receive in ac- 
 cordance with his contract the profits to which the assigning part- 
 ner would otherwise be entitled.* 
 
 (2) In case of a dissolution of the partnership, the assignee is 
 entitled to receive his assignor's interest and may require an ac- 
 count from the date only of the last account agreed to by all the 
 partners. 
 
 HAWOKTH V. JAOKSON. 
 (Supreme Court of Oregon, 1916. 80 Or. 132, 156 Pac. 590.) 
 
 Action by J. Brooks Haworth and another against Frank A, Jackson 
 and others. From an order dismissing the suit as to defendants Jack- 
 son and Burpee and decree dismissing it as to defendant Manning, 
 the plaintiffs appeal. 
 
 In substance, the plaintiffs declare that they and the defendant Man- 
 ning associated themselves together and purchased an auto truck con- 
 
 3 Lends' Note to Section 27 (1). — In re the subject of this paragraph, see 
 George, 153; Beale's Parsons, §§ 106, 305, 306; Story, %% 272, 377, 308; 
 Bates, §§ 158-168, 931-933 ; Lindley, 397 et seq., 620 ; Jas. Parsons, § 175 ; 
 CoUyer, 151, 161 ; Kent. 59. These authorities on the whole state that the 
 mere assignment dissolves the partnerehip. Many such assignments, how- 
 ever, are merely by way of collateral security for a loan, the assigning part- 
 ner in no wise intending to end the partnership relation. If he neglects his 
 personal relation the other partners may dissolve the partnership under 
 section 31 of this act. But the mere fact of assignment, without more, should 
 not be said in all cases to be an act of disi5olution. The change in the exist- 
 ing law follows a similar change of the English law embodied in section 31 
 of the English Partnership Act. 
 
1324 PARTNERSHIP (P^ft 5 
 
 tracting to pay $3,815 for the same. The sum of $1,975 was paid in 
 cash. The remainder was to be paid in four equal installments of $460 
 each. With this as a commencement, they formed a partnership ac- 
 cording to a certain written agreement, which recites that the title to 
 the property remained in the original owner, the Packard Company, 
 until the full purchase price should be paid. They say they carried out 
 all the stipulations of this contract, but that the defendant Manning 
 misappropriated moneys to himself belonging to the partnership, did 
 not keep full or true accounts of the moneys received from the earnings 
 of the machine, and has failed to divide the profits of the business; 
 that, although he was permitted to handle the moneys of the con- 
 cern and pay therefrom its liabilities, he allowed the last installment 
 of $460 to remain unpaid, and the plaintiffs were compelled to assume 
 the payment of the note therefor then in the hands of the defendant 
 Jackson. They charge the latter with knowledge of their interest in 
 the property, and that he, well knowing that they had both a legal and 
 equitable interest therein, "without any notice to the plaintiffs or either 
 of them, attempted to execute an alleged and pretended transfer of 
 the said auto truck to the defendant Herman S. Burpee, in order to 
 cheat and defraud the plaintiffs, without any right either in law or 
 equity so to do, and without in any way giving the plaintiffs or either 
 of them a right to pay or redeem the same, and without taking any 
 action either in law or equity seeking to enforce the ownership of the 
 said truck or the equitable lien upon said truck." They further aver 
 that they are ready, willing, and able to pay $315, principal and interest 
 thereon, which they say is the balance due on the last installment men- 
 tioned. They tender that amount into court for the benefit of Jackson 
 or the owner and holder of the purchase price note. They pray for a 
 decree dissolving the partnership between themselves and Manning; 
 that they be adjudged to be the owners of the truck subject to any 
 claim which Manning or his assignees may have in the same ; that the 
 $315 tendered be declared to be full payment of the purchase price 
 of the truck which is to be thereby freed from any lien on account there- 
 of ; and that the defendants and each of them be enjoined from claim- 
 ing any interest in the same. 
 
 Burnett, J. As between the plaintiffs and Manning, this is a suit 
 to dissolve the partnership and for an accounting concerning the affairs 
 thereof. * * * 
 
 The sale of Manning's interest to Armstrong worked out a disso- 
 lution of the partnership, and it was not necessary that the consent of 
 the plaintiffs be obtained ; "for what a man hath that also can he sell." 
 "In most jurisdictions, in this country, although not in England, a 
 partner may work a dissolution of the firm by withdrawing or selling 
 his share in the partnership or by selling the entire firm's property 
 without the consent of his copartners." 30 Cyc. 653. 
 
 This rests upon the doctrine that, while a partner may thus withdraw 
 
 from the firm, he cannot force upon his former associates a new one 
 
 without their consent. All that remains is the obligation to account 
 
 to the original partners concerning the transactions of the late firm. 
 * * * 
 
 It is so ordered. * * * 
 
Ch. 5) EFFECT OF DISSOLUTION AS TO PARTNERS 1325 
 
 CHAPTER V 
 
 EFFECT OF DISSOLUTION UPON THE RELATIONS OF 
 THE PARTNERS BETWEEN THEMSELVES 
 
 Section 
 
 1. Effect, as Between the Partners, of a Dissolution Not Caused by the Act, 
 
 Bankruptcy, or Death of a Partner. 
 
 2. Effect, as Between the Partners, of a Dissolution Caused by the Act, 
 
 Bankruptcy, or Death of a Partner. 
 
 3. Liability of a Partner to His Co-Partners for Wrongfully Causing a Dis- 
 
 solution. 
 
 4. Power of the Partners to Wind up the Partnership Affairs. 
 
 5. Eights of Partners After Dissolution with Respect to the Disposition of 
 
 Partnership Assets. 
 
 6. Relations of the Partners After Dissolution upon Their Election to Con- 
 
 tinue the Business. 
 
 7. Right of a Partner Who has Wrongfully Caused a Dissolution. 
 
 8. Right of a Partner Who has Rescinded a Partnership Contract for Fraud. 
 
 SECTION 1.— EFFECT, AS BETWEEN THE PARTNERS, 
 
 OF A DISSOLUTION NOT CAUSED BY THE ACT, 
 
 BANKRUPTCY, OR DEATH OF A PARTNER 
 
 Uniform Partnership Act, Section 30. On dissolution the part- 
 nership is not terminated, but continues until the winding up of 
 partnership affairs is completed. 
 
 Section 33. (1) (a) Except so far as may be necessary to wind 
 up partnership affairs or to complete transactions begun but not 
 then finished, dissolution terminates all authority of any partner 
 to act for the partnership, with respect to the partners, when the 
 dissolution is not by the act, bankruptcy or death of a partner. 
 
 SECTION 2.— EFFECT, AS BETWEEN THE PARTNERS, 
 
 OF A DISSOLUTION CAUSED BY THE ACT, 
 
 BANKRUPTCY, OR DEATH OF A PARTNER 
 
 Uniform Partnership Act, Section 30. On dissolution the part- 
 nership is not terminated, but continues until the winding up of 
 partnership affairs is completed. 
 
 Section 33. (1) (b) Except so far as may be necessary to 
 wind up partnership affairs or to complete transactions begun but 
 not then finished, dissolution terminates all authority of any part- 
 ner to act for the partnership, with respect to the partners, when 
 the dissolution is by such act, bankruptcy or death of a partner, 
 in cases where section 34 so requires. 
 
 Section 34. Where the dissolution is caused by the act, death 
 or bankruptcy of a partner, each partner is liable to his co^partners 
 for his share of any liability created by any partner acting for the 
 partnership as if the partnership had not been dissolved unless, 
 
1326 PAKTNEESHiP (Part $ 
 
 (a) the dissolution being by act of any partner, the partner acting 
 for the partnership had knowledge of the dissolution, or (b) the 
 dissolution being by the death or bankruptcy of a partner, the 
 partner acting for the partnership had knowledge or notice of 
 the death or bankruptcy.^ 
 
 1 Lewis? Vote to Section SJf. — This section relates only to a partner's lia- 
 bility to his co-partner, where a co-partner, after dissolution, caused by the 
 act of one of the parties or by the death or bankruptcy of a partner, makes a 
 Contract in the course of partnership business. 
 
 As worded, where the dissolution ha? been caused by the act of ofle of the 
 parties, if the partner acting is subject to a liability to third persons, he can 
 call on his co-partners to. contribute towards this liability to the same extent 
 as if there had been no dissolution, provided he had no knowledge of the 
 dissolution, at the time of the act. Mere notice, not producing knowledge, 
 would not be sufficient This provision makes certain that which is now 
 uncertain. Thus A., B., and C. are partners. A., in accordance with his right, 
 or in contravention of the agreement between the partners, declares a dis- 
 solution of the partnership. B., subsequently, makes a contract, for the part- 
 nership in ignorance of the dissolution. B. under this act would have the 
 right to call upon A. and C. to assume their share of the burden. The Com- 
 missioners believe that to relieve A. and C. of this duty to B., B. ought to 
 have more than "notice" as "notice" is defined in section 3, supra. "Notice" 
 should be, it is submitted, sufficient in all cases where the fact to be notified 
 is an ordinary business fact, as notice to third persons of the dissolution of 
 a partnership. But it is not customary for partners to dissolve a partner- 
 ship at a time not previously specified, without consultation with their co- 
 partners. Such dissolution may or may not amount to a breach of partner- 
 ship contract; but, in any event, if done without consultation, it is out of 
 the ordinary course. This fact should not deprive the partner of a right 
 to terminate a relationship which must necessarily depend on mutual good' 
 will and confidence; but if the partner so terminating wishes to show that 
 he should not be required by his partners to be liable, for his share of the 
 loss due to a partnership contract thereafter made by them, he should be 
 able to prove that they had "knowledge" that he had dissolved the partner- 
 ship at the time they made the contract. 
 
 Clause (b) makes a change in the law. Beale's Parsons, §§ 309, 310, 31S, 
 342, 343,351; Mechem, |§ 245, 258, 259, 260, 261, 266; Collver, §§ 102, 103, 
 30 Cyc. 653, 670; Story, §§ 265 et seq., 819, 334, 336; Bates, 570 et seq.; 
 Conyngton, §§ 53, 72; Burdlck, 56; Shumaker, §§ 119, 120; 3 Kent. C(^. 53. 
 At present, where the partnership is terminated by operation of law — i. e., 
 by death, bankruptcy, by being unlawful, or by decree of court — every person 
 "must take'' jiatice of such facts. This statement is made generally, and 
 Includes the partners. As to the partners, to whom only this provision re- 
 lates, the Commissioners agree that they must not expect relief if the part- 
 nership or the business is unlawful, or if they have actual knowledge or 
 notice of dissolutioD by decree of court; but the Commissioners do not be- 
 lieve that the partners do have actual knowledge or should "take notice" of 
 the death or of the bankruptcy of any one partner. In the case of the death, 
 to hold that a partner acting for the partnership bona fide, in ignorance of 
 the death of one, of his co-partners, must assume the entire liability, even 
 though all other imrtners are ignorant of the death of the partner, and 
 feven though such deceased partner was entirely inactive, and may have re- 
 sided at any distance from the actual place of business, is entirely unjust to' 
 the acting partner or partners. The rule of the common law has been modi- 
 fled as to the law of agency. Story on Agency (1882) 598; Cassiday v Mc- 
 Kenzie, 4 Watts & S. (Pa.) 282, 39 Am. Dec. 76 (1842) ; Civ. Code Cal 5 2356- 
 Rev. Code Dak. 1877, §§1150, 1151 ; Rev. Code Md. 1878, p. 388, art 44 § 31 ' 
 Saunders" Rev. Civ. Code La. 1909, § 3032 ; Gen. Stat. S. O. 1882, §' 1302- 
 Kent, Comm. 646; Mechem on Agency, § 245; Blackwood Wright '(2d Eng*^ 
 Ed.) on Principal and Agent, 332 et seq.; English Convevaucing Act (1881) § 
 47 ; English Bankruptcy Act (1883) § 38. See Lindley, 240 et seq. The Com- 
 missioners believe that the partnership law should follow ,this modification 
 
 What has been said of the death of a partner applies also to the bankrupt- 
 cy of a partner. If there are a number of partners, and one of them becomes 
 
Ch. 5) EFFECT OF DISSOLUTION AS TO PARTNERS 1327 
 
 Section 3. (1) A person has "knowledge" of a fact within the 
 meaning of this Act not only when he has actual knowledge there- 
 of, but alsb when he has knowledge of such other facts as in the 
 circumstances shows bad faith. (2) A person has "notice" of a 
 fact within the meaning of this Act when the person who claims 
 the benefit of the notice (a) states the fact to such person, or (b) 
 delivers through the mail, or by other means of communication, a 
 written statement of the fact to such person or to a proper per- 
 son at his place of business or residence. 
 
 SECTION 3.— LIABILITY OF A PARTNER TO HIS 
 
 CO-PARTNERS FOR WRONGFULLY 
 
 CAUSING A DISSOLUTION 
 
 Uniform Partnership Act, Section 38. (2) (a) (II) When dis- 
 solution is caused in contravention of the partnership agreement 
 each partner who has not caused dissolution wrongfully shall have 
 the right, as against each partner who has caused the dissolution 
 wrongfully, to damages for breach of the agreement. 
 
 FLETCHER v. REED. 
 (Supreme Judicial Court of Massachusetts, 1881. 131 Mass. 312.) 
 
 Morton, J. This is a bill in equity brought to settle the affairs of a 
 partnership. * * * 
 
 The master finds that the copartnership between the parties was 
 formed by an oral agreement, for an indefinite time, to which no ex- 
 ception is taken. A partnership for an indefinite period is in law a 
 partnership at the will of the partners, and either partner may with- 
 draw when he pleases, and dissolve the partnership, if he acts without 
 any fraudulent purpose. It follows that the master rightly ruled that 
 the defendants were not entitled to be allowed for any damages which 
 they contended were caused by the withdrawal of the plaintiff from 
 the firm. * * * 
 
 Decree for the plaintiff. 
 
 SECTION 4.— POWER OF THE PARTNERS TO WIND UP 
 THE PARTNERSHIP AFFAIRS 
 
 Uniform Partnership Act, Section 37. Unless otherwise agreed, 
 the partners who have not wrongfully dissolved the partnership or 
 the legal representative of the last surviving partner, not bank- 
 rupt, has the right to wind up the partnership affairs: Provided, 
 however, that any partner, his legal representative, or his assignee, 
 upon cause shown, may obtain winding up by the court. 
 
 Tjankrupt, and another, having no knowledge or notice of this fact, makes a 
 contract in the ordinary course of the business, there appears no reason why 
 he should not be able to call on his other partners, not bankrupt or deceased, 
 to contribute towards any loss which his separate estate may sustain on 
 account of the contract 
 
1328 PARTNERSHIP (Part 5 
 
 STEWART et al. v. ROBINSON et al. 
 
 (Court of Appeals of New York, 1889. 115 N. X. 328, 22 N. B. 160, 
 5 li. R. A. 410.) 
 
 Danforth, J. The defendants are brought before the court as trus-, 
 tees and executors of the estate of Joseph Colwell, deceased. It ap- 
 pears that Colwell, in his life-time, and one Samuel S. Hepworth, 
 carried on business as copartners under the name of S. S. Hepworth 
 & Co., for the manufacture and sale of centrifugal machines and some 
 other machinery, under articles of agreement, one of which was en- 
 tered into February 22, 1877, and provided for the continuance of the 
 partnership for five years from January 1, 1877. * * * Before 
 the expiration of the stipulated time, and on the 18th of .October, 1881, 
 a further agreement was made that the copartnership should continue 
 until dissolved by mutual consent or terminated by six months' notice 
 in writing by one party to the other, and that, "in the event of the death 
 of either, the business shall be continued by the survivor until the ex- 
 piration of five years from the 1st day of February next succeeding 
 such death ; the estate of the deceased partner to have the same share 
 and interest in the profits, and to bear the same share of the losses of 
 the business, as would have been received and borne by the deceased 
 partner had he lived : Provided, however, that if the survivor shall 
 think it necessary to employ an additional clerk in consequence of the 
 death of the depeased partner, in such case the expense shall be charged 
 to and shall be borne by the share in the profits of the deceased part- 
 ner." 
 
 The firm business was thereafter continued under these instruments 
 until the 1st day of June, 1882, when Colwell died, leaving children 
 and a will. He appointed the above-named defendants executors and 
 trustees, and gave them, in trust for his children, the greater part of 
 his estate, and directed a distribution of the whole, making no refer- 
 ence to the business of the firm of S. S. Hepworth & Co., or to it in 
 any way, or to the agreement above set out, and revoking all other 
 wills theretofore made by him. It also appeared that from the death 
 of Colwell to September, 1887, the business of S. S. Hepworth & Co. 
 was continued and carried on by Samuel S. Hepworth, he assuming to 
 do so under the agreements of February 23, 1877, and October 13, 
 1881. In the course of that business, in September or October, 1887, 
 or five years after Colwell's death, he contracted debts with the plain- 
 tiff and with other persons or firms in the name of S. S. Hepworth & 
 Co., for some of which he gave promissory notes in that name, and 
 others of which rest in account. On the 4th of October, 1887, Hep- 
 worth individually and as surviving partner was insolvent to the ex- 
 tent of about $500,000, and on that day made an assignment in both 
 capacities for the benefit of his creditors. The individual debts of 
 Colwell have been paid, and property remains in the hands of his ex- 
 ecutors. The plaintiffs, either as original creditors or by assignment, 
 are the owners of the debts contracted by Hepworth, and set out iii 
 the complaint, amounting in the aggregate to about $15,000, and they 
 seek to recover the amount from the individual estate of Colwell, and 
 in the mean time ask for the appointment of a receiver of his. prop- 
 erty, assets, and estate, and an account thereof from the defendants 
 as his representatives. 
 
Ch. 5) EFFECT OF DISSOLUTION AS TO PARTNERS 1329 
 
 Various defenses were interposed by them, but, so far as material 
 upon this appeal, their effect depends upon the single question whether 
 the general estate of Colwell was by virtue of the above agreements 
 rendered liable for debts contracted by Hepworth in the firm name, 
 after the death of Colwell. The trial court and the general term have 
 held against the plaintiffs, and the defendants had judgment accord- 
 ingly. 
 
 It is a general rule that a contract of partnership is dissolved by the 
 death of one of the parties, whether entered into for a fixed time or 
 not, and that after his death the former partner cannot bind the es- 
 tate of the decedent by new contracts, and, although the partnership be 
 expressly extended to executors, they could not be compelled to carry 
 it on, and would be entitled to a dissolution and an account of the as- 
 sets, subject to the liabilities of the firm incurred up to the time of dis- 
 solution. These are familiar and well-settled principles. Here the rep- 
 resentatives of the deceased partner were not to be partners with the 
 survivors, nor were they to have anything to do with the conduct of 
 the bttsiness or its management ; on the contrary, the business is "to be 
 continued by the survivor." We have only to inquire, therefore, wheth- 
 er the partnership agreements take the case out of the general rule. 
 The frame of the last articles shows that the parties contemplated and 
 bargained for a continuance of the business for the term of five years 
 from the 1st of February next preceding the death of either, but the 
 residue of the clause containing this stipulation depends to some ex- 
 tent for its interpretation upon the preceding or original article. The 
 second agreement refers to the first as containing the terms and con- 
 ditions on which the business is to go on; and looking there we find 
 that the capital, however represented, by money, tools, machinery, or 
 material, was not to exceed $4,000, and was to be provided by Col- 
 well and to remain his individual property. That contribution made 
 him an equal partner, and upon dissolution of the firm, was to be 
 repaid to him, with interest, before any division of surplus earnings 
 should be made. Death of a partner, however, was not -as of course 
 to work a dissolution, but the wife and children of the decedent were 
 immediately to succeed to his interest in the business, which thence- 
 forward was to be prosecuted for their benefit and that of the surviv- 
 ing partner. 
 
 We do not need to ascertain whether this clause could have any 
 effect without the assent of the parties named, for it never came into 
 operation, being suspended by that of the agreement of October 13th, 
 which provides for the continuance of the business "by the survivor," 
 and the distribution of profits or losses "to the estate of the deceased 
 partner, as would have been received and borne by him had he lived." 
 It is to be seen, therefor; that the capital invested was to remain the 
 same. It was not to exceed $4,000. It belonged to Colwell, but was 
 to continue in the business notwithstanding his death, and could not 
 be withdrawn until the expiration of five years from that event. So 
 much the surviving partner might insist upon. I do not see that he 
 could rightfully exact more, and, if he could not, how could third per- 
 sons? There is in fact no partnership, for there are no partners. 
 There is a surviving partner. Under the first article it might be said 
 that, if the wife and children assented, they would have become part- 
 ners. The executors cannot be deemed partners, for that capacity has 
 B.& B.Bus.Law— 84 
 
1330 PARTNBKSHip (Part 5 
 
 not been put upon them, nor have they assumed it directly or indi- 
 rectly by taking any part of the management of the business. They 
 knew of its continuance, and loaned Hepworth money. upon security. 
 Nothing more. A new partnership was not formed; nor can one be 
 implied. But it is said the "estate" of the deceased partner is to share 
 in profits or bear a portion of the losses. Of what? Not a partner- 
 ship, but a business conducted by a surviving partner. An estate can^ 
 not be a partner. I think the provision in the agreement means noth- 
 ing more than that the capital actually invested in the business before 
 or at the death of the partner shall continue to be so subject or Uable. 
 
 The general rule already adverted to does, upon the death of a 
 partner, terminate the power of his associate or copartner to contract 
 new debts on the credit of the firm. Assuming, with the appellant, 
 that this general result of law may be varied by an express agreement, 
 it will then depend upon the particular terms of that agreement to what 
 extent the estate of a deceased partner may be bound by the surviv- 
 ing member of the firm, "whether his estate shall be generally liable 
 for all the debts, or only to the extent of the property embraced and 
 left in the partnership to be employed by the survivors." Story, Partn. 
 201a. But it is said in Burwell v. Mandeville's Ex'rs, 2 How. 560, 
 1 1 L. Ed. 378 : Nothing, however, but the clearest and most unambig- 
 uous language, showing in the most positive manner an intention on 
 the part of the testator to render his general assets liable for debts 
 contracted after his death, will justify a court in extending the lia- 
 bility of his estate beyond the actual fund employed therein at the time 
 of his death. * * * 
 
 In the case now before us the directions or authority are such only 
 as we said in the former case would be insufficient to enable a creditor 
 to reach the general assets of an estate. They are almost literally in 
 every sense substantially the same as those actually presented by Bur- 
 well V. Mandeville's Ex'rs, supra, and in view of the decisions thus 
 referred to it would be useless to go on in this discussion as a new one, 
 or do more than call attention to the terms of the contract on which 
 appellants must succeed or fail in their contention against the decision 
 of the court below : First. The "capital" is fixed at $4,000, the sole 
 property of Colwell. Second. It is with that capital that "the business 
 of the copartnership is to be conducted." Third. The profits of the 
 business are to be divided between the parties at convenient periods. 
 Fourth. At the dissolution of the partnership -and the liquidation of its 
 business the cash capital is to be repaid before any division of surplus 
 earnings. These terms and conditions are by reference incorporated 
 into the new agreement on which the appellants rely. The second agree- 
 ment repeats the same general language. In the event of death "the busi- 
 ness" shall be continued, i. e., the business already described as em- 
 ploying a certain capital, not an additional capital ; and the profits and 
 losses of the same "business" are to be shared in the same manner as 
 if the deceased partner were alive, with only one addition ; the survivor 
 may, if he thinks necessary in consequence of his partner's death, em- 
 ploy an additional clerk; the expense of whose employment shall be 
 borne by "the share of the profits of the deceased partner." Here are 
 no words from which can be implied an intention to bring into the 
 concern other capital, or make new debts a charge upon any assets 
 outside of those already pledged to the business of the firm. It is 
 nothing more than an authority to the surviving partner to continue 
 
Ch. 5) EFFECT OP DISSOLUTION AS TO PARTNERS 1331 
 
 an existing business, and therefore within the authorities cited; and 
 upon reason and common sense the plaintiffs cannot have the relief they 
 seek in this action. 
 
 The respondents assail the validity of the agreement for any pur- 
 pose. I do not think it necessary to determine the question so raised. 
 It is enough to dispose of the present case that we find no language 
 on the part of the deceased which indicates any intention on his part 
 to put in hazard his general estate, or which by fair construction fur- 
 nishes any ground for the present action. It follows that the judg- 
 ment appealed from should be affirmed, with costs. All concur, ex- 
 cept Earl, J., Aot voting. 
 
 SECTION 5.— RIGHTS OF PARTNERS AFTER DISSO- 
 
 JLUTION WITH RESPECT TO THE EflSPOSI- 
 
 TION OF PARTNERSHIP ASSETS 
 
 Uniform Partnership Act, Section 38.* (1) When dissolution 
 is caused in any way, except in contravention of the partnership 
 agreement, each partner, as against his co-partners and all per- 
 sons claiming through them in respect of their interests in the 
 partnership, unless otherwise agreed, may have the partnership 
 property applied to discharge its liabilities, and the surplus applied 
 to pay in cash the net amount owing to the respective partners. 
 But if di^olution is caused by expulsion of a partner, bona fide 
 under the ' partnership agreement, and if the expelled partner is 
 discharged from all partnership liabilities, either by payment or 
 agreement under section 36 (2) he shall receive in cash only the 
 net amount due him from the partnership. 
 
 (2) When dissolution is caused in contravention of the part- 
 nership agreement each partner who has not caused dissolution 
 wrongfully shall have all the rights specified in paragraph (1) of 
 this section. 
 
 SECTION 6.— RELATIONS OP THE PARTNERS AFTER 
 DISSOLUTION UPON THEIR ELECTION TO 
 CONTINUE THE BUSINESS 
 Uniform Partnership Act, Section 38. (2) (b) When dissolu- 
 tion is caused in contravention of the partnership agreement, the 
 partners who have not caused the dissolution wrongfully, if they 
 all desire to continue the business in the same name, either by 
 themselves or jointly with others, may do so, during the agreed 
 term for the partnership and -for that purpose may possess the 
 partnership property, provided they secure the payment by bond 
 approved by the court, or pay to any partner who has caused the 
 
 ■i Lewis' Note to BectUm S8.— The right given to each partner, where no 
 agreement to the contrary has been made, to have his share of the surplus 
 paid to him In cash, makes certain an existing uncertainty. At present it is 
 not certain vphether a partner may or may not insist on a physical partition 
 itf the property remaining after third persons have been paid. 
 
1332 PARTNERSHIP (Part 5 
 
 dissolution wrongfully, the value of his interest in the partnership 
 at the dissolution, less any damages recoverable under clause 
 (2a II) of this section, and in like manner indemnify him against 
 all present or future partnership liabilities. 
 
 Section 38. (2) (c) (II) If the business is continued under 
 paragraph (2b) of this section, a partner who has caused the dis- 
 solution wrongfully shall have the right as against his co-partners 
 and all claiming through them in respect of their interests in the 
 partnership, to have the value of his interest in the partnership, 
 less any damages caused to his co-partners by the dissolution, as- 
 certained and paid to him in cash, or the payment secured by bond 
 approved by the court, and to be released from all existing lia- 
 bilities of the partnership ; but in ascertaining the value of the 
 partner's interest the value of the good will of the business shall 
 not be considered. 
 
 Section 23. (1) When a partnership for a fixed term or par- 
 ticular undertaking is continued after the termination of such term 
 or particular undertaking without any express agreement, the 
 rights and duties of the partners remain the same as they were 
 at such termination, so far as is consistent with a partnership at 
 will. 
 
 Section 23. (2) A continuation of the business by the partners 
 or such of them .as habitually acted therein during the term, with- 
 out anv settlement or liquidation of the partnership affairs, is 
 prima facie evidence of a continuation of the partnership. 
 
 SECTION 7.— RIGHT OF A PARTNER WHO HAS WRONG- 
 FULLY CAUSED A DISSOLUTION 
 
 The rights of a partner who has wrongfully caused a dissolu- 
 tion, in the event, of a continuance of the partnership, were re- 
 ferred to in the preceding section. When the business is not con- 
 tinued, the following sections govern the rights of the partner who 
 wrongfully caused the dissolution: 
 
 Uniform Partnership Act, Section 38. (2) (c) (I) If the busi- 
 ness is not continued under the provisions of paragraph (2b) a 
 partner who has caused the dissolution wrongfully shall have all 
 the rights of a partner under paragraph (1) subject to clause 
 (2a II) of this section. 
 
 Paragraph (1) and clause (2a II) are as follows: 
 
 Section 38. (1) When dissolution is caused in any way 
 * * * each partner, as against his co-partners and all persons 
 claiming through them in respect of their interests in the partner- 
 ship, unless otherwise agreed, may have the partnership property 
 applied to discharge its liabilities, and the surplus applied to pay 
 in cash the net amoiuit owing to the respective partners. But if 
 dissolution is caused by expulsion of a partner, bona fide under 
 the partnership agreement, and if the expelled partner is dis- 
 
Ch. 5) EFFECT OF DISSOLUTION AS TO PARTNERS 1333 
 
 charged from all partnership liabilities, either by payment or agree- 
 ment under section 3$ (2) he shall receive in cash only the net 
 amount due him from the partnership. 
 
 Section 36 (2) refers to discharge by novation. 
 
 Section 38. (2a II) Each partner who has not caused dissolu- 
 tion wrongfully shall have the right, as against each partner who 
 has caused the dissolution wrongfully, to damages for breach of 
 the agreement. 
 
 Section 43. The right to an account of his interest shall accrue 
 to any partner, or his legal representative, as against the winding 
 up partners or the surviving partners or the person or partner- 
 ship continuing the business, at the date of dissolution, in the ab- 
 sence of any agreement to the contrary. 
 
 SECTION 8.— RIGHT OF A PARTNER WHO HAS RE- 
 SCINDED A PARTNERSHIP CONTRACT FOR FRAUD 
 
 Uniform Partnership Aj:t, Section 39. Where a partnership con- 
 tract is rescinded on the ground of the fraud or misrepresentation 
 of one of the parties thereto, the party entitled to rescind is, with- 
 out prejudice to any other right, entitled (a) to a lien on, or right 
 of retention of, the surplus of the partnership property after sat- 
 isfying the partnership liabilities to third persons for any sum of 
 money paid by him for the purchase of an interest in the partner- 
 ship and for any capital or advances contributed by him ; emd (b) 
 to stand, after all liabilities to third persons have been satisfied, in 
 the place of the creditors of the pju-tnership for any payments 
 made by him in respect of the partnership liabilities; and (c) to 
 be indemnified by the person guilty of the fraud or making the 
 representation against all debts and liabilities of the partnership. 
 
1334 PARTNERSHIP (Part 5 
 
 CHAPTER VI 
 
 EFFECT OF DISSOLUTION UPON THE RELATIONS OF 
 THE PARTNERS TO THIRD PARTIES 
 
 Section 
 
 1. Effect, as to Third Parties, of a Dissolution upon Partnersliip Liabilities 
 
 Existing Prior to Dissolution. 
 
 2. Effect, as to Third Parties, of a Dissolution upon Transactions Subsequent 
 
 to Dissolution. 
 
 3. Eights of Creditors of the Dissolved Partnership Against the Individuals 
 
 or Partnersliip Continuing the Business. 
 
 4. Priorities Among Claimants in the Settlement of a Partnership Estate. 
 
 SECTION 1.— EFFECT, AS TO THIRD PARTIES, OF A 
 DISSOLUTION UPON PARTNERSHIP LIABILI- 
 TIES EXISTING PRIOR TO DISSOLUTION 
 
 Uniform Partnership Act, Section 36. (1) The dissolution of 
 the partnership does not of itself discharge the existing liability 
 of any partner. 
 
 (2) A partner is discharged from any existing liability upon 
 dissolution of the partnership by an agreement to that effect be- 
 tween himself, the partnership creditor and the person or part- 
 nership continuing the business; and such agreement may be in- 
 ferred from the course of dealing between the creditor having 
 knowledge of the dissolution and the person or partnership con- 
 tinuing the business. 
 
 (3) Where a person agrees to assume the existing obligations 
 of a dissolved partnership, the partners whose obligations have 
 been assumed shall be discharged from any liability to any credi- 
 tor of the partnership who, knowing of the agreement, consents 
 to a material alteration in the nature or time of payment of such 
 obligations. 
 
 (4) The individual property of a deceased partner shall be liable 
 for all obligations of the partnership incurred while he was a part- 
 ner and subject to the prior payment of his separate debts. 
 
 WADHAMS et al. v. PAGE et al. 
 (Supreme Court of Washington, 1890. 1 Wash. 420, 25 Pac. 462.) 
 Dunbar, J. This was an action by plaintiffs and appellants to re- 
 cover a balance alleged to be due from defendants and appellees on 
 account, amounting to $203.43, with interest thereon at the rate of 
 10 per cent, per annum from the 3d day of April, A. D, 1884. Service 
 of summons was had only on defendant Joseph Green. The defendant 
 Green, for an affirmative defense, alleged that on the 23d day of Feb- 
 ruary, A. D. 1884, he and one Alfred Page were doing business under 
 the firm name of Page & Green ; that on or about the 3d day of April, 
 1884, they dissolved partnership ; that at said time there was due Wad- 
 hams & Elliott about the sum of $203 ; that the said Page continued 
 
Ch. 6) EFFECT OP DISSOLUTION AS TO THIRD PARTIES 1335 
 
 to run and manage the said business of the said partnership; that the 
 said Page was to pay the said Wadhams & Elliott the said amount due 
 said firm ; that Wadhams & Elliott were notified of said dissolution ; 
 that they accepted the said Alfred Page for the said indebtedness due 
 them from said firm of Page & Green, and transferred the account of 
 Page & Green to the said Alfred Page, and held the said Page only 
 for the said amount of indebtedness, and did then and there release 
 the defendant Green from any obligation or indebtedness due to plain- 
 tiffs by the said firm of Page & Green. The affirmative matter in de- 
 fendant's answer was denied in plaintiffs' reply. Payment of the said 
 indebtedness was also alleged in the answer, but no attempt was made 
 to prove the payment on the trial, except as stated in the affirmative 
 answer. The jury found a verdict in favor of defendants, judgment 
 was rendered in accordance therewith, and from said judgment plain- 
 tiffs appeal to this court, also alleging certain errors in the instruction 
 of the court. 
 
 While a "novation" was pleaded as an affirmative defense in this 
 action, there was no proof tending to show that Wadhams & Elliott 
 had ever, by express or implied contract, agreed to extinguish defend- 
 ant Green's liability by substituting or accepting Page as the payor of 
 the debt incurred by the partnership of Page & Green. It is true that 
 the testimony of Green showed that it was agreed between Page and 
 Green that Page should assume this debt, and that Green should be 
 discharged, and that Wadhams & Elliott were notified of the disso- 
 lution and of the agreement between Page and Green. But the promise 
 of one partner to pay the debt of another, for which he is already 
 bound, is no consideration for an agreement to release the other part- 
 ner. * * * 
 
 In order to give any weight to an agreement whereby liabilities are 
 extinguished, it is essential that all parties in interest should be par- 
 ties to the agreement. It would certainly be a loose and unjust law 
 that would allow obligations , to be thrown off or transferred at the 
 will of the obligor. Such is not the law. If one partner transfers his 
 liability to another, and the creditor does not assent to the transfer, 
 his rights are not affected. As stated by Mr. Lindley, in his excellent 
 work on Partnership, it cannot be too often repeated that, merely by 
 retiring, a partner gets rid of no liabilities as to past transactions unless 
 there is some statutory enactment applicable to his case ; and the same 
 observation applies to a total dissolution. To use the words of Mr. 
 Justice Heath : "When a partnership is dissolved, it is not dissolved 
 with regard to things past, but only with regard to things future. 
 With regard to things past the pa.rtnership continues." Indeed, so 
 improbable was the idea that a creditor would release a part of his se- 
 curity, and rely on one debtor when he before had two, without taking 
 any other security, that some of the early English courts held that 
 where a partnership had been dissolved, one member retiring and the 
 other continuing the business, and agreeing to pay the debts of the old 
 firm, where the creditors knew of the arrangement, and consented to 
 it, and transferred the debt to the new firm, and where there was strong 
 testimony outside of this fact showing that the creditors had agreed to 
 discharge the defendant, and look to the other partner, the retiring 
 partner was liable ; and the fact that no person had become liable to 
 the defendant who was not so originally was relied upon by the court 
 as showing that there was no consideration for the alleged discharge. 
 
1336 PAETNBESHip (Part 5 
 
 The most noted cases holding this doctrine were Lodge v. Dicas, 3 
 Bairn. & Aid. 611, and David v. Ellice, 5 Barn. & C. 196. But, while 
 this doctrine has been modified by the later decisions and authorities, 
 no court that we know of has gone so far as to hold that the simple 
 agreement between the partners that one of them should be discharged, 
 and notice to the creditors of said agreement, will affect the rights of 
 the creditors, or be construed as any implied promise on the part of 
 the creditor to discharge either partner. But the opposite doctrine 
 has been enunciated by many courts. * * * 
 
 The judgment is reversed, and the case remanded to the lower court, 
 with instructions to grant a new trial; and it is so ordered. * * * 
 
 MOTLEY V. WICKOFF. 
 (Supreme Court of Michigau, 1S97. 113 Mich. 231, 71 N. W. 520.) 
 
 Action by Ara E. Motley against James Wickoff. There was a 
 judgment for plaintiff, and defendant brings error. Affirmed. 
 
 MoNTGOMgRY, J. This case was determined by the circuit court 
 upon an agreed state of facts. The defendant and one Gill, as co- 
 partners, became indebted to the plaintiff in the sum of about $140. 
 In April, 1891, Wickoff retired from the firm of Wickoff & Gill, and 
 Gill, in consideration of the partnership property all being turned over 
 to him, assumed the payment of all the partnership debts. After the. 
 dissolution of the firm, and before this action was brought, the amount 
 had been reduced from $140 to $116, by payments to plaintiff made by 
 Gill. It further appears that Gill, shortly after the dissolution, stated 
 to plaintiff that he had assumed, and agreed with Wickoff to pay, all 
 the partnership indebtedness, and that to said statement plaintiff re- 
 plied, "All right ; pay as fast as you can ;" that, some time after the 
 dissolution, defendant saw the plaintiff, and stated to him that, ac- 
 cording to the terms of the dissolution between himsdf aiid Gill, Gill 
 was to pay the sum due and owing to the plaintiff, and asked plaintiff 
 if he would release him (defendant) from the indebtedness, to which 
 plaintiff replied that he would. Upon this state of facts, the case was 
 submitted to the court upon a stipulation that the plaintiff was entitled 
 to recover if the court should find that the defendant has not been re- 
 leased from the indebtedness. The court found, as matter of law, that 
 there was no consideration for the promise of the plaintiff to defend- 
 ant to release him from his liability on the partnership indebtedness, 
 and entered judgment for the amount claimed, with costs. 
 
 Defendant suggests, rather than urges, that the case is one where 
 the rule adverted to in Webber v. Alderman, 102 Mich. 639, 61 N. W. 
 57, namely, that where the surety is induced by the promise of the cred- 
 itor to forego or relinquish means of indemnity to which he might 
 otherwise have resorted, by the promise of the creditor to exonerate 
 the surety, this may work an equitable estoppel to deprive the promisor 
 of the power to retract, is applicable. But there are no facts found in 
 this case which make this rule at all pertinent. There is no finding 
 that the responsibility of Gill has in any way been changed, or that 
 defendant has changed his position in the matter because of any as- 
 surances given by plaintiff. 
 
 The case must turn upon the question of whether there was a con- 
 sideration to support the promise to look to Gill alone. The authori- 
 ties are not agreed upon the question of whether the agreement of one 
 
Ch. 6) EFFECT OP DISSOLUTION AS TO THIRD PARTIES 1337 
 
 joint debtor or co-partner to pay the debt upon which the two are 
 liable is a sufficient consideration to support a release of his co-debtor. 
 The modern English doctrine appears to be that such an undertaking 
 is a sufficient consideration, on the ground that the sole liability of one 
 of two debtors may, under many circumstances, be more beneficial 
 and convenient than the joint liability of two, and that whether it 
 was actually a benefit in each particular case will not be inquired into, 
 but that the changed relation will be held to be a sufficient considera- 
 tion. See Thompson v. Percival, 5 Barn. & Adol. 925, and L,yth v. 
 Ault, 7 Welsh., H. & G. 669. 
 
 This doctrine has also found support in this country, to the extent 
 stated in Collyer v. Moulton, 9 R. I. 90, 98 Am. Dec. 370, in which it 
 was said : "If, by a mutual arrangement between the plaintiff Collyer 
 and the two defendants, Moulton had been released from his liability 
 for the work already done, and a new promise made by Bromley, the 
 other defendant, to pay for it, this would have been a release for a 
 valuable consideration; one debt would have been substituted for the 
 other." * * * In the case of Johnson v. Emerick, 70 Mich. 215, 38 
 N. W. 223, Mr. Justice Champlin, speaking for the court, said : "Such 
 discharge from liability is based upon the express or implied assent 
 of the creditor, upon a sufficient consideration ; and a creditor, know- 
 ing of such relation, who goes on and deals with the other partners 
 with reference to the debt, may well be held to have assented to the 
 arrangement, and to have accepted the responsibility and promise of 
 the partner assuming to pay such debt. This consideration need not 
 be a money consideration. It may be the obtaining of an additional 
 security, better terms of payment, negotiable securities which the cred- 
 itor may use in his business, or any other benefit, or it may be the loss 
 of some right or disadvantage suffered by the surety through the act 
 of the creditor." 
 
 In the present case it will be noted that the transfer of the firm 
 property by defendant to Gill was not induced by any promise of plain- 
 tiff, but had occurred before any promise of release was made; nor 
 does it appear, as before stated, that the defendant lost any rights; 
 nor was any security taken or accepted by the plaintiff; nor does it 
 appear that the time for the payment of the debt was extended. Plain- 
 tiff relies upon Walstrom v. Hopkins, 103 Pa. St. 118, and Manufac- 
 turing Co. V. Jennings, 29 Kan. 657, 44 Am: Rep. 668. In the latter 
 case it was claimed that the plaintiff had due notice of the dissolution 
 of the firm, and the assumption of the liabilities by Whitney, and that 
 they accepted him for the payment of the bill of exchange. The court 
 said : "The dissolution of the partnership, the taking of all the part- 
 nership property, and the assumption of all partnership liabilities by 
 Whitney, in no manner released defendant. The alleged promise of 
 plaintiff was made after the dissolution, and not as an inducement to or 
 consideration of it. The acceptance has never been paid. * * * No 
 additional security of any kind was furnished. The acceptance was 
 not destroyed, and new paper given. The plaintiff received absolutely 
 no consideration, and, even if it did promise that it would look to 
 Whitney, such promise was entirely without consideration, and in no 
 manner discharged the defendant." In Walstrom v. Hopkins it was 
 held that a promise by a creditor of a firm to release a partner who had 
 retired from the firm, and to look to the continuing partner only, for 
 the payment of his debt, unless founded upon a legal consideration, 
 
1338 PARTNERSHIP (Part 5 
 
 is nudum pactum, and cannot be enforced. The weight of authority 
 favors the contention that the promise of the continuing partner may 
 be a sufficient consideration to support the release of the outgoing part- 
 ner. But, in the absence of such concurring or binding promise, we 
 think no well-considered case can be found, holding that the mere 
 agreement between the partners will of itself support the agreement of 
 the creditor to release the outgoing partner. Such an agreement does 
 not establish a privity between the continuing partner and the credi- 
 tor, entitling him to sue such creditor individually. It is only a pri- 
 vate executory contract, intended to regulate the rights, duties, and 
 obligations of the co-partners between themselves, consequent upon 
 a dissolution of the firm. * * * 
 
 In the present case there was not only no extension of time, no ac- 
 ceptance of the paper of the individual partner, but the stipulation does 
 not show an express agreement made to plaintiff by Gill to pay the debt. 
 The finding is that Gill stated to plaintiff that he had agreed with 
 Wickoff to pay all partnership indebtedness, and that to this the 
 plaintiff replied, "All right ; pay as fast as you can." It will be noted 
 that this was not simultaneous with the release of Wickoff, nor did it 
 in terms establish a privity between Gill and plaintiff as to the obliga- 
 tion of Gill to pay the debt individually. 
 
 We think the judgment should be affirmed. The other justices 
 concurred. 
 
 PRESTON V. GARRARX). 
 
 (Supreme Court of Georgia, 1904. 120 Ga. 689, 48 S. B. 118, 
 102 Am. St. Rep. 124.) 
 
 Action by E. H. Garrard against J. W. Preston and another. Judg- 
 ment for plaintiff, and defendant Preston brings error. 
 
 Garrard brought suit against J. W. Preston and E. M. Brown, as 
 partners, on a promissory note dated February 24, 1899, and due one 
 year after date. Preston filed a plea setting forth that the firm was 
 dissolved on December 27, 1900, all of the debts of the firm being as- 
 sumed by Brown ; that the dissolution was known to plaintiff's agent, 
 who acted for her in making the loan for which the note was given, 
 and that the fact that Brown had assumed the debts of the firm was 
 also known to this agent, who recognized Brown as the principal debt- 
 or by treating with him as such thereafter; that on June 18, 1902, 
 plaintiff, through her agent, agreed with Brown, upon a sufficient 
 consideration, that she would extend the time of payment, of the note 
 sued on to February 24, 1903 ; that this extension was granted without 
 the knowledge or consent of the defendant. The plea alleges that by 
 reason of these facts the defendant became, after the dissolution of 
 the firm, merely a surety for Brown upon the debts of the firm which 
 he has assumed to pay ; and that the extension of the time of payment 
 of the note sued on without the defendant's knowledge or consent re- 
 leased him from all liability on the debt. The court struck this plea on 
 oral motion, and the defendant excepted. 
 
 Cobb, J. It is well settled that, where a partnership is dissolved by 
 the retirement of one of the members, and the continuing partner as- 
 sumes the payment of the debts of the firm, the retiring partner as 
 between himself and his copartner, is no longer a principal debtor 'but 
 merely a surety for the latter upon the debts of the firm * * * 
 
Ch. 6) EFrECT OF DISSOLUTION AS TO THIRD PARTIES 1339 
 
 Some disagreement among the courts has arisen in fixing the rights 
 of creditors after dissolution by the retirement of one member and the 
 assumption of the debts by the other. Of course, if a creditor is a 
 party to the agreement made between the partners, he will be bound 
 by it, and must deal with the retiring partner as a surety. All are 
 agreed as to this. The difficulty has arisen in determining whether 
 mere knowledge by the creditor of the dissolution and the agree- 
 ment of the partners would require him to deal thereafter with the 
 retiring partner as a surety with reference to past transactions of the 
 firm. 
 
 The case of Oakeley v. Pasheller, 4 CI. & F. 207, a decision made 
 by the House of Lords in 1836, was supposed to have held that mere 
 knowledge of these things by the creditor would require him to treat 
 the retiring partner as a surety, and that, if he extended the time of 
 payment of his debt without the retiring partner's knowledge or con- 
 sent, he would be released. But in the case of Swire v. Redman, L. R. 
 1 Q. B. 536, Cockburn, C. J., shows very clearly that the House of 
 Lords did not, in Oakeley v. Pasheller, intend to rule as was supposed, 
 but merely to hold that the retiring partner would be released only in 
 the event the creditor consented to the arrangement between the part- 
 ners. Some American courts have followed what was supposed to be 
 the ruling in Oakeley v. Pasheller, and others have adopted the decision 
 in Swire v. Redman, which was to the effect that something more than 
 mere knowledge on the part of the creditor is required — that he must 
 expressly consent to the arrangement between the partners before he 
 will be bound by it ; and that in the absence of such consent he can 
 deal with the retiring partner as a principal debtor and as an active 
 partner so far as past transactions are concerned. 
 
 Cases like Swire v. Redman proceed on the theory that when a 
 creditor's rights once become fixed by contract no agreement on the 
 part of the other parties to the contract can affect those rights or 
 change their relation to the creditor so far as he is concerned ; that it 
 is wholly immaterial that the creditor was informed of such an agree- 
 ment ; that the partnership still continues relatively to his debt ; and 
 that any arrangement which he makes with the continuing partner 
 in behalf of the partnership will be binding on the other. 'The other 
 line of decisions holds that whenever the relationship of principal and 
 surety arises between partners after dissolution and the assumption 
 by one partner of the debts of the firm, every one having notice of 
 the dissolution and the agreement between them is bound to take no- 
 tice of the relationship which the law creates, and act accordingly; 
 that while a creditor holding an obligation of the firm may regard the 
 retiring partner as an active partner, so far as his debt is concerned, as 
 long as he does nothing to affect the status of his claim, the moment 
 he, with knowledge of the dissolution and the agreement, does any- 
 thing which would release an ordinary surety, the retiring partner 
 will be entirely released from his obligation ; that this is no hardship 
 on the creditor, because he can protect himself by granting no indul- 
 gence to the continuing partner, who has become alone the principal 
 debtor, or doing anything without the retiring partner's consent which 
 would affect the status of the claim to the prejudice of the surety part- 
 ner. * * * 
 
 Strong arguments can be made in support of either view of this ques- 
 tion, and we would experience some difficulty in determining on prin- 
 
1340 PABTNBESHiP (Part 5 
 
 ciple what the rule ought to be. Previous decisions of this court have, 
 however, settled that the rule to be followed in this state is the one 
 supposed to have been announced in Oakeley v. Pasheller. The ear- 
 liest case on the subject is that of Stone, v. Chamberlin, 20 Ga. 259. 
 It was there held that where a creditor of a partnership, with knowl- 
 edge that it had been dissolved by the retirement of one of the mem- 
 bers, took a note in renewal of another givep by the firm before the dis- 
 solution, and extended the time of payment of the original indebted- 
 ness, "Tvithout the knowledge or consent of the retiring partner, he 
 would be discharged. There was nothing to show that the renewal 
 note was expressly taken in settlement of the old indebtedness. 
 
 * * * The only effect of the new note, therefore, so far as the re- 
 tiring partner was concerned, was to extend the time of payment of 
 the old indebtedness; and this extension operated as a release of 
 the retiring partner. While the word "surety" is not used in the opin- 
 ion, the decision was evidently based on the theory that the retiring 
 partner was a surety, and as such released by the extension. This 
 came out more clearly when the case was again before this court. 
 Chamberlain v. Stone, 24 Ga. 310. There Judge Benning said : "The 
 taking of the new note by the plaintiff was at least a suspension of the 
 right to demand payment of the debt until the new note fell due ; and 
 therefore the effect was to put the debt in such a condition that Stone 
 would not 'longer have the right to pay it up immediately and demand 
 contribution from Johnson, but would have to wait till the note fell 
 due before he could pay it up and demand contribution." * * * 
 
 The Code provides that after dissolution a partner has no power 
 to renew or continue an existing liability of the partnership. Civ. 
 Code 1895, § 2659. It was accordingly held in First National Bank 
 V. Ells, 68 Ga. 192, that where a creditor, with knowledge of the dis- 
 solution, allowed one of the partners to make a payment on a draft 
 which had been accepted by the firm, and substitute a new draft in 
 its place, without the knowledge of the other partner, the latter was re- 
 leased. * * * Under these decisions mere notice of the dissolu- 
 tion and of the agreement between the partners that the continuing 
 partner was to assume the payment of the firm debts prevented the 
 plaintiff in this case from extending the time of payment of the orig- 
 inal indebtedness, without the knowledge or consent of the defend- 
 ant Preston. Notice to the creditor must, however, be actual. 
 
 * * * The extension of the time of payment, under the circum- 
 stances alleged in the plea, had the effect of releasing the defendant; 
 and the court erred in striking the plea. 
 
 Judgment reversed. * * * 
 
 SECTION 2.— EFFECT, AS TO THIRD PARTIES, OF 
 A DISSOLUTION UPON TRANSACTIONS 
 SUBSEQUENT TO DISSOLUTION 
 Uniform Partnership Act, Section 30. On dissolution the part- 
 nership is not terminated, but continues until the winding up of 
 partnership affairs is completed. 
 
 Section 33. (2) Except so far as may be necessary to wind up 
 partnership affairs or to complete transactions begun but not then 
 finished, dissolution terminates all authority of any partner to act 
 
Ch. 6) EFFECT OF DISSOLtFTION AS TO THIRD PARTIES 1341 
 
 for the partnership with respect to persons not partners as de- 
 clared in section 35. 
 
 Section 35.^ (1) After dissolution a partner can bind the part- 
 nership except as provided in paragraph (3), (a) by any act ap- 
 propriate for winding up partnership affairs or completing trans- 
 actions unfinished at dissolution, (b) by any transaction which 
 would bind the partnership if dissolution had not taken place, pro- 
 vided the other party to the transaction (I) had extended credit 
 to the partnership prior to dissolution and had no knowledge or 
 notice of the dissolution; or (II) though he had not so extended 
 credit, had nevertheless known of the partnership prior to disso- 
 lution, and, having no knowledge or notice of dissolution, the fact 
 of dissolution had not been advertised in a newspaper of general 
 circulation in the place (or in each place if more than one) at which 
 the partnership business was regularly carried on. 
 
 (2) The liability of a partner under paragraph (lb) shall be 
 satisfied out of partnership assets alone when such partner had 
 been prior to dissolution (a) unknown as a partner to the person 
 with whom the contract is made; and (b) so far unknown and 
 inactive in partnership affairs that the business reputation of the 
 partnership could not be said to have been in any degree due to 
 his connection with it. 
 
 (3) The partnership is in no case bound by any act of a partner 
 after dissolution (a) where the partnership is dissolved because it 
 is unlawful to carry on the business, unless the act is appropriate 
 for winding up partnership affairs; or (b) where the partner has 
 become a bankrupt, or (c) where the partner has no authority to 
 wind up partnership affairs, except by a transaction with one 
 who (I) had extended credit to the partnership prior to dissolu- 
 tion and had no knowledge or notice of his want of authority ; or 
 (II) had not extended credit to the partnership prior to dissolu/- 
 tion, and, having no knowledge or notice of his want of author- 
 ity, the fact of his want of authority has not been advertised in the 
 manner provided for advertising the fact of dissolution in para- 
 graph (lb II). 
 
 (4) Nothing in this section shall affect the liability under sec- 
 tion 16 of any person who after dissolution represents himself or 
 consents to another representing him as a partner in a partner- 
 ship engaged in carrying on business. 
 
 1 Lewis' 'Note to Section S5. — At present in most jurisdictions it Is doubt- 
 ful wliether "sucli tliird person" sliall have "iiad dealings with the partner- 
 ship prior to the dissolution" or \^hetheras in clause (d) as drafted these 
 dealings must have taken the form of an extension of credit. In support of 
 the provision, as written, see Beale's Parsons, § 319 ; Mechem, § 262 ; Bur- 
 dick, 57 ; 2 Bates, §§ 613, 614 ; 30 Oyc. 671 ; Civ. Code Cal. § 2453. There Is 
 also 'authority for merely requiring that such "third person" shall have 
 had dealings with the partnership. James Parsons, §§ 179, 180, 181 ; Lindley. 
 249; Pollock, 98; 3 Kent, Comm. 67; CoUyer, 163, note; Shumaker, § 121; 
 Mechem, 261, 262 ; Bates, 612, 613. 
 
 The practical impossibility of the partners knowing, by any feasible system 
 of bookkeeping, all the persons with whom they have had dealings, unless 
 credit has been extended, supports the wording adopted by the Commissioners. 
 
1342 PARTNERSHIP (Part 5 
 
 Section 3.* (1) A person has "knowledge" of a fact within the 
 meaning of this act not only when he has actual knowledge there- 
 of, but also when he has knowledge of such other facts as in the 
 circumstances shows bad faith. 
 
 (2) A person has "notice" of a fact within the meaning of this 
 act when the person who claims the benefit of the notice (a) states 
 the fact to such person, or (b) delivers through the mail, or by 
 other means of communication, a written statement of the fact to 
 such person or to a proper person at his place of business or resi- 
 dence. 
 
 2 Leivis' Note to Section 3. — The word "notice," in judicial opinions and 
 in other legal writings, is often used when "knowledge," as here defined, is 
 intended. This has led to a great deal of confusion, of which the extraor- 
 dinary expression "constructive notice" is evidence. To avoid this confusion, 
 the word "notice" as here defined designates definite things only, which, if 
 proved to have been done, enable the person doing them to assert that notice 
 has been had and claim the benefit thereof, irrespective of whether the per- 
 son charged has had knowledge or not. By adhering strictly to this con- 
 ception throughout the act, the things which a person must do in order to be 
 confident that he can claim the benefit of "notice" are made plain. 
 
 A definition of the word "knowledge" enables it to be indicated clearly 
 when "knowledge," as distinguished from "notice," must be had. 
 
 The present law in regard to that which must be done by the person who 
 desires to be in a position to claim the benefit of "notice" is in considerable 
 confusion. Under our case law, as a rule, in ordinary transactions, except 
 those which/ relate to commercial paper, no one has had "notice" until he 
 has "knowledge" ; though, of course, "notice" to an agent is notice to a 
 principal. Whether the delivery of a letter containing a "statement of a 
 fact" would or would not be suftieient, if the addressee did not read the 
 letter, is doubtful. The court might well hold that the addressee, by his 
 neglect to read the statement, was estopped from denying that he had 
 "notice." The change in the law, if it is a change, which the present section 
 as now drawn effects, is, it is submitted, in the right direction. The section 
 does not go to the extent of saying that the mere deposit of a "vnritten state- 
 ment of the fact" in the mail is enough to charge the addressee with "no- 
 tice." The addressor, by selecting the post office, telegraph, or other public 
 service corporation as the method by which the letter shall be transferred, 
 makes them his agents, not the agents of the addressee. On the other hand, 
 the section does go to the extent of declaring that, if such written statement 
 is received at the residence or place of business of the addressee in the usual 
 way, the addressor, having done all that was reasonably possible to do to 
 give the addressee "knowledge," should have the benefit of his diligence. 
 
 The section as drawn, in dealing with the character of the "statement of 
 fact," where the statement is not a verbal statement merely requires a "writ- 
 ten statement" The omission of the word "printed" is after deliberation. 
 To insert the word "printed" might raise a doubt as to the effect of the de- 
 livery of a newspaper containing a "statement of the fact." There ought to 
 be no doubt that this is an insufficient statement. Unquestionably, such de- 
 livery is not a delivery of a "written statement of the fact" ; but, on the 
 other hand if a printed or typewitten statement of the fact — as the dissolu- 
 tion of the partnership — is made on a separate card, which is inclosed in an 
 envelope and given to the addressee, there would appear to be no doubt that 
 any court would hold tliat "a written statement of the fact" had been de- 
 livered to such person. The principle is clear. Nothing should be regarded 
 as "a written statement of the fact" which is not so prepared as to cause the 
 one to whom it Is addressed, as a reasonably prudent man, to read it. Aji ex- 
 act definition of the character of the statement which is to be made is prac- 
 tically impossible; neither do we believe it to be desirable. The words em- 
 ployed, "written statement of the fact," do not preclude the statement from 
 being typewritten or printed, but they do emphasize— that which it is nec- 
 essary to emphasize— that the statement must be a separate statement of 
 the fact made to the addressee, and not a general statement, for all the world 
 to read or not, as fancy dictates. 
 
Ch. 6) EB^FECT OF DISSOLUTION AS TO THIRD PARTIES 134S 
 
 MEYEIl et al. v. KROHN et al. 
 (Supreme C!ourt of Illinois, 18S5. 114 111. 574, 2 N. E. 495.) 
 
 MuLKEY, C. J. Moses Krohn and Leopold Feiss, wholesale mer- 
 chants at Cincinnati, Ohio, doing business as partners under the firm 
 name of Krohn, Feiss & Co., brought to the June term, 1883, of the 
 Adams county circuit court an action of assumpsit against John Meyer, 
 Moses Bachrack, Solomon Hoffheimer, and Eva Hoffheimer, as part- 
 ners, lately doing business at Galesburg, Illinois, under the name and 
 style of Hoffheimer & Co. The declaration was in the usual form,, 
 containing the common counts and six special counts on bills of ex- 
 change payable to appellees, and drawn by thern upon and accepted by 
 Hoffheimer & Co. The bills were given at different times, in due course 
 of trade, for goods and merchandise sold by the plaintiffs to the de- 
 fendants. The first of these bills bears date August 12, 1879, and 
 the last, November 25th of the same year, and the whole series, interest 
 included, together with a small account, amounts, in the aggregate, tO' 
 near $1,100. The Hoffheimers made no defense. The appellants sev- 
 erally filed pleas in abatement, denying the partnership at the time 
 of making the bills of exchange, and the purchase of the goods sued 
 for. The plaintiffs traversed these pleas, and also severally replied in 
 substance that appellants, on the 1st day of January, 1878, and for two 
 jjears' prior thereto, were members of the firm of Hoffheimer & Co., 
 during which two years appellees had sold goods to said firm ; and 
 that at the time of making the said bills of exchange, etc., appellees 
 had no notice that appellants had ceased to be members of the firm 
 of Hoffheimer & Co. Appellants took issue on these replications, and 
 also severally rejoined that they were, during the said two years, as 
 between themselves, partners under the firm name of John Meyer & 
 Co.; ,and that this firm and their co-defendants composed the firm of 
 Hoffheimer & Co. ; and that the appellants were not otherwise mem- 
 bers of the latter firm. The court sustained demurrers to these rejoin- 
 ders, and the appellants stood by them. By a second rejoinder the ap- 
 pellants severally alleged that, at the time of the making of the alleged 
 promises sued on, the appellees did have notice of the withdrawal of the 
 appellants from the firm of Hoffheimer & Co., concluding to the coun- 
 try. The cause was then tried upon the issues formed as above stated, 
 resulting in a verdict and judgment in favor of plaintiffs for $1,093.21. 
 On appeal to the Appellate Court for the Third District this judgment 
 was affirmed, and the present appeal brings before us for review the 
 judgment of the latter court. * * * 
 
 As indicated by the pleadings, and as the evidence tends to show, 
 appellants were members of the firm of Hoffheimer & Co. prior to the 
 second of January, 1878, and as such members of the firm were cus- 
 tomers of appellees. On that day appellants withdrew from the firm, 
 but the business continued to be carried on by the Hoffheimers just 
 as it had been before, and, as claimed by appellees, without any notice 
 of appellants' retirement from the firm. Whether appellees had such 
 notice or not was put directly in issue by the pleading, and this was the 
 controlling one in the case. The question of fact thus put in issue has 
 been decided adversely to appellants, and this court is not permitted to 
 review it. * * * 
 
1344 PARTNERSHIP (Part 5 
 
 The evidence relating to the question of notice of appellants' with- 
 drawal from the firm is circumstantial,' and by no means conclusive. 
 That a general notice was prepared and inserted in a newspaper pub- 
 lished in Galesburg at the time of their withdrawal is conceded, and 
 that a copy of this notice was mailed at Galesburg by appellants in an 
 envelope properly addressed to appellees at Cincinnati, their place of 
 business and residence, is proven by the testimony of appellants.^ That 
 no such notice was ever received by appellees is established just as 
 clearly by their testimony. This question, with other questions of 
 facts, was properly left to the jury. If, as matter of law, in order to 
 release appellants from further responsibility, it was necessary for 
 them to prove, not only the preparing and mailing of the notice of 
 their withdrawal, but also that it was actually received by appellees, 
 then, for the purpose of supporting the judgment below, we must as- 
 sume that the jury found, as matter of fact, that the notice was never 
 received. 
 
 The important question in the case, so far as this court is concerned, 
 is whether the law is as just suggested, and this question is presented 
 by instructions both given and refused. The court, in behalf of ap- 
 pellees, instructed the jury, in substance, that although they might be- 
 lieve from the evidence that the appellants prepared and sent, in a 
 letter or envelope properly addressed, to the appellees at Cincinnati a 
 notice of their withdrawal, from the firm, yet if they further believed 
 from the evidence that appellees never received such notice, and that 
 neither they nor their lawfully authorized agents otherwise received nci- 
 tice or had knowledge of such withdrawal or dissolution of the firm, 
 then the appellants had failed to establish notice within the meaning 
 of the law. On the other hand, the court refused to instruct the jury 
 at the instance of appellants that it was sufficient for the purpose of 
 establishing notice to prove the prepaying and sending a notice in the 
 manner above stated. We have no doubt of the correctness of the 
 ruling of the court on this subject. The general rule, as we under- 
 stand it, is this : As to persons who have never had any business trans- 
 actions with the firm, notice by publication is sufficient ; but as to those 
 who have had previous dealings with it, actual notice, or its equivalent, 
 must be shown. This rule seems to be supported by an unbroken cur- 
 rent of authorities, and it is certainly promotive of justice and fair 
 dealing. To hold that the mere mailing of notices to patrons of a 
 firm is sufficient, without regard to whether they were ever received 
 or not, as is claimed by appellants, would be to establish by judicial 
 legislation a species of constructive notice hitherto unknown to the 
 law, so far as we are advised. It is doubtless true that proof of the mail- 
 ing of notices properly addressed is prima facie evidence of their hav- 
 ing been received by the party addressed. But this is a mere presump- 
 tion of fact, which may be rebutted, as was done in this case. To 
 give it the effect contended for would be to declare it a presumptio 
 juris et de jure, for which we find no authority. Moreover, it would 
 be but to invite the grossest frauds upon distant merchants who would 
 have no adequate means of protecting themselves. 
 
 We prefer to leave the question with the jury, where we understand 
 the law leaves it, unfettered and unembarrassed by any artificial rule of 
 evidence that might prevent them from finding the real truth. Per- 
 ceiving no cause for disturbing the judgment of the appellate court, 
 it will therefore be affirmed. * * * 
 
Ch. 6) EFFECT OF DISSOLUTION AS TO THIRD PARTIES 1345 
 
 SECTION 3.— RIGHTS OF CREDITORS OF THE DISSOLV- 
 ED PARTNERSHIP AGAINST THE INDIVIDUAL 
 OR PARTNERSHIP CONTINUING THE BUSINESS 
 
 Uniform Partnership Act, Section 17.* A person admitted as a 
 partner into an existing partnership is liable for all the obliga- 
 tions of the partnership arising before his admission as though he 
 had been a partner when such obligations were incurred, except 
 that this liability shall be satisfied only out of partnership prop- 
 erty. 
 
 s Lewis' Note to Section 11. — The present section eliminates the difficulty 
 which arises when a new partner is admitted without liquidation of firm 
 debts. The present theory of the common law is that a new partnership is 
 formed ; all the property of tlie partnership which existed up to the moment 
 of the entrance of the new partner being transferred to the new partner- 
 ship. The result of this theory is that, if the business fails, the creditors 
 who have extended credit after the admission of the new partner have a 
 prior claim on the assets in the business. The Inequitable character of this 
 result has led the courts, where no notice of the change of membership is had 
 by the creditors, to be diligent in finding an assumption of liability on the 
 part of the new partnership of the debts of the old partnership. 
 
 Though this section changes the formal statement of the law, which is to 
 the effect that an incoming partner is not liable for debts contracted before 
 his admission, as a matter of fact the section as worded conforms to the 
 actual decisions of the courts, which, however, are arrived at by making 
 every effort to impress an assumption of liability on the part of the new 
 partnership, formed as a result of the admission of the new partner, of the 
 debts of the old partnership. 
 
 The difficulty, which is overcome by this section as worded. Is illustrated 
 by the common case where all the property of the existing partnership Is 
 taken over, without notice of any break in the conduct of business, by the 
 new partnership, composed of all the members of the existing partnership 
 and the incoming partner, thereby depriving the existing partnership of all 
 its property. Both the existing and the subsequent creditors may believe it 
 is one and the same partnership ; but, as stated, such would not be the ease 
 under the present law. There is no peculiar equity in the subsequent cred- 
 itors, giving them a right to be preferred, as against the property employed 
 in the business, to the existing creditors. The incoming partner partakes of 
 the benefit of the partnership property and an establlsihed business. He has 
 every means of obtaining full knowledge and protecting himself, because he 
 may insist on the liquidation or settlement of existing partnership debts. 
 The creditors have no means of protecting themselves. So as to preserve the 
 present law as nearly as possible, it is declared that the liability of the in- 
 coming partner shall be satisfied only out of partnersliip property. It there- 
 fore results that existing and subsequent creditors have equal rights as 
 against partnership property and the separate property of all the previously 
 existing members of the partnership, while only the subsequent creditors have 
 rights against the separate estate of the newly admitted partner. 
 
 The section should be read in connection with section 41, infra. Both sec- 
 tions are based on the principle that, where there has been one continuous 
 business, the fact that A. has been admitted to the business, or C. ceased to 
 be connected with-it, should not be allowed to cause, as at present, endless 
 confusion as to the claims of the creditors on the property employed in the 
 business, but that all the creditors of the business, irrespective of the times 
 when they became creditors and the exact combinations of persons then own- 
 ing the business, should have equal rights in such property. The recognition 
 of this principle solves one of the most perplexing problems of present part- 
 nership law. 
 
 B.& B.BUS.LAW— 85 
 
1346 PARTNERSHIP (Part 5 
 
 Uniform Partnership Act, Section 41. (1) When any new part- 
 ner is admitted into an existing partnership, or when any partner 
 retires and assigns (or the representative of the deceased partner 
 assigns) his rights in partnership property to two or more of the 
 partners, or to one or more of the partners and one or more third 
 persons, if the business is continued without liquidation of the 
 partnership affairs, creditors of the first or dissolved patnership 
 are also creditors of the partnership so continuing the business.* 
 
 i Leids' Note to Section J/l (1). — As originally passed by the Conference, 
 paragraph 1 of section 41 read as follows: 
 
 "When any partner retires and assigns (or the representative ~of a deceased 
 partner assigns) his rights in partnership property to two or more of the -psirt- 
 ners, or to one or more of the partners and one or more third persons, who 
 continue the business without liquidation of the partnership affairs, creditors 
 of the dissolved partnership are also creditors of the partnership so continu- 
 ing the business." 
 
 It was subsequently pointed out that section 41 did not cover the situation 
 which arises when a partnership is dissolved and a new partnership formed 
 by the introduction of a new partner into the business without the liquidation 
 of the affairs of the first partnership, and that it would be best not to rely on 
 section 17, supra, to take care of the situation. The paragraph, reworded, 
 as now printed, was submitted to the Commissioners present at the last 
 Conference and they have signified their approval of the change. 
 
 The section as a whole deals primarily with the rights of creditors when 
 a new partner is admitted or a partner retires, is expelled or dies, and the 
 business is continued without liquidation of the debts of the partnership dis- 
 solved by the change in personnel. 
 
 At present the whole subject is in doubt and confusion. It is universally 
 admitted that any change in membership dissolves a partnership, and cre- 
 ates a new partnership. This section as drafted does not alter that rule. 
 Neither does it alter the rule that on any change of personnel the property 
 of the dissolved partnership becomes the property of the partnership contin- 
 uing the business. At present, however, creditors of the dissolved partner- 
 ship do not become creditors of the new partnership Thus, if A., B., and O. 
 are partners, and A. assigns to B. and C, who continue the business without 
 any agreement to pay the partnership debts, under the present law the prop- 
 erty of the first partnership becomes the property of the second partnership ; 
 but the creditors of the first partnership are not the creditors of the second 
 partnership, though they are the creditors of all the members of that part- 
 nership. Such creditors, therefore, are often unable to secure satisfaction of 
 their claims, though at the time of the assignment the partnership was sol- 
 vent, and the business may have been continued by the second partnership 
 without any notification of the change in membership. On the other hand, 
 the creditors of the second partnership may be paid in full out of the proper- 
 ty. This inequitable result the courts have attempted, in not a few instances, 
 to prevent, by declaring that the assignment of the property of the first 
 partnership to the second partnership was a fraud on the creditors of the 
 first partnership, though no fraud was intended, the result being that the 
 creditors of the second partnership are postponed until the creditors of the 
 first partnership are paid in full. 
 
 The paragraph as drawn changes the law in the case supposed, and thereby 
 does away with an injustice. In making the creditors of the first partnership 
 creditors of the second it prevents such an assignment from affecting the 
 rights of partnership creditors in the property embarked in the business. 
 
 Again, in the case supposed, if B. and C. promise to pay the debts of the 
 partnership of A., B., and C, it is uncertain whether the court will hold 
 that they promise as individuals or as a new partnership. If as individuals, 
 the old partnershp creditors are not creditors of the new partnership. If A. 
 and B. are considered as promising as a new partnership, then whetlier the 
 old partnership creditors can sue the new partnership as beneficiaries de- 
 pends on the jurisdiction. The paragraph as drawn ends this uncertainty. 
 In every ease the creditors of the first partnership become creditors of the 
 second, though, of course, they do not cease to be creditors of the* first part- 
 nership. As, however, the first partnership has assigned all its property, 
 
Ch. 6) EFFECT OF DISSOLUTION AS TO THIRD PARTIES 1347 
 
 (2) When all but one partner retire and assign (or the repre- 
 sentative of a deceased partner assigns) their rights in partnership 
 property to the remaining partner, who continues the business 
 without liquidation of partnership affairs, either alone or with 
 others, creditors of the dissolved partnership are also creditors 
 of the person or partnership so continuing the business.* 
 
 (3) When any partner retires or dies and the business of the 
 dissolved partnership is continued as set forth in paragraphs (1) 
 and (2) of this section, with the consent of the retired partners 
 or the representative of the deceased partner, but without any 
 assignment of his right in partnership property, rights of creditors 
 of the dissolved partnership and of the creditors of the person or 
 partnership continuing the business shall be as if such assignment 
 had been made.' 
 
 (4) When all the partners or their representatives assign their 
 rights in partnership property to one or more third persons who 
 promise to pay the debts Emd who continue the business of the 
 dissolved partnership, creditors of the dissolved partnership are 
 also creditors of the person or partnership continuing the busi- 
 ness.' 
 
 this is of little value to such creditors, unless the assignees have promised the 
 retiring partner an additional consideration beyond the payment of the 
 debts. The status of such additional consideration is treated in paragraph 
 (8), infra. 
 
 The paragraph as a vchole, as well as this entire section, is based on the 
 opinion that \^hen there is a continuous business carried on first by A., B.. 
 and C, and by A., B., C, and D., or by B. or 0., or by B. and C, or by 
 B. and D., or by C. and D., or by B., C, and D., without any liquidation of the 
 affair of A., B., and C, both justice and business convenience require that 
 all the creditors of the business, irrespective of the exact grouping of the 
 owners at the times their respective claims had their origin, should be treated 
 alike, all being given an equal claim on the property embarlced in the busi- 
 ness. Compare note to section 17, supra. 
 
 5 Lewi^ 'Note to Section J/l (2), — Where all the partners assign to one 
 partner, the partnership creditors are, under this paragraph, the separate 
 creditors of the partner continuing the business, where he continues the busi- 
 ness alone, whether such partner promises to pay the debts of the dissolved 
 partnerhip or not. If he takes one or more new partners, and they continue 
 the business with the property of the dissolved partnership, the creditors of 
 the dissolved partnership are the creditors of the partnerhip continuing 
 the business. This paragraph changes the present law to the same. extent 
 as paragraph (1). 
 
 e Lewis' Note to Section J^l (S). — The paragraph extends the principle of 
 the first and second paragraphs of the section to the case where the business 
 is continued by two or more of the partners, alone or with others, after the 
 retirement or death of a partner without any formal assignment to them of 
 the retired or deceased partner's rights In partnership property. The neg- 
 lect of tiie retiring partners or of the representatives of the deceased partner 
 should not, as at present, create inextricable confusion between the creditors 
 of the first and second partnership in regard to their respective rights in the 
 property employed in the business. Both classes of creditors should be ahead 
 of the claim of such retired partner or the representative of the deceased 
 partner, and both classes of creditors should also have equal rights in the 
 property. This paragraph probably effects a change in the present law, 
 though "the same result is often now brought about by implying a promise to 
 pay the debts of the dissolved partnership on the part of the person or part- 
 nership continuing the business. 
 
 T ietpt*" Note to Section U (4). — The existing law In relation to the subject- 
 matter covered by this paragraph is so uncertain that it is not possible to say 
 
1348 PARTNERSHIP (Part 5 
 
 (5) When any partner wrongfully causes a dissolution and the 
 remaining partners continue the business under the provisions of 
 section 38 (2b), either alone or with others, and without liquida- 
 tion of the partnership affairs, creditors of the dissolved partner- 
 ship are also creditors of the person or partnership continuing the 
 business. 
 
 (6) When a partner is expelled and the remaining partners con- 
 tinue the business either alone or with others, without liquidation 
 of the partnership affairs, creditors of the dissolved partnership 
 are also creditors of the person or partnership continuing the 
 business. 
 
 (7) The liability of a third person becoming a partner in the part- 
 nership continuing the business, under this section to the credi- 
 tors of the dissolved partnership shall be satisfied out of partner- 
 ship property only.* 
 
 (8) When the business of a partnership after dissolution is con- 
 tinued under any conditions set forth in this section the creditors 
 of the dissolved partnership, as against the separate creditors of 
 the retiring or deceased partner or the representative of the de- 
 ceased partner, have a prior right to any claim of the retired part- 
 ner or the representative of the deceased partner against the per- 
 son or partnership continuing the business, on account of the re- 
 tired or deceased partner's interest in the dissolved pcirtnership or 
 on account of any consideration promised for such interest or for 
 his right in partnership property.' 
 
 whether its adoption would modify the law. The paragraph does not apply 
 to the case where the third person or persons do not promise to pay the debts 
 of the dissolved partnership. In that case tlie creditors of the dissolved part- 
 nership have no claim on the partnership continuing the business, or its prop- 
 erty, unless the assignment can be set aside as a fraud on creditors, or is 
 affected by a Sales in Bulk Act. Where, however, there has been a promise to 
 pay the debts of the dissolved partnership, then the creditors of the dissolved 
 partnership are not only creditors of the promisor or promisors — which, in the 
 United States, they would bo as beneficiaries — but under this paragraph, if 
 the business of the dissolved partnership is continued by a partnership, the 
 creditors of the dissolved partnership become creditors of the partnership 
 continuing the business, npt merely the separate or joint creditors of the 
 partners in such partnership. 
 
 8 Lewis' Note to Section Jil (7). — The paragraph merely reiterates the prin- 
 ciple of section 17, supra, which is that an incoming partner should be liable 
 for the existing debts of the partnership, but that this liability should be 
 limited to his right in partnershp property. Though in cases under this sec- 
 tion the person who joins the business on the dissolution of the first part- 
 nership is not an incoming partner, because the first partnership is dissolved. 
 Under the circumstances, his liability for the debts of the business contraetai 
 before his admission should be the same as that of an incoming partner, if 
 confusion Is to be avoided in respect to the rights in the property employed 
 in the business, between the creditors who were creditors before he joined the 
 business and those who became creditors afterwards. 
 
 9 Leiois' Note to Section J,l fS;.— Suppose A., B., and C. are partners and A. 
 retires, assigning his interest to B. and C, who continue the business with 
 the property of the dissolved partnership, promising to pay A. $2,000. On 
 the subsequent failure of both partnerships under paragraph (1) of this sec- 
 tion, the creditors of the first partnership would be also creditors of the 
 second. By the assignment the property employed in the business would be 
 the property of the second partnership. By his contract A. would be a credi- 
 tor of the second partnership for $2,000 ; but this claim, A. being insolvent 
 
Ch. 6) EFFECT OF DISSOLUTION AS TO TI-IIED PARTIES 1349 
 
 (9) Nothing in this section shall be held to modify any right Pt 
 creditors to set aside any assignment on the ground of fraud. 
 
 (10) The use by the person or partnership continuing the busi- 
 ness of the partnership name, or the name of a deceased partner 
 as part thereof, shall not of itself make the individual property of 
 the deceased partner liable for any debts contracted by such per- 
 son or partnership. 
 
 Uniform Partnership Act, Section 42. When any partner re- 
 tires or dies and the business is continued under any of the condi- 
 tions set forth in section 41 (1, 2, 3, 5, 6), or section 38 (2b), with- 
 out any settlement of accounts as between him or his estate and 
 the person or partnership continuing the business, unless other- 
 wise agreed, he or his legal representative as against such persons 
 or partnership may have the value of his interest at the date of 
 dissolution ascertained, and shall receive as an ordinary creditor 
 an amount equal to the value of his interest in the dissolved part- 
 nership with interest, or, at his option or at the option of his legal 
 representative, in lieu of interest, the profits attributable to the 
 use of his right in the property of the dissolved partnership : Pro- 
 vided, that the creditors of the dissolved partnership as against 
 the separate creditors, or the representative of the retired or de- 
 ceased partner, shall have priority on any claiin arising under this 
 section, as provided by section 41(8) of this act. 
 
 SECTION 4.— PRIORITIES AMONG CLAIMANTS IN THE 
 SETTLEMENT OF A PARTNERSHIP ESTATE 
 
 Uniform Partnership Act, Section 40. In settling accounts be- 
 tween the partners after dissolution, the following rules shall be 
 observed, subject to any agreement to the contrary: 
 
 ,(a) The assets of the partnership are: 
 
 I. The partnership property; 
 
 II. The contributions of the partners necessary for the payment 
 of all the liabilities specified in clause (b) of this paragraph.^" 
 
 would belong under the wording of tbis paragraph, not to A.'s separate es- 
 tate, but to the creditors of the first partnership. 
 
 The uncertainty of existing law renders it impossible to say whether the 
 adoption of this paragraph would change the law. The Commissioners be- 
 lieve that certainty of the law is essential, and that the rule stated in the 
 paragraph is sound. A., in the case put, has sold his property rights In the 
 partnership befoj-e settling with the creditors of the partnership, and there- 
 fore those creditors should have an equitable lien on the consideration of the 
 sale as against the separate creditors of the retiring partner, or as against 
 the representatives of a deceased partner who have sold the rights of their 
 decedent to the persons' continuing the business. 
 
 loiewi*' Note to Section 40 (a) 11. — The adoption of this clause will end 
 the present confusion as to whether the contributions of the partners towards 
 the losses of the partnership are partnership assets or not. See In re Ber- 
 tenshaw, 157 Fed. 363, 85 C. C. A. 61, 17 L. R. A. (N. S.) 886, 13 Ann. Cas. 
 986 (1907) ; In re Forbes (D. C.) 128 Fed. 137 (1904) ; Barry v. Foyles, 1 Pet. 
 311 7 L Ed. 157 (1828) ; George M. West Co. v. Lea Bros., 174 U. S. 590, 19 
 Sup Ct. 836, 43 L-. Ed. 1098 (1899) ; Vaccaro v. Security Bank, 103 Fed. 436, 
 
1350 PAETNBESHiP (Part 5 
 
 (b) The liabilities of the partnership shall rank in order of pay- 
 ment as follows: 
 
 I. Those owing to creditors other than partners; 
 
 II. Those owing to partners other than for capital and profits; 
 
 III. Those owing to partners in respect of capital ; 
 
 IV. Those owing to partners in respect of profits. 
 
 (c) The assets shall be applied in the order of their declaration 
 in clause (a) of this paragraph to the satisfaction of the liabilities. 
 
 (d) The partners shall contribute, as provided by section 18 (a), 
 the amount necessary to satisfy the liabilities ; but if any, but not 
 all, of the partners are insolvent, or, not being subject to process, 
 refuse to contribute, the other partners shall contribute their 
 share of the liabilities, and, in the relative proportions in which 
 they share the profits, the additional amount necessary to pay the 
 liabilities. 
 
 (e) An assignee for the benefit of creditors or any person ap- 
 pointed by the court shall have the right to enforce the contribu- 
 tions specified in clause (d) of this paragraph. 
 
 (f) Any partner or his legal representative shall have the right 
 to enforce the contributions specified in clause (d) of this para- 
 graph, to the extent of the amoimt which he has paid in excess of 
 his share of the liability. 
 
 (g) The individual property of a deceased partner shall be lia- 
 ble for the contributions specified in clause (d) of this paragraph. 
 
 (h) When partnership property and the individual properties 
 of the partners are in the possession of a court for distribution, 
 partnership creditors shall have priority on pjirtnership property 
 and separate creditors on individual property, saving the rights of 
 lien or secured creditors as heretofore. 
 
 (i) Where a partner has become bankrupt, or his estate is in- 
 solvent, the claims against his separate property shall rank in the 
 following order: 
 
 I. Those owing to separate creditors; 
 
 II. Those owing to partnership creditors; 
 
 III. Those owing to partners by, way of contribution. 
 
 EODGB]RS V. MEIRANDA et al. 
 (Supreme Court of Ohio, 1857. 7 Ohio St. 180.) 
 
 The original proceeding was a petition for an order of distribution 
 of the separate or individual assets of an insolvent debtor, as between 
 separate and partnership creditors. 
 
 It appears from the record that about the 13th of June, 1854, Peter 
 Murray, an insolvent debtor, made an assignment of all his estate, real 
 and personal, to the plaintiff, in trust for the payment of their respec- 
 
 43 C. O. A. 279 (1900) ; In re Mercur, 122 Fed. 384, 58 C. C. A. 472 (1903). 
 The Commissioners believe that the opinion that such contributions are as- 
 sets is supported by the better reasoning See In re Forbes, supra. 
 
Ch. 6) EFFECT OP DISSOLUTION AS TO THIRD PARTIES 1351 
 
 tive demands. Though possessed of a large and valuable estate, it 
 had been found insufficient to pay his separate debts and liabilities in 
 full. At the date of his failure and assignment he was a partner 
 with John W. Dever in a mercantile firm under the name and style 
 of Dever & Murray, which firm had also become insolvent, and like- 
 wise Dever, and the firm had made an assignment of the partner- 
 ship property and assets about the same time to John Meranda, one of 
 the defendants, in trust for the payment of the joint debts or liabilities 
 of the firm. 
 
 In this condition of affairs the partnership creditors, although they 
 have filed their claims with the assignee of the firm for their distribu- 
 tive shares out of the partnership property, claim the right to be ad- 
 mitted to a participation in the dividends of the separate estate of 
 Murray, pari passu with his individual creditors ; while the latter deny 
 the right, and insist that his separate estate shall be applied to the 
 satisfaction of his individual debts in preference to his partnership 
 debts. 
 
 It appears, further, that Murray, besides advancing his part of the 
 capital of the firm also loaned money to the firm to a large amount, 
 for which he held the obligations of the fiJ-m, which obligations, by 
 the assignment of Murray, came into the hands of the plaintiff, who 
 has presented the same to the assignee of the firm, and claims to have 
 the same paid out of the assets of the firm, pari passu with the other 
 partnership debts. The other creditors resist this, and plaintiff asks 
 an order of distribution to that effect out of partnership assets. 
 
 Defendants demurred to the petition. The court below sustained 
 the demurrer, and gave judgment in favor of the defendants ; and this 
 petition in error is filed to review and reverse that judgment. 
 
 BartIvEY, C. J. Two questions are presented for determination in 
 this case. The first is whether, in the distribution of the assets of 
 insolvent partners, where there are both individual and partnership 
 assets, the individual creditors of a partner are entitled to be first 
 paid out of the individual effects of their debtor, before the partner- 
 ship creditors are entitled to any distribution therefrom. It is well 
 settled that, in the distribution of the assets of insolvent partners, 
 the partnership creditors are entitled to a priority in the partnership 
 effects, so that the partnership debts must be settled before any division 
 of the partnership funds can be made among the individual cred- 
 itors of the several partners. This is incident to the nature of, part- 
 nership property. It is the right of a partner to have the partnership 
 property applied to the purposes of the firm, and the separate interest 
 of each partner in the partnership property is his share of the surplus 
 after the payment of the partnership debts. And this rule, which 
 gives the partnership creditors a preference in the partnership effects, 
 would seem to produce, in equity, a corresponding and a correlative 
 rule, giving a preference to the individual creditors of a partner in 
 his separate property; so that partnership creditors can, in equity, 
 only look to the surplus of the separate property of a partner, after 
 the payment of his individual debts, and, on the other hand, the in- 
 dividual creditors can in like manner only claim distribution from the 
 debtor's interest in the surplus in the joint fund after the satisfaction 
 of the partnership creditors. 
 
 The correctness of this rule, however, has been much controverted; 
 and there has not been always a perfect concurrence in the reasons 
 
1352 PARTNERSHIP (Part 5 
 
 assigned for it by those courts whicli have adhered to it. By some 
 it has been said tO' be an arbitrary rule, estabHshed from consid- 
 erations of convenience ; by others, that it rests on the basis that a 
 primary liability attaches to the fund on which the credit is given — 
 that in contracts with a partnership, credit is given on the supposed 
 responsibility of the firm, while in contracts with a partner as an 
 individual reliance is supposed to be placed on his separate respon- 
 sibility. * * * And, again, others have assigned as a reason for 
 the rule that the joint estate is supposed to be benefited to the extent 
 of every credit which is given to the firm, and that the separate es- 
 tate is, in like manner, presumed to be enlarged by the debts con- 
 tracted by the individual partner, and that there is consequently a 
 clear equity in confining the creditors, as to preference, to each estate 
 respectively, which has been thus benefited by their transactions. 
 * * * But these reasons are not entirely satisfactory. So im- 
 portant a rule must have a better foundation to stand upon than a mere 
 consideration of convenience; and practically it is undeniable that 
 those who give credit to a partnership look to the individual respon- 
 sibility of the partners, as well as that of the firm, and also those 
 who contract with a partner in his separate capacity place reliance on 
 his various resources or means, whether individual or joint. And 
 inasmuch as individual debts are often contracted to raise means 
 which are put into the business of a partnership, and also partnership 
 effects often withdrawn from the firm and appropriated to the sepa- 
 rate use of the partners, it cannot be practically true that the sep- 
 arate estate has been benefited to the extent of every credit given 
 to each individual partner, nor that the joint estate has retained from 
 the separate estate of each partner the benefit of every credit given 
 to the firm. Unsatisfactory reasons may weaken confidence in a rule 
 which is well founded. 
 
 What, then, is the true foundation of the rule which gives the individ- 
 ual creditor a preference over the partnership creditor in the dis-. 
 tribution of the separate estate of a partner? To say that it is a rule 
 of general equity, as has been sometimes said, is not a satisfactory 
 solution of the difficulty ; for the question is whether it be a rule 
 of equity or not. In the distribution of the assets of insolvents, 
 «quality is equity ; and to say that the rule which gives the individual 
 creditor a preference over the partnership creditor in the separate 
 estate of the partner is a rule of equality does not still rid the subject 
 of difficulty. For, leaving the rule to stand which gives the preference 
 to the joint creditors in the partnership property, and perfect equality 
 between the joint and individual creditors is perhaps, rarely attainable. 
 That it is, however, more equal and just, as a general rule, than any 
 other which can be devised, consistently with the preference to the 
 partnership creditors in the joint estate, cannot be successfully con- 
 troverted. It originated as a consequence of the rule of priority of 
 partnership creditors in the joint estate, and, for the purpose of jus- 
 tice, became necessary as a correlative rule. With what semblance 
 of equity could one class of creditors, in preference to the rest, be ex- 
 clusively entitled to the partnership fund, and, concurrently with the 
 rest, entitled to the separate estate of each partner? The joint cred- 
 itors are no more meritorious than the separate creditors ; and it 
 frequently happens that the separate debts are contracted to raise 
 means to carry on the partnership business. 
 
Ch. 6) EFFECT OP DISSOLUTION AS TO THIRD PARTIES 135S 
 
 Independent of this rule, the joint creditors have, as a general things 
 a great advantage over the separate creditors. Besides being ex- 
 clusively entitled to the partnership fund, they take their distributive 
 shares in the surplus of the separate estate of each of th^ several 
 partners after the payment of the separate creditors of each. It is 
 a rule of equity that, where one creditor is in a situation to have two or 
 more distinct securities or funds to rely on, the court will not allow 
 him, neglecting his other funds, to attach himself to one of the funds 
 to the prejudice of those who have a claim upon that and no other 
 to depend on. And besides the advantage which the joint creditors 
 have, arising from the fact that the partnership fund is usually much 
 the largest, as men in trade, in a great majority of cases, embark 
 their all, or the chief part of their property, in it, and besides their 
 distributive rights in the surplus of the separate estate of the other 
 partners, the joint creditors have a degree of security for their debts 
 and facilities for recovering them which the separate creditors have 
 not. They can sell both the joint and the separate estate on an execu- 
 tion, while the separate creditor can sell only the separate property and 
 the interest in the joint effects that may remain to the partners, after 
 the accounts of the debts and effects of the firm are taken, as between 
 the firm and its creditors, and also as between the partners themselves. 
 With all these advantages in favor of the partnership creditors, it would 
 be grossly inequitable to allow them the exclusive benefit of the joint 
 fund, and then a concurrent right with individual creditors to an equal 
 distribution in the separate estate of each partner. What equality and 
 justice is there in allowing partnership creditors, who have been paid 80 
 per cent, on their debts out of the joint fund, to come in pari passu with 
 the individual creditors of one of the partners, whose separate prop- 
 erty will not pay 20 per cent, to his separate creditors? How could 
 that be said to be an equal distribution of the assets of insolvents 
 among their creditors ? 
 
 It is true that an occasional case may arise where the joint effects 
 are proportionably less than the separate assets of an insolvent part- 
 ner. But, as a general thing, a very decided advantage is given to the 
 partnership creditors, notwithstanding this preference of the individ- 
 ual creditors in the separate property; and that advantage, arising 
 out of the nature of a partnership contract, is unavoidable. Some 
 general rule is necessary ; and that must rest on the basis of the unal- 
 terable preference of the partnership creditors in the joint effects, and 
 their further right to some claim in the separate property of each of 
 the several partners. The preference, therefore, of the individual cred- 
 itors of a partner in the distribution of his separate estate results as a 
 principle of equity from the preference of partnership creditors in the 
 partnership funds, and their advantages in having different funds to 
 resort to, while the individual creditors have but one, 
 
 It has been argued that partnership contracts are several as well 
 as joint, and consequently have an equal legal right with separate 
 creditors upon the individual property of a partner. But the right of 
 partnership creditors against the separate property of individual part- 
 ners in proceedings at law is not in controversy. The question here 
 relates to the relative equitable rights of two classes of creditors 
 in the distribution of the estates of insolvents. Much of the confu- 
 sion upon this subject has probably arisen from confounding the 
 abstract rights of creditors in proceedings at law with their relative 
 
1354 PARTNERSHIP (Part 5 
 
 rights to an equitable adjustment in marshaling the assets of insol- 
 vents in chancery. 
 
 The rule here adopted appears to have been followed in England 
 for nearly a century and a half. We find it distinctly recognized in 
 the case of Ex parte Crowder, 2 Vern. 706, decided in 1715. And in 
 Ex parte Cook, 2 P. Wms. 500, Lord Chancellor King declared it set- 
 tled as a rule of convenience in bankruptcy that joint creditors should 
 be first paid out of the partnership estate and the separate creditors 
 out of the separate estate of each partner, and, if there be a surplus 
 of the joint creditors, the share of each partner should be distributed 
 to his separate creditors, and if, on the other hand, there should be 
 a surplus of the separate estate of a partner after the satisfaction of his 
 individual creditors, it should be applied to any deficiency of the joint 
 funds in the satisfaction of the partnership debts. Lord Hardwicke 
 followed the same rule, in Ex parte Hunter, 1 Atk. 228. But it ap- 
 pears that in Ex parte Hodgson, 2 Bro. C. C., decided in 1785, Lord 
 Thurlow made an innovation on the rule in bankruptcy, declaring that 
 there was no distinction between joint and separate creditors, that 
 they ought to be paid out of the bankrupt's estate and his moiety of the 
 joint estate, and that the joint creditors ought to come in pari passu 
 with the separate creditors. This ruling of Lord Thurlow appears 
 to have had reference to proceedings at law and in bankruptcy, for it 
 is said that, consistently therewith, it was competent for the assignees 
 to confine the joint creditors, where there was a joint estate, to that 
 fund exclusively, by filing a bill in equity against the other partners 
 and obtaining an injunction on the order in bankruptcy. 
 
 But how far this innovation went, in practice, to affect the ultimate 
 rights of the parties, is wholly immaterial, inasmuch as Lord Lough- 
 borough, in Ex parte Elton, 3 Ves. Jr. 238, in the year 1796, re- 
 stored the rule which previously prevailed, holding that the rule intro- 
 duced by the Case of Hodgson was inconvenient, inasmuch as every or- 
 der which he passed in bankruptcy, giving a joint creditor a dividend 
 out of the separate estate of a partner, would give rise to a bill in eq- 
 uity, on the part of the separate creditors, to restrain the order and 
 secure the application of the separate estate to the satisfaction of 
 the separate debts ; and, although it was adjudged that a joint creditor 
 might prove his claim under a separate commission, yet he could not 
 receive any dividend therefrom until the amount of his distribution 
 in the joint fund could be ascertained and the claims of the separate 
 creditors satisfied. And the opinion of the Lord Chancellor, in this 
 case, puts an end to the assertion, which has been sometimes made, 
 that this rule was peculiar to proceedings in bankruptcy. Touching 
 this he said: "If it stands as a rule of law, we must consider what 
 I have always understood to be settled by a vast variety of cases, 
 not only bankruptcy, but upon general equity, that the joint estate 
 is applicable to partnership debts and the separate estate to the sep- 
 arate debts." Again, in speaking of the inconvenience of Lord Thur- 
 low's rule, he said : "What I order here to-day, sitting in bankruptcy, 
 I shall forbid to-morrow, sitting in chancery ; for it is quite of course 
 to stop the dividend on a bill filed. The plain rule, of distribution is 
 that each estate shall bear its own debts. The equity is so plain that 
 it is of course upon a bill filed." 
 
 Lord Eldon, with some characteristic doubts and misgivings, con- 
 sistently followed this rule of his immediate predecessor. [Citing 
 
Ch. 6) EFFECT OF DISSOLUTION AS TO THIRD PAUTIES 1355 
 
 cases.] And it has ever since remained the settled law of England, 
 applicable, not simply to proceedings in bankruptcy, but as a general 
 rule of equity, in the distribution of the assets of insolvents. 
 
 The supposition that this rule arose from any provision of the stat- 
 utes concerning bankruptcy in England is a mistake. It was long 
 and well settled as a rule of equity before any statute was enacted 
 touching this subject. It does not appear to have been sanctioned 
 by any positive enactment until St. 6 Geo. IV, c. 16, § 16. 
 
 It is not a little remarkable that this rule of equity, so long settled 
 and acted on in England, should have encountered so much opposition 
 as it has in the courts of the several states of this country. 
 
 In Pennsylvania the rule was discarded by a majority of the court 
 in the case of Bell v. Newman, 5 Serg. & R. (Pa.) 78, decided in 1819. 
 And the rule adopted in that case was that where a surviving partner 
 dies indebted to partnership and also to individual creditors, and 
 leaving joint assets and also separate assets, the separate creditors 
 should receive as much out of the separate property as the joint cred- 
 itors could receive from the separate portion or share of such part- 
 ner in the joint property, and that then the balance of the separate 
 property should be divided pro rata among both classes of creditors. 
 This was placed partly on the ground of equity and partly on the 
 ground of a statute directing equality of distribution of the assets 
 of deceased persons. Judge Gibson, however, dissented, insisting 
 forcibly on the rule adopted in England as a general principle found- 
 ed in equity. 
 
 And it has been insisted that this case did not strictly fall within 
 the application of the principle, inasmuch as the estate to be dis- 
 tributed in that case was the estate of a surviving partner, against 
 which the claims of the joint creditors were as purely legal as those 
 of the separate creditors. And Chief Justice Tilghman remarked, in 
 the opinion of the case, that "no rule was intended to be laid down 
 which may affect cases differently circumstanced." 
 
 The case of Sperry's Estate, 1 Ashm. (Pa.) 347, did not directly 
 affect the question, inasmuch as it came fully within the exception that 
 where there is no joint fund, and no solvent partner, the separate and 
 joint creditors should be paid ratably out of the separate estate. 
 The question was again brought to the attention of the court in that 
 state in Walker v. Eyth, 25 Pa. 216, where the court expresses the 
 opinion that it is a rule of equity "that, where there are partnership 
 and separate creditors, each estate should be applied exclusively to 
 the payment of its own creditors, the joint estate to the joint cred- 
 itors and the separate estate to the separate creditors." But the ques- 
 tion was not directly decided ; the decision of the case being put upon 
 another ground. So that the general principle, in a case proper for 
 its application, is said to remain still an open question in Pennsyl- 
 vania. * * * 
 
 In Virginia the question was presented in 1848, in the case of Mor- 
 ris' Adm'r v. Morris Adm'r, 4 Grat. (Va.) 293, and was elaborately 
 discussed on both sides; but the court was equally divided on the 
 question of adoption of the rule as a general rule of equity, and the de- 
 cision was put on other grounds. 
 
 In New Jersey, in the case of Wisham v. Lippincott, 9 N. J. Eq. 
 353, the rule was doubted as a general principle of equity, although 
 not decided. 
 
1356 PAETNEESHIP (Part 5 
 
 In Vermont, in the case of Bardwell v. Perry et al., 19 Vt. 292, 47 
 Am. Dec. 687, the rule was discarded as a principle of equity, with this 
 qualification : That the separate creditors could require, in equity, 
 that the joint creditors should first exhaust the partnership funds, 
 before coming in with the separate creditors of a partner for a pro 
 rata distribution out of his separate estate. 
 
 It does not appear that the doctrine of the English courts on this 
 subject was ever adopted as a rule of equity by the courts of Massa- 
 chusetts ; but it is said that a statute was enacted in that state in 1838, 
 providing, as a rule for the distribution of insolvents' estates, that the 
 net proceeds of the separate estate shall go to the separate creditors 
 and that of the partnership estate to the joint creditors. 
 
 The rule appears to have been discarded in Connecticut, in the case 
 of Camp V. Grant et al, 21 Conn. 41, 54 Am. Dec. 321, and also in 
 Mississippi, in the case of Dahlgren v. Duncan, 7 Smedes & M. (Miss.) 
 280, but adopted in Alabama, in Bridge v. McCuUough's Adm'rs, 27 
 Ala. 661. 
 
 In New York it has been adjudged that "the rule of equity was uni- 
 form and stringent that the partnership property of a firm shall all 
 be applied to the partnership debts to the exclusion of the creditors 
 of the individual members of the firm, and that creditors of the latter 
 are to be first paid out of the separate effects of their debtor before 
 the partnership creditors can, claim anything therefrom." Jackson 
 V. Cornell, 1' Sandf. Ch. 348. The history of the English riile was 
 somewhat reviewed by Chancellor Kerit in Murray v. Murray, 5 
 Johns. Ch. 60, and upon full consideration adopted as a rule of equity 
 by Chancellor Walworth in Wilder v. Keeler, 3 Paige, 167, 23 Am. 
 Dec. 781, Payne v. Matthews, 6 Paige, 19, 29 Am. Dec. 738, and 
 Hutchinson v. Smith, 7 Paige, 26. 
 
 The same doctrine was adopted by Chantellor Desaussure in 
 South Carolina as early as 1811 in Woddrop v. Ward, 3 Desaus. 203, 
 and also by the Supreme Court of New Hampshire in Jarvis v. 
 Brooks, 23 N. H. 136. 
 
 The subject was very fully reviewed in the Court of Appeals of 
 Maryland in McCuUoh v. Dashiell's Adm'r, 1 Har. & G. 96, 18 Am. 
 Dec. 271, wherein it was settled in that state that in equity the individ- 
 ual creditors of a partner were entitled to a preference over the joint 
 creditors in a distribution of the separate estate of their debtor. 
 
 And the same doctrine was settled by the Supreme Court of the 
 United States, on full consideration, in Murrill v. Neil, 8 How. 414, 12 
 L. Ed. 1135. And it has been laid down generally by the elementary 
 writers, both in England and in this country, as a settled rule of eq- 
 uity. * * =^ 
 
 The remaining matter for determination, in this case, involves the 
 inquiry whether, in case of an indebtedness for money lent to the part- 
 nership hy a partner who afterward becomes insolvent, the separate 
 creditors of the latter shall be entitled therefor to a pro rata distribu- 
 tion with the partnership creditors, out of the joint fund. * * * 
 
 It was at one time held to be the law * * * that if a partner has 
 loaned money to the partnership, or the partnership has loaned money 
 to the separate estate of one of the partners, according to the equitable 
 rule of distribution of the assets after insolvency, in the former case, 
 the separate creditors of the partner would be entitled to an equal share 
 out of the joint assets to the extent of the debt created for the money 
 
Ch. 6) EFFECT OF DISSOLUTION AS TO THIRD PARTIES 1357 
 
 lent, and that, in the latter case, the partnership creditors would be 
 entitled to payment to the same extent, out of the individual estate of 
 the partner. * * * gu^- ^^is doctrine has long since been over- 
 ruled, and the contrary appears now to be well settled. * * * 
 
 This doctrine proceeds upon the principle that, in the distribution 
 of the assets of insolvents, the equities of the creditors, whether joint 
 or separate, must be worked out through the medium of the partners ; 
 that creditors can only step into the shoes of their immediate debtors 
 in reaching their effects where there are conflicting claims ; and that 
 inasmuch as an individual partner could not himself come in and com- 
 pete with the partnership creditors, who are in fact his own creditors, 
 in the distribution of the fund, and thereby prejudice those who were 
 not only creditors of the partnership but also of himself, therefore the 
 separate creditors of a partner could not enforce any claim to a dis- 
 tributive share of the joint effects against the partnership creditors, 
 which could not have been enforced by the partner himself for his own 
 benefit. The rule, however, that these several funds are to be thus 
 administered as they stood at the time of the insolvency is to be received 
 with this important limitation : That it does not apply in case, either 
 where the effects obtained, creating the debt, were taken from the 
 separate estate to augment the joint estate, or from the joint estate to 
 augment the separate estate, fraudulently, or under circumstances 
 from which fraud may be inferred, or under which it would be implied. 
 
 In the case before us, however, it is not pretended that the firm ob- 
 tained the borrowed money from Murray improperly. The separate 
 creditors of Murray, therefore, are not, on account of this claim for 
 money lent by Murray tb the firm, entitled to participate with the part- 
 nership creditors in the distribution of the joint effects. 
 
 Judgment of the common pleas reversed ; and ordered that the sep- 
 arate effects of Peter Murray be distributed pro rata first among his 
 individual creditors, before any application thereof be made to the pay- 
 ment of the partnership debts of Dever & Murray, and that the part- 
 nership effects be applied first to the payment of the partnership debts, 
 irrespective of the claim of the partner, Peter Murray, for money 
 loaned by him to the firm. 
 
 IVES et al. v. MAHONEY et al. 
 (Supreme Court of Minne.sota, 1S9S. 71 Minn. 155, 73 N. W. 720.) 
 
 In re assignment of Arthur H. Ives and Amos P. Ireland, as co- 
 partners under the firm name of Ives, Ireland & Co. From an order 
 of distribution to Stephen Mahoney, receiver of the; Irish- American 
 Bank, and others, Alfonso B. Hawkins, as assignee of Ives, Ireland 
 & Co.,- appeals. 
 
 Start, C. J. Arthur H. Ives and Amos P. Ireland, partners under 
 the firm name of Ives, Ireland & Co., duly made an assignment of all 
 of their partnership arid unexempt individual property, for the bene- 
 fit of their creditors, under the insolvent laws of this state. The net 
 assets of the partnership, for distribution, amount to $3,151.65, and 
 the partnership debts are $19,736.34. Ireland's net individual assets 
 are $4,000; and his individual debts, $2,997.47. Ives' net assets are 
 $100, and his personal debts, $415.40. Included in the firm debts 
 proved is that of the Irish-American Bank, for $4,078.89, which is 
 
1358 PARTNERSHIP (Part 5 
 
 based upon the notes of the firm given to the bank for a loan by it to 
 the firm, in the sum of $4,000, and signed by the firm, and by Ireland 
 in his individual name. ^ There is also included in the firm debts that 
 of the St. Anthony Falls Bank, for $5,512.50, which is based upon 
 notes executed by the firni to it for a loan of $5,500, but none of the 
 notes were signed by either of the individual partners. Each of these 
 banks made the loan to the firm in express reliance upon the individ- 
 ual property and credit of Ireland. The trial court, by its order of 
 distribution, directed the assignee to pay the net assets of the firm, 
 pro rata, to the firm creditors, including the Irisji-American Bank; 
 net individual assets of Ireland, pro rata, to his individual creditors, 
 excluding the firm creditors, except the Irish-American Bank, which 
 was included therein to the full amount of its debt, without any de- 
 duction for the payment thereon it was to receive by its dividend 
 from the firm assets ; and the net assets of Ives to his individual 
 creditors. The assignee and certain firm creditors appealed from 
 this order. The appeals present two general questions for our deci- 
 sion. They are, did the trial court err (a) in distributing the firm 
 assets to the firm creditors, and the individual assets to the individual 
 creditors? (b) in directing a dividend to be paid to the Irish-Ameri- 
 can Bank from both funds? 
 
 The trial court adopted the geneial equity rule in insolvency -and 
 bankruptcy for the distribution of firm and individual assets, respec- 
 tively, which is that, where there are both partnership and individual • 
 assets for distribution, the partnership assets will be first applied to 
 the payment of partnership debts, and the individual assets, in like 
 manner, to the payment of the individual debts of the partners. If 
 there is a surplus in either fund after paying in full the creditors to 
 whom it primarily belongs, it is carried to the other fund, and dis- 
 tributed as a part thereof. The rule seems to be limited to cases 
 where there are substantial firm assets for distribution. This we do 
 not decide. The first half of the rule, that equity gives to the firm 
 creditors priority in the firm assets over the creditors of the individ- 
 ual partners, is conclusively settled, and everywhere accepted as the 
 law; but the other and reciprocal half of the rule, that the separate 
 debts of the partners are to be first paid from the individual assets, 
 has been controverted by able courts in this country, while those 
 which have adhered to it have not always agreed as to the reasons for 
 its adoption. 
 
 The "principles upon which the rule rests are clearly stated in the 
 dissenting opinion of Chief Justice Gibson in the case of Bell v. New- 
 man, 5 Serg. & R. (Pa.) 91, and the opinion of Chief Justice Bartley 
 in Rodgers v. Meranda, 7 Ohio St. 179. The latter wrote thus of the 
 rule: "That it is, however, more equal and just, as a general rule, 
 than any other which can be devised, consistently with the preference 
 to the partnership creditors in the joint estate, cannot be successfully 
 controverted. It originated as a consequence of the rule of priority 
 of partnership creditors in the joint estate, and, for the purposes of 
 justice, became necessary, as a correlative rule. With what semblance 
 of equity could one class of creditors, in preference to the rest, be ex- 
 clusively entitled to the partnership fund, and concurrently with the 
 rest entitled to the separate estate of each partner? The joint cred- 
 itors are no more meritorious than the separate creditors, and it fre- 
 quently happens that the separate debts are contracted to carry on the 
 
Ch. 6) EFFECT OF DISSOLUTION AS TO THIRD PARTIES 1359 
 
 partnership business." Judge Story, in his time, declared the rule to 
 be firmly established. He, however, questioned its equity and proprie- 
 ty, but added, "Such as it is, however, it is for the public repose that 
 it should be left undisturbed, as it may not be easy to substitute any 
 other rule which would uniformly work with perfect equality and 
 equity in the mass of intricate transactions connected with commer- 
 cial operations." Story, Partn. §§ 377, 382. The rule was expressly 
 approved by Chancellor Kent, who declared it to rest upon just and 
 obvious principles of equity, and to be settled by a series of English 
 and American decisions. 3 Kent, Corfim. *6.'). Prof. Parsons de- 
 clared it to be distinctively settled, and a simple rule, eminently prac- 
 tical, and founded upon obvious principles of policy. T. Pars. Partn. 
 pp. 382, 383. 
 
 Whatever question there may have been as to this rule half a cen- 
 tury ago, it is now thoroughly and decidedly established by the great 
 weight and number of adjudged cases, and must be followed, unless it 
 is contrary to the letter or spirit of our insolvency law. The assignee 
 claims that it is so, in that it violates the fundamental principles of 
 equal distribution and no preferences, upon which the insolvency law 
 rests, and asks us to adopt the Kentucky rule, which is, in effect, that 
 where a firm is insolvent, and there are both firm and individual as- 
 sets to be distributed to firm and individual creditors, the partnership 
 assets are to be distributed exclusively to the firm creditors; then the 
 individual creditors are to receive a percentage on their claims from 
 the individual assets, equal to that received by the firm creditors on 
 their claims from the partnership assets; and the balance, if any, to 
 all of the creditors, pro rata. Bank v. Keizer, 2 Duv. 169. The orig- 
 inal of this rule seems to be the rule adopted in Pennsylvania, in Bell 
 V. Newman, 5 Serg. & R. 78, for the distribution of firm and indi- 
 vidual assets, in a case where a surviving partner died, leaving both 
 partnership and separate creditors, and firm and separate assets in 
 the handd of his administrator. Gibson, J., dissented, and, in his opin- 
 ion, ably vindicated the equity rule, and tersely sta;ted the objections 
 to the rule laid down in the opinion of the court, in these words : "It 
 is evident, therefore, the rule would operate unequally, by making 
 the separate creditors share their fund with the joint creditors, where 
 it happens to be the largest, without subjecting the latter to share 
 theirs under like circumstances. It may be said, it is impossible to 
 put them on a footing in this respect. I grant that it cannot be done 
 on any plan of participating in the same fund, but you precisely put 
 them on a footing by making each fund bear the burden of its own 
 debts; and, if that of the separate creditors should happen to be the 
 most productive, I know not on what principle of equity they can be 
 <ieprived of the advantage." Bell v. Newman was practically over- 
 ruled in Black's Appeal, 44 Pa. 503, and the equity rule adopted. The 
 objections to the now discarded rule of Pennsylvania apply precisely 
 -to the Kentucky rule, which has not, so far as we are advised, been 
 followed by any other court. 
 
 As to the claim that the equity rule is contrary to the express pro- 
 liibition of. our insolvency law as to preferences, it is to be noted that 
 the equity rule is the unquestioned rule in England for the distribution 
 in bankruptcy of the firm and separate assets, and was expressly 
 adopted by section 14 of the federal bankruptcy act of 1841, and sec- 
 tion 36 of the act of 1867. This is significant for the prohibition of 
 
1360 PARTNERSHIP (Part 5 
 
 preferences is a pronounced feature of all bankrupt laws, and especial- 
 ly so of the bankrupt acts of 1841 and 1867. If -it be held that the 
 prohibition of preferences in our insolvency law abrogates any part 
 of the equity rule, the whole thereof is annulled, and firm and indi- 
 vidual assets constitute a single fund, to be distributed to firm and in- 
 dividual creditors pro rata. It is clear that the law cannot be so con- 
 strued, and that the prohibition as to preferences relates to, and is 
 directed against, the acts of the insolvents. The same suggestions 
 apply with equal force to the claim that the requirement of the insol- 
 vency law of equality in the distribution of the net assets to the cred- 
 itors abrogates the equity rule. It is difficult to see upon what prin- 
 ciple we can consistently hold, as we are, in effect, asked to do by 
 the assignee, that the equity rule is annulled by the provisions of the 
 insolvent law forbidding preferences, and requiring equality of dis- 
 tribution, and adopt in place of it the Kentucky rule; for the latter 
 permits the firm creditors to have the exclusive benefit of the firni as- 
 sets, if they are greater and pay a greater dividend to firm creditors 
 than the individual assets do to individual creditors; but, if they are 
 less, then, and only then, the two classes of creditors share equally. 
 The firm creditors never share their fund with the separate creditors, 
 but the latter must share theirs with the former, whenever it is the 
 largest. If one of these rules is forbidden by the insolvency law, the 
 other is, also. 
 
 The factithat the insolvency law contains no directions for the mar- 
 shaling the assets of insolvents where there are different classes of 
 creditors and different funds, indicates that it was the intention of 
 the legislature to leave the settled equity rule in force. The insol- 
 vency law's requirement of equality and no preferences is subordinate 
 to the settled equities and priorities of partnership creditors in and to 
 the firm assets, and the correlative equities and priorities of the sepa- 
 rate creditors in and to the separate assets, when the assets are mar- 
 shaled and distributed by the court in insolvency proceedings. The 
 direction of the statute for the equal distribution of the insolvent's 
 property means a distribution in accordance with the recognized rules 
 of equity. See Hanson v. Metcalf , 46 Minn. 25, 48 N. W. 441 ; Kells 
 V. McClure, 69 Minn. 60, 71 N. W. 827. 
 
 It is further urged that the rule of distribution and priority in the 
 insolvency court and probate court should be the same, and that the 
 equity rule cannot be followed in the latter court, in the allowance 
 and payment of claims against the estate of a deceased partner, be- 
 cause the Probate Code (Gen. St. 1894, § 4521) provides, in effect, 
 that when two or more persons are indebted on a joint contract, and 
 one of them dies, his estate is liable thereon, and it may be allowed by 
 the probate court as if it were joint and several. We are not called 
 upon here to construe this statute, or determine what the rule of dis- 
 tribution in the probate court would be. It may, however, be sug- 
 gested, without deciding the question, that it seems to be well settled 
 in other states that statutes making partnership debts joint and sev- 
 eral, and statutes providing for the allowance of joint claims in the 
 probate court as if joint and several, are not intended to abrogate all 
 equitable priorities of partnership and individual creditors, respec- 
 tively, in the partnership and individual estates, or to introduce any 
 new rule for marshaling the assets of the joint and separate estates. 
 . 2 Bates, Partn. § 828. 
 
Ch. 6) EFFECT OF DISSOLUTION AS TO THIRD PARTIES 1361 
 
 The claim of the Irish-American Bank was based- upon promissory 
 notes executed by the firm of Ives, Ireland & Co., and by Ireland in 
 his individual name ; and for this reason the trial court, permitted the 
 bank to receive a dividend on the full amount of its claim, from both 
 the partnership and individual funds. The trial court's order in this 
 respect is claimed to be erroneous, for the reason that the considera- 
 tion of the notes determines the character of the debt, which was for 
 money loaned to, and used by, the firm ; hence it is immaterial wheth- 
 er or not the individual name of the partner is on the notes, for with 
 or without it they represent a partnership debt, for which he is liable ; 
 consequently the bank has no equities superior to the other firm cred- 
 itors. The question of double proof in such a case is not a new 
 one. It was at one time the rule in England that a creditor holding a 
 note signed by the firm and an individual partner must, in bankrupt- 
 cy, elect which estate he would prove his claim against. The rule is, 
 and always has been, otherwise in this country, and it is settled by a 
 very decided weight of authority that such double proof is permissible. 
 T. Pars. Partn. p. 390; 2 Bates, Partn. § 841; 17 Am. & Eng. Enc. 
 Law, 1210; Emery v. Bank, 7 N. B. R. 217, Fed. Cas. No. 4,446; 
 In re Bradley, 2 Biss. 515, Fed. Cas. No. 1,772; Ex parte Nason, 70 
 Me. 363; Bank v. Hall, 160 Mass. 171, 35 N. E. 666. 
 
 It is true, as claimed, that the federal bankrupt law provided for 
 double proof in certain cases ; but Judge Clifford, in Emery v. Bank, 
 clearly indicates, independent of the statute, that where a creditor has 
 taken the precaution, before parting with his money, to secure an ex- 
 press written contract for its repayment from both the firm and the 
 individual partner, his right is clear, in case of bankruptcy, to the 
 benefit of his caution, and to prove his claim against, and receive a 
 dividend from, the fund belonging to the partnership, and also from 
 the estate of the individual partner. This precise question was in- 
 volved in the cases of Ex parte Nason and Bank v. Hall, supra, and in 
 each the rule as to double proof was maintained on principle. In the 
 last-named case the court, after citing the authorities in support of 
 the rule, concludes thus: "In view of the modern decisions, and the 
 general agreement of opinion, we think it unnecessary to argue elab- 
 orately for the right of a creditor who has required two contracts, 
 binding two distinct estates, to insist upon both." 
 
 Our conclusion on this question is that the Irish-American Bank 
 was entitled to receive a dividend on its claim from both funds. The 
 trial court, however, directed a dividend to be paid to it from both 
 funds, concurrently, on the full amount of its debt. There are au- 
 thorities sustaining this part of the order, but it is manifestly in- 
 equitable to other creditors. When the bank receives a dividend from 
 the firm assets, the primary fund for the payment of its claim, its 
 debt is paid pro tanto ; and to permit it to receive a dividend from 
 the individual assets, on the part of its debt paid from the firm assets, 
 to the prejudice of other creditors, is not just, and therefore not legal, 
 in the absence of any statute declaring it to be so. It follows that the 
 order appealed from must be modified so as to permit the bank to re- 
 ceive a dividend from the individual assets of Ireland only on the 
 balance of its claim after applying as a payment its dividend from 
 the firm assets, and that this case must be remanded, with direction 
 to the district court to so do. So ordered, without statutory costs. 
 B.& B.Btrs.LAW— 86 
 
1362 PARTNERSHIP (Part 5 
 
 MiTCHBi.1,, J. I concur, except in the result arrived at as to the 
 .claim of the Irish-American Bank. I think the consideration of the 
 debt should, in this case, determine the class to which the claim be- 
 longs, 'and that, notwithstanding the authorities cited to the contrary, 
 the claim of the bank should be treated- as exclusively a partnership 
 debt. A partnership is but an aggregation of individuals, and not an 
 entity distinct from the members composing it. It is wholly incon- 
 sistent with the spirit and purposes of our insolvent law to permit one 
 dealing' with a partnership to obtain a preference by securing on the 
 evidence of the debt the signatures of the members of the firm, in- 
 dividually, in addition to their signatures by their firm name. There 
 is nothing in the general equity rule for the distribution of partnership 
 and individual assets which requires any such result. 
 
 Canty, J. I concur with Mr. Justice Mitchell. 
 
 DARBY V. GII/DIGAN et al. 
 
 (Sut)reme Court of Appeals of West Virginia, 1889. 33 W. Va. 246, 
 10 S. E. 40O, 6 1,. R. A. 740.) 
 
 Snyder, P. Appeal from a decree of the circuit court of Taylor 
 county, pronounced March 28, 1887, in the suit of Darby & Co. and 
 others against John J. Gilligan and others. The suit was brought to 
 set aside a trust-deed made by said Gilligan to John T. McGraw, trus- 
 tee; to enjoiii said trustee from disposing of the property thus con- 
 veyed to him; and to have the same applied to the payment of the 
 plaintiffs' debts. On September 17, 1883, the said Gilligan and James 
 Burns entered into an agreement in writing, whereby they agreed to 
 form a partnership for conducting a general merchandising business 
 in the town of Grafton, Taylor county, Gilligan having prior to that 
 time been merchandising at the same place, and having then on hand 
 a stock of goods, which he put into the firm at the value of $2,000, 
 and Burns paid into the firm $l,000v Upon this capital stock, they 
 agreed that Gilligan should have a two-thirds and Burns a one-third 
 interest in the assets, business, and profits of the partnership. At the 
 time this partnership was formed, Gilligan was indebted to the First 
 National Bank of Grafton and others in the sum of $1,100, for money 
 borrowed and put into the mercantile business while he was conduct- 
 ing it alone. During the carrying on of the business by the firm, the 
 firm contracted debts to the plaintiffs and others, and the partners so 
 managed the business that they and the firm became indebted, to in- 
 solvency. Afterwards, on February 27, 1885, by a contract in writ- 
 ing, the partnership was dissolved, upon the terms that in considera- 
 tion of $1,000, for which Gilligan executed to Burns his note, paya- 
 ble one year from that date. Burns withdrew from the firm, and Gilli- 
 gan assumed, and agreed to pay, all the then existing indebtedness of 
 the firm. Aljout two months after, on April 24, 1885, Gilligan con- 
 veyed to John T. McGraw the whole of the assets of the late firm, in 
 trust, to secure all his debts, including the debts due the plaintiffs and 
 others by said firm; but in said conveyance he preferred the afore- 
 said $1,100 due to the Grafton Bank and others, the note for $1,000 
 .given to Burns as aforesaid, which had been assigned by him to Anna 
 Burns, and other individual debts, amounting in the aggregate to more 
 than the value of the assets conveyed. 
 
Ch. 6) EFFECT OF DISSOLUTION AS TO THIRD PARTIES 1363' 
 
 Upon these facts the plaintiffs, the appellants here, contend that 
 this attempt of Gilligan to prefer and pay his individual debts out of 
 the said assets is a fraud upon the firm creditors, which, according to 
 well-settled principles, a court of equity will not permit. Ordinarily 
 the partnership estate is liable for the payment of the firm debts, in 
 preference to the individual debts of the partners. This is the right of 
 the partners inter se. The creditors of the partnership have no such 
 right of priority over the creditors of the partners individually, other- 
 wise than by substitution to the rights of the partners inter se. The- 
 partners may release this right, and, if they do so bona fide, the cred- 
 itors of the partnership cannot complain ; for it is not their right, ex- 
 cept subject to the proper disposition and control of the partners them- 
 selves, to whom it belongs. This right is generally called the "part- 
 ner's lien." It differs from a common-law lien in that it is not de- 
 pendent on possession, and any single partner can convey a good title 
 to specific chattels by a bona fide sale in the covtrse of trade; and a 
 lien does not involve the right to deal with the property, whereas the 
 partner's equity is a right to have it applied for certain purposes, and 
 the one partner cannot assert the lien as a sole plaintiff. The existence 
 of this equity may be explained in a variety of ways, as on an implied 
 contract that. the assets shall not be used for private purposes; on 
 the doctrine of suretyship, since each partner is liable in solido for 
 the debts, and therefore, inter se, virtually a surety for the copartners 
 for their proportions, and entitled to have the assets applied so as to 
 relieve him. The partners have jointly the same right of absolute 
 disposition of their joint property that any individual has. They may 
 sell it, pledge it, convert it into other forms, divide it up among them- 
 selves, devote it to the payment of all or part of the debts, or exercise 
 other ownership over it, subject only to each other's rights, and to the 
 operation of statutes forbidding voluntary or fraudulent conveyances, 
 to hinder, delay, and defraud creditors. 
 
 It is clear from what has preceded that while the partnership is 
 solvent and going on the partners may, by unanimous assent or joint 
 act, do what they please with the assets, if the act is bona fide. Where 
 in such case, one partner sells or assigns his interest to the other, 
 bona fide, for a valuable consideration, or an agreement to pay the 
 debts of the firm, and indemnify against them, this will change the 
 joint into a separate property. The only question is upon the bona 
 fides of the transaction. If such an arrangement could not be made,, 
 a partner never could retire. Bates, Partn. §§559, 820, 824; Story, 
 Partn. §§ 97, 360. On the other hand, according to the better reason 
 and the weight of authority, if the firm is insolvent, or on the eve of 
 insolvency, and both of the partners are insolvent, a purchase by one 
 partner of the interest of the other, in consideration of the former's 
 assumption of all the debts of the firm, will be regarded as a purchase 
 upon a consideration which is of no value whatever ; and, no equiva- 
 lent having been given, the transfer is in effect voluntary, and its only 
 effect, if sustained, would be to hinder partnership creditors, and hence 
 is deemed ineffectual to convert the joint property into separate prop- 
 erty, as against the firm creditors. * * * 
 
 In the case at bar the firm as well as the individual partners were in- 
 debted, to insolvency, at the time the. contract of dissolution was made 
 by the' terms of which Gilligan assumed to pay, not only the debts of 
 the firm, but $1,000 to Burns. As the firm and Gilligan were then^ 
 
1364 PARTNERSHIP (Part 5 
 
 both insolvent, there was no valuable consideration for either this 
 assumption of the firm debts or said $1,000. Less than two months 
 after this transaction, Gilligan, without paying a single firm debt, so 
 far as the record shows, assigned all the assets in such a manner as 
 to devote the whole of them to the payment of his individual debts. 
 It seems to me plain that to uphold this scheme, against the rights of 
 the social creditors, would violate, not only the general principles of 
 equity, but the express provisions of our statute against voluntary and 
 fraudulent conveyances. It is, however, claimed for the appellees 
 that if this transaction is held void as to the firm creditors, then, for 
 the hke reasons^ the act of Gilligan in putting his own stock of goods 
 into the firm must be held void as to his individual creditors. But 
 there is no analogy in the two transactions. It does not appear that 
 either Burns or Gilligan was insolvent at that time, and it does ap- 
 pear that Burns paid into the concern $1,000, and also that the debts 
 due the plaintiffs and others were contracted by the firm on the faith 
 of the social assets. 
 
 For these reasons the decree of the circuit court is reversed, and 
 the cause remanded. * * * 
 
C^- '^) UMITED PARTNERSHIPS 136l 
 
 CHAPTER VII 
 LIMITED PARTNERSHIPS 
 
 EXPLANATORY NOTE AS TO THE UNIFORM LIMITED 
 PARTNERSHIP ACT BY WILLIAM DRAPER LEWIS. " 
 
 The business reason, for the adoption of acts making provisions 
 for limited or special partners is that men in business often desire 
 to secure capital from others. There are at least three classes of 
 contracts which can be made with those from whom the capital 
 is secured: One, the ordinary loan on interest; another, the loan 
 where the lender, in lieu of interest, takes a share in the profits of 
 the business; third, those cases in which the person advancing 
 the capital secures, besides a share in the profits, some measure 
 of control over the business. 
 
 At first, in the absence of statutes, the courts, both in this coun- 
 try and in England, assumed that one who is interested in a busi- 
 ness is bound by its obligations, carrying the application of this 
 principle so far, that a contract where the only evidence of inter- 
 est was a share in the profits made one who supposed himself a 
 lender, and who was probably unknown to the creditors at the 
 times they extended their credits, unlimitedly liable as a partner 
 for the obligations of those actually conducting the business. 
 
 Later decisions have much modified the earlier cases. The lend- 
 er, who takes a share in the profits, except possibly in one or two 
 of our jurisdictions, does not by reason of that fact run a risk of 
 being held as a partner. If, however, his contract falls within the 
 third class mentioned, and he has any measure of control over the 
 business, he at once runs serious risk of being held liable for the 
 debts of the business as a partner; the risk increasing as he in- 
 creases the amount of his control. 
 
 The first Limited Partnership Act was adopted by New York 
 in 1822 ; the other commercial states, during the ensuing 30 years, 
 following her example. Most of the statutes follow the language 
 of the New York statute, with little material alteration. These 
 statutes were adopted, and to a considerable degree interpreted by the 
 courts, during that period when it was generally held that any interest 
 in a business should make the person holding the interest liable for 
 its obligations. As a result the courts usually assume in the in- 
 terpretation of these statutes two principles as fundamental-: 
 
 First. That a limited (or as he is also called a special) partner 
 is a partner in all respects like any other partner, except that, to 
 obtain the privilege of a limitation on his liability, he has con- 
 
 1 Proceedings of the Twenty-Sixth Annual Meeting of National Conference 
 of Commissioners on Uniform State Laws, p. 384 (1916). 
 
1366 PARTNERSHIP (Part 5 
 
 formed to the statutory requirements in respect to filing a certifi- 
 cate and refraining from participation in the conduct of .the busi- 
 ness. 
 
 Second. The limited partner, on any failure to follow the re- 
 quirements in regard to the certificate or any participation in the 
 conduct of his business, loses his privilege of limited liability and 
 becomes, as far as those dealing with the business are concerned, 
 in all respects a partner. 
 
 The courts in thus interpreting the statutes, although they made 
 an American partnership with limited members something very 
 different from the French Societe en Commandite, from which the 
 idea of the original statutes was derived, unquestionably carried 
 out the intent of those responsible for their adoption. This is 
 shown by the very wording of the statutes themselves. For in- 
 stance, all the statutes require that all partners, limited and gen- 
 eral, shall sign the certificate, and nearly all state that: "If any 
 false statement be made in such certificate all the persons inter- 
 ested in such partnership shall be liable for all the engagements 
 thereof as general partners." 
 
 The practical result of the spirit shown in the language and in 
 the interpretation of existing statutes, coupled with the fact that 
 a man may now lend money to a partnership and take a share in 
 the profits in lieu of interest, without running serious danger of 
 becoming bound for partnership obligations, has, to a very great 
 extent, deprived the existing statutory provisions for limited part- 
 ners of any practical usefulness. Indeed, apparently their use is 
 largely confined to associations in which those who conduct the 
 business have not more than one limited partner. 
 
 One of the causes forcing business into the corporate form, in 
 spite of the fact that the corporate form is ill suited to many busi- 
 ness conditions, is the failure of the existing limited partnership 
 acts to meet the desire of the owners of a business to secure nee-, 
 essary capital under the existing limited partnership form of busi- 
 ness association. 
 
 The draft herewith submitted proceeds on the following as- 
 sumptions : 
 
 First. No pvjblic policy requires a person who contributes to the 
 capital of a business, acquires an interest in the profits, and some 
 degree of control over the conduct of the business, to become 
 bound for the obligations of the business, provided creditors have 
 no reason to believe at the times their credits were extended that 
 such person was so bound. 
 
 Second. That persons in business should be able, while remain- 
 ing themselves liable without limit for the obligations contracted 
 in its conduct, to associate with themselves others who contribute 
 to the capital and acquire rights of ownership, provided that such 
 contributors do not compete with creditors for the assets of the 
 partnership. 
 
Ch. 7) LIMITED PAETNERSHIPS 1367 
 
 The attempt to carry out these ideas has led to the incorpora- 
 tion into the draft submitted of certain features, not found in, or 
 dififering from, existing limited partnership acts : 
 
 First. In the draft, the person who contributes the capital, 
 though in accordance with custom called a limited partner, is not 
 in any sense a partner. He is, however, a member of the associa- 
 tion. See section 1. 
 
 Second. As limited partners are not partners securing limited 
 liability by filing a certificate, the association is formed when sub- 
 stantial compliance, in good faith, is had with the requirements 
 for a certificate. Section 2 (2). This provision eliminates the 
 difficulties which arise from the recognition of de facto associa- 
 tions, made necessary by the assumption that the association is 
 not formed, unless a strict compliance with the requirements of 
 the act is had. 
 
 Third. The limited partner not being in any sense a principal in 
 the business, failure to comply with the requirements of the act in 
 respect to the certificate, while it may result in the non-formation 
 of the association, does not make him a partner or liable as such. 
 The exact nature of his liability in such cases is set forth, in sec- 
 tion 11. 
 
 Fourth. The limited partner, while not as such in any sense a 
 partner, may become a partner as any person not a member of the 
 association may become a partner, and, becoming a partner, may 
 nevertheless retain his rights as limited partner; this last provi- 
 sion enabling the entire capital embraced in the business to be di- 
 vided between the limited partners, all the general partners being 
 also limited partners. Section 12. 
 
 Fifth. The limited partner is not debarred from loaning money 
 or transacting other business with the partnership as any other 
 non-member, provided he does not, in respect to such transactions, 
 accept from the partnership collateral security, or receive from 
 any partner or the partnership any payment, conveyance, or re- 
 lease fom liability, if at the time the assets of the partnership are 
 not sufficient to discharge its obligations to persons not general or 
 limited partners. Section 13. 
 
 Sixth. The substitution of a person as limited partner in place 
 of an existing limited partner, or the withdrawal of a limited part- 
 ner, or the addition of new limited partners, does not necessarily 
 dissolve the association. Sections 8, 16 (2b). No limited partner, 
 however, can withdraw his contribution until all liabilities to credi- 
 tors are paid. Section 16 (la). 
 
 Seventh. As limited partners are not principals in transactions 
 of the partnership, their liability, except for known false state- 
 ments in the certificate (section 7), is to the partnership, not to 
 creditors of the partnership (section 17). The general partners 
 cannot, however, waive any liability of the limited partners to the 
 prejudice of such creditors. Section 17 (3). 
 
1368 PAETNERSHip (Part 5 
 
 UNIFORM LIMITED PARTNERSHIP ACT 
 Section 1. Limited Partnership Defined. A limited partnerr 
 ship is a partnership formed by two or more persons under the 
 provisions of section 2, having as members one or more general 
 partners and one or more limited partners. The limited partners 
 as such shall not be bound by the obligations of the partnership. 
 
 Section 2. Formation. (1) Two or more persons desiring to 
 form a limited partnership shall 
 
 (a) Sign and swear to a certificate, which shall state— 
 
 I. The name of the partnership ; 
 
 II. The character of the business; 
 
 III. The location of the principal place of business; 
 
 IV. The name and place of residence of each member; general 
 and limited partners being respectively designated; 
 
 V. The term for which the partnership is to exist; 
 
 VI. The amoimt of cash and a description of and the agreed val- 
 ue of the other property contributed by each limited partner; 
 
 VII. The additional contributions, if any, agreed to be made by 
 each limited partner and the times at which or events on the hap- 
 pening of which they shall be made ; 
 
 VIII. The time, if agreed upon, when the contribution of each 
 limited partner is to be returned ; 
 
 IX. The share of the profits or the other compensation by way 
 of income which each limited partner shall receive by reason of 
 his contribution; 
 
 X. The right, if given, of a limited partner to substitute an as- 
 signee as contributor in his place, and the terms and conditions 
 of the substitution; 
 
 XL The right, if given, of the partners to admit additional lim- 
 ited partners; 
 
 XII. The right, if given, of one or more of the limited partners 
 to priority over other limited partners, as to contributions or as 
 to compensation by way of income, and the nature of such prior- 
 ity; 
 
 XIII. The right, if given, of the remaining general partner or 
 partners to continue the business on the death, retirement or in- 
 sanity of a general partner ; and 
 
 XIV. The right, if given, of a limited partner to demand and 
 receive property other than cash in return for his contribution. 
 
 (b) File for record the certificate in the office of (here designate 
 the proper office). 
 
 (2) A limited partnership is formed if there has been substantial 
 compliance in good faith with the requirements of paragraph (1). 
 
 Section 3, Business Which may be Carried on. A limited part- 
 nership may carry on any business which a partnership without 
 limited partners may carry on, except (here designate the busi- 
 ness to be prohibited). 
 
^h. 7) LIMITED PARTNERSHIPS 1369 
 
 Section 4. Character of Limited Partner's Contribution. The 
 contribution of a limited partner may be cash or other property, 
 but not services. 
 
 Section 5. A Name Not to Contain Surname of Limited Part- 
 ner — Exceptions. (1) The surname of a limited partner shall not 
 appear in the partnership name, unless — 
 
 (a) It is also the surname of a general partner ; or 
 
 (b) Prior to the time when the limited partner became such the 
 business had been carried on under a name in which his surname 
 appeared. 
 
 (2) A limited partner whose name appears in a partnership 
 name contrary to the provisions of paragraph (1) is liable as a 
 general partner to partnership creditors who extend credit to the 
 partnership without actual knowledge that he is not a general 
 partner. 
 
 Section 6. Liability for False Statements in Certificate. If the 
 certificate contains a false statement, one who suffers loss by re- 
 liance on such statement may hold liable any party to the certifi- 
 cate who knew the statement to be false — 
 
 (a) At the time he signed the certificate; or 
 
 (b) Subsequently, but within a sufficient time before the state- 
 ment was relied upon to enable him to cancel or amend the cer- 
 tificate, or to file a petition for its concellation or amendment as 
 provided in section 25 (3). 
 
 Section 7. Limited Partner Not Liable to Creditors. A limit- 
 ed partner shall not become liable as a general partner unless, in 
 addition to the exercise of his rights and powers as a limited part- 
 ner, he takes part in the control of the business. 
 
 Section 8. Admission of Additional Limited PcU-tners. After 
 the formation of a limited partnership, additional limited partners 
 may be admitted upon filing an amendment to the original cer- 
 tificate in accordance with the requirements of section 25. 
 
 Section 9. Rights, Powers and Liabilities of a General Part- 
 ner. (1) A general partner shall have all the rights and powers 
 and be subject to all the restrictions and liabilities of a partner in 
 a partnership without limited partners, except that without the 
 written consent or ratification of the specific act by all the limited 
 partners, a general partner or all of the general partners have no 
 authority to — 
 
 (a) Do any act in contravention of the certificate; 
 
 (b) Do any act which would make it impossible to carry on the 
 ordinary business of the partnership; 
 
 (c) Confess a judgment against the partnership; 
 
 (d) Possess partnership property, or assign their rights in spe- 
 cific partnership property, for other than a partnership purpose; 
 
 (e) Admit a person as a general partner; 
 
 (f) Admit a person as a limited partner, unless the right so to 
 do is given in the certificate; 
 
1370 PARTNERSHIP (Part 5 
 
 (g) Continue the business with partnership property on the 
 death, retirement or insanity of a general partner, unless the right 
 so to do is given in the certificate. 
 
 Section 10. Rights of a Limited Partner. (1) A limited part- 
 ner shall have the same ricrhts a<5 a general partner to — 
 
 (a) Have the partnership books kept at the principal place of 
 business of the partnership, and at all times to inspect and copy 
 any of them; 
 
 (b) Have on demand true and full information of all things af- 
 fecting the partnership, and a formal account of partnership af- 
 fairs whenever circumstances render it just and reasonable; and 
 
 (c) Have dissolution and winding up by decree of court. 
 
 (2) A limited partner shall have the right to receive a share of 
 the profits or other compensation by way of income, and to the 
 return of his contribution as provided in sections 15 and 16. 
 
 Section 11. Status of Person Erroneously Believing Himself 
 a Limited Partner. A person who has contributed to the capital 
 of a business conducted by a person or partnership erroneously 
 believing that he has become a limited partner in a limited part- 
 nership, is not, by reason of his exercise of the rights of a limited 
 partner, a general partner with the person or in the partnership 
 carrying on the business, or bound by the obligations of such per- 
 son or partnership; provided that on ascertaining the mistake he 
 promptly renounces his interest in the profits of the business, or 
 other compensation by way of income. 
 
 Section 12. One Person Both General and Limited Partner. 
 (1) A person may be a general partner and a limited partner in 
 the same partnership at the same time. 
 
 (2) A person who is a general, and also at the same time a lim- 
 ited partner, shall have all the rights and powers and be subject 
 to all the restrictions of a general partner ; except that, in respect to 
 his contribution, he shall have the rights against the other mem- 
 bers which he would have had if he were not also a general part- 
 ner. 
 
 Section 13. Loans and Other Business Transactions with Lim- 
 ited Partner. (1) A limited partner also may loan money to and 
 transact other business with the partnership, and, unless he is also 
 a general partner, receive on account of resulting claims against 
 the partnership, with general creditors, a pro rata share of the as- 
 sets. No limited partner shall in respect to any such claim — 
 
 (a) Receive or hold as collateral security any partnership prop- 
 erty; or 
 
 (b) Receive from a general partner or the pjirtnership any pay- 
 ment, conveyance, or release from liability, if at the time the as- 
 sets of the partnership are not sufficient to discharge partnership 
 liabilities to persons not claiming as general or limited partners. 
 
 (2) The receiving of collateral security, or a payment, convey- 
 ance, or release in violation of the provisions of paragraph (1) is a 
 fraud on the creditors of the partnership. 
 
^^' '^) LIMITED PARTNERSHIPS 1371 
 
 Section 14. Relation of Limited Partners Inter Se. Where 
 there are several limited partners, the members may agree that 
 one or more of the limited partners shall have a priority over other 
 limited partners as to the return of their contributions, as to their 
 compensation by way of income, or as to any other matter. If 
 such an agreement is made it shall be stated in the certificate, and 
 in the absence of such a statement all the limited partners shall 
 stand upon equal footing. 
 
 Section 15. Compensation of Limited Partner. A limited part- 
 ner may receive from the partnership the share of the profits or 
 the compensation by way of income stipulated for in the certifi- 
 cate; provided, that after such payment is made, whether froml 
 the property of the partnership or that of a general partner, the 
 partnership assets are in excess of all liabilities of the partnership 
 except liabilities to limited partners on account of their contribu- 
 tions and to general partners. 
 
 Section 16. Withdrawal or Reduction of Limited Partner's 
 Contribution. (1) A limited partner shall not receive from a gen- 
 eral partner or out of partnership property any part of his contri- 
 bution imtil — 
 
 (a) All liabilities of the partnership, except liabilities to gen- 
 eral partners and to limited partners on account of their contribu- 
 tions, have been paid or there remains property of the partnership 
 sufficient to pay them; 
 
 (b) The consent of all members is had, unless the return of the 
 contribution may be rightfully demanded under the provisions of 
 paragraph (2) ; and 
 
 (c) The certificate is cancelled or so amended as to set forth the 
 withdrawal or reduction. 
 
 (2) Subject to the provisions of paragraph (1) a limited part- 
 ner may rightfully demand the return of his contribution — 
 
 (a) On the dissolution of a partnership; or 
 
 (b) When the date specified in the certificate for its return has 
 arrived ; or 
 
 (c) After he has given six months' notice in writing to all other 
 members, if no time is specified in the certificate either for the re- 
 turn of the contribution or for the dissolution of the partnership. 
 
 (3) In the absence of any statement in the certificate to the 
 contrary, or the consent of all members, a limited partner, irre- 
 spective of the nature of his contribution, has only the right to 
 demand and receive cash in return for his cpntribution. 
 
 (4) A limited partner may have the partnership dissolved and 
 its affairs wound up when — 
 
 (a) He rightfully but unsuccessfully demands the return of his 
 contribution ; or 
 
 (b) The other liabilities of the partnership have not been paid, 
 or the partnership property is insufficient for their payment as re- 
 quired by paragraph (la) and the limited partner would otherwise 
 be entitled to the return of his contribution. 
 
1372 PARTNERSHIP (Part 5 
 
 Section 17. Liability of Limited Partner to Partnership. (1) 
 A limited partner is liable to the partnership — 
 
 (a) For the difference between his contribution as actually made 
 and that stated in the certificate as having been made ; and 
 
 (b) For any unpaid contribution which he agreed in the cer- 
 tificate to make in the future at the time and on the conditions 
 stated in the certificate. 
 
 (2) A limited partner holds as trustee for the partnership — 
 
 (a) Specific property stated in the certificate as contributed 
 by him, but which was not contributed or which has been wrong- 
 fully returned; and 
 
 (b) Money or other property wrongfully paid or conveyed to 
 him on accoimt of his contribution. 
 
 (3) The liabilities of a limited partner as set forth in this sec- 
 tion can be waived or compromised only by the consent of all 
 members; but a waiver or compromise shall not affect the right 
 of a creditor of a partnership, who extended credit or whose claim 
 arose after the filing and before a cancellation or amendment of 
 the certificate, to enforce such liabilities. 
 
 (4) When a contributor has rightfully received the return in 
 whole or in part of the capital of his contribution, he is neverthe- 
 less liable to the partnership for any sum, not in excess of such 
 return with interest, necessary to discharge its liabilities to all 
 creditors who extended credit or whose claims arose before such 
 return. 
 
 Section 18. Nature of Limited Partner's Interest in Partner- 
 ship. A limited partner's interest in the partnership is personal 
 property. 
 
 Section 19. Assignment of Limited Partner's Interest. (1) A 
 limited partner's interest is assignable. 
 
 (2) A substituted limited partner is a person admitted to all the 
 rights of a limited partner who has died or has assigned his inter- 
 est in a partnership. 
 
 (3) An assignee, who does not become a substituted limited 
 partner, has no right to require any information or account of the 
 partnership transactions or to inspect the partnership books; he 
 is only entitled to receive the share of the profits or other compen- 
 sation by way of income, or the return of his contribution, to wjiich 
 his assignor would otherwise be entitled. 
 
 (4) An assignee shall have the right to become a substituted 
 limited partner if all the members (except the assignor) consent 
 thereto or if the assignor, being thereunto empowered by the cer- 
 tificate, gives the assignee that right. 
 
 (5) An assignee becomes a substituted limited partner when 
 the certificate is appropriately amended in accordance with sec- 
 tion 25. 
 
 (6) The substituted limited partner has all the rights and pow- 
 ers, and is subject to all the restrictions and liabilities of his as- 
 signor, except those liabilities of which he was ignorant at the 
 
Ch. 7) LIMITED PARTNERSHIPS 1373 
 
 time he became a limited partner and which could not be ascer- 
 tained from the certificate. 
 
 (7) The substitution of the assignee as a limited partner does 
 not release the assignor- from liability to the partnership under 
 sections 6 and 17. 
 
 Section 20. Effect of Retirement, Death or Insanity of a Gen- 
 eral Partner. The retirement, death or insanity of a general part- 
 ner dissolves the partnership, imless the business is continued by 
 the remaining general partners — 
 
 (a) Under a right so to do stated in the certificate; or 
 
 (b) With the consent of all members. 
 
 Section 21. Death of Limited Partner. (1) On the death of 
 a limited partner his executor or administrator shall have all the 
 rights of a limited partner for the pur.pose of settling his estate, 
 and such power as the deceased had to constitute his assignee a 
 substituted limited piartner. 
 
 (2) The estate of a deceased limited partner shall be liable for 
 all his liabilities as a limited partner. 
 
 Section 22. Rights of Creditors of Limited Partner. (1) On 
 due application to a court of competent jurisdiction by any judg- 
 ment creditor of a limited partner, the court may charge the in- 
 terest of the indebted limited partner with payment of the unsat- 
 isfied amount of the judgment debt; and may appoint a receiver, 
 and make all other orders, directions, and inquiries which the cir- 
 cumstances of the case may require. 
 
 In those states where a creditor on beginning an action can at- 
 tach debts due the defendant before he has obtained a judgment 
 against the defendant it is recommended that paragraph 1 of this 
 section read as follows : 
 
 On due application to a court of competent jurisdiction by any 
 creditor of a limited partner, the court may charge the interest of 
 the indebted limited partner with payment of the unsatisfied 
 amount of such claim; and may appoint a receiver, and make all 
 other orders, directions, and inquiries which the circumstances of 
 the case may require. 
 
 (2) The interest may be redeemed with the separate property 
 of any general partner, but may not be redeemed with partner- 
 ship property. 
 
 (3) The remedies conferred by paragraph (1) shall not be 
 deemed exclusive of others which may exist. 
 
 (4) Nothing in this act shall be held to deprive a limited part- 
 ner of his statutory exemption. 
 
 Section 23. Distribution of Assets. (1) In settling accounts 
 after dissolution the liabilities of the partnership shall be entitled 
 to payment in the following order: 
 
 (a)' Those to creditors, in the order of priority as provided by 
 law, except those to limited partners on account of their contribu- 
 tions, and to general partners; 
 
1374 PARTNERSHIP (Part 5 
 
 (b) Those to limited partners in respect to their share of the 
 profits and other compensation by way of income on their con- 
 tributions ; 
 
 (c) Those to limited partners in respect to the capital of their 
 contributions ; 
 
 (d) Those to general partners other than for capital and profits ; 
 
 (e) Those to general partners in respect to profits; 
 
 (f) Those to general partners in respect to capital. 
 
 (2)' Subject to any statement in the certificate or to subsequent 
 agreement, limited partners share in the partnership assets in 
 respect to their claiiris for capital, and in respect to their claims 
 for profits or for compensation by way of income on their con- 
 tributions respectively, in proportion to the respective amounts 
 of such claims. 
 
 Section 24. When Certificate Shall be Cancelled or Amended. 
 
 (1) The certificate shall be cancelled when the partnership is 
 dissolved or all limited partners cease to be such. 
 
 (2) A certificate shall be amended when — 
 
 (a) There is a change in the name of the partnership^ or in the 
 amount or character of the contribution of any limited partner; 
 
 (b) A person is substituted as a limited partner; 
 
 (c) An additional limited partner is admitted; 
 
 (d) A person is admitted as a general partner; 
 
 (e) A general partner retires, dies, or becomes insane, and the 
 business is continued under section 20; 
 
 (f) There is a change in the character of the business of the 
 partnership ; 
 
 (g) There is a false or erroneous statement in the certificate; 
 (h) There is a change in the time as stated in the certificate for 
 
 the dissolution of the partnership or for the return of a contribu- 
 tion ; 
 
 (i) A time is fixed for the dissolution of the partnership, or the 
 return of a contribution, no time having been specified in the cer- 
 tificate; or 
 
 (j) The members desire to make a change in any other state- 
 ment in the certificate in order that it shall accurately represent 
 the agreement between them. 
 
 Section 25. Requirements for Amendment and for Cancella- 
 tion of Certificate. (1) The writing to amend a certificate shall — 
 
 (a) Conform to the requirements of section 2 (la) as far as nec- 
 essary to set forth clearly the change in the certificate which it is 
 desired to make; and 
 
 (b) Be signed and sworn to by all members, and an amendment 
 substituting a limited partner or adding a limited or general part- 
 ner shall be signed also by the member to be substituted or added, 
 and when a limited partner is to be substituted, the amendment 
 shall also be signed by the assigning limited partner. 
 
 (2) The writing to cancel a certificate shall be signed by all 
 anembers. 
 
Ch. 7) LIMITED PARTNERSHIPS 1375 
 
 (3) A person desiring the cancellation or amendment of a cer- 
 tificate, if any person designated in psiragraphs (1) and (2) as a 
 person who must execute the writing refuses to do so, may peti- 
 tion the (here designate the proper court) to direct a cancellation 
 or amendment thereof. 
 
 (4) If the court finds that the petitioner has a right to have the 
 writing executed by a person who refuses to do so, it shall order 
 the (here designate the -responsible official in the office designated 
 in section 2) in the office where the certificate is recorded to record 
 the cancellation or amendment of the certificate; and where the 
 certificate is to be amended, the coiu't shall also cause to be filed 
 for record in said office a certified copy of its decree setting forth 
 the amendment. 
 
 (5) A certificate is amended or canceled when there is filed for 
 record in the office (here designate the office designated in section 
 2) where the certificate is recorded — 
 
 (a) A writing in accordance with the provisions of paragraph 
 (1), or (2); or 
 
 (b) A certified copy of the order of court in accordance with the 
 provisions of paragraph (4). 
 
 (6) After the certificate is duly amended in accordance with this 
 section, the amended certificate shall thereafter be for all purposes 
 the certificate provided for by this act. 
 
 Section 26. Parties to Actions. A contributor, unless he is a 
 general partner, is not a proper party to proceedings by or against 
 a partnership, except where the object is to enforce a limited part- 
 ner's right against or liability to the partnership. 
 
 Section 27. Name of Act. This act may be cited as the Uni- 
 form Limited Partnership Act. 
 
 Section 28. Rules of Construction. (1) The rule that statutes 
 in derogation of the common law are to be strictly construed shall 
 have no application to this act. 
 
 (2) This act shall be so interpreted and construed as to effect 
 its general purpose to make uniform the law of those states which 
 enact it. 
 
 (3) This act shall not be so construed as to impair the obligations 
 of any contract existing when the act goes into effect, nor to affect 
 any action or proceedings begun or/right accrued before this act 
 takes effect. 
 
 Section 29. Rules for Cases Not Provided for in This Act. In 
 any case not provided for in this act the rules of law and equity, 
 including the law merchant, shall govern. 
 
 Section 30. Provisions for Existing Limited Partnerships. (1) 
 A limited partnership formed under any statute of this state prior 
 to the adoption of this act, may become a limited partnership un- 
 der this act by complying with the provisions of Section 2; pro- 
 vided the certificate sets forth — 
 
 (a) The amount of the original contribution of each limited part- 
 ner, and the time when the contribution was made ; and 
 
1376 PARTNERSHIP (Part 5 
 
 (b) That the property of the partnership exceeds the amount 
 sufficient to discharge its liabilities to persons not claiming as gen- 
 eral or limited partners by an amount greater than the sum of the 
 contributions of its limited partners. 
 
 (2) A limited partnership formed under any statute of this state 
 prior to the adoption of this act, until or unless it becomes a lim- 
 ited partnership under this act, shall continue to be governed by 
 the provisions of (here insert proper reference to the existing 
 limited partnership act or acts), except that such partnership shall 
 not be renewed unless so provided in the original agreement. 
 
 Section 31. Act (Acts) Repealed. Except as affecting exist- 
 ing limited partnerships to the extent set forth in section 30, the 
 act (acts) of (here designate the existing limited partnership act 
 or acts) is (are) hereby repealed. 
 
PART VI 
 CORPORATIONS 
 
 Chapter 
 
 Introduction. 
 I. Organization of a Corporation. 
 II. Contracts of Promoters. 
 III. Corporate Powers. 
 
 IV. The Relation of Stockholders to the Corporation. 
 V. The Relation of Creditors to the Corporation. 
 VI. Relation of the Corporation to the State. 
 
 INTRODUCTION 
 
 The law of private corporations is that branch of the law which 
 prescribes the rights and liabilities and other relations of the vari- 
 ous persons who may be interested in the conduct of a business 
 organized in a particular way. The law of partnerships and of 
 corporations taken together comprise what has been called the law 
 of business associations. The chapters devoted to the subject of 
 partnership have shown what the relations of the partners are as 
 between themselves and as to third parties under the normal cir- 
 cumstances which arise during the conduct of the business. The 
 law of private ■ corporations is similarly concerned with the estab- 
 lishment of a form of business organization which produces legal 
 relations of different nature and extent. 
 
 Surveying the broad outlines of the law of partnership, with a 
 view of determining whether or not, in the light of particular sit- 
 uations, it is desirable to establish and conduct a business enter- 
 prise in this form, the following aspects of the partnership form 
 of organization stand out rather distinctly: (1) Each partner is 
 liable individually for the debts of the firm. (2) The interest of 
 the individual partner in specific partnership property is not a 
 subject of transfer. (3) The interest of a partner in the partner- 
 ship — that is, his interest in the profits and surplus — ^may be trans- 
 ferred by him. (4) The interest of each partner to participate in 
 the management is not the subject of transfer. An individual part- 
 ner cannot, therefore, transfer to another person all of the rights, 
 privileges, and powers which he possesses. (4) The partnership 
 relation is of an unstable nature. It may readily be dissolved. 
 While a dissolution does not necessarily interrupt the continuance 
 of the business, the risk that it may seriously cripple the business 
 or terminate it is always present. These aspects of the partner- 
 ship relation from a business standpoint may be regarded as dis- 
 advantageous. 
 
 The economic reasons which have operated to produce the cor- 
 porate form of business organization are to be found in the desire 
 to devise some method by which individuals may combine their 
 B.& B.BUS.LAW— 87 (1377) 
 
1378 COEPOEATIONS (Part 6 
 
 resources for a common end witliout incurring these risks incident 
 to the partnership relation. Specifically, the desire is to establish 
 a form of organization which (1) eliminates the individual lia- 
 bility of each owner of the business for the debts of the business ; 
 (2) which enables an owner to transfer his entire interest with 
 respect to the business, his property interest, his interest with 
 respect to profits, and his privileges of participating in the man- 
 agement; and (3) which is not liable to interi'uption by the various 
 acts which cause a dissolution of a partnership. The law of cor- 
 porations accomplishes these objects. 
 
 Obviously, a group of individuals should not, of their own will, 
 be able to accomplish these results. The granting and exercise of 
 special privileges, such as these, ought to be and are within the 
 control of the state. A business possessing these incidents may 
 not, therefore, be organized without the consent of the state. 
 Individuals may secure these special privileges by a special act 
 of the state Legislature, where the Constitution does not forbid, 
 but it is much more common for the Legislature to enact a general 
 law prescribing the method of organization of business enterprises 
 in the corporate form. 
 
 It is common to speak of a corporation as though it were some- 
 thing separate and distinct from the members who compose it. It 
 is referred to as an intangible thing, as an entity. It is convenient 
 to so regard the corporation, and, when understood, simplifies the 
 discussion of problems incident to the conduct of a business by 
 individuals who by law possess these special privileges. But this 
 convenient designation of a group of individuals as a legal entity 
 should not blind one to the facts. Human beings conduct business. 
 Business requires capital. Capital must be contributed by indi- 
 viduals. A contribution of capital does not mean its transfer to 
 some other person necessarily. Nor may capital be contributed to 
 an intangible thing. An individual conducting his own business 
 contributes capital to that business by employing certain property 
 belonging to him with particular objects in view. Where two or 
 more persons combine their property for the purpose of using it 
 with a view to profit, this merely means that they commingle it, 
 sell it or permit it to be sold by others, or use it in the manufacture 
 of goods for sale. These are physical acts. The legal effect to be 
 given to them arises from the law. And so, where two or more 
 persons desire to engage in business with limited liability, with full 
 power of transferring their entire interest therein, and without 
 incurring the risks that the business be terminated by the death of 
 a member, a sale of the interest of a member, or otherwise, these 
 privileges are conferred upon them by their compliance with the 
 conditions established by law. After obtaining these privileges, it 
 is common to speak of the broad legal effect of these facts as the 
 organization of a corporation. 
 
 If A., B., and C. organize a partnership and also a corporation, 
 and conduct these two business enterprises in buildings side by 
 
INTRODUCTION 1379 
 
 side, the physical facts would appear very much alike; but the 
 legal relations between A., B., and C, and between A., B., C. and 
 third persons, would be very different, and sooner or later physical 
 facts would arise because of the relations which, to a close ob- 
 server, or even to a casual observer, would show that the two busi- 
 ness organizations were different. The law of corporations is 
 therefore taken up with the establishment of the legal relations be- 
 tween the parties so organized and the legal relations which may 
 arise between those conducting the business and third persons. 
 
 Just as in other branches of the law, the first question is to as- 
 certain what facts will operate to confer upon individuals these 
 special privileges. A statute authorizing the incorporation of 
 business enterprises will provide that certain acts must be done as 
 conditions precedent to the right to do business in the corporate 
 form. Usually these formalities are relatively simple. The par- 
 ties seeking incorporation must declare their intentions, state the 
 purposes for which they desire a charter, give the names of certain 
 interested parties, the amount of capital to be employed, the name 
 and location of the proposed business, etc. In other words, the 
 law will require the parties to make a fairly detailed disclosure of 
 their intentions, and will usually require that this information be 
 filed with some public officer, so that it will be open to the public. 
 A subordinate problem, but nevertheless an important one, arises 
 at this point. The law will not only prescribe what must be done 
 before the parties may be said to be incorporated, but also the law 
 must prescribe the effect of a failure to conform to these require- ' 
 ments. If the failures to comply with the statute were of the same 
 kind and degree, the problem would not be a difficult one; but the 
 various detailed requirements of a general incorporation act will 
 not all be of the same importance. Consequently a failure to com- 
 ply with some of the requirements may produce certain results, 
 while a failure to comply with other requirements may produce 
 quite different results. 
 
 Having established what constitutes a corporation, the gen- 
 eral problem thereafter is to determine the nature and extent of 
 the relations of the parties who have so organized themselves, and 
 to ascertain what their relations are to all other persons. 
 
1380 COKPOEATION8 (Part 6 
 
 CHAPTER I 
 ORGANIZATION OF A CORPORATION 
 
 Section 
 
 1. Effect of Complete Organization — The Corporate Entity. 
 
 2. When Corporate Entity may be Disregarded. 
 
 3. Effect of Incomplete Organization. 
 
 SECTION 1.— EFFECT OF COMPLETE ORGANIZATION- 
 THE CORPORATE ENTITY 
 
 PEOPLE ex rel. NATIONAIj EXP. CO. v. COI/EMAN et al., Tax 
 Commissioners. 
 
 (Court of Appeals of New York, 1892. 133 N. Y. 279, 31 N. E. 96, 
 16 I/. E. A. 183.) 
 
 Proceedings on the relation of Lock W. Winchester, as treasurer 
 of the National Express Company, to review the action of the tax com- 
 missioners in taxing the company on its capital stock as a corporation. 
 From a judgment of the general term, affirming a judgment of the 
 special term vacating the assessment, the commissioners appeal. 
 
 Finch, J. The relator was taxed upon its capital, on the ground 
 that it had become a corporation, within the meaning of the provision 
 of the Revised Statutes which enacts that "all moneyed or stock cor- 
 porations deriving an income or profit from their capital, or other- 
 wise, shall be liable to taxation on their capital in the manner here- 
 inafter prescribed." 1 Rev. St. pt. 1, c. 13, tit. 4, § 1. The company 
 was formed as a joint-stock company or association, in 1853, by a 
 written agreement of eight individuals with each other, the whole 
 force and, effect of which, in constituting and creating the organiza- 
 tion, rested upon the common-law rights of the individuals, and 
 their power to contract with each other. The relation they assumed 
 was wholly the product of their mutual agreement, and dependent 
 in no respect upon the grant or authority of the state. * * * 
 
 There is no doubt, therefore, that, when the company was formed 
 and went into operation, the law recognized a distinction and sub- 
 stantial difference between joint-stock companies and corporations, 
 and never confused one with the other; and that the existing stat- 
 ute which taxed the capital of corporations had no reference to or 
 operation upon joint-stock companies or associations. But two 
 things have since occurred. The legislature, while steadily preserving 
 the distinction of names, has, with equal persistence, confused the 
 things, by obliterating substantial and characteristic marks of dif- 
 ference ; until it is now claimed that the joint-stock associations have 
 grown into and become corporations by force of the continued be- 
 stowal upon them of corporate attributes. It is said, and very prob- 
 ably correctly said, that the legislature may create a corporation with- 
 out explicitly declaring it to be such, by the bestowal of a corporate 
 franchise or corporate attributes, and the cases of banking associa- 
 tions are referred to as instances of actual occurrence. * * * 
 
 It is added that such result may happen even without the legislative 
 
Ch. 1) ORGANIZATION OF A CORPORATION 1381 
 
 intent, and because the gift of corporate powers and attributes is 
 tantamount to a corporate creation. It is then asserted that a series 
 of statutes, beginning with the act of 1849, has ended in the gift to joint- 
 stock associations of every essential attribute possessed by and char- 
 acteristic of corporations (L,aws 1853, c. S3 ; Laws 1854, c. 245 ; Laws 
 1867, c. 289) ; that the lines of distinction between the two, however 
 far apart in the beginning, have steadily converged, until they have 
 melted into each other and become identical ; that every distinguishing 
 mark and characteristic has been obliterated; and no reason remains 
 why joint-stock associations should not be, in all respects, treated and 
 regarded as corporations. Some of this contention is true. 
 
 The case of People v. Wemple, 117 N. Y. 136, 22 N. E. 1046, 6 L. 
 R. A. 303, shows very forcibly how almost the full measure of cor- 
 porate attributes has, by legislative enactment, been bestowed upon 
 joint-stock associations, until the difference, if there be one, is obscure, 
 elusive, and difficult to see and describe. And yet the truth remains 
 that all along the line of legislation the distinctive names have been 
 retained as indicative and representative of a difference in the organi- 
 zations themselves. * * * > 
 
 This persistent distinction in the language of the statutes I should 
 not be inclined to disregard or treat as of no practical consequence, 
 when seeking to arrive at the true intent and proper construction 
 of the statute, even if I were unable to discover any practical or sub- 
 stantial difference between the two classes of organizations upon which 
 it could rest or out of which it grew ; for the distinction so sedulously 
 and persistently observed would strongly indicate the legislative intent, 
 ,and so the correct construction. 
 
 But I think there was an original and inherent difference between 
 the corporate and joint-stock companies, known to our law, which 
 legislation has somewhat obscured, but has not destroyed, and that 
 difference is the one pointed out by the learned counsel for the re- 
 spondent, and which impresses me as logical, and well supported by 
 authority. It is that the creation of the corporation merges in the 
 artificial body and drowns in it the individual rights and liabilities of 
 the members, while the organization of a joint-stock company leaves 
 the individual rights and liabilities unimpaired and in full force. The 
 idea was expressed in Supervisors of Niagara v. People, 7 Hill, 512, 
 and in Gifford v. Livingston, 2 Denio, 380, by the statement that the 
 corporators lost their individuality, and merged their individual char- 
 acters into one artificial existence ; and upon these authorities a cor- 
 poration is defined, on behalf of the respondents, to be "an artificial 
 person created by the sovereign from natural persons, and in which 
 artificial person the natural persons of which it is composed become 
 merged and nonexistent." 
 
 I am conscious that legal definitions invite and provoke criticism, 
 because the instances are rare in which they prove to be perfectly ac- 
 curate; and yet this one offered to us may be accepted, if it suc- 
 cessfully bears some sufficient test. In putting it on trial, we may 
 take the nature of the individual liability of the corporators on the one 
 hand, and of the associates on the other, for the debts contracted by 
 their respective organizations, as a sufficient test of the difference be- 
 tween them, and contrast their nature and character. It is an essen- 
 tial and inherent characteristic of a corporation that it alone is pri- 
 marily liable for its debts, because it alone contracts them, except as 
 
1382 ' CORPORATIONS * (Part 6 
 
 that natural and necessary consequence of its creation is modified in 
 the act of its creation by some expUcit command of the statute which 
 either imposes an express liability upon the corporators in the nature 
 of a penalty, or affirmatively retains and preserves what would have 
 been the common-law liability of the members from the destruction 
 involved in the corporate creation. In other words, the individual 
 liability of the members, as it would have existed at common law, 
 is lost by their creation into a corporation, and exists thereafter only 
 by force of the statute, upon some new and modifying conditions, to 
 some partial or changed extent, and so far preventing by the inter- 
 vention of an express command the total destruction of individual lia- 
 bilities which otherwise would flow from the inherent effect of the cor- 
 porate creation. The penalties sometimes imposed are of course new 
 statutory liabilities which never, at common law, rested upon the indi- 
 vidual members. The retained liability occasionally established is in 
 the nature and a parcel of such original liability, as we had occasion 
 to show in Rogers v. Decker, 131 N. Y. 490, 30 N. E. 571, but is re- 
 tained by force of the express command of the statute, and in that man- 
 ner saved from the destruction which otherwise would follow the 
 simple creation of the corporation. Ordinarily these individual liabil- 
 ities exist upon other than common-law conditions, and make the cor- 
 porators rather sureties or guarantors of the corporation than original 
 debtors, since in general their Hability arises after the usual remedies 
 against the corporation have been exhausted. But, where that is not 
 so, the invariable truth is that the creation of the corporation nec- 
 essarily destroys the common-law liability of the individual members 
 for its debts, and requires at the hands of the creating power an affirm- 
 ative imposition of new personal liabilities, or a specific retention of 
 old ones from the destruction which would otherwise follow. 
 
 Exactly the opposite is true of joint-stock companies. Their for- 
 mation destroys no part or portion of their common-law liability for 
 the debts contracted. Those debts are their debts, for which they 
 must answer. Permission to sue their president or ti'easurer is only 
 a convenient mode of enforcing that liability, but in no manner cre- 
 ates or saves it. The statute of 1853 did interfere with it. That act re- 
 quired, in the first instance, a suit against the president or treasurer, 
 and so a preliminary exhaustion of the joint property. But that act 
 was modal, and determined the procedure. It suspended the common- 
 law right, but recognized its existence. We so held in Witherhead 
 V. Allen, 4 Abb. Dec. 628, and at the same time said that the associa- 
 tions were not corporations, but mere partnership concerns. Even 
 that mode of procedure has been modified by the Code, (sections 1922, 
 1923,) so that the creditor, at his option, may sue the associates without 
 first bringing his action gainst the president or treasurer. These last 
 and quite recent enactments show that the legislative intent is still to 
 preserve and not destroy the original difference between the two 
 classes of organizations; to maintain in full force the corpmon-law 
 hability of associates, and not to substitute for it that of corporators ; 
 and, preserving in continued operation that normal and distinctive 
 difference, to evince a plain purpose not to merge the two organiza- 
 tions in one, or destroy the boundaries which separate them. That 
 intent, once clearly ascertained, determines the construction to be 
 adopted, and may be the only reliable test in view of the power of the 
 state to clothe one organization with all the attributes of the other. 
 
Ch. 1) ORGANIZATION OF A CORPORATION 1383 
 
 The drift of legislation has been to lessen and obscure the original 
 and characteristic dilTerence. On the one hand, corporations have 
 been created with positive provisions retaining more or less the indi- 
 vidual liability of the members, and on the other, the joint-stock com- 
 panies have been clothed with most of the corporate attributes ; but 
 enough of the original difiference remains to show that our legislation 
 not only carefully preserves the distinction of names, but sufficient, 
 also, of the original difference of character and quality to disclose a 
 clear intent not to merge the two. We may thus see upon what the 
 legislative intent to preserve them as separate and distinct is founded, 
 and what distinguishing characteristics remain. The formation of the 
 one involves the merging and destruction of the common-law liability 
 of the members for the debts, and requires the substitution of a new, 
 or retention of the old, liability by an affirmative enactment which 
 avoids the inherent effect of the corporate creation; in the other 
 the common-law liability remains unchanged and unimpaired, and 
 needing no statutory intervention to preserve or restore it. The debt 
 of the corporation is its debt, and not that of its members ; the debt of 
 the joint-stock company is the debt of the associates, however en- 
 forced. The creation of the corporation merges and drowns the liabiU 
 ity of its corporators; the creation of the stock company leaves un- 
 harmed and unchanged the liability of the associates. The one de- 
 rives its existence from the contract of individuals ; the other, from 
 the sovereignty of the state. The two are alike, but not the same. 
 More or less they crowd upon and overlap each other, but without 
 losing their identity ; and so, while we cannot say that the joint-stock 
 company is a corporation, we can say, as we did say, in Van Aernam 
 V. Bleistein, 102 N. Y. 360, 7 N. E. 537, that a joint-stock company is 
 a partnership, with some of the powers of a corporation. Beyond 
 that we do not think it is our duty to go. 
 
 The order should be affirmed, with costs. 
 
 BUTTON V. HOFFMAN. 
 
 (Supreme Court of AVisconsin, 1884. 61 Wis. 20, 20 N. W. 667, 
 30 Am. Kep. 131.) 
 
 Oeton, J. This is an action of replevin in which the title of the 
 plaintiff to the property was put in issue by the answer. In his in- 
 structions to the jury the learned judge of the circuit court said : "I 
 think the testimony is that the plaintiff had the title to the property." 
 The evidence of the plaintiff's title was that the property belonged 
 to a corporation known as "The Hayden & Smith Manufacturing 
 Company," and that he purchased and became the sole owner of all of 
 the capital stock of said corporation. As the plaintiff in his testimony 
 expressed it,^"I bought all the stock. I own all the stock now. I be- 
 came the absolute owner of the mill. It belonged at that time to the 
 company, and I am the company." There was no other evidence of 
 the condition of the corporation at the time. Is this sufficient evidence 
 of the plaintiff's title? We think not. The learned counsel of the 
 respondent in his brief says : "The property had formerly belonged to 
 the Hayden & Smith Manufacturing Company, but the respondent 
 had purchased and become the owner of all the stock of the company, 
 and thus became its sole owner." 
 
1384 CORPORATIONS (Part 6 
 
 From the very nature of a private business corporation, or, indeed, 
 of any corporation, the stockholders are not the private and joint 
 owners of its property. The corporation is the real, though artifi- 
 cial, person substituted for the natural person who procured its crea- 
 tion, and have pecuniary interests in it, in which all its property is 
 vested,"^ and by which it is controlled, managed, and disposed of. It 
 must purchase, hold, grant, sell, and convey the corporate property, 
 and do business, sue and be sued, plead and be impleaded, for cor- 
 porate purposes, by its corporate name. The corporation must do its 
 business in a certain 'way, and by its regularly appointed officers^ and 
 agents, whose acts are those of the corporation only as they are withm 
 the powers and purposes of the corporation. In an ordinary copart- 
 nership the members of it act as natural persons and as agents for 
 each other, and with unlimited liability. But not so with a corpora- 
 tion ; its members, as natural persons, are merged into the corporate 
 identity. * * * A share of the capital stock of a corporation is 
 defined to be a right to partake, according to the amount subscribed, 
 of the surplus profits obtained from the use and disposal of the cap- 
 ital stock of the company to those purposes for which the company is 
 constituted. * * * The corporation is the trustee for the manage- 
 ment of the property, and the stockholders are the mere cestui que 
 trust. * * * 
 
 The right of alienation or assignment of the property is in the cor- 
 poration alone, and this right is not affected by making the stockhold- 
 ers individually liable for the corporate debts. * * * The prop- 
 erty of the corporation is the mere instrument whereby the stock is 
 made to produce the profits, which are the dividends to be declared 
 from time to time by corporate authority for the benefit of the stock- 
 holders, while the property itself, which produces them, continues to 
 belong to the corporation. * * * The corporation holds its prop- 
 erty only for the purposes for which it was permitted to acquire it, 
 and even the corporation cannot divert it from such use, and a share- 
 holder has no right to it, or the profits arising therefrom, until a law- 
 ful division is made by the directors or other proper officers of the 
 corporation, or by judicial determination. * * * ji^ conveyance 
 of all the capital stock to a purchaser gives to such purchaser only an 
 equitable interest in the property to carry on business under the act of 
 incorporation and in the corporate name, and the corporation is still 
 the legal owner of the same. * * * A legal distribution of the 
 property after a dissolution of the corporation and settlement of its 
 affairs, is the inception of any title of a stockholder to it, although 
 he be the sole stockholder. * * * 
 
 These general principles sufficiently establish the doctrine that the 
 owner of all the capital stock of a corporation does not, therefore, own 
 its property, or any of it, and does not himself become the corpora- 
 tion, as a natural person, to own its property, and do its business in 
 his own name. While the corporation exists he is a mere stockhold- 
 er of it, and nothing else. The consequences of a violation of these 
 principles would be that the stockholders would be the private and 
 joint owners of the corporate property, and- they could assume the 
 powers of the cor-poratibn, and supersede its functions in its use and 
 disposition for their own benefit without personal liability, and thus 
 destroy the corporation, terminate its business, and defraud its cred"^ 
 itors. The stockholders would be the owners of the property, and, at 
 
Ch. 1) ORGANIZATION OP A CORPORATION 1385 
 
 thp same time, it would belong to the corporation. One stockholder 
 owning the whole capital stock could, of course, do what several stock- 
 holders could lawfully do. * * * 
 
 The want of title to the property being fatal to the plaintiff's re- 
 covery in the actiqn between the present parties, other alleged errors 
 will not be considered. 
 
 The judgment of the circuit court is reversed, and the cause re- 
 manded for a new trial. 
 
 COMMONWEALTH v. ILLINOIS CENT. R. CO. 
 
 (Court of Appeals of Kentucky, 1913. 152 Ky. 320, 153 S. W. 459, 
 45 L. R. A. [N. S.] 344, Ann. Cas. 1915B, 617.) 
 
 Settle, J. The appellee, Illinois Central Railroad Company, was 
 indicted in the court below for the crime of involuntary manslaughter, 
 committed, as, in substance, alleged, by its servants in charge of an 
 engine and cars, which they unlawfully and with gross and willful 
 negligence ran at unreasonable speed into another of appellee's cars, 
 in which John Benedict was a passenger, whereby the latter was killed. 
 The circuit court sustained a demurrer to and dismissed the indict- 
 ment, and from the judgment manifesting those rulings the common- 
 wealth has appealed. 
 
 The question presented for decision by the appeal, is: Will an in- 
 dictment lie against a corporation, such as a railroad company, for in- 
 voluntary manslaughter? The rule, as announced in the text-books 
 and by the decisions, is that a corporation cannot, in general, be in- 
 dicted for ordinary crimes and misdemeanors that involve a criminal 
 or immoral intent, such as are often grouped in books of the common 
 law under the threefold designation of treason, felony, or breach of 
 the peace. There has been no departure from the above rule in this 
 jurisdiction. We have, it is true, held that a corporation is liable to 
 indictment whenever the offense consists either in a misfeasance or non- 
 feasance of duties to the public, and the corporation can be reached 
 for punishment as by a fine and the seizure of its property; and that 
 if the penalty prescribed for the offense be both fine and imprisonment 
 the statute is inoperative as to the imprisonment, as that part of the 
 punishment cannot, from the nature of the oiifender, be carried out. 
 * * * 
 
 An interesting discussion of the doctrine in question is contained in 
 volume 5, §§ 5620 and 5621, Thompson on Corporations. In section 
 5621 it is, among other things, said: "Corporations cannot be indicted 
 for offenses which derive their criminality from evil intention, or which 
 consist in a violation of th-ose social duties which appertain to men 
 and subjects. They cannot be guilty of treason and felony; of perjury 
 or offenses against the person. But beyond this there is no good rea- 
 son for their exemption from the consequences of unlawful and wrong- 
 ful acts committed by their agents in pursuance of authority derived 
 from them. * * * Though a corporation is not subject to im- 
 prisonment, still it may be punished by a fine, and the fine may be en- 
 forced against its property, or it may have its charter forfeited for 
 
 3.t)tlSC ' 
 
 In section 5621 it is also said: "The corporation cannot be prose- 
 cuted for a crime, where the punishment prescribed cannot be imposed 
 upon a corporation. Thus a corporation cannot be indicted for a fel- 
 
1386 CORPORATIONS (Part 6 
 
 ony, because the punishment for felony is death or imprisonment. 
 But if the penalty provides for fine or imprisonment, then the corpo- 
 ration may be indicted, because punishment by fine may be imposed 
 for the offense. A corporation cannot, in the nature of things, be 
 guilty of treason, felony, or perjury. So a corporation cannot be 
 prosecuted for larceny, assault and battery, or homicide. But it has 
 been held that a corporation, owner of a steam vessel, may be guilty 
 of manslaughter under the federal statute, which provides that every 
 owner of a vessel through whose misconduct, fraud, or violation of 
 law lives are lost on such vessel, shall be deemed guilty of manslaugh- 
 ter, and upon conviction thereof shall be sentenced to confinement at 
 hard labor, though it cannot be subjected to the punishment imposed; 
 and this fact has been held not to affect the right of the government 
 to prosecute individuals under said statute, who aid and abet the cor- 
 poration in the commission of a crime." 1 Bishop's New Criminal Law, 
 §§ 417-419, 421, 422. * * * 
 
 The crimes murder and manslaughter are not defined by statute in 
 this state, though the punishment for the former and voluntary man- 
 slaughter is prescribed by statute, but both are defined by the common 
 law and accepted by the courts of the state as thereby defined. In- 
 voluntary manslaughter, a lesser degree of manslaughter, is an offense 
 at the common law for which no penalty is prescribed by statute in 
 this state; consequently the punishment inflicted upon persons con- 
 victed in the state of involuntary manslaughter is that prescribed by 
 the common law for the offense, viz., a fine in any amount, or impris- 
 onment in jail any length of time, or both, in the discretion of the 
 lurv. * * * 
 
 It is insisted for the commonwealth that, as involuntary manslaugh- 
 ter is but a misdemeanor, the commission of which does not require an 
 intent, it is an offense for which a corporation may be indicted, and, if 
 convicted, punished by a fine, although it could not be imprisoned in 
 jail, if imprisonment were a part of or all the punishment inflicted by 
 the verdict of the jury. This contention is, in our opinion, unsound 
 for two reasons: First, because, however certain its civil liability 
 therefor when committed by its servants in the apparent scope of their 
 authority, a corporation cannot be criminally prosecuted for offenses 
 against the person, such as assault and battery or homicide. Second, 
 because involuntary manslaughter is homicide, and homicide is the 
 killing of one human being by another human being. 
 
 Involuntary manslaughter is the killing by one person of another 
 person in doing some unlawful act not amounting to a felony, nor 
 likely to endanger life, and without an intention to kill, or where one 
 kills another while doing a lawful act in an unlawful manner. * * * 
 
 We are aware that section 457, Kentucky Statutes, declares that "the 
 word 'person' may extend and be applied to bodies politic and corpo- 
 rate, societies, communities, and the public generally, as well as in- 
 dividuals, partnerships, persons and joint stock companies." But in 
 a case of homicide, though it be involuntary manslaughter, it would, 
 we think, be giving the word "person" a tortured meaning to say that 
 it includes a corporation. The word "person" may include in its 
 meaning a corporation, but it does not in all cases necessarily do so. 
 Besides, as in homicide of whatever degree there must be a killing 
 by one person of another person, the word "another" can only mean 
 another member of the same class as the slayer, and a corporation, 
 
Ch. 1) ORGANIZATION OF A CORPORATION 1387 
 
 though a "person" in law, is but an artificial person, and therefore not 
 of the class to which the person slain belongs. * * * , 
 
 While the tendency of the later cases is to extend the doctrine of cor- 
 porate civil liability for torts involving personal violence to criminal 
 prosecutions, in most states in which that has been done, the indict- 
 ments provided for are designed mainly to furnish a civil remedy in 
 favor of the estate of the deceased, although in the form of a criminal 
 action ; therefore the decisions in those states are of little importance 
 in determining the question before us. 
 
 Manifestly, a corporation cannot be indicted for a form of homicide, 
 the only punishment for which is death or imprisonment ; for, being an 
 intangible thing, it cannot be subject to such penalties. But, as inti- 
 mated by the learned commentator in a footnote to People v. Rochester 
 R. & L. Co., 195 N. Y. 102, 88 N. E. 22, 21 L. R. A. (N. S.) 908, 133 
 Am. St. Rep. 770, 16 Ann. Cas. 837, as to the lesser degrees, at least 
 those not involving actual intent, for which the penalty prescribed may 
 be a fine, it would seem that an indictment might be made to lie, if 
 authorized by a statute including corporations. 
 
 It is patent, however, that we have no such statute in this state; 
 and the statute which provides that the word "person" may include a 
 corporation makes of the corporation only an artificial person, incapa- 
 ble, without a legislative enactment to that eflfect, of committing a crime 
 which the common law declares to be involuntary manslaughter. 
 
 In our view of the law the circuit court ruled correctly in sustaining 
 the demurrer. Wherefore the judgment is affirmed. 
 
 SECTION 2.— WHEN CORPORATE ENTITY MAY BE 
 DISREGARDED 
 
 PEOPLE V. NORTH RIVER SUGAR REFINING CO. 
 
 (Court of Appeals of New York, 1890. 121 N. Y. 582, 21 N. E. 834, 
 9 E. K. A. 3.3, 18 Am. St. Kep. 843.) 
 
 Action in the nature of a quo warranto brought by the people of 
 the state of New York for the forfeiture of defendant's corporate 
 franchises, and for its dissolution. From a judgment affirming a decree 
 for its dissolution defendant appeals. 
 
 Finch, J. The judgment sought against the defendant is one of 
 corporate death. The state, which created, asks us to destroy, and the 
 penalty invoked represents the extreme rigor of the law. * * * 
 
 Two questions, therefore, open before us : First, has the defendant 
 corporation exceeded or abused its powers? and, second, does that 
 excess or abuse threaten or harm the public welfare? 
 
 The first question requires us to ascertain what the defendant cor- 
 poration has done in violation of its duty, or omitted to do in perform- 
 ance of its duty. We find disclosed by the proof that it has become an 
 integral part and constituent element of a combination which possesses 
 over it an absolute control, which has absorbed most of its corporate 
 functions, and dictates the extent and manner and terms of its entire 
 business activity. Into that combination, which drew into its control 
 16 other corporations engaged in the refining of sugar, the defendant 
 has gone, in some manner and by some process, for as an unquestiona- 
 
1388 COEPOEATioNS (Part 6 
 
 ble truth we find it there. All its stock has been transferred to the 
 central association of 11 individuals denominated a "board." In ex- 
 change it has taken and distributed to its own stockholders certificates 
 of the board, carrying a proportionate interest in what it describes as 
 its capital stock. * * * 
 
 But that truth does not alone solve the problem presented. We are 
 yet to ascertain whether the corporation became the subordinate and 
 servant of the board by its own voluntary action, or the will and power 
 of others than itself ; by force of a contract to which it was in reality 
 a party, or as the simple consequence of a change of owners; by its 
 fault or its misfortune; by a sale or by a trust. For if it has done 
 nothing — if what has happened and all that has happened is ascertained 
 to be that the stockholders of the defendant, one or many, sold abso- 
 lutely to the 11 men who constituted the board their entire stock, and 
 the latter, by force of their proprietorship and as owners, have merely 
 chosen directors in their own interest, and are only managing their 
 property in their own way as any absolute owners may — if that is the 
 truth, and the entire and exact truth, it is difficult to see wherein the 
 coiporation has sinned, or what it has done beyond merely omitting 
 for a time to carry on its business. That is the theory upon which the 
 appellants stand, and which they submit to our examination. * * * 
 
 The combination, therefore, framed by the deed was a trust ; and, if 
 created by the corporations, or in any respect the consequence or prod- 
 uct of their action, some inevitable results would be certain to follow. 
 But here we encounter the stronghold of the appellant's argument, which 
 is that, if the corporations are in some manner in the combination, they 
 are there solely as the result of a contract other than their own ; are 
 there without corporate action on their part; and so are sufferers, 
 and not sinners. The reasoning leading to that result is so severely 
 technical as to have suggested a justification almost reminding one of 
 an apology. We are called upon to sever the corporation, the abstract 
 legal entity, from the living and acting corporators; as it were, to 
 separate in our thought the soul from the body, and, admitting the 
 sins of the latter, to adjudge that the former remains pure. * * * 
 
 And yet it is argued that the corporation, the legal entity, has done 
 nothing. * * * j think there may be actual corporate conduct 
 which is not formal corporate action; and where that conduct is di- 
 rected or produced by the whole body both of officers and stockholders, 
 by every living instrumentality which can possess and wield the cor- 
 porate franchise, that conduct is of a corporate character, and, if illegal 
 
 and injurious, may deserve and receive the penalty of dissolution. 
 * * * 
 
 The abstract idea of a corporation, the legal entity, the impalpable 
 and intangible creation of human thought, is itself a fiction, and has 
 been appropriately described as a figure of speech. It serves very well 
 to designate in our minds the collective action and agency of many 
 individuals as permitted by the law ; and the substantial inquiry always 
 is what, in a given case, has been that collective action and agency. 
 As between the corporation and those with whom it deals, the manner 
 of its exercise usually is material, but, as between it and the state, 
 the substantial inquiry is only what that collective action and agency 
 has done; what it has in fact accomplished; what is seen to be its 
 effective work ; what has been its conduct. It ought not to be other- 
 wise. The state gave the franchise, the charter, not to the impalpa- 
 
Ch. 1) ORGANIZATION OP A CORPORATION 1389 
 
 ble, intangible, and almost nebulous fiction of our thought, but to the 
 corporators, the individuals, the acting and living men, to be used by 
 them, to rebound to their benefit, to strengthen their hatids, and add 
 energy to their capital. If it is taken away, it is taken from them as 
 individuals and corporators, and the legal fiction disappears. The ben- 
 efit is theirs, the punishment is theirs, and both must attend and depend 
 upon their conduct; and when they all act, collectively, as an aggre- 
 gate body, without the least exception, and so acting reach results and 
 accomplish purposes clearly corporate in their character, and aflEecting 
 the vitality, the independence, the utility, of the corporation itself, we 
 cannot hesitate to conclude that there has been corporate conduct which 
 the state may review, and not be defeated by the assumed innocence 
 of a convenient fiction. * * * 
 
 And so we have reached our conclusion, and it appears to us to have 
 been established that the defendant corporation has violated its char- 
 ter, and failed in the performance of its corporate duties, and that in 
 respects so material and important as to justify a judgment of disso- 
 lution. Having reached that result, it becomes needless to advance into 
 the wider discussion over monopolies and competition and restraint of 
 trade, and the problems of political economy. Our duty is to leave 
 them until some proper emergency compels their consideration. With- 
 out either approval or disapproval of the views expressed upon that 
 branch of the case by the courts below, we are enabled to decide that 
 in this state there can be no partnerships of separate and independent 
 corporations, whether directly or indirectly, through the medium of a 
 trust; no substantial consolidations which avoid and disregard the 
 statutory permissions and restraints ; but that manufacturing corpora- 
 tions must be and remain several as they were created, or become one 
 under the statute. The judgment appealed from should be affirmed, 
 with costs. * * * 
 
 DONOVAN V. PURTELL. 
 
 I (Supreme Court of Illinois, 1905. 216 III. 629, 75 N. E. 334, 
 
 1 L,. K. A. [N. S.] 176.) 
 
 Action by Julia Purtell against Joseph T. Donovan. From a judg- 
 ment of the Appellate Court, affirming a judgment for plaintiff, de- 
 fendant appeals. 
 
 This is an action in assumpsit, begun by appellee against appellant 
 on November 24, 1903, by attachment in the circuit court of St. Clair 
 County. A bill of particulars was filed, which, besides the items for 
 money loaned and due in 1901, contains items for money lent by appel- 
 lee to appellant in the name of the Fidelity Realty Company in 1901, 
 and for money lent to appellant by appellee and promised to be paid 
 by him in the name of the J. T. Donovan Real Estate Company in 1901. 
 The general issue was filed to the declaration. A trial was had before 
 the court and jury, resulting in a verdict in favor of appellee against 
 appellant for the sum of $1,430, from which the plaintiff remitted the 
 sum of $71.80, making the amount of the verdict $1,358.20, which re- 
 mittitur was approved by the court. Motion for new trial was over- 
 ruled, and judgment rendered on the verdict in favor of appellee 
 against appellant for $1,358.20 and costs. 
 
 Magruder, j, * * * The salient facts of this case are that the 
 appellee had a note and trust deed for $1,200 against a man named 
 
1390 CORPORATIONS (Part 
 
 Hayden; that they became due in January, 1901, and she took them 
 to the office of the appellant, with directions to him, or to his son in 
 the same office with him, to collect them for her and reinvest the mon- 
 ey; that the money was collected by appellant, or some one of his sons 
 in the office with him, either in his own name or in the name of one of 
 the corporations doing business in his office, and which he controlled 
 and managed. The evidence tends to show that the $1,200 belonging 
 to appellee went into appellant's hands, or into the hands of some one 
 or more of his sons or clerks. Appellee's money, therefore, was had 
 and received by the appellant. Appellant turned over to Miss Slaterly, 
 appellee's agent and friend acting for her while she was out of the city, 
 a note for $1,200, payable in three years, together with certain inter- 
 est notes, and a trust deed securing the same upon a 25-foot lot in St. 
 Louis. * * * The principal note for $1,200, and the interest notes, 
 dated January 19, 1901, were signed by the Fidelity Realty Company, 
 by J. M. Donovan, president. They were payable to the order of 
 George N. Cooper, a clerk in appellant's office, who indorsed them with- 
 out recourse. The trust deed securing them was made to appellant, as 
 trustee. The evidence tends to show that appellant controlled 'and 
 managed the Fidelity Realty Company, and, the trust deed being made 
 to himself as trustee and the notes being made to the order of his 
 clerk, the conclusion is almost irresistible, in the light of the facts set 
 forth in the statement preceding this opinion, that the papers thus pre- 
 pared were really the papers of the appellant, though nominally those 
 of a corporation in his office and under his control. 
 
 The written deed of guaranty, dated January 22, 1901, was signed 
 by the J. T. Donovan Real Estate Company, by J. T. Donovan, presi- 
 dent. It begins as follows : "Witnesseth, that for and in consideration 
 of the sum of $1,200, paid to us by Miss Julia Purtell, we have assigned 
 and transferred to her certain notes of Fidelity Realty Company, dated 
 January 19, 1901, secured by a deed of trust," etc. Appellant signed 
 this indenture, and in it recites that the sum of $1,200, belonging to 
 Miss Purtell, was paid to "us," meaning thereby the J. T. Donovan 
 Real Estate Company, of which he was president. In this guaranty 
 he also recites that "we have assig^ned and transferred to her certain 
 notes," etc. The notes were indorsed without recourse by his clerk. 
 Cooper; but, in view of the recital thus quoted, Cooper merely acted 
 for the appellant or his company, the J. T. Donovan Real Estate Com- 
 pany. * * * The evidence also tends to show that there were judg- 
 ments then existing against the Fidelity Realty Company, and that it 
 had no financial standing whatever, but that it was, as is said by one of 
 the witnesses, "gotten up to keep the property out of judgment." The 
 proof shows that none of these corporations, controlled by appellant, 
 paid their debts. One of the witnesses swears that, "when any adjust- 
 ment was to be made, Mr. Donovan would use the property of any of 
 these companies to make it, indiscriminately. He would settle the 
 debts of the J. T. Donovan Real Estate Company with these properties, 
 no matter to which company it [they] belonged." * * * 
 
 The evidence tends to show that, although the appellant and his sons 
 turned over to appellee these worthless securities in exchange for her 
 money, yet that appellant himself received the money and used it for 
 his own .private purposes, and sought to escape personal liability by 
 covering up the transaction in the name of a corporation, which was 
 entirely under his own control. * * * 
 
Ch. 1) ORGANIZATION OF A COEPOEATION 1391 
 
 Appellant was president of the J. T. Donovan Real Estate Company, 
 and his son, Joseph M. Donovan, was the vice president of that com- 
 pany, and Joseph M. Donovan, the appellant's son, was the president 
 of the Fidelity Realty Company. Both of these concerns were con- 
 trolled, managed, and dominated by the appellant, J. T. Donovan. The 
 officer or controlling manager of a corporation cannot use it and its 
 name for the transaction of his own private business and to escape 
 personal liability on his part. The theory upon which the appellant 
 defends this suit is that the liability to appellee was not his liability, 
 but that of the corporation known as the Fidelity Realty Company. 
 * * * In the case of Bank v. Trebein Co., 59 Ohio St. 316, 52 N. E. 
 834, it was said : "The fiction by which an ideal legal entity is attribut- 
 ed to a duly formed incorporated company, existing separate and 
 apart from the individuals composing it, is of such general utility and 
 application as frequently to induce the belief that it must be universal, 
 and be in all cases adhered to, although the greatest frauds may there- 
 by be perpetrated under the fiction as a shield. But modem cases, 
 sustained by the best text writers, confine the fiction to the purposes 
 for which it was adopted — convenience in the transaction of business 
 and in suing and being sued in its corporate name, and the continuance 
 of its rights and liabilities, unaffected by changes in its corporate 
 members — and have repudiated it in all cases where it has been in- 
 sisted on as a protection to fraud or any other illegal transaction." In 
 Cook on Corporations (5th Ed., 663), it is said: "A corporation is 
 often organized to act as a 'cloak' for frauds. Such cases as these 
 are becoming common, and the courts are becoming more and more 
 inclined to ignore the corporate existence, when necessary, in order 
 to circumvent the fraud." * * * gg^ in the case at bar, appellant, 
 as an pfficer of one or more of the corporations here involved, was 
 ^lilty of such a fraud in transferring to appellee these worthless se- 
 curities in payment of the money which he owed her that he can be 
 lield liable personally for the loss inflicted upon her. * * * 
 
 For the reasons above stated, we are of the opinion that the judg- 
 ments of the lower courts were correct. Accordingly the judgment 
 of the Appellate Court, affirming that of the circuit court, is affirmed. 
 
 SECTION 3.— EFFECT OF INCOMPLETE ORGANIZATION 
 
 BERGERON v. HOBBS et al. 
 
 (Supreme Court of Wisconsin, 1S97. 96 Wis. 641, 71 N. W. 1056, 
 
 60 Am. Rep. 85.) 
 
 Action by J. A. Bergeron against A. A. Hobbs and others. From a 
 judgment on a verdict directed for plaintiff, defendants appeal. 
 
 The defendants, under the name of Ba3rfield Agricultural Associa- 
 tion, employed several persons to perform labor in improving their 
 grounds and in erecting fences and buildings. Time checks given by 
 the defendants to such laborers, for such labor, were assigned to the 
 plaintiff, who brings this action to recover their amount, alleging that 
 the defendants were a co-partnership. The defendants alleged that 
 they were members of a corporation, and denied that they were co- 
 partners, or liable as such. This was the issue which was tried. It 
 
1392 CORPORATIONS (Part 6 
 
 appeared upon the trial that articles of organization of the defendants 
 as the Bayfield County Agricultural Assodation, and a certificate show- 
 ing the election of officers, had been recorded in the office of the reg- 
 ister of deeds of Bayfield, but were not on file there. They had been 
 deposited, with instruction to record and return them, which had been 
 complied with. When the testimony of both sides was in, the court 
 directed a verdict for the plaintiff for the amount of the time checks. 
 From a judgment on that verdict the defendants appeal. 
 
 Newman, j. * * * There are two questions raised on this ap- 
 peal: (1) Was the mere recording of the articles of incorporation, 
 with the certificate of the election of officers, without the intention or 
 fact of the papers themselves remaining in the office, a sufficient com- 
 pliance with the statute, so that the organization of the corporation 
 became complete, as vipon a proper filing of the papers themselves? 
 And (2) if the recording was not sufficient for that purpose, are the 
 defendants liable to the plaintiff only as a de facto corporation, or are 
 they liable as co-partners? 
 
 1. The statute (section 1460, Rev. St.) provides that, upon the filing 
 of "a certificate of organization, * * * with a copy of the con- 
 stitution, * * * in the office of the register of deeds of the county, 
 such society shall have all the powers of a corporation, necessary to 
 promote the objects thereof." It cannot be doubted that the filing of 
 the proper papers in the proper office is made, by the statute, a condi- 
 tion precedent to the vesting of corporate powers. The court may not 
 be able to clearly define the respect wherein the mere recording and 
 removal of the papers from the office fails to serve the full purpose 
 which the legislature intended to accomplish by the filing of them. 
 The legislature, no doubt, had good and sufficient reasons for its choice 
 of means to promote its purpose. For the court it is not a question 
 of equivalents. A literal filing of the papers is necessary because it 
 is so written in the law. The term "filing" and the verb "to file," as 
 related to this subject, include the idea that the paper is to remain in 
 its proper order on file in the office. A paper is said to be filed when 
 it is delivered to the proper officer, and by him received, to be kept on 
 file. * * * The statute is plain and easy of observance. Valuable 
 rights and exemption from personal liability are to be secured by its 
 observance. It is no undue severity to require its strict observance. 
 The defendants had not observed it, and had not secured corporate 
 poWers. 
 
 Had the defendants secured immunity from individual liability? 
 No doubt, as a general rule, where an attempt to organize a corpora- 
 tion fails, by omission of some substantial step or proceeding required 
 by the statute, its members or stockholders are liable as partners for 
 its acts and contracts. * * * But the defendants' contention is 
 that they are not within this rule, because they are, at least de facto, 
 a corporation, and their right to be a corporation cannot be inquired 
 into in a collateral action, but only in a direct action for that purpose by 
 the state. The infirmity of the defendants' contention is in the as^ 
 sumption that they are, de facto, a corporation. In order to secure 
 this immunity from inquiry into its right to be a corporation in a col^ 
 lateral action, its action, as a corporation, must be under a color, at 
 least, oi right. It is immaterial that they have carried on business 
 under the supposed authority to act as a body corporate, in entire good 
 faith. If they had not color of legal right, they have obtained no im^ 
 
Ch. 1) ORGANIZATION OF A CORPORATION 1393 
 
 munity from individual liability for the debts of the supposed corpora- 
 tion. Until the articles of incorporation are filed in the office of the 
 register of deeds of the county, there is no color of legal right to act as 
 a corporation. The filings of such paper is a condition precedent to the 
 right to so act. So long as an act, required as a condition precedent, 
 remains undone, no immunity from individual liability is secured. 
 * * * The defendants are not a corporation either de jure or de 
 facto, but are liable for tlie plaintiff's clEum, as partners. It was not 
 necessary to prove a co-partnership by evidence. That was established 
 by implication of law. Nor was it necessary to prove that the debt was 
 unpaid. There was no presumption that it had been paid to be re- 
 butted. The judgment of the circuit court is right, and must be af- 
 firmed. ThC' judgment of the circuit court is affirmed. 
 
 Marshall, J. (dissenting). With the decision that the defendants 
 failed to comply with all the conditions precedent to the corporate 
 .existence of the agricultural association I concur, but from the decision 
 that because of such failure such association was not a corporation 
 de facto I respectfully dissent ; hence dissent from the conclusion reach- 
 ed that the defendants are personally liable to plaintiff, and that the 
 judgment should be affirmed, but, on the contrary, hold that it should 
 be reversed. * * * If we hold with Missouri, Arkansas, and some 
 other states, that unless all the steps necessary to the creation of the 
 corporation have been taken there is no corporate existence, and that 
 the members of the associatiofi are personally liable, we, in effect, 
 say that it is not sufficient to enable such members to escape personal 
 liability to show that their organization is a corporation de facto ; that 
 nothing short of a corporation de jure will do. But if we adopt the 
 growing doctrine, supported, as we shall show, by the overwhelming 
 weight of authority in this country, that a person who contracts with 
 a de facto corporation, the members of the latter and such person 
 believing, in good faith, in its legal existence, such members cannot 
 be held personally liable, then we concede, necessarily, that it is not 
 essential to freedom from such liability that all the statutory requisites 
 to the existence of a corporation be complied with, because, when that 
 is done, the organization, obviously, is not a corporation de facto only ; 
 it is a corporation de jure. This is too plain to admit of serious discus- 
 sion. 
 
 While the decision in this case, as I read the opinion of the court, in 
 one view, goes upon the ground that the members of a de facto cor- 
 poration are not responsible personally, inasmuch as it may be held 
 that the decision really is to the effect that personal liability exists be- 
 cause all the conditions precedent to a corporation de jure were not 
 complied with, some reference to authorities on the subject of whether 
 to escape such liability it is necessary that the corporation exist in 
 fact may be proper. 
 
 The development of the law on this subject has been rapid in recent 
 years in the direction of holding that the state only can challenge the 
 legality of the exercise of corporate powers. The ancient doctrine was 
 that all contracts made by a corporation in excess of its powers were 
 void. That has not been changed, but the doctrine has grown up, and 
 become well-nigh universal, that the state only can raise the question 
 by proceedings to punish the corporation. Our court is fully commit- 
 ted to such doctrine. John V. Farwell Co. v. Wolf, 96 Wis. 10, 70 N. 
 B.& B.Btrs.LAW^88 
 
1394 CORPORATIONS (Part 6 
 
 W. 289, 71 N. W..109, 37 L. R. A. 138, 65 Am. St. Rep. 22. Follow- 
 ing closely upon the growth of such doctrine, as applied to transac- 
 tions in excess of corporate powers, where there is no question as to 
 the existence of the corporation, it has been extended, so as to prevent 
 private persons, who have contracted with a de facto corporation, from 
 questioning its existence ; holding that sovereign power only can raise 
 that question. This court having fully adopted the doctrine where 
 there is a corporation in fact, how it can be rejected where the cor- 
 poration is de facto merely is not perceived, inasmuch as a control- 
 ling reason for it in the one case applies equally to the other. In both 
 cases there is an exercise of powers that can only be lawfully exercised 
 by sovereign authority; hence the unauthorized exercise of power con- 
 stitutes a public offense, not against any individual, but against the 
 sovereignty of the state. A few authorities of the multitude that exist 
 ■on the question under discussion will be referred to. * * * 
 
 The foregoing citation of authorities has been carried to great length, 
 but warranted, in my judgment, from the importance of the question 
 involved. After carefully examining such authorities, and the reason- 
 ing on which the doctrine discussed is based, we are unable to under- 
 stand how any other conclusion can be reached than that a decision 
 cannot be made that plaintiff in this case can attack the existence of 
 the agricultural association as a corporation, if it were such de facto, 
 without holding in direct conflict with the decision in John V. Farwell 
 Co. V. Wolf, supra, which is supported by the highest authorities in this 
 country, and which the court certainly would not wish to question. 
 True, there are some authorities still holding to the ancient doctrine 
 that any one can challenge the existence of a corporation or the legal- 
 ity of its acts, but the trend of modern authority is to fence in, within 
 constantly narrowing limits, the cases where private persons can attack 
 either the existence of a corporation or the legality of its exercise of 
 powers; and in the humble opinion of the writer, the theory that a 
 private person can so attack a corporation will disappear altogether in 
 the near future, either by the courts that adhere to the ancient doctrine 
 voluntarily changing their rule on the subject, or by its being changed 
 ty statute. Illinois has adhered as rigidly as any state to the doctrine 
 that a creditor may raise the question of want of legal incorporation, 
 yet, in the recent case of Winget v. Association, 128 111. 67, 21 N. E. 
 12, it was held that, if a person contracts with a corporation de facto, 
 and receives the benefit of such contract, he cannot be permitted to 
 allege any defect in the organization of the corporation as affecting ' 
 its capacity to make the contract, even if the law under which it was 
 organized was unconstitutional; that objection to the corporate exist- 
 ence is available only on behalf of the sovereign power of the state. 
 That is carrying the doctrine under discussion further than is necessary 
 for the purposes of this case, and beyond the general rule that there 
 cannot be a de facto corporation under an unconstitutional law, be- 
 cause it is absolutely necessary to the existence of a de facto corpora- 
 tion that there be a valid law under which it might exist de jure. 
 
 So we say the law is that he who deals with a de facto corporation 
 cannot attack its legal existence, though in administering it courts do 
 not agree as to all the reasons for the doctrine. By some it rests on 
 the ground that courts can only enforce contracts actually made by 
 parties, cannot make contracts for them; by others upon the ground 
 of estoppel ; by others upon the broad, universally established princi- 
 
Ch. 1) ORGANIZATION OP A CORPORATION 1395 
 
 I 
 
 pie that only the state can question the existence of a corporate organi- 
 zation, or the legality of its exercise of powers; and by still others 
 upon the ground that broad principles of justice and public policy re- 
 quire that persons who, in good faith, assume to exercise corporate 
 powers, and have a de facto right so to do, should not be compelled, 
 in all their business transactions, in all courts and places, to be ready 
 to successfully meet attacks upon their right in this regard; that so 
 long as the law exists under which they might legally do the very thing 
 they assume to do, and the failure to comply with the law is a mere 
 usurpation of power, which only concerns the community in its sov- 
 ereign capacity, without prejudice to the individual members of the 
 state, justice, and the certainty of contracts, upon which prosperous 
 business in the complicated, practical affairs of life depend, require 
 that such persons, as against all but the state, shall be regarded as that 
 which they assume to be, and might in fact be, except for some act on 
 their part not attributable to bad faith. In our judgment, all of the 
 reasons strongly support the doctrine, and either is sufficient, particu- 
 larly the one sanctioned by this court in John V. Farwell Co. v. Wolf, 
 supra, that only the state can question the legality of cSrporate ex- 
 istence when there is a colorable right to so exist. 
 
 It only remains to be considered whether the association in question 
 was a de facto corporation. My brethren say no, and, as I understand 
 it, because there was a failure to perform some condition precedent 
 to its being a corporation de jure. I must assume that such is really 
 not the doctrine of this court, for the essential element of a mere cor- 
 poration de facto is failure to comply with some provision of law 
 requisite to its legal existence. Where such conditions are all com- 
 plied with, then the corporation becomes an organization de jure, as 
 well as de facto, and the doctrine pertaining to the latter class of offi- 
 cial bodies has no application whatever. If it were the law that a 
 corporation must be such de jure in order to be such de facto, obvi- 
 ously, the doctrine pertaining to the latter, upon whichimuch learning 
 has been displayed by the courts and text writers, would stand as the 
 result of much useless expenditure of mental energy. The true doc- 
 trine is that it is sufficient to constitute a corporation de facto, as against 
 one who has recognized its corporate existence, that there be a law 
 under which it might exist de jure, an attempt in good faith to or- 
 ganize under such law, and a subsequent user of the assumed cor- 
 porate powers. This is not an open question in this state. * * * 
 
 One of the earliest and best considered cases on this subject is 
 Union Church v. Pickett, 19 N. Y. 482. The corporation claimed to 
 exist under a general law. Such law required the making, acknowl- 
 edging, and recording of a certificate of organization, showing certain 
 facts. That was complied with, except that the certificate did not show 
 the existence of all facts requisite to a legal corporation. After act- 
 ing as a corporation for some time, in an action brought as such, to 
 which a private person was a party, its corporate existence was chal- 
 lenged. On the question thus presented, Mr. Justice Seldon, speaking 
 for the court, said: "It has been repeatedly held that, as against all 
 persons who have entered into contracts with bodies assuming to act 
 in a corporate capacity, it is sufficient for such bodies to show them- 
 selves to be corporations de facto, and to that end two things are neces- 
 sary : (1) The existence of a charter or some layv under which a cor- 
 poration with the powers assumed might lawfully be created; and (2), 
 
1396 coEPOEATiONa (Part 6 
 
 a user by the party to the suit of the rights claimed to be conferred 
 by such charter or law. The rule established by law, as well as by 
 reason, is that parties recognizing the existence of corporations, by 
 dealing with them, have no right to object to any irr(*gularity in their 
 organization. As long as it is overlooked or tolerated by the state, it is 
 not for individuals to call it in question.*' And further, in effect, if the 
 law exists, and the record exhibits a bona fide attempt to organize 
 under it, or there is even a slight evidence of user, that is all that is 
 required to establish the corporation de facto; and evidence, in a con- 
 , test between it and one who has dealt with it as a corporation, of de- 
 fects in its organization, short of such as would show a want of good 
 faith on the part of those concerned in the proceedings, would be wholly 
 immaterial. * * * 
 
 The condition precedent which defendants here failed to perform 
 was that as to filing in the office of the register of deeds of their con- 
 stitution and certificate of organization. They recorded their articles 
 of organization, which were adopted, in form, under the general in- 
 corporating act, not that relating specially to agricultural socieities; 
 so that the "record, speaking with reference to the papers required to 
 be on file with the register of deeds, was not merely defective ; it did 
 not exist at all. Now it may be contended that, while such official rec- 
 ord need not show that all the steps requisite to the organization of 
 the corporation were taken, in order to give it colorable existence, an 
 official record of some sort, showing an attempt to comply with the law, 
 is necessary. * * * This may be deemed to signify that the rec- 
 ord referred to must be an official record, — the record which the law 
 requires shall be made. The same language is used in Ang. & A. Corp. 
 § 635, but a careful examination of the authorities will clearly show that 
 the record intended is not the record of the corporation papers re- 
 quired by law. The word "record" refers solely to the acts shown 
 by the evidence to have been actually done by the persons assuming 
 to act as a corporation, by way of complying with the law authorizing 
 its organization. Such facts constitute the record, in a legal sense, 
 of, their doings, and by such record it must appear that they, in good 
 faith, intended to acquire corporate power. 
 
 In Vanneman v. Young, 52 N. J. Law, 403, 20 Atl. S3, there was, as 
 here, an absolute failure' to comply with the law in respect to the offi- 
 cial record. The certificate of incorporation was not filed in the office 
 of the secretary of state. That, under the New Jersey law, was es- 
 sen|ial to corporate existence. Plaintiff sold to the pretended corpora- 
 tion some merchandise, and, upon payment therefor not being made, 
 suit was brought by him against the members of the corporation, to 
 charge them personally as partners, upon the ground that the corpora- 
 tion had no legal existence. In deciding the question thus presented, 
 Mr. Justice Dixon said, in effect: "The statute authorized the incor- 
 poration of the associates. They attempted to organize under its pro- 
 visions. The contract was entered into by plaintiff on the assumption 
 that he was dealing with a corporation de jure. The failure of the 
 associates to comply with the statute did not, in the least, impair the 
 rights which the plaintiff intended to secure by his contract. Un- 
 der these circumstances, the plaintiff cannot bring into question the 
 legality of the corporation. Where the law authorizes a corporation, 
 and there is an effort in good faith to organize under the law, and, 
 as a result of such effort, corporate functions are assumed aftd ex- 
 
Ch. 1) ORGANIZATION OP A CORPOBATION 1397 
 
 ercised, the organization becomes a corporation de facto. * * * 
 and its existence can only be inquired into in a direct proceeding brought 
 in the name of the state. No private person having deahngs with a de 
 facto corporation can be permitted to say that it is not a corporation 
 de jure." In McTighe v. Construction Co., 94 Ga. 309, 21- S. E. 701, 
 32 L,. R. A. 208, 47 Am. St. Rep. 153, there was a general law under 
 which the organization might have been incorporated. It organized 
 under a special law that was held unconstitutional. There was an en- 
 tire absence, it will be observed, of any official record of any act done 
 under the general law. It was held that the special law was unconsti- 
 tutional and void ; hence that the organization had no de jure existence ; 
 nevertheless, that it was a corporation de facto; that the essentials 
 of a de facto corporation were all present: (1) A law under which the 
 organization might have been incorporated; (2) a bona fide attempt 
 to become incorporated; and (3) an assumption and exercise of the 
 powers of a corporation, unchallenged by the state. 
 
 The foregoing authorities are believed to fairly state the law in re- 
 spect to what is necessary to constitute a corporation de facto. The 
 very meaning of the term "de facto" indicates that nothing more is nec- 
 essary to the existence of a de facto corporation than the exercise of 
 corporate powers in good faith. Corporation de facto, — that is, a cor- 
 poration from the fact that it is acting as such under color of right in 
 good faith. The existence of the law, and some attempt to comply 
 with it, are essential, because without them there can be no assumption 
 of the right to corporate existence in good faith. Persons cannot be 
 said to honestly claim the right to corporate existence, in the absence 
 of any law authorizing the organization, or in the absence of some 
 honest attempt to comply with such law. The law and such attempt, 
 or user of the franchise, whatever mistakes may be made in so doing, 
 — such as the filing of articles of organization when they are required 
 to be recorded, or the recording of articles when they are required to 
 be filed, or the filing of such articles in the wrong oifice, or any other 
 of the numerous mistakes that might be made, — make a corporation 
 good everywhere, in all courts and places, till successfully challenged 
 by the state. There is hardly any end of authority, all in harmony on 
 this subject. * * * 
 
 From the foregoing, we are warranted in asserting that, by well- 
 settled principles of law, the agricultural association with whom plain- 
 tiff contracted was a de facto corporation. Every element necessary 
 to make it such appears clearly by the record. There was a law under 
 which it might have existed. The association prepared their consti- 
 tution, and adopted it in the form of ordinary articles of organization, 
 under the general incorporating act, and by mistake they filed it for 
 record, and it was recorded and returned, instead of filing it to be left 
 in the office, as the law requires. They supposed that they had cor- 
 porate existence by reason of the recording of their articles of organi- 
 zation. They assumed to act as a corporation, and exercised corporate 
 powers for a considerable length of time, and, for aught that appears, 
 in the utmost good faith. Certainly, the existence of the law, the mak- 
 ing and recording of articles of organization, in an honest attempt to 
 become a corporation, and the honest assumption and exercise of cor- 
 porate powers, prima facie establishes good faith. Plaintiff supposed 
 that the corporation was a corporate body till long after his contract 
 relations with the association ceased. Now to allow him to come in 
 
1398 CORPORATIONS (Part 6 
 
 and say that the corporation did not exist which all supposed had legal 
 existence ; that, though the officers of the association and plaintiff 
 contracted for a corporate liability on the part of the former, it shall 
 be held, nevertheless, that the members of such association are bound 
 as partners, in direct violation of the well-settled law that such an as- 
 sociation, under the circumstances, was a de facto corporate body; 
 that, as between the parties, the relations are the same in all respects 
 as though the corporation had a de jure existence, and contrary to 
 the settled doctrine, as I believe, of this and most other courts, — is 
 what the judgment in this case does, in my opinion. 
 
 I think the judgment of the circuit court, holding the defendants 
 liable as partners, was wrong, and that it should be reversed, and the 
 cause remanded for a new trial. 
 
Ch. 2) CONTRACTS OP PROMOTERS 1399 
 
 CHAPTER II 
 CONTRACTS OF PROMOTERS 
 
 Section 
 
 1. Relation of the Promoter to the Corporation. 
 
 2. Relation of the Subscriber to the Corporation on Promoters' Contracts. 
 
 SECTION L— RELATION OF THE PROMOTER TO THE 
 
 CORPORATION 
 
 WEATHERFORD, M. W. & N. W. RY. CO. v. GRANGER. 
 
 (Supreme Court of Texas, 1894. 86 Tex. 350, 24 S. W. 795, 
 40 Am. St. Rep. 837.) 
 
 Gaines, J. This suit was brought by the defendant in error against 
 the plaintiff in error to recover upon open account for services ren- 
 dered. The plaintiff in the trial court obtained a judgment which was 
 affirmed by the Court of Civil Appeals. * * * 
 
 The trial judge, as conclusions of fact, found, in substance, that 
 some kind of a company was formed to build the railroad from 
 Weatherford to Mineral Wells; that Anderson was the "principal 
 mover in said scheme, and was so recognized by all parties ;" that he 
 employed plaintiff to assist him in procuring a bonus and in other- 
 wise advancing the enterprise, and that the plaintiff rendered services 
 under said employment both before and after the articles of the com- 
 pany were filed; that the bonus was raised, and was, after its incor- 
 poration, accepted by said company. * * * Although the trial 
 court found that the services for which plaintiff sued were rendered 
 in part before and in part after the filing of the articles, their value 
 was assessed as an entirety at $500, and judgment was rendered for 
 the whole amount. In this there was error. We are of opinion that, 
 under the circumstances of this case as shown by the evidence, the 
 defendant corporation cannot be held liable to the plaintiff for any 
 services rendered by him before it was brought into legal existence. 
 
 Upon the question as to the liability of a corporation growing out 
 of contracts made on its behalf by its promoters there is considerable 
 diversity and some conflict of opinion. But there are some proposi- 
 tions affecting this question upon which the authorities seem to be 
 in substantial accord. A promoter, though he purport to act on be- 
 half of the projected corporation, and not for himself, cannot be treat- 
 ed as agent, because the nominal principal is not then in existence; 
 and hence, where there is nothing more than a contract by a promoter, 
 in which he undertakes to bind the future corporation, it is generally 
 conceded that it cannot be enforced. *■ * * The promoters them- 
 selves are liable upon the contract, unless the person with whom they 
 engage agrees to look to some other fund for payment. * * * The 
 statute, however, which authorizes the incorporation, may provide that 
 the corporation, when formed, shall pay the necessary expenses of 
 promoting the scheme. In such a case, though the right of action is 
 dependent upon the contract, the liabifity is created by the statute. 
 * * * 
 
 It is also generally held that contracts by promoters, made on be- 
 half of the corporation within the scope of its general authority, may 
 
1400 CORPORATIONS (Part 6 
 
 be adopted by the latter after its organization. Some of the courts 
 say they may be ratified, but ratification presupposes a principal ex- 
 isting at the time of the agent's action, and it seems to us, therefore, 
 that the term is not applicable in its technical sense. * * * With 
 the exception of the law courts of England, the rule is also very gen- 
 erally recognized that if a contract be made on behalf of a corporation 
 by its promoters, and the corporation, after its organization, with a 
 knowledge of the facts, accept its benefits, it must take it with its 
 burdens; and, if the other party has performed the stipulation bind- 
 ing upon him, it may be enforced as against the corporation. * * * 
 But as to the application of the rule last announced the courts differ 
 in opinion. * * * 
 
 Having exercised rights and enjoyed benefits secured to it by the 
 terms of a contract made by its promoters in its behalf, a corporation 
 should be held estopped to deny its validity. Again, where the pro- 
 moters of a corporation have made a contract in its behalf, to be per- 
 formed after it is organized, it may be deemed a continuing offer on 
 part of the other party to the agreement, unless withdrawn by him, 
 and may be accepted and adopted by the corporation after such or- 
 ganization; and the exercise of any right inconsistent with the non- 
 existence of such contract ought to be deemed conclusive evidence of 
 such adoption. But there are some cases which go a step further. 
 * * * In Hall V. Railway Co., 28 Vt. 401, a corporator was held en- 
 titled to recover for necessary services in organizing the company, al- 
 though there was no express promise by any one that he should be 
 paid. Unless the charter of the company provided for the payment 
 of such expenses, this decision, we think, is unsupported by author- 
 ity. It is generally held that, in the absence of such provision in the 
 act of incorporation in case of a special charter, or in the general 
 law, or in the articles of incorporation under a general law, no im- 
 plied promise can be imputed to a corporation to pay for the services 
 of a corporator or promoter before the corporation comes into ex- 
 istence. A contract made by promoters may be adopted by a corpora- 
 tion expressly or impliedly by exercising rights under it; but other- 
 wise it is not binding upon such corporations. * * * 
 
 Now, when it is said that when a corporation accepts the benefit of 
 a contract made by its promoters it takes it cum onere, it is important 
 to understand distinctly what is meant. There is, so far as this mat- 
 ter is concerned, a radical difference between a promise made on be- 
 half of the future corporation in the contract itself, the benefits of 
 which the corporation has accepted, and the promise in a previous con- 
 tract to pay for services in procuring the latter to be made. This is 
 well illustrated by the facts of the present case. Here a proposition 
 was made on behalf of the company, by its promoters, that if a bonus 
 should be subscribed and paid to it, it would build its road between 
 certain points, and would carry coal at a certain stipulated rate. By 
 accepting the bonus, the company became bound to fulfill the stipula- 
 tions of that contract. That was the burden which it took with the 
 benefit of the agreement. But it also appears that one of the pro- 
 moters promised the plaintiff that if he would assist in procuring sub- 
 scribers to the bonus the company would pay him for his services. 
 This was no part of the contract the benefits of which were taken by 
 the defendant. The benefits of a contract are the advantages which 
 result to either party from a performance by the other, and in like 
 
C^- 2) ■ CONTRACTS OF PROMOTEBS 1401 
 
 manner its burdens are such as its terms impose. A more accurate 
 manner of stating the nature of the plaintiff's demand is to say that 
 the defendant has accepted the benefit of the plaintiff's services, and 
 should pay for them. 
 
 It is true in one sense that the company has had the benefit of plain- 
 tiff's services, and it is equally true that it would have had that benefit 
 if the services had been rendered under an employment by the sub- 
 scribers to the bonus ; and yet in the latter case it could not be claim- 
 ed that the company would be liable for such services unless payment 
 for them by the company were made one of the terms of the contract 
 between the company and the subscribers. In Re Rotherham, etc., 
 Co., 50 Law T. (N. S.) 219, in the opinion of one of the justices, this 
 language is used : "It is said that' Mr. Peace has an equity against 
 the company because the company had the benefit of his labor. What 
 does that mean? If I order a coat and receive it, I get the benefit of 
 the labor of the cloth manufacturer, but does any one dream that I 
 am under any liability to him? It is a mere fallacy to say that be- 
 cause a person gets the benefit of work done by somebody else he 
 is liable to pay the person who did the work." 
 
 There is more doubt as to the plaintiff's right to recover for his 
 legal services in advising as to the • articles of incorporation, and in 
 correcting and preparing this paper. Such services are usually nec- 
 essary, and it would seem that the corporation should pay for them. 
 Such payment is frequently provided for in the act of incorporation 
 or in the articles when the incorporation is effected under a general 
 law. When such is the case, persons who take stock in the com- 
 pany are chargeable with notice that a liability for this purpose has 
 already been created, and it is proper for the corporation to discharge 
 it. But, in the absence of such provision in the statute or in the arti- 
 cles, it may be unjust to shareholders to charge the corporation with 
 liabilities of which they had no actual knowledge at the time they ac- 
 cepted the shares. We therefore hold with some hesitation that claims 
 for the necessary expenses of the organization under our statute 
 should not be excepted from the general rule applicable to contracts 
 made before the corporation has come into legal existence. 
 
 Applying the rules we have announced to the case before us, it is 
 apparent that the plaintiff has recovered, in part at least, for services 
 for which the defendant was not bound to pay. He made his contract 
 before the company had a legal existence as a corporation, with a sin- 
 gle promoter ; and it is a matter of no moment that the promoter was 
 the general manager of the project, and became the owner of the ma- 
 jority of the stock upon its organization. There were other stock- 
 holders. The law requires that there should be 10 at least. * * * 
 The evidence does not disclose that his contract with Anderson was 
 actually known to any other person, nor do we see any other circum- 
 stance from which knowledge should necessarily be inferred. Since 
 Anderson had no power to bind the future corporation, but could 
 bind himself, the inference from his assisting Anderson would be that 
 he was acting gratuitously, or that Anderson had agreed to pay him. 
 Anderson was interested in shifting his contract upon the company, 
 and it may be doubted whether, although he became a director, no- 
 tice to him could be deemed notice to the company. The court of civil 
 appeals find, however, that the company had notice. * * * 
 
 The plaintiff's contract with Anderson, though made by latter on 
 
1402 coRPOKATiONS (Part 6 
 
 behalf of the company, was not a lien, incumbrance, or burden upon 
 the contract between the subscribers to the bonus and the defendant, 
 and it incurred no liability on the former contract by accepting the 
 benefit of the latter. The evidence was sufficient to sustain a recovery 
 by plaintiff for the value of his services rendered after the corpora- 
 tion was created; but the court below failed to find separately the 
 reasonable worth of such services. Therefore the entire judgment 
 must be reversed. 
 
 We deem it proper to say in conclusion that if the opinion in the 
 case of McDonough v. Bank, 34 Tex. 309, is to be construed as hold- 
 ing that by merely accepting the benefit of the plaintiff's labor the de- 
 fendant ratified and became bound under the promoter's contract, it 
 does not meet our approval. Whether the contract in that case was 
 one which the bank had the power to ratify is, to say the least, a 
 doubtful question; but it is one that does not concern us here, arid 
 upon which we express no opinion. The judgments of the district 
 court and of the Court of Civil Appeals are reversed, and the cause 
 remanded. 
 
 CUSHION HEEL SHOE CO. v. HARTT. 
 
 (Supreme Court of Indiana, 1914. 181 Ind. 167, 103 N. E. 1063, 
 50 Xj. R. a. [N. S.] 979.) 
 
 Action by Obder M. Hartt against the Cushion Heel Shoe Company. 
 Judgment for plaintiff, and defendant appeals. 
 
 SPBNCfiR, J. It appears from the record in this case that in April, 
 1909, appellee, who was experienced in the manufacture of shoes, 
 inserted in a shoe journal an advertisement for a shoe factory to lo- 
 cate in the city of Ft. Wayne. Among the answers which he received 
 thereto was one from a man named Johnson, who was the patentee of 
 a certain cushion heel shoe. Johnson came to Ft. Wayne, and with 
 him appellee went to the president of the Commercial Club whom they 
 interested in the proposition of starting appellant company. Subscrip- 
 tion lists were prepared and appellee started out to get subscribers to 
 the undertaking. He testified that Johnson then promised him the 
 position of superintendent when the factory should be established, and 
 also promised that he (appellee) should be paid for his time and money 
 spent in securing the stock subscriptions ; that after the company was 
 organized appellee talked with several of the directors and officers 
 of appellant company and told them that he expected to be paid for his 
 services; that one of the directors said to appellee: "I believe you 
 should be compensated. I have told the people, the directors, to settle 
 with you." No testimony was introduced to show that the board of di- 
 rectors ever acted on appellee's claim, but it is his contention that, 
 by accepting the results of his services and receiving the benefits 
 thereof, appellant is now bound on an implied contract to pay for 
 such service. 
 
 It is certain that, under ordinary circumstances, a corporation cannot 
 be successfully sued on a contract made for its benefit by its projectors 
 before its incorporation. Contracts of this character, however, are 
 not void, but voidable, and it is well settled in nearly all jurisdictions 
 that, in so far as they are not ultra vires, such contracts may become 
 binding on the corporation if ratified by it, either expressly or by im- 
 plication, after its organization. * * * 
 
 But the rule that a corporation may be bound, like any individual. 
 
Ch. 2) CONTRACTS OF PROMOTERS 1403 
 
 by an implied contract is limited in its application to contracts in which 
 the promoters of such corporation are interested. The law does not 
 prohibit a promoter from dealing with his company, and a corporation 
 has the right to purchase property from its promoters and to pay them 
 for their services if it so elects; but the burden is on the promoter 
 to show that he acts openly and in good faith in such transactions. A 
 promoter of a corporation, who brings about its organization and aids 
 in securing subscriptions thereto, is considered in law as occupying 
 a fiduciary relationship toward such corporation and toward its stock- 
 holders. * * * It yfiii be observed that this relationship is twofold. 
 It extends toward the corporation as a separate legal entity and charges 
 the promoter with fair dealing in respect to corporate property. 
 * * * It extends also toward the stockholders in respect to their 
 property rights in their stock and toward those who, it is expected, 
 will buy such stock. * *' * 
 
 Applying this latter rule, the Supreme Court of Massachusetts uses 
 this language in Hayward v. Leeson, supra, 176 Mass. at page 320, 57 
 N. E. 661, 49 L. R. A. 725: "The persons to whom the promoters 
 owe the duty, which they owe by reason of their fiduciary relation, are 
 the persons who put' their money into the enterprise at the invitation 
 of the promoters, that is to say, the future stockholders. It is to the 
 future stockholders that the promoters must make the disclosure of 
 the remuneration which is, or is to be, paid to them, and it is the con- 
 sent of the future stockholders that must be obtained to make that 
 payment valid; if the promoters undertake to make to themselves 
 remuneration for their services as promoters, without making a full 
 disclosure of the fact to the future stockholders, their principals, and 
 getting their consent, they are guilty of a fraud. Promoters can make 
 the necessary disclosure of the remuneration they stipulate for by in- 
 cluding in the prospectus a full statement thereof ; if such a statement 
 is not made therein, they carmot honestly take any remuneration for 
 promoters' services, unless it is voted by the stockholders after the 
 capital stock has been taken by the public." * * * 
 
 We are aware that cases may be found which seem to sustain ap- 
 pellee's position, but, as is suggested in 10 Cyc. at page 265, "it is diffi- 
 cult to understand how the corporation could be estopped by accepting 
 benefits which it had no power to reject, without uncreating itself." 
 We believe that the better reason and the weight of authority support 
 the holding that, in the absence of statutory or charter provisions, a 
 corporation will be held liable for services rendered by its promoters 
 before incorporating only when, by express action taken after it has 
 become a legal entity, it recognizes or affirms such claim. The evi- 
 dence before us does not indicate such an affirmance. * * * 
 
 Judgment reversed. 
 
 MOORE et al. v. WAENHR COAL & LAND CO. 
 
 (Supreme Court of Alabama, 1912. 178 Ala. 234, 59 South. 219, 
 Ann. Cas. 1915B, 173.) 
 
 DowDELL, C. J. The Warrior Coal & Land Company, a corporation 
 organized under the laws of this state, files this bill against its promo- 
 ter, Walter Moore, and his alleged guilty confederates, and the bill 
 also makes all of the stockholders of the complainant parties respond- 
 ent. The bill charges infidelity and fraud in the organization of the 
 
1404 CORPORATIONS (Part 6 
 
 corporation by the promoter, both prior and subsequent to the issu- 
 ance of its charter, and seeks to have an accounting by the promoter, 
 and prays also the cancellation of the certificates of stock in said cor- 
 poration illegally issued to the promoter. * * * 
 
 The case as made by the bill is fairly summarized in brief of counsel 
 for appellee as follows : Walter Moore, as a promoter, induced J. B. 
 Cavanaugh and others to go into the scheme of forming a corporation, 
 the Warrior Coal & Land Company, complainant in this bill, upon the 
 basis of all, including himself and his associates, paying for stock at 
 par, the money to be used for Jbuying coal lands through him, the said 
 Moore; such lands to be turned in to the company at cost and paid 
 for with money derived from such issuance of stock. Moore was to 
 organize the company, handle the money, do the buying, and, in fact, 
 do everything. He was intrusted with, and exercised such manage- 
 ment and control from the time of the formation of the project before 
 the company was actually formed, until several years after it, was or- 
 ganized. The bill specifically and in detail sets out a series of con- 
 cealments, frauds, and misrepresentations practiced by said Moore, 
 running down to a short while before the filing of the bill, practiced 
 by him tp such effect that the innocent stockholders holding original 
 issues had contributed for such stock at par $116,000, of which only 
 about $90,000 has been so expended by him; that he and his guilty 
 associates owed the company on that account alone $26,000, besides 
 $29,000 for stock issued without consideration to Moore and sold to 
 innocent holders ; and that there was left outstanding, in the names of 
 Moore arid his associates in the fraud, $73,500 at par of stock for 
 which nothing was paid. C. S. Simmons, one of the respondents, was 
 used by the said Moore as the company's trustee for conduit of title 
 from the vendors to the company. Only money so paid into the com- 
 pany was used in the purchase of the lands. * * * 
 
 Moore and his confederates organized the company on August 17, 
 1906, and soon thereafter said Cavanaugh, for his associates, resumed 
 sending, and continued to send, in money until he had sent Moore, 
 for the company, $107,500 for which stock at par, as agreed, was 
 issued. Moore represented during the negotiation, and before the 
 company was formed, that he and his associates had arranged to pay 
 in for stock at par, under such understanding with Cavanaugh, ap- 
 proximately $80,000, which was false. Moore, as president of the 
 company and Simmons, as secretary, issued shares to dummies, in 
 whose names original certificates of shares were made out, later can- 
 celing the same and reissuing them to Moore. * * * Moore had 
 paid in nothing for himself, but had then already been furnished by 
 Cavanaugh, for himself and associates, $47,500. Steve Smith had paid 
 in nothing, and Simmons had paid in nothing. The lands had not been 
 acquired from the original owners, or, if any, only a small part, and 
 payment had been made out of the $47,500 furnished by Cavanaugh 
 and his associates. * * * 
 
 Moore and Simmons each interposed the general demurrer which 
 tests the equity of the bill as to him. These demurrers were overruled 
 by the chancellor, and the present appeal is prosecuted from the decree 
 overruling the demurrers. * * * 
 
 Moore was a promoter of the complainant corporation, and his re- 
 lation as such to the corporation as well as to those whom he might 
 induce to put their money into the project and become stockholders, 
 
Ch. 2) CONTRACTS OF PROMOTERS 1405 
 
 was of a fiduciary character, calling for the utmost good faith and 
 fair dealing. * * * 
 
 The following principles of law may be deduced in respect to the 
 relations promoters occupy to the corporation and to those whom they 
 induce to enter into the enterprise and become stockholders, as well 
 as towards each other, and the duties they owe to the company and the 
 stockholders. Their relation is of a fiduciary character, calling for the 
 utmost good faith, and they will not be permitted to take secret profits 
 in the form of stock or otherwise. Where their interests are antagonis- 
 tic, they cannot be silent ; they must disclose. A failure to inform is 
 a fraud. Their position is, in a sense, that of a trustee, and they may 
 be held to an accounting for any breach of the trust. The corporation 
 is a proper party in such cases to file the bill and to obtain relief ; it 
 is not necessary to rescind or set aside the transaction. The bill may, 
 however, be maintained by the injured shareholders, where redress 
 cannot be had through the corporation, because of being under control 
 of the perpetrators of the wrong. 
 
 Applying the principles of law as stated to the facts charged in the 
 bill, which are to be taken as true on demurrer, we think there can be 
 no doubt as to the equity of the bill. The project proposed by the 
 promoters was to organize a corporation and issue shares of stock, 
 for money paid in, at par value, and with this money to purchase coal 
 in place in lands in small tracts and body the same up into one tract, 
 and by so doing increase the value of the holding, and, as a result, give 
 a greater value to the shares of stock issued for the money so paid in. 
 Such was the inducement held out by the promoters and those pay- 
 ing in their money have an equity in preserving and carrying out the 
 project, and to this end to call to an accounting the unfaithful pro- 
 moters who, by their fraud, have thwarted the project. 
 
 It is no answer to this theory of the bill to say that the lands convey- 
 ed to the corporation and now held by it were sold to it at a fair price 
 and are equal in value to the par value of the total capital stock of 
 the corporation. Those who were induced to pay in money for stock 
 upon the representations made by the promoters were entitled to have 
 the lands at cost and to be purchased under the proposed scheme. * * * 
 
 The bill, moreover, seeks the cancellation of shares of stock charged 
 to have been fraudulently issued, and also to have an accounting for 
 money charged to have been fraudulently used or misappropriated by 
 Moore and his confederates. Taking the statements of the bill as 
 true, and which we must do on the general demurrer for want of equity, 
 interposed by the respondents Moore and Simmons, we have no doubt 
 that the bill contains equity, and hold consequently that there was no 
 error in overruling the demurrer. The decree will be affirmed. * * * 
 
 SECTION 2.— RELATION OF THE SUBSCRIBER TO THE 
 CORPORATION ON PROMOTERS' CONTRACTS 
 
 WRIGHT BEOS. v. MERCHANTS' & PLANTERS' PACKET CO. 
 
 fSupreme Court of Mississippi, 1913. 104 Miss. 507, 61 South. 550, 
 
 Ann. Cas. 19150, 1111.) 
 
 Certain business men of the city of Vicksburg undertook the or- 
 ganization of a packet company for the purpose of plying a steamboat 
 on the Yazoo river, in order to secure better service and rates. The 
 
1406 COKPORATIONS (Part 6 
 
 promotion of the undertaking was in the hands of C. J. Searles and 
 others, who secured subscription to the, capital stock of the company. 
 Searles approached C. G. Wright of the firm of Wright Bros., hard- 
 ware merchants, and asked for a subscription, and was told by Wright 
 that they would help, and would let him know later about the amount, 
 Searles entered the name of Wright Bros, on the subscription list, but 
 left the amount blank. Afterward, at a meeting of the promoters, when 
 some proposition was to be voted upon, C. G. Wright voted $500 of 
 stock in the name of Wright Bros. This was before the organization 
 of the corporation, and Wright claims that before organization he ad- 
 vised Searles that he would withdraw his subscription. The corpora- 
 tion was subsequently organized, and met with financial reverses, and 
 suit was brought against the firm of Wright Bros, for the unpaid sub- 
 scription appearing on the subscription list, and a judgment secured 
 for the full amount. 
 
 Smith, C. J. Appellee instituted this suit in the court below to re- 
 cover from appellants the sum of $500, alleged to have been subscribed 
 by them to its capital stock prior to its organization. In addition to 
 the general issue, appellants filed several special pleas, one of which 
 set up that they had withdrawn their subscription to the capital stock 
 of appellee, and notified the promoters thereof, prior to appellee's or- 
 ganization as a corporation, to which plea a demurrer was interposed 
 and sustained. This demurrer 'should have been overruled, for the 
 reason that, in the absence of a special agreement to the contrary, sup- 
 ported by a valuable consideration, a subscription to the capital stock 
 of a corporation, thereafter to be organized, is nothing more than an 
 offer of a specific sum to the use of the corporation when it comes into 
 existence, and therefore, under familiar principles of law, may 'be 
 withdrawn at any time before the organization of the corporation. 
 While there are authorities to the contrary, this view is in accord with 
 the great weight thereof and of reason, as will appear from an ex- 
 amination of 1 Thompson on Corporations (2d Ed.) § 518; 1 Cook on 
 Corporations, § 167. * * * 
 
 While this question seems not to have been heretofore presented to 
 this court for decision, the rule as herein announced was evidently un- 
 derstood to be the correct one by the judges who composed the High 
 Court of Errors and Appeals when the case of Hayne v. Beauchamp, 
 5 Smedes & M. 515, was decided; for Judge Sharkey, in delivering the 
 opinion therein, used the following language : "But it is insisted that 
 a distinction is to be taken between those cases in which the subscrip- 
 tion is made to an existing corporation, and a mere subscription in view 
 of a subsequent charter. True, there is a distinction. In the latter 
 case the subscription, or the undertaking is not always obligatory; in 
 the first it is," etc. And Judge Clayton, in his dissenting opinion, said: 
 ''Before the bank went into operation, and incurred liabilities, he [re- 
 ferring to a siibscriber to its capital stock] might have withdrawn ; to 
 permit him to do so afterwards would, in my apprehension, violate 
 some of the elementary principles of law and justice." * * ' * 
 
 Reversed and remanded. 
 
^^■2) CORPORATE POWERS 1407 
 
 CHAPTER III 
 CORPORATE POWERS 
 
 Section 
 
 1. Scope Of Corporate Powers. 
 
 2. Ultra Vires Contracts. 
 
 SECTION 1.— SCOPE OF CORPORATE POWERS 
 There are two main questions relating to corporate powers t 
 (1) What transaction may be entered into by a corporation, such 
 that the resulting legal relations will be the same as those pro- 
 duced by the same kind of transaction when entered into by in- 
 dividuals? (2) What is the abnormal effect produced upon the re- 
 lations of the parties when the corporation has entered into some 
 transaction which admittedly lies outside its powers? The case 
 following deals with the second of these questions. No cases have 
 been inserted which raise individual problems involving the first 
 question. With respect to this question the general principle is 
 fairly clear. The corporation "will possafs only such power as 
 has been conferred upon it. The source of this power, in the 
 first instance, is the state incorporating it. Other states in which 
 the corporation may engage in business may also affect transac- 
 tions which are governed by the laws of that state. Where a 
 corporation is incorporated by special act the source and extent 
 of its power is the statute which created the corporate entity. 
 Where the corporation is incorporated under the provisions of an 
 incorporation law, the source and extent of corporate powers is the 
 statute or statutes under which the corporation was organized. 
 
 In determining the scope of power of a particular corporation 
 statutes other than the incorporation law itself must be taken into 
 consideration. Statutes enacted under the police power of the 
 states, either prior to or subsequent to incorporation will operate 
 as limitations upon corporate powers. Limitations will be found 
 not only in the actual text of the statutes but will rest in the na- 
 ture of the corporate organization itself, as, for example, the ques- 
 tion as to whether a corporation may purchase its own stock ; the 
 English rule and the rule in some of the states of the United States 
 being that such a purchase cannot be made, while the majority rule 
 is that a corporation may purchase its own stock when made in 
 good faith and the rights of creditors are not prejudiced thereby. 
 The powers of a corporation may not be as extensive as the stat- 
 utes of the state of incorporation permit. Such a situation as this 
 arises when the articles of incorporation place limitations upon cor- 
 porate activities in addition to those found in legislative acts. 
 In its broader aspects, therefore, the problem of determining the 
 extent of corporate powers is a problem of interpreting the various 
 
1408 eoEPORATiONS (Part 6 
 
 statutes of the state and of the articles of incorporation in the light 
 of transactions which have in fact been entered into. The determi- 
 nation of these questions will vary according to the kind of corpo- 
 ration which is concerned with the transaction under examination. 
 It might be held in one case that a particular corporation did' not 
 have power to enter into a contract of suretyship, but such rule 
 would obviously not apply to surety companies. The powers of 
 banking corporations, manufacturing companies, railroad com- 
 panies, and religious corporations could not be coextensive. In the 
 process of reasoning the ascertainment of the scope of a corpora- 
 tion's power is not essentially different from that involved in de- 
 termining the scope of an agent's power. 
 
 SECTION 2.— ULTRA VIRES CONTRACTS 
 
 APPLETON y. CITIZENS' CENTRAL NATIONAL BANK OF NEW YORK. 
 
 (Court of Appeals of New York, 1908. 190 N. Y. 417, 83 N.' B. 470, 
 32 L. R. A. [N. S.] 543.) 
 
 ■T. 
 
 CuivLEN, C. J. This action is brought by the plaintiff as receiver of 
 a dissolved bank against the defendant, who is the successor of the 
 Central National Bank of the city of New York. * * * The plain- 
 tiff has been defeated on the theory that the execution of the guaranty 
 by the defendant bank was ultra vires, and not binding upon it, and 
 upon this ground the judgments below are sought to be sustained. 
 Had the guaranty been limited to the amount which the bank, under 
 its agreement with Samuels, was to receive out of the loan, we should 
 be entirely clear that it was within the legitimate powers of the bank 
 
 under the decisions of the Supreme Court of the United States. 
 
 * * * 
 
 We think, however, that the defendant's power to guarantee was lim- 
 ited by the extent of its interest in the subject-matter of the guaranty. 
 To allow a bank to guarantee the payment by one of its debtors of a 
 larger sum in order that the bank might receive or retrieve a lesser sum 
 would be to permit it to enter upon very hazardous speculation, and au- 
 thorize very wild and unsafe banking. * * * 'We may assume 
 that the contract was ultra vires. We may further assume that in trans« 
 actions by national banks we should adopt the law of ultra vires as 
 it prevails in the Federal courts, and not the local law on the sub- 
 ject. Yet the defendant, in our opinion, became plainly liable for 
 the amount which it received under the ultra vires contract. The law 
 which obtains in this state and in several other jurisdictions is that, 
 where one party has received the full benefit of an ultra vires con- 
 tract, he cannot plead the invalidity of the contract to defeat an action 
 upon it by the other party. * * * 
 
 _ A contrary rule obtains in the Supreme Court of the United States. 
 There it is held that the execution of an ultra vires contract by one 
 party cannot confer upon it validity or authorize the other party to 
 sue on its obligations (Central Transportation Co. v. Pullman's Palace 
 Car Co., 139 U. S. 24, 11 Sup. Ct. 478, 35 L. Ed. 55); but at the 
 
^h. 3) CORPORATE POWERS 1409 
 
 same time it is also held that a party cannot retain money or property 
 received by it under an ultra vires contract vjfhen it refuses to perform 
 that contract (Logan County Bank v. Townsend, 139 U. S. 67, 11 Sup. 
 Ct. 496, 35 L. Ed. 107). It was there said by Judge Harlan : "The bank, 
 in this case insisting that it obtained the bonds of the plaintiff in vio- 
 lation of the act of Congress, is bound, upon being made whole, to re- 
 turn them to him. No exemption or immunity from this principle of 
 right and duty is given by the national banking act. 'The obligation 
 to do justice,' this court said in Marsh v. Fulton County, 10 Wall. 
 (U. S.) 676, 684, 19 L. Ed. 1040, 'rests upon all persons, natural and 
 artificial, and if a county obtains the money or property of others with- 
 out authority, the law, independently of any, statute, will compel resti- 
 tution or compensation.' " In a great many cases the difference be- 
 tween the law prevailing in the federal courts and that in our own 
 would lead to great difference in results. In this case, however, as the 
 plaintiff disclaims any right to recover beyond the amount actually 
 received by the defendant, the result is exactly the same "whether we 
 adopt one rule or the other. Whatever the difference of view there 
 may be as to the effect of ultra vires on corporate contracts, in no 
 jurisdiction can a party retain what it has received under such a con- 
 tract, and refuse to perform the contract. * * * 
 
 Nor is there any force in the suggestion that this action is not brought 
 in disaffirmance of the contract for money had and received, but on 
 the contract of guaranty. All the facts are set forth in the complaint, 
 and if these facts entitle the plaintiff to relief on any theory, then the 
 complaint states a good cause of action. 
 
 The judgments of the Appellate Division and Special Term should 
 be reversed, and judgment rendered for plaintiff on demurrer. 
 
 HARRIS et al. v. INDEPENDENCE GAS CO. et al. 
 
 (Supreme Court of Kansas, 1907. 76 Kan. 750, 92 Pae. 1123, 13 L. R. A. 
 
 [N. S.] 1171.) 
 
 Mason, J. Cornelius Carr and his wife executed to the Independence 
 Gas Company an oil and gas lease — that is, an instrument granting 
 the right to explore a tract of land for oil or gas, and to appropriate 
 either if found. The company is a Kansas corporation, and, at the 
 time of the execution of the lease, the only purpose mentioned in its 
 charter was "to dig or mine for natural gas, and sell the same for 
 heat and lighting purposes." Later, an amendment was made adding 
 thereto the mining and selling of oil. What are called the "gas rights" 
 under the lease have been transferred to another gas company, and 
 no point is raised with regard to them. The Carrs, claiming that the 
 lease so far as it related to oil was void, because at the time it was 
 executed the lessee had no authority to engage in the oil business, un- 
 dertook to grant the oil privileges anew to C. C. Harris, who, upon 
 that ground, brought an action against the Independence Company 
 to cancel all of its contract excepting that portion relating to gas- 
 joining his grantors as coplaintiffs. The trial court sustained a de- 
 murrer to a petition setting out substantially these facts, and this pro- 
 ceeding is brought to review that ruling. 
 B.& B.BUS.LAW— 89 
 
1410 CORPORATIONS ' (Part 6 
 
 The defendant maintains: (1) That it had the implied power to 
 produce and market oil as an incident to the expiress power granted 
 to it to produce and market gas ; (2) that if it originally lacked such 
 power the defect was supplied by the charter amendment; and (3) 
 that even if it had no authority to enter into the contract the plaintiffs 
 cannot take advantage of the fact. It will only be necessary to con- 
 sider the questions involved in the third proposition. 
 
 Although the decisions relating to the doctrine of ultra vires are 
 characterized by some confusion, as well as by much conflict, they 
 admit of classification into fairly well-defined groups, and exhibit a 
 development in the direction of restricting the scope of its operation. 
 Those courts which accord it the most favorable treatment — allow it 
 the largest field of action — proceed upon the conception that a corpo- 
 ration, being the creature of the state, possesses no power whatever 
 beyond that granted in its charter, and cannot directly or indirectly 
 acquire rights, or incur liabilities, under any contract not thereby 
 authorized. • They refuse, under any circumstances, to enforce or 
 give effect to an unauthorized contract as such, but, where it has been 
 acted upon, will protect the parties against hardship and injustice, by 
 allowing whatever relief may be suited to the facts of the case — for 
 instance, by permitting either party to recover money or property 
 which has been parted with in the transaction, or to have compensation 
 therefor. * * * 
 
 The theory is consistent and logical, but its practical effect is so to 
 circumscribe the power of the court as to make the relief furnished at 
 times inadequate to the occasion. In a larger number of jurisdictions, 
 although the same conception of corporate capacity is adopted, its effect 
 is greatly changed by the application of another principle. Here the 
 courts concede that a corporation has no power to make a contract ex- 
 cept such as is conferred by its charter, expressly, or by necessary impli- 
 cation. But they hold that as it must have some discretion in the man- 
 ner of carrying out the purposes of its creation — some freedom of ac- 
 tion — it is amenable to the same rules of conduct as a natural person, 
 and may estop itself to question the validity of an agreement it has as- 
 sumed to make or may acquire the right to invoke a similar estoppel in 
 its own behalf. Where this theory is accepted, recovery may be had 
 upon a contract which is in fact void, simply because its validity cannot 
 be put in issue. * * * 
 
 These cases have been criticised for the use .they make of the word 
 "estoppel," as descriptive of the principle upon which they are based. 
 It is argued that, as a a corporation must know the terms of its own 
 charter, and as one dealing with it is charged with like knowledge, nei- 
 ther party to an ultra vires contract can be misled in that respect, and 
 therefore there must always be lacking an essential element of what 
 could, with technical accuracy, be called estoppel. This, however, is a 
 mere question of terminology. The requirement that one shall be 
 consistent in conduct — shall not occupy contradictory positions, shall 
 not retain the advantages of a transaction, and reject its burdens — is 
 often spoken of as a form of estoppel. The term is convenient, and, if 
 inaccurate, is not misleading. This rule of estoppel affords a good 
 working hypothesis to accomplish just results. If it fails to accom- 
 plish all that might be desired in a practical way, it is because it is not 
 made sufficiently far-reaching. It is generally held to be inapplicable 
 to purely executory contracts, one reason stated being that, "Where 
 
Ch- 3) CORPORATE POWERS 1411 
 
 neither party has acted upon the contract, the only injustice, caused 
 by a refusal to enforce it, is the loss to the parties of prospective prof- 
 its, and this is too slight a consideration to weigh against the reasons 
 of pubHc policy for declaring it void and not enforceable." 29 A. & E. 
 Encycl. of L. 49, 50. 
 
 It might seem reasonable that a system which attempts not only to 
 protect a party to an ultra vires contract from actual loss, but, where 
 equity requires it, to insure to him the actual fruits of his bargain, 
 ought, for the sake of completeness and symmetry, to enable him to 
 insist upon the performance even of a purely executory contract. It 
 certainly seems against conscience that one who has entered into a 
 contract in the expectation of deriving a profit from it, may, upon dis- 
 covering the probability of a loss, repudiate it/- and escape responsibil- 
 ity by raising the question of want of corporate capacity. Parties 
 to a contract, who deal with each other upon the assumption that one 
 of them is a corporation, are ordinarily precluded from questioning 
 the validity of its organization. * * * 
 
 A large majority of the adjudications on the subject of ultra vires 
 fall into one or the other of the two groups already referred to. The 
 conception of corporate power, upon which they depend, has been 
 styled that of "special capacities," in distinction from that of "gen- 
 eral capacities." * * * The conception, designated by the latter 
 term, is, in brief, that while a corporation has no right to exceed the 
 limits of its charter it has the power to do so. The theory was elab- 
 orated in the opinion of Chief Justice Comstock, in the celebrated case 
 of Bissell V. Mich. So. & Nor. Ind. R. Cos., 22 N. Y. 258, where it 
 was said: "Like natural persons, they (corporations) can overleap 
 the legal and moral restraints imposed upon them ; in other words, 
 they are capable of doing wrong. * * * 'j'jjg distinction between 
 power and right is no more to be lost sight of in respect to artificial 
 than in respect to natural persons. * * * Why, it may be asked, 
 does the law provide the remedy of quo warranto against corporations 
 for usurpation and abuse of power? Is it not the very foundation of 
 that proceeding, that corporations can, and do, perform acts, and 
 usurp franchises beyond the rightful authority conferred by their char- 
 ters? Most assuredly this is so. The sovereign power of the state 
 interposes, alleges the excess of abuse, and, on that ground, demands 
 from the courts a sentence of forfeiture." * * * 
 
 This theory, logically followed out, would obviously make all cor- 
 porate contracts, executory as well as executed, enforceable between 
 the parties. It has not, however, met with any large acceptance, at 
 least in the form stated. * * * g^t a recent tendency has been 
 developed to reach substantially the same result by a somewhat differ- 
 ent course, of reasoning, resulting in a doctrine which is thus stated 
 in 10 Cyc. 1164: "A most important doctrine connected with this sub- 
 ject, and one which arises above the mere principle of estoppel, is that, 
 whether a corporation has acted without authority conferred on it by 
 the Legislature, or has acted in contravention to an act of the Legis- 
 lature, cannot be set up collaterally, by individuals who deal with it, 
 or by 'third persons, but can be set up only by the state in a direct 
 proceeding to forfeit its charter, to oust it of some particular franchise, 
 or to subject it to punishment; or where the question is otherwise 
 litigated between the state and the corporation." 
 
 The cases applying or discussing the doctrine are collected in notes 
 
1412 CORPORATIONS (Part 6 
 
 to this text, and to succeeding paragraphs in the same work. The 
 principle referred to, if sound, is manifestly sufficient in itself to defeat 
 the defense of ultra vires, even when interposed against the enforce- 
 ment of an executory contract, but it must be admitted that, in prac- 
 tice, it seems to have been applied only where the agreements had 
 been at least partially performed. It seems often to have been invoked, 
 however, in aid of the ordinary doctrine of estoppel, in cases where 
 the contract upon one side or the other had already been performed. 
 The best and most .complete expression of it is found in the decisions 
 of the Wisconsin court. In Farwell Co. v. Wolf, 96 Wis. 10, 70 N. 
 W. 289, 71 N. W. 109, 37 L. R. A. 138, 65 Am. St. Rep. 22, it^is said: 
 "Judge Thompson, in his valuable treatise on the Law of Corpora- 
 tions, vol. 5, §§ 6033-6038, commenting on the subject, appears to dep- 
 recate the prevalence of the 'new doctrine,' and to argue against its 
 further extension, upon the ground that it practically destroys the 
 effect of the doctrine of ultra vires, as applied to the unauthorized 
 exercise of corporate power; but the learned author is manifestly in 
 error in that respect. Such doctrine, notwithstanding the limitation 
 which modern development has placed on the means by which it may 
 be called into use, still exists, and may and will continue to exist, 
 adapted as fully as ever to restrain the abuse of corporate franchises 
 and authority, and to punish such abuse, whenever the state, in its 
 sovereign capacity, sees fit to exercise it. That such doctrine cannot 
 be resorted to as a weapon for attack and defense in the hands of 
 mere private persons, and used as a ready means of embarrassing 
 business operations by and with corporate bodies, which directly or 
 indirectly touch and administer to human desires at every turn of 
 the individual in modern life, while its effectiveness for all essential 
 purposes of restraint and punishment is fully preserved, furnishes no 
 cause for regret, but rather cause for gratification at the evidence of 
 how certainly principles, by natural growth and development, adapt 
 the law and its administration to the everchanging needs of advancing 
 civilization, so as best to promote justice and the common welfare. 
 When a corporation offends against the law of its creation, such of- 
 fense is against the sovereignty of the state ; hence, it is most proper 
 that the state should apply the remedy, and be charged with the sole 
 responsibility in that regard, and such is the law by the trend of mod- 
 ern authorities, which we approved." * * * 
 
 The question whether a corporation has a legal existence is a ques- 
 tion whether it has capacity to act at all ; this is essentially of the same 
 character as the question whether it has capacity to enter into a par- 
 ticular contract — in other words, whether it has a legal existence for 
 that purpose. The state grants the corporation the right to do busi- 
 ness under limitations expressed in language to which both agree. 
 Whether the language of the charter shall be interpreted to authorize 
 a given act is a matter between the parties to it. If the state is satis- 
 fied with the construction upon which the corporation acts, no reason 
 is apparent why it should be open to question by a stranger, much 
 less by one who has recognized it as valid by contracting with the cor- 
 poration upon that basis. * * * 
 
 No Kansas statute declares that a contract made by a corporation in 
 excess of its legitimate powers shall be void ; or in terms permits the 
 question of corporate capacity to be raised by one of the parties. 
 Where it is held that no recovery can ever be had upon an ultra vires 
 
f^ll- 3) CORPORATE POWERS 1413 
 
 contract, as such, whatever relief is afforded is logically made to turn 
 upon whether and how far the agreement has been acted upon. 
 Where a recovery is sometimes permitted under the contract itself, upon 
 the principle of estoppel, the question whether it has been carried out 
 is likewise of manifest importance, there being a difference in degree, 
 at least, between the attitude of one who has merely entered into an en- 
 gagement in expectation of obtaining an advantage from it, and that 
 of one who has actually reaped its benefits in whole or in part. But the 
 doctrine that only the state can challenge the validity of acts done un- 
 der color of a corporate charter, if accepted, must necessarily protect 
 an executory contract from collateral attack, equally with one that has 
 been executed. The court is convinced of the soundness of the view 
 that, in the absence of special circumstances affecting the matter, nei- 
 ther party to even an executory contract should be allowed to defeat its 
 enforcement by the plea of ultra vires. The doctrine is logical in the- 
 ory, simple in application, and just in result. * * * 
 Upon these considerations the judgment is affirmed. 
 
1414 CORPOKATioNS rParf6 
 
 CHAPTER IV 
 
 THE RELATION OF STOCKHOLDERS TO THE 
 CORPORATION 
 
 Section 
 
 1. Nature of a Share of Stock. 
 
 2. Eights of the Preferred Stockholder. 
 
 3. Right to Inspect Corporate Books. 
 
 4. Eight to Participate in New Issues of Stock, 
 
 5. Stockholders' Meetings.- 
 
 6. Voting Trusts. 
 
 7. Eights of the Minority. 
 
 8. Right to Maintain Actions upon Corporate Causes of Action. 
 
 9. Rights with Respect to Declared Dividends and Surplus. 
 
 10. Apportionment of Interests Between Life Tenant and Remainde;-man. 
 
 31. Rights of the Corporation Against Officers and Directors. 
 
 12. Rights and Liabilities of Parties wth Respect to Transfers of Stock. 
 
 SECTION 1.— NATURE OF A SHARE OF STOCK 
 
 UNITED STATES RADIATOR CORPORATION v. STATE. 
 
 (Court of Appeals of New York, 1013. 208 N. Y. 144, 101 N. E. 783, 
 46 L. R. A. [N. S.] 585.) 
 
 Claim by the United States Radiator Company against the State 
 of New York for refund of taxes paid under protest on stock trans- 
 fers. From a judgment dismissing the claim, claimant appeals. 
 
 CoLLUM, J. The action is to recover from the state of New York 
 a sum paid by the plaintiff, under protest and without prejudice to its 
 rights, for stock transfer stamps. 
 
 The facts were agreed upon by the parties for submission to the 
 Court of Claims. The plaintiff, a corporation, purchased certain as- 
 sets of each of four corporations. Under the contracts of purchase, 
 each of the four corporations was entitled to a designated number of 
 shares of the capital stock of the plaintiff as a consideration for the 
 sale. Each of the four corporations and a trust company entered 
 into a lawful voting trust agreement, which provided that the trust 
 company as voting trustee should hold and vote for a designated pe- 
 riod the full number of the shares of stock to which the four corpora- 
 tions were so entitled and a certificate for those shares was issued 
 by the plaintiff, upon the request of each of the four corporations, to 
 the trust company, which thus became the record owner t)f the shares 
 for voting purposes.- Each of the four corporations (no condition 
 forbidding) requested the issue to each stockholder therein by the 
 trust 'company of a certiiicate for the number of shares proportion- 
 ate to the number of the shares of its stock owned by him, and there- 
 upon the trust company issued to each stockholder of the four cor- 
 porations a certificate that he, the stockholder, was the owner of a 
 designated number of shares of the capital stock of the plaintiff de- 
 .posited with and to be held by the trust company under the agreement 
 as voting trustee, and might transfer the certificate, and that all divi- 
 dends received by the trust company should be paid to the holder of 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1415 
 
 the certificate who should at the tennination of the voting trust agree- 
 rnent, upon surrender of the certificate, be entitled to receive a cer- 
 tificate or certificates of the plaintiff for said shares of capital stock. 
 Pursuant to the decision of the Comptroller of the State that the cer- 
 tificates of the trust company were taxable under section 270 of the 
 Tax Law (Consol. Laws 1909, c. 60), the plaintiff paid for the trans- 
 fer stamps without prejudice to its rights, and brings this action to 
 recover the sum paid. * * * 
 
 The section imposes the tax upon all agreements or instruments for 
 the transfer of shares of corporate stock. It is in the nature of an 
 excise tax on the transfer. * * * The language expresses clearly 
 the intention of the Legislature that every transfer of or agreement to 
 transfer a share in the capital stock of a corporation, or in other and 
 definitive words, a right to share in the dividends declared by the di- 
 rectors of a corporation from its surplus profits and in the assets upon 
 the distribution of them pro rata among the shareholders at its dis- 
 solution shall be subject to the tax. 
 
 A share of corporate stock is the right which the shareholder has 
 to participate according to the number of shares in the surplus profits 
 of the corporation on a division, and in the assets or capital stock 
 remaining after payment of its debts on its dissolution or the termina- 
 tion of its active existence and operation. * * * It is created by 
 the joint action of the corporation and the shareholder. It imports a 
 contribution to the capital stock made by the shareholder and accepted 
 by the corporation. When a corporation has agreed that a person 
 shall be entitled to a certain number of shares for a consideration 
 permitted by law and executed by the person, those shares come into 
 existence and are owned by him. , 
 
 The statement in the certificate of incorporation or charter of the 
 corporation that the capital stock is a designated amount divided in- 
 to a certain number of shares, each of a named value, creates neither 
 shares nor capital stock. It expresses the power of the corporation 
 to acquire a capital stock. It creates potential shares which, trans- 
 ferred into actual shares by the acquisition of members and their pay- 
 ments, produce the money or property which, put into a single corpo- 
 rate fund, is the actual capital or capital stock on which the corporate 
 business is undertaken and in which are the shares. It also fixes the 
 sum of the payment necessary to create a share. 
 
 The certificate of the corporation for the shares, or the stock cer- 
 tificate, is not necessary to the existence of the shares or their owner- 
 ship. It is merely the written evidence of those facts. It expresses 
 the contract between the shareholder and the corporation and his co- 
 shareholders. But it is the payment, or the obligation to pay for 
 shares of stock, accepted by the corporation, that creates both the 
 shares and their ownership. * * * Flour City National Bank v. 
 Shire, 88 App. Div. 401, 84 N. Y. Supp. 810, affirmed 179 N. Y. 587, 
 72 n'. E. 1141. In the last case cited. Judge Hiscock, then Justice 
 Hiscock, writing for the court, said : "The company having thus ac- 
 quired property under an agreement to give therefor to various people 
 certain interests or shares in its capital stock, we think that such lat- 
 ter persons, immediately upon the acceptance of transfers by the cor- 
 poration, became entitled to and vested with said interests or shares, 
 and that no further steps were necessary to accomplish this latter 
 result. It may be admitted at once that ordinarily the corporation 
 
1416 CORPORATIONS (Part 6 
 
 would issue certificates for these shares of capital stock, but it is too 
 well settled to permit of doubt that said certificates would be merely 
 representative of and not the real interest in the property and assets 
 of the corporation constituting its actual capital stock." * * * 
 
 Each of the four corporations became, upon the transfer of its as- 
 sets to the plaintiff, the owner of the shares of the capital stock of the 
 plaintiff, which were the consideration for it. The transaction did 
 not involve a transfer of those shares. The shares were not trans- 
 ferred to the vendor corporation by plaintiff; they were created by 
 the transaction. At no time were they owned by the plaintiff; At 
 the instant of their creation they were owned by the vendor corpora- 
 tion, which might at any time thereafter transfer them, and any 
 transfer of them by it would be subject to the tax imposed by said 
 section 270. 
 
 The four corporations did not transfer the shares owned by them 
 to the trust company. They caused the record title to them to be 
 placed in the trust company temporarily and for an expressed and 
 limited purpose. They remained the owners of the stock. Their 
 ownership was subject to the right of the trust company to vote the 
 shares at corporate elections, but the power to transfer the shares, 
 subject to the right of the trust company to vote them, remained in 
 the corporations. The trust company could not sell or agree to sell 
 the shares. It had no assignable interest in them. It had evidence in 
 the certificate that it as trustee held the legal title, but this was notice 
 of the existence of the trust agreement which disclosed the ownership 
 of the corporations. 
 
 The valid request of each of the four corporations to the trust com- 
 pany that it issue its certificate to each of the holders of shares of the 
 stock of those corporations for shares of the stock of the plaintiff 
 proportionate to his holding, and the compliance of the trust company, 
 was a transfer of the shares by the corporations to their shareholders. 
 Upon the completion of those acts the corporations ceased having the 
 right to receive the dividends declared upon those shares and the 
 shareholders acquired it. The ownership of the shares is in their 
 stockholders severally, as certified by the trust company, by virtue of 
 the assignment of it inherent in the request and the execution of the 
 request by the trust company. The appellant does not assert or claim 
 that the corporations own the shares. It, on the contrary concedes 
 that their shareholders are the owners, but asserts that they were such 
 through and from the time of the purchase by the plaintiff of the ?■=- 
 sets of the corporations, and therefore there was no transfer of the 
 shares from the corporations to them — an assertion erroneous, as al- 
 ready stated. 
 
 The appellant urges, with ability and earnestness, that if the four 
 corporations did in the first instance own the shares, the transfer of 
 them to the shareholders was a division among the true owners of 
 their own property, and therefore not a taxable transfer. Without 
 deciding whether or not the conclusion correctly expresses the law, it 
 suffices in this case to point out that the premise given for its sup- 
 port is fallacious. While conditions may exist under which equity 
 will consider the shareholders as the proprietors and the ultimate ben- 
 eficiaries of the corporate interests, the fact is that a corporation is an 
 individual being incapacitated through statutory powers to acquire 
 the title to, own, and dispose of real and personal property," enter in- 
 
Ch. 4) THE EELATION OF STOCKHOLDERS TO CORPORATION 1417 
 
 to contracts, engage in business, sue and be sued and taxed. It is the 
 owner of all the corporate property, real and personal, and within the 
 powers conferred upon it by the charter can deal with it as absolutely 
 as a private individual can with his own. The whole title to it is in 
 the corporation, and the shareholders are neither tenants in common 
 nor in any legal sense the owners of it. * * * A shareholder can- 
 not acquire title to any of the property of the corporation through the 
 operation of the law as an administrator acquires the title to the per- 
 sonal property of his intestate. A corporate act alone can affect that 
 result. When the act, as did the act in the present case, transfers to 
 the shareholders shares of the capital stock of another corporation, it 
 is taxable under said section 270. 
 
 The judgment should be affirmed, without costs. * * ♦ 
 
 SECTION 2.— RIGHTS OF THE PREFERRED STOCK- 
 HOLDERS 
 
 STXOKNBERGH et al. v. BROOK et al. 
 
 (Supreme Court of Pennsvlvania, 1909. 225 Pa. 279, 74 Atl. 166, 
 24 L. R. A. [N. S.] 1078, 133 Am. St. Rep. 877.) 
 
 PoTTBR, J. On July 7, 1899, four manufacturing concerns, the 
 Pennsylvania Bolt & Nut Company, J. H. Sternbergh & Son, the Leb- 
 anon Iron Company, and the East Lebanon Iron Company, entered into 
 an agreement, by which they were to transfer to a proposed corpora- 
 tion the whole of their respective "plants, franchises, good will, busi- 
 ness, patents, trade-marks, and property of every sort and kind." The 
 agreement further provided that they should receive for the property 
 SiO transferred full-paid and nonassessable preferred stock of the pro- 
 posed corporation of the par value of $50 per share, of which $3,000,- 
 000 worth were to be issued and divided among them in designated pro- 
 portions. The agreement also provided: "The said preferred stock 
 shall have an accumulative preference of five per cent. (5%) dividend 
 annually, payable quarterly on the first days of January, April, July 
 and October, and the first preference as to the distribution of the as- 
 sets of the company; and further none of the property or franchises 
 of the proposed company can be mortgaged without the consent of 
 at least a majority of the preferred stock." Common stock to the ex- 
 tent of $17,000,000 was also to be issued, divided into 340,000 shares, 
 with a par value of $50 each, upon which $5 per share was to be paid 
 in cash. In pursuance of this agreement, the American Iron & Steel 
 Company was incorporated on August 21, 1899, under the laws of 
 Pennsylvania, for the manufacture of iron and steel products. * * * 
 
 By resolution adopted at the stockholders' meeting of August 23, 
 1899, it was provided "that the preferred stock whose issue was there- 
 by authorized to the amount of $3,000,000 should be entitled (a) 'to re- 
 ceive a cumulative yearly dividend of five per cent., payable quarterly 
 on the first days of January, April, July, and October, in each year, 
 before any dividends shall be set apart or paid on the common stock; 
 (b) to be paid in full both principal and accrued dividends in the event 
 of liquidation or dissolution of the company before any amount shall 
 
1418 CORPORATIONS (Part 6 
 
 be paid to the holders of the common or general stock; (c) to require 
 the consent in writing of a majority of the holders thereof to the crea- 
 tion of any mortgage.' " * * * From the organization of the com- 
 pany until the year 1907 the holders of preferred stock were paid the 
 stipulated 5 per cent, annual dividend, and no more, while all profits 
 above the amount so paid were distributed by dividends to the com- 
 mon stockholders. In March, 1907, a quarterly dividend of 2 per cent, 
 was declared by the directors upon all the stock, both preferred and 
 common, which was at the rate of 8 per cent, per annum. 
 
 J. H. Sternbergh, who was a holder of the common stock, filed this 
 bill in equity against the directors and treasurer of the company and 
 the corporation itself, alleging that the preferred stockholders were 
 not entitled to receive more than 5 per cent, per annum on the par 
 value of their stock, and praying the court to enjoin the payment to 
 
 them of the dividend declared in excess of one-quarter of that amount. 
 * * * 
 
 Three questions are raised by the arguments of counsel on this ap- 
 peal: 
 
 (1) Whether preferred stock issued by a company incorporated un- 
 der the corporation act of 1874 is limited as to dividends to the amount 
 of its preference; or whether, after paynient of an equal amount as 
 dividend on the common stock, it is entitled to participate in the dis- 
 tribution of the remaining profits, if any. 
 
 (2) Whether, under the agreement and resolution in the present case, 
 the preferred stockholders can receive dividends of more than 5 per 
 cent, per annum on the par value of their stock. 
 
 (3) Whether the alleged fact that for a long series of yea^rs the 
 preferred stockholders were paid without objection on their part only 
 5 per cent, per annum and the entire balance of profits was paid to 
 the common stockholders is to be considered in determining the present 
 rights of the parties. * * * 
 
 Where there is no stipulation in the contract to the contrary, the 
 weight of authority clearly favors the right of preferred stockholders 
 to share with the common stockholders in all profits distributed, after 
 the latter have received an amount equal to the stipulated dividend on 
 the preferred stock. "In the absence of special provisions, the holders 
 of preferred stock in a corporation are in precisely the same position, 
 both with respect to the corporation itself and with respect to creditors 
 of the corporation, as the holders of common stock, except only that 
 they are entitled to receive dividends on their shares, to the extent 
 guaranteed or agreed upon before any dividends can be paid to the 
 holders of common stock." 2 Clark & Marshall on Priv. Corp. (1901) 
 § 417c. "A share of stock is a share of stock, whether preferred or 
 common." 1 Cook on Corps. § 269, note. See, also, 1 Elliott on Rail- 
 roads (2d Ed.) § 84; 2 Beach on Priv. Corp. § 501. We do not find 
 anything in the agreement or resolution in the present case which limited 
 the preferred stockholders to a dividend of 5 per cent, per annum upon 
 their stock. 
 
 With regard to the contention that the court should follow the con- 
 struction placed upon the contract, which it is alleged the parties fol- 
 lowed for a series of years — that is, by paying to the preferred stock- 
 holders only the stipulated 5 per cent, dividends, and awarding the re- 
 maining profits to the common stockholdei-s — the trial judge does not 
 find that any such construction was established, and he further finds 
 
Ch. 4) THE KELAT/ON of STOCKnOLDBKS TO CORPORATION 1419 
 
 that, except in the years 1905 and 1906, the dividends paid on the com- 
 mon stock were less than 5 per cent, of its par value. In discussing 
 this feature he says: "Has there grown up any usage in the com- 
 pany at variance with the rights of the preferred stockholders as ascer- 
 tainable from a fair reading of the resolutions under which the pre- 
 ferred shares were issued? The plaintiffs assert that there is such a 
 custom, and, in support of their statement, point to the dividends paid 
 on the common stock during the first 16 months of the company's ex- 
 istence, which aggregated $1.25 per share on the common stock, a re- 
 turn of more than 18 per cent, per annum on the sum paid in on this" 
 stock, while during the same period the holders of preferred stock ac- 
 cepted without murmur dividends at the yearly rate of 5 per cent, on 
 their shares. 
 
 The effect of this evidence is entirely overcome, however, by the 
 consideration that the dividends paid on the common stock yielded less 
 than 2 per cent, on its par value. It is to be assumed that, before the 
 holders of preferred stock could claim more than the 5 per cent, divi- 
 dends that they received, the holders of the common stock were en- 
 titled to receive a dividend of the same percentage on the par value of 
 their shares. To refuse them this right would be unjust. True it is 
 that they had paid in only 10 per cent, of the amount of their subscrip- 
 tions, and that the company had the use of but a comparatively small 
 part of what they were obligated to pay in if called on, but the com- 
 pany enjoyed the credit of having such a resource as the unpaid sub- 
 scriptions to its stock, and the common stockholders had at risk in 
 the venture, not only what money they had paid in, but all for which 
 they were still liable. It was proper, therefore, that the par vakie of 
 their stock should be taken as the basis of their share in the company's 
 profits, and, until they received more than 5 per cent, per annum on that 
 basis (which they never did prior to 1905), the holders of preferred 
 stock had no reason to complain." This conclusion commends itself 
 to us. * * * 
 
 We see no need in the present case for looking beyond the terms of 
 the contract. We think it was properly construed by the court below. 
 The assignments of error are overruled, and the decree is affirmed. 
 
 SECTION 3.— RIGHT TO INSPECT CORPORATE BOOKS 
 
 POWETvSON V. TENNESSEE EASTERN EiLECTRIC CO. et al. 
 
 (Supreme Judicial Court of Massachusetts, 1915. 220 Mass. 380, 
 107 N. B. 997, Ann. Cas. 1917A, 102.) 
 
 De Courcy, J. This is a petition in equity under section 30 of the 
 business corporation law, seeking an inspection of the stock and trans- 
 fer books of the defendant corporation. It is provided in that section 
 that "the stock and transfer books of every corporation, which shall 
 contain a complete list of all stockholders, their residences and the 
 amount of stock held by each, shall be kept at an office of the corpo- 
 ration in this commonwealth for the inspection of its stockholders." 
 Liability for damage caused by a refusal to. exhibit the books, etc., is 
 specified; and the section concludes as follows: "The Supreme Judi- 
 
1420 CORPORATIONS (Part 6 
 
 cial Court or the superior court shall have jurisdiction in equity, upon 
 petition of a stockholder, to order any or all of said copies, books or 
 records to be exhibited to him and to such other stockholders as may 
 become parties to said petition, at such a place and time as may be 
 designated in the order." 
 
 The preliminary objection that Powelson, as one of the three voting 
 trustees, cannot exercise the rights of a stockholder under the statute 
 need not be considered. It is admitted that the intervening petitioner, 
 the Tennessee Mutual Development Company, was the owner of ten 
 'shares of the common stock of the defendant corporation, that it duly 
 made a demand to inspect the stock and transfer books of the electric 
 company, and that the demand was refused. It has become a party 
 to the petition and can invoke the statute. Hereinafter it will be re- 
 ferred to as the plaintiff. 
 
 It is settled that the common-law right of a stockholder to inspect 
 the books of a corporation is a qualified and' not an absolute right. 
 * * * Where the right has been given by statute it has been de- 
 cided in many jurisdictions that unless the statute imposes restrictions 
 or limitations, the right is absolute, and the motive or purpose of the 
 stockholder in seeking to exercise it is not the proper subject of judi- 
 cial inquiry. * * * 
 
 The scope of our statute is narrower than the common-law right of 
 inspection, as it deals only with the records, stock and transfer books. 
 The present application is confined to the stock and transfer books 
 and is made for the alleged purpose of obtaining a complete list of the 
 stockholders and their residences. The right of a stockholder to ob- 
 tain this information has been recognized by the Legislature of this 
 commonwealth since 1858. * * * The language of St. 1903, c. 437, 
 § 30, and the history of the legislation on the subject indicate that the 
 stockholder's right to know the names, addresses and extent of inter- 
 est of his associates in the common enterprise, who with him must elect 
 directors to manage the business of the company, is an absolute right. 
 
 As we construe the report, however, it is not necessary to decide 
 whether a stockholder is entitled to the relief here asked for regardless 
 of his motive or purpose. The single justice, after hearing the parties, 
 ruled that the plaintiflf should have the right to make the inspection 
 prayed for. It is reasonably to be inferred that he was satisfied that 
 the plaintiff was acting in good faith. The fact, if it is a fact, that 
 Powelson, by reason of prior litigation, desires to change the adminis- 
 tration of the company, and has instituted these proceedings with that 
 in view, is entirely consistent with an honest belief that a change in 
 management and policy will advance the interests of the corporation 
 and his own rights as a stockholder. * * * 
 
 The order for inspection is to issue as prayed for. The details as to 
 time and manner will be designated in the order as settled by a single 
 justice. 
 
 Ordered accordingly. 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1421 
 
 SECTION 4.— RIGHT TO PARTICIPATE IN NEW ISSUES 
 
 OF STOCK 
 
 STOKES V. CON'tflNENa'AL TRUST CO. OF CITY OF NEW TORK. 
 
 (Court of Apixsals of New York, 1906. 186 N. Y. 285, 78 N. E. 1090, 
 12 L. R. A. LN. S.] 909, 9 Ann. Cas. 738.) 
 
 This action was brought by a stockholder to compel his corporation 
 to issue to him at par such a proportion of an increase made in its 
 capital stock as the number of shares held by him before such increase 
 bore to the number of all the shares originally issued, and in case 
 such additional shares could not be delivered to him for his damages 
 in the premises. < 
 
 Vann, J. * * * Thus the question presented for decision is 
 whether according to the facts found the plaintiff had the legal right 
 to subscribe for and take the same number of shares of the new 
 stock that he held of the old? The subject is not regulated by stat- 
 ute, and the question presented has never been directly passed upon 
 by this court, and only to a limited extent has it been considered by 
 courts in this state. * * * 
 
 In other jurisdictions the decisions support the claim of the plain- 
 tiff. * * * The leading authority is Gray v. Portland Bank, de- 
 cided in 1807 and reported in 3 Mass. 364, 3 Am. Dec. 156. * * * 
 The court held that stockholders who held old stock had a right to 
 subscribe for and take new stock in proportion to their respective 
 shares. As the corporation refused this right to the plaintiff he was 
 permitted to recover the excess of the market value above the par 
 value, with interest. In the course of its argument the court said: 
 "A share in the stock or trust when only the least sum has been paid 
 in is a share in the power of increasing it when the trustee determines 
 or rather when the cestuis que trustent agree upon employing a great- 
 er sum. * * * A vote to increase the capital stock, if it was not the 
 creation of a new and disjointed capital, was in its nature an agree- 
 ment among the stockholders to enlarge their shares in the amount or 
 in the number to the extent required to effect that increase. * * * 
 If from the progress of the institution and the expense incurred in it 
 any advance upon the additional shares might be obtained in the mar- 
 ket, this advance upon the shares relinquished belonged to the whole, 
 and was not to be disposed of at the will of a majority of the stock- 
 holders to the partial benefit of some and exclusion of others." This 
 decision has stood unquestioned for nearly a hundred years and has 
 been followed generally by courts of the highest standing. It is the 
 foundation of the rule upon the subject that prevails, almost without 
 exception, throughout the entire country. * * * 
 
 In Jones v. Morrison, 31 Minn. 140, 152, 16 N. W. 854, it was 
 said: "When the proposition that a corporation is trustee of the 
 corporate property for the benefit of the stockholders in proportion 
 to the stock held by them is admitted (and we find no well-considered 
 case which denies it), it covers as well the power to issue new stock 
 as any other franchise or property which may be of value, held by 
 the corporation. The value of that power, where it has actual value, 
 is given to it by the property acquired and the business built up with 
 
1422 COKPOEATIONS (Part 6 
 
 the money paid by the subsisting stockholders. It happens not infre- 
 quently that corporations, instead of distributing their profits in the 
 way of dividends to stockholders, accumulate them till a large sur- 
 plus is on hand. No one would deny that, in such case, each stock- 
 holder has an interest in the surplus which the courts will protect. 
 No one would claim that the officers, directors pr majority of the 
 stockholders, without the consent of all, could give away the surplus, 
 or devote it to any other than the general purposes of the corporation. 
 But when new stock is issued, each share of it has an interest in the 
 surplus equal to that pertaining to each share of the original stock. 
 And if the corporation, either through the officers, directors or major- 
 ity of stockholders, may dispose of the new stock to whomsoever it 
 will, at whatever price it may fix, then it has the power to diminish the 
 value of each share of old stock by letting in other parties to an equal 
 interest in the surplus and in the good will or value of the established 
 business." * * * 
 
 If the right claimed by the plaintiff was a right of property be- 
 longing to him as a stockholder, he could not be deprived of it by 
 the joint action of the other stockholders, and of all the directors and 
 officers of the corporation. What is the nature of the right acquired 
 by a stockholder through the ownership of shares of stock? What 
 rights can he assert against the will of a majority of the stockholders, 
 and all the officers and directors? While he does not own and cannot 
 dispose of any specific property of the corporation, yet he and his as- 
 sociates own the corporation itself, its charter, franchises, and all. 
 rights conferred thereby, including the right to increase the stock. 
 He has an inherent right to his proportionate share of any dividend 
 declared, or of any surplus arising upon dissolution, and he can pre- 
 vent waste or misappropriation of the property of the corporation by 
 those in control. Finally, he has the right to vote for directors and' 
 upon all propositions subject by law to the control of the stockholders, 
 and this is his supreme right and main protection. Stockholders have 
 no direct voice in transacting the corporate business, but through their 
 right to vote they can select those to whom the law intrusts the power 
 of management and control. 
 
 A corporation is somewhal like a partnership, if one were possible, 
 conducted wholly by agents, where the copartners have power to ap- 
 point the agents, but are not responsible for their acts. The power to- 
 manage its affairs resides in the directors, who are its agents, but the 
 power to elect directors resides in the stockholders. This right to 
 vote for directors, and upon propositions to increase the stock or 
 mortgage the assets, is about all the power the stockholder has. So 
 long as the management is honest, within the corporate powers, and in- 
 volves no waste, the stockholders cannot interfere, even if the admin- 
 istration is feeble and unsatisfactory, 5ut must correct such evils 
 through their power to elect other directors. Hence, the power o£ 
 the individual stockholder to vote in proportion to the number of his 
 shares is vital, and cannot be cut off or curtailed by the action of all 
 the other stockholders, even with the co-operation of the directors and 
 officers. 
 
 In the case before us the new stock came into existence through' 
 the exercise of a right belonging wholly to the stockholders. As the 
 right to increase the stock belonged to them, the stock when increased 
 belonged to them also, as it was issued for money and not for property- 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1423 
 
 or for SQme purpose othei- than the sale thereof for money. By the 
 increase of stock the voting power of the plaintiff was reduced one- 
 half, and while he consented to the increase he did not consent to the 
 disposition of the new stock by a sale thei'eof to Blair & Co. at less 
 than its market value, nor by sale to any person in any way except by 
 an edlotment to the stockholders. The increase and sale involved the 
 transfer of rights belonging to the stockholders as part of their in- 
 vestment. The issue of new stock and the sale thereof to Blair & Co. 
 was not only a transfer to them of one-half the voting power of the 
 old stockholders, but also of an equitable right to one-half the surplus 
 which belonged to them. In other words, it was a partial division of 
 the property of the old stockholders. The right to increase stock is 
 not an asset of the corporation any more than the original stock when 
 it was issued pursuant to subscription. The ownership of stock is in 
 the nature of an inherent but indirect power to control the corpora- 
 tion. The stock when issued ready for delivery does not belong to 
 the corporation in the way that it holds its real and personal property, 
 with power to sell the same, but is held by it with no power of aliena- 
 tion in trust for the stockholders, who are the beneficial owners, and 
 become the legal owners upon paying therefor. * * * It has the 
 same voting power as the old, share for share. The stockholders de- 
 cided to enlarge their holdings, not by increasing the amount of each 
 share, but by increasing the number of shares. The new stock be- 
 longed to the stockholders as an inherent right by virtue of their be- 
 ing stockholders, to be shared in proportion upon paying its par value 
 or the value per share fixed by vote of a majority of the stockholders, 
 or ascertained by a sale at public auction. 
 
 While the corporation could not compel the plaintiff to take new 
 shares at any price, since they were issued for money and not for 
 property, it could not lawfully dispose of those shares without giving 
 him a chance to get his proportion at the same price that outsiders 
 got theirs. He had an inchoate right to one share of the new stock for 
 each share owned by him of the old stock, provided he was ready to 
 pay the price fixed by the stockholders. If so situated that he could 
 not take it himself, he was entitled to sell the right to one who could, 
 as is frequently done. Even this gives an advantage to capital, but 
 capital necessarily has some advantage. Of course, tliere is a dis- 
 tinction when the new stock is issued in payment for property, but 
 that is not this case. The stock in question was issued to be sold for 
 money and was sold for money only. A majority of the stockholders, 
 as part of their power to increase the stock, may attach reasonable 
 conditions to the disposition thereof, such as the requirement that ev- 
 ery old stockholder electing to take new stock shall pay a fixed price 
 therefor, not less than par, however, owing to the limitation of the 
 statute. They may also provide for a sale in parcels or bulk at public 
 auction, when every stockholder can bid the same as strangers. They 
 cannot, however, dispose of it to strangers against the protest of any 
 stockholder who insists that he has a right to his proportion. Other- 
 wise the majority could deprive the minority of their proportionate 
 power in the election of directors and their proportionate right to 
 share in the surplus, each of which is an inherent, pre-emptive, and 
 vested right of property. It is inviolable, and can neither be taken 
 away nor lessened without consent, or a waiver implying consent. 
 The plaintiff had power, before the increase of stock, to vote on 221 
 
1424 CORPORATIONS (Part 6 
 
 shares of stock, out of a total of 5,000, at any meeting held by the 
 stockholders for any purpose. By the action of the majority, taken 
 against his will and protest, he now has only one-half the voting pow- 
 er that he had before, because the number of shares has been doubled 
 while he still owns but 221. This touches him as a stockholder in 
 such a way as to deprive him of a right of property. Blair & Co. ac- 
 quired virtual control, while he and the other stockholders lost it. 
 
 We are not discussing equities, but legal rights, for this is an action 
 at law, and the plaintiff was deprived of a strictly legal right. If the 
 result gives him an advantage over other stockholders, it is because 
 he stood upon his legal rights, while they did not. The question is 
 what were his legal rights, not what his profit may be under the sale 
 to Blair & Co., but what it might have been if the new stock had been 
 issued to him in proportion to his holding of the old. The other stock- 
 holders could give their property to Blair & Co., but they could not 
 give his. A share of stock is a share in the power to increase the 
 stock, and belongs to the stockholders the same as the stock itself. 
 When that power is exercised, the new stock belongs to the old stock- 
 holders in proportion to their holding of old stock, subject to compli- 
 ance with the lawful terms upon which it is issued. When the new 
 stock is issued in payment for property purchased by the corporation, 
 the stockholders' right is merged in the purchase, and they have an 
 advantage in the increase of the property of the corporation in pro- 
 portion to the increase of stock. When the new stock is issued for 
 money, while the stockholders may provide that it be sold at auction 
 or fix the price at which it is to be sold, each stockholder is entitled to 
 his proportion of the proceeds of the sale at auction, after he has had 
 a right to bid at the sale, or to his proportion of the new stock at the 
 price fixed by the stockholders. 
 
 We are thus led to lay down the rule that a stockholder has an in- 
 herent right to a proportionate share of new stock issued for money 
 only and not to purchase property for the purposes of the corporation 
 or to effect a consolidation, and while he can waive that right, he can- 
 not be deprived of it without his consent except when tne stock is 
 issued at a fixed price not less than par, and he is given the right to 
 take at that price in proportion to his holding, or in some other eq- 
 uitable way that will enable him to protect his interest by acting on 
 his own judgment and using his own resources. This rule is just to 
 'all and tends to prevent the tyranny of majorities which needs re- 
 straint, as well as virtual attempts to blackmail by small minorities 
 which should be prevented. * * * 
 
 The learned trial court, however, did not measure the damages ac- 
 cording to law. The plaintiff was not entitled to the difference be- 
 tween the par value of the new stock and the market value thereof, for 
 the stockholders had the right to fix the price at which the stock 
 should be sold. They fixed the price at $450 a share, and for the 
 failure of the defendant to offer the plaintiff his share at that price 
 we hold it liable in damages. His actual loss, therefore, is $100 per 
 share, or the difference between $450, the price that he would Tiave 
 been obliged to pay had he been permitted to purchase, and the mar- 
 ket value qn the day of sale, which was $550. This conclusion re- 
 quires a reversal of the judgment rendered by the Apoellate Division 
 and a modification of that rendered by the trial court. 
 
 The order appealed from should be reversed and the judgment of 
 
Ch. 4) THE RELATION OP STOCKHOLDERS TO CORPORATION 1425 
 
 the trial court modified by reducing the damages from the sum of 
 $99,450, with interest from January 30, 1902, to the sum of $22,100, 
 with interest from that date, and by striking out the extra allowance of 
 costs, and as thus modified the judgment of the trial court is affirmed. 
 
 SECTION 5.— STOCKHOLDERS' MEETINGS 
 
 PEOPLE ex rel. CARUS v. MATTHIESSEN. 
 
 (Supreme Court of Illinois, 1915. 269 111. 499, 109 N. B. 1056, 
 Ann. Gas. 1916E, 1035.) 
 
 Cooks, J. The people, on the relation of Mary Hegeler Carus, in- 
 dividually, and as trustee under the will of Edward C. Hegeler, de- 
 ceased, appellee, filed an information in the nature of a quo warranto 
 in the circuit court of La Salle county against the appellant, F. W. 
 Matthiessen, calling upon him to show by what authority he was ex- 
 ercising the office of director of the Matthiessen & Hegeler Zinc 
 Company, an Illinois corporation. The plea of appellant set forth his 
 election as a director on December 18, 1913, and averred title to the 
 office by virtue of such election. The circuit court found that the ap- 
 pellant had been duly and regularly elected a director of the com- 
 pany at a stockholders' meeting held December 18, 1913, and a judg- 
 ment of not guilty was entered. This judgment, on appeal, was re- 
 versed by the Appellate Court for the Second District, and a judgment 
 of ouster was entered. The cause is brought here by appeal on a cer- 
 tificate of importance. 
 
 The sole question involved is whether the meeting of December 18, 
 1913, was a legal meeting of the stockholders of the corporation. It 
 is the claim of appellee that, as the notice of the meeting required by 
 law was not given, any action taken was invalid, while appellant con- 
 tends that sufficient notice was given, and, if not, that all the stock- 
 holders were present, and it was therefore immaterial whether notice 
 was given. * * * Section 6 of the act of 1857, under which the 
 company was organized, and which became a part of the charter of the 
 corporation, provides th^t an annual election of directors shall be 
 held at such time and place as the board may designate, and a writ- 
 ten or printed notice of such election shall be given to each stock- 
 holder personally or sent to him through the mail at least fifteen days 
 before the day of the election, and the election shall be made by 
 such of the stockholders as shall attend for that purpose, either in 
 person or by proxy. It is conceded that the notice required by this 
 section of the statute was not given of the meeting of December 18, 
 1913. The by-laws of the company provide that the annual meeting 
 of the stockholders for the election of a board of four directors shall 
 be held at the office of the company, in the city of La Salle, on De- 
 cember 18th of each year, excepting when that day shall fall on Sun- 
 day, in which case the meeting shall be held on the following day. 
 The hour for holding the meeting is not fixed in the by-laws. 
 
 There was no material controversy as to the facts. It appears that 
 the notice of the annual meeting required by the statute had never 
 B.& B.BI7S.LAW— 90 
 
1426 COKPORATIONS (Part 6 
 
 been given, but ever since the organization of the company the stock- 
 holders met by common consent some time during December 18th of 
 each year, usually about the hour of 10 o'clock a. m., for the annual 
 election of the board of directors. If for any reason it did not suit the 
 convenience of either appellant or Hegeler to meet at the office of the 
 company, the meeting, by consent of all the stockholders, was held 
 elsewhere. The stock was held by a very limited number of persons, 
 and the business was transacted harmoniously; two members of the 
 Matthiessen family and two members of the Hegeler family being 
 elected to the board of directors each year. After the death of Edward 
 C. Hegeler 211 shares of the Hegeler stock were held by Mrs. Carus 
 as trustee under the will of her father, one share was held by Mrs. 
 Carus in her own right, and one share by C. B. L,ihme, a son-in-law 
 of Edward C. Hegeler. Mrs. Carus was a director and president of the 
 company, and Lihme was the other director representing the Heg- 
 eler interests. This was the situation on December 18, 1913. 
 
 On December 17, 1913, appellant and others instituted quo war- 
 ranto proceedings against Lihme to contest his right to hold the office 
 of director in the company, and summons in that case was served on 
 him either that evening or the next morning. Mrs. Carus and Lihme 
 went to the office of the company in La Salle about 10 o'clock the 
 morning of December 18, 1913. They found there present all the 
 Matthiessen stockholders, either^ in person or by proxy. Lihme was 
 much excited over the action which had been instituted against him, 
 and he at once demanded of appellant that no election be held and no 
 business be transacted at that time. Some of the witnesses testify 
 "that he demanded that the meeting adjourn until some time in the fu- 
 ture, but all the testimony is to the effect that he demanded that no 
 action be taken that day.- While Lihme was engaged in making his 
 demands a member of the Matthiessen family moved that appellant 
 be made the chairman of the meeting, and this motion was put and 
 declared carried. Mrs. Carus was in the same way selected as secre- 
 tary of the meeting. About the time the vote was being taken on 
 Mrs. Carus as secretary she and Lihme withdrew from the room. 
 Mrs. Carus said nothing whatever while she was in the room, and 
 neither she nor Lihme voted on the two motions put while they were 
 present. 
 
 It is contended that, as Lihme continued to demand that the meet- 
 ing adjourn after appellant had been selected as chairman and had 
 taken charge of the meeting, he thus participated to the extent that 
 he is bound by the action of the meeting. Lihme did nothing but pro- 
 i:est against the taking of any action or the transaction of any busi- 
 ness at that time ; but, be the effect of his actions what it may, Mrs. 
 Carus said nothing and did nothing that could be construed as con- 
 senting to the holding of the meeting. Unless the provisions of the 
 by-laws constituted sufficient notice of the annual meeting or the phys- 
 ical presence alone of Mrs. Carus constituted a w-aiver of the stat- 
 utory notice, the meeting was not a legal one, and any election held 
 thereat would be invalid. After Mrs. Carus and Lihme had departed, 
 -the election was held, and appellant was elected as one of the directors 
 for the ensuing year. 
 
 While the trial court held, as a proposition of law, that a by-law of 
 a corporation which names a day, but not the hour, for the holding 
 of the annual meeting, is insufficient notice to the stockholders of the 
 
Ch. 4) THE RELATION OP STOCKHOLDERS TO CORPORATION 1427 
 
 time of holding the meeting, it took the view that no stockholder can- 
 urge the invalidity of such meeting for want of notice, unless he has 
 been injured or deprived of some substantial right by lack of notice ;. 
 that, where all the stockholders are present on the day and at the 
 place fixed in the by-laws and at an hour at which for over 20 years 
 it was customary to hold the annual meeting, and where each stock- 
 holder knew that the annual election for director was then about to 
 take place, in law each stockholder had the right and opportunity tO' 
 participate in the meeting, and was not injured by lack of notice or 
 deprived of any substantial right, and cannot urge the invalidity of 
 the meeting on the ground of lack of notice. The court properly held 
 that the by-laws did not constitute notice to the stockholders of the 
 holding of the annual meeting for the election of directors. Section 
 6 of the act under which this company was incorporated provides that 
 this meeting shall be held at such time and place as the board of direc- 
 tors may designate, and expressly requires written notice to be given the 
 stockholders each year. Had the by-laws provided the hour at which 
 the annual meeting should be held on each December 18th, it would 
 have amounted to no more than the designation of the time and place 
 of the meeting by the board, and would not take the place of the notice 
 required by the statute. That notice is indispensable unless it is waived' 
 by all the stockholders, either expressly or by consenting to or par- 
 ticipating in the meeting. 
 
 Did Lihme waive notice by demanding that no business be trans- 
 acted, and by demanding a pledge of the chairman, after he had been 
 selected, that the meeting do nothing but adjourn, or did Lihme and 
 Mrs. Carus waive notice by their mere presence at the meeting? By 
 nothing which he did or said did Lihme recognize the right of the 
 meeting to organize or to transact business. His effort to secure a 
 pledge from appellant, even after he had been selected by his faction 
 as chairman, that the meeting do nothing but adjourn, amounted to no 
 more than an offer to submit to the jurisdiction of the meeting, pro- 
 vided no business whatever should be transacted. His offer was not 
 accepted, and he withdrew, protesting against the holding of the 
 meeting. 
 
 This court has never been called upon to decide whether the mere- 
 presence of a stockholder at an annual meeting for the election of di- 
 rectors, with full opportunity to participate, is alone sufficient to con- 
 stitute a waiver of notice and deprive him of the right to reply upon 
 lack of notice. The text in 10 Cyc. 326, that where notice is required 
 by statute, the meeting cannot be legally held unless the notice be ex- 
 plicitly given in respect of the day, hour, and place or the stockhold- 
 ers are all present and consenting, but if a single member having the 
 right to be present and vote is not duly notified and is absent, or being 
 present, refuses to consent to the holding of the meeting, its proceed- 
 ings will be void, states the correct rule and is supported by authority. 
 * * * Neither Mrs. Carus nor Lihme having consented to the 
 holding of the meeting or participated in it in any way, the meeting of 
 December 18, 1913, was not legally held, and appellant has no valid 
 title to the office of director of the company by virtue of any action, 
 taken at that meeting. 
 
 The judgment of the Appellate Court is affirmed. 
 
1428 CORPORATIONS (Part 6 
 
 SECTION 6.— VOTING TRUSTS 
 
 LUTHX et al. v. REAM et al. 
 
 (Supreme Court of Illinois, 1915. 270 111. 170, 110 N. B. 373, 
 Ann. Cas. 1917B, 368.) 
 
 Dunn, J. Ferd. Luthy, Daniel W. Voorhees, George T; Page, and 
 Thomas Cahill filed a bill in chancery in the circuit court of Peoria 
 county against Henry Ream, Benjamin D. Brewster, William Holly, 
 the Peru Plow & Wheel Company (a corporation), and other persons, 
 stockholders in the corporation, the object of which was to procure the 
 cancellation of a certain voting trust agreement of stockholders of the 
 corporation as to Thomas Cahill, the setting aside of the action of the 
 directors of the corporation fixing salaries of Henry Ream, Benjamin 
 D. Brewster, and William Holly, as president, vice president, and 
 treasurer, respectively, of the corporation, a return of the amount of 
 the salaries received by them, and the issue of a certificate of 70 shares 
 of the capital stock of the corporation to Thomas Cahill. Answers 
 were filed, and after a hearing the court rendered a decree granting 
 the relief prayed for. Upon an appeal by some of the defendants, the 
 Appellate Court for the Second District reversed the decree, except 
 so far as it held the fixing of the salaries of the officers illegal, and 
 required the amount received by them to be refunded. Complainants 
 have appealed from this judgment; the court having certified that 
 the case involves questions of law of such importance that it should 
 be passed upon by the Supreme Court. 
 
 The Peru Plow & Wheel Company is a corporation organized under 
 the laws of Illinois, having a capital stock of $400,000, engaged in 
 the manufacture of plows, metal wheels, and farm implements. The 
 complainants are the owners of 2,027 of the 4,000 shares of its stock ; 
 Thomas Cahill being the owner of 70 shares purchased in November, 
 1912. In September, 1912, 41 of the stockholders, owning 2,001 shares 
 of the stock, entered into the trust agreement in controversy. After 
 reciting that the stockholders deemed it to their interest that all of 
 their stock should be voted as a tmit upon all questions affecting the 
 business and management of the company, and that Henry Ream had 
 consented to hold and vote such stock on behalf of the stockholders, 
 the agreement provided ; * * * 
 
 "(1) The said trustee shall hold, control, and vote said stock as if 
 he was the owner of all of said stock. 
 
 "(2) Said trustee shall determine how said stock shall be voted 
 upon any question, at any time and every meeting of the stockholders. 
 
 "(3) All of said stock so held by the trustees shall be voted as a 
 unit. * * * 
 
 "(9) The rights, duties, and powers hereby conferred upon said 
 trustee shall expire and wholly cease on the 1st day of September, A. 
 D. 1922, and the trustee shall at said time assign and transfer to' the 
 persons who then hold trustee's certificates evidencing their ownership 
 of shares of stock the amount of stock to which each holder thereof is 
 shown by his trustee's certificate to be entitled. * * * " 
 
 The certificates of stock of the stockholders signing the agreement 
 were canceled, and two certificates, for 2,001 shares in the aggregate, 
 were issited to Ream as trustee. He issued to each stockholder a trus- 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1429 
 
 tee's certificate stating that the stockholder to whom it was issued 
 was the owner of a certain number of shares of the capital stock of 
 the Peru Plow & Wheel Company held by him as trustee, subject and 
 pursuant to the terms, conditions, and stipulations of a certain agree- 
 ment between him, as trustee, and certain stockholders of the said 
 Peru Plow & Wheel Company joining in the said agreement of date 
 September 4, 1912, a copy of which agreement was on file with the 
 trustee, and reference was had to it asjio all the terms, conditions, 
 and requirements of the trust. The certiWates were stated to be trans- 
 ferable only on the books of the trustee by the owner thereof in per- 
 son or by attorney, upon its surrender properly indorsed, when like 
 new certificates would be issued to the proper owner of record. On 
 the back of each certificate was a form for its assignment. 
 
 Among the stockholders signing the agreement were Kate Cahill, 
 John D. Cahill, and Cornelius J. Cahill, who together owned 70 shares 
 of the stock. They sold their shares to the appellant Thomas Cahill, 
 and assigned to him their trttst certificate, lie presented the certificate 
 so assigned to him to Henry Ream, who was president of the corpora- 
 tion, and demanded that a certificate should be issued to him by the 
 president and secretary of the corporation for 70 shares of its capi- 
 tal stock; but the said Henry Ream refused to issue such certificate, 
 and stated that said 70 shares of stock were included in the trust 
 agreement, and that he could not and would not issue a certificate for 
 them to Thomas Cahill for that reason. Thomas Cahill thereupon 
 notified him that as the owner of 70 shares he withdrew the same from 
 the said trust agreement and would no longer be bound thereby, and 
 demanded that a certificate be issued to him free from any restraint, 
 obligation, or condition under said trust agreement; but said Henry 
 Ream refused to issue such certificate. * * * 
 
 The effect of the agreement was to place the legal title of the majority 
 of the stock in Henry Ream, who was given the power to vote the 
 stock for 10 years upon all questions and at every meeting of the^ stock- 
 holders according to his own discretion, uncontrolled by the stockhold- 
 ers in any way. He then owned 37 shares of stock, and thus the en- 
 tire control of the corporation was conferred upon the owner of less 
 than 1 per cent, of the stock, with no power in the owners of the re- 
 maining 99 per cent, to interfere in any way. We have held that it 
 is legitimate for the owners of a majority of the stock of a corporation 
 to combine for the purpose of controlling the corporation. * * * 
 Venner v. Chicago City Railway Co., 258 111. 523, 101 N. E. 949. In 
 this case, however, the agreement goes much farther than any case 
 which has heretofore arisen in this court. The voting power of the 
 stock is absolutely separated from its ownership for a term of years, 
 so that the real owners of the property are during that time entirely 
 divested of its management and control, or of any participation therein. 
 
 Our law contemplates that corporations shall be controlled by a ma- 
 jority of the, stockholders, acting through directors elected by them in 
 person or by proxy, and it has been held that a by-law of a corporation 
 which authorizes bondholders to vote for directors at stockholders' 
 meetings is in violation of both the constitutional and statutory pro- 
 visions requiring directors to be elected by a majority of the shares of 
 stock of the corporation. * * * It was said in Shepaug. Voting 
 Trust Cases, 60 Conn. 579, 24 Atl. 41 : "It is the policy of our law 
 that an untrammeled power to vote shall be incident to the ownership 
 
1430 CORPORATIONS (Part 6 
 
 of the stock, and a contract by which the real owner's power is hana- 
 pered by a provision therein that he shall vote just as somebody else 
 dictates is objectionable. I think it against the policy of our law for 
 a stockholder to contract that his stock shall be voted just as some 
 one who has no beneficial interest or title in or to the stock directs, 
 saving to himself simply the title, the right to dividends, and perhaps 
 the right to cast the vote directed, willing or unwilling, whether it be 
 for his interest, for the infcrest of other stockholders, or for the in- 
 terest of the corporation, or otherwise. This I conceive to be against 
 the policy of the law, whether the power so to vote be for five years 
 or for all time. It is the policy of our law that ownership of stock 
 shall control the property and the management of the corporation; 
 and this cannot be accomplished, and this good policy is defeated, _if 
 stockholders are permitted to surrender all their discretion and will, 
 in the important miatter of voting, and suffer themselves to be mere 
 passive instruments in the hands of some agent, who has no interest 
 in the stock, equitable or legal, and no interest in the general prosperity 
 of the corporation. And this is not entirely for the protection of the 
 stockholder himself, but to compel a compliance with the duty which 
 each stockholder owes his fellow stockholder to so use such power 
 and means as the law and his ownership of stock give him that the 
 general interest of stockholders shall be protected, and the gen- 
 eral welfare of the corporation sustained, and its business con- 
 ducted by its agents, managers, and officers, so far as may be, upon 
 prudent and honest business principles, and with just as little tempta- 
 tion to and opportunity for fraud, and the seeking of individual gains 
 at the sacrifice of the general welfare, as is possible. This, I take it, is 
 the duty that one stockholder in a corporation owes to his fellow stock- 
 holder; and he cannot be allowed to disburden himself of it in this 
 way. He may shirk it, perhaps, by refusing to attend stockholders' 
 meetings, or by declining to vote when called upon ; but the law will 
 not allow him to strip himself of the power to perform his duty. To 
 this extent, at least, a stockholder stands in fiduciary relation to his 
 fellow stockholders." 
 
 "The theory upon which the capital of numerous persons is asso- 
 ciated in various proportions in the shape of a trading corporation, to 
 be managed by a committee of the stockholders, is that such committee 
 shall truly represent and be subject to the will of the majority in in- 
 terest of the stockholders. The security of the small stockholders is 
 found in the natural disposition of each stockholder to promote the 
 •best interests of all, in order to promote his individual interests. A 
 member of an ordinary partnership has an additional security in the 
 personal character of each of his partners, and may decline to be as- 
 sociated with any whom he does not know and approve. But a stock- 
 holder in a corporation cannot control the personnel of his associates 
 and must rely upon their self-interest alone. Upon the foundation 
 of the natural disposition of persons to promote their own interests 
 rests the rule, established in this state in the famous case of Taylor 
 V. Griswold, 14 N. J. I^aw, 222 [27 Am. Dec. 33], that a trading cor- 
 poration could not, wihout special legislative authority, make a by- 
 law authorizing a stockholder to vote by proxy. * * * " Cone v 
 Russell, 48 N. J. Eq. 208, 21 Atl. 847. 
 
 While the pooling of stock for the purpose of electing directors and 
 officers and controlling the management and business of the corpora- 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1431 
 
 tion is not necessarily illegal, an agreement the purpose and effect of 
 which are to permit the affairs of the corporation to be managed by 
 the determination of persons other than its stockholders or by a mi- 
 nority of its own stockholders is invalid. * * * The principle to be 
 deduced from the cases is that the holders of the majority of the shares 
 of stock in a corporation may control its management, and every person 
 who becomes an owner of stock has a right to believe that the cor- 
 poration will, and to insist that it shall, be managed by the majority; 
 that the power to vote is inherenty attached to and inseparable from 
 the real ownership of each share, and can only be delegated by proxy, 
 with power of revocation ; that each stockholder must be free to cast 
 his vote, whether by himself or by proxy, for the best interest of the 
 corporation; and that each stockholder has the right to demand that 
 every other stockholder, if he desires to do so, shall have the right to 
 exercise at each annual meeting his own judgment as to the best inter- 
 est of all the stockholders, untrammeled by dictation, and unfettered 
 by the obligation of any contract. 
 
 There is no such thing as an irrevocable proxy to vote stock not 
 coupled with any interest in the stock itself other than the right to 
 vote it. A proxy, though stated to be irrevocable, may be revoked at 
 any time. * * * This contract gave to Henry Ream alone the pow- 
 er for ten years to elect three of the five directors of the corporation 
 and to formulate and determine its policy, unrestrained and uninflu- 
 enced by all the other stockholders or any of them. The surrender 
 of their duties by the stockholders is complete, and the majority have 
 no power to direct the trustee; for he alone is to determine how the 
 stock shall be voted, and to vote it, upon any question, at any time 
 and every meeting of the stockholders. He no longer represents the 
 majority of the stock, for 70 shares have been sold to the complainant 
 Cahill, who has the entire beneficial interest therein. Other shares 
 may be sold, so that before the expiration of tlie trust the trustee, who 
 originally represented a majority of the stock, but now represents only 
 a minority, may represent only his own 37 shares, and yet, if the trust 
 agreement is to be enforced, have absolute management and control 
 of the corporation. 
 
 In Smith v. San Francisco & North Pacific Railroad Co., 115 Cal. 
 584, 47 Pac. 582, 35 h. R. A. 309, 56 Am. St. Rep. 119, it was held 
 than an agreement by several purchasers of stock in a corporation 
 to vote it as a unit for five years, in accordance with the decision of 
 the majority, is binding upon the parties and irrevocable. In Carnegie 
 Trust Co. v. Security Life Ins. Co. of America, 111 Va. 1, 68 S. E. 412, 
 31 L. R. A. (K S.) 1186, 21 Ann. Cas. 1287, the Supreme Court of 
 Virginia held that an agreement among stockholders to place their 
 stock in the hands of trustees for 25 years, to enable the trustees to 
 manage the corporation, constitutes a valid trust. These cases are in- 
 consistent with the views which we have expressed and the cases cited 
 in support of them, but in our judgment the latter cases state the true 
 rule. 
 
 Although Thomas Cahill purchased his stock with notice of the 
 agreement, that agreement was not binding upon him or his vendors 
 if he or they wished to withdraw from it, and upon his demand for 
 a certificate of stock he was entitled to receive it. The other com- 
 plainants have a right, also, as stockholders, to prevent the trustee 
 from voting stock which he has no right to vote. 
 
1432 - COBPOKATIONS (Part 6 
 
 The Appellate Court erred in reversing the decree of the circuit court 
 in part, and its judgment will be rev.ersed, and the decree of the circuit 
 court will be affirmed. 
 
 Judgment reversed. 
 
 BOWDITCH et al. v. JACKSON CO. et al. 
 
 (Supreme Court of New Hampshire, 1912. 76 N. H. 351, 82 Atl. 1015, 
 L. R. A. 1917A, 1174, Ann. Cas. 1913A, 366.) 
 
 PeaslEE, J. * * * The legality of the ' votes passed at the 
 meeting of the Jackson Stockholders is questioned on account qf the 
 nature of the trust agreement under which the majority of the stock 
 was then held, and because the trustees voted more than one-eighth 
 of the entire stock. While the decisions upon the first question are 
 not entirely in accord, yet substantially all of them recognize that an 
 agreement to vote stock in a certain way may be valid. The rule is well 
 stated in the case chiefly relied upon by the plaintiffs. "If the trans- 
 fer of the legal title to the stock is made and accepted under an agree- 
 ment of the stockholder which deprives him of all power to direct the 
 trustee, and all opportunity to exercise his own judgment in respect 
 to the management of the affairs of the corporation, then whether the 
 transaction is open to the objection of other stockholders, as depriving 
 them of the right they have to the aid of their costockholders, must he 
 dependent upon the purposes for which the trust was created and the 
 powers that were conferred. If stockholders, upon consideration, de- 
 termine and adjudge that a certain plan for conducting and managing 
 the affairs of the corporation is judicious and advisable, I have no 
 doubt that they may by powers of attorney, or the creation of a trust, 
 or the conveyance to a trustee of their stock, so combine or pool their 
 stock as to provide for the carrying out of the plan so determined upon. 
 But if stockholders combinie by either mode to intrust and confide to 
 others the formulation and execution of a plan for the management of 
 the affairs of the corporation, and exclude themselves, bv acts made 
 and attempted to be made irrevocable for a fixed period, from the ex- 
 ercise of judgment thereon, or if they reserve to themselves any ben- 
 efit to be derived from such a plan to the ex^clusion of other stock- 
 holders who do not come into the combination, then in my judgment 
 such combination and the acts done to effectuate it are contrary to pub- 
 lic policy, and other stockholders have a right to the interposition of a 
 court of equity to prevent its being put into operation." Kreissl v. 
 Distilling Co., 61 N. J. Eq. 5, 14, 47 Atl. 471, 475. 
 
 An examination of the cases generally will disclose that in nearly all 
 of them where the agreement was held invahd there were stipulations 
 or covenants which infringed this rule. The propositions that "it is as 
 legitimate for a majority of stockholders to combine as for other peo- 
 ple," and that the combination is unlawful only if "the gain was to 
 be at the expense of the corporation, or in some way was to work a 
 wrong to the other stockholders" (Brightman v. Bates, 175 Mass. 105, 
 110, 55 N. E. 809, 810), are generally recognized as sound law. 
 * * * Even the cases holding the particular agreements then under 
 consideration to be invalid usually recognize the proposition that there 
 mav be a valid voting trust. Shepaug Voting Trust Cases, 60 Conn. 
 579, 24 Atl. 32. * * * 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1433 
 
 Judged by these standards, the agreement in the present case seems 
 unobjectionable. The trust is to terminate at the end of a year in any 
 event. It contemplates the winding up of the corporation within that 
 time, and sets out in detail the plan of sale and dissolution for which 
 the trustees were authorized to vote. It further provides that the trus- 
 tees shall not vote so as to substantially change the company's busi- 
 ness, except as specifically authorized. There is nothing here which 
 seeks to work a wrong to the corporation, to confer a benefit upon 
 those joining in the trust, or to turn the management of the stock- 
 holders' affairs over to strangers. Judged by the strictest rule of a 
 stockholder's right to the free and honest judgment of his costock- 
 holders, the agreement here made by more than three-fourths of the 
 stockholders is a legitimate arrangement for carrying out their purpose 
 to close out the affairs of the company. 
 
 The argument that each stockholder is entitled to the presence of his 
 associates to the end that they shall reason and be reasoned with is not 
 of weight here. The rule of the common law was that no member of 
 a corporation could vote by proxy. * * * But the charter of this 
 company introduces a different doctrine. * * * It is not necessary 
 to now consider the effect of the act of 1842, forbidding all proxy vot- 
 ing. * * * 'j^he act of 1842 was repealed four years later, and the 
 principle of general proxy voting was adopted. * * * The limita- 
 tion of the right, incorporated in the revision of 1867 was removed in 
 1901 ; so that now a proxy can represent more than one stockholder, 
 and one stockholder can be proxy for another. * * * Whether the 
 charter or the general law applies here, the rule is that one or many 
 stockholders may be represented at the stockholders' meeting by an 
 agent. * * * 
 
 Case discharged. All concurred'. 
 
 SECTION 7.— RIGHTS OF THE MINORITY 
 
 BOWDITCH et al. v. JACKSON OO. et al. 
 
 (Supreme Court of New Hampshire, 1912. T6 N. H. .351, 82 Atl. 1014, 
 L. K. A. 1917A, 1174, Ann. Gas. 1913A, 366.) 
 
 PeaslEE, J. The main question in this case is whether a going 
 business corporation can be closed out and dissolved upon the motion 
 of the majority of its stockholders and against the protest of the mi- 
 nority. The question is a new one in this state, although it has fre- 
 quently been considered (both in cases where it was necessarily involved 
 and thpse where it was not) by the courts in other states. The deci- 
 sions and dicta are conflicting and are quite evenly divided. * * * 
 The only case in this state having a direct bearing upon the subject is 
 Dow V. Railroad, 67 N. H. 1, 36 Atl. 510. In that case there was 
 an attempt to change the business of the corporation; and while any 
 expression of opinion on the question here involved was carefully avoid- 
 ed, yet the opinion of Chief Justice Doe contains an exhaustive and 
 illuminating discussion of the nature of a corporation and the source 
 of the power of the majority to act for it. The majority have the 
 
1434 CORPORATIONS (Part 6 
 
 agency which in a partnership each partner possesses. Do they, in ad- 
 dition thereto, have the power each partner has to compel a dissolu- 
 tion ? The corporation being an outgrowth of the law of partnership, 
 it would be reasonable to expect that so important an incident to the 
 joint undertaking as the right to terminate the enterprise would not be 
 lost by the change in the form of the association. 
 
 The fiction that the corporation is a being independent of those 
 who are associated as its stockholders is not favored in this state. 
 * * * Decisions based upon the idea that there is something sacred 
 in the life of an ordinary business corporation, so that action looking 
 to its extermination is in the nature of a fraud upon the state, * * * 
 are not authority in a jurisdiction where a different view of the nature 
 of the association is entertained. The question is not one of power 
 granted by the state. It relates soldy to the agreement of individuals 
 with each other. 
 
 Did the stockholders who united to form the Jackson Company in 
 1830 understand that the business must be continued perpetually, pro- 
 vided a profit could be made and some stockholder objected to closing 
 it out, or did they understand that the enterprise could be brought to 
 an end at such time as the majority believed to be for the best inter- 
 est of all concerned? The latter seems the more reasonable and proba- 
 ble conclusion. 
 
 Much has been said in the cases upholding the right of the minority 
 to prevent a sale and dissolution, concerning the protection of their 
 rights and saving their property from pillage by the majority. Just 
 how the majority, which sells its own property at the same time and 
 for the same price it sells that of the minority, gains an advantage over 
 the latter is not readily apparent, ^ases might be supposed, and un- 
 doubtedly occur, where the majority do obtain some undue advantage 
 from the sale. No one contends that such a sale is valid. But because 
 the power of the majority may be abused, it does not follow that it 
 does not exist. If such a conclusion were to be drawn, minorities would 
 always rule. The plain common sense of the matter is that this is a 
 business venture, to be carried on as such so long as it appears to be 
 good business judgment to do so. When the time comes that a ma- 
 jority in interest believe that their affairs should be wound up and 
 the proceeds distributed, the rational rule is that this should be done. 
 And since the question here is of a business nature, and the limita- 
 tions of the power of the majority are fixed by the understanding of 
 the business men who made the original compact, business considera- 
 tions have more than ordinary weight in determining what the con- 
 tract was. 
 
 It is admitted on all sides that the majority may sell out if the cor- 
 poration is insolvent. And when brought face to face with the ques- 
 tion whether they must wait until the stockholders' investment is all 
 lost before, taking action, the conclusion has been that if insolvency is 
 imminent action may be taken. And the same is true if it is imprudent 
 to continue. * * * One reason only is given why the power exists 
 in these cases : It is reasonable to suppose that such authority was con- 
 templated, because this is what sound business judgment dictates should 
 be done. The difference between these cases and the present one is of 
 degree only, not of kind. The majority are not obliged to wait until 
 all possibility that the corporation can go on longer has been negatived. 
 Some of the cases have stated that such is the rule ; but the result of 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1435 
 
 this would be to compel the majority to continue a losing business 
 until their investment was entirely wiped out. To avoid so absurd a 
 result, it has been said they could close out when insolvency seemed to 
 be approaching. And so various forms of expression have been used to 
 indicate the time when the majority could take action. 
 
 All these are fairly summed up in the statement that the majority 
 may close out the affairs of the company when it can no longer make 
 a reasonable profit. It is believed no court would now hold that the 
 rights of the minority were more extensive than this rule implies. 
 
 If the majority may sell to prevent greater losses, why may they 
 not also sell to make greater gains? * * * In a limited sense, the 
 majority act as trustees for all the stockholders. When their acts are 
 impugned by the minority, it is not the function of the court to set its 
 judgment against theirs in settling the wisdom or policy of proposed 
 action. By the contract of association, all questions of this nature were 
 committed to the majority for final decision. * * * 
 
 The whole difficulty is probably an outgrowth of the early idea that 
 a corporation possessed peculiar attributes of longevity and sanctity. 
 But as pointed out in Dow v. Railroad, 67 N. H. 1, 8, 26, 36 Atl. 510, 
 no such theory prevails here. The business corporation is brought 
 into being solely for the purpose of more conveniently carrying out the 
 joint undertaking of the part owners. The line of distinction between 
 this form of association and certain partnerships is but a shadowy one. 
 It is not reasonable or natural to expect that when this boundary is 
 passed great changes in the relation of the parties will result. A more 
 radical change than that here claimed could not easily be imagined. 
 In the partnership, one partner may compel a winding up from mere 
 whim. In the absence of an agreement to go on for a iixed period 
 of time, nothing short of a fraudulent purpose will prevent his taking 
 valid action to close out the firm at will. * * * By the rule here 
 contended for, the change of the association into a corporation has 
 carried the rule to the opposite extreme. The authority to wind up is 
 lost, and the owner of the smallest share may prevent such action, 
 though it is desired by all his associates. The practical reasons against 
 such a proposition are apparent. The probabilities are opposed to the 
 idea that the associates intended to enter into such a compact. * * * 
 
 The action taken by a majority of the stockholders of the Jackson 
 Company whereby, as a part of the process of winding up the com- 
 pany, they voted to sell all its property to the Nashua Company, was 
 within the power impliedly given to them when the company was 
 formed. The charges that there was fraud in the sale and that it was 
 for an inadequate price have been disproved. 
 
 Case discharged. All concurred. 
 
 CHICAGO HANSOM CAB CO. et al. v. TBRKBS. 
 
 fSupreme Court of Illinois, 1892. 141 111. 320, 30 N. E. 667, 
 .33 Am. St. Bep. 315.) 
 
 Bill by Charles T. Yerkes against the Chicago Hansom Cab Com- 
 pany, Warren Springer, Rose Aberr.ethy, and others, to set aside a 
 conveyance, and for an injunction and the appointment of a receiver. 
 Complainant filed a supplemental bill to wind up the affairs of the 
 
1436 CORPORATIONS (Part 6 
 
 cab company. Complainant obtained a decree, and Springer and 
 Abernethy appeal. 
 
 The secretary and one of the stockholders of a corporation whose 
 business was unprofitable secretly agreed to purchase all the stock and 
 the property of the corporation. Accordingly they purchased, in the 
 names of third parties, all the stock, except that of complainant, who 
 held a little more than one-third of the stock. A resolution was pass- 
 ed, against complainant's vote, authorizing the president and secretary 
 to sell all the corporate property, • which they accordingly sold to a 
 nominal purchaser for the benefit of the secretary and said stock- 
 holder. 
 
 ScHotFiELD, J. * * * From the foregoing statement it is clear 
 that when Needham entered into the contract with Springer the for- 
 mer was a director in the Chicago Hansom Cab Company, and its 
 secretary. As director, he owed the duty to the company to preserve 
 its property and protect the company against loss, so far as that could 
 be done by the exercise of ordinary care and diligence ; and he could 
 not himself become the purchaser of any property of the corporation 
 which it was his duty to sell. * * * The contract between Need- 
 ham and Springer requires the purchase of all the property of the cab 
 company, and the subsequent transfer of the personal property to 
 Needham. It is an entire and indivisible contract, and Needham is 
 therefore directly interested in every part of the claimed contract of 
 sale by the company to Springer. But it is claimed the authority to 
 make this sale is derived from a vote of a majority of the stockhold- 
 ers. * - * * 
 
 The question is therefore presented whether, after it is determined 
 to wmd up a corporation and settle its business, it is competent for a 
 holder of a majority of its shares of stock to. make or ratify a sale 
 of all its property to himself, against the protest of a holder of a 
 minority of its shares, and in disregard of his rights. That a holder 
 of a majority of the shares of stock in a corporation may, where the 
 law authorizes a vote of stockholders, so vote upon any matter of pol- 
 icy in the conduct of the corporation as to best subserve his own in- 
 terests, and that this may relate to the ceasing to do corporate busi- 
 ness, the winding up of its affairs, and the sale of its property, we do 
 not question. But the authorities cited by counsel for appellant * * * 
 concede that even in such cases the action resulting from such vote 
 must not be so detrimental to the corporation itself as to lead to the 
 necessary inference that the interests of the majority of the sharehold- 
 ers lie wholly outside of, and in opposition)* to, the interests of the cor- 
 poration and of the minority of the shareholders, and that their action 
 is a wanton or a fraudulent destruction of the rights of such minor- 
 ity. In the cases cited, and, so far as we are informed, in all other 
 cases where the majority of the stockholders may by their votes law- 
 fully affect the interests of the minority of the stockholders, the in- 
 terests of the minority are, theoretically at least, protected, either by 
 directors or trustees of the corporation, who it will not be presumed 
 will betray their trust by acting in the interest of one stockholder to 
 the prejudice of another, or by reason of the transaction being such 
 as is presumed to be alike beneficial to all stockholders, as where the 
 corporate property is in good faith appropriated to the payment of 
 the corporate debts, or is sold at a fair sale ; and no case cited or with- 
 in our knowledge goes to the extent of holding that a majority of the 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1437 
 
 Stockholders may take the property of the corporation, and retain it, 
 if the minority shall elect to deny its right to acquire title to it in 
 that way. 
 
 Undoubtedly, if in such case the minority of the stockholders shall 
 elect to treat the majority as purchasers, they may do so, and require 
 them to account for the value of the property! Here Springer, who, 
 through Pullman, Himrod, Hagerty, Cotton, and Cutler, assumes to 
 ratify this sale, is the same Springer who, with Needham, is the pur- 
 chaser of the property. In other words, he assumes to ratify a sale 
 to himself. But a man cannot be both buyer and seller in the same 
 transaction; and, where he assumes to be such, his action simply 
 amounts to a taking of the property, and would be quite as valid 
 without as with the circumlocution of the form of a sale through dum- 
 mies. The right of a majority of the stockholders to sell the corporate 
 property can by no reasonable construction be held to involve the right 
 to seize the property to their own use. A sale conducted, as it must 
 be, fairly and openly, cannot, theoretically, operate to the prejudice 
 of one stockholder more than to another. There is in such case no 
 presumptive antagonism between the difTerent stockholders. But 
 where, under pretense of a sale to themselves, the majority seize the 
 property, and undertake to invest themselves with title, their interests 
 are wholly hostile ; for the gain of the one is the loss of the other. It 
 is a general rule administered by courts of equity that where one per- 
 son has the power of disposition of the property of another, without 
 the consent of that other, he shall not be allowed to become person- 
 ally interested in it himself ; and this without regard to any question 
 of fairness in the immediate transaction, for he shall not be allowed 
 to occupy a position where self-interest would tempt a betrayal of 
 duty. This rule is plainly applicable here, and it has been so applied 
 in adjudicated cases. It is said in Cpok, Stocks, § 656: "It is illegal 
 and fraudulent for the majority of the stockholders to purchase the 
 property of the company at a sale authorized by themselves. Such 
 a purchase by the majority may be set aside in the same way and to 
 the same extent that a purchase of corporate property by a director 
 may be set aside." * * * 
 
 It appears from the evidence that the directors of the corporation 
 were in the interest and under the control of Springer, so that a de- 
 mand upon the corporation to bring suit against him would have been 
 unavailing; and the suit is therefore properly brought by Yerkes. 
 * * * 
 
 We are unable to perceive any sufficient reason for reversing the 
 decree below. It is therefore affirmed. 
 
 SECTION 8.— RIGHT TO MAINTAIN ACTIONS UPON 
 CORPORATE CAUSES OF ACTION 
 
 KESSLER.et al. v. ENSLE,X CO. et al. 
 
 (■Drited States Circuit Court, N. D. Alabama, S. D., 1903. 123 Fed. 546.) 
 
 All of the property of a land company which owned a town site 
 
 and surrounding lands was sold under two judgments against it for 
 
 a price of about $16,000, but leaving the company the right to redeem 
 
1438 CORPORATIONS (Part 6 
 
 within two years. The company owed in all about $120,000, and by 
 a subsequent arrangement, assented to by its stockholders, the prop- 
 erty, together with the right of redemption, was vested in trustees 
 with power to make sales, to pay all debts, and to hold or pay over 
 the surplus, if any, to the company. . Four years' afterward certain 
 stockholders applied to two successive boards of directors, and also 
 to a meeting of the stockholders, asking that proceedings be insti- 
 tuted to set aside the conveyances and to recover the property. Such 
 action having been refused by the directors and also by the stock- 
 holders by a very large majority vote, minority stockholders brought 
 suit for such relief in behalf of the corporation, alleging that the sale 
 under the judgments was brought about through the fraud of a ma- 
 jority of the directors, who controlled the judgments, and who form- 
 ed another company which purchased certain of the lands from the 
 trustees ; that by concealing such facts they obtained the approval of 
 all such transactions by the stockholders. It further appeared from 
 the bill that at the time complainants requested the corporation to 
 bring the suit such directors were out of office, and did not own or 
 control a majority of the stock, and it was not charged that they then 
 exercised any influence over the other stockholders. On demurrer 
 to bill. 
 
 Jones, District Judge. This case has been ably and elaborately ar- 
 gued. It is unnecessary, however, to decide all the interesting ques- 
 tions discussed. The right to maintain the bill depends upon a few 
 controlling issues, which will now be considered. 
 
 Equity permits a stockholder to maintain a bill to enforce the rights 
 •of his corporation, solely to prevent a failure of justice. * * * To 
 entitle the stockholder to relief, it is not enough that the governing 
 body has refused to act, or that the refusal evinces mistaken judg- 
 ment. The stockholder who seeks redress as to any corporate act 
 which the charter permits the corporation to perform must show either 
 that the governing body is so disorganized that it cannot act ; or that 
 it is interested adversely to the corporation, or under the dominion 
 of those who are ; or will be required to disapprove its own breaches 
 of trust, as distinguished from mistakes or errors of judgment; or 
 that its refusal will endanger the rights and franchises of the corpo- 
 ration, or result in irreparable loss and injury; or that its attitude, 
 under the situation presented by the bill, discloses negligence or in- 
 difference to the interest of the corporation, in such degree as amounts 
 to the practical equivalent of bad faith ; or else bring forward other 
 pertinent facts which challenge and impeach the fitness of the gov- 
 erning body to properly decide the question at issue. Even then, if 
 the case will admit of delay, the complaining stockholder must appeal 
 from the decision of the directors to the body of the stockholders at 
 large, and the facts averred in the bill must plainly put them in the 
 wrong, before the court will feel authorized to entertain the com- 
 plaint of the stockholder. Hawes v. Oakland, 104 U. S 4^0 26 L 
 Ed. 827. * * * 
 
 It not being charged in this case that either of the two boards, or 
 the body of the stockholders, who declined to bring or authorize the 
 bringing of this suit, were themselves guilty participants in any of 
 the frauds complained of, or in any wise interested adversely to the 
 <:orporation, or under the dominion or control of those who were in- 
 strumental in bringing about the sales sought to be avoided, or that 
 
Ch. 4) THE EELATION OF STOCKHOLDERS TO CORPORATION 1439 
 
 they acted otherwise than in the exercise of honest judgment as to 
 the interest of the Land Company, their decision not to litigate is 
 bmding upon the court, unless that refusal will result in enforcing 
 some ultra vires or illegal act of the corporation, or evinces such 
 recklessness and indifference to the rights of the corporation as 
 amounts to bad faith or fraud, or will needlessly work the practical 
 destruction of the corporate enterprise. ' To properly determine these 
 questions the court must look to the status and condition of affairs as 
 they reasonably appeared to the stockholders, under the facts set 
 forth in the bill, at the time of entering into the transactions now 
 sought to be set aside, and then weigh their decision not to disturb 
 them in the light of existing conditions at the time that decision was 
 made. * * * 
 
 Making due allowance for the charges on "information and belief," 
 and for facts so stated as to amount to no more than the opinion of 
 the pleader, the bill charges actual fraud of a grave nature, not 
 merely constructive fraud, upon all the defendants except Barker. 
 On the facts stated, a court of equity would unquestionably have 
 set aside the sale on seasonable application. Nevertheless, under 
 decisions which are controlling here, the transactions complained of 
 were not void as to the corporation, but merely voidable. * * * 
 The title conveyed by the proceedings complained of was not bad 
 until the Land Company made it good, but remained good until it was 
 made bad. It was a defeasible title which would ripen into a good 
 title if not seasonably avoided. The conveyances were not ultra 
 vires the corporation. The Land Company was formed for the pur- 
 pose of selling this very land, and the sales were made in the exer- 
 cise of the corporate power of providing for the debts of the company. 
 The power must reside somewhere in every corporation, when it 
 has been defrauded, whether by its own officers or third persons, to 
 determine what course it will pursue with reference to the fraud. The 
 fact that the corporation has been defrauded does not strip it of 
 power to elect to stand upon the transaction as made. Every 
 wronged person, who is sui juris, has that right against the wrong- 
 doer. If the corporate tribunal exercises its judgment upon the ques- 
 tion honestly, and is not adversely interested, or under the control 
 of other influences which sway it from a fair and impartial judgment, 
 from the standpoint of the interest of the corporation itself, a 
 decision not to disturb the fraud, unless it evinces such recklessness 
 and negligence as amounts to bad faith, is not a fraud upon the 
 objecting stockholders, though it results in a refusal to redress a 
 fraud upon the corporation. The duty which the corporation, or its 
 governing body, owes its stockholders in such cases, is to fairly and 
 impartially consider the question of redressing the wrong, and not 
 to commit a corporate fraud upon its stockholders by refusing to set 
 aside the fraud upon the corporation from selfish interest or other 
 bad motives, or from such negHgence and indifference as is equivalent 
 to bad faith, and amounts to a clear breach of trust, as distinguished 
 from mere bad judgment. 
 
 Complainants cite Mason v. Harris, L. R. 11 Chan. Div. 97, in 
 support of their contention that the grievances complained of were 
 either incapable of ratification, or that the refusal to redress them, 
 under the circumstances here disclosed, amounts to a fraud upon the 
 minority. They quote the following paragraph from the opinion in 
 
1440 CORPORATIONS (Part 6 
 
 that case: "Whenever a fraud is committed by persons who com- 
 mand the majority vote, the minority can sue. The reason is plain, 
 as, unless such suit were allowed, it would put it in the power of the 
 majority to defraud the minority with impunity. If the majority 
 were to make a fraudulent sale and put the money in their own pock- 
 ets, would it be reasonable to say that the majority could affirm the 
 sale?" The court was there speaking of the injustice of compelling a 
 stockholder to abide the judgment of those who were interested in 
 upholding the fraud. It was referring to the fitness of the govern- 
 ing body at the time the individual stockholder seeks redress. Al- 
 though the defendants here had "command of the majority vote" 
 at the time of the grievance complained of, by reason of the deceit 
 charged in the bill, whereby the majority was overreached and de- 
 ceived, just as the complaining stockholders charge they were, the 
 fact that the majority had been thus deceived into voting for the 
 proposition does not disqualify it from passing on the matter when 
 discovery is made. It is not to be driven from the judgment seat 
 merely because it has been the victim of fraud. It must be shown to 
 have some adverse interest, or to be under ulterior influences which 
 prevent it from fairly determining what is. to the best interest of the 
 corporation, under all the circumstances, in view of the nature and 
 result of the fraud practiced upon it. 
 
 To bring this case within the rule of Mason's Case, supra, the de- 
 fendants must "command the majority vote" at the time redress is 
 sought. Other cases cited in behalf of complainants on this point 
 relate either to ultra vires or illegal acts of the corporation, as where 
 the governing body to which application for redress must be made 
 has itself either defrauded the corporation, or is under the control of 
 those who overreached it, or is otherwise shown to be an unfit tribunal 
 to determine the policy of the corporation ; or, where the act com- 
 plained of not only affects the rights of the corporation against the 
 person sought to be sued, but also involves some wrong by the cor- 
 poration to separate and individual rights of the stockholders against 
 their corporation. The principle which forbids the majority of the 
 corporation to profit at the expense of the minority, by condoning 
 a fraud against their corporation, is wholesome, and not in any wise 
 questioned. We have no such case here. The great body of the 
 stockholders who agreed to the transactions complained of in the 
 first instance, and afterwards refused to set them aside, are shown to 
 have been ignorant of the fraud at the time it was committed, and 
 are not shown then, or at any subsequent period, to have been influ- 
 enced by any interest adverse to the corporation, or by any motive 
 which unfits them to pass upon the matter. Their vote refusing to 
 disturb the transaction could not put any fruits of the wrong in their 
 pockets. They gained nothing which the minority lost. They ap- 
 plied the identical measure of justice to themselves and the dissenting 
 stockholders. As they constituted almost the entire body of stock- 
 holders, almost the entire burden of any loss entailed by their deci- 
 sion would fall upon them. On the face of the bill, there was un- 
 selfish determination. 
 
 The recovery sought by this bill is for the benefit of the corpora- 
 tion. The bill is filed solely in right of the corporation, and does not 
 seek to enforce any separate or individual right of the stockholders. 
 The corporation is only a nominal defendant. It is the real plaintiff. 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1441 
 
 It is clear upon principle, in such a case, that the stockholders cannot 
 maintain the suit, if the corporation itself is not in position to do so. 
 It is an elementary principle of law that one claiming through and in 
 subordination to a party estopped is himself estopped. The cases 
 which permit a recovery in behalf of the corporation, in avoidance of 
 transactions which it is estopped to rescind, because it has consum- 
 mated them and retained the benefit, are those in which the corpora- 
 tion has entered into some ' ultra vires or illegal transaction, done 
 something involving infraction of some direct right of the sharehold- 
 er against the corporation — as where, without the authority of law, it 
 subordinates the exercise of its corporate powers and control of its 
 property to the dominion of a rival, or embai-ks in enterprises not 
 authorized by the charter, or takes some action impairing the rights 
 of the stockholders as among themselves, as by unlawfully issuing 
 preferred stock, and the like. In such cases the illegal transaction is 
 a distinct wrong of the corporation, against the rights of the stockhold- 
 ers separately and individually. It gives each stockholder a right to 
 restrain its action and to compel it to retrace its steps. In such cases, 
 justice can generally be done only by returning the corporation to its 
 original status, and restoring the stockholder's rightful legal status 
 towards it, by ripping up the whole transaction, although the corpo- 
 ration itself, as such, may be estopped to complain. The stockholders 
 in this case are seeking to enforce no such right. They demand the 
 enforcement of a right which belongs to the corporation solely, as 
 such. The sales complained of are not ultra vires the corporation, 
 and were not forbidden by statute. The grievances relate to transac- 
 tions wholly intra vires. The corporation has deliberately refused tp 
 disturb them. This solemn corporate decision puts an end to any 
 right of the dissenting stockholder to disaifirm or to compel the cor- 
 poration to avoid the transaction. 
 
 An analysis of the premises of the argument in support of the con- 
 trary conclusion shows that it is unsound. The transactions here 
 complained of not being void, but merely voidable, who can avoid 
 them? Certainly, only the parties to the transaction, no rights of 
 creditors being involved. There are only two parties — the corpora- 
 tion and the fraudulent grantees. The latter cannot set up their own 
 misconduct to avoid the transaction. The former can act only by 
 its governing body or by the stockholders collectively. There is but 
 one subject-matter, and that is the sale and purchase of the land. 
 The transactions must either be good as to the Land Company or 
 bad as to the Land Company. They must either be avoided in toto 
 or must stand in toto. If one stockholder, acting for himself, can 
 affirm, another, acting for himself, can disaffirm. There is but one 
 thing to affirm, and it must either be binding upon all the stockholders 
 or not binding on any of them. The power to affirm or to disaffirm 
 in a case of this kind is not an individual prerogative, but the right 
 and power of the whole body of stockholders collectively. This col- 
 lective body must act and decide according to the vote of the ma- 
 jority. "The rule is that the majority governs, and every stockholder 
 contracts that such shall be the rule." Morawetz on Corporations, § 
 474. When, therefore, the majority, in such a case as this, refuses 
 to disaffirm, all right of the majority to disaffirm is gone. There can 
 be but one disaffirmance, and that must be the disaffirmance of the 
 B.& B.Bus.Law— 91 
 
1442 CORPORATIONS (Part 6 
 
 governing body of the corporation. A majority of the stockholders, in 
 a case of this kind, represent the ultimate corporate sovereignty, 
 within the limits of its charter, and can bind the minority by its re- 
 fusal to disaffirm as to a matter intra vires. The only remedy of the 
 minority is to appeal to a court of equity to enforce the rights of the 
 corporation, if the majority has acted fraudulently, or in bad faith to 
 the minority, in refusing to redress a fraud upon the corporation. 
 * * * That charge is not made here. * * * 
 
 It may or may not be, as argued for complainants, that the Land 
 Company, though not now in a position which entitles it to the aid of 
 a court of equity to compel a reconveyance of the land or to disturb 
 the purchaser's possession, is nevertheless entitled to personal re- 
 course against the defendants "for the damage and loss which the 
 Ensley Land Company and stockholders have suffered by reason of 
 the transactions complained of," etc. Such relief, however, is merely 
 incidental to the equitable cause of action, and when that fails the 
 bill should not be retained to administer relief which is merely inci- 
 dental, and ordinarily a matter purely of legal cognizance. 
 
 The demurrers are sustained, and the cost decreed against com- 
 plainants. If the complainants desire to amend, they may apply for 
 leave. 
 
 SECTION 9.— RIGHTS WITH RESPECT TO DECLARED 
 DIVIDENDS AND SURPLUS 
 
 SEARLES V. GEBBIE et al. 
 
 (Supreme Court of New York, Appellate Division, 1906. 115 App. Div. 778, 
 
 101 N. Y. Supp. 199.) 
 
 Spring, J. The defendant Mohawk Condensed Milk Company is a 
 domestic corporation with a paid-up capital stock of $60,000, and the 
 plaintiff is a stocltholder thereof, owning stock of the par value of $1,- 
 000, and until January, 1905, was one of the directors of the corpora- 
 tion. The other defendants are its present officers and directors. 
 
 A brief summary of the salient allegations of the complaint is neces- 
 sary for a comprehension of the questions at issue on this appeal. On 
 the 14th day of July, 1902, the directors of said corporation at a regu- 
 lar meeting declared a dividend of 50 per cent, on its capital stock, 
 payable on the 1st of August thereafter. At the time of the declaration 
 of the dividend there was on hand a surplus of net earnings of more 
 than $100,000, and in February, 1905, these earnings aggregated $108,- 
 000. The plaintiff has not been paid his dividend of $500 although he 
 has demanded it and he seeks to recover that sum of the corporation 
 in this action. The complaint further alleges : That in 1905 the stock- 
 holders by resolution voted to increase the capital stock of said com- 
 pany to $240,000, and the directors were ordered to take the legal pro- 
 ceedings essential to make effective this increase. The directors there- 
 upon proceeded to provide for such increase by allowing those taking 
 the new stock to do so at par, thus ignoring the "more than twice par" 
 value of the present stock by reason of the existing surplus and which 
 had been earned by the present capital. The directors in their plan of 
 increase expect to allow each of the present stockholders to subscribe 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 144.*? 
 
 for three times his present holding of stock, paying therefor in cash, 
 and the plaintiff was so advfted and permitted to so subscribe for the 
 $3,000 of stock, which would represent his aliquot share of the in- 
 creased capital. That the defendant directors have each subscribed for 
 their shares of said increase and they control said corporation and own 
 a majority of its stock". In January, 1905, the plaintiff was dropped 
 from the directorship and there were other changes in that body, and 
 the plaintiff charges that the election of new officers "was pursuant to 
 a fraudulent agreement or understanding" among these majority stock- 
 holders to refuse to pay the said dividend, "and thereby to reappropri- 
 ate said dividend to the company, and to share in said dividends and 
 receive the benefits thereof, under their new subscription to increase 
 the capital stock of the said company, their said new subscriptions 
 being at par, whereas the old stock of said company is fully worth 
 considerable more than $200 on a share." That the plaintiff has "pro- 
 tested" against this proposed issue of new stock, and has requested the 
 corporation to commence an action in equity to restrain its issue and 
 also to require the corporation to pay the dividend declared, and upon 
 refusal this action was commenced on his own behalf as a minority 
 stockholder, and for the benefit of all other stockholders similarly sit- 
 uated who desire to participate therein. The relief asked for is the 
 payment of the dividend to the plaintiff and to restrain the proposed 
 increase of the capital stock. * * * 
 
 There is a clean-cut cause of action at law set forth against the cor- 
 poration. Upon the declaration of the dividend the sum of $500 be- 
 came due the plaintiff from the corporation. It became the debtor of 
 the plaintiff". * * * The directors were not personally chargeable 
 with the payment of this dividend unless they converted it to their 
 own use, or by some act changed their relation to it. At any time after 
 the date fixed for the payment of the dividend the plaintiff could have 
 maintained an action at law against the corporation to recover this 
 sum. Nor was a suit in equity proper for an adequate remedy at law 
 existed, and the directors would not be proper parties defendant in an 
 action to recover this sum. They are not the debtor, but the corpora- 
 tion is the party liable. Now, where the amount of the dividend has 
 been segregated or set apart into a distinct fund for the purpose of 
 paying the dividend and is within the dominion of the directors, who 
 refuse to use it for the purpose intended, they become trustees of the 
 fund, and an action in equity may be maintained to reach the fund 
 and to charge the directors with official misconduct. * * * The 
 complaint contains every allegation essential to constitute a perfect 
 cause of action to recover this dividend of the corporation, and the 
 facts alleged are supplemented in the demand for judgment that the 
 corporation be required to pay the dividend with interest. * * * 
 
 DODGE et al. v. FORD MOTOR CO. et al. 
 
 (Supreme Court of Michigan, 1919. 204 Mich. 459, 170 N. W. 668, 
 3 A. L. R. 413.) 
 
 Action by John F. Dodge and Horace E. Dodge against the Ford 
 Motor Company and others. Decree for plaintiffs, and defendants 
 appeal. 
 
 The Ford Motor Company is a corporation, organized and existing 
 under Act No. 232 of the Public Acts of 1903. The articles of as- 
 
1444 coEPORATioNa (Parte 
 
 sociation were executed June 16, 1903, and acknowledged on that day 
 by the parties associating. In the article* the capital stock is fixed at 
 the sum of $150,000, with 1,500 shares of the par value of $100 each. 
 It is recited therein that the amount of capital stock subscribed is 
 $100,000, and that said sum is actually paid in, $49,000 in cash and 
 $51,000 in other property. The other property described is: Letters 
 patent, issued and applied for, valued at $40,000; machinery and 
 stock, $10,000; contracts for supplies, $1,000. 
 
 The parties in the first instance associating, who signed the articles, 
 included Henry Ford, whose subscription was for 255 shares, John 
 F. Dodge, Horace E. Dodge, the plaintiffs, Horace H. Rackham and 
 James Couzens, who each subscribed for 50 shares, and several other 
 persons. The -company began business in the month of June, 1903. 
 In the year 1908, its articles were amended and the capital stock in- 
 creased from $150,000 to $2,000,000, the number of shares being in- 
 creased to 20,000; and in the certificate, made in November, 1908, 
 evidencing the increase of capital stock, it was recited : "The amount 
 of capital stock subscribed is the sum of two million ($2,000,000) dol- 
 lars ; the amount of said stock actually paid in at the date thereof is 
 the sum of two million ($2,000,000) dollars, of which one hundred 
 thousand ($100,000) dollars represents the capital stock originally 
 subscribed and paid in, and one million nine hundred thousand ($1,- 
 900,000) dollars by surrender to the corporation by all stockholders 
 of their claim to dividends duly declared by the board of directors 
 payable out of surplus." 
 
 The business of the company continued to expand. The cars it 
 manufactured met a public demand, and were profitably marketed, so 
 that, in addition to regular quarterly dividends equal to 5 per cent, 
 monthly on the capital stock of $2,000,000, its board of directors de- 
 clared and the company paid special dividends: December 13, 1911, 
 $1,000,000; May 15, 1912, $2',000,000; July 11, 1912, $2,000,000; 
 June 16, 1913, $10,000,000; May 14, 1914, $2,000,000; June 12, 1914, 
 $2,000,000; July 6, 1914, $2,000,000; July 23, 1914, $2,000,000; Au- 
 gust 23, 1914, $3,000,000; May 28, 1915, $10,000,000; October 13, 
 1915, $5,000,000, a total of $41,000,000 in special dividends. Sales and 
 profits for several years were : Year ending Sept. 30, 1910, 18,664 cars, 
 $4,521,509.51. Year ending Sept. 30, 1911, 34,446 cars, $6,275,031.07. 
 Year ending Sept. 30, 1912, 68,544 cars, $13,057,312.24. Year ending 
 Sept. 30, 1913, 168,304 cars, $25,046,767.43. Year ending Sept. 30, 
 1914, 248,307 cars, $30,338,454.63. Ten months ending July 31, 1915, 
 264,351 cars, $24,641,423.17. Three years ending July 31, 1916, 472,- 
 350 cars, $59,994,918.01. 
 
 The surplus above capital stock was, September 30, 1912, $14,745,- 
 095.67, and was increased year by year to $28,124,173.68, $48,827,- 
 032.07, $59,135,770.66. July 31, 1916, it was $111,960,907.53. Orig- 
 inally, the car made by the Ford Motor Company sold for more than 
 $900. Frorn time to time, the selling price was lowered and the car itself 
 improved until in the year ending July 31, 1916, it sold for $440. Up 
 to July 31, 1916, it had sold 1,272,986 cars at a profit of $173,895,416.- 
 06. As the cars in use multiplied, sales of parts and of repairs increas- 
 ed, so that, in the year ending July 31, 1916, the gross profits from 
 repairs and parts was $3,915,778.94 ; sales' being more than $600,000 
 for each of the months of May, June, and July. For the year begin- 
 ning August 1, 1916, the price of the car was reduced $80 to $360. 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 144-5 
 
 The following is admitted to be a substantially correct statement of 
 the financial affairs of the company on July 31, 1916: 
 
 Assets. 
 
 Working — 
 
 Cash on hand and In bank $ 52,550,771 92 
 
 Michigan mvinicipal bonds 1,259,029 01 
 
 Accounts receivable 8,292,778 41 
 
 Merchandise and supplies 31,895,434 69 
 
 Investments — outside 9,200 00 
 
 Expense inventories 434,055 19 
 
 Plant— 
 
 I^and ; 5,232,156 10 
 
 Buildings and fixtures 17,293,293 40 
 
 Miichinery and pov?er plant 8,896,342 31 
 
 Factory equipment 3,868,261 02 
 
 Tools 1,690,688 54 
 
 Patterns 170,619 77 
 
 Patents 64,339 85 
 
 Offico equipment 431,249 37 
 
 Total assets $132,088,219 58 
 
 Liabilities. 
 
 Working — 
 
 Accounts payable $ 7,680,866 17 
 
 Contract deposits 1,519,296 40 
 
 Accrued pay rolls 847,953 68 
 
 Accrued salaries 338,268 80 
 
 Accrued expenses 1,175,070 72 
 
 Contract rebates 2,199,986 00 
 
 Buyers' P. S. rebate 48,099 00 
 
 Reserves — 
 
 For fire insurance 57,493 89 
 
 For depreciation of plant 4,260,275 33 
 
 Total liabilities $ 18,127,312 05 
 
 Surplus 111,960,907 53 
 
 Capital stock 2,000,000 00 
 
 Total $132,088,219 58 
 
 The following statement gives details of the business of the Ford 
 Motor Company for the fiscal year July 31, 1915, to July 31, 1916: 
 
 Number of cars made in year 508,000 
 
 Total business done $206,867,347 46 
 
 Profit for the year 59,994,118 01 
 
 Cash in hand and in banks 52,550,771 92 
 
 Materials on hand : 31,895,434 69 
 
 Cars in transit and at branch assembling plants (about 2% v^eeks' 
 
 output) 35,650 
 
 Cars sold during year 472,350 
 
 Employed at home plant 34,489 
 
 Employed at home olHoes 1,028 
 
 Total employes in Detroit plant getting $5 a day or more 27,002 
 
 Employed at 84 branch plants 14,355 
 
 Total employes (all plants) 49,872 
 
 Total employes getting $5 a day or more 36,626 
 
 From a mere assembling plant, the plant of the Ford Motor Com- 
 pany came to be a manufacturing plant, in which it made many of 
 the parts of the car which in the beginning it had purchased from 
 others. At no time has it been able to meet the demand for its cars 
 or in a large way to enter upon the manufacture of motor trucks. 
 
 No special dividend having been paid after October, 1915 (a special 
 dividend of $2,000,000 was declared in November, 1916, before the 
 
1446 COEPOEATIONS (Part 6 
 
 filing of the answers), the plaintiffs, who together own 2,000 shares, 
 or one-tenth of the entire capital stock of the Ford Motor Company, 
 on the 2d of November, 1916, filed in the circuit court for the county of 
 Wayne, in chancery, their bill of complaint, which bill was later, 
 upon leave granted, on April, 26,1917, amended, in which bill they 
 charge that since 1914 they have not been represented on the board 
 of directors of the Ford Motor Company, and that since that time the 
 policy of the board of directors has been dominated and controlled 
 absolutely Fy, Henry Ford, the president of the company, who owns 
 and for several years has owned 58 per cent, of the entire capital stock 
 of the company; that the directors of the company are Henry Ford, 
 David H. Gray, Horace H. Rackham, F. L. Klingensmith, and James 
 Couzens, and the executive officers Henry Ford, president, F. L. 
 Klingensmith, treasurer, and Edsel B. Ford, son of Henry Ford, 
 secretary ; that after the filing of the original, and before the filing of 
 the amended, bill, at the annual meeting of the stockholders, David H. 
 Gray retired from the board of directors and Edsel B. Ford was elect- 
 ed and is acting as a director. 
 
 Setting up that on the 31st of July, 1916, the end of its last fiscal 
 year, the said Henry Ford gave out for publication a statement of the 
 financial condition of the company (the same as hereinabove set out), 
 that for a number of years a regular dividend, payable quarterly, equal 
 to 5 per cent, monthly upon the authorized capital stock, and the special 
 dividends hereinbefore referred to, had been paid, it is charged that 
 notwithstanding the earnings for the fiscal year ending July 31, 1916, 
 the ForS Motor Company has not since that date declared any special 
 dividends ; "And the said Henr)' Ford, president of the company, 
 has declared it to be the settled policy of the company not to pay in 
 the future any special dividends, but to put back into the business for 
 the future all of the earnings of the company, other than the regular 
 dividend of five per cent. (5%) monthly upon the authorized capital 
 stock of the company — ^two million dollars ($2,000,000)." 
 
 This declaration of the future policy, it is charged in the bill, was 
 published in the public press in the city of Detroit and throughout the 
 United States in substantially the following language : " 'My ambi- 
 tion,' declared Mr. Ford, 'is to employ still more men ; to spread the 
 benefits of this industrial system to the greatest possible number, to 
 help them build up their lives and their homes. To do this, we are 
 putting the greatest share of our profits back into the business.' " 
 
 It is charged further that the said Henry Ford stated to plaintiffs 
 personally, in substance, that as all the stockholders had received back 
 in dividends more than they had invested they were not entitled to 
 receive anything additional to the regular dividend of 5 per cent, a 
 month, and that it was not his policy to have larger dividends declared 
 in the future, and that the profits and earnings of the company would 
 be put back into the business for the purpose of extending its opera- 
 tions and increasing the number of its employes, and that, inasmuch 
 as the profits were to be represented by investment in plants and capital 
 investment, the stockholders would have no right to complain. It is 
 charged (paragraph 16) that the said Henry Ford, "dominating and 
 controlling the policy of said company, has declared it to be his pur- 
 pose — and he has actually engaged in negotiations looking to carrying 
 such purposes into effect — to invest millions of dollars of the company's 
 money in the purchase of iron ore mines in the Northern Peninsula 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1447 
 
 of Michigan or state of Minnesota; to acquire by purchase or have 
 built ships for the purpose of transporting such ore to smelters to be 
 erected on the River Rouge adjacent to Detroit in the county of Wayne 
 and state of Michigan; and to construct and install steel manufac- 
 turing plants to produce steel product^ to be used in the manufacture 
 of cars at the factory of said company; and by this means to de- 
 prive the stockholders of the company of the fair and reasonable re- 
 turns upon their investment by way of dividends to be declared upon 
 their stockholding interest in said company." 
 
 Plaintiffs ask for an injunction to restrain the carrying out of the al- 
 leged declared policy of Mr. Ford and the company, for a decree re- 
 quiring the distribution to stockholders of at least 75 per cent, of the 
 accumulated cash surplus, and for the future that they be required to 
 distribute all of the earnings of the company except such as may be 
 reasonably required for emergency purposes in the conduct of the busi- 
 ness. 
 
 The cause came on for hearing in open court on the 21st of May, 
 1917. A large volume of testimony was taken, with the result that a 
 decree was entered December 5, 1917, in and by which it is decreed that 
 within 30 days from the entry thereof the directors of the Ford Motor 
 Company declare a dividend upon all of the shares of stock in an amount 
 equivalent to one-half of, and payable out of, the accumulated cash 
 surplus of said Ford Motor Company, on hand at the close of the fiscal 
 year ending July 31, 1916, less the aggregate amount of the special 
 dividends declared and paid after the filing of the bill and during the 
 year ending July 31, 1917; the amount to be declared being $19,275,- 
 385.96. 
 
 OsTRANDER, C. J. * * * The case for plaintiffs must rest upon 
 the claim, and the proof in support of it, that the proposed expansion 
 of the business of the corporation, involving the further use of profits 
 as capital, ought to be enjoined because inimical to the best interests 
 of the company and its shareholders, and upon the further claim that 
 in any event the withholding of the special dividend asked for by plain- 
 tiffs is arbitrary action of the directors requiring judicial interference. 
 
 The rule which will govern courts in deciding these questions is not 
 in dispute. It is, of course, differently phrased by judges and by au- 
 thors, and, as the phrasing in a particular instance may seem to lean 
 for or against the exercise of the right of judicial interference with 
 the actions of corporate directors, the context, or the facts'before the 
 court, must be considered. This court, in Hunter v. Roberts, Throp 
 & Co., 83 Mich. 63, 71, 47 N. W. 131, 134, recognized the rule in the 
 following language : "It is a well-recognized principle of law that the 
 directors of a corporation, and they alone, have the power to declare a 
 dividend of the earnings of the corporation, and to determine its 
 amount. * * * Courts of equity will not interfere in the manage- 
 ment of the directors unless it is clearly made to appear that they are 
 guilty of fraud or misappropriation of the corporate funds, or refuse 
 to declare a dividend when the corporation has a surplus of net profits 
 which it can, without detriment to its business, divide among its stock- 
 holders, and when a refusal to do so would amount to such an abuse 
 of discretion as would constitute a fraud, or breach of that good faith 
 which they are bound to exercise towards the stockholders." 
 
 In Cook on Corporations (7th Ed.) § 545, it is expressed as follows : 
 "The board of directors declare the dividends, and it is for the direc- 
 
1448 CORPORATIONS (Part 6 
 
 tors, and not the stockholders, to determine whether or not a dividehd 
 shall be declared. When, therefore, the directors have exercised this 
 discretion and refused to declare a dividend, there will be no inter- 
 ference by the courts with their decision, unless they are guilty of a 
 willful abuse of their discretionary powers, or of bad faith or of a 
 neglect of duty; It requires a very strong case to induce a court of 
 equity to order the directors to declare a dividend, inasmuch as equity 
 has no jurisdiction, unless fraud or a breach of trust is involved. 
 There have been many attempts to sustain such a suit, yet, although the 
 courts do not disclaim jurisdiction, they have quite uniformly refused 
 to interfere. The discretion of the directors will not be interfered with 
 by the courts, unless there has been bad faith, willful neglect, or abuse 
 of discretion. Accordingly, the directors may, in the fair exercise of 
 their discretion, invest profits to extend and develop the business, and 
 a reasonable use of the profits to provide additional facilities for the 
 business cannot be objected to or enjoined by the stockholders." 
 
 In Morawetz on Corporations (2d Ed.) § 447, it is stated : "Profits 
 earned by a corporation may be divided among its shareholders, but 
 it is not a violation of the charter if they are allowed to accumulate 
 and remain invested in the company's business. The managing agents 
 of a corporation are impliedly invested with a discretionary power with 
 regard to the time and manner of distributing its profits. They may 
 apply profits in payment of floating or funded debts, or in development 
 of the company's business ; and so long as they do not abuse their dis- 
 cretionary powers, or violate the company's charter, the courts cannot 
 interfere. But it is clear that the agents of a corporation, and even 
 the majority, cannot arbitrarily withhold profits earned by the com- 
 pany, or apply them to any use which is not authorized by the com- 
 pany's charter. The nominal capital of a company does not necessarily 
 limit the scope of its operations ; a corporation may borrow money for 
 the purpose of enlarging its business, and in many instances it may use 
 profits for the same purpose. But the amount of the capital contributed 
 by the shareholders is an important element in determining the limit 
 beyond which the company's business cannot be extended by the iri- 
 vestrnent of profits. If a corporation is formed with a capital of $100,- 
 000, in order to carry on a certain business, no one would hesitate to 
 say that it would be a departure from the intention of the founders 
 to withhold profits, in order to develop the company's business, until 
 the sum of $500,000 had been amassed, unless the company was formed 
 mainly for the purpose of accumulating the profits from year to year. 
 The question' in each case depends upon the use to which the capital 
 is put and the meaning of the company's charter. If a majority of the 
 shareholders or the directors of a corporation wrongfully refuse to 
 declare a dividend and distribute profits earned by the company, any 
 shareholder feeling aggrieved may obtain relief in a court of equity. 
 It may often be reasonable to withhold part of the earnings of a 
 corporation in order to increase its surplus fund, when it would not be 
 reasonable to withhold all the earnings for that purpose. The share- 
 holders forming an ordinary business corporation expect to obtain the 
 profits of their investment in the form of regular dividends. To with- 
 hold the entire profits merely to enlarge the capacity of the company's 
 business would defeat their just expectations. After the business 
 of a corporation has been brought to a prosperous condition, and nec- 
 essary provision has been made for future prosperity, a reasonable 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1449 
 
 share of the profits should be applied in the payment of regular divi- 
 dends, though a part may be reserved to increase the surplus and en- 
 large the business itself." * * * 
 
 It is not necessary to multiply statements of the rule. To develop 
 the points now discussed, and to a considerable extent they may be de- 
 veloped together as a single point, it is necessary to refer with some 
 particularity to the facts. 
 
 When ,plaintif5fs made their complaint and demand for further divi- 
 dends, the Ford Motor Company had concluded its most prosperous 
 year of business. The demand for its cars at the price of the preced- 
 ing year continued. It could make and could market in the year be- 
 ginning August 1, 1916, more than 500,000 cars. Sales of parts and re- 
 pairs would necessarily increase. The cost of materials was likely to 
 advance, and perhaps the price of labor ; but it reasonably might have 
 expected a profit for the year of upwards of $60,000,000. It had as- 
 sets of more than $132,000,000, a surplus of almost $112,000,000, and 
 its cash on hand and municipal bonds were nearly $54,000,000. Its 
 total liabilities, including capital stock, was a little over $20,000,000. 
 It had declared no special dividend during the business year except the 
 October, 1915, dividend. It had been the practice, under similar cir- 
 cumstances, to declare larger dividends. Considering only these facts, 
 a refusal to declare and pay further dividends appears to be not an 
 exercise of discretion on the part of the directors, but an arbitrary re- 
 fusal to do what the circumstances required to be done. These facts 
 and others call upon the directors to justify their action, or failure or 
 refusal to act. 
 
 In justification, the defendants have offered testimony tending to 
 prove, and which does prove, the following facts: It had been the 
 policy of the corporation for a considerable time to annually reduce the 
 selling price of cars, while keeping up, or improving, their quality. As 
 early as in June, 1915, a general plan for the expansion of the pro- 
 ductive capacity of the concern by a practical duplication of its plant 
 had been talked over by the executive officers and directors and agreed 
 upon; not all of the .details having been settled, and no formal ac- 
 tion of directors having been taken. The erection of a smelter was 
 considered, and engineering and other data in connection therewith se- 
 cured. In consequence, it was determined not to reduce the selling 
 price of cars for the year beginning August 1, 1915, but to maintain 
 the price and to accumulate a large surplus to pay for the proposed 
 expansion of plant and equipment, and perhaps to build a plant for 
 smelting ore. It is hoped, by Mr. Ford, that eventually 1,000,000 cars 
 will be annually produced. The contemplated changes will permit 
 the increased output. 
 
 The plan, as affecting the profits of the business for the year begin- 
 ning August 1, 1916, and thereafter, calls for a reduction in the selling 
 price of the cars. It is true that this price might be at any time in- 
 creased, but the plan called for the reduction in price of $80 a car. 
 The capacity of the plant, without the additions thereto voted to be 
 made (without a part of them at least), would produce more than 600,- 
 000 cars annually. This number, and more, could have been sold for 
 $440 instead of $360, a difference in the return for capital, labor, and 
 materials employed of at least $48,000,000. In short, the plan does 
 not call for and is not intended to produce immediately a more profita- 
 ble business, but a less profitable one ; not only less profitable than for- 
 
1450 COEPOEATIONS (Part 8 
 
 merly, but less profitable than it is admitted it might be made. The 
 apparent immediate effect will be to diminish the value of shares and 
 the returns to shareholders. 
 
 It is the contention of plaintiffs that the apparent effect of the plan 
 is intended to be the continued and continuing effect of it, and that it 
 is deliberately proposed, not of record and not by official corporate dec- 
 laration, but nevertheless proposed, to continue the corporation hence- 
 forth as a semi-eleemosynary institution and not as a business institu- 
 tion. In support of this contention, they point to the attitude and to 
 the expressions of Mr. Henry Ford. 
 
 Mr. Henry Ford is the dominant force in the business of the Ford 
 Motor Company. No plan of operations could be adopted unless he 
 consented, and no board of directors can be elected whom he does not 
 favor. One of the directors of the company has no stock. One share 
 was assigned to him to qualify him for the position, but it is not claimed 
 that he owns it. A business, one of the largest in the world, and one 
 of the most profitable, has been built up. It employs many men, at 
 good pay. "My ambition," said Mr. Ford, "is to employ still more 
 men, to spread the benefits of this industrial system to the greatest 
 possible number, to help them build up their lives and their homes. 
 To do this we are putting the greatest share of our profits back in the 
 business." "With regard to dividends, the company paid sixty per 
 cent, on its capitalization of two million dollars, or $1,200,000, leav- 
 ing $58,000,000 to reinvest for the growth of the company. This is 
 Mr. Ford's policy at present, and it is understood that the other stock- 
 holders cheerfully accede to this plan." He had made up his mind 
 in the summer of 1916 that no dividends other than the regular divi- 
 dends should be paid, "for the present." * * * 
 
 The record, and especially the testimony of Mr. Ford, convinces 
 that he has to some extent the attitude towards the shareholders of 
 one who has dispensed and distributed to them large gains and that they 
 should be content to take what he chooses to give. His testimony cre- 
 ates the impression, also, that he thinks the Ford Motor Company has 
 made too much money, has had too large profits, and that, although 
 large profits might be still earned, a sharing of them with the public, 
 by reducing the price of the output of the company, ought to be under- 
 taken. We have no doubt that certain sentiments, philanthropic and 
 altruistic, creditable to Mr. Ford, had large influence in determining 
 the policy to be pursued by the Ford Motor Company — the policy which 
 has been herein referred to. 
 
 It is said by his counsel that "although a manufacturing corpora- 
 tion cannot engage in humanitarian works as its principal business, the 
 fact that it is organized for profit does not prevent the existence of 
 implied powers to carry on with humanitarian motives such charitable 
 
 works as are incidental to the main business of the corporation " 
 * * * , r- • 
 
 In discussing this proposition, counsel have referred to decisions such 
 as Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827. * * * These 
 cases, after all, like all others in which the subject is treated, turn 
 finally upon the point, the question, whether it appears that the di- 
 rectors were not acting for the best interests of the corporation. We 
 do not draw in question, nor do counsel for the plaintiffs do so, the 
 validity of the general proposition stated by counsel nor the soundness 
 of the opinions delivered in the cases cited. The case presented here 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPOHATION 1451 
 
 IS not like any of them. The difference between an 'incidental hu- 
 manitarian expenditure of corporate funds for the benefit of the em- 
 ployes, like the building of a hospital for their use and the employ- 
 ment of agencies for the betterment of their condition, and a general 
 purpose and plan to benefit mankind at the expense of others, is ob- 
 vious. There should be no confusion (of which there is evidence) 
 of the duties which Mr. Ford conceives that he and the stockholders 
 owe to the general public and the duties which in law he and his co- 
 directors owe to protesting, minority stockolders. A business corpora- 
 tion is organized and carried on primarily for the profit of the stock- 
 holders. The powers of the directors are to be employed for that end. 
 The discretion of directors is to be exercised in the choice of means 
 to attain that end, and does not extend to a change in the end itself, 
 to the reduction of profits, or to the non-distribution of profits among 
 stockholders in order to devote them to other purposes. 
 
 There is committed to the discretion of directors, a discretion to be 
 exercised in good faith, the infinite details of business, including the 
 wages which shall be paid to employes, the number of hours they shall 
 work, the conditions under which labor shall be carried on, and the 
 price for which products shall be offered to the public. 
 
 It is said by appellants that the motives of the board members are 
 not material and will not be inquired into by the court so long as their 
 acts are within their lawful powers. As we have pointed out, and 
 the proposition does not require argument to sustain it, it is not within 
 the lawful powers of a board of directors to shape and conduct tlie 
 affairs of a corporation for the merely incidental benefit of shareholders 
 and for the primary purpose of benefiting others, and no one will 
 contend that, if the avowed purpose of the defendant directors was to 
 sacrifice the interests of shareholders, it would not be the duty of the 
 courts to interfere. 
 
 We are not, however, persuaded that we should interfere with the 
 proposed expansion of the business of the Ford Motor Company. In 
 view of the fact that the selling price of products may be increased 
 at any time, the ultimate results of the larger business cannot be cer- 
 tainly estimated. The judges are not business experts. It is recog- 
 nized that plans must often be made for a long future, for expected 
 competition, for a continuing as well as an immediately profitable ven- 
 ture. The experience of the Ford Motor Company is evidence of cap- 
 able management of its affairs. It may be noticed, incidentally, that it 
 took from the public the money required for the execution of its plan, 
 and that the very considerable salaries paid to Mr. Ford and to certain 
 executive officers and employes were not diminished. We are not sat- 
 isfied that the alleged motives of the directors, in so far as they are 
 reflected in the conduct of the business, menace the interests of share- 
 holders. It is enough to say, perhaps, that the court of equity is at all 
 times open to complaining shareholders having a just grievance. 
 
 Assuming the general plan and policy of expansion, and the details 
 of it to have been sufficiently, formally, approved at the October and 
 November, 1917, meetings of directors, and assuming further that the 
 plan and policy and the details agreed upon were for the best ultimate 
 interest of the company and therefore of its shareholders, what does 
 it amount to in justification of a refusal to declare and pay a special 
 dividend or dividends? The Ford Motor Company was able to esti- 
 mate with nicety its income and profit. It could sell more cars than 
 
1452 CORPORATIONS (Part 6 
 
 it could make. Having ascertained what it would cost to produce a car 
 and to sell it, the profit upon each car depended upon the selling price. 
 That being fixed, the yearly income and profit was determinable, and, 
 within slight variations, was certain. 
 
 There was appropriated — ^voted — for the smelter $11,325,000. As to 
 the remainder 'voted, there is no available way for determining how 
 much had been paid before the action of directors was taken and how 
 much was paid thereafter; but assuming that the plans required an 
 expenditure sooner or later of $9,895,000 for duplication of the plant, 
 and for land and other expenditures $3,000,000, the total is $24,220,000. 
 The company was continuing business, at a profit — a cash business. 
 If the total cost of proposed expenditures had been immediately with- 
 drawn in cash from the cash surplus (money and bonds) on hand Au- 
 gust 1, 1916, there would have remained nearly $30,000,000. 
 
 Defendants say, and it is true, that a considerable cash balance 
 must be at all times carried by such a concern. But, as has been stated, 
 there was a large daily, weekly, monthly, receipt of cash. The output 
 was practically continuous and was continuously,' and within a few 
 days, turned into cash. Moreover, the contemplated expenditures were 
 not to be immediately made. The large sum appropriated for the 
 smelter plant was payable over a considerable period of time. So 
 that, without going further, it would appear that, accepting and ap- 
 proving the plan of the directors, it was their duty to distribute on or 
 near the 1st of August, 1916, a very large sum of money to stock- 
 holders. 
 
 In reaching this conclusion, we do not ignore, but recognize, the 
 validity of the proposition that plaintiffs have from the beginning profit- 
 ed by, if they have not lately, officially, participated in, the general 
 policy of expansion pursued by this corporation. We do not lose sight 
 of the fact that it had been, upon an occasion, agreeable to the plain- 
 tififs to increase the capital stock to $100,000,000 by a stock dividend 
 of $98,000,000. These things go only to answer other contentions now 
 made by plaintififs, and do not and cannot operate to estop them to de- 
 mand proper dividends upon the stock they own. It is obvious that 
 an annual dividend of 60 per cent, upon $2,000,000, or $1,200,000, is 
 the equivalent of a very small dividend upon $100,000,000, or more. 
 
 The decree of the court below fixing and determining the specific 
 amount to be distributed to stockholders is affirmed. In other respects, 
 except as to the allowance of costs, the said decree is reversed. 
 
 SECTION 10.— APPORTIONMENT OF INTEREST 
 
 BETWEEN LIFE TENANT AND 
 
 REMAINDERMAN 
 
 EISNER V. MAOOMBER. 
 
 (Supreme Court of the tFnited States, 1919. 252 U. S. 189, 40 Sun Ct 189 
 
 64 L. Ed. 521, 9 A. L. R. 1570.) 
 
 Mr. Justice Brandeis (dissenting). * * * In Gibbons v Ma- 
 hon, 136 U. S. 549, 10 Sup. Ct. 1057, 34 L. Ed. 525, the court was re- 
 quired to determine how, in the administration of an estate in the 
 District of Columbia, a stock dividend, representing profits, receiv- 
 ed after the decedent's death, should be disposed of as between life 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1453 
 
 tenant and remainderman. The question was in essence : What shall 
 the intention of the testator be presumed to have been-? On this 
 question there was great diversity of opinion and practice in the courts 
 of English-speaking countries. Three well-defined rules were then 
 competing for acceptance; two of these involve an arbitrary rule of 
 distribution, the third equitable apportionment. * * * 
 
 1. The so-called English rule, declared in 1799, by Brander v. 
 Brander, 4 Ves. Jr. 800, that a dividend representing profits, whether 
 in cash, stock or other property, belongs to the Ufe tenant if it was a 
 regular or ordinary dividend, and belongs to the remainderman if it 
 was an extraordinary dividend. 
 
 2. The so-called Massachusetts rule, declared in 1868 by Minot v. 
 Paine, 99 Mass. 101, 96 Am. Dec. 705, that a dividend represent- 
 ing profits, whether regular, ordinary or extraordinary, if in cash be- 
 longs to the life tenant, and if in stock belongs to the remainderman. 
 
 3. The so-called Pennsylvania rule declared in 1857 by Earp's Ap- 
 peal, 28 Pa. 368, that where a stock dividend is paid, the court shall 
 inquire into the circumstances under which the fund had been earn- 
 ed and accumulated out of which the dividend, whether a regular, an 
 ordinary or an extraordinary one, was paid. If it finds that the stock 
 dividend was paid out of profits earned since the decedent's death, 
 the stock dividend belongs to the life tenant; if the court finds that 
 the stock dividend was paid from capital or from profits earned be- 
 fore the decedent's death, the stock dividend belongs to the remain- 
 derman. 
 
 This court adopted in Gibbons v. Mahon as the rule of administra- 
 tion for the District of Columbia the so-called Massachusetts rule, 
 the opinion being delivered in 1890 by Mr. Justice Gray. Since then 
 the same question has come up for decision in many of the states. 
 The so-called Massachusetts rule, although approved by this court, 
 has found favor in only a few states. The so-called Pennsylvania 
 rule, on the other hand, has been adopted since by so many of the 
 states (including New York and California), that it has come to be 
 known as the "American rule." Whether, in view of these facts and 
 the practical results of the operation of the two rules as shown by 
 the experience of the 30 years which have elapsed since the decision 
 in Gibbons v. Mahon, it might be desirable for this court to recon- 
 sider the question there decided, as some other courts have done (see 
 29 Harvard Law Review, 551), we have no occasion to consider in 
 this case. For, as this court there pointed out (136 U. S. 560, 10 
 Sup. Ct. 1059 [34 L. Ed. 525]), the question involved was one "be- 
 tween the owners of successive interests in particular shares," and not 
 * * * a question "between the corporation and the government, 
 and [which] depended upon the terms of a statute carefully fram- 
 ed to prevent corporations from evading payment of the tax upon 
 their earnings." * * * 
 
 In re OSBORNE. 
 
 (Court of Appeals of New York, 1913. 209 N. T. 450, 103 N. E. 723L 
 50 L. R. A. [N. S.] 510, Ann. Cas. 1915A, 298.) 
 
 Chase, J. Eugene La Grove died a resident of this state October 
 4, 1908, leaving a will which was duly probated and by the fourth 
 paragraph of which a trust was created as follows: 'AH the rest, 
 residue and remainder of my property and estate, real, personal and 
 
1454 CORPORATIONS (Part 6 
 
 mixed of every description and wheresoever situated of which I may 
 die seized or possessed =i' * * I give, devise, and bequeath to my 
 executor and trustee hereinafter named in trust, to hold said property 
 and estate and invest and reinvest the same and to collect the rents, 
 issues, income and profits therefrom, and to pay the net rents, issues, 
 income and profits therefrom quarterly to my wife, Ivy Lee L,a Grove 
 from the time of my flcath during the term of her natural life, and, 
 upon her death, to divide the principal into as many shares as my wife 
 shall leave children by our marriage her surviving * * * but in 
 the event that my said wife shall die leaving no issue her surviving, 
 then at her death the principal so set apart for her benefit shall be 
 paid to such person or persons as would be entitled to share in her 
 estate were she to die intestate under the statute of distribution in 
 force at the time of her death in the state of New York." The tes- 
 tator did not leave any descendants. Ivy Lee La Grove, who was 
 his wife, is living. The rest, residue, and remainder of the property, 
 as provided by the fourth paragraph of the will, is held in trust by 
 James W. Osborne as trustee pursuant to the provisions of such par- 
 agraph. * * * 
 
 The principal part of the estate of the testator consisted of 3,000 
 shares of the stock of the vSinger Manufacturing Company, a cor- 
 poration organized and existing under the laws of the state of New 
 Jersey. The capital stock of the Singer Manufacturing Company at 
 the time of the death of the testator was $30,000,000. On that day 
 it had a surplus of accumulated earnings arising exclusively from 
 the business of the company amounting to $37,604,206. On June 17, 
 1910, such surplus had increased to $51,560,757. On March 31, 1910, 
 the executor sold 80 shares of the stock of said company. * * * 
 
 On June 17, 1910, the board of directors of said company adopted 
 a further resolution as follows: "Resolved tliat the directors declare 
 and they do now declare a stock dividend of thirty millions of dollars, 
 or one hundred per cent on the present issued capital stock of this 
 company payable forthwith to the stockholders of record on the 16th 
 day of June instant out of said increase of stock, and that the presi- 
 dent and treasurer be and they hereby are authorized and directed 
 to issue forthwith to the several stockholders of record on the said 
 16th day of June instant, certificates for so many shares of iully paid 
 and nonassessable stock as said shareholders shall severally be entitled 
 to in payment of said dividends." Thereupon, and on the same day, 
 June 17, 1910, said company paid over and delivered to James W. 
 Osborne as such executor a stock dividend of 2,920 shares of the 
 par value of $100 each, being one share of increased capital stock of 
 said company for each share of old stock theretofore held by said Os- 
 borne as executor, and said stock remains in the possession of said 
 Osborjje as such executor and trustee. 
 
 After the death of La Grove, and prior to the payment to Osborne 
 as such executor of the stock dividend, regular cash dividends had 
 been paid on said stock amounting in the aggregate to $242,564.18, 
 which has been paid from time to time by said executor to said Ivy 
 Lee La Grove, the beneficiary under the trust, as provided by said will. 
 
 The troublesome question as to who is entitled to extraordinary 
 dividends declared upon stock held in trust as between life beneficia- 
 ries under the trust and the remaindermen is aga^n presented to us. 
 for our consideration. 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1455 
 
 The question has been considered by the courts in this and other 
 states and countries in many and various forms from time to time 
 since the decisions and opinions of the courts have been published. 
 It has been said that no question before the courts has been more 
 troublesome. Certainly none has resulted in greater contrariety of 
 views. Decisions that are apparently contradictory either in the same 
 court or in the courts of different states and countries have, however, 
 been caused in part by different facts and circumstances existing in 
 the cases decided, and the effect necessarily given to the language of 
 the will or instrument creating the trust in the particular cases in 
 which the decisions have been rendered. 
 
 In determining who is entitled to a dividend upon stock held in 
 trust, the intention of the testator or the maker of the trust must be 
 •carried out when such intent is clear, so far as such intent does not 
 result in an unlawful accumulation of income. Very many cases 
 arise, however, where the testator or maker of the trust had not con- 
 sidered the possibility of enormous dividends being declared by cor- 
 porations to effectuate their reorganization or in the division of ac- 
 cumulated profits, made necessary by new statutes, changed circunj- 
 stances, and modem rules and conditions, or, if such testator or malt- 
 er of the trust had considered such possibility, he failed to express 
 himself in the instrument creating the trust so as to show any clear 
 intention regarding the same. 
 
 In England, as far back as 1799, it was established as a rule that 
 all extraordinary or unusual dividends declared during the continua- 
 tion of a life estate, whether payable in cash or in stock, belong to 
 the corpus of the fund and not to the income. Brander v. Brander, 
 4 Ves. Jr. 800. The decision in the case cited was repeatedly followed 
 and the rule restated. The rule in England as stated in the earlier 
 •cases has been materially modified, and dividends of cash are now held 
 to\ belong to the life tenant, and stock dividends to the remainderman, 
 subject, perhaps, to an examination of the facts and circumstances in 
 each case in applying the rule as stated. Bouche v. Sproule, L. R. 
 12 App. Cas. 385. 
 
 In Massachusetts, in Minot v. Payne, reported in 99 Mass. 108, 96 
 Am. Dec. 70S, it is said: "A simple rule is to regard cash dividends, 
 however large, as income; and stock dividends, however made, as 
 <:apital." The courts of that state have followed such rule, taking un- 
 to themselves, however, the right to determine whether a stock divi- 
 dend is in effect a distribution of cash to be treated the same as a 
 •cash dividend. 
 
 In Pennsylvania it was held in Earp's Appeal, reported in 28 Pa. 
 368, that ordinary dividends on stock held in trust belong to the per- 
 son entitled to the income of the trust fund, but that extraordinary 
 dividends should be apportioned between the life estate man and the 
 remainderman in accordance with the amount thereof accumulated 
 before and after the creation of the trust. 
 
 The question has been considered by the courts of nearly every 
 state in the Union and by the federal courts. It would be quite im- 
 possible to reconcile the many reported decisions. An effort to de- 
 termine the weight of authority would be difficult, and extend this 
 opinion to unjustifiable length. It is not our purpose, therefore, to 
 analyze or attempt to state the decisions of other jurisdictions or to 
 
1456 COEPOHATIONS (Part 6 
 
 refer to them except as we have herein to illustrate the extent of the 
 conflict regarding the question now considered. 
 
 In this state the question was considered in Clarkson v. Clarkson, 
 18 Barb. 646 (1855). In that case one Clarkson died in September, 
 1845, leaving a will by which he left parts of his estate in trust for 
 two of his children respectively. The trustees were directed to in- 
 vest the same and pay the "interest, dividends and proceeds arising 
 from the two said respective shares and portions from time to time, as 
 they shall be received, to my said daughters * * * for and during 
 the term of their natural lives respectively; and upon the decease of 
 either of said daughters, * * * to assign, transfer and pay over 
 the share" as therein provided. * * * 
 
 The earlier and also the latest decisions in this state clearly rec- 
 ognize and assert that where extraordinary dividends intrench upon 
 the capital of the trust fund they should be returned to such trust 
 fund so far as necessary to preserve the same. Recognizing as we 
 must that a testator or mjiker of a trust may, if he chooses, provide 
 that a part of the principal of a trust fund be paid to a life bene- 
 ficiary of the trust, and that the courts must carry out' such inten- 
 tion, all of the decisions in this state can be sustained without violat- 
 ing the right when it is not so controlled by the instrument creating 
 the trust, to have the principal of the trust fund kept unimpaired by 
 the division of accumulated surplus among life beneficiaries. 
 
 It is conceded that the capital of a corporation cannot be divided 
 among the life beneficiaries. It is not alone the capital of the cor- 
 poration that should be preserved, but the capital of the trust fund, 
 whether invested by the trustees in stocks of corporations at a pre- 
 mium, or acquired from the testator or maker of the trust. The sur- 
 plus of the corporation existing at the formation of the trust or when 
 the stock is purchased represents a part of the capital of the estate 
 as fully as does the capital of the corporation. The division by cor- 
 porations of their surplus, accumulated through a long period of years 
 in very large amounts, is now comparatively common, when until 
 within a very recent time such division of enormous amounts was 
 seldom, if ever, made. 
 
 Recently a well-knbwn bank in this state with a capital of $300,(XX) 
 and a large surplus divided its surplus by declaring an extra dividend 
 of $2,700,000, or 900 per cent, and increased its capital stock to $3,000,- 
 000, allowing its stockholders to subscribe for the increase and pay 
 for the same by the dividend thus declared. 
 
 Another well-known bank in this state with a capital of $500,000 
 and a very large surplus divided its surplus by declaring an extra 
 dividend of $9,500,000, or 1900 per cent., and increased its capital 
 stock to $10,000,000 allowing its stockholders to subscribe for the 
 increase and to pay for the same by the dividend thus declared. In- 
 stances of the declaration of very large extraordinary dividends by 
 corporations within the last few years could be multiplied in great 
 numbers. 
 
 We refer to these cases simply to illustrate the great injustice that 
 may be done to the ultimate beneficiaries of a trust fund if a large 
 part of such fund as invested must necessarily, by reason of an ex- 
 traordinary dividend and an arbitrary rule, be paid over to the' life 
 beneficiaries of the trust. If dividends by a corporation payable out 
 of surplus earnings whenever accumulated must be paid to the life 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1457 
 
 beneficiaries of the trust unless special provision to the contrary is 
 made in the will or instrument creating the trust, it will make the re- 
 tention or purchase of stocks by a trustee in corporations having a 
 large surplus a matter of questionable propriety. It must also be re- 
 membered that if all such dividends are adjudged to constitute in- 
 come as a matter of law, then their retention in the trust, even by 
 direction of the testator or maker of the trust, would, in many in- 
 stances, amount to an unlawful accumulation of income. 
 
 We think that in each case the court should look into the facts, cir- 
 cumstances, and nature of the transaction, and determine the nature 
 of the dividend and the rights of the contending parties acc^ording to 
 justice and equity. 
 
 In Cook on Corporations (6th Ed. c. 33, § 552) it is said : "Where 
 shares of stock are held by an estate, and the income of the estate is 
 to go to a life tenant for life, and the remainder to another party, 
 the question of whether the life tenant or the remainderman is en- 
 titled to a stock dividend or extraordinary cash dividend is a per- 
 plexing one. The stock dividend or extraordmary cash dividend may 
 represent profits which were earned or accumulated before the life 
 tenancy began. In that case it is clear that in justice the remainder- 
 man should receive it. If, however, it was earned after the life ten- 
 ancy began, it is clear that the life tenant should have it. If it was 
 earned partly ■ before and partly after the life tenancy began, then it 
 is apparent that in justice some apportionment should be made if 
 possible." 
 
 In Thompson on Corporations (2d ^d. § 5414) it is said: "The 
 courts now inquire into the actual nature and source of dividends for 
 the purpose of determining their character, and, as between the life 
 tenant and remainderman, if they are found to represent earnings 
 that accrued prior to the creation of the trust, they belong to the 
 corpus of the trust; or if they represent the natural growth and in- 
 crease in the value of the corporate plant and business, whether that 
 growth and increase took place before or after the trust was cre- 
 ated, they are to such extent capital. The court, in making the in- 
 quiry, concerns itself with the substance of the transaction, and not 
 the form in which the corporation has seen fit to clothe it, and the 
 fact that a dividend is distributed in cash or stock is said to be of 
 little importance in determining whether it is capital or income. * * * 
 The object of the inquiry in every case should be to do justice to the 
 life tenant and remainderman, and at the' same time effectuate the in- 
 tention of the creator of the trust; and on this theory in order to 
 effectuate such intention and to do justice between the parties, a court 
 may, under the circumstances of a given case, apportion a dividend 
 between the life tenant and the remainderman." 
 
 It is manifest that any apportionment of a dividend is more or less 
 troublesome in the practical handling of trust estates. It may be nec- 
 essary in many cases to make the apportionment of dividends in an 
 accounting by the trustee where all the parties interested are bound 
 thereby. The dividends usually declared by corporations are the or- 
 dinary dividends such as are declared from year to year or at other 
 regular dividend periods. Extraordinary dividends are the exception. 
 In all cases of ordinary dividends the courts uniformly hold that they 
 should be paid to the life beneficiary of the trust in conformity with 
 B.& B.Btjs.Law— 92 
 
1458 CORPORATIONS (Part 6 
 
 the general rule that dividends are deemed to have been earned as of 
 the date of their declaration. In cases of extraordinary and unusual 
 dividends declared in whole or in part from earnings actually accu- 
 mulated prior to the creation of the trust or the purchase of the stock, 
 an adherence to the rule that dividends are deemed to have been 
 earned as of the date of their declaration in many cases shocks the 
 sense of justice. 
 
 Notwithstanding the difficulty in many cases of apportioning div- 
 idends, it is wiser and better to leave an apportionment to courts of 
 •equity, in preference to adhering to a rule that depends more upon 
 its simplicity and convenience of enforcement than upon justice and 
 right. The distinction between ordinary and extraordinary dividends 
 is necessary to make a workable rule, and at the same time_ pre- 
 serve the integrity of the trust fund. The integrity of the trust fund 
 and rights of the life beneficiary under the trust should each be con- 
 sidered, determined, and preserved by a court of equity. As far as 
 the courts in this state have made statements to the contrary, it has 
 been in opinions where such statements have been unnecessary to the 
 determination of the case then under consideration, and such state- 
 ments are disapproved. It should be held: (1) Ordinary dividends, 
 regardless of the time when the surplus otit of which they are paya- 
 ble was accumulated, should be paid to the life beneficiary of the 
 trust. (2) Extraordinary dividends, payable from the accumulated 
 earnings of the company, whether payable in cash or stock, belong 
 to the life beneficiary, unless they intrench in whole or in part upon 
 the capital of the trust fund a^ received from the testator or maker of 
 the trust or invested in the stock, in which case such extraordinary 
 -dividends should be returned to the trust fund or apportioned between 
 the trust fund and the life beneficiary in such a way as to preserve 
 the integrity of the trust fund. 
 
 It has been argued that the will in this case as quoted shows that 
 the testator intended that the value of the stock of the Singer Manu- 
 facturing Company owned by him at his decease should be preserved 
 inviolate, and it is also argued that it was not the intent of said cor- 
 poration, as shown by the resolution quoted, to distribute the sur- 
 plus of the corporation, but to capitalize it so that thereafter it should 
 be incapable of distribution. It is not necessary to discuss the ques- 
 tion so presented, in view of the decision that we are making herein. 
 
 This case is one that requires an apportionment of the dividend. 
 There is no dispute about the portion thereof that was earned prior 
 to the creation of the trust, and the decree of the surrogate and order 
 of the Appellate Division should be modified so as to award 
 i395655Y5i5j„7„ parts of tfic stock dividend to the respondent, and di- 
 recting that the remainder thereof be retained as a part of the capital 
 of the trust fund, and, as thus modified, the order and decree should 
 be affirmed, with costs to the appellant and respondent payable out 
 •of the estate. 
 
 Gray, J., dissents, * * * 
 
Ch. 4) THE RELATION OF STOCKHOLpEES TO CORPORATION 1451> 
 
 SECTION 11.— RIGHTS OF THE CORPORATION AGAINST 
 OFFICERS AND DIRECTORS 
 
 BRIGGS V. gPAUI^PING et al. 
 (Supreme Court of the United States, 1881. 141 U. S. 132; 11 Sup. Ct. 924, 
 
 35 !>. Ed. 662.). 
 
 Briggs exhibited his bill, as receiver of the First National Bank 
 of Buffalo, against Reuben Porter Lee, Francis E. Coit, Elbridge G. 
 Spaulding, William H. Johnson, and Thomas W. Gushing, as directors 
 of that bank, and Anne Vought as executrix of John H. Vought, and 
 Frank S. Coit and Joseph C. Barnes, as administrators of Charles C. 
 Coit, former directors. 
 
 Mr. Chief Justice Fuller delivered the opinion of the court. 
 
 In the language of appellant's counsel, the bill was framed upon the 
 theory of a breach by the defendants as directors "of their common- 
 law duties as trustees of a financial corporation, and of breaches of 
 special restrictions and obligations of the national banking act." And 
 it is claimed that the defendants should have been held liable for the 
 losses which occurred through loans of the bank's funds and moneys 
 during their term of office as directors to L,ee, his father, his wift, 
 and certain designated persons, which were the principal losses, though 
 there were others smaller in amount for which they were responsible. 
 
 It is not contended that the defendants knowingly violated, or per- 
 mitted the violation of, any of the provisions of the banking act, or 
 that they were guilty of any dishonesty in administering the affairs 
 of the bank ; but it is charged that they did not diligently perform du- 
 ties devolved upon them by the act. * * * It does not follow that 
 the executive officers should have been left to control the business of 
 the bank absolutely and without supervision, or that the statute fur- 
 nishes a justification for the pursuit of that course. Its language does 
 enable individual directors to say that they were guilty of no viola- 
 tion of a duty directly devolved upon them. Whether they were re- 
 sponsible for any neglect of the board as such, or in failing to obtain 
 proper action on its part, is another question. Indeed, it is frankly 
 stated by counsel that, ''although special provisions of the statute are 
 quoted and relied upon, these do not create the cause of action, but 
 merely furnish the standard of duty and the evidence of wrong doing;" 
 and section 556, Mor. Priv. Corp., is cited, which is to the effect that 
 "the liability of directors for damages caused by acts expressly pro- 
 hibited by the company's charter or act of incorporation is not created 
 by force of the statutory prohibition. The performance of acts which 
 are illegal or prohibited by law may subject the corporation to a for- 
 feiture of its franchises, and the directors to criminal liability; but 
 this would not render them civilly liable for damages. The liability 
 of directors to the corporation for damages caused by unauthorized 
 acts rests upon the common-law rule, which renders every agent liable 
 who violates his authority to the damage of his principal. A statutory 
 prohibition is material, under these circumstances, merely as indicating 
 an express restriction placed upon the powers delegated to the directors 
 when the corporation was formed." 
 
 It is perhaps unnecessary to attempt to define with precision the de- 
 
1460 CORPORATIONS (Part 6 
 
 gree of care and prudence which directors must exercise in the per- 
 formance of their duties. The degree of care required depends upon 
 the subject to which it is to be applied, and each case has to be de- 
 termined in view of all the circumstances. They are not insurers of 
 the fidelity of the agents whom they have appointed, who are not their 
 agents, but the agents of the corporation; and they cannot be held 
 responsible for. losses resulting from the wrongful acts or omissions 
 of other directors or agents, unless the loss is a consequence of their 
 own neglect of duty, either for failure to supervise the business with 
 attention, or in neglecting to use proper care in the appointment of 
 agents. * * * Bank directors are often styled "trustees," but not 
 in any technical sense. The relation between the corporation and them 
 is rather that of principal and agent, certainly so far as_ creditors are 
 concerned, between whom and the corporation the relation is that of 
 contract, and not of trust. But, undoubtedly, under circumstances, 
 they may be treated as occupying the position of trustees to cestui que 
 trust. 
 
 In Percy v. Millaudon, 8 Mart. (N. S.) 68, which has been cited as 
 a leading case for more than 60 years, the supreme court of Louisiana, 
 through Judge Porter, declared that the correct mode of ascertaining 
 whether an agent is in fault "is by inquiring whether he neglected the 
 exercise of that diligence and care which was necessary to a successful 
 discharge of the duty imposed on him. That diligence and care must 
 again depend on the nature of the undertaking. There, are many things 
 which, in their management, require the utmost diligence and most 
 scrupulous attention, and where the agent who undertakes their direc- 
 tion renders himself responsible for the slightest neglect. There are 
 others where the duties imposed are presumed to call for nothing more 
 than ordinary care and attention, and where the exercise of that de- 
 gree of care suffices. The directors of banks, from the nature of their 
 undertaking, fall within the class last mentioned, while in the discharge 
 of their ordinary duties. It is not contemplated by any of the charters 
 which have come under our observation, and it was not by that of the 
 Planters'. Bank, that they should devote their whole time and atten- 
 tion to the institution to which they are appointed, and guard it from 
 injury by constant superintendence. Other officers, on whom compen- 
 sation is bestowed for the employment of their time in the affairs of 
 the bank, have, the immediate management. In relation to these offi- 
 cers the duties of directors are those of control, and the neglect which 
 would render them responsible for not exercising that control properly 
 must depend on circumstances, and in a great measure be tested by 
 the facts of the case. If nothing has come to their knowledge to awak- 
 en suspicion of the fidelity of the president and cashier, ordinary at- 
 tention to the affairs of the institution is sufficient. If they become 
 acquainted with any fact calculated to put prudent men on their guard, 
 a degree of care commensurate with the evil to be avoided is required, 
 and a want of that care certainly makes them responsible." 
 
 Spering's Appeal, 71 Pa. 11, 10 Am. Rep. 684, was the case of a bill 
 filed by Spering, as assignee of a trust company, against its directors 
 and others, to compel them to make good losses sustained by the de- 
 positors on the ground of fraudulent mismanagement of the affairs 
 of the company; and Judge Sharswood, speaking for the court, said: 
 "It is by no means a well-settled point what is the precise relation 
 which directors sustain to stockholders. They are, undoubtedly, said 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1461 
 
 in many authorities to be trustees, but that, as I apprehend, is only in a 
 general sense, as we term an agent or any other bailee intrusted with 
 the care and managment of the property of another; It is certain that 
 they are not technical trustees. They can only be regarded as man- 
 dataries — ^persons who have gratuitously undertaken to perform cer- 
 tain duties, and who are therefore bound to apply ordinary skill and 
 diligence, but no more. * * * We are dealing now with their re- 
 sponsibility to stockholders, not to outside parties — creditors and de- 
 positors. It is unnecessary to consider what the rule may be as to 
 them. Upon a close examination of all the reported cases, although 
 there are many dicta not easily reconcilable, yet I have found no judg- 
 ment or decree which has held directors to account, except when they 
 have tliemselves been personally guilty of some fraud on the corpora- 
 tion, or have known and connived at some fraud in others, or where 
 such fraud might have been prevented had they given ordinary at- 
 tention to their duties. I do not mean to say by any means that their 
 responsibility is limited to these cases, and that there might not exist 
 such a case of negligence, or of acts clearly ultra vires, as would make 
 perfectly honest directors personally liable. But it is evident that gen- 
 tlemen selected by the stockholders from their own body ought not to 
 be judged by the same strict standard as the agent or trustee of a pri- 
 vate estate. Were such a rule applied, no gentlemen of character and 
 responsibility would be found willing to accept such places." * * * 
 
 The theory of this bill "is that the defendants are liable, not to stock- 
 holders nor to creditors, as such, but to the bank, for losses alleged 
 to have occurred during their period of office, because of their inat- 
 tention. If particular stockholders or creditors have a cause of action 
 against the defendants individually, it is not sought to be proceeded 
 on here, and the disposition of the questions arising thereon would de- 
 pend upon different considerations. * * * 
 
 No one of the defendants is charged with the misappropriation or 
 misapplication of or interference with any property of the bank nor 
 with carelessness in respect to any particular property, but with the 
 omission of duty which, if performed, would have prevented certain 
 specified losses, in respect of which complainant seeks to charge them. 
 
 The doctrine that one trustee is not liable for the acts or defaults of 
 his co-trustees, and while, if he remains merely passive, and does not 
 obstruct the collection by a co-trustee of moneys, is not liable for 
 waste, is conceded; but it is argued that if he himself receives the 
 funds, and either delivers them over to his associate, or does any act 
 by which they come into the possession of the latter or under his con- 
 trol, and but for which he would not have received them, such trustee 
 is liable for any loss resulting from the waste, * * * ^nd that this 
 case comes within the rule as thus qualified. Treated as a cause of 
 action in favor of the corporation, a liability of this kind should not 
 lightly be imposed in the absence of any element of positive misfea- 
 sance, and solely upon the ground of passive negligence ; and it must 
 be made to appear that the losses for which defendants are required 
 to respond were the natural and necessary consequence of omission 
 on their part. * * * 
 
 We pass, then, to the inquiry as to the liability of defendant Spauld- 
 ing. * * * Spaulding had had a large and various experience, and, 
 as a member of congress, drafted the original national banking act, was 
 president of a leading bank, and connected with several financial cor- 
 
1462 ' CORPORATIONS (Part 6 
 
 porations, and testified that the practice of banks, so far as he knew, 
 all over the country, was to a large extent to carry on the business 
 through their executive officers, especially where these officers held a 
 majority of the stock; that when he purchased his stock he believed 
 this bank was being conducted by its duly authorized officers, and his 
 judgment was that his duty as a director was discharged if he attended 
 the meetings to which he was summoned, performed such duties as 
 were specifically required of him, and gave such advice as was asked 
 from him; that his summers were spent upon his farm in the coun- 
 try ; that in 1882 he was 72 years of age ; that he was in a measure 
 retired from business, so that he gave very little attention to the affairs 
 of his own bank, but was ready to give any advice or suggestions when 
 called upon for that purpose upon any special matters ; that for many 
 years it had been the practice in the corporations in which he was a 
 director to treat him as an advisory director, and not as a director oc- 
 cupied in the daily management of their affairs ; and that he accepted 
 the position upon the understanding that he should occupy this rela- 
 tion. * * * He further stated that he never received or expected 
 to receive any compensation or benefit from the bank as a director; 
 that Lee was the owner of a large majority of the stock; that, as is 
 customary in such cases, Lee had assumed, to a large extent, the man- 
 agement and control of the bank, with the knowledge of the other 
 directors, and with the knowledge of the stockholders of the bank, 
 and most, if not all, of the depositors therein ; • and upon information 
 and belief "that long before he became a stockholder of said bank, and 
 up to the time he became such stockholder, and while he was such 
 stockholder, it was understood by all persons having dealings with the 
 said bank that the said Lee practically administered the affairs there- 
 of, as its chief executive officer." * * * 
 
 The losses which it is claimed rendered it insolvent, and for the re- 
 covery of which losses this action was instituted, occurred by reason 
 of the discounting by Lee of the paper of persons engaged with him 
 in outside business and speculations, who were not adequately responsi- 
 ble for their engagements. The vice in the situation lay, not in the 
 reports nor in the books, upon their face, but in the unreliability of 
 the bills receivable. Were these defendants guilty of negligence in 
 allowing Lee to remain in charge of the* bank? * * * It appears 
 that Lee went into the employment of this bank in 1868, being then 
 18 years old, and so remained until April 14, 1882, occupying in suc- 
 cession the positions of messenger boy, bookkeeper, teller, assistant 
 cashier, cashier, vice president, and president. * * * jjis general 
 character was good, his reputation for integrity and financial capacity 
 excellent, and he possessed the confidence of his fellow-citizens. Upon 
 the 10th of January, 1882, he was the owner of two-thirds of the stock 
 of the bank, and had apparently a greater interest than any other per- 
 son in seeing that its affairs were so managed that its capital would 
 remain unimpaired. * * * We think no jury would have been 
 justified in finding defendants guilty of negligence in retaining Lee in 
 the management of the bank. * =K * 
 
 But it is contended that defendants should have insisted on meet- 
 ings of the board of directors. * * * Here, again, it should be ob- 
 served that even trustees are not liable for the wrongful acts of their 
 co-trustees unless they connive at them or are guilty of negligence con- 
 ducive to their commission, and that Lee and Vought had long been 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1463 
 
 directors. It is shown that for 14 years the affairs of the bank had 
 been left wholly with the president and cashier, and that from the 10th 
 of January to the stoppage of the. bank the business was done as it 
 had always been done. No bonds had been required of the officers 
 for at least 14 years. No meetings were held by the board of direc- 
 tors except the annual meeting and meetings to declare dividends, or 
 on some special occasion. * * * ^.U this was not as it should have 
 been, and ought not to be countenanced; but the facts have an im- 
 portant bearing on the question whether Spaulding and Johnson should 
 be held liable because they did not at once endeavor to change the en- 
 tire methods of doing business, and enter upon an exhaustive inves- 
 tigation of the assets. Would ordinarily prudent and diligent men 
 have done so under similar cirumstances ? It is not so much a ques- 
 tion of holding meetings as of examination, searching and thorough; 
 an overhauling of the bills receivable, and the detection of the uncol- 
 lectible indebtedness which rendered the bank insolvent. * * * 
 
 Would it not have been the exercise of an extraordinary degree of 
 care if these defendants had insisted within the first 90 days upon 
 making such an examination? Certainly it cannot be laid down as a 
 rule that there is an invariable presumption of rascality as to one's 
 agents in business transactions, and that the degree of watchfulness 
 must be proportioned to that presumption. * * * 
 
 It must be remembered that in cases turning upon questions of fact 
 in order to reverse, we must be prepared to hold that the findings were 
 not justified, and this we cannot do, taking into consideration all the 
 facts contained in this voluminous record, which we have attempted 
 thoroughly to explore. The turning point, so far as defendants Spauld- 
 ing and Johnson are concerned, (and we include with them Francis 
 E. Coit,) is whether under all the circumstances they were guilty of 
 negligence, producing any of the losses in question, not affirmatively, 
 but because they did not prevent them ; and this depends upon whether 
 they should have made an examination of the books and assets of the 
 bank, and whether, if they had, that would have enabled them to dis- 
 cover such a condition of affairs as would have resulted in placing the 
 bank in liquidation, and whether thereby some of the losses would have 
 been averted. Without reviewing the various decisions on the sub- 
 ject, we hold that directors must exercise ordinary care and prudence 
 in the administration of the affairs of a bank, and that this includes 
 something more than officiating as figure-heads. They are entitled un- 
 der the law to commit the banking business, as defined, to their duly- 
 authorized officers, but this does not absolve them from the duty of 
 reasonable supervision, nor ought they to be permitted to be shielded 
 from liability because of want of knowledge of wrongdoing, if that 
 ignorance is the result of gross inattention; but in this case we da 
 not think these defendants fairly liable for not preventing loss by put- 
 ting the bank into liquidation within 90 days after they became di- 
 rectors, and it is really to that the case becomes reduced at last. For 
 the reasons given, the decree will be affirmed. 
 
 Hari,an, J.~, (dissenting.) Mr. Justice Gray, Mr. Justice BrBwER, 
 Mr. Justice Brown, and myself are unable to concur in the opinion 
 and judgment of the court. But we are of opinion that, under the evi- 
 dence, the defendants Elbridge G. Spaulding, Francis E. Coit, and W. 
 H. Johnson became respectively liable for such of those losses as 
 could have been prevented by proper diligence upon their part as di- 
 
1464 CORPORATIONS (Part 6 
 
 rectors. It would serve no useful purpose to refer in detail to all the 
 evidence establishing their dereliction of duty. In our opinion, the 
 proof is clear and convincing that, a considerable part of the amount 
 lost to the bank, and therefore to its stockholders and depositors, could 
 have been saved if they had exercised such care in the supervision 
 and management of the bank's business as men of ordinary diligence 
 exercise in respect to their own business. In fact, those gentlemen, 
 while they were directors, had no knowledge whatever of what was 
 being done by Lee in the conduct of the bank. They took his word 
 that all was right, and gave no attention whatever to the management 
 of its business. Their eyes were as completely closed to what he did 
 from day to day in directing the affairs of the bank, as if they had de- 
 liberately determined not to see and not to know how he controlled its 
 business. * * * 
 
 In the case of Mr. Spaulding there are absolutely no circumstances 
 of a mitigating character. He was learned in the law, and had large 
 experience in banking. He accepted the position of director to ac- 
 commodate L,ee, and without any examination of the condition of the 
 bank. Lee told him the bank was all right; and upon that, and that 
 alone, he rested with implicit confidence. Having taken the oath re- 
 quired by the statute, that he would, so far as the duty devolved upon 
 him, diligently and honestly administer the affairs of the association, 
 and having ascertained that the executive officers were in charge of 
 the bank, performing the duties belonging to their respective positions, 
 he did not, he says, "go any further." Under such circumstances, and 
 as he interpreted the national banking act, he felt himself "relieved 
 from any specified duty." * * * It is plain from the evidence that 
 if, with his long experience in banking business, he had given one hour, 
 or at the utmost a few hours' time, in any week while he was director, 
 to ascertain how this bank was being managed, he would have dis- 
 covered enough that was wrong and reckless to have saved the as- 
 sociation, its stockholders and depositors, many, if not all, the losses 
 thereafter occurring. Upon his theory of duty, the only need for 
 directors of a national bank is to meet, take the required oath to ad- 
 minister its business diligently and honestly, turn over all its affairs to 
 the control of some one or more of its officers, and never go near the 
 bank again, unless they are notified to come there, or until they are 
 informed that there is something wrong ; and when it is ascertained that 
 t^ese officers, or some of them, while in full control, have embezzled 
 or recklessly squandered the assets of the bank, the only comfort that 
 swindled stockholders and depositors have is the assurance, not that 
 the directors have themselves diligently administered the affairs of 
 the bank, or diligently supervised the conduct of those to whom its 
 affairs were committed by them, but that they had confidence in the 
 integrity and fidelity of its officers and agents, and relied upon their 
 assurance that all was right. No bank can be safely administered 
 in that way. Such a system cannot be properly characterized otherwise 
 than as a farce. It cannot be tolerated without peril to the business 
 interests of the country. * * * 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1465 
 
 SECTION 12.— RIGHTS AND LIABIIvITlES OF PARTIES 
 WITH RESPECT TO TRANSFERS OF STOCK ' 
 
 NATIONAL SAFE DEPOSIT, SAVINGS & TRUST CO. OF THE 
 DISTRICT OF COLUMBIA v. HIBBS. 
 
 (Supreme Court of the United States, 1913. 229 U. S. 391, 33 Sup. Ct. 818, 
 
 57 L. Ed. 1241.) 
 
 Mr. Justice Day delivered the opinion of tlie court. ' 
 
 This case is in this court upon writ of error to the judgment of 
 the court of appeals of the District of Columbia * * * affirming 
 the judgment of the supreme court of the District of Columbia in an 
 action brought by the plaintiff in error, hereinafter called the bank, 
 against the defendant in error, for the alleged conversion of certain 
 shares of stock. The case was tried upon an agreed statement of 
 facts, from which it appears : 
 
 The plaintiff in error has been doing a general banking business in 
 the city of Washington, including the making of loans to its custom- 
 ers on promissory notes secured by stock collateral, and to a limited 
 extent, the buying and selling of stock for its customers and occasion- 
 ally for itself. 
 
 On March 12, 1903, the bank made a loan to one T. M. Kelley of 
 $12,500, for which he gave his promissory note, payable on demand, 
 and deposited with the bank certain stock certificates of the Mergen- 
 thaler Linotype Company as collateral security. Each of the certifi- 
 cates stood in the name of T. M. Kelley, and on its face recited that 
 it was transferable by him, in person or by proxy, only upon the books 
 of the company upon surrender of the certificate, and each upon its 
 back contained an assignment with power of attorney to transfer the 
 stock upon the books of the company, signed in blank by Kelley, 
 whose signature was duly attested. 
 
 One Willard H. Myers had been in the continuous employ of the 
 bank for over twenty years, and had committed no acts inconsistent 
 with his duty to the bank, and was trusted as a faithful employee. 
 During the last ten years of his employment he had been general book- 
 keepier and assistant note teller, a part of his duties being to receive 
 and enter upon the cash book of the bank the payment of loans by 
 customers, and to procure from one of the officers of the bank and 
 deliver to such customers the collateral security pledged for the loans, 
 it being usual, in the ordinary course of business, for the bank to thus 
 deliver certificates to him upon his request. He had no authority 
 and it was not a part of his employment to dispose of, by sale, pledge, 
 or otherwise, any stock held as collateral by the bank, or owned by it 
 or any of its customers. 
 
 On May 26, 1904, Myers requested the secretary of the bank to 
 procure from the vault where such securities were kept the certificates 
 deposited by Kelley, whereupon the secretary delivered the certificates 
 to Myers, in the usual course of business, for the purpose of having 
 them returned to Kelley, similar requests having been made by Myers 
 prior thereto. Kelley had not paid the loan or asked for the delivery 
 of the stock, and Myers made no entry in the cash book. 
 
 The day following. May 27th, Myers delivered two of such certifi- 
 
1466 COEPOEATIONS (Part 6 
 
 cates to the cashier of the defendant in error, a stock broker, for sale 
 on his account, and at the request of the cashier, as was the usual 
 custom where the signatures of the assignor and attesting witness are 
 unknown, Myers, as a further identification of such signatures, signed 
 his name to the attestation clause of the assignment. The defendant 
 in error being out of the city, the certificates were turned over to 
 another broker, by whom they were on that day sold on the Washing- 
 ton stock exchange, and on the same day Myers received the check of 
 the defendant in error for the proceeds of the sale, which he subse- 
 quently cashed. 
 
 Myers did not represent to the cashier of the defendant in error that 
 he was selling the stock for the bank, or that he was acting for it in 
 any way, or indicate that he did not own the stock, nor did the defend- 
 ant in error or his cashier know or have cause to suspect that the 
 stock did not belong to Myers. The stock was sold, however, without 
 the knowledge or consent of the bank or Kelley. By the custom of 
 banks, brokers, and others dealing in stock, which custom was known 
 to the bank, the possession of stock certificates assigned in blank and 
 attested, as were the certificates here in controversy, has been recog- 
 nized, in the absence of knowledge or cause of suspicion to the con- 
 trary, as evidence of ownership or of authority to sell, pledge, or other- 
 wise deal with such certificates as the owner might do. 
 
 Certain of the other certificates deposited by Kelley were disposed 
 of by Myers, some in like manner, through the defendant in error, for 
 which Myers received the proceeds, others being hypothecated with 
 the American Security & Trust Company, while the rest were sur- 
 rendered by Myers to the authorities. 
 
 In this case conflicting legal principles are invoked and relied upon. 
 For the defendant in error the familiar principle "that where one of 
 two innocent persons must suffer b}' the acts of a third, he who has 
 enabled such third person to occasion the loss must sustain it" is ad- 
 vanced. The plaintiff in error invokes the principle that where the 
 owner of property, such as stock certificates, has lost it by the crim- 
 inal or fraudulent act of another, the owner, not voluntarily or negli- 
 gently conferring upon such another the indicia of ownership or ap- 
 parent title, cannot be deprived of his property by the attempted trans- 
 fer of title to a third person for value, no matter how innocent the 
 purchaser may be of knowledge of the crime or fraud by which the 
 property was acquired. 
 
 In this case the diligence of counsel has called to the attention of 
 the court many cases more or less applicable to the facts herein in- 
 volved. We will not stop to pass them in review. It is enough to 
 say that they have been attentively considered. 
 
 Stock certificates are a peculiar kind of property. Although not 
 negotiable paper, strictly speaking, they are the basis of commercial 
 transactions large and small, and are frequently sold in open market 
 as negotiable securities are. In First Nat. Bank v. Lanier, 11 Wall 
 369, 377, 20 L. Ed. 172, 174, this court said: "Stock certificates of all 
 kinds have been constructed in a way to invite the confidence of busi- 
 ness men, so that they have become the basis of commercial transac- 
 tions in all the large cities of the country, and are sold in open mar- 
 ket the same as other securities. Although neither in form or char- 
 acter negotiable paper, \they approximate to it as nearly as practicable. 
 * * * Whoever in good faith buys the stock, and produces to the 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 14C7 
 
 corporation the certificates, regularly assigned, with power to transfer, 
 is entitled to have the stock transferred to him." 
 
 These principles are well known to business men and are constantly 
 acted upon by them. This circumstance should be given due weight 
 in determining the rights of the parties in this case. * * * "In 
 Scollans v. E. H. Rollins & Sons, 179 Mass. 346, 60 N. E. 983, 88 Am. 
 St. Rep. 386, it is admitted that the general principle there laid down 
 would not apply to an instrument indorsed in blank and stolen before 
 it had been transferred. We shall not examine the premises of this 
 defense because we cannot accept the conclusion. The qualification of 
 the rule, as not applying when the instrument is stolen, is not based 
 upon the name of the agent's crime, but upon the fact that, in the ordi- 
 nary and typical case of theft, the owner has not intrusted the agent 
 with the document, and therefore is not considered to have done 
 enough to be estopped as against a purchaser in good faith. He cer- 
 tainly has not done enough if the estoppel is based upon the principle 
 that when one of two innocent persons is to suffer, the sufferer should 
 be the one whose confidence put into the hands of the wrongdoer the 
 means of doing the wrong. But in a case like the present, the agent has 
 been intrusted with the converted property, and it is totally immaterial 
 whether, by a stretch which extends larceny beyond the true field of 
 trespass, his wrong has been brought within the criminal law or not. 
 The ground of the estoppel is present and the estoppel arises. The 
 distinction is not new. On the one side are cases like Knox v. Eden 
 Musee American Co., 148 N. Y. 441, 42 N. E. 988, 31 L. R. A. 779, 
 51 Am. St. Rep. 700, where an agent or servant simply had access to 
 a document remaining in the possession of the owner; on the other, 
 cases like Pennsylvania R. Co.'s Appeal, 86 Pa. 80, where possession is 
 intrusted to the agent for one purpose and he uses it for another. It 
 cannot matter in the latter class that the agent intended the fraud 
 from the outset." 
 
 We. think this case correctly states the principle, and, applied to the 
 case in hand, is decisive of it. Here one of two innocent persons must 
 sufifer and the question at last is. Where shall the loss fall ? It is unde- 
 niable that the broker obtained the stock certificates, containing all the 
 indicia of ownership and possible of ready transfer, from one who had 
 possession with the bank's consent, and who brought the certificates 
 to him, apparently clothed with the full ownership thereof by all the 
 tests usually applied by business men to gain knowledge upon the 
 subject before making a purchase of such property. On the other 
 hand, the bank, for a legitimate purpose, with confidence in one of 
 its own employees, intrusted the certificates to him, with every evi- 
 dence of title and transferability upon them. The bank's trusted agent, 
 in gross breach of his duty, whether with technical criminality or not 
 is unimportant, took such certificates, thus authenticated with evi- 
 dence of title, to one who, in the ordinary course of business, sold 
 them to parties who paid full value for them. In such case we think the 
 principles which underlie equitable estoppel place the loss upon him 
 whose misplaced confidence has made the wrong possible. 
 
 Applying this principle, we think the Court of Appeals was right in 
 affirming the judgment of the Supreme Court, and its judgment is af- 
 firmed. 
 
1468 CORPORATIONS , (Part 6 
 
 UNIFORM STOCK TRANSFER ACT 
 
 Section 1. Title to. a certificate and to the shares represented 
 thereby can be transferred only : 
 
 (a) By delivery of the certificate indorsed either in blank or to a 
 specified person by the person appearing by the certificate to be 
 the owner of the shares represented thereby, or 
 
 (b) By delivery of the certificate and a separate document con- 
 taining a written assignment of the certificate or a power of at- 
 torney to sell, assign, or transfer the same or the shares repre- 
 sented thereby, signed by the person appearing by the certificate 
 to be the owner of the shares represented thereby. Such assign- 
 ment or power of attorney may be either in blank or to a specified 
 person. 
 
 The provisions of this section shall be applicable although the 
 charter or articles of incorporation or code of regulations or by- 
 laws of the corporation issuing the certificate and the certificate 
 itself, provide that the shares represented thereby, shall be trans- 
 ferable only on the books of the corporation or shall be registered 
 by a registrar or transferred by a transfer agent. 
 
 Section 2. Nothing in this act shall be construed as enlarging 
 the powers of an infant or other person lacking full legal capacity, 
 or of a trustee, executor or administrator, or other fiduciary, to 
 make a valid indorsement, assignment or power of attorney. 
 
 Section 3. Nothing in this act shall be construed as forbidding a 
 corporation — 
 
 (a) To recognize the exclusive right of a person registered on 
 its books as the owner of shares to receive dividends, and to vote 
 as such owner, or 
 
 (b) To hold liable for calls and assessments a person registered 
 on its books as the owner of shares. 
 
 Section 4. The title of a transferee of a certificate under a power 
 of attorney or assignment not written upon the certificate, and 
 the title of any person claiming under such transferee, shall cease 
 and determine if, at any time prior to the surrender of the certifi- 
 cate to the corporation issuing it, another person, for value in good 
 faith, and without notice of the prior transfer, shall purchase and 
 obtain delivery of such certificate with the indorsement of the 
 person appearing by the certificate to be the owner thereof, or 
 shall purchase and obtain delivery of such certificate and the 
 written assignment or power of attorney of such person, though 
 contained in a separate docxmient. 
 
 Section 5. The delivery of a certificate to transfer title in ac- 
 cordance with the provisions of section 1, is effectual, except as 
 provided in section 7, though made by one having no right of 
 possession and having no authority from the owner of the certifi- 
 cate or from the person purporting to transfer the title. 
 
 Section 6. The indorsement of a certificate by the person ap- 
 
Ch. 4) THE RELATION OF STOCKHOLDERS TO CORPORATION 1469 
 
 pearing by the certificate to be the owner of the shares represented 
 thereby is effectual, except as provided in section 7, though the in- 
 dorser or transferor — 
 
 (a) Was induced by fraud, duress or mistake, to make the in- 
 dorsement or delivery, or 
 
 (b) Has revoked the delivery of the certificate, or the authority 
 given by the indorsement or delivery of the certificate, or 
 
 (c) Has died or become legally incapacitated after the indorse- 
 m.ent, whether before or after the delivery of the certificate, of 
 
 (d) Has received no consideration. 
 
 Section 7. If the indorsement or delivery of a certificate — 
 
 (a) Was procured by fraud or duress, or 
 
 (b) Was made under such mistake as to make the indorsement 
 or delivery inequitable; or 
 
 If the delivery of a certificate was made — 
 
 (c) Without authority from the owner, or 
 
 (d) After the owner's death or legal incapacity, the possession 
 of the certificate may be reclaimed and the transfer thereof re- 
 scinded, unless: 
 
 (1) The certificate has been transferred to a purchaser for value 
 in good faith without notice of any facts making the transfer 
 wrongful, or 
 
 (2) The injured person has elected to waive the injury, or has 
 been guilty of laches in endeavoring to enforce his rights. 
 
 Any court of appropriate jurisdiction may enforce specifically 
 such right to reclaim the possession of the certificate or to rescind 
 the transfer thereof, and, pending litigation, may enjoin the further 
 transfer of the certificate or impound it. 
 
 Section 8. Although the transfer of a certificate or of shares 
 represented thereby has been rescinded or set aside, nevertheless, 
 if the transferee has possession of the certificate or of a new cer- 
 tificate representing part or the whole of the same shares of stock, 
 a subsequent transfer of such certificate by the transferee, medi- 
 ately or immediately, to a purchaser for value in good faith, with- 
 out notice of any facts making the trajisfer wrongful, shall give 
 such purchaser an indefeasible right to the certificate and the 
 shares represented thereby. 
 
 Section 9. The delivery of a certificate by the person appearing 
 by the certificate to be the owner thereof without the indorsement 
 requisite for the transfer of the certificate and the shares represent- 
 ed thereby, but with intent to transfer such certificate or shares, 
 shall impose an obligation, in the absence of an agreement to the 
 contrary, upon the person so delivering, to complete the transfer 
 by making the necessary indorsement. The transfer shall take 
 effect as of the time when the indorsement is actually made. This 
 obligation may be specifically enforced. 
 
 Section 10. An attempted transfer of title to a certificate or to 
 the shares represented thereby without delivery of the certificate 
 shall have the effect of a promise to transfer and the obligation. 
 
1470 CORPORATIONS (Part 6 
 
 if any, imposed by such promise shall be determined by the law 
 governing the formation and perfoirmance of contracts. 
 
 Section 11. A person who for value transfers a certificate, in- 
 cluding one who assigns for value a claim secured by a certificate, 
 unless a contrary intention appears, warrants — 
 
 (a) That the certificate is genuine; 
 
 (b) That he has a legal right to transfer it, and 
 
 (c) That he has no knowledge of any fact which would impair 
 the validity of the certificate. 
 
 In the case of an assignment of a claim secured by a certificate, 
 the liability of the assignor upon such warranty shall not exceed 
 the amount of the claim. 
 
 Section 12. A mortgagee, pledgee, or other holder for security 
 of a certificate who in good faith demands or receives payment of 
 the debt for which such certificate is security, whether from a 
 party to a draft drawn for such debt, or from any other person, 
 shall not by so doing be deemed to represent or to warrant the 
 genuineness of such certificate, or the value of the shares repre- 
 sented thereby. 
 
 Section 13. No attachment or levy upon shares of stock for 
 which a certificate is outstanding shall be valid until such certifi- 
 cate be actually seized by the officer making the attachment or 
 levy, or be surrendered to the corporation which issued it, or its 
 transfer by the holder be enjoined. Except were a certificate is 
 lost or destroyed, such corporation shall not be compelled to issue 
 a new certificate for the stock until the old certificate is surren- 
 dered to it. 
 
 Section 14. A creditor whose debtor is the owner of a certificate 
 shall be entitled to such aid from courts of appropriate jurisdiction, 
 by injunction and otherwise, in attaching such certificate or in 
 satisfying the claim by means thereof as is allowed at law or in 
 equity, in regard to property which cannot readily be attached or 
 levied upon by ordinary legal process. 
 
 Section 15. There shall be no lien in favor of a corporation 
 upon the shares represented by a certificate issued by such corpora- 
 tion and there shall be no restriction upon the transfer of shares so 
 represented by virtue of any by-laws of such corporation, or other- 
 wise, unless the right of the corporation to such lien or the re- 
 striction is stated upon the certificate. 
 
 Section 16. The alteration of a certificate, whether fraudulent 
 or not and by whomsoever made, shall not deprive the owner of his 
 title to the certificate and the shares originally represented there- 
 by, and the transfer of such a certificate shall convey to the trans- 
 feree a good title to such certificate and to the shares' originally 
 represented thereby. 
 
 Section 17. Where a certificate has been lost or destroyed, a 
 court of competent jurisdiction may order the issue of a new cer- 
 tificate therefor on service of process upon the corporation and 
 on reasonable notice by publication, and in any other way which 
 
Ch. 4) THE RELATION OB^ STOCKHOLDERS TO CORPORATION 1471 
 
 the court may direct, to all persons interested, and upon satis- 
 factory proof of such loss or destruction and upon the giving of a 
 bond with sufficient surety to be approved by the court to protect 
 the corporation or any person injured by the issue of the new cer- 
 tificate from any liability or expense, which it or they may incur 
 by reason of the original certificate remaining outstanding. The 
 court may also in its discretion order the pa5mient of the corpora- 
 tion's reasonable costs and counsel fees. 
 
 The issue of a new certificate under an order of the court as pro- 
 vided in this section, shall not relieve the corporation from lia- 
 bility in damages to a person to whom the original certificate 
 has been or shall be transferred for value without notice of the pro- 
 ceedings or of the issuance of the new certificate. 
 
 Section 18. In any case not provided for by this act, the rules of 
 law and equity, including the law merchant, and in particular the 
 rules relating to the law of principal and agent, executors, admin- 
 istrators and trustees, and to the eflfect of fraud, misrepresentation, 
 duress or coercion, mistake, bankruptcy, or other invalidating 
 cause, shall govern. 
 
 Section 19. This act shall be so interpreted and construed as to 
 effectuate its general purpose to make uniform the law of those 
 states which enact it. 
 
 Section 20. A certificate is indorsed when an assignment or a 
 power of attorney to sell, assign, or transfer the certificate or the 
 shares represented thereby is written on the 'certificate and signed 
 by the person appearing by the certificate to be the owner of the 
 shares represented thereby, or when the signature of such person 
 is written without more upon the back of the certificate. In any of 
 such cases a certificate is indorsed, though it has not been deliv- 
 ered. 
 
 Section 21. The person to whom a certificate was originally 
 issued is the person appearing by the certificate to be the owner 
 thereof, and of the shares represented thereby, until and unless 
 he indorses the certificate to another specified person, and there- 
 upon such other specified person is the person appearing by the 
 certificate to be the owner thereof until and unless he also in- 
 dorses the certificate to another specified person. Subsequent 
 special indorsements may be made with like effect. 
 
 Section 22. (1) In this act, unless the context or subject-matter 
 otherwise requires — 
 
 "Certificate" means a certificate of stock in a corporation organ- 
 ized under the laws of this state or of another state whose laws are 
 consistent with this act. 
 
 "Delivery" means voluntary transfer of possession from one 
 person to another. 
 
 "Person" includes a corporation or partnership or two or more- 
 persons having a joint or common interest. 
 
 To "purchase" includes to take as mortgagee or as pledgee. 
 
 "Purchaser" iftcludes mortgagee and pledgee. 
 
1472 C0RP0EATI0N3 (Part 6 
 
 "Shares" means a share or shares of stock in a corporation organ- 
 ized under the laws of this state or of another state whose laws 
 are consistent with this act. 
 
 "State" includes state, territory, district and insular posses- 
 sions of the United States. 
 
 "Transfer" means transfer of legal title. 
 
 "Title" means legal title and does not include a merely equitable 
 or beneficial ownership or interest. 
 
 "Value" is any consideration sufficient to support a simple con- 
 tract. An antecedent or pre-existing obligation, whether for mon- 
 ey or not, constitutes value where a certificate is taken either in 
 satisfaction thereof or as security therefor. 
 
 (2) A thing is done "in good faith" within the meaning of this 
 act, when it is in fact done honestly, whether it be done negli- 
 gently or not. 
 
 Section 23. The provisions of this act apply only to certificates 
 issued after the taking effect of this act. 
 
 Section 24. All acts or parts of acts inconsistent with this act 
 are hereby repealed. 
 
 Section 25. This act may be cited as the Uniform Stock Trans- 
 fer Act.i 
 
 1 The Uniform Stock Transfer Act has been adopted in Connecticut, Illinois, 
 Louisiana, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, 
 Pennsylvania; Rhode Island, Soufth Dakota, T|ennessee, Wisctonsin. and 
 Alaska. 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1473 
 
 CHAPTER V 
 THE RELATION OF CREDITORS TO THE CORPORATION 
 
 Section 
 
 1. Eights of Corporation Creditors Against a Purchaser of the Assets of 
 
 the Debtor Company. 
 
 2. Priorities Among the Various Classes of Creditors in General. 
 
 3. Current Operating B5:pense.<! to be Paid out of Current Earnings in 
 
 Preference to Claims of Secured Creditors. 
 
 4. Rights of Unsecured .Creditors xirising upon Reorganization 
 
 5. Rights of Creditors Against Stockholders. 
 
 SECTION 1.— RIGHTS OF CORPORATION CREDITORS 
 
 AGAINST A PURCHASER OF THE ASSETS 
 
 OF THE DEBTOR COMPANY 
 
 ZIEaiER V. C. G. BRBTTING MFG. CO. 
 
 (Supreme Court of Wisconsin, 1911. 14T Wis. 252, 133 N. W. 139, 
 Ann. Cas. 1912D, 1275.) 
 
 Action by W. W. Ziemer against the C. G. Bretting Manufacturing 
 Company. Judgment for defendant. Plaintiff appeals. 
 
 Timlin, J. * * * It appeared that C. G. Bretting carried on a 
 foundry business, under the name of the C. .G. Bretting Manufacturing 
 Company, at Ashland, Wis., prior to his death, which occurred in A. 
 D. 1904. * * * C. G. Bretting left surviving him his widow and 
 three sons, Ralph Bretting, William Henry Bretting, and Henry L. 
 Bretting. These four may be said to have owned the foundry plant 
 and business as widow and heirs of C. G. Bretting, deceased. * * * 
 On or about March 16, 1907, Jane Bretting, Sam Wheeler, and C. A. 
 Lamoreaux executed articles of incorporation of the C. G. Bretting 
 Manufacturing Company, and caused the same to be duly filed with 
 the Secretary of State and recorded with the register of deeds of 
 Ashland county. This corporation was empowered by such articles 
 to carry on a similar business to that carried on by the natural per- 
 sons aforesaid, undeV the same name, and at the same place. 
 
 The plaintiff was employed as a molder by the C. G. Bretting Man- 
 ufactulring Company in April, 1907, and on June 19, 1907, while in 
 that employment, was injured by reason of alleged defective appli- 
 ances. * * * On September 12, 1907, Jane Bretting and her three 
 sons executed a transfer of this property to the corporation. The 
 corporation used the same books of account as its predecessor, con- 
 tinuing the same accounts, without rest or break. * * * 
 
 The question is whether the corporation is liable to an employe, in- 
 jured in consequence of a defective appliance on June 19, 1907. * * * 
 There is a line of authority which may be fairly said to hold that 
 where copartners or other joint owners of a solvent going business 
 transform themselves into a corporation, to which the joint property 
 is transferred in exchange for shares of stock, there must, in order 
 B.& B.BTJS.LAW— 93 
 
1474 CORPORATIONS (Part 6 
 
 to bind the new corporation for the liabilities of the former partner- 
 ship, be an express assumption by the corporation of such liabilities. 
 
 * * * There are also cases which hold that no such express agree- 
 ment need be shown, but seem to go upon the presumption that such 
 liabilities are assumed under these circumstances. * * * A third 
 line of cases holds that the assumption of liabilities may be express 
 or implied, and the latter rule has been established for this court in 
 Pratt V. Oshkosh Match Co., 89 Wis. 406, 62 N. W. 84. * * * _ 
 
 This agreement on the part of the corporation may be proven, like 
 any other fact, by any competent evidence which will establish either 
 an express or an implied valid agreement to assume the liabilities. 
 
 * * * The evidence of assumption in the infant case is as follows : 
 (1) The identity in name; (2) the almost complete identity of inter- 
 est; (3) the continuation of the same business at the same place; 
 (4) the identity of property; (5) the use of the old books, without 
 break or rest in the accounts ; and (6) the resolution to take the prop- 
 erty of the former associates as of date of April 1st. This last is 
 very significant. In order to take the property as of April 1st, the 
 corporation would necessarily acquire all increase or increment accru- 
 ing after that date, and be subject to all diminution or loss occurring 
 after that date in the ordinary vicissitudes of business. If the co- 
 partners sold goods or merchandise after April 1st on credit, the ac- 
 count, including the profit on the transaction, would go to the cor- 
 poration. If, by reason of breach of warranty on this sale, a liability 
 accrued to the purchaser, the corporation would be chargeable with 
 this liability. No other reasona-ble effect could be given to the resolu- 
 tion to take the property as of date of April 1st. * * * 
 
 The plaintiff was not in the employment of the corporation at the 
 time he was injured, biif was in the employment of the precedent man- 
 agers and owners of the business; and, assuming that there was an 
 outstanding liability of such manager and owners to the plaintiff, in- 
 curred in the operation of this business and accruing on June 19, 
 1908, when the corporation took over this property as of April 1, 
 ■1908, and continued the same account books under the same name, 
 at the same place, for the purpose of continuing the same business, 
 it assumed by this form of resolution the liability to the plaintiff if 
 any such liability existed. It follows that 'the judgment of the cir- 
 cuit court must be reversed, and the cause remanded for a new trial. 
 
 LTJDECKE V. DES MOINES CABINET CO. et al. 
 
 (Supreme Court of Iowa, 1908. 140 Iowa, 223, 118 N. W. 456| 
 
 32 L. E. A. [N. S.] 616.) 
 
 DjJEmBR, J. Plaintiff recovered judgment against the Des Moines 
 Cabinet Company December 31, 1900, in the sum of $325 for breach 
 of a contract of employment. The cabinet company was a corporation 
 organized under the laws of this state, and at all times material to our 
 inquiry the entire stock of the corporation was owned by defendant 
 Hartung. On the 15th day of August, 1900, and after plaintiff had 
 commenced his suit against the cabinet company, Hartung, as presi- 
 dent of that company, sold and transferred to the Wells & Antes Un- 
 dertaking Company, also an Iowa corporation, all the assets of the 
 cabinet company, the consideration named being $3,500. Instead of 
 cash Hartung individually received 35 shares of the stock of the un- 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1475 
 
 dertaking company, which he immediately hypothecated for his private 
 account. Plaintiff, after obtaining his judgment, caused execution 
 to issue against the cabinet company, which was returned no property 
 found. He thereupon brought this suit in equity, alleging that when the 
 undertaking company purchased the property, it knew of plaintfff's 
 claim, and with intent to hinder, delay, and defraud him it took pos- 
 session of all the assets of the cabinet company, and converted the 
 same to its own use without other consideration than the issuance of 
 its own stock in payment therefor ; that by reason of the transfer the 
 undertaking company became possessed of all of the assets of the cab- 
 inet company, leaving nothing for the payment of its debts. 
 
 Upon the trial plaintiff withdrew all charges of fraud and deceit, 
 "except such fraud as may arise from the transaction between the par- 
 ties at law." As we understand it, plaintiff relies upon a single propo- 
 sition in this case, and that is that, where one corporation transfers all 
 its assets to another corporation, and thus practically ceases to exist 
 without having paid its debts, the purchasing corporation takes the 
 property subject to an equitable lien or charge in favor of the creditors 
 of the selling corporation, and this without reference to the question 
 of actual fraud. If the affirmative of this proposition be held, it must 
 be upon the theory that the assets of a corporation aj-e in the nature 
 of a trust fund for the payment of its debts, and that a sale of the 
 entire property works a dissolution of the selling corporation, and 
 justifies an accounting at the suit of creditors. Plaintiff also claims 
 that under the facts disclosed by this record he became entitled to a 
 judgment against the undertaking company and its successor in inter- 
 est for the amount of the judgment he obtained against the cabinet 
 company. The trial court was evidently of this opinion, for it ren- ' 
 dered judgment against all the defendants personally, and also es- 
 tablished a lien to the amount of the judgment against the property 
 of the cabinet company sold by Hartung to the undertaking company, 
 and directed its sale under special execution. 
 
 Appellants challenge that part of the decree rendering personal 
 judgment against the undertaking company, the successor to the assets 
 of the cabinet company, and we are constrained to sustain them in this 
 position. In order to render the purchasing company personally liable 
 for the debts of the selling corporation, it must appear that (a) there 
 be an agreement to assume such debts; (b) the circumstances sur- 
 rounding the transaction must warrant a finding that there was a con- 
 solidation of the two corporations; or (c) that the purchasing cor- 
 poration was a mere continuation of the selling corporation; or (d) 
 that the transaction was fraudulent in fact. * * * None of these 
 things appear in this case, and in our opinion the court was in error in 
 rendering a personal judgment against the purchasing corporation. 
 
 Little is said specifically of that part of the decree which establishes 
 plaintiff's judgment against the cabinet company as a lien upon the 
 property purchased by the undertaking company, although we assume 
 that appellants' counsel are adopting the same theories with reference 
 thereto that they urge against the personal judgment. The cases they 
 cite do not go to this extent, however, although there are some which 
 sustain the proposition that the purchasing corporation takes the prop- 
 erty free from all debts or claims against the selling one. A great 
 many authorities in this country hold to the doctrine that, if one cor- 
 poration transfers all its assets to another, and thus practically ceases 
 
1476 CORPORATIONS (Part 6 
 
 to exist, without having paid its debts, the purchasing corporation takes 
 the property subject to an equitable lien or charge in favor of the cred- 
 itors of the selling corporation. Some courts announce a modified 
 doctrine declaring that the principle has no application to a sale made 
 in the usual course of business, nor to a bona fide sale for a full con- 
 sideration in cash or its equivalent. 
 
 Although announcing in general terms the first proposition, we are 
 probably committed to the modified one in Warfield v. Marshall Can- 
 ning Co., 72 Iowa, 666, 34 N. W. 467, 2 Am. St. Rep. 263. It has been 
 broadly asserted by courts of the highest standing that the^ capital 
 stock of a corporation is a fund for the payment of its debts. "It is 
 a trust fund of which the directors are trustees. * * * The capital 
 stock paid in, and promised to be paid in, is a fund which the trustees 
 cannot squander or give away." Upton v. Tribilcock, 91 U. S. 45, 23 
 L. Ed. 203. This modern or so-called American doctrine has never 
 been recognized in England, nor does it exist at common law; and, 
 while at one time quite generally adopted in this country, it is now be- 
 lieved to be unsupported to its full extent by any considerable number 
 of courts. Indeed the court which first announced it has largely receded 
 from its former position, and now says that no trust in its true sense 
 exists; that all .that was intended by the previous expressions was to 
 announce the existence of an equitable right, which will be enforced 
 whenever a court of equity, at the instance of a proper party, has tak- 
 en possession of its assets. "It is never understood that there is a 
 specific lien or a direct trust." See Hollins v. Iron Co., 150 U. S. 371, 
 14Sup.Ct. 127, 37 E.Ed. 1113. 
 
 We have recently gone over this matter in the case of State Trust 
 Co. V. Turner, 111 Iowa, 664, 82 N. W. 1029, 53 L. R. A. 136, and have 
 repudiated the trust-fund doctrine as broadly announced in some of 
 the earlier cases in this country. The creditors of a corporation in a 
 proper case have an equitable right or lien upon the assets of a cor- 
 poration. But a corporation, like a partnership, may transfer its 
 property in good faith to a bona fide purchaser, and such purchaser 
 will hold it free from the debts of the corporation. The statutes of this 
 state, however, prohibit the diversion of corporate funds to other ob- 
 jects than those mentioned in its articles, * * * and it is a well- 
 settled rule of the common law that the stockholders of a corporation 
 cannot divide its property or assets among themselves without first 
 paying the corporate debts. The rules thus announced have been stated- 
 very clearly in Mclver v. Young Hardware Co., 144 N. C. 478, 57 S. 
 E. 169, 119 Am. St. Rep. 970. * * * The instant case seems to call 
 for a rather full discussion of the so-called "trust-fund" doctrine, and 
 
 we have perhaps said enough to indicate our view of the matter. 
 * * * 
 
 Going now to the facts of the case, it will be observed that the exact 
 point for decision is a narrow one. Plaintiff was a creditor of the Des 
 Moines Cabinet Company, holding an unliquidated demand against it, 
 which was in suit when the cabinet company sold its assets to the un- 
 dertaking company. The undertaking company acquired practically 
 all of the assets of the cabinet company by purchase, and it issued in 
 payment therefor certain of its shares of stock, not to the cabinet 
 company for proper distribution, but to Hartung individually, who im- 
 mediately pledged the same as security for his individual debts, leaving 
 nothing from which plaintiff could collect his judgment, which he ob- 
 
Ch. 5) THE RELATION OF CKBDITOES TO THE CORPORATION 1477 
 
 tained in due course. The charge of actual fraud — that is, of intent 
 to hinder, delay, and defraud plaintiff in the collection of his claim — 
 has been withdrawn, and reliance is placed upon the general doctrine 
 that plaintiff, under this brief recitation of the facts, is entitled in 
 equity to enforce his judgment against the property of the cabinet com- 
 pany which was received, and is still held, by the undertaking com- 
 pany, on the theory that he has an equitable lien upon this property, 
 or that the facts show a case of legal fraud entitling him to proceed 
 against the property. We do not recognize the trust-fund doctrine to 
 the extent that it has obtained in some of the courts ; but are of opin- 
 ion that corporate creditors are entitled in equity to the payment of 
 their debts before any distribution of corporate property is made among 
 the stockholders, and recognize the right of a creditor of a corporation 
 to follow its assets or property into the hands of any one who is not 
 a good-faith holder in the ordinary course of business. 
 
 We must also enforce our statute which prohibits the diversion of 
 corporate funds and the payment of dividends not earned. So that, in 
 its last analysis, the question here is, Is the undertaking company and 
 its successor in interest such a bona fide purchaser as that it may hold 
 the assets of the cabinet company free from the debts of that corpora- 
 tion ? The answer to this must be in the negative, and for these among 
 other reasons: It issued to Hartung individually whatever of con- 
 sideration it paid for the assets of the cabinet company, knowing be- 
 fore it finally issued its stock that it was being used by Hartung for 
 his own private ends. It did not buy the property in the usual course 
 of business. On the contrary, it took it over, and issued its own stock 
 in payment therefor, which did not go to the corporation from which 
 it purchfised. That it did not take the property free from liability 
 for corporate debts under such cirjcumstances is held by practically 
 all of the cases which we have been able to find or which have been 
 cited by counsel. In Thompson on Corporations, § 6547, it is said: 
 "Where one corporation transfers all its assets to another corpora- 
 tion, and thus practically ceases to exist, without having paid its debts, 
 the purchasing corporation takes the property subject to an equitable 
 lien or charge in favor of the creditors of the selling corporation. 
 • * * * And while the right to follow a trust fund into the hands of 
 a third party depends upon the answer to the inquiry whether such 
 third party took it with knowledge of the trust, the case being one 
 where the trustee who transferred it to him had a power of disposi- 
 tion, yet in such a case as we are supposing, where one corporation 
 transfers all its assets to another, not in the ordinary course of busi- 
 ness, the very circumstances of the case imply full knowledge, on the 
 part of the transferee, of all the facts necessary to charge the property 
 in his hands with the debts of the transferror, and the case is still 
 clearer where the corporation receiving the transfer agrees to assume 
 and pay the debts of the corporation making it, in which case, under 
 the principles of equity, and under the modern Codes of Procedure, 
 the creditors of the transferring corporation may maintain a direct 
 action against the transferee corporation upon the contract, as a con- 
 tract made for their benefit. * * * The theory under which these 
 cases proceed is that the purchasing corporation is not a good-faith 
 buyer for value, in that the transaction is an unusual one; and the 
 purchasing company is held to acknowledge that the property it buys 
 is subject to the payment of corporate debts, and the buyer is not a bona 
 
1478 CORPORATIONS (Part 6 
 
 fide purchaser for value. * * * There are a very few cases which 
 hold to a contrary doctrine, as, for example, O'Bear Co. v. Volfer, 
 106 Ala. 205, 17 South. 525, 28 L. R. A. 707, 54 Am. St. Rep. 31. 
 
 For appellant it is argued that the plaintiff should have followed the 
 stock received by Hartung. That proposition is very satisfactorily 
 answered in Hibernia Co. v. St. Louis Co. (C. C.) 13 Fed. 516, where 
 it is said that a creditor in such cases is not required to run the chances 
 of following and recovering the value of the shares of the stock after 
 they are placed upon the market. * * * On account of the im- 
 portance of the questions presented, we have given the case careful 
 consideration, and have come to the conclusion that, while there is 
 no personal liability on the part of the undertaking company as suc- 
 cessor in interest to the plaintiff,, yet it holds the property received 
 from the cabinet company subject to the payment of plaintiff's claim, 
 and that the trial* court was right in establishing a lien against it and 
 ordering a sale on special execution. The decree must be modified to 
 the extent indicated; but, as this is of no material benefit to the de- 
 fendant, as the property is worth very much more than plaintiff's claim, 
 we think that the moclification should be without cost to appellee. 
 
 The decree will be modified, and, as so modified, will stand. 
 
 L.ANGHORXE v. RICHMOND RT. OO. et al. 
 (Supreme Court of Appeals of Virginia, 1S95. 91 Va. 369, 22 S. E. 159.) 
 
 Buchanan, j. * * * The declaration contains but one count, 
 and that is for an injury alleged to have been done the plaintiff by 
 the Richmond Railway Company. The declaration alleges substan- 
 tially, after giving a history of the organization of the first-named com- 
 pany, and of three deeds of trust that it had given upon its property, 
 works, and franchises to secure its creditors, that there had been a 
 sale under the second arid third deeds of trust, subject to the lien of 
 the first, and that certain parties, who were the owners and officers 
 of the corporation, became the purchasers at such sale of its works 
 and property, and continued to carry on the business of said cor- 
 poration, subject to the first lien or deed of trust, adopting the name 
 of the Richmond City Railway Company, by which last name said 
 corporation has since been known and called; that on or about the 
 2d day of January, 1882, said Parker Campbell, president of the said 
 Richmond Railway Company, and styling himself president of the 
 Richmond City Railway Company, filed a petition with the common 
 council of the city of Richmond praying for the extension of the 
 charter of the said Richmond Railway Company; that said petition 
 was granted, and on the 17th of May, 1882, said common council of 
 the city of Richmond passed an ordinance extending the charter of 
 the Richmond Railway Company, and continuing to it its powers and 
 privileges until the 31st of December, 1900; that by an act of the 
 general assembly of Virginia passed 17th day of March, 1884, the 
 said Richmond City Railway Company was "recognized" as the same 
 corporation chartered by and under the act of assembly of 20th of 
 March, 1860, and the ordinance thereunder, and contract with the city 
 of Richmond of the 17th May, 1860, and subsequent amendments 
 thereto, under the name of the Richmond Railway company; that, 
 under and by virtue of statutes of Virginia for such case made and 
 
Ch. 5) THE RELATION OP CREDITORS TO THE CORPORATION 1479 
 
 provided, tlie said defendant the Richmond .City Railway Company, 
 by deed dated October, 1890, and recorded in the clerk's office of the 
 chancery court the 20th November, 1890, conveyed to the Richmond 
 Railway & Electric Company all its works, property, and franchises, 
 and, by such sale and the statutes aforesaid, became consolidated with 
 the said Richmond Railway & Electric Company, subject to the fol- 
 lowing provision, in the said conveyance contained, to wit: "The 
 foregoing conveyance is made subject to the payment by the Rich- 
 mond Railway and Electric Company of all the liabilities of the party 
 of the first part which may not have been discharged prior to this con- 
 veyance." * * * 
 
 Whether the Richmond Railway Company and the Richmond City 
 Railway Company was the same corporation or not, or whether there 
 had been a consolidation of the Richmond City Railway Company 
 with the Richmond Railway & Electric Company, as alleged in the 
 declaration, would depend upon the evidence introduced upon these 
 questions, and could not properly be the subject of a demurrer to the 
 declaration. * * * 
 
 The grounds of demurrer relied on are that there is a misjoinder of 
 causes of action, of the form of action, and of parties. The declara- 
 tion states a good cause of action against the Richmond Railway Com- 
 pany for the injury complained of. It alleges that the Richmond 
 City Railway Company is one and the same corporation as the Rich- 
 mond Railway Company. It also alleges the authority of the Rich- 
 mond City Railway Company to consolidate with the Richmond Rail- 
 way & Electric Company, and that a consolidation has been made by 
 which the last-named company acquired all the works, property, and 
 franchises of the Richmond City Railway Company, and assumed all 
 its liabilities. Such a consolidation as is alleged in the declaration 
 not only renders the property and works of the old company, which 
 passed to the company with which it is consolidated, subject to the 
 liabilities of the old company, but also makes the new or surviving 
 company responsible for them. Where two railroad companies unite 
 or become consolidated under the authority of law, the presumption is, 
 until the contrary appears, that the united or consolidated company 
 has all the powers and privileges and is subject to all the restrictions 
 and liabilities of those out of which it is created. * * * The cor- 
 poration which is created by such consolidation, or the surviving cor- 
 poration, where another or others are merged into it or consolidated 
 with it, is ordinarily deemed the same as each of the corporations 
 which formed it for the purpose of answering for the liabihties of 
 the old corporation, and may be sued under its new name or under 
 the name of the surviving company for their debts as if no change 
 had been made in the name or in the organization of the original cor-< 
 porations. * * * 
 
 The privity, some cases say, necessary to support this action, is 
 created by the statute authorizing the consolidation and the purchase 
 and conveyance under it. Other authorities place the right to bring 
 such action on the ground that the effect of the consolidation is, as 
 to the liabilities of the old company, not to dissolve the corporation 
 which is the immediate debtor, but to continue its existence in the 
 consolidated corporation. * * * 
 
 Since, by authority of law and the act of the parties, the consoli- 
 dated corporations are molded into one with none of their rights im- 
 
1480 COEPOEATIONS (Part 6 
 
 paired, and none of their responsibilities lessened, there is no good 
 reason why the same piroceedings may not be had against the new 
 corporation as might have been had against the old to compel pay- 
 ment of liabilities. It avoids circuity of action. It allows the party 
 with whom the contract was made or to whom the injury was done 
 to proceed directly against the corporation which, by virtue of the 
 consolidation proceedings, is made liable for it. 
 
 In this case, as the plaintiff had instituted his action to recover 
 damages from the consolidated corporation for the injury alleged to 
 have been done him by the corporation consolidated with it, it was 
 necessary for him to allege generally the authority of the old com- 
 panies to consolidate, and the fact that they had consolidated, and 
 under what name, in order to show the liability of the new or consol- 
 idated corporation for the injury sued for. * * * 
 
 The declaration states a good cause of action, not only against the 
 Richmond Railway Company, known also as the Richmond City Rail- 
 way Company, but also against the Richmond Railway & Electric 
 Company. To this there can be no objection, as it was necessary to 
 state a good cause of action against both the Richmond City Railway 
 Company and the Richmond Railway & Electric Company; other- 
 wise there could be no recovery against the last-named company, since 
 its liability depends upon the liability of the Richmond City Railway 
 Company. But the defect in the declaration is in joining them as 
 defendants. They are not jointly liable. One is liable for committing 
 the alleged injury; the other is liable by reason of the consolidation 
 proceedings. The plaintiff has the right to sue either for the injury 
 alleged to have been done, but has no right to sue both in the same 
 action at law. If an action at law be brought against two or more per- 
 sons, it must appear from the declaration that the contract or tort 
 upon which it is brought is a joint contract or a joint tort. * * * 
 
 On these grounds, it was proper for the trial court to sustain the 
 demurrer to the declaration, and its judgment must be affirmed. 
 
 SECTION 2.— PRIORITIES AMONG THE VARIOUS 
 CLASSES OF CREDITORS IN GENERAL 
 
 WESTERN UNION TELEGRAPH CO. v. UNITED STATES & MEXICAN 
 
 TRUST OO. et al. 
 
 (United States Circuit Court of Appeals, Eighth Circuit, 1915. 221 Fed. 545, 
 
 137 O. O. A. 113.) 
 
 Sanborn, Circuit Judge. The property of an insolvent railroad cor- 
 poration in the custody of a court in a suit to foreclose a mortgage 
 upon it is charged with a trust for the benefit, first, of the holders 
 of preferential claims superior in equity to the lien of the mortgage ; 
 second, of the holders of the lien of the mortgage and of other such 
 liens in their order of priority ; third, of the unsecured or general cred- 
 itors of the mortgagor ; and, fourth, of its stockholders. Any plan or 
 scheme threatened or executed whereby the holders of the bonds 
 secured by the mortgage and the stockholders secure, br intend or un- 
 dertake to secure, to the stockholders, by contract, foreclosure sale, 
 or other device, an equal or a greater benefit from the property than 
 is thereby secured to, or offered to and rejected by, the general cred- 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1481 
 
 itors, is such a breach or threatened breach of trust as entitles any 
 complaining creditor to relief in a court of equity. A purchase through 
 a foreclosure sale, or otherwise, of the property of an insolvent cor- 
 poration by a new corporation, pursuant to a plan or scheme of the 
 bondholders and stockholders of the insolvent company, whereby the 
 stockholders thereof derive, by receipt of stock or bonds of the 
 new company, or otherwise, benefits equal to or greater than those 
 received by, or openly offered to and rejected by, its general cred- 
 itors, is fraudulent in law as to the latter, and renders the new cor- 
 poration and the . property it purchased at such sale liable for the 
 claims of such creditors against the old company, at least to the" extent 
 of the value of the interest secured by the stockholders of the old 
 company in excess of the value of the interest secured by, or openly 
 offered to and rejected by, the unsecured creditors. Northern Pacific 
 Ry. Co. V. Boyd, 177 Fed. 804, 101 C. C. A. 18. * * * 
 
 SECTION 3.— CURRENT OPERATING EXPENSES TO BE 
 PAID OUT OF CURRENT EARNINGS IN PREFER- 
 ENCE TO CLAIMS OF SECURED CREDITORS 
 
 SOUTHERN RY. CO. v. CARNEGIE STEEL CO. 
 
 (Supreme Court of the United States, 1900. 176 U. S. 257, 20 Sup. Ot 347, 
 
 44 K Ed. 458.) 
 
 Harlan, J. * * * It appears from the above statement that the 
 property in the hands of the receivers in the Clyde or insolvency suit 
 was surrendered to the receivers in the foreclosure suit under an 
 order that expressly reserved power in the court to adjudge and de- 
 cree in the Clyde suit upon the rights of creditors asserting claims 
 against the property of the railroad company or its income in pref- 
 erence to mortgage debts. Besides, the decree of sale provided that 
 the purchaser or purchasers, or his or their assigns, under any decretal 
 sale should, as a part of the consideration, in addition to any sum 
 bid, take the property upon the express condition that he or they 
 would pay and satisfy (among other specified claims) all claims there- 
 tofore "filed in this case or in either of the causes consoHdated here- 
 in, but only when said court shall allow such claims and adjudge the 
 same to be prior in lien or superior in equity to the mortgage fore- 
 closed in this suit, and in accordance with the order or orders of the 
 court allowing such claims and adjudging with respect thereto." And 
 the right was distinctly reserved to retake and resell the property in 
 case the purchaser or purchasers, or his or their assigns, failed or neg- 
 lected to comply with the order of court in respect of the payment of 
 such prior liens. These conditions were repeated in the order con- 
 firming the sale. So that the right of the Carnegie Company to have 
 its claims determined upon their merits is not at all affected by the 
 sale of the property held by the receivers in the consolidated cause, 
 or by the fact of its transfer to the Southern Railway Company. And 
 we add that the above reservation in the orders and decree of the Cir- 
 cuit Court left it open for the Southern Railway Company to contest, 
 upon their merits, any claims allowed after its purchase under the de- 
 cree of sale. 
 
1482 CORPORATIONS (Part 6 
 
 The respective rights of the mortgagees of a railroad company 
 and of parties having claims against it at the time its property passed 
 into the hands of receivers have been frequently the subject of con- 
 sideration by this court. But as counsel differ as to the scope 
 and effect of former decisions, it is necessary to examine them and 
 ascertain whether those decisions embrace the case now before the 
 courtr 
 
 The leading case is Fosdick v. Schall, 99 U. S. 235, 252, 253, 25 L. 
 Ed. 339, which related to a claim against a railroad company for rent 
 of cars. In that case Chief Justice Waite delivered the unanimous 
 judgment of the court. After observing that the business of all rail- 
 road companies was done to a greater or less extent on credit, and 
 that this credit was longer or shorter as the necessities of the case 
 required gaid : "The income out of which the mortgagee is to be paid 
 is the net income obtained by deducting from the gross earnings 
 what is required for necessary operating and managing expenses, 
 proper equipment and useful improvements. Every railroad mort- 
 gagee in accepting his security impliedly agrees that the current debts 
 made in the ordinary course of business shall be paid from the cur- 
 rent receipts before he has any claim upon the income. If for the con- 
 venience of the moment something is taken from what may not im- 
 properly be called the current debt fund, and put into that which be- 
 longs to the mortgage creditors, it certainly is not inequitable for 
 the court, when asked by the mortgagees to take possession of the 
 future income and hold it for their benefit, to require as a condition 
 of such an order that what is due from the earnines to the current debt 
 shall be paid by the court from the future current receipts before any- 
 thing derived from that source goes to the mortgagees. In this way 
 the court will only do what, if a receiver should not be appointed, the 
 company ought itself to do. For even though the mortgage may 
 in terms g^ve a lien upon the profits and income, until possession of 
 the mortgaged premises is actually taken or something equivalent 
 done, the whole earnings belong to the company and are subject to its 
 control." 
 
 The court further said : "The mortgagee has his strict rights which 
 he may enforce in the ordinary way. If he asks no favors he need 
 grant none. But if he calls upon a court of chancery to put forth its 
 extraordinary powers and grant him purely equitable relief, he may 
 with propriety be required to submit to the operation of a rule which 
 applies in such cases, and do equity in order to get equity. The ap- 
 pomtment of a receiver is not a matter of strict right. Such an ap- 
 plication 'calls for the exercise of judicial discretion; and the chan- 
 cellor should so mould his order that while favoring one injustice is 
 not done to another. If this cannot be accomplished the application 
 should ordinarily be denied. We think also that if no such order is 
 made when the receiver is appointed, and it appears in the progress 
 of the cause that bonded interest has been paid, additional equipment 
 provided, or lasting and valuable improvements made out of earn- 
 ings which ought in equity to have been employed to keep down 
 debts for labor, supplies and the like, it is within the power of the court 
 to use the income from the receivership to^ discharge obligations 
 which, but for the diversion of funds, would have been paid in the 
 ordinary course of business. This, not because, in a sense, the offi- 
 cers of the company are trustees of the earnings for the benefit of 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1483 
 
 the different classes of creditors and stockholders; and if they give 
 to one class of creditors that which properly belongs to another, the 
 court may upon an adjustment of the accounts, so use the income 
 which comes into its own hands as, if practicable, to restore the parties 
 to their original equitable rights. While, ordinarily, this power is 
 confined to the appropriation of the income of the receivership and 
 the proceeds of moneyed assets that have been taken from the com- 
 pany, cases may arise where equity will require the use of the pro- 
 ceeds of the sale of the mortgaged property in the sa:me way. * * * 
 No fixed and inflexible rule can be laid down for the government of 
 the courts in all cases. Each case will necessarily have its own pecul- 
 iarities, which must to a greater or less extent influence the chan- 
 cellor when he comes to act. The power rests upon the fact that in 
 the administration of the aiiairs of the company the mortgage cred- 
 itors have got possession of that which in equity belonged to the whole 
 or a part of the general creditors. Whatever is done, therefore, must 
 be with a view to a restoration by the mortjrage creditors of that which 
 they have thus inequitably obtained. It follows that if there has been 
 in reality no diversion, there can be no restoration; and that the 
 amount of the restoration should be made to depend upon the amount 
 of the diversion. * * * " 
 
 In Hale v. Frost, 99 U. S. 389, 25 L. Ed. 419, it appeared that a 
 receiver was appointed in a suit brought by trustees to foreclose mort- 
 gages executed by a railroad company. He was appointed May 19, 
 1875, at which time the company owed employes for back wages and 
 was indebted for current supplies. To the Union Car Spring Manu- 
 facturing Company it was indebted for springs and spirals furnished 
 in March and April before the appointment of the receiver, and which 
 he continued to use. It was also indebted to Hale, Ayer & Co. for 
 supplies to the machinery department and for materials for construc- 
 tion purposes ; and on the 13th day of February, 1873, a given amount 
 was due them, as evidenced by the notes of the railroad company 
 falling due on that day. The judges who heard the case in the court 
 of original jurisdiction were divided in opinion on the following 
 points made by intervening creditors: (1) That the railway mortgage 
 was a prior lien only upon the net earnings of the road, after the pay- 
 ment of all the operating expenses, while the road was in the posses- 
 sion of the company. * * * (3) That the net earnings of the road, 
 while in the possession of the court and operated by its receiver, 
 were not necessarily and exclusively the property of the mortgagees, 
 but were subject to the disposal of the chancellor in the payment of 
 claims which had superior equities, if such should be found to exist, 
 and that the intervening petitioners' claims had superior equities to 
 those of the mortgagees. The petitions were dismissed and the in- 
 terveners appealed. This court, speaking by Chief Justice Waite, 
 said : "The first question certified in this case is answered in the affirm- 
 ative, upon the authority of Fosdick v. Schall. The third question 
 is answered in the same way upon the same authority. The Union 
 Car Spring Manufacturing Company is entitled to payment in full, 
 and Hale, Ayer & Co. to payment of so much of their claim only as 
 is for supplies to the machinery department. * * * " 
 
 In Burnham v. Bowen, 111 U. S. 776, 780, 783, 4 Sup. Ct. 675, 28 
 L. Ed. 596, it appeared that the trustees of a mortgage covering all 
 the property of a railroad company and all the revenues and income 
 
] 484 CORPOEATIONS (Part 6 
 
 thereof, brought suit to foreclose the mortgage and had a receiver ap- 
 pointed. In the order appointing the receiver no special provision 
 was made for the payment of debts owing for current expenses. 
 When the receiver took possession the railroad company was indebted 
 for coal used on locomotives — a debt contracted by the company in 
 the ordinary course of a continuing business, and which would have 
 been paid out of current earnings at the time agreed on if the company 
 had remained in possession. The debt due the coal company was evi- 
 denced by the acceptances of the railroad company, which were for 
 different amounts, maturing a month apart, thus implying, as this 
 court, said, monthly settlements of monthly accounts, with a some- 
 what extended credit to meet the business requirements of the rail- 
 road company. A decree was entered finding the amount due to Bow- 
 en, the holder of the acceptances, and declaring that the mortgaged 
 property in the hands of the trustees under the decree of foreclosure 
 was equitably bound for the payment thereof. 
 
 Chief Justice Waite, delivering the unanimous judgment of this 
 court, said: "In our opinion the view which the Circuit Courttook 
 of this case was the correct one. The company had never paid its 
 bonded interest. From the very beginning it was in default in this 
 particular, yet the mortgage trustees suffered it to keep possession 
 and manage the property. The maintenance of the road and prosecu- 
 tion of its business were essential to the preservation of the security 
 of the bondholders. The business of every railroad company is nec- 
 essarily done more or less on credit, all parties understanding that 
 current expenses are to be paid out of current earnings. Consequent- 
 ly, it almost always happens that the current income is incumbered 
 to a greater or less extent with current debts made in the prosecution 
 of the business out of which the income is derived. As was said in 
 Fosdick V. Schall, 99 U. S. 235, 252, 25 L. Ed. 339, the income (of 
 a railroad company) out of which the mortgage is to be paid is the 
 net income obtained by deducting from the gross earnings what is 
 required for necessary operating and managing expenses, proper 
 equipment and useful improvements. * * * " 
 
 It was contended in that case that no part of the income, prior to 
 the receiver's appointment, was used to pay mortgage interest or to 
 put permanent improvements on the property, or to increase the 
 equipment, and therefore there was no such diversion of the funds 
 belonging in equity to the labor and supply creditors as to make it 
 proper to use the income of the receivership to pay them. Touching 
 that contention, this court said: "The debt due Bowen was incur- 
 red to keep the road running, and thus preserve the security of the 
 bond creditors. If the trustees had taken possession under the mort- 
 gage, they would have been subjected to similar expenses to do what 
 the company, with their consent and approbation, was doing for them. 
 * * * So far as anything appears on the record, the failure of the 
 company to pay the debt to Bowen was due alone to the fact that the 
 expenses of running the road and preserving the security of the bond- 
 holders were greater than the receipts from the business. Under these 
 circumstances we think the debt was a charge in equity on the contin- 
 uing income, as well as that which came into the hands of the court 
 after the receiver was appointed as that before. When, therefore, the 
 court took the earnings of the receivership and applied them to the 
 payment of the fixed charges on the railroad structures, thus, increasing 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1485 
 
 the security of the bondholders at the expense of the labor and sup- 
 ply creditors, there was such a diversion of what is denominated in 
 Fosdick V. Schall the 'current debt fund/ as to make it proper to re- 
 quire the mortgagees to pay it back. So far as current expense cred- 
 itors are concerned, the court should use the income of the receiver- 
 ship in the way the company would have been bound in equity and 
 good conscience to use it if no change in the possession had been 
 made. * * *" 
 
 The opinion in that case thus concluded: "We do not now hold, 
 any more than we did in Fosdick v. Schall or Huidekoper v. Locomo- 
 tive Works, 99 U. S. 258, 260, 25 L. Ed. 344, that the income of a 
 railroad in the hands of a receiver, for the benefit of mortgage cred- 
 itors who have a lien upon it under their mortgage, can be taken away 
 from them and used to pay the general creditors of the road. All 
 we then decided, and all we now decide, is, that if the current earn- 
 ings are used for the benefit of mortgage creditors before current ex- 
 penses are paid, the mortgage security is chargeable in equity with 
 the restoration of the fund which has been thus improperly applied to 
 their use." * * * 
 
 In St. Louis, Alton, etc.. Railroad v. Cleveland, Columbus, etc., 
 RaUway, 125 U. S. 658, 673, 8 Sup. Ct. 1011, 31 L. Ed. 832, the court, 
 speaking by Mr. Justice Matthews, after statirfg that ordinarily the 
 unsecured debts of an insolvent railroad company cannot take prece- 
 dence in the distribution of the proceeds of a sale of the property it- 
 self over those creditors who are secured by prior and express liens, 
 said: "There are cases, it is true, where, owing to special circum- 
 stances, an equity arises in favor of certain classes of creditors of an 
 insolvent railroad corporation otherwise unsecured, by which they are 
 entitled to outrank in priority of payment, even upon a distribution of 
 the proceeds of a sale of the body of the property, those who are se- 
 cured by prior mortgage liens." "The rule," the court said, "govern- 
 ing in all these cases was stated by Chief Justice Waite in Burnham 
 V. Bowen, 111 U. S. 77(>, 783,4 Sup. Ct. 675, 28 L. Ed. 596, as fol- 
 lows : 'That if current earnings are used for the benefit of mortgage 
 creditors before current expenses are paid, the mortgage security is 
 chargeable in equity with the restoration of the fund which has been 
 thus improperly applied to their use.' There has been no departure 
 from this rule in any of the ceises cited; it has been adhered to and 
 reaffirmed in them all." 
 
 In Kneeland v. American Loan & Trust Co., 136 U. S. 89, 97, 10 
 Sup. Ct. 950, 34 L. Ed. 379, this court said: "The appointment of a 
 receiver vests in the court no absolute control over the property, and 
 no general authority to displace vested contract liens. Because in 
 a few specified and limited cases this court has declared that unsecured 
 claims were entitled to priority over mortgage debts, an idea seems 
 to have obtained that a court appointing a receiver acquires power to 
 give such preference to any general and unsecured claims. It has 
 been assumed that a court appointing a receiver could rightfully bur- 
 den the mortgaged property for the payment of any unsecured in- 
 debtedness. Indeed, we are advised that some courts have made the 
 appointment of a receiver conditional upon the payment of all unse- 
 cured indebtedness, in preference to the mortgaged liens sought to be 
 enforced. Can anything be conceived which more thoroughly destroys 
 the sacredness of contract obligations? One holding a mortgage debt 
 
1486 coKPOEATiONs (Part 6 
 
 upon a railroad has the same right to demand and expect of the court 
 respect for his vested and contracted priority as a holder of a mort- 
 gage on a farm or lot. So, when a court appoints a receiver of rail- 
 road property, it has no right to make that receivership conditional on 
 the payment of other than those few unsecured claims which, by the 
 rulings of this court, have been declared to have an equitable priority. 
 No one is bound to sell a railroad company or to work for it, and who- 
 ever has dealings with a company when property is mortgaged must 
 be assumed to have dealt with it on the faith of its personal respon- 
 sibility, and not in expectation of subsequently displacing the priority 
 of the mortgage liens. It is the exception, and not the rule, that such 
 priority of liens can be displaced." Again : "It is the exception, and 
 not the rule, that such priority of liens can be displaced. We em- 
 phasize this fact of the sacredness of contract liens, for the reason 
 that there seems to be growing an idea that the chancellor, in the ex- 
 ercise of his equitable powers, has unlimited discretion in this matter 
 of the displacement of vested liens." * * * 
 
 It is apparent from an examination of the above cases that the de- 
 cision in each one depended upon its special facts. This court has 
 uniformly refrained from laying down any rule as absolutely con- 
 trolling in every case involving the right of unsecured creditors of a 
 corporation, whose property is in the hands of a receiver, to have their 
 demands paid out of net earnings in preference to mortgage creditors. 
 But it may be safely affirmed, upon the authority of former decisions, 
 that a railroad mortgagee when accepting his security impliedly agrees 
 that the current debts of a railroad compjuiy contracted in the or- 
 dinary course of its business shall be paid out of current receipts be- 
 fore he has any claim upmn such income; that, within this rule, a 
 debt not contracted upon the personal credit of the company but to 
 keep the railroad itself in condition to be used with reasonable safety 
 for the transportation of persons and property, and with the expecta- 
 tion of the parties that it was to be met out of the current receipts of 
 the company, may be treated as a current debt; that whether the 
 debt was contracted upon the personal credit of the company, without 
 any reference to its receipts, is to be determined in each case by the 
 amount of the debt, the time and terms of payment, and all other cir- 
 cumstances attending the transaction; and that when current earn- 
 ings are used for the benefit of mortgage creditors before current ex- 
 penses are paid, the mortgage security is chargeable in equity with 
 the restoration of any funds' thus improperly diverted from their 
 primary use. * * * 
 
 Can the decree below be sustained consistently with these princi- 
 ples? Are the debts due the Carnegie Company of the class desig- 
 nated in the adjudged cases as current debts contracted, not on the 
 personal credit of the railroad company, but in the ordinary course 
 of its business and to be met out of current receipts ? * * * 
 . All the rails furnished by ihe Carnegie Company were not supplied 
 under one contract — a circumstance not to be ignored when determin- 
 ing whether the debts were of the kind that would ordinarily be met 
 out of current receipts. * * * 
 
 What was the condition of the roads owned and controlled by the 
 Danville Company at the time the rails were purchased and used? 
 It was in the power of the railroad company and its receivers, • who 
 had possession of the books of the company, to have furnished evi- 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1487 
 
 dence on this point that would have removed all possible doubt. But 
 there is enough in the record to show that the rails purchased from 
 the Carnegie Company were needed in order that the roads in ques- 
 tion might be kept by the railroad company in that condition of safety 
 which its duty to the public and to the mortgage bondholders re- 
 quired. * * * 
 
 It is apparent that the purchases of new steel rails while the rail- 
 roads were in possession of receivers, were made in the ordinary 
 course of business and were properly chargeable upon and payable 
 out of current receipts in preference to the claims of mortgage cred- 
 itors. In every substantial sense the expenses thus incurred were 
 operating expenses. They were incurred in the interest of mortgage 
 creditors, the value of whose securities depended upon the unity of the 
 Danville system being preserved and the interests of all concerned 
 not allowed to go to ruin. Why should a diflferent rule be applied to 
 the contracts made with the Carnegie Company shortly before the ap- 
 pointment of receivers in the Clyde suit, the original contract being 
 for only 2,500 tons, and the last one for only 1,656 tons? * * * 
 No one will say that the use of these rails did not add directly to the 
 value of the securities of mortgage creditors. Within the reason of 
 the rule adverted to, the debts contracted with the Carnegie Com- 
 pany were as much current debts in the ordinary course of the busi- 
 ness of the railroad company as were the debts contracted by the 
 receivers under the orders of court, when they purchased new rails 
 to put the road in safe condition, or when they purchased at one time 
 four passenger locomotives, and at another time, eight passenger and 
 freight locomotives, the cost of which was charged upon the income 
 in their hands. Is it to be said that such expenses incurred by the 
 receivers were preferential debts, but that debts incurred by the rail- 
 road company shortly prior to the receivership for rails needed to 
 keep its road in safe condition for use are not of that class? * * * 
 
 These figures show that both during the receivership in the Clyde 
 suit and the receivership in the foreclosure suit immense sums were 
 expended in paying interest, sinking fund and car trust debts, and 
 for construction and equipment, which were all for the benefit of 
 mortgage creditors, and which, to the extent necessary, should have 
 been applied in payment of preferential claims, including those of the 
 Carnegie Company. It is a clear case of a diversion of income from 
 the payment of current debts in the interest of mortgage creditors. 
 * * * 
 
 We must not be understood as saying that a general unsecured cred- 
 itor of an insolvent railroad corporation in the hands of a receiver 
 is entitled to priority over mortgage creditors in the distribution of 
 net^ earnings simply because that which he furnished to the company 
 prior to the appointment of the receiver was for the preservation of 
 the property and for the benefit of the mortgage securities. That, no 
 doubt, is an important element in the matter. Before, however, such 
 a creditor is accorded a preference over mortgage creditors in the 
 distribution of net earnings in the hands of a receiver of a railroad 
 company, it should reasonably appear from all the circumstances, in- 
 cluding the amount involved and the terms of payment, that the debt 
 was one fairly to be regarded as part of the operating expenses of 
 the railroad incurred in the ordinary course of business, and to be met 
 out of current receipts. * * * 
 
1488 COEPOEATIONS (Part 6 
 
 Our conclusion is that as current earnings which should have been 
 applied in meeting current expenses or liabilities, including the debt 
 due the Carnegie Company, were diverted for the benefit of mort- 
 gage creditors, it was the duty of the court to see that that company 
 was reinstated in its claim of priority over the mortgage creditors in 
 the distribution or application of the net earnings of the property. 
 That duty was properly performed by the Circuit Court) and the de- 
 cree of the Circuit Court of Appeals affirming the judgment of the 
 Circuit Court is affirmed. ' 
 
 SECTION 4.— RIGHTS OF UNSECURED CREDITORS 
 ARISING UPON REORGANIZATION 
 
 OEOStTRAL IMPROVEMENT CO. v. CAMBRIA STEEL CO. et al. 
 GUARDIAN TRUST CO. v. SAME. 
 
 (United States Circuit Court of Appeals, Eighth Circuit, 1913. 210 Fed. 696, 
 
 127 C. C. A. 184.) 
 
 Before Sanborn, Circuit Judge, and Marshall and WilIvIAM H. 
 Hunger, District Judges. 
 
 Per Curiam. J'he paramount issue in these cases is: Did the 
 Southern Company become liable to pay the unsecured debt of the 
 Belt Company to the Trust Company by participating in the execution 
 of a scheme whereby it acquired the title to the property of the Belt 
 Company, deprived its creditor, the Trust Company, of recourse there-, 
 to by execution to collect its claim and yet reserved to itself and other 
 stockholders of the Belt Corripany an equity in its property and a ben- 
 efit therefrom more valuable than the amount of the Trust Company's 
 claim? After exhaustive arguments and briefs and a review of the 
 master's report on which this case came to this court, the conclusion 
 
 was reached that this question should be answered in the affirmative. 
 
 * * * 
 
 The history of this litigation, the issues, and many of the facts found 
 by the master are set forth m our former opinion. Central Improve- 
 ment Co. V. Cambria Steel Co., 201 Fed. 811, 120 C. C. A. 121. 
 
 From all the facts pertinent to the issue which are set forth in many 
 printed pages of his report, the master deduced this decisive conclu- 
 sion : ."That the Southern Company is not liable in any way for the 
 floating indebtedness of the Belt Company." * * * 
 
 It is conceded that by the transaction described in the former opin- 
 ion of this court and deemed by it violative of the rights of the Trust 
 Company, a creditor of the Belt Company, if that transaction be valid, 
 was deprived of legal recourse to the property of the Belt Company 
 to obtain payment of that company's debt to the Trust Company of 
 about $360,000. At that time the Southern Company, by an exchange 
 of its stock and bonds for the stock and bonds of the Belt Company, 
 and by a formal foreclosure by itself, as holder of about 89 per cent, 
 of its bonds, by means of its representative, the Provident Company, 
 trustee for the bondholders, against and with the consent .of itself as 
 the holder of about 97 per cent, of its stock, and by a foreclosure sale 
 of the property of the Belt Company to itself obtained the title to the 
 Belt Company's property to itself, the bonclholders of the Belt Company 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1489 
 
 secured about $1,330,000 par value of the bonds and $250,000 of the 
 preferred stock of the Southern Company, aggregating at their par val- 
 ue $1,580,000 for their $1,000,000 par value of bonds of the Belt Com- 
 pany, and the stockholders of the Belt Company secured for their $4,- 
 750,000 par value of the stock of that company about $1,187,500 par 
 value of the preferred stock and about $3,562,500 par value of the com- 
 mon stock, in all about $4,750,000 par value of the stock of the South- 
 ern Company. 
 
 The following propositions of law are deemed incontestable : 
 
 "A reorganization of an insolvent railroad company, by which both 
 its mortgage bondholders and its stockholders, in exchange for their 
 bonds and stocks, are given an interest in the new company, which 
 purchases the property of the old company at a foreclosure sale made 
 pursuant to such plan of reorganization and by the consent of the old 
 company and its stockholders, is fraudulent in law as to unsecured 
 creditors of the old company whose claims are left unpaid, and ren- 
 ders the new company liable for the claims of such creditors, at least 
 to the extent of the value of the interest in the new company secured 
 by the stockholders of the old company." * * * 
 
 Where such a transaction is consummated without offering to the 
 unsecured creditor a fair share of the benefits to be derived from the 
 vesting of the title in the purchaser at the foreclosure sale, the intent 
 or purpose to deprive him of recourse to the property to collect his 
 debt becomes immaterial and the fact that it has that effect charges 
 the purchaser with liability. 
 
 "As against him the sale is void in equity, regardless of the motive 
 with which it was made ; . for if such contract reorganization was con- 
 summated in good faith and in ignorance of the existence of the cred- 
 itor, yet when he appeared and established his debt the subordinate in- 
 terest of the old stockholders would still be subject to his claim in the 
 hands of the reorganized company." Northern Pacific Rv. Co. v. Boyd, 
 228 U. S. 482, 502, 33 Sup. Ct. 554, 559 (57 L. Ed. 931). 
 
 "For, if purposely or unintentionally a single creditor was not paid 
 or provided for by the reorganization, he could assert his superior 
 rights against the subordinate rights of the old stockholders in the 
 proj>erty transferred to the new company. They [the stockholders of 
 the old company] were in the position of insolvent debtors who could 
 not reserve an interest as against creditors. Their original contribu- 
 tion to the capital stock was subject to the payment of debts. The 
 property was a trust fund charged primarily with the payment of 
 corporate liabilities. Any device, whether by private contract or judi- 
 cial sale under consent decree, whereby stockholders were preferred 
 before the creditors was invalid. Being bound by the debts, the pur- 
 chase of their property, by their new company, for their benefit, put 
 the stockholders in the position of a mortgagor buying at his own sale. 
 If they did so in good faith and in ignorance of Boyd's claim they were 
 none the less bound to recognize his superior right in the property, when 
 years later his contingent claim was liquidated and established." 
 * * * 
 
 The plan of reorganization was made November 7, 1899, and it be- 
 came effective December 20, 1899. This plan was made a part of the 
 reorganization agreement, and it stated that it was expected and in- 
 tended that the property of the Gulf Company would be purchased 
 B.& B.Btjs.Law— 94 
 
1490 COKPORATIONS (Part 6 
 
 by the reorganized committee, that a successor of the company would 
 be organized to which this property and the stocks and bonds of the 
 Belt Company deposited under the plan would be conveyed, that all 
 this property was to be made subject to the mortgage of the new com- 
 pany, and that it was "intended, as soon as practicable, that the new 
 company acquire the property of the terminal companies in fee and 
 bring them directly under the lien of the mortgage," and the acquisi- 
 tion of the stocks and bonds of that company and their pledge under 
 that mortgage were but the means to the accomplishment of this end 
 which the plan contemplated. 
 
 It is conceded that the organiza,tion of the Southern Company, its 
 purchase of the Gulf Company property, its exchange of its stocks 
 and bonds for those of the Belt Company, and its possession and con- 
 trol of its property on April 1, 1900, by means of its ownership of this 
 stock, were steps in the execution of the scheme. But the reorganiza- 
 tion committee did not cease its work until October 1, 1900, and be- 
 fore that date the Southern Company by its representative, the Provi- 
 dent Company, had, on September 6, 1900, commenced the suit to fore- 
 close the Belt mortgage and to put its property in the hands of re- 
 ceivers and had caused the Belt Company to consent to the receiver- 
 ship. For what purpose did the Southern Company take these steps? 
 It had the possession and absolute control of the Belt Property by its 
 ownership of 89 per cent, of its bonds and 97 per cent, of its stock. 
 A default on its bonds was in reality a default of itself to itself. Fore- 
 closure could give it no more power over the Belt Company than it 
 already had. For what purpose then was the foreclosure? Evidently 
 to carry out the reorganization agreement, as it was within the power 
 and as it was the duty of the committee and of that company, its crea- 
 ture, to do, to acquire the property of the Belt Company in fee and 
 bring it directly under the lien of the mortgage. Why did the South- 
 ern Company exchange its stock for the stock of the Belt Company? 
 Was it not for the purpose of silencing the opposition of the Belt stock- 
 holders to the coming foreclosure, and to its acquisition of the fee 
 of the Belt Company's property, and was not the scheme of reorgani- 
 zation the primary cause, the vesting of the fee of the Belt property 
 in the Southern Company by the foreclosure the object and effect of 
 that scheme to attain that end ? To the minds of the members of this 
 court the record in this case leaves no alternative but to answer these 
 questions in the affirmative. * * * 
 
 Another argument is that the Trust Company is entitled to no re- 
 lief because the equitable interest of the creditors in the property of 
 the Belt Company was of no value. This contention is founded on 
 the findings of the master that there was no direct testimony of the 
 fair value of Ihe Belt Company's property at or before the time of the 
 foreclosure, no proof that it was worth more than the $1,000,000 for 
 which it was sold at the foreclosure sale, and therefore that it w^s 
 sold at its fair market value. The mortgage was $1,000,000, and the 
 deduction is that the equitable interest of the creditors was valueless. 
 But the crucial issue here was not what the fair market value of the 
 mortgaged property was, nor was it how much more the mortgaged 
 property was worth than the amount of the mortgage. Although evi- 
 dence upon these subjects would have been competent in the considera- 
 tion of the real issue here in the absence of an estoppel, that issue was : 
 What was the equitable interest of the creditors in the mortgaged 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1491 
 
 property of the Belt Company worth during the execution of the 
 scheme and immediately after the foreclosure sale and the appropria- 
 tion of it thereby by the Southern Company, the trustee for the cred- 
 itors, to itself, for a trustee who violates his trust may not profit there- 
 by? * * * The creditors were entitled to the highest value their 
 'interest had during this time, either for the purpose of sale or for 
 the purpose of preventing a foreclosure of the mortgage upon the Belt 
 property, or for the purpose of compromising their claims or condi- 
 tioning the foreclosure, or for the purpose of the present or future 
 control of the property. 
 
 "If the value of the road justified the issuance of stock in exchange 
 for old shares, the creditors were entitled to the benefit of that value, 
 whether it was present or prospective, for dividends or only for pur- 
 poses of control. In either event it was a right of property out of 
 which the creditors were entitled to be paid before the stockholders 
 could retain it for any purpose whatever." Northern Pacific Ry. Co. 
 V. Boyd, 228 U. S. 508, 33 Sup. Ct. 561, 57 L. Ed. 931. 
 
 The report of the master discloses other facts than that he received 
 no direct evidence of the fair market value of the property except the 
 bid at the foreclosure sale, which leave no doubt that the equitable in- 
 terest of the creditors was worth much more than the amount of the 
 Trust Company's claim, $360,000. That report shows that the South- 
 ern Company paid $1,330,000 of its bonds and $250,000 of its preferred 
 stock, or $1,580,000 of its new bonds and stock for the $1,000,000 of 
 the old bonds of the Belt Company. The fact to which counsel call 
 attention, that the new bonds drew but 3 per cent, interest per annum 
 while the old bonds drew 5 per cent., has not been overlooked. But 
 even so, the reorganization committee and the Southern Company would 
 not have given for these old bonds a bonus of 33 per cent, in new bonds 
 and $250,000 in the stock of the Southern Company unless the old 
 bonds had been well secured. The master's report also shows that 
 the Southern Company gave $1,187,500 of its preferred stock and $3,- 
 562,500 of its common stock to the stockholders of the Belt Company 
 for their equitable interest in the property of that company, that at 
 the same time stockholders of the Gulf Company paid, and the South- 
 ern Company received, $10 per share in cash and an equal number 
 of shares of the stock of the Gulf Company for tens of thousands of 
 shares of the Southern Company's common stock. That stock must 
 therefore have been worth at least the $10 cash per share which was 
 paid for it, and it was worth as much more as the value of the stock 
 of the Gulf Company. The preferred stock of the Southern Com- 
 pany could not have been worth less than its common stock. The 
 Southern Company therefore paid in value at least $475,000 for the 
 equitable interest of the stockholders of the Belt Company in its profi- 
 erty when it gave them $4,750,000 of its preferred and common stock 
 for their stock in that company. But the equitable interest of the cred- 
 itors in the property of the Belt Company was superior to that of the 
 stockholders, and its value could not have been less, and was undoubt- 
 edly greater, than the $475,000. That interest was therefore worth 
 more than enough to have paid the $360,000 which the Belt Company 
 owed to the Trust Company, and the Southern Company cannot escape 
 liability on the ground that it was worthless. The fact that at the 
 foreclosure sale, where there was no competition, the Belt Company 
 was bid in at $1,000,000, fails to disprove or to even render doubtful 
 
1492 COEPOEATIONS (Part C 
 
 this conclusion, and the Southern Company which gave $4,750,000 
 of its full paid stock, which it was readily selling for $10 cash per 
 share, and Gulf stock of equal amount, for the inferior stock of the 
 Belt Company, cannot be heard to say that the superior equity of the 
 creditors therein was worthless. Northern Pacific Ry. Co. v. Boyd, 
 228 U. S. 508, 33 Sup. Ct. 554, 57 L. Ed. 931. * * * 
 
 Deliberate consideration has been given to the earnest objection to 
 the consideration by this court of the question of the value of this 
 equitable interest of the creditors in the Belt property on the ground 
 that the master found that there was no direct evidence that the prop- 
 erty of the Belt Company was worth more than $1,000,000, and hence 
 that this was its fair value, that no exception was taken to that find- 
 ing, and that the evidence is not here. But because the finding of the 
 fair market value of the mortgaged property is not conclusive of the 
 value of the creditors' equity therein, and because other facts and 
 findings contained in the master's report, all of which are available to 
 this court for the determination of that issue, have convinced that the 
 value of that equity was more than $475,000, the objection of coun- 
 sel has not been thought fatal to the consideration and determination 
 of this question. * * * 
 
 It is another contention of counsel for the Southern Company that 
 the remedy of the Trust Company in this court of equity is limited 
 to the subjection of the property of the Belt Company in the posses- 
 sion of the Southern Company to the payment of its claim and that it 
 may not have a decree that the Southern Company pay it. This court 
 does not concede the soundness of this position. * * * 
 
 The question, however, is not material in the case at bar because 
 the transaction was a conveyance of the property of the Belt Com- 
 pany in fraud of creditors and a breach of trust by the Southern Com- 
 pany, which company, with full knowledge of all the facts, actively 
 participated in the entire transaction and thereby acquired the prop- 
 erty of the Belt Company, so that that property and the improvements 
 the Southern Company has made thereon, free from the $1,000,000 
 Belt mortgage and free from any charge for the expenses which the 
 Southern Company has made thereon, stands in its hands charged with 
 a trust to pay the claim of the Trust Company against the Belt Com- 
 pany which the court may execute by a seizure and sale by its master 
 or receiver. * * * 
 
 And if the Southern Company has disposed of the property or de- 
 stroyed it, or placed it beyond the reach of the 'Trust Company or 
 the court, or given a mortgage or incumbrance upon it to a party with- 
 out notice, the court has plenary power, and it is its duty to require 
 the Southern Company to account for and pay over the proceeds of 
 the property or the value of it, or the proceeds of the mortgage, or 
 the amount of it, to the extent of the Trust Company's claim, and to 
 so conduct its proceedings and mold its decrees that full relief may be 
 secured by the Trust Company. And as the property of the Belt Com- 
 pany was worth many times the amount of the claim of the Trust 
 Company at the time of its transfer to the Southern Company, the ulti- 
 mate result will be the same whether the decree be for the seizure 
 and sale of the Belt property or for the payment of the claim of the 
 Trust Company by the Southern, Company, for it must ultimately 
 be paid either out of the property in its hands or by the Southern Com- 
 pany itself. * * * 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1493 
 
 And the conclusion of the whole matter is * * * that the South- 
 ern Company is indebted to and should pay to the Trust Company the 
 amount of the indebtedness of the Belt Company to the Trust Com- 
 pany, that is to say, the sum of $639,658.86 and interest from the date 
 SL cic '.°/"^'" ^^'^^^^ °" $473,723.59 at 6 per cent, per annum, on 
 $46,565.76 at 7 per cent, per annum, and on $119,369.51 at 8 per cent, 
 per annum, and the costs of this suit ; that the Trust Company's right 
 to and equity in the property of the Belt Company which was trans- 
 ferred to the Southern Company by means of the exchange of the stock 
 of the Belt Company for the stock of the Southern Company and by 
 the foreclosure proceedings, sale, and conveyance, and otherwise, was 
 and is prior in time and superior in equity and right, to the extent 
 necessary to pay that debt, to the right, title, and equity of the South- 
 ern Company therein. * * * 
 
 Let the decree be reversed, and let the cases be remanded to the 
 District Court, with directions to render a decree for the Trust Com- 
 pany in accord with the views expressed in this opinion.^ 
 
 SECTION 5.— RIGHTS OF CREDITORS AGAINST 
 STOCKHOLDERS 
 
 CLARK V. BBVER.. 
 
 (Supreme Court of the United States, 1891. 139 U. S. 96, 11 Sup. Ct. 468, 
 
 35 L. Ed. 8S.) 
 
 In the year 1872, the Burlington, Cedar Rapids & Minnesota Rail- 
 way Company — of which at the time the intestate, George Greene, 
 was president, as well as a stockholder, and of which he continued to 
 be president until February, 1875— had a settlement with the North- 
 western Construction Company, of which also Greene was a member, 
 for work done in building a part of its road. This settlement showed 
 the sum of $70,000 to be due the construction company. The railway 
 company, being unable to pay this claim in money, delivered to the 
 construction company 3,500 shares of its stock, at 20 cents on the 
 dollar, each share being for $100, and the same was accepted in 
 full satisfaction of the debt. The stock, which was not worth any- 
 thing in the market, was issued directly to the members of the con- 
 struction company, the intestate Greene receiving 910 shares as his 
 portion. No other payment than this 20 per cent, was made for or 
 on account of the stock. The good faith of the parties in making this 
 arrangement is not impugned by allegation or' proof. The construc- 
 tion company was reluctant to take the stock, and insisted upon pay- 
 ment in cash. What the original stockholders paid for their shares 
 does not appear; nor does the record show whether or not Greene 
 exercised any of the privileges of a stockholder. * * * 
 
 Clark, the plaintiff below, a citizen of Ohio, being the holder of SO 
 gold bTJnds 6f $1,000 each of the Burlington, Cedar Rapids & Min- 
 nesota Railway Company, dated June 1, 1874, payable in the year 1914, 
 
 1 See the collection of papers, Some Legal Phases of Corporate FinancinR, 
 Eeorganization and Regulation by Stetson; Lynde, Cravath et al., and the 
 article by Samuel Spring, on Upset Prices in Corporate Reorganization, In 
 32 Harvard Law Review, 489. 
 
1494 CORPOEATIONS (Part 6 
 
 and bearing interest at 7 per cent, per annum, — ^which bonds were 
 part of a series of 2,000 each for $1,000, secured by mortgage upon 
 the company's net income, rolling stock, and additions, and con- 
 vertible at the option of the holder into capital stock, — ^brought suit 
 to recover the amount due thereon, and on the 4th of June, 1878, re- 
 covered judgment against the railroad company for the sum of 
 $65,517, to bear interest from that date. We infer, though the record 
 contains no distinct statement or proof on the subject, that the bonds 
 became due and payable prior to this suit, on account of default in the 
 payment of interest. Execution was issued upon the judgment, and 
 was returned August 10, 1880, "No property found." 
 
 The present suit was commenced July 5, 1881, by Clark against the 
 administrator of Greene, a citizen of Iowa, in the circuit court for 
 Linn county in that state. The petition, after setting out the foregoing 
 judgment, the return of the execution thereon unsatisfied, and the 
 ownership of the 910 shares of stock by Greene up to his death, and 
 by his estate since, alleged "that of the value of said shares of stock 
 owned by said decedent there has been paid only the sum of eighteen 
 thousand two hundrd dollars, or about twenty per centum of the full 
 value of said stock, and there is still due upon said shares a balance 
 of eighty per centtjm of their full value, amounting to the sum of 
 seventy-two thousand and eight hundred dollars ; that the said balance 
 due upon said shares was a- trust fund in the hands of said decedent 
 for the payment of said judgment, and is still a trust fund for the pur- 
 pose in the hands of decedent's administrator. * * * 
 
 The court below * * * held, as matter of law, that upon the evi- 
 dence the intestate, Greene, by taking the 910 shares of stock upon 
 which the 20 per cent, was paid, did not become liable to pay anything 
 further on account thereof to creditors of the railway company;, and, 
 
 pursuant to its direction, the jury returned a verdict for the defendant. 
 * * * 
 
 Mr. Justice Harlan, after stating the facts in the foregoing lan- 
 guage, delivered the opinion of the court. * * * 
 
 We come now to consider the principal questions in the case. They 
 relate to the liability of the defendant for the difference between the 
 face value of the stock issued to Greene in 1872, and the value at which 
 it was rated in the settlement of that year with the Burlington, Cedar 
 Rapids & Minnesota Railway Company. The general proposition ad- 
 vanced by the plaintiff is that it was not competent for the railway 
 company to issue to Greene and his associates in discharge of its debt 
 to them, amoimting to $70,000, 3,500 shares of Stock of the par value 
 of $350,000, although the settlement upon that basis may have been 
 demanded by the best interests of the company, and was made in good 
 faith, without intention to harm the corporation or to defraud its cred- 
 itors, existing or subsequent, and although the stock at the time "was 
 not worth anything in the market;" and that Greene took the 910 
 shares issued to him for 20 per cent, of its face value, subject to the 
 implied condition that he should be liable for any unpaid debts of the 
 corporation to the extent of the difference between the face value of 
 the stock and the amount at which it was taken by him. It is not con- 
 tended that such liability arises from the relations Green held to the 
 two companies making the settlement of 1872, but frojji the obligations 
 the law imposed for the benefit of creditors both upon the corporation 
 issuing the stock and its stockholders. * * * 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORA'NON 1495 
 
 The statutory provisions that are supposed by the plaintiff to sustain 
 his position, which were in force when the stock in question was issued, 
 are found in title 10, c. 52, of the Revision of the Statutes of Iowa of 
 1860. * * * 
 
 The argument in behalf of the plaintiff assumes that, consistently 
 with these statutory provisions, no one can, under any circumstances 
 whatever, become the owner of the stock of an Iowa corporation, ex- 
 cept subject to the condition that, where property of the corporation 
 cannot be found, the private property of the stockholder may be seized 
 under execution in favor of a judgment creditor to the extent of the 
 difference between what he actually paid for the stock, whether in mon- 
 ey or in property, and its face value. And it is further insisted that, 
 independently of the statute, such is the doctrine of general law re- 
 lating to subscriptions to the stock of corporations, as announced by 
 this court in several cases. We are of opinion that neither of these po- 
 sitions can be maintained. 
 
 The local statute undoubtedly proceeds upon the ground that unpaid 
 installments of stock subscribed constitute — no other rule being pre- 
 scribed by legislative enactment — a trust fund for the benefit of cred- 
 itors. But it does not declare that a corporation is witliout power, 
 under any circumstances whatever, to dispose of its stock at less than 
 par, or that stock purporting to be full paid shall, in all cases, and 
 without reference to the circumstances under which it was acquired, 
 be deemed itnpaid to the extent that the amount given for it by the 
 owner, whether in money or in property, was less than its face value. 
 On the contrary, the statute itself imposes no express restriction upon 
 the disposition by a corporation of its stock except such as is imposed 
 upon individuals, and prescribes no rule in respect to the liability of 
 a stockholder to creditors except that when corporate property cannot 
 be found to pay a judgment creditor his private property may be seized 
 under the execution to the extent of any unpaid installments on the 
 stock owned by him. Whether any such indebtedness really exists 
 upon the part of a particular stockholder, and whether he in law or in 
 fact owes any sum on the stock held by him, was left by the statute 
 to be determined in each case, upon its own circumstances, and in ac- 
 cordance with the principles of general law touching the rights and 
 liabilities of creditors and stockholders. If the legislature had intended 
 that the acquisition of stock at less than its face value should be con- 
 clusive evidence in every case that the stock, as between creditors and 
 stockholders, is "unpaid," it would have been easy to so declare, as has 
 been done in some of the states. If such a rule be demanded by con- 
 siderations of public policy, the remedy is with the legislative depart- 
 ment of th^ government creating the corporation. A rule so explicit 
 and unbending could be enforced without injustice to any one, for all 
 would have notice from the statute of the will of the legislature. It 
 is not for the courts, by mere interpretation of a statute, not justified 
 by its language, to accomplish objects that are within the exclusive 
 province of legislation. * * * . 
 
 Do the decisions of this court require us to hold, in such a case, 
 that a creditor taking stock in payment of his claim is bound to other 
 creditors for the face value of the stock? The plaintiff contends that 
 our decisions are to that effect. Let us see. In Sawyer v. Hoag, 17 
 Wall. 610, 620, 21 L. Ed. 731, it was held that the capital stock of a 
 corporation, especially its unpaid subscriptions, is a trust fund sub 
 
1496 CORPORATIONS (Part 6 
 
 modo for the benefit of its general creditors. * * * There is no 
 dispute here as to the soundness of this general principle. The dis- 
 pute is as to its application to a case like the present one. We can be 
 aided in solving this inquiry by ascertaining the character of the par- 
 ticular cases in which it has been applied by this court. In Sawyer v. 
 Hoag, a subscription of $5,000 to the stock of an insurance company 
 for which the subscriber paid in full, but received in return the check 
 of the corporation for $4,250 under an agreement that the debt for 
 the stock should be extinguished, and the amount of the check should 
 be treated simply as a loan of money to the stockholder, was held to 
 be a mere device to evade the rule that unpaid subscriptions of stock 
 constitute a trust fund for the benefit of the creditors of the corpora- 
 tion; consequently, that the stock there in question was to be re- 
 garded, as between the corporation and creditors, to be unpaid to 
 the extent of the amount received back from the corporation under the 
 pretense of a loan. * * * in Webster v. Upton, 91 U. S. 65, 23 
 h. Ed. 384, a person holding certificates of stock by transfer from 
 the original subscriber, and standing upon the books of the corpora- 
 tion as a stockholder, was held liable for the balance due upon the 
 stock, without proof of an "express" promise upon his part to pay, 
 * * * and in Pullman v. Upton, 96 U. S. 328, 24 L- Ed. 818, that 
 a transferee of stock who caused the transfer to be made to himself, as 
 collateral security for a debt of the transferrer, was liable for the bal- 
 ance due on such stock. * * * In Scovill v. Thayer, 105 U. S. 143, 
 26 L. Ed. 968, it was declared, among other things, that a contract 
 between a corporation and its stockholders, that they should never be 
 called upon to pay any otlier assessment than that paid at the outset, 
 wfflle good as between the corporation and the stockholders, was a 
 fraud in law upon creditors, which they could have set aside whenever 
 their rights intervened and their claims were unsatisfied. In Richard- 
 son V. Green, 133 U. S. 30, 10 Sup. Ct. 280, 33 Iv. Ed. 516, it was held 
 that the issuing by a corporation of bonus stock was in violation of a 
 statute of the state declaring it to be unlawful to issue certificates of 
 stock until the shares were fully paid, and that one exercising the priv- 
 ileges and powers oi a stockholder in a corporation was not exempt 
 from the liabilities attaching to a bona fide stockholder who took 
 shares purporting to be, but which in fact were not, fully paid. 
 
 This detailed statement of the above cases has been made because of 
 the confident assertion that they rest upon doctrines necessarily re- 
 quiring the reversal of the judgment. We do not concur in this view. 
 In all of these cases, except one, there was an actual subscription of 
 a given amount. They were cases of promises to pay the company 
 the amount subscribed, not of sales by it. According to those cases, 
 a stockholder, becoming such by formal subscription or by transfer 
 upon the books of the corporation, cannot be discharged to the injury 
 of creditors by any agreement, arrangement, or device to which cred- 
 itors do not give their assent, and by which the stockholder is to pay 
 less than the amount due upon such stock. * * * 
 
 The present case presents features that are not to be found in the 
 others. It is not the case of an ordinary subscription of stock in a 
 given amount. Nor is it, strictly, one of an ordinary purchase of stock 
 for purposes of investment. It is the case of a creditor of an insol- 
 vent railroad corporation which, in consequence of its inability to pay 
 creditors in money, was threatened with bankruptcy, and which re- 
 
Ch. 5) THE RELATION OF CREDITORS TO THE CORPORATION 1497 
 
 fused or was unable to pay except in stock that was without market 
 value. To say that a public corporation, charged with public duties, 
 may not relieve itself from embarrassment by paying its debt in stock 
 at its real value — there being no statute forbidding such a transac- 
 *^°*^."T^'^^°^* subjecting the creditor, surrendering his debt, to the 
 liability attaching to stockholders who have agreed, expressly or im- 
 pliedly, to pay the face value of stock subscribed by them, is, in effect, 
 to compel them either to suspend operations the moment they become 
 unable to pay their current debts, or to borrow money secured by 
 mortgage upon the corporate property. We do not think the statute 
 of Iowa can be properly construed to cause such a result in respect 
 to corporations organized under its laws. 
 _ We must not be understood as modifying in any respect the prin- 
 ciples laid down in the cases above cited. * * * As said by this 
 court in Peters v. Bain, 133 U. S. 670, 691, 10 Sup. Ct. 354, 33 L. 
 Ed. 696, "unpaid subscriptions to stocks are assets, and have fre- 
 quently been treated by courts of equity as if impressed with a trust 
 sub modo, in the sense that neither the stockholders nor the corpora- 
 tions can misappropriate subscriptions so far as creditors are con- 
 cerned." * * * 
 Judgment affirmed. 
 
 DOWNER V. TJNION LAND CO. OF ST. PAUL et al. 
 (Supreme Court of Minnesota, 1911. 113 Minn. 410, 129 X. W. 777.) 
 
 Start, C. J. This is an appeal by the plaintiff from an order of the 
 district court of the county of Ramsey overruling his demurrer to the 
 second alleged defense in the answer of the defendant Willius. * * * 
 
 The here material allegations of the complaint, briefly stated, are 
 to the effect following : The defendant Union Land Company, * * * 
 on April 5, 1887, issued 17,000 shares of its capital stock, of the par 
 value of $100 each, as full paid to its organizers, of which 50 shares 
 were delivered to the defendant Willius, hereafter referred to as the 
 defendant. The company, after such issue of stock, became indebted 
 in the sum of $98,000, and thereafter, for the purpose of securing 
 the money to pay such indebtedness, it issued its bonds, amounting 
 in the aggregate to $126,000, with 10 per cent, annual interest, paya- 
 ble to trustees or bearer February 1, 1894. The plaintiff purchased 6 
 of such bonds, each for $500, and paid therefor $3,000, relying upon 
 the representation that the 17,000 shares of stock so issued had been 
 paid for in full. None of his bonds, or any part thereof, were paid, 
 except interest to August 1, 1895. He recovered a judgment against 
 the company in the district court of the county of Ramsey, on Feb- 
 ruary 5, 1902, for the amount due on the bonds, $4,979.83. Execu- 
 tion was issued on the judgment and returned satisfied only to the 
 extent of $1,023.87. The balance of the judgment has never been 
 paid and the company is insolvent. The organizers and stockholders 
 of the company, including the defendant, with the intent of acquiring 
 the 17,000 shares of stock as full paid, when in fact they were not, 
 purchased 1,476 acres of land, for which they paid only $679,289, 
 which was more than it was worth. They caused this land, with cash 
 sufficient to make the price actually paid for the stock not more than 
 $850,000, to be transferred and turned over to the company in pay- 
 ment of the 17,000 shares of stock, an overvaluation of the land of 
 
1498 COEPOEATIONS (Part 6 
 
 more than $790,000. Such valuation was not the result of mistake, 
 but was a gross overvaluation, intentionally made by all the parties 
 to the transaction, with the knowledge of all the past and present 
 stockholders of the company, and with the intent to enable such stock- 
 holders to acquire, and they did thereby acquire, each his respective 
 portion of the 17,000 shares of the capital stock, by paying to the com- 
 pany therefor not to exceed $50 per share. The 17,000 shares so is- 
 sued are the only portion of the authorized capital stock of the com- 
 pany which was ever issued. * * * 
 
 The complaint prays, in effect, judgment against the company for 
 the amount due on the original judgment, and that each of the de- 
 fendant stockholders be required to pay so much of the difference be- 
 tween the par value of his stock and the amount actually paid by him 
 therefor as may be necessary to pay the judgment against the com- 
 pany, and for general relief. 
 
 The answer of the defendant avers four alleged defenses, viz.: 
 (1) The stock was in fact fully paid. (2) The plaintiff's bonds con- 
 tained an express agreement that the stockholders should in no wise 
 be liable for their payment. (3) The action is barred by the statute 
 of limitations. (4) Laches. 
 
 The plaintiff replied to all the alleged defenses, except the second, 
 to which he demurred. The trial court overruled the demurrer. * * * 
 
 The pivotal question presented by the record is whether the contract 
 as to stockholders' liability contained in the bonds is a defense on the 
 merits to this action. The demurrer admits the execution of the con- 
 tract, the consideration therefor, and, therefore, its validity. Counsel 
 for defendant contend that such contract is an absolute bar to this ac- 
 tion, and cite in support of the claim, with others, the case of Brown 
 V. Eastern Slate Co. et al., 134 Mass. 590. * * * Another case re- 
 lied on is U. S. V. Stanford, 161 U. S. 412, 16 Sup. Ct. 576, 40 L. 
 Ed. 751. * * * 
 
 These cases stistain the proposition that, if a person contracting 
 with a corporation expressly agrees to look only to the corporation 
 and its property for the payment of his debt against it, such agreement 
 will be a waiver of the constitutional or statutory liability of stock- 
 holders for the payment of the debt. It is clear that the agreement 
 contained in the bonds, which we have quoted, released the stockhold- 
 ers from any and all liability for the payment of the bonds imposed 
 by the Constitution or statute, and from all liability whatever, in the 
 absence of any element of fraud; that is, if they had then paid the 
 full par value of their stock as represented by the issuance of it as- full 
 paid. This is not an action to enforce any constitutional or statutory 
 liability of the defendant for the payment of the bonds ; but it is, in 
 effect, one to compel the defendants to make good, so far as may be 
 necessary to satisfy the plaintiff's judgment against the corporation, 
 their alleged representation, alleged to have been relied upon by him, 
 that the assets of the corporation had been increased to the full par 
 value of their stock, when in fact only one-half thereof had been paid. 
 The question, then, in its last analysis, is whether such a liability was 
 within the contemplation of the parties when the bond agreement was 
 made, and did the plaintiff thereby waive such liability in case he 
 might thereafter discover for the first time the facts upon which lia- 
 bility must rest? The right of a creditor to maintain such an action 
 is settled by the repeated decisions of this court. * * * 
 
, Ch. 5) THH RELATION OF CREDITORS TO THE CORPORATION 1499 
 
 The basis of the action is not contract, but fraud, for the reason 
 that : People deal with the corporation and give it credit on the faith 
 of its stock, and they have the right to assume that it has a paid-in 
 capital to the amount which it represents itself as having. If the rep- 
 resentation is false, it is a fraud on creditors; and, in case the cor- 
 poration becomes insolvent, equity will compel the holders of bonus 
 stock, or stock not in fact paid in full, to make the representation 
 good, by paying the balance due on their stock to the extent necessary 
 to pay creditors whose debts were contracted subsequent to the is- 
 suing of the stock as fully paid, and who are presumed to have relied 
 on the representation. It is the misrepresentation of fact in stating 
 the amount of capital to be greater than it is in fact which is the basis 
 of the liability of the stockholders in such cases. A certificate for 
 paid-up shares in a corporation is simply a written statement in the 
 name of the corporation that the holder thereof is a stockholder, and 
 that the full par value of his shares has been paid to the corporation. 
 If the shares in fact have not been so paid for, the certificate that 
 they have been is a false representation that the assets of the corpora- 
 tion have been increased to the amount of the par value of the stock 
 so issued. 
 
 The very basis of this action clearly indicates that the alleged liabil- 
 ity sought to be enforced in this action was not within the contempla- 
 tion of the parties at the time the bond agreement was made, and that 
 it was not waived thereby. * * * 
 
 It was alleged in the second defense, and admitted by the demur- 
 rer, that no representations were ever made to the plaintiff that the 
 shares of stock were fully paid, except the fact that they were issued 
 as fully paid ; that he made no inquiries either as to the amount there- 
 of, or the amount paid thereon; and that he had no information in 
 regard thereto. It is urged, in effect, on behalf of the defendant, that 
 in view of this admission the plaintiff did not rely on any representa- 
 tion that the stock was fully paid. We cannot concur in this view of 
 the effect of the allegations referred to: The complaint expressly al- 
 leged that the plaintiff, relying upon the representation that the shares 
 "had been paid in full, purchased and paid for his bonds. * * * 
 
 With reference to a trial of this issue we deem it proper to say 
 that the presumption of reliance by creditors upon thfe representation 
 that stock issued as fully paid is so in fact is only prima facie. The 
 rule in such cases is that : "It is only those creditors ,who have relied, 
 or who can fairly be presumed to have relied, upon the professed 
 amount of capital, in whose favor the law will recognize and enforce 
 an equity against the holders of 'bonus stock.' " * * * 
 
 It follows that the demurrer to the defense should have been sus- 
 tained. 
 
 Reversed. 
 
1500 CORPORATIONS (Part 6 
 
 CHAPTER VI 
 RELATION OF THE CORPORATION TO THE STATE 
 
 Section 
 
 1. Power to Alter the Charter. 
 
 2. Police Powers of tlie State. 
 
 3. Taxing Powers of the State. 
 
 4. Powers with Ktespect to Foreign Corporations. 
 
 SECTION 1.— POWER TO ALTER THE CHARTER 
 
 THE RAILROAD TAX CASES. 
 
 SAN MATEO COUNTY v. SOUTHERN PAC. R. CO. 
 
 (Circuit Court of the United States, 1882. 13 Fed. 722.) 
 
 Field, j. * * * The state, in the creation of corporations, or 
 in amending their charters, or rather in passing or amending general 
 laws under which corporations may be formed and altered, possesses 
 no power to withdraw them when created, or by amendment, from the 
 guaranties of the federal constitution. It cannot impose the condition 
 that they shall not resort to the courts of ^law for the redress of in- 
 juries or the protection of its property ; that they shall make; no com- 
 plaint if their goods are plundered and their premises invaded; that 
 they shall ask no indemnity if their lands be seized for pubUc use, or 
 be taken without due process of law, or that they shall submit with- 
 out objection to unequal and oppressive burdens arbitrarily imposed 
 iipon them; that, in other words, over them and their property the 
 state may exercise unlimited and irresponsible power. Whatever the 
 state may do, even with the creations of its own will, it must do 
 in subordination to the inhibitions of the federal constitution. It may 
 confer, by its general laws, upon corporations certain capacities of do- 
 ing business, and of having perpetual succession in their members. 
 It may make its grant in these respects revocable at pleasure; it may 
 make the grant subject to modifications and impose conditions upon 
 its use, and reserve the right to change these at will. But whatever 
 property the corporations acquire in the exercise of the capacities con- 
 ferred, they hold under the same guaranties which protect the prop- 
 erty of individuals from spoliation. It cannot be taken for public use 
 without compensation. It cannot be taken without due process of law, 
 nor can it be subjected to burdens different from those laid upon the 
 property of individuals under like circumstances. 
 
 The state grants to railroad corporations formed under its laws a 
 franchise, and over it retains control, and may withdraw or modify it. 
 By the reservation clause it retains power only over that which it 
 grants ; it does not grant the rails on the road ; it does not grant the 
 depots alongside of it; it does not grant the cars on the track, nor the 
 engines which move them, and over them it can exercise no poTjer 
 except such as may be exercised through its control over the fran- 
 chise, and such as may be exercised with reference to all property used 
 by carriers for the public. The reservation of power over the fran- 
 
Ch. 6) RELATION OP THE CORPORATION TO THE STATE 1501 
 
 chise — that is. over that which is granted — makes its grant a condi- 
 tional or revocable contract, whose obligation is not impaired by its 
 revocation or change. The Supreme Court established, in the Dart- 
 mouth College Case, that the charter of a private corporation is a con- 
 tract between the corporators and the state, and that it was, therefore, 
 within the prohibition of the federal constitution against the impair- 
 ment of contracts. To avoid this result the states have generally in- 
 serted clauses in their constitutions reserving a right to repeal, alter, 
 or amend charters granted by their legislatures, or to repeal, alter, or 
 amend the general laws under which corporations are allowed to be 
 formed. The reservation relates only to the contract of incorpora- 
 tion, which, without such reservation, would be irrepealable. It re- 
 moves the impediment to legislation touching the contract. It places the 
 corporation in the same position it would have occupied had the su- 
 preme court held that charters are not contracts, and that laws repeal- 
 ing or altering them did not impair the obligation of contracts. The 
 property of the corporation, acquired in the exercise of its faculties, is 
 held independently of such reserved power, and the state can only 
 exercise over it the control which it exercises over the property of 
 individuals engaged in similar business. * * * 
 
 SECTION 2.— POLICE POWERS OF THE STATE 
 
 ATLANTIC COAST LINE R. CO. v. CITY OF GOLDSBOBO. 
 
 (Supreme Court of the United States, 1914. 232 TJ. S. 548, 34 Sup. Ct. 364, 
 
 58 L. Ed. 721.) 
 
 Mr. Justice Pitney delivered the opinion of the court. 
 
 The Atlantic Coast Line Railroad Company, plaintiff in error, has 
 succeeded to the ownership of the property, franchises, and rights of 
 the Wilmington & Raleigh Railroad Company, which was chartered 
 by the general assembly of North Carolina in the year 1833, and whose 
 name was afterwards changed to Wilmington & Weldon Railroad Com- 
 pany. Under its charter powers the original company constructed its 
 railroad from Wilmington to and into Wayne county. North Caro- 
 lina, passing through the place which later, and in the year 1847, be- 
 came incorporated as the town of Goldsboro, now the city of Goldsboro, 
 defendant in error. * * * 
 
 In November, 1909, the board of aldermen passed an ordinance or 
 ordinances containing the following provisions: Section 1 rendered 
 it unlawful for any railroad company to run any freight or passenger 
 train on East or West Center streets at a rate of speed exceeding four 
 miles per hour, and required the companies to have flagmen proceed 
 50 feet in front of every train to warn persons of its approach. Sec- 
 tion 2 provided that the shifting limits on East and West Center streets 
 should be from Spruce street to the city limits on the south, and from 
 Ash street to the city limits on the north; thus excluding the four 
 blocks between Spruce and Ash streets. Section 3 declared it to be 
 unlawful for any railroad company to do any shifting within those four 
 blocks at any other time than between the hours of 6:30 and 8:30 
 a. m. and between 4:30 and 6:30 p. m. Section 4 rendered it unlaw- 
 ful for any railroad company to place any car and allow it to stand 
 
1502 coupoRATiONa (Part 6 
 
 for a longer period than five minutes at any point on East and West 
 Center streets within the same four blocks. Section 5 required all rail- 
 road companies owning tracks on East and West Center streets be- 
 tween Walnut and Vine (four blocks) to lower the tracks so as to make 
 them conform to the grade line of the streets, and to fill in the tracks 
 between the rails ; the required lowering being specified as six inches 
 from Walnut to Mulberry, ten inches between Mulberry and Ash, 
 and eighteen inches between Ash and Vine streets. Substantial penal- 
 ties were prescribed for violations of these prohibitions. 
 
 Plaintiff in error began this action against the city of Goldsboro in 
 the superior court of Wayne county, seeking to restrain the enforce- 
 ment of the ordinances. A temporary restraining order was granted. 
 At the hearing, the objection to the enforcement of section 1 was aban- 
 doned by plaintiff; as to the other sections the court vacated the re- 
 straining order. Upon appeal, the Supreme Court -of North Carolina 
 affirmed the judgment. 155 N. C. 356, 71 S. E. 514. The present 
 writ of error * * * is based upon the insistence, made in the 
 state courts and there overruled, that the ordinances' impair the obliga- 
 tion of the contract contained in the charter of the company, in con- 
 travention of section 10, art. 1, of the federal Constitution, and deprive 
 the company of its property without due process of law, in contraven- 
 tion of the Fourteenth Amendment. * * * 
 
 We must therefore treat the ordinances as legislation enacted by 
 virtue of the lawmaking power of the state. They are manifestly an 
 exertion of the police power, and the question is whether, viewed in 
 that light, they run counter to the "contract" or "due process" clauses. 
 
 That a railroad charter may embody a contract, within the meaning 
 of the Constitution, hardly needs to be stated. Dartmouth College v. 
 Woodward, 4 Wheat. 518, 4 L. Ed. 629. In the present case the su- 
 preme court of North Carolina held that by the Constitution of the 
 state, the charter was subject to alteration or repeal at the legislative 
 will. If the right of repeal was indeed thus reserved, the result is 
 obvious. Greenwood v. Union Freight R. Co., 105 U. S. 13, 21, 26 
 L. Ed. 961, 965. * * * We are not referred to and are unable 
 to find, in the state Constitution as it existed when the charter now in 
 question was granted, any reservation of the right of repeal, and will 
 assume for present purposes that the contract was not thus qualified, 
 and deal only with the question whether it has been impaired. * * * 
 
 Adopting the extreme assumption that the railroad company has still 
 a complete and unqualified ownership of every portion of the strip of 
 land that was originally acquired in fee simple, and as proprietor might 
 lawfully exercise its dominion by excluding the public from it ; yet it 
 does not do this, but permits, and long has permitted, the public to use 
 material portions of the strip for ordinary street purposes; it appar- 
 ently excludes the public from no portion except as the existence of the 
 tracks and the passage of trains may have such a tendency or effect. 
 And thus the company, at least for the time, devotes its property in 
 part to public uses that are more or less inconsistent with the railroad 
 uses, and under conditions such as to render the railroad operations 
 necessarily a source of danger to the public while enjoying the per- 
 mitted use. Under such circumstances the state, in the exercise of the 
 police power, may legitimately extend the application of the principle 
 that underlies the maxim, "Sic utere tuo ut alienum non laedas," so far 
 as may be requisite for the protection of the public. 
 
Ch. 6) RELATION OF THE CORPORATION TO THE STATE 1503 
 
 For it is settled that neither the "contract" clause nor the "due 
 process" clause has the effect of overriding the power of the state to 
 establish all regulations that are reasonably necessary to .secure the 
 health, safety, good order, comfort, or general welfare of the commu- 
 nity;^ that this power can neither be abdicated nor bargained away, 
 and is inalienable even by express grant; and that all contract and 
 property rights are held subject to its fair exercise. Slaughter House 
 Cases, 16 Wall. 36, 62, 21 L. Ed. 394, 404; Munn v. Illinois, 94 U. 
 S. 113, 125, 24 L. Ed. 77, 84; * * * Mugler v. Kansas, 123 U. 
 S. 623, 665, 31 L. Ed. 205, 211, 8 Sup. Ct. 273. * * * And the 
 enforcement of uncompensated obedience to a regulation established un- 
 der this power for the public health or safety is not an unconstitutional 
 taking of property without compensation or without due process of 
 law. Chicago, B. & Q. R. Co. v. Chicago, 166 U. S. 226, 255, 41 L. 
 Ed. 979, 991, 17 Sup. Ct. 581 ; * * * Chicago, B. & Q. R. Co. v. 
 lUinois, 200 U. S. 561, 591, 592, 50 L. Ed. 596, 608, 609, 26 Sup. Ct. 
 341, 4 Ann. Cas. 1175. 
 
 Of course, if it appear that the regulation under criticism is not in 
 any way designed to promote the health, comfort, safety, or welfare of 
 the comrnunity, or that the means employed, have no real and substan- 
 tial relation to the avowed or ostensible purpose, or that there is wan- 
 ton or arbitrary interference with private rights, the question arises 
 whether the law-making body has exceeded the legitimate bounds of 
 the p>olice power. 
 
 The ordinances now- in question must be considered in view not only 
 of the charter and property rights of plaintiff in error, but of the actual 
 situation that has developed and now exists in Goldsboro, with the 
 consent and long acquiescence of plaintiff in error and its predecessors 
 in interest. A town of considerable size and importance has grown up 
 along the line of the railroad. The strip of land 130 feet in width, so 
 far as it is not occupied by the railroad tracks, for many years has been 
 and still is used for the ordinary purposes of a street. The supreme 
 court of North Carolina found, upon adequate evidence, that it is the 
 main business street of the town, frequently crowded with pedestrians 
 and vehicles ; and that the operation of trains along it, notwithstand- 
 ing the utmost care of the railroad company, tends to obstruct the cross- 
 ings and is fraught with danger to life and property. There are, with- 
 in the blocks covered by the ordinances, two main Hues of railway be- 
 sides that of plaintiff in error. These, of course, complicate the sit- 
 uation by narrowing the spaces available for ordinary travel north and 
 south on East and West Center streets, and must also enhance the 
 dangers at the crossings. 
 
 It is very properly conceded that the company may be required to 
 limit the speed of its trains, and to have flagmen precede them to warn 
 persons of their approach ; and that the company may be required to 
 change its grade at the street crossings. * * * 
 
 The regulations in question are thus found to be fairly designed to 
 promote the public health, safety, and welfare ; the measures adopted 
 appear to be reasonably suited to the purposes they are intended to ac- 
 complish ; and we are unable to say that there is any unnecessary inter- 
 ference with the operations of the railroad, or with the property rights 
 of plaintiff in error. Therefore, no violation of the "contract" or "due 
 process" clauses is shown. 
 
 Judgment affirmed. 
 
1504 CORPORATIONS (Part 6 
 
 SECTION 3.— TAXING POWERS OF THE STATE 
 
 HAWLEY V. CITY OF MALDBN. 
 
 (Supreme Court of the United States, 1914. 232 U. S. 1, 34 Sup. Ct. 2(i,l, . 
 58 L. Ed. 47T, Ann. Gas. 1916C, 842.) 
 
 Mr. Justice Hughes delivered the opinion of the court. 
 
 The plaintiff in error, a resident of the city of Maiden, brought 
 this action to recover the amount of certain taxes which he had paid 
 under protest. The taxes were assessed upon shares which he held 
 in foreign corporations most of which did no business and had no 
 property within the state of Massachusetts. It was alleged that the 
 levy and collection were in violation of the due process and equal pro- 
 tection clauses o"f the Fourteenth Amendment. Demurrer to the 
 declaration was sustained by the superior court, and the case was re- 
 ported to the Supreme Judicial Court of the commonwealth, which 
 directed judgment for the defendant. * * * 
 
 It is contended that the shares were not within the jurisdiction of 
 the state, and hence that the enforcement of the tax constitutes an 
 unconstitutional deprivation of property. 
 
 The power thus challenged, as the state court points out, has been 
 continuously exercised by the state of Massachusetts for more than 
 three-quarters of a century; * * * ^^^ ^j^g rulings in the state 
 cases * * * proceed upon the view that shares are personal prop- 
 erty, and, having no situs elsewhere, are taxable by the state of the 
 owner's domicile, whether the corporations be foreign or domestic. 
 
 It is said that the question of the constitutional validity of such 
 taxation has not hitherto been raised definitely in this court and has 
 not been directly passed upon. There is no doubt, however, that the 
 existence of the state authority has invariably been assumed. * * * 
 
 To support the contention that this familiar state action, hitherto 
 assumed to be valid, is fundamentally violative of the federal Consti- 
 tution, the plaintiff in error invokes the doctrine that a state has no 
 right to tax the property of its citizens when it is permanently located 
 in another jurisdiction. * * * But these decisions did not involve 
 the question of the taxation of intangible personal property ; * * * 
 nor do they apply to tangible personal property which, although physi- 
 cally outside the state of the owner's domicile, has not acquired an 
 actual situs elsewhere. * * * When we are dealing with the in- 
 tangible interest of the shareholder, there is manifestly no question of 
 physical situs, so far as this distinct property right is concerned, and 
 the jurisdiction to tax it is not dependent upon the location of the 
 lands and chattels of the corporation. * * * 
 
 While the shareholder's rights are those of a member of the cor- 
 poration entitled to have the corporate enterprise conducted' in ac- 
 cordance with its charter, they are still in the nature of contract rights 
 or choses in action. * * * As such, in the absence of legislation 
 prescribing a different rule, they are appropriately related to the per- 
 son of the owner, and, being held by him at his domicile, constitute 
 property with respect to which he is under obligation to contribute 
 to the support of the government whose protection he enjoys. * * * 
 
 Undoubtedly, the state in which a corporation is organized may 
 provide, in creating it, for the taxation in that state of all its shares 
 
Ch. 6) RELATION OP THE CORPORATION TO THE STATE 1505 
 
 whether owned by residents or nonresidents. * * * This is by- 
 virtue of the authority of the creating state to determine the basis of 
 organization and the liabilities of shareholders. * * * So, by rea- 
 son of its dominant power to provide for the organization and conduct 
 of national banks, Congi-ess has fixed the places at which alone 
 shares in those institutions may be taxed. * * * Whether; in the 
 case of corporations organized under state laws, a provision by the 
 state of incorporation, fixing the situs of shares for the purpose of 
 taxation, by whomever owned, would exclude the taxation of the 
 shares by other states in which their owners reside, is a question which 
 does not arise upon this record and need not be decided. No such 
 provision is here involved, and the present case must be determined by 
 the application of the established principle which has been stated. 
 
 The real ground of complaint in this class of cases is not that the 
 shares are taxed in one place rather than in another, but that they are 
 taxed at all, when presumably the property and franchises of the 
 corporation which give to the shares their value are also taxed. As 
 to this we may repeat what was said in Kidd v. Alabama, 188 U. S. 
 730, 23 Sup. Ct. 401, 47 L. Ed. 669: "No doubt it would be a great 
 advantage to the country and to the individual states if principles of 
 taxation could be agreed upon which did not conflict with each oth- 
 er, and a common scheme could be adopted by which taxation of sub- 
 stantially the same ■ property in two jurisdictions could be avoided. 
 But the Constitution of the United States does not go so far." 
 
 The judgment is affirmed. 
 
 EISNER V. MAOOMBER. 
 
 (Supreme Court of the United States, 1919. 252 TJ. S. 189, 40 Sup. Ct. 189. 
 64 L. Ed. 521, 9 A. L. R. 1570.) 
 
 Mr. Justice Pitney delivered the opinion of the Court. 
 
 This case presents the question whether, by virtue of the Sixteenth 
 Amendment, Congress has the power to tax, as income of the stock- 
 holder and without apportionment, a stock dividend made lawfully 
 and in good faith against profits accumulated by the corporation since 
 March 1, 1913. 
 
 It arises under the Revenue Act of September 8, 1916, * * * 
 which plainly evinces the purpose of Congress to tax stock dividends 
 as income. * * * 
 
 In view of the importance of the matter, and the fact that Congress 
 in the Revenue Act of 1916 declared * * * that a "stock dividend 
 shall be considered income, to the amount of its cash value," we will 
 deal at length with the constitutional question, incidentally testing 
 the soundness of our previous conclusion. 
 
 The Sixteenth Amendment must be construed in connection with 
 the taxing clauses of the original Constitution and the effect attributed 
 to them before the amendment was adopted. In Pollock v. Farmers' 
 Loan & Trust Co.. 158 U. S. 601, 15 Sup. Ct. 912, 39 L. Ed. 1108, 
 under the Act of Ailgust 27, 1894 (28 Stat. 509, 553, c. 349, § 27), it 
 was held that taxes upon rents and profits of real estate and upon re- 
 turns from investments of personal property were in effect direct tax- 
 es upon the property from which such income arose, imposed by rea- 
 B.& B.Bus.Law— 95 
 
1506 CORPOEATIONS (Part 6 
 
 son of ownership; and that Congress could not impose such taxes 
 without apportioning them among the states according to population, 
 as required by article 1, § 2, cl. 3, and section 9, cl. 4, of the original 
 Constitution. 
 
 Afterwards, and evidently in recognition of the limitation upoii 
 the taxing power of Congress thus determined, the Sixteenth Amend- 
 ment was adopted, in words lucidly expressing the object to be accom- 
 plished : 
 
 "The Congress shall have power to lay and collect taxes on in- 
 comes, from whatever source derived, without apportionment among 
 the several states, and without regard to any census or enumeration." 
 
 As repeatedly held, this did not extend the taxing power to new 
 subjects, but merely removed the necessity which otherwise might 
 exist for an apportionment among the states of taxes laid on income. 
 
 * * * It becomes esseiitial to distinguish between what is and what 
 is not "income," as the term is there used, and to apply the distinc- 
 tion, as cases arise, according to truth and substance, without re- 
 gard to form. Congress caftinot by any definition it may adopt con- 
 clude the matter, since it cannot by legislation alter the Constitution. 
 
 * * * 
 
 The fundamental relation of "capital" to "income" has been much 
 discussed by economists, the former being likened to the tree or the 
 land, the latter to the fruit or the crop; the former depicted as a 
 reservoir supplied from springs, the latter as the outlet stream, to be 
 measured by its flow during a period of time. For the present pur- 
 pose we require only a clear definition of the term "income," as used 
 in common speech, in order to determine its meaning in the amend- 
 ment, and, having formed also a correct judgment as to the nature of 
 
 a stock dividend, we shall find it easy to decide the matter at issue. 
 
 * * * 
 
 "Income may be defined as the gain derived from capital, from la- 
 bor, or from both combined," provided it be understood to include 
 profit gained through a sale or conversion of capital assets, to which 
 it was applied in the Doyle> Case, 247 U. S. 183, 185, 38 Sup. Ct. 
 467, 469, 62 h. Ed. 1054. 
 
 Brief as it is, it indicates the characteristic and distinguishing at- 
 tribute of income essential for a correct solution of the present con- 
 troversy. The government, although basing its argument upon the 
 definition as quoted, placed chief emphasis upon the word "gain," 
 which was extended to include a variety of meanings ; while the sig- 
 nificance of the next three words, was either overlooked or miscon- 
 ceived. "Derived — from — capital;" "the gain — derived — from — cap- 
 ital," etc. Here we have the essential matter: tiot a gain accruing to 
 capital; not a growth or increment of value in the investment; but 
 a gain, a profit, something of exchangeable value, proceeding from 
 the property, severed from the capital, however invested or employed, 
 and coming in, being "derived" — that is, received or draim by the re- 
 cipient (the taxpayer) for his separate use, benefit and disposal — that 
 is income derived from property. Nothing else answers the descrip- 
 tion. 
 
 The same fundamental conception is clearly set forth in the Six- 
 teenth Amendment — "incomes, from whatever source derived" — the 
 essential thought being expressed with a conciseness and lucidity en- 
 tirely in harmony with the form and style of the Constitution. 
 
Ch. 6) RELATION OF THE CORPORATION TO THE STATE 1507 
 
 Can a stock dividend, considering its essential character, be brought 
 within the definition? To answer this, regard must be had to the na- 
 ture of a corporation and the stockholder's relation to it. * * * 
 
 Certainly the interest of the stockholder is a capital interest, and his 
 certificates of stock are but the evidence of it. They state the num- 
 ber of shares to which he is entitled and indicate their par value and 
 how the stock may be transferred. They show that he or his assign- 
 ors, immediate or remote, have contributed capital to the enterprise, 
 that he is entitled to a corresponding interest proportionate to the 
 whole, entitled to have the property and business of the company de- 
 voted during the corporate existence to attainment of the common ob- 
 jects, entitled to vote at stockholders' meetings, to receive dividends 
 out of the corporation's profits if and when declared, and, in the 
 event of liquidation, to receive a proportionate share of the net assets, 
 if any, remaining after paying creditors. Short of liquidation, or 
 until dividend declared, he has no right to withdraw any part of 
 either capital or profits from the common enterprise ; on the contrary, 
 his interest pertains not to any part, divisible or indivisible, but to the 
 entire assets, business, and affairs of the company. Nor is it the in- 
 terest of an owner in the assets themselves, since the corporation has 
 full title, legal and equitable, to the whole. The stockholder has the 
 right to have the assets employed in the enterprise, with the incidental 
 rights mentioned; but, as stockholder, he has no right to withdraw, 
 only the right to persist, subject to the risks of the enterprise, and 
 looking only to dividends for his return. If he desires to dissociate 
 himself from the company he can do so only by disposing of his stock. 
 
 For bookkeeping purposes, the company acknowledges a liability 
 in form to the stockholders equivalent to the aggregate par value of 
 their stock, evidenced by a "capital stock account." If profits have 
 been made and not divided they create additional bookkeeping liabil- 
 ities under the head of "profit and loss," "undivided profits," "sur- 
 plus account," or the like. None of these, however, gives to the stock- 
 holders as a body, much less to any one of them, either a claim against 
 the going concern for any particular sum of money, or a right to any 
 particular portion of the assets or any share in them unless or until 
 the directors conclude that dividends shall be made and a part of the 
 company's assets segregated from the common fund for the purpose. 
 The dividend normally is payable in money, under exceptional cir- 
 cumstances iji some other divisible property; and when so paid, then 
 only (excluding, of course, a possible advantageous sale of his stock 
 or winding-up of the company) does the stockholder realize a profit 
 or gain which becomes his separate property, and thus derive income 
 from the capital that he or his predecessor has invested. * * * 
 
 The profits of a corporation, as they appear upon the balance sheet 
 at the end of the year, need not be in the form of money on hand in 
 excess of what is required to meet current liabilities and finance cur- 
 rent operations of the company. Often, especially in a growing busi- 
 ness, only a part, sometimes a small part, of the year's profits is in 
 property capable of division; the remainder having been absorbed in 
 the acquisition of increased plant, equipment, stock in trade, or ac- 
 counts receivable, or in decrease of outstanding liabilities. When 
 only a part is available for dividends, the balance of the year's profits 
 is carried to the credit of undivided profits, or surplus, or some other 
 account having like significance. If thereafter the company finds it- 
 
1508 I CORPORATIONS (Part 6 
 
 self in funds beyond current needs it may declare dividends out of 
 such sui-plus or undivided profits; otherwise it may go on for years 
 conducting a successful business, but requiring more and more work- 
 ing capital because of the extension of its operations, and_ therefore 
 unable to declare dividends approximating the amount of its profits. 
 Thus the surplus may increase until it equals or even exceeds the par 
 value of the outstanding capital stock. This may be adjusted. upon 
 the books in the mode adopted in the case at bar — ^by declaring a 
 "stock dividend." 
 
 This, however, is no more than a book adjustment, in essence not 
 a dividend but rather the opposite ; no part of the assets of the com- 
 pany is separated from the common fund, nothing distributed except 
 paper certificates that evidence an antecedent increase in the value of 
 the stockholder's capital interest resulting from an accumuktlon of 
 profits by the company, but profits so far absorbed in the business as 
 to render it impracticable to separate them for withdrawal and dis- 
 tribution. In order to make the adjustment, a charge is made against 
 surplus account with corresponding credit to capital stock account, 
 equal to the proposed "dividend" ; the new stock is issued against this 
 and the certificates delivered to the existing stockholders in pro- 
 portion to their previous holdings. This, however, is merely book- 
 keeping that does not affect the aggregate assets of the corporatipn or 
 its outstanding liabilities; it affects only the form, not the essence, 
 of the "liability" acknowledged by the corporation to its own share- 
 holders, and this through a readjustment of accounts on one side of 
 the balance sheet only, increasing "capital stock" at the expense of 
 "surplus" ; it does not alter the pre-existing proportionate interest of 
 any stockholder or increase the intrinsic value of his holding or of 
 the aggregate holdings of the other stockholders as they stood before. 
 The new certificates simply increase the number of the shares, with 
 consequent dilution of the value of each share. 
 
 A "stock dividend" shows that the company's accumulated profits 
 have been capitalized, instead of distributed to the ■ stockholders or 
 retained as surplus available for distribution in money or in kind 
 should opportunity offer. Far from being a realization of profits of 
 the stockholder, it tends rather to postpone such realization, in that 
 the fund represented by the new stock has been transferred from sur- 
 plus to capital, and no longer is available for actual distribution. 
 
 The essential and controlling fact is that the stockholder has re- 
 ceived nothing out of the company's assets for his separate use and 
 benefit; on the contrary, every dollar of his original investment, to- 
 gether with whatever accretions and accumulations have resulted 
 from employment of his money and that of the other stockholders in 
 the business of the company, still remains the property of the com- 
 pany, and subject to business risks which may result in wiping out the 
 entire investment. * * * 
 
 It is said that a stockholder may sell the new shares acquired in the 
 stock dividend ; and so he may, if he can find a buyer. It is equally 
 true that if he does sell, and in doing so realizes a profit, such profit, 
 like any other, is income, and so far as it may have arisen since the 
 Sixteenth Amendment is taxable by Congress without apportionment. 
 The same would be true were he to sell some of his original shares at 
 a profit. But if a shareholder sells dividend stock he necessarily dis- 
 poses of a part of his capital interest, just as if he should sell a part 
 
Ch. 6) RELATION OP THE COEPOEATION TO THE STATE 1509 
 
 of his old stock, either before or after the dividend. What he retains 
 no longer entitles him to the same proportion of future dividends as 
 before the sale. His part in the control of the company likewise is 
 diminished. * * * 
 
 Yet, without selling, the shareholder, unless possessed of other re- 
 sources, has not the wherewithal to pay an income tax upon the divi- 
 dend stock. Nothing could more clearly show that to tax a stock div- 
 idend is to tax a capital increase, and not income, than this demon- 
 stration that in the nature of things it requires conversion of capital 
 in order to pay the tax. 
 
 Throughout the argument of the government, in a variety of forms, 
 runs the fundamental error already mentioned — a failure to appraise 
 correctly the force of the term "income" as used in the Sixteenth 
 Amendment, or at least to give practical effect to it. Thus the gov- 
 ernment contends that the tax "is levied on income derived from cor- 
 porate earnings," when in truth the stockholder has "derived" noth- 
 ing except paper certificates which, so far as they have any effect, de- 
 ny him present participation in such earnings. * * * 
 
 We have no doubt of the power or duty of a court to look through 
 the form of the corporation and determine the question of the stock- 
 holder's right, in order to ascertain whether he has received income 
 taxable by Congress without apportionment. But, looking through 
 the form, we cannot disregard the essential truth disclosed, ignore 
 the substantial difference between corporation and stockholder, treat 
 the entire organization as unreal, look upon stockholders as partners, 
 when they are not such, treat them as having in equity a right to a 
 partition of the corporate assets, when they have none, and indulge the 
 fiction that they have received and realized a share of the profits of 
 the company which in truth they have neither received nor realized. 
 We must treat the corporation as a substantial entity separate from 
 the stockholder, not only because such is the practical fact but be- 
 cause it is only by recognizing such separateness that any dividend — 
 even one paid in money or property — can be regarded as income of 
 the stockholder. * * * 
 
 It is said there is no difference in principle between a simple stock 
 dividend and a case where stockholders use money received as cash 
 dividends to purchase additional stock contemporaneously issued by the 
 corporation. But an actual cash dividend, with a real option to the 
 stockholder either to keep the money for his own or to reinvest it in 
 new shares, would be as far removed as possible from a true stock divi- 
 dend, such as the one we have under consideration, where nothing of 
 value is taken from the company's assets and transferred to the indi- 
 vidual ownership of the several stockholders an'd thereby subjected to 
 their disposal. 
 
 The government's reliance upon the supposed analogy between a 
 dividend of the corporation's own shares and one made by distributing 
 shares owned by it in the stock of another company, calls for no com- 
 ment beyond the statement that the latter distributes assets of the com- 
 pany among the shareholders while the former does not. * * * 
 
 That Congress has power to tax shareholders upon their property 
 interests in the stock of coroprations is beyond question, and that such 
 interests might be valued in view of the condition of the company, 
 including its accumulated and undivided profits, is equally clear. But 
 that this would be taxation of property because of ownership, and hence 
 
1510 CORPORATIONS (Part 6 
 
 would require apportionment under the provisions of the Constitution, 
 is settled beyond peradventure by previous decisions of this court. 
 
 !|! * * 
 
 Thus, from every point of view we are brought irresistibly to the 
 conclusion that neither under the Sixteenth Amendment nor otherwise 
 has Congress power to tax without apportionment a true stock divideiid 
 made lawfully and in good faith, or the accumulated profits behind it, 
 as income of the stockholder. The Revenue Act of 1916, m so far as 
 it imposes a tax upon the stockholder because of such dividend, con- 
 travenes the provisions of article 1, § 2, cl. 3, and article 1, § 9, cl. 
 4, of the Constitution, and to this extent is invalid, notwithstanding 
 the Sixteenth Amendment. 
 
 Judgment affirmed. * * * 
 
 Mr. Justice Holmes dissenting, with whom concurred Mr. Justice 
 Day. 
 
 Mr. Justice BrandEis dissenting, with whom concurred Mr. Justice 
 Clarke. 
 
 SECTION 4.— POWERS WITH RESPECT TO FOREIGN 
 CORPORATIONS 
 
 ST. OLAIR et al. v. COX. 
 
 (Supreme Court of the United States, 1882. 106 U. S. 350, 1 Sup. Ct. 354, 
 
 27 L. Ed. 222.) 
 
 Field, J. This doctrine of the exemption of a corporation from suit 
 in a state other than that of its creation, was the cause of much incon- 
 venience and often of manifest injustice. * * * To meet and obviate 
 this inconvenience and injustice, the legislatures of several states in- 
 terposed and provided for service of process on officers and agents of 
 foreign corporations doing business therein. While the theoretical 
 and legal view, that the domicile of a corporation is only in the state 
 where it is created, was admitted, it was perceived that when a for- 
 eign corporation sent its officers and agents into other states and 
 opened offices, and carried on its business there, it was, in effect, as 
 much represented by them there as in the state of its creation. As it 
 was protected by the laws of those states, allowed to carry on its busi- 
 ness within their borders, and to sue in their courts, it seemed only 
 right that it should bfe held responsible in those courts to obligations 
 and liabilities there incurred. * * * 
 
 A corporation of one state cannot do business in another state with- 
 out the latter's consent, express or implied, and that consent may be 
 accompanied with such conditions as it may think proper to impose. 
 
 The state may, therefore, impose as a condition upon which a for- 
 eign corporation shall be permitted to do business within her limits, 
 that it shall stipulate that in any litigation arising out of its transac- 
 tions in the state, it will accept as sufficient the service of process on 
 its agents or persons specially designated, and the condition would 
 be eminently fit and just. And such condition and stipulation may 
 be implied as well as expressed. If a state permits a foreign cor- 
 poration to do business within her limits, and at the same time pro- 
 vides that in suits against it for business there done, process shall be 
 
Ch. 6) RELATION OP THE CORPORATION TO THE STATE 1511 
 
 served upon its agents, the provision is to be deemed a condition of 
 the permission; and corporations that subsequently do business in 
 the state are to be deemed to assent to such condition as fully as 
 though they had specially authorized their agents to receive service 
 of the process. Such condition must not, however, encroach upon 
 that principle of natural justice which requires notice of a suit to a 
 party before he can be bound by it. It must be reasonable ; and the 
 service provided for should be only upon such agents as may be prop- 
 erly deemed representatives of the foreign corporation. * * * 
 
 We do not, however, understand the laws as authorizing the service 
 of a copy of the writ, as a summons, upon an agent of a foreign cor- 
 poration unless the corporation be engaged in business in the state, 
 and the agent be appointed to act there. We so construe the words 
 "agent of such corporation within this state." They do not sanction 
 service upon an officer or agent of the corporation who resides in an- 
 other state, and is only casually in the state, and not charged with any 
 business of the corporation there. * * * 
 
 MAHAR V. HARRINGTON PARK VILLA SITES et al. 
 
 (Court of Appeals of New York, 1912. 204 N. T. 231, 97 N. E. 587, 
 38 L. R. A. fN. S.] 210.) 
 
 WiLLARD BarTLETT, J. * * * The complaint alleges that at 
 the city of New York, about July 27, 1909, the plaintiff had negotia- 
 tions with the defendants regarding the sale by the defendants and the 
 purchase by the plaintiff of certain lots of land situated at Harrington 
 Park, N. J. ; that thereafter the defendants and plaintiff entered into 
 a written agreement for the sale of said property to the plaintiff; 
 that the contract required plaintiff to pay to the Harrington Park Villa 
 Sites, as a part payment thereon, the sum of $500, and plaintiff de- 
 livered to said defendant a check on the Carnegie Trust Company, 
 drawn to its order, which check was afterwards duly indorsed by said 
 defendant and paid ; that the Harrington Park Villa Sites, at the time 
 named, was a foreign corporation, other than a money corporation, 
 organized and existing under the laws of New Jersey, and had an 
 office for the transaction of its business in the city of New York, and 
 the transaction relating to and the making of the agreement above 
 named took place in the city and state of New York ; that at tlie time 
 of the making of said agreement the Harrington Park Villa Sites had 
 not filed with the Secretary of State of New York the statement re- 
 quired by law, and had not paid the tax or obtained a certificate to 
 enable it, as a foreign stock corporation, other than a money corpora- 
 tion, to do business in the state of New York, and at said times was 
 doing business in violation of section 15 of the general corporation 
 law ; and that the plaintiff under said contract deposited with the de- 
 fendants the said sum of $500, and before the commencement of this 
 action demanded from them the aforesaid sum, no part of which has 
 been paid. Upon these facts the plaintiff demanded judgment against 
 the defendants for the sum of $500 and costs. * * * 
 
 The theory upon which the complaint has been upheld by the Ap- 
 pellate Division is that the contract therein mentioned was void, be- 
 cause made by a foreign stock corporation, other than a moneyed cor- 
 poration, doing business in the state of New York in violation of the 
 
1512 CORPORATIONS (Part 6 
 
 provision of section 15 of the general corporation law; * * * and 
 hence that there was a failure of consideration for the payment of the 
 $500 by the plaintiff, and an action lies to recover back the money. 
 * * * The only penalty which the general corporation law itself 
 prescribes for a disregard of the provisions of this section is a disabili- 
 ty to sue upon such a contract in the courts of New York. "No foreign 
 stock corporation doing business in this state shall maintain any ac- 
 tion in this state upon any contract made by it in this state, unless 
 prior to the making of such contract it shall have- procured such cer- 
 tificate." Consol. taws, c. 23, § 15. This prohibition would be effec- 
 tive to prevent the appellant from suing the respondent upon the 
 contract alleged in the complaint ; but, in my opinion, it ;s not opera- 
 tive to wholly invalidate the contract. I think that the penalty imposed 
 upon a foreign stock corporation for doing business in New York with- 
 out the certificate of authority required by section 15 of the general 
 corporation law is limited to that thus prescribed in the section itself. 
 No doubt the L,egislature could have gone further and declared all 
 contracts to be void which were made by a foreign stock corporation 
 doing business in this state without having obtained the certificate; 
 but it has not done so. * * * 
 
 The Supreme Court of the United States has distinctly held that a 
 contract made by a foreign corporation with a citizen of another state 
 is not necessarily void because the corporation had not complied with 
 the laws of such other state imposing conditions upon it as a prerequi- 
 site to the lawful transaction of business therein. * * * 
 
 If I am right in assuming that the only infirmity in the contract 
 mentioned in the complaint is the disability of one of the parties to it, 
 namely, the foreign corporation, to sue upon it in the courts of this 
 state, it remains a valid and effective instrument in all other respects. 
 There is not a word in the complaint to indicate any other defect. 
 Here, then, we have the case of a contract which is not void and upon 
 which the plaintiff has made a payment, which he was expressly re- 
 quired to make by its very terms, and where there is no intimation 
 that the defendant corporation has failed in any respect to comply with 
 the conditions on its part. It is manifest that these facts afford no 
 basis for any legal claim whatever. 
 
 The complaint fails to disclose a cause of action, and therefore the 
 order of the Appellate Division should be reversed, and .the order of 
 the Appellate Term affirmed, with costs in both courts, and the question 
 certified answered in the negative. * * * 
 
DICTIONARY OF LEGAL TERMS 
 
 (Abridged and Adapted from Black's Law Dictionary.) 
 
 A 
 
 AB INITIO. Latin. From the be- 
 ginning. E. g., void ab initio. An 
 agreement is said to be "void ab initio" 
 if it has at no time had any legal va- 
 lidity. 
 
 ABROGATE. To annul; to repeal. 
 A statute may abrogate a. rule of the 
 common law. 
 
 ABSTRACT OF TITLE. A con- 
 densed history of the title to land, con- 
 sisting of a synopsis or summary of the 
 material or operative portion of aU the 
 conveyances, of whatever kind or na- 
 ture, which in any manner affect said 
 land, or any estate or interest therein, 
 together with a statement of all liens, 
 charges, or liabilities to which the same 
 may be subject, and of which it is in 
 any way material for purchasers to be 
 apprised. 
 
 ACCEPTANCE. In contracts and 
 sales. The act of a person to whom a 
 thing is offered or tendered by another, 
 whereby he receives the thing with the 
 intention of retaining it, such intention 
 being evidenced by a suflBcient act. 
 
 In negotiable instruments. Acceptance 
 of a bill of exchange. The act by which 
 the person ou whom a bill of exchange 
 is drawn (called the "drawee") assents 
 to the request of the drawer to pay it, 
 or, in other words, engages, or makes 
 himself Uable to pay it when due. 2 
 Bl. Comm. 469. Under the Negotiable 
 Instruments Law, "the acceptance must 
 be in writing and signed by the drawee." 
 
 ACCOMMODATION PAPER. An ac- 
 commodation bill or note is one to which 
 the accommodating party, be he accept- 
 or, drawer, or indorser, has put his 
 name, without consideration, for the 
 purpose of benefiting or accommodating 
 some other party who desires to raise 
 money ou it and is to provide for the 
 bill or not© when due. 
 
 ACCORD AND SATISFACTION. An 
 agreement between two persons, one of 
 whom has a right of action against the 
 other, that the latter should do or give, 
 and the former accept, something in sat- 
 
 isfaction of the right of action different 
 from, and usually less than, what might 
 be legally enforced. When the agree- 
 ment is executed, and satisfaction has 
 been made, it is called "accord and sat- 
 isfaction." Accord and satisfaction is 
 the substitution of another agreement 
 between the parties in satisfaction of 
 the former one, and execution of the 
 latter agreement. Such is the definition 
 of this sort of defense usually given. 
 But a broader application of the doc- 
 trine has been made in later times, 
 where one promise or agreement is set 
 up in satisfaction of a prior one, unless 
 it has been expressly accepted as such; 
 as, where a new promissory note has 
 been given in lieu of a former one, to 
 have the effect of a satisfaction of the 
 former, it must have been accepted on 
 an express agreement to that effect. 
 
 ACCOUNT. A detailed statement of 
 the mutual demands in the nature of 
 debt and credit between parties, arising 
 put of contracts or some fiduciary rela- 
 tion. 
 
 Account closed. An account to which 
 no further additions can be made on ei- 
 ther side, but which remains still open 
 for adjustment and set-off, which dis- 
 tinguishes it from account stated. 
 
 Account current. An open or running 
 or unsettled account between two par- 
 ties. 
 
 Account rendered. An account made 
 out by the creditor, and presented to 
 the debtor for his examination and ac- 
 ceptance. When accepted, it becomes 
 an account stated. 
 
 Account stated. The settlement of an 
 account between the parties, with a bal- 
 ance struck in favor of one of them; 
 an account rendered by the creditor, and 
 by the debtor assented to as correct, ei- 
 ther expressly, or by implication of law 
 from the failure to object. 
 
 ACKNOWLEDGMENT. In convey- 
 ancing. The act by which a party who 
 has executed an instrument of convey- 
 ance as grantor goes before a compe- 
 tent ofiicer, or court, and declares or 
 acknowledges the same as his genuine 
 
 B.& B.Btjs.Law 
 
 (1513) 
 
1514 
 
 DICTIONARY OF LEGAL TEEMS 
 
 and voluntary act and deed. The cer- 
 tificate of the officer on such instrument 
 that it has been so acknowledged. 
 
 The term is also used of the act of a 
 person who avows or admits the truth 
 of certain facts which, if established, 
 wUl entail a civil liability upon him. 
 Thus, the debtor's acknowledgment of 
 the creditor's demand or right of action 
 will revive the enforceability of a debt 
 barred by the statute of limitations. 
 
 ACTION. A lawsuit. A right of ac- 
 tion; i. e., a right to bring suit. 
 
 ACT OF GOD. Any misadventure or 
 casualty is said to be caused by the 
 "act- of God," when it happens by the 
 direct, immediate, and exclusive opera- 
 tion of the forces of nature, uncon- 
 trolled and uninfluenced by the power 
 of man, and without human interven- 
 tion, and is of such a character that it 
 could not have been prevented or es- 
 caped from by any amount of foresight 
 or prudence, or by any reasonable de- 
 gree of care or diligence, or by the aid 
 of any appliances which the situation 
 of the party might reasonably require 
 him to use. Any accident produced by 
 any physical cause which Is irresistible, 
 such as lightning, tempests, perils of 
 the seas, inundations, earthquakes; and 
 also the sudden death or illness of per- 
 sons. 
 
 ADJUDICATION. The giving or pro- 
 nouncing of a judgment in a case; also 
 the judgment given. The term is prin- 
 cipally used in bankruptcy proceedings; 
 the adjudication being the order which 
 declares the debtor to be a bankrupt. 
 
 ADMINISTRATOR. In the most 
 usual sense, is a person to whom let- 
 ters of administration — that is, an au- 
 thority to administer the estate of a 
 deceased person — have been granted by 
 the proper court. He resembles an ex- 
 ecutor, but is appointed by the court, 
 without any nomination by the deceased. 
 An administrator of the estate is ap- 
 pointed, if the deceased has made no 
 will, or has named no executor in his 
 will. 
 
 ADVERSE POSSESSION. The ac- 
 tual, open, and notorious possession and 
 enjoyment of real property, or of any 
 estate lying in grant, continued for a 
 certain length of time, held adversely 
 and in denial and opposition to the title 
 of another claimant, or under circum- 
 stances which., indicate an assertion or 
 color of right or title on the part of 
 the person maintaining it, as against 
 another person who is out of posses- 
 sion. 
 
 AFFIANT. The person who makes 
 and subscribes an affidavit. The word 
 is used, in this sense, interchangeably 
 
 with "deponent." But the latter term 
 should be reserved as the designation 
 of one who makes a deposition. 
 
 AFFIDAVIT. A written or printed 
 declaration or statement of facts, made 
 voluntarily, and confirmed by the oath 
 or affirmation of the party making it, 
 taken before an officer having authority 
 to administer such oath. 
 
 A FORTIORI. Lat. By a stronger 
 reason. 
 
 AGENCY. A relation, created either 
 by express or implied contracts or by 
 law, whereby one party (called the prin- 
 cipal) delegates the transaction of some 
 lawful business or the power to do cer- 
 tain acts for him or in relation to his 
 rights or property, with more or less 
 discretionary power, to another person 
 (called the agent, attorney In fact, or 
 proxy) who undertakes to manage the 
 affair and render him an account 
 thereof. 
 
 AGENT. One who represents and 
 acts for another under the relation of 
 agency. 
 
 ALLEGATION. The assertion, dec- 
 laration, or statement of a party to an 
 action, made in a pleading, setting out 
 what he expects to prove. 
 
 ALLEGE. To state, recite, assert, or 
 charge; to make an allegation. 
 
 ANIMO CONTRAHENDI. Lat. With 
 the intention of contracting. 
 
 ANNUL. To cancel; make void; de- 
 stroy. To annul a judgment or judicial 
 proceeding is to deprive it of all force 
 and operation, either ab initio or pro- 
 spectively as to future transaction. 
 
 ANSWER. In pleading. Any plead- 
 ing setting up matters of fact by way 
 of defense. In chancery pleading, the 
 term denotes a defense in writing, made 
 by a defendant to the allegations con- 
 tained in a bill or information filed by 
 the plaintiff against him. In pleading, 
 under the Codes of Civil Procedure, the 
 answer is the formal written statement 
 made by a defendant setting forth the 
 ground of his defense; corresponding to 
 what, in actions under the common-law 
 practice, is called the "plea." 
 
 APPEAL. In civil practice. The 
 complaint to a superior court of an in- 
 justice done or error committed by an 
 inferior one, whose judgment or deci- 
 sion the court above is called upon to 
 correct or reverse. The removal of a 
 cause from a court of inferior to one of 
 superior jurisdiction, for the purpose of 
 obtaining a review and retrial. 
 
 APPELLANT. The party who takes 
 an appeal from one court or jurisdic- 
 tion. 
 
DICTIONARY OF LEGAL TERMS 
 
 1515 
 
 APPELLEE. The party in a cause 
 against whom an appeal is taken; that 
 is, the party who has an interest ad- 
 verse to setting aside or reversing the 
 judgment. 
 
 APPRAISE. In practice. To fix or 
 set a price or value upon; to fix and 
 state the true value of a thing, and, 
 usually, in writing. 
 
 ARBITRATION. In practice. The 
 investigation and determination of a 
 matter or matters of difference between 
 contending parties, by one or more un- 
 official persons, chosen by the parties, 
 and called "arbitrators," or "referees." 
 
 ARREST OF JUDGMENT. In prac- 
 tice. The act of staying a judgment, or 
 refusing to render judgment in an ac- 
 tion at law, after verdict, for some mat- 
 ter intrinsic appearing on the face of 
 the record, which would render the 
 judgment, if given, erroneous or rever- 
 sible. 
 
 ASSUMPSIT. Latin. He undertook; 
 he promised. A promise or engagement 
 by which one person assumes or under- 
 takes to do some act or pay something 
 to another. It may be either oral or 
 in writing, but is not under seal. It is 
 express, if the promisor puts his en- 
 gagement in distinct and definite lan- 
 guage; it is implied, where the law in- 
 fers a promise (though no formal one 
 has passed) from the conduct of the 
 party or the circumstances of the case. 
 
 in practice. A form of action which 
 lies for the recovery of damages for the 
 non-performance of a parol or simple 
 contract, or a contract that is neither 
 of record nor under seal. 
 
 The ordinary division of this action is 
 into (1) common or indebitatus assump- 
 sit, brought for the most part on an 
 implied promise; and (2) special as- 
 sumpsit, founded on an express prom- 
 ise. 
 
 The action of assumpsit differs from 
 trespass and trover, which are founded 
 on a tort, not upon a contract; from 
 covenant and debt, which are appropri- 
 ate where the ground of recovery is a 
 sealed instrument, or special obligation 
 to pay a fixed sum; and from replevin, 
 which seeks the recovery of specific 
 property, if attainable, rather than of 
 damages. 
 
 ASSURANCE. In conveyancing. A 
 deed or instrument of conveyance. The 
 legal evidences of the transfer of prop- 
 erty are in England called the "common 
 assurances" of the kingdom, whereby 
 every man's estate is assured to him, 
 and all controversies, doubts, and diffi- 
 culties are either prevented or removed. 
 
 person's property, by virtue of a writ, 
 and bringing the same into tbe custody 
 of the law, used either for the purpose 
 of bringing a person before the court, 
 of acquiring jurisdiction over the prop- 
 erty seized, to compel an appearance, to 
 furnish security for debt or costs, or to 
 arrest a fund in the hands of a third 
 person who may become liable to pay 
 it over. Also the writ or other process 
 for the accomplishment of the purposes 
 above enumerated, this being the more 
 common use of the word. 
 
 ATTESTATION. The act of wit- 
 nessing an instrument in writing, at the 
 request of the party making the same, 
 and subscribing it as a witness. Exe- 
 cution and attestation are clearly dis- 
 tinct formalities; the former being the 
 act of the party, and the latter of the 
 witnesses only. 
 
 ATTORNEY. In the most general 
 sense, this term denotes an agent or 
 substitute, or one who is appointed and 
 authorized to act in the place or stead 
 of another. 
 
 It is "an ancient English word, and 
 signifieth one that is set in the turne, 
 stead, or place of another; and of these 
 some be private * * • and some be 
 publike, as attorneys at law." Co. 
 Litt. 51b. 
 
 One who is appointed by another to 
 do something in his absence, and who 
 has authority to act in the place and 
 turn of him by whom he is delegated. 
 
 When used with reference to the pro- 
 ceedings of courts, the term always 
 means "attorney at law." 
 
 AWARD, V. To grant, concede, ad- 
 judge to. Thus, a jury awards damag- 
 es; the court awards an injunction. 
 
 AWARD, n. The decision or deter- 
 mination rendered by arbitrators or 
 commissioners, or other private or ex- 
 trajudicial deciders, upon a controversy 
 submitted to them; also the writing or 
 document embodying such decision. 
 
 B 
 
 BAIL, T. To procure the release of 
 a person from legal custody, by under- 
 taking that he shall appear at the time 
 and place designated and submit him- 
 self to the jurisdiction and judgment of 
 the court. 
 
 BAIL, n. In practice. The sureties 
 who procure the release of a person 
 under arrest, by becoming responsible 
 for his appearance at the time and 
 place designated. Those persons who 
 become sureties for the appearance of 
 the defendant in court. 
 
 ATTACHMENT. The act or process BAILEE. In the law of contracts, 
 of taking, apprehending, or seizing a One to whom goods are bailed; the 
 
1516 
 
 DICTIONARY OF LEGAL TEEMS 
 
 party to whom personal property is de- 
 livered under a contract of bailment. 
 
 BAILMENT. A delivery of goods or 
 personal property, by one person to an- 
 other in trust for the execution of a 
 special object upon or in relation to 
 such goods, beneficial either to the bail- 
 or or bailee or both, and upon a con- 
 tract, express or implied, to perform 
 the trust and carry out such object, and 
 thereupon either to redeliver the goods 
 to the bailor or otherwise dispose of the 
 same in conformity with the purpose of 
 the trust. 
 
 BAILOR. The party who bails or de- 
 livers goods to another, in the contract 
 of bailment. 
 
 BANKRUPT. A person who has 
 committed an act of bankruptcy; one 
 who has done some act or suffered some 
 act to be done in consequence of which, 
 under the laws of his country, he is lia- 
 ble to be proceeded against by his cred- 
 itors for the seizure and distribution 
 among them of his entire property, 
 
 BARTER. A contract by which par- 
 ties exchange goods or commodities for 
 other goods. It differs from sale, in 
 this: That in the latter transaction 
 goods or property are always exchanged 
 for money. 
 
 BATTERY. Any unlawful beating, or 
 other wrongful physical violence or con- 
 straint, inflicted on a human being with- 
 out consent. 
 
 BENEFICIARY. A person having the 
 enjoyment of property of which a trus- 
 tee, executor, etc., has the legal posses- 
 sion. The person to whom a policy of 
 insurance is payable. 
 
 BEQUEATH. To give personal prop- 
 erty by vpill to another. 
 
 BEQUEST. A gift by will of per- 
 sonal property; a legacy. 
 
 BID. An offer by an intending pur- 
 chaser to pay a designated price for 
 property which is about to be sold at 
 auction. 
 
 BILL. A formal declaration, com- 
 plaint, or statement of particular things 
 in writing. As a legal term, this word 
 has many meanings and applications, 
 the more important of which are enu- 
 merated below. 
 
 BILL OF LADING. In common law. 
 The written evidence of a contract for 
 the carriage and delivery of goods sent 
 by sea for a certain freight. A written 
 memorandum, given by the person in 
 command of a merchant vessel, ac- 
 knowledging the receipt on board the 
 sbip of certain specified goods, in good 
 order or "apparent good order," which 
 he undertakes, in consideration of the 
 
 payment of freight, to deliver in like 
 good order (dangers of the sea ex- 
 cepted) at a designated place to the 
 consignee therein named or to bis as- 
 signs. The term is often applied to a 
 similar receipt and undertaking given by 
 a carrier of goods by land. A bill of 
 lading is an instrument in writing, 
 signed by a carrier or his agent, de- 
 scribing the freight so as to identify it, 
 stating the name of the consignor, the 
 terms of the contract for carriage, and 
 agreeing or directing that the freight be 
 delivered to the order or assigns of a 
 specified person at a specified place. 
 
 BILL OF PARTICULARS. In prac- 
 tice. A written statement or specifica- 
 tion of the particulars of the demand 
 for which an action at law is brought, 
 or of a defendant's set-off against such 
 demand (including dates, sums, and 
 items in detail), furnished by one of the 
 parties to the other, either voluntarily 
 or in compliance with a judge's order 
 for that purpose. 
 
 BILL OF SALE. In contracts. A 
 written agreement under seal, by which 
 one person assigns or transfers his 
 right to or interest in goods and per- 
 sonal chattels to another. An instru- 
 ment by which, in particular, the prop- 
 erty in ships and vessels is conveyed. 
 
 CAPITAL. Partnership. "The capi- 
 tal of a partnership is the aggregate of 
 the sums contributed by its members to 
 establish or continue the partnership 
 business.'' Gilmore on Partnership, p. 
 132. 
 
 Corporations. In reference to a cor- 
 poration, it is the aggregate of the sum 
 subscribed and paid in, or secured to be 
 paid in, by the shareholders, with the 
 addition of all gains or profits realized 
 in the use and investment of those sums, 
 or, if loss have been incurred, then it is 
 the residue after deducting such losses. 
 
 CAPITAL STOCK. The common stock 
 or fund of a corporation. The sum of 
 money raised by the subscriptions of 
 the stockholders, and divided into 
 shares. It is said to be the sum upon 
 which calls may be made upon the 
 stockholders, and dividends are to be 
 paid. 
 
 CAUSE OF ACTION. Matter for 
 which an action may be brought. The 
 ground on which an action may be sus- 
 tained. The right to bring a suit. 
 
 CAVEAT EMPTOR. Let the buyer 
 take care. This maxim summarizes the 
 rule that the purchaser of an article 
 must examine, judge, and test it for 
 himself, being bound to discover any ob- 
 vious defects or imperfections. 
 
DICTIONARY OF LEGAL TERMS 
 
 1517 
 
 CERTIFICATE OF DEPOSIT. In 
 
 the practice of bankers. This is a writ- 
 ing acknowledging that the person 
 named has deposited in the bank a spec- 
 ified sum of money, and that the same 
 is held subject to be drawn out on his 
 own check or order, or that of some 
 other person named in the instrument 
 as payee. 
 
 CERTIFICATE OF STOCK. A cer- 
 tificate of a corporation or joint-stock 
 company that the person named is the 
 owner of a designated number of shares 
 of its stock; given when the subscrip- 
 tion is fully paid and the "scrip certifi- 
 cate" taken up. 
 
 CESTUI QUE TRUST. He who has 
 a right to a beneficial interest in and 
 out of an estate the legal title to which 
 is vested in another. 2 Washb. Real 
 Prop. 163. The person who possess- 
 es the equitable right to property and 
 receives the rents, issues, and profits 
 thereof, the legal estate of which is 
 vested in a trustee. It has been pro- 
 posed to substitute for this uncouth 
 term the English word "beneficiary," 
 and the latter, though still far from uni- 
 versally adopted, has come to be quite 
 frequently used. It is equal in preci- 
 sion to the antiquated and unwieldy 
 Norman phrase, and far better adapted 
 to the genius of 'our language. 
 
 CHAMPERTY. A bargain made by a 
 stranger with one of the parties to a 
 suit, by which such third person under- 
 takes to carry on the litigation at his 
 own cost and risk, in consideration of 
 receiving, if he wins the suit, a part of 
 the land or other subject sought to be 
 recovered by the action. 
 
 CHANCELLOR. In American law, 
 this is the name given in some states to 
 the judge (or the presiding judge) of a 
 court of chancery. In England, besides 
 being the designation of the chief judge 
 of the Court of Chancery, the term is 
 used as the title of several judicial of- 
 ficers attached to bishops or other high 
 dignitaries and to the universities. 
 
 CHANCERY. Equity; equitable ju- 
 risdiction; a court of equity; the sys- 
 tem of jurisprudence administered in 
 courts of equity. 
 
 CHARTER. An instrument emanat- 
 ing from the sovereign power, in the na- 
 ture of a grant, authorizing the forma- 
 tion of a corporation. Under modern 
 statutes, a charter is usually granted 
 by the state secretary of state, who 
 acts under general statutory authority 
 conferred by the state legislature. 
 
 CHARTER PARTY. A contract by 
 which an entire ship, or some principal 
 part thereof, is let to a merchant for 
 
 the conveyance of goods on a deter- 
 mined voyage to one or more places. 
 
 CHATTEL. An article of personal 
 property; any species of property not 
 amounting to a freehold or fee in land. 
 
 CHATTEL MORTGAGE. An instru- 
 ment of sale of personalty conveying 
 the title of the property to the mortga- 
 gee with terms of defeasance; and, if 
 the terms of redemption are not com- 
 plied with, then, at common law, the ti- 
 tle becomes absolute in the mortgagee. 
 
 CHECK. A draft or order upon a 
 bank or banking house, purporting to be 
 drawn upon a deposit of funds, for the 
 payment at all events of a certain sum 
 of money to a certain person therein 
 named, or to him or his order, or to 
 bearer, and payable instantly on de- 
 mand. 
 
 CHOSE IN ACTION. A rlglit to 
 personal things of which the owner has 
 not the possession, but merely a right 
 of action for their possession. 2 Bl. 
 Comm. 389, 397; 1 Chit. Pr. 99. 
 
 A right to receive or recover a debt, 
 demand, or damages on a cause of ac- 
 tion ex contractu, or for a tort con- 
 nected with contract, but which cannot 
 be made available without recourse to 
 an action. 
 
 CHOSE IN POSSESSION. A thing 
 in possession, as distinguished from a 
 thing in action. 
 
 CIVIL. In contradistinction to "crim- 
 inal," it indicates the private rights and 
 remedies of men, as members of the 
 community, in contrast to those which 
 are public and relate to the govern- 
 ment; thus, we speak of civU process 
 and criminal process, civil jurisdiction 
 and criminal jurisdiction. 
 
 CIVIL LAW. The "Roman law" and 
 the "civil law" are convertible phrases, 
 meaning the same system of jurispru- 
 dence ; it is now frequently denominated 
 the "Roman civil law." 
 
 CLIENT. A person who employs or 
 retains an attorney, or counsellor, to 
 appear for him in courts, advise, assist, 
 and defend him in legal proceedings, and 
 to act for him in any legal business. 
 
 CLOSE. A portion of land, as a field, 
 inclosed, as by a hedge, fence, or other 
 visible inclosure. 
 
 CODE. A collection or compendium 
 of laws. A complete system of positive 
 law, scientifically arranged, or promul- 
 gated by legislative authority. 
 
 COLLATERAL. By the side; at the 
 side; attached upon the side. Not lin- 
 eal, but upon a parallel or diverging 
 line. Additional or auxiliary; supple- 
 mentary; co-operating. 
 
1518 
 
 DICTIONAKT OF LEGAL TEEMS 
 
 COLLATERAL SECURITY. A se- 
 curity given in addition to the direct 
 security, and subordinate to it, intended 
 to guarantee its validity or convertibil- 
 ity or insure its performance ; so that, 
 if the direct security fails, the creditor 
 may fall back upon the collateral secu- 
 rity. Collateral security, in bank phrase- 
 ology, means some security additional to 
 the personal obligation of the borrower. 
 
 COLOR. An appearance or sem- 
 blance, as distinguished from a reality. 
 Hence, color of title. 
 
 COMITY OF NATIONS AND 
 STATES. The most appropriate phrase 
 to express the true foundation and ex- 
 tent of the obligation of the tews of one 
 nation within the territories of another. 
 It is derived altogether from the volun- 
 tary consent of the latter; and it is in- 
 admissible when it is contrary to its 
 known policy, or prejudicial to its inter- 
 est. In the silence of any positive rule 
 affirming or denying or restraining the 
 operation of foreign laws, courts of jus- 
 tice presume the tacit adoption of them 
 by their own government, unless repug- 
 nant to its policy, or prejudicial to its 
 interests. It is not the comity of the 
 courts, but the comity of the nation, 
 which is administered and ascertained in 
 the same way, and guided by the same 
 reasoning, by which all other principles 
 of the municipal law are ascertained 
 and guided. 
 
 . COMMERCIAL LAW. Aphraseused 
 to designate the whole body of substan- 
 tive jurisprudence applicable to the 
 rights, intercourse, and relation of per- 
 sons engaged in commerce, trade, or 
 mercantile pursuits. It is not a very 
 scientific or accurate term. As foreign 
 commerce is carried on by means of 
 shipping, the term has come to be used 
 occasionally as synonymous with "mar- 
 itime law;" but, in strictness, the 
 phrase "commercial law" is wider, and 
 includes many transactions or legal 
 questions which have nothing to do with 
 shipping or its incidents. 
 
 COMMERCIAL PAPER. The term 
 "commercial paper" means bills of ex- 
 change, promissory notes, bank checks, 
 and other negotiable instruments for the 
 payment of money, which, by their form 
 and on their face, purport to be such 
 instruments as are, by the law-mer- 
 chant, recognized as falling under the 
 designation of "commercial paper." 
 
 COMMISSION. A warrant or author- 
 ity or letters patent, issuing from the 
 government, or one of its departments, 
 or a court, empowering a person or per- 
 sons named to do certain acts, or to ex- 
 ercise jurisdiction, or to perform the 
 duties and exercise the authority of an 
 
 office (as in the case of an officer in 
 the army or navy). 
 
 Also, in private affairs, it signifies the 
 authority or instructions under which 
 one person transacts business or nego- 
 tiates for another. 
 
 In a derivative sense, a body of per- 
 sons to whom a commission is directed. 
 A board or committee officially appoint- 
 ed and empowered to perform certain 
 acts or exercise certain jurisdiction of 
 a public nature or relation; as a "com- 
 mission of assize." 
 
 In commercial law. The recompense 
 or reward of an agent, factor, broker, 
 or bailee, when the same is calculated 
 as a percentage on the amount of his 
 transactions or on the profit to the 
 principal. But in this sense the word 
 often occurs in the plural. 
 
 COMMISSION MERCHANT. A fac- 
 tor. 
 
 .COMMITTEE. A term applied, ui 
 some states, to the guardian of an in- 
 sane person. 
 
 COMMON CARRIER. Of goods. 
 "One who holds himself out to trans- 
 port for hire the goods of such as 
 choose to employ him." Goddard on 
 Bailments and Carriers, § 191. 
 
 Of passengers. "Such as hold them- 
 selves out for hire to carry all persons 
 indifferently who apply for passage." 
 Id. § 317. 
 
 COMMON COUNTS. Certain general 
 counts or forms inserted in a declara- 
 tion in an action to recover a money 
 debt, not founded on the circumstances 
 of the individual case, but intended to 
 guard against a possible variance, and 
 to enable the plaintiff to take advantage 
 of any ground of liability which the 
 proof may disclose within the general 
 scope of the action. In the action of 
 assumpsit, these counts are as follows: 
 For goods sold and delivered, or bar- 
 gained and sold; for work done; for 
 money lent; for money paid; for mon- 
 ey received to the use of the plaintiff; 
 for interest; or for money due on an 
 account stated. 
 
 COMMON LAW. As distinguished 
 from the Roman law, the modern civil 
 law, the canon law, and other systems, 
 the common law is that body of law and 
 juristic theory which was originated,- 
 developed, and formulated and is admin- 
 istered in England, and has obtained 
 among most of the states and peoples 
 of Anglo-Saxon stock. 
 
 As distinguished from law created by 
 the enactment of legislatures, the com- 
 mon law comprises the body of those 
 principles and rules of action, relating 
 to the government and security of per- 
 sons and property, which derive their 
 
DICTIONARY OF LEGAL TEEMS 
 
 1519 
 
 authority solely from usages and cus- 
 toms of immemorial antiquity, or from 
 the judgments and decrees of the courts 
 recognizing, affirming, and enforcing such 
 usages and customs, and, in this sense, 
 particularly the ancient unwritten law 
 of England. 
 
 As distinguished from equity law, it is 
 a body of rules and principles, written 
 or unwritten, which are of fixed and 
 immutable authority, and which must be 
 applied to controversies rigorously and 
 in their entirety, and cannot be modi- 
 fied to suit the peculiarities of a spe- 
 cific case, or colored by any judicial 
 discretion, and which rests confessedly 
 upon custom or statute, as distinguished 
 from any claim to ethical superiority. 
 
 COMPLAINT. In civil praotioe. In 
 
 those states having a Code of Civil 
 Procedure, the complaint is the first or 
 initiatory pleading on the part of the 
 plaintiff in a civil action. It corre- 
 sponds to the declaration in the common 
 law practice. 
 
 In criminal law. A charge, preferred 
 before a magistrate having jurisdiction, 
 that a person named (or a certain per- 
 son whose name is unknown) has com- 
 mitted a certain offense, with an offer 
 to prove the fact, to the end that a 
 prosecution may be instituted. It is a 
 technical term, descriptive of proceed- 
 ings before a magistrate. 
 
 COMPOSITION. An agreement, made 
 upon a sufficient consideration, between 
 an insolvent or embarrassed debtor and 
 his creditors, whereby the latter, for. 
 the sake of immediate payment, agree 
 to accept a dividend less than the whole 
 amount of their claims, to be distrib- 
 uted pro rata, in discharge and satis- 
 faction of the whole. 
 
 COMPOS MENTIS. Sound of mind. 
 
 COMPOUNDING A FELONY. The 
 offense committed by a person who, 
 having been directly injured by a felony, 
 agrees with the criminal that he wiU 
 not prosecute him, on condition of the 
 latter's making reparation, ►■ or on re- 
 ceipt of a reward or bribe not to pros- 
 ecute. 
 
 The offense of taking a reward for 
 forbearing to prosecute a felony; as 
 where a party robbed takes his goods 
 again, or other amends, upon an agree- 
 ment not to prosecute. 
 
 COMPROMISE. An arrangement ar- 
 rived at, either in court or out of court, 
 for settling a dispute upon what ap- 
 pears to the parties to be equitable 
 terms, having regard to the uncertainty 
 they are in regarding the facts, or ^e 
 law and the facts together. 
 
 CONFESSION OF JUDGMENT. The 
 act of a debtor in permitting judgment 
 
 to be entered against him by his credi- 
 tor, for a stipulated sum, by a written 
 statement to that effect or by warrant 
 of attorney, without the institution of 
 legal proceedings of any kind. 
 
 CONFLICT OF LAWS. An opposi- 
 tion, conflict, or antagonism between 
 different laws of the same state or sov- 
 ereignty upon the same subject-matter. 
 
 A similar inconsistency between the 
 municipal laws of different states or 
 countries, arising in the case of persons 
 who have acquired rights or a status, 
 or made contracts, or incurred obliga- 
 tions, within the territory of two or 
 more states. 
 
 That branch of jurisprudence, arising 
 from the diversity of the laws of dif- 
 ferent nations in their application to 
 rights and remedies, which reconciles 
 the inconsistency, or decides which law 
 or- system is to govern in the particular 
 case, or settles the degree of force to 
 be accorded to the law of a foreign 
 country (the acts or rights in question 
 having arisen under it), either where it 
 varies from the domestic law, or where 
 the domestic law is silent or not ex- 
 clusively applicable to the case in point. 
 In this sense it is more properly called 
 "private international law." 
 
 CONNIVANCE. The secret or indi- 
 rect consent or permission of one per- 
 son to the commission of an unlawful or 
 criminal act. 
 
 CONSANGUINITY. Kinship; blood 
 relationship; the connection or relation 
 of persons descended from the same 
 stock or common ancestor. 
 
 CONSERVATOR. A guardian of an 
 insane person's estate. 
 
 CONSIDERATION. The inducement 
 to a contract. The cause, motive, price, 
 or impelling influence which induces a 
 contracting party to enter into a con- 
 tract. 
 
 Any benefit conferred, or agreed to be 
 conferred, upon the promisor, by any 
 other person, to which the promisor is 
 not lawfully entitled, or any prejudice 
 suffered, or agreed to be suffered, by 
 such person, other than such as he is 
 at the time of consent lawfully bound to 
 suffer, as an inducement to the promis- 
 or, is a good consideration for a prom- 
 ise. 
 
 CONSIGNEE. In mercantile law. 
 One to whom a consignment is made. 
 The person to whom goods are shipped 
 for sale. 
 
 CONSIGNMENT. The act or pro- 
 cess of consigning goods; the transpor- 
 tation of goods consigned; an article 
 or collection of goods sent to a factor 
 to be sold; goods or property sent, by 
 the aid of a common carrier, from one 
 
1520 
 
 DICTIONARY OF LEGAL TERMS 
 
 person in one place to another person 
 in another place. 
 
 CONSIGNOR. One who sends or 
 makes a consignment. A shipper of 
 goods. 
 
 CONSPIRACY. In criminal law. A 
 combination or confederacy between two 
 or more persons formed for the purpose 
 of committing, by their joint efforts, 
 some unlawful or criminal act, or some 
 act which is innocent in itself, but be- 
 comes unlawful when done by the con- 
 certed action of the conspirators, or for 
 the purpose of using criminal or unlaw- 
 ful means to the commission of an act 
 not in itself unlawful. 
 
 CONSTRUCTIVE. That which is es- 
 tablished by the mind of the law in its 
 act of construing facts, conduct, cir- 
 cumstances, or instruments; that which 
 has not the character assigned to it jn 
 its own essential nature, but acquires 
 such character in consequence of the 
 way in which it is regarded by a rule 
 or policy of law; hence, inferred, im- 
 plied, made out by legal interpretation. 
 
 Constructive assent. An assent or 
 consent imputed to a party from a con- 
 struction or interpretation of his con- 
 duct; as distinguished from one which 
 he actually expresses. 
 
 CONTRA. Lat. Opposite, contrary. 
 Where a decision is said to be contra, 
 it is on the opposite side of the ques- 
 tion. 
 
 CONTRACT. "In its broadest sense, 
 an agreement whereby one or more of 
 the parties acquire a right, in rem or in 
 personam, in relation to some person, 
 thing, act, or forbearance." Clark on 
 Contracts (3d Ed.) p. 1. 
 
 CONTRIBUTION. In common law. 
 The sharing of a loss or payment among 
 several. The act of any one or several 
 of a number of co-debtors, co-sureties, 
 etc., in reimbursing one of their number 
 who has paid the whole debt or suffered 
 the whole liability, each to the extent of 
 his proportionate share. 
 
 CONVERSION. An unauthorized as- 
 sumption and exercise of the right of 
 ownership over goods or personal chat- 
 tels belonging to another, to the altera- 
 tion of their condition or the exclusion 
 of the owner's rights. 
 
 Constructive conversion. An implied 
 or virtual conversion, which takes place 
 where a person does such acts in refer- 
 ence to the goods of another as amount 
 in law to the appropriation of the prop- 
 erty to himself. 
 
 CORPORATION. An artificial person 
 or legal entity, created by or under the 
 authority of the laws of a state or na- 
 tion, I'Composed in some rare instances 
 
 of a single person and his successors, 
 being the incumbents of a particular of- 
 fice, but ordinarily consisting of an as- 
 sociation of numerous individuals, who 
 subsist as a body politic under a special 
 denomination, which is regarded in law 
 as having a personality and existence 
 distinct from that of its several mem- 
 bers, and which is, by the same author- 
 ity, vested with the capacity of contin,- 
 uous succession, irrespective of changes 
 in its membership, either in perpetuity 
 or for a limited term of years, and of 
 acting as a unit or single individual in 
 matters relating to the common purpose 
 of the association, within the scope of 
 the powers and authorities conferred up- 
 on such bodies by law. 
 
 CORPOREAL PROPERTY. Such as 
 affects the senses, and may be seen and 
 handled by the body, as opposed to in- 
 corporeal property which cannot be 
 seen or handled, and exists only in con- 
 templation. Thus, a house is corporeal, 
 but the annual rent payable for its oc- 
 cupation is incorporeal. Corporeal prop- 
 erty is, if movable, capable of manual 
 transfer; if immovable, possession of it 
 may be delivered up. But incorporeal 
 property cannot be so transferred, but 
 some other means must be adopted for 
 its transfer, of which the most usual is 
 an instrument in writing. 
 
 COSTS. A pecuniary allowance, made 
 to the successful party (and recovera- 
 ble from the losing party), for his ex- 
 penses in prosecuting or defending a 
 suit or a distinct proceeding within a 
 suit. 
 
 COUNT, n. In pleading. The differ- 
 ent parts ' of a declaration, each of 
 which, if it stood alone, would consti- 
 tute a ground for action, are the counts 
 of the declaration. Used also to sig- 
 nify the several parts of an indictment, 
 each charging a distinct offense. 
 
 COUNTERCLAIM. A claim pre- 
 sented by a defendant in opposition to 
 or deduction from the claim of the 
 plaintiff. A species of set-off or re- 
 coupment introduced by the codes of 
 civil procedure in several of the states, 
 of a broad and liberal character. 
 
 COURT. In practice. An organ of 
 the government, belonging .to the judi- 
 cial department, whose function is the 
 application of the laws to controversies 
 brought before it and the public admin- 
 istration of justice. 
 
 COURT ABOVE— COURT BELOW. 
 
 In appellate practice, the "court above" 
 is the one to which a cause is removed 
 for review, whether by appeal, writ of 
 error, or certiorari; while the "court 
 below" is the one from which the case 
 is being removed. 
 
DICTIONARY OP LEGAL TEEMS 
 
 1521 
 
 COVENANT. An agreement, conven- 
 tion, or promise of two or more par- 
 ties, by deed in writing, signed, sealed, 
 and delivered, by which either of the 
 parties pledges himself to the other that 
 something is either done or shall be 
 done, or stipulates for the truth of cer- 
 tain facts. A promise contained in such 
 an agreement. 
 
 COVERT. Covered, protected, shel- 
 tered. A pound covert is one that is 
 close or covered over, as distinguished 
 from pound overt, which is open over- 
 head. A feme Covert is so called, as 
 being under the wing, protection or cov- 
 er of her husband. 
 
 COVERTURE. The condition or 
 state of a married woman. 
 
 CRIME. A crime is an act commit- 
 ted or omitted, in violation of a public 
 law, either forbidding or commanding it; 
 a breach or violation of some public 
 right or duty due to a whole commu- 
 nity, considered as a community in its 
 social aggregate capacity, as distin- 
 guished from a civil injury. 
 
 D 
 
 DAMAGE. Loss, injury, or deterio- 
 ration, caused by the negligence, design, 
 or accident of one person to another, in 
 respect of the latter's person or prop- 
 erty. 
 
 DAMAGES. 1. The plural of damage. 
 
 2. Compensation claimed or awarded 
 in a judicial proceeding for damage or 
 for the invasion of a legal right. Bauer 
 on Damages, p. 1. 
 
 DEBT. A sum of money due to cer- 
 tain and express agreement; as by bond 
 for a determinate sum, a bill or note, a 
 special bargain, or a rent reserved on a 
 lease, where the amount is fixed and 
 specific, and does not depend upon any 
 subsequent valuation to settle it. 
 
 DECEIT. A fraudulent and cheating 
 misrepresentation, artifice, or device, 
 used by one or more persons to deceive 
 and trick another, who is ignorant of 
 the true facts, to the prejudice and 
 damage of the party imposed upon. 
 
 DECREE. In practice. The judg- 
 ment of a court of equity or admiralty, 
 answering to the judgment of a court of 
 common law. 
 
 DEED. A sealed instrument, con- 
 taining a contract or covenant, delivered 
 by the party to be bound thereby, and 
 accepted by the party to whom the con- 
 tract or covenant runs. 
 
 DE FACTO. In fact, in deed, actu- 
 ally. 
 
 DE JURE. Of right; legitimate; 
 lawful; by right and just title. 
 B.& B. Bus. Law— 96 
 
 DEL CREDERE. An agreement by 
 which a factor, when he sells goods on 
 credit, for an additional commission 
 (called a "del credere commission"), 
 undertakes that the purchase price Tyjll 
 be paid the seller. The del credere fac- 
 tor is usually held to have undertaken a 
 primary and absolute liability, but some 
 cases hold that he is a mere surety. 
 
 DELICTUM. Lat. A tort. 
 
 DEMISE. 1. A conveyance of an es- 
 tate to another for life, for years, or 
 at will; a lease. 
 
 2. Death or decease. 
 
 DEMURRER. In pleading. The for- 
 mal mode of disputing the suflBciency in 
 law of the pleadmg of the other side. 
 In effect it is an allegation that, even if 
 the facts as stated in the pleading to 
 which objection is taken be true, yet 
 their legal consequences are not such as 
 to put the demurring party to the ne- 
 cessity of answering them or proceeding 
 further with the cause. 
 
 An objection made by one party to his 
 opponent's pleading, alleging that he 
 ought not to answer it, for some defect 
 in law in the pleading. It admits the 
 facts, and refers the law arising there- 
 on to the court. 
 
 It imports that the objecting party 
 will not proceed, but will wait the judg- 
 ment of the court whether he is bound 
 so to do. 
 
 In Equity. An allegation of a defend- 
 ant, which, admitting the matters of 
 fact alleged by the bill to be true, shows 
 that as they are therein set forth they 
 are insufficient for the plaintiff to pro- 
 ceed upon or to oblige the defendant to 
 answer, or that, for some reason appar- 
 ent on the face of the bOl, or on ac- 
 count of the omission of some matter 
 which ought to be contained therein, or 
 for want of some circumstances which 
 ought to be attendant thereon, the de- 
 fendant ought not to be compelled to 
 answer to the whole biU, or to some 
 certain part thereof. 
 
 DE NOVO. Lat. Anew. 
 
 DEPONENT. One who makes oath 
 to a written statement. 
 
 DEPOSIT, in banking law. The act 
 of placing or lodging money in the cus- 
 tody of a bank or banker, for safety or 
 convenience, to be withdrawn at the will 
 of the depositor or under rules and reg- 
 ulations agreed on; also the money so 
 deposited. 
 
 DEPOSITION. The testimony of a 
 witness taken upon interrogatories, not 
 in court, but intended to be used in 
 court. 
 I DESCENT. Hereditary succession. 
 
1522 
 
 DICTIONARY OF LEGAL TERMS 
 
 DESCRIPTrOPERSON/E. Lat. De- 
 
 ■scription of the person. 
 
 DETUR DIGNIORI. Lat. Let it be 
 given to him who is more worthy. 
 
 DEVISE. A testamentary disposition 
 of land or realty; a gift of real prop- 
 erty by the last wiU and testament of 
 the donor. 
 
 DICTUM. The word is generally 
 used as an abbreviated form of obiter 
 dictum, "a remark by the way;" that 
 is, an observation or remark made by a 
 judge in pronouncing an opinion upon a 
 cause, concerning some rule, principle, 
 or application of law, or the solution of 
 a question suggested by the case at bar, 
 but not necessarily involved in the case 
 or essential to its determination; any 
 statement of the law enunciated by the 
 court merely by way of illustration, ar- 
 gument, analogy, or suggestion. 
 
 DISCOUNT. In a general sense, _an 
 allowance or deduction made from a 
 gross sum on any account whatever. In 
 a more limited and technical sense, the 
 taking of interest in advance. By the 
 language of the commercial world and 
 the settled practice of banks, a discount 
 by a bank means a drawback or deduc- 
 tion made upon its advances or loans of 
 money, upon negotiable paper or other 
 evidences of debt payable at a future 
 day, which are transferred to the bank. 
 
 DISHONOR. In mercantile law and 
 usage. To refuse or decline to accept a 
 bill of exchange, or to refuse or neglect 
 to pay a bill or note at maturity. 
 
 DIVIDEND. A fund to be divided. 
 The share allotted to each of several 
 persons entitled to share in a division of 
 profits or property. Thus, dividend may 
 denote a fund set apart by a corpora- 
 tion out of its profits, to be apportioned 
 among the shareholders, or the propor- 
 tional amount falling to each. In bank- 
 ruptcy proceedings, a dividend is a pro- 
 portional payment to the creditors out 
 of the insolvent estate. 
 
 DOMICILE. That place in which a 
 man has voluntarily fixed the habitation 
 of himself and family, not for a mere 
 special or temporary purpose, but with 
 the present intention of. making a per- 
 manent home, until some unexpected 
 event shall occur to induce him to adopt 
 some other permanent home. 
 
 DORMANT PARTNER. See Part- 
 ners. 
 
 DOWER. The provision which the 
 law makes for a widow out of lands or 
 tenements of her husband, for her sup- 
 port and the nurture of her children. 
 Co. Litt. 30a. Dower is an estate for 
 life of the widow in a certain portion of 
 the estate of her husband, to which she 
 
 1 has not relinquished her right during 
 the marriage. 
 
 DRAWEE. A person to whom a bill 
 of exchange is addressed, and who is re- 
 quested to pay the amount of money 
 therein named. 
 
 DRAWER. The person drawing a bill 
 of exchange and addressing it to the 
 drawee. 
 
 DUEBILL. A brief written acknowl- 
 edgment of a debt. It is not made pay- 
 able to order, like a promissory note. 
 
 DURESS. Unlawful constraint exer- 
 cised upon a person, whereby he is 
 forced to do some act against his will. 
 
 E 
 
 EARNEST. The payment of a part 
 of the price of goods sold, or the deliv- 
 ery of part of such goods, for the pur- 
 pose of binding the contract. 
 
 EASEMENT. A right in the owner 
 of one parcel of land, by reason of such 
 ownership, to use the land of another 
 for a special purpose not inconsistent 
 with a general property in the owner. 
 2 Washb. Real Prop. 25. 
 
 A private easement is a prlvOege, 
 service, or convenience which one neigh- 
 bor has of another, by prescription, 
 grant, or necessary implication, and 
 without profit; as a way over his land, 
 a gateway, watercourse, and the like. 
 Kitch. 105. 
 
 EJECTMENT. An action of which 
 the purpose is to determine whether the 
 title to certain land is in the plaintiff or 
 is in the defendant. 
 
 ELECTION. The act of choosing or 
 selecting one or more from a greater 
 number of persons, things, courses, 
 rights, or remedies. 
 
 EMANCIPATION. The act by which 
 an infant is set at liberty from the con- 
 trol of parent or guardian and made his 
 own master. 
 
 EMBEZZLEMENT. The fraudulent 
 appropriation to his own use or benefit 
 of property or money intrusted to him 
 by another, by a clerk, agent, trustee, 
 public officer, or other person acting in 
 a fiduciary character. 
 
 EMBLEMENTS. The vegetable chat- 
 tels called "emblements" are the corn 
 and other growth of the earth which are 
 produced annually, not spontaneously, 
 but by labor and industry, and thence 
 are called "fructus industriales." 
 
 EMINENT DOMAIN. Eminent do- 
 main is the right of the people or gov- 
 ernment to take private property for 
 public use. 
 
 ENTI RETY. The whole, in contradis- 
 tinction to a moiety or part only. 
 
DICTIONARY OF LEGAL TBRM8 
 
 1523 
 
 When land is conveyed to husband and 
 ■wife, they do not take by moieties, but 
 both are seised of the entirety. Par- 
 ceners, on the other hand, have not an 
 entirety of interest, but each is prop- 
 erly entitled to the whole of a distinct 
 moiety. * 
 
 The word is also used to designate 
 that which the law considers as one 
 whole, and not capable of being divided 
 into parts. Thus, a judgment, it is held, 
 is an entirety, and, if void as to one of 
 the two defendants, cannot be valid as 
 to the other. So, if a contract is an 
 entirety, no part of the consideration is 
 due until the whole has been performed. 
 
 EQUITABLE. Just, fair,, and right. 
 Existing in equity; available or sustain- 
 able only in equity, or only upon the 
 rules and principles of equity. 
 
 EQUITABLE ASSIGNMENT. An 
 
 assignment which, though invalid at law, 
 will be recognized and enforced in eq- 
 uity; e. g., an assignment of a chose in 
 action, or of future acquisitions of the 
 assignor. 
 
 EQUITY. In one of its technical 
 meanings, equity is a body of jurispru- 
 dence, or field of jurisdiction, differing 
 in its origin, theory, and methods from 
 the common law. 
 
 In a still more restricted sense, it is 
 a system of jurisprudence, or branch of 
 remedial justice, administered by cer- 
 tain tribunals, distinct from the com- 
 mon-law courts, and empowered to de- 
 cree "equity" in the complex of weU- 
 settled and well-understood rules, prin- 
 ciples, and precedents. 
 
 Equity also signifies an equitable 
 right; i. e., a right enforceable in a 
 court of equity. Hence a bill of com- 
 plaint which did not show that the 
 plaintiff had a right entitling him to re- 
 lief was said to be demurrable for want 
 of equity; and certain rights now rec- 
 ognized in all the courts are still known 
 as "equities," from having been origi- 
 nally recognized only in the court of 
 chancery. 
 
 EQUITY OF REDEMPTION. The 
 
 right of the mortgagor of an .estate to 
 redeem the same after it has been for- 
 feitedrf at law, by a breach of the con- 
 dition of the mortgage, upon paying the 
 amount of debt, interest and costs. 
 
 ERROR. A mistaken judgment or in- 
 correct belief as to the existence or ef- 
 fect of matters of fact, or a false or 
 mistaken conception or application of 
 the law. 
 
 Such a mistaken or false conception 
 or application of the law to the facts of 
 a cause as will furnish ground for a re- 
 view of the proceedings upon a writ of 
 error; a mistake of law, or false or ir- 
 
 regular application of it, such as viti- 
 ates the proceedings and warrants the 
 reversal of the judgment. 
 
 "Error" is also used as an elliptical 
 expression for "writ of error"; as, in 
 saying that error lies; that a judgment 
 may be reversed on error. 
 
 Assignment of errors. In practice. 
 The statement of the plaintiff's case on 
 a writ of error, setting forth the errors 
 complained of; corresponding with the 
 declaration in an ordinary action. A 
 specification of the errors upon which 
 the appellant will rely, with such full- 
 ness as to give aid to the court in the 
 examination of the transcript. 
 
 Harmless error. In appellate prac- 
 tice. An error committed in the prog- 
 ress of the trial below, but which was 
 not prejudicial to the rights of the 
 party assigning it, and for which, there- 
 fore, the court will not reverse the 
 judgment; as, where the error was neu- 
 tralized or corrected by subsequent pro- 
 ceedings in the case, or where, notwith- 
 standing the error, the particular is^ue 
 was found in that party's favor, or 
 where, even if the error had not been 
 committed, he could not have been le- 
 gally entitled to prevail. 
 
 Reversible error. In appellate prac- 
 tice. Such an error as warrants the ap- 
 pellate court in reversing the judgment 
 before it. 
 
 ESCROW. The state or condition of 
 a deed which is conditionally held by a 
 third person, or the possession and re- 
 tention of a deed by a third person 
 pending a condition; as when an in- 
 strument is said to be delivered "in es- 
 crow." 
 
 ESTATE. The interest which any 
 one has in lands, or in any other sub- 
 ject of property. . 
 
 In another sense, the term denotes the 
 property (real or personal) in which 
 one has a right or interest; the sub- 
 ject-matter of ownership; the corpus of 
 property. 
 
 In a wider sense, the term "estate" 
 denotes a man's whole financial status 
 or condition — the aggregate of his inter- 
 ests and concerns, so far as regards his 
 situation with reference to wealth or its 
 objects, including debts and obligations, 
 as weU as possessions and rights. 
 
 ESTOPPEL. A bar or impediment 
 raised by the law, which precludes a 
 man from alleging or from denying a 
 certain fact or state of facts, in conse- 
 quence of his previous allegation or de- 
 nial or conduct or admission, or in con- 
 sequence of a final adjudication of the 
 matter in a court of law. 
 
 EVICTION. Dispossession by pro- 
 cess of law; the act of depriving a per- 
 
1524 
 
 DICTIONARY OF LEGAL TBRM8 
 
 son of the possession of lands which he 
 has held, in pursuance of the judgment 
 of a court. 
 
 EVIDENCE. Any species of proof, 
 or probative matter, legally presented 
 at the trial of an issue, by the act of 
 the parties and through the medium of 
 witnesses, records, documents, concrete 
 objects, etc., for the purpose of induc- 
 ing belief in the minds of the court or 
 jury as to their contention. 
 
 EXCEPTION. In practice. A for- 
 mal objection to the action of the court, 
 during the trial of a cause, in refusing 
 a request or overruling an objection; 
 implying that the party excepting does 
 not acquiesce in the decision of the 
 court, but will seek to procure its re- 
 verse, and that he means to save the 
 benefit of his request or objection in 
 some future proceeding. , 
 
 EXCHANGE. In conveyancing. A 
 
 mutual grant of equal interests (in lands 
 or tenements), the one in consideration 
 of the other. 
 
 In commercial law. A negotiation by 
 which one person transfers to another 
 funds which he has in a certain place, 
 either at a price agreed upon or which 
 is fixed by commercial usage. 
 
 In law of personal property. Ex- 
 change of goods is a commutation, 
 transmutation, or transfer of goods for 
 other goods, as distinguished from 
 "sale," which is a transfer of goods for 
 money. 
 
 EX CONTRACTU. From or out of 
 a contract. In both the civil and com- 
 mon law, rights and causes of action 
 are divided into two classes — those aris- 
 ing ex contractu (from a contract) ; 
 and those arising ex delicto (from a de- 
 lict or tort). 
 
 EX DELICTO. From a delict, tort, 
 fault, crime, or malfeasance. In both 
 the civil and the common law, obliga- 
 tions and causes of action are divided 
 into two great classes — those arising ex 
 contractu (out of a contract) ; and 
 those ex delicto. 
 
 EX DOLO MALO NON ORITUR 
 ACTIO. Out of fraud no action arises; 
 fraud never gives a right of action. No 
 court will lend its aid to a man who 
 founds his cause of action upon an im- 
 moral or illegal act. 
 
 EXECUTED. Completed; carried in- 
 to full effect; already done or per- 
 formed; taking effect immediately; now 
 in existence or in possession; convey- 
 ing an immediate right or possession. 
 The opposite of executory. 
 
 EXECUTION. The completion, ful- 
 fillment, or perfecting of anything, or 
 carrying it into operation and effect. 
 
 The signing, sealing, and delivery of a 
 deed. The signing and publication of a 
 will. The performance of a contract 
 according to its terms. 
 
 EXECUTOR. A person appointed by 
 a testator to carry out the directions 
 and requests in his will, and to dispose 
 of the property according to his testa- 
 mentary provisions after his decease. 
 
 EXECUTORY. That which is yet to 
 be executed or performed; that which 
 remains to be carried into operation or 
 effect; incomplete; depending upon a 
 future performance or event. The op- 
 posite of executed. 
 
 EXEMPLARY. Punitive, punitory, 
 for punishment. 
 
 EXEMPLARY DAMAGES. Damag- 
 es on an increased scale, awarded to 
 the plaintiff over and above what will 
 barely compensate him for his property 
 loss, where the wrong done to him was 
 aggravated by circumstances of violence, 
 oppression, malice, fraud, or wanton 
 and wicked conduct on the part of the 
 defendant, and are intended to punish 
 the defendant for his evil behavior. 
 
 EXEMPTION. A privilege aUowed 
 by law to a judgment debtor, by which 
 he may hold property to a certain 
 amount, or certain classes of property, 
 free from all liability to levy and sale 
 on execution or attachment. 
 
 EX GRATIA. Lat. Out of grace; 
 as a matter of favor or indulgence; 
 gratuitous. 
 
 EX MERO MOTU. Lat. Of his own 
 mere motion; of his own accord. 
 
 EX PARTE. Lat. On one side only; 
 by or for one party; done for, in behalf 
 of, or on the application of, one party 
 only. 
 
 EXPRESS. Made known distinctly 
 and explicitly, and not left to inference 
 or implication. Declared in terms; set 
 forth in words. Manifested by direct 
 and appropriate language, as distin- 
 guished from that which is inferred 
 from conduct. The word is usually con- 
 trasted with "implied." 
 
 EX TURPI CONTRACTU NON OR. 
 ITUR ACTIO. Lat. Out of an im- 
 moral or illegal contract an action does 
 not arise. A contract founded upon an 
 illegal or immoral consideration cannot 
 be enforced by action. 2 Kent. Comm. 
 466. 
 
 FACTOR. A commercial agent, em- 
 ployed by a principal to sell merchan- 
 dise consigned to him for that purpose, 
 for and in behalf of the principal, but 
 usually in his own name, being intrusted 
 
DICTIONARY OF LEGAL TEEMS 
 
 1525 
 
 with the possession and control of the 
 goods, and being remunerated by a com- 
 mission. 
 
 FEE SIMPLE. In English law. A 
 freehold estate of inheritance, absolute 
 and unqualified. It stands at the head 
 of estates as the highest in dignity and 
 the most ample in extent; since every 
 other kind of estate is derivable there- 
 out, and mergeable therein. 
 
 FELONY. In American law. The 
 term has no very definite or precise 
 meaning, except in some cases where it 
 is defined by statute. For the most 
 part, the state laws, in describing any 
 particular offense, dedare whether or 
 not it shall be considered a felony. 
 Apart from this, the word seems merely 
 to imply a crime of a graver or more 
 atrocious nature than those designated 
 as "misdemeanors." 
 
 FEME. L. Fr. A woman. 
 
 Feme covert. A married woman. 
 
 Feme sole. A single woman. 
 
 FICTION. An assumption or suppo- 
 sition of law that something which is or 
 may be false is true, or that a state of 
 facts exists which has never really tak- 
 en place. 
 
 FIDUCIARY. As an adjective it 
 means of the nature of a trust; having 
 the characteristics of a trust; analo- 
 gous to a trust; relating to or founded 
 upon a trust or confidence. 
 
 F. 0. B. Free on board. "If a quo- 
 tation is f. o. b., the seller undertakes 
 for the price named to deliver the goods 
 on board car or ship at a designated 
 place, free of charges to the buyer." 
 Whitaker's Foreign Exchange, p. 335. 
 
 FORCIBLE DETAINER. The of- 
 fense of violently keeping possession of 
 lands and tenements, with menaces, 
 force, and arms, and without the au- 
 thority of law. 
 
 FORCIBLE ENTRY. An offense 
 against the public peace, or private 
 wrong, committed by violently taking 
 possession of lands and tenements with 
 menaces, force, and arms, against the 
 will of those entitled to the possession, 
 and without the authority of law. 
 
 FORECLOSURE. A proceeding by 
 which the rights of the mortgagee of 
 real property are enforced. This pro- 
 cedure varies greatly in different states. 
 The property is commonly put up at 
 public auction and sold to the highest 
 bidder. The mortgagee gets out of the 
 proceeds the amount of his debt, with 
 costs. The remaining portion of the 
 proceeds, if any, goes to the debtor, the 
 mortgagor. If the property sells at a 
 price less than the amount of the debt 
 
 and costs, judgment is given against the 
 mortgagor for the deficiency. 
 
 FORGERY. In criminal law. The 
 falsely making or materially altering, 
 with intent to defraud, any writing 
 which, if genuine, might apparently be 
 of legal efficacy or the foundation of a 
 legal liability. 
 
 FRANCHISE. A special privilege 
 conferred by government upon an 'ndi- 
 vidual or corporation, and which does 
 not belong to the citizens of the country 
 generally, of common right. 
 
 FRAUD. Fraud consists of some de- 
 ceitful practice or willful device, re- 
 sorted to with intent to deprive another 
 of his right, or in some manner to do 
 him an injury. As distinguished from 
 negligence, it is always positive, inten- 
 tional. 
 
 FREEHOLD. An estate in land or 
 other real property, of uncertain dura- 
 tion; that is, either of inheritance or 
 which may possibly last for the life of 
 the tenant at the least (as distin- 
 guished from a leasehold), and held by 
 a free tenure. 
 
 FRUCTUS INDUSTRIALES. Indus- 
 trial fruits, or fruits of industry. Those 
 fruits of a thing, as of land, which are 
 produced by the labor and industry of 
 the occupant, as crops of grain; as dis- 
 tinguished from such as are produced 
 solely by the powers of nature. 
 
 FRUCTUS NATURALES. Those 
 products which are produced by the 
 powers of nature alone; as wool, met- 
 als, milk, the young of animals. 
 
 FUNGIBLE THINGS. Movable goods, 
 which may be estimated and replaced 
 according to weight, measure, and num- 
 ber. Things belonging to a class, which 
 do not have to be dealt with in specie. 
 
 G 
 
 GARNISH, v. To issue process of 
 garnishment against a person. 
 
 GARNISHEE. One garnished. 
 
 GARNISHMENT. In the process of 
 attachment. A warning to a person in 
 whose hands the effects of another are 
 attached not to pay the money or deliv- 
 er the property of the defendant in his 
 hands to him, but to appear and answer 
 the plaintiff's suit. 
 
 GENERAL AND SPECIAL ISSUE. 
 The former is a plea which traverses 
 and denies, briefly and in general and 
 summary terms, the whole declaration, 
 indictment, or complaint, without ten- 
 dering new or special matter. 
 
 GENERAL VERDICT. A verdict 
 whereby the jury find either for the 
 
1526 
 
 DICTIONARY OF LEGAL TERMS 
 
 plaintiff or for the defendant in general 
 terms; the ordinary form of verdict. 
 
 GRATIS DICTUM. A voluntary as- 
 sertion; a statement which a party is 
 not legally bound to make, or in which 
 he is not held to precise accuracy. 
 
 GRAVAMEN. Lat. The burden or 
 gist of a charge. 
 
 GUARANTY, u. A promise to an- 
 swer for the payment of some debt, or 
 the performance of some duty, in case 
 of the failure of another person, who, 
 in the first instance, is liable to such 
 payment or performance. 
 
 GUARDIAN. A guardian is a person 
 lawfully invested with the power, and 
 charged with the duty, of taking care 
 of the person and managing the prop- 
 erty and rights of another person, who, 
 for some peculiarity of status, or defect 
 or age, understanding, or self-control, 
 is considered incapable of administering 
 his own affairs. 
 
 H 
 
 HEARSAY. A term applied to that 
 species of testimony given by a witness 
 who relates, not what he knows per- 
 sonally, but what others have told him, 
 or what he has heard said by others. 
 
 HEIR. At common law. A person 
 who succeeds, by the rules of law, to 
 an estate in lands, tenements, or here- 
 ditaments, upon the death of his ances- 
 tor, by descent and right of relation- 
 ship. 
 
 HEREDITAMENTS. Things capable 
 of being inherited, be it corporeal or in- 
 corporeal, real, personal, or mixed, and 
 including not only lands and everything 
 thereon, but also heirlooms, and certain 
 furniture which, by custom, may de- 
 scend to the heir together with the land. 
 
 IMPLIED. This word Is used in law 
 as contrasted with "express"; i. e., 
 where the intention in regard to the 
 subject-matter is not manifested by ex- 
 plicit and direct words, but is gathered 
 by implication or necessary deduction 
 from the circumstances, the general 
 language, or the conduct of the parties. 
 
 INCHOATE. Imperfect; unfinished; 
 begun, but not completed; as a con- 
 tract not executed by all the parties. 
 
 INCORPOREAL. Without body; not 
 of material nature; the opposite of 
 "corporeal." 
 
 INDEMNITY. An indemnity is a col- 
 lateral contract or assurance, by which 
 one person engages to secure another 
 against an anticipated loss or to pre- 
 vent him from being damnified by the 
 
 legal consequences of an act or forbear- 
 ance on the part of one of the parties 
 or of some third person. 
 
 INDENTURE. A deed to which two 
 or more persons are parties, and in 
 which these enter into reciprocal and 
 corresponding grants or obligations to- 
 wards each other; whereas a deed poll 
 is properly one in which only the party 
 making it executes it, or binds himself 
 by it as a deed, though the grantors or 
 grantees therein may be several in num- 
 ber. 
 
 INDICIA. Lat. Signs; indications. 
 
 INDORSEE. The person to whom a 
 bill of exchange, promissory note, bill 
 of lading, etc., is assigned by indorse- 
 ment, giving him a right to sue thereon. 
 
 INDORSEMENT. The act of a 
 payee, drawee, accommodation indorser, 
 or holder of a negotiable instrument in 
 writing his name upon the back of same, 
 with or without further words, whereby 
 the property in same is transferred to 
 another. 
 
 INDORSER. He who makes an in- 
 dorsement. 
 
 INFANT. A person within age, not 
 of age, or not of full age; a person un- 
 der the age of twenty-one years; a mi- 
 nor. 
 
 IN H>EC F(EDERA NON VENI- 
 
 MUS. Lat. We did not enter into 
 
 these bonds; we did not make this con- 
 tract. 
 
 IN INVITUM. Lat. Against an un- 
 willing party. 
 
 INJUNCTION. A prohibitive writ is- 
 sued by a court of equity, at the suit of 
 a party complainant, directed to a party 
 defendant in the action, or to a party 
 made a defendant for that purpose, for- 
 bidding the latter to do some act, or to 
 permit his servants or agents to do 
 some act, which he is threatening or at- 
 tempting to commit, or restraining him 
 in the continuance thereof, such act be- 
 ing unjust and inequitable, injurious to 
 the plaintiff, and not such as can be 
 adequately redressed by an action at 
 law. 
 
 INJURY. Any wrong or damage done 
 to another, either in his person, rights, 
 reputation, or property. 
 
 IN LIMINE. Lat. On or at the 
 threshold; at the very beginning; pre- 
 liminarily. 
 
 IN PARI DELICTO. Lat. In, equal 
 fault; equally culpable or criminal. 
 
 In pari delicto, potior est conditio 
 possidentis [defendentis]. In a case of 
 equal or mutual fault (between two 
 parties), the condition of the party in 
 possession [or defending] is the better 
 
DICTIONARY OF LEGAL TERMS 
 
 1527 
 
 one. This maxim is often applied to 
 cases in which a plaintifiE seeks to pro- 
 cure, under an illegal contract, money 
 or other property in the possession of 
 the defendant, or to get a judgment or 
 decree of any kind, under such a con- 
 tract. 
 
 INSOLVENCY. The condition of a 
 person who is insolvent; inability t6 
 pay one's debts; lack of means to pay 
 one's debts. Such a relative condition 
 of a man's assets and liabilities that 
 the former, if all made immediately 
 available, would not be sufiBcient to dis- 
 charge the latter. Or the condition of 
 a person who is unable to pay his debts 
 as they fall due, or in the usual course 
 of trade and business. 
 
 IN SPECIE. Lat. In kind. Spe- 
 cific; specifically. 
 
 IN STATU QUO. Lat. In the con- 
 dition or state (in which it was). 
 
 INSURABLE INTEREST. Such a 
 real and substantial interest in spe- 
 cific property as will sustain a contract 
 to indemnify the person interested 
 against its loss. If the assured had no 
 real interest, the contract would be a 
 mere wager policy. 
 
 INSURANCE. A contract whereby, 
 for a stipulated consideration, one party 
 undertakes to compensate the other for 
 loss on a specified subject by specified 
 perils. The party agreeing to make the 
 compensation is usually called the "in- 
 surer" or "underwriter"; the other, the 
 "insured" or "assured"; the written 
 contract, a "policy"; the events insured 
 against, "risks" or "perils"; and the 
 subject, right, or interest to be pro- 
 tected, the "insurable interest." Insur- 
 ance is a contract whereby one under- 
 takes to indemnify another against loss, 
 damage, or liability arising from an un- 
 known or contingent event. Civ. Code 
 Cal. § 2527. It must be borne in mind, 
 however, that, although the usual defi- 
 nition fits policies of fire and marine 
 insurance, it does not apply strictly to 
 policies of life insurance. Life insur- 
 ance is not a contract of indemnity, but 
 a contract to pay a specified sum upon 
 the occurrence of a pertain event; as, 
 the death of the insured. 
 
 INSURER. The underwriter or in- 
 surance company with whom a contract 
 of insurance is made. 
 
 INTERPLEADER. When two or 
 more persons claim the same thing (or 
 fund) of a third, and he, laying no 
 claim to it himself, is ignorant which of 
 them has a right to it, and fears he 
 may be prejudiced by their proceeding 
 against him to recover it, he may file a 
 bill in equity against them, the object 
 
 of which is to make them litigate their 
 title between themselves, instead of liti- 
 gating it with him, and such a bill is 
 called a "biU of interpleader." 
 
 INTER SE, or INTER SESE. Lat. 
 Between or among themselves. 
 
 INTERVENER. An intervener is a 
 person who voluntarily interposes in an 
 action or other proceeding with the 
 leave of the court. 
 
 I NTESTATE. Without making a will. 
 
 JOINT. United; combined; undivided; 
 done by or against two or more united- 
 ly; shared by or between two or more. 
 
 A "joint" bond, note, or other obliga- 
 tion is one in which the obligors or 
 makers (being two or more in number) 
 bind themselves jointly, but not sever- 
 ally, and which must therefore be pros- 
 ecuted in a joint action against them 
 all. A "joint and several" bond or note 
 is one in which the obligors or makers 
 bind themselves both jointly and indi- 
 vidually to the obligee or payee, and 
 which may be enforced either by a joint 
 action against them all or by separate 
 actions against any one or more at the 
 election of the creditor. 
 
 JOINTLY. Acting together or in 
 concert or co-operation; holding in 
 common or interdependently, not sepa- 
 rately. Persons are "jointly bound" in 
 a bond or note when both or all must 
 be sued in one action for its enforce- 
 ment, not either one at the election of 
 the creditor. 
 
 Jointly and severally. Persons who 
 bind themselves "jointly and severally" 
 in a bond or note may all be sued to- 
 gether for its enforcement, or the cred- 
 itor may select any one or more as the 
 object of his suit. 
 
 JOINT-STOCK COMPANY. A part- 
 nership with a capital divided into 
 transferable shares. Gilmore on Part- 
 nership. 
 
 JOINT TENANCY "exists when a 
 single estate in land is owned by two 
 or more persons claiming under one in- 
 strument; its most important charac- 
 teristic being that, unless the statute 
 otherwise provides, the interest of each 
 joint tenant, upon his death, inures to 
 the benefit of the surviving joint tenant 
 or tenants, to the exclusion of his own 
 heirs, devisees, or personal representa- 
 tives." Tiffany on Keal Property, p. 
 368. 
 
 JUDGMENT. The official and au- 
 thentic decision of a court of justice 
 upon the respective rights and claims of 
 the parties to an action or suit therein 
 
1528 
 
 DICTIONABY OF LEGAL TERMS 
 
 litigated and submitted to its determi- 
 nation. 
 
 JUDGMEMT debts. Debts, wheth- 
 er on simple contract or by specialty, 
 for the recovery of which judgment has 
 been entered up, either upon a cognovit 
 or upon a warrant of attorney or as the 
 result of a successful action. 
 
 JUDGMENT IN PERSONAM. A 
 judgment against a particular person, 
 as distinguished from a judgment 
 against a thing or a right or status. 
 The former class of judgments are con- 
 clusive only upon parties and privies; 
 the latter upon all the world. 
 
 JUDGMENT IN REM. A judgment 
 in rem is an adjudication, pronounced 
 upon the status of some particular sub- 
 ject-matter, by a tribunal having com- 
 petent authority for that purpose. It 
 differs from a judgment in personam, in 
 this: That the latter judgment is in 
 form, as well as substance, between the 
 parties claiming the right; and that it 
 is so inter partes appears by the record 
 itself. 
 
 JUDGMENT NOTE. A promissory 
 note, embodying an authorization to any 
 attorney, or to a designated attorney, or 
 to the holder, or the clerk of the court, 
 to enter an appearance for the maker 
 and confess a judgment against him for 
 a sum therein named, upon default of 
 payment of the note. 
 
 JUDICIAL. Belonging to the office 
 of a judge; as judicial authority. 
 
 JURAT. The clause written at the 
 foot of an affidavit, stating when, 
 where, and before whom such affidavit 
 was sworn. 
 
 JURISDICTION. The power and au- 
 thority constitutionally conferred upon 
 (or constitutionally recognized as exist- 
 ing in) a court or judge to pronounce 
 the sentence of the law, or to award 
 the remedies provided by law, upon a 
 state of facts, proved or admitted, re- 
 ferred to the tribunal for decision, and 
 authorized by law to he the subject of 
 investigation or action by that tribunal, 
 and in favor of or against persons (or 
 a res) who present themselves, or who 
 are brought, before the court in some 
 manner sanctioned by law as proper and 
 sufficient. 
 
 LACHES. Negligence, consisting in 
 the omission of something which a party 
 might do, and might reasonably be ex- 
 pected to do, towards the vindication or 
 enforcement of his rights. The word 
 is generally the synonym of "remiss- 
 ness," "dilatoriness," "unreasonable or 
 unexcused delay"'; the opposite of "vig- 
 ilance"; and means a want of activity 
 
 and diligence in making a claim or mov- 
 ing for the enforcement of a right (par- 
 ticularly in equity) which will affqrd 
 ground for presuming against it, or for 
 refusing relief, where that is discre- 
 tionary with the court. 
 
 LANDLORD. He of whom lands or 
 tenements are holden. He who, being 
 the owner an estate in land, has leased 
 the same for a term of years, on a rent 
 reserved, to another person, called the 
 "tenant." 
 
 LAPSE, n. In the law of wills. The 
 failure of a testamentary gift in conse- 
 quence of the death of the devisee or 
 legatee during the life of the testator. 
 
 LARCENY. In criminal law. The 
 wrongful and fraudulent taking and 
 carrying away by one person of the 
 mere personal goods of another from 
 any place, with a felonious intent to 
 convert them to his (the taker's) use, 
 and make them his property, without 
 the consent of the owner. 
 
 LAW MERCHANT. The system of 
 rules, customs, and usages generally 
 recognized and adopted by merchants 
 and traders, and which either in its 
 simplicity or as modified by common 
 law or statutes, constitutes the law for 
 the regulation of their transactions and 
 the solution of their controversies. 
 
 LEASE. A conveyance of lands or 
 tenements to a person for life, for a 
 term of years, or at will, in considera- 
 tion of a return of rent or some other 
 recompense. The person who so con- 
 veys such lands or tenements is termed 
 the "lessor," and the person to whom 
 they are conveyed, the "lessee"; and 
 when the lessor so conveys lands or 
 tenements to a lessee, he is said to 
 lease, demise, or let them. 
 
 LEASEHOLD. An estate in realty 
 held under a lease; an estate for a fixed 
 term of years. 
 
 LEGACY. A bequest or gift of per- 
 sonal property by last will and testa- 
 ment. 
 
 LEGAL TENDER. That kind of 
 coin, money, or circulating medium 
 which the law compels a creditor to ac- 
 cept in payment of his debt, when ten- 
 dered by the debtor in the right amount. 
 
 LESSEE. He to whom a lease is 
 made. 
 
 LESSOR. He who grants a lease. 
 
 LET, V. In conveyancing. To de- 
 mise or lease. "To let and set" is an 
 old expression. 
 
 LETTERS OF ADMINISTRATION. 
 
 The formal instrument of authority and 
 appointment given an administrator by 
 the proper court, empowering him to 
 
DICTIONARY OF LEGAL TERMS 
 
 1529 
 
 enter upon the discharge of his duties 
 as administrator. 
 
 LETTERS TESTAMENTARY. The 
 
 formal instrument of authority and ap- 
 pointment given to an executor by the 
 proper court, empowering him to enter 
 upon the discharge of his oflBce as ex- 
 ecutor. 
 
 LEVY, V. To raise; execute; exact; 
 collect; gather; "take up; seize. Thus, 
 to levy (raise or collect) a tax; to 
 levy (raise or set up) a nuisance; to 
 levy (acknowledge) a fine; to levy (in- 
 augurate) war; to levy an execution— 
 i. e., to levy or collect a sum of money 
 on an execution. 
 
 LIEN. A qualified right of property 
 which a creditor has in or over specific 
 property of his debtor, as security for 
 the debt or charge or for performance 
 of some act. 
 
 LIFE ESTATE. An estate whose 
 duration is limited to the life of the 
 party holding it, or of some other per- 
 son; a freehold estate, not of inherit- 
 ance. 
 
 LIFE TENANT. One who holds an 
 estate in lands for the period of his 
 own life or that of another certain per- 
 son. 
 
 LIMITED PARTNERSHIP. A part- 
 nership consisting of one or more gen- 
 eral partners, jointly and severally re- 
 sponsible as ordinary partners, and by 
 whom the business Is conducted, and 
 one or more special partners, contrib- 
 uting in cash payments a specific sum 
 as capital to the common stock, and 
 who are not liable for the debts of the 
 partnership beyond the fund so contrib- 
 uted. 
 
 LIQUIDATED. Ascertained; deter- 
 mined; fixed; settled; made clear or 
 manifest. Cleared away; paid; dis- 
 charged. 
 
 LIQUIDATED ACCOUNT. An ac- 
 count whereof the amount is certain and 
 fixed, either by the act and agreement 
 of the parties or by operation of law; 
 a sum which cannot be changed by the 
 proof; it is so much or nothing; Ijut 
 the term does not necessarily refer to 
 a writing. 
 
 LIQUIDATED AND UNLIQUIDAT- 
 ED DAMAGES. The former term is 
 applicable when the amount of the dam- 
 ages has been ascertained by the judg- 
 ment in the action, or when a specific 
 sum of money has been expressly stip- 
 ulated by the parties to a bond or other 
 contract as the amount of damages to 
 be recovered by either party for a 
 breach of the agreement by the other. 
 
 LIS PENDENS. A suit pending; that 
 legal process, in a suit regarding land. 
 
 which amounts to legal notice to all the 
 world that there is a dispute as to the 
 title. In equity the filing of the bill and 
 serving a subpoena .creates a lis pen- 
 dens, except when statutes require some 
 record. 
 
 LOCUS P(ENITENTI>E. A place for 
 repentance; an opportunity for chang- 
 ing one's mind; a chance to withdraw 
 from a contemplated bargain or contract 
 before it results in a definite contrac- 
 tual liability. Also used of a chance af- 
 forded to a person, by the circumstanc- 
 es, of relinquishing the intention which 
 he has formed to commit a crime, be- 
 fore the perpetration thereof. 
 
 L. S. An abbreviation for "locus si- 
 gilli," the place of the seal; i. e., the 
 place where a seal is to be affixed, or a 
 scroll which stands instead of a seal. 
 
 M 
 
 MAINTENANCE. An unauthorized 
 and officious interference in a suit in 
 which the offender has no interest, to 
 assist one of the parties to it, against 
 the other, with money or advice to 
 prosecute or defend the action. 
 
 MALFEASANCE. The wrongful or 
 unjust doing of some act which the doer 
 has no right to perform, or which he 
 has stipulated by contract not to do. It 
 diiEEers from "misfeasance" and "non- 
 feasance" (which titles see). 
 
 MALUM IN SE. A wrong in itself; 
 an act or case involving illegality frpm 
 the very nature of the transaction, upon 
 principles of natural, moral, and public 
 law. An act is said to be malum in se 
 when it is inherently and essentially 
 evil— that is, immoral in its nature and 
 injurious in its consequences — without 
 any regard to the fact of its being no- 
 ticed or punished by the law of the 
 state. Such are most or all of the of- 
 fenses cognizable at common law (with- 
 out the denouncement of a statute) ; as 
 murder, larceny, etc. 
 
 MALUM PROHIBITUM. A wrong 
 prohibited; a thing which is wrong be- 
 cause prohibited; an act which is not 
 inherently immoral, but becomes so be- 
 cause its commission is expressly for- 
 bidden by positive law; an act involv- 
 ing an illegality resulting from positive 
 law. Contrasted with malum in se. 
 
 MANDAMUS. Lat. We commanjj. 
 A legal writ compelling the defendant to 
 do an official duty. 
 
 MANDATE. A bailment of property 
 in regard to which the bailee engages to 
 do some act without reward. Story, 
 BaUm. § 137. 
 
1530 
 
 DICTIONARY OF LEGAL TEEMS 
 
 MATURITY. In mercantile law. The 
 time when a bill of exchange or prom- 
 issory note becomes due. 
 
 MECHANIC'S LIEN. A species of 
 lien created by statute in most of the 
 states, which exists in favor of persons 
 who have performed work or furnished 
 material in and for the erection of a 
 building. Their lien attaches to the 
 land as well as the building, and is in- 
 tended to secure for them a priority of 
 payment. 
 
 MERGER. The fusion or absorption 
 of one thing or right into another; gen- 
 erally spoken of a case where one of 
 the subjects is of less dignity or im- 
 portance than the other. Here the less 
 important ceases to have an independ- 
 ent existence. 
 
 MINOR. An infant or person who is 
 under the age of legal competence. A 
 term derived from the civil law, which 
 described a person under a certain age 
 as less than so many years. Minor 
 viginti quinque annis, one less than 
 twenty-five years of age. 
 
 MISDEMEANOR. In criminal law. 
 A general name for criminal offenses of 
 every sort, punishable by indictment or 
 special proceedings, which do not in law 
 amount to the grade of felony. 
 
 MISFEASANCE. A misdeed or tres- 
 pass. The doing what a party ought to 
 do improperly. The improper perform- 
 ance of some act which a man may law- 
 fully do. 
 
 Misfeasance, strictly, is not doing a 
 lawful act in a proper manner, omitting 
 to do it as it should be done, while mal- 
 feasance is the doing an act wholly 
 wrongful, and nonfeasance is an omis- 
 sion to perform a duty, or a total neg- 
 lect of duty. But "misfeasance" is oft- 
 en carelessly used in the sense of "mal- 
 feasance." 
 
 MISREPRESENTATION. An inten- 
 tional false statement respecting a mat- 
 ter of fact, made by one of the parties 
 to a contract, which is material to the 
 contract and influential in producing it. 
 
 MORTGAGE. An estate created by a 
 conveyance absolute in form, but in- 
 tended to secure the performance of 
 some act, such as the payment of 
 money, and the like, by the grantor or 
 some other person, and to become void 
 if the act is performed agreeably to the 
 terms prescribed at the time of making 
 such conveyance. 
 
 •A conditional conveyance of land, de- 
 signed as a security for the payment of 
 money, the fulfillment of some contract, 
 or the performance of some act, and to 
 be void upon such payment, fulfillment, 
 or performance. 
 
 A debt by specialty, secured by a 
 
 pledge of lands, of which the legal own- 
 ership is vested in the creditor, but of 
 which, in equity, the debtor and those 
 claiming under him remain the actual 
 owners, until debarred by judicial sen- 
 tence or their own laches. 
 
 The foregoing definitions are applica- 
 ble to the common-law conception of a 
 mortgage. But in many states, in mod- 
 ern times, it is regarded as a mere lien, 
 and not as creating a title or estate. It 
 is a pledge or security of particular 
 property for the payment of a debt, or 
 the performance of some other obliga- 
 tion, whatever form the transaction 
 may take, but is not regarded as a con- 
 veyance in effect, though it may be cast 
 in the form of a conveyance. 
 
 MUTUUM. Lat. In the law of bail- 
 ments. A loan for consumption; a loan 
 of chattels, upon an agreement that the 
 borrower may consume them, returning 
 to the lender an equivalent in kind and 
 quantity. 
 
 N 
 
 NEGLIGENCE. The omission to do 
 something which a reasonable man, 
 guided by those considerations which 
 ordinarily regulate the conduct of hu- 
 man affairs, would do, or doing some- 
 thing which a prudent and reasonable 
 man would not do. It must be deter- 
 mined in all cases by reference to the 
 situation and knowledge of the parties 
 and all the attendant circumstances. 
 
 Negligence, in its civil relation, is 
 such an inadvertent imperfection, by a 
 responsible human agent, in the dis- 
 charge of a legal duty, as immediately 
 produces, in an ordinary and natural 
 sequence, a damage to another. 
 
 NEGLIGENCE VEL NON. Lat. 
 Negligence or not. 
 
 NEGOTIABLE. An instrument em- 
 bodying an obligation for the payment 
 of money is called "negotiable" when 
 the legal title to the instrument itself 
 and to the whole amount of money ex- 
 pressed upon its face, with the right to 
 sue therefor in his own name, may be 
 transferred from one person to another 
 without a formal assignment, but by 
 mere indorsement and delivery by the 
 holder or by delivery only. 
 
 NIL DEBET. Lat. He owes noth- 
 ing. 
 
 NOMINAL AND SUBSTANTIAL 
 DAMAGES. Nominal" damages are a 
 trifling sum awarded to a plaintiff in an 
 action, where there is no substantial 
 loss or injury to be compensated, but 
 stiU the law recognizes a technical in- 
 vasion of his rights or a breach of the 
 defendant's duty, or in cases where, al- 
 though there has been a real injury, the 
 
DICTIONARY OF LEGAL TBRM8 
 
 1531 
 
 plaintiff's evidence entirely fails to show 
 its amount. 
 
 NOMINAL PARTNER. A person who 
 appears to be a partner in a firm, or is 
 so represented to persons dealing with 
 the firm, or who allows his name to ap- 
 pear in the style of the firm or to be 
 used in its business, in the character of 
 a partner, but who has no actual inter- 
 est in the firm or business. 
 
 NON ASSUMPSIT. The general is- 
 sue in the action of assumpsit, being a 
 plea by which the defendant avers that 
 "he did not undertake" or promise as 
 alleged. 
 
 NON COMPOS MENTIS. Lat. Not 
 sound of mind; insane. 
 
 NON EST FACTUM. Lat. It was 
 not made. 
 
 NONFEASANCE. The neglect or 
 failure of a person to do some act which 
 he ought to do. 
 
 NONSUIT. Not following up the 
 cause; failure on the part of a plaintiff 
 to continue the prosecution of his suit. 
 An abandonment or renunciation of his 
 suit, by a plaintiff, either by omitting to 
 take the next necessary steps, or vol- 
 untarily relinquishing the action, or pur- 
 suant to an order of the court. An or- 
 der or judgment, granted upon the trial 
 of a cause, that the plaintiff has aban- 
 doned, or shall abandon, the further 
 prosecution of his suit. 
 
 NOTARY PUBLIC. A public officer 
 whose function is to attest and certify, 
 by his hand and official seal, certain 
 classes of documents, in order to give 
 them credit and authenticity in foreign 
 jurisdictions; to take acknowledgments 
 of deeds and other conveyances, and 
 certify the same; and to perform cer- 
 tain official acts, chiefly in commercial 
 matters, such as the protesting of notes 
 and blUs, the noting of foreign drafts, 
 and marine protests in cases of loss or 
 damage. 
 
 NUDUM PACTUM. Lat. A naked 
 pact; a bare agreement; a promise or 
 undertaking made without any consider- 
 ation for it. 
 
 NUISANCE. That class of wrongs 
 that arise from the unreasonable, un- 
 warrantable, or unlawful use by a per- 
 son of his own property, either real or 
 personal, or from his own improper, in- 
 decent, or unlawful personal conduct, 
 working an obstruction of or injury to 
 the right of another or of the public, 
 and producing such material annoyance, 
 inconvenience, discomfort, or hurt that 
 the law will presume a consequent dam- 
 age. 
 
 OATH. An external pledge or assev- 
 eration, made in verification of state- 
 ments made or to be made, coupled with 
 an appeal to a sacred or venerated ob- 
 ject, in evidence of the serious and rev- 
 erent state of mind of the party, or with 
 an invocation to a supreme being to 
 witness the words of the party and to 
 visit him with punishment if they be 
 false. 
 
 OBITER DICTUM. A remark made, 
 or opinion expressed, by a judge, in his 
 decision upon a cause, "by the way"; 
 that is, incidentally or collaterally, and 
 not directly upon the question before 
 him, or upon a point not necessarily in- 
 volved in the determination of the 
 cause, or introduced by way of illustra- 
 tion, or analogy or argument. 
 
 OMNIS RATIHABITIO RETRO- 
 TRAHITUR ET MANDATO PRIORI 
 /EQUIPARATUR. Lat. Every ratifi- 
 cation relates back and is equivalent to 
 a prior authority. Broom, Max. 757, 
 871. 
 
 ORDINANCE. The term is used to 
 designate the enactments of the legis- 
 lative body of a municipal corporation. 
 
 OSTENSIBLE AGENCY. An impUed 
 or presumptive agency, which exists 
 where one, either intentionally or from 
 want of ordinary care, induces another 
 to believe that a third person is his 
 agent, though he never in fact employed 
 him. 
 
 OSTENSIBLE PARTNER. A part- 
 ner whose name is made known and ap- 
 pears to the world as a partner, and 
 who is in reality such. 
 
 OUTLAWED, when applied to a 
 promissory note, means debarred by the 
 statute of limitations. 
 
 OYEp. In modern practice. A copy 
 of a bond or specialty sued upon, given 
 to the opposite party, in lieu of the old 
 practice of reading it. 
 
 PAR. In commercial law. Equal; 
 equality. An equality subsisting be- 
 tween the nominal or face value of a 
 bill of exchange, share of stock, etc., 
 and its actual selling value. When the 
 values are thus equal, the instrument or 
 share is said to be "at par"; if it can 
 be sold for more than its nominal 
 worth, it is "above par"; if for less, it 
 is "below par." 
 
 PARI PASSU. Lat. By an equal 
 progress; ratably; without preference. 
 
 PARTICEPS. Lat. A participant; 
 a sharer; anciently, a part owner, or 
 parcener. 
 
1532 
 
 DICTIONARY OP LEGAL TERMS 
 
 PARTICEPS CRIMINIS. A partici- 
 pant in a crime; an accomplice. One 
 who shares or co-operates in a criminal 
 offense, tort, or fraud. 
 
 PARTITION. The dividing of lands 
 held by joint tenants, coparceners, or 
 tenants in common, into distinct por- 
 tions, so that they may hold them in 
 severalty. And, in a less technical 
 sense, any division of real or persoijal 
 property between co-owners or co-pro- 
 prietors. 
 
 PARTNERSHIP. A voluntary con- 
 tract between two or more competent 
 persons to place their money, effects, 
 labor, and skill, or some or all of them, 
 in lawful commerce or business, with 
 the understanding tfiat there shall be a 
 proportional sharing of the profits and 
 losses between them. 
 
 PART PERFORMANCE. The doing 
 some portion, yet not the whole, of 
 what either party to a contract has 
 agreed to do. 
 
 PATENT, n. A grant of some privi- 
 lege, property, or authority, made by 
 the government or sovereign of a coun- 
 try to one or more individuals. 
 
 In English law. A grant by the sov- 
 ereign to a subject or subjects, under 
 the great seal, conferring some author- 
 ity, title, franchise, or property; termed 
 "letters patent" from being delivered 
 open, and not closed up from inspection. 
 
 In American law. The instrument by 
 which a state or government grants 
 public lands to an individual. 
 
 A grant made by the government to 
 an inventor, conveying and securing to 
 him the exclusive right to make and sell 
 his invention for a term of years. 
 
 PAWN, n. A bailment of goods to a 
 creditor, as security for some debt or 
 engagement; a pledge. Story, Bailm. 
 art. 7. 
 
 PAYEE. The person in whose favor 
 a negotiable instrument is made or 
 drawn; the person to whom a negotia- 
 ble instrument is made payable. 
 
 PAYER, or PAYOR. One who pays, 
 or who is to make a payment; particu- 
 larly the person who makes or is to 
 make payment of a negotiable instru- 
 ment. 
 
 PERFORM. To perform an obliga- 
 tion or contract is to execute, fulfill, or 
 accomplish it according to its terms. 
 This may consist either in action on the 
 part of the person bound by the con- 
 tract or in omission to act, according to 
 the nature of the subject-matter; but 
 ' the term is usually applied to any action 
 in discharge of a contract other tEan 
 payment. 
 
 PERFORMANCE. The fulfillment or 
 accomplishment of a promise, contract, 
 or other obligation according to its 
 terms. 
 
 Part performance. The doing some 
 portion, yet not the whole, of what ei- 
 ther party to a contract has agreed 
 to do. 
 
 Specific performance. Performance of 
 a contract in the specific form in which 
 it was made, or according to the pre- 
 cise terms agreed upon. This is fre- 
 quently compelled by a bill in equity 
 filed for the purpose. 2 Story, Eq. PI. 
 § 712 et seq. The doctrine of specific 
 performance is that, where damages 
 would be an inadequate compensation 
 for the breach of an agreement, the 
 contractor will be compelled to perform 
 specifically what he has agreed to do. 
 Sweet. 
 
 PERJURY. In criminal law. The 
 willful assertion as to a matter of fact, 
 opinion, belief, or knowledge, made by 
 a witness in a judicial proceeding as 
 part of his evidence, either upon oath 
 or in any form allowed by law to be 
 substituted for an oath, whether such 
 evidence is given in open court, or in 
 an affidavit, or otherwise, such assertion 
 being known to such witness to be false, 
 and being intended by him to mislead 
 the court, jury or person holding the 
 proceeding. 
 
 PER SE. Lat. By himself or itself; 
 in itself; taken alone; inherently; in 
 isolation; unconnected with other mat- 
 ters. 
 
 PERSONALTY. Personal property; 
 movable property; chattels. 
 
 PERSONAL PROPERTY. (See Per- 
 sonalty.) 
 
 PLAINTIFF. A person who brings 
 an action; the party who complains or 
 sues in a personal action and is so 
 named on the record. 
 
 PLAINTIFF IN ERROR. The party 
 who sues out a writ of error to review 
 a judgment or other proceeding at law. 
 
 PLEA. In common-law practice. A 
 
 pleading; any one in the series of 
 pleadings. More particularly, the first 
 pleading on the part of the defendant. 
 In the strictest sense, the answer which 
 the defendant in an action at law makes 
 to the plaintiff's declaration, and in 
 which he s6ts up matter of fact as de- 
 fense, thus distinguished from a demur- 
 rer, which interposes objections on 
 grounds of law. 
 
 In equity. A special answer showing 
 or relying upon one or more things as 
 a cause why the suit should be either 
 dismissed or delayed or barred. 
 
DICTIONARY OF LEGAL TERMS 
 
 1533 
 
 PLEAD. To make, deliver, or file 
 any pleadjng; to conduct the pleadings 
 in a cause. To interpose any pleading 
 in a suit which contains allegations of 
 fact; in this sense the word is the an- 
 tithesis of "demur." More particularly, 
 to deliver in a formal manner the de- 
 fendant's answer to the plaintiff's decla- 
 ration, or to the indictment, as the case 
 may be. 
 
 PLEADING. The peculiar science or 
 system of rules and principles, estab- 
 lished in the common law, according to 
 which the pleadings or responsive alle- 
 gations of litigating parties are framed, 
 with a view to preserve technical pro- 
 priety and to produce a proper issue. 
 
 The process performed by the parties 
 to a suit or action, in alternately pre- 
 senting written statements of their con- 
 tention, each responsive to that which 
 precedes, and each serving to narrow 
 the field of controversy, until there 
 evolves a single point, affirmed on one 
 side and denied on the other, called the 
 "issue," upon which they then go to 
 trial. 
 
 The act or step of interposing any 
 one of the pleadings in a cause, but par- 
 ticularly one on the part of the defend- 
 ant; and, in the strictest sense, one 
 which sets up allegations of fact in de- 
 fense to the action. 
 
 PLEDGE, n. A bailment of goods to 
 a creditor, as security for some debt or 
 engagement; a pawn.- Story, Bailm. 
 art. 7. 
 
 PLEDGEE. The party to whom 
 goods are pledged, or delivered in 
 pledge. 
 
 PLEDGOR. The party delivering 
 goods in pledge; the party pledging. 
 
 POLICE POWER. The power vested 
 •in a state to establish laws and ordi- 
 nances for the regulation and enforce- 
 ment of public order and tranquUlity. 
 The power vested in the legislature to 
 make, ordain, and establish all manner 
 of wholesome and reasonable laws, stat- 
 utes, and ordinances, either with penal- 
 ties or without, not repugnant to the 
 constitution, as they shall judge to be 
 for the good and welfare of the com- 
 monwealth, and of the subjects of the 
 same. The police power of the state is 
 an authority conferred by the American 
 constitutional system upon the individ- 
 ual states, through which they are en- 
 abled to establish a special department 
 of police; adopt such regulations as 
 tend to prevent the commission of fraud, 
 violence, or other offenses against the 
 state; aid in the arrest of criminals; and 
 secure generally the comfort, health, 
 and prosperity of the state, by preserv- 
 ing the public order, preventing a con- 
 flict of rights in the common intercourse 
 
 of the citizens, and insuring to each an 
 uninterrupted enjoyment of all the priv- 
 ileges conferred upon him by the laws 
 of his country. It is true that the leg- 
 islation which secures to all protection 
 in their rights, and the equal use and 
 enjoyment of their property, embraces 
 an almost infinite variety of subjects. 
 Whatever affects the peace, go-od order, 
 morals, and health of the community 
 comes within its scope; and every one 
 must use and enjoy his property sub- 
 ject to the restrictions whidi such leg- 
 islation imposes. What is termed the 
 "police power" of the state, which, 
 from the language often used respecting 
 it, one would suppose to be an undefined 
 and irresponsible element in govern- 
 ment, can only interfere vdth the con- 
 duct of individuals in their intercourse 
 with each other, and in the use of their 
 property, so far as may be required to 
 secure these objects. 
 
 POLICY OF INSURANCE. A mer- 
 cantile instrument in writing, by which 
 one party, in consideration of a premi- 
 um, engages to indemnify anothe'r 
 against a contingent loss, by making him 
 a payment in compensation, whenever 
 the event shall happen by which the los3 
 is to accrue. 
 
 POST-DATE. To date an instru- 
 ment as of a time later than that at 
 which it is really made. 
 
 POWER OF APPOINTMENT. A 
 
 power or authority conferred by one 
 person by deed or will upon another 
 (called the "donee") to appoint, that is, 
 to select and nominate, the person or 
 persons who are to receive and enjoy 
 an estate or an income therefrom or 
 from a fund, after the testator's de.ath, 
 or the donee's death, or after the ter- 
 mination of an existing right or inter- 
 est. 
 
 POWER OF ATTORNEY. An in- 
 strument authorizing a person to act as 
 the agent or attorney of the person 
 granting it. 
 
 PREMIUM. The sum paid or agreed 
 to be paid by an assured to the under- 
 writer as the consideration for the in- 
 surance; being a certain rate per cent, 
 on the amount insured. 
 
 PRESENTMENT. The production of 
 a bill of exchange to the drawee for his 
 acceptance, or to the drawer or accept- 
 or for payment; or of a promissory 
 note to the party liable, for payment of 
 the same. 
 
 PRESUMPTION. An inference af- 
 firmative or disaffirmative of the truth 
 or falsehood of any proposition or fact 
 drawn by a process of probable reason- 
 ing in the absence of actual certainty of 
 
1534 
 
 DICTIONARY OF LEGAL TERMS 
 
 its truth or falsehood, or until such cer- 
 tainty can be ascertained. 
 
 PRIMA FACIE. Lat. At first sight; 
 on the first appearance; on the face of 
 it; so far as can be judged from the 
 first disclosure; presumably. 
 
 A litigating party is said to have a 
 prima facie case when the evidence in 
 his favor is sufiiciently strong for his 
 opponent to be called on to answer it. 
 
 PRINCIPAL. In the law of agency. 
 The employer or constitutor of an 
 agent; the person who gives authority 
 to an agent or attorney to do some act 
 for him. 
 
 PROBATE. The act or process of 
 proving a will. The proof before an 
 ordinary, surrogate, register, or other 
 duly authorized person that a document 
 produced before him for oflScial recog- 
 nition and registration, and alleged to 
 be the last will and testament of a cer- 
 tain deceased person, is such in reality. 
 
 PROCESS. In practice. This word 
 is generally defined to be the means of 
 compelling the defendant in an action 
 to appear in court. 
 
 PROCURATION. Agency; proxy; the 
 act of constituting another one's attor- 
 ney in fact; action under a power of 
 attorney or other constitution of agen- 
 cy. Indorsing a bill or note "by procu- 
 ration" (or per proc.) is doing it as 
 proxy for another or by his authority. 
 
 PROMISSORY NOTE. A promise or 
 engagement, in writing, to pay a speci- 
 fied sum at a time therein limited, or 
 on demand, or at sight, to a person 
 therein named, or to his order, or 
 bearer. 
 
 PROMOTERS. In the law relating 
 to corporations, those persons are called 
 the "promoters" of a company who first 
 associate themselves together for the 
 purpose of organizing the company, is- 
 suing its prospectus, procuring sub- 
 scriptions to the stock, securing a char- 
 ter, etc. 
 
 PROSECUTE. To follow up; to car- 
 ry on an action or other judicial pro- 
 ceeding; to proceed against a person 
 criminally. 
 
 PRO TANTO. Lat. For so much; 
 as far as it goes. 
 
 PROTEST. A notarial act, being a 
 formal statement in writing made by a 
 notary under his seal of office, at the 
 request of the holder of a bill or note, 
 in which such bill or note is described, 
 and it is declared that the same was on 
 a certain day presented for payment 
 (or acceptance, as the case may be), 
 and that such payment or acceptance 
 was refused, and stating the reasons, if 
 any, given for such refusal, whereupon 
 
 the notary protests against all parties 
 to such instrument, and declares that 
 they will be held responsible for all loss 
 or damage arising from its dishonor. 
 
 PROXY. A person who is substi- 
 tuted or deputed by another to repre- 
 sent him and act for him, particularly 
 in some meeting or public body. Also 
 the instrument containing the appoint- 
 ment of such person. 
 
 QUA. Lat. As; in the character or 
 capacity of. E. g., "the trustee qua 
 
 trustee." 
 
 QUANTUM MERUIT. As much as 
 he deserved. 
 
 In pleading. The common count in an 
 action of assumpsit for work and labor, 
 founded on an implied assumpsit or 
 promise on the part of the defendant to 
 pay the plaintiff as much as he rea- 
 sonably deserved to have for his labor. 
 
 QUASI. Lat. As if; as it were; 
 analogous to. This term is used in le- 
 gal phraseology to indicate that one 
 subject resembles another, with which 
 it is compared, in certain characteris- 
 tics, but that there are also intrinsic 
 differences between them. 
 
 QUASI CONTRACT. In the civil 
 law. A contractual relation arising out 
 of transactions between the parties 
 which give them mutual rights and obli- 
 gations, but do not involve a specific 
 and express convention or agreement 
 between them. 
 
 QUIET, V. To pacify; to render se- 
 cure or unassailable by the removal of 
 disquieting causes or disputes. This is 
 the meaning of the word in the phrase . 
 "action to quiet title," which is a pro- 
 ceeding to establish the plaintiff's title 
 to land by bringing into court an ad- 
 verse claimant and there compelling 
 him either to establish his claim or be 
 forever after estopped from asserting it. 
 
 QUITCLAIM DEED. A deed of con- 
 veyance operating by way of release; 
 that is, intended to pass any title, in- 
 terest, or claim which the grantor may 
 have in the premises, but not profess- 
 ing that such title is valid, nor contain- 
 ing any warranty or covenants for title. 
 
 QUO WARRANTO. A name com- 
 monly applied, -in the United States, to 
 an "information in the nature of a quo 
 warranto," an action compelling the de- 
 fendant to show by what warrant he 
 exercises certain powers or privileges. 
 The proceeding is used to test the right 
 of a person to public office, or the right 
 of a private or public corporation to ex- 
 ercise certain franchises. 
 
DICTIONARY OF LEGAL TERMS 
 
 1535 
 
 R 
 
 RATIFICATION. The confirmation 
 of a previous act done either by the 
 party himself or by another; confirma- 
 tion of a voidable act. 
 
 REAL ESTATE. (See Real Prop- 
 erty.) 
 
 REALTY. (See Real Property.) 
 
 REAL PROPERTY. A general term 
 for lands, tenements, and heredita- 
 ments; property which, on the death of 
 the owner intestate, passes to his heir. 
 Real property is either corporeal orjn- 
 corporeal. 
 
 RECEIPT. A receipt is the written 
 acknowledgment of the receipt of mon- 
 ey, or a thing of value, without contain- 
 ing any afiSrmative obligation upon ei- 
 ther party to it; a mere admission of a 
 fact in writing. 
 
 Also the act or transaction of accept- 
 ing or taking anything delivered. 
 
 RECEIVER. A receiver is an indif- 
 ferent person between the parties ap- 
 pointed by the court to collect and re- 
 ceive the rents, issues, and profits of 
 land, or the produce of personal estate, 
 or other things Which it does not seem 
 reasonable to the court that either par- 
 ty should do; or where a party is in- 
 competent to do so, as in the case of 
 an infant. The remedy of the appoint- 
 ment of a receiver is one of the very 
 oldest in the court of chancery, and is 
 founded on the inadequacy of the rem- 
 edy to be obtained in the court of ordi- 
 nary jurisdiction. 
 
 RECOGNIZANCE. An obligation of 
 record, entered into before some court 
 of record, or magistrate duly author- 
 ized, with condition to do some particu- 
 lar act; as to appear at the assizes, or 
 criminal court, to keep the peace, to 
 pay a debt, or the like. It resembles a 
 bond, but differs from it in being an 
 acknowledgment of a former debt upon 
 record. 
 
 RECOUPMENT. Recoupment is a 
 right of the defendant to have a deduc- 
 tion from the amount of the plaintitf's 
 damages, for the reason that the plain- 
 tiff has not complied with the cross-ob- 
 ligations or independent covenants aris- 
 ing under the same contract. 
 
 "Recoupment" differs from ''set-off" 
 in this respect: that any claim or de- 
 mand the . defendant may have against 
 the plaintiff may be used as a set-off, 
 while it is not a subject for recoupment 
 unless it grows out of the very same 
 transaction which furnishes the plain- 
 tiff's cause of action. 
 
 RELATOR. The person upon whose 
 complaint, or at whose instance, an jji- 
 
 formation or writ of quo warranto is 
 filed, and who is quasi the plaintiff in 
 the proceeding. 
 
 RELEASE. The relinquishment, con- 
 cession, or giving up of a right, claim, 
 or privilege, by the person in whom it 
 exists or to whom it accrues, to the 
 person against whom it might have been 
 demanded or enforced. . 
 
 REMAINDER. An estate limited to 
 take effect and be enjoyed after another 
 estate is determined. As, if a man 
 seised in fee-simple grants lands to A. 
 for twenty' years, and, after the deter- 
 mination of the said term, then to B. 
 and his heirs forever, here A. is tenant 
 for years, remainder to B. in fee. 
 
 REMEDY. The means by which the 
 violation of a right is prevented, re- 
 dressed, or compensated. Though a 
 remedy may be by the act of the party 
 injured, by operation of law, or by 
 agreement between the injurer and the 
 injured, we are chiefly concerned with 
 one kind of remedy, the judicial remedy, 
 which is by action or suit. 
 
 REMITTITUR DAMNA. (Lat.) Usu- 
 ally shortened to Remittitur. An entry 
 made on record, in cases where a jury 
 has given greater damages than a plain- 
 tiff has declared for, remitting the ex- 
 cess. 
 
 RENT. The compensation, either in 
 money, provisions, chattels, or labor, re- 
 ceived by the owner of the soil from 
 the occupant thereof. 
 
 REPLEVIN. A personal action ex 
 delicto brought to recover possession of 
 goods unlawfully taken (generally, but 
 not only, applicable to the taking of 
 goods distrained for rent), the validity 
 of which taking it is the mode of con- 
 testing, if the party from whom the 
 goods were taken wishes to have them 
 back in specie, whereas, if he prefer to 
 have damages instead, the validity may 
 be contested by action of trespass or 
 unlawful distress. 
 
 REPLEVIN BOND. A bond exe- 
 cuted to indemnify the ofBcer who exe- 
 cuted a writ of replevin and to indem- 
 nify the defendant or person from 
 whose custody the property was taken 
 for such damages as he may sustain. 
 
 RESCISSION. Rescission, or the act 
 of rescinding, is where a contract is 
 canceled, annulled, or abrogated by the 
 parties, or one of them. 
 
 RESIDENCE. Living or dwelling in 
 a certain place permanently or for a 
 considerable length of time. The place 
 where a man makes his home, or where 
 he dwells permanently or for an ex- 
 tended period of time. 
 
1536 
 
 DICTIONARY OF LEGAL TERMS 
 
 RESIDUARY. Pertaining to the res- 
 idue; constituting the residue; giving 
 or bequeathing the residue; receiving or 
 entitled to the residue. 
 
 RESIDUARY DEVISEE. The per- 
 son named in a will, vfho is to take all 
 the real property remaining over and 
 above the other devises. 
 
 RESIDUARY ESTATE. The remain- 
 ing part of a testator's estate and ef- 
 fects, after payment of debts and lega- 
 cies; or that portion of his estate 
 which has not been particularly devised 
 or bequeathed. 
 
 RESIDUARY LEGATEE. The per- 
 son to whom a testator bequeaths the 
 residue of his personal estate, after the 
 payment of such other legacies as are 
 specifically mentioned in the will. 
 
 RESPONDEAT SUPERIOR. Let the 
 
 master answer. This maxim means that 
 a master is liable in certain cases for 
 the wrongful acts of his servant, and a 
 principal for those of his agent. 
 
 RESPONDENT. The party who 
 makes an answer to a bill or other pro- 
 ceeding in chancery. 
 
 The party who appeals against the 
 judgment of an inferior court is termed 
 the "appellant"; and he who contends 
 against the appeal, the "respondent." 
 
 REVOCATION. The recall of some 
 power, authority, or thing granted, or a 
 destroying or making void of some deed 
 that had existence until the act of rev- 
 ocation made it void. It may be either 
 general, of all acts and things done be- 
 fore; or special, to revoke a particular 
 thing. 
 
 RIGHT OF ACTION. The right to 
 bring suit; a legal right to maintain an 
 action, growing out of a given transac- 
 tion or state of facts and based thereon. 
 
 RIGHT OF ENTRY. A right of en- 
 try is the right of taking or resuming 
 possession of land by entering on it in 
 a peaceable manner. 
 
 RIGHT TO REDEEM. The term 
 "right of redemption," or "right to re- 
 deem," is familiarly used to describe the 
 estate of the debtor when under mort- 
 gage, to be sold at auction, in contra- 
 distinction to an absolute estate, to be 
 set off by appraisement. It would be 
 more consonant to the legal character 
 of this interest to call It the "debtor's 
 estate subject to mortgage." 
 
 SATISFACTION. The act of satis- 
 fying a party by paying what is due to 
 him (as on a mortgage, ilien, or con- 
 tract), or what is awarded to him, by 
 the judgment of a court or otherwise. 
 
 Thus, a judgment is satisfied by, the 
 payment of the amount due to the party 
 who has recovered such judgment, or by 
 his levying the amount. 
 
 SCIENTER. Lat. Knowingly. 
 
 SCINTILLA. Lat. A spark; a le- 
 maining particle; the least particle. 
 
 SCIRE FACIAS. Lat. In practice. 
 A judicial writ, founded upon some rec- 
 ord, and requiring the person against 
 whom it is brought to show cause why 
 the party bringing it should not have 
 advantage of such record, or (in the 
 case of a scire facias to repeal letters 
 patent) why the record should not be 
 annulled and vacated. 
 
 The most common application of this 
 writ is as a process to revive a judg- 
 ment, after the lapse of a certain time, 
 or on a change of parties, or otherwise 
 to have execution of the judgment, in 
 which cases it is merely a continuation 
 of the original action. 
 
 SCROLL or SCRAWL. A mark in- 
 tended to supply the place of a seal, 
 made with a pen or other instrument of 
 writing. 
 
 SEAL. An impression upon wax, wa- 
 fer, or some other tenacious substance 
 capable of being impressed. 
 
 SEISIN. Possession with an intent 
 on the part of him who holds it to 
 claim a freehold interest. 
 
 SET-OFF. A counterclaim or cross- 
 demand; a claim or demand which the 
 defendant in an action sets off against 
 the claim of the plaintiff, as being his 
 due, whereby ^he may extinguish the 
 plaintiff's demand, cither in whole or in 
 part, according to the amount of the 
 set-off. 
 
 SET UP. To bring forward or allege, 
 as something reliea upon or deemed 
 sufficient; to propose or interpose, by 
 way of defense, explanation, or justifi- 
 cation; as, to set up the statute of lim- 
 itations — i. e., offer and rely upon it as 
 a defense to a claim. 
 
 SEVERANCE. The cutting of the 
 crops, such as corn, grass, etc., or the 
 separating of anything from the realty. 
 Brown. 
 
 SHELLEY'S CASE, RULE IN. "That 
 rule is that, where a life estate is given 
 to A., with a future interest to A.'s 
 heirs (the use of the particular word 
 'heirs' being necessary), the whole gift 
 is construed as one 'to A. and his heirs,' 
 at once giving an estate to A. in fee." 
 Albert M. Kales, in 5 Am. Law & Pro- 
 ced. 105. 
 
 SILENT PARTNER. Popular name 
 for dormant partners or special part- 
 
DICTIONARY OF LEGAL TERMS 
 
 1537 
 
 SIMPLE CONTRACT. A contract 
 based upon consideration and not upon 
 form. 
 
 SPECIAL INDORSEMENT. An in- 
 dorsement in full, which specifically 
 names the indorsee. 
 
 SPECIAL PARTNER. A member of 
 a limited partnership, who furnishes 
 certain funds to the common stock, and 
 whose liability extends no further than 
 the fund furnished. 
 
 SPECIAL PROPERTY. Property of 
 a qualified, temporary, or limited na- 
 ture; as distinguished from absolute, 
 general, or unconditional property. Such 
 is the property of a bailee in the article 
 bailed, of a sheriff in goods temporarily 
 in his hands under a levy, of the finder 
 of lost goods while looking for the own- 
 er, of a person in wild animals which he 
 has caught. 
 
 SPECIALTY. A writing sealed and 
 delivered, containing some agreement. 
 
 SPECIAL VERDICT. A special find- 
 ing of the facts of a case by a jury, 
 leaving to the court the application of 
 the law to the facts thus found. 
 
 SPOLIATION. In torts. Destruc- 
 tion of n thing by the act of a stranger, 
 as the erasure or alteration of a writ- 
 ing by the act of a stranger, is called 
 "spoliation." This has not the effect to 
 destroy its character or legal effect. 
 
 SS. An abbreviation used in that 
 part of a record, pleading, or afiidavit, 
 called the "statement of the venue." 
 Commonly translated or read, "to wit," 
 and supposed to be a contraction of 
 "scilicet." 
 
 STATUS. The status of a person is 
 his legal position or condition. 
 
 STATUTE, n. An act of the legis- 
 lature. 
 
 STATUTE OF FRAUDS. A cele- 
 brated English statute, passed in 1677, 
 and which has been adopted, in a more 
 or less modified form, in nearly all of 
 the United States. Its chief character- 
 istic is the provision that no action 
 shall be brought on certain contracts 
 unless there be a note or memorandum 
 thereof in writing, signed by the party 
 to be charged or by his authorized 
 agent. 
 
 STATUTE OF LIMITATION. A 
 statute prescribing limitations to the 
 right of action on certain described 
 causes of action; that is, declaring that 
 no suit shall be maintained on such 
 causes of action unless brought within 
 a specified period after the right ac- 
 crued. 
 
 STATUTORY UNDERTAKING. A 
 penal bond, given, as required by stat- 
 B.& B.Bus.Law— 97 
 
 ute, in connection vfith certain legal pro- 
 ceedings. "Common examples of statu- 
 tory undertaking are; The bond given 
 by a plaintiff in an injunction suit, as 
 security to the defendant for damages 
 caused by the issuance of an interlocu- 
 tory injunction, such damages, within 
 the amount of the penalty, to be col- 
 lected by the defendant if the injunction 
 is found to have been wrongfully issued; 
 and the bond given for a very similar 
 purpose in attachment or replevin." 
 Bauer on Damages, p. 98, note. 
 
 STOCK. In corporation law. The 
 capital or principal fund of a corpora- 
 tion or joint-stock company, formed by 
 the contributions of subscribers or the 
 sale of shares, and considered as the 
 aggregate of a certain number of shares 
 severally owned by the members or 
 stockholders of the corporation; also 
 the proportional part of the capital 
 which is owned by an individual stock- 
 holder; also the incorporeal property 
 which is represented by the holding of 
 a certificate of stock, and in a wider 
 and more remote sense, the right of a 
 shareholder to participate in the gen- 
 eral management of the company and to 
 share proportionally in its net profits or 
 earnings or in the distribution of as- 
 sets on dissolution. 
 
 STOPPAGE IN TRANSITU. The act 
 
 by which the unpaid vendor of goods 
 stops their progress and resumes pos- 
 session of them, while they are in 
 course of transit from him to the pur- 
 chaser, and not yet actually delivered to 
 the latter. 
 
 STRICTISSIMI JURIS. Lat. Of the 
 strictest right or law. 
 
 SUBAGENT. An under-agent; a sub- 
 stituted agent; an agent appointed by 
 one who is himself an agent. 
 
 SUBPCENA. The process by which 
 the attendance of a witness is requir'ed 
 is called a "subpoena." It is a writ or 
 order directed to a person, and requir- 
 ing his attendance at a particular time 
 and place to testify as a witness. It 
 may also require him to bring with him 
 any books, documents, or other things 
 under his control, which he is bound by 
 law to produce in evidence. 
 
 SUBROGATION. The substitution of 
 one thing for another, or of one person 
 into the place of another with respect 
 to rights, claims, or securities. 
 
 Subrogation denotes the putting a 
 third person who has paid a debt in the 
 place of the creditor to whom he has 
 paid it, so as that he may exercise 
 against the debtor all the rights which 
 the creditor, if unpaid, might have done. 
 
 SUBSCRIBE. In the law of con- 
 tracts. To write under; to write the 
 
1538 
 
 DICTIONART OF LEGAL TERMS 
 
 name under; to write the name at the 
 bottom or end of a writing. 
 
 SUBSTANTIVE LAW. The part of 
 the law which the courts are estab- 
 lished to administer, as opposed to the 
 rules according to which the substantive 
 law itself is administered. That part of 
 the law which creates, defines, and reg- 
 ulates rights, as opposed to adjective or 
 remedial law, which prescribes the 
 method of enforcing rights or obtaining 
 redress for their invasion. 
 
 SUI GENERIS. Lat. Of its own 
 kind or class, 
 
 SUI JURIS. Lat. Of his own right; 
 having legal capacity to manage his own 
 affairs. 
 
 SUIT. "Suit" is a generic term, of 
 comprehensive signification, and applies 
 to any proceeding in a court of justice 
 in which the plaintiff pursues, in such 
 court, the remedy which the law af- 
 fords him for the redress of an injury 
 or the recovery of a right. 
 
 SUMMARY, adj. Immediate; peremp- 
 tory; ofE-hand; without a jury; pro- 
 visional ; statutory. 
 
 SUMMON. In practice. To serve a 
 summons; to cite a defendant to appear 
 in court to answer a suit which has 
 been begun against him; to notify the 
 defendant that an action has been insti- 
 tuted against him, and that he is re- 
 quired to answer to it at a time and 
 place named. 
 
 SUMMONS. In practice. A writ, di- 
 rected to the sheriff or other proper of- 
 ficer, requiring him to notify the per- 
 son named that an action has been com- 
 menced against him in the court whence 
 the writ issues, and that he is required 
 to appear, on a day named, and answer 
 the complaint in such action. 
 
 SURETY. A surety is one who at 
 the request of another, and for the pur- 
 pose of securing to him a benefit, be- 
 comes responsible for the performance 
 by the latter of some act in favor of a 
 third person, or hypothecates property 
 as security therefor. 
 
 TENANT. In the broadest sense, one 
 who holds or possesses lands or tene- 
 ments by any kind of right or title, 
 whether in fee, for life, for years, at 
 will, or otherwise. Cowell. 
 
 In a more restricted sense, one who 
 holds lands of another; one who has the 
 temporary use and occupation of real 
 property owned by ^ another person 
 (called the "landlord")! the duration and 
 terms of his tenancy being usually fixed 
 by an instrument called a "lease." 
 
 TENDER. An offer of money; the 
 act by which one produces and offers to 
 a person holding a claim or demand 
 against him the amount of money which 
 he considers and admits to be due, in 
 satisfaction of such claim or demand, 
 without any stipulation or condition. 
 
 TERM. Of court. The word "term" 
 when used with reference to a court, 
 signifies the space of time during which 
 the court holds a session. A "session" 
 signifies the time during the term when 
 the court sits for the transaction of 
 business, and the session commences 
 when the court convenes for the term, 
 and continues until final adjournment, 
 either before or at the expiration of the 
 term. The "term" of the court is the 
 time prescribed by law during which it 
 may be in "session." The "session" of 
 the court is the time of its actual sit- 
 ting. 
 
 TESTATOR. One who makes or has 
 made a testament or will; one who dies 
 leaving a will. 
 
 TITLE. The means whereby the 
 owner of lands or of personalty has the 
 just possession of his property. See 
 Co. Litt. 345; 2 Bl. Oomm. 195. 
 
 TORT. Wrong; injury; the opposite 
 of right. So called, according to Lord 
 Coke, because it is "wrested," or crook- 
 ed, being contrary to that which is right 
 and straight. Co. Litt. 158b. 
 
 In modern practice, "tort" is con- 
 stantly used as an English word to de- 
 note a wrong or wrongful act, for which 
 an action will lie, as distinguished from 
 a "contract." 3 Bl. Comm. ll't. 
 
 A tort is a legal wrong committed up- 
 on the person or property independent 
 of contract. It may be either (1) a di- 
 rect invasion of some legal right of the 
 individual; (2) the infraction of some 
 public duty by which special damage ac- 
 crues to the individual; (3) the viola- 
 tion of some private obligation by which 
 like dam'age accrues to the individual. 
 In the former case, no special damage 
 is necessary to entitle the party to re- 
 cover. In the two latter cases, such 
 damage is necessary. Code Ga. 1882, S 
 2951. 
 
 TORT-FEASOR. One who commits 
 or is guilty of a tort. 
 
 TORTIOUS. Wrongful; of the na- 
 ture of a tort. Formerly certain modes 
 of conveyance (e. g., feoffments, fines, 
 etc.) had the effect of passing not mere- 
 ly the estate of the person making the 
 conveyance, but the whole fee simple, to 
 the injury of the person really entitled 
 to the fee; and they were hence called 
 "tortious conveyances." Litt. par. 611; 
 Co. Litt. 271b, note 1; 330b, note 1. 
 
DICTIONARY OF LEGAL TERMS 
 
 1539 
 
 But this operation has been taken away. 
 Sweet.' 
 
 TRESPASS. Any misfeasance or act 
 of one man whereby another is injuri- 
 ously treated or damnified. 3 Bl. Comm. 
 208. 
 
 An injury or misfeasance to the per- 
 son, property, or rights of another per- 
 son, done with force and violence, ei- 
 ther actual or implied by law. 
 
 In the strictest sense, an entry on an- 
 other's ground, without a lawful author- 
 ity, and doing some damage, however 
 inconsiderable, to his real property. 3 
 Bl. Comm. 209. 
 
 In practice. A form of action, at the 
 common law, which lies for redress in 
 the shape of money damages for any 
 unlawful injury done to the plaintiff, in 
 respect either to his person, property, 
 or rights, by the immediate force and 
 violence of the defendant. 
 
 Trespass de bonis asportatis. (Tres- 
 pass for goods carried away.) In prac- 
 tice. The technical name of that spe- 
 cies of trespass for injuries to personal 
 property which lies where the injury 
 consists in carrying away the goods or 
 property. 
 
 Trespass on the case. The form of 
 action, at common law, adapted to the 
 recovery of damages for some injury 
 resulting to a party from the wrongful 
 act of another, unaccompanied by direct 
 or immediate force, or which is the in- 
 direct or secondary consequence of such 
 act. Commonly called "case," or "ac- 
 tion on the case." 
 
 Trespass quare clausum fregit. (Tres- 
 pass wherefore he broke the close, or 
 trespass for breaking the close.) The 
 common-law action for damages for an 
 unlavrful entry or trespass upon the 
 plaintiff's land. 
 
 TROVER. In common-law practice, 
 the action of trover (or trover and 
 conversion) is a species of action on the 
 case, and originally lay for the recovery 
 of damages against a person who had 
 "found" another's goods and wrongfully 
 converted them to his own use. Subse- 
 quently the allegation of the loss of the 
 goods by the plaintiff and the finding of 
 them by the defendant was merely ficti- 
 tious, and the action became the remedy 
 for any wrongful interference with or 
 detention of the goods of another. 
 
 TRUST. An equitable or beneficial 
 right or title to land or other property, 
 held for the beneficiary by another per- 
 son, in whom resides the legal title or 
 ownership, recognized and enforced by 
 courts of chancery. 
 
 TRUST DEED. An instrument in 
 use in many states, taking the place 
 
 and serving the uses of a common-law 
 mortgage, by which the legal title to 
 real property is placed in one or more 
 trustees, to secure the repayment of a 
 sum of money or the performance of 
 other conditions. 
 
 TRUSTEE. The person appointed, or 
 required by law, to execute a trust; one 
 in whom an estate, interest, or power 
 is vested, under an express or implied 
 agreement to administer or exercise it 
 for the benefit or to the use of another. 
 
 TRUSTEE PROCESS. The name 
 given, in the New England states, to the 
 process of garnishment or foreign at- 
 tachment. 
 
 u 
 
 ULTRA VIRES. A term used to ex- 
 press the action of a corporation which 
 is beyond the powers conferred upon it 
 by its charter, or the statutes under 
 which it was instituted. 13 Am. Law 
 Rev. 632. 
 
 UNDERTAKING. A promise, engage- 
 ment, or stipulation. Bach of the 
 promises made by the parties to a con- 
 tract, considered independently and not 
 as mutual, may, in this sense, be de- 
 nominated an "undertaking." 
 
 UNDERWRITER. The person who 
 insures another in a fire or life policy; 
 the insurer. 
 
 A person who joins with others in en- 
 tering into a marine policy of insurance 
 as insurer. 
 
 UNILATERAL. One-sided; ex par- 
 te; having relation to only one of two 
 or more persons or things. 
 
 USURY. Unlawful interest; a pre- 
 mium or compensation paid or stipu- 
 lated to be paid for the use of money 
 borrowed or returned, beyond the rate 
 of interest established by law. Web- 
 ster. 
 
 V 
 
 VALID. Of binding force. A deed, 
 will, or other instrument, which has re- 
 ceived all the formalities required by 
 law, is said to be valid. 
 
 VALIDITY. This term is used to 
 signify legal sufliciency, in contradis- 
 tinction to mere regularity. 
 
 VENDEE. A purchaser or buyer; 
 one to whom anything is sold. Gener- 
 ally used of the transferee of real prop- 
 erty, one who acquires chattels by sale 
 being called a "buyer." 
 
 VENDITIONI EXPONAS. Lat. You 
 expose to sale. This is the name of a 
 writ of execution, requiring a sale to 
 be made, directed to a sheriff when he 
 
1540 
 
 DICTIONARY OF LEGAL TERMS 
 
 has levied upon goods under a fieri fa- 
 cias, but returned that they remained 
 unsold for want of buyers ; and in some 
 jurisdictions it is issued to cause a sale 
 to be made of lands, seized under a for- 
 mer writ, after they have been con- 
 demned or passed upon by an inquisi- 
 tion. Frequently abbreviated to "vend, 
 ex." 
 
 VENDOR. The person who transfers 
 property by sale, particularly real es- 
 tate, "seller" being more commonly used 
 for one who sells personalty. 
 
 VENIRE. Lat. To come; to appear 
 in court. This word is sometimes used 
 as the name of the writ for summoning 
 a jury, more commonly called a "venire 
 facias." 
 
 VENIRE FACIAS DE NOVO. A 
 fresh or new venire, which the court 
 grants when there has been some im- 
 propriety or irregularity in returning 
 the jury, or where the verdict is so im- 
 perfect or ambiguous that no judgment 
 can be given upon it, or where a judg- 
 ment is reversed on error, and a new 
 trial awarded. 
 
 VERDICT. The formal and unani- 
 mous decision or finding of a jury, im- 
 paneled and sworn for the trial of a 
 cause, upon the matters or questions 
 duly submitted to them upon the trial. 
 
 VESTED. Accrued; fixed; settled; 
 absolute; having the character or giv- 
 ing the rights of absolute ownership; 
 not contingent; not subject to be de- 
 feated by a condition precedent. 
 
 VINDICTIVE DAMAGES. Exem- 
 plary damages are damages on an in- 
 creased scale, awarded to the plaintiff 
 over and above what wiU barely com- 
 pensate him for his property loss, where 
 the wrong done to him was aggravated 
 by circumstances of violence, oppres- 
 sion, malice, fraud, or wanton and 
 wicked conduct on the part of the de- 
 fendant, and are intended to solace the 
 plaintiff for mental anguish, laceration 
 of his feelings, shame, degradation, or 
 other aggravations of the original 
 wrong, or else to punish the defendant 
 for his evil behavior or to make an ex- 
 ample of him, for which reason they are 
 also called "punitive" or "punitory" 
 damages or "vindictive'' damages, and 
 (vulgarly) "smart money." 
 
 VOID. Null; ineffectual, nugatory; 
 having no legal force or binding effect; 
 unable, in law, to support the purpose 
 for which it was intended. 
 
 VOIDABLE. That may be avoided, 
 or declared void; not absolutely void, 
 or void in itself. Most of the acts of 
 infants are "voidable" only, and not ab- 
 solutely void. 
 
 VOLUNTARY. Free; without com- 
 pulsion or solicitation. 
 
 Without consideration; without valu- 
 able consideration; gratuitous. 
 
 VOLUNTEER. In conveyancing, one 
 who' holds a title under a voluntary 
 conveyance; i. e., one made without 
 consideration, good or valuable, to sup- 
 port it. 
 
 A person who gives his services with- 
 out any express or implied promise of 
 remuneration in return is called a "vol- 
 unteer," and is entitled to no remuner- 
 ation for his services, nor to any com- 
 pensation for injuries sustained by him 
 in performing what he has undertaken. 
 Sweet. Also one who officiously pays 
 the debt of another. 
 
 w 
 
 WAGER. A wager is a contract by 
 •which two or more parties agree that a 
 certain sum of money or other thing 
 shall be paid or delivered to one of 
 them on the happening of an uncertain 
 event or upon the ascertainment of a 
 fact which is in dispute between them. 
 
 WAIVER. The renunciation, repudi-. 
 ation, abandonment, or surrender of 
 some claim, right, privilege, or of the 
 opportunity to take advantage of some 
 defect, irregularity, or wrong. 
 
 WARD. An infant or insane person 
 placed by authority of law under the 
 care of a guardian. 
 
 WARRANT, V. In contracts. To en- 
 gage or promise that a certain fact or 
 state of facts, in relation to the sub- 
 ject-matter, is, or shall be, as it is rep- 
 resented to be. 
 
 WARRANT, n. A writ or precept 
 from a competent authority in pursu- 
 ance of law, directing the doing of an 
 act, and addressed to an officer or per- 
 son competent to do the act, and af- 
 fording him protection from damage, if 
 he does it. 
 
 WARRANTY. In real property law. 
 
 A real covenant by the grantor of lands, 
 for himself and his heirs, to warrant 
 and defend the title and possession of 
 the estate granted, to the grantee and 
 his heirs, whereby either upon voucher, 
 or judgment in the writ of warrantia 
 chartse, and the eviction of the grantee 
 by paramount title, the grantor was 
 bound to recompense him with other 
 lands of equal value. 
 
 In sales of personal property. A war- 
 ranty is a statement or representation 
 made by the seller of goods, contempo- 
 raneously with . and as a part of the 
 contract of sal^ though collateral to 
 
DICTIONARY OF LEGAL TEEMS 
 
 1541 
 
 the express object of it, having refer- 
 ence to the character, quality, or title 
 of the goods, and by which he promises 
 or undertakes to insure that certain 
 facts are or shall be as he then repre- 
 sents them. 
 
 A warranty is an engagement by 
 which a seller assures to a buyer the 
 existence of some fact affecting the 
 transaction, whether past, present, or 
 future. 
 
 In contracts. An undertaking or stip- 
 ulation, in writing, or verbally, that a 
 certain fact in relation to the subject 
 of a contract is or shall be as it is 
 stated or promised to be. 
 
 A warranty differs from a representa- 
 tion in that a warranty must always be 
 given contemporaneously with, and as 
 part of, the contract; whereas, a rep- 
 resentation precedes and induces to the 
 contract. And, while that is their dif- 
 ference in nature, their difference in 
 consequence or effect is this: That, up- 
 on breach of warranty (or false war- 
 ranty), the contract remains binding, 
 and damages only are recoverable for 
 the breach; whereas, upon a false rep- 
 resentation, the defrauded party may 
 elect to avoid the contract, and recover 
 the entire price paid. Brown. 
 
 WILL. A will is the legal expression 
 of a man's wishes as to the disposition 
 of his property after his death. 
 
 An instrument in writing, executed in 
 form of law, by which a person makes 
 a disposition of his property, to take 
 effect after his death. 
 
 WRIT OF ENTRY. A real action to 
 recover the possession of land where 
 the tenant (or owner) has been dis- 
 seised or otherwise wrongfully dispos- 
 sessed. 
 
 WRIT OF ERROR. A writ issued 
 from a court of appellate jurisdiction, 
 directed to the judge or judges of a 
 court of record, requiring them to re- 
 mit to the appellate court the record of 
 an action before them, in which a final 
 judgment has been entered, in order 
 that examination may be made of cer- 
 tain errors alleged to have been com- 
 mitted, and that the judgment may be 
 reversed, corrected, or affirmed, as the 
 case may require. 
 
 A writ of error is defined to be a 
 commission by which the judges of one 
 court are authorized to examine a rec- 
 ord upon which a judgment was given 
 in another court, and, on such examina- 
 tion, to affirm or reverse the same, ac- 
 cording to law. 
 
INDEX 
 
 [THE FIGURES REFEK TO PAGES] 
 
 ACCEPTANCE), 
 Of offer, 55-81. 
 
 Time of taking effect, 55-62. 
 
 Nature of acts or language essential to constitute, 62-81. 
 
 Silence alone not acceptance, 78-80. 
 
 Silence coupled with retention of goods, 80, 81. 
 
 Of goods, nature and conseauences of, 1190-1193. 
 Of bill of exchange, statutory definition of, 700. 
 
 See Negotiable Instruments, Bill of Exchange, etc. 
 
 ACCOMMODATION INDORSER, 885-898. 
 
 ACCOMMODATION PARTIES, 720, 885-898. 
 See Negotiable Instruments. 
 
 ACCORD AND SATISFACTION, 275, 276. 
 
 ACCOUNTANT, EXPERT, 
 Liability of, 581-583. 
 
 ACCOUNTING, 
 
 Partner's right to, 1278-1284. 
 
 ACCOUNT STATED, 276-278. 
 
 AGENCY, part II, 484-630. 
 In general, 484r^88. 
 Agent's power, source and scope of, 489-496. 
 
 Selling agent, power of, 491-496. 
 
 Incidental authority, 493. 
 
 Express authority, 492. 
 
 Implied authority, 494, 495, 499-501, 505, 506, 508, 509. 
 
 Power by necessity, 495. 
 
 Power by estoppel, 490-494, 496-498, 500-503, 510-518. 
 
 Third persons must ascertain agent's authority, 499, 500, 508, 518, 
 519. 
 
 Secret instructions to agent, 502, 518, 519. 
 
 Money, implied power to borrow, 503, 504. 
 
 Chattels, power to sell does not arise from mere possession, 504, 505. 
 
 Single prior purchase by agent without actual authority does not es- 
 tablish course of dealing so as to estop principal from repudiating 
 subsequent purchases,- 505. 
 
 Implied authority of real estate agent to sign contract of sale, 505, 
 506. • 
 
 Implied authority of salesman to warrant quality of goods, 506, 507. 
 
 Implied authority of agent authorized to sell and convey real estate, 
 to make usual warranty, 507. 
 
 Implied authority of salesman to receive payment, 508. 
 
 No implied authority of agent to deliver principal's goods in pay- 
 ment of agent's debt, 508. 
 
 No implied authority of agent, under special authority, to sell on 
 credit, in absence of special custom, 508. 
 
 General power, authority to use necessary means to end is Implied, 
 508, 509. 
 
 Implied authority of chauffeur to contract for repairs, 509, 510. 
 
 Implied authority to delegate exercise of power, 512-515. 
 
 Tliird party, suspicious circumstances creating disability of, to rely 
 upon power by estoppel, 515. 
 
 B.& B.Bus.Law (1543) 
 
1544 INDEX 
 
 [The figures refer to pages] 
 
 AGENCY— Contirraed, 
 
 Implied authority of general agent with special powers, 518, 519. 
 Ratification, 490, 491. 
 See Ratification. 
 Disclosed principal, rights and liabilities of, 520-529. 
 Signature of agent's name alone, effect of, 520-522. 
 Signature of agent's name with description as agent, 522-526. 
 Knowledge of agent as knowledge of principal, 526-529. 
 Undisclosed principal, rights and liabilities of, 529-537. 
 
 Election to hold undisclosed principal or agent, 530, 531. 
 Judgment against agent, when bar to action against undisclosed 
 
 principal, 530, 531. 
 Accounts, settlement of, between undisclosed principal and agent, as 
 
 affecting liability of principal to third party, 531, 532. 
 Sealed Instrument, rules of undisclosed principal not applicable to, 
 
 532. 
 Liability of undisclosed principal on contracts of agent in charge of 
 store as ostensible owner, 536, 537. 
 Termination of relation, 565-581. 
 What constitutes, 565-573. 
 
 Death of principal, 565, 571-573. 
 Destruction of subject-matter, 565. 
 Determination of principal's estate by sale, 565. 
 Circumstances putting third persons on inquiry as to termina- 
 tion, 567-571. 
 Notice to third parties, of termination, 565-571, 
 Irrevocable powers, 573-577. 
 Effect of termination, 577, 578. 
 Discharge, when justified, 579, 580, 583-586. 
 
 Incompetency, as justifying discharge, 579, 580. 
 Dishonesty as justifying discharge, 58.3-586. 
 Bight of principal to require obedience to orders likely to cause 
 agent to abandon employment, 580, 581. 
 Rights of principal against agent, 579-596. 
 
 Incompetency of agent as giving right to recover back from agent 
 
 his compensation and damages, 581-583. 
 Duty of agent to keep principal's money separate from his own, 
 
 588-590. 
 No right to use confidential information to principal's detriment, 
 
 586-588. 
 Right of principal to follow funds embezzled by agent, 590-594. 
 Liability of remitting bank for loss occurring by reason of negligence 
 or insolvency of agent bank, 59^1-596. 
 Rights of agent against principal, 597-610. 
 
 When broker's commission Is earned, 597, 598. 
 
 No right to use influence over principal for his own profit, 598. 
 
 Quantum meruit, agent's right to recover, 599. 
 
 Disability of discharged employe to recover for avoidable loss, 599- 
 
 601. 
 Constructive service, theory of, 60», 601. 
 Damages, measure of, for wrongful discharge, 599-601. 
 Right to reimbursement for expenditures for legal services, 602. 
 Rights of servant against master under workiaen's compensation 
 acts, 603-610. 
 Third persons, relations of, to agent, 611-630. 
 
 When agent may sue third person in agent's name, 611-614. 
 
 Suit by principal as extinguishing right of agent to sue, 611. 
 
 When agent-consignee may sue carrier, 612-614. 
 
 Right of agent to sue third person for malicious interference with 
 
 contract of employment, 614, 615. 
 Judgment in favor of agent against third person as bar to action by 
 
 principal, 614. 
 Eight of third person to sue agent on implied warranty of authority, 
 
 615, 616. 
 Rule that agent failing to bind principal is himself bound on con- 
 tract, 617. 
 
INDEX 1545 
 
 [The figures refer to pages] 
 
 AGENCY— Continued, 
 
 No warranty by agent that principal has legal capacity, 617-619. 
 Liability of agents of unincorporated society, to third persons, 019, 
 
 liability of agent to third persons, for torts, 620-626. 
 
 Agent not liable to third person for mere breach of agency contract, 
 
 624. 
 When agent is not liable for tort of sub-agents, 624-626. 
 Agent not liable in tort action for prediction that notes will be paid, 
 
 626-630. 
 Distinction between misfeasance and non-feasance of agent — Effect 
 upon liability, 622-623, 630. 
 See, also, Torts of Agent. 
 ALTERATION, 
 
 Discharge of negotiable Instrument by, 283, 038-940. 
 ANOMALOUS INDORSEE, 886, 887. 
 
 ARBITRATION AGREEMENTS, 
 Legality of, 330. 
 
 ARBITRATION AND AWARD, 278. 
 
 ASSIGNMENT, 259^-273. 
 
 Nature and requisites of, 259-265. 
 
 Interests capable of, 265-270. 
 
 Nature and extent of interest acquired by assignee, 270-273. 
 ATTACHMENT OF PROPERTY, 406-410. 
 AUCTION, 33. 
 AUTOMOBILE, 
 
 Validity and effect of statute making owner liable for injuries occasioned 
 by negligent operation of his automobile driven with his express or im- 
 plied consent, 555, 556. 
 
 BAILMENTS, 444-469. 
 
 Ordinary, 444r-451. 
 
 For carriage, 451-^66. 
 
 Pledge, 467-469. 
 BANK, 
 
 General relation of, to depositor, 864, 936. 
 
 Liability of, to depositor for dishonor. of check, 868, 869. 
 
 Effect of negligence of depositor in examining returned vouchers and fail- 
 ure to report forgery promptly, 870, 871. 
 
 No right in drawee bank to demand indorsement of payee of check, 746. 
 See Negotiable Instruments; Check; Certified Checks; Drawee. 
 
 BANKRUPTCY, 283-288, 421^42. 
 Discharge In, 283-288. 
 
 What debts may be discharged, 284-287. 
 
 What bankrupts cannot procure a discharge of debts, 287, 288. 
 Provable debts, 284-287. 
 As remedy, 421-442. 
 
 In general, 421, 422. 
 
 Voluntary and involuntary bankrupts, distinctions between, 422-424. 
 Who may be voluntary bankrupts, 422-424. 
 
 Circumstances under which persons subject to bankruptcy proceed- 
 ings may be adjudged bankrupt, 424-433. 
 Acts of bankruptcy, 425-433. 
 Enumerated, 425. 
 Fraudulent conveyances, 425-427. 
 Preferential transfers, 427, 428. 
 
 Preferences obtained through legal proceedings, 428-430. 
 Making general assignment or applying for receivership or trus- 
 teeship, or occurrence of receivership or trusteeship, 430. 
 Admission in writing of inability to pay debts and willingness 
 
 to be adjudged bankrupt, 431, 432. 
 Act of bankruptcy must bave been within four months, 432. 
 Time from which four months begins to run, 432, 433. 
 
1546 iNDBX 
 
 [The figures refer to pages] 
 
 BANKRUPTCY— Continued, 
 
 Administration of the estate, 433-435. 
 
 Title to bankrupt's property in trustee, 435-437. 
 
 Power of trustee to avoid transfer by bankrupt, 437. 
 
 Recovery of property and dissolution of liens, 437-439 
 
 Claims, payment of, 439, 440. 
 BEARER, 
 
 Of negotiable instrument, statutory definition of, 725. 
 
 BIDS, 
 
 Advertisements for, whether constituting offer, 31-33, 
 
 BILL OF EXCHANGE, 696, 700-709. 
 Statutory definition of, 696. 
 Acceptance, 700-709. 
 
 Requisites of, 700, 702-707. 
 
 Right of holder to require acceptance written on bill, 700. 
 
 Written on paper other than bill, 700, 702-707. 
 
 Promise to accept, as acceptance, 700. 
 
 Of bill incomplete, overdue, or dishonored, 700. 
 
 Subsequent acceptance as of date of first presentment, 700, 701. 
 
 Drawee may wait 24 hours to decide whether to accept, 701. 
 
 Destruction of bill, or refusal to return, by drawee, 701. 
 
 General and qualified, 701. 
 
 Effect of acceptance to pay at particular place, 701. 
 
 Conditional, 701. 
 
 Partial, 701. 
 
 Local, 701. 
 
 Qualified as to time, 701. 
 
 Of one or more drawees, but not of all. 701. 
 
 For honor, 697, 701, 871-873. 
 
 T^Hiether neglect or failure to return bill is, 707-709. 
 Bills in a set, 702, 873. 
 
 See Negotiable Instruments ; Presentment ; Notice of Dishonor ; 
 Protest. 
 
 BILL OF LADING, 
 
 Liability of carrier on false, 510-512. 
 
 BULK SALES ACTS, 1054-1062. 
 
 BUYER, 
 
 Implied authority of agent designated as, 501-503. 
 
 CANCELLATION, 
 
 Of negotiable instrument as discharge, 283, 937, 
 
 CAPACITY, 344-361. 
 In general, 344, 345. 
 Disafilrmance, 345-347. 
 Infancy, 344-361. 
 Ratification, 356-359. 
 Necessaries, contracts for, 359-301. 
 Necessaries, rule under Sales Act, 3G1. 
 Insane persons, 344, 345. 
 Intoxicated persons, 344. 
 Married women, 344. 
 Corporations, 344. 
 
 Incapacity as defense on negotiable Instrument against holder in due 
 course, 838, 839. 
 
 CARRIERS, 451-466. 
 In general, 451-466. 
 
 Right of consignee to sue carrier, 613, 614. 
 Estoppel of, to deny agent's authority to issue false bill of lading, 510-512. 
 
 CERTIFIED CHECKS, 
 
 Effect of certification, 701, 862-865. 
 
 CHAUFFEUR, 
 
 Implied authority to contract for repuirs, 509, 510. 
 
INDEX 1547 
 
 [The figures refer to pages] 
 
 CHECK, 
 
 Statutory definition of, 696. 
 
 Not an assignment of funds, 863. 
 
 Time of presentment of, in order to charge drawer, 915-920. 
 
 See Negotiable Instruments; Certified Clicks'; Drawee; Di-awer, 
 etc. 
 
 ^'C. I. F." CONTRACT, 
 
 Construed, 1022-1024. 
 CONDITIONAL SALES, 985-988. 
 CONDITIONS, 
 
 See Performance of Contracts. 
 
 CONSIDERATION, 93-139, 714-720. 
 In general, 93-95. 
 In unilateral contracts, 95-99. 
 Suffering detriment as; 95. 96. 
 Promise not to sue as, 99. 
 
 Intention to create legal relations as affecting operation of doctrine, 98. 
 Ceasing to complain as, 97, 98. 
 
 Performance of, or promise to perform, a pre-existing legal duty, 100-115. 
 Payment of lesser sum as consideration for release of greater liqui- 
 dated debt, 100-104. 
 Debtor's refraining from seeking discbarge in bankruptcy, 104. 
 Payment of agreed sum as consideration for release of unliquidated 
 
 indebtedness, 104, 105. 
 Performance of pre-existing official duty as consideration for con- 
 tract with private individual for reward, 105, 106. 
 Performance of pre-existing contract obligation as consideration for 
 promise of other party to contract to pay additional compen- 
 sation, 106-109. 
 Doctrine of "unforeseen and substantial difficulties" as affecting 
 general rule, 108, 109. 
 Duty to pay interest from maturity of note, as pre-existing legal du- 
 ty, 110, 111. 
 Promise to perform pre-existing duty to third party as, 111-115. 
 Promises In the nature of gratuities, 115-120. 
 Effect of performance of acts in reliance upon subscription of money, 
 
 115-120. 
 Illusory promises, 120-129. 
 
 Promise to supply what other party "wants to purchase," 120-123. 
 Promises to sell and to buy all of buyer's requirements of certain 
 
 commodity, 123-125. 
 Promise to sell all of seller's output, 125, 126. 
 
 Promise to do one of several acts as consideration for promise to do 
 one definite act, 127-129. 
 Promises to pay for benefit previously received, 129-137. 
 
 Was legal relation intended when benefit was conferred, 129-132. 
 Promise to pay debt on which remedy is barred, 132-136. 
 By bankruptcy, 132-134. 
 By statute of limitations, 134-136. 
 Promise of suretyship or guaranty of pre-existing debt, 136-137. 
 Sealed Instruments, no consideration necessary under common law, 1.38, 
 139. 
 Rule changed by statute In some states, 139. 
 Rules as to consideration in negotiable instruments, 714-720, 800-801. 
 
 CONTRACTS, Part I, 23-483. 
 Special types of, 443-483. 
 
 See Offer ; Acceptance ; Consideration ; Performance of Contracts ; 
 Statute of Fi-auds, etc. 
 
 CORPORATIONS, Part VI, 1377-1512. 
 Introduction, 1377-1379. 
 Organization, 1380-1398. 
 
 Effect of complete organization, 1380-1387. 
 
 When corporate entity may be disregarded, 1387-1391. 
 
 Effect of incomplete organization, 1391-1398. 
 
1548 INDEX 
 
 [Tie figures refer to pages] 
 
 CORPORATIONS— Continued, 
 
 Promoters, contracts of, 139&-140e. 
 
 Relation of promoter to corporation, 1399-1405. 
 
 Relation of subscriber to corporation, under, 1405, 1406. 
 Corporate powers, 1407-1413. 
 
 Scope of, 1407, 1408. 
 
 Contracts ultra vires, 1408-1413. 
 Stockholders, relation of, to corporation, 1414-1472, 
 
 Share of stock, nature of, 1414-1417. 
 
 Preferred stockholders, rights of, 1417-1419. 
 
 Corporate books, right to Inspect, 1419, 1420. 
 
 New issues of stock, right to participate in, 1421-1425. 
 
 Stockholders' meetings, 1425-1427. 
 
 Voting trusts, 1428-1433. 
 
 Minority, rights of, 1433-1437. 
 
 Actions upon corporate causes of action, right to maintain, 1437-1442. 
 
 Declared dividends and surplus, rights in, 1442-1452. 
 
 Life tenant and remainderman, apportionment between, 1452-1458. 
 
 Officers and directors, rights of corporation against, 1459-1464. 
 
 Transfers of stock, rights and liabilities, of parties as to, 1465-1472. 
 
 Uniform Stock Transfer Act, 1468-1472. 
 Creditors, relation of, to corporation, 1473-1499. 
 
 Rights of corporation creditors against purchaser of assets, 1473- 
 1480. 
 
 Priorities among classes of creditors, 1480-1481. 
 
 Current operating expenses to be paid out of current earnings in 
 preference to claims of secured creditors, 1481-1488. 
 
 Rights of unsecured creditors upon reorganization, 1488-1493. 
 
 Rights of creditors against stockholders, 1493-1499. 
 State, relation of corporation to, 1500-1512. 
 
 Power to alter charter, 1500, 1501. 
 
 Police powers of state, 1501-1503. 
 
 Taxing powers of state, 1504-1510. 
 
 Foreign corporations, 1510-1512. 
 
 CORRESPONDENCE, 
 
 Offer and acceptance by, 30, 31, 33-36, 40-42, 53-59. 
 
 DAMAGES, 
 
 Measure of, in contract, 389-398. 
 See Remedies. 
 
 DATE, 
 
 Of negotiable instrument, 713. 
 
 See, also. Negotiable Instruments ; Negotiation of Negotiable Instru- 
 ments. 
 
 DBIilVEORT, 
 
 See Negotiation of Negotiable Instruments; Sales. 
 
 DISCHARGE OF CONTRACTS, 274-288. 
 In general, 274. 
 Performance as, 274. 
 
 By merger into negotiable instrument, 278. 
 By arbitration and award, 278. 
 By novation, 279-282. 
 By accord and satisfaction, 275, 276. 
 By agreement, 274, 275. 
 By account stated, 276-278. 
 By merger, 278. 
 By release, 282, 283. 
 By cancellation, 283. 
 By alteration, 283. 
 By bankruptcy proceedings, 283-2S8. 
 Statutes of limitation, effect of, 288. 
 
 DISCHARGE OF NEGOTIABLE INSTRUMENTS, 932-95a 
 See Negotiable Instruments. 
 
INDEX 1549 
 
 [Tie figures refer to pages] 
 
 DISHONOR, 922, 923, 925, 926-928. 
 
 What constitutes dishonor by non-payment, 922. 
 Legal effect of dishonor by non-payment, 923. 
 What constitutes dishonor by non-acceptance, 925. 
 Legal effect of dishonor by non-acceptance, 925. 
 Notice of, 926-930. 
 
 When necessary, 926. 
 
 What constitutes, 926. 
 
 Time for giving, 926, 927. 
 
 Place for giving, 927. 
 
 By vchom it may be given, 927. 
 
 To whom it must be given, 927, 928. 
 
 In whose favor notice operates, 928. 
 
 Legal effect of failure to give, 928, 929. 
 
 Excuses for failure to give, 929, 930. 
 
 Excuse for delay in giving notice, 929. 
 
 Waiver of notice, 929. 
 
 Waiver of protest as waiver of notice, 929. 
 
 When notice not required, 929, 930. 
 
 Notice of dishonor by non-payment not necessary after notice of 
 dishonor by non-acceptance, 930. 
 
 DISSOLUTION OF PARTNERSHIP, 1318-1364. 
 Nature of, 1318. 
 Causes of, 1318-1324. 
 
 Causes not based on breach of partnership agreement, 1318. 
 By termination of agreed term, 1318. 
 
 By express will of any partner where there is not term, 1318. 
 By mutual agreement, 1318. 
 By expulsion of partner, 1318. 
 Breach of partnership agreement as cause, 1319. 
 Business becoming illegal, as cause, 1319. 
 By court decree, 1319-1323. 
 
 Effect of assignment of partner's interest, 1323, 1324. 
 Effect of, as among partners, 1325-1333. 
 
 Wherie not caused by act, bankruptcy or death of partner, 132.0. 
 Where caused by act, bankruptcy or death of partner, 1325-1327. 
 Liability of partners to copartners for wrongful dissolution, 1327. 
 Power of partners to wind Lip business, 1327-1331. 
 Rights of partners after dissolution with respect to disposition of 
 
 assets, 1331. 
 Relations of partners after dissolution upon election to continue 
 
 business, 1331, 1332. 
 Right of partner who has wrongfully caused dissolution, 1332, 133.''>. 
 Effect of,, upon relation of partners to third persons, 1334-1364. 
 
 As to partnership liabilities existing prior to dissolution, 1334-1340. 
 
 As to transactions after dissolution, 1340-1344. 
 
 Rights of creditors against individual or partnership continuing the 
 
 business, 1345-1349. 
 Priorities among claimants in settlement of partnership estate, 1349- 
 1364. 
 DIVISIBLE CONTRACTS, 193-200. 
 
 DRAWEE, 
 
 Right of, to recover money paid to holder under mistake, 840-854, 857, S-'iS. 
 Right of, as to instruments payable to order of fictitious payee, 854^862. 
 Relation of drawee bank to drawer, 862-871. 
 
 Is bank protected where it has paid check of deceased drawer, not know- 
 ing of his death, 865-868. 
 Surrender to, 744^746. 
 
 No right in drawee bank to demand indorsement of payee of check, 746. 
 See Negotiable Instruments, etc. 
 
 DRAWER, 
 
 Relation of drawee bank to, 862-871. 
 
 See Negotiable Instruments; Drawee; Bill of Exchange, etc. 
 
 DURESS, 307-310, 805-806. 
 
1550 INDEX 
 
 [The figures refer to pages] 
 
 EQUITY, 
 
 Mistake, equitable remedies for, 290-293, 294-299. 
 
 Fraud, equitable remedies for, 299, 300, 303-307. 
 
 Undue influence, equitable remedies for, 311-313. 
 
 Specific performance, 410-416. 
 
 Injunction, 416-419. 
 
 Enforcement of decrees by attachment for contempt, 419-4J1. 
 
 ESTOPPEL, 
 
 Of principal to deny agent's power, 500-503, 510-518. 
 
 Of owner to deny custodian's power to transfer title, 1042-1045. 
 
 EXECUTIONS, 403. 
 
 FICTITIOUS PERSON, 
 
 Paper payable to order of, bearer paper, 690, 691. 
 
 Right of drawee of instruments payable to order of, 854-862. 
 
 As drawee, effect as to requirement Of notice, 929, 930. 
 
 FORGERY, 
 
 As defense to negotiable instrument, 820, 821, 826-830. 
 
 FRAUD, 299-307. 
 
 In general, 299, 300. 
 
 Elements of, 3b0, 626-630. 
 
 Facts constituting, 301-303. 
 
 Voidability of contract induced by, 301. 
 
 Breach of contract not the same as, 303, 304. 
 
 Immaterial misrepresentations not, 304, 305. 
 
 Silence alone not, 306. 
 
 Concealment of facts as, 305-307. 
 
 Mere incorrect prediction or unfulfilled promise, not fraud, 626-630. 
 
 As defense against holder in due course, 801-805, 830-S35. 
 
 As to identity, as affecting title to negotiable instrument, 861, 862. 
 FUNGIBLE GOODS, 1000-1002. 
 
 GARNISHMENT, 403^06. 
 GOOD WILL OF PARTNERSHIP, 12C6-1274. 
 HOLDER OF NEGOTIABLE INSTRUMENT, 725-902. 
 Statutory definition of, 725. 
 Rights of all holders, 725-747. 
 
 Rights and disabilities of holder as against maker and acceptor, 798-873. 
 Rights of holder against indorser and drawer, 874-902. 
 Right to complete instrument, 725, 726. 
 
 Conditional upon acting within authority given and within reason- 
 able time, 726. 
 Right to sue prior parties, 726-731. 
 Holder in due course, who is, 748-797. 
 In general, 748. 
 
 Statutory definitions, 748, 755, 76a 
 Must be purchaser for value, '748. 
 Statutory definition of value, 748. 
 Pre-existing debt as value, 748-750. 
 Prima facie presumption that instrument has been issued for value. 
 
 748, 749, 754. 
 Holder in due course to extent of lien, 749, 754. 
 Holder Is holder for value in respect to all parties who became suchi 
 prior to giving of value, 749, 754. 
 Bona, fide purchaser for value, 750. 
 
 Holder in due course may enforce to full amount against all parties, 750. 
 Mere crediting to depositor's account, of check on other bank, does not 
 
 constitute bank a holder in due course, 751, 752. 
 What does constitute payment of value by bank to depositor of check on 
 
 other bank, 752-754. 
 Holder in due course must be purchaser before maturity, 754-761. 
 Maturity of instruments, 755. 
 
 Undated paper payable at fixed period after date, 755. 
 
 Effect of insertion of wrong date on paper issued without date, 755^ 
 
 Days of grace abolished, 15o. 
 
INDEX 1551 
 
 ' [The figures refer to pages] 
 
 HOLDER OF NEGOTIABLE INSTRUMENT— Coiitinued, 
 Instruments falling due on Saturday, 755. 
 Turchaser of demand paper an unreasonable tiuie after issue not a 
 
 holder in due course, 755. 
 Detei-mination of reasona.ble time, 755, 757. 
 Time of payment, method' of computing. 755. 
 Maturity of demand instruments, 756-7.59. 
 Reasonable time as affecting, 756, 7.5T. 
 Provision that failure to pay interest makes note due, effect upon 
 
 time of maturity, 759, 760. 
 Transaction between acceptor and holder of negotiable instrument 
 
 cannot advance maturity as against subsequent holder, 760. 
 Holder in due course is not prejudiced by omission of prior party to 
 
 give notice of dishonor by non-acceptance, 756. 
 Holder in due course must be purchaser in good faith, 761-777. 
 Instrument must be complete and regular on its face, 761, 764, 7G.o. 
 Omission of required revenue stamp as affecting completeness 
 
 and regularity, 764, 765. 
 Obvious alteration, 765. 
 More than mere suspicion required to prove bad faith, 765-767. 
 Circumstances indicating bad faith, 767-770. 771-775. 
 Circumstances not indicating bad faith, 775-777. 
 Purchaser of note prior to completion, 770, 771. 
 Payee may be holder in due course, 777-7S.3. 
 
 Transferee from holder in due course is holder in due course, 783-785. 
 Reacquirer,, rights of, 785-793. 
 
 Rights of transferee on unindorsed order iiaper. 79.3-797. 
 Maker and acceptor, rights of holder agaiust. 79S-.N7.S. 
 In general, 798, 799. 
 
 Defenses and claims not available against holders in due course, 
 800-826. 
 Absence of consideration, 800, 801. 
 Fraud, 801-805. 
 Duress, 805, 806. 
 
 Theft of completed instrument, S0R-S07. 
 Unauthorized completion of in.strument by custodian, 808. 
 Theft of incomplete instrument, accompanied by negligence in 
 
 care of instrument, 808-814. 
 Material alteration, as regards instrument in its original form, 
 
 814, 815. 
 Material change in completed instrument, effected otherwise than 
 
 by erasures made possible by negligent execution, 816-819. 
 Forgery accompanied by estoppel, 820. 821. 
 Discharge before maturity, 822, 823. 
 Claims of ownership, 824-826. 
 Defenses and claims of ownership available against holders in due 
 course, 826-840. 
 Forgery, 826-840. 
 Fraud, 830-835. 
 
 Theft of incomplete instrument, 835-837. 
 Voidness by statute, 837, 838. 
 Incapacity, 838, 839. 
 No title in instrument, 840. 
 Holder other than holder in due course, 799. 
 Rights of holder against indorsers and drawer, 874-902. 
 In general, 874. 
 
 Rights against unqualified indorser, 875-877. 
 
 Rights against qualified indorser and transferor by delivery, 877-885. 
 Rights against accommodation indorser, 8Nri-S99. 
 Rights against restrictive indorser, 898, 899. 
 Rights against drawer, 899-902. 
 
 See Negotiable Instruments, etc. 
 HONOR, 
 
 Acceptance for, 697, 701. 
 
 Payment for, 871-873. 
 
 Protest fo^ non-payment necessary after acceptance for honor, 930. 
 
1552 INDEX 
 
 [The figures reler to pages] 
 
 ILLEGALITY, 314-343. 
 In general, 314, 315. 
 Agreements in restraint of trade, 315-323. 
 
 Price-fixing agreements between competitors, 315-319. 
 Eule under Sherman Anti-Trust Law, 315-319. 
 
 Agreement between manufacturer and dealer for control of prices 
 and of use of commodity through "license contracts" and "license 
 notices," 319--323. 
 Agreements limiting the liability of bailees and other persons, 324-328. 
 Gambling agreements, 328, 329. 
 
 Agreement to use political influence, 330-332, 337-342. 
 Agreement to resign public office, 337-342. 
 Where one party intends illegal act and other party knows or suspects 
 
 the intention, 332, 333. 
 Usurious contract, 333, 334. 
 
 Interest necessary to make life insurance contract legal, 334, 335. 
 Same, fire Insurance, 336, 337. 
 Effect of illegality, 337-342. 
 Sunday contracts, 342, 343. 
 
 IMPOSSIBILITY OF PERFORMANCE, 
 See Performance of Contracts. 
 
 INDEPENDENT CONTRACTOR, 
 
 As distinguished from agent, 551-553. 
 
 INDORSEMENT, 709-713. 
 
 In general, 709. 
 
 Anomalous indorser, 709. 
 
 Signer not making clear in what capacity he signs, 709, 711. 
 
 Indorsement on allonge, 712, 713. 
 
 Indorsement must be on instrument, 712, 713, 746. 
 See Negotiation of Negotiable Instruments, etc, 
 INFANCY, 344-361. 
 INJUNCTION, 416-^19. 
 
 See Remedies. 
 
 insane persons, 344-345. 
 insolvent:. 
 
 Statutory definitions of, 431, 1105, 1106. 
 INSTALLMENT CONTRACTS, 
 
 See Divisible Contracts. 
 INSURANCE, 
 
 Insurable interest, 334-337. 
 In life insurance, 334-335., 
 In fire insurance, 336, 337i 
 JEST, 
 
 Transaction in, not a contract, 36. 
 JUDGMENTS, 401, 402. 
 JURY, 
 
 Instructions to, 14. 
 
 Verdict of, 14. 
 
 LEGALITY, 
 
 See Illegality. 
 LETTERS, 
 
 As constituting contract, 30, 31, 33-36, 40-42, 53-59. 
 LIMITED PARTNERSHIP, 1365-1376. 
 
 Uniform Limited Partnership Act, 1368-1376. 
 LIQUIDATED DAMAGES, 394-398. 
 MARRIAGE SETTLEMENT, 
 
 As contract for benefit of third party, 250. 
 
 As promise to perform pre-existing legal duty, 111-115 
 MARRIED WOMEN, 
 
 Contracts of, 344. 
 
INDEX 1553 
 
 [The figures refer to pages] 
 
 MISTAKE, 290-299. 
 
 In general, 290, 291. 
 
 Mutual mistake of a matter constituting the basis of a contract, 291-203. 
 
 Mutual mistake as to value of subject-matter, 293, 294. 
 
 Mutual mistake as to quantity of subject-matter, 294, 295, 
 
 Mistake of seller in computing selling price, 295, 296. 
 
 Reformation of deed or contract as remedy, 296, 297. 
 
 Rescission as remedy, 298, 299. 
 
 Mistake of fact and mistake of law, 298, 299. 
 
 Mistake of drawee paying negotiable instrument, 840-854. 
 MOTION PICTURE MANUFACTURER, 
 
 Right of, under contract, to sue for accounting by distributor and to ob- 
 tain return of films, 399-401. 
 
 Right to rescind contract with distributor, 400, 401. 
 
 NEGOTIABLE DOCUMENTS OF TITLE, 
 See Sales. 
 
 NEGOTIABLE INSTRUMENTS, 631-950. 
 In general, 631-637. 
 Formal requisites, 638-724. 
 
 Writing and signature, 639. 
 
 Promise or order, 639, 640. 
 
 Promise or order must be unconditional, 640-655, 
 
 Indication of particular fund for reimbursement, 640. 
 
 Indication of account to be debited, 640. 
 
 Statement of transaction giving rise to instrument, 640-650. 
 
 Order or promise to pay out of particular fund, 640. 
 
 Effect of conditional sale stipulations embodied in note, 649, 650. 
 
 Effect of stipulation for attorney's fees in event of foreclosure, 
 
 651, 652. 
 Effect of reference in note to conditions in mortgage, 652, 653. 
 Express conditions and conditions implied in law, 653-655. 
 Time of payment, requirement of certainty of, 656-671. 
 In general, 656-658. 
 Demand paper, what is, 656, 657. 
 Determinable future time, what is, 656, 657. 
 
 Contingency, instrument payable upon, not negotiable, 656, 657. 
 Installments, negotiability of paper payable in, 656. 
 Death as event certain to happen, 658, 659. 
 Dissolution of partnership as event certain to happen, 659. 
 Events not certain to happen, 659-661. 
 Agreement, in note, to all extensions, 661, 662. 
 Agreement that note shall mature at once, if maker fail to fur- 
 nish additional security to satisfy holders, G63, 664. 
 Acceleration clauses, 663-671. 
 Act to be done in addition to payment of money renders instrument 
 
 non-negotiable, 663, 683, 684. 
 Authorization of confession of judgment after maturity does not de- 
 stroy negotiability, 664. 
 Waiver of immunity under law does not render instrument nonnego- 
 
 tiable, 664. 
 Agreement to pledge more collateral, 664-667. 
 Money, requirement that instrument must be payable in, 671-684. 
 In general, 671-673. 
 "Current funds," etc., meaning and effect of making instrument 
 
 payable in, 671-674. 
 Commodity, instrument payable in, 673-674. 
 Gold coin of United States, instrument payable in, 675, 
 Foreign money, 675-683. 
 Certainty of sum to be paid, 684-688. 
 In general, 684, 685. 
 Sum writh interest, 685. 
 Sum to be paid in installments, 685. 
 
 Sum to be paid in installments with acceleration clause as to 
 whole amount, 685. 
 B.& B.Bus.Law— 98 
 
1554 INDEX 
 
 tTlie figures refer to pages] 
 
 NEGOTIABLE INSTRUMENTS— Continued, 
 
 Sum with attorney's fees, 685, 686. 
 
 Stipulation that rate of interest shall be higher if instrument is 
 
 not paid at maturity, 686-688. 
 Sum with exchange at fixed or current rate, 685. 
 Negotiability, requirement of words of, 688-692. 
 In general, 688, 690-692. 
 Words implying "or order," 689-690. 
 Order paper, classes of persons that may be payee, 690. 
 Bearer paj)er, what is, -690-692. 
 Certainty of payee in order paper, 691, 692. 
 Negotiability, provisions not affecting, 692-696. 
 In general, 692. 
 
 Provision for sale of collateral securities, 692, 693. 
 Provision giving holder election to require something in lieu 
 
 of payment ,of money, 693, 694. 
 Provision for waiver of immunity under law, 694. 
 Provision authorizing confession of judgment after maturity, 
 
 664, 694-696. 
 Failure to state place where drawn or place where payable, 
 
 696. 
 Seal, 696. 
 Parties, designation of, to negotiable instruments, 696-713. 
 Maker, 696. 
 Drawer, 696. 
 Drawee, 696, 699. 
 Obligors generally, 697. 
 
 Signing in trade or assumed name, 697. 
 
 "I promise to pay," signed by two or more persons. 697. 
 
 Signing by agent, 697-699. 
 
 Liability and immunity of agent signing for principal, 697- 
 
 699. 
 Signature by procuration, 697. 
 Payee, 699. 
 
 Cashier, etc., as payee, 699. 
 Acceptor, 700-709. 
 In general, 700. 
 Bills in sets, 702. 
 
 Bank, instrument payable at, an order on bant, 696. 
 Date of instrument, 718. 
 
 Ambiguous instruments, interpretation of, 714. 
 Consideration, 714-720. 
 
 Deemed prima facie to have been issued for valuable consideration, 
 
 714. 
 Absence or failure of, as defense, 715-717. 
 Burden of proof, 715-718. 
 Value and consideration, 718-720. 
 Accommodation party, 720. 
 Delivery, 720-724. 
 
 Statutory definition, 721. 
 Necessity of, 720. 
 Conditional, 720. 
 
 Effect of undelivered, incomplete instrument, completed and nego- 
 tiated without authority, 721. 
 Effect of, when accompanied by oral agreement as to rights of par- 
 ties, 722-724. 
 Discharge, 932-950. 
 
 Of maker and acceptor, 932-941. 
 By payment, 933-937. 
 By cancellation, 937. 
 / By material alteration, 938-940. 
 By renunciation, 940, 941. 
 
 By act which will discharge simple contract, 941, 947 948 
 By acquisition of title by principal debtor, 941, 
 Of regular indorsers, 941. 
 Of persons secondarily liable, 941. 
 
INDEX 1555 
 
 [Tte figures refer to pages] 
 
 NEGOTIABLE INSTRUMENTS— Continued, 
 Of persons primarily liable, 941. 
 Of surety, 942-950. 
 Of accommodation party, 942-945. 
 
 See Negotiation of Negotiable Instruments; Bill of Exchange; 
 Drawee; Drawer; Dishonor; Presentment, etc. 
 
 NEGOTIATION OF NEGOTIABLE INSTRUMENTS. 731-747. 
 What constitutes, 731-733. 
 
 Of order paper, only by indorsement, 727, 728, 731. 
 Of bearer paper, by delivery, 731. 
 Delivery, statutory definition of, 731. 
 Issue, statutory definition of, 731. 
 Indorsement, statutory definition of, 731. 
 Indorsement, kinds of, 731. 
 "Assignment" as indorsement, 712, 731-733. 
 Indorsement, special, 733-734. 
 Indorsement in blank, 734-736. 
 Right of holder to convert blank indorsement into special indorsement, 
 
 735. 
 Bearer paper, if only or last indorsement is In blank, 735, 737. 
 Right of holder to strike out indorsements, 736. 
 Effect of special Indorsement on bearer paper, 736. 
 Guaranty as Indorsement, 709-712. 
 Restrictive Indorsement, 737-741. 
 Qualified indorsement, 741, 742. 
 Conditional indorsement, 742. 
 
 Transfer of order paper without indorsement, 743, 744. 
 Surrender of paper to drawee, 744. 
 
 Drawee bank cannot require indorsement of holder, 744-746. 
 Indorsement of part of Instrument not a negotiation, 746. 
 Instrument paid in part may be indorsed as to residue, 746, 747. 
 Indorsement of all payees or Indorsees of paper required where they are 
 
 not partners, 747. 
 Indorsement of paper payable to cashier, manner of, 747. 
 Indorsement of payee or Indorsee whose name Is misspelled, 747. 
 Indorsement in representative capacity may negative personal liability, 
 
 747. 
 Presumption that negotiation was before instrument was overdue, 747. 
 Presumption that indorsement was made at place where instrument is 
 
 dated, 747. 
 Instrument negotiable until restrlctively indorsed or discharged, 747. 
 Effect of indorsement or assignment by Infant or corporation without 
 
 capacity, 747. 
 Effect of negotiation back to prior party, 747. 
 
 NEWSPAPER, 
 
 Contract to use political influence of, 330-332. 
 
 NOTE, NEGOTIABLE PROMISSORY, 
 Statutory definition of, 696. 
 
 See Negotiable Instruments; Presentment; Notice of Dishonor; Ne- 
 gotiation of Negotiable Instruments, etc. 
 NOTICE OF DISHONOR. 
 See Dishonor. 
 
 NOVATION, 279-282. 
 
 OFFER, 28-55. 
 
 What constitutes, 28-37. 
 
 As operative fact, 28, 29. 
 
 Duration of, 37-55. 
 
 Termination of, by some event, 38-44. 
 
 By lapse of time, 38-42. 
 
 By death or insanity, 43, 44. 
 Revocation by offeror, 44-52. 
 
 Words or conduct amounting to, 50. 
 
 Necessity of communication to offeree, 50. 
 Rejection by offeree, 52-55. 
 
1556 INDEX 
 
 tThe figures refer to pages] 
 
 OFFER AND ACCEPTANCE, 
 Facts, legal effect of, 23-28. 
 By correspondence, 30, 31, 33-36, 40-42, 53-59. 
 Implied in fact or in law, 81-92. 
 
 OPTION CONTRACTS, 48-50. 
 
 PAROL EVIDENCE, 
 
 Not admissible to vary terms of written contract, 532. 
 
 PARTNERS, 
 
 Relations of, between themselves, 1241-1297. 
 
 Partnership property, specific, partner's interest in, 1241-1259. 
 Tenancy in partnership, under Uniform Partnership Act, 1241-1246. 
 > Partnership property, what constitutes, 1259-1261. 
 Partnership capital, what constitutes, 1261-1264. 
 Partnership realty, acquisition and transfer of, 1264-1266. 
 Partnership name and good will, 1266-1274. 
 Partner's interest in partnership, 1274, 1275. 
 Sharing of profits and losses, 1275-1277. 
 Contributions, partner's right to repayment of, 1277, 1278. 
 Indemnity, partner's right to, 1278. 
 Accounting, partner's right to, 1278-1284. 
 Fiduciary relation of partners, 1284-1292. 
 
 As affecting leases taken by one partner, 1284-1287. 
 
 As affecting profits made by one partner, 1287-1291. 
 
 As affecting profits fraudulently made by one partner at expense 
 
 of other partners, 1291, 1292. 
 Right to follow funds wrongfully appropriated by copartner, 590- 
 
 594. 
 Does not make partner liable for honest errors in judgment, 1292. 
 Management, partner's right to participate in, 1292-1295. 
 General rule, equal rights to participate, 1292. 
 General rule, majority governs, 1292-1294. 
 Same, exception, 1295. 
 
 General rule, no partner admitted without consent of all part- 
 ners, 1293. 
 Books of partnership, partner's right to inspect, 1295. 
 Information as to all things affecting the partnership, right of 
 partner to demand, 1295. 
 Remuneration for services, partner's right to, 1296, 1297. 
 Third persons, relations of partners to, 1298-1317. 
 Partner's power, scope of, in general, 1298-1301. 
 Particular powers, 1302, 1303. 
 
 To make assignment for creditors, 1302. 
 To dispose of good will, 1302. 
 
 To do act making it impossible to carry on business, 1302. 
 To confess judgment, 1302. 
 To submit claim to arbitration, 1302. 
 
 To do act in contravention of restriction on authority, 1302. 
 To sell partnership realty, 1303. 
 Powers arising by estoppel, 1303-1305. 
 Liability of partners, when joint, and when joint and several, 1305- 
 
 1311. 
 Right of individual partner's creditor against partnership nronertv 
 1312-1317. ^ i- f J. 
 
 Causes of dissolution, 1318-1324. 
 Effect of dissolution as among partners, 1327-1333. 
 Notice to one partner as notice to other partners, 1302. 
 See Partnership ; Dissolution of Partnership, etc. 
 
 PARTNERSHIP, Part V, 1215-1376. , 
 Introduction, 1215-1217. 
 What constitutes, 1218-1240. 
 
 The relation the result of intention, 1218-1228. 
 
 Estoppel to deny partnership, 1228-1230. 
 
 As to third persons, by operation of law, 1230-1234. > 
 
 Distinguished from business trusts, 1235-1240. 
 
INDEX 1557 
 
 [The figures refer to pages] 
 
 PARTNERSHIP— Continued, 
 
 Causes of dissolution, 1318-1324. 
 
 See Partners; Dissolution of Partnership; Limited Partnership, etc, 
 PAYMENT, 
 
 Of negotiable instrument, what constitutes, 933-937. 
 
 Of debt, when negotiable instrument constitutes, 937, 1099. 
 PENALTIES, 
 
 As distinguished from liquidated damages, 394-398. 
 
 PERFORMANCE OF CONTRACTS, 140-244. 
 In general, 140, 141. 
 Interpretation as affecting, 141-154. 
 Name of commodity, 144-147. 
 Specifications, reference in, 148, 149. 
 Term specifying amount, 149. 
 
 Contract made by correspondence — Interpretation dependent upon In- 
 terpretation of letters taken together, 149-151. 
 Interpretation of constitution as compared with interpretation of con- 
 tracts, 151-154. 
 Conditions in contracts, 154-244. 
 In general, 154-159. 
 Defined, 156. 
 
 Performance on time as a condition, 159-164. 
 
 Performance to the satisfaction of another as a condition, 164-166. 
 
 Procuring certificate of architect as a condition, 166-170. 
 
 Substantial performance In other types of contracts as conditions, 
 
 170-188. 
 
 Where strict performance is prevented by act of God, 170, 171. 
 
 Where performance of defendant is prevented by plaintiff's own 
 
 wrong, 171, 172. 
 Where building on land contracted to be sold is destroyed, 172, 
 
 173. 
 Effect of refusal of vendor's wife to release dower in conveyance 
 
 of realty, 173-176. 
 Constructive eviction as a condition subsequent, 170, 177. 
 Singer's presence as condition precedent, 177-179. 
 •Furnishing salesman as condition precedent in sales contract, 
 
 179-183. 
 Immaterial breach not a condition subsequent, 183. 
 Warranty in the nature of a condition precedent, 184. 
 Truth of mere representation as condition, 184, 185. 
 Mutually dependent conditions, 185-188. 
 Breach of independent condition, 187, 188, 
 Tender of performance as condition, 188-193. 
 Divisible contracts, 193-200. 
 
 Rule under Uniform Sales Act, 198, 199. 
 Conditions subsequent, 200^202. 
 
 Prevention as an excuse for non-performance, 202-204. 
 Waiver as an excuse for non-performance, 205-211. 
 Anticipatory breach of contract, 212-218. 
 
 Right of party materially in default to recover for his inconlplete per- 
 formance, 218-227. 
 Impossibility of performance as a condition, 227-244. 
 In general, 227-229. 
 Impossibility of raising crop on seller's land where contract does not 
 
 limit subject-matter to crop so raised, 229, 230. 
 Classes of events operating as conditions subsequent to excuse non- 
 performance, 231, 232. 
 Impossibility occasioned by exercise of war powers of Congress, 2.33- 
 
 235. 
 Impossibility that might have been provided against by proper stip- 
 ulations in contract, 235-237. 
 Impossibility of construction of engineering project, occasioned by 
 
 unanticipated condition of underlying soil, 237-242. 
 Impossibility of construction of building, occasioned by destruction 
 after partial completion, 242-244. 
 
1558 INDEX 
 
 iThe figures refer to pages] 
 PLEDGES, 467-469. 
 POTENTIAL EXISTENCE, 
 Doctrine of, 1002, 1003. 
 
 PRESENTMENT, 903-925. 
 
 Time of, for payment of demand notes, 903, 904. 
 
 Time of, for payment of demand bills of exchange, In order to charge 
 
 drawer and indorsers, except drawers of checks, 904-915. 
 Time of, of check, to charge drawer, 915-920. 
 
 Time of, of instrument bearing fixed date of maturity, 920, 921. 
 When not necessary, 921. 
 What constitutes, 922. 
 Place of, 922. 
 By whom, 922. 
 To whom, 922. 
 
 Prerequisite to dishonor, 922. 
 
 Legal effect of failure to make due presentment for payment, 923. 
 Excuses for failure to present for payment, 923. 
 For acceptance, 923-925. 
 
 When presentment for acceptance is necessary, 923. 
 What constitutes presentment for acceptance, 923, 924. 
 Legal effect of failure to present for acceptance, 924, 925. 
 Excuses for non-presentment for acceptance, 925, 
 
 PREVENTION OF PERFORMANCE, 
 EfiCect of, 202-204. 
 
 PROFITS AND LOSSES, 
 
 Sharing of, in partnership, 1275-1277. / 
 
 PROMISSORY NOTES. See Note, Negotiable Promissory; Negotiable In- 
 struments; Presentment; Notice of Dishonor, etc. 
 PROTEST, 
 
 When permitted, 930. 
 
 When necessary, 930. 
 
 What constitutes, 931. 
 
 Time for making, 931. 
 
 Place for making, 931. 
 
 By whom protest must be made, 931. 
 
 E^r better security, 930. 
 
 Legal effect of failure to protest, 931. 
 
 Excuses for failure to protest, 931. 
 
 Waiver of, as waiver of notice, 929. 
 
 QUASI CONTRACT, 81-92. 
 
 Distinction between contracts implied in fact and contracts implied Jj 
 
 . law, 89-92. 
 
 Right of drawee to recover money paid holder under mistake, 840-854. 
 
 RATIFICATION, 
 
 Of contract as making principal liable for negligent tort connected wifii 
 
 contract, 537, 538. 
 Of contract as adopting disability resulting from fraud of agent, 538-540 
 Of sale as carrying with it power to receive payment, 540 
 Of forgery, 541-543. 
 Of contract, by stranger, not possible, unless stranger is named by un. 
 
 authorized agent as principal, 543-545. 
 Of fire insurance policy by insured, not possible after loss, 545-547. 
 REALITY OP CONSENT, 289-313. 
 
 See Mistake, Fraud, Duress, Undue Influence. 
 RECEIVERSHIP, 440-442. 
 RELEASE, 
 
 Discharge of contract by, 282, 283. 
 REMEDIES, 388-442. 
 In general, 388, 389. 
 
 Damages, measure of, 389-398, 1125-1127, 1205-1211 
 In general, 389-394. 
 Liquidated damages and penalties, 394-398. 
 
INDEX 1559 
 
 [Tbe flRures refer to pageai 
 
 REMEDIES— Continued, 
 In sales, 
 
 In action by buyer for breach of contract to sell, 1125-1127. 
 In action by seller for breach of contract to purchase, 1207-1211. 
 In action by buyer for breach of warranty, 1205-1207. 
 Rescission, 398-401, 1197-1203. 
 Judgments, 401, 402. 
 Executions, 408. 
 Garnishment, 403-406. 
 Attachment of property, 406-410. 
 Specific performance, 410-416. 
 In general, 410-412. 
 
 Inadequacy of legal remedy as affecting right to, 412-414. 
 Of contract to sell land, 412-413. 
 Of contract to purchase stock, 413, 414. 
 
 Of contract of which the performance would require much court su- 
 pervision, 414-416. 
 Of contract to sell goods, 1212-1214. 
 Injunction, 416-419. 
 
 In general, 416, 417. 
 
 Enjoining employ^ of unique value from working for competitor in 
 violation of contract of employment, 417-419. 
 Attachment for contempt, 419-421. 
 Bankruptcy, 421-422. 
 See Bankruptcy. 
 Receiverships, 440-442. 
 Of buyer of goods, 1183-1214. 
 Of seller of goods, 1093-1127. 
 
 RESCISSION OF CONTRACTS, 398-401. 
 
 RESTRAINT OF TRADE, AGREEMENTS IN, 
 See Illegality. 
 
 REWARD, 
 
 Duration of public offer of, 38-41. 
 
 SALES, Part IV, 951-1214. 
 Introduction, 951, 952. 
 Contract to sell, statutory definition, 975. 
 Sale, statutory definition, 975. 
 When title passes, 953-1035. 
 Ascertained goods, 953-988. 
 
 General statutory rule, 960. 
 
 Conduct, usages and circumstances as showing Intention of par- 
 ties, 957. 
 Title passes when parties intend, 954-959. 
 Presumptively title passes when contract is made, 959-976. 
 Postponement of time of payment or delivery immaterial, 959. 
 Where something remains to be done to the goods by the seller, 
 
 966, 967. 
 Where only weighing or measuring must be done to ascertain 
 
 price, 967. 
 Where sale is on credit, 968-971. 
 Presumption of immediate passage of title overcome by proof 
 
 that parties intended cash sale, 971-976. 
 Contracts on sale or return and contracts to sell on approval, 
 
 distinction as to passage of title, 976-984. 
 Conditional sales, 985-988. 
 Unascertained goods, 989-1035. 
 In general, 989-991. 
 
 Unconditional appropriation, acts of, 991-997, 1018. 
 Unconditional apprppriation, acts of, with respect to only a por- 
 tion of the goods, 997-1000. 
 Fungible goods, acts of unconditional appropriation not neces- 
 sary, 1000-1002. 
 Sale of undivided share, 1000. 
 Goods not in existence at date of contra\;t, 1002-1006. 
 
1560 INDEX 
 
 [The figures refer to pages] 
 
 SALE S— Continued, 
 
 Passing of title on delivery to carrier or other bailee, 614, 1006- 
 
 1027. 
 "Collect on delivery," effect of, upon passage of title on delivery 
 
 to carrier, 1010, 1011. 
 When title passes, if contract requires seller to deliver to buyer 
 
 or at particular place, 1015, 1016. 
 Same, vs^hen freight is to be deducted from price, 1022. 
 Under "c. i. f." contract, 1022-1024. 
 
 Form of bill of lading, effect of, upon passing of title, 1028-1035. 
 Effect of retention of right of disposal by seller, 1028-1033. 
 Straight bills and order bills of lading, 1029. 
 Advantages of retaining the right of disposal, 1033-1035. 
 Powers of non-owners to transfer title to innocent purchasers, 1036-1062. 
 In general, 1036-1042. 
 
 Does not arise from mere possession, 504, 505. 
 Estoppel of owner to deny custodian's power to transfer title, 1042- 
 
 1045. 
 Voidable title, sale by one having, 1046-1049. 
 Seller in possession of goods already sold, sale by, 1050-1053. 
 Eight of creditors against goods sold in seller's possession, 1054. 
 Eight of creditors against goods sold in violation of bulk sales acts, 
 1054-1062. 
 Negotiable documents of title, 1063-1092. 
 Introduction, 1063, 1064. 
 Statutory definition, 1064. 
 
 Words signifying negotiability or non-negotiability, 1065. 
 Negotiation, 1066-3068. 
 Rights of indorsee, 1068-1086. 
 Eights of indorsee against indorsers, 1086-1089. 
 Eights of creditors against goods represented by, 1090. 
 Eights of transferees of non-negotiable documents of title, 1090-1092. 
 Eemedies of unpaid seller, 1093-1127. 
 Introduction, 1093. 
 Action for purchase price, 1093-1098. 
 
 Where title has already passed to buyer, 1093, 1094. 
 Where title has not passed but buyer has agreed to pay price on 
 day certain, 1094-1098. 
 Eight of rescission, 1123-1125. 
 Seller's rights against goods in general, 1098-1125. 
 Introduction, 1098-1090. 
 Who are unpaid sellers, 1099-1102. 
 Under what circumstances may unpaid seller exercise rights 
 
 against goods, 1102-1108. 
 Unpaid seller's lien, 1099-1108, 1110, 1118-1120. 
 Eight tp resell, 1102, 1120-1123. 
 Loss of seller's lien by delivery to carrier or other bailee without 
 
 reserving property or right to possession, 1104. 
 Loss of seller's lien by buyer's lawfully getting possession, 1104. 
 Loss of seller's lien by waiver, 1104. 
 
 Judgment for seller for price of goods does not destroy lien 1105 
 Stoppage in transitu, right of, 1105-1108, 1110-1118. 
 See Stoppage in Transitu, Right of. 
 Eight to damages for breach of contract, 1125-1127. 
 Measure of damages, 1109, 1110. 
 Warranties, 1128-1182. 
 
 See Warranties. 
 Buyer, rights and remedies of, 1183-1214. 
 Introduction, 1183. 
 
 Eight of buyer to examine goods, 1183-1190. 
 Acceptance, nature and consequences of, 1190-1193. 
 Return goods not accepted because of noncompliance with contract 
 buyer under no duty to, 1193-1195. ' 
 
 Breach of warranty, buyer's remedies for, 1195-1207 
 Jn general, 1195, 1,196. 
 Right to refuse to accept goods, 1196, 1197. 
 
INDEX 1561 
 
 [The figures refer to pages] 
 
 SALES— Continued, ' 
 
 Right of rescission, 1197-1203. 
 
 Recoupment, setting up breach of warranty as, 1203, 1204. 
 
 Action for breach of warranty, 1204-1207. 
 
 Measure of damages for breach of warranty, 1205-1207. 
 
 Warranty, existence and nature of. 
 See Warranties. 
 
 Right to recover damages for breach of contract to sell, 1207- 
 1211. 
 
 Measure of damages for breach of contract to sell, 1207-1211. 
 
 Eight to sue seller for conversion, 1211-1212. 
 
 Eight to specific performance, 1212-1214. 
 
 SEALED INSTRUMENTS, 137-139. 
 
 SPECIFIC PEEFOEMANCE OF CONTRACTS, 410-416. 
 See Remedies. 
 
 STATUTE OF FRAUDS, 362-3S7. 
 In general, 362-363. 
 Contracts of guaranty, 363-367. 
 Contracts of executor and administrator, 367, 368. 
 Consideration of marriage, 368. 
 Sales of land, 369-373. 
 Not to be performed in one year, 374-376. 
 
 Promise to be performed at an uncertain time, 374-375. 
 
 Difference between excuse by death and performance by death, 374- 
 375. 
 
 For a year's service to begin in future, 375, 376. 
 
 When year begins and ends, 375, 376. 
 Sales of goods, 376-379. 
 
 Under Uniform Sales Act, 376, 377. 
 
 One contract of sale for several articles, each under the value named 
 in the statute, or several separate contracts, each without the 
 statute, 378, 379. 
 
 Part payment, 382, 383. 
 
 Acceptance of goods as taking case out of statute, 376, 379-381. 
 . Compliance with the statute, 380-387. , 
 
 Essentials of memorandum, 383, 384. 
 
 The signature required, 383, 384. 
 
 Several letters or documents as memorandum, 386. 
 
 Oral ratification of written agreement, 386. 
 
 Povi^er to validate an oral contract, 384-387. 
 Non-compliance, effect of, 384-387. 
 As prescribing a rule of evidence, 384, 385. 
 Effect of full performance by one party, 372, 373. 
 Part performance, 373. 
 
 Rescission of written contract by parol agreement, 386. 
 Contracts not within, 
 
 Promise for beneficial consideration to pay another's debt, 364, 367. 
 
 Promise to pay debt of another in consideration of forbearance to 
 sue debtor, 365, 366. 
 
 Engagement to marry. 368. 
 
 Sale of house, to be severed, 370-372. 
 
 Sale of growing crops, 372. 
 
 Contract to be performed at an uncertain time, 374, 375. 
 
 Contract not to compete for five years, 374, 375. 
 
 To make a chattel to special order, 377, 378. 
 
 STATUTE OP LIMITATIONS, 
 
 Running of statute not a discharge, 288. 
 
 STOPPAGE IN TRANSITU, RIGHT OF, 1105-1108, 1110-1118. 
 In general, 1105, 1110, 1111. 
 Insolvent, statutory definitions, 1105, 1106. 
 "In transit," statutory definition, 1106, 1107. 
 Duration of "transit," 1111, 1112. 
 
 Effect of indorsement of bill of lading by consignee after carrier's receipt 
 of stoppage order, 1111, 1112. 
 
1562 INDEX 
 
 [The figures reler to pages] 
 
 STOPPAGE IN TEANSITU, RIGHT OF— Continued, 
 
 Delivery by carrier to vendee, what constitutes, 1113, 1114. 
 Subsequent transit, no right of stoppage in, 1114-1116. 
 Sale or disposition of goods by buyer, general rule, 1116. 
 Effect of Issuance of negotiable document of title to bona fide purchaser 
 for value, 1116-1118. 
 
 SUBBTYSHIP, 469-483. 
 
 In general, 469-483. 
 
 Discharge of surety on negotiable instrument, 942-950. 
 SURPLUS, 
 
 Bights of stockholder in, 1443-1452. 
 
 THIRD PEESONS, BIGHTS OF, IN CONTRACTS, 245-273. 
 In general, 245. 
 
 Contracts for the benefit of a donee of the promisee, 245-251. 
 Contracts for the benefit of a creditor of the promisee, 251-258. 
 Mortgagee beneficiary, 252-258. 
 Assignment, nature and requisites of, 259-265. 
 Assignment, interests capable of, 265-270. 
 Assignee, nature and extent of interest acquired by, 270-273. 
 
 TOBTS OF AGENT, 
 
 Master's liability for torts of servant, 547-564. 
 
 Master does not incur disability by reason of alteration by agent or serv- 
 ant outside the scope of authority, 547-551. 
 Theory underlying master's liability for, 548-551. 
 Doctrine of distinction between agent and servant, 548. 
 Tort committed by servant in charge of street car, 551-553. 
 Master not liable for tort committed by servant while on independent 
 
 venture of his own, 553-555. 
 Owner of automobile, Michigan statute as to liability of, 556. 
 Master's liability for assault and battery by servant authorized to re- 
 cover possession of master's goods, 556, 557. 
 Master's liability for wrongful arrest by servant, 557-560. 
 Bank not liable for cashier's wrongful appropriation of special de- 
 posit, out of course of business, 560-562. 
 Fraud of agent as creating disability in principal to enforce contract, 
 
 562, 563. 
 Fraud of agent as basis of tort action against principal, 563, 564. 
 Tort of agent as basis of tort action against agent, 620, 621. 
 TRADE ACCEPTANCES, 1034, 1035. 
 TT^TTST* 
 
 Declaration of, 262-265. 
 
 As business organization, 1235-1240.. j 
 
 ULTRA VIRES, 
 
 Contracts, 1408-1413. 
 UNDUE INFLUENCE, 311-313. 
 USURIOUS CONTRACTS, 333, 334. 
 
 VALUE, 
 
 In negotiable instruments, 718-720. 
 VERDICT, 14. 
 VOTING TEUSTS, 1428-1433. 
 
 VFABRANTIES, 1128-1182. 
 In general, 1128-1130. 
 Express, 1130-1143. 
 
 Statutory definition, 1130. 
 
 What language amounts to, 1130-1135. 
 
 "Seller's talk," 1134, 1135. 
 
 What is covered by general warranty, 1135-1137. 
 
 Promised condition as warranty, 1137-1143. 
 Implied warranties, 1143-1177. 
 
 In general, 114.3. 
 
 Of title, 1143-1146. 
 
INDEX lf)6tj 
 
 [The figures refer to pages] 
 
 WARRANTIES— Continued, 
 
 That goods shall correspond to description, 1146-1152. 
 
 As to "fireproof" safe, 1148-1151. 
 
 What is sale by description, 1151, 1152. 
 That goods correspond to sample, 1153-1157. 
 That goods are merchantable, 1147, 1148, 1158-1161. 
 That goods are fit for particular purpose, 1161-1171. 
 May arise from usage of trade, 1171, 1172. 
 May be negatived by agreement, 1173-1177. 
 Rights of subvendees against former warrantors, 1171-1182 
 
 WORKMEN'S COMPENSATION ACTS, 
 Servant's rights under, 603-610. 
 Constitutionality of, 151-154, 610. 
 
 WRITING, CONTRACTS REQUIRED TO BE IN, 362-387. 
 See Statute of Frauds. 
 
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